WINSTON HOTELS, INC.
2626 Glenwood Avenue o Suite 200 [WINSTON HOTELS, INC. LOGO]
RALEIGH, NORTH CAROLINA 27608
www.winstonhotels.com
NYSE: WXH
FOR FURTHER INFORMATION:
AT WINSTON HOTELS:
Patti L. Bell Contact: Jerry Daly or Carol McCune (Media)
Director of Investor Relations (703) 435-6293
& Administration (jerry@dalygray.com,carol@dalygray.com)
(919) 510-8003
pbell@winstonhotels.com
For Immediate Release
WINSTON HOTELS REPORTS FOURTH QUARTER, FULL-YEAR 2003 RESULTS
RALEIGH, N.C., February 12, 2004--Winston Hotels, Inc. (NYSE: WXH), a
real estate investment trust (REIT) and owner of premium limited-service,
upscale extended-stay and full-service hotels, today announced results for the
three and twelve months ended December 31, 2003.
Net income (loss) applicable to common shareholders was $(0.1) million
for the three months ended December 31, 2003, or $(0.00) per share, compared to
$1.7 million for the three months ended December 31, 2002, or $0.08 per share.
Adjusted funds from operations (AFFO) available to common shareholders decreased
20.8 percent to $3.8 million for the fourth quarter of 2003, compared to $4.8
million for the 2002 fourth quarter. AFFO available to common shareholders per
share totaled $0.14 for the 2003 fourth quarter on 27.4 million fully diluted
weighted average shares outstanding, compared to AFFO available to common
shareholders per share of $0.22 on 21.3 million fully diluted weighted average
shares outstanding for the 2002 fourth quarter. Results were in line with the
company's previously announced revised guidance.
Net income (loss) applicable to common shareholders was $0.8 million
for the year ended December 31, 2003, or $0.03 per share, compared to $(6.0)
million for the year ended December 31, 2002, or $(0.31) per share. AFFO
available to common shareholders decreased 10.8 percent to $21.4 million for the
year ended December 31, 2003, compared to $24.0 million for the year ended
December 31, 2002. AFFO available to common shareholders per share totaled $0.93
for 2003 on 23.1 million fully diluted weighted average shares outstanding,
compared to AFFO available to common shareholders per share of $1.17 on 20.6
million fully diluted weighted average shares outstanding for 2002. Results were
in line with the company's previously announced revised guidance.
"Hopefully 2003 was the bottom of the most recent cycle for the hotel
industry, which appears to be poised for recovery after a protracted three-year
period of declining business travel demand," said Bob Winston, chief executive
officer. "We continued to execute our three-pronged growth strategy focused on
selected acquisitions, subordinated debt financing and improved operating
performance at our hotels."
ACQUISITIONS/DEVELOPMENT
- In late 2002, we formed a real estate investment joint venture with
Charlesbank Capital Partners, LLC, which intends to acquire hotel
assets primarily in need of repositioning. We own 15% of the
Charlesbank joint venture. In 2003, the joint venture, in conjunction
with Concord Hospitality Enterprises, acquired its third hotel, the
190-room Best Western Park Place Suites. The property currently is
being converted by Concord to a Springhill Suites by Marriott and
should be on-line with Marriott by June of this year. We anticipate the
fully renovated cost of the project to be approximately $15 million,
which would bring the total all-in cost of the three hotels held by the
Charlesbank joint venture to approximately $30 million. We currently
are reviewing several opportunities for the joint venture.
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- In addition to the Charlesbank joint venture acquisition strategy, we
have a pipeline of hotels that we are considering that may fit our
selected acquisition criteria.
- We began construction on a 147-room Courtyard by Marriott in Chapel
Hill, N.C. through a joint venture in which the company owns about 49
percent. The property is expected to open in the summer of 2004.
DEBT INVESTMENT FINANCING PROGRAM
- We formed Winston Finance, a new debt finance subsidiary focused on
originating and acquiring subordinated hotel debt. We target
subordinated hotel loans between 60 percent and 85 percent of a
project's value, hotels with 100 to 425 rooms and single asset loan
amounts that range from $1 million to $15 million. We also intend to
underwrite and acquire the junior mezzanine portion of loans that are
originated in the marketplace under Collateralized Mortgage-Backed
Securities (CMBS) programs. We have an active pipeline of debt
opportunities; however, these are complex transactions that require
significant due diligence and negotiations to complete.
INTERNAL GROWTH
- We consolidated 40 of the company's current 49 hotels under an
independent management company, Raleigh-based Alliance Hospitality,
which we believe more closely aligns our ownership interests with our
management company.
- We promoted Joe Green to president and Ken Crockett to chief operating
officer. Joe also continues to serve as CFO, and Ken serves as managing
director of Winston Finance. Joe's expertise in real estate and
corporate finance and Ken's expertise in real estate acquisitions,
development, commercial and mortgage banking and hotel operations are a
great fit with our current direction and strategy for growth.
FOURTH QUARTER AND YEAR END OPERATING STATISTICS
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In the 2003 fourth quarter, occupancy improved 3.7 percent from the
fourth quarter 2002, and average daily room rate decreased 0.9 percent. RevPAR
improved 2.7 percent to $47.57, compared to $46.32 for the 2002 fourth quarter.
For the year ended December 31, 2003, occupancy improved 1.1 percent
and average daily room rate decreased 2.5 percent, as compared to the year ended
December 31, 2002. RevPAR declined 1.4 percent to $51.01, compared to $51.76 for
2002.
BALANCE SHEET CHANGES
In September, the company sold 5.25 million shares of common stock
through a follow-on offering, and completed the offering in early October with
the sale of another 787,500 shares of common stock as a result of the
underwriters' exercise of their over-allotment option, raising a total of $51
million in net proceeds. The funds initially were used to reduce borrowings
under the company's line of credit, and are expected to be used for the
company's subordinated hotel lending business, property acquisitions and for
general corporate purposes.
The Financial Accounting Standards Board issued FASB Interpretation No.
46, ("FIN 46") "Consolidation of Variable Interest Entities, an interpretation
of Accounting Research Bulletin No. 51 (ARB No. 51)," in January 2003, and a
further interpretation of FIN 46 in December 2003 ("FIN 46-R" and FIN 46,
collectively "FIN 46"). The company currently participates in five joint venture
arrangements to own and develop hotel properties, including the Marsh Landing
joint venture, a recently formed joint venture which is developing our new
Chapel Hill, North Carolina hotel, two joint ventures with Regent Partners, Inc.
and a joint venture with Charlesbank Partners and Concord Hospitality
Enterprises Company. As a result of the provisions of FIN 46, the company has
consolidated the Marsh Landing, Chapel Hill and two Regent joint ventures as of
December 31, 2003. The provisions of FIN 46 are not expected to have any impact
on the company's debt covenants.
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RECENT EVENTS
In January 2004, the company announced that it will redeem for cash all
outstanding shares of its 9.25% Series A Cumulative Preferred Stock for $25 per
share, or $75 million, plus accrued and unpaid dividends on February 24, 2004.
Concurrently, the company will issue 3.68 million shares of 8% Series B
Cumulative Preferred Stock at $25 per share. The redemption price of the 9.25%
Series A Cumulative Preferred Stock will be paid with the proceeds of the
company's offering of its 8% Series B Cumulative Preferred Stock. Additional
remaining net proceeds of approximately $14 million will be used to reduce
borrowings under the company's line of credit and for general corporate
purposes. The redemption and the offering are subject to customary closing
conditions.
"Subsequent to the sale of the Series B Cumulative Preferred Stock and
the concurrent redemption of the Series A Cumulative Preferred Stock, we will
have approximately $100 million available under our $125 million corporate line
of credit," said Joe Green, president and CFO. "We believe that we can respond
rapidly to investment opportunities as the hotel industry recovery begins to
gain some traction."
2003 PRO FORMA RESULTS
Due to the acquisition of the company's leasehold interests for 47
hotels from Interstate Hotels & Resorts on July 1, 2002, and for two hotels from
Intercontinental Hotels Group PLC, effective July 1, 2003, the results of
operations for the three and twelve months ended December 31, 2003, compared to
the results of operations for the same respective periods ended December 31,
2002, do not offer a meaningful comparison. This is due primarily to recording
the operating results of the 47 hotels for which the leasehold interests were
acquired on the company's statements of operations beginning in the third
quarter of 2002, and recording the operating results of the remaining two hotels
beginning in the third quarter of 2003.
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In an effort to make a more meaningful comparison between periods, the
company has provided below selected financial information on a "same store"
basis for the three and twelve months ended December 31, 2003 and 2002, adjusted
as if the acquisition of the leasehold interests from both Interstate and
Intercontinental had occurred on January 1, 2002. This information is shown for
the 43 wholly owned hotels that were open throughout the periods presented and
does not include operating results for any hotels that were sold or classified
as "held for sale" during the periods.
This presentation is not prepared in accordance with generally accepted
accounting principles in the United States ("GAAP"). Statement of Financial
Accounting Standards No. 144 requires the company to report the operations of
all properties, either disposed of, or classified as held for sale subsequent to
January 1, 2002, separately as discontinued operations for all periods
presented. The company believes that the presentation of hotel property
operating results on a "same store" basis is helpful to investors as it
represents a more useful description of its core operations and the
comparability of its hotels' results. The company believes the pro forma
presentation of operating results provides a meaningful comparison of the
company's 2003 and 2002 fourth quarter and 12-month operating results, given the
change in the ownership of the leases.
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SELECTED FINANCIAL INFORMATION
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
-------------------------------------------------------------
Statistics (actual) (pro forma) (pro forma) (pro forma)
----------------------------------------------------------
Average Daily Rate $ 76.10 $ 76.84 $ 77.28 $ 79.04
Occupancy 62.3% 59.8% 66.3% 65.3%
Revenue Per Available Room $ 47.43 $ 45.96 $ 51.24 $ 51.60
Operating Results (in thousands)
Revenue:
Rooms $ 26,686 $ 25,739 $ 114,246 $ 114,580
Other hotel revenue 2,910 3,185 11,383 12,487
Percentage lease revenue 538 821 2,141 2,426
Interest and other income 423 459 1,560 1,458
Total revenue 30,557 30,204 129,330 130,951
Hotel operating expenses:
Rooms 6,701 6,184 27,008 26,406
Other hotel operating expenses 2,111 2,163 8,403 8,704
Undistributed operating expenses:
Property operating costs 6,186 5,589 25,103 23,376
Real estate taxes and property and casualty insurance 1,200 1,388 6,163 6,258
Other operating costs 4,354 4,235 17,711 17,947
Percentage lease expense 1,184 1,082 4,610 4,162
Depreciation and amortization 4,570 4,929 18,671 19,700
General and administrative 1,874 749 5,922 4,843
Lease/management agreement acquisition -- -- 1,300 --
Total expenses 28,180 26,319 114,891 111,396
Operating income $ 2,377 $ 3,885 $ 14,439 $ 19,555
FINANCIAL HIGHLIGHTS ON DECEMBER 31, 2003
- Net income (loss) applicable to common shareholders was $0.8 million
for the year ended December 31, 2003 versus $(6.0) million for the year
ended December 31, 2002.
- AFFO available to common shareholders payout ratio was 64.5 percent on
a trailing 12-month basis.
- CAD payout ratio was 88.2 percent on a trailing 12-month basis.
- Total debt to Adjusted EBITDA multiple was 3.0 on a trailing 12-month
basis.
- Annual interest coverage ratio multiple was 4.7 on a trailing 12-month
basis.
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- Consolidated debt to total gross assets at cost was 23.4 percent.
- Generated an unleveraged return on investment of 8.1 percent on its
hotel portfolio on a trailing 12-month basis. Based upon the company's
leverage and borrowing costs, the company realized a leveraged return
on investment of 8.5 percent on a trailing 12-month basis.
- Operating margins decreased from 40.1 percent to 38.0 percent in the
2003 fourth quarter, compared to the same quarter for 2002, and
decreased from 42.6 percent to 40.8 percent for the twelve months ended
December 31, 2002 and 2003, respectively.
- Based on information provided by Smith Travel Research, RevPAR yield
for the full-year ended December 31, 2003 for the company's portfolio
was approximately 109 percent, indicating that the company's portfolio
achieved disproportionately greater RevPAR than its competition.
During the fourth quarter, the company declared a regular cash dividend
of $0.15 per common share and also announced its regular quarterly cash dividend
to preferred shareholders of $0.578125 per share.
"We evaluate our dividend policy on a quarterly basis and are
comfortable with current dividend levels," Green said. Based on the closing
price of the company's common stock on February 11, 2004, the company's current
dividend is equivalent to an annualized dividend yield of 5.6 percent. The
amount of the company's common dividend will continue to be determined each
quarter, based upon the operating results of that quarter, economic conditions
and other operating trends and is determined at the sole discretion of our board
of directors.
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OUTLOOK AND GUIDANCE
"We believe that the hotel industry is rebounding," Green said. "A
hotel industry rebound typically trails a recovery in the general economy.
Because of our beliefs with respect to the hotel industry and the nature of
potential investments in subordinate debt and hotel properties, long-term
visibility regarding our earnings for 2004 remains difficult. Therefore, at this
time, we will limit our guidance to the first quarter."
For the first quarter of this year, the company forecasts a positive
increase in RevPAR of 1 percent to 3 percent, compared to the first quarter of
2003. AFFO available to common shareholders per share for the 2004 first quarter
is expected to be between $0.14 and $0.16. This is equivalent to a per share
range of FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), of $0.23 to $0.25. This guidance assumes no additional
acquisitions or placement of debt during the first quarter and a flat gross
operating profit, compared to the same period in the prior year. AFFO available
to common shareholders per share totaled $0.20 for the first quarter of 2003.
As noted earlier in this press release, the company sold approximately
6.0 million shares of common stock through a follow-on offering, which was
completed in early October. As a result of issuing these additional shares, and
due to the seasonality of the company's operating results, the sum of the AFFO
available to common shareholders per share for each of the four quarters of 2003
does not equal the AFFO available to common shareholders per share for the year.
AFFO available to common shareholders per share totaled $0.20, $0.32, $0.29 and
$0.14 for the four quarters of 2003, while the AFFO available to common
shareholders totaled $0.93 per share for the year ended December 31, 2003.
Winston Hotels' fourth quarter and full-year 2003 investor conference
call is scheduled for 10 a.m. ET today, February 12, 2004. The call also will be
simulcast over the Internet via the
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company's web site, www.winstonhotels.com. The replay will be available on the
company's Web site for 30 days and via telephone for seven days by calling (800)
475-6701, access code 720243.
ABOUT THE COMPANY
Raleigh, North Carolina-based Winston Hotels, Inc. is a real estate
investment trust specializing in the development, acquisition, and repositioning
of, and provision of subordinated financing to, premium limited-service, upscale
extended-stay and full-service hotels, with a portfolio increasingly weighted
toward the leading brands in the lodging industry's upscale segment. The company
currently owns or is invested in 49 hotels with an aggregate of 6,879 rooms in
16 states, which includes: 43 wholly owned properties with an aggregate of 6,021
rooms; a 49 percent ownership interest in two joint ventures which collectively
own two hotels with an aggregate of 296 rooms; a 57.65 percent ownership
interest in one joint venture which owns one hotel with 157 rooms; and a 13.05
percent ownership interest in one joint venture which owns three hotels with an
aggregate of 405 rooms. The company also has issued mezzanine loans to owners of
three hotels with an aggregate of 391 rooms. The company does not hold an
ownership interest in any of the hotels for which it has provided mezzanine
financing. For more information about Winston Hotels, visit the Winston Hotels
Web site at www.winstonhotels.com.
NOTE ABOUT FORWARD-LOOKING STATEMENTS.
In addition to historical information, this press release contains
forward-looking statements. The reader can identify these statements by use of
words like "may," "will," "expect," "project," "anticipate," "estimate,"
"target," "believe," or "continue" or similar expressions, including without
limitation its acquisition and disposition plans for hotel properties,its hotel
lending plans, its dividend policy, and its estimated AFFO available to common
shareholders and RevPAR for the 2004 first quarter. These statements represent
the company's judgment and are subject to risks and uncertainties that could
cause actual operating results to differ materially from those expressed or
implied in the forward looking statements including, but not limited to, changes
in general economic conditions, lower occupancy rates, lower average daily
rates, acquisition risks, development risks including risk of construction
delay, cost overruns, occupancy and other governmental permits, zoning, the
increase of development costs in connection with projects that are not pursued
to completion, the risk of non-payment of mezzanine loans, or the failure to
make additional mezzanine debt investments and investments in hotels. Other
risks are discussed in the
10
company's filings with the Securities and Exchange Commission, including but not
limited to its Annual Report on Form 10-K for the year ended December 31, 2002.
NOTES ABOUT NON-GAAP FINANCIAL MEASURES
This press release includes certain non-GAAP financial measures as defined under
Securities and Exchange Commission ("SEC") rules. As required by SEC rules, the
company has provided a reconciliation in this press release of each non-GAAP
financial measure to its directly comparable GAAP measure. We believe that these
non-GAAP measures, when combined with the company's primary GAAP presentations
required by the SEC, help improve our equity holders' ability to understand our
operating performance and make it easier to compare the results of our company
with other hotel REITs. A description of each is provided below. (A further
description of certain of these non-GAAP measures can be found in our annual
report on Form 10-K for the year ended December 31, 2002.)
FFO AND AFFO
Funds from operations ("FFO"), as defined by the National Association of Real
Estate Investment Trusts ("NAREIT"), is net income (loss) (determined in
accordance with generally accepted accounting principles, or "GAAP"), excluding
gains (losses) from sales of property, plus depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures (which are
calculated to reflect FFO on the same basis). The company further adjusts FFO by
adding lease/management agreement acquisition expense, loss on impairment of
asset held for sale, and the change in deferred revenue during the period to
eliminate the impact of Staff Accounting Bulletin No. 101 ("SAB 101"), and
subtracting income tax benefit. This further adjustment to FFO is referred to as
Adjusted Funds from Operations, or AFFO. The company further subtracts preferred
share distributions from AFFO to arrive at AFFO Available to Common
Shareholders. The calculations of FFO and AFFO may vary from entity to entity,
and as such the presentation of FFO and AFFO by the company may not be
comparable to other similarly titled measures of other reporting companies. The
company supplementally provides AFFO due to the fact that the acquisition of the
leasehold interests, for 47 hotels from Interstate in July 2002 and for two
hotels from Intercontinental in July 2003, may not result in a meaningful
comparison between the annual results for 2002 and other years. FFO and AFFO are
not intended to represent cash flows for the period. FFO and AFFO have not been
presented as an alternative to operating income, and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with GAAP.
FFO is a supplemental industry-wide measure of REIT operating performance, the
definition of which was first proposed by NAREIT in 1991 (and clarified in 1995,
1999 and 2002) in response to perceived drawbacks associated with net income
under GAAP as applied to REITs. Since the introduction of the definition by
NAREIT, the term has come to be widely used by REITs. Historical cost accounting
for real estate assets implicitly assumes that the value of real estate assets
diminishes predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, most industry investors
have considered presentations of operating results for real estate companies
that use historical GAAP cost accounting to be insufficient by themselves.
Accordingly, the company believes FFO and AFFO (combined with the company's
primary GAAP presentations required by the SEC) helps improve our investors'
ability to understand the
11
company's operating performance. The company only uses FFO and AFFO as
supplemental measures of operating performance.
The company computes AFFO Available to Common Shareholders Payout Ratio by
dividing common dividends per share paid over the last twelve months by trailing
twelve-month AFFO Available to Common Shareholders per share for the same
period.
CAD
The company computes CAD ("Cash Available for Distribution") as AFFO Available
to Common Shareholders less capital expenditures. Capital expenditures are
calculated as 5% of room revenues in accordance with our percentage leases. CAD
is a supplemental industry-wide measure of REIT operating performance that
measures a REIT's ability to generate cash and to distribute dividends to its
shareholders. We believe CAD (combined with our primary GAAP presentations
required by the SEC) helps improve our investors' ability to understand our
operating performance (including our ability to make required distributions to
maintain our REIT status) and makes it easier than before to compare the results
of one REIT with another. We only use CAD as a supplemental measure of operating
performance. The calculation of CAD may vary from entity to entity and as such
our presentation of CAD may not be comparable to other similarly titled measures
of other reporting companies. CAD is not intended to represent cash flows for
the period. CAD has not been presented as an alternative to operating income,
but as an indicator of operating performance, and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles.
The company computes CAD Payout Ratio by dividing common dividends per share
paid over the last twelve months by trailing twelve-month CAD per share for the
same period. The company believes the CAD Payout Ratio also helps improve our
investors' ability to understand our ability to make required distributions to
maintain our REIT status.
ADJUSTED EBITDA
The company computes Adjusted EBITDA as net income (loss), excluding gains
(losses) from sales of property and impairment losses, plus minority interest,
plus interest expense, depreciation expense, amortization expense, and the
change in deferred revenue (after adjustments for unconsolidated joint
ventures), plus lease / management termination expense, plus income tax expense
(benefit), plus cumulative effect of changes in accounting principles. The
company considers Adjusted EBITDA to be a useful measure of performance from
core operations because Adjusted EBITDA does not include various income and
expense items that are not indicative of operating performance. Adjusted EBITDA
should not be considered as an alternative to net income or other GAAP measures
as an indicator of financial or operating performance, or as an alternative to
cash flow from operating, investing or financing activities under GAAP as a
measure of liquidity. The company's computation of Adjusted EBITDA may not be
comparable to EBITDA or similarly titled measures as reported by other
companies.
The company computes the total debt to Adjusted EBITDA multiple by dividing the
company's total debt as of December 31, 2003 by Adjusted EBITDA for the
twelve-months preceding such date.
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The company computes the annual interest coverage ratio by dividing trailing
twelve-month Adjusted EBITDA by the company's total interest expense during the
same twelve-month period. The company believes the annual interest coverage
ratio also helps improve our investors' ability to understand our ability to pay
interest costs from operating results.
The company computes Unleveraged Return on Investment by dividing Adjusted
EBITDA for the trailing twelve months by total gross book value of operating
properties as of December 31, 2003. The company believes Unleveraged Return on
Investment helps improve our investors' ability to understand the extent to
which our investment in operating properties provides an unleveraged return.
The company computes Leveraged Return on Investment by dividing Adjusted EBITDA
less total interest expense for the trailing twelve months by total leveraged
investment in operating properties (equal to total gross book value of operating
properties less total debt) as of December 31, 2003. The company believes the
Leveraged Return on Investment helps improve our investors' ability to
understand the extent to which our leveraged investment in operating properties
provides a leveraged return. An investor can compare Leveraged Return on
Investment to Unleveraged Return on Investment and ascertain the extent to which
the company is effectively using leverage to bolster its operating performance.
REVPAR
RevPAR is an acronym for Revenue Per Available Room, which is determined by
multiplying average daily rate by occupancy percentage for any given period.
RevPAR does not include food and beverage or other ancillary revenues such as
parking, telephone, or other guest services generated by the property. Similar
to the reporting periods for the company's statement of operations, hotel
operating statistics (i.e., RevPAR, average daily rate and average occupancy)
are always reported based on a calendar year.
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WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
2003 2002
---------- ----------
Investment in hotel properties: (unaudited)
----------
Land $ 44,788 $ 39,348
Buildings and improvements 377,109 345,511
Furniture and equipment 51,323 44,332
---------- ----------
Operating properties 473,220 429,191
Less accumulated depreciation 128,540 109,152
---------- ----------
344,680 320,039
Properties under development 3,521 1,800
---------- ----------
Net investment in hotel properties 348,201 321,839
Assets held for sale 2,100 --
Corporate FF&E, net 621 735
Cash 5,623 1,510
Accounts receivable 2,505 1,958
Lease revenue receivable 179 --
Notes receivable 5,016 5,016
Investment in joint ventures 1,607 9,117
Deferred expenses, net 2,935 2,954
Prepaid expenses and other assets 8,653 6,988
Deferred tax asset 9,821 7,325
---------- ----------
Total assets $ 387,261 $ 357,442
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 29,200 $ 72,300
Long-term debt 91,284 66,406
Accounts payable and accrued expenses 11,484 11,679
Distributions payable 5,870 4,951
---------- ----------
Total liabilities 137,838 155,336
---------- ----------
Minority interest 17,489 7,591
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, 3,000,000
shares issued and outstanding (liquidation preference
of $76,734) 30 30
Common stock, $.01 par value, 50,000,000 shares authorized,
26,270,805 and 20,148,334 shares issued and outstanding 263 201
Additional paid-in capital 307,089 256,720
Accumulated other comprehensive loss (33) --
Unearned compensation (527) (596)
Distributions in excess of earnings (74,888) (61,840)
---------- ----------
Total shareholders' equity 231,934 194,515
---------- ----------
Total liabilities and shareholders' equity $ 387,261 $ 357,442
========== ==========
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Three Months
Ended Ended
December 31, December 31,
2003 2002
------------ ------------
Revenue:
Rooms $ 26,686 $ 25,308
Food and beverage 1,913 2,052
Other operating departments 997 1,125
Percentage lease revenue 538 1,030
Interest and other income 423 459
------------ ------------
Total revenue 30,557 29,974
------------ ------------
Hotel operating expenses:
Rooms 6,701 6,031
Food and beverage 1,383 1,436
Other operating departments 728 721
Undistributed operating expenses:
Property operating expenses 6,186 5,693
Real estate taxes and property and casualty insurance 1,200 1,390
Franchise costs 1,939 1,804
Maintenance and repair 1,754 1,557
Management fees 661 598
Percentage lease expense 1,184 1,082
General and administrative 1,874 749
Depreciation 4,251 4,694
Amortization 319 217
------------ ------------
Total operating expenses 28,180 25,972
------------ ------------
Operating income 2,377 4,002
Interest expense 1,499 2,477
------------ ------------
Income before loss on sale of properties, allocation to minority interest,
allocation to consolidated joint ventures, income taxes,
and equity in income of unconsolidated joint ventures 878 1,525
Income allocation to minority interest 25 75
Loss allocation to consolidated joint ventures (25) --
Income tax benefit (669) (228)
Equity in income of unconsolidated joint ventures 640 1,198
------------ ------------
Income from continuing operations 2,187 2,876
Discontinued operations:
Loss from discontinued operations (21) (132)
Gain on sale of discontinued operations -- 644
Loss on impairment of asset held for sale (62) --
------------ ------------
Income before cumulative effect of change in accounting principle 2,104 3,388
------------ ------------
Cumulative effect of change in accounting principle - net (428) --
------------ ------------
Net income 1,676 3,388
Preferred stock distribution (1,735) (1,735)
------------ ------------
Net income (loss) applicable to common shareholders $ (59) $ 1,653
============ ============
Income (loss) per common share:
Basic and diluted:
Income from continuing operations $ 0.02 $ 0.06
Income from discontinued operations -- 0.02
Loss per common share from cumulative effect of change
in accounting principle - net (0.02) --
------------ ------------
Net income per common share $ -- $ 0.08
============ ============
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002
---------- ----------
Revenue:
Rooms $ 113,215 $ 54,724
Food and beverage 7,201 3,898
Other operating departments 4,169 2,306
Percentage lease revenue 2,621 29,067
Interest and other income 1,560 1,458
---------- ----------
Total revenue 128,766 91,453
---------- ----------
Hotel operating expenses:
Rooms 26,670 12,980
Food and beverage 5,437 2,873
Other operating departments 2,952 1,507
Undistributed operating expenses:
Property operating expenses 24,801 11,970
Real estate taxes and property and casualty insurance 6,163 6,259
Franchise costs 8,144 3,895
Maintenance and repair 6,774 3,166
Management fees 2,675 1,233
Percentage lease expense 4,610 2,168
General and administrative 5,922 4,843
Depreciation 17,686 18,868
Lease/management agreement acquisition 1,300 17,668
Amortization 985 832
---------- ----------
Total operating expenses 114,119 88,262
---------- ----------
Operating income 14,647 3,191
Interest expense 7,257 10,478
---------- ----------
Income (loss) before loss on sale of properties, allocation to minority
interest, allocation to consolidated joint ventures, income taxes,
and equity in income of unconsolidated joint ventures 7,390 (7,287)
Income (loss) allocation to minority interest 260 (369)
Loss allocation to consolidated joint ventures (36) --
Income tax benefit (2,348) (7,401)
Equity in income of unconsolidated joint ventures 1,193 1,172
---------- ----------
Income from continuing operations 10,707 1,655
Discontinued operations:
Loss from discontinued operations (144) (35)
Loss on sale of discontinued operations -- (718)
Loss on impairment of asset held for sale (2,430) --
---------- ----------
Income before cumulative effect of change in accounting principle 8,133 902
---------- ----------
Cumulative effect of change in accounting principle - net (428) --
---------- ----------
Net income 7,705 902
Preferred stock distribution (6,938) (6,938)
---------- ----------
Net income (loss) applicable to common shareholders $ 767 $ (6,036)
========== ==========
Income (loss) per common share:
Basic and diluted:
Income (loss) from continuing operations $ 0.17 $ (0.27)
Loss from discontinued operations (0.12) (0.04)
Loss per common share from cumulative effect of change
in accounting principle - net (0.02) --
---------- ----------
Net income (loss) per common share $ 0.03 $ (0.31)
========== ==========
WINSTON HOTELS, INC.
RECONCILIATION AND CALCULATION OF FFO, AFFO,
AFFO AVAILABLE TO COMMON SHAREHOLDERS AND CAD
(in thousands, except per share data)
For the For the
Quarter Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
-------- -------- -------- --------
Net Income $ 1,676 $ 3,388 $ 7,705 $ 902
(Gain) loss on sale of discontinued operations -- (688) -- 764
Minority interest allocation 25 75 260 (369)
Minority interest allocation of gain (loss) on sale of
discontinued operations -- 44 -- (46)
Minority interest allocation of earnings (losses) from
discontinued operations (4) (10) (18) 3
Depreciation 4,251 4,694 17,686 18,868
Depreciation from discontinued operations -- 153 192 917
Depreciation from joint ventures 239 207 855 801
-------- -------- -------- --------
FUNDS FROM OPERATIONS (FFO) $ 6,187 $ 7,863 $ 26,680 $ 21,840
-------- -------- -------- --------
Loss on impairment of asset held for sale 65 -- 2,583 --
Minority interest allocation of loss on impairment
of asset held for sale (3) -- (153) --
Cumulative effect of change in accounting principle 449 -- 449 --
Minority interest allocation of cumulative effect of
change in accounting principle (21) -- (21) --
Deferred revenue -- (204) -- (1,226)
Deferred revenue from joint ventures (369) (919) -- --
Lease / management agreement acquisition expense -- -- 1,300 17,668
Income tax benefit (669) (228) (2,348) (7,401)
Income tax expense (benefit) from
discontinued operations (58) (21) (148) 76
-------- -------- -------- --------
ADJUSTED FUNDS FROM OPERATIONS (AFFO) $ 5,581 $ 6,491 $ 28,342 $ 30,957
-------- -------- -------- --------
Preferred stock dividend (1,735) (1,735) (6,938) (6,938)
-------- -------- -------- --------
AFFO AVAILABLE TO COMMON SHAREHOLDERS $ 3,846 $ 4,756 $ 21,404 $ 24,019
======== ======== ======== ========
Capital expenditures * 1,284 1,264 5,512 5,662
Capital expenditures of joint ventures * 59 49 218 190
-------- -------- -------- --------
CASH AVAILABLE FOR DISTRIBUTION (CAD) $ 2,503 $ 3,443 $ 15,674 $ 18,167
======== ======== ======== ========
Weighted average common
shares assuming dilution 27,426 21,348 23,087 20,607
AFFO AVAILABLE TO COMMON SHAREHOLDERS -------- -------- -------- --------
PER SHARE $ 0.14 $ 0.22 $ 0.93 $ 1.17
======== ======== ======== ========
-------- -------- -------- --------
CAD PER SHARE $ 0.09 $ 0.16 $ 0.68 $ 0.88
======== ======== ======== ========
-------- -------- -------- --------
COMMON DIVIDEND PER SHARE $ 0.15 $ 0.15 $ 0.60 $ 0.60
======== ======== ======== ========
* - Capital expenditures are shown as 5% of room revenues, as required under the
Company's percentage leases, and do not represent actual capital expenditures.
WINSTON HOTELS, INC.
RECONCILIATION AND CALCULATION OF ADJUSTED EBITDA
(in thousands)
For the Quarter Ended For the Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net Income $ 1,676 $ 3,388 $ 7,705 $ 902
(Gain) loss on sale of discontinued operations -- (688) -- 764
Minority interest allocation 25 75 260 (369)
Minority interest allocation of gain (loss) on sale of
discontinued operations -- 44 -- (46)
Minority interest allocation of earnings (losses) from
discontinued operations (4) (10) (18) 3
Depreciation 4,251 4,694 17,686 18,868
Depreciation from discontinued operations -- 153 192 917
Depreciation from joint ventures 239 207 855 801
Loss on impairment of asset held for sale 65 -- 2,583 --
Minority interest allocation of loss on impairment
of asset held for sale (3) -- (153) --
Cumulative effect of change in accounting principle 449 -- 449 --
Minority interest allocation of cumulative effect of
change in accounting principle (21) -- (21) --
Deferred revenue -- (204) -- (1,226)
Deferred revenue from joint ventures (369) (919) -- --
Lease/management agreement acquisition expense -- -- 1,300 17,668
Income tax benefit (669) (228) (2,348) (7,401)
Income tax expense (benefit) from
discontinued operations (58) (21) (148) 76
Interest expense 1,499 2,477 7,257 10,478
Interest expense from joint ventures 157 129 583 637
Amortization expense 319 219 985 832
Amortization expense from discontinued operations -- 1 -- 9
Amortization expense from joint ventures 9 -- 25 --
---------- ---------- ---------- ----------
ADJUSTED EBITDA $ 7,565 $ 9,317 $ 37,192 $ 42,913
========== ========== ========== ==========
WINSTON HOTELS, INC.
2004 FIRST QUARTER GUIDANCE
RECONCILIATION OF NET INCOME TO FFO, AFFO,
AND AFFO AVAILABLE TO COMMON SHAREHOLDERS
(in thousands, except per share data)
GUIDANCE RANGE
LOW HIGH
---------- ----------
Net Income $ 2,000 $ 2,500
Depreciation 4,200 4,200
Depreciation from joint ventures 200 200
Minority interest allocation -- --
---------- ----------
FUNDS FROM OPERATIONS (FFO) $ 6,400 $ 6,900
========== ==========
Income tax benefit (800) (700)
---------- ----------
ADJUSTED FUNDS FROM OPERATIONS (AFFO) $ 5,600 $ 6,200
========== ==========
Preferred stock dividend (1,800) (1,800)
---------- ----------
AFFO AVAILABLE TO COMMON SHAREHOLDERS $ 3,800 $ 4,400
========== ==========
Weighted average common
shares assuming dilution 27,600 27,600
AFFO AVAILABLE TO COMMON ---------- ----------
SHAREHOLDERS PER SHARE $ 0.14 $ 0.16
========== ==========
WINSTON HOTELS, INC.
CALCULATION OF PERFORMANCE RATIOS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AFFO Available to Common Shareholders Payout Ratio:
AFFO Available to Common Shareholders per share - 1/1/03 through 12/31/03: $ 0.93
Common dividends paid per share - 1/1/03 through 12/31/03 0.60
----------
AFFO AVAILABLE TO COMMON SHAREHOLDERS PAYOUT RATIO 64.5%
----------
CAD Payout Ratio:
CAD per share - 1/1/03 through 12/31/03: $ 0.68
Common dividends paid per share - 1/1/03 through 12/31/03 0.60
----------
CAD PAYOUT RATIO 88.2%
----------
Total Debt to Adjusted EBITDA Multiple:
Corporate debt as of December 31, 2003 $ 94,231
Share of joint venture debt as of December 31, 2003 15,495
----------
Total debt 109,726
Adjusted EBITDA 37,192
----------
TOTAL DEBT TO ADJUSTED EBITDA MULTIPLE 3.0
----------
Annual Interest Coverage Ratio:
(based on a twelve-month basis)
Adjusted EBITDA $ 37,192
Corporate interest expense 7,257
Share of joint venture interest expense 583
----------
Total interest expense 7,840
----------
ANNUAL INTEREST COVERAGE RATIO 4.7
----------
Unleveraged Return on Investment:
(based on a twelve-month basis)
Gross book value of wholly owned hotels $ 430,011
Gross book value of operating joint venture hotels - Company's share 26,829
----------
Total gross book value of operating properties 456,840
Adjusted EBITDA for the twelve months ended 12/31/2003 37,192
----------
UNLEVERAGED RETURN ON INVESTMENT 8.1%
----------
Leveraged Return on Investment:
(based on a trailing twelve-month basis)
Total gross book value of operating properties $ 456,840
Corporate debt (94,231)
Share of joint venture debt (15,495)
----------
Total leveraged Investment in operating properties 347,114
Adjusted EBITDA for the twelve months ended 12/31/2003 37,192
Corporate interest expense for the twelve months ended 12/31/2003 (7,257)
Share of joint venture interest expense for the twelve
months ended 12/31/03 - Company's share (583)
----------
Adjusted EBITDA less total interest expense 29,352
----------
LEVERAGED RETURN ON INVESTMENT 8.5%
----------
WINSTON HOTELS, INC.
REPORT OF THE THREE AND TWELVE MONTHS ENDING
DECEMBER 2003
REVPAR PERFORMANCE FOR 47 HOTELS*
QTD ENDING DECEMBER YTD ENDING DECEMBER
2003 2002 % CH 2003 2002 % CH
COMBINED BRANDS
- --------------------------------------------------------------------------------------------------------------
Comfort Inn/Suites & Quality Suites $35.32 $31.18 13.3% $39.26 $38.19 2.8%
Courtyard, Fairfield Inn, Residence Inn $43.69 $45.36 -3.7% $48.42 $51.03 -5.1%
Hampton Inn/Suites $45.07 $44.60 1.1% $49.35 $49.98 -1.3%
Hilton Garden Inn $67.24 $63.15 6.5% $67.47 $66.14 2.0%
Holiday Inn Express/Select $45.98 $48.66 -5.5% $49.84 $53.75 -7.3%
Homewood Suites $59.13 $56.83 4.0% $61.24 $62.48 -2.0%
REGION
- --------------------------------------------------------------------------------------------------------------
South Atlantic $43.28 $41.47 4.4% $47.36 $47.28 0.2%
East North Central $62.60 $60.82 2.9% $63.31 $64.42 -1.7%
West South Central $37.53 $41.20 -8.9% $40.67 $44.44 -8.5%
Mountain $45.33 $41.03 10.5% $46.05 $42.26 9.0%
New England $59.82 $54.47 9.8% $61.83 $64.42 -4.0%
Middle Atlantic $70.17 $72.64 -3.4% $73.92 $79.47 -7.0%
SEGMENT
- --------------------------------------------------------------------------------------------------------------
Upscale $56.58 $55.16 2.6% $59.03 $59.74 -1.2%
Mid-scale w/ F&B $50.75 $52.46 -3.3% $54.86 $58.52 -6.3%
Mid-scale w/o F&B $39.98 $38.29 4.4% $44.06 $44.25 -0.4%
SERVICE
- --------------------------------------------------------------------------------------------------------------
Limited-service $39.98 $38.29 4.4% $44.06 $44.25 -0.4%
Full-service $55.33 $55.19 0.3% $58.34 $60.07 -2.9%
Extended-stay $55.16 $53.28 3.5% $57.60 $58.26 -1.1%
- --------------------------------------------------------------------------------------------------------------
TOTAL FOR 47 HOTELS $47.57 $46.32 2.7% $51.01 $51.76 -1.4%
- --------------------------------------------------------------------------------------------------------------
*excludes three joint venture hotels, in which the company owns a 13.05 percent
interest through the Charlesbank joint venture. These hotels include the West
Des Moines, IA Fairfield Inn & Suites, acquired in May 2002, the Beachwood, OH
Courtyard by Marriott, acquired in June 2002, and the Houston, TX Best Western
Park Place Suites, acquired in September 2003. The company did not hold an
ownership interest in these properties for the entire periods presented and
therefore they are excluded from the table above.
The table includes the company's 44 wholly owned hotels as of December 31, 2003,
as well as three joint venture hotels the company has held an ownership interest
in for all periods presented. These joint venture hotels include the Windsor, CT
Hilton Garden Inn, the Ponte Vedra, FL Hampton Inn, and the Evanston, IL Hilton
Garden Inn.