1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 Commission file number 0-23732
WINSTON HOTELS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1872141
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2209 CENTURY DRIVE
RALEIGH, NORTH CAROLINA 27612
(Address of principal executive offices)
(Zip Code)
(919) 510-6010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of Common Stock, $.01 par value, outstanding on May 8,
1996 was 9,913,217.
2
WINSTON HOTELS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. WINSTON HOTELS, INC. (unaudited)
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995 3
Consolidated Statements of Income - For the three
months ended March 31,1996, and the three months
ended March 31, 1995 4
Consolidated Statements of Cash Flows - For the
three months ended March 31, 1996 and the three
months ended March 31, 1995 5
Notes to consolidated financial statements 6
WINSTON HOSPITALITY, INC. (unaudited)
Balance Sheets - March 31, 1996 and December 31, 1995 8
Statements of Income - For the three months ended
March 31, 1996, and the three months ended March 31, 1995 9
Statements of Cash Flow - For the three months ended
March 31, 1996 and the three months ended March 31, 1995 10
Note to financial statements 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 18
2
3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
ASSETS
March 31, December 31,
1996 1995
--------- ------------
Investment in hotel properties:
Land $ 13,879 $ 13,879
Buildings and improvements 103,742 103,264
Furniture and equipment 6,662 5,753
-------- --------
124,283 122,896
Less accumulated depreciation (6,200) (5,033)
-------- --------
Net investment in hotel properties 118,083 117,863
Cash and cash equivalents 220 2,496
Lease revenue receivable 3,027 2,547
Deferred expenses, net 1,172 841
Prepaid expenses and other assets 1,471 222
-------- --------
$123,973 $123,969
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 34,500 $ 34,000
Accounts payable and accrued expenses 1,634 1,574
Dividends and distributions payable 2,475 2,785
Amounts due to Lessee 1,457 1,187
Minority interest in Partnership 3,527 3,551
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued and
outstanding - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 9,880,114 shares issued and
outstanding 99 99
Additional paid-in capital 82,988 82,988
Unearned directors' compensation (238) (256)
Deficit (2,469) (1,959)
-------- --------
Total shareholders' equity 80,380 80,872
-------- --------
$123,973 $123,969
======== ========
The accompanying notes are an integral part of the financial statements.
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4
WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Three Months
Ended Ended
March 31,1996 March 31,1995
------------- -------------
Revenue:
Percentage lease revenue $ 4,540 $ 3,035
Interest and other income 16 26
---------- ---------
Total revenue 4,556 3,061
---------- ---------
Expenses:
Real estate taxes and property and
casualty insurance 320 216
General & administrative 424 227
Interest expense 674 538
Depreciation 1,167 745
Amortization 31 26
---------- ---------
Total expenses 2,616 1,752
---------- ---------
Income before allocation to
minority interests 1,940 1,309
Income allocation to minority interest 80 79
---------- ---------
Net income applicable to
common shareholders $ 1,860 $ 1,230
========== =========
Net income per common share $ .19 $ .18
========== =========
Distributions declared per common share $ .24 $ .22
========== =========
Weighted average number of common
shares and common share equivalents 10,382,685 7,216,539
========== =========
The accompanying notes are an integral part of the financial statements.
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5
WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
Three Months Three Months
Ended Ended
March 31,1996 March 31,1995
------------- -------------
Cash flows from operating activities:
Net income $ 1,860 $ 1,230
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority Interest 80 79
Depreciation 1,167 745
Amortization of franchise fees 13 8
Amortization recorded as interest expense 57 10
Unearned compensation amortization 18 18
Writeoff of deferred acquisition costs 7
Changes in assets and liabilities:
Lease revenue receivable (480) (578)
Prepaid expenses and other assets (187) 81
Current liabilities (200) (273)
------- -------
Net cash provided by operating activities 2,328 1,327
------- -------
Cash flows used in investing activities:
Deferred acquisition costs (140)
Prepaid acquisition costs (1,062)
Investment in hotel properties (1,117) (288)
------- -------
Net cash used in investing activities (2,319) (288)
------- -------
Cash flows used in financing activities:
Purchase of interest rate cap agreements (113)
Increase in line of credit borrowing 500
Payment of distributions (2,668) (1,423)
Distributions to minority interest (117) (91)
------- -------
Net cash provided by financing activities (2,285) (1,627)
------- -------
Net decrease in cash and cash equivalents (2,276) (588)
Cash and cash equivalents at beginning of period 2,496 1,114
------- -------
Cash and cash equivalents at end of period $ 220 $ 526
======= =======
Supplemental disclosures:
Cash paid for interest $ 601 $ 529
======= =======
The accompanying notes are an integral part of the financial statements.
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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ AMTS IN THOUSANDS)
1. ORGANIZATION
Winston Hotels, Inc. (the "Company") operates so as to qualify as a
real estate investment trust ("REIT") for federal income tax purposes.
The accompanying unaudited consolidated financial statements reflect,
in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature. Due to the
seasonality of the hotel business, the information for the three
months ended March 31, 1996 and the information for the three months
ended March 31,1995 are not necessarily indicative of the results for
a full year.
2. PRO FORMA FINANCIAL INFORMATION
This unaudited pro forma condensed statement of income of the Company
is presented as if the Company had acquired the five hotels it
acquired in May 1995 as of January 1, 1995, thereby owning all 21
Current Hotels for the three month period ended March 31, 1995. This
unaudited pro forma condensed statement of income is not necessarily
indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January
1, 1995, nor does it purport to represent the results of operations
for future periods (in thousands, except per share data):
Pro Forma
Three Months Ended
March 31, 1995
------------------
Percentage lease revenue $4,183
Net income applicable to common shareholders $1,728
Net income per common share $ 0.18
Weighted average number of common shares
and common shares equivalents 10,322
3. SUBSEQUENT EVENTS:
The Company, through the Partnership, contracted to acquire 10 hotels
(the "Acquisition Hotels") with an aggregate of 1,323 rooms for
purchase prices aggregating approximately $73.4 million. In May 1996,
the Company acquired five of the Acquisition Hotels for an aggregate
purchase price of approximately $28 million with borrowings under its
existing line of credit and an interim unsecured line of credit.
On April 25, 1996 the Company filed a registration statement on Form
S-3 (the "Follow-on Offering") to sell up to 5 million shares (not
including approximately 0.8 million shares subject to underwriters
over-allotment) of its common stock for which it expects to receive
net proceeds of approximately $55.9 million. The Company will
contribute all of the net proceeds of the Follow-on Offering to the
Partnership and, after such contribution will own an approximately
91.5% interest in the Partnership. The net proceeds from the sale of
its common stock will be used to complete the acquisition of five
hotels, to repay certain indebtedness, to refurbish certain of the
Company's hotels and to transfer franchise licenses.
Additionally, the Company has entered into an agreement with Promus
Hotel Corporation ("Promus"), under which Promus will invest up to $15
million over time in newly issued shares of the Company's common stock
and the Company will purchase existing or under development
Promus-owned hotels (including one Acquisition Hotel) at prices
aggregating approximately $38.8 million over the next few years.
6
7
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1996, the Company obtained a commitment from a group of
lenders led by Wachovia Bank for a $125 million line of credit ("New
Line"). The commitment is conditioned upon the closing of the
Follow-on Offering. Amounts outstanding under the existing line of
credit will remain outstanding under the New Line. Amounts outstanding
under the New Line generally will bear interest at LIBOR plus 1.75%.
The Company initially will secure the New Line with 28 of its hotels,
and will initially be able to borrow up to $85 million. The amount
available to borrow will be calculated quarterly, and will increase if
cash flow attributable to the collateral hotels increases and / or the
Company adds additional hotels as collateral. The Company has obtained
an interim unsecured line of credit in the amount of $17 million , at
a rate of LIBOR plus 1.75%, to partially finance the acquisition of
four of the hotels it acquired in May 1996. It is anticipated that
this unsecured line of credit will be repaid from the proceeds of the
Follow-on Offering.
4. STOCK OPTION PLANS
On January 1, 1996 the Company adopted Statement of Accounting
Standards No. 123, Accounting for Stock Based Compensation. As
permitted by SFAS 123, the Company has chosen to apply APB Opinion 25
and related Interpretations in accounting for its stock option plans
and, accordingly, no compensation cost has been recognized for its
stock option plans. If compensation cost for the Company's stock
option plans had been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS
123, the impact on the Company's net income and earnings per share
would not have been material.
5. SUMMARIZED NONCASH FINANCING AND INVESTING ACTIVITIES FOR THE PERIOD
The following summarizes the noncash financing and investing
activities for the three month period ended March 31, 1996:
Included in accounts payable and accrued expenses and amounts due to
Lessee at March 31, 1996 are additions to investment in hotel
properties of $1,457 due to the Lessee, and $260 related to the
acquisition of hotel properties due to occur during the second quarter
of 1996. On March 29, 1996, the Company declared a $0.24 per share
cash distribution of $2,475 which was paid on April 16, 1996.
7
8
WINSTON HOSPITALITY, INC.
BALANCE SHEETS
($ IN THOUSANDS)
ASSETS
March 31, December 31,
1996 1995
--------- ------------
Current assets:
Cash and cash equivalents $2,833 $2,249
Accounts receivable:
Trade 966 836
Lessor 1,457 1,187
Affiliates 226 79
Prepaid expenses and other assets 104 117
------ ------
Total current assets 5,586 4,468
------ ------
Furniture, fixtures and equipment:
Furniture and equipment 191 186
Leasehold improvements 110 106
------ ------
301 292
Less accumulated depreciation and
amortization 112 95
------ ------
189 197
------ ------
Total assets $5,775 $4,665
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 644 $ 450
Percentage lease payable 3,027 2,547
Accrued salaries and wages 429 607
Accrued sales and occupancy taxes 369 219
Other current liabilities 619 357
------ ------
Total current liabilities 5,088 4,180
------ ------
Shareholders' equity:
Common stock, $.01 par value, 100 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 49 49
Retained earnings 637 435
------ ------
Total shareholders' equity 687 485
------ ------
Total liabilities and
shareholders' equity $5,775 $4,665
====== ======
The accompanying note is an integral part of the financial statements.
8
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WINSTON HOSPITALITY, INC.
STATEMENTS OF INCOME
($ IN THOUSANDS)
Three Months Three Months
Ended Ended
March 31,1996 March 31,1995
------------- -------------
Revenue:
Room revenue $10,709 $7,373
Other operating revenue, net 308 213
Interest income 19 10
------- ------
Total revenue 11,036 7,596
------- ------
Expenses:
Property operating expenses 4,015 2,675
Repairs and maintenance 524 328
General and administrative 484 341
Franchise costs 905 623
Management fees 316 155
Percentage lease payments 4,540 3,035
------- ------
Total expenses 10,784 7,157
------- ------
Net income $ 252 $ 439
======= ======
The accompanying note is an integral part of the financial statements.
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WINSTON HOSPITALITY, INC.
STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
Three Months Three Months
Ended Ended
March 31,1996 March 31,1995
------------- -------------
Cash flows from operating activities:
Net income $ 252 $ 439
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 17 15
Changes in assets and liabilities:
Accounts receivable (130) (162)
Prepaid expenses and other assets 13 (9)
Accounts payable - trade 194 40
Percentage lease payable 480 578
Accrued expenses and other liabilities 234 73
------ ------
Net cash provided by operating
activities 1,060 974
------ ------
Cash flows from investing activities:
Purchases of furniture, fixture & equipment (9)
Proceeds from sale of furniture,
fixtures & equipment 3
Advances to lessor and affiliates (417) (674)
------ ------
Net cash used in investing activities (426) (671)
------ ------
Cash flows used in financing activities:
Distributions to shareholders (50)
------
Net cash used in financing activities (50)
------
Net increase in cash and cash equivalents 584 303
Cash and cash equivalents at beginning of period 2,249 2,120
------ ------
Cash and cash equivalents at end of period $2,833 $2,423
====== ======
The accompanying note is an integral part of the financial statements.
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WINSTON HOSPITALITY, INC.
NOTE TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.
PROFIT SHARING PLAN
On January 1, 1996, the Winston Hospitality, Inc. ("Hospitality") adopted the
Winston 401 (k) Plan (the "Plan") for substantially all employees, except any
highly compensated employee as defined in the Plan, who have attained the age
of 21 and completed one year of service. Under the plan, employees may
contribute from 1% to 15% of compensation, subject to an annual maximum as
determined under the Internal Revenue Code. Hospitality will make matching
contributions of a specified percentage of the employee's contribution,
currently 3% of the first 6% of the employee's contribution, and may make
additional discretionary contributions.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ AMOUNTS IN THOUSANDS)
OVERVIEW
Winston Hotels, Inc. (the "Company"), which consummated an underwritten initial
public offering in June, 1994 and a second underwritten public offering in May,
1995 operates as a real estate investment trust to invest in hotel properties.
The Company acquired 10 hotels in conjunction with its initial public offering
(the "Initial Hotels"), six hotels during the remainder of 1994 and five hotels
in May, 1995 in connection with a second public offering (the "Acquired
Hotels"). It currently leases all 21 hotels (the "Current Hotels") to Winston
Hospitality, Inc. (the "Lessee") under percentage lease agreements (the
"Percentage Leases") through which it receives its principal source of revenue.
RESULTS OF OPERATIONS
For the three months ended March 31, 1996 and the comparable period for 1995,
the differences in operating results are primarily attributable to the fact
that the Company owned all of the Current Hotels during the three months ended
March 31, 1996 as compared with sixteen of the Current Hotels for three months
ended March 31, 1995. Below is a comparison of the actual results of operations
for the three months ended March 31, 1996 to the actual results of operations
for the three months ended March 31, 1995. In order to present a meaningful
comparison of operations, also presented is a comparison of the actual results
of operations for the three months ended March 31, 1996 to the pro forma
results of operations for the three months ended March 31, 1995, as if the
acquisition of the five Acquisition Hotels which were acquired in May 1995, and
the May 1995 follow-on offering had occurred as of January 1, 1995.
THE COMPANY
ACTUAL - THREE MONTHS ENDED MARCH 31, 1996 VS ACTUAL -
THREE MONTHS ENDED MARCH 31, 1995
The Company had revenues of $4,556 in 1996, consisting of $4,540 of Percentage
Lease revenues and $16 of interest and other income. Percentage Lease revenues
increased by $1,505, or 50%, to $4,540 in 1996 from $3,035 in 1995. This
increase was comprised of: (i) $58 for 16 of the Current Hotels that were owned
for the first three months of 1996 and 1995, which was due to the rent formulas
in the Percentage Leases which resulted in rent payments by the Lessee
increasing by an average of 33% of the $176 increased room revenues
attributable to inflation, plus an average of 66% of $418 of increased room
revenues, which were attributable primarily to higher rates, and (ii) $1,170
for five of the Acquired Hotels that were acquired in May 1995.
Real estate taxes and property insurance costs incurred in 1996 were $320, an
increase of $104 from $216 in 1995. This increase was attributable to the five
additional Acquired Hotels in 1996 that were not owned in the same period in
1995. General and administrative expenses increased $197 to $424 in 1996 from
$227 in 1995. The increase was attributable to: (i) costs attributable to the
increase in size and activities of the Company in 1996 over 1995; (ii) the
Company becoming self-administered in 1996 and incurring costs associated
therewith, offset in part by savings from costs not incurred under its previous
advisory agreement; (iii) inflationary cost increases; and (iv) the write-off
of $22 in costs related to acquisition projects abandoned in 1996. Interest
expense increased by $136 to $674 in 1996 from $538 in 1995, due to: (i)
additional interest of $73 due to borrowings related to the purchase of the
five Acquired Hotels acquired in May 1996; (ii) $34 of amortization of
additional fees incurred in connection with obtaining the $50 million credit
line in May 1995; and (iii) $29 of amortization of interest rate cap agreement
costs. Depreciation increased $422 to $1,167 in 1996 from $745 in 1995,
primarily due to depreciation related to the last five Acquired Hotels and the
additional depreciation on renovations completed during 1995 and 1996.
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ACTUAL - THREE MONTHS ENDED MARCH 31, 1996 VS PRO FORMA -
THREE MONTHS ENDED MARCH 31, 1995
The Company had revenues of $4,556 for the three months ended
March 31, 1996, consisting of $4,540 of Percentage Lease revenues and $16 of
interest and other income. Percentage Lease revenues increased by $357, or 9%,
to $4,540 in 1996 from $4,183 in 1995. This increase was due to: (i) an average
of 27% of the $111 of increased room revenues at the Current Hotels
attributable to inflation, and (ii) an average of 67% of $491 of increased room
revenues at the Current Hotels, which were primarily attributable to higher
rates.
Real estate taxes and property insurance costs incurred in 1996 were $320, an
increase of $16 from $304 in 1995. This increase was attributable primarily to
increased tax rates. General and administrative expenses increased $185 to $424
in 1996 from $239 in 1995. The increase was attributable to the Company
becoming self-administered in 1996 and the timing of additional costs incurred
therewith, offset in part by: (i) savings from costs not incurred under its
previous advisory agreement; (ii) inflationary cost increases; and (iii)
increased write-offs of $15 in costs related to abandoned acquisition projects.
Interest expense decreased by $32 to $674 in 1996 from $706 in 1995, resulting
from lower interest costs due to lower interest rates in 1996 than in 1995,
offset in part by amortization of interest rate cap agreement costs in 1996.
Depreciation increased $35 to $1,167 in 1996 from $1,132 in 1995 primarily due
to additional depreciation on renovations completed during 1995 and 1996.
THE LESSEE
ACTUAL - THREE MONTHS ENDED MARCH 31, 1996 VS ACTUAL -
THREE MONTHS ENDED MARCH 31, 1995
The Lessee had room revenues of $10,709 in 1996, up $3,336, or 45%, from $7,373
in 1995. The increase in room revenues was due to: (i) an increase in room
revenues of $594, or 8%, for 16 of the Current Hotels that were owned for the
first three months of both 1996 and 1995, and (ii) room revenues for the three
months ended March 31, 1996 in the amount of $2,742 for five of the Acquired
Hotels that were acquired in May 1995.
The Lessee had property and operating expenses in 1996 of $4,015, up $1,340
from $2,675 in 1995, and repairs and maintenance costs of $524 in 1996, up $196
from $328 in 1995. These increases in expenses were attributable primarily to
the fact that the Lessee operated 21 of the Current Hotels in 1996 as compared
to 16 of the Current Hotels for the three months ended March 31, 1995.
ACTUAL - THREE MONTHS ENDED MARCH 31, 1996 VS PRO FORMA -
THREE MONTHS ENDED MARCH 31, 1995
The Lessee had room revenues of $10,709 in 1996 and $10,107 in 1995, as further
analyzed in the following table:
Three Months Ended March 31,
------------------------------
1996 1995 % Change
---- ---- --------
Current Hotels
--------------
Room Revenues $10,709 $10,107 6.0%
Occupancy 77.4% 80.4% (3.7%)
Average Daily Rate $ 56.26 $ 51.68 8.9%
Revenue Per Available Room $ 43.52 $ 41.52 4.8%
The Lessee had property and operating expenses of $4,015 in 1996, up $309, or
8%, from $3,706 in 1995. Repairs and maintenance costs totaled $524 in 1996, up
$69, or 15%, from $455 in 1995, which increase was attributable to the
unseasonably cold weather that was experienced during the first quarter of
1996. General and administrative costs increased to $484 in 1996, up $143 or
42% from 1995. This increase was attributable to inflation and the increased
activity that the Lessee has been preparing to handle in 1996. Management fees
totaled $316 in 1996, up $30 from $286 in 1995. The increase is due to the
participation by the third party manager in the improvement in profits at ten
of the Acquired Hotels in 1996 vs. 1995. Percentage Lease payments totaled
$4,540 in 1996 compared to $4,183 in 1995, an increase of $357.
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LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from operating cash flow, which is
principally derived from Percentage Leases. For the quarter ended March 31,
1996, cash flow provided by operating activities was $2,328 and funds from
operation, which is equal to net income before minority interest plus
depreciation, was $3,107. Under Federal income tax law provisions applicable to
REITs, the Company is required to distribute at least 95% of its taxable income
to maintain its tax status as a REIT. Because the Company's cash flow from
operating activities is expected to exceed its taxable income due to
depreciation and amortization expenses, the Company expects to be able to meet
its distribution requirements out of cash flow from operating activities. In
March 1996, the Company declared distributions of $2,371 to its shareholders.
The Company's net cash used in investing activities for the quarter ended March
31, 1996 totaled $2,319 primarily related to deposits and other prepaid costs
incurred in connection with hotel acquisitions and capital improvements to its
Current Hotels. In connection with the 10 Acquired Hotels, which were purchased
between November 1994 and May 1995, the Company spent approximately $1.0
million in 1996, and anticipates spending an additional $0.2 million during
1996 to complete the refurbishment of these hotels. These expenditures are in
addition to reserves of 3% of room revenues for the first year and 5% for the
years thereafter which the Company is required to set aside under its
Percentage Leases for periodic capital improvements and the refurbishment and
replacement of furniture, fixtures and equipment at all of its Current Hotels.
For new acquisitions, the Company will be required to set aside 5% of room
revenues from limited- service hotels, and 7% of gross room, food and beverage
revenues from full-service hotels. In the first quarter of 1996 the Company set
aside $481 for such reserves. These reserves are expected to be funded from
operating cash flow, and possibly also form borrowings under the Company's line
of credit, which sources are expected to be adequate to fund such capital
requirements. These reserves are in addition to amounts spent on normal repairs
and maintenance which have approximated 4.9% and 4.5% of room revenues in 1995
and 1996, respectively, and are paid by the Lessee.
The Company's net cash used in financing activities in the first quarter of
1996 totaled $2,285. Net cash used included a distribution to the Company's
shareholders and minority partners of $2,785. This was offset by additional
borrowing under the Company's line of credit of $500.
The Company has a $50 million line of credit with Wachovia Bank ("Existing
Line"), which limits the amount that may be borrowed for dividends, capital
expenditures and working capital to $8,300, and expires in June 1997.
Borrowings under the line of credit generally bear interest at LIBOR plus
1.25%. The line of credit is collateralized by a first mortgage on each of the
Current Hotels. The Company's Articles of Incorporation limit its total amount
of indebtedness to 45% of the purchase prices paid by the Company for its
investments in hotel properties (the "Debt Limitation"). As of March 31, 1996
the Company had $15,500 available under the Existing Line. Under the Debt
Limitation the Company has additional borrowing capacity of approximately $80
million, assuming it invests all of its borrowings in additional hotels.
The Company intends to acquire and develop additional hotel properties,
including those described below, that meet its investment criteria and is
continually evaluating acquisition opportunities. It is expected that future
hotel acquisitions will be financed, in whole or in part, from additional
follow-on offerings, from borrowings under the line of credit, from joint
venture agreements, and from the issuance of other debt or equity securities.
There can be no assurances that the Company will make an investment in any
additional hotel properties that meet its investment criteria.
On April 25, 1996 the Company filed a registration statement for a Follow-on
Offering to sell up to 5 million shares (not including approximately 0.8
million shares subject to underwriters over-allotment) of its common stock for
which it expects to receive net proceeds of approximately $55.9 million. The
net proceeds from the sale of its common stock will be used to complete the
acquisition of five hotels, to repay certain indebtedness, to refurbish certain
of the Company's hotels and to transfer franchise licenses. Additionally under
the terms of the Stock Purchase Agreement ("Promus Agreement") dated April 24,
1996, between the Company and Promus Hotel Inc. ("Promus"), Promus will invest
$3 million in newly issued Company common stock in connection with the
Company's acquisition of one of the five hotels to be acquired upon completion
of the Follow-on Offering ("Promus Agreement").
In April 1996, the Existing Line was amended and restated to provide for an
increase in the total commitment to $125 million, and an extension of the term
to June 1998 ("New Line"), subject to the successful completion of the
Follow-on
14
15
Offering. The Company will initially secure the New Line with certain of its
hotel properties, which are expected to provide borrowing availability ("Line
Availability") of approximately $85 million. The Line Availability will be
calculated quarterly, and will increase if cash flow attributable to the
collateral hotels increases and / or the Company adds additional hotels as
collateral. The terms of the New Line permit borrowings for dividends, capital
expenditures and working capital of up to 17% of the Line Availability, and new
hotel development of up to 50% of the Line Availability. The New Line bears
interest generally at LIBOR plus 1.75%. The Company has also obtained an
interim unsecured line of credit from its current lenders in the amount of $17
million ("Unsecured Line") to partially finance the acquisition of the four
hotels it acquired on May 7, 1996. It is anticipated that the Unsecured Line,
which bears interest at LIBOR plus 1.75%, will be repaid from proceeds of the
Follow-on Offering.
On May 6, 1996 the Company acquired one hotel with 191 rooms for $4.4 million
with borrowings from the Existing Line. On May 7, 1996 it acquired four hotels
with an aggregate of 505 rooms for $23 million and two parcels of land adjacent
to two of the four hotels for $0.6 million, which were financed in part with
borrowings under the Existing Line and with $17 million of borrowings from the
Unsecured Line. In addition the Company has contracted to acquire five
additional hotels with an aggregate of 627 rooms for an aggregate price of
$39.8 million, conditional upon the closing of the Follow-on Offering. Two of
the additional five hotels are currently in the final stage of construction and
the Company intends to acquire them within 15 days after the later of the
issuance of a certificate of occupancy for such hotels or the opening of such
hotels.
The Promus Agreement, which is subject to the successful completion of the
Follow-on Offering, provides for Promus to invest up to $15 million over time
in newly issued shares of the Company's common stock and for the Company to
purchase one existing and three under development Promus-owned hotels.
Specifically, Promus will invest $3 million of the $15 million upon the
Company's acquisition of an existing 92-suite Homewood Suites in the
Houston-Clear Lake area upon the completion of the Follow-on Offering. It will
also make additional investments at the rate of $12.5 per room in connection
with the acquisition of three Homewood Suites hotels that are currently under
development in Baltimore, MD; Dallas, TX; and Richmond, VA. On April 24, 1996,
the Company executed a purchase agreement with Promus relating to these three
hotels (the "Development Hotel Agreement"). The acquisitions, which are
expected to occur over the next few years, are at prices which approximate
Promus' development cost and are subject to the Company's approval of building
specifications and Promus' completion within certain cost limitations and
delivery dates. On April 24, 1996, the Company and Promus executed an option
agreement (the "Option Agreement") pursuant to which Promus offered the Company
options to acquire future newly developed Homewood Suites properties over the
next several years. Promus will also make additional investments at the rate of
$12.5 per room in connection with such acquisitions until its cumulative
investment reaches $15 million. Pursuant to a non-binding memorandum of
understanding, dated March 15, 1996, between the Company, the Lessee and
Promus, (i) the Company agreed to use its best efforts to spend up to $100
million toward the acquisition or development of Promus hotel properties
(including the hotels relating to the Promus Development Hotel Agreement, the
Option Agreement and the two development hotels described in the paragraph
below) over the next eight years, (ii) Promus agreed to enter into management
agreements with the Lessee for all such hotels acquired by the Company and the
Homewood Suites hotel in the Houston-Clear Lake area, and (iii) Promus and the
Company agreed to the material terms of the purchase agreement for the Homewood
Suites hotel in the Houston-Clear Lake area, the Promus Agreement, the Option
Agreement and the Promus Development Hotel Agreement. Additionally, Promus
would enter into long-term management agreements for each of these hotels.
The Company has entered into contracts to purchase an approximately 5.3 acre
site for development of a 136-room Homewood Suites hotel near the Crabtree
Valley Mall in Raleigh, North Carolina and an approximately 2.7 acre site for
the development of a 100-room Homewood Suites hotel in Alpharetta, Georgia.
Total development costs are expected to approximate $12.0 million and $9.0
million, respectively, for these projects. Construction is tentatively expected
to commence on both of these hotels in mid 1996, with completion tentatively
scheduled for mid 1997. However, there is no assurance that such development
will be undertaken, or if commenced, that it will be completed on schedule.
SEASONALITY
The hotels' operations historically have been seasonal in nature, reflecting
higher REVPAR during the second and third quarters. This seasonality and the
structure of the Percentage Leases, which provide for a higher percentage of
room revenues above stated equal quarterly levels to be paid as Percentage
Rent, can be expected to cause fluctuations in the Company's quarterly lease
revenue under the Percentage Leases.
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PART II - OTHER INFORMATION
Item 5. Other Information.
(a) None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Memorandum of Understanding, dated march 15, 1996,
among Winston Hotels, Inc. , Winston Hospitality, Inc. and Promus
Hotels, Inc.
10.2 Stock Purchase Agreement, dated April 24, 1996,
between Promus Hotels, Inc. and Winston Hotels, Inc.
10.3 Agreement of Purchase and Sale, dated April 24,
1996, between WINN Limited Partnership and Promus Hotels, Inc.
relating to three hotel properties being developed by Promus
Hotels, Inc.
10.4 Agreement of Purchase and Sale, dated April 24,
1996, between WINN Limited Partnership and Promus Hotels, Inc.
relating to a hotel property located in Clear Lake, Texas.
10.5 Option to Purchase Additional Hotels, dated April
24, 1996 between WINN Limited Partnership and Promus Hotels, Inc.
10.6 Agreement of Purchase and Sale, dated February 1,
1996, among WINN Limited Partnership, Dallas Lodging Associates,
Inc., A.B. Lodging Associates, Inc., London Lodging Associates
and Duncanville Lodging Associates I, Ltd.
10.7 Management Agreement dated April 25, 1996, between
Winston Hospitality, Inc. and Impac Hotel Group, Inc.
10.8 Agreement of Purchase and Sale, dated April 24,
1996, between WINN Limited Partnership and Cary Suites, Inc.
10.9 Agreement of Purchase and Sale, dated April 24,
1996, between WINN Limited Partnership and RWW, Inc.
10.10 Agreement of Purchase and Sale, dated April 24,
1996, between WINN Limited Partnership and WJS, Associates.
10.11 Agreement of Purchase and Sale, dated April 24,
1996, between WINN Limited Partnership and Hotel II,
Incorporated.
10.12 Sales Contract, dated March 31, 1996, among WINN
Limited Partnership, Louis Bowie and Title Company of North
Carolina.
10.13 Sales Contract, dated February 9, 1996, among WINN
Limited Partnership, Russell Parman, Ruby Parman and Title
Company of North Carolina.
10.14 Commitment Letter, dated April 24, 1996, to Winston
Hotels, Inc. and WINN Limited Partnership, L.P. from Wachovia
Bank of North Carolina, N.A., Branch Banking & Trust Company,
South Trust Bank of Alabama, N.A., and NationsBank, N.A.
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10.15 Commitment Letter, dated May 7, 1996, to Winston
Hotels, Inc. and WINN Limited Partnership, L.P. from Wachovia
Bank of North Carolina, N.A., Branch Banking & Trust Company.
27. Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
period for which this report is being filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINSTON HOTELS, INC.
Date 5/14/96 /s/ Robert W. Winston, III
--------------------- --------------------------
Robert W. Winston, III
Chief Executive Officer
and President
Date 5/14/96 /s/ Philip R. Alfano
--------------------- ---------------------------
Philip R. Alfano
Senior Vice President and
Chief Financial Officer
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WINSTON HOTELS, INC.
FORM 10-Q for the quarter ended March 31, 1996
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- - ------ ----------------------
10.1 Memorandum of Understanding, dated March 15, 1996, among Winston Hotels, Inc. , Winston
Hospitality, Inc. and Promus Hotels, Inc.
10.2 Stock Purchase Agreement, dated April 24, 1996, between Promus Hotels, Inc. and Winston Hotels,
Inc.
10.3 Agreement of Purchase and Sale, dated April 24, 1996, between WINN Limited Partnership and Promus
Hotels, Inc. relating to three hotel properties being developed by Promus Hotels, Inc.
10.4 Agreement of Purchase and Sale, dated April 24, 1996, between WINN Limited Partnership and Promus
Hotels, Inc. relating to a hotel property located in Clear Lake, Texas
10.5 Option to Purchase Additional Hotels, dated April 24, 1996 between WINN Limited Partnership and
Promus Hotels, Inc.
10.6 Agreement of Purchase and Sale, dated February 1, 1996, among WINN Limited Partnership, Dallas
Lodging Associates, Inc., A.B. Lodging Associates, Inc., London Lodging Associates and
Duncanville Lodging Associates I, Ltd.
10.7 Management Agreement dated April 25, 1996, between Winston Hospitality, Inc. and Impac Hotel
Group, Inc.
10.8 Agreement of Purchase and Sale, dated April 24, 1996, between WINN Limited Partnership and Cary
Suites, Inc.
10.9 Agreement of Purchase and Sale, dated April 24, 1996, between WINN Limited Partnership and RWW,
Inc.
10.10 Agreement of Purchase and Sale, dated April 24, 1996, between WINN Limited Partnership and WJS,
Associates.
10.11 Agreement of Purchase and Sale, dated April 24, 1996, between WINN Limited Partnership and Hotel
II, Incorporated.
10.12 Sales Contract, dated March 31, 1996, among WINN Limited Partnership, Louis Bowie and Title
Company of North Carolina.
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10.13 Sales Contract, dated February 9, 1996, among WINN Limited Partnership, Russell Parman, Ruby
Parman and Title Company of North Carolina.
10.14 Commitment Letter, dated April 24, 1996, to Winston Hotels, Inc. and WINN Limited Partnership,
L.P. from Wachovia Bank of North Carolina, N.A., Branch Banking & Trust Company, South Trust Bank
of Alabama, N.A., and NationsBank, N.A.
10.15 Commitment Letter, dated May 7, 1996, to Winston Hotels, Inc. and WINN Limited Partnership, L.P.
from Wachovia Bank of North Carolina, N.A., Branch Banking & Trust Company.
27. Financial Data Schedule (For SEC use only)
20