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 June 30, 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, $.01 par value, outstanding on August 8,
1996 was 15,663,217.
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WINSTON HOTELS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. WINSTON HOTELS, INC. (unaudited)
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income - For the three months ended
June 30, 1996, three months ended June 30, 1995, six months
ended June 30, 1996 and six months ended June 30, 1995 4
Consolidated Statements of Cash Flows - For the six months ended
June 30, 1996 and the six months ended June 30, 1995 5
Notes to consolidated financial statements 6
WINSTON HOSPITALITY, INC. (unaudited)
Balance Sheets - June 30, 1996 and December 31, 1995 8
Statements of Income - For the three months ended June 30, 1996,
three months ended June 30, 1995, six months ended June 30,
1996 and six months ended June 30, 1995 9
Statements of Cash Flows - For the six months ended June 30, 1996
and six months ended June 30, 1995 10
Notes to financial statements 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 23
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WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
ASSETS
Investment in hotel properties:
Land $ 16,910 $ 13,879
Buildings 126,929 103,264
Furniture, equipment and building improvements 10,908 5,753
-------- --------
154,747 122,896
Less accumulated depreciation 7,641 5,033
-------- --------
Net investment in hotel properties 147,106 117,863
Cash and cash equivalents 7,982 2,496
Lease revenue receivable 5,163 2,547
Deferred expenses, net 1,593 841
Prepaid expenses and other assets 508 222
-------- --------
$162,352 $123,969
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 11,475 $ 34,000
Accounts payable and accrued expenses 1,556 1,574
Distributions payable 4,105 2,785
Amounts due to Lessee 2,517 1,187
Minority interest in Partnership 3,856 3,551
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued and
outstanding 0 0
Common stock, $.01 par value, 50,000,000
shares authorized, 15,663,217 and 9,880,114
shares issued and outstanding 157 99
Additional paid-in capital 141,932 82,988
Unearned directors' compensation (219) (256)
Deficit (3,027) (1,959)
-------- --------
Total shareholders' equity 138,843 80,872
-------- --------
$162,352 $123,969
======== ========
The accompanying notes are an integral part of the financial statements
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WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------ ------------------ ---------------- ----------------
Revenue:
Percentage lease revenue $ 6,792 $ 4,639 $ 11,332 $ 7,674
Interest and other income 21 27 37 53
---------- --------- ---------- ---------
Total revenue 6,813 4,666 11,369 7,727
---------- --------- ---------- ---------
Expenses:
Real estate taxes and property and
casualty insurance 375 318 695 534
General & administrative 473 304 897 531
Interest expense 900 604 1,574 1,142
Depreciation 1,442 903 2,609 1,648
Amortization 36 29 67 55
---------- --------- ---------- ---------
Total expenses 3,226 2,158 5,842 3,910
---------- --------- ---------- ---------
Income before allocation to
minority interest 3,587 2,508 5,527 3,817
Income allocation to minority interest 150 129 230 208
---------- --------- ---------- ---------
Net income applicable to
common shareholders $ 3,437 $ 2,379 $ 5,297 $ 3,609
========== ========= ========== =========
Net income per common share $ 0.34 $ 0.29 $ 0.53 $ 0.48
========== ========= ========== =========
Cash distributions per share $ 0.255 $ 0.22 $ 0.495 $ 0.44
========== ========= ========== =========
Weighted average number of common
shares and common share equivalents 10,672,165 8,730,874 10,526,428 7,984,345
========== ========= ========== =========
The accompanying notes are an integral part of the financial statements.
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WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
Cash flows from operating activities:
Net income $ 5,297 $ 3,609
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority Interest 230 208
Depreciation 2,609 1,648
Amortization recorded as interest expense 113 29
Amortization of franchise fees 30 17
Unearned compensation amortization 37 38
Write-off of deferred acquisition costs 0 12
Changes in assets and liabilities:
Lease revenue receivable (2,616) (2,043)
Prepaid expenses and other assets (22) 39
Current liabilities 31 589
------- -------
Net cash provided by operating activities 5,709 4,146
------- -------
Cash flows used in investing activities:
Franchise fees paid (404) (216)
Deferred acquisition costs (881) (89)
Investment in hotel properties (30,508) (34,332)
------- -------
Net cash used in investing activities (31,793) (34,637)
------- -------
Cash flows used in financing activities:
Purchase of interest rate cap agreements 0 (261)
Fees paid to increase and extend the line of credit (13) (130)
Net proceeds from public offering 59,368 27,922
Payment of distributions to common shareholders (5,039) (2,913)
Payment of distributions to minority interest (221) (187)
Increase/(decrease) in line of credit borrowing (22,525) 5,000
------- -------
Net cash provided by financing activities 31,570 29,431
------- -------
Net increase/(decrease) in cash and cash equivalents 5,486 (1,060)
Cash and cash equivalents at beginning of period 2,496 1,114
------- -------
Cash and cash equivalents at end of period $ 7,982 $ 54
------- -------
Supplemental disclosure:
Cash paid for interest $ 1,392 $ 1,015
======= =======
The accompanying notes are an integral part of the financial statements.
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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 and six month periods ended June 30, 1996 and 1995
are not necessarily indicative of the results for a full year.
2. ACQUISITIONS
In May 1996 the Company acquired five hotel properties for purchase
prices totaling $28 million with borrowings under its existing line of
credit and an interim unsecured line of credit. On June 26, 1996 the Company
completed a follow-on offering of 5.75 million shares. The net proceeds of
$59.4 million were used to repay the interim indebtedness relating to the May
acquisitions and certain other indebtedness.
3. PRO FORMA FINANCIAL INFORMATION
These unaudited pro forma condensed statements of income of the Company
are presented as if both the May 1995 and the June 1996 follow-on offerings
had occurred January 1, 1995 and the Company had acquired the five hotels it
acquired in May 1996 and the five hotels it acquired in May 1995 as of
January 1, 1995, thereby owning all 26 current hotels for the six month
periods ended June 30, 1996 and 1995. These unaudited pro forma condensed
statements of income are 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:
Pro Forma Pro Forma
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
Percentage lease revenue $12,793 $11,707
Net income applicable to common shareholders $ 7,145 $ 6,893
Net income per common share $ 0.46 $ 0.44
Weighted average number of common shares
and common share equivalents 16,097,173 16,085,114
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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. SUMMARIZED NONCASH FINANCING AND INVESTING ACTIVITIES FOR THE PERIOD
The following summarizes the noncash financing and investing activities
for the six month period ended June 30, 1996 and 1995:
Included in accounts payable and accrued expenses and amounts due to Lessee
at June 30, 1996 are 1996 additions to investment in hotel properties of
$1,180 due to the Lessee, and $510 related to the acquisition of hotel
properties during the second quarter of 1996 as well as acquisitions that
occurred during the third quarter of 1996. On May 28, 1996, the Company
declared a $0.255 per share cash distribution of $4,105 which was paid on
July 16, 1996. In connection with the follow-on offering in June 1996 and
the related investment by Winston Hotels, Inc. into the Partnership, minority
interest in Partnership was increased and additional paid-in capital was
reduced by approximately $290. Included in accounts payable and accrued
expenses at December 31, 1995 was $409 for an Incentive Fee due to Advisor,
for which 33,103 shares of Common Stock were issued in April 1996.
Included in accounts payable and accrued expenses and amounts due to Lessee
at June 30, 1995 are additions to investment in hotel properties of $699 due
to the Lessee, and $119 related to the acquisition of hotel properties
occurring on May 18, 1995 and $511 of deferred expenses related to the May
1995 follow-on offering. On June 27, 1995, the Company declared a $.22 per
share cash distribution of $2,269 that was paid on July 18, 1995.
5. SUBSEQUENT EVENTS
In July 1996, the Company acquired three hotel properties for purchase
prices totaling $30.8 million which included the assumption of debt and
the issuance of approximately 786,000 partnership units by WINN Limited
Partnership.
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WINSTON HOSPITALITY, INC.
BALANCE SHEETS
($ IN THOUSANDS)
<Caption
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $4,767 $2,249
Accounts receivable:
Trade 1,552 836
Lessor 2,517 1,187
Affiliates 133 79
Prepaid expenses and other assets 73 117
------ ------
Total current assets 9,042 4,468
------ ------
Furniture, fixtures and equipment:
Furniture and equipment 241 186
Leasehold improvements 110 106
------ ------
351 292
Less accumulated depreciation and amortization 130 95
------ ------
221 197
------ ------
$9,263 $4,665
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $1,093 $ 450
Percentage lease payable 5,163 2,547
Accrued salaries and wages 652 607
Accrued sales and occupancy taxes 549 219
Other current liabilities 1,083 357
------ ------
8,540 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 673 435
------ ------
Total shareholders' equity 723 485
------ ------
$9,263 $4,665
====== ======
The accompanying note is an integral part of the financial statements.
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WINSTON HOSPITALITY, INC.
STATEMENTS OF INCOME
($ IN THOUSANDS)
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------ ------------------ ---------------- ----------------
Revenue:
Room $14,719 $10,321 $25,427 $17,694
Food and beverage 401 28 440 60
Other revenue, net 285 250 554 432
Interest income 27 5 46 15
------- ------- ------- -------
Total revenue 15,432 10,604 26,467 18,201
------- ------- ------- -------
Expenses:
Property operating expenses 5,000 3,353 8,956 6,022
Repairs and maintenance 801 435 1,325 763
Food and beverage 293 38 351 44
General and administrative 510 355 994 697
Franchise costs 1,323 891 2,228 1,514
Management fees 377 272 693 427
Percentage lease payments 6,792 4,639 11,332 7,674
------- ------- ------- -------
Total expenses 15,096 9,983 25,879 17,141
------- ------- ------- -------
Net income $ 336 $ 621 $ 588 $ 1,060
======= ======= ======= =======
The accompanying note is an integral part of the financial statements.
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WINSTON HOSPITALITY, INC.
STATEMENT OF CASH FLOWS
($ IN THOUSANDS)
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
Cash flows from operating activities:
Net income $ 588 $1,060
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 35 29
Changes in assets and liabilities:
Accounts receivable (716) (600)
Prepaid expenses and other assets 44 (1)
Accounts payable - trade 643 319
Percentage lease payable 2,616 2,043
Accrued expenses and other liabilities 1,101 476
------- ------
Net cash provided by operating activities 4,311 3,326
------- ------
Cash flows used in investing activities:
Sale/(purchases) of furniture, fixture & equipment (59) 3
Advances to lessor and affiliates (1,384) (760)
------- -----
Net cash used in investing activities (1,443) (757)
------- -----
Cash flows used in financing activities:
Distributions to shareholders (350) (456)
------- ------
Net cash used in financing activities (350) (456)
------- ------
Net increase in cash and cash equivalents 2,518 2,113
Cash and cash equivalents at beginning of period 2,249 2,120
------- ------
Cash and cash equivalents at end of period $ 4,767 $4,233
======= ======
The accompanying note is an integral part of the financial statements.
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WINSTON HOSPITALITY, INC.
NOTE TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statistics and statements of income of the Lessee are
presented as if leases and the operation of the Current Hotels and the Acquired
Hotels had commenced on January 1, 1995. The unaudited pro forma statistics
and statements of income are not necessarily indicative of what actual results
of operations of the Lessee would have been assuming such operations had
commenced as of January 1, 1995, nor do they purport to represent the results
of operations for future periods ($ in thousands, except Average Daily Rate and
REVPAR).
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------ ------------------ ---------------- ----------------
Occupancy 84.3% 86.0% 80.2% 82.6%
Average Daily Rate $ 60.27 $ 55.29 $ 58.18 $ 53.27
REVPAR $ 50.82 $ 47.54 $ 46.67 $ 44.02
Revenue
Room $15,739 $14,712 $28,887 $27,097
Food and beverage 685 535 1,229 1,022
Other revenue, net 369 359 729 710
------- ------- ------- -------
Total revenue 16,793 15,606 30,845 28,829
------- ------- ------- -------
Expenses:
Property operating expenses 7,465 6,529 14,070 12,703
Repairs and maintenance 882 849 1,522 1,425
Food and beverage 557 433 983 809
General and administrative 483 465 970 917
Percentage lease payments 7,216 6,626 12,793 11,707
------- ------- ------- -------
Total expenses 16,603 14,902 30,338 27,561
------- ------- ------- -------
Net income $ 190 $ 704 $ 507 $ 1,268
======= ======= ======= =======
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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, a follow-on offering in May 1995, and a second
follow-on offering in June 1996 operates as a real estate investment trust to
invest in hotel properties. The Company acquired ten hotels in conjunction with
its initial public offering, six hotels during the remainder of 1994, five
hotels in May 1995 in connection with the May 1995 follow-on offering
(collectively, all twenty-one hotels are the "Current Hotels") and five hotels
in May 1996 (the "Acquired Hotels"). It currently leases 26 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 and six month periods ended June 30, 1996 and 1995, the
differences in operating results are primarily attributable to the fact that
the Company owned 21 hotels for the entire three and six month periods ended
June 30, 1996 and 26 Hotels for 54 days of the three and six month periods
ended June 30, 1996, as compared to 16 hotels for the entire three and six
month periods ended June 30, 1995 and 21 hotels for 43 days of the three and
six month periods ended June 30, 1995. In order to present a more meaningful
comparison of operations, in addition to the comparison of actual results for
the three and six months ended June 30, 1995 versus actual results for the
three and six months ended June 30, 1996, below are analyses of the pro forma
results for the three and six month periods ended June 30, 1996 versus pro
forma results for the three and six month periods ended June 30, 1995 as if the
follow-on offerings, the May 1996 and the May 1995 acquisitions had occurred on
January 1, 1995.
THE COMPANY
ACTUAL - THREE MONTHS ENDED JUNE 30, 1996 VS ACTUAL - THREE MONTHS ENDED JUNE
30, 1995
The Company had revenues of $6,813 in 1996, consisting of $6,792 of Percentage
Lease revenues and $21 of interest and other income. Percentage Lease revenues
increased by $2,153, or 46%, in 1996 from $4,639 in 1995. This increase was
comprised of: (i) $525 for the 16 Current Hotels that were owned for the second
three months of 1996 and 1995, which was due to the rent formulas of the
Percentage Leases increasing rent payments by the Lessee by an average of 33%
of the $146 in increased room revenues attributable to inflation, and by an
average of 67% of the $712 in increased room revenues attributable primarily to
higher rates, (ii) $868 for the five Current Hotels that were acquired in May
1995, and (iii) $760 for the five Acquired Hotels.
Real estate taxes and property insurance costs incurred in 1996 were $375, an
increase of $57 from $318 in 1995. This increase was primarily attributable to
the five hotels acquired in 1995 that were owned for the entire six month
period in 1996. General and administrative expenses increased $169 to $473 in
1996 from $304 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
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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 $49 in costs related to acquisition projects abandoned in
1996. Interest expense increased by $296 to $900 in 1996 from $604 in 1995,
primarily due to additional interest of $276 related to borrowings for the
purchase of the Acquired Hotels, and to the increase in amortization of
interest rate cap agreement costs in 1996. Depreciation increased $539 to
$1,442 in 1996 from $903 in 1995, primarily due to depreciation related to the
five hotels acquired in 1995 and the additional depreciation on renovations
completed during 1995 and 1996.
PRO FORMA - THREE MONTHS ENDED JUNE 30, 1996 VS PRO FORMA - THREE MONTHS ENDED
JUNE 30, 1995
The Company had pro forma revenues of $7,237 for the three months ended June
30, 1996, consisting of $7,216 of pro forma Percentage Lease revenues and $21
of pro forma interest and other income. Pro forma Percentage Lease revenues
increased by $590, or 9%, to $7,216 in 1996 from $6,626 in 1995. This increase
was due to the rent formulas of the Percentage Leases increasing pro forma rent
payments by the Lessee by an average of: (i) 35% of the $299 in increased pro
forma room revenues attributable to inflation and 65% of the $727 in increased
pro forma room revenues attributable primarily to higher rates, and (ii) 5% of
the $6 in increased food and beverage revenue attributable to inflation and 10%
of the $78 in increased food and beverage revenues.
Pro forma real estate taxes and property insurance costs incurred in 1996 were
$413, a decrease of $16 from $429 in 1995. This decrease was attributable
primarily to decreased insurance premiums in 1996. Pro forma general and
administrative expenses increased $195 to $479 in 1996 from $284 in 1995. The
increase was attributable to the Company becoming self-administered in 1996,
the timing of additional costs incurred therewith, and inflationary cost
increases, offset in part by savings from costs not incurred under its previous
advisory agreement. Pro forma interest expense remained consistent between 1995
and 1996, resulting from lower interest costs due to lower interest rates in
1996 than in 1995, and offset by an increase in amortization of interest rate
cap agreement costs in 1996. Pro forma depreciation increased $246 to $1,585 in
1996 from $1,339 in 1995 primarily due to additional depreciation on
renovations completed during 1995 and 1996.
ACTUAL - SIX MONTHS ENDED JUNE 30, 1996 VS ACTUAL - SIX MONTHS ENDED JUNE 30,
1995
The Company had revenues of $11,369 in 1996, consisting of $11,332 of
Percentage Lease revenues and $37 of interest and other income. Percentage
Lease revenues increased by $3,658, or 48%, in 1996 from $7,674 in 1995. This
increase was comprised of: (i) $860 for the 16 Current Hotels that were owned
for the first six months of 1996 and 1995, which was due to the rent formulas
of the Percentage Leases increasing rent payments by the Lessee by an average
33% of the $322 in increased room revenues attributable to inflation and by an
average of 67% of the $1,130 in increased room revenues attributable primarily
to higher rates, (ii) $2,038 for the five Current Hotels that were acquired in
May 1995 and (iii) $760 for the Acquired Hotels purchased in May 1996.
Real estate taxes and property insurance costs incurred in 1996 were $695, an
increase of $161 from $534 in 1995. This increase was primarily attributable to
the five hotels acquired in May 1995 that were owned for the entire six month
period in 1996. General and administrative expenses increased $366 to $897 in
1996 from $531 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;
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(iii) inflationary cost increases; and (iv) the write-off of $71 in costs
related to acquisition projects abandoned in 1996. Interest expense increased
by $432 to $1,574 in 1996 from $1,142 in 1995, due to: (i) additional interest
of $276 related to borrowings for the purchase of the Acquired Hotels, (ii)
increase of $73 in amortization of interest rate cap agreements and other line
of credit costs in 1996 and (iii) average increase of $83 in interest expense
on the increase in other borrowings from 1995 to 1996. Depreciation increased
$961 to $2,609 in 1996 from $1,648 in 1995, primarily due to depreciation
related to the five hotels acquired in May 1995 and the additional depreciation
on renovations completed during 1995 and 1996.
PRO FORMA - SIX MONTHS ENDED JUNE 30, 1996 VS PRO FORMA - SIX MONTHS ENDED JUNE
30, 1995
The Company had pro forma revenues of $12,831 for the six months ended June 30,
1996, consisting of $12,793 of pro forma Percentage Lease revenues and $38 of
pro forma interest and other income. Pro forma Percentage Lease revenues
increased by $1,086, or 9%, to $12,793 in 1996 from $11,707 in 1995. This
increase was due to the rent formulas of the Percentage Leases increasing pro
forma rent payments by the Lessee by an average of: (i) 33% of the $341 in
increased pro forma room revenues attributable to inflation and 66% of the
$1,449 in increased pro forma room revenues attributable primarily to higher
rates, and (ii) 5% of the $9 in increased food and beverage revenue
attributable to inflation and 10% of the $135 in increased food and beverage
revenues attributable primarily to higher prices.
Pro forma real estate taxes and property insurance costs incurred in 1996 were
$820, a decrease of $16 from $836 in 1995. This decrease was attributable
primarily to the decrease in insurance premiums in 1996. Pro forma general and
administrative expenses increased $351 to $915 in 1996 from $564 in 1995. The
increase was attributable to the Company becoming self-administered in 1996,
the timing of additional costs incurred therewith, and inflationary cost
increases, offset in part by savings from costs not incurred under its previous
advisory agreement. Pro forma interest expense remained consistent between 1995
and 1996, resulting from lower interest costs due to lower interest rates in
1996 than in 1995, offset by an increase in amortization of interest rate cap
agreement costs in 1996. Pro forma depreciation increased $442 to $3,116 in
1996 from $2,674 in 1995 primarily due to additional depreciation on
renovations completed during 1995 and 1996.
THE LESSEE
ACTUAL - THREE MONTHS ENDED JUNE 30, 1996 VS ACTUAL - THREE MONTHS ENDED JUNE
30, 1995
Total revenue increased $4,828, or 46%, to $15,432 in 1996 from $10,604 in
1995. This increase is primarily attributable to an increase in room revenues
of $4,398, or 43%, to $14,719 in 1996 from $10,321 in 1995. The increase in
room revenues was due to: (i) an increase in room revenues of $858, or 10%, for
the 16 Current Hotels that were owned for the three month periods ended June
30, 1996 and 1995, (ii) room revenues of $3,302 in the three months ended June
30, 1996, up $1,865, or 130% from $1,437 in 1995 for the five Current Hotels
that were acquired in May 1995, and (iii) room revenues for the three months
ended June 30, 1996 in the amount of $1,675 for the Acquired Hotels. Food and
beverage revenue increased $373, to $401 in 1996 from $28 in 1995. This
increase is primarily attributable to one of the Acquired Hotels being a full
service hotel.
The Lessee had total expenses in 1996 of $15,096, up $5,113 from $9,983 in
1995. This increase was primarily attributable to the operation of a greater
number of hotels for the three months ended June 30, 1996 as compared with the
same period of 1995.
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In general, the net income of the Lessee was negatively impacted during the
three months ended June 30, 1996 by the following non-recurring conditions: (i)
the renovation of the Comfort Inn hotel in Charleston, South Carolina, (ii) one
time general and administrative costs incurred in anticipation of managing 10
additional hotels and (iii) a short term management contract for the full
service hotel in Garland, Texas. Furthermore, the Lessee incurred incremental
on-going general and administrative costs during the three months ended June
30, 1996 in preparation for managing the 10 additional hotels, while only
receiving the benefit of operating profits of five hotels for approximately two
months. As of June 30, 1996, only five of the hotels (the Acquired Hotels) had
been leased and were operated for less than two months during the period.
PRO FORMA - THREE MONTHS ENDED JUNE 30, 1996 VS PRO FORMA - THREE MONTHS ENDED
JUNE 30, 1995
Pro forma total revenue increased $1,187, or 8%, to $16,793 in 1996 from
$15,606 in 1995. This increase is primarily attributable to an increase in pro
forma room revenues of $1,027, or 7%, to $15,739 in 1996 from $14,712 in 1995.
Pro forma food and beverage revenue increased $150 to $685 in 1996 from $535 in
1995 as a result of more aggressive marketing of food and beverage products to
guests primarily at the full-service Holiday Inn Select in Garland, Texas.
The Lessee had pro forma property and operating expenses of $7,465 in 1996
representing 47% of pro forma room revenue as compared to $6,529 or 44% of pro
forma room revenue in 1995. This increase is primarily attributable to the
Lessee offering greater amenities and providing additional services to guests
in an effort to add additional value to our product line in anticipation of new
competition. Pro forma Percentage Lease payments totaled $7,216 in 1996
representing 46% of pro forma room revenue as compared to $6,626 or 45% of pro
forma room revenue in 1995. This increase is due to the nature of the
Percentage Lease agreements. Other expenses on a pro forma basis experienced
increases attributable to inflation and the increases in pro forma room, food
and beverage revenue.
In general, net income on a pro forma basis for the Acquired Hotels reflects
the operations of the prior owners which were at lower operating margins during
1996 and 1995 than the Current Hotels. The Percentage Lease terms for the
Acquired Hotels reflect the assumption that the Acquired Hotels will be
operated at operating margins generally comparable to the Current Hotels. These
factors contributed to the lower pro forma net income in 1996 and 1995.
ACTUAL - SIX MONTHS ENDED JUNE 30, 1996 VS ACTUAL - SIX MONTHS ENDED JUNE 30,
1995
Total revenue increased $8,266, or 47%, to $26,467 in 1996 from $18,201 in
1995. This increase is primarily attributable to an increase in room revenues
of $7,733, or 44%, to $25,427 in 1996, from $17,694 in 1995. The increase in
room revenues was due to: (i) an increase in room revenues of $1,452, or 9%,
for the 16 Current Hotels that were owned for the first six months of both 1996
and 1995, (ii) room revenues of $6,043 in 1996, up $4,606 or 321%, from $1,437
in 1995 for the five Current Hotels that were acquired in May 1995, and (iii)
room revenues for the six months ended June 30, 1996 in the amount of $1,675
for the Acquired Hotels. Food and beverage revenue increased $380, or 633%, to
$440 in 1996 from $60 in 1995. This increase is primarily attributable to one
of the Acquired Hotels being a full service hotel.
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The Lessee had total expenses in 1996 of $25,879, up $8,738 from $17,141 in
1995. This increase was primarily attributable to the operation of a greater
number of hotels for the six months ended June 30, 1996 as compared with the
same period of 1995.
In general, the net income of the Lessee was negatively impacted during the six
months ended June 30, 1996 by the following non-recurring conditions: (i) the
unseasonably cold weather experienced during the first quarter of 1996, (ii)
renovation of the Comfort Inn hotel in Charleston, South Carolina, (iii) one
time general and administrative costs incurred in anticipation of managing 10
additional hotels, while only receiving the benefit of operating profits of five
hotels for approximately two months and (iv) a short term management contract
for the full service hotel in Garland, Texas. Furthermore, the Lessee incurred
incremental on-going general and administrative costs during the six months
ended June 30, 1996 in preparation for managing the 10 additional hotels. As of
June 30, 1996, only five of the hotels (the Acquired Hotels) had been leased and
were operated for less than two months during the period.
PRO FORMA - SIX MONTHS ENDED JUNE 30, 1996 VS PRO FORMA - SIX MONTHS ENDED JUNE
30, 1995
Pro forma total revenue increased $2,016, or 7%, to $30,845 in 1996 from
$28,829 in 1995. This increase is primarily attributable to an increase in pro
forma room revenues of $1,790, or 7%, to $28,887 in 1996 from $27,097 in 1995.
Pro forma food and beverage revenue increased $207 to $1,229 in 1996 from
$1,022 in 1995 as a result of more aggressive marketing of food and beverage
products to guests primarily at the full-service Holiday Inn Select in Garland,
Texas.
The Lessee had pro forma property and operating expenses of $14,070 in 1996
representing 49% of pro forma room revenue as compared to $12,703 or 47% of pro
forma room revenue in 1995. This increase is primarily attributable to the
Lessee offering greater amenities and providing additional services to guests
in an effort to add additional value to its product line in anticipation of new
competition. Pro forma Percentage Lease payments totaled $12,793 in 1996
representing 44% of pro forma room revenue as compared to $11,707 or 43% of pro
forma room revenue in 1995. This increase is due to the nature of the
Percentage Lease agreements. Other expenses on a pro forma basis were
consistent with increases in the rate of inflation and the increases in pro
forma room, food and beverage revenue.
In general, net income on a pro forma basis for the Acquired Hotels reflects
the operations of the prior owners which were at lower operating margins during
1996 and 1995 than the Current Hotels. The Percentage Lease terms for the
Acquired Hotels reflect the assumption that the Acquired Hotels will experience
operating margins generally comparable to the Current Hotels. These factors
contributed to the lower pro forma net income in 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from operating cash flow, which is
principally derived from Percentage Leases. For the six months ended June 30,
1996, cash flow provided by operating activities was $5,709 and funds from
operations, which is equal to net income before minority interest plus
depreciation, was $8,136. 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. In the second quarter of 1996, the Company
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declared distributions of $3,994 to its shareholders. 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.
The Company's net cash used in investing activities for the six months ended
June 30, 1996 totaled $31,793, primarily relating to the purchase of the
Acquired Hotels. Further, the Company incurred $262 in other costs related to
five additional hotel properties which, as of June 30, 1996, were under
contract to be purchased, and $2.0 million in renovation costs in connection
with previously acquired hotels. It also anticipates spending an additional
$7.0 million during 1996 to complete the refurbishment of its 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 six months ended
June 30, 1996 the Company set aside $1,219 for such reserves. These reserves
are expected to be funded from operating cash flow, and possibly also from
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 5.2%
and 4.3% of room revenues in 1996 and 1995, respectively, and are paid by the
Lessee.
The Company's net cash provided by financing activities in the six months ended
1996 totaled $31,570. Net cash provided included $59,368 of net proceeds from a
follow-on offering in June, 1996, offset by: i) a decrease of $22,525 in line of
credit borrowings, ii) the payment of distributions to shareholders of $5,039,
iii) the payment of distributions to minority interest of $221 and iv) the
payment of fees of $13 in connection with the New Line discussed below.
The Company has a $50 million line of credit with Wachovia Bank ("Existing
Line"), which expires in June 1997. Borrowings under the Existing Line
generally bear interest at LIBOR plus 1.25%. 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 June 30, 1996 the Company had $38,525 available under the
Existing Line, and approximately $121 million of additional borrowing capacity
under the Debt Limitation, assuming it invests all of its borrowings in
additional hotels.
In April 1996, a commitment was received from a group of banks led by
Wachovia Bank, under which the Existing Line would be 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"). Upon closing of the New Line
(expected to be in August 1996) the Company will secure it with certain hotel
properties, which will provide borrowing availability ("Line Availability").
Initially 26 of the 29 hotels owned by the Company as of August 8, 1996 will
secure the New Line, and are expected to provide Line Availability of
approximately $80 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 had 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
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acquired on May 7, 1996. This Unsecured Line was repaid from proceeds of the
follow-on offering in June, 1996.
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.
In July 1996, the Company, through the Partnership, acquired three hotel
properties for purchase prices totaling $30.8 million. The Company funded the
purchase prices through the assumption of debt and the issuance of
approximately 786,000 Partnership units. The Company has also contracted to
acquire two additional hotels for an aggregate price of approximately $14.4
million. One of the additional two hotels, the 128-room Courtyard by Marriott -
Wilmington, North Carolina, currently is in the final stage of construction,
and the Company intends to acquire it within 15 days after the later of the
issuance of a certificate of occupancy or the opening of the hotel. The $7.5
million purchase price will be funded through the assumption of debt and the
issuance of approximately $1.0 million of Partnership units. The other hotel,
the 92-room Homewood Suites - Clear Lake (Houston), Texas, will be acquired for
$6.9 million pursuant to an on-going arrangement between the Company and Promus
Hotels, Inc. ("Promus"), the terms of which were agreed to on April 24, 1996
and amended on August 7, 1996. The Company expects to close on the Houston
hotel in August, 1996.
Under the arrangement with Promus, as amended, the Company will acquire the
Houston hotel, has a contingent purchase agreement to acquire a Homewood Suites
hotel being developed by Promus in Richmond, Virginia, has an option to
purchase a limited number of additional Promus-developed Homewood Suites hotels
(which are as yet unidentified) that Promus is obligated to offer the Company
in the future, and will require its lessee to retain Promus to manage the
hotels acquired from it. In addition to offering the Company the right to
acquire a limited number of hotels, Promus has agreed to invest up to $15
million in the Company's common stock (at the then-current market price per
share) as the Company acquires hotels from Promus, beginning with $1.5 million
upon the Company's acquisition of the Houston Homewood Suites hotel and $15,000
per room upon the acquisition of the other hotels from Promus. Promus also has
an option ("Promus Stock Option") expiring December 1996 to invest $7.5 million
(or any portion of it) of its potential $15 million investment at $11.00 per
share. The Company has agreed to use its best efforts to spend up to $100
million toward the acquisition or development of Promus-brand hotels, including
the Homewood Suites hotels in Houston and Richmond, any hotels acquired in the
future from Promus under the arrangement, and the three development hotels
described below. In July, 1996, the Company exercised its rights to terminate
agreements to purchase two Homewood Suites hotels being developed by Promus.
In connection with the August 7 amendments to the Promus arrangement, the
Company agreed to reduce from $3 million to $1.5 million the amount Promus is
required to invest upon the closing of the Houston hotel, Promus agreed to
reduce the maximum amount of common stock that it can buy under the Promus
Stock Option at $11.00 per share from $15 million to $7.5 million, and the
Company agreed to reduce the number of additional Promus-developed hotels that
Promus is required to offer the Company in the future.
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The Company expects to acquire the Homewood Suites - Richmond, Virginia upon
its completion, which Promus estimates will occur within the next year, for a
purchase price which will approximate Promus' development cost. Conditions to
the Company's obligation to purchase include its approval of the building
specifications and Promus' completion of construction within certain cost
limitations and by a specified delivery date.
The Company has entered into contracts to purchase an approximately 5.3 acre
site for development of a 137-suite Homewood Suites hotel near the Crabtree
Valley Mall in Raleigh, North Carolina and an approximately 2.7 acre site for
the development of a 112-suite Homewood Suites hotel in Alpharetta, Georgia. In
addition, the Company plans to develop a 96-suite Homewood Suites hotel on a
3.9 acre site owned in Durham, North Carolina. Total development costs are
expected to approximate $12.0 million, $10.0 million and $9 million,
respectively, for these projects. The construction period for each hotel is
tentatively expected to require approximately twelve months to complete, with
commencement during the third quarter of 1996 for the Raleigh and Alpharetta
hotels, and during the first quarter of 1997 for the Durham hotel. 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 4. Submission of Matters to a Vote of Security Holders
On May 28, 1996, the Annual Meeting of Shareholders was held
and the following matters were submitted to the shareholders
for a vote. There were 8,994,805 shares either present or
evidenced by proxy. Set forth below is a brief description of
the matters voted on and the number of votes cast for, against
or withheld, as well as the number of abstentions and broker
non-votes.
Election of Directors:
Number of
Votes Against Broker
Name Votes For or Withheld Non-votes Totals
---- --------- ---------- --------- ------
Charles M. Winston 8,932,716 62,089 0 8,994,805
Robert W. Winston 8,932,416 62,389 0 8,994,805
James H. Winston 8,932,716 62,089 0 8,994,805
Paul Fulton 8,930,870 63,935 0 8,994,805
Thomas F. Darden 8,932,870 61,935 0 8,994,805
Richard L. Daugherty 8,932,520 62,285 0 8,994,805
Edwin B. Borden 8,933,120 61,685 0 8,994,805
Amendment to the Company's Stock Incentive Plan to increase
the number of authorized shares available to be issued:
Votes for: 7,929,961
Votes against or withheld: 1,011,967
Votes abstained: 52,877
Broker non-votes: 0
---------
Total 8,994,805
Ratification of the accounting firm Coopers & Lybrand L.L.P.
as external auditors:
Votes for: 8,961,993
Votes against or withheld: 8,804
Votes abstained: 24,008
Broker non-votes: 0
---------
Total 8,994,805
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Amendment No. 1 to Stock Purchase Agreement dated as of
August 7, 1996 by and between Promus Hotels, Inc. and Winston
Hotels, Inc. amending the Stock Purchase Agreement dated April
24, 1996 by and between Promus Hotels, Inc. and Winston
Hotels, Inc. (Exhibit 10.2 to the Company's Form 10-Q filed on
May 14, 1996)
10.2 Amendment to Agreement of Purchase and Sale dated as of
August 7, 1996 by and between WINN Limited Partnership and
Promus Hotels, Inc. amending the Agreement of Purchase and
Sale dated April 24, 1996 by and between WINN Limited
Partnership and Promus Hotels, Inc. relating to three hotel
properties being developed by Promus Hotels, Inc. (Exhibit
10.3 to the Company's Form 10-Q filed on May 14, 1996)
10.3 Amendments to Agreement of Purchase and Sale dated May
21, 1996 and August 7, 1996 by and between WINN Limited
Partnership and Promus Hotels, Inc. amending the Agreement of
Purchase and Sale dated April 24, 1996 by and between WINN
Limited Partnership and Promus Hotels, Inc. relating to a
hotel property located in Clear Lake, Texas, (Exhibit 10.4 to
the Company's Form 10-Q filed on May 14, 1996)
10.4 First Amendment to Option to Purchase Additional Hotels
dated as of August 7, 1996 by and between Promus Hotels, Inc.
and WINN Limited Partnership amending the Option to Purchase
Additional Hotels, dated April 24, 1996 by and between WINN
Limited Partnership and Promus Hotels, Inc. (Exhibit 10.5 to
the Company's Form 10-Q filed on May 14, 1996)
10.5 Winston Hotels, Inc. Stock Incentive Plan, as amended
and restated on May 28, 1996
27.1 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K, dated May 21, 1996
listing the acquisition of one hotel on May 6, 1996 under Item
5 and four hotels on May 7, 1996 under Item 2 of the Form 8-K.
The financial statements required by the Form 8-K for the
properties described in Item 2 which were filed by
incorporation by reference are as follows:
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Impac Acquisition Hotels
------------------------
Report of Independent Accountants
Combined Balance Sheet as of December 31, 1995
Combined Statement of Income for the year ended
December 31,1995
Combined Statement of Equity for the year ended
December 31, 1995
Combined Statement of Cash Flows for the year ended
December 31, 1995
Notes to Combined Financial Statements
The Company filed a report on Form 8-K/A, dated July 18, 1996
amending the May 21, 1996 Form 8-K to include additional
financial statements unavailable on May 21, 1996 related to
the acquisition of four hotel properties on May 7, 1996. The
financial statements are as follows:
Impac Acquisition Hotels
------------------------
Report of the Independent Accountants
Combined Balance Sheets at December 31, 1995 and
March 31, 1996 (unaudited)
Combined Statements of Income for the year ended
December 31, 1995 and the three months Ended March 31, 1995
(unaudited) and 1996 (unaudited)
Combined Statements of Equity for the year ended December 31,
1995 and for the three months ended March 31, 1996
(unaudited)
Combined Statements of Cash Flows for the year ended December
31, 1995 and the three months ended March 31, 1995
(unaudited) and 1996 (unaudited)
Notes to the Financial Statements
Pro Forma Financial Statements
------------------------------
Winston Hotels, Inc. Pro Forma Consolidated Statements of
Income for the year ended December 31, 1995 and the three
months ended March 31, 1996 (unaudited)
Winston Hotels, Inc. Pro Forma Balance Sheet as March 31, 1996
(unaudited)
Winston Hospitality, Inc. Pro Forma Statements of Income for
the year ended December 31, 1995 and the three months ended
March 31, 1996 (unaudited)
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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 August 14, 1996 /s/ Robert W. Winston, III
------------------------- -----------------------------
Robert W. Winston, III
Chief Executive Officer
and President
Date August 14, 1996 /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 June 30, 1996
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.1 Amendment No. 1 to Stock Purchase Agreement dated as of August 7, 1996 by and between Promus Hotels, Inc. and
Winston Hotels, Inc. amending the Stock Purchase Agreement dated April 24, 1996 by and between Promus Hotels,
Inc. and Winston Hotels, Inc. (Exhibit 10.2 to the Company's Form 10-Q filed on May 14, 1996)
10.2 Amendment to Agreement of Purchase and Sale dated as of August 7, 1996 by and between WINN Limited Partnership
and Promus Hotels, Inc. amending the Agreement of Purchase and Sale dated April 24, 1996 by and between WINN
Limited Partnership and Promus Hotels, Inc. relating to three hotel properties being developed by Promus
Hotels, Inc. (Exhibit 10.3 to the Company's Form 10-Q filed on May 14, 1996)
10.3 Amendments to Agreement of Purchase and Sale dated May 21, 1996 and August 7, 1996 by and between WINN Limited
Partnership and Promus Hotels, Inc. amending the Agreement of Purchase and Sale dated April 24, 1996 by and
between WINN Limited Partnership and Promus Hotels, Inc. relating to a hotel property being located in Clear
Lake, Texas, (Exhibit 10.4 to the Company's Form 10-Q filed on May 14, 1996)
10.4 First Amendment to Option to Purchase Additional Hotels dated as of August 7, 1996 by and between Promus
Hotels, Inc. and WINN Limited Partnership amending the Option to Purchase Additional Hotels, dated April 24,
1996 by and between WINN Limited Partnership and Promus Hotels, Inc. (Exhibit 10.5 to the Company's Form 10-Q
filed on May 14, 1996)
10.5 Winston Hotels, Inc. Stock Incentive Plan, as amended and restated on May 28, 1996
27.1 Financial Data Schedule (For SEC use only)
24