2006 Fourth Quarter Highlights and Recent Events
- Net income available to common shareholders totaled $5.4 million for the 2006 fourth quarter, or $0.19 per share;
- FFO available to common shareholders totaled $0.26;
- Excluding unusual charges, EBITDA increased $2.5 million from $11.5 million to $14.0 million;
- Same store RevPAR increased by 11.9 percent;
- Same store operating margins rose by 230 basis points;
- Sold one hotel for net proceeds of $9.7 million;
- Opened a 121-room Hilton Garden Inn in Akron, OH and a 142-room Homewood Suites in Princeton, NJ; and,
- Closed one hotel loan for $2.2 million and one hotel loan totaling $1.2 million in 2007.
2006 Fourth Quarter Financial Results
Net income available to common shareholders rose to $5.4 million for the 2006 fourth quarter, or $0.19 per share, compared to net income available to common shareholders of $1.6 million, or $0.06 per share, for the same period in 2005. Net income available to common shareholders for the 2006 fourth quarter included a gain on sale, net of minority interest, of approximately $2.9 million, or $0.10 per share.
Funds from operations (“FFO”) available to common shareholders, excluding unusual charges for the 2006 fourth quarter improved to $8.0 million, compared to $6.9 million in the 2005 fourth quarter, or $0.26 and $0.25 per share, respectively. The company had approximately 30.5 million and 27.7 million fully diluted weighted average common shares outstanding in the 2006 and 2005 reporting periods, respectively.
Same Store Operating Statistics
Fourth quarter 2006 revenue per available room (“RevPAR”) rose 11.9 percent for the company’s 37 hotels that were open throughout each of the 12-month periods ended December 31, 2006 and 2005. The 2006 fourth quarter same store improvement was led by a 10.6 percent increase in average daily room rate (“ADR”) and a 1.2 percent increase in occupancy. The significant increase in ADR contributed to a 230 basis point increase in fourth quarter 2006 operating margins to 42.0 percent from 39.7 percent in the same period a year earlier.
“We are pleased that our margin improved 230 basis points for the fourth quarter and 110 basis points for the full year,” said Robert W. Winston III, chief executive office.
The following table details the company’s same store operating statistics for the 37 consolidated hotels that were open throughout each of the 12-month periods ended December 31, 2006 and 2005 (includes 35 wholly owned hotels and two hotels, the Chapel Hill, N.C. Courtyard by Marriott and the Ponte Vedra, Fla. Hampton Inn, that are owned through consolidated joint ventures).
On a same-store basis, the company expects 2007 first quarter RevPAR to increase 7 to 9 percent, compared to the 2006 first quarter.
Hotel Development
During the 2006 fourth quarter, the company opened two new hotels:
- A 121-room Hilton Garden Inn in Akron, OH in which the company holds a 41.7 percent joint venture ownership interest and also owns an additional preferred equity investment of $2.2 million.
- A 142-room, wholly owned Homewood Suites in Princeton, NJ
- “We have opened three new or deep-renovation properties in the past 12 months, while divesting seven older properties during the same period,” said Joe Green, president and chief financial officer.
The company remains on schedule with the following development projects:
- The company expects to open a wholly owned, 119-room, $13.3 million Hilton Garden Inn in Wilmington, N.C. in the 2007 first quarter.
- A wholly owned, 79-room, $10.7 million Residence Inn in Roanoke, Va. is under construction, with a planned opening in the 2007 fourth quarter.
- During the 2006 fourth quarter, the company broke ground on a 22-room, $3.4 million expansion of the Chapel Hill, N.C. Courtyard by Marriott hotel. The project is scheduled for completion in the 2007 fourth quarter. The property is owned by a joint venture in which the company holds a 48.78 percent equity interest.
- A 120-room, $15.1 million Courtyard by Marriott at Flagler Corporate Park is under construction in Jacksonville, Fla. and is scheduled to open in the 2007 fourth quarter. The company holds a 48 percent equity interest in the joint venture that owns the property.
- During November 2006, the Company purchased a parcel of land for $0.6 million adjacent to its Hilton Garden Inn near the Raleigh Durham airport to build its first aloft hotel. The 151-room aloft is estimated to cost approximately $18.9 million. The Company expects to break ground on the wholly owned hotel during the third quarter of 2007 with an expected opening date during the fourth quarter of 2008.
“This development will be one of the first aloft hotels, an upcoming brand from Starwood. The new brand in the select-service hotel category aloft was conceived by the same W Hotels team at Starwood Hotels & Resorts Worldwide, Inc.,” said Joe Green.
Hotel Acquisitions
In August 2006, the company announced that it had entered into definitive agreements to acquire two hotels in New York City for a purchase price of $55 million each. Located in the Tribeca and Chelsea areas, the hotels currently are under construction. Acquisition of each of these hotels is subject to satisfactory completion of due diligence and other customary closing conditions. The company has been approved by Hilton Hotels Corporation for a Hilton Garden Inn franchise for both the Tribeca hotel and the Chelsea hotel. The Chelsea hotel is expected to open in the second quarter of 2007.
There has been a delay in construction at the Tribeca hotel and the company is pursuing legal action against the seller. Pursuant to the purchase and sale agreement the Company intends to close the project at the appropriate time and complete the development in time to open in the fourth quarter of 2007.
Hotel Dispositions
The company sold one hotel in the fourth quarter for net proceeds of $9.7 million, bringing to seven the total number of hotel dispositions by the company in 2006. These seven hotel dispositions during 2006 resulted in aggregate net proceeds of approximately $52.3 million. At December 31, 2006 the company had two hotels classified as held for sale, which it intends to sell during 2007. Today we plan to close on the sale for one of those hotels, the 81-room Holiday Inn Express in Abingdon, Virginia, for estimated net proceeds of $5.0 million.
Hotel Debt Financing Program
The company closed on one transaction in the 2006 fourth quarter and one transaction in the current quarter as summarized below.
- In the 2006 fourth quarter, the company closed on a $2.2 million mezzanine loan for a 117-room Homewood Suites under construction in Denver, Colo., which has an estimated all-in cost of $13.4 million. Fidelity Bank holds the senior position of the $9.0 million loan for construction of this hotel. The three-and-one-half-year mezzanine loan bears interest at 30-day LIBOR plus 7.50 percent. The company expects to fully fund its portion of the loan in the 2007 second quarter and expects the hotel to open during the second quarter of 2008.
- In the 2007 first quarter, the company closed on a $1.2 million “B” note, as part of a total $7.8 million financing, with GE Capital Franchise Finance Corporation (“GE”) providing $6.6 million of senior debt. The note is secured by a 104-room Holiday Inn Express under construction in Webster, N.Y., which has an estimated all-in cost of $9.8 million. The construction-to-five-year permanent loan bears interest equal to 90-day LIBOR plus approximately 7.00 percent, with an additional 3.94 percent of the original principal balance accruing until the loan is paid in full. The company is obligated to fund the balance of the "B" note ratably over the projected construction period, which is expected to be completed during the first quarter of 2008.
Loans repaid in full in the 2006 fourth quarter and 2007 first quarter include the following:
- During the 2006 fourth quarter, the $5.5 million mezzanine loan collateralized by the Residence Inn by Marriott in St. Louis, Mo. was paid in full.
- During the 2006 fourth quarter, the $2.8 million mezzanine loan, collateralized by a senior participation interest in the loan to Walton Street Capital related to the Austin, TX Renaissance hotel, was prepaid in full.
- During the 2006 fourth quarter, the $2.0 million loan collateralized by a hotel/condo project in Miami Fla. was prepaid in full.
- During the 2007 first quarter, the $2.5 million mezzanine loan, collateralized by a senior participation interest in the loan to Walton Street Capital related to the Los Angeles, CA Airport Renaissance hotel, was prepaid in full.
- Lastly, during the 2007 first quarter, the $1.1 million mezzanine loan collateralized by the ownership interest in the entity that owns the Hilton Garden Inn in Atlanta, Ga. was prepaid in full.
As previously announced, in October 2006, the company sold $6.3 million of its $8.5 million commitment to fund development of a 101-room Hampton Inn and Suites in Murfreesboro, Tenn. to GE. Winston now holds a $2.2 million “B” note. The “B” note bears interest at 30-day LIBOR plus 6.05 percent, with an additional 3.86 percent accrual per annum. As of December 31, 2006, the company had funded $0.5 million of the “B” note. The company is obligated to fund the remaining $1.7 million balance of the “B” note ratably over the projected construction period, which is expected to be completed in the second quarter of 2007.
“Our debt financing program has experienced greater activity over the past two quarters and continues to generate interest from developers,” Green said.
In May 2006, the company funded a $20.3 million “B” note as part of a $66.0 million whole loan to refinance and refurbish the 627 room Lady Luck Hotel and Casino located in downtown Las Vegas, NV. Currently, the company and the “A” piece lender, Canpartners Realty Holding Company IV LLC, are negotiating a forbearance agreement with the borrower that will, among other things, allow the borrower to have additional time to execute their redevelopment plans.
At the close of the 2006 fourth quarter, the company had 16 loans outstanding, representing loans receivable totaling $52.1 million and related interest receivable totaling $1.8 million.
Balance Sheet
During the fourth quarter, the company added five hotels as collateral to the company’s line of credit. At December 31, 2006, the outstanding balance under the line of credit was $1.1 million and the remaining available balance was $171.6 million, based upon the borrowing base created by the 23 hotels that serve as collateral for the line. Four of the company’s hotels remain unencumbered.
Dividends
During the 2006 fourth quarter, the company declared a regular cash dividend of $0.15 per common share and a cash dividend of $0.50 per share of Series B Preferred Stock. Based on the closing price of $13.25 on December 31, 2006, the company’s common dividend provided a 4.5 percent yield.
Guidance
Other than the RevPAR projections set forth above, the company is still in the process of finalizing its internal projections for 2007 and expects to provide an update at the appropriate time.
Conference Call
Winston Hotels’ 2006 fourth quarter investor conference call is scheduled for 10 a.m. EDT today, February 15, 2007. The call also will be simulcast over the Internet via the company’s web site, www.winstonhotels.com. The replay will be available on the company’s web site for 30 days and via telephone for seven days by calling 800-475-6701, access code 862043.
About the Company | As of December 31, 2006, the company owned or was invested in 53 hotel properties in 18 states, having an aggregate of 7,205 rooms. This included 44 wholly owned properties with an aggregate of 6,013 rooms, a 41.7% ownership interest in a joint venture that owned one hotel with 121 rooms, a 60% ownership interest in a joint venture that owned one hotel with 138 rooms, a 49% ownership interest in a joint venture that owned one hotel with 118 rooms, a 48.78% ownership interest in a joint venture that owned one hotel with 147 rooms, a 13.05% ownership interest in a joint venture that owned four hotels with an aggregate of 545 rooms, and a 0.21% ownership interest in a joint venture that owned one hotel with 123 rooms for which substantially all of the profit or loss generated by the joint venture is allocated to the company. As of December 31, 2006, the company also had $52.1 million in loan receivables from owners of several hotels. The company does not hold an ownership interest in any of the hotels for which it has provided debt financing. For more information about Winston Hotels Inc, visit the company’s web site at
www.winstonhotels.com.
Notes About Forward-Looking Statements | In addition to historical information, this press release contains forward-looking statements. The reader can identify these statements by use of words like “may,” “will,” “expect,” “project,” “anticipate,” “estimate,” “target,” “believe,” “continue” or similar expressions, including without limitation its acquisition, disposition and development plans for hotel properties, its hotel lending plans, its dividend policy, and its estimated net income available to common shareholders, net income available to common shareholders per share, FFO available to common shareholders, FFO available to common shareholders per share and RevPAR. These statements represent the company’s judgment and are subject to risks and uncertainties that could cause actual operating results to differ materially from those expressed or implied in the forward looking statements including, but not limited to, changes in general economic conditions, lower occupancy rates, lower average daily rates, acquisition risks, development risks including risk of construction delay, cost overruns, occupancy and governmental permits, zoning, the increase of development costs in connection with projects that are not pursued to completion, the risk of non-payment of subordinated loans, or the failure to make additional hotel debt investments and investments in hotels. Other risks are discussed in the company’s filings with the Securities and Exchange Commission, including but not limited to its Annual Report on Form 10-K for the year ended December 31, 2005.
Notes About Non-GAAP Financial Measures | This press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (“SEC”) rules. As required by SEC rules, the company has provided reconciliation in this press release of each non-GAAP financial measure to its most directly comparable GAAP measure. We believe that these non-GAAP measures, when combined with the company’s primary GAAP presentations required by the SEC, help improve our equity holders’ ability to understand our operating performance and make it easier to compare the results of our company with other hotel REITs. A description of each is provided below.
FFO and FFO Available to Common Shareholders | The company reports FFO in accordance with the definition of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss) (determined in accordance with generally accepted accounting principles, or “GAAP”), excluding gains (losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures (which are calculated to reflect FFO on the same basis). The company further subtracts preferred stock dividends from FFO to calculate FFO available to common shareholders. FFO available to common shareholders is a performance measure used by the company in its budgeting and forecasting models, it is discussed during Board meetings, and is considered when making decisions regarding acquisitions, sales of properties and other investments, and is a metric in determining executive compensation. The calculation of FFO and FFO available to common shareholders may vary from entity to entity, and as such the presentation of FFO and FFO available to common shareholders by the company may not be comparable to other similarly titled measures of other reporting companies. FFO and FFO available to common shareholders are not intended to represent cash flows for the period. FFO and FFO available to common shareholders have not been presented as an alternative to net income, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
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Winston Hotels