Winston Hotels Reports Fourth Quarter and Full-Year 2002 Results
RALEIGH, N.C. - Winston Hotels, Inc.
Funds from operations (FFO) increased 27.4 percent to $4.8 million for the 2002 fourth quarter, compared to $3.7 million for the same period in 2001. On a per share basis, FFO increased 4.8 percent to $0.22 per share for the fourth quarter on 21.3 million weighted average shares of common stock outstanding, compared to $0.21 on 18.2 million weighted average shares outstanding for the same quarter a year ago.
"Occupancy improved more than 2 percentage points for the fourth quarter, offset partially by a 3.2 percent decline in room rate from the same period in 2001," said Bob Winston, chief executive officer. "We experienced a number of positive developments during 2002, which we believe have set the stage for positive long-term growth in the future. We:
- Acquired leasehold interests--"Winston acquired the leasehold interests for 47 hotels from MeriStar Hotels & Resorts (now Interstate Hotels & Resorts) to better align our ownership with the financial interests of our operators."
- Formed acquisition venture--"We formed a joint venture with Charlesbank Capital Partners, LLC to acquire in excess of $100 million of hotel assets and have placed two previously acquired hotel assets in the venture."
- Continued mezzanine loan program--"We continued our mezzanine loan program to help finance selected development and renovation projects and issued, through a 50/50 joint venture with Hall Financial Group, a $3.5 million loan for conversion of a historic office building in Baltimore's Inner Harbor to a Hampton Inn & Suites."
- Upgraded portfolio--"We sold four hotels for aggregate gross proceeds of $13.8 million, as we continued selectively pruning our portfolio of non-strategic assets."
- Strengthened balance sheet--"Winston completed a 3.2 million share common stock offering at $9 per share, generating net proceeds of approximately $26.9 million, which were used to pay down debt and to purchase our leasehold interests from Interstate."
Operating Results
Due to the acquisition in July 2002 of the company's leasehold interests from Interstate Hotels and Resorts, the results of operations for the three and 12 months ended December 31, 2002, compared to the results of operations for the three and 12 months ended December 31, 2001, do not offer a meaningful comparison. This is due primarily to recording the operating results of the hotels on the company's statements of operations beginning in the third quarter of 2002.
In an effort to make a more meaningful comparison between periods, the company has provided below selected unaudited pro forma financial information for the three and 12 months ended December 31, 2002 and 2001, as if the acquisition of the leasehold interests from Interstate occurred on January 1, 2001. This information is shown for the 47 hotels that were open during the periods presented and does not include operating results for any hotels that have been sold.
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
Three Months Twelve Months
Ended Ended
December 31, December 31,
2002 2001 2002 2001
------- ------- --------
Statistics
Average Daily Rate $77.93 $80.53 $80.08 $83.30
Occupancy 59.4% 57.3% 64.6% 64.5%
Revenue Per Available Room $46.32 $46.18 $51.76 $53.70
Operating Results (in thousands)
Revenue:
Rooms 25,597 25,380 114,137 116,102
Other hotel revenue 3,188 3,088 12,463 12,629
Percentage lease revenue 1,030 1,497 3,294 3,736
Interest, joint venture and other
income 1,657 939 2,630 2,689
Total revenue 31,472 30,904 132,524 135,156
Hotel operating expenses:
Rooms 6,165 5,550 26,260 25,802
Other hotel operating expenses 2,171 2,048 8,729 8,650
Undistributed operating expenses:
Property operating costs 5,795 5,696 23,980 23,756
Real estate taxes and property
and casualty insurance 1,410 1,116 6,344 6,429
Other operating costs 4,013 3,685 17,337 16,861
Percentage lease expense 1,082 826 4,162 2,248
Depreciation and amortization 4,994 5,159 19,985 20,619
General and administrative 749 1,690 4,842 5,419
Total expenses 26,379 25,770 111,639 109,784
Operating income 5,093 5,134 20,885 25,372
Financial Highlights
- Total debt to EBITDA multiple was 3.5 for the year
- Annual interest coverage ratio multiple was 3.9 for the year
- Closed the quarter with consolidated debt to total assets at cost of 29.7 percent
- Generated an unleveraged return on investment of 9.5 percent on its hotel portfolio for the full year 2002. Based upon the company's leverage and borrowing costs, the company realized a leveraged return on investment of 10.6 percent for 2002
- FFO payout ratio was 51.3 percent in 2002
- For the 47 hotels that were open during both periods, excluding hotels that have been sold, operating margins declined from 42.6 percent in the fourth quarter of 2001 to 39.5 percent in the fourth quarter of 2002, and from 43.9 percent to 42.2 percent for the 12 months ended December 31, 2001 and 2002, respectively
- Based on information provided by Smith Travel Research, the 2002 RevPAR yield through December 31, 2002, for Winston's portfolio was 108 percent
"In addition to acquiring our leasehold interests from Interstate, we made significant strides in implementing our growth strategies," said Joe Green, chief financial officer. "The most noteworthy achievement was the joint venture we formed with Charlesbank to acquire hotels. We already have placed two assets in the joint venture and currently are looking at a number of properties for possible acquisition.
"We also continued our mezzanine loan program, a second important avenue of growth for us," he noted. "We issued one loan and have a pipeline of candidates. We are reviewing a number of quality projects and are being highly selective in the process.
"We believe we have positive momentum in all our strategic initiatives as we move into 2003," he said.
Dividend Performance
During the fourth quarter, Winston Hotels declared a regular cash dividend of $0.15 per common share, which is equivalent to $0.60 per common share on an annualized basis. Also in the fourth quarter, the company declared a regular quarterly cash dividend to preferred shareholders of $0.578125 per share. "We do not anticipate any change in our current dividend policy in 2003," Green added.
Guidance and Outlook
"Providing meaningful guidance, considering the threat of war and other geopolitical developments, is difficult," Green remarked. "As a result, we only are providing guidance for the first quarter and full-year 2003. Based on our operators' forecasts, we currently are targeting RevPAR of negative 4 percent to negative 1 percent for the first quarter 2003 compared to the first quarter 2002, and for the full year 2003, we are targeting RevPAR of flat to positive 2 percent. We are targeting FFO per share of $0.17 to $0.20 for the first quarter 2003 and $1.03 to $1.14 for the full year 2003."
"2002 was a year of transition," Winston said. "We continued to work hard to improve returns on our existing assets and to prepare to capitalize on the long-anticipated recovery. The current economic recovery scenario is a fragile one, and we will have to wait to see if it has staying power. In the meantime, we will continue to seek viable joint ventures with strong partners to acquire hotels selectively on an accretive basis, to provide mezzanine loans for new development, hotel renovations and to improve owner liquidity, and to enhance the operations of the properties currently in our portfolio. New room supply continues to decline, setting the stage for a rebound when the recovery does arrive and demand increases."
Winston Hotels' fourth quarter investor conference call is scheduled for 10 a.m. ET today. The call also will be simulcast over the Internet via the company's web site,
Raleigh, North Carolina-based Winston Hotels, Inc., is a real estate investment trust specializing in the development, acquisition, repositioning and active asset management of premium limited-service, upscale extended-stay and full-service hotels, with a portfolio increasingly weighted toward the leading brands in the lodging industry's upscale segment. The Company currently owns or is invested in 52 hotels with 7,200 rooms in 17 states, which includes: 44 wholly-owned properties with 6,141 rooms; a 49 percent ownership interest in three joint venture hotels with 453 rooms; a 13.05 percent ownership interest in two joint venture hotels with 215 rooms; and a mezzanine financing interest in three hotels with 391 rooms. For more information about Winston Hotels, visit the Winston Hotels Web site,
WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts)
ASSETS
December 31, December 31,
2002 2001
--------------
(unaudited)
Land $39,348 $41,114
Buildings and improvements 345,511 359,024
Furniture and equipment 44,332 44,376
--------------
Operating properties 429,191 444,514
Less accumulated depreciation 109,152 96,343
--------------
320,039 348,171
Properties under development 1,800 1,916
--------------
Net investment in hotel properties 321,839 350,087
Corporate FF&E, net 735 1,033
Cash 1,510 887
Lease revenue receivable - 4,786
Accounts receivable 1,958
Notes receivable 5,016 3,516
Investment in joint ventures 9,117 8,173
Deferred expenses, net 2,949 3,405
Prepaid expenses and other assets 6,993 5,017
Deferred tax asset 7,325
--------------
Total assets $357,442 $376,904
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $66,406 $67,684
Due to banks 72,300 102,900
Deferred percentage lease revenue - 1,226
Accounts payable and accrued expenses 11,623 8,175
Accrued lease payable 56
Distributions payable 4,951 4,468
Minority interest in Partnership 7,591 8,246
--------------
Total liabilities 162,927 192,699
--------------
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized,
3,000,000 shares issued and outstanding
(liquidation preference of $76,734) 30 30
Common stock, $.01 par value, 50,000,000
shares authorized,
20,148,334 and 16,924,533 shares issued
and outstanding 201 169
Additional paid-in capital 256,720 230,109
Unearned compensation (596) (542)
Accumulated other comprehensive income
(loss) - (1,844)
Distributions in excess of earnings (61,840) (43,717)
--------------
Total shareholders' equity 194,515 184,205
--------------
Total liabilities and shareholders' equity $357,442 $376,904
============== ==============
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Three Months
Ended Ended
December 31, December 31,
2002 2001
--------------
Revenue:
Rooms $25,597 $
Food and beverage 2,052
Other operating departments 1,135
Percentage lease revenue 1,030 19,298
Interest, joint venture and other
income 1,657 941
--------------
Total revenue 31,471 20,239
Hotel operating expenses:
Rooms 6,165
Food and beverage 1,436
Other operating departments 735
Undistributed operating expenses:
Property operating costs 5,793
Real estate taxes and property and
casualty insurance 1,410 1,115
Franchise costs 1,824
Maintenance and repair 1,585
Management fees 604
Percentage lease expense 1,082
Depreciation 4,758 4,868
Amortization 219 272
General and administrative 749 1,690
--------------
Total operating expenses 26,360 7,945
--------------
Operating income 5,111 12,294
Interest expense 2,477 2,893
--------------
Income before allocation to minority
interest and income taxes 2,634 9,401
Income allocation to minority
interests 107 576
Income tax expense (benefit) (249)
--------------
Income from continuing operations 2,776 8,825
Discontinued operations:
Income (loss) from discontinued
operations, net (71) 423
Gain on sale of discontinued
operations 688
--------------
Net income 3,393 9,248
Preferred stock distribution (1,734) (1,734)
--------------
Net income applicable to common
shareholders $1,659 $7,514
============== ============
Income per common share:
Basic and diluted:
Income from continuing operations $0.05 $0.42
============== ============
Income from discontinued operations $0.03 $0.02
============== ============
Net income per common share $0.08 $0.44
============== ============
Weighted average number of common
shares 20,049 16,925
Weighted average number of common
shares assuming dilution 21,348 18,223
WINSTON HOTELS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended Year Ended
Revenue: December 31, December 31,
2002 2001
------------
Rooms $55,416 $
Food and beverage 3,898
Other operating departments 2,329
Percentage lease revenue 29,243 52,856
Interest, joint venture and other income 2,630 2,689
------------
Total revenue 93,516 55,545
Hotel operating expenses:
Rooms 13,254
Food and beverage 2,873
Other operating departments 1,535
Undistributed operating expenses:
Property operating costs 12,189
Real estate taxes and property and
casualty insurance 6,345 6,444
Franchise costs 3,945
Maintenance and repair 3,224
Management fees 1,247
Percentage lease expense 2,168
Depreciation 19,149 19,762
Lease acquisition 17,668
Amortization 836 955
General and administrative 4,842 5,419
------------
Total operating expenses 89,275 32,580
------------
Operating income 4,241 22,965
Interest expense 10,478 12,170
------------
Income (loss) before loss on sale of
property, allocation to minority interest
and income taxes (6,237) 10,795
Loss on sale of property - (682)
Income (loss) allocation to minority
interest (414) 272
Income tax expense (benefit) (7,325)
------------
Income from continuing operations 1,502 9,841
Discontinued operations:
Income from discontinued
operations, net 164 644
Income (loss) on sale of
discontinued operations (764)
------------
Net income 902 10,485
Preferred stock distribution (6,938) (6,938)
------------
Net income (loss) applicable to
common shareholders $(6,036) $3,547
============ =============
Income (loss) per common share:
Basic and diluted:
Income (loss) from continuing operations $(0.28) $0.17
============ =============
Income (loss) from discontinued
operations $(0.03) $0.04
============ =============
Net income (loss) per common share $(0.31) $0.21
============ =============
Weighted average number of common shares 19,308 16,926
Weighted average number of common shares
assuming dilution 19,308 18,239
WINSTON HOTELS, INC.
CALCULATION OF FFO AND EBITDA
(in thousands, except per share data)
For the Quarter Ended For the Year Ended
December 31, December 31,
-----------------------
2002 2001 2002 2001
----------- ----------- -----------
Funds from operations: (unaudited) (unaudited) (unaudited) (unaudited)
Net Income $3,393 $9,248 $902 $10,485
Minority interest
allocation 107 576 (414) 272
Preferred stock
dividend (1,734) (1,734) (6,938) (6,938)
Depreciation 4,758 4,868 19,149 19,762
Depreciation from
discontinued
operations 89 257 636 1,030
Depreciation from
joint ventures 207 135 801 563
Deferred revenue (204) (9,234) (1,226) 727
Deferred revenue from
joint ventures (919) (380) -
(Gain) Loss on sale of
property (688) - 764 682
Lease acquisition
expense - - 17,668
Income tax expense
(benefit) (249) - (7,325)
----------- ----------- -----------
Funds from
operations $4,760 $3,736 $24,017 $26,583
=========== =========== =========== ===========
Weighted average
common shares
assuming dilution 21,348 18,223 20,607 18,239
FFO per share $0.22 $0.21 $1.17 $1.46
Earnings before interest, taxes, depreciation and amortization
(EBITDA):
FFO $4,760 $3,736 $24,017 $26,583
Interest expense 2,477 2,893 10,478 12,170
Interest expense from
joint ventures 129 141 637 680
Amortization expense 219 272 836 955
Amortization expense
from discontinued
operations 1 3 9 13
Dividend on preferred
stock 1,734 1,734 6,938 6,938
----------- ----------- -----------
EBITDA $9,320 $8,779 $42,915 $47,339
=========== =========== =========== ===========
Winston Hotels, Inc.
QTD and YTD RevPAR Summary
47 Hotels Reporting
December QTD December YTD
2001 2002 % CH 2001 2002 % CH
------------ ---- ------------
Combined Brands
Comfort Inn/Suites &
Quality Suites $32.72 $31.18 -4.7% $39.44 $38.19 -3.2%
Courtyard/Fairfield/
Residence Inns $45.32 $45.36 0.1% $53.46 $51.03 -4.5%
Hampton Inns $44.71 $44.60 -0.2% $52.25 $49.98 -4.3%
Hilton Garden Inns $59.06 $63.15 6.9% $65.08 $66.14 1.6%
Homewood Suites $55.96 $56.83 1.6% $64.13 $62.48 -2.6%
Holiday
Inn/Express/Selects $49.74 $48.66 -2.2% $60.06 $53.75 -10.5%
Region
South Atlantic $41.61 $41.47 -0.3% $49.02 $47.28 -3.5%
East North Central $53.23 $60.82 14.3% $59.83 $64.42 7.6%
Middle Atlantic $73.91 $72.64 -1.7% $84.53 $79.47 -6.0%
West South Central $41.56 $41.20 -0.9% $48.12 $44.44 -7.7%
Mountain $37.32 $41.03 9.9% $46.43 $42.26 -9.0%
New England $62.90 $54.47 -13.4% $67.94 $64.42 -5.2%
Segment
Mid-scale w/o F&B $39.22 $38.29 -2.4% $46.66 $44.25 -5.2%
Upscale $53.46 $55.16 3.2% $60.73 $59.74 -1.6%
Mid-scale w/ F&B $52.71 $52.46 -0.5% $62.30 $58.52 -6.1%
Service
Limited-service $39.22 $38.29 -2.4% $46.66 $44.25 -5.2%
Full-service $53.86 $55.19 2.5% $61.44 $60.07 -2.2%
Extended-stay $52.17 $53.28 2.1% $60.45 $58.26 -3.6%
Total $46.18 $46.32 0.3% $53.70 $51.76 -3.6%
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