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