WINSTON HOTELS INC - 10-Q Quarterly Report

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 September 30, 2002		Commission file number 0-23732

WINSTON HOTELS, INC.
(Exact name of registrant as specified in its charter)


North Carolina (State of incorporation)		56-1624289 (I.R.S. Employer Identification No.)

2626 Glenwood Avenue
Raleigh, North Carolina 27608
(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 October 31, 2002 was 20,202,034.

WINSTON HOTELS, INC.
Index


		Page

PART I	FINANCIAL INFORMATION

Item 1.	WINSTON HOTELS, INC.

	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	3

	Unaudited Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001	4

	Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001	5

	Unaudited Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2002	6

	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	21

PART II	OTHER INFORMATION

Item 5.	Other Information	22

Item 6.	Exhibits and Reports on Form 8-K	22

	SIGNATURES	23

	CERTIFICATIONS	24

WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts)

ASSETS


		September 30, 2002			December 31, 2001

		(unaudited)

Land		$	40,107		$	41,114
Buildings and improvements			350,908			359,024
Furniture and equipment			44,486			44,376

Operating properties			435,501			444,514
Less accumulated depreciation			106,894			96,343

			328,607			348,171
Properties under development			1,800			1,916

	Net investment in hotel properties		330,407			350,087
Corporate FF&E, net			803			1,033
Cash			2,153			887
Lease revenue receivable			—			4,786
Accounts receivable			2,787			—
Notes receivable			3,266			3,516
Investment in joint ventures			9,953			8,173
Deferred expenses, net			3,145			3,405
Prepaid expenses and other assets			6,937			5,017
Deferred tax asset			7,076			—

Total assets		$	366,527		$	376,904


LIABILITIES AND SHAREHOLDERS’ EQUITY

Long-term debt		$	66,735		$	67,684
Due to banks			77,600			102,900
Deferred percentage lease revenue			204			1,226
Accounts payable and accrued expenses			13,838			8,175
Accrued lease payable			165			—
Distributions payable			4,959			4,468
Minority interest in Partnership			7,627			8,246

Total liabilities			171,128			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, 20,202,034 and 16,924,533 shares issued and outstanding			202			169
Additional paid-in capital			257,158			230,109
Unearned compensation			(1,048	)		(542	)
Accumulated other comprehensive income (loss)			(526	)		(1,844	)
Distributions in excess of earnings			(60,417	)		(43,717	)

Total shareholders’ equity			195,399			184,205

Total liabilities and shareholders’ equity		$	366,527		$	376,904

The accompanying notes are an integral part of the financial statements.

WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)


		Three Months Ended			Three Months Ended
		September 30, 2002			September 30, 2001

Revenue:
	Rooms	$	30,420		$	—
	Food and beverage		1,845			—
	Other operating departments		1,206			—
	Percentage lease revenue		8,886			14,322
	Interest, joint venture and other income		325			452

	Total revenue		42,682			14,774
Hotel operating expenses:
	Rooms		7,260			—
	Food and beverage		1,437			—
	Other operating departments		810			—
Undistributed operating expenses:
	Property operating costs		6,479			—
	Real estate taxes and property and casualty insurance		1,590			1,715
	Franchise costs		2,182			—
	Maintenance and repair		1,702			—
	Management fees		655			—
	Percentage lease expense		1,086			—
	Depreciation		4,870			4,973
	Amortization		218			226
	General and administrative		1,224			1,232

	Total operating expenses		29,513			8,146

Operating income			13,169			6,628
	Interest expense		2,642			2,984

Income before allocation to minority interest and income taxes			10,527			3,644
	Income allocation to minority interest		513			139
	Income tax benefit		(362	)		—

Income from continuing operations			10,376			3,505
Discontinued operations:
	Earnings from discontinued operations, net		—			41
	Loss on sale of discontinued operations		(662	)		—

	Net income		9,714			3,546
Preferred stock distribution			(1,734	)		(1,734	)

Net income applicable to common shareholders		$	7,980		$	1,812


Income (loss) per common share:
Basic and diluted:
	Income from continuing operations	$	0.43		$	0.11

	Loss from discontinued operations	$	(0.03	)	$	—

	Net income per common share	$	0.40		$	0.11


	Weighted average number of common shares		20,202			16,926
	Weighted average number of common shares assuming dilution		21,500			18,258

The accompanying notes are an integral part of the financial statements.

WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)


		Nine Months Ended			Nine Months Ended
		September 30, 2002			September 30, 2001

Revenue:
	Rooms	$	30,420		$	—
	Food and beverage		1,845			—
	Other operating departments		1,206			—
	Percentage lease revenue		28,500			34,114
	Interest, joint venture and other income		973			1,750

	Total revenue		62,944			35,864
Hotel operating expenses:
	Rooms		7,260			—
	Food and beverage		1,437			—
	Other operating departments		810			—
Undistributed operating expenses:
	Property operating costs		6,479			—
	Real estate taxes and property and casualty insurance		5,001			5,386
	Franchise costs		2,182			—
	Maintenance and repair		1,702			—
	Management fees		655			—
	Percentage lease expense		1,086			—
	Depreciation		14,657			15,161
	Lease acquisition		17,668			—
	Amortization		625			693
	General and administrative		4,094			3,729

	Total operating expenses		63,656			24,969

Operating income (loss)			(712	)		10,895
	Interest expense		8,001			9,277

Income (loss) before loss on sale of property, allocation to minority interest and income taxes			(8,713	)		1,618
	Loss on sale of property		—			(683	)
	Loss allocation to minority interest		(521	)		(304	)
	Income tax benefit		(7,076	)		—

Income (loss) from continuing operations			(1,116	)		1,239
Discontinued operations:
	Earnings (loss) from discontinued operations, net		76			(3	)
	Loss on sale of discontinued operations		(1,452	)		—

	Net income (loss)		(2,492	)		1,236
Preferred stock distribution			(5,203	)		(5,203	)

Net loss applicable to common shareholders		$	(7,695	)	$	(3,967	)


Loss per common share:
Basic and diluted:
	Loss from continuing operations	$	(0.33	)	$	(0.23	)

	Loss from discontinued operations	$	(0.07	)	$	—

	Net loss per common share	$	(0.40	)	$	(0.23	)


	Weighted average number of common shares		19,174			16,926
	Weighted average number of common shares assuming dilution		19,174			16,926

The accompanying notes are an integral part of the financial statements.

WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(in thousands, except per share amounts)


	Preferred Stock				Common Stock				Additional					Distributions			Accumulated Other			Total
									Paid-in		Unearned			In Excess of			Comprehensive			Shareholders'
	Shares		Dollars		Shares		Dollars		Capital		Compensation			Earnings			Income (Loss)			Equity

Balances at December 31, 2001		3,000	$	30		16,925	$	169	$	230,109	$	(542	)	$	(43,717	)	$	(1,844	)	$	184,205

Issuance of shares — common stock offering		—		—		3,162		32		26,534		—			—			—			26,566
Issuance of shares — restricted stock		—		—		115		1		1,002		(1,003	)		—			—			—
Distributions ($0.45 per common share)		—		—		—		—		—		—			(9,005	)		—			(9,005	)
Distributions ($1.734 per preferred share)		—		—		—		—		—		—