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 March 31, 2003		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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes x No o

The number of shares of Common Stock, $.01 par value, outstanding on April 30, 2003 was 20,193,634.

WINSTON HOTELS, INC.
Index


			Page

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	WINSTON HOTELS, INC
		Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002		3
		Unaudited Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002		4
		Unaudited Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2003		5
		Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002		6
		Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			22
Item 4.	Controls and Procedures			22
PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K			23
	SIGNATURES			24
	CERTIFICATIONS			25
	EXHIBIT INDEX			27

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


		March 31, 2003			December 31, 2002

		(unaudited)
ASSETS
Land		$	39,394		$	39,348
Buildings and improvements			346,306			345,511
Furniture and equipment			45,150			44,332

Operating properties			430,850			429,191
Less accumulated depreciation			113,790			109,152

			317,060			320,039
Properties under development			1,800			1,800

	Net investment in hotel properties		318,860			321,839
Corporate FF&E, net			668			735
Cash			3,918			1,510
Accounts receivable			3,169			1,958
Notes receivable			5,016			5,016
Investment in joint ventures			8,875			9,117
Deferred expenses, net			2,741			2,954
Prepaid expenses and other assets			6,833			6,988
Deferred tax asset			7,876			7,325

Total assets		$	357,956		$	357,442

LIABILITIES AND SHAREHOLDERS’ EQUITY
Long-term debt		$	66,072		$	66,406
Due to banks			75,800			72,300
Accounts payable and accrued expenses			12,423			11,679
Distributions payable			4,958			4,951
Minority interest in Partnership			7,369			7,591

Total liabilities			166,622			162,927

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, 20,193,634 and 20,148,334 shares issued and outstanding			202			201
Additional paid-in capital			257,087			256,720
Accumulated other comprehensive income (loss)			(135	)		—
Unearned compensation			(780	)		(596	)
Distributions in excess of earnings			(65,070	)		(61,840	)

Total shareholders’ equity			191,334			194,515

Total liabilities and shareholders’ equity		$	357,956		$	357,442

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

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


			Three Months Ended			Three Months Ended
			March 31, 2003			March 31, 2002

Revenue:
	Rooms		$	26,434		$	—
	Food and beverage			1,686			—
	Other operating departments			1,109			—
	Percentage lease revenue			810			9,533
	Interest and other income			366			347

		Total revenue		30,405			9,880

Hotel operating expenses:
	Rooms			6,289			—
	Food and beverage			1,305			—
	Other operating departments			756			—
Undistributed operating expenses:
	Property operating expenses			6,135			—
	Real estate taxes and property and casualty insurance			1,734			1,818
	Franchise costs			1,859			—
	Maintenance and repair			1,636			—
	Management fees			560			—
	Percentage lease expense			908			—
	General and administrative			1,485			1,555
	Depreciation			4,721			4,829
	Amortization			221			197

		Total operating expenses		27,609			8,399

Operating income				2,796			1,481
	Interest			1,962			2,832

Income (loss) before allocation to minority interest, income taxes, and equity in income of unconsolidated subsidiaries				834			(1,351	)
	Income (loss) allocation to minority interest			(13	)		(208	)
	Income tax expense (benefit)			(551	)		—
	Equity in income of unconsolidated subsidiaries			135			5

Income from continuing operations				1,533			(1,138	)
Discontinued operations:
	Income from discontinued operations			—			44
	Loss on sale of discontinued operations			—			—

	Net income			1,533			(1,094	)
Preferred stock distribution				(1,734	)		(1,734	)

		Net income (loss) applicable to common shareholders	$	(201	)	$	(2,828	)

Income (loss) per common share:
Basic and diluted:
	Income (loss) from continuing operations		$	(0.01	)	$	(0.16	)
	Income (loss) from discontinued operations			—			—

	Net income (loss) per common share		$	(0.01	)	$	(0.16	)

	Weighted average number of common shares			20,074			17,171
	Weighted average number of common shares assuming dilution			20,074			17,171

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

WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(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, 2002				3,000	$	30		20,149	$	201	$	256,720	$	(596	)	$	(61,840	)	$	—		$	194,515
Issuance of shares — restricted stock				—		—		45		1		353		(354	)		—			—			—
Distributions ($0.15 per common share)				—		—		—		—		—		—			(3,029	)		—			(3,029	)
Distributions ($0.578125 per preferred share)				—		—		—		—		—		—			(1,734	)		—			(1,734	)
Unearned compensation amortization				—		—		—		—		—		170			—			—			170
Minority interest equity adjustment				—		—		—		—		14		—			—			—			14
Comprehensive income:
	Net income			—		—		—		—		—		—			1,533			—
	Unrealized holding loss arising on interest rate swap			—		—		—		—		—		—			—			(135	)
		Total comprehensive income																					1,398

Balances at March 31, 2003				3,000	$	30		20,194	$	202	$	257,087	$	(780	)	$	(65,070	)	$	(135	)	$	191,334

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

WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)


				Three Months Ended			Three Months Ended
				March 31, 2003			March 31, 2002
Cash flows from operating activities:
	Net income (loss)			$	1,533		$	(1,094	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Loss allocation to minority interest			(13	)		(204	)
		Depreciation			4,721			5,048
		Amortization			221			199
		Income tax benefit			(551	)		—
		Mezzanine loan loss provision			—			250
		Earnings allocations from joint ventures			(135	)		(5	)
		Unearned compensation amortization			170			138
	Changes in assets and liabilities:
		Lease revenue receivable			—			(1,621	)
		Accounts receivable			(1,211	)		—
		Deferred percentage lease revenue			—			2,685
		Prepaid expenses and other assets			155			(378	)
		Accounts payable and accrued expenses			609			(2,434	)

			Net cash provided by operating activities		5,499			2,584

Cash flows from investing activities:
	Investment in hotel properties, net				(1,675	)		(565	)
	Investment in joint ventures				(56	)		1
	Distributions from joint ventures				433			110

			Net cash used in investing activities		(1,298	)		(454	)

Cash flows from financing activities:
	Fees paid in connection with financing activities				(8	)		(71	)
	Proceeds from issuance of common shares, net				—			23,388
	Payment of distributions to shareholders				(4,756	)		(4,273	)
	Payment of distributions to minority interest				(195	)		(195	)
	Net increase (decrease) in due to banks				3,500			(21,400	)
	Decrease in long-term debt				(334	)		(310	)

			Net cash used in financing activities		(1,793	)		(2,861	)

Net increase (decrease) in cash					2,408			(731	)
Cash at beginning of period					1,510			887

Cash at end of period				$	3,918		$	156

Supplemental disclosure:
		Cash paid for interest		$	2,620		$	2,756

Summary of non-cash investing and financing activities:
	Distributions to shareholders declared but not paid			$	4,763		$	4,690
	Distributions to minority interest declared but not paid				195			195
	Deferred equity compensation				354			255
	Fair market value adjustment of interest rate swap				135