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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 June 30, 2003   Commission file number 0-23732

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

     
North Carolina   56-1624289
(State of incorporation)   (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 July 31, 2003 was 20,193,439.

 

 

WINSTON HOTELS, INC.
Index

         
        Page
       
PART I   FINANCIAL INFORMATION    
         
Item 1.   Financial Statements    
         
    WINSTON HOTELS, INC.    
         
         Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002   3
         
         Unaudited Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002   4
         
         Unaudited Consolidated Statements of Operations for the six months ended June 30, 2003 and 2002   5
         
         Unaudited Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2003   6
         
         Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002   7
         
         Notes to Consolidated Financial Statements   8
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   15
         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   26
         
Item 4.   Controls and Procedures   26
         
PART II   OTHER INFORMATION    
         
Item 4.   Submission of Matters to Vote of Security Holders   28
         
Item 6.   Exhibits and Reports on Form 8-K   28
         
    SIGNATURES   30
         
    EXHIBIT INDEX   31

2

 

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

ASSETS

                   
      June 30, 2003   December 31, 2002
     
 
      (unaudited)        
 
Land
   $ 39,536     $ 39,348  
Buildings and improvements
     347,143       345,511  
Furniture and equipment
     46,120       44,332  
 
    
     
 
Operating properties
     432,799       429,191  
Less accumulated depreciation
     118,262       109,152  
 
    
     
 
 
     314,537       320,039  
Properties under development
     1,864       1,800  
 
    
     
 
 
Net investment in hotel properties
     316,401       321,839  
 
                
Corporate FF&E, net
     608       735  
Cash
     5,240       1,510  
Accounts receivable
     3,534       1,958  
Notes receivable
     5,016       5,016  
Investment in joint ventures
     8,453       9,117  
Deferred expenses, net
     2,527       2,954  
Prepaid expenses and other assets
     6,559       6,988  
Deferred tax asset
     8,008       7,325  
 
    
     
 
Total assets
   $ 356,346     $ 357,442  
 
    
     
 
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
                
Long-term debt
   $ 65,731     $ 66,406  
Due to banks
     76,200       72,300  
Accounts payable and accrued expenses
     12,117       11,679  
Distributions payable
     4,958       4,951  
Minority interest in Partnership
     7,287       7,591  
 
    
     
 
Total liabilities
     166,293       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
     257,081       256,720  
Accumulated other comprehensive loss
     (143 )     —  
Unearned compensation
     (681 )     (596 )
Distributions in excess of earnings
     (66,436 )     (61,840 )
 
    
     
 
Total shareholders’ equity
     190,053       194,515  
 
    
     
 
Total liabilities and shareholders’ equity
   $ 356,346     $ 357,442  
 
    
     
 

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

3

 

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

                     
        Three Months Ended   Three Months Ended
        June 30, 2003   June 30, 2002
       
 
Revenue:
                
 
Rooms
   $ 30,124     $ —  
 
Food and beverage
     1,961       —  
 
Other operating departments
     1,062       —  
 
Percentage lease revenue
     739       9,793  
 
Interest and other income
     364       353  
 
    
     
 
   
Total revenue
     34,250       10,146  
 
    
     
 
Hotel operating expenses:
                
 
Rooms
     6,815       —  
 
Food and beverage
     1,411       —  
 
Other operating departments
     710       —  
Undistributed operating expenses:
                
 
Property operating expenses
     6,085       —  
 
Real estate taxes and property and casualty insurance
     1,721       1,559  
 
Franchise costs
     2,170       —  
 
Maintenance and repair
     1,708       —  
 
Management fees
     721       —  
 
Percentage lease expense
     1,302       —  
 
General and administrative
     1,471       1,315  
 
Depreciation
     4,549       4,782  
 
Amortization
     221       206  
 
Lease acquisition
     —       17,668  
 
    
     
 
   
Total operating expenses
     28,884       25,530  
 
    
     
 
Operating income (loss)
     5,366       (15,384 )
 
Interest expense
     1,913       2,527  
 
    
     
 
Income (loss) before allocation to minority interest, income taxes, and equity in income of unconsolidated subsidiaries
     3,453       (17,911 )
 
Income (loss) allocation to minority interest
     107       (787 )
 
Income tax benefit
     (132 )     (6,714 )
 
Equity in loss of unconsolidated subsidiaries
     (81 )     (56 )
 
    
     
 
Income (loss) from continuing operations
     3,397       (10,466 )
Discontinued operations:
                
 
Income from discontinued operations
     —       97  
 
Loss on sale of discontinued operations
     —       (742 )
 
    
     
 
 
Net income (loss)
     3,397       (11,111 )
Preferred stock distribution
     (1,734 )     (1,734 )
 
    
     
 
   
Net income (loss) applicable to common shareholders
   $ 1,663     $ (12,845 )
 
    
     
 
Income (loss) per common share:
                
Basic and diluted:
                
 
Income (loss) from continuing operations
   $ 0.08     $ (0.61 )
 
Loss from discontinued operations
     —       (0.03 )
 
    
     
 
 
Net income (loss) per common share
   $ 0.08     $ (0.64 )
 
    
     
 
 
Weighted average number of common shares
     20,078       20,116  
 
Weighted average number of common shares assuming dilution
     21,377       20,116  

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

4

 

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

                     
        Six Months Ended   Six Months Ended
        June 30, 2003   June 30, 2002
       
 
Revenue:
                
 
Rooms
   $ 56,557     $ —  
 
Food and beverage
     3,647       —  
 
Other operating departments
     2,171       —  
 
Percentage lease revenue
     1,549       19,326  
 
Interest and other income
     730       700  
 
    
     
 
   
Total revenue
     64,654       20,026  
 
    
     
 
Hotel operating expenses:
                
 
Rooms
     13,104       —  
 
Food and beverage
     2,716       —  
 
Other operating departments
     1,467       —  
Undistributed operating expenses:
                
 
Property operating expenses
     12,217       —  
 
Real estate taxes and property and casualty insurance
     3,454       3,377  
 
Franchise costs
     4,029       —  
 
Maintenance and repair
     3,345       —  
 
Management fees
     1,282       —  
 
Percentage lease expense
     2,210       —  
 
General and administrative
     2,956       2,870  
 
Depreciation
     9,270       9,612  
 
Amortization
     442       403  
 
Lease acquisition
     —       17,668  
 
    
     
 
   
Total operating expenses
     56,492       33,930  
 
    
     
 
Operating income (loss)
     8,162       (13,904 )
 
Interest expense
     3,874       5,360  
 
    
     
 
Income (loss) before allocation to minority interest, income taxes, and equity in income of unconsolidated subsidiaries
     4,288       (19,264 )
 
Income (loss) allocation to minority interest
     94       (994 )
 
Income tax benefit
     (683 )     (6,714 )
 
Equity in income (loss) of unconsolidated subsidiaries
     54       (51 )
 
    
     
 
Income (loss) from continuing operations
     4,931       (11,607 )
Discontinued operations:
                
 
Income from discontinued operations
     —       144  
 
Loss on sale of discontinued operations
     —       (742 )
 
    
     
 
 
Net income (loss)
     4,931       (12,205 )
Preferred stock distribution
     (3,469 )     (3,469 )
 
    
     
 
   
Net income (loss) applicable to common shareholders
   $ 1,462     $ (15,674 )
 
    
     
 
Income (loss) per common share:
                
Basic and diluted:
                
 
Income (loss) from continuing operations
   $ 0.07     $ (0.80 )
 
Loss from discontinued operations
     —       (0.04 )
 
    
     
 
 
Net income (loss) per common share
   $ 0.07     $ (0.84 )
 
    
     
 
 
Weighted average number of common shares
     20,076       18,652  
 
Weighted average number of common shares assuming dilution
     21,375       18,652  

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

5

 

WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(in thousands, except per share amounts)

                                                                             
                                                                Accumulated        
        Preferred Stock   Common Stock   Additional           Distributions   Other   Total
       
 
  Paid-in   Unearned   In Excess of   Comprehensive   Shareholders'
        Shares   Dollars   Shares   Dollars   Capital   Compensation   Earnings   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)
     —       —       —       —       —       —       (6,058 )     —       (6,058 )
Distributions ($0.578125 per preferred share)
     —       —       —       —       —       —       (3,469 )     —       (3,469 )
Unearned compensation amortization
     —       —       —       —       —       269       —       —       269  
Minority interest equity adjustment
     —       —       —       —       8       —       —       —       8  
Comprehensive income:
                                                                        
 
Net income
     —       —       —       —       —       —       4,931