Winston Hotels Reports Third Quarter

RALEIGH, N.C.—(BUSINESS WIRE)—Nov. 6, 2002—Winston Hotels, Inc. (NYSE: WXH), a real estate investment trust (REIT) and owner of premium limited-service, upscale extended-stay and full-service hotels, today announced results for the third quarter ended September 30, 2002.

Funds from operations (FFO) declined 7.9 percent to $6.2 million for the 2002 third quarter, compared to $6.7 million for the same period in 2001. On a per share basis, FFO for the 2002 third quarter declined 21.6 percent to $0.29 on 21.5 million weighted average shares outstanding, compared to $0.37 on 18.3 million weighted

A stalled economic recovery and concerns about traveling around the anniversary of the 9/11 terrorist attacks adversely impacted national travel and were the major contributors to softness in the company`s third quarter results. “The long-anticipated rebound in the economy, which directly impacts travel, remains elusive and unpredictable,” said Bob Winston, chief executive officer. “Compared with the third quarter of 2001, occupancy improved nearly 2 points to

—66.4 percent, but was offset by a decline in room rate of 3.3 percent, which exerted pressure on operating margins.

“Overall, we are pleased with the steady improvement in our RevPAR throughout the year. RevPAR was off 9.5 percent in the first quarter, down 5.7 percent in the second quarter and down just slightly in the third quarter, as compared to the same quarters in 2001. Nonetheless, the continued improvement in RevPAR is not occurring as rapidly as we, and the rest of the hotel industry, had anticipated.”


Due to the acquisition in July 2002 of the company`s leasehold interests from Meristar Hotels and Resorts, now Interstate Hotels and Resorts, the results of operations for the three and nine months ended September 30, 2002, compared to the results of operations for the three and nine months ended September 30, 2001, do not offer a meaningful comparison. This is due primarily to recording the operating results of the hotels, for which the leasehold interests were acquired, 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 nine months ended September 30, 2002 and 2001, as if the acquisition of the leasehold interests from Interstate occurred on January 1, 2001. This information is shown for the 49 hotels that were open during the periods presented and does not include operating results for any hotels that have been sold.

“This quarter represents the first reporting period in which the company leased 47 of its hotels to a wholly owned subsidiary rather than to a third party. Under this structure, we now have the ability to exert significant influence over the top and bottom line of our business,” Winston commented.

“We believe that by gaining control of our leases now, we very effectively have aligned the operator`s interests with ours and will now avoid the traditional conflicts between lessee and lessor,” he noted. “As a result, we believe we will be able to better address the needs of our properties and will reap the long-term benefits as the economy recovers. We fully expect that we will be able to take increasing advantage of operating synergies going forward and that these enhancements will improve the quality of our operations and our assets for the benefit of our shareholders.”

Financial Highlights:

—Total debt to EBITDA multiple was 3.7 on a trailing 12-month basis—Annual interest coverage ratio multiple was 3.7 on a trailing 12-month basis—Closed the quarter with consolidated debt to total assets at cost of 30.5 percent—Generated an unleveraged return on investment of 9.5 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 10.4 percent on a trailing 12-month basis—FFO payout ratio was 52.6 percent on a trailing 12-month basis—On a total portfolio basis, operating margins declined from—42.4 percent in the third quarter of 2001 to 39.3 percent in the third quarter of 2002, and from 43.9 percent to 42.0 percent for the nine months ended September 30, 2001 and 2002, respectively—Based on information provided by Smith Travel Research, the year-to-date 2002 RevPAR yield through September 30, 2002, for our portfolio was 107 percent.

Commenting on third quarter results, Joe Green, chief financial officer, said, “This is the first quarter following the buy-back of all but three of our leases. We are aggressively asset managing our properties, where margins remain under significant pressure. We expect to benefit substantially when the economy recovers.”

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