Winston Hotels, Inc., (NYSE: WXH), a real estate investment trust and owner of premium limited-service, high-end extended-stay and full-service hotels, today announced results for the second quarter and six months ended June 30, 2000. FFO totaled $9.3 million for both the second quarter of 2000 and the second quarter of 1999. On a per share basis, FFO for the second quarter of 2000 totaled $0.51 on 18.2 million weighted average shares outstanding compared to $0.51 on 18.1 million weighted average shares for the same quarter a year ago. Lease revenue prior to adoption of SAB 101 increased to $17.4 million for the second quarter of 2000 as compared to $17.3 million for the second quarter of 1999.
Bob Winston, Chief Executive Officer, commented: “We are pleased with our strong second quarter performance and that Winston exceeded analysts’ FFO estimates. This is primarily the result of better than expected RevPAR growth throughout the portfolio.”
Mr. Winston continued, “We also are very proud of our strategic progress in 2000. Due to the sector’s extremely limited external growth opportunities, Winston made a strategic decision to focus on driving internal growth through a multi-prong strategy. These efforts include ramping up occupancy at the company’s newest hotels, engaging in selected joint venture projects, providing mezzanine loans, and packaging and marketing the management team’s consulting expertise to generate fee income. “
“In addition to the 50 hotel properties that we currently have open, we have three other hotel projects that are under development through joint ventures. We also were pleased to announce earlier this month our strategic alliance with Noble Investment Group, Ltd. Winston will loan capital in the form of mezzanine financing and Noble will be responsible for providing the remainder of the funding and will own and operate the hotels. Both our joint ventures and our mezzanine financing services will provide us with additional sources of fee income,” added Mr. Winston.
Jim Rosenberg, President and Chief Operating Officer, added: “Operating trends remained steady in the second quarter of 2000, as momentum built from the first quarter. Continued RevPAR growth was fueled by our ten newest hotels, all leading upscale brands in prime markets with strong demand. Our selective investment approach has created a valuable internal growth platform.”
Mr. Rosenberg went on to say, “Despite the external constraints prevalent in the real estate sector, both our joint ventures and our new strategic alliance with Noble reflect the Company’s ability to identify and execute on select growth opportunities in a highly creative fashion, while continuing to adhere to our conservative operating philosophy. With regard to our mezzanine loans and development efforts, we anticipate that the returns should be approximately 16% to 21% from existing joint ventures and alliances for the period of our investment.”
During the second quarter, Winston Hotels announced its regular quarterly cash dividend of $0.28 per common share. The dividend was paid on July 14, 2000 to common shareholders of record as of June 30, 2000. The regular quarterly dividend is equivalent to $1.12 per share on an annualized basis. Also in the second quarter, the Company announced its regular quarterly cash dividend to preferred shareholders of $0.578125 per share. This dividend also was paid on July 14, 2000 to shareholders of record as of June 30, 2000.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (“SAB 101”) which provides guidance on revenue recognition. SAB 101 is effective for fiscal years beginning after December 15, 1999. SAB 101 requires that a lessor not recognize contingent rental income until annual specified hurdles have been achieved by the lessee. During 1999 and prior years, consistent with industry practice, the Company recognized contingent rentals throughout the year since it was considered probable that the lessee would exceed the annual specified hurdles. The Company has reviewed the terms of its leases and has determined that the provisions of SAB 101 materially impact the Company’s revenue recognition on an interim basis, effectively deferring the recognition of revenue from its leases from the first and second quarters of the calendar year to the third and fourth quarters. SAB 101 will impact the Company’s revenue recognition on an annual basis, although to a much lesser degree, as seven of the Company’s leases have fiscal year ends which differ from the Company’s calendar year end. The Company has accounted for SAB 101 as a change in accounting principle effective January 1, 2000, and therefore has not restated prior year financial statements.
SAB 101 will have no impact on the Company’s FFO, or its interim or annual cash flow from its third party lessees, and therefore, on its ability to pay dividends.
As of June 30, 2000, the Company’s deferred lease revenue resulting from the adoption of SAB 101 totaled $12.8 million, approximately 96% of which will be recognized in the third and fourth quarters of 2000. As noted above, the Company has seven leases with non-calendar year fiscal years. These seven leases generated $0.7 million deferred revenue as of December 31, 1999, which is shown as a “cumulative effect of change in accounting principle” on the accompanying Statement of Operations for the Six Months Ended June 30, 2000.