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 third quarter and nine months ended September 30, 2000. FFO totaled $8.9 million for the third quarter of 2000 and $9.3 million for the third quarter of 1999. On a per share basis, FFO for the third quarter of 2000 totaled $0.49 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 totaled $16.5 million for both the third quarter of 2000 and the third quarter of 1999.
Bob Winston, Chief Executive Officer, commented: “Our third quarter FFO per share of $0.49 and RevPAR results were in line with expectations. This solid performance despite our sector’s slower growth is testimony to the effectiveness of our strategy. Our commitment to investing in high-quality real estate has given us one of the youngest median property ages of any public-hotel REIT. This highly selective approach continues to serve us well.
“Additionally, we are making excellent progress in executing our multi-dimensional growth strategy, which permits us to apply our expertise in hotel development and participate in carefully structured joint ventures. Earlier this month we announced the opening of a Hilton Garden Inn in Windsor Connecticut, which is owned and operated under a joint venture agreement with Regent Partners. In addition we have two other joint venture projects under development which will provide us with additional sources of fee income and enable us to expand our affiliations with leading upscale brands. Finally, we are in the process of financing and developing two Hilton Garden Inn hotels with Noble Investment Group. This strategic alliance further documents Winston`s ability to execute despite the market constraints currently confronting our sector,” stated Mr. Winston.
Winston Hotels’ President and Chief Operating Officer, James D. Rosenberg, added, “Operating trends remained solid in the third quarter of 2000. As we stated earlier in the year, we expected RevPAR growth for our segment to be in the flat to one percent range. Accordingly, we are encouraged by our positive trend in RevPar growth, which was up one percent for the third quarter.”
Mr. Rosenberg went on to say, “In addition to ramping up occupancy at our newest hotels and engaging in joint ventures, Winston continues to focus on driving internal growth by offering financing services as well. In fact, we continue to seek additional opportunities to provide mezzanine financing to other borrowers. It is important to note that Winston Hotels is not merely a financial investor. We are fully versed in all aspects of hotel development, finance and operations including selecting sites and markets, assessing investment potential, selecting architects and contractors and if necessary building and also managing hotels.”
During the third quarter, Winston Hotels announced its regular quarterly cash dividend of $0.28 per common share. The dividend was paid on October 16, 2000 to common shareholders of record as of September 30, 2000. The regular quarterly dividend is equivalent to $1.12 per share on an annualized basis. Also in the third quarter, the Company announced its regular quarterly cash dividend to preferred shareholders of $0.578125 per share. This dividend also was paid on October 16, 2000 to shareholders of record as of September 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 September 30, 2000, the Company’s deferred lease revenue resulting from the adoption of SAB 101 totaled $10.5 million, at least 90% of which will be recognized in the fourth quarter 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 Income for the Nine Months Ended September 30, 2000.