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 both the fourth quarter and year ended December 31, 2000. FFO totaled $6.5 million for both the fourth quarter of 2000 and 1999. On a per share basis, FFO for the fourth quarter of 2000 totaled $0.36 on 18.2 million weighted average shares outstanding compared to $0.36 on 18.1 million weighted average shares outstanding for the same quarter a year ago. Lease revenue prior to adoption of SAB 101 totaled $13.5 million for the fourth quarter of 2000 and $13.7 million for the fourth quarter of 1999.
Bob Winston, Chief Executive Officer, commented: “Despite continued slower growth in the sector, our fourth quarter FFO per share of $0.36 was in line with consensus analysts` expectations. RevPAR growth for both the fourth quarter and the year was approximately one percent which was in line with the Company`s expectations established at the beginning of the year.”
“Leveraging our expertise in hotel development, finance, and operations, as well as participating in carefully structured joint ventures has allowed us to keep our dividend consistent and to create new avenues for growth,” Mr. Winston continued.
In 2000 the Company announced three joint venture development projects. Two of these hotels opened during 2000 and the third currently is under development and expected to open in July 2001. Winston owns a 49% interest in each joint venture.
“These properties complement our existing portfolio of leading brand hotels and enhance our FFO through fee income generated by our management team`s comprehensive in-house development capabilities. Under the terms of these agreements, Winston provides development management services and capital design and purchasing capabilities during the construction of the hotel, and continues to provide ongoing asset management assistance to the projects,” Mr. Winston added.
Winston Hotels` President and Chief Operating Officer, James D. Rosenberg, added, “Operating trends remained relatively consistent throughout 2000. As we stated earlier in the year, we expected RevPAR growth for our segment to be in the one percent range. However, some of our newer upscale hotels, such as our Hilton Garden Inns, enjoyed a 10% RevPAR increase for the year. We are not pleased with the performance of some of our older hotels and continue to look for ways either to improve their performance or sell these properties at the appropriate time.”
Mr. Rosenberg went on to say, “Winston`s strategy is unique, primarily due to the Company`s in-house capability to develop hotels. Also, the Company continues to build on its foundation of driving growth through offering financing services. By providing mezzanine financing to third party borrowers, Winston is addressing some of the difficulty of mortgage financing today by filling the gap often left between senior financing and equity requirements.”
In December, Winston completed an interest rate swap on $50 million of debt, which will allow the Company greater flexibility in dealing with volatile market conditions. The transaction effectively replaces the Company`s variable interest rate based on 30-day LIBOR on $50 million of its $140 million line of credit (the “Line”) with a fixed interest rate of 5.915% for two years. The Company`s interest rate spread on the Line currently is 1.45%, resulting in a current total fixed interest rate of 7.365% on $50 million of the Line. Along with $69 million in outstanding securitized debt, which carries a fixed interest rate of 7.375%, the transaction locks in approximately 70% of the Company`s total outstanding debt at very attractive rates. As of December 31, 2000, the Company had $103.8 million outstanding under the Line, $53.8 million of which is subject to a variable interest rate of 30-day LIBOR plus 1.45%. “We are pleased that our interest rate strategy has enabled us to take advantage of very competitive rates for a substantial part of our debt structure,” commented Joseph V. Green, the Company`s Chief Financial Officer.
During the fourth quarter, the Company announced its regular quarterly cash dividend of $0.28 per common share. The dividend was paid on January 16, 2001 to common shareholders of record as of December 29, 2000. The regular quarterly dividend is equivalent to $1.12 per share on an annualized basis. Also in the fourth quarter, the Company announced its regular quarterly cash dividend to preferred shareholders of $0.578125 per share. This dividend also was paid on January 16, 2001 to shareholders of record as of December 29, 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 December 31, 2000, the Company`s deferred lease revenue resulting from the adoption of SAB 101 totaled $0.5 million, all of which will be recognized in the first and second quarters of 2001. 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 Year Ended December 31, 2000.