Winston Hotels Reports Fourth Quarter

RALEIGH, N.C., Feb 12, 2003 (BUSINESS WIRE)—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 fourth quarter and full-year ended December 31, 2002.
Funds from operations (FFO) increased 27.4 percent to $4.8 million for the 2002 fourth quarter, compared to $3.7 million for the same period in 2001. On a per share basis, FFO increased 4.8 percent to $0.22 per share for the fourth quarter on 21.3 million weighted average shares of common stock outstanding, compared to $0.21 on 18.2 million weighted average shares outstanding for the same quarter a year ago.
“Occupancy improved more than 2 percentage points for the fourth quarter, offset partially by a 3.2 percent decline in room rate from the same period in 2001,” said Bob Winston, chief executive officer. “We experienced a number of positive developments during 2002, which we believe have set the stage for positive long-term growth in the future. We:
—Acquired leasehold interests—“Winston acquired the leasehold interests for 47 hotels from MeriStar Hotels & Resorts (now Interstate Hotels & Resorts) to better align our ownership with the financial interests of our operators.”—Formed acquisition venture—“We formed a joint venture with Charlesbank Capital Partners, LLC to acquire in excess of $100 million of hotel assets and have placed two previously acquired hotel assets in the venture.”—Continued mezzanine loan program—“We continued our mezzanine loan program to help finance selected development and renovation projects and issued, through a 50/50 joint venture with Hall Financial Group, a $3.5 million loan for conversion of a historic office building in Baltimore`s Inner Harbor to a Hampton Inn & Suites.”—Upgraded portfolio—“We sold four hotels for aggregate gross proceeds of $13.8 million, as we continued selectively pruning our portfolio of non-strategic assets.”—Strengthened balance sheet—“Winston completed a 3.2 million share common stock offering at $9 per share, generating net proceeds of approximately $26.9 million, which were used to pay down debt and to purchase our leasehold interests from Interstate.” Operating Results
Due to the acquisition in July 2002 of the company`s leasehold interests from Interstate Hotels and Resorts, the results of operations for the three and 12 months ended December 31, 2002, compared to the results of operations for the three and 12 months ended December 31, 2001, do not offer a meaningful comparison. This is due primarily to recording the operating results of the hotels 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 12 months ended December 31, 2002 and 2001, as if the acquisition of the leasehold interests from Interstate occurred on January 1, 2001. This information is shown for the 47 hotels that were open during the periods presented and does not include operating results for any hotels that have been sold.
Financial Highlights—Total debt to EBITDA multiple was 3.5 for the year—Annual interest coverage ratio multiple was 3.9 for the year—Closed the quarter with consolidated debt to total assets at cost of 29.7 percent—Generated an unleveraged return on investment of 9.5 percent on its hotel portfolio for the full year 2002. Based upon the company`s leverage and borrowing costs, the company realized a leveraged return on investment of 10.6 percent for 2002—FFO payout ratio was 51.3 percent in 2002—For the 47 hotels that were open during both periods, excluding hotels that have been sold, operating margins declined from 42.6 percent in the fourth quarter of 2001 to 39.5 percent in the fourth quarter of 2002, and from 43.9 percent to 42.2 percent for the 12 months ended December 31, 2001 and 2002, respectively—Based on information provided by Smith Travel Research, the 2002 RevPAR yield through December 31, 2002, for Winston`s portfolio was 108 percent
“In addition to acquiring our leasehold interests from Interstate, we made significant strides in implementing our growth strategies,” said Joe Green, chief financial officer. “The most noteworthy achievement was the joint venture we formed with Charlesbank to acquire hotels. We already have placed two assets in the joint venture and currently are looking at a number of properties for possible acquisition.
“We also continued our mezzanine loan program, a second important avenue of growth for us,” he noted. “We issued one loan and have a pipeline of candidates. We are reviewing a number of quality projects and are being highly selective in the process.
“We believe we have positive momentum in all our strategic initiatives as we move into 2003,” he said.
Dividend Performance: During the fourth quarter, Winston Hotels declared a regular cash dividend of $0.15 per common share, which is equivalent to $0.60 per common share on an annualized basis. Also in the fourth quarter, the company declared a regular quarterly cash dividend to preferred shareholders of $0.578125 per share. “We do not anticipate any change in our current dividend policy in 2003,” Green added.
Guidance and Outlook : “Providing meaningful guidance, considering the threat of war and other geopolitical developments, is difficult,” Green remarked. “As a result, we only are providing guidance for the first quarter and full-year 2003. Based on our operators` forecasts, we currently are targeting RevPAR of negative 4 percent to negative 1 percent for the first quarter 2003 compared to the first quarter 2002, and for the full year 2003, we are targeting RevPAR of flat to positive 2 percent. We are targeting FFO per share of $0.17 to $0.20 for the first quarter 2003 and $1.03 to $1.14 for the full year 2003.”
“2002 was a year of transition,” Winston said. “We continued to work hard to improve returns on our existing assets and to prepare to capitalize on the long-anticipated recovery. The current economic recovery scenario is a fragile one, and we will have to wait to see if it has staying power. In the meantime, we will continue to seek viable joint ventures with strong partners to acquire hotels selectively on an accretive basis, to provide mezzanine loans for new development, hotel renovations and to improve owner liquidity, and to enhance the operations of the properties currently in our portfolio. New room supply continues to decline, setting the stage for a rebound when the recovery does arrive and demand increases.”
Winston Hotels` fourth quarter investor conference call is scheduled for 10 a.m. ET today. The call also will be simulcast over the Internet via the company`s web site, www.winstonhotels.com. The replay will be available on the company`s web site for 30 days and via telephone for seven days by calling 800/475-6701, access code 673982.
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