RALEIGH, N.C.—(BUSINESS WIRE)—May 7, 2003—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 first quarter ended March 31, 2003.
Net loss to common shareholders was $(0.2) million for the three months ended March 31, 2003, or $(0.01) per share, compared to $(2.8) million for the three months ended March 31, 2002, or $(0.16) per share. Funds from operations (FFO) decreased 16.5 percent to $4.2 million for the 2003 first quarter, compared to $5.0 million for the like period a year earlier. On a per share basis, FFO declined 25.9 percent to $0.20 for the first quarter on 21.4 million weighted average shares outstanding, compared to $0.27 on 18.5 million weighted average shares outstanding for the same period a year earlier.
“The sluggish economy continues to heavily influence corporate business travel,” said Bob Winston, chief executive officer. “The build-up and start of the Iraq War and the highly publicized outbreak of severe acute respiratory syndrome (SARS), made both business and leisure travelers more skittish. This combination of events put tremendous pressure on the entire hospitality industry during the quarter.”
Occupancy for the 2003 first quarter rose to 62.7 percent from 62.3 percent in the 2002 first quarter, while average daily room rate (ADR) declined 4.5 percent, placing greater pressure on operating margins. Revenue per available room (RevPAR) decreased 3.9 percent in the 2003 first quarter from the same quarter in 2002.
The company calculates FFO by using the National Association of Real Estate Investment Trusts` (NAREIT) definition, and further adjusts for changes in deferred revenue, preferred share distributions, deferred income taxes and other unusual and non-recurring transactions. This calculation of FFO may differ from other reporting companies and as such the presentation of FFO by the company may not be comparable to other similarly titled measures of other reporting companies. Some reporting companies have adopted the NAREIT definition of FFO. Due to the acquisition of the company`s leasehold interests from Interstate Hotels and Resorts in July 2002, the company believes that the adoption of the NAREIT definition of FFO would not result in a meaningful comparison, and would not be an accurate reflection of the operating activity of the quarter ended March 31, 2003 compared with the quarter ended March 31, 2002. This is primarily due to significant amounts of deferred revenue which accrued throughout the first two quarters of 2002 and were recognized in the third quarter of 2002 pursuant to SAB 101. The company plans to adopt the NAREIT definition of FFO when the company believes that the figures will result in a meaningful comparison between periods presented.
Due to the acquisition in July 2002 of the company`s leasehold interests from Interstate Hotels and Resorts, the results of operations for the first quarter ended March 31, 2003, compared to the results of operations for the same 2002 period, 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 actual financial information for the three months ended March 31, 2003 compared with selected unaudited pro forma financial information for the three months ended March 31, 2002, as if the acquisition of the leasehold interests from Interstate occurred on January 1, 2002. 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.
“While we were pleased with the improvement in occupancy, room rate continues to decline, placing significant pressure on margins,” said Joe Green, chief financial officer. “We are working closely with our operators to control costs. Although margins dropped 4 percentage points for the quarter, they improved on a month-over-month basis in February and March, with the latter showing improvements, compared to budget expectations. Margin enhancement remains one of our primary focuses.”
“We have an active acquisition pipeline of properties to which we believe we can add value through re-branding or substantial capital renovation through our joint venture with Charlesbank Capital. Additionally, our pipeline of opportunities to place quality debt on selected hotels is developing nicely. Hotel transactions like these, however, are very complex, and timing is difficult to predict,” Green said.
During the 2003 first 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 first quarter, the company declared a regular quarterly cash dividend to preferred shareholders of $0.578125 per share. “Our dividend remains equal to 2002 payments, and we currently do not anticipate any change in our 2003 dividend policy,” Green added.
“With the Iraq War apparently winding down and lower terrorist alert levels, we are hopeful that the pace of travel will begin to show signs of improvement,” Green remarked.
“It is still too early to tell when the economy and hotel industry will begin to rebound, but we sense a fair amount of pent-up demand. Based on our operators` estimates for the 2003 second quarter, RevPAR is targeted to be within a range of negative 3 percent to flat, compared to the 2002 second quarter, and flat to positive 2 percent for full-year 2003 compared to full-year 2002. FFO per share for the 2003 second quarter is targeted to be between $0.34 and $0.38. We are revising our full-year FFO per share guidance to $1.03 to $1.12, versus our previously issued guidance of $1.03 to $1.14, due to the expected termination of the leases with Intercontinental Hotels Group, Inc. (formerly Six Continents Hotels, Inc.) for our wholly owned Hampton Inn in Las Vegas, NV and our Windsor, CT Hilton Garden Inn in which we currently own a 49% joint venture interest. It is anticipated that on or about July 1, 2003, (i) the Hampton Inn will be leased by our taxable REIT subsidiary, Barclay Hospitality Services; (ii) the Hilton Garden Inn will be leased by an affiliate of the company; and, (iii) both properties will be managed by Alliance Hospitality Management, LLC.
“We are optimistic that we are near the end of a very difficult operating period for both Winston Hotels and the hotel industry,” Winston added. “We are fortunate that new room supply is at a cyclical low, which should help speed the recovery. We remain conservative in our cost control measures and are actively seeking opportunities to make acquisitions with our joint venture partner, as well as actively pursuing mezzanine loan opportunities. We believe that we are prepared to move swiftly in response to changing economic conditions.”
Winston Hotels` first quarter 2003 investor conference call is scheduled for 10 a.m. ET today. Interested parties may dial 888-428-4474 to listen to the call. 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 681906.
Raleigh, North Carolina-based Winston Hotels, Inc., is a real estate investment trust specializing in the development, acquisition, repositioning and active asset management of premium limited-service, upscale extended-stay and full-service hotels, with a portfolio increasingly weighted toward the leading brands in the lodging industry`s upscale segment. The Company currently owns or is invested in 52 hotels with 7,200 rooms in 17 states, which includes: 44 wholly-owned properties with 6,141 rooms; a 49 percent ownership interest in three joint venture hotels with 453 rooms; a 13.05 percent ownership interest in two joint venture hotels with 215 rooms; and a mezzanine financing interest in three hotels with 391 rooms. For more information about Winston Hotels, visit the Winston Hotels web site, www.winstonhotels.com.