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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) May 7, 1996
WINSTON HOTELS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 0-23732 56-1872141
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation) Identification Number)
2209 CENTURY DRIVE, SUITE 300, RALEIGH, NORTH CAROLINA 27612
(Address of principal executive offices)
(919) 510-6010
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Winston Hotels, Inc. (the "Company") through WINN Limited Partnership
of which it is the sole general partner and in which it currently owns an
approximate 95.5% interest consummated the acquisition of the following hotels
on May 7, 1996:
<TABLE>
<CAPTION>
Purchase
No. Price
Hotel of Rooms Location ($000)
----- -------- -------- ------
<S> <C> <C> <C>
Holiday Inn Select 244 Garland, TX $14,805
Holiday Inn Express 80 Abingdon, VA $ 2,669
Comfort Suites 62 (suites) London, KY $ 2,364
Hampton Inn 119 Duncanville, TX $ 3,161
</TABLE>
The properties were purchased from Dallas Lodging Associates, Inc., A.B.
Lodging Associates, Inc., London Lodging Associates and Duncanville Lodging
Associates, Ltd., respectively, parties unrelated to the Company. The Company
also purchased land parcels adjacent to two of these hotels for possible
expansion for $0.6 million. The purchase prices were financed in part with
borrowings under the Company's existing $50 million line of credit with
Wachovia Bank of North Carolina and with $17 million of borrowings under a new
interim unsecured line of credit from Wachovia Bank of North Carolina.
Contemporaneous with the purchases, the Company leased the properties to
Winston Hospitality, Inc. pursuant to percentage leases. Impac Hotel Group,
Inc. will continue to manage the Holiday Inn Select hotel under a separate
management agreement with Winston Hospitality, Inc. The properties will
continue to be operated as hotel properties.
ITEM 5. OTHER EVENTS
On May 6, 1996, the Company, through WINN Limited Partnership,
acquired a 191-room Comfort Inn in Greenville, South Carolina for a purchase
price of $4.4 million from an unrelated third party. Pursuant to the
requirements of Form 8-K and Regulation S-X, this acquisition is not required
to be reported in Item 2 hereof.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a)(i) The audited financial statements of properties acquired and
described in Item 2 are incorporated by reference to pages
F-32 through F-40 of the Company's Registration Statement on
Form S-3 (Registration No. 333-3986) filed with the Securities
and Exchange Commission on April 25, 1996. Copies of the
financial statements are contained in Exhibit 99.1 attached
hereto.
Report of Independent Accountants
Combined Balance Sheet as of December 31, 1995
Combined Statement of Income for the Year Ended December 31,
1995
Combined Statement of Equity for the Year Ended December 31,
1995
Combined Statement of Cash Flows for the Year Ended December
31, 1995
Notes to Combined Financial Statements
(ii) At the date hereof, it is impracticable to provide the interim
unaudited financial statements required by Rule 3-05 of
Regulation S-X. The interim unaudited financial statements
for the three months ended March 31, 1996 will be filed at a
later date, no later than 60 days after the date hereof.
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(b) At the date hereof, it is impracticable to provide the unaudited pro
forma financial information prescribed by Article 11 of Regulation
S-X. This information will be filed at a later date, no later than 60
days after the date hereof.
(c) The following exhibits required by Item 601 of Regulation S-K are
listed below:
Exhibit 10.6 Agreement of Purchase and Sale, dated February 1,
1996, among WINN Limited Partnership, Dallas Lodging
Associates, Inc., A.B. Lodging Associates, Inc.,
London Lodging Associates and Duncanville Lodging
Associates, I, Ltd. (incorporated by reference to
Exhibit 10.6 filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1996 as filed with the Securities and Exchange
Commission on May 14, 1996
Exhibit 99.1 Copies of the audited financial statements of
properties acquired and described in Item 2 hereof as
of and for the year ended December 31, 1995
incorporated by reference to pages F-32 through F-40
of the Company's Registration Statement on Form S-3
(Registration No. 333-3986) filed with the Securities
and Exchange Commission on April 25, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WINSTON HOTELS, INC.
May 21, 1996 /s/ Robert W. Winston, III
- ------------- -----------------------------------------------------
Date Robert W. Winston, III
Chief Executive Officer and President
May 21, 1996 /s/ Philip R. Alfano
- ------------- -----------------------------------------------------
Date Philip R. Alfano
Senior Vice President and Chief Financial Officer
-4-
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Description Page No.
- ------- ----------- ----------
<S> <C> <C>
99.1 Copies of the audited financial statements of 6
properties acquired and described in Item 2
hereof as of and for the year ended December
31, 1995 incorporated by reference to pages
F-32 through F-40 of the Company's Registration
Statement on Form S-3 (Registration No. 333-3986)
filed with the Securities and Exchange Commission
on April 25, 1996
</TABLE>
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Winston Hotels, Inc.
We have audited the accompanying combined balance sheet of the Impac
Acquisition Hotels (described in Note 1) as of December 31, 1995, and the
related combined statements of income, equity and cash flows for the year then
ended. These combined financial statements are the responsibility of the
management of the Impac Acquisition Hotels. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Impac Acquisition Hotels
as of December 31, 1995 and the combined results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND LLP
Raleigh, North Carolina
February 21, 1996
F-32
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IMPAC ACQUISITION HOTELS
COMBINED BALANCE SHEET
DECEMBER 31, 1995
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investment in hotel property, at cost:
Land.......................................................................... $ 945
Buildings and improvements.................................................... 8,862
Furniture and equipment....................................................... 4,665
-------
14,472
Less accumulated depreciation................................................. 3,267
-------
Net investment in hotel properties.............................................. 11,205
Cash and cash equivalents....................................................... 378
Accounts receivable............................................................. 354
Notes receivable from affiliates................................................ 395
Accrued interest receivable..................................................... 12
Deferred expenses, net.......................................................... 175
Prepaid expenses and other assets............................................... 74
-------
$12,593
========
LIABILITIES AND EQUITY
Long-term debt.................................................................. $ 9,894
Accounts payable, trade......................................................... 531
Accrued expenses and other liabilities.......................................... 242
Notes payable to affiliates..................................................... 552
Distributions payable........................................................... 61
-------
11,280
-------
Commitments
Shareholders' equity:
Common stock; no par value.................................................... 741
Accumulated deficit........................................................... (708)
Partners' equity:
General partners.............................................................. 16
Limited partners.............................................................. 1,264
-------
1,313
-------
$12,593
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
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IMPAC ACQUISITION HOTELS
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS)
<TABLE>
<S> <C>
Revenue:
Room revenue.................................................................... $ 8,006
Food and beverage revenue....................................................... 1,947
Other revenue, net.............................................................. 411
-------
Total revenue........................................................... 10,364
-------
Expenses:
Property operating expenses..................................................... 5,787
Franchise costs................................................................. 659
Real estate taxes and property and casualty insurance........................... 299
Management fees, related party.................................................. 303
Interest expense................................................................ 1,089
Depreciation and amortization................................................... 1,131
-------
Total expenses.......................................................... 9,268
-------
Net income.............................................................. $ 1,096
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
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IMPAC ACQUISITION HOTELS
COMBINED STATEMENT OF EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, NET DECEMBER 31,
1994 INCOME DISTRIBUTIONS 1995
------------ ------ ------------- ------------
<S> <C> <C> <C> <C>
Common stock................................ $ 741 $ 741
Accumulated deficit......................... (516) $ 468 $ (660) (708)
General partners............................ 11 6 (1) 16
Limited partners............................ 1,516 622 (874) 1,264
------------ ------ ------------- ------------
$1,752 $1,096 $(1,535) $1,313
=========== ====== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
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IMPAC ACQUISITION HOTELS
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $ 1,096
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 1,131
Recognition of deferred management fees...................................... 17
Changes in assets and liabilities:
Accounts receivable........................................................ 20
Accrued interest receivable................................................ (12)
Prepaid expenses and other assets.......................................... (40)
Accounts payable, trade, accrued expenses and other liabilities............ 26
-------
Net cash provided by operating activities............................... 2,238
-------
Cash flows from investing activities:
Additions to hotel properties................................................... (608)
Increase in notes receivable from affiliates.................................... (276)
Payments received on notes receivable from affiliates........................... 126
-------
Net cash used in investing activities................................... (758)
-------
Cash flows from financing activities:
Proceeds from issuance of notes payable to affiliates........................... 45
Principal payments on long-term debt............................................ (292)
Payment on notes payable to affiliates.......................................... (12)
Distributions to partners....................................................... (1,474)
-------
Net cash used in financing activities................................... (1,733)
-------
Net change in cash and cash equivalents........................................... (253)
Cash and cash equivalents at beginning of year.................................... 631
-------
Cash and cash equivalents at end of year.......................................... $ 378
========
Supplemental disclosures of cash flow information --
Cash paid during the year for interest.......................................... $ 1,042
========
Schedule of noncash financing and investing activities:
The Companies declared $61 of distributions that were paid in January 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
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IMPAC ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. ORGANIZATION
The Impac Acquisition Hotels are a combination of the balance sheets and
statements of income, equity and cash flows of two limited partnerships and two
"sub-chapter S" corporations (collectively the "Companies") presented on a
historical basis. The Companies are related through common control. Each company
owns one hotel property.
The Companies combined in these financial statements consist of the
following hotel properties:
<TABLE>
<CAPTION>
COMPANY HOTEL LOCATION
-------------------------- --------------------------------------------------------
<S> <C> <C>
Dallas Lodging Associates Holiday Inn Select Dallas, Texas
I, Ltd.
A.B. Lodging, Inc. Holiday Inn Express Abingdon, Virginia
London Lodging Associates, Comfort Suites London, Kentucky
Inc.
Duncanville Lodging Hampton Inn Duncanville, Texas
Associates I, Ltd.
</TABLE>
The Holiday Inn Select and the Holiday Inn Express are operated under
franchise agreements with Holiday Inns Franchising, Inc. The Comfort Suites is
operated under a franchise agreement with Choice Hotels International. The
Hampton Inn is operated under a franchise agreement with Hampton Inn Hotel
Division of Embassy Suites, Inc.
The Companies have entered into contracts to sell their investment in hotel
properties to WINN Limited Partnership. The contract does not extend to any
other assets or liabilities of the Companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents. All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.
Fair Value of Financial Instruments. Statement of Financial Accounting No.
107, "Disclosure About Fair Value of Financial Instruments" requires the
Companies to disclose estimated fair values of its financial instruments. The
Companies' financial instruments consist of cash and cash equivalents, long-term
debt, notes receivable from affiliates, and notes payable to affiliates, whose
carrying value approximates fair value. The Companies' remaining assets and
liabilities are not considered financial instruments.
Concentration of Credit Risk. The Companies place cash deposits with
federally insured financial institutions. At times, deposits have exceeded the
amounts insured by the Federal Deposit Insurance Corporation. In addition,
amounts due from affiliates represent concentrations of credit risk.
Revenue Recognition. Revenue is recognized as earned. Ongoing credit
evaluations are performed and accounts deemed uncollectible are charged to
operations.
Investment in Hotel Properties. The hotel properties are stated at cost.
Depreciation is computed using straight-line and accelerated methods at rates
based upon the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements....... 31.5-39.5 years
Furniture and equipment.......... 5-7 years
</TABLE>
F-37
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IMPAC ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Maintenance and repairs are charged to operations as incurred. Additions
and major improvements are capitalized. Upon sale or disposition, both the asset
and related accumulated depreciation are relieved and the related gain or loss
is included in operations.
The Company evaluates long-lived assets for potential impairment by
analyzing the operating results, trends and prospects for the Company and
considering any other events and circumstances which might indicate potential
impairment.
Advertising Costs. Advertising costs of $497 were expensed as incurred.
Deferred Expenses. Deferred expenses consist primarily of franchise fees
and loan costs which are recorded at cost. Amortization is computed using the
straight-line method over the terms of the franchise and loan agreements.
Income Taxes. Each of the four companies are not tax paying entities for
income tax purposes, and thus no income tax expense has been recorded in the
combined financial statements. Income or loss is taxed to the owners in their
individual income tax returns.
Use of Estimates in the Preparation of Financial Statements. The
preparation of the combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of December 31, 1995 and the
reported amounts of revenues and expenses during the year ended December 31,
1995. Actual results could differ from those estimates.
3. LONG-TERM DEBT
At December 31, 1995 long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable in equal monthly installments of principal and interest
of $24, bearing interest at 9%, due January 1, 2000............... $2,543
Note payable in monthly installments of principal and interest at
30-day LIBOR plus 4.75% (10.47% at December 31, 1995), due June 1,
1997.............................................................. 4,300
Note payable in equal monthly installments of principal and interest
of $14, bearing interest at WSJ prime plus 2% (10.25% at December
31, 1995), due September 24, 1996................................. 1,375
Notes payable in monthly installments of principal and interest
based on a 20 year amortization and interest at the bank's prime
plus 2% (9.75% at December 31, 1995), due November 8, 1996........ 1,676
------
$9,894
======
</TABLE>
The debt is collateralized by the investments in hotel properties and
rents. A majority of the notes are guaranteed by certain partners and
shareholders.
F-38
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IMPAC ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
($ IN THOUSANDS)
3. LONG-TERM DEBT (CONTINUED)
Aggregate annual principal payments for long-term debt at December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996...................................................... $3,293
1997...................................................... 4,170
1998...................................................... 64
1999...................................................... 71
2000...................................................... 2,296
------
$9,894
======
</TABLE>
4. RELATED PARTY TRANSACTIONS
Management services were provided to the Companies by an entity related
through common ownership under the terms of management contracts expiring at
various dates through May 2003. Management fees expensed were $304 during 1995.
Included in accounts payable are $10 of unpaid management fees as of December
31, 1995.
The Companies receive all services related to the renovation of the hotel
properties from Impac Design and Construction ("IDC"), a Company related to the
Companies through common ownership. Included in accounts payable are amounts due
to affiliates of $93 related to these services. Payments to IDC for renovation
services during the year ended December 31, 1995 amounted to $561.
The Companies make loans to other companies related to the Companies
through common ownership. Included in notes receivable from affiliates at
December 31, 1995 is $321 of notes that bear interest at 7% and are due upon
demand. Interest income on these notes was approximately $15 during the year
ended December 31, 1995. The remaining notes receivable from affiliates of $74
at December 31, 1995, do not bear interest and are due upon demand.
At December 31, 1995, notes payable to affiliates consists of the
following:
<TABLE>
<S> <C>
Note payable to former shareholder in equal monthly installments of
$5, including interest at 7%, due September 19, 1996............. $507
Notes payable on demand to affiliates bearing interest at 7%....... 45
----
$552
====
</TABLE>
Interest expense on these notes for the year ended December 31, 1995 was
approximately $53.
F-39
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IMPAC ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
($ IN THOUSANDS)
5. COMMITMENTS
Franchise costs represent the annual expense for franchise royalties,
reservation and advertising services under the terms of hotel franchise
agreements expiring at various dates through October 2011. Fees are computed
based upon percentages (generally 8% of gross room revenue).
Certain equipment is leased under noncancelable operating lease agreements
expiring at varying intervals through April 1998. Following is a schedule for
the future minimum rental payments required under these leases as of December
31, 1995:
<TABLE>
<S> <C>
1996........................................................ $33
1997........................................................ 25
1998........................................................ 2
---
$60
====
</TABLE>
Rental expense was approximately $36 for the year ended December 31, 1995.
F-40
