<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998 Commission file number 0-23732
WINSTON HOTELS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1624289
(State of incorporation) (I.R.S. Employer Identification No.)
2209 CENTURY DRIVE
RALEIGH, NORTH CAROLINA 27612
(Address of principal executive offices)
(Zip Code)
(919) 510-6010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, $.01 par value, outstanding on
July 31, 1998 was 16,313,980.
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<PAGE> 2
WINSTON HOTELS, INC.
INDEX
The Registrant hereby amends its Quarterly Report on Form 10-Q for the period
ended June 30, 1998, filed with the Securities and Exchange Commission on August
14, 1998 to reflect a change in accounting principle effective January 1, 1998.
This change resulted from the withdrawal of the consensus reached by the
Financial Accounting Standards Board's Emerging Issues Task Force regarding EITF
98-9 "Accounting for Contingent Rent in Interim Financial Periods," (originally
issued on May 21, 1998) on November 19, 1998.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. WINSTON HOTELS, INC.
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997 3
Unaudited Consolidated Statements of Operations for the three and six months
ended June 30, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
CAPSTAR WINSTON COMPANY, L.L.C. (1)
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 9
Unaudited Statements of Income for the three and six months ended
June 30, 1998 10
Unaudited Statement of Cash Flows for the six months ended
June 30, 1998 11
Notes to Financial Statements 12
WINSTON HOSPITALITY, INC. (1)
Unaudited Statements of Income for the three and six months ended
June 30, 1997 13
Unaudited Statement of Cash Flows for the six months ended
June 30, 1997 14
Notes to Financial Statements 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX 25
(1) The financial statements of CapStar Winston Company, L.L.C.
and Winston Hospitality, Inc. are included in this report as
they contain material information with respect to the
Company's investment in hotel properties. For the six months
ended June 30, 1998, CapStar Winston Company, L.L.C. served as
the lessee of 47 of Winston Hotels, Inc.'s (the "Company's")
49 hotels. For the six months ended June 30, 1997, Winston
Hospitality, Inc. served as the lessee of all 32 of the
Company's hotels. In November 1997, CapStar Winston Company,
L.L.C. replaced Winston Hospitality, Inc. as the lessee of all
38 of the Company's hotels. These two companies are not
affiliated with the Company other than their lessee
relationships.
</TABLE>
2
<PAGE> 3
WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
<S> <C> <C>
Investment in hotel properties:
Land $ 40,464 $ 27,504
Buildings and improvements 331,532 224,535
Furniture and equipment 34,270 22,528
--------- ---------
Operating properties 406,266 274,567
Less accumulated depreciation (28,632) (21,572)
--------- ---------
377,634 252,995
Properties under development 11,617 26,490
--------- ---------
Net investment in hotel properties 389,251 279,485
Corporate FF&E, net 231 23
Cash and cash equivalents 408 164
Lease revenue receivable 10,457 5,682
Deferred expenses, net 1,338 1,403
Prepaid expenses and other assets 842 1,070
--------- ---------
Total assets $ 402,527 $ 287,827
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks $ 160,776 $ 44,081
Accounts payable and accrued expenses 3,045 3,527
Distributions payable 6,609 6,950
Minority interest in Partnership 15,246 15,779
--------- ---------
Total liabilities 185,676 70,337
--------- ---------
Shareholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized,
3,000 shares issued and outstanding (liquidation preference of
$76,734 and $77,100) 30 30
Common stock, $.01 par value, 50,000 shares authorized,
16,314 and 16,194 shares issued and outstanding 163 162
Additional paid-in capital 224,787 223,427
Unearned compensation (396) (106)
Distributions in excess of earnings (7,733) (6,023)
--------- ---------
Total shareholders' equity 216,851 217,490
--------- ---------
Total liabilities and shareholders' equity $ 402,527 $ 287,827
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30,1998 June 30, 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue:
Percentage lease revenue $14,999 $ 9,622 $25,071 $16,770
Interest and other income 65 24 114 54
------- ------- ------- -------
Total revenue 15,064 9,646 25,185 16,824
------- ------- ------- -------
Expenses:
Real estate taxes and property and casualty
insurance 1,283 591 2,262 1,156
General and administrative 1,164 492 1,763 862
Interest 1,954 996 2,579 1,811
Depreciation 3,916 2,348 7,074 4,570
Amortization 89 41 176 81
------- ------- ------- -------
Total expenses 8,406 4,468 13,854 8,480
------- ------- ------- -------
Income before allocation to
minority interest 6,658 5,178 11,331 8,344
Income allocation to minority interest 469 381 767 611
------- ------- ------- -------
Net income 6,189 4,797 10,564 7,733
Preferred stock distribution 1,734 -- 3,469 --
------- ------- ------- -------
Net income applicable to common
shareholders $ 4,455 $ 4,797 $ 7,095 $ 7,733
======= ======= ======= =======
Earnings per share:
Net income per common share $ 0.27 $ 0.30 $ 0.44 $ 0.49
======= ======= ======= =======
Net income per common share assuming
dilution $ 0.27 $ 0.30 $ 0.44 $ 0.49
======= ======= ======= =======
Weighted average number of common shares 16,302 15,820 16,263 15,817
======= ======= ======= =======
Weighted average number of common shares
assuming dilution 18,068 17,145 18,055 17,149
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,564 $ 7,733
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 767 611
Depreciation 7,074 4,570
Amortization of franchise fees 66 44
Amortization recorded as interest expense 183 219
Unearned compensation amortization 110 37
Changes in assets and liabilities:
Lease revenue receivable (4,775) (2,543)
Prepaid expenses and other assets 191 (909)
Accounts payable and accrued expenses (482) 427
--------- --------
Net cash provided by operating activities 13,698 10,189
--------- --------
Cash flows from investing activities:
Deferred acquisition costs -- (27)
Prepaid acquisition costs (400) (65)
Investment in hotel properties (117,234) (21,426)
Sale of land parcel 445 --
--------- --------
Net cash used in investing activities (117,189) (21,518)
--------- --------
Cash flows from financing activities:
Fees paid to increase and extend line of credit (5) (81)
Net proceeds from issuance of stock 600 200
Payment of distributions to shareholders (12,615) (8,300)
Payment of distributions to minority interest (940) (665)
Net increase in line of credit borrowing 73,795 20,281
Increase in demand notes 42,900 --
--------- --------
Net cash provided by financing activities 103,735 11,435
--------- --------
Net increase in cash and cash equivalents 244 106
Cash and cash equivalents at beginning of period 164 234
--------- --------
Cash and cash equivalents at end of period $ 408 $ 340
========= ========
Supplemental disclosure:
Cash paid for interest $ 2,678 $ 1,299
========= ========
Summary of non-cash investing and financing activities:
Investment in hotel properties payable $ -- $ 1,557
Distributions declared but not paid 6,609 4,613
Conversion of partnership units for common shares 152 --
Unearned compensation 400 --
Minority interest payable adjustment due to the exercise of stock
options and conversion of partnership units for common shares 208 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION
Winston Hotels, Inc. (the "Company") operates so as to qualify as a
real estate investment trust ("REIT") for federal income tax purposes.
The accompanying unaudited consolidated financial statements reflect,
in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature. Due to the seasonality of the
hotel business, the information for the three and six months ended June
30, 1998 and the information for the three and six months ended June
30, 1997 are not necessarily indicative of the results for a full year.
2. ACQUISITIONS AND DEVELOPMENT
During the second quarter of 1998, the Company invested approximately
$65 million in cash with the purchase of six hotels. The Tinton Falls
Holiday Inn was purchased on April, 21, 1998, the Albany Hilton Garden
Inn was purchased on May 8, 1998, the Las Vegas Hampton Inn was
purchased on May 20, 1998, the Secacus Holiday Inn was purchased on May
27, 1998, the Phoenix Homewood Suites was purchased on June 1, 1998 and
the Raleigh Hilton Garden Inn was purchased on June 4, 1998.
The Company also opened two internally-developed hotels during the
second quarter including the Lake Mary, Florida Homewood Suites hotel
and the Alpharetta, Georgia Homewood Suites hotel. The Company
currently has five projects in various stages of development including
the most recently announced Chapel Hill, North Carolina Hilton Garden
Inn and Charlotte, North Carolina Embassy Suites hotels. The completion
of all five development projects will represent a total investment of
approximately $58 million.
3. PRO FORMA FINANCIAL INFORMATION
These unaudited pro forma condensed statements of operations of the
Company are presented as if the September 1997 Preferred Stock offering
had occurred January 1, 1997 and the Company had acquired all 49 of the
hotels owned as of June 30, 1998 on the later of January 1, 1997, or
the hotel opening date for the eight hotels which opened in the first
six months of 1998. These unaudited pro forma condensed statements of
operations are not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions
had been completed as of the dates described above, nor do they purport
to represent the results of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Percentage lease and other revenue $27,130 $24,300
------- -------
Expenses:
Real estate taxes and property and casualty insurance 2,500 1,928
General and administrative 1,772 910
Depreciation 7,417 6,115
Amortization 177 102
Interest expense 3,265 2,186
------- -------
Total expense 15,131 11,241
------- -------
Income before allocation to minority interest 11,999 13,059
------- -------
Income allocation to minority interest 831 1,158
Preferred stock distribution 3,469 3,469
------- -------
Net income applicable to common shareholders $ 7,699 $ 8,432
------- -------
</TABLE>
6
<PAGE> 7
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
Net income per common share $ 0.47 $ 0.53
=============== ==========
Net income per common share assuming dilution $ 0.47 $ 0.53
=============== ==========
Weighted average number of common shares 16,263 15,817
=============== ==========
Weighted average number of common shares assuming
dilution 18,055 17,964
=============== ==========
</TABLE>
4. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," on December 31, 1997. SFAS No. 128
requires the Company to change its method of computing, presenting and
disclosing earnings per share information. All prior period data
presented has been restated to conform to the provisions of SFAS No.
128.
The following is a reconciliation of the net income applicable to
common shareholders used in the net income per common share calculation
to the income before allocation to minority interest used in the net
income per common share - assuming dilution calculation.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $6,189 $4,797 $10,564 $7,733
Less: preferred stock distribution 1,734 -- 3,469 --
------ ------ ------- ------
Net income applicable to common shareholders 4,455 4,797 7,095 7,733
Plus: income allocation to minority interest 469 381 767 611
====== ====== ======= ======
Net income assuming dilution $4,924 $5,178 $ 7,862 $8,344
====== ====== ======= ======
</TABLE>
The following is a reconciliation of the weighted average shares used
in the calculation of net income per common share to the weighted
average shares used in the calculation of net income per common share -
assuming dilution.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average number of common shares 16,302 15,820 16,263 15,817
Units with redemption rights 1,739 1,265 1,754 1,265
Stock options 27 60 38 67
====== ====== ====== ======
Weighted average number of common shares
Assuming dilution 18,068 17,145 18,055 17,149
====== ====== ====== ======
</TABLE>
5. DEMAND NOTES
During the second quarter of 1998, the Company signed five 90-day,
unsecured demand notes totaling $42,900. These demand notes bear
interest at a rate of LIBOR plus 1.75%. The notes mature at various
dates between August 22, 1998 and September 26, 1998.
7
<PAGE> 8
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS:
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS 130") effective January 1,
1998. SFAS 130 requires the Company to display an amount representing
the total comprehensive income for the period in a financial statement
which is displayed with the same prominence as other financial
statements. The Company does not have any items representing
differences between net income (loss) and comprehensive income (loss)
and therefore has not presented a Statement of Comprehensive Income in
the accompanying financial statements.
The Company will adopt Statement of Financial Accounting Standards No.
131 "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131") effective December 31, 1998. SFAS 131
requires the Company to report selected information about operating
segments in its financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. This statement is not
expected to have a material impact on the Company's financial
statements.
8
<PAGE> 9
CAPSTAR WINSTON COMPANY, L.L.C.
BALANCE SHEETS
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 6,975 $ 3,393
Accounts receivable 3,586 1,614
Due from Winston Hospitality, Inc. -- 1,636
Due from CapStar Management Company, L.P. 4,920 385
Deposits and other assets 318 197
------- -------
Total current assets 15,799 7,225
Furniture, fixtures and equipment, net of accumulated
depreciation of $35 and $5 305 241
Intangible assets, net of accumulated amortization of $549 and $93 33,674 34,088
Deferred franchise costs, net of accumulated amortization of $40 and $7 569 601
------- -------
$50,347 $42,155
======= =======
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable $ 1,843 $ 1,459
Accrued expenses 4,866 2,920
Percentage lease payable 10,537 5,682
Advance deposits 218 135
------- -------
Total current liabilities 17,464 10,196
Members' capital 32,883 31,959
------- -------
$50,347 $42,155
======= =======
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
CAPSTAR WINSTON COMPANY, L.L.C.
UNAUDITED STATEMENTS OF INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Revenue:
Rooms $30,266 $52,839
Food and beverage 1,804 2,705
Telephone and other operating departments 1,487 2,657
------- -------
Total revenue 33,557 58,201
------- -------
Operating costs and expenses:
Rooms 6,583 11,487
Food and beverage 1,375 2,058
Telephone and other operating departments 741 1,214
Undistributed expenses:
Lease expense 14,792 24,865
Administrative and general 2,904 5,386
Sales and marketing 1,197 2,023
Franchise fees 2,228 3,836
Repairs and maintenance 1,544 2,766
Energy 1,214 2,109
Other 568 1,014
Depreciation and amortization 262 519
------- -------
Total expenses 33,408 57,277
------- -------
Net income $ 149 $ 924
======= =======
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 11
CAPSTAR WINSTON COMPANY, L.L.C.
UNAUDITED STATEMENT OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1998
-------------
<S> <C>
Cash flows from operating activities:
Net income $ 924
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 519
Loss on sale of fixed assets 2
Increase in accounts receivable (336)
Increase in due from CapStar Management Company, L.P. (4,535)
Increase in deposits and other assets (121)
Increase in accounts payable and accrued expenses 2,330
Increase in percentage lease payable 4,855
Increase in advance deposits 83
-------
Net cash provided by operating activities 3,721
-------
Cash flows from investing activities:
Additions of furniture, fixtures and equipment (112)
Additions to intangible assets (42)
Proceeds from sale of fixed assets 15
-------
Net cash used in investing activities (139)
-------
Net increase in cash and cash equivalents 3,582
Cash and cash equivalents at beginning of period 3,393
-------
Cash and cash equivalents at end of period $ 6,975
=======
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 12
CAPSTAR WINSTON COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements are prepared by and are the sole
responsibility of CapStar Winston Company, L.L.C. These financial statements
reflect, in the opinion of CapStar Winston Company L.L.C. management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
During November 1997, CapStar Management Company ("CMC") and CapStar Hotel
Company purchased substantially all of the assets and assumed certain
liabilities of Winston Hospitality, Inc., including 38 hotel leases, certain
operating assets and liabilities, goodwill and other intangible assets.
Concurrent with the purchase, CMC contributed/assigned the assets purchased and
liabilities assumed in the transaction to CapStar Winston Company, L.L.C.
SUBSEQUENT EVENT
On August 1, 1998, CapStar Hotel Company and American General Hospitality
Corporation merged to form MeriStar Hospitality Corporation and MeriStar Hotels
& Resorts, Inc. As a result of the merger, MeriStar Hospitality Operating
Partnership, L.P. replaced CapStar Management Company L.P. as the 99% member of
CapStar Winston Company, L.L.C.
12
<PAGE> 13
WINSTON HOSPITALITY, INC.
UNAUDITED STATEMENTS OF INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Revenue:
Rooms $20,488 $36,813
Food and beverage 764 1,388
Telephone and other operating departments 1,024 1,766
------- -------
Total revenue 22,276 39,967
------- -------
Operating costs and expenses:
Rooms 4,095 7,526
Food and beverage 503 948
Telephone and other operating departments 554 958
Undistributed expenses:
Lease 9,622 16,770
Administrative and general 2,369 4,603
Sales and marketing 755 1,417
Franchise fees 1,461 2,579
Repairs and maintenance 1,010 1,925
Energy 725 1,420
Other 418 786
Depreciation and amortization 26 53
------- -------
Total expenses 21,538 38,985
------- -------
Net income $ 738 $ 982
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
WINSTON HOSPITALITY, INC.
UNAUDITED STATEMENT OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997
-------------
<S> <C>
Cash flows from operating activities:
Net income $ 982
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 53
Changes in assets and liabilities:
Accounts receivable - trade (681)
Prepaid expenses and other assets 87
Accounts payable - trade 242
Percentage lease payable to Lessor 2,543
Accrued expenses and other liabilities 623
-------
Net cash provided by operating activities 3,849
-------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (57)
Advances to lessor, affiliates and shareholders (63)
-------
Net cash used in investing activities (120)
-------
Cash flows from financing activities:
Distributions to shareholders (392)
-------
Net increase in cash and cash equivalents 3,337
Cash and cash equivalents at beginning of the period 5,463
-------
Cash and cash equivalents at end of period $ 8,800
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
WINSTON HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements reflect, in the opinion of
Winston Hospitality, Inc. management, all adjustments necessary for a fair
presentation of the interim financial statements. All such adjustments are of a
normal and recurring nature.
During November 1997, CapStar Management Company ("CMC") and CapStar Hotel
Company purchased substantially all of the assets and assumed certain
liabilities of Winston Hospitality, Inc., including 38 hotel leases, certain
operating assets and liabilities, and goodwill and other intangible assets.
Concurrent with the purchase, CMC contributed/assigned the assets purchased and
liabilities assumed in the transaction to CapStar Winston Company, L.L.C.
Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 presentation as shown in the CapStar Winston Company,
L.L.C. financial statements. These reclassifications have no effect on net
income or shareholders' equity previously reported.
15
<PAGE> 16
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ AMOUNTS IN THOUSANDS)
OVERVIEW
Winston Hotels, Inc. (the "Company"), which consummated an underwritten initial
public offering ("IPO") in June 1994, follow-on Common Stock offerings in May
1995 and in June 1996, and a Preferred Stock offering in September 1997,
operates as a real estate investment trust ("REIT") to invest in hotel
properties. The Company owned 49 hotels (the "Current Hotels") as of June 30,
1998. The Company owned 16 hotels as of December 31, 1994 (the "1994 Hotels"),
purchased five hotels in May 1995 (the "1995 Acquired Hotels"), acquired 10
hotels in 1996 (the "1996 Acquired Hotels"), acquired seven hotels in 1997 (the
"1997 Acquired Hotels") and acquired eight hotels and opened three internally
developed hotels in the first six months of 1998 (the "1998 Hotels"). It
currently leases 47 of the total 49 Current Hotels to CapStar Winston Company,
L.L.C. (the "Lessee"), one of the Current Hotels to Bristol Hotel Company and
one of the Current Hotels to Prime Hospitality Corporation pursuant to leases
that provide for rent payments based, in part, on revenues from the Current
Hotels (the "Percentage Leases").
RESULTS OF OPERATIONS
The table below outlines the Company's investment in hotel properties for the
six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------------------- ---------------------------
Additions Properties Additions Properties
during owned at during owned at
Type of Hotel the period June 30 the period June 30
------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Limited-service hotels 1 36 1 29
Extended-stay hotels 5 7 -- 2
Full-service hotels 5 6 -- 1
- - -- -
Total 11 49 1 32
== == = ==
</TABLE>
In order to present a more meaningful comparison of operations, in addition to
the comparison of actual results of the Company and the Lessee for the three and
six months ended June 30, 1998 versus actual results for the three and six
months ended June 30, 1997, the Company has also provided an analysis of the pro
forma results of the Company for the three and six months ended June 30, 1998
versus pro forma results for the three and six months ended June 30, 1997. These
pro forma results are shown as if the 1997 Preferred Stock offering and the 1997
and 1998 acquisitions had occurred on the later of January 1, 1997, or the hotel
opening date for the five acquired and three developed hotels which opened in
the first six months of 1998.
THE COMPANY
ACTUAL - THREE MONTHS ENDED JUNE 30, 1998 VS ACTUAL - THREE MONTHS ENDED JUNE
30, 1997
The Company had revenues of $15,064 in 1998, consisting of $14,999 of Percentage
Lease revenues and $65 of interest and other income. Percentage Lease revenues
increased $5,377 to $14,999 in 1998 from $9,622 in 1997. This increase was
comprised of $3,070 due to the 1998 Hotels and $2,307 due to the 1997 Acquired
Hotels owned for the entire three-month period in 1998.
Real estate taxes and property insurance costs incurred in 1998 were $1,283, an
increase of $692 from $591 in 1997. This increase was primarily attributable to
the 1997 Acquired Hotels and the 1998 Hotels that were not owned in the second
quarter of 1997, as well as increased property tax assessments and tax rates
from 1997 to 1998. General and administrative expenses increased $672 to $1,164
in 1998 from $492 in 1997. The increase was attributable to the increase in size
and activities of the Company in 1998. Interest expense increased by $958 to
$1,954 in 1998 from $996 in 1997. This increase was primarily attributable to an
increase in the weighted average outstanding debt balance of $61,426 from
$56,660 in 1997 to $118,086 in 1998, resulting in an increase in interest
expense of $1,133, offset by an increase of $125 in capitalized interest costs
related to development and renovation projects as well as a decrease in line of
credit fees totaling $50. Interest rates remained constant between the two
quarters. Depreciation increased $1,568 to $3,916 in 1998 from
16
<PAGE> 17
$2,348 in 1997, primarily due to depreciation related to the 1997 Acquired
Hotels, the 1998 Hotels and renovations completed during 1997 and 1998.
PRO FORMA - THREE MONTHS ENDED JUNE 30, 1998 VS PRO FORMA - THREE MONTHS ENDED
JUNE 30, 1997
The Company had revenues of $15,745 for the three months ended June 30, 1998,
consisting of $15,680 of Percentage Lease revenues and $65 of interest and other
income. Percentage Lease revenues increased $2,368 to $15,680 in 1998 from
$13,312 in 1997. This change was primarily attributable to the opening of eight
hotels in 1998.
Real estate taxes and property insurance costs incurred in 1998 were $1,356, an
increase of $390 from $966 in 1997. The increase was due primarily to increased
property tax assessments and tax rates from 1997 to 1998 as well as additional
taxes and insurance paid due to the opening of eight hotels in 1998. General and
administrative expenses increased $653 to $1,168 in 1998 from $515 in 1997. The
increase was primarily attributable to the increase in size and activities of
the Company from 1997 to 1998. Interest expense increased by $850 to $1,975 in
1998 from $1,125 in 1997. The increase was attributable to $1,064 of additional
interest expense related primarily to borrowings under the line of credit to
fund acquisitions of the five new hotels which opened in 1998 as well as the
development of three additional hotels which opened in 1998. This increase was
offset by both the capitalization of additional interest costs totaling $125, in
connection with the development and certain renovation projects during the
respective periods, as well as a reduction in line of credit fees totaling $89.
Depreciation increased $921 to $4,011 in 1998 from $3,090 in 1997 primarily due
to the opening of eight hotels in 1998 and renovations and other capital
expenditures during 1997 and 1998.
ACTUAL - SIX MONTHS ENDED JUNE 30, 1998 VS ACTUAL - SIX MONTHS ENDED JUNE 30,
1997
The Company had revenues of $25,185 in 1998, consisting of $25,071 of Percentage
Lease revenues and $114 of interest and other income. Percentage Lease revenues
increased $8,301 to $25,071 in 1998 from $16,770 in 1997. Of this increase,
$3,553 was due to the 1998 Hotels and $4,748 was due to the 1997 Acquired Hotels
owned for the entire six-month period in 1998.
Real estate taxes and property insurance costs incurred in 1998 were $2,262, an
increase of $1,106 from $1,156 in 1997. This increase was primarily attributable
to the 1997 Acquired Hotels and 1998 Hotels that were not owned in the first six
months of 1997, as well as increased property tax assessments and tax rates from
1997 to 1998. General and administrative expenses increased $901 to $1,763 in
1998 from $862 in 1997. The increase was attributable to the increase in size
and activities of the Company in 1998. Interest expense increased by $768 to
$2,579 in 1998 from $1,811 in 1997. This increase was primarily attributable to
an increase in the weighted average outstanding debt balance of $38,297 from
$50,873 in 1997 to $89,170 in 1998, resulting in an increase in interest expense
of $1,435, offset by an increase of $592 in capitalized interest costs related
to development and renovation projects, as well as a decrease in line of credit
fees totaling $75. Interest rates remained constant between the two periods.
Depreciation increased $2,504 to $7,074 in 1998 from $4,570 in 1997, primarily
due to depreciation related to the 1997 Acquired Hotels, the 1998 Hotels and
renovations completed during 1997 and 1998.
PRO FORMA - SIX MONTHS ENDED JUNE 30, 1998 VS PRO FORMA - SIX MONTHS ENDED JUNE
30, 1997
The Company had revenues of $27,130 for the six months ended June 30, 1998,
consisting of $27,016 of Percentage Lease revenues and $114 of interest and
other income. Percentage Lease revenues increased $2,857 to $27,016 in 1998 from
$24,159 in 1997. This increase was comprised of an increase of $2,097 related to
the opening of eight hotels in 1998 and an increase of $760 primarily due to
higher room rates in 1998 than 1997.
Real estate taxes and property insurance costs incurred in 1998 were $2,500, an
increase of $572 from $1,928 in 1997. The increase was due primarily to
increased property tax assessments and tax rates from 1997 to 1998 as well as
additional taxes and insurance paid due to the opening of eight hotels in 1998.
General and administrative expenses increased $862 to $1,772 in 1998 from $910
in 1997. The increase was primarily attributable to the increase in size and
activities of the Company from 1997 to 1998. Interest expense increased by
$1,079 to $3,265 in 1998 from $2,186 in 1997. The increase was attributable to
$1,767 of additional interest expense related primarily to borrowings under the
line of credit to fund acquisitions of the five new hotels which opened in 1998
as well as the development of three additional hotels which opened in 1998,
offset by both the capitalization of additional interest costs, totaling $592,
in connection with the development and certain renovation projects during the
respective periods, as well as a reduction in line of credit fees
17
<PAGE> 18
totaling $96. Depreciation increased $1,302 to $7,417 in 1998 from $6,115 in
1997 primarily due to the opening of eight hotels in 1998 and renovations and
other capital expenditures during 1997 and 1998.
THE LESSEE
During November 1997, CapStar Management Company ("CMC") and CapStar Hotel
Company purchased substantially all of the assets and assumed certain
liabilities of Winston Hospitality, Inc., including 38 hotel leases, certain
operating assets and liabilities, and goodwill and other intangible assets.
Concurrent with the purchase, CMC contributed/assigned the assets purchased and
liabilities assumed in the transaction to CapStar Winston Company, L.L.C. (the
"Lessee").
Since the Lessee was not operating prior to the November 1997 Winston
Hospitality, Inc. purchase transaction, no comparative data is available for the
period January 1, 1997 through June 30, 1997. However, for purposes of this
management's discussion and analysis, the financial information of the Lessee
for the three and six months ended June 30, 1998 will be compared with the
financial information of Winston Hospitality, Inc. for the three and six months
ended June 30, 1997. The Winston Hospitality, Inc. financial information for the
three and six months ended June 30, 1997 contained in the tables below has been
reclassified and grouped according to the Lessee format in order to facilitate a
comparison of the data.
ACTUAL - THREE MONTHS ENDED JUNE 30, 1998 VS ACTUAL - THREE MONTHS ENDED JUNE
30, 1997
The following table sets forth certain historical financial information for the
Current Hotels for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $30,266 90.2% $20,488 92.0%
Food and beverage 1,804 5.4% 764 3.4%
Telephone and other operating departments 1,487 4.4% 1,024 4.6%
------- ----- ------- -----
Total revenue 33,557 100.0% 22,276 100.0%
------- ----- ------- -----
Operating costs and expenses:
Rooms 6,583 19.6% 4,095 18.4%
Food and beverage 1,375 4.1% 503 2.3%
Telephone and other operating departments 741 2.2% 554 2.5%
Undistributed expenses:
Lease 14,792 44.1% 9,622 43.1%
Administrative and general 2,904 8.7% 2,369 10.6%
Sales and marketing 1,197 3.6% 755 3.4%
Franchise fees 2,228 6.6% 1,461 6.6%
Repairs and maintenance 1,544 4.6% 1,010 4.5%
Energy 1,214 3.6% 725 3.3%
Other 568 1.7% 418 1.9%
Depreciation and amortization 262 0.8% 26 0.1%
------- ----- ------- -----
Total expenses 33,408 99.6% 21,538 96.7%
======= ===== ======= =====
Net income $ 149 0.4% $ 738 3.3%
======= ===== ======= =====
</TABLE>
The Lessee had room revenues of $30,266 in 1998, up $9,778 from $20,488 for
Winston Hospitality, Inc. in 1997. The increase in room revenues was due to an
increase in room revenues of (i) $622 for the 1994 Hotels, the 1995 Acquired
Hotels and the 1996 Acquired Hotels, (ii) $4,718 for the 1997 Acquired Hotels,
and (iii) $4,438 for the 1998 Hotels. Food and beverage revenue increased
$1,040, to $1,804 in 1998 from $764 for Winston Hospitality, Inc. in 1997,
primarily due to the 1997 Acquired Hotels and 1998 Hotels. Telephone and other
operating departments revenue increased $463 to $1,487 in 1998 from $1,024 for
Winston Hospitality, Inc. in 1997, primarily due to an increase in revenue
associated with long distance phone calls and in-room movies.
The Lessee had total expenses in 1998 of $33,408, up $11,870 from $21,538 for
Winston Hospitality, Inc. in 1997. The increase, as shown above, in all expense
categories except depreciation and amortization expense, was primarily
18
<PAGE> 19
attributable to the operation of a greater number of hotels for the three months
ended June 30, 1998 as compared with the same period of 1997. Although
administrative and general expenses increased in 1998 from 1997, these expenses
decreased as a percentage of total revenue from 1997 to 1998 as a result of
efficiencies developed within the management company, decreasing the incremental
cost per hotel. Depreciation and amortization expense increased due to
amortization related to goodwill and other intangible assets arising out of the
purchase of Winston Hospitality, Inc. by CMC and CapStar Hotel Company.
Net income decreased for the three months ended June 30, 1998 as a result of the
opening of seven new development hotels during the first and second quarters.
These development hotels endured losses totaling $765 for the second quarter.
The 32 hotels acquired prior to June 30, 1997 generated net income, excluding
amortization of goodwill of $244 not present in 1997, totaling $783 for the
second quarter, a 2.4% increase from the prior year. The eight hotels acquired
subsequent to June 30, 1997 generated net income of $375 for the second quarter.
However, when these amounts are offset by the losses experienced by the
development hotels, the second quarter net income totaled $149. Until these
development properties gain exposure in their respective markets and are able to
surpass the break-even point, they will negatively impact the Lessee's operating
results.
ACTUAL - SIX MONTHS ENDED JUNE 30, 1998 VS ACTUAL - SIX MONTHS ENDED JUNE 30,
1997
The following table sets forth certain historical financial information for the
Current Hotels for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $52,839 90.8% $36,813 92.1%
Food and beverage 2,705 4.6% 1,388 3.5%
Telephone and other operating departments 2,657 4.6% 1,766 4.4%
------- ----- ------- -----
Total revenue 58,201 100.0% 39,967 100.0%
------- ----- ------- -----
Operating costs and expenses:
Rooms 11,487 19.7% 7,526 18.8%
Food and beverage 2,058 3.5% 948 2.4%
Telephone and other operating departments 1,214 2.1% 958 2.4%
Undistributed expenses:
Lease 24,865 42.7% 16,770 42.0%
Administrative and general 5,386 9.3% 4,603 11.5%
Sales and marketing 2,023 3.5% 1,417 3.5%
Franchise fees 3,836 6.6% 2,579 6.5%
Repairs and maintenance 2,766 4.8% 1,925 4.8%
Energy 2,109 3.6% 1,420 3.6%
Other 1,014 1.7% 786 2.0%
Depreciation and amortization 519 0.9% 53 0.1%
------- ----- ------- -----
Total expenses 57,277 98.4% 38,985 97.5%
======= ===== ======= =====
Net income $ 924 1.6% $ 982 2.5%
======= ===== ======= =====
</TABLE>
The Lessee had room revenues of $52,839 in 1998, up $16,026 from $36,813 for
Winston Hospitality, Inc. in 1997. The increase in room revenues was due to an
increase in room revenues of (i) $2,170 for the 1994 Hotels, the 1995 Acquired
Hotels and the 1996 Acquired Hotels, (ii) $8,762 for the 1997 Acquired Hotels,
and (iii) $5,094 for the 1998 Hotels. Food and beverage revenue increased
$1,317, to $2,705 in 1998 from $1,388 for Winston Hospitality, Inc. in 1997,
primarily due to the 1997 Acquired Hotels and 1998 Hotels. Telephone and other
operating departments revenue increased $891 to $2,657 in 1998 from $1,766 for
Winston Hospitality, Inc. in 1997, primarily due to an increase in revenue
associated with long distance phone calls and in-room movies.
The Lessee had total expenses in 1998 of $57,277, up $18,292 from $38,985 for
Winston Hospitality, Inc. in 1997. The increase, as shown above, in all expense
categories except depreciation and amortization expense, was primarily
attributable to the operation of a greater number of hotels for the six months
ended June 30, 1998 as compared with the
19
<PAGE> 20
same period of 1997. Although administrative and general expenses increased in
1998 from 1997, these expenses decreased as a percentage of total revenue from
1997 to 1998 as a result of efficiencies developed within the management
company, decreasing the incremental cost per hotel. Depreciation and
amortization expense increased due to amortization related to goodwill and other
intangible assets arising out of the purchase of Winston Hospitality, Inc. by
CMC and CapStar Hotel Company.
Net income decreased for the six months ended June 30, 1998 as a result of the
opening of seven new development hotels during the first and second quarters.
These development hotels endured losses totaling $916 for the six months ended
June 30, 1998. The 32 hotels acquired prior to June 30, 1997 generated net
income, excluding amortization of goodwill of $488 not present in 1997, totaling
$1,518 for the six months ended June 30, 1998, a 54.6% increase from the prior
year. The eight hotels acquired subsequent to June 30, 1997 generated net income
of $810 for the six months ended June 30, 1998. However, when these amounts are
offset by the losses experienced by the development hotels, the net income for
the six months ended June 30, 1998 totaled $924. Until these development
properties gain exposure in their respective markets and are able to surpass the
break-even point, they will negatively impact the Lessee's operating results.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from operating cash flow, which is
principally derived from Percentage Leases. For the six months ended June 30,
1998, cash flow provided by operating activities was $13,698. Funds from
operations, as defined below, was $8,840 for the quarter ended June 30, 1998 and
$14,936 for the six months ended June 30, 1998. Under Federal income tax law
provisions applicable to REITs, the Company is required to distribute at least
95% of its taxable income to maintain its tax status as a REIT. For the six
months ended June 30, 1998, the Company declared distributions of $13,214 to its
shareholders. Because the Company's annual cash flow from operating activities
is expected to exceed its annual taxable income due to depreciation and
amortization expenses, the Company expects to be able to meet its distribution
requirements out of cash flow from operating activities.
The Company's net cash used in investing activities for the six months ended
June 30, 1998 totaled $117,189, including $94,173 related to the acquisition of
eight of the 1998 Hotels, $7,964 related to the development of three of the 1998
Hotels, $7,250 for hotel renovations and $7,847 for the development of one
additional extended-stay hotel, one additional limited-service hotel and three
additional full-service hotels, which are expected to cost approximately
$57,985, of which approximately $11,773 has been financed. The total cost of the
1998 Hotels was $124,453, including $30,280 related to the development of three
Homewood Suites hotels in Raleigh, N.C., Lake Mary, FL and Alpharetta, GA.
The Company plans to spend approximately $7,300 to renovate certain of its
Current Hotels during the next twelve months. These expenditures are in addition
to the reserve of 5% of room revenues for its limited-service hotels and 7% of
room revenues and food and beverage revenues from its full-service hotels which
the Company is required to set aside under its Percentage Leases for periodic
capital improvements and the refurbishment and replacement of furniture,
fixtures and equipment at its Current Hotels. In the six months ended June 30,
1998, the Company set aside $2,829 for such reserves. These reserves are in
addition to amounts spent on normal repairs and maintenance which have
approximated 5.2% of room revenues for both the six months ended June 30, 1998
and 1997, and are paid by the Lessee.
The Company's net cash provided by financing activities during the six months
ended June 30, 1998 totaled $103,735, including an increase of $73,795 in the
line of credit borrowings, an increase of $42,900 in demand note borrowings and
$600 of net proceeds from the issuance of common stock related to the exercise
of stock options, offset by the payment of distributions to shareholders of
$12,615 and the payment of distributions to minority interest holders of $940.
The Company's outstanding bank debt balance as of June 30, 1998 was $160,776.
This amount consisted of $117,876 outstanding under its $125,000 line of credit
as well as $42,900 outstanding under various 90-day demand notes (see Note 5 in
the accompanying Notes to Consolidated Financial Statements). The Company is
currently in negotiations with several lenders to refinance its $125 million
line of credit and also obtain long-term fixed-rate financing to replace its
current amount outstanding under demand notes totaling $42,900. The Company
anticipates finalizing these negotiations by the end of the current fiscal year,
however, there can be no assurances that the Company will be successful in these
efforts.
As of June 30, 1998, the Company has collateralized $123,190 of its $125,000
line of credit with 28 of its Current Hotels. This amount is calculated
quarterly, and increases if cash flow attributable to the collateral hotels
increases and/or the Company adds additional hotels as collateral. The total
additional, non-collateralized line availability accessible to the
20
<PAGE> 21
Company as of June 30, 1998 was $1,810. The Company's Articles of Incorporation
limit its total amount of indebtedness to 45% of the purchase prices paid by the
Company for its investments in hotel properties, as defined. As of June 30,
1998, the Company had additional borrowing capacity under the debt limitation of
approximately $55,400 assuming it invests all borrowings in additional hotels.
The Company is continually evaluating its hotel portfolio and acquisition
opportunities and intends to acquire and develop additional hotel properties
that meet its investment criteria. As part of this analysis, the Company is also
considering selling certain assets as attractive opportunities present
themselves. It is expected that future hotel acquisitions will be financed, in
whole or in part, from additional follow-on offerings, borrowings under the line
of credit or additional demand notes, joint venture agreements, proceeds from
the disposition of hotels and/or the issuance of other debt or equity
securities. There can be no assurances that the Company will acquire any
additional hotels, or that any hotel development will be undertaken, or if
commenced, that it will be completed on schedule or on budget. Further, there
can be no assurances that the Company will be able to obtain any additional
financing.
SEASONALITY
The hotels' operations historically have been seasonal in nature, reflecting
higher REVPAR during the second and third quarters. This seasonality and the
structure of the Percentage Leases, which provide for a higher percentage of
room revenues above the minimum equal quarterly levels to be paid as Percentage
Rent, can be expected to cause significant fluctuations in the Company's
quarterly lease revenue under the Percentage Leases.
FUNDS FROM OPERATIONS
The Company considers Funds From Operations ("FFO") a widely used and
appropriate measure of performance for an equity REIT. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), is income
(loss) before minority interest (determined in accordance with generally
accepted accounting principles), excluding gains (losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing the performance of
the Company. The Company's method of calculating FFO may be different from
methods used by other REITs and, accordingly, may not be comparable to such
other REITs. FFO (i) does not represent cash flows from operating activities as
defined by generally accepted accounting principles, (ii) is not indicative of
cash available to fund all cash flow and liquidity needs, including the
Company's ability to make distributions, and (iii) should not be considered as
an alternative to net income (as determined in accordance with generally
accepted accounting principles) for purposes of evaluating the Company's
operating performance.
The following presents the Company's calculation of FFO and FFO per share (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income before allocation to minority
interest $ 6,658 $ 5,178 $11,331 $ 8,344
Plus: depreciation 3,916 2,348 7,074 4,570
Less: preferred stock dividends 1,734 -- 3,469 --
------- ------- ------- -------
FFO $ 8,840 $ 7,526 $14,936 $12,914
======= ======= ======= =======
Weighted average number of common shares
assuming dilution 18,068 17,145 18,055 17,149
------- ------- ------- -------
FFO per share $ 0.49 $ 0.44 $ 0.83 $ 0.75
======= ======= ======= =======
</TABLE>
21
<PAGE> 22
YEAR 2000 MANAGEMENT
In order to address the computer industry's "Year 2000" problem, the Company is
in the process of evaluating hardware and software components in place at its
principal offices. Management does not believe the costs for any needed upgrades
to be significant. The Company is also in the process of determining whether the
companies that manage its hotels are in the process of studying the "Year 2000"
issue. Upon completion, the Company will determine the extent to which it is
vulnerable to third parties' failure to remediate their own "Year 2000" issues
and the costs associated with resolving this issue.
FORWARD LOOKING STATEMENTS
This report contains certain "forward looking" statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including, but
not limited to, those paragraphs relating to development and acquisition of
hotels in this section. These statements represent the Company's judgment and
are subject to risks and uncertainties that could cause actual operating results
to differ materially from those expressed or implied in the forward looking
statements. Important factors that could cause actual results to differ include,
but are not limited to the following: (i) risk associated with the Company's
acquisition of hotels with little or no operating history, including the risk
that such hotels will not achieve the level of revenue assumed by the Company in
calculating the respective Percentage Rent formula; (ii) development risk,
including risk of construction delay, cost overruns, receipt of zoning,
occupancy and other required governmental permits and authorizations and the
incurrence of development costs in connection with projects that are not pursued
through completion; and (iii) factors identified in the Company's filings with
the Securities and Exchange Commission, including the factors listed in the
Company's Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on August 1, 1997.
22
<PAGE> 23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
23
<PAGE> 24
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, thereunto duly authorized.
WINSTON HOTELS, INC.
Date February 23, 1999 /s/ James D. Rosenberg
-------------------- --------------------------------------------
James D. Rosenberg
President, Chief Financial Officer and
Chief Operating Officer
(Authorized officer and Principal Financial
Officer)
24
<PAGE> 25
WINSTON HOTELS, INC.
FORM 10-Q for the quarter ended June 30, 1998
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
27. Financial Data Schedule (For SEC use only).
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OF WINSTON HOTELS, INC.
EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND
THE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 10,457
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 417,883
<DEPRECIATION> 28,632
<TOTAL-ASSETS> 402,527
<CURRENT-LIABILITIES> 9,654
<BONDS> 0
0
30
<COMMON> 163
<OTHER-SE> 216,658
<TOTAL-LIABILITY-AND-EQUITY> 402,527
<SALES> 14,999
<TOTAL-REVENUES> 15,064
<CGS> 0
<TOTAL-COSTS> 6,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,954
<INCOME-PRETAX> 6,658
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,189
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
