<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 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.)
2626 GLENWOOD AVENUE
RALEIGH, NORTH CAROLINA 27608
(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, $.01 par value, outstanding on
July 31, 2000 was 16,897,418.
================================================================================
<PAGE> 2
WINSTON HOTELS, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. WINSTON HOTELS, INC.
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 3
Unaudited Consolidated Statements of Operations for the three
and six months ended June 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
CAPSTAR WINSTON COMPANY, L.L.C. (1)
Note to Financial Statements 9
Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 10
Unaudited Statements of Income for the three and
six months ended June 30, 2000 and 1999 11
Unaudited Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
(1) The financial statements of CapStar Winston Company, L.L.C. ("CapStar
Winston") are included in this report as they contain material
information with respect to Winston Hotels, Inc.'s (the "Company's")
investment in hotel properties. As of June 30, 2000, CapStar Winston
served as the lessee of 48 of the Company's 50 hotels. CapStar Winston
is not affiliated with the Company other than through its lessee
relationship.
2
<PAGE> 3
WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
June 30, 2000 December 31, 1999
----------- -----------------
(unaudited)
<S> <C> <C>
Land $ 42,368 $ 42,704
Buildings and improvements 363,231 364,481
Furniture and equipment 39,586 38,348
-------- --------
Operating properties 445,185 445,533
Less accumulated depreciation 68,234 58,366
-------- --------
376,951 387,167
Properties under development 216 1,703
-------- --------
Net investment in hotel properties 377,167 388,870
Corporate FF&E, net 1,299 871
Cash 201 28
Lease revenue receivable 11,073 7,611
Investment in joint ventures 2,869 184
Deferred expenses, net 3,633 4,072
Prepaid expenses and other assets 4,965 4,435
-------- --------
Total assets $401,207 $406,071
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 69,434 $ 69,975
Due to banks 103,800 104,500
Deferred percentage lease revenue 12,759 --
Accounts payable and accrued expenses 6,691 5,490
Distributions payable 6,829 6,806
Minority interest in Partnership 8,918 10,222
-------- --------
Total liabilities $208,431 $196,993
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, 3,000,000 shares issued
and outstanding (liquidation preference
of $76,734) 30 30
Common stock, $.01 par value, 50,000,000 shares
authorized, 16,895,948 and 16,813,823 shares
issued and outstanding 169 168
Additional paid-in capital 229,799 229,106
Unearned compensation (932) (524)
Distributions in excess of earnings (36,290) (19,702)
-------- --------
Total shareholders' equity 192,776 209,078
-------- --------
Total liabilities and shareholders' equity $401,207 $406,071
======== ========
</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>
(POST SAB 101) (PRE SAB 101)
Three Months Three Months
Ended Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Revenue:
Percentage lease revenue (see Note below) $10,574 $17,335
Interest, joint venture and other income 191 89
------- -------
Total revenue 10,765 17,424
Expenses:
Real estate taxes and property and casualty insurance 1,705 1,935
General and administrative 1,284 1,222
Interest 3,326 3,005
Depreciation 5,275 5,138
Amortization 230 226
------- -------
Total expenses 11,820 11,526
Income (loss) before allocation to minority interest (1,055) 5,898
Income (loss) allocation to minority interest (199) 400
------- -------
Net income (loss) (856) 5,498
Preferred stock distribution (1,734) (1,734)
------- -------
Net income (loss) applicable to common shareholders $(2,590) $ 3,764
======= =======
Earnings per share:
Net income (loss) per common share $ (0.15) $ 0.23
======= =======
Net income (loss) per common share assuming dilution $ (0.15) $ 0.23
======= =======
Weighted average number of common shares 16,896 16,352
Weighted average number of common shares assuming dilution 18,194 18,121
========================================================================================
Selected Pro Forma Financial Data: (see Note below)
---------------------------------------------------
Percentage lease revenue - PRE SAB 101 $17,350 $17,335
Deferred percentage lease revenue $(6,776) $(7,467)
------- -------
Percentage lease revenue $10,574 $ 9,868
Net loss $ (856) $(1,252)
Net loss applicable to common shareholders $(2,590) $(2,986)
Net loss per common share $ (0.15) $ (0.18)
======= =======
Net loss per common share assuming dilution $ (0.15) $ (0.18)
======= =======
</TABLE>
Note: The operating results for the three months ended June 30, 1999 are
presented on the basis of accounting used for revenue recognition prior to the
adoption of SAB 101. Accordingly, the Company has presented the information
provided in the Selected Pro Forma Financial Data to reflect operating results
as if the Company had adopted SAB 101 prior to January 1, 1999 in order to
present a more meaningful comparison. See Note 3.
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(POST SAB 101) (PRE SAB 101)
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Revenue:
Percentage lease revenue (see Note below) $ 20,224 $ 32,024
Interest, joint venture and other income 349 204
-------- --------
Total revenue 20,573 32,228
Expenses:
Real estate taxes and property and casualty insurance 3,788 3,680
General and administrative 2,419 2,598
Interest 6,597 6,094
Depreciation 10,536 10,115
Amortization 457 392
-------- --------
Total expenses 23,797 22,879
Income (loss) before loss on sale of property, allocation
to minority interest, and cumulative effect of change
in accounting principle (3,224) 9,349
Loss on sale of property (262) --
-------- --------
Income (loss) before allocation to minority interest
and cumulative effect of change in accounting principle (3,486) 9,349
Income (loss) allocation to minority interest (496) 565
-------- --------
Income (loss) before cumulative effect of change in
accounting principle (2,990) 8,784
Cumulative effect of change in accounting principle - gross (720) --
Cumulative effect of change in accounting principle -
allocation to minority interest 52 --
-------- --------
Cumulative effect of change in accounting principle - net (668) --
-------- --------
Net income (loss) (3,658) 8,784
Preferred stock distribution (3,469) (3,469)
-------- --------
Net income (loss) applicable to common shareholders $ (7,127) $ 5,315
======== ========
Earnings per share:
Income (loss) before cumulative effect of change
in accounting principle per common share $ (0.38) $ 0.33
======== ========
Income (loss) before cumulative effect of change
in accounting principle per common share
assuming dilution $ (0.38) $ 0.32
======== ========
Net income (loss) per common share $ (0.42) $ 0.33
======== ========
Net income (loss) per common share assuming dilution $ (0.42) $ 0.32
======== ========
Weighted average number of common shares 16,883 16,342
Weighted average number of common shares assuming dilution 18,181 18,096
===========================================================================================
Selected Pro Forma Financial Data: (see Note below)
---------------------------------------------------
Percentage lease revenue - PRE SAB 101 $ 32,269 $ 32,024
Deferred percentage lease revenue $(12,045) $(13,306)
-------- --------
Percentage lease revenue $ 20,224 $ 18,718
Net loss $ (2,990) $ (3,243)
Net loss applicable to common shareholders $ (6,459) $ (6,712)
Net loss per common share $ (0.38) $ (0.41)
======== ========
Net loss per common share assuming dilution $ (0.38) $ (0.41)
======== ========
</TABLE>
Note: The results for the six months ended June 30, 1999 are presented on the
basis of accounting used for revenue recognition prior to the adoption of SAB
101. Accordingly, the Company has presented the information provided in the
Selected Pro Forma Financial Data to reflect operating results as if the Company
had adopted SAB 101 prior to January 1, 1999 in order to present a more
meaningful comparison. Further, the cumulative effect of change in accounting
principle has been removed for the six months ended June 30, 2000 to aid in this
comparison. See Note 3.
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,658) $ 8,784
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest (548) 565
Depreciation 10,536 10,115
Amortization 457 392
Loss on sale of hotel properties 262 --
Unearned compensation amortization 289 129
Changes in assets and liabilities:
Lease revenue receivable (3,462) (3,733)
Deferred lease revenue 12,759 --
Prepaid expenses and other assets (407) (1,109)
Accounts payable and accrued expenses 1,201 1,746
-------- --------
Net cash provided by operating activities 17,429 16,889
-------- --------
Cash flows from investing activities:
Prepaid acquisition costs -- (62)
Deferred disposition costs 6 (116)
Investment in hotel properties (3,590) (10,812)
Investment in joint ventures, net (1,168) --
Sale of hotel properties 2,497 1,993
-------- --------
Net cash used in investing activities (2,255) (8,997)
-------- --------
Cash flows from financing activities:
Fees paid in connection with financing facilities (94) (1,344)
Purchase of interest rate cap agreement -- (57)
Fees paid to register additional shares (32) --
Payment of distributions to shareholders (12,907) (12,611)
Payment of distributions to minority interest (727) (973)
Net increase/(decrease) in due to banks (700) 7,715
Decrease in long-term debt (541) (503)
-------- --------
Net cash used in financing activities (15,001) (7,773)
-------- --------
Net increase in cash 173 119
Cash at beginning of period 28 33
-------- --------
Cash at end of period $ 201 $ 152
======== ========
Supplemental disclosure:
Cash paid for interest $ 5,365 $ 5,855
======== ========
Summary of non-cash investing and financing activities:
Contribution of land parcel to joint venture $ 1,517 $ --
Distributions to shareholders declared but not paid 6,465 6,318
Distributions to minority interest declared but not paid 364 487
Deferred equity compensation 697 524
Minority interest payable adjustment due to the issuance of
common shares 29 60
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 2000 and 1999 is not necessarily indicative of the results for a
full year. This Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31,
1999.
2. ACCOUNTING POLICIES
Certain reclassifications have been made to the 1999 financial
statements to conform with the 2000 presentation. These
reclassifications have no effect on net income or shareholders' equity
previously reported.
3. ADOPTION AND IMPACT OF SAB 101
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which provides guidance on
revenue recognition. SAB 101 is effective for fiscal years beginning
after December 15, 1999. SAB 101 requires that a lessor not recognize
contingent rental income until annual specified hurdles have been
achieved by the lessee. During 1999 and prior years, consistent with
industry practice, the Company recognized contingent rentals throughout
the year since it was considered probable that the lessee would exceed
the annual specified hurdles. The Company has reviewed the terms of its
leases and has determined that the provisions of SAB 101 materially
impact the Company's revenue recognition on an interim basis,
effectively deferring the recognition of revenue from its leases from
the first and second quarters of the calendar year to the third and
fourth quarters. SAB 101 will impact the Company's revenue recognition
on an annual basis, although to a much lesser degree, as seven of the
Company's 50 leases have fiscal year ends which differ from the
Company's fiscal year end of December 31. (Had the Company adopted the
provisions of SAB 101 on January 1, 1999, the Company would have
deferred $720 of percentage lease revenue for the year ended December
31, 1999, representing 1.2% of total percentage lease revenue for the
year.) The Company has accounted for SAB 101 as a change in accounting
principle effective January 1, 2000, and therefore has not restated the
1999 or prior years' financial statements.
SAB 101 will have no impact on the Company's funds from operations or
its cash flow from its third party lessees, and therefore, on its
ability to pay dividends.
As of June 30, 2000, the Company's deferred revenue resulting from the
adoption of SAB 101 totaled $12,759, approximately 96% of which will be
recognized in the third and fourth quarters of 2000 with the balance to
be recognized during the first quarter of 2001. As noted above, the
Company has seven leases with non-calendar year fiscal years. These
seven leases generated $720 of revenue, that, had SAB 101 been in
effect, would have been deferred as of December 31, 1999, and is shown
as a "cumulative effect of change in accounting principle" on the
accompanying Statement of Operations for the six months ended June 30,
2000. During the first half of 2000, the Company recognized all $720
cumulative effect of change in accounting principle, as those seven
leases' fiscal years ended on or prior to June 30, 2000. This $720 is
included in 2000 percentage lease revenue.
7
<PAGE> 8
4. PRO FORMA FINANCIAL INFORMATION
The following selected pro forma and actual financial data of the Company is
presented as if the Company had not adopted SAB 101 effective January 1, 2000:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
(pro forma) (actual) (pro forma) (actual)
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Percentage lease and other revenue $17,541 $17,424 $32,618 $32,228
Net income 5,436 5,498 8,194 8,784
Net income applicable to common shareholders 3,702 3,764 4,725 5,315
Net income per common share $ 0.22 $ 0.23 $ 0.28 $ 0.33
======= ======= ======= =======
Net income per common share assuming dilution $ 0.22 $ 0.23 $ 0.28 $ 0.33
======= ======= ======= =======
Weighted average number of common shares 16,896 16,352 16,883 16,342
Weighted average number of common shares
assuming dilution 18,194 18,121 18,181 18,096
</TABLE>
5. EARNINGS PER SHARE
The following is a reconciliation of the net income (loss) applicable to common
shareholders used in the net income (loss) per common share calculation to the
net income (loss) assuming dilution used in the net income (loss) per common
share - assuming dilution calculation.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $ (856) $5,498 $(3,658) $8,784
Less: preferred stock distribution 1,734 1,734 3,469 3,469
------- ------ ------- ------
Net income (loss) applicable to common shareholders (2,590) 3,764 (7,127) 5,315
Plus: income (loss) allocation to minority
interest (199) 400 (496) 565
Plus: cumulative effect of change in accounting
principle allocation to minority interest -- -- (52) --
------- ------ ------- ------
Net income (loss) assuming dilution $(2,789) $4,164 $(7,675) $5,880
======= ====== ======= ======
</TABLE>
The following is a reconciliation of the weighted average shares used in the
calculation of net income (loss) per common share to the weighted average shares
used in the calculation of net income (loss) per common share - assuming
dilution:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average number of common shares 16,896 16,352 16,883 16,342
Units with redemption rights 1,298 1,739 1,298 1,739
Stock options -- 30 -- 15
------ ------ ------ ------
Weighted average number of common shares
assuming dilution 18,194 18,121 18,181 18,096
====== ====== ====== ======
</TABLE>
The Company declared quarterly cash dividends of $0.28 per common share and
$0.578125 per preferred share, during each of the first and second quarters of
2000.
8
<PAGE> 9
CAPSTAR WINSTON COMPANY, L.L.C.
NOTE TO FINANCIAL STATEMENTS
The accompanying unaudited financial statements are prepared by and are the sole
responsibility of CapStar Winston Company, L.L.C. CapStar Winston Company,
L.L.C. leased 48 of the Company's 50 hotels as of June 30, 2000 and other than
this lessee relationship, is not affiliated with the Company. 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.
Certain reclassifications have been made to the 1999 financial statements to
conform with the 2000 presentation. These reclassifications have no effect on
net income or members' capital previously reported.
9
<PAGE> 10
CAPSTAR WINSTON COMPANY, L.L.C.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,342 $ 1,051
Accounts receivable, net of allowance for doubtful accounts of $130
and $98 3,454 2,773
Due from affiliates 13,088 8,667
Deposits and other assets 268 455
------- -------
Total current assets 19,152 12,946
------- -------
Furniture, fixtures and equipment, net of accumulated depreciation of $171
and $136 227 240
Intangible assets, net of accumulated amortization of $2,404 and $1,942 31,971 32,433
Deferred franchise costs, net of accumulated amortization of $153 and $128 523 559
Restricted cash 52 38
------- -------
Total assets $51,925 $46,216
======= =======
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable $ 1,385 $ 2,018
Accrued expenses 4,940 3,032
Percentage lease payable to Winston Hotels, Inc. 11,041 7,573
Advance deposits 171 151
------- -------
Total current liabilities 17,537 12,774
------- -------
Members' capital 34,388 33,442
------- -------
Total liabilities and members' capital $51,925 $46,216
======= =======
</TABLE>
See accompanying note to financial statements.
10
<PAGE> 11
CAPSTAR WINSTON COMPANY, L.L.C.
UNAUDITED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $34,509 $34,590 $65,305 $65,276
Food and beverage 2,090 1,964 3,997 3,878
Telephone and other operating departments 1,808 1,634 3,400 3,190
------- ------- ------- -------
Total revenue 38,407 38,188 72,702 72,344
------- ------- ------- -------
Operating costs and expenses:
Rooms 7,574 7,553 14,722 14,505
Food and beverage 1,495 1,511 2,907 2,922
Telephone and other operating departments 1,043 894 1,934 1,677
Undistributed expenses:
Lease 16,241 16,407 30,221 30,311
Administrative and general 3,039 3,482 6,624 7,045
Sales and marketing 1,650 1,546 3,415 3,365
Franchise fees 2,473 2,462 4,655 4,616
Repairs and maintenance 1,579 1,663 3,174 3,250
Energy 1,378 1,345 2,807 2,768
Other 427 368 775 646
Depreciation and amortization 261 264 522 527
------- ------- ------- -------
Total expenses 37,160 37,495 71,756 71,632
------- ------- ------- -------
Net Income $ 1,247 $ 693 $ 946 $ 712
======= ======= ======= =======
</TABLE>
See accompanying note to financial statements.
11
<PAGE> 12
CAPSTAR WINSTON COMPANY, L.L.C.
UNAUDITED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 946 $ 712
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 522 527
Write-off of deferred franchise costs 11 --
Changes in operating assets and liabilities:
Accounts receivable (681) (604)
Due from affiliates (4,421) (4,587)
Deposits and other assets 187 (135)
Restricted cash (14) 124
Accounts payable and accrued expenses 1,275 1,379
Percentage lease payable to Winston Hotels, Inc. 3,468 3,709
Advance deposits 20 (33)
------- -------
Net cash provided by operating activities 1,313 1,092
Cash flows from investing activities:
Additions of furniture, fixtures and equipment (22) (13)
Additions to intangible assets -- (28)
------- -------
Net cash used in investing activities (22) (41)
------- -------
Net increase in cash and cash equivalents 1,291 1,051
Cash and cash equivalents at beginning of period 1,051 2,075
------- -------
Cash and cash equivalents at end of period $ 2,342 $ 3,126
======= =======
</TABLE>
See accompanying note to financial statements.
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ IN THOUSANDS)
OVERVIEW
Winston Hotels, Inc. (the "Company") operates as a real estate investment trust
("REIT") to invest in hotel properties. The Company owned 50 hotels (the
"Current Hotels") as of June 30, 2000. The Company owned 38 hotels as of
December 31, 1997, and acquired eight hotels and opened five internally
developed hotels in 1998 (the "1998 Hotels"). It currently leases 48 of the
total 50 Current Hotels to CapStar Winston Company, L.L.C. ("CapStar Winston"),
one of the Current Hotels to Bass PLC of London ("Bass"), and one of the Current
Hotels to Prime Hospitality Corp. ("Prime") under leases that provide for rent
payments based, in part, on revenues from the Current Hotels ("Percentage
Leases") through which the Company receives its principal source of revenue.
RESULTS OF OPERATIONS
For the three and six months ended June 30, 2000 and June 30, 1999, the
difference in operating results is primarily attributable to the adoption of the
SEC Staff Accounting Bulletin No. 101 ("SAB 101") effective January 1, 2000. SAB
101 requires that a lessor not recognize contingent rental income until annual
specified hurdles have been achieved by the lessee. As a result of SAB 101, the
Company deferred recognition of $6,776 and $12,045 of its Percentage Lease
revenue during the second quarter and the first six months of 2000,
respectively. Had the Company not adopted SAB 101, the Company would have
reported percentage lease revenue totaling $17,350 during the second quarter of
2000, an increase of $15 over percentage lease revenue recognized during the
second quarter of 1999, and $32,269 during the first six months of 2000, an
increase of $245 over Percentage Lease revenue recognized during the first six
months of 1999.
SAB 101 will have no impact on the Company's Funds From Operations ("FFO"), or
its interim or annual cash flow from its third party lessees, and therefore, on
its ability to pay dividends.
The Company sold its Comfort Suites hotel in London, Kentucky in February 2000.
The Company made no other acquisitions or dispositions of hotel properties
during the first and second quarters of 2000. The table below outlines the
number of hotels owned by the Company by service type as of June 30, 2000 and
1999.
June 30, June 30,
Type of Hotel 2000 1999
------------- ---------------- ------------------
Limited-service hotels 28 29
Extended-stay hotels 11 11
Full-service hotels 11 11
---------------- ------------------
Total 50 51
================ ==================
THE COMPANY
ACTUAL - THREE MONTHS ENDED JUNE 30, 2000 VS. ACTUAL - THREE MONTHS ENDED JUNE
30, 1999
The Company had revenue of $10,765 in 2000 consisting of $10,574 of percentage
lease revenue and $191 of interest, joint venture and other income. Percentage
lease revenue decreased $6,761 to $10,574 in 2000 from $17,335 in 1999. This
decrease was attributable to the adoption of SAB 101 effective January 1, 2000,
which resulted in deferring percentage lease revenue totaling $6,776 for the
three months ended June 30, 2000. The Company expects to recognize approximately
93% of this deferred revenue during the third and fourth quarters of 2000 with
the balance to be recognized during the first quarter of 2001. Had the Company
not adopted SAB 101, percentage lease revenue for the second quarter of 2000
would have been $17,350, an increase of $15 over the percentage lease revenue
reported during the same quarter of 1999. This increase was primarily
attributable to an increase of $278 in percentage lease revenue from the 1998
Hotels due to an increase in occupancy rates and average daily rates at these
hotels, partially offset by a decrease of $263 in percentage lease revenue
generated by the hotels owned prior to 1998 as a result of competitive
pressures.
13
<PAGE> 14
Real estate taxes and property insurance costs incurred in 2000 were $1,705, a
decrease of $230 from $1,935 in 1999. This decrease was primarily attributable
to a downward revision from the first quarter of 2000 of the estimated total
annual property taxes expense for 2000 due to additional information on assessed
values and rates. General and administrative expenses increased $62 to $1,284 in
2000 from $1,222 in 1999. This increase was primarily attributable to an
increase in payroll costs. Interest expense increased $321 to $3,326 in 2000
from $3,005 in 1999. This increase was primarily due to an increase of 0.75% in
the Company's weighted average interest rate from 6.73% in 1999 to 7.48% in
2000, and a decrease in capitalized interest of $106. Weighted average
outstanding borrowings decreased from $181,854 in 1999 to $173,704 in 2000.
Depreciation expense increased $137 to $5,275 in 2000 from $5,138 in 1999,
primarily due to depreciation related to capital additions to the hotels in the
third and fourth quarters of 1999 and in 2000. The cumulative effect of change
in accounting principle, which resulted from the adoption of SAB 101 effective
January 1, 2000, totaled $720. According to the provisions of SAB 101, this
amount represents deferred percentage lease revenue as of January 1, 2000
generated by the Company's seven percentage leases that have non-calendar year
fiscal years. During the second quarter of 2000, the Company recognized $370 of
the total cumulative effect of change in accounting principle, which is included
in percentage lease revenue in the accompanying Statement of Operations. All
$720 cumulative effect of change in accounting principle has been recognized as
of June 30, 2000.
ACTUAL - SIX MONTH ENDED JUNE 30, 2000 VS. ACTUAL - SIX MONTHS ENDED JUNE 30,
1999
The Company had revenue of $20,573 in 2000 consisting of $20,224 of percentage
lease revenue and $349 of interest, joint venture and other income. Percentage
lease revenue decreased $11,800 to $20,224 in 2000 from $32,024 in 1999. This
decrease was attributable to the adoption of SAB 101 effective January 1, 2000,
which resulted in deferring percentage lease revenue totaling $12,045 for the
six months ended June 30, 2000. The Company expects to recognize approximately
96% of this deferred revenue during the third and fourth quarters of 2000 with
the balance to be recognized during the first quarter of 2001. Had the Company
not adopted SAB 101, percentage lease revenue for the first six months of 2000
would have been $32,269, an increase of $245 over the percentage lease revenue
reported during the same period of 1999. This increase was primarily
attributable to an increase of $944 in percentage lease revenue from the 1998
Hotels due to an increase in occupancy rates and average daily rates at these
hotels, partially offset by a decrease of $699 in percentage lease revenue
generated by the hotels owned prior to 1998 as a result of competitive
pressures.
Real estate taxes and property insurance costs incurred in 2000 were $3,788, an
increase of $108 from $3,680 in 1999. This increase was primarily attributable
to an increase in assessed values and rates for 2000. General and administrative
expenses decreased $179 to $2,419 in 2000 from $2,598 in 1999. This decrease was
primarily attributable to a decrease in expenses associated with the formation
of new joint ventures, partially offset by an increase in payroll costs.
Interest expense increased $503 to $6,597 in 2000 from $6,094 in 1999. This
increase was primarily due to an increase of 0.58% in the Company's weighted
average interest rate from 6.91% in 1999 to 7.49% in 2000, and a decrease in
capitalized interest of $203. Weighted average outstanding borrowings decreased
from $179,558 in 1999 to $174,115 in 2000. Depreciation expense increased $421
to $10,536 in 2000 from $10,115 in 1999, primarily due to depreciation related
to capital additions to the hotels in the third and fourth quarters of 1999 and
in 2000. The cumulative effect of change in accounting principle, which resulted
from the adoption of SAB 101 effective January 1, 2000, totaled $720. According
to the provisions of SAB 101, this amount represents deferred percentage lease
revenue as of January 1, 2000 generated by the Company's seven percentage leases
that have non-calendar year fiscal years. During the first six months of 2000,
the Company recognized all $720 of the total cumulative effect of change in
accounting principle, which is included in percentage lease revenue in the
accompanying Statement of Operations.
14
<PAGE> 15
CAPSTAR WINSTON
ACTUAL - THREE MONTHS ENDED JUNE 30, 2000 VS. ACTUAL - THREE MONTHS ENDED JUNE
30, 1999
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, 2000 June 30, 1999
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $34,509 89.9% $34,590 90.6%
Food and beverage 2,090 5.4% 1,964 5.1%
Telephone and other operating departments 1,808 4.7% 1,634 4.3%
------- ----- ------- -----
Total revenue 38,407 100.0% 38,188 100.0%
------- ----- ------- -----
Operating costs and expenses:
Rooms 7,574 19.7% 7,553 19.8%
Food and beverage 1,495 3.9% 1,511 4.0%
Telephone and other operating departments 1,043 2.7% 894 2.3%
Undistributed expenses:
Lease 16,241 42.3% 16,407 43.0%
Administrative and general 3,039 7.9% 3,482 9.1%
Sales and marketing 1,650 4.3% 1,546 4.0%
Franchise fees 2,473 6.5% 2,462 6.4%
Repairs and maintenance 1,579 4.1% 1,663 4.4%
Energy 1,378 3.6% 1,345 3.5%
Other 427 1.1% 368 1.0%
Depreciation and amortization 261 0.7% 264 0.7%
------- ----- ------- -----
Total expenses 37,160 96.8% 37,495 98.2%
------- ----- ------- -----
Net income $ 1,247 3.2% $ 693 1.8%
======= ===== ======= =====
</TABLE>
CapStar Winston had room revenue of $34,509 in the second quarter of 2000, a
decrease of $81 from $34,590 in the second quarter of 1999. The decrease in room
revenue was primarily due to the sale of the Comfort Suites in London, Kentucky
by the lessor in February 2000 and a decrease in occupancy from 75.5% in 1999 to
74.9% in 2000. Although room revenue decreased, RevPar increased 0.7% due to a
decrease in total rooms available. Food and beverage revenue increased $126 to
$2,090 from $1,964. This increase was due to a rise in room service and lounge
revenue and higher banquet service charges. Telephone and other operating
departments revenue increased $174 to $1,808 from $1,634 due to an increase in
revenue from golf, movies/videos, and banquet production for limited service
hotels.
CapStar Winston had total expenses of $37,160 in the second quarter of 2000, a
decrease of $335 from $37,495 in the second quarter of 1999. This was primarily
due to a decrease in administrative and general expenses offset, in part, by an
increase in telephone and other operating department expenses. Administrative
and general expenses decreased due to efficiencies created within the
department. Telephone and other operating departments expenses increased due to
the addition of costs related to banquet production for limited service hotels.
Cost of movies/videos and golf expenses increased in line with their
corresponding revenues.
15
<PAGE> 16
ACTUAL - SIX MONTHS ENDED JUNE 30, 2000 VS. ACTUAL - SIX MONTHS ENDED JUNE 30,
1999
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, 2000 June 30, 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $65,305 89.8% $65,276 90.2%
Food and beverage 3,997 5.5% 3,878 5.4%
Telephone and other operating departments 3,400 4.7% 3,190 4.4%
------- ----- ------- -----
Total revenue 72,702 100.0% 72,344 100.0%
------- ----- ------- -----
Operating costs and expenses:
Rooms 14,722 20.2% 14,505 20.1%
Food and beverage 2,907 4.0% 2,922 4.0%
Telephone and other operating departments 1,934 2.6% 1,677 2.3%
Undistributed expenses:
Lease 30,221 41.6% 30,311 41.9%
Administrative and general 6,624 9.1% 7,045 9.7%
Sales and marketing 3,415 4.7% 3,365 4.7%
Franchise fees 4,655 6.4% 4,616 6.4%
Repairs and maintenance 3,174 4.4% 3,250 4.5%
Energy 2,807 3.9% 2,768 3.8%
Other 775 1.1% 646 0.9%
Depreciation and amortization 522 0.7% 527 0.7%
------- ----- ------- -----
Total expenses 71,756 98.7% 71,632 99.0%
------- ----- ------- -----
Net Income $ 946 1.3% $ 712 1.0%
======= ===== ======= =====
</TABLE>
CapStar Winston had room revenue of $65,305 in the first six months of 2000, an
increase of $29 from $65,276 in the first six months of 1999. The increase in
room revenue was due to an increase in the average daily rate of 2.2%, partially
offset by a decrease in occupancy from 72.8% to 71.3% and the sale of the
Comfort Suites in London, Kentucky by the lessor in February 2000. RevPar
increased 0.1%. Food and beverage revenue increased $119 to $3,997 from $3,878.
This increase was due to a rise in room service and lounge revenue and higher
banquet service charges. Telephone and other operating departments revenue
increased $210 to $3,400 from $3,190 due to higher revenue from movies/videos
and banquet production for limited service hotels.
CapStar Winston had total expenses of $71,756 in the first six months of 2000,
an increase of $124 from $71,632 in the first six months of 1999. This increase
was primarily due to increases in rooms expenses and telephone and other
operating departments expenses, offset, in part, by a decrease in administrative
and general expenses. Rooms expenses increased due to higher labor costs.
Telephone and other operating departments expenses were higher due to the
addition of costs related to banquet production for limited service hotels.
Additionally, costs of movies/videos increased in conjunction with the
associated revenue generated from movies/videos. Administrative and general
expenses decreased due to efficiencies created within the department.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from operating cash flow, which is
principally derived from its Percentage Leases. For the six months ended June
30, 2000, cash flow provided by operating activities was $17,429 and funds from
operations, which is equal to net income (loss) before allocation to minority
interest and cumulative effect of change in accounting principle (excluding
gains (losses) on sales of depreciable operating property) plus depreciation,
plus deferred revenue, less preferred dividends, was $15,888. 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. During the six months ended June 30, 2000, the Company declared
distributions of $12,930 to its common stock and preferred stock shareholders.
Because the Company's cash flow from operating activities is expected to exceed
its 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.
On February 15, 2000, the Company sold its Comfort Suites hotel in London,
Kentucky for cash proceeds of $2,497, resulting in a loss of $262 as shown on
the accompanying Statement of Operations for the six months ended June 30, 2000.
16
<PAGE> 17
The Company is also considering the sale of certain other non-core hotels that
lie outside the Company's upscale segment focus and plans to use the proceeds
for general corporate purposes, including but not limited to reducing debt.
The Company's net cash used in investing activities for the six months ended
June 30, 2000 totaled $2,255. This net use of cash primarily resulted from hotel
renovation and capital expenditures of $3,590 and investments in joint ventures
of $1,168, offset by the proceeds received from the sale of the Comfort Suites
hotel in London, Kentucky totaling $2,497. The Company plans to spend
approximately $4,936 to renovate certain of its Current Hotels during the next
six months. These expenditures are in excess of the 5.0% of room revenues for
its hotels (7.0% of room revenues and food and beverage revenues for one of its
full-service hotels) which the Company is required to spend under its Percentage
Leases for periodic capital improvements and the refurbishment and replacement
of furniture, fixtures and equipment at its Current Hotels. These capital
expenditures are funded from operating cash flow, and possibly from borrowings
under the Company's $140,000 line of credit, sources which are expected to be
adequate to fund such capital requirements. The capital expenditures are in
addition to amounts spent on normal repairs and maintenance which have
approximated 4.6% and 4.9% of room revenues for each of the six months ended
June 30, 2000 and 1999, respectively, and are paid by CapStar Winston, Prime and
Bass.
During 1999, the Company entered into a joint venture agreement with Regent
Partners, Inc., (the "Regent Agreement") to jointly develop hotel properties. As
of June 30, 2000, the Company had invested $1,319 in hotels to be developed
under the Regent Agreement, and has committed to provide additional equity of
$6,154 over the next 18 months. The first hotel to be developed under the Regent
Agreement, a full service 158-room Hilton Garden Inn in Windsor, Connecticut, is
currently under construction with an expected opening date during the third
quarter of 2000. The second hotel to be developed under the Regent Agreement, a
full service 177-room Hilton Garden Inn in Evanston, Illinois, is also under
construction and scheduled to open before the holiday season in 2001.
In addition, during the first quarter of 2000, the Company entered into a joint
venture agreement with Marsh Landing Investment, L.L.C., (the "Marsh Landing
Agreement") to jointly develop one hotel property. As of June 30, 2000, the
Company had invested $1,550 for the 118-room Hampton Inn in Ponte Vedra, Florida
which is being developed under the Marsh Landing Agreement, and has committed to
provide additional equity of $149 upon completion of the hotel. The development
project is being conducted under an arms length joint venture agreement with
Marsh Landing Investment, L.L.C., headed by the Company's Chairman, Charles M.
Winston, and Board member, James H. Winston. The 118-room Hampton Inn is
currently under construction with an expected opening date during the fourth
quarter of 2000.
The Company will hold a 49 percent ownership interest in both of the joint
ventures with Regent Partners, Inc. and currently holds a 49 percent ownership
interest in the joint venture with Marsh Landing Investment, L.L.C.. Under the
terms of each joint venture, the Company will receive fees for its services
which will include development fees, purchasing fees, and ongoing asset
management fees once each hotel opens.
On July 5, 2000, the Company entered into a strategic alliance with Noble
Investment Group, Ltd. ("Noble") to partially finance and develop two Hilton
Garden Inn hotels in Atlanta, Georgia and Tampa, Florida and to explore other
similar upscale Hilton and Marriott opportunities. In July, the Company provided
$1,080 in mezzanine funding for the 122-room Hilton Garden Inn in Atlanta and is
expected to provide approximately $2,300 for the 150-room Hilton Garden Inn in
Tampa. Noble is responsible for providing the remainder of the funding and will
own and operate the hotels. The Atlanta project is under construction and is
scheduled to open during the second quarter of 2001. The Tampa project is
scheduled to begin construction in August of 2000 and is scheduled to open
during the fourth quarter of 2001. In connection with the alliance, the Company
will co-develop the Atlanta project with Noble and will provide all development
services for the Tampa project, and will receive fees for its development
services. The Company continues to seek additional mezzanine financing
opportunities.
The Company's net cash used in financing activities during the six months ended
June 30, 2000 totaled $15,001. This amount included payment of distributions to
shareholders of $12,907 and the payment of distributions to Winn Limited
Partnership's minority interest of $727, long-term debt payments of $541, a
reduction of $700 in the Company's $140,000 line of credit (the "Line") balance
from $104,500 to $103,800, and payment of fees related to financing facilities
of $94.
The Line bears interest generally at rates from LIBOR plus 1.45% to LIBOR plus
1.70%, based primarily upon the Company's level of total indebtedness. The
Company's current rate is LIBOR plus 1.45%. The Line is collateralized with 29
of the Company's Current Hotels. As of June 30, 2000, the Company's availability
under the Line totaled approximately $23,000, after consideration of outstanding
commitments.
17
<PAGE> 18
Per the requirements of the Line, which in effect require the Company to have at
least 50% of its total indebtedness subject to a fixed rate of debt, the Company
entered into an interest rate cap agreement in March 1999. The interest rate cap
agreement eliminates the exposure to increases in 30-day LIBOR over 7.50% on
$25,000 of the outstanding balances under the Line for the period March 25, 1999
through March 25, 2002. The current LIBOR rate is below 7.50%.
The Company had $69,434 in long-term debt at June 30, 2000 that was subject to a
fixed interest rate and principal payments. This debt is comprised of a 10-year
loan with a 25-year amortization period with GE Capital Corporation, which
carries an interest rate of 7.375%. This debt facility is collateralized with 14
of the Company's Current Hotels.
The Company intends to make additional mezzanine loans and acquire and develop
additional hotel properties that meet its investment criteria and is continually
evaluating such opportunities. It is expected that future mezzanine loans and
hotel acquisitions will be financed, in whole or in part, from additional
follow-on offerings, from borrowings under the Line, from joint venture
agreements, from the sale of hotel properties and/or from the issuance of other
debt or equity securities. There can be no assurances that the Company will make
any further mezzanine loans or any investment in additional hotel properties, 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 revenue per available room 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 quarterly levels to be paid
as Percentage Rent, can be expected to cause fluctuations in the Company's
quarterly cash flow from its third party lessees under the Percentage Leases. In
addition, the revenue recognition provision of SAB 101 materially impact the
Company's revenue recognition on an interim basis, effectively deferring the
recognition of revenue from the first and second quarters of the calendar year
to the third and fourth quarters.
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
NAREIT, is income (loss) before minority interest (determined in accordance with
generally accepted accounting principles), excluding gains (losses) from sales
of depreciable operating property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company further adjusts FFO by adding the change in deferred
revenue during the period to eliminate the impact of SAB 101 on revenue
recognition. This is consistent with certain other hotel lodging REITs. 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 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) before allocation to minority
interest and cumulative effect of change
in accounting principle $(1,055) $ 5,898 $(3,486) $ 9,349
Plus: depreciation 5,275 5,138 10,536 10,115
Plus: loss on sale of property -- -- 262 --
Plus: deferred percentage lease revenue 6,776 -- 12,045 --
Less: preferred stock dividends 1,734 1,734 3,469 3,469
------- ------- ------- -------
$ 9,262 $ 9,302 $15,888 $15,995
======= ======= ======= =======
Weighted average number of common shares
assuming dilution 18,194 18,121 18,181 18,096
------- ------- ------- -------
</TABLE>
18
<PAGE> 19
FORWARD LOOKING STATEMENTS
This report contains certain "forward looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. You can identify these statements
by use of words like "may," "will," "expect," "anticipate," "estimate," or
"continue" or similar expressions. These statements represent the Company's
judgment and are subject to risks and uncertainties that could cause actual
operating results to differ materially from those expressed or implied in the
forward-looking statements, including but not limited to the risk that
properties held for sale will not sell, financing risks, development risks
including risk of construction delay, cost overruns, occupancy rates, average
daily rates, governmental permits, zoning, the increase of development costs in
connection with projects that are not pursued to completion and the risk of
non-payment of mezzanine loans. Other risks are discussed in the Company's
filings with the Securities and Exchange Commission, including but not limited
to its Form S-3 Registration Statement filed on September 2, 1999 as amended on
September 29, 1999, and its Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and its other periodic reports.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
($ IN THOUSANDS)
As of June 30, 2000, the Company's exposure to market risks for a change in
interest rates related solely to its debt outstanding under its Line. Total debt
outstanding under the Line totaled $103,800 at June 30, 2000. The Line bears
interest at rates from LIBOR plus 1.45% to LIBOR plus 1.70%, based on the
Company's level of total indebtedness. The current interest rate is LIBOR plus
1.45%. The weighted average interest rates on the Line for the three and six
month periods ended June 30, 2000 were 7.70% and 7.62%, respectively. The Line
is used to maintain liquidity and fund the Company's business operations, hotel
acquisitions, investments in joint ventures, mezzanine loans, development and
major renovations. Pursuant to the Company's operating strategies, it maintains
minimal cash balances and is substantially dependent upon, among other things,
the availability of adequate working capital financing to support hotel
acquisitions, investments in joint ventures, mezzanine loans, development and
major renovations. The definitive extent of the Company's interest rate risk
under the Line is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements.
Per the requirements of the Line, the Company maintains an interest rate cap
agreement to eliminate the exposure to increases in 30-day LIBOR over 7.50%, and
therefore from its exposure to interest rate increases over 8.95% on a principal
balance of $25,000 through March 25, 2002.
The Company had $69,434 in long-term debt at June 30, 2000 that was subject to a
fixed interest rate and principal payments. This debt is comprised of a 10-year
loan with a 25-year amortization period with GE Capital Corporation, which
carries an interest rate of 7.375%.
The Company's long-term debt has an expiration date of December 2023. The
following table presents the aggregate maturities of the fixed principal
payments, and interest rates by maturity dates at June 30, 2000:
Maturity Date Fixed Rate Debt Interest Rate
------------- --------------- -------------
2000 562 7.375%
2001 1,187 7.375%
2002 1,278 7.375%
2003 1,376 7.375%
2004 1,480 7.375%
Thereafter 63,551 7.375%
--------------- -------------
$69,434 7.375%
=============== =============
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 4. Submission of Matters to vote of Security Holders
On May 9, 2000, the Annual Meeting of Shareholders was held
and the following matters were submitted to the shareholders
for a vote. There were 14,586,268 shares of Common Stock
either present or evidenced by proxy. All proposals were
approved. Set forth below is a brief description of the
matters voted on and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker
non-votes.
Proposal 1: Election of Directors:
NUMBER OF
VOTES AGAINST BROKER
NAME VOTES FOR OR WITHHELD NON-VOTES TOTALS
---- --------- ----------- --------- ------
Charles M. Winston 14,412,682 173,586 0 14,586,268
Robert W. Winston 14,415,082 171,186 0 14,586,268
James H. Winston 14,414,682 171,586 0 14,586,268
David C. Sullivan 14,412,907 173,361 0 14,586,268
Thomas F. Darden 14,415,482 170,786 0 14,586,268
Richard L. Daugherty 14,413,732 172,536 0 14,586,268
Edwin B. Borden 14,416,682 169,586 0 14,586,268
Proposal 2: Ratification of the accounting firm PricewaterhouseCoopers LLP
as external auditors:
Votes for: 14,498,712
Votes against or withheld: 38,407
Votes abstained: 49,149
Broker non-votes: 0
----------
Total 14,586,268
Item 5. Other Information
Effective June 20, 2000, Branch Banking and Trust Co.
("BB&T") replaced Equiserve Trust Company, N.A. as transfer
agent and as plan administrator for the Company's Dividend
Reinvestment and Stock Purchase Plan. BB&T can be contacted
at:
Branch Banking and Trust Co.
Corporate Trust Services
223 West Nash Street
P.O. Box 2887
Wilson, North Carolina 27894
Tel: 1-800-213-4314
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, 2000.
20
<PAGE> 21
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 August 11, 2000 /s/ Joseph V. Green
--------------------------- -----------------------------
Joseph V. Green
Executive Vice President and
Chief Financial Officer
(Authorized officer and Principal
Financial Officer)
21
<PAGE> 22
WINSTON HOTELS, INC.
FORM 10-Q for the quarter ended June 30, 2000
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
27. Financial Data Schedule (For SEC use only).
22
