Winston Hotels Reports Second Quarter 2005 Results

Business Wire, August 4, 2005

RALEIGH, N.C. -- Winston Hotels, Inc. (NYSE: WXH), a real estate investment trust (REIT) and owner of premium limited-service, upscale extended-stay and full-service hotels, today announced results for the three and six months ended June 30, 2005.

Net income available to common shareholders was $3.9 million for the 2005 second quarter, or $0.15 per share, compared to $3.7 million, or $0.14 per share, for the same period a year earlier.

For the 2005 second quarter, funds from operations (FFO) available to common shareholders decreased 4 percent to $8.3 million, or $0.30 per common share, compared to $8.6 million or $0.31 per common share, for the 2004 second quarter. The company had approximately 27.6 million fully diluted weighted average common shares outstanding in both reporting periods. Results were in line with the company's previously reported guidance for FFO available to common shareholders for the second quarter of 2005 of $0.29 to $0.31 per common share.

FFO available to common shareholders for the second quarter of 2005 was reduced approximately $0.02 per share due to a non-cash increase in income tax expense. Excluding non-cash income tax expense (benefit), FFO available to common shareholders would have been $0.31 per share for the second quarter of 2005 versus $0.30 per share for the second quarter of 2004. To realize its deferred tax asset, effective January 1, 2005, the company restructured its leases with its taxable REIT subsidiary, Barclay Hospitality Services, Inc. ("Barclay"). The company's deferred tax asset, which totaled $11.9 million as of June 30, 2005, was created by the acquisition of the leases from third parties (the cost of which was expensed for book purposes and capitalized for tax purposes), as well as by the operating losses experienced by Barclay over the past two years. The company expects the restructuring of the leases to create future taxable income for Barclay, as it did in the second quarter of 2005. Although the company will record income tax in the future based on Barclay's net income, it does not expect to pay taxes until its deferred tax asset is fully realized. "As a result of restructuring the company's leases with Barclay effective January 1, 2005, the company recorded income tax expense totaling $355,000 during the second quarter of 2005, as compared to an income tax benefit of $346,000 during the second quarter of 2004." said Joe Green, president and chief financial officer. "Accordingly, the non-cash income tax expense in 2005 resulted in a reduction in FFO available to common shareholders of approximately $0.02 per common share compared to the second quarter of 2004."

Recent Developments

Pending Hotel Acquisition

The company is currently under contract to purchase a six-property, 698-room portfolio for $46.0 million. The properties consist of one Courtyard by Marriott hotel and five Towneplace Suites hotels. These properties are located in Texas, one in Austin, one in College Station, one in Clearlake and two in Houston and one is located in Birmingham, Alabama. All of the hotels are less than six years old. "These properties are well located, in excellent condition and compete very effectively in their respective markets." Green said. The hotels will continue to be managed by Marriott, which will become the company's 7th management company. The company expects to close the purchase of the hotels during the third quarter of 2005, subject to completing its due diligence review of certain items.

Pending Hotel Developments

Shortly after the close of the 2005 second quarter, the company announced two new development projects, one wholly owned and one through a joint venture. The company closed on the purchase of 4.5 acres of land for $2.94 million and plans to build a 142-room Homewood Suites hotel in the Forrestal Center of Princeton University for an all-in cost of approximately $19.6 million, $12.0 million of which is expected to be borrowed under a mortgage loan. The hotel is scheduled to break ground in the third quarter of 2005 and is expected to open in the first quarter of 2007.

As previously reported, in a joint venture with DeHoff Development Company, a diversified real estate owner and developer, the company plans to build a 121-room Hilton Garden Inn at Gateway Corporate Park, adjacent to the Akron-Canton Airport in Green, Ohio for approximately $12.0 million. The total equity investment in the joint venture is expected to be approximately $4.6 million, with the balance being financed by GE Commercial Franchise Finance ("GEFF"). The company plans to contribute $1.0 million in exchange for common equity in the joint venture, and another $2.2 million in exchange for preferred equity in the joint venture bearing an expected annual cash dividend of LIBOR plus 11 percent, while DeHoff plans to contribute approximately $1.4 million to the joint venture in exchange for common equity. The hotel is slated to break ground in the third quarter of 2005 with an anticipated late fall 2006 opening.