Winston Hotels Reports First Quarter 2005 Results

Business Wire, May 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 quarter ended March 31, 2005.

Net income available to common shareholders was $1.1 million for the 2005 first quarter, or $0.04 per share, compared to $0.3 million, or $0.01 per share, for the same 2004 period.

For the 2005 first quarter, funds from operations (FFO) available to common shareholders rose 35 percent to $6.0 million, or $0.22 per common share, compared to $4.4 million or $0.16 per common share, for the 2004 first quarter. The company had 27.6 million fully diluted weighted average common shares outstanding in both reporting periods. FFO available to common shareholders for the 2004 first quarter was reduced by $1.72 million, reflecting the original issuance costs of the 9.25% Series A Preferred Stock, which was redeemed and replaced with 8% Series B Cumulative Preferred Stock.

"Hotel industry results continued to recover in the 2005 first quarter, and the industry outlook remains positive for the foreseeable future," said Joe Green, president and chief financial officer. "We saw positive activity in all of our growth strategies: improving operating results, making acquisitions, underwriting hotel loans and developing hotels. Business travel demand continues to strengthen, as well as leisure travel demand."

Acquisition/Disposition Activity

The company sold two hotels in January 2005. The Chester, Va. Comfort Inn was sold for $5.2 million in cash, net of closing costs. The Greenville, S.C. Comfort Inn was sold for $1.9 million, net of closing costs, of which the company received approximately $0.5 million in cash proceeds and a note receivable for approximately $1.4 million. The note requires fixed principal payments and variable interest payments over five years at the prime interest rate plus 1.5%. In the first quarter of 2005, the two dispositions resulted in an aggregate loss on sale of $90,000.

"We expect to continue to prune and upgrade our portfolio with newer, premium branded hotels, such as the 135-room Courtyard by Marriott in Roanoke, Va., which we acquired late in the 2004 fourth quarter," Green said. "We also will continue to acquire and develop properties for our own account and in joint ventures. We now are underway with the significant renovation of a historic residential building in Kansas City, Mo. that is being converted to a 123-room Courtyard by Marriott and is scheduled to open in the 2006 second quarter."

The company, in a joint venture with Charlesbank Capital Partners, LLC (Charlesbank) and New Castle Hotels, completed the conversion of a 160-room Courtyard by Marriott hotel in Shelton, Conn. in the 2005 first quarter. The Charlesbank joint venture and Concord Hospitality Enterprises Company also recently completed the conversion of a 95-room hotel in West Des Moines, Iowa to a SpringHill Suites hotel in the 2005 second quarter. Winston owns a 13.05% interest in each of these two joint ventures.

"The Shelton, Conn. Courtyard is ramping up nicely, and we anticipate the SpringHill Suites will be competitive in its market," Green noted. "We have an active acquisition pipeline and also are looking at development opportunities on a highly selective basis. We believe that we have the financial strength and flexibility to continue our acquisition and development activity. Pricing remains high, but we are seeing transactions where we believe we can achieve long-term value."

Debt Investment Financing Program

The company continued to be active in its debt investment financing program. In February 2005, the company issued a $3.375 million subordinated loan with a 6.5 year term to finance the development of a 165-room Hampton Inn & Suites in Albany, New York.

In March 2005, the company purchased from Lehman Brothers $2.8 million of B-notes for $2.3 million. The three B-Notes, which are debt subordinated to the first mortgage loan or "A" note, are cross-collateralized.

"As the hotel economy continues to improve, we expect to see a growing need for capital to underwrite acquisitions and new development," Green noted. "Developers often seek subordinated loans to complete the funding of their projects. Our experience and background in hotel ownership, development and management gives us a strong platform to help evaluate and execute these transactions."

Winston's debt investment financing program targets subordinated hotel loans between 60 percent and 85 percent of a project's value, hotels with 100 to 425 rooms and single-asset loan amounts that normally range from $1 million to $15 million. The company also seeks to underwrite and acquire the junior mezzanine portion of loans that are originated in the marketplace under Collateralized Mortgage-Backed Securities (CMBS) programs.

Internal Growth/First Quarter Operating Statistics

The following "same store" operating statistics are for the 46 hotels that were open during both of the quarters ended March 31, 2005 and 2004 (including 42 wholly-owned hotels and four joint-venture hotels). For the three months ended March 31, 2005, operating margins stayed consistent at 39.5 percent, compared to the same period for the previous year.