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Hotel Industry News |
Tuesday December 2nd, 2008 |
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Winston Hotels Reports Second Quarter 2006 Results |
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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, 2006.
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2006 Second Quarter Highlights
-- Net income available to common shareholders per share totaled $0.14;
-- FFO available to common shareholders totaled $0.20 per share; excluding non-recurring debt extinguishment expenses as well as certain non-cash charges, FFO available to common shareholders would have totaled $0.36 per share, which exceeds First Call consensus analyst expectations by $0.02;
-- Increased EBITDA by $4.5 million, or 33.8 percent, to $17.7 million;
-- Improved same store RevPAR by 11.7 percent; excluding two hotels that were negatively impacted by renovations, same store RevPAR improved by 12.3 percent;
-- Posted same store operating margin growth of 110 basis points; excluding two hotels that were negatively impacted by renovations, same store operating margin rose 170 basis points;
-- Sold three hotels for total aggregate net proceeds of $14.9 million, resulting in an aggregate gain on sale, net of minority interest, of $3.5 million;
-- We expect full year FFO available to common shareholders of $0.91 to $0.96 per share. Excluding non-recurring debt extinguishment expenses as well as certain non-cash charges, FFO available to common shareholders is expected to be $1.07 to $1.12, compared to $1.09 to $1.15 previously forecasted. The revision is due primarily to the earnings dilution resulting from the sale of three hotels this summer and additional pre-opening expenses for the company's Homewood Suites hotel in Princeton, N.J. that now is expected to open during the fourth quarter of 2006 instead of the first quarter of 2007;
-- Invested in a joint venture that began development of a $14.6 million 120-room Courtyard by Marriott hotel in Jacksonville, Fla. and began development of a $10.7 million wholly owned 79-room Residence Inn hotel in Roanoke, Va.;
-- Funded a $20.3 million "B" note with Canyon Capital Realty Advisors LLC and closed on two additional loans totaling $10.2 million;
-- Completed a 10-year, $176 million CMBS loan financing at a fixed interest rate of 5.94 percent. This financing is interest only for four years, significantly extends Winston's weighted average debt maturities and increased the company's percentage of fixed rate debt to 67 percent; and
-- The company entered into definitive agreements to acquire two hotels under construction in New York City for an aggregate of $110 million.
2006 Second Quarter Financial Results
Net income available to common shareholders was $3.7 million for the 2006 second quarter, or $0.14 per share, compared to net income available to common shareholders of $3.9 million, or $0.15 per share, for the same period in 2005. Net income available to common shareholders for the 2006 second quarter included a gain on sale, net of minority interest, of approximately $3.5 million, or $0.13 per share, and a charge of approximately $4.0 million, or $0.15 per share, of non-recurring debt extinguishment expenses related to the payoff of two outstanding loans in conjunction with completing the recent $176 million CMBS facility described below as part of a strategy to significantly lower the company's interest expense and extend its debt maturities. Net income available to common shareholders for the 2006 second quarter also included non-cash charges totaling $0.4 million, or $0.01 per share, for asset retirement obligation expenses and income tax expense related to development fees received from a joint venture, which are eliminated in consolidation.
Funds from operations (FFO) available to common shareholders for the 2006 second quarter was $5.7 million, compared to $8.3 million in the 2005 second quarter, or $0.20 and $0.30 per share, respectively. Excluding the charges described above, FFO available to common shareholders for the 2006 second quarter would have been approximately $10 million, or $0.36 per share. The company had approximately 27.9 million and 27.6 million fully diluted weighted average common shares outstanding in the 2006 and 2005 reporting periods, respectively.
Earnings before interest, taxes, depreciation and amortization for the 2006 second quarter was $17.7 million, compared to $13.3 million in the 2005 second quarter.
Same Store Operating Statistics
Second quarter 2006 revenue per available room (RevPAR) for the company's 41 hotels that were open throughout the six month periods ended June 30, 2006 and 2005 rose 11.7 percent, led by an 8.6 percent increase in average daily room rate (ADR) and a 2.8 percent increase in occupancy. Second quarter 2006 operating margins rose 110 basis points to 45.2 percent from 44.1 percent in the same period a year earlier, despite increased fuel prices and franchise fees. These costs were partially offset by improvements in managing labor costs, room operating supplies/expenses and a number of energy-saving measures.
"We have been working closely with our operators to improve margins and saw significant improvement this past quarter," said Robert W. Winston III, chief executive officer. "We continue to focus heavily on margin enhancement."
The following table details the same store operating statistics, which include 41 consolidated hotels that were open throughout the six month periods ended June 30, 2006 and 2005 (includes 39 wholly owned hotels and two hotels owned through joint ventures, the Chapel Hill, N.C. Courtyard by Marriott and the Ponte Vedra, Fla. Hampton Inn).
Same Store Operating Statistics
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Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2006 2005 Change 2006 2005 Change
-------- -------- -------- -------- -------- --------
Hotel Room
Revenues $38,372 $34,748 10.4% $71,631 $65,107 10.0%
RevPAR $74.64 $66.84 11.7% $70.00 $62.96 11.2%
Occupancy 75.8% 73.7% 2.8% 72.7% 70.4% 3.3%
ADR $98.48 $90.71 8.6% $96.32 $89.43 7.7%
Operating
Margin 45.2% 44.1% 110 bps 43.2% 42.5% 70 bps
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Excluding the operating results of two hotels that were negatively impacted by renovations for the three months ended June 30, 2006 and 2005, (i) same store RevPAR increased 12.3 percent to $76.36 from $68.02; and (ii) same store operating margins increased 170 basis points to 46.2 percent from 44.5 percent. Excluding the operating results of the same two hotels that were negatively impacted by renovations for the six months ended June 30, 2006 and 2005, (i) same store RevPAR increased 11.9 percent to $71.53 from $63.92; and (ii) same store operating margins increased 110 basis points to 44.1 percent from 43.0 percent.
2006 Third Quarter Outlook and Guidance
For the 2006 third quarter, the company forecasts net income per share available to common shareholders of $0.24 to $0.26. On a same store basis, the company expects 2006 third quarter RevPAR to increase 8 to 10 percent as compared to the prior year's third quarter.
FFO per share available to common shareholders is expected to be between $0.31 and $0.33 for the 2006 third quarter.
2006 Annual Outlook and Guidance Revised
For the year ended December 31, 2006, the company forecasts net income per share available to common shareholders of $0.53 to $0.58. On a same store basis, the company expects 2006 RevPAR to increase 8 to 10 percent from the prior year.
FFO per share available to common shareholders for the year ended December 31, 2006, is expected to be between $0.91 to $0.96, compared to the $1.09 and $1.15 forecasted earlier this year. FFO per share available to common shareholders for the year ended December 31, 2006, excluding the non-recurring debt extinguishment expenses and the non-cash charges described above, is expected to be between $1.07 and $1.12 per share. The decline in the FFO per share available to common shareholders is primarily due to earnings dilution resulting from the sale of two hotels in June 2006, the sale of the West Springfield Hampton Inn in July 2006 and pre-opening expenses for the Homewood Suites hotel in Princeton, N.J. that is expected to open during the fourth quarter of 2006 instead of the first quarter of 2007. This guidance assumes no additional hotel acquisitions, dispositions, developments or placements of hotel debt during the remainder of 2006, other than those activities discussed below.
Hotel Development
During the 2006 second quarter, the company began development on two new projects, one wholly owned and one in a joint venture.
In July 2006, the company purchased a parcel of land for $0.5 million and plans to build a wholly owned 79-room Residence Inn hotel in Roanoke, Va. for an estimated total cost of approximately $10.7 million, $7.0 million of which is expected to be borrowed under a mortgage loan. The hotel is expected to break ground in the 2006 third quarter and open in the fourth quarter of 2007.
The company entered into a joint venture with Skyline Hotel Investors, LLC (Skyline), to build a 120-room Courtyard by Marriott at Flagler Corporate Park in Jacksonville, Fla. for approximately $14.6 million. The total equity investment in the joint venture is expected to be approximately $5.2 million, of which the company will contribute approximately $2.5 million for a 48 percent ownership interest. The joint venture expects to fund the remainder of the development costs with borrowings under a mortgage loan. The joint venture plans to break ground on the hotel in the 2006 third quarter and open the hotel in the fourth quarter of 2007.
We are making excellent progress on our development program, which we believe will provide us with substantial embedded growth over the next several years as these properties open and ramp up," Winston said. "For example, our 123-room Courtyard by Marriott, which was converted from a former historic apartment building, opened in mid-April in Kansas City, Mo. and has been very well received in the community and is ramping up on target."
"We expect to open our wholly owned 142-room, $19.6 million Homewood Suites hotel in Princeton, N.J. in the 2006 fourth quarter, one quarter ahead of schedule," Winston noted. "Furthermore, we are on schedule and on budget to open our joint-venture, 121-room, $12.3 million Hilton Garden Inn in Akron, Ohio, in the 2006 fourth quarter and the wholly owned, 119-room, $13.3 million Hilton Garden Inn in Wilmington, N.C., in the 2007 second quarter."
"At this stage of the hotel real estate cycle, in certain cases, we have been seeing better value creation opportunities for development than acquisition," he said. "Although land and construction costs have increased significantly, we believe that we can attain higher stabilized returns through development than acquisitions in certain cases. Nevertheless, we continue to have a very active acquisition pipeline, and continue to seek what we believe are appropriate risk-adjusted returns. Every investment decision we make weighs the advantages of acquisition versus development in order to continuously improve our portfolio and shareholder returns."
Hotel Acquisitions
The company announced that it has entered into definitive agreements to acquire two hotels in New York City for a purchase price of $55 million each. Located in the Tribeca area and Chelsea area, the hotels currently are under construction and are expected to open during the 2007 first quarter. Acquisition of these hotels is subject to our satisfactory completion of due diligence and other customary closing conditions. Negotiations have begun with Hilton Hotels Corporation to brand the hotels as Hilton Garden Inns.
"Both hotels are well located in strong and growing markets with multiple demand generators," Green said. "These acquisitions will diversify our portfolio, adding a significant urban component in the nation's most visible market. We believe these acquisitions will better balance our portfolio and help us optimize our opportunities in all phases of the real estate cycle."
Hotel Dispositions
The company sold three hotels in the second quarter and another hotel in July 2006, bringing to five the number of hotel dispositions for the year. In May, the company sold the 146-room Wilmington, N.C. Comfort Inn; in June, the 242-room Holiday Inn Select in Garland, Texas and the 95-room Hampton Inn in Boone, N.C. and in July the 126-room West Springfield, Mass. Hampton Inn. The aggregate net proceeds for the five dispositions during 2006 totaled $32.9 million, resulting in an aggregate net gain on sale of approximately $12.0 million, of which approximately $3.5 million, net of minority interest, was recorded in the second quarter of 2006.
"The sale of these hotels, the addition of the recently opened Courtyard by Marriott in Kansas City, and the additional properties under construction are consistent with the company's strategy to selectively prune our older assets that no longer meet our strategic long-term growth objectives and to reinvest the proceeds in properties that we believe have long-term growth potential. The short-term effect of these sales may have a negative impact on FFO, but we believe that recycling the capital into newer, better located properties will allow us to quickly regain and exceed our historic returns as these hotels open and successfully ramp-up," said Green.
Hotel Debt Financing Program
During the 2006 first quarter, the company closed on a $2.3 million "B" note, as part of a total $12 million financing, with GE Commercial Franchise Finance (GEFF) providing $9.7 million of senior debt. The company has funded $1.4 million of the "B" note, which is secured by a 140-room Hilton Garden Inn under construction in Columbia, S.C. The construction-to-five-year permanent loan bears interest at an all-in annual yield to the company equal to 90-day LIBOR plus approximately 6.12 percent. The company is obligated to fund the remaining $0.9 million balance of the "B" note ratably over the projected construction period, which is expected to be completed during the fourth quarter of 2006.
During the second quarter, the company consummated and funded one loan and closed on two additional loans for hotels under construction. The company provided a $20.3 million "B" note, as part of a total $66 million financing originated by Canyon Capital Realty Advisors LLC, to fund Downtown Resorts, LLC's $91.5 million refinance and refurbishment of the 25,500-square-foot Lady Luck casino and adjacent 627-room hotel, which is expected to be completed during the second quarter of 2007. The loan bears interest at a fixed rate of 12.63 percent for two years with two, one-year extensions.
In May 2006, the company closed on a $1.7 million "B" note, as part of a total $7.5 million construction-to-permanent financing, with GEFF providing $5.8 million of senior debt. The company is obligated to ratably fund the loan over the projected construction period for a 122-room Hilton Garden Inn under construction in Tuscaloosa, Tenn. with an estimated all-in cost of $9.3 million scheduled to be completed during the fourth quarter of 2006. During the construction period, the then outstanding "B" note bears interest at a variable rate equal to 90-day LIBOR plus 7.63 percent per annum; thereafter, the spread over 90-day LIBOR reduces to 7.43 percent. In addition, the "B" note accrues interest of 3.29 percent per annum until maturity, which is five years from the date the property opens to the general public.
In June 2006, the company closed on an $8.5 million first mortgage loan to Host Murfreesboro, LLC, to finance the development of a 101-room Hampton Inn & Suites in Murfreesboro, Tenn. with an estimated all-in cost of $10.2 million. The five-year loan requires payments at an interest rate of 30-day LIBOR plus 3.60 percent, with another 1.0 percent of the original principal balance accruing until the loan is paid in full. Payments are interest only during construction of the hotel and the first 12 months of hotel operations and thereafter include principal payments based on a 25-year amortization period.
Strengthened Balance Sheet
In May 2006, the company closed a 10-year $176 million commercial mortgage backed security (CMBS) loan facility with General Electric Capital Corporation, collateralized by 16 of its hotels. The $176 million facility bears interest only for four years at a fixed rate of 5.94 percent and thereafter will amortize over a 30-year period. Under the terms of the facility, the loans are not cross-collateralized and the loans are assumable, should any of the individual properties be sold. The net proceeds were used to defease and payoff the $61.3 million outstanding balance of the company's 7.38 percent fixed rate financing, which had an October 2008 maturity, and to pay down the outstanding balance under the GE Line. This financing significantly extends Winston's weighted average debt maturities and increased its percentage of fixed rate debt to 67 percent.
In May 2006, the company borrowed funds under the GE Line to pay off the outstanding balance of $11.3 million on the 30-day LIBOR plus 3 percent mortgage loan collateralized by the Evanston Hilton Garden Inn.
In April 2006, the company modified its $50 million master repurchase agreement with Marathon Structured Finance Fund. The modified agreement reduced the interest rates from LIBOR plus 4.5 percent for loans funding the acquisition of existing hotels to LIBOR plus 2.75 percent, and from LIBOR plus 5.5 percent for loans funding the development or redevelopment of hotels to LIBOR plus 3.0 percent.
"We expect these financing changes to save the company approximately $1.5 million in interest expense during the remainder of 2006," Green pointed out. "The new CMBS loan structure locks us into very attractive interest rates, while giving us great flexibility with these hotels."
Dividends
During the 2006 second quarter, the company declared a regular cash dividend of $0.15 per common share and a cash dividend of $0.50 per share of Series B Preferred Stock. "The company's board of directors evaluates our dividend policy on a quarterly basis and is comfortable with the payout level of our dividends," Winston said.
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