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Winston Hotels, Inc., Primarily an Owner of Limited-service and Extended-stay Properties,
Loans $20.3 million to Help Refinance the 627 room  Lady Luck Casino Hotel in Las Vegas

The News & Observer, Raleigh, N.C.
Knight Ridder/Tribune Business News

May 10, 2006 - RALEIGH -- Winston Hotels is betting that a Las Vegas casino will boost company revenue.

The Raleigh hotel real estate investment trust is lending $20.3 million to help refinance and refurbish the 25,500-square-foot Lady Luck casino and adjacent 627-room hotel.

Winston is known for the 55 hotels it owns in 17 states. The casino loan was enough to cause some concern during a quarterly earnings call with analysts Tuesday.

"It's an interesting gamble," said Raymond James analyst William Crow in St. Petersburg, Fla. "I'd rather have them investing in hotels instead of casinos. That's where their expertise is."

But Joe Green, Winston's president and chief financial officer, said that the deal will deliver a hefty payout.

The loan bears a fixed rate of 12.63 percent for two years with options for two one-year extensions. The investment is part of a $66 million senior loan by Canyon Partners to fund a $91.5 million refinancing and refurbishment of the property.

The Lady Luck "is very well located in downtown Las Vegas, which is enjoying a substantial renovation. It's where Binions and the Golden Nugget are located ... and within one to 1.5 miles of the new furniture market," Green said. "We think it's a very attractive loan and a very attractive rate."

Besides owning hotels, Winston since 2003 has been making loans to other hotel developers.

Initially, the loans were funded by a $50 million stock issue, but last year Winston teamed with GE Capital Finance to add more juice to the program. Winston made $22 million in loan investments in 2005.

Winston Hotels reported higher net income, occupancy and room revenue during the first quarter, which ended March 31.

Net income was $4.4 million, or 17 cents a share, compared with $1.1 million, or 4 cents a share, for the period a year ago.

Funds from operations, a standard measure of profitability for REITs, was $5.5 million, down from $6 million a year earlier because of higher interest expenses, administrative costs and management fees.

Winston's shares added 68 cents to $11.35.

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Copyright (c) 2006, The News & Observer, Raleigh, N.C.

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