##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K




þ
    
    Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934


For The Fiscal Year Ended December 31, 2006


or


o
    
    Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934


For The Transition Period From          To


Commission file number 0-23732


WINSTON HOTELS, INC.




North Carolina
    
    56-1624289(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)


2626 Glenwood Avenue, Suite 200
Raleigh, North Carolina
(Address of principal executive offices)
    
    27608
(Zip Code)


(919) 510-6019




Securities registered pursuant to Section 12(b) of the Act:


Title of Class
    
    Name of Exchange upon Which RegisteredCommon Stock, $0.01 par value per share
    
    New York Stock Exchange8.00% Series B Cumulative Preferred Stock, $0.01 par value per share
    
    New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:


o þ


o þ


þ o


 ̈




o þ o


o þ




Documents Incorporated By Reference












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TABLE OF CONTENTS


SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS


PART I.Item 1.
    
    Business.Item 1A.
    
    Risk Factors.Item 1B.
    
    Unresolved Staff Comments.Item 2.
    
    Properties.Item 3.
    
    Legal Proceedings.Item 4.
    
    Submission of Matters to a Vote of Security Holders.PART II.Item 5.
    
    Market for Registrants Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities.Item 6.
    
    Selected Financial Data.Item 7.
    
    Managements Discussion and Analysis of FinancialCondition and Results of Operation.Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.Item 8.
    
    Financial Statements and Supplementary Data.Item 9.
    
    Changes in and Disagreements With Accountants onAccounting and Financial Disclosure.Item 9A.
    
    Controls and Procedures.Item 9B.
    
    Other Information.PART III.Item 10.
    
    Directors, Executive Officers and Corporate Governance.Item 11.
    
    Executive Compensation.Item 12.
    
    Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters.Item 13.
    
    Certain Relationships, Related Transactions and Director Independence.Item 14.
    
    Principal Accounting Fees and Services.PART IV.Item 15.
    
    Exhibits, Financial Statement Schedules.SIGNATURES


2



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SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS







    
    the failure to close the previously announced Merger transaction with Wilbur Acquisition
Holding Company, LLC,
    
    lower than expected revenue per available room, occupancy, average daily rates, and gross
operating margins,
    
    impact on our hotels and the markets in which we operate from terrorist attacks and natural disasters,
    
    changes in general economic conditions, which affect the travel industry,
    
    the degree and nature of our direct competition,
    
    properties held for sale will not sell,
    
    franchise licenses will not be renewed,
    
    financing risks including the inability to obtain financing on favorable terms, if at all,
    
    development risks including the risks of construction delays and cost overruns,
non-issuance or delay of issuance of governmental permits, zoning restrictions,
    
    the increase of development costs in connection with projects that are not pursued to completion,
    
    non-payment of hotel loans made to third parties,
    
    the failure to make additional hotel loans and investments in non-distressed and distressed hotel assets, and
    
    the failure to attract joint venture opportunities.




3




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PART I.


($ in thousands, except per share amounts)


Item 1. Business.


RECENT
DEVELOPMENT  PROPOSED MERGER






1)
    
    each share of MergerCo common stock issued and outstanding immediately prior to the
Effective Time will be converted into one validly issued, fully paid and non-assessable
share of the Companys common stock; and2)
    
    each share of the Companys common stock that is issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company, the Buyer Parties and
their respective subsidiaries) will be converted into, and canceled in exchange for, the
right to receive an amount in cash to be paid by Parent equal to $14.10 (the Common Share
Merger Consideration); and3)
    
    each share of the Companys 8.00% Series B Cumulative Preferred Stock (Series B
Preferred Stock) that is issued and outstanding immediately prior to the Effective Time
will remain outstanding as a share of Series B Preferred Stock of the surviving entity; and4)
    
    each partnership interest in the Partnership that is not specifically designated as a
Series B Preferred Unit issued and outstanding immediately prior to the Effective Time will
be converted into, and cancelled in exchange for, the right to receive an amount in cash
equal to the Common Share Merger Consideration, multiplied by the Conversion Factor (as
defined in the Amended and Restated Agreement of Limited Partnership of the Partnership),
which as of the date hereof is one.




4




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GENERAL






5




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SIGNIFICANT DEVELOPMENTS DURING 2006 AND FIRST QUARTER 2007


Hotel Ownership


Held for Sale / Dispositions



    
    In January 2007, the Abingdon, VA Holiday Inn Express was sold for net proceeds of $5.0
million, resulting in a net gain of $2.4 million.
    
    In accordance with SFAS 144, the Company recorded a $12.4 million (net of allocation to
minority interest) non-cash impairment charge in the third quarter of 2005 relating to two
hotels. On November 4, 2005, the Companys Board adopted a formal plan to sell the two
hotels. In June 2006, the Company sold one of these hotels, the Dallas, TX Holiday Inn
Select, for net proceeds of $4.3 million and recognized a net gain of $0.5 million. The
remaining hotel, the Orlando, FL Comfort Suites, is being actively marketed by the Company
for sale.
    
    In November 2006, the Winston Salem, NC Courtyard by Marriott was sold for net proceeds
of $9.7 million, resulting in a net gain of $2.8 million.
    
    In August 2006, the Alpharetta, GA Homewood Suites was sold for net proceeds of $9.7
million, resulting in a net gain of $3.3 million.
    
    In July 2006, the Company sold the West Springfield, MA Hampton Inn for net proceeds of
$9.5 million, resulting in a net gain of $3.9 million.
    
    In June 2006, the Company sold the Boone, NC Hampton Inn for net proceeds of $4.9
million, resulting in a net gain of $2.2 million.
    
    In April 2006, the Company sold the Wilmington, NC Comfort Inn for net proceeds of $5.7
million, resulting in a net gain of $1.0 million.
    
    In March 2006, the Company sold the Southlake, GA Hampton Inn for net proceeds of $8.5
million, resulting in a net gain of $4.4 million.




Acquisitions, Development Projects and Joint Ventures 
    
    In March 2007, the Company opened a development hotel, the Wilmington, NC Hilton Garden Inn.
    
    In November 2006, the Company purchased a parcel of land for $0.6 million adjacent to
its Hilton Garden Inn near the Raleigh Durham airport to build its first alofthotel. The
151-room aloftis estimated to cost approximately $18.5 million. The Company expects to
break ground on the wholly owned hotel during the third quarter of 2007 with an expected
opening date during the fourth quarter of 2008.
    
    In November 2006, the Company opened a 142-room Homewood Suites hotel in Princeton, NJ.
    
    In November 2006, one of the Companys joint ventures opened a 121-room Hilton Garden
Inn at Gateway Corporate Park, adjacent to the Akron-Canton Airport in Green, OH.
 6




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
    
    In August 2006, the Company announced that it had entered into definitive agreements to
acquire two hotels in New York City for a purchase price of $55 million each. Located in
the Tribeca and Chelsea areas, the hotels currently are under construction. Acquisition of
each of these hotels is subject to satisfactory completion of due diligence and other
customary closing conditions. The Company has been approved by Hilton Hotels Corporation
for a Hilton Garden Inn franchise for both the Tribeca hotel and the Chelsea hotel. The
Chelsea hotel is expected to open in the second quarter of 2007. There has been a delay in
construction at the Tribeca hotel and the Company has pursued legal action against the
seller. Pursuant to the purchase and sale agreement, the Company intends to close the
project at the appropriate time and complete the development in time to open in the fourth
quarter of 2007.
    
    In August 2006, the Company acquired the 121-room Courtyard by Marriott in St. Charles,
IL.
    
    In April 2006, one of the Companys joint ventures completed the conversion of a former
historic residential building in Kansas City, MO into a 123-room Courtyard by Marriott
hotel.
    
    In 2006, the Company entered into a joint venture that is developing a 120-room
Courtyard by Marriott hotel in Jacksonville, FL, which is expected to open in late 2007.
    
    The Company expects one wholly owned hotel currently under development, the Roanoke, VA
Residence Inn, to open in late 2007.
  Hotel Financing
 
    
    In February 2007, the Company sold its $20.3 million B note, which was part of a $66
million senior note for the Lady Luck Casino in Las Vegas, NV, to the senior lender for a
discounted price of $15.2 million. The Company originally funded the $20.3 million B
note in May 2006. The sale was entered into in connection with Merger negotiations with
Parent. Accordingly, the Company will recognize a loss of approximately $5.3 million,
including the put fee and accrued, unpaid interest income, during the quarter ended March
31, 2007 as a result of this sale. Management did not consider this note to be impaired as
of December 31, 2006 and accordingly no loss was recognized at December 31, 2006.
    
    In February 2007, the Company closed on a $1.2 million B note for a 104-room Holiday
Inn Express under construction in Webster, NY.
    
    In January 2007, the $2.5 million mezzanine loan, collateralized by a senior
participation interest in the loan to Walton Street Capital related to the Los Angeles, CA
Airport Renaissance hotel, was prepaid in full.
    
    In January 2007, the $1.1 million mezzanine loan collateralized by the ownership
interest in the entity that owns the Hilton Garden Inn in Atlanta, GA was paid in full.
    
    In December 2006, the Company closed on a $2.2 million mezzanine loan for a Homewood
Suites to be constructed in Denver, CO.
    
    In December 2006, the $2.8 million mezzanine loan, collateralized by a senior
participation interest in a loan to Walton Street Capital related to the Austin, TX
Renaissance hotel, was prepaid in full.
    
    In December 2006, the $2.0 million participation in a $20 million senior bridge loan
collateralized by a hotel/condo project in Miami, FL was prepaid in full.
    
    In November 2006, the $5.5 million mezzanine loan collateralized by the Residence Inn by
Marriott in St. Louis, MO was paid in full.
    
    In June 2006, the Company closed on an $8.5 million construction-to-permanent loan to
finance a 101-room Hampton Inn & Suites in Murfreesboro, TN. In October 2006, the Company
sold $6.3 million of the $8.5 million Murfreesboro loan and now holds a $2.2 million B
note.
    
    In February and May 2006, the Company closed on its first two loans in conjunction with
a program with GE Commercial Franchise Finance Corporation (GE) to provide a highly
streamlined, cost-effective loan program for hoteliers and expects to loan a total of $4.0
million during the construction of the respective hotels.
  7




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SEGMENTS
 Hotel Ownership
 General.
 aloft aloft
 Property Leasing and Management.
    8




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Franchise Agreements.
  Acquisitions of Additional Hotels.
  
    
    properties in locations with relatively high demand for rooms, a relatively low supply of
hotel properties and relatively high barriers to entry into the hotel business, such as a
scarcity of suitable sites or zoning restrictions;
    
    successful hotels available at favorable prices;
    
    newly developed hotels;
    
    hotels that could benefit from repositioning;
    
    hotels that could benefit from substantial rehabilitation; and
    
    hotels that could benefit from new management and additional hotel capital.
 Developing Hotels on Selected Sites.
 9




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aloft aloft aloft aloft
 Disposition of Hotels.
 Seasonality.
 Competition.
 Hotel Financing
   10




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$5.3 million, including the put fee and accrued, unpaid interest income, during the quarter ended
March 31, 2007 as a result of this sale. Management did not consider this note to be impaired as
of December 31, 2006 and accordingly no loss was recognized at December 31, 2006.
 EMPLOYEES
  ENVIRONMENTAL MATTERS
     11




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AVAILABLE INFORMATION
  12




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Item 1A. Risk Factors.
  Risks Related to the Proposed Merger
  Failure to complete the Merger could negatively impact our stock price and our future business and
financial results.
   
    
    being required, under certain circumstances, including if we sign a
definitive agreement with respect to a superior proposal from another
potential buyer, to pay a termination fee of $11.0 million to Parent;
    
    being required, under certain circumstances, including if we breach
the Merger Agreement, to reimburse Parent for up to $9.0 million of
its transaction costs and expenses;
    
    having incurred certain costs relating to the Merger that are payable
whether or not the Merger is completed, including legal, accounting,
financial advisor and printing fees; and
    
    having had the focus of management directed toward the Merger and
integration planning instead of on our core business and other
opportunities that could have been beneficial to us.
  Provisions of the Merger Agreement may deter alternative business combinations and could negatively
impact our stock price if the Merger Agreement is terminated in certain circumstances or otherwise
fails to close.
  13




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Our stock price and businesses may be adversely affected if the Merger is not completed.
  While the Merger Agreement is in effect, we are subject to significant restrictions on our business
activities, and activities relating to the Merger may divert the attention of our employees.
  Risks Relating to Our Business
 Our ability to make distributions to our shareholders depends upon the ability of our hotel
managers to operate our hotels effectively.
 e.g.
  14




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Additional terrorist attacks, such as the events of September 11, 2001 and the threat of additional
terrorist attacks could have an adverse effect on our results of operations.
  We may not have access to financing for acquiring or developing additional hotels, or for providing
hotel loans.
   We have a significant level of debt that may limit our ability to take certain actions.
  
    
    impair our ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions
or other purposes in the future;
    
    require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing
our funds available for operations, future business opportunities and other purposes;
    
    place us at a disadvantage compared to competitors that have less debt;
    
    restrict our ability to adjust rapidly to changing market conditions; and
    
    increase our vulnerability to adverse economic, industry and business conditions.
  15




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Our indebtedness imposes limitations on our operations and subjects us to risk of default.
   Rising interest rates could adversely affect our cash flow.
  We may not be able to complete development of new hotels on time or within budget.
  
    
    construction delays or cost overruns that may increase project costs;
    
    competition for suitable development sites and/or the emergence of unanticipated competition from other hotels;
    
    uncertainties as to market demand or deterioration in market demand after commencement of development;
    
    receipt of zoning, land use, building, construction, occupancy and other required governmental permits and
authorizations; and
    
    substantial development costs in connection with projects that are not completed.
  16




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Hotels that we develop have no operating history and may not achieve levels of occupancy that
result in levels of operating income that provide us with an attractive return on our investment.
  Property ownership through joint ventures could limit our control of those investments.
  Our business could be disrupted if we need to find a new manager upon termination of an existing
management agreement.
  If we decide to sell hotels, we may not be able to sell those hotels on favorable terms.
  If third parties for whom we develop hotels default on their loans, we may be required to complete
the development of those hotels at our own expense.
  We may face conflicts of interest relating to sales of hotels acquired from affiliates.
  17




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We depend on key personnel, the loss of which could have a material adverse effect on the Company.
  Risks Related to Hotel Lending Program
 The hotel mortgage loans that we originate and purchase are subject to the risks of delinquency and
foreclosure, which could result in losses to us.
  
    
    increased costs imposed on hotel owners by franchisors such as hot and cold breakfasts, new linens and other required
improvements;
    
    property management decisions;
    
    property location and condition;
    
    competition from comparable types of properties;
    
    changes in specific industry segments;
    
    declines in regional or local real estate values, or occupancy rates; and
    
    increases in interest rates, real estate tax rates and other operating expenses.
  The B-Notes in which we invest may be subject to additional risks relating to the privately
negotiated structure and terms of the transaction, which may result in losses to us.
  18




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Investments in mezzanine loans involve greater risks of loss than senior loans collateralized by
income producing properties.
  Our hotel loan program subjects us to the unique risks of a mezzanine lender.
  Risks Relating to the Real Estate Industry
 Our performance and the value of our stock are subject to risks associated with the hotel industry.
 Our hotels are subject to operating risks of the hotel industry that could reduce our revenue,
gross operating margins, and ability to make distributions to shareholders.
  
    
    competition for guests from other hotels, many of which have substantial marketing and financial resources;
    
    faster growth in room supply than in room demand growth in our markets;
    
    increases in operating costs due to inflation and other factors which may not be offset in the future by increased room
rates;
    
    seasonality, with higher hotel revenues occurring in the second and third calendar quarters;
    
    increases in energy costs, airline fares and other expenses related to travel, which may deter traveling;
    
    terrorist incidents, which may also deter traveling;
    
    adverse effects of general and local economic conditions;
    
    a general inability to control costs, thereby resulting in lower gross operating profit; and
    
    risks generally associated with the ownership of hotels and real estate, as discussed below.
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Our entire business is concentrated in particular segments of a single industry.
  Large-scale military deployments may adversely impact the occupancy rates and revenues from our two
hotels located in communities that have a large military population.
    We may incur higher costs as a result of the proximity of our hotels to the coast.
  Our hotel concentration in the Southeastern United States subjects us to increased risks than if
our portfolio were more geographically diversified.
  Conditions of franchise agreements could adversely affect us.
  20




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Year of Expiration
    
    Number of Hotels2007
    
    22008
    
    22009
    
    22010
    
    12011
    
    22012
    
    22013
    
    52014
    
    12015
    
    12016
    
    22017
    
    102018
    
    32019
    
    62020
    
    12022
    
    32023
    
    12024
    
    42025
    
    12026
    
    12027
    
    12031
    
    1
  Operating costs and capital expenditures could adversely affect our cash flow.
  
    
    the possibility of environmental problems;
    
    construction cost overruns and delays;
    
    uncertainties as to market demand or deterioration in market demand after commencement of renovation;
    
    the emergence of unanticipated competition from other hotels; and
    
    displacement of room revenues due to rooms being out of order.
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We must compete with larger entities for acquisition and franchising opportunities.
  Our performance and value are subject to the condition of the real estate industry.
 We may not be able to sell hotels when appropriate.
  We may not be able to defer taxes on gains from sales of hotels.
  Compliance with the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations, an interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations and
other changes in accounting rules and regulations could adversely affect our results of operations.
    22




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Liability for environmental matters could adversely affect our financial condition.
   Black mold claims could adversely affect our financial condition.
  Liability for underground storage tanks could adversely affect our financial condition.
  23




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Liability for uninsured and underinsured losses could adversely affect our financial condition and
results of operations.
  The cost of compliance with the Americans with Disabilities Act and other changes in governmental
rules and regulations could adversely affect our cash flow.
  Increases in property taxes could adversely affect our cash flow.
  Risks Relating to REIT Status
 We are subject to tax risks as a result of our REIT status.
  24




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Risks Relating to an Investment in our Capital Stock
 The price of our securities may be affected by changes in market interest rates.
  The ability of our shareholders to effect a change in control is limited.
 Stock ownership limitations could inhibit changes in control.
  Our ability to issue preferred stock could inhibit changes in control.
  Item 1B. Unresolved Staff Comments.
  Item 2. Properties.
  25




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2006
    
    
    2005Number of
    
    
    Room
    
    Average
    
    Occupancy
    
    
    Room
    
    Average
    
    OccupancyHotel Name
    
    
    Rooms
    
    
    Revenue
    
    Daily Rate
    
    Percentage
    
    
    Revenue
    
    Daily Rate
    
    PercentageComfort Inns/SuitesComfort Inn Charleston, SC
    
    
    
    129
    
    
    
    $
    2,655
    
    
    $
    77.85
    
    
    
    72.4
    %
    
    
    $
    2,434
    
    
    $
    75.37
    
    
    
    68.6
    %Comfort Inn Durham, NC
    
    
    
    136
    
    
    
    $
    2,342
    
    
    $
    71.36
    
    
    
    66.1
    %
    
    
    $
    2,165
    
    
    $
    64.38
    
    
    
    67.6
    %Comfort Inn Fayetteville, NC
    
    
    
    123
    
    
    
    $
    2,260
    
    
    $
    71.01
    
    
    
    70.9
    %
    
    
    $
    2,439
    
    
    $
    64.20
    
    
    
    62.3
    %Comfort Suites Orlando, FL
    
    
    
    213
    
    
    
    $
    2,701
    
    
    $
    56.20
    
    
    
    62.1
    %
    
    
    $
    2,935
    
    
    $
    54.50
    
    
    
    68.9
    %Courtyard by MarriottCourtyard by Marriott Ann Arbor, MI
    
    
    
    160
    
    
    
    $
    4,863
    
    
    $
    112.91
    
    
    
    73.7
    %
    
    
    $
    4,238
    
    
    $
    101.14
    
    
    
    71.7
    %Courtyard by Marriott Houston, TX
    
    
    
    197
    
    
    
    $
    3,785
    
    
    $
    102.38
    
    
    
    51.4
    %
    
    
    $
    3,344
    
    
    $
    83.75
    
    
    
    55.5
    %Courtyard by Marriott Houston, TX (Northwest) (2)
    
    
    
    126
    
    
    
    $
    3,295
    
    
    $
    99.90
    
    
    
    71.9
    %
    
    
    $
    428
    
    
    $
    77.25
    
    
    
    70.9
    %Courtyard by Marriott Roanoke, VA
    
    
    
    135
    
    
    
    $
    4,285
    
    
    $
    113.26
    
    
    
    76.8
    %
    
    
    $
    3,756
    
    
    $
    97.09
    
    
    
    78.5
    %Courtyard by Marriott St. Charles, IL (3)
    
    
    
    121
    
    
    
    $
    754
    
    
    $
    91.95
    
    
    
    55.5
    %
    
    
    $
    
    
    
    $
    
    
    
    
    0.0
    %Courtyard by Marriott Wilmington, NC
    
    
    
    128
    
    
    
    $
    3,338
    
    
    $
    97.31
    
    
    
    73.4
    %
    
    
    $
    2,895
    
    
    $
    86.07
    
    
    
    72.0
    %Fairfield InnFairfield Inn Ann Arbor, MI
    
    
    
    110
    
    
    
    $
    2,304
    
    
    $
    89.11
    
    
    
    64.4
    %
    
    
    $
    1,976
    
    
    $
    76.01
    
    
    
    64.7
    %Hampton Inn/SuitesHampton Inn & Suites Gwinnett, GA
    
    
    
    136
    
    
    
    $
    3,226
    
    
    $
    93.99
    
    
    
    69.1
    %
    
    
    $
    2,987
    
    
    $
    85.13
    
    
    
    70.7
    %Hampton Inn & Suites Baltimore, MD (1)
    
    
    
    116
    
    
    
    $
    4,912
    
    
    $
    159.48
    
    
    
    72.7
    %
    
    
    $
    1,427
    
    
    $
    148.16
    
    
    
    68.1
    %Hampton Inn Brunswick, GA
    
    
    
    129
    
    
    
    $
    2,473
    
    
    $
    78.80
    
    
    
    66.7
    %
    
    
    $
    2,656
    
    
    $
    76.83
    
    
    
    73.7
    %Hampton Inn Cary, NC
    
    
    
    129
    
    
    
    $
    2,666
    
    
    $
    81.82
    
    
    
    69.2
    %
    
    
    $
    2,064
    
    
    $
    73.26
    
    
    
    59.8
    %Hampton Inn Charlotte, NC
    
    
    
    126
    
    
    
    $
    2,806
    
    
    $
    89.04
    
    
    
    68.5
    %
    
    
    $
    2,294
    
    
    $
    76.59
    
    
    
    65.1
    %Hampton Inn Durham, NC
    
    
    
    136
    
    
    
    $
    3,033
    
    
    $
    83.99
    
    
    
    72.7
    %
    
    
    $
    2,729
    
    
    $
    76.49
    
    
    
    71.9
    %Hampton Inn Jacksonville, NC
    
    
    
    122
    
    
    
    $
    3,034
    
    
    $
    79.49
    
    
    
    85.7
    %
    
    
    $
    2,537
    
    
    $
    69.54
    
    
    
    81.9
    %Hampton Inn Perimeter, GA
    
    
    
    131
    
    
    
    $
    3,389
    
    
    $
    100.98
    
    
    
    70.2
    %
    
    
    $
    2,694
    
    
    $
    85.35
    
    
    
    66.0
    %Hampton Inn Raleigh, NC
    
    
    
    141
    
    
    
    $
    3,204
    
    
    $
    89.28
    
    
    
    69.7
    %
    
    
    $
    2,618
    
    
    $
    79.35
    
    
    
    64.1
    %Hampton Inn White Plains, NY
    
    
    
    156
    
    
    
    $
    5,825
    
    
    $
    137.42
    
    
    
    74.4
    %
    
    
    $
    5,070
    
    
    $
    117.44
    
    
    
    75.8
    %Hilton Garden InnHilton Garden Inn Albany, NY
    
    
    
    155
    
    
    
    $
    4,667
    
    
    $
    113.03
    
    
    
    73.0
    %
    
    
    $
    4,534
    
    
    $
    114.12
    
    
    
    70.2
    %Hilton Garden Inn Alpharetta, GA
    
    
    
    164
    
    
    
    $
    3,606
    
    
    $
    97.30
    
    
    
    61.9
    %
    
    
    $
    3,282
    
    
    $
    89.05
    
    
    
    61.6
    %Hilton Garden Inn Evanston, IL
    
    
    
    178
    
    
    
    $
    6,630
    
    
    $
    132.98
    
    
    
    76.7
    %
    
    
    $
    5,963
    
    
    $
    126.55
    
    
    
    72.5
    %Hilton Garden Inn Raleigh, NC
    
    
    
    155
    
    
    
    $
    5,134
    
    
    $
    118.75
    
    
    
    76.4
    %
    
    
    $
    4,447
    
    
    $
    113.80
    
    
    
    69.1
    %Hilton Garden Inn Windsor, CT
    
    
    
    157
    
    
    
    $
    3,928
    
    
    $
    104.88
    
    
    
    65.4
    %
    
    
    $
    3,811
    
    
    $
    98.61
    
    
    
    67.4
    %Holiday Inn/Express/SelectHoliday Inn at Tinton Falls, NJ
    
    
    
    174
    
    
    
    $
    4,654
    
    
    $
    112.26
    
    
    
    65.3
    %
    
    
    $
    4,375
    
    
    $
    108.35
    
    
    
    63.6
    %Holiday Inn Express Abingdon, VA
    
    
    
    81
    
    
    
    $
    1,666
    
    
    $
    81.18
    
    
    
    69.4
    %
    
    
    $
    1,499
    
    
    $
    74.36
    
    
    
    68.2
    %Holiday Inn Express Clearwater, FL
    
    
    
    126
    
    
    
    $
    2,479
    
    
    $
    85.47
    
    
    
    63.1
    %
    
    
    $
    2,358
    
    
    $
    76.44
    
    
    
    66.7
    %Holiday Inn Secaucus, NJ
    
    
    
    161
    
    
    
    $
    5,698
    
    
    $
    129.28
    
    
    
    75.0
    %
    
    
    $
    5,374
    
    
    $
    115.95
    
    
    
    78.9
    %Homewood SuitesHomewood Suites Cary, NC
    
    
    
    150
    
    
    
    $
    3,981
    
    
    $
    95.48
    
    
    
    76.2
    %
    
    
    $
    3,493
    
    
    $
    90.66
    
    
    
    70.4
    %Homewood Suites Durham, NC
    
    
    
    96
    
    
    
    $
    2,731
    
    
    $
    98.02
    
    
    
    79.5
    %
    
    
    $
    2,529
    
    
    $
    99.18
    
    
    
    72.8
    %Homewood Suites Houston, TX
    
    
    
    92
    
    
    
    $
    2,861
    
    
    $
    106.62
    
    
    
    79.9
    %
    
    
    $
    2,729
    
    
    $
    101.62
    
    
    
    80.0
    %Homewood Suites Lake Mary, FL
    
    
    
    112
    
    
    
    $
    2,930
    
    
    $
    97.66
    
    
    
    73.4
    %
    
    
    $
    3,249
    
    
    $
    96.63
    
    
    
    82.3
    %Homewood Suites Phoenix, AZ
    
    
    
    126
    
    
    
    $
    2,980
    
    
    $
    88.49
    
    
    
    73.2
    %
    
    
    $
    2,539
    
    
    $
    83.93
    
    
    
    65.8
    %Homewood Suites Princeton, NJ (4)
    
    
    
    142
    
    
    
    $
    74
    
    
    $
    126.02
    
    
 
    13.0
    %
    
    
    $
    
    
    
$
    
    
    
        
    0.0
    %Homewood Suites Raleigh, NC
    
    
    
    137
    
    
    
    $
    3,909
    
    
    $
    98.11
    
    
    
    79.7
    %
    
    
    $
    3,435
    
    
    $
    94.88
    
    
    
    72.4
    %Quality SuitesQuality Suites Charleston, SC
    
    
    
    168
    
    
    
    $
    4,085
    
    
    $
    82.49
    
    
    
    80.8
    %
    
    
    $
    3,614
    
    
    $
    80.66
    
    
    
    73.1
    %Residence InnResidence Inn Phoenix, AZ
    
    
    
    168
    
    
    
    $
    3,901
    
    
    $
    98.33
    
    
    
    64.7
    %
    
    
    $
    3,385
    
    
    $
    88.20
    
    
    
    62.6
    %Towneplace SuitesTowneplace Suites Austin, TX (2)
    
    
    
    127
    
    
    
    $
    2,651
    
    
    $
    73.94
    
    
    
    77.6
    %
    
    
    $
    351
    
    
    $
    69.62
    
    
    
    64.0
    %Towneplace Suites Birmingham, AL (2)
    
    
    
    128
    
    
    
    $
    2,588
    
    
    $
    83.50
    
    
    
    66.5
    %
    
    
    $
    443
    
    
    $
    77.56
    
    
    
    72.5
    %Towneplace Suites Bryan, TX (2)
    
    
    
    94
    
    
    
    $
    1,749
    
    
    $
    75.13
    
    
    
    68.0
    %
    
    
    $
    270
    
    
    $
    79.57
    
    
    
    58.2
    %Towneplace Suites Houston, TX (Northwest) (2)
    
    
    
    128
    
    
    
    $
    2,687
    
    
    $
    79.31
    
    
    
    72.7
    %
    
    
    $
    389
    
    
    $
    73.88
    
    
    
    66.3
    %Towneplace Suites Houston, TX (Clearlake) (2)
    
    
    
    94
    
    
    
    $
    2,327
    
    
    $
    84.01
    
    
    
    80.9
    %
    
    
    $
    328
    
    
    $
    75.97
    
    
    
    74.0
    %Total for 44 Hotels
    
    
    
    6,013
    
    
    
    $
    145,066
    
    
    $
    96.83
    
    
    
    70.8
    %
    
    
    $
    116,083
    
    
    $
    89.45
    
    
    
    69.2
    %
 
 (1)
    
    Purchased in September 2005.(2)
    
    Purchased in October 2005.(3)
    
    Purchased in August 2006.(4)
    
    Development hotel opened November 2006.See Note 10 to Notes to Consolidated Financial Statements for further discussion of debt that
encumbers these hotels. 26




---



##### 



2006
    
    
    2005Number of
    
    
    Room
    
    Average
    
    Occupancy
    
    
    Room
    
    Average
    
    OccupancyHotel Name (Percentage owned by Company)
    
    Rooms
    
    
    Revenue
    
    Daily Rate
    
    Percentage
    
    
    Revenue
    
    Daily Rate
    
    PercentageConsolidatedCourtyard by Marriott Chapel Hill, NC (48.78%)
    
    
    147
    
    
    
    $
    4,790
    
    
    $
    123.10
    
    
    
    72.5
    %
    
    
    $
    4,117
    
    
    $
    108.73
    
    
    
    70.6
    %Stanley Hotel Estes Park, CO (60%) (1)
    
    
    138
    
    
    
    $
    4,104
    
    
    $
    144.77
    
    
    
    56.3
    %
    
    
    $
    1,623
    
    
    $
    141.91
    
    
    
    55.6
    %Hampton Inn Ponte Vedra, FL (49%)
    
    
    118
    
    
    
    $
    3,248
    
    
    $
    103.59
    
    
    
    73.0
    %
    
    
    $
    2,936
    
    
    $
    96.98
    
    
    
    70.3
    %Courtyard by Marriott Kansas City, MO (0.21%) (2)
    
    
    123
    
    
    
    $
    2,662
    
    
    $
    130.91
    
    
    
    64.6
    %
    
    
    $
    
    
    
    $
    
    
    
    
    0.0
    %Hilton Garden Inn Akron, OH (41.7%) (3)
    
    
    121
    
    
    
    $
    279
    
    
    $
    113.28
    
    
    
    33.9
    %
    
    
    $
    
    
    
    $
    
    
    
    
    0.0
    %Total Consolidated Joint Ventures
    
    
    647
    
    
    
    $
    15,083
    
    
    $
    124.23
    
    
    
    65.4
    %
    
    
    $
    8,676
    
    
    $
    109.03
    
    
    
    67.8
    %Unconsolidated (13.05%)Courtyard by Marriott Shelton, CT (4)
    
    
    158
    
    
    
    $
    4,837
    
    
    $
    118.46
    
    
    
    69.5
    %
    
    
    $
    3,313
    
    
    $
    105.36
    
    
    
    53.5
    %Fairfield Inn & Suites West Des Moines, IA
    
    
    102
    
    
    
    $
    2,144
    
    
    $
    83.41
    
    
    
    69.0
    %
    
    
    $
    2,059
    
    
    $
    77.03
    
    
    
    71.8
    %Springhill Suites by Marriott Houston, TX
    
    
    190
    
    
    
    $
    4,734
    
    
    $
    84.36
    
    
    
    80.9
    %
    
    
    $
    4,161
    
    
    $
    79.20
    
    
    
    75.6
    %Springhill Suites by Marriott West Des Moines, IA (5)
    
    
    95
    
    
    
    $
    2,208
    
    
    $
    92.12
    
    
    
    67.7
    %
    
    
    $
    1,605
    
    
    $
    86.29
    
    
    
    52.5
    %Total Unconsolidated Joint Ventures
    
    
    545
    
    
    
    $
    13,923
    
    
    $
    94.96
    
    
    
    73.0
    %
    
    
    $
    11,138
    
    
    $
    86.13
    
    
    
    64.4
    %
 
 (1)
    
    Acquired August 2005.(2)
    
    Development hotel opened April 2006.(3)
    
    Development hotel opened November
2006.(4)
    
    Acquired February 2004 as a Ramada hotel. Began operations as a Courtyard by Marriott hotel
beginning February 2005.(5)
    
    Acquired September 2004 as a Quality Suites hotel. Began operations as a Springhill Suites by
Marriott hotel beginning April 2005. Each hotel is encumbered by a first mortgage loan.
  Item 3. Legal Proceedings.
 Whitney v. Winston Hotels, Inc., et al.,
  27




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders.
  Our Executive Officers
  Charles M. Winston, 77
 Robert W. Winston, III, 45
 Joseph V. Green, 56
 Kenneth R. Crockett, 50
 Brent V. West, 39
 28




---



##### 



PART II.
 Item 5.
    
    Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
 Market Price of and Dividends on the Registrants Common Equity
  Cash Distribution DeclaredPrice Range
    
    Per Common ShareHigh
    
    Low2006First Quarter
    
    $
    11.37
    
    
    $
    9.72
    
    
    $
    0.15Second Quarter
    
    
    12.25
    
    
    
    10.10
    
    
    
    0.15Third Quarter
    
    
    12.95
    
    
    
    11.53
    
    
    
    0.15Fourth Quarter
    
    
    14.21
    
    
    
    11.59
    
    
    
    0.152005First Quarter
    
    $
    11.91
    
    
    $
    10.95
    
    
    $
    0.15Second Quarter
    
    
    11.78
    
    
    
    10.20
    
    
    
    0.15Third Quarter
    
    
    11.84
    
    
    
    9.82
    
    
    
    0.15Fourth Quarter
    
    
    10.38
    
    
    
    9.47
    
    
    
    0.15
   Performance Graph
 ®
 ®
 29




---



##### 



Total Return Performance
 
  The foregoing graph and chart shall not be deemed incorporated by reference by any general
statement incorporating by reference this Annual Report on Form 10-K into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent we
specifically incorporate this information by reference, and shall not otherwise be deemed filed
under those acts.
 Securities Authorized for Issuance Under Equity Compensation Plans
   Number of securities to be
    
    Weighted average
    
    Number of securities remainingissued upon exercise of
    
    exercise price of
    
    available for future issuanceoutstanding options,
    
    outstanding options,
    
    under equity compensationPlan Category
    
    warrants and rights
    
    warrants and rights
    
    plansEquity compensation
plans approved by
security holders
    
    
    10,000
    
    
    $
    9.38
    
    
    
    1,477,144
  30




---



##### 



Item 6. Selected Financial Data.
  (in thousands, except per share amounts)Years Ended December 31,
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Operating Data: (a) (b)Total revenue
    
    $
    175,392
    
    
    $
    134,529
    
    
    $
    114,058
    
    
    $
    99,016
    
    
    $
    71,210Income (loss) from continuing operations
    
    
    12,879
    
    
    
    15,142
    
    
    
    13,706
    
    
    
    7,220
    
    
    
    (1,473
    )Income (loss) from continuing operations
available to common shareholders
    
    
    5,519
    
    
    
    7,782
    
    
    
    4,671
    
    
    
    282
    
    
    
    (8,411
    )Income (loss) from continuing operations per common share
    
    
    0.20
    
    
    
    0.29
    
    
    
    0.18
    
    
    
    0.01
    
    
    
    (0.44
    )Net income (c)
    
    
    32,399
    
    
    
    5,253
    
    
    
    16,883
    
    
    
    7,705
    
    
    
    902Net income (loss) available to common shareholders (c)
    
    
    25,039
    
    
    
    (2,107
    )
    
    
    7,848
    
    
    
    767
    
    
    
    (6,036
    )Net income (loss) per common share -
basic and fully diluted (c)
    
    $
    0.91
    
    
    $
    (0.08
    )
    
    $
    0.30
    
    
    $
    0.03
    
    
    $
    (0.31
    )Weighted average number of common shares  basic
    
    
    27,475
    
    
    
    26,302
    
    
    
    26,224
    
    
    
    21,770
    
    
    
    19,308Weighted average number of common shares  diluted
    
    
    28,943
    
    
    
    27,680
    
    
    
    27,555
    
    
    
    23,086
    
    
    
    19,308Distributions per common share
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.60Balance Sheet Data (at end of period) (b):Total assets
    
    $
    540,209
    
    
    $
    527,693
    
    
    $
    424,380
    
    
    $
    387,261
    
    
    $
    357,442Total debt
    
    
    239,544
    
    
    
    257,770
    
    
    
    154,925
    
    
    
    120,484
    
    
    
    138,706Shareholders equity
    
    
    258,969
    
    
    
    223,211
    
    
    
    240,241
    
    
    
    231,934
    
    
    
    194,515
 (a)
    
    As a result of the acquisition of the leasehold interest for 47 hotels from Interstate
Hotels & Resorts, Inc. effective July 1, 2002, the assumption of the leasehold interest for
two hotels from Intercontinental Group on July 1, 2003 and the acquisition of the leasehold
interest for one hotel from Prime Hospitality Corp. in March 2004, none of the Companys
wholly owned hotels remain under a long-term lease with a third party. In addition, the
acquisition price of $17.7 million to acquire the leases from Interstate was expensed in 2002.
As such, there is limited comparability between the 2006, 2005, 2004, 2003 and 2002 selected
data.(b)
    
    The Company sold and acquired various hotels during the past five years (See Notes 5 and 6 to
the Consolidated Financial Statements for details on the activities during the last three
years). Also per the provisions of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, the Company consolidated the results of some of its joint ventures as of
December 31, 2003 (See Note 7 to the Consolidated Financial Statements). As such, there is
limited comparability between the 2006, 2005, 2004, 2003 and 2002 selected data.(c)
    
    For 2005, 2004 and 2003 net income, net income (loss) available to common shareholders and
net income (loss) available to common shareholders per common share included non-cash
impairment charges of $12.4 million, $0.4 million and $2.4 million (net of allocation to
minority interest), respectively. As such, there is limited comparability between the 2006,
2005, 2004, 2003 and 2002 amounts.
 31




---



##### 



Funds From Operations (FFO) and FFO Available to Common Shareholders
   Years ended December 31, 2006 and 2005
 
    
    In May 2006, the Company borrowed funds under its line of credit to pay off the
outstanding balance of $11.3 million on the ten-year first mortgage loan collateralized by
the Evanston Hilton Garden Inn. A prepayment premium and write-off of related deferred
expenses of $0.2 million are included in extinguishment of debt in the Consolidated
Statements of Operations.
    
    In May 2006, the Company defeased the remaining $61.3 million balance of the Companys
$71 million ten-year 7.375% fixed-rate CMBS debt collateralized in part by the Companys
hotels. The difference between the amount of securities purchased to defease the debt and
the debt paid down, which totaled $3.2 million, as well as $0.5 million for the write-off
of related deferred expenses, were recorded as an extinguishment of debt in the
Consolidated Statements of Operations.
    
    The Company adopted FASB issued Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, (FIN 47) an interpretation of SFAS No. 143, Accounting for
Asset Retirement Obligations effective December 31, 2005. Under the interpretation, an
entity is required to recognize a liability for the fair value of an asset retirement
obligation (ARO) that is conditional on a future event if the liabilitys fair value can
be reasonably estimated. During the second quarter the Company recorded an ARO liability
for one of its hotels, which included a non-recurring, non-cash cumulative adjustment of
$0.2 million.
    
    One of the Companys taxable REIT subsidiaries provided development services to one of
the Companys consolidated joint ventures, and recorded development fee income. This
income is taxable and therefore income tax expense related to the development fees,
totaling $0.4 million and $0.5 million in 2006 and 2005, respectively, is included in the
Consolidated Statements of Operations. Since the joint ventures income is consolidated
into the Companys financial statements, the development fee income is eliminated in
consolidation.
 32




---



##### 



Years ended December 31, 2005, 2004 and 2003 impairments
 
    
    In accordance with FAS 144, the Company recorded a $12.4 million, net of minority
interest, non-cash impairment charge in the third quarter of 2005 relating to two hotels.
In 2004 and 2003, the Company also recorded estimated impairment losses of $0.4 million and
$2.4 million, net of minority interest, respectively, relating to the Greenville Comfort
Inn (See Note 5 to Consolidated Financial Statements).
  RECONCILIATION OF NET INCOME TO FFO, FFO
AVAILABLE TO COMMON SHAREHOLDERS AND
FFO AVAILABLE TO COMMON SHAREHOLDERS, EXCLUDING UNUSUAL CHARGES  ($ in thousands)
 Years Ended December 31,
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Net income
    
    $
    32,399
    
    
    $
    5,253
    
    
    $
    16,883
    
    
    $
    7,705
    
    
    $
    902(Gain) loss on sale of discontinued operations
    
    
    (18,305
    )
    
    
    (383
    )
    
    
    (16
    )
    
    
    
    
    
    
    764(Gain) loss on sale of unconsolidated joint venture hotel
    
    
    1
    
    
    
    (551
    )
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    382
    
    
    
    
    
    
    
    448
    
    
    
    Minority interest in Partnership allocation of income (loss)
    
    
    252
    
    
    
    374
    
    
    
    232
    
    
    
    70
    
    
    
    (572
    )Minority interest in Partnership allocation of gain
(loss) on sale of discontinued operations
    
    
    820
    
    
    
    17
    
    
    
    1
    
    
    
    
    
    
    
    (46
    )Minority interest in Partnership allocation of gain
on sale of unconsolidated joint venture hotel
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Minority interest in Partnership allocation of income
from discontinued operations
    
    
    94
    
    
    
    122
    
    
    
    175
    
    
    
    173
    
    
    
    206Minority interest in Partnership allocation of
cumulative effect of change in accounting principle
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (20
    )
    
    
    Depreciation
    
    
    18,921
    
    
    
    14,909
    
    
    
    13,301
    
    
    
    12,939
    
    
    
    13,737Depreciation from discontinued operations
    
    
    1,165
    
    
    
    3,355
    
    
    
    4,110
    
    
    
    4,938
    
    
    
    6,048Depreciation from joint ventures
    
    
    1,137
    
    
    
    889
    
    
    
    501
    
    
    
    855
    
    
    
    801FFO
    
    
    36,484
    
    
    
    24,375
    
    
    
    35,187
    
    
    
    27,108
    
    
    
    21,840Loss on redemption of Series A preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,720
    )
    
    
    
    
    
    
    Preferred stock dividend
    
    
    (7,360
    )
    
    
    (7,360
    )
    
    
    (7,315
    )
    
    
    (6,938
    )
    
    
    (6,938
    )FFO Available to Common Shareholders
    
    $
    29,124
    
    
    $
    17,015
    
    
    $
    26,152
    
    
    $
    20,170
    
    
    $
    14,902Unusual Charges:Extinguishment of debt
    
    
    3,961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligation
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax on joint venture development fees
    
    
    420
    
    
    
    502
    
    
    
    
    
    
    
    
    
    
    
    Impairment of wholly owned hotels, net of
minority interest
    
    
    
    
    
    
    12,386
    
    
    
    440
    
    
    
    2,430
    
    
    
    FFO Available to Common Shareholders,
excluding unusual charges
    
    $
    33,700
    
    
    $
    29,903
    
    
    $
    26,592
    
    
    $
    22,600
    
    
    $
    14,902
 33




---



##### 



Item 7.
    
    Managements Discussion and Analysis Of Financial
Condition and Results of Operation.
($ in thousands, except per share amounts)
  PROPOSED MERGER
   1)
    
    each share of MergerCo common stock issued and outstanding immediately prior to the
Effective Time will be converted into one validly issued, fully paid and non-assessable
share of the Companys common stock; and2)
    
    each share of the Companys common stock that is issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company, the Buyer Parties and
their respective subsidiaries) will be converted into, and canceled in exchange for, the
right to receive an amount in cash to be paid by Parent equal to $14.10 (the Common Share
Merger Consideration); and3)
    
    each share of the Companys 8.00% Series B Cumulative Preferred Stock (Series B
Preferred Stock) that is issued and outstanding immediately prior to the Effective Time
will remain outstanding as a share of Series B Preferred Stock of the surviving entity; and4)
    
    each partnership interest in the Partnership that is not specifically designated as a
Series B Preferred Unit issued and outstanding immediately prior to the Effective Time will
be converted into, and cancelled in exchange for, the right to receive an amount in cash
equal to the Common Share Merger Consideration, multiplied by the Conversion Factor (as
defined in the Amended and Restated Agreement of Limited Partnership of the Partnership),
which as of the date hereof is one.
  34




---



##### 



Where the following Managements Discussion and Analysis discusses our future plans, strategies and
activities, such discussion assumes that the Merger is not, and will not be, completed. Because
the Merger will not occur unless our common shareholders approve the Merger and because the Merger
is subject to a number of other conditions precedent (many of which are outside our control), there
can be no assurance that the Merger will occur. If the Merger does not occur, there may be a
negative impact on our common and preferred stock prices. See Risk FactorsRisks Related to the
Proposed MergerFailure to complete the Merger could negatively impact our stock price and our
future business and financial results.
 OVERVIEW
  35




---



##### 



Hotel Ownership
     Hotel Financing
   36




---



##### 



Results of Operations for 2006 Compared to 2005 and 2005 Compared to 2004
 HOTEL OWNERSHIP SEGMENT
 Revenues
  2005 vs.2006 vs. 2005
    
    
    2005 vs.
    
    
    20042006 vs. 2005
    
    
    Percentage
    
    
    2004
    
    
    PercentageDecember 31,
    
    2006
    
    
    2005
    
    
    2004
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    ChangeHotel room revenues
    
    $
    155,782
    
    
    $
    120,324
    
    
    $
    102,590
    
    
    $
    35,458
    
    
    
    29.5
    %
    
    $
    17,734
    
    
    
    17.3
    %RevPAR
    
    $
    70.95
    
    
    $
    63.81
    
    
    $
    59.69
    
    
    $
    7.14
    
    
    
    11.2
    %
    
    $
    4.12
    
    
    
    6.9
    %Occupancy
    
    
    70.6
    %
    
    
    69.1
    %
    
    
    70.5
    %
    
    
    1.5
    %
    
    
    2.2
    %
    
    
    -1.4
    %
    
    
    -2.0
    %Average daily rate (ADR)
    
    $
    100.45
    
    
    $
    92.32
    
    
    $
    84.65
    
    
    $
    8.13
    
    
    
    8.8
    %
    
    $
    7.67
    
    
    
    9.1
    %
  2006 vs. 20052006 vs.
    
    
    PercentageDecember 31,
    
    2006
    
    
    2005
    
    
    2005 Change
    
    
    ChangeHotel room revenues
    
    $
    127,700
    
    
    $
    115,067
    
    
    $
    12,633
    
    
    
    11.0
    %RevPAR
    
    $
    71.29
    
    
    $
    63.65
    
    
    $
    7.64
    
    
    
    12.0
    %Occupancy
    
    
    71.2
    %
    
    
    69.3
    %
    
    
    1.9
    %
    
    
    2.7
    %Average daily rate (ADR)
    
    $
    100.12
    
    
    $
    91.83
    
    
    $
    8.29
    
    
    
    9.0
    %
  2005 vs. 20042005 vs.
    
    
    PercentageDecember 31,
    
    2005
    
    
    2004
    
    
    2004 Change
    
    
    ChangeHotel room revenues
    
    $
    101,819
    
    
    $
    97,821
    
    
    $
    3,998
    
    
    
    4.1
    %RevPAR
    
    $
    61.86
    
    
    $
    59.13
    
    
    $
    2.73
    
    
    
    4.6
    %Occupancy
    
    
    68.7
    %
    
    
    70.5
    %
    
    
    -1.8
    %
    
    
    -2.6
    %Average daily rate (ADR)
    
    $
    90.10
    
    
    $
    83.87
    
    
    $
    6.23
    
    
    
    7.4
    %
 Room
  37




---



##### 



Food and Beverage
 Other Operating Departments
 Expenses
 Room
 Food and Beverage
 Other Operating Departments
 Property Operating
 Real Estate Taxes and Property and Casualty Insurance
 Franchise
 Maintenance and Repair
 38




---



##### 



Management Fees
 Depreciation and Amortization
  Interest Expense
    (Income) Loss Allocation to Minority Interest in Consolidated Joint Ventures
 Income Tax Expense
 39




---



##### 



Equity in Income (Loss) of Unconsolidated Joint Ventures
 HOTEL FINANCING SEGMENT
 General and Administrative
 Interest and Other Income
 Interest Expense
 GENERAL CORPORATE INCOME AND EXPENSES
  General and Administrative
 Extinguishment of Debt
 Interest and Other Income
 40




---



##### 



Income (Loss) Allocation to Minority Interest in Partnership
 Discontinued Operations
    Cumulative Effect of a Change in Accounting Principle, Net 
 LIQUIDITY AND CAPITAL RESOURCES
 Recent Development  Proposed Merger
  41




---



##### 



Overview
  Operating
  Investing
 Overview
  Investment in hotel properties
   42




---



##### 



Proceeds from sale of hotel properties
   Issuance of notes receivable
    Collection and sale of notes receivable
  43




---



##### 



Acquisition of minority interest
  Investment in unconsolidated joint venture
   Purchase of restricted marketable securities
  Financing
 Overview
  Proceeds from issuance of and redemption of securities
   44




---



##### 



Net increase (decrease) in lines of credit
      Proceeds from mortgage loans
    Payment of mortgage loans
  45




---



##### 



Distributions to shareholders
  SEASONALITY
  OFF-BALANCE SHEET ARRANGEMENTS
  CONTRACTUAL OBLIGATIONS
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    yearsMortgage loans and lines of credit (a)
    
    $
    239,537
    
    
    $
    22,184
    
    
    $
    7,072
    
    
    $
    37,339
    
    
    $
    172,942Interest payments on mortgage loans (b)
    
    $
    114,824
    
    
    $
    18,452
    
    
    $
    26,835
    
    
    $
    23,314
    
    
    $
    46,223Corporate office lease (See Note 18)
    
    $
    1,386
    
    
    $
    394
    
    
    $
    818
    
    
    $
    174
    
    
    $
    
 
 (a)
    
    Construction-to-permanent notes will not have final payment schedules until they become
permanent.
The table above shows the expected maturity for these notes to be the year that the note is
expected to be converted to the permanent note (See Note 10 to the Consolidated Financial
Statements and Item 7A).(b)
    
    Interest payments on mortgage loans are based on the interest rate effective as of December 31,
2006 and the 30-day LIBOR forward curve as of January 12, 2007, respectively (See Note 10 to the
Consolidated Financial Statements). OTHER MATTERS
 Critical Accounting Policies
  46




---



##### 



Allowances for Doubtful Notes Receivable
  Accounting for Long-Lived Assets
 General.
 Impairment on Planned Dispositions
 Franchise Agreements
  Recently Issued Accounting Standards
  47




---



##### 



Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
 ($ in thousands)
   48




---



##### 



As of December 31, 2006
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueVariable rate  GE line:
    
    $
    1,100
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,100
    
    
    $
    1,100Average interest rate
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )Variable rate  Marathon facilities:
    
    $
    1,500
    
    
    $
    5,250
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,750
    
    
    $
    6,750Average interest rate
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )Mortgage loans:Fixed rate  CMBS
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    959
    
    
    $
    2,099
    
    
    $
    172,942
    
    
    $
    176,000
    
    
    $
    176,000Average interest rate
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %Variable rate  Princeton, NJHomewood Suites (i)
    
    $
    9,868
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,868
    
    
    $
    9,868Average interest rate
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Variable rate  Wilmington, NCHilton Garden Inn (i)
    
    $
    3,156
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,156
    
    
    $
    3,156Average interest rate
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )Variable rate  Roanoke, VAResidence Inn (i)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average interest rate
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )Consolidated joint venture loans:Fixed rate  Chapel Hill, NCCourtyard by Marriott
    
    $
    229
    
    
    $
    247
    
    
    $
    267
    
    
    $
    7,951
    
    
    $
    
    
    
    $
    
    
    
    $
    8,694
    
    
    $
    8,659Average interest rate
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %Variable rate  Ponte Vedra, FLHampton Inn
    
    $
    100
    
    
    $
    109
    
    
    $
    119
    
    
    $
    130
    
    
    $
    4,201
    
    
    $
    
    
    
    $
    4,659
    
    
    $
    4,659Average interest rate
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )Fixed rate  The Stanley Hotel
    
    $
    232
    
    
    $
    245
    
    
    $
    263
    
    
    $
    11,949
    
    
    $
    
    
    
    $
    
    
    
    $
    12,689
    
    
    $
    12,644Average interest rate
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %Variable rate  Kansas City, MOCourtyard by Marriott
    
    $
    257
    
    
    $
    276
    
    
    $
    296
    
    
    $
    318
    
    
    $
    9,732
    
    
    $
    
    
    
    $
    10,879
    
    
    $
    10,879Average interest rate
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )Variable rate  Akron, OHHilton Garden Inn (i)
    
    $
    5,742
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,742
    
    
    $
    5,742Average interest rate
    
    
    (h
    )
    
    
    (h
    )
    
    
    (h
    )
    
    
    (h
    )
    
    
    (h
    )
    
    
    (h
    )
    
    
    (h
    )
 
 (a)
    
    Rate is 30-day to 180-day LIBOR plus 1.75% to 2.50%, (30-day and 180-day LIBOR were 5.32% and 5.37%,
respectively, at December 31, 2006).(b)
    
    Rate is 30-day LIBOR plus 2.25%.(c)
    
    Construction-to-permanent note of $12.6 million with a balance of $9.9 million at December 31, 2006.
Rate is 90-day LIBOR plus 2.85% during construction and 2.60% thereafter (90-day LIBOR was 5.36% at December 31, 2006).(d)
    
    Construction-to-permanent note of $9.0 million with a balance of $3.2 million at December 31, 2006. Rate is 30-day LIBOR plus 1.80%.(e)
    
    Construction-to-permanent note of $7.0 million with a balance of $0 at December 31, 2006. Rate is 30-day LIBOR plus 1.50%.(f)
    
    Rate is 30-day LIBOR plus 3.0%.(g)
    
    Rate is 90-day LIBOR plus 1.75%.(h)
    
    Construction-to-permanent note of $7.9 million with a balance of $5.7 million at December 31, 2006. Rate is 90-day LIBOR plus 3.0%.(i)
    
    Construction-to-permanent notes will not have final payment schedules until they become permanent.The table above shows the expected maturity for these notes
to be the year that the note is expected to be converted to the
permanent note (See Note 10 to the Consolidated Financial Statements). 49




---



##### 



December 31, 2005
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueVariable rate  GE line:
    
    $
    139,700
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    139,700
    
    
    $
    139,700Average interest rate
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )Variable rate  Marathon
    
    $
    8,596
    
    
    $
    1,200
    
    
    $
    8,400
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,196
    
    
    $
    18,196Average interest rate
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )Mortgage loans:Fixed rate  GECC
    
    $
    1,715
    
    
    $
    1,846
    
    
    $
    58,396
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    61,957
    
    
    $
    62,753Average interest rate
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %Variable rate  Evanston, ILHilton Garden Inn
    
    $
    262
    
    
    $
    281
    
    
    $
    300
    
    
    $
    321
    
    
    $
    343
    
    
    $
    9,837
    
    
    $
    11,344
    
    
    $
    11,344Average interest rate
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Consolidated joint venture loans:Fixed rate  The Stanley Hotel
    
    $
    202
    
    
    $
    232
    
    
    $
    245
    
    
    $
    263
    
    
    $
    11,973
    
    
    $
    
    
    
    $
    12,915
    
    
    $
    12,828Average interest rate
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %Fixed rate  Chapel Hill, NCCourtyard by Marriott
    
    $
    213
    
    
    $
    229
    
    
    $
    247
    
    
    $
    267
    
    
    $
    7,951
    
    
    $
    
    
    
    $
    8,907
    
    
    $
    9,099Average interest rate
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %Variable rate  Ponte Vedra, FLHampton Inn
    
    $
    92
    
    
    $
    100
    
    
    $
    109
    
    
    $
    119
    
    
    $
    130
    
    
    $
    4,201
    
    
    $
    4,751
    
    
    $
    4,751Average interest rate
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
 
 (a)
    
    Rate is 30-day to 180-day LIBOR plus 1.75% to 2.50%, (30-day and 180-day LIBOR were 4.39% and
4.70%, respectively, at December 31, 2005).(b)
    
    Rate is 30-day LIBOR plus 2.25% or 4.5% or 5.5%, (30-day LIBOR was 4.39%, at December 31, 2005).(c)
    
    Rate is 30-day LIBOR plus 3.0% (30-day LIBOR was 4.39% at December 31, 2005). Item 8. Financial Statements and Supplementary Data.
  
 50




---



##### 



Report of Independent Registered Public Accounting Firm
 
  Consolidated financial statements and financial statement schedules
   Internal control over financial reporting
   51




---



##### 



/s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPRaleigh, NCMarch 14, 2007
 52




---



##### 



WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS  (in thousands, except per share amounts)
 As of December 31,
    
    2006
    
    2005ASSETSLand
    
    $
    59,803
    
    
    $
    55,758Buildings and improvements
    
    
    430,968
    
    
    
    422,081Furniture and equipment
    
    
    66,745
    
    
    
    63,048Operating properties
    
    
    557,516
    
    
    
    540,887Less accumulated depreciation
    
    
    140,826
    
    
    
    139,259416,690
    
    
    
    401,628Properties under development and land for development
    
    
    11,748
    
    
    
    25,139Net investment in hotel properties
    
    
    428,438
    
    
    
    426,767Assets held for sale
    
    
    10,327
    
    
    
    11,009Corporate furniture, fixtures and equipment, net
    
    
    551
    
    
    
    371Cash
    
    
    7,822
    
    
    
    15,047Accounts receivable, net
    
    
    2,723
    
    
    
    3,820Notes receivable
    
    
    52,146
    
    
    
    38,050Investment in joint ventures
    
    
    4,210
    
    
    
    1,795Deferred expenses, net
    
    
    9,490
    
    
    
    6,807Prepaid expenses and other assets
    
    
    14,135
    
    
    
    12,556Deferred tax asset
    
    
    10,367
    
    
    
    11,471Total assets
    
    $
    540,209
    
    
    $
    527,693LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYLines of credit
    
    $
    7,850
    
    
    $
    157,896Mortgage loans
    
    
    231,694
    
    
    
    99,874Accounts payable and accrued expenses
    
    
    21,479
    
    
    
    27,915Distributions payable
    
    
    6,413
    
    
    
    6,011Total liabilities
    
    
    267,436
    
    
    
    291,696Minority interest
    
    
    13,804
    
    
    
    12,786Commitments and contingencies (See Notes 18 and 20)
    
    
    
    
    
    
    Shareholders equity:Preferred stock, Series B, $.01 par value, 5,000 shares authorized, 3,680
shares issued and outstanding (liquidation preference of $93,840)
    
    
    37
    
    
    
    37Common stock, $.01 par value, 50,000 shares authorized,
29,191 and 26,509 shares issued and outstanding
at December 31, 2006 and December 31, 2005, respectively
    
    
    292
    
    
    
    265Additional paid in capital
    
    
    351,274
    
    
    
    325,238Unearned compensation
    
    
    
    
    
    
    (1,454
    )Distributions in excess of earnings
    
    
    (92,634
    )
    
    
    (100,875
    )Total shareholders equity
    
    
    258,969
    
    
    
    223,211Total liabilities, minority interest and shareholders equity
    
    $
    540,209
    
    
    $
    527,693
  53




---



##### 



WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per share amounts)
 Years ended December 31,
    
    2006
    
    2005
    
    2004Operating revenue:Rooms
    
    $
    155,782
    
    
    $
    120,324
    
    
    $
    102,590Food and beverage
    
    
    13,453
    
    
    
    10,058
    
    
    
    7,466Other operating departments
    
    
    5,930
    
    
    
    3,897
    
    
    
    3,120Percentage lease revenue
    
    
    
    
    
    
    
    
    
    
    701Joint venture fee income
    
    
    227
    
    
    
    250
    
    
    
    181Total operating revenue
    
    
    175,392
    
    
    
    134,529
    
    
    
    114,058Hotel operating expenses:Rooms
    
    
    31,806
    
    
    
    25,773
    
    
    
    22,285Food and beverage
    
    
    9,571
    
    
    
    7,552
    
    
    
    5,565Other operating departments
    
    
    4,280
    
    
    
    2,879
    
    
    
    2,325Undistributed operating expenses:Property operating
    
    
    34,300
    
    
    
    26,340
    
    
    
    22,510Real estate taxes and property and casualty insurance
    
    
    7,931
    
    
    
    6,464
    
    
    
    5,607Franchise
    
    
    10,603
    
    
    
    8,623
    
    
    
    7,262Maintenance and repair
    
    
    8,381
    
    
    
    6,870
    
    
    
    5,708Management fees
    
    
    6,216
    
    
    
    3,840
    
    
    
    2,573General and administrative
    
    
    11,343
    
    
    
    7,943
    
    
    
    6,858Depreciation
    
    
    20,642
    
    
    
    16,232
    
    
    
    14,036Amortization
    
    
    2,116
    
    
    
    1,499
    
    
    
    1,384Total operating expenses
    
    
    147,189
    
    
    
    114,015
    
    
    
    96,113Operating income
    
    
    28,203
    
    
    
    20,514
    
    
    
    17,945Extinguishment of debt
    
    
    (3,961
    )
    
    
    
    
    
    
    Interest and other income
    
    
    8,694
    
    
    
    7,045
    
    
    
    2,196Interest expense
    
    
    (17,553
    )
    
    
    (11,633
    )
    
    
    (7,157
    )Income before allocation to minority interest in Partnership,
allocation to minority interest in consolidated joint ventures,
income taxes, and equity in income (loss) of unconsolidated
joint ventures
    
    
    15,383
    
    
    
    15,926
    
    
    
    12,984Income allocation to minority interest in Partnership
    
    
    (252
    )
    
    
    (382
    )
    
    
    (232
    )Income allocation to minority interest in consolidated joint ventures
    
    
    (563
    )
    
    
    (410
    )
    
    
    (255
    )Income tax benefit (expense)
    
    
    (1,775
    )
    
    
    (617
    )
    
    
    1,270Equity in income (loss) of unconsolidated joint ventures
    
    
    86
    
    
    
    625
    
    
    
    (61
    )Income from continuing operations
    
    
    12,879
    
    
    
    15,142
    
    
    
    13,706Discontinued operations:Income from discontinued operations
    
    
    2,035
    
    
    
    2,495
    
    
    
    3,602Gain on sale of discontinued operations
    
    
    17,485
    
    
    
    366
    
    
    
    15Loss on impairment of assets held for sale
    
    
    
    
    
    
    (12,386
    )
    
    
    (440
    )Income before cumulative effect of changes in accounting principles
    
    
    32,399
    
    
    
    5,617
    
    
    
    16,883Cumulative
effect of changes in accounting principles, net
    
    
    
    
    
    
    (364
    )
    
    
    Net income
    
    
    32,399
    
    
    
    5,253
    
    
    
    16,883Preferred stock distribution
    
    
    (7,360
    )
    
    
    (7,360
    )
    
    
    (7,315
    )Loss on redemption of Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (1,720
    )Net income (loss) available to common shareholders
    
    $
    25,039
    
    
    $
    (2,107
    )
    
    $
    7,848Basic weighted average number of common shares outstanding
    
    
    27,475
    
    
    
    26,302
    
    
    
    26,224Diluted weighted average number of common shares outstanding
    
    
    28,943
    
    
    
    27,680
    
    
    
    27,555Income (loss) per common share basic and diluted:Income from continuing operations
    
    $
    0.20
    
    
    $
    0.29
    
    
    $
    0.18Income (loss) from discontinued operations
    
    
    0.71
    
    
    
    (0.36
    )
    
    
    0.12Cumulative effect of changes in accounting principles, net
    
    
    
    
    
    
    (0.01
    )
    
    
    Net income (loss) available to common shareholders
    
    $
    0.91
    
    
    $
    (0.08
    )
    
    $
    0.30Per share dividends to common shareholders
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.60
  54




---



##### 



WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004  (in thousands, except per share amounts)
 AccumulatedAdditional
    
    
    
    
    
    Distributions
    
    Other
    
    TotalPreferred Stock
    
    Common Stock
    
    Paid-in
    
    Unearned
    
    In Excess of
    
    Comprehensive
    
    ShareholdersShares
    
    Dollars
    
    Shares
    
    Dollars
    
    Capital
    
    Compensation
    
    Earnings
    
    Loss
    
    EquityBalances at December 31, 2003
    
    
    3,000
    
    
    $
    30
    
    
    
    26,271
    
    
    $
    263
    
    
    $
    307,089
    
    
    $
    (527
    )
    
    $
    (74,888
    )
    
    $
    (33
    )
    
    $
    231,934Issuance of shares and other
    
    
    3,680
    
    
    
    37
    
    
    
    127
    
    
    
    1
    
    
    
    90,108
    
    
    
    (1,328
    )
    
    
    
    
    
    
    
    
    
    
    88,818Redemption of preferred A stock
    
    
    (3,000
    )
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    (73,250
    )
    
    
    
    
    
    
    (1,720
    )
    
    
    
    
    
    
    (75,000
    )Distributions ($0.60 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,822
    )
    
    
    
    
    
    
    (15,822
    )Distributions ($0.353 per preferred A share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,059
    )
    
    
    
    
    
    
    (1,059
    )Distributions ($1.70 per preferred B share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,256
    )
    
    
    
    
    
    
    (6,256
    )Unearned compensation amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    710
    
    
    
    
    
    
    
    
    
    
    
    710Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,883
    
    
    
    Unrealized gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,916Balances at December 31, 2004
    
    
    3,680
    
    
    $
    37
    
    
    
    26,398
    
    
    $
    264
    
    
    $
    323,947
    
    
    $
    (1,145
    )
    
    $
    (82,862
    )
    
    $
    
    
    
    $
    240,241Issuance of shares and other
    
    
    
    
    
    
    
    
    
    
    111
    
    
    
    1
    
    
    
    1,291
    
    
    
    (1,256
    )
    
    
    
    
    
    
    
    
    
    
    36Distributions ($0.60 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,906
    )
    
    
    
    
    
    
    (15,906
    )Distributions ($2.00 per preferred B share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,360
    )
    
    
    
    
    
    
    (7,360
    )Unearned compensation amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    947
    
    
    
    
    
    
    
    
    
    
    
    947Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,253
    
    
    
    
    
    
    
    5,253Balances at December 31, 2005
    
    
    3,680
    
    
    $
    37
    
    
    
    26,509
    
    
    $
    265
    
    
    $
    325,238
    
    
    $
    (1,454
    )
    
    $
    (100,875
    )
    
    $
    
    
    
    $
    223,211Issuance of shares and other
    
    
    
    
    
    
    
    
    
    
    2,682
    
    
    
    27
    
    
    
    25,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,805Presentation reclassification  SFAS 123R adoption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,454
    )
    
    
    1,454
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock expense recognition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,712Distributions ($0.60 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,798
    )
    
    
    
    
    
    
    (16,798
    )Distributions ($2.00 per preferred B share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,360
    )
    
    
    
    
    
    
    (7,360
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,399
    
    
    
    
    
    
    
    32,399Balances at December 31, 2006
    
    
    3,680
    
    
    $
    37
    
    
    
    29,191
    
    
    $
    292
    
    
    $
    351,274
    
    
    $
    
    
    
    $
    (92,634
    )
    
    $
    
    
    
    $
    258,969
  55




---



##### 



WINSTON HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  ($ in thousands)
 Years ended December 31,
    
    2006
    
    2005
    
    2004| | |Cash flows from operating activities:Net income
    
    $
    32,399
    
    
    $
    5,253
    
    
    $
    16,883Adjustments to reconcile net income to net cash
provided by operating activities:Loss on impairment of assets held for sale
    
    
    
    
    
    
    12,993
    
    
    
    462Income (loss) allocation to minority interest
    
    
    1,166
    
    
    
    (86
    )
    
    
    386Income allocation to consolidated joint ventures
    
    
    563
    
    
    
    410
    
    
    
    255Depreciation
    
    
    21,807
    
    
    
    19,599
    
    
    
    18,147Amortization
    
    
    2,154
    
    
    
    1,541
    
    
    
    1,437Loss on extinguishment of debt
    
    
    3,961
    
    
    
    
    
    
    
    Deferred income tax expense (benefit)
    
    
    1,165
    
    
    
    383
    
    
    
    (2,202
    )Gain on sale of hotel properties
    
    
    (18,305
    )
    
    
    (383
    )
    
    
    (16
    )Equity in (income) loss of unconsolidated joint ventures
    
    
    (86
    )
    
    
    (625
    )
    
    
    61Distributions from joint ventures
    
    
    203
    
    
    
    971
    
    
    
    126Unearned compensation amortization
    
    
    1,712
    
    
    
    947
    
    
    
    710Cumulative effect of changes in accounting principles, net
    
    
    
    
    
    
    364
    
    
    
    Changes in assets and liabilities:Lease revenue receivable
    
    
    
    
    
    
    
    
    
    
    179Accounts receivable
    
    
    1,097
    
    
    
    (1,144
    )
    
    
    (171
    )Prepaid expenses and other assets
    
    
    (1,640
    )
    
    
    (4,712
    )
    
    
    677Accounts payable and accrued expenses
    
    
    613
    
    
    
    5,100
    
    
    
    1,614Net cash provided by operating activities
    
    
    46,809
    
    
    
    40,611
    
    
    
    38,548Cash flows from investing activities:Investment in hotel properties
    
    
    (57,339
    )
    
    
    (102,156
    )
    
    
    (36,802
    )Proceeds from sale of hotel properties
    
    
    52,510
    
    
    
    10,086
    
    
    
    10,533Issuance of notes receivable
    
    
    (24,408
    )
    
    
    (21,700
    )
    
    
    (25,833
    )Collection of notes receivable
    
    
    10,312
    
    
    
    15,924
    
    
    
    Acquisition of minority interest
    
    
    
    
    
    
    
    
    
    
    (8,163
    )(Investment in) distributions from unconsolidated joint ventures
    
    
    (9,423
    )
    
    
    7,262
    
    
    
    (1,092
    )Purchase of restricted marketable securities
    
    
    (64,578
    )
    
    
    
    
    
    
    Franchise and loan origination costs
    
    
    (458
    )
    
    
    
    
    
    
    (152
    )Net cash used in investing activities
    
    
    (93,384
    )
    
    
    (90,584
    )
    
    
    (61,509
    )Cash flows from financing activities:Proceeds from common stock issuance
    
    
    26,426
    
    
    
    
    
    
    
    Proceeds from issuance of Series B preferred shares, net
    
    
    
    
    
    
    
    
    
    
    88,794Redemption of Series A preferred shares, net
    
    
    
    
    
    
    
    
    
    
    (75,000
    )Net increase (decrease) in lines of credit
    
    
    (150,046
    )
    
    
    91,033
    
    
    
    37,650Proceeds from mortgage loans
    
    
    205,666
    
    
    
    940
    
    
    
    7,946Payment of mortgage loans
    
    
    (12,601
    )
    
    
    (2,141
    )
    
    
    (11,155
    )Distributions to shareholders
    
    
    (23,756
    )
    
    
    (23,249
    )
    
    
    (23,013
    )Distributions to minority interest in partnership
    
    
    (779
    )
    
    
    (779
    )
    
    
    (779
    )Distributions to minority interest in consolidated
joint ventures, net of contributions
    
    
    (553
    )
    
    
    (677
    )
    
    
    (859
    )Fees paid in connection with financing activities
    
    
    (5,007
    )
    
    
    (4,222
    )
    
    
    (2,131
    )Net cash provided by financing activities
    
    
    39,350
    
    
    
    60,905
    
    
    
    21,453Net increase (decrease) in cash
    
    
    (7,225
    )
    
    
    10,932
    
    
    
    (1,508
    )Cash at beginning of period
    
    
    15,047
    
    
    
    4,115
    
    
    
    5,623Cash at end of period
    
    $
    7,822
    
    
    $
    15,047
    
    
    $
    4,115Supplemental disclosure:Cash paid for income taxes
    
    $
    470
    
    
    $
    
    
    
    $
    Cash paid for interest (net of amounts capitalized)
    
    $
    20,892
    
    
    $
    11,193
    
    
    $
    6,992Summary of non-cash investing and financing activities:Debt defeased in exchange for restricted marketable securities:Restricted debt
    
    $
    (61,257
    )
    
    $
    
    
    
    $
    Marketable securities
    
    $
    64,578
    
    
    $
    
    
    
    $
    Purchase of Stanley Hotel with mortgage loan
    
    $
    
    
    
    $
    13,000
    
    
    $
    Sale of hotel property for note receivable
    
    $
    
    
    
    $
    1,425
    
    
    $
    
  56




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 1. ORGANIZATION
      57




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Accounting for Long-Lived Assets
 Investment in Hotel Properties.
 General.
 Impairment on Planned Dispositions.
 58




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Cash and Cash Equivalents
  Accounts Receivable
  Notes Receivable
   Investment in Joint Ventures.
   Deferred Expenses
  59




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Income Taxes
   Revenue Recognition
 .
 Derivative Financial Instruments
  Concentration of Credit Risks
  Estimates
  Recently Issued Accounting Standards
 Interpretation No. 48.
 Staff Accounting Bulletin No. 108.
 60




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
   3. MINORITY INTEREST IN PARTNERSHIP
   4. CONCENTRATION RISK
   61




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  5. DISCONTINUED OPERATIONS
     62




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 2006
    
    2005
    
    2004Total revenue
    
    $
    14,542
    
    
    $
    24,909
    
    
    $
    28,918Total expenses
    
    
    12,714
    
    
    
    22,356
    
    
    
    26,073Income from hotel operations
    
    
    1,828
    
    
    
    2,553
    
    
    
    2,845Allocation to minority interest in Partnership  income
from discontinued operations
    
    
    (94
    )
    
    
    (122
    )
    
    
    (175
    )Gain on sale of discontinued operations
    
    
    18,305
    
    
    
    383
    
    
    
    16Allocation
to minority interest in Partnership 
gain on sale of discontinued operations
    
    
    (820
    )
    
    
    (17
    )
    
    
    (1
    )Loss on impairment of assets held for sale
    
    
    
    
    
    
    (12,993
    )
    
    
    (462
    )Allocation to minority interest in Partnership  loss on
impairment of assets held for sale
    
    
    
    
    
    
    607
    
    
    
    22Income tax benefit
    
    
    301
    
    
    
    64
    
    
    
    932Income (loss) from discontinued operations
    
    $
    19,520
    
    
    $
    (9,525
    )
    
    $
    3,177
 6. HOTEL DEVELOPMENT AND ACQUISITION
 Developments
 Raleigh Aloft. aloft aloft
 Roanoke Residence Inn.
 Wilmington Hilton Garden Inn.
 Princeton Homewood Suites.
 Joint Venture Developments.
  Acquisitions
 Hampton Inn & Suites Baltimore Inner Harbor.
 63




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  Marriott Portfolio.
 Courtyard by Marriott in St. Charles, IL.
 Potential Acquisition of Two New York Hotels
  7. SUMMARIZED FINANCIAL STATEMENT INFORMATION FOR JOINT VENTURES
  Consolidated Joint Ventures
 Operating Hotels
   64




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
      65




---



##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  December 31,
    
    
    December 31,2006
    
    
    2005Gateway Hotel Associates, LLCAssets
    
    $
    10,105
    
    
    $
    2,336Liabilities
    
    
    6,460
    
    
    
    36Equity
    
    $
    3,645
    
    
    $
    2,300Gateway Hotel Lessee, LLCAssets
    
    $
    98
    
    
    $
    Liabilities
    
    
    228
    
    
    
    Equity
    
    $
    (130
    )
    
    $
    Winston Kansas City, LPAssets
    
    $
    23,198
    
    
    $
    16,984Liabilities
    
    
    14,304
    
    
    
    1,887Equity
    
    $
    8,894
    
    
    $
    15,097Stanley AssociatesAssets
    
    $
    18,193
    
    
    $
    18,192Liabilities
    
    
    12,884
    
    
    
    13,059Equity
    
    $
    5,309
    
    
    $
    5,133Stanley LesseeAssets
    
    $
    1,059
    
    
    $
    789Liabilities
    
    
    386
    
    
    
    650Equity
    
    $
    673
    
    
    $
    139131 East Redwood (Tenant) LLCAssets
    
    $
    1,353
    
    
    $
    1,372Liabilities
    
    
    550
    
    
    
    428Equity
    
    $
    803
    
    
    $
    944Marsh Landing Hotel AssociatesAssets
    
    $
    6,542
    
    
    $
    6,532Liabilities
    
    
    4,713
    
    
    
    4,782Equity
    
    $
    1,829
    
    
    $
    1,750Marsh Landing LesseeAssets
    
    $
    188
    
    
    $
    48Liabilities
    
    
    171
    
    
    
    43Equity
    
    $
    17
    
    
    $
    5Chapel Hill Hotel AssociatesAssets
    
    $
    12,967
    
    
    $
    13,431Liabilities
    
    
    10,192
    
    
    
    10,712Equity
    
    $
    2,775
    
    
    $
    2,719Chapel Hill LesseeAssets
    
    $
    410
    
    
    $
    151Liabilities
    
    
    271
    
    
    
    68Equity
    
    $
    139
    
    
    $
    83
 66




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 2006
    
    
    2005
    
    
    2004Gateway Hotel Associates, LLCRevenue
    
    $
    142
    
    
    $
    
    
    
    $
    Expense
    
    
    (587
    )
    
    
    (14
    )
    
    
    Net loss
    
    $
    (445
    )
    
    $
    (14
    )
    
    $
    Gateway Hotel Lessee, LLCRevenue
    
    $
    307
    
    
    $
    
    
    
    $
    Expense
    
    
    (436
    )
    
    
    
    
    
    
    Net loss
    
    $
    (129
    )
    
    $
    
    
    
    $
    Winston Kansas City, LPRevenue
    
    $
    1,049
    
    
    $
    
    
    
    $
    Expense
    
    
    (1,761
    )
    
    
    
    
    
    
    Net loss
    
    $
    (712
    )
    
    $
    
    
    
    $
    Stanley AssociatesRevenue
    
    $
    2,205
    
    
    $
    852
    
    
    $
    Expense
    
    
    (2,029
    )
    
    
    (719
    )
    
    
    Net income
    
    $
    176
    
    
    $
    133
    
    
    $
    Stanley LesseeRevenue
    
    $
    9,675
    
    
    $
    3,836
    
    
    $
    Expense
    
    
    (9,141
    )
    
    
    (3,697
    )
    
    
    Net income
    
    $
    534
    
    
    $
    139
    
    
    $
    131 East Redwood (Tenant) LLCRevenue
    
    $
    5,392
    
    
    $
    1,569
    
    
    $
    Expense
    
    
    (5,232
    )
    
    
    (1,644
    )
    
    
    Net income (loss)
    
    $
    160
    
    
    $
    (75
    )
    
    $
    Marsh Landing Hotel AssociatesRevenue
    
    $
    1,379
    
    
    $
    1,247
    
    
    $
    1,487Expense
    
    
    (842
    )
    
    
    (893
    )
    
    
    (761
    )Net income
    
    $
    537
    
    
    $
    354
    
    
    $
    726Marsh Landing LesseeRevenue
    
    $
    3,349
    
    
    $
    2,982
    
    
    $
    Expense
    
    
    (3,336
    )
    
    
    (2,978
    )
    
    
    Net income
    
    $
    13
    
    
    $
    4
    
    
    $
    Chapel Hill Hotel AssociatesRevenue
    
    $
    2,249
    
    
    $
    1,956
    
    
    $
    387Expense
    
    
    (1,955
    )
    
    
    (1,865
    )
    
    
    (757
    )Net income (loss)
    
    $
    294
    
    
    $
    91
    
    
    $
    (370
    )Chapel Hill LesseeRevenue
    
    $
    5,346
    
    
    $
    4,629
    
    
    $
    838Expense
    
    
    (4,990
    )
    
    
    (4,489
    )
    
    
    (896
    )Net income (loss)
    
    $
    356
    
    
    $
    140
    
    
    $
    (58
    )
 67
      WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Unconsolidated Joint Ventures
 Hotel Under Development
  Operating Hotels
      68




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  As of December 31,
    
    2006
    
    2005Gross fixed assets
    
    $
    41,418
    
    
    $
    40,791Accumulated depreciation
    
    
    (4,860
    )
    
    
    (2,912
    )Other assets
    
    
    3,653
    
    
    
    4,304Total assets
    
    
    40,211
    
    
    
    42,183Miscellaneous liabilities
    
    
    4,847
    
    
    
    4,053Mortgage loans:Ten-year loan collateralized by
West Des Moines Fairfield Inn and
Suites hotel, matures February
2013, with a 20-year amortization
period, at an interest rate of
30-day LIBOR plus 3%.
    
    
    2,760
    
    
    
    2,827Five-year loan collateralized by
Houston Springhill Suites hotel,
matures October 2009, with a
20-year amortization period, at a
fixed rate of 6.57% for $4.8
million of the original note, and
a variable interest rate of
30-day LIBOR plus 3.8% for the
remaining $4.9 million of the
original note.
    
    
    9,210
    
    
    
    9,423Five-year loan collateralized by
West Des Moines Springhill Suites
hotel, matures July 2010, with a
20-year amortization period, at
an interest rate of 90-day LIBOR
plus 3.5%.
    
    
    4,598
    
    
    
    4,704Five-year loan collateralized by
Shelton Courtyard by Marriott
hotel, matures February 2007 with
two additional one year
extensions, interest only, at an
interest rate of 30-day LIBOR
plus 3.35%.
    
    
    9,000
    
    
    
    9,000Total liabilities
    
    
    30,415
    
    
    
    30,007Equity
    
    
    9,796
    
    
    
    12,176Companys share of equity
    
    
    1,534
    
    
    
    1,644Companys additional basis
    
    
    145
    
    
    
    151Investment in joint ventures
    
    $
    1,679
    
    
    $
    1,795
 Years Ended December 31,
    
    2006
    
    2005
    
    2004Revenues
    
    $
    15,874
    
    
    $
    16,516
    
    
    
    11,198Hotel department expenses
    
    
    (4,734
    )
    
    
    (4,874
    )
    
    
    (3,693
    )Management fees
    
    
    (482
    )
    
    
    (762
    )
    
    
    (513
    )Undistributed and fixed expenses
    
    
    (9,636
    )
    
    
    (9,847
    )
    
    
    (7,062
    )Gain on sale of hotel
    
    
    
    
    
    
    6,291
    
    
    
    Hotel net income (loss)
    
    
    1,022
    
    
    
    7,324
    
    
    
    (70
    )Charlesbank Ventures 87% share of net income (loss)
    
    
    889
    
    
    
    6,372
    
    
    
    (61
    )Corporate charges
    
    
    (273
    )
    
    
    (303
    )
    
    
    (250
    )Charlesbank Venture net income (loss)
    
    
    616
    
    
    
    6,069
    
    
    
    (311
    )Winstons 15% share of Charlesbank
Venture net income (loss)
    
    
    92
    
    
    
    910
    
    
    
    (47
    )Amortization of investment true-up
    
    
    (6
    )
    
    
    (285
    )
    
    
    (14
    )Equity in income (loss) of unconsolidated joint ventures
    
    $
    86
    
    
    $
    625
    
    
    $
    (61
    )
 69




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Previous Joint Ventures
   8. NOTES RECEIVABLE
  70




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Notes receivable as of December 31,
    
    2006
    
    2005$1.1 million mezzanine loan collateralized by the
ownership interest in the entity that owns the Hilton
Garden Inn in Atlanta (Sugarloaf) GA; matures
December 2006; interest rate of 30-day LIBOR plus
7.36%, with interest-only payments through maturity,
with additional interest of 2% of gross monthly
revenues until maturity of which 25% is paid
currently and 75% is accrued, at maturity Company
will receive greater of accrued interest or 15% of
the appreciation in value of the hotel, paid off in
January 2007.
    
    $
    1,080
    
    
    $
    1,080$2.4 million mezzanine loan collateralized by the
ownership interest in the entity that owns the
Sheraton hotel in Atlantic Beach, NC; matures
February 2009; interest rate of 60-day LIBOR (with a
2% floor) plus 9%, with interest-only payments
through maturity, with additional interest of 2% of
outstanding principal balance accruing monthly.
    
    
    2,400
    
    
    
    2,400$5.5 million mezzanine loan collateralized by the
ownership interest in the entity that owns the
Residence Inn by Marriott in St. Louis, MO; matures
October 2009; interest rate of 30-day LIBOR plus
10.25%, with interest only for the first two years of
operations and interest and principal payments
thereafter based on a ten year amortization schedule,
with additional interest of 3% of outstanding
principal balance accruing monthly, prepaid in
November 2006.
    
    
    
    
    
    
    5,500$6.0 million mezzanine loan collateralized by the
ownership interest in the entity that owns the
LaPosada de Santa Fe Resort in Santa Fe, NM; matures
December 2007; interest rate of 30-day LIBOR plus 9%,
with interest only payments until maturity
    
    
    6,000
    
    
    
    6,000$1.4 million first mortgage loan collateralized by
the Comfort Inn in Greenville, SC; matures January
2010; interest rate of prime plus 1.5%, with fixed
principal payments of $6 plus interest until maturity
(See Note 5).
    
    
    1,294
    
    
    
    1,366$3.4 million mezzanine loan collateralized by the
ownership interest in the entity that owns the
Hampton Inn & Suites in Albany, NY; matures August
2011; interest rate of 30-day LIBOR plus 9.41%, with
interest only payments until maturity, with
additional interest of 4% accruing monthly until
maturity.
    
    
    3,375
    
    
    
    3,375$2.8 million in B-notes purchased for $2.3 million;
collateralized by second mortgages on the SpringHill
Suites and TownePlace Suites in Boca Raton FL and the
TownePlace Suites in Fort Lauderdale, FL; matures
September 2011; effective interest rate of 9.3% (and
a yield to maturity of 11.7%), interest and principal
payments.
    
    
    2,338
    
    
    
    2,329$2.0 million participation in a $20 million senior
bridge loan collateralized by a hotel/condo project
in Miami, FL; matures August 2007; interest rate of
11%, with interest only payments until maturity,
prepaid in December 2006.
    
    
    
    
    
    
    2,000$14.0 million from four mezzanine loans
collateralized by senior participation interests in
four loans to Walton Street Capital, which owns four
Marriott Renaissance hotels; matures October 2008
with two one-year extensions; interest rate of 30-day
LIBOR plus 4.5%, with interest only payments until
maturity, one of the four loans was prepaid in
December 2006 and another was prepaid in January
2007.
    
    
    11,250
    
    
    
    14,000$2.3 million B-note, of a $12 million total loan
amount for a to-be-built 140-room Hilton Garden Inn
in Columbia, SC; collateralized by a second mortgage
on the hotel project; interest rate of 90-day LIBOR
plus 6.12% during the construction period with a
6.00% accrual, and 90-day LIBOR plus 5.87% during
year one with a 6.00% accrual and 90-day LIBOR plus
7.87% for years two through five of the permanent
loan with a 4.00% accrual; to be funded ratably over
the projected construction period.
    
    
    2,250
    
    
    
    $1.7 million B note for a 122-room Hilton Garden
Inn under construction in Tuscaloosa, AL;
collateralized by a second mortgage on the hotel
project; interest rate of 90-day LIBOR plus 7.63%
during the construction period with an incremental
3.29% accrual; thereafter the interest rate is 90-day
LIBOR plus 7.43%, with an incremental 3.29% accrual
during the first year only; the accrual is due upon
maturity, which is five years from the date the
property opens to the general public; to be funded
ratably over the projected construction period.
    
    
    1,318
    
    
    
    $2.2 million five-year B note for a 101-room
Hampton Inn & Suites under construction in
Murfreesboro, TN; interest rate of 30-day LIBOR plus
6.05%, with an additional 3.86% accrual per annum;
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.
    
    
    533
    
    
    
    $20.3 million B note as part of a $66 million
senior note to fund the $91.5 million refinance and
refurbishment of the Lady Luck casino and adjacent
hotel; interest at a fixed rate of 12.63% for two
years with two one-year extensions, sold February
2007.
    
    
    20,308
    
    
    
    $2.2 million mezzanine loan collateralized by the
ownership interest in the entity that owns the
Homewood Suites in Denver, CO; interest rate of
30-day LIBOR plus 7.50%.
    
    
    
    
    
    
    Total notes receivable
    
    $
    52,146
    
    
    $
    38,050Total interest receivable and deposit related to notes
    
    $
    1,759
    
    
    $
    1,116
 71




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
    9. DEFERRED EXPENSES
  2006
    
    
    2005Franchise fees
    
    $
    2,074
    
    
    $
    1,787Debt facility fees
    
    
    13,060
    
    
    
    11,11615,134
    
    
    
    12,903Less accumulated amortization
    
    
    5,644
    
    
    
    6,096Deferred expenses, net
    
    $
    9,490
    
    
    $
    6,807
 10. CREDIT FACILITIES AND MORTGAGE LOANS
 Credit Facilities
   72




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
       Mortgage Loans
   73




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  As of December 31,
    
    2006
    
    2005Collateralized by wholly-owned hotelsTen-year loan with GECC collateralized by 14 hotels, matures
December 1, 2008, with a 25-year amortization period, at a
fixed interest rate of 7.375%, with interest and principal
payments, defeased May 2006 (see above).
    
    $
    
    
    
    $
    61,957Ten-year loan with GECC collateralized by the Evanston Hilton
Garden Inn hotel, matures August 1, 2011, with a 10-year
amortization period, at a variable interest rate of 30-day
LIBOR plus 3%, with interest and principal payments, paid off
May 2006 (see above).
    
    
    
    
    
    
    11,344Sixteen ten-year CMBS loans collateralized by 16 hotels with
a carrying value of $146.8 million, at a fixed interest rate
of 5.94%, interest only for four years and thereafter require
total monthly interest and principal payments on a 30-year
amortization period.
    
    
    176,000
    
    
    
    Five-year construction-to-permanent first mortgage loan for
$12.6 million, collateralized by the Homewood Suites hotel in
Princeton, NJ with a carrying value of $16.9 million, opened
during November 2006, at a variable interest rate of 90-day
LIBOR plus 2.85% during construction with the spread changing
to 2.6% thereafter, interest is added to principal during
construction, principal and interest payments starting two
months after the final disbursement, based on a 25-year
amortization period.
    
    
    9,868
    
    
    
    Five-year recourse construction-to-permanent first mortgage
loan for $9.0 million, collateralized by the Hilton Garden
Inn hotel opened during March 2007 in Wilmington, NC with a
carrying value of $8.4 million, at a variable interest rate
of 30-day LIBOR plus 1.8%, interest added to principal during
construction, principal and interest payments starting on May
1, 2008, matures April 1, 2011.
    
    
    3,156
    
    
    
    Five-year construction-to-permanent first mortgage loan for
$7.0 million, collateralized by the Residence Inn hotel under
construction in Roanoke, VA with a carrying value of $2.6
million, at a variable interest rate of 30-day LIBOR plus
1.5%, interest added to principal during construction,
principal and interest payments starting after the final
disbursement, matures August 1, 2011.
    
    
    
    
    
    
    Collateralized by consolidated joint venture hotels (See Note
7)Construction loan converted to permanent loan on March 8,
2005, collateralized by the Chapel Hill Courtyard by Marriott
hotel with a carrying value of $12.1 million, matures March
8, 2010, with a 20-year amortization period, at a variable
interest rate of 30-day LIBOR plus 3.8% converted to a fixed
interest rate of 7.51% on March 8, 2005, with interest and
principal payments.
    
    
    8,694
    
    
    
    8,907Ten-year loan with GECC collateralized by the Ponte Vedra
Hampton Inn hotel with a carrying value of $6.3 million,
matures February 1, 2011, with a 10-year amortization period,
at a variable interest rate of 30-day LIBOR plus 3%, with
interest and principal payments.
    
    
    4,659
    
    
    
    4,751Five-year loan collateralized by the Stanley hotel with a
carrying value of $16.7 million, matures August 11, 2010,
with a 10-year amortization period, at a fixed interest rate
of 6.19%, with interest and principal payments.
    
    
    12,696
    
    
    
    12,915Five-year first mortgage loan for $10.9 million,
collateralized by the Courtyard by Marriott hotel in Kansas
City, MO with a carrying value of $23.5 million, at a
variable interest rate of 90-day LIBOR plus 3.50% (reduced to
1.75% on October 31, 2006), principal and interest payments
based on a 20-year amortization period.
    
    
    10,879
    
    
    
    Five-year construction-to-permanent first mortgage loan for
$7.9 million, collateralized by the Hilton Garden Inn hotel
in Akron, OH with a carrying value of $9.8 million, at a
variable interest rate of 90-day LIBOR plus 3.0%, interest
added to principal during construction, principal and
interest payments starting two months after the final
disbursement, based on a 20-year amortization schedule.
    
    
    5,742
    
    
    
    Total
    
    $
    231,694
    
    
    $
    99,874
 74




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  11. INCOME TAXES
    Years ended December 31,
    
    2006
    
    2005
    
    2004Federal  deferred
    
    $
    1,193
    
    
    $
    495
    
    
    $
    (1,970
    )State  deferred
    
    
    (28
    )
    
    
    (112
    )
    
    
    (232
    )State  current
    
    
    309
    
    
    
    170
    
    
    
    Income tax expense (benefit)
    
    $
    1,474
    
    
    $
    553
    
    
    $
    (2,202
    )Income tax benefit related to discontinued operations
    
    
    301
    
    
    
    64
    
    
    
    932Income tax expense (benefit) related to continuing operations
    
    $
    1,775
    
    
    $
    617
    
    
    $
    (1,270
    )
  December 31,
    
    2006
    
    2005Net operating loss
    
    $
    6,473
    
    
    $
    7,090Amortization of lease acquisition cost
    
    
    3,832
    
    
    
    4,472Valuation allowance for capital loss carry forward
    
    
    (49
    )
    
    
    (49
    )Other
    
    
    111
    
    
    
    (42
    )Deferred tax asset
    
    $
    10,367
    
    
    $
    11,471
 75




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  Years ended December 31,
    
    2006
    
    2005
    
    2004Statutory federal income tax expense
    
    $
    11,913
    
    
    $
    1,939
    
    
    $
    5,124State tax expense, net of federal benefit
    
    
    1,402
    
    
    
    228
    
    
    
    603Other income tax expense (benefit)
    
    
    765
    
    
    
    393
    
    
    
    (69
    )Non-taxable REIT income tax benefit
    
    
    (12,606
    )
    
    
    (2,007
    )
    
    
    (7,860
    )Income tax expense (benefit)
    
    $
    1,474
    
    
    $
    553
    
    
    $
    (2,202
    )
 12. DERIVATIVE INSTRUMENTS
    13. CAPITAL STOCK
   76




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
     14. EARNINGS PER SHARE
  77




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 2006
    
    
    2005
    
    
    2004Income from continuing operations
    
    $
    12,879
    
    
    $
    15,142
    
    
    $
    13,706Less: preferred stock distributions
    
    
    (7,360
    )
    
    
    (7,360
    )
    
    
    (7,315
    )Less: loss on redemption of Series A preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,720
    )Income from continuing operations
available to common shareholders
    
    $
    5,519
    
    
    $
    7,782
    
    
    $
    4,671Income (loss) from discontinued operations
    
    $
    19,520
    
    
    $
    (9,525
    )
    
    $
    3,177Loss from cumulative effect of changes in accounting principles
    
    $
    
    
    
    $
    (364
    )
    
    $
    Net income (loss) available to common shareholders
    
    
    25,039
    
    
    
    (2,107
    )
    
    
    7,848Plus: income from continuing operations
allocated to minority interest
    
    
    252
    
    
    
    382
    
    
    
    232Plus: income (loss) from discontinued operations
allocated to minority interest
    
    
    914
    
    
    
    (468
    )
    
    
    154Plus: loss from cumulative effect of changes in accounting
principles allocated to minority interest
    
    
    
    
    
    
    18
    
    
    
    Net income (loss) available to common shareholders
assuming dilution
    
    $
    26,205
    
    
    $
    (2,175
    )
    
    $
    8,234Weighted average number of common shares basic
    
    
    27,475
    
    
    
    26,302
    
    
    
    26,224Minority interest units with redemption rights
    
    
    1,298
    
    
    
    1,298
    
    
    
    1,298Stock options and unvested stock grants
    
    
    170
    
    
    
    80
    
    
    
    33Weighted average number of common shares assuming dilution
    
    
    28,943
    
    
    
    27,680
    
    
    
    27,555Earnings per share  basic and dilutedIncome from continuing operations
available to common shareholders
    
    $
    0.20
    
    
    $
    0.29
    
    
    $
    0.18Income (loss) from discontinued operations
    
    $
    0.71
    
    
    $
    (0.36
    )
    
    $
    0.12Loss from cumulative effect of changes in accounting principles
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    Net income (loss) available to common shareholders
    
    $
    0.91
    
    
    $
    (0.08
    )
    
    $
    0.30
 15. STOCK INCENTIVE PLAN
   78




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  Options
  Exercise Price
    
    Options Outstanding
    
    Options Exercisable
    
    Remaining Contractual Life$ 9.38
    
    10,000
    
    10,000
    
    Expire on April 18, 2009
  Years Ended December 31,
    
    2006
    
    2005
    
    2004Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    100,000
    
    
    $
    11.18
    
    
    
    152,000
    
    
    $
    11.20
    
    
    
    795,000
    
    
    $
    11.07Forfeited
    
    
    (90,000
    )
    
    $
    11.38
    
    
    
    (52,000
    )
    
    $
    11.24
    
    
    
    (643,000
    )
    
    $
    11.04Outstanding at end of year
    
    
    10,000
    
    
    $
    9.38
    
    
    
    100,000
    
    
    $
    11.18
    
    
    
    152,000
    
    
    $
    11.20Options exercisable at year-end
    
    
    10,000
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    152,000
  Net income available to common shareholders, as reported
    
    $
    7,848Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
    
    
    1Pro forma net income available to common shareholders
    
    
    7,847Earnings per share:Basic and diluted  as reported
    
    $
    0.30Basic and diluted  pro forma
    
    $
    0.30
 Share Awards
  79




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Number of
    
    Weighted AverageShares
    
    Grant-Date Fair Value
    
    Grant-Date(in thousands)
    
    Per Share
    
    Fair ValueNon-vested at December 31, 2003
    
    
    68
    
    
    $
    8.35
    
    
    $
    568Granted
    
    
    127
    
    
    $
    10.50
    
    
    $
    1,333Vested
    
    
    (73
    )
    
    $
    9.73
    
    
    $
    (710
    )Forfeited
    
    
    (11
    )
    
    $
    9.45
    
    
    $
    (104
    )Non-vested at December 31, 2004
    
    
    111
    
    
    $
    9.79
    
    
    $
    1,087Granted
    
    
    117
    
    
    $
    11.23
    
    
    $
    1,314Vested
    
    
    (92
    )
    
    $
    10.29
    
    
    $
    (947
    )Forfeited
    
    
    
    
    
    $
    
    
    
    $
    Non-vested at December 31, 2005
    
    
    136
    
    
    $
    10.69
    
    
    $
    1,454Granted
    
    
    293
    
    
    $
    9.75
    
    
    $
    2,856Vested
    
    
    (172
    )
    
    $
    9.95
    
    
    $
    (1,712
    )Forfeited
    
    
    (11
    )
    
    $
    10.36
    
    
    $
    (114
    )Non-vested at December 31, 2006
    
    
    246
    
    
    $
    10.10
    
    
    $
    2,484
   16. FAIR VALUE OF FINANCIAL INSTRUMENTS
  17. SEGMENT REPORTING
  80




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  Year ended December 31, 2006:Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    175,392
    
    
    $
    
    
    
    $
    
    
    
    $
    175,392Operating expenses
    
    
    (113,088
    )
    
    
    (2
    )
    
    
    (11,341
    )
    
    
    (124,431
    )Depreciation and amortization
    
    
    (22,758
    )
    
    
    
    
    
    
    
    
    
    
    (22,758
    )Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,961
    )
    
    
    (3,961
    )Interest and other income
    
    
    
    
    
    
    8,000
    
    
    
    694
    
    
    
    8,694Interest expense
    
    
    (13,091
    )
    
    
    (4,462
    )
    
    
    
    
    
    
    (17,553
    )Income (loss) before allocation to
minority interest in Partnership,
allocation to minority interest in
consolidated joint ventures, income
taxes, and equity in income of
unconsolidated joint ventures
    
    
    26,455
    
    
    
    3,536
    
    
    
    (14,608
    )
    
    
    15,383Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    (252
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (563
    )
    
    
    
    
    
    
    
    
    
    
    (563
    )Income tax expense
    
    
    (1,775
    )
    
    
    
    
    
    
    
    
    
    
    (1,775
    )Equity in income of unconsolidated joint ventures
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86Income (loss) from continuing operations
    
    $
    24,203
    
    
    $
    3,536
    
    
    $
    (14,860
    )
    
    $
    12,879Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,520Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    32,399Total assets
    
    $
    486,304
    
    
    $
    53,905
    
    
    $
    
    
    
    $
    540,209
 Year ended December 31, 2005:Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    134,529
    
    
    $
    
    
    
    $
    
    
    
    $
    134,529Operating expenses
    
    
    (88,341
    )
    
    
    (13
    )
    
    
    (7,930
    )
    
    
    (96,284
    )Depreciation and amortization
    
    
    (17,731
    )
    
    
    
    
    
    
    
    
    
    
    (17,731
    )Interest and other income
    
    
    
    
    
    
    6,648
    
    
    
    397
    
    
    
    7,045Interest expense
    
    
    (9,615
    )
    
    
    (2,018
    )
    
    
    
    
    
    
    (11,633
    )Income (loss) before allocation to
minority interest in Partnership,
allocation to minority interest in
consolidated joint ventures, income
taxes, and equity in income of
unconsolidated joint ventures
    
    
    18,842
    
    
    
    4,617
    
    
    
    (7,533
    )
    
    
    15,926Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (382
    )
    
    
    (382
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (410
    )
    
    
    
    
    
    
    
    
    
    
    (410
    )Income tax expense
    
    
    (617
    )
    
    
    
    
    
    
    
    
    
    
    (617
    )Equity in income of unconsolidated joint ventures
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    625Income (loss) from continuing operations
    
    $
    18,440
    
    
    $
    4,617
    
    
    $
    (7,915
    )
    
    $
    15,142Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,525
    )Cumulative effect of change in accounting principle  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (364
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,253Total assets
    
    $
    488,527
    
    
    $
    39,166
    
    
    $
    
    
    
    $
    527,693
 81




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Year ended December 31, 2004:Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    114,058
    
    
    $
    
    
    
    $
    
    
    
    $
    114,058Operating expenses
    
    
    (73,835
    )
    
    
    (60
    )
    
    
    (6,798
    )
    
    
    (80,693
    )Depreciation and amortization
    
    
    (15,420
    )
    
    
    
    
    
    
    
    
    
    
    (15,420
    )Interest and other income
    
    
    
    
    
    
    1,923
    
    
    
    273
    
    
    
    2,196Interest expense
    
    
    (6,703
    )
    
    
    (454
    )
    
    
    
    
    
    
    (7,157
    )Income (loss) before allocation to
minority interest in Partnership,
allocation to minority interest in
consolidated joint ventures, income
taxes, and equity in loss of
unconsolidated joint ventures
    
    
    18,100
    
    
    
    1,409
    
    
    
    (6,525
    )
    
    
    12,984Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (232
    )
    
    
    (232
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (255
    )
    
    
    
    
    
    
    
    
    
    
    (255
    )Income tax benefit
    
    
    1,270
    
    
    
    
    
    
    
    
    
    
    
    1,270Equity in loss of unconsolidated joint ventures
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    (61
    )Income (loss) from continuing operations
    
    $
    19,054
    
    
    $
    1,409
    
    
    $
    (6,757
    )
    
    $
    13,706Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,177Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,883Total assets
    
    $
    392,378
    
    
    $
    32,002
    
    
    $
    
    
    
    $
    424,380
 18. COMMITMENTS AND CONTINGENCIES
 Franchise Agreements
    82




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Year of Expiration
    
    Number of Hotels
    
    Year of Expiration
    
    Number of Hotels2007
    
    2
    
    2018
    
    32008
    
    2
    
    2019
    
    62009
    
    2
    
    2020
    
    12010
    
    1
    
    2022
    
    32011
    
    2
    
    2023
    
    12012
    
    2
    
    2024
    
    42013
    
    5
    
    2025
    
    12014
    
    1
    
    2026
    
    12015
    
    1
    
    2027
    
    12016
    
    2
    
    2031
    
    12017
    
    10
   Operating Leases
   Third Party Lessees
  83




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Distributions
  Asset Retirement Obligations
   Asset retirement obligation as of January 1, 2004
    
    $
    586Accretion expense
    
    
    33Asset retirement obligation as of December 31, 2004
    
    
    619Accretion expense
    
    
    35Asset retirement obligation as of December 31, 2005
    
    
    654Accretion expense
    
    
    234Sale of hotel and right off of related asset retirement obligation
    
    
    (453
    )Additional asset retirement obligation
    
    
    319Asset retirement obligation as of December 31, 2006
    
    $
    754
  84




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 2005
    
    
    2004Net income (loss) available to common shareholders, as reported
    
    $
    (2,107
    )
    
    $
    7,848Add: Cumulative effect of change in accounting principle  net
    
    
    364
    
    
    
    Deduct: Accretion expense
    
    
    (35
    )
    
    
    (33
    )Deduct: Depreciation expense
    
    
    (13
    )
    
    
    (13
    )Pro forma net income (loss) available to common shareholders
    
    $
    (1,791
    )
    
    $
    7,802Earnings (loss) per share:Basic and diluted  as reported
    
    $
    (0.08
    )
    
    $
    0.30Basic and diluted  pro forma
    
    $
    (0.07
    )
    
    $
    0.30
  19. QUARTERLY FINANCIAL DATA (UNAUDITED)
  2006
    
    First
    
    Second
    
    Third
    
    FourthTotal operating revenue
    
    $
    38,476
    
    
    $
    46,162
    
    
    $
    46,630
    
    
    $
    44,124Operating income
    
    
    4,238
    
    
    
    9,386
    
    
    
    9,180
    
    
    
    5,399Income from continuing operations
    
    
    1,422
    
    
    
    1,261
    
    
    
    5,908
    
    
    
    4,288Income from discontinued operations
    
    
    4,858
    
    
    
    4,305
    
    
    
    7,371
    
    
    
    2,986Net income
    
    
    6,280
    
    
    
    5,566
    
    
    
    13,279
    
    
    
    7,274Preferred stock distributions
    
    
    (1,840
    )
    
    
    (1,840
    )
    
    
    (1,840
    )
    
    
    (1,840
    )Net income available to common shareholders
    
    
    4,440
    
    
    
    3,726
    
    
    
    11,439
    
    
    
    5,434Weighted average number of common shares
    
    
    26,418
    
    
    
    26,479
    
    
    
    27,500
    
    
    
    29,037Weighted average number of common shares assuming dilution
    
    
    26,418
    
    
    
    26,479
    
    
    
    28,928
    
    
    
    30,484Basic and diluted earnings per common share:Income from continuing operations
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    0.15
    
    
    
    0.08Income from discontinued operations
    
    
    0.19
    
    
    
    0.16
    
    
    
    0.26
    
    
    
    0.11Net income available to common shareholders
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.41
    
    
    $
    0.19
 2005
    
    First
    
    Second
    
    Third (a)
    
    FourthTotal operating revenue
    
    $
    29,631
    
    
    $
    34,269
    
    
    $
    34,955
    
    
    $
    35,674Operating income
    
    
    3,807
    
    
    
    6,308
    
    
    
    5,991
    
    
    
    4,408Income from continuing operations
    
    
    2,774
    
    
    
    4,619
    
    
    
    4,581
    
    
    
    3,168Income (loss) from discontinued operations
    
    
    204
    
    
    
    1,157
    
    
    
    (11,489
    )
    
    
    603Net income (loss)
    
    
    2,978
    
    
    
    5,776
    
    
    
    (6,908
    )
    
    
    3,407Preferred stock distributions
    
    
    (1,840
    )
    
    
    (1,840
    )
    
    
    (1,840
    )
    
    
    (1,840
    )Net income (loss) available to common shareholders
    
    
    1,138
    
    
    
    3,936
    
    
    
    (8,748
    )
    
    
    1,567Weighted average number of common shares
    
    
    26,283
    
    
    
    26,298
    
    
    
    26,314
    
    
    
    26,314Weighted average number of common shares assuming dilution
    
    
    27,601
    
    
    
    27,611
    
    
    
    27,620
    
    
    
    27,654Basic and diluted earnings per common share:Income from continuing operations
    
    
    0.04
    
    
    
    0.11
    
    
    
    0.10
    
    
    
    0.05Income (loss) from discontinued operations
    
    
    0.00
    
    
    
    0.04
    
    
    
    (0.43
    )
    
    
    0.02Cumulative effect of change in accounting
principle  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Net income (loss) available to common shareholders
    
    $
    0.04
    
    
    $
    0.15
    
    
    $
    (0.33
    )
    
    $
    0.06
  (a)
    
    During the third quarter of 2005, the Company recorded a $12.4 million (net of allocation to
minority interest) impairment charge relating to two hotels held for sale (See Note 5).
 85




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 
 20. SUBSEQUENT EVENTS
 Merger Agreement.
  1)
    
    each share of MergerCo common stock issued and outstanding immediately prior to the
Effective Time will be converted into one validly issued, fully paid and non-assessable
share of the Companys common stock; and2)
    
    each share of the Companys common stock that is issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company, the Buyer Parties and
their respective subsidiaries) will be converted into, and canceled in exchange for, the
right to receive an amount in cash to be paid by Parent equal to $14.10 (the Common Share
Merger Consideration); and3)
    
    each share of the Companys 8.00% Series B Cumulative Preferred Stock (Series B
Preferred Stock) that is issued and outstanding immediately prior to the Effective Time
will remain outstanding as a share of Series B Preferred Stock of the surviving entity; and4)
    
    each partnership interest in the Partnership that is not specifically designated as a
Series B Preferred Unit issued and outstanding immediately prior to the Effective Time will
be converted into, and cancelled in exchange for, the right to receive an amount in cash
equal to the Common Share Merger Consideration, multiplied by the Conversion Factor (as
defined in the Amended and Restated Agreement of Limited Partnership of the Partnership),
which as of the date hereof is one.
   86




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
     Law suit related to Merger. Whitney v. Winston Hotels,
Inc., et al,
 Loan Program.
 87




---



##### 



WINSTON HOTELS, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
   88




---



##### 



Item 9. Changes In and Disagreements With Accountants On Accounting And Financial Disclosure.
  Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated
Framework Internal Control Integrated Framework
 Changes in Internal Control Over Financial Reporting
  Item 9B. Other Information.
 Executive Officer Compensation
  89




---



##### 



2006
    
    2007Cash
    
    Annual
    
    2007
    
    2007 RestrictedBonus
    
    Salary
    
    Bonus Range
    
    Shares Award(#) (1)Robert W. Winston, III
Chief Executive Officer
    
    $
    600,000
    
    
    $
    446,500
    
    
    $
    0446,500
    
    
    
    75,055Joseph V. Green
President and Chief Financial Officer
    
    $
    367,500
    
    
    $
    386,000
    
    
    $
    0386,000
    
    
    
    53,807Kenneth R. Crockett
Executive Vice President and Chief
Development Officer
    
    $
    325,500
    
    
    $
    341,750
    
    
    $
    0341,750
    
    
    
    47,657Brent V. West
Vice President and Chief Accounting
Officer
    
    $
    100,000
    
    
    $
    210,000
    
    
    $
    0210,000
    
    
    
    16,471James P. Frey
Vice President
    
    $
    85,000
    
    
    $
    170,100
    
    
    $
    0170,100
    
    
    
    11,753
 (1)
    
    Assuming continued employment by the executives, these
restricted stock awards vest 20% immediately and 20% on
each of January 1, 2008, 2009, 2010 and 2011. If we
complete the Merger, the unvested shares will vest in full
on the effective date of the Merger.
  Director Compensation
  90




---



##### 



PART III.
 Item 10. Directors, Executive Officers and Corporate Governance.
   Item 11. Executive Compensation.
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Item 13. Certain Relationships and Related Transactions, and Director Independence.
  Item 14. Principal Accounting Fees and Services.
  PART IV.
 Item 15. Exhibits, Financial Statement Schedules.
 (a) Financial Statements and Schedules
 1)
    
    Consolidated Financial Statements Filed:      See Item 8.  Consolidated Financial Statements and Supplementary Data2)
    
    Consolidated Financial Statement Schedules Filed:
 Schedule II  Valuation and Qualifying Accounts for the years ended December 31, 2006,
2005 and 2004Schedule III  Real Estate and Accumulated Depreciation as of December 31, 2006Notes to Schedule IIISchedule IV  Mortgage Loans on Real Estate as of December 31, 20063)
    
    Exhibits filed:
 See EXHIBIT INDEXManagement contracts or compensatory plans are filed as Exhibits 10.11, 10.12, 10.13,
10.13a, and 10.23 through 10.38.
 91




---



##### 



WINSTON HOTELS, INC.
SCHEDULE II  VALUATION AND QUALIFYING DISCOUNTS
For the Years Ended December 31, 2006, 2005 and 2004  ($ in thousands)
 AdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning
    
    
    costs and
    
    
    other
    
    
    
    
    
    
    end ofDescription
    
    of Period
    
    
    expenses
    
    
    accounts
    
    
    Deductions
    
    
    periodAllowance for doubtful accounts  hotel receivablesDecember 31, 2006
    
    $
    24
    
    
    $
    125
    
    
    $
    
    
    
    $
    134
    
    
    $
    15December 31, 2005
    
    $
    111
    
    
    $
    68
    
    
    $
    
    
    
    $
    155
    
    
    $
    24December 31, 2004
    
    $
    103
    
    
    $
    179
    
    
    $
    
    
    
    $
    171
    
    
    $
    111
 92




---



##### 



($ in thousands)
 Initial Cost
    
    
    Cost Capitalized Subsequent
    
    
    Gross Amounts Carried at Close of PeriodLife UponWhichDepreciationDate of
    
    
    in LatestAcquisition /
    
    
    IncomeBuildings and
    
    
    
    
    
    
    Buildings and
    
    
    
    
    
    
    Buildings and
    
    
    
    
    
    
    Opening if
    
    
    Statement isDescription
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Land
    
    
    Improvements
    
    
    Land
    
    
    Improvements
    
    
    Total
    
    
    Constructed
    
    
    ComputedHampton InnBaltimore, MD
    
    
    n/a
    
    
    $
    2,320
    
    
    $
    14,940
    
    
    
    
    
    
    
    120
    
    
    
    2,320
    
    
    
    15,060
    
    
    
    17,380
    
    
    
    9/2/05
    
    
    
    30Brunswick, GA
    
    
    (a
    )
    
    
    716
    
    
    
    3,887
    
    
    
    66
    
    
    
    1,057
    
    
    
    782
    
    
    
    4,944
    
    
    
    5,726
    
    
    
    6/2/94
    
    
    
    30Cary, NC
    
    
    (a
    )
    
    
    613
    
    
    
    4,596
    
    
    
    144
    
    
    
    1,288
    
    
    
    757
    
    
    
    5,884
    
    
    
    6,641
    
    
    
    6/2/94
    
    
    
    30Charlotte, NC
    
    
    (a
    )
    
    
    833
    
    
    
    3,609
    
    
    
    117
    
    
    
    670
    
    
    
    950
    
    
    
    4,279
    
    
    
    5,229
    
    
    
    6/2/94
    
    
    
    30Durham, NC
    
    
    (a
    )
    
    
    634
    
    
    
    4,582
    
    
    
    25
    
    
    
    1,609
    
    
    
    659
    
    
    
    6,191
    
    
    
    6,850
    
    
    
    6/2/94
    
    
    
    30Jacksonville, NC
    
    
    (a
    )
    
    
    473
    
    
    
    4,140
    
    
    
    70
    
    
    
    849
    
    
    
    543
    
    
    
    4,989
    
    
    
    5,532
    
    
    
    6/2/94
    
    
    
    30Perimeter , GA
    
    
    (b
    )
    
    
    914
    
    
    
    6,293
    
    
    
    (62
    )
    
    
    356
    
    
    
    852
    
    
    
    6,649
    
    
    
    7,501
    
    
    
    7/19/96
    
    
    
    30Ponte Vedra, FL
    
    
    (c
    )
    
    
    1,506
    
    
    
    5,218
    
    
    
    62
    
    
    
    588
    
    
    
    1,568
    
    
    
    5,806
    
    
    
    7,374
    
    
    
    12/1/00
    
    
    
    30Raleigh, NC
    
    
    (a
    )
    
    
    697
    
    
    
    5,955
    
    
    
    50
    
    
    
    1,605
    
    
    
    747
    
    
    
    7,560
    
    
    
    8,307
    
    
    
    5/18/95
    
    
    
    30White Plains, NY
    
    
    (b
    )
    
    
    1,382
    
    
    
    10,763
    
    
    
    73
    
    
    
    1,276
    
    
    
    1,455
    
    
    
    12,039
    
    
    
    13,494
    
    
    
    10/29/97
    
    
    
    30Hampton Inn & SuitesGwinnett, GA
    
    
    (b
    )
    
    
    557
    
    
    
    6,959
    
    
    
    156
    
    
    
    455
    
    
    
    713
    
    
    
    7,414
    
    
    
    8,127
    
    
    
    7/18/96
    
    
    
    30Comfort InnCharleston, SC
    
    
    (a
    )
    
    
    438
    
    
    
    5,853
    
    
    
    89
    
    
    
    2,640
    
    
    
    527
    
    
    
    8,493
    
    
    
    9,020
    
    
    
    5/18/95
    
    
    
    30Durham, NC
    
    
    (a
    )
    
    
    947
    
    
    
    6,208
    
    
    
    89
    
    
    
    773
    
    
    
    1,036
    
    
    
    6,981
    
    
    
    8,017
    
    
    
    11/29/94
    
    
    
    30Fayetteville, NC
    
    
    (a
    )
    
    
    1,223
    
    
    
    8,047
    
    
    
    65
    
    
    
    1,255
    
    
    
    1,288
    
    
    
    9,302
    
    
    
    10,590
    
    
    
    11/29/94
    
    
    
    30Comfort SuitesOrlando, FL
    
    
    n/a
    (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5/1/97
    
    
    
    30Homewood SuitesCary, NC
    
    
    (b
    )
    
    
    1,010
    
    
    
    12,367
    
    
    
    92
    
    
    
    1,099
    
    
    
    1,102
    
    
    
    13,466
    
    
    
    14,568
    
    
    
    7/9/96
    
    
    
    30Clear Lake, TX
    
    
    (b
    )
    
    
    879
    
    
    
    5,978
    
    
    
    23
    
    
    
    660
    
    
    
    902
    
    
    
    6,638
    
    
    
    7,540
    
    
    
    9/13/96
    
    
    
    30Durham, NC
    
    
    (b
    )
    
    
    1,074
    
    
    
    6,136
    
    
    
    (90
    )
    
    
    949
    
    
    
    984
    
    
    
    7,085
    
    
    
    8,069
    
    
    
    11/14/98
    
    
    
    30Lake Mary, FL
    
    
    (b
    )
    
    
    871
    
    
    
    6,987
    
    
    
    61
    
    
    
    644
    
    
    
    932
    
    
    
    7,631
    
    
    
    8,563
    
    
    
    11/4/98
    
    
    
    30Phoenix, AZ
    
    
    (b
    )
    
    
    1,402
    
    
    
    9,763
    
    
    
    83
    
    
    
    354
    
    
    
    1,485
    
    
    
    10,117
    
    
    
    11,602
    
    
    
    6/1/98
    
    
    
    30Princeton, NJ
    
    
    (c
    )
    
    
    2,824
    
    
    
    12,589
    
    
    
    60
    
    
    
    217
    
    
    
    2,884
    
    
    
    12,806
    
    
    
    15,690
    
    
    
    11/31/06
    
    
    
    30Raleigh, NC
    
    
    (b
    )
    
    
    1,008
    
    
    
    10,076
    
    
    
    34
    
    
    
    762
    
    
    
    1,042
    
    
    
    10,838
    
    
    
    11,880
    
    
    
    3/9/98
    
    
    
    30Holiday Inn ExpressAbingdon, VA
    
    
    (a
    ) (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5/7/96
    
    
    
    30 - 40Clearwater, FL
    
    
    (a
    )
    
    
    510
    
    
    
    5,854
    
    
    
    109
    
    
    
    1,181
    
    
    
    619
    
    
    
    7,035
    
    
    
    7,654
    
    
    
    8/6/97
    
    
    
    30Holiday InnSecaucus, NJ
    
    
    n/a
    
    
    
    
    
    
    
    13,699
    
    
    
    6
    
    
    
    2,258
    
    
    
    6
    
    
    
    15,957
    
    
    
    15,963
    
    
    
    5/27/98
    
    
    
    30Tinton Falls, NJ
    
    
    (a
    )
    
    
    1,261
    
    
    
    4,337
    
    
    
    44
    
    
    
    2,377
    
    
    
    1,305
    
    
    
    6,714
    
    
    
    8,019
    
    
    
    4/21/98
    
    
    
    30Courtyard by MarriottAnn Arbor, MI
    
    
    (b
    )
    
    
    902
    
    
    
    9,850
    
    
    
    191
    
    
    
    2,272
    
    
    
    1,093
    
    
    
    12,122
    
    
    
    13,215
    
    
    
    9/30/97
    
    
    
    30Chapel Hill, NC
    
    
    (c
    )
    
    
    1,535
    
    
    
    9,156
    
    
    
    33
    
    
    
    528
    
    
    
    1,568
    
    
    
    9,684
    
    
    
    11,252
    
    
    
    9/1/04
    
    
    
    30Houston, TX
    
    
    (a
    )
    
    
    1,211
    
    
    
    9,154
    
    
    
    187
    
    
    
    3,237
    
    
    
    1,398
    
    
    
    12,391
    
    
    
    13,789
    
    
    
    7/14/97
    
    
    
    30Houston (Northwest), TX
    
    
    (b
    )
    
    
    1,400
    
    
    
    9,794
    
    
    
    
    
    
    
    302
    
    
    
    1,400
    
    
    
    10,096
    
    
    
    11,496
    
    
    
    10/31/05
    
    
    
    30Kansas City
    
    
    (c
    )
    
    
    3,591
    
    
    
    13,408
    
    
    
    (7
    )
    
    
    1,494
    
    
    
    3,584
    
    
    
    14,902
    
    
    
    18,486
    
    
    
    4/20/06
    
    
    
    30Roanoke, VA
    
    
    (b
    )
    
    
    1,194
    
    
    
    9,781
    
    
    
    39
    
    
    
    71
    
    
    
    1,233
    
    
    
    9,852
    
    
    
    11,085
    
    
    
    12/16/94
    
    
    
    30St. Charles
    
    
    n/a
    
    
    
    1,180
    
    
    
    7,259
    
    
    
    6
    
    
    
    61
    
    
    
    1,186
    
    
    
    7,320
    
    
    
    8,506
    
    
    
    8/1/06
    
    
    
    30Wilmington, NC
    
    
    (a
    )
    
    
    742
    
    
    
    5,907
    
    
    
    71
    
    
    
    570
    
    
    
    813
    
    
    
    6,477
    
    
    
    7,290
    
    
    
    12/19/96
    
    
    
    30Hilton Garden InnAkron, OH
    
    
    (c
    )
    
    
    945
    
    
    
    7,368
    
    
    
    8
    
    
    
    6
    
    
    
    953
    
    
    
    7,374
    
    
    
    8,327
    
    
    
    11/2/06
    
    
    
    30Albany, NY
    
    
    (a
    )
    
    
    1,168
    
    
    
    11,236
    
    
    
    86
    
    
    
    164
    
    
    
    1,254
    
    
    
    11,400
    
    
    
    12,654
    
    
    
    5/8/98
    
    
    
    30Alpharetta, GA
    
    
    (b
    )
    
    
    1,425
    
    
    
    11,719
    
    
    
    53
    
    
    
    444
    
    
    
    1,478
    
    
    
    12,163
    
    
    
    13,641
    
    
    
    3/17/98
    
    
    
    30Evanston, IL
    
    
    (b
    )
    
    
    2,225
    
    
    
    15,620
    
    
    
    47
    
    
    
    3,144
    
    
    
    2,272
    
    
    
    18,764
    
    
    
    21,036
    
    
    
    7/1/01
    
    
    
    30 - 40Raleigh, NC
    
    
    (a
    )
    
    
    1,901
    
    
    
    9,209
    
    
    
    60
    
    
    
    285
    
    
    
    1,961
    
    
    
    9,494
    
    
    
    11,455
    
    
    
    5/8/98
    
    
    
    30Windsor, CT
    
    
    (b
    )
    
    
    2,031
    
    
    
    11,238
    
    
    
    18
    
    
    
    (465
    )
    
    
    2,049
    
    
    
    10,773
    
    
    
    12,822
    
    
    
    9/1/00
    
    
    
    30 - 40TownePlace SuitesAustin, TX
    
    
    (a
    )
    
    
    1,000
    
    
    
    3,475
    
    
    
    
    
    
    
    145
    
    
    
    1,000
    
    
    
    3,620
    
    
    
    4,620
    
    
    
    10/31/05
    
    
    
    30Birmingham, AL
    
    
    (a
    )
    
    
    1,200
    
    
    
    7,533
    
    
    
    
    
    
    
    222
    
    
    
    1,200
    
    
    
    7,755
    
    
    
    8,955
    
    
    
    10/31/05
    
    
    
    30Clearlake, TX
    
    
    (a
    )
    
    
    900
    
    
    
    4,468
    
    
    
    
    
    
    
    141
    
    
    
    900
    
    
    
    4,609
    
    
    
    5,509
    
    
    
    10/31/05
    
    
    
    30College Station, TX
    
    
    (a
    )
    
    
    1,000
    
    
    
    6,459
    
    
    
    
    
    
    
    191
    
    
    
    1,000
    
    
    
    6,650
    
    
    
    7,650
    
    
    
    10/31/05
    
    
    
    30Houston (Northwest), TX
    
    
    (a
    )
    
    
    1,100
    
    
    
    6,200
    
    
    
    
    
    
    
    (971
    )
    
    
    1,100
    
    
    
    5,229
    
    
    
    6,329
    
    
    
    10/31/05
    
    
    
    30Quality SuitesCharleston, SC
    
    
    (b
    )
    
    
    912
    
    
    
    11,224
    
    
    
    70
    
    
    
    1,413
    
    
    
    982
    
    
    
    12,637
    
    
    
    13,619
    
    
    
    5/18/95
    
    
    
    30Residence InnPhoenix, AZ
    
    
    (a
    )
    
    
    2,076
    
    
    
    13,311
    
    
    
    150
    
    
    
    1,529
    
    
    
    2,226
    
    
    
    14,840
    
    
    
    17,066
    
    
    
    3/3/98
    
    
    
    30Fairfield InnAnn Arbor, MI
    
    
    (a
    )
    
    
    542
    
    
    
    3,743
    
    
    
    208
    
    
    
    1,119
    
    
    
    750
    
    
    
    4,862
    
    
    
    5,612
    
    
    
    9/30/97
    
    
    
    30Stanley Hotel
    
    
    (c
    )
    
    
    2,858
    
    
    
    13,942
    
    
    
    87
    
    
    
    134
    
    
    
    2,945
    
    
    
    14,076
    
    
    
    17,021
    
    
    
    8/5/05
    
    
    
    30$
    57,130
    
    
    $
    389,890
    
    
    $
    2,673
    
    
    $
    41,078
    
    
    $
    59,803
    
    
    $
    430,968
    
    
    $
    490,771
 93




---



##### 



(a)
    
    As of December 31, 2006, property served as collateral for the $215 million line of credit (See Note 10).(b)
    
    As of December 31, 2006, property served as collateral for the $176 million note through GE Capital Corporation (See Note 10).(c)
    
    As of December 31, 2006, property served as collateral for an individual mortgage note (See Note 10).(d)
    
    As of December 31, 2006, property is held for sale (See Note 5). Reconciliation of Real Estate:
    
    2006
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    477,839
    
    
    $
    428,673
    
    
    $
    421,897Acquisitions during period
    
    
    49,164
    
    
    
    78,589
    
    
    
    21,666Dispositions during period
    
    
    (17,175
    )
    
    
    (5,657
    )
    
    
    (13,438
    )Reclassification to held for sale
    
    
    (27,166
    )
    
    
    (18,656
    )
    
    
    (7,678
    )Impairment (See Note 5)
    
    
    
    
    
    
    (12,993
    )
    
    
    Asset retirement obligation (See Note 18)
    
    
    319
    
    
    
    133
    
    
    
    Additions during period
    
    
    7,790
    
    
    
    7,750
    
    
    
    6,226Balance at end of period
    
    $
    490,771
    
    
    $
    477,839
    
    
    $
    428,673
 Reconciliation of Accumulated Depreciation:
    
    2006
    
    
    2005
    
    
    2004Balance at beginning of period
    
    
    99,079
    
    
    
    95,732
    
    
    
    89,087Depreciation for period
    
    
    14,976
    
    
    
    14,273
    
    
    
    12,296Dispositions during period
    
    
    (5,274
    )
    
    
    (1,977
    )
    
    
    (3,181
    )Asset retirement obligation (See Note 18)
    
    
    103
    
    
    
    37
    
    
    
    Reclassification to held for sale
    
    
    (7,996
    )
    
    
    (8,986
    )
    
    
    (2,470
    )Balance at end of period
    
    $
    100,888
    
    
    $
    99,079
    
    
    $
    95,732
  94




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##### 



WINSTON HOTELS, INC.
SCHEDULE IV  MORTGAGE LOANS ON REAL ESTATE
As of December 31, 2006
($ in thousands)
 Principalamount ofloans subjectFinal
    
    Periodic
    
    
    
    Face
    
    Carrying
    
    to delinquentInterest
    
    maturity
    
    payment
    
    
    
    amount of
    
    amount of
    
    principal orDescription
    
    rate
    
    date
    
    terms
    
    Prior liens
    
    mortgages
    
    mortgages
    
    interestThree cross
collateralized
B-notes,
subordinate to a
first mortgage,
collateralized by
the Spring Hill
Suites and
TownePlace Suites
in Boca Raton, FL
and TownePlace
Suites in Fort
Lauderdale, FL
    
    Effective rate of 9.3% and yield to maturity of 11.7%
    
    September 2011
    
    Fixed payments of $22 with
interest and principal
based on a 6.5 year
amortization table with a
balloon of $2.4 million at
maturity
    
    $
    
    $
    2,784
    
    
    $
    2,338
    
    
    $Mortgage 
collateralized by 
the Comfort Inn in
Greenville, SC
    
    Prime plus 1.5%
    
    January 2010
    
    Fixed principal payments of
$6 plus interest, with
balance of approximately
$1.1 million due at
maturity
    
    
    
    
    1,425
    
    
    
    1,294
    
    
    A $2.3 million
piece of a senior
participating note
collateralized by a
Hilton Garden Inn
under construction
in Columbia, SC
    
    90-day LIBOR plus 6.12% during the construction
period with an additional 6.00% accrual, and 90-day
LIBOR plus 5.87% during year one with an additional
6.00% accrual and 90-day LIBOR plus 7.87% for years
two through five of the permanent loan with an
additional 4.00% accrual
    
    Approximately five
years from opening
of property
    
    Interest and principal
after construction is
complete until maturity
    
    
    
    
    2,250
    
    
    
    2,250
    
    
    A $1.7 million
piece of a senior
participating note
collateralized by a
Hilton Garden Inn
under construction
in Tuscaloosa, AL
    
    90-day LIBOR plus 7.63% during the construction
period with an incremental 3.29% accrual; thereafter
the interest rate is 90-day LIBOR plus 7.43%, with an
incremental 3.29% accrual during the first year only
    
    Approximately five
years from opening
of property
    
    Interest and principal
after construction is
complete until maturity
    
    
    
    
    1,698
    
    
    
    1,318
    
    
    A $2.2 million
piece of a senior
participating note
collateralized by a
Hilton Garden Inn
under construction
in Murfreesboro
    
    30-day LIBOR plus 6.05%, with an additional 3.86%
accrual per annum
    
    Approximately five
years from opening
of property
    
    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.
    
    
    
    
    2,200
    
    
    
    533
    
    
    A $20.3 million
piece of a senior
participating note
collateralized by
the Lady Luck
casino and adjacent
hotel
    
    Fixed rate of 12.63%
    
    Sold in February
2007 for $15.2
million (See Note
20)
    
    Interest only until maturity
    
    
    
    
    20,308
    
    
    
    20,308
    
    
    $
    
    $
    30,665
    
    
    $
    28,041
    
    
    $
 Reconciliation of Carrying Amount of Mortgages:
 Years ended December 31,
    
    2006
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    5,695
    
    
    $
    12,000
    
    
    $
    Additions during period:New mortgage loans
    
    $
    24,409
    
    
    $
    6,209
    
    
    $
    12,000Discount
    
    
    
    
    
    
    (459
    )
    
    
    $
    24,409
    
    
    $
    5,750
    
    
    $
    12,000Deductions during period:Early prepayment of loans
    
    $
    (2,000
    )
    
    $
    (12,000
    )
    
    $
    Collections of principal
    
    
    (122
    )
    
    
    (99
    )
    
    
    Amortization of discount
    
    
    59
    
    
    
    44
    
    
    
    $
    (2,063
    )
    
    $
    (12,055
    )
    
    $
    Balance at close of period
    
    $
    28,041
    
    
    $
    5,695
    
    
    $
    12,000
 95




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##### 



SIGNATURES
  WINSTON HOTELS, INC.By:
    /s/   Robert W. Winston, IIIRobert W. Winston, IIIChief Executive OfficerDate: March 16, 2007  Signature
    
    Title
    
    Date/s/ Charles M. Winston

Charles M. Winston
    
    Chairman of the Board of Directors
    
    March 16, 2007/s/ Robert W. Winston, III

Robert W. Winston, III
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 16, 2007/s/ Joseph V. Green

Joseph V. Green
    
    President and Chief Financial Officer
    
    March 16, 2007/s/ Brent V. West

Brent V. West
    
    Vice President and Chief Accounting Officer
    
    March 16, 2007/s/ Edwin B. Borden

Edwin B. Borden
    
    Director
    
    March 16, 2007/s/ Thomas F. Darden, II

Thomas F. Darden, II
    
    Director
    
    March 16, 2007/s/ Richard L. Daugherty

Richard L. Daugherty
    
    Director
    
    March 16, 2007/s/ David C. Sullivan

David C. Sullivan
    
    Director
    
    March 16, 2007
 96




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##### 



EXHIBIT INDEX
 Number
    
    Exhibit2.1
    
    Agreement and Plan of Merger, dated February 21, 2007, by and among
Winston Hotels, Inc., WINN Limited Partnership, Wilbur Acquisition
Holding Company, LLC and Wilbur Acquisition, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on Form
8-K (File No. 001-13233) as filed with the Securities and Exchange
Commission on February 23, 2006).3.1
    
    Restated Articles of Incorporation, as amended (incorporated by
reference to (i) Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q (File No. 001-13233) as filed with the Securities and
Exchange Commission on August 4, 1999, (ii) Exhibit 4.4(b) to the
Companys Registration Statement on Form 8-A (File No. 001-13233)
as filed with the Securities and Exchange Commission on January 30,
2004 and (iii) Exhibit 3.1(b) to the Companys Quarterly Report on
Form 10-Q (File No. 001-13233) as filed with the Securities and
Exchange Commission on August 5, 2005).3.2
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit
3.2 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 19, 2001).4.1
    
    Specimen certificate for common stock (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on Form S-11
(File No. 333-7662) as filed with the Securities and Exchange
Commission, effective May 25, 1994).4.2
    
    Specimen certificate for 8.00% Series B Cumulative Preferred Stock
(incorporated by reference to Exhibit 4.3 to the Companys
Registration Statement on Form 8-A (File No. 001-13233) as filed
with the Securities and Exchange Commission on January 30, 2004).4.3
    
    Form of Articles of Amendment to the Restated Articles of
Incorporation Establishing and Fixing the Rights and Preferences of
the 8.00% Series B Cumulative Preferred Stock (incorporated by
reference to Exhibit 4.4(b) to the Companys Registration Statement
on Form 8-A (File No. 001-13233) as filed with the Securities and
Exchange Commission on January 30, 2004).10.1
    
    Second Amended and Restated Agreement of Limited Partnership of
WINN Limited Partnership (incorporated by reference to Exhibit 4.1
to the Companys Current Report on Form 8-K (File No. 001-13233) as
filed with the Securities and Exchange Commission on July 24,
1997).10.2
    
    Amendment No. 1 dated September 11, 1997, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on September 15, 1997).10.3
    
    Amendment No. 2 dated December 31, 1997, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on March 27, 1998 and
as amended by Form 10-K/A filed with the Securities and Exchange
Commission on April 1, 1998).10.4
    
    Amendment No. 3 dated September 14, 1998, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on March 17, 2000).10.5
    
    Amendment No. 4 dated October 1, 1999, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 4.1 to the
Companys Quarterly Report on Form 10-Q (File No. 001-13233) as
filed with the Securities and Exchange Commission on November 12,
1999).
 97




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##### 



Number
    
    Exhibit10.6
    
    Amendment No. 5 dated as of January 1, 2002, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on March 15, 2002).10.7
    
    Amendment No. 6 dated as of April 2, 2002, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.7 to the
Companys Annual Report on Form 10-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on March 14, 2003).10.8
    
    Amendment No. 7 dated as of October 10, 2003, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q (File No. 001-13233) as
filed with the Securities and Exchange Commission on November 12,
2003).10.9
    
    Amendment No. 8 dated as of February 24, 2004, to Second Amended
and Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.9 to the
Companys Annual Report on Form 10-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on March 12, 2004).10.9a
    
    Amendment No. 9 dated as of May 9, 2006, to Second Amended and
Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q (File No. 001-13233) as
filed with the Securities and Exchange Commission on November 9,
2006).10.9b
    
    Amendment No. 10 dated as of September 12, 2006, to Second Amended
and Restated Agreement of Limited Partnership of WINN Limited
Partnership (incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q (File No. 001-13233) as
filed with the Securities and Exchange Commission on November 9,
2006).10.11
    
    Winston Hotels, Inc. Stock Incentive Plan as amended May 1998
(incorporated by reference to Exhibit 4.5 to the Companys
Registration Statement on Form S-8 (File No. 333-60079) as filed
with the Securities and Exchange Commission on July 29, 1998
(Registration No. 333-60079)).10.12
    
    Amendments to Winston Hotels, Inc. Stock Incentive Plan as amended
May 1998 (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K (File No. 001-13233) as filed with the
Securities and Exchange Commission on October 14, 2003).10.13
    
    Amended and Restated Winston Hotels, Inc. Executive Deferred
Compensation Plan (incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on October 14, 2003).10.13a
    
    Winston Hotels, Inc. Executive Deferred Compensation Plan, as
Amended and Restated (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K (File No. 001-13233) as
filed with the Securities and Exchange Commission on December 20,
2006).10.14
    
    Loan Agreement by and between Winston SPE LLC and CMF Capital
Company LLC dated November 3, 1998 (incorporated by reference to
Exhibit 10.01 to the Companys Quarterly Report on Form 10-Q (File
No. 001-13233) as filed with the Securities and Exchange Commission
on November 16, 1998 and as amended on Form 10-Q/A filed with the
Securities and Exchange Commission on February 23, 1999).
 98




---



##### 



Number
    
    Exhibit10.15
    
    Promissory note dated November 3, 1998 by and between Winston SPE
LLC and CMF Capital Company, LLC (incorporated by reference to
Exhibit 10.02 to the Companys Quarterly Report on Form 10-Q (File
No. 001-13233) as filed with the Securities and Exchange Commission
on November 16, 1998 and as amended on Form 10-Q/A filed with the
Securities and Exchange Commission on February 23, 1999).10.16
    
    Master Repurchase Agreement Between Marathon Structured Finance
Fund, LP and Winston Finance Partners LLC dated as of October 5,
2004 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K (File No. 001-13233) as filed with the
Securities and Exchange Commission on October 12, 2004).10.16a
    
    First Amendment to Master Repurchase Agreement Between Marathon
Structured Finance Fund, LP and Winston Finance Partners LLC dated
as of April 4, 2006 (incorporated by reference to Exhibit 10.2 to
the Companys Current Report on Form 10-Q (File No. 001-13233) as
filed with the Securities and Exchange Commission on May 10, 2006).10.17
    
    Loan Agreement dated as of March 11, 2005 by and between Winston
SPE II LLC and General Electric Capital Corporation (incorporated
by reference to Exhibit 10.20 to the Companys Annual Report on
Form 10-K (File No. 001-13233) as filed with the Securities and
Exchange Commission on March 16, 2005).10.17a
    
    First Amendment to Loan Agreement by and between Winston SPE II LLC
and General Electric Capital Corporation, dated as of June 8, 2005
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 10-Q (File No. 001-13233) as filed with the
Securities and Exchange Commission on May 10, 2006).10.18
    
    Second Amendment to Loan Agreement by and between Winston SPE II
LLC and General Electric Capital Corporation, dated as of October
31, 2005 (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on November 7, 2005).10.19
    
    Form of Mortgage Security Agreement and Fixture Filing dated March
11, 2005 by Winston SPE II LLC (incorporated by reference to
Exhibit 10.21 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 16, 2005).10.20
    
    Form of Deed of Trust, Security Agreement and Fixture Filing dated
March 11, 2005 by Winston SPE II LLC (incorporated by reference to
Exhibit 10.22 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 16, 2005).10.21
    
    Form Master Lease Agreement dated as of January 1, 2005 with
Barclay Hospitality Services, Inc., our TRS Lessee (incorporated by
reference to Exhibit 10.30 to the Companys Annual Report on Form
10-K (File No. 001-13233) as filed with the Securities and Exchange
Commission on March 16, 2005).10.22
    
    Hotel Management Agreement by and between Barclay Hospitality
Services, Inc. and Alliance Hospitality Management, LLC, dated as
of July 1, 2003 (incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q (File No. 001-13233) as
filed with the Securities and Exchange Commission on August 13,
2003).10.23
    
    Employment Agreement, dated January 2, 2003, by and between Robert
W. Winston, III and Winston Hotels, Inc. (incorporated by reference
to Exhibit 10.21 to the Companys Annual Report on Form 10-K (Filed
No. 001-13233) as filed with the Securities and Exchange Commission
on March 14, 2003).10.24
    
    Amendment No. 1 dated January 1, 2005 to Employment Agreement,
dated January 2, 2003, by and between Robert W. Winston, III and
Winston Hotels, Inc. (incorporated by reference to Exhibit 10.34 to
the Companys Annual Report on Form 10-K (File No. 001-13233) as
filed with the Securities and Exchange Commission on March 16,
2005).
 99




---



##### 



Number
    
    Exhibit10.25
    
    Employment Agreement dated January 2, 2003, by and between Kenneth
R. Crockett and Winston Hotels, Inc. (incorporated by reference to
Exhibit 10.22 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 14, 2003).10.26
    
    Amendment No. 1 dated January 1, 2005 to Employment Agreement dated
January 2, 2003, by and between Kenneth R. Crockett and Winston
Hotels, Inc. (incorporated by reference to Exhibit 10.36 to the
Companys Annual Report on Form 10-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on March 16, 2005).10.27
    
    Amendment No. 2 dated February 14, 2006 to Employment Agreement
dated January 2, 2003, by and between Kenneth R. Crockett and
Winston Hotels, Inc. (incorporated by reference to the description
in Item 1.01 of the Companys Current Report on Form 8-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
February 17, 2006).10.28
    
    Employment Agreement dated January 2, 2003, by and between Joseph
V. Green and Winston Hotels, Inc. (incorporated by reference to
Exhibit 10.23 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 14, 2003).10.29
    
    Amendment No. 1 dated January 1, 2005 to Employment Agreement dated
January 2, 2003, by and between Joseph V. Green and Winston Hotels,
Inc. (incorporated by reference to Exhibit 10.38 to the Companys
Annual Report on Form 10-K (File No. 001-13233) as filed with the
Securities and Exchange Commission on March 16, 2005).10.30
    
    Employment Agreement dated March 30, 2004, by and between Brent V.
West and Winston Hotels, Inc. (incorporated by reference to Exhibit
10.39 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 16, 2005).10.31
    
    Amendment No. 1 dated January 1, 2005 to Employment Agreement dated
March 30, 2004, by and between Brent V. West and Winston Hotels,
Inc. (incorporated by reference to Exhibit 10.40 to the Companys
Annual Report on Form 10-K (File No. 001-13233) as filed with the
Securities and Exchange Commission on March 16, 2005).10.32
    
    Employment Agreement dated March 30, 2004, by and between James P.
Frey and Winston Hotels, Inc. (incorporated by reference to Exhibit
10.41 to the Companys Annual Report on Form 10-K (File No.
001-13233) as filed with the Securities and Exchange Commission on
March 16, 2005).10.33
    
    Amendment No. 1 dated January 1, 2005 to Employment Agreement dated
March 30, 2004, by and between James P. Frey and Winston Hotels,
Inc. (incorporated by reference to Exhibit 10.42 to the Companys
Annual Report on Form 10-K (File No. 001-13233) as filed with the
Securities and Exchange Commission on March 16, 2005).10.34
    
    Summary of 2004 and 2005 executive officer compensation
(incorporated by reference to the description in Item 1.01 of the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on February 7, 2005).10.35
    
    Summary of 2004 and 2005 Non-Employee Director compensation
(incorporated by reference to the description in Item 1.01 of the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on February 7, 2005).
 100




---



##### 



Number
    
    Exhibit10.36
    
    Summary of 2005 and 2006 executive officer compensation
(incorporated by reference to the description in Item 1.01 of the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on February 17, 2006).10.37
    
    Summary of 2005 and 2006 Non-Employee Director compensation
(incorporated by reference to the description in Item 1.01 of the
Companys Current Report on Form 8-K (File No. 001-13233) as filed
with the Securities and Exchange Commission on February 17, 2006).10.38*
    
    Summary of 2006 and 2007 Executive Officer and Non-Employee
Director compensation.10.39
    
    Put Agreement, dated February 20, 2007, between Canpartners Realty
Holding Company IV LLC and WINN Limited Partnership(incorporated by
reference to the description in Item 10.1 of the Companys Current
Report on Form 8-K (File No. 001-13233) as filed with the
Securities and Exchange Commission on February 23, 2006).10.40
    
    Form of Loan Agreement by and between General Electric Capital
Corporation and a special purpose entity of Winston Hotels, Inc.,
dated as of May 9, 2006 (incorporated by reference to Exhibit 10.3
to the Companys Quarterly Report on Form 10-Q (File No. 001-13233)
as filed with the Securities and Exchange Commission on May 10,
2006).10.41
    
    Defeasance Pledge and Security Agreement, by and among Winston SPE
LLC, Wells Fargo Bank, N.A. and Wachovia Bank, National
Association, dated as of May 9, 2006(incorporated by reference to
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q (File
No. 001-13233) as filed with the Securities and Exchange Commission
on May 10, 2006).10.42
    
    Defeasance Assignment, Assumption and Release Agreement by and
among Winston SPE LLC, Wells Fargo Bank, N.A., SB Winston Holdings,
LLC and Wachovia Bank, National Association, dated as of May 9,
2006 (incorporated by reference to Exhibit 10.5 to the Companys
Quarterly Report on Form 10-Q (File No. 001-13233) as filed with
the Securities and Exchange Commission on May 10, 2006).12.1*
    
    Statement Regarding Computation of Ratios21.1*
    
    Subsidiaries of the Registrant.23.1*
    
    Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP).31.1*
    
    Certification of Principal Executive Officer of Annual Report
Pursuant to Rule 13a-14(a) or Rule 15d-14(a).31.2*
    
    Certification of Principal Financial Officer of Annual Report
Pursuant to Rule 13a-14(a) or Rule 15d-14(a).32.1*
    
    Certification of Robert W. Winston, III, Chief Executive Officer of
Winston Hotels, Inc., pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Joseph V. Green, Chief Financial Officer of
Winston Hotels, Inc., pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 101