##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
 For The Quarterly Period Ended March 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 of incorporation)
    
    (I.R.S. Employer Identification No.)
 2626 Glenwood Avenue
Raleigh, North Carolina 27608
 (919) 510-6019
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




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##### 



TABLE OF CONTENTS
 PageSAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
    
    
    3PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
    
    
    4Unaudited Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005
    
    
    5Unaudited Consolidated Statement of Shareholders Equity for the three months ended March 31, 2006
    
    
    6Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    40PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    41SIGNATURES
    
    
    42EXHIBIT INDEX
    
    
    43Ex-10.1Ex-10.2Ex-10.3Ex-10.4Ex-10.5Ex-31.1Ex-31.2Ex-32.1Ex-32.2
  2




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##### Table of Contents



SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
   
    
    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 may not sell,
    
    franchise licenses may 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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##### Table of Contents



Item 1. Financial Statements
 WINSTON HOTELS, INC.
 
 UNAUDITED CONSOLIDATED BALANCE SHEETS
 (in thousands)
 As of
    
    As ofMarch 31, 2006
    
    December 31, 2005ASSETSLand
    
    $
    54,557
    
    
    $
    55,758Buildings and improvements
    
    
    411,220
    
    
    
    422,081Furniture and equipment
    
    
    62,664
    
    
    
    63,048Operating properties
    
    
    528,441
    
    
    
    540,887Less accumulated depreciation
    
    
    137,444
    
    
    
    139,259390,997
    
    
    
    401,628Properties under development
    
    
    30,787
    
    
    
    25,139Net investment in hotel properties
    
    
    421,784
    
    
    
    426,767Assets held for sale
    
    
    15,700
    
    
    
    11,009Corporate furniture fixtures and equipment, net
    
    
    519
    
    
    
    371Cash
    
    
    18,894
    
    
    
    15,047Accounts receivable, net
    
    
    3,577
    
    
    
    3,820Notes receivable
    
    
    38,839
    
    
    
    38,050Investment in joint ventures
    
    
    1,746
    
    
    
    1,795Deferred expenses, net
    
    
    6,978
    
    
    
    6,807Prepaid expenses and other assets
    
    
    23,573
    
    
    
    12,556Deferred tax asset
    
    
    11,823
    
    
    
    11,471Total assets
    
    $
    543,433
    
    
    $
    527,693LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYLines of credit
    
    $
    178,196
    
    
    $
    157,896Mortgage loans
    
    
    102,669
    
    
    
    99,874Accounts payable and accrued expenses
    
    
    19,471
    
    
    
    27,915Distributions payable
    
    
    6,055
    
    
    
    6,011Total liabilities
    
    
    306,391
    
    
    
    291,696Minority interest
    
    
    12,548
    
    
    
    12,786Commitments and contingencies
    
    
    
    
    
    
    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,
26,801 shares issued and 26,458 shares outstanding
at March 31, 2006 and 26,509 shares issued
and outstanding at December 31, 2005
    
    
    265
    
    
    
    265Additional paid-in capital
    
    
    324,647
    
    
    
    325,238Unearned compensation
    
    
    
    
    
    
    (1,454
    )Distributions in excess of earnings
    
    
    (100,455
    )
    
    
    (100,875
    )Total shareholders equity
    
    
    224,494
    
    
    
    223,211Total liabilities, minority interest and shareholders equity
    
    $
    543,433
    
    
    $
    527,693
  4




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WINSTON HOTELS, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Three Months Ended March 31,2006
    
    2005Operating revenue:Rooms
    
    $
    37,349
    
    
    $
    29,506Food and beverage
    
    
    2,553
    
    
    
    1,821Other operating departments
    
    
    1,123
    
    
    
    723Joint venture fee income
    
    
    52
    
    
    
    61Total operating revenue
    
    
    41,077
    
    
    
    32,111Hotel operating expenses:Rooms
    
    
    8,020
    
    
    
    6,536Food and beverage
    
    
    2,098
    
    
    
    1,497Other operating departments
    
    
    861
    
    
    
    638Undistributed operating expenses:Property operating expenses
    
    
    8,758
    
    
    
    6,602Real estate taxes and property and casualty insurance
    
    
    1,887
    
    
    
    1,677Franchise costs
    
    
    2,567
    
    
    
    2,134Maintenance and repair
    
    
    2,178
    
    
    
    1,790Management fees
    
    
    1,429
    
    
    
    723General and administrative
    
    
    3,028
    
    
    
    1,989Depreciation
    
    
    5,233
    
    
    
    4,141Amortization
    
    
    493
    
    
    
    250Total operating expenses
    
    
    36,552
    
    
    
    27,977Operating income
    
    
    4,525
    
    
    
    4,134Interest and other income
    
    
    1,386
    
    
    
    1,520Interest expense
    
    
    (4,412
    )
    
    
    (2,407
    )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
    
    
    1,499
    
    
    
    3,247(Income) loss allocation to minority interest in Partnership
    
    
    4
    
    
    
    (64
    )(Income) loss allocation to minority interest in consolidated joint ventures
    
    
    134
    
    
    
    (128
    )Income tax benefit
    
    
    98
    
    
    
    132Equity in income (loss) of unconsolidated joint ventures
    
    
    22
    
    
    
    (62
    )Income from continuing operations
    
    
    1,757
    
    
    
    3,125Discontinued operations:Income (loss) from discontinued operations
    
    
    274
    
    
    
    (62
    )Gain (loss) on sale of discontinued operations
    
    
    4,249
    
    
    
    (85
    )Net income
    
    
    6,280
    
    
    
    2,978Preferred stock distribution
    
    
    (1,840
    )
    
    
    (1,840
    )Net income available to common shareholders
    
    $
    4,440
    
    
    $
    1,138Basic weighted average number of common shares outstanding
    
    
    26,418
    
    
    
    26,283Diluted weighted average number of common shares outstanding
    
    
    26,418
    
    
    
    27,601Income (loss) per common share basic and diluted:Income (loss) from continuing operations
    
    $
    
    
    
    $
    0.05Income (loss) from discontinued operations
    
    
    0.17
    
    
    
    (0.01
    )Net income available to common shareholders
    
    
    0.17
    
    
    
    0.04Per share dividends to common shareholders
    
    $
    0.15
    
    
    $
    0.15
  5




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WINSTON HOTELS, INC.
 
 UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 FOR THE THREE MONTHS ENDED MARCH 31, 2006
 (in thousands, except per share amounts)
 Additional
    
    
    
    
    
    Distributions
    
    TotalPreferred Stock
    
    Common Stock
    
    Paid-in
    
    Unearned
    
    In Excess of
    
    ShareholdersShares
    
    Dollars
    
    Shares
    
    Dollars
    
    Capital
    
    Compensation
    
    Earnings
    
    EquityBalances at December 31, 2005
    
    
    3,680
    
    
    $
    37
    
    
    
    26,509
    
    
    $
    265
    
    
    $
    325,238
    
    
    $
    (1,454
    )
    
    $
    (100,875
    )
    
    $
    223,211Presentation reclassification  SFAS 123R adoption
    
    
    
    
    
    
    
    
    
    
    (136
    )
    
    
    (1
    )
    
    
    (1,453
    )
    
    
    1,454
    
    
    
    
    
    
    
    Restricted stock expense recognition
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    1
    
    
    
    862
    
    
    
    
    
    
    
    
    
    
    
    863Distributions ($0.15 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,020
    )
    
    
    (4,020
    )Distributions ($0.50 per preferred B share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,840
    )
    
    
    (1,840
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,280
    
    
    
    6,280Balances at March 31, 2006
    
    
    3,680
    
    
    $
    37
    
    
    
    26,458
    
    
    $
    265
    
    
    $
    324,647
    
    
    $
    
    
    
    $
    (100,455
    )
    
    $
    224,494
  6




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WINSTON HOTELS, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 Three Months Ended March 31,2006
    
    2005Cash flows from operating activities:Net income
    
    $
    6,280
    
    
    $
    2,978Adjustments to reconcile net income to net cash
provided by operating activities:Income allocation to minority interest
    
    
    215
    
    
    
    56Income (loss) allocation to consolidated joint ventures
    
    
    (134
    )
    
    
    128Depreciation
    
    
    5,405
    
    
    
    4,747Amortization
    
    
    498
    
    
    
    256Deferred income tax benefit
    
    
    (183
    )
    
    
    (203
    )Net (gain) loss on sale of hotel properties
    
    
    (4,455
    )
    
    
    90Equity in (income) loss of unconsolidated joint ventures
    
    
    (22
    )
    
    
    62Distributions from joint ventures
    
    
    71
    
    
    
    Unearned compensation amortization
    
    
    836
    
    
    
    419Changes in assets and liabilities:Accounts receivable
    
    
    243
    
    
    
    (370
    )Prepaid expenses and other assets
    
    
    (1,892
    )
    
    
    (1,311
    )Accounts payable and accrued expenses
    
    
    (722
    )
    
    
    (308
    )Net cash provided by operating activities
    
    
    6,140
    
    
    
    6,544Cash flows from investing activities:Investment in hotel properties
    
    
    (9,267
    )
    
    
    (3,780
    )Proceeds from sale of hotel properties
    
    
    8,461
    
    
    
    5,527Issuance of notes receivable
    
    
    (806
    )
    
    
    (5,700
    )Collection of notes receivable
    
    
    17
    
    
    
    6,035Investment in unconsolidated joint ventures
    
    
    (7,391
    )
    
    
    Franchise and note receivable fees
    
    
    (186
    )
    
    
    Deposit for potential hotel acquisitions
    
    
    (6,625
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (15,797
    )
    
    
    2,082Cash flows from financing activities:Net increase in lines of credit
    
    
    20,300
    
    
    
    3,150Proceeds from mortgage loans
    
    
    3,406
    
    
    
    940Payment of mortgage loans
    
    
    (611
    )
    
    
    (467
    )Distributions to shareholders
    
    
    (5,816
    )
    
    
    (5,799
    )Distributions to minority interest in partnership
    
    
    (195
    )
    
    
    (195
    )Distributions to minority interest in consolidated
joint ventures, net of contributions
    
    
    (97
    )
    
    
    (166
    )Deposit for new CMBS rate lock
    
    
    (3,000
    )
    
    
    Fees paid in connection with financing activities
    
    
    (483
    )
    
    
    (2,763
    )Net cash provided by (used in) financing activities
    
    
    13,504
    
    
    
    (5,300
    )Net increase in cash
    
    
    3,847
    
    
    
    3,326Cash at beginning of period
    
    
    15,047
    
    
    
    4,115Cash at end of period
    
    $
    18,894
    
    
    $
    7,441Supplemental disclosure:Cash paid for interest (net of amounts capitalized)
    
    $
    4,788
    
    
    $
    2,362Summary of non-cash investing and financing activities:Distributions to shareholders declared but not paid
    
    $
    5,860
    
    
    $
    5,817Distributions to minority interest declared but not paid
    
    $
    195
    
    
    $
    195Issuance of stock grants
    
    $
    
    
    
    $
    1,305Adjustment to minority interest due to
issuance of common stock
    
    $
    27
    
    
    $
    8Sale of hotel property for note receivable
    
    $
    
    
    
    $
    1,425
  7




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WINSTON HOTELS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 ($ in thousands, except per share amounts)
 1. ORGANIZATION
      8




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 Basis of Presentation
  Principles of Consolidation
  Accounting for Long-Lived Assets
 Investment in Hotel Properties.
 General.
 9




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Franchise Agreements
  Year of Expiration
    
    Number of Hotels
    
    
    Year of Expiration
    
    
    Number of Hotels2007
    
    
    3
    
    
    
    2016
    
    
    
    22008
    
    
    3
    
    
    
    2017
    
    
    
    112009
    
    
    3
    
    
    
    2018
    
    
    
    52010
    
    
    1
    
    
    
    2019
    
    
    
    62011
    
    
    2
    
    
    
    2020
    
    
    
    12012
    
    
    2
    
    
    
    2022
    
    
    
    32013
    
    
    5
    
    
    
    2023
    
    
    
    12014
    
    
    1
    
    
    
    2024
    
    
    
    32015
    
    
    1
    
    
    
    2025
    
    
    
    1
   Recently Issued Accounting Standards
  3. MINORITY INTEREST IN PARTNERSHIP
  10




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
   4. CONCENTRATION RISK
    5. DISCONTINUED OPERATIONS
   11




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
   Three Months EndedMarch 31,2006
    
    2005Total revenue
    
    $
    2,913
    
    
    $
    3,349Total expenses
    
    
    2,711
    
    
    
    3,484Income (loss) from hotel operations
    
    
    202
    
    
    
    (135
    )Allocation to minority interest in Partnership  (income)
loss from discontinued operations
    
    
    (13
    )
    
    
    3Gain (loss) on sale of discontinued operations
    
    
    4,455
    
    
    
    (90
    )Allocation to minority interest in Partnership -
(gain) loss on sale of discontinued operations
    
    
    (206
    )
    
    
    5Income tax benefit
    
    
    85
    
    
    
    70Income (loss) from discontinued operations
    
    $
    4,523
    
    
    $
    (147
    )
 6. SUMMARIZED FINANCIAL STATEMENT INFORMATION FOR JOINT VENTURES
  Consolidated Joint Ventures
 Hotels Under Development
  12




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
   Operating Hotels
     13




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
   March 31,
    
    
    December 31,2006
    
    
    2005Gateway Hotel Associates, LLCAssets
    
    $
    3,608
    
    
    $
    2,336Liabilities
    
    
    217
    
    
    
    36Equity
    
    $
    3,391
    
    
    $
    2,300Winston Kansas City, LPAssets
    
    $
    20,159
    
    
    $
    16,984Liabilities
    
    
    5,256
    
    
    
    1,887Equity
    
    $
    14,903
    
    
    $
    15,097Stanley AssociatesAssets
    
    $
    18,059
    
    
    $
    18,192Liabilities
    
    
    12,944
    
    
    
    13,059Equity
    
    $
    5,115
    
    
    $
    5,133Stanley LesseeAssets
    
    $
    208
    
    
    $
    789Liabilities
    
    
    675
    
    
    
    650Equity (deficit)
    
    $
    (467
    )
    
    $
    139131 East Redwood, LLCAssets
    
    $
    1,291
    
    
    $
    1,372Liabilities
    
    
    482
    
    
    
    428Equity
    
    $
    809
    
    
    $
    944Marsh Landing Hotel AssociatesAssets
    
    $
    6,735
    
    
    $
    6,532Liabilities
    
    
    4,834
    
    
    
    4,782Equity
    
    $
    1,901
    
    
    $
    1,750March Landing LesseeAssets
    
    $
    155
    
    
    $
    48Liabilities
    
    
    127
    
    
    
    43Equity
    
    $
    28
    
    
    $
    5Chapel Hill Hotel AssociatesAssets
    
    $
    13,311
    
    
    $
    13,431Liabilities
    
    
    10,661
    
    
    
    10,712Equity
    
    $
    2,650
    
    
    $
    2,719Chapel Hill LesseeAssets
    
    $
    198
    
    
    $
    151Liabilities
    
    
    97
    
    
    
    68Equity
    
    $
    101
    
    
    $
    83
 14




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Three Months Ended March 31,
    
    2006
    
    
    2005Gateway Hotel Associates, LLCRevenue
    
    $
    
    
    
    $
    Expense
    
    
    
    
    
    
    Net income
    
    $
    
    
    
    $
    Winston Kansas City, LPRevenue
    
    $
    
    
    
    $
    Expense
    
    
    40
    
    
    
    Net loss
    
    $
    (40
    )
    
    $
    Stanley AssociatesRevenue
    
    $
    395
    
    
    $
    Expense
    
    
    413
    
    
    
    Net loss
    
    $
    (18
    )
    
    $
    Stanley LesseeRevenue
    
    $
    886
    
    
    $
    Expense
    
    
    1,491
    
    
    
    Net loss
    
    $
    (605
    )
    
    $
    131 East Redwood, LLCRevenue
    
    $
    1,068
    
    
    $
    Expense
    
    
    1,203
    
    
    
    Net loss
    
    $
    (135
    )
    
    $
    Marsh Landing Hotel AssociatesRevenue
    
    $
    357
    
    
    $
    373Expense
    
    
    201
    
    
    
    209Net income
    
    $
    156
    
    
    $
    164March Landing LesseeRevenue
    
    $
    856
    
    
    $
    884Expense
    
    
    832
    
    
    
    810Net income
    
    $
    24
    
    
    $
    74Chapel Hill Hotel AssociatesRevenue
    
    $
    508
    
    
    $
    427Expense
    
    
    480
    
    
    
    421Net income
    
    $
    28
    
    
    $
    6Chapel Hill LesseeRevenue
    
    $
    1,197
    
    
    $
    992Expense
    
    
    1,179
    
    
    
    985Net income
    
    $
    18
    
    
    $
    7
  Unconsolidated Joint Ventures
  15




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
     March 31, 2006
    
    December 31, 2005Gross fixed assets
    
    $
    41,110
    
    
    $
    40,791Accumulated depreciation
    
    
    (3,380
    )
    
    
    (2,912
    )Other assets
    
    
    4,365
    
    
    
    4,304Total assets
    
    
    42,095
    
    
    
    42,183Liabilities
    
    
    5,294
    
    
    
    4,053Outstanding loans
    
    
    25,824
    
    
    
    25,954Total liabilities
    
    
    31,118
    
    
    
    30,007Equity
    
    
    10,977
    
    
    
    12,176Companys share of equity
    
    
    1,597
    
    
    
    1,644Companys additional basis
    
    
    149
    
    
    
    151Investment in joint ventures
    
    $
    1,746
    
    
    $
    1,795
 16




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##### Table of Contents



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 Three Months Ended March 31,
    
    2006
    
    
    2005Revenues
    
    $
    3,847
    
    
    $
    3,085Hotel department expenses
    
    
    (2,110
    )
    
    
    (2,039
    )Management fees
    
    
    (144
    )
    
    
    (142
    )Undistributed and fixed expenses
    
    
    (1,351
    )
    
    
    (1,266
    )Hotel net income (loss)
    
    
    242
    
    
    
    (362
    )Charlesbank Ventures 87% share of net income (loss)
    
    
    211
    
    
    
    (315
    )Corporate charges
    
    
    (52
    )
    
    
    (75
    )Charlesbank Venture net income (loss)
    
    
    159
    
    
    
    (390
    )Winstons 15% share of Charlesbank
Venture net income (loss)
    
    
    24
    
    
    
    (59
    )Amortization of investment true-up
    
    
    (2
    )
    
    
    (3
    )Equity in income (loss) of
unconsolidated joint ventures
    
    $
    22
    
    
    $
    (62
    )
 7. NOTES RECEIVABLE
  March 31,
    
    
    December 31,Notes receivable as of
    
    2006
    
    
    2005$1.1 million mezzanine loan collateralized by
the ownership interest of the entity that owns
the Hilton Garden Inn in Atlanta (Sugarloaf),
Georgia, 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
    
    $
    1,080
    
    
    $
    1,080$2.4 million mezzanine loan collateralized by
the ownership interest of 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 of 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
    
    
    5,500
    
    
    
    5,500$6.0 million mezzanine loan collateralized by
the ownership interest of the entity that owns
the LaPosada de Santa Fe Resort in Santa Fe,
New Mexico, matures December 2007; interest
rate of 30-day LIBOR plus 9%, with interest
only payments until maturity
    
    
    6,000
    
    
    
    6,000
 17




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##### Table of Contents



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
 March 31,
    
    
    December 31,Notes receivable as of
    
    2006
    
    
    2005$1.4 million 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)
    
    
    1,348
    
    
    
    1,366$3.4 million mezzanine loan collateralized by
the ownership interest of 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 based on a six and one-half year
amortization schedule
    
    
    2,331
    
    
    
    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
    
    
    2,000
    
    
    
    2,000$14.0 million in 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
    
    
    14,000
    
    
    
    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. The Company is
obligated to fund the remaining balance of the
note ratably over the projected construction
period that has commenced and is expected to
be completed during the fourth quarter of 2006
    
    
    805
    
    
    
    Total notes receivable
    
    $
    38,839
    
    
    $
    38,050Total interest receivables related to notes
    
    $
    1,230
    
    
    $
    1,152
  8. INCOME TAXES
  9. EARNINGS PER SHARE
  18




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##### Table of Contents



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  Three Months Ended March 31,
    
    2006
    
    
    2005Income from continuing operations
    
    $
    1,757
    
    
    $
    3,125Less: preferred stock distributions
    
    
    (1,840
    )
    
    
    (1,840
    )Income (loss) from continuing operations available to common shareholders
    
    $
    (83
    )
    
    $
    1,285Income (loss) from discontinued operations
    
    $
    4,523
    
    
    $
    (147
    )Net income available to common shareholders
    
    
    4,440
    
    
    
    1,138Plus: income from continuing operations allocated to minority interest
    
    
    
    
    
    
    64Plus: loss from discontinued operations allocated to minority interest
    
    
    
    
    
    
    (8
    )Net income available to common shareholders assuming dilution
    
    $
    4,440
    
    
    $
    1,194Weighted average number of common shares basic
    
    
    26,418
    
    
    
    26,283Minority interest units with redemption rights
    
    
    
    
    
    
    1,298Stock options and unvested stock grants
    
    
    
    
    
    
    20Weighted average number of common shares assuming dilution
    
    
    26,418
    
    
    
    27,601Earnings per share  basic and dilutedIncome (loss) from continuing operations available to common shareholders
    
    $
    
    
    
    $
    0.05Income (loss) from discontinued operations
    
    
    0.17
    
    
    
    (0.01
    )Net income available to common shareholders
    
    $
    0.17
    
    
    $
    0.04
  10. STOCK INCENTIVE PLAN
   19




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##### Table of Contents



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 May 18, 2009
  Weighted AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    100,000
    
    
    $
    11.18Forfeited
    
    
    (90,000
    )
    
    $
    11.38Outstanding at March 31, 2006
    
    
    10,000
    
    
    $
    9.38Options exercisable at March 31, 2006
    
    
    10,000
 Share Awards
 Number of
    
    
    Weighted AverageShares
    
    
    Grant-Date Fair(in thousands)
    
    
    Value Per Share
    
    
    Fair ValueNon-vested at December 31, 2005
    
    
    136
    
    
    $
    10.69
    
    
    $
    1,454Granted
    
    
    292
    
    
    $
    9.72
    
    
    $
    2,839Vested
    
    
    (85
    )
    
    $
    9.84
    
    
    $
    (836
    )Forfeited
    
    
    
    
    
    $
    
    
    
    $
    Non-vested at March 31, 2006
    
    
    343
    
    
    $
    10.08
    
    
    $
    3,457
  20




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##### Table of Contents



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  11. SEGMENT REPORTING
   Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    41,077
    
    
    $
    
    
    
    $
    
    
    
    $
    41,077Operating expenses
    
    
    (27,798
    )
    
    
    
    
    
    
    (3,028
    )
    
    
    (30,826
    )Depreciation and amortization
    
    
    (5,726
    )
    
    
    
    
    
    
    
    
    
    
    (5,726
    )Interest and other income
    
    
    
    
    
    
    1,243
    
    
    
    143
    
    
    
    1,386Interest expense
    
    
    (3,791
    )
    
    
    (621
    )
    
    
    
    
    
    
    (4,412
    )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
    
    
    3,762
    
    
    
    622
    
    
    
    (2,885
    )
    
    
    1,499Loss allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Loss allocation to minority interest in consolidated
joint ventures
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    134Income tax benefit
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Equity in income of unconsolidated joint ventures
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Income (loss) from continuing operations
    
    $
    4,016
    
    
    $
    622
    
    
    $
    (2,881
    )
    
    $
    1,757Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,523Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,280Total assets
    
    $
    503,364
    
    
    $
    40,069
    
    
    $
    
    
    
    $
    543,433
 21




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##### Table of Contents



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
  Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    32,111
    
    
    $
    
    
    
    $
    
    
    
    $
    32,111Operating expenses
    
    
    (21,597
    )
    
    
    (1
    )
    
    
    (1,988
    )
    
    
    (23,586
    )Depreciation and amortization
    
    
    (4,391
    )
    
    
    
    
    
    
    
    
    
    
    (4,391
    )Interest and other income
    
    
    
    
    
    
    1,463
    
    
    
    57
    
    
    
    1,520Interest expense
    
    
    (1,990
    )
    
    
    (417
    )
    
    
    
    
    
    
    (2,407
    )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
    
    
    4,133
    
    
    
    1,045
    
    
    
    (1,931
    )
    
    
    3,247Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (128
    )
    
    
    
    
    
    
    
    
    
    
    (128
    )Income tax benefit
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    132Equity in loss of unconsolidated joint ventures
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (62
    )Income (loss) from continuing operations
    
    $
    4,075
    
    
    $
    1,045
    
    
    $
    (1,995
    )
    
    $
    3,125Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,978Total assets
    
    $
    392,012
    
    
    $
    33,105
    
    
    $
    
    
    
    $
    425,117
 12. SUBSEQUENT EVENTS
 Notes
Receivable
   Financings
  22




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WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  ($ in thousands, except per share amounts)
    23




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations($in thousands except room revenue statistics)
  OVERVIEW
  Hotel Ownership
      24




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##### Table of Contents



Hotel Financing
  Strategy and Forecasted Operating Conditions
  Improving Results at Our Hotels.
 
    
    The Company seeks to direct our hotel managers to
increase revenues and minimize operating costs.
Forecasts for the lodging industry continue to be
favorable and the Company believes the improving trends
in the lodging industry create the opportunity for
improvements in the operating results of its hotels for
the remainder of 2006.
    
    The Company also implements selective capital
improvements designed to increase profitability
consistent with franchisor standards and mandates.
During the three months ended March 31, 2006, the
Company spent $3.5 million for capital improvements at
its hotels. The Company expects total capital
expenditures for improvements at its hotels during the
remainder of 2006 of approximately $11.5 million,
including approximately $6.5 million for franchise
mandated improvements.
 Improving Our Hotel Portfolio.
 
    
    The Company is focused on acquiring hotels with a
favorable current yield and an opportunity for
appreciation. The Company primarily focuses on
acquiring additional hotels, or ownership interests in
hotels, with strong national franchise affiliations or
hotel properties with the potential to obtain these
franchise affiliations in the full service, extended
stay, mid-scale without food and beverage, upscale,
and upper upscale market segments.
    
    The Company also has the in-house capability to develop
hotels. In April 2006, the Company completed the
conversion of a former historic residential building in
Kansas City, MO into a 123-room Courtyard by Marriott
hotel. The Company expects another hotel under
development to open in 2006 and two more to open early
in 2007. The Company was also designated a preferred
developer for the new select-service aloftbrand by
Starwood Hotels and Resorts Worldwide, Inc. and is
currently reviewing several potential development sites
on which it can build and own aloft-branded hotels. The
Company is continually looking to develop additional
hotel properties.
 25




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##### Table of Contents




    
    The Company intends to sell older, underperforming
hotels or hotels that the Company believes no longer
meet the Companys yield objectives and to invest the
funds in selected hotel acquisitions, hotel developments
and hotel loans. The Company sold the Southlake,
Georgia Hampton Inn in March 2006 for $8.5 million in
cash, net of closing costs. In April 2006, the Company
sold the Wilmington, NC Comfort Inn for $5.7 million in
cash, net of closing costs. The Company realized gains
on the sale of these two hotels totaling $4.5 million
and $1.0 million, respectively. On November 4, 2005,
the Companys Board of Directors adopted a formal plan
to sell two hotels and the Company continues to market
both hotels for sale.
 Expanding Our Hotel Loan Program.
 
    
    A key element of the Companys strategy is originating
or acquiring hotel loans. The Company has an active
pipeline to originate or acquire additional hotel loans
during 2006. During 2005, the Company announced a
program with GE Commercial Franchise Finance (GEFF) to
provide a highly streamlined, cost-effective loan
program for hoteliers. In February 2006 the Company
closed on its first loan in conjunction with this
program.
  Results of Operations for the Three Months Ended March 31, 2006 versus the Three Months Ended March
31, 2005
 HOTEL OWNERSHIP SEGMENT
 Revenues
  2006 vs. 2005
    
    2006 vs. 2005Three Months Ended March 31, (a)
    
    2006
    
    2005
    
    Change
    
    Percentage ChangeHotel room revenues
    
    $
    37,349
    
    
    $
    29,506
    
    
    $
    7,843
    
    
    
    26.6
    %RevPAR
    
    $
    65.37
    
    
    $
    59.61
    
    
    $
    5.76
    
    
    
    9.7
    %Occupancy
    
    
    69.0
    %
    
    
    66.9
    %
    
    
    2.1
    %
    
    
    3.1
    %Average daily rate (ADR)
    
    $
    94.72
    
    
    $
    89.17
    
    
    $
    5.55
    
    
    
    6.2
    %
 (a)
    
    Includes all owned or partially owned consolidated hotels, excluding discontinued operation as
of March 31, 2006. Room
 26




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##### Table of Contents



Food and Beverage
 Other Operating Departments
 Expenses
 Rooms
 Food and Beverage
 Other Operating Departments
 Property Operating
 Real Estate Taxes and Property and Casualty Insurance
 Franchise Costs
 Maintenance and Repair Costs
 27




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##### Table of Contents



Management Fees
 Depreciation and Amortization
 Interest Expense
 (Income) Loss Allocation to Minority Interest in Consolidated Joint Ventures
 Income Tax Benefit
 Equity in Income (Loss) of Unconsolidated Joint Ventures
 HOTEL FINANCING SEGMENT
 General and Administrative
 Interest and Other Income
 28




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##### Table of Contents



Interest Expense
 GENERAL CORPORATE INCOME AND EXPENSES
  General and Administrative
 Interest and Other Income
 Income (Loss) Allocation to Minority Interest in Partnership
 Discontinued Operations
 29




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Overview
  Operating
  Investing
 Overview
  Investment in hotel properties
    30




---



##### Table of Contents



Proceeds from sale of hotel properties
   Issuance of notes receivable
     Collection of notes receivable
  Investment in unconsolidated joint venture
  Deposit for potential hotel acquisitions
  31




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##### Table of Contents



Financing
 Overview
    Net increase (decrease) in lines of credit
   Proceeds from mortgage loans
  32




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##### Table of Contents



Proceeds from issuance of shares
  Distributions to shareholders
  Seasonality
  OFF-BALANCE SHEET ARRANGEMENTS
  CONTRACTUAL OBLIGATIONS
  33




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##### Table of Contents



OTHER MATTERS
 Critical Accounting Policies
  Allowances for Doubtful Accounts
 Accounts Receivable.
 Notes Receivable.
 34




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##### Table of Contents



Accounting for Long-Lived Assets
 General.
 Impairment on Planned Dispositions
 Asset Retirement Obligation
 Accounting for Joint Ventures
  35




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##### Table of Contents



Franchise Agreements
   Year of Expiration
    
    Number of Hotels
    
    Year of Expiration
    
    Number of Hotels2007
    
    3
    
    2016
    
    22008
    
    3
    
    2017
    
    112009
    
    3
    
    2018
    
    52010
    
    1
    
    2019
    
    62011
    
    2
    
    2020
    
    12012
    
    2
    
    2022
    
    32013
    
    5
    
    2023
    
    12014
    
    1
    
    2024
    
    32015
    
    1
    
    2025
    
    1
  36




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##### Table of Contents



Funds From Operations (FFO)
   WINSTON HOTELS, INC.
RECONCILIATION OF NET INCOME TO FFO AND
FFO AVAILABLE TO COMMON SHAREHOLDERS
 ($ in thousands)
 Three Months EndedMarch 31,2006
    
    2005Net income
    
    $
    6,280
    
    
    $
    2,978(Gain) loss on sale
    
    
    (4,455
    )
    
    
    90Minority interest in Partnership allocation of income (loss)
    
    
    (4
    )
    
    
    64Minority interest in Partnership allocation of gain (loss)
on sale of discontinued operations
    
    
    206
    
    
    
    (5
    )Minority interest in Partnership allocation of income
(loss) from discontinued operations
    
    
    13
    
    
    
    (3
    )Depreciation
    
    
    4,846
    
    
    
    3,871Depreciation from discontinued operations
    
    
    172
    
    
    
    606Depreciation from joint ventures
    
    
    258
    
    
    
    191FFO
    
    
    7,316
    
    
    
    7,792Preferred stock dividend
    
    
    (1,840
    )
    
    
    (1,840
    )FFO Available to Common Shareholders
    
    $
    5,476
    
    
    $
    5,952
 37




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk($ in thousands)
   38




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##### Table of Contents



As of March 31, 2006
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total
    
    Fair ValueVariable rate  GE line:
    
    $
    160,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    160,000
    
    
    $
    160,000Average interest rate
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )Variable rate  Marathon facilities:
    
    $
    8,596
    
    
    $
    1,200
    
    
    $
    8,400
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,196
    
    
    $
    18,196Average interest rate
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )Mortgage loans:Fixed rate  GECC (g)
    
    $
    1,298
    
    
    $
    1,846
    
    
    $
    58,396
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    61,540
    
    
    $
    61,438Average interest rate
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %
    
    
    7.38
    %Variable rate  Evanston, IL
Hilton Garden Inn (g)
    
    $
    198
    
    
    $
    281
    
    
    $
    300
    
    
    $
    321
    
    
    $
    343
    
    
    $
    9,837
    
    
    $
    11,280
    
    
    $
    11,280Average interest rate
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Consolidated joint venture loans:Fixed rate  The Stanley Hotel
    
    $
    146
    
    
    $
    232
    
    
    $
    245
    
    
    $
    263
    
    
    $
    11,973
    
    
    $
    
    
    
    $
    12,859
    
    
    $
    12,706Average interest rate
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %Fixed rate  Chapel Hill, NC
Courtyard by Marriott
    
    $
    161
    
    
    $
    229
    
    
    $
    247
    
    
    $
    267
    
    
    $
    7,951
    
    
    $
    
    
    
    $
    8,855
    
    
    $
    8,857Average interest rate
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %Variable rate  Ponte Vedra,
FL Hampton Inn
    
    $
    69
    
    
    $
    100
    
    
    $
    109
    
    
    $
    119
    
    
    $
    130
    
    
    $
    4,202
    
    
    $
    4,729
    
    
    $
    4,729Average interest rate
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Variable rate  Kansas City,
MO Courtyard by Marriott (f)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,304
    
    
    $
    3,304
    
    
    $
    3,304Average interest rate
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )Variable rate  Akron, OH
Hilton Garden Inn (f)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    102
    
    
    $
    102
    
    
    $
    102Average interest rate
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
 (a)
    
    Rate is 30-day to 180-day LIBOR plus 1.75% to 2.50%, (30-day and 180-day LIBOR were 4.83% and 5.14%,
respectively, at March 31, 2006).(b)
    
    Rate is 30-day LIBOR plus 2.25% or 2.75% or 3.00%.(c)
    
    Rate is 30-day LIBOR plus 3.0%.(d)
    
    Construction-to-permanent note of $10.9 million.
As of March 31, 2006 the outstanding balance was $3.3 million.
Rate is 90-day LIBOR plus 3.5% (90-day LIBOR was 5.00% at March 31, 2006).(e)
    
    Construction-to-permanent note of $7.9 million. Rate is 90-day LIBOR plus 3.0%.
As of March 31, 2006 the outstanding balance was $0.1 million.(f)
    
    See Note 6 to the Consolidated Financial Statements(g)
    
    Paid off in May 2006 (See Note 12 to the Consolidated Financial Statements) 39




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##### Table of Contents



Item 4. Controls and Procedures
     40




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit
    
    Description3.1
    
    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
    
    First Amendment to Loan Agreement by and between Winston SPE II
LLC and General Electric Capital Corporation, dated as of June 8,
2005.10.2
    
    First Amendment to the Master Repurchase Agreement Between
Marathon Structured Finance Fund, LP and Winston Finance Partners
LLC dated as of April 4, 2006.10.3
    
    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, 2006.10.4
    
    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, 2006.10.5
    
    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, 2006.31.1
    
    Certification of Principal Executive Officer of Periodic Report
Pursuant to Rule 13a-14(a) or Rule 15d-14(a).31.2
    
    Certification of Principal Financial Officer of Periodic 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.
 41




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##### Table of Contents



SIGNATURES
  WINSTON HOTELS, INC.Date May 10, 2006
    
    /s/ Joseph V. GreenJoseph V. GreenPresident and Chief Financial Officer(Authorized officer and Principal Financial Officer)
 42




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    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
    
    First Amendment to Loan Agreement by and between Winston SPE II
LLC and General Electric Capital Corporation, dated as of June 8,
2005.10.2
    
    First Amendment to the Master Repurchase Agreement Between
Marathon Structured Finance Fund, LP and Winston Finance Partners
LLC dated as of April 4, 2006.10.3
    
    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.

10.4
    
    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, 2006.10.5
    
    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, 2006.31.1
    
    Certification of Principal Executive Officer of Periodic Report
Pursuant to Rule 13a-14(a) or Rule 15d-14(a).31.2
    
    Certification of Principal Financial Officer of Periodic 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.
 43