##### 



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 September 30, 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(Address of principal executive offices)
    
    (Zip Code)
 (919) 510-6019
 þ o
  o þ o
 o þ




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##### 



PageTABLE OF CONTENTSSAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
    
    
    3PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets as of September 30, 2006 and
December 31, 2005
    
    
    4Unaudited Consolidated Statements of Operations for the three months ended
September 30, 2006 and 2005
    
    
    5Unaudited Consolidated Statements of Operations for the nine months ended
September 30, 2006 and 2005
    
    
    6Unaudited Consolidated Statement of Shareholders Equity for the nine months ended
September 30, 2006
    
    
    7Unaudited Consolidated Statements of Cash Flows for the nine months ended
September 30, 2006 and 2005
    
    
    8Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    47PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    48SIGNATURES
    
    
    49EXHIBIT INDEX
    
    
    50
 2




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##### 



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, zoning restrictions and non-issuance
or delay of issuance of governmental permits,
    
    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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##### 



Item 1. Financial Statements
 WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS  (in thousands)
 As of
    
    As ofSeptember 30, 2006
    
    December 31, 2005ASSETSLand
    
    $
    57,235
    
    
    $
    55,758Buildings and improvements
    
    
    418,545
    
    
    
    422,081Furniture and equipment
    
    
    64,533
    
    
    
    63,048Operating properties
    
    
    540,313
    
    
    
    540,887Less accumulated depreciation
    
    
    139,406
    
    
    
    139,259400,907
    
    
    
    401,628Properties under development
    
    
    29,924
    
    
    
    25,139Net investment in hotel properties
    
    
    430,831
    
    
    
    426,767Assets held for sale
    
    
    7,051
    
    
    
    11,009Corporate furniture, fixtures and equipment, net
    
    
    580
    
    
    
    371Cash
    
    
    13,498
    
    
    
    15,047Accounts receivable, net
    
    
    3,464
    
    
    
    3,820Notes receivable
    
    
    61,731
    
    
    
    38,050Investment in joint ventures
    
    
    2,882
    
    
    
    1,795Deferred expenses, net
    
    
    9,371
    
    
    
    6,807Prepaid expenses and other assets
    
    
    13,231
    
    
    
    12,556Deferred tax asset
    
    
    10,072
    
    
    
    11,471Total assets
    
    $
    552,711
    
    
    $
    527,693LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYLines of credit
    
    $
    31,196
    
    
    $
    157,896Mortgage loans
    
    
    223,818
    
    
    
    99,874Accounts payable and accrued expenses
    
    
    19,489
    
    
    
    27,915Distributions payable
    
    
    6,414
    
    
    
    6,011Total liabilities
    
    
    280,917
    
    
    
    291,696Minority interest
    
    
    14,082
    
    
    
    12,786Shareholders 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,
29,192 shares issued and outstanding
at September 30, 2006 and 26,509 shares issued
and outstanding at December 31, 2005
    
    
    292
    
    
    
    265Additional paid-in capital
    
    
    351,073
    
    
    
    325,238Unearned compensation
    
    
    
    
    
    
    (1,454
    )Distributions in excess of earnings
    
    
    (93,690
    )
    
    
    (100,875
    )Total shareholders equity
    
    
    257,712
    
    
    
    223,211Total liabilities, minority interest and shareholders equity
    
    $
    552,711
    
    
    $
    527,693
  4




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##### 



WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per share amounts)
 Three Months Ended September 30,2006
    
    2005Operating revenue:Rooms
    
    $
    42,321
    
    
    $
    32,121Food and beverage
    
    
    4,062
    
    
    
    3,001Other operating departments
    
    
    1,457
    
    
    
    960Joint venture fee income
    
    
    60
    
    
    
    63Total operating revenue
    
    
    47,900
    
    
    
    36,145Hotel operating expenses:Rooms
    
    
    8,543
    
    
    
    6,742Food and beverage
    
    
    2,637
    
    
    
    2,166Other operating departments
    
    
    1,063
    
    
    
    709Undistributed operating expenses:Property operating expenses
    
    
    8,838
    
    
    
    6,706Real estate taxes and property and casualty insurance
    
    
    2,008
    
    
    
    1,666Franchise costs
    
    
    2,856
    
    
    
    2,329Maintenance and repair
    
    
    2,139
    
    
    
    1,726Management fees
    
    
    1,570
    
    
    
    905General and administrative
    
    
    2,810
    
    
    
    2,261Depreciation
    
    
    5,383
    
    
    
    4,208Amortization
    
    
    523
    
    
    
    405Total operating expenses
    
    
    38,370
    
    
    
    29,823Operating income
    
    
    9,530
    
    
    
    6,322Interest and other income
    
    
    2,324
    
    
    
    2,062Interest expense
    
    
    (4,076
    )
    
    
    (2,822
    )Income 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
    
    
    7,778
    
    
    
    5,562Income allocation to minority interest in Partnership
    
    
    (206
    )
    
    
    (146
    )Income allocation to minority interest in consolidated joint ventures
    
    
    (482
    )
    
    
    (272
    )Income tax expense
    
    
    (906
    )
    
    
    (338
    )Equity in income of unconsolidated joint ventures
    
    
    34
    
    
    
    75Income from continuing operations
    
    
    6,218
    
    
    
    4,881Discontinued operations:Income from discontinued operations
    
    
    174
    
    
    
    595Gain on sale of discontinued operations
    
    
    6,887
    
    
    
    2Loss on impairment of assets held for sale
    
    
    
    
    
    
    (12,386
    )Net income (loss)
    
    
    13,279
    
    
    
    (6,908
    )Preferred stock distribution
    
    
    (1,840
    )
    
    
    (1,840
    )Net income (loss) available to common shareholders
    
    $
    11,439
    
    
    $
    (8,748
    )Basic weighted average number of common shares outstanding
    
    
    27,500
    
    
    
    26,314Diluted weighted average number of common shares outstanding
    
    
    28,928
    
    
    
    27,620Income (loss) per common share basic and diluted:Income from continuing operations
    
    $
    0.16
    
    
    $
    0.12Income (loss) from discontinued operations
    
    
    0.25
    
    
    
    (0.45
    )Net income (loss) available to common shareholders
    
    $
    0.41
    
    
    $
    (0.33
    )Per share dividends to common shareholders
    
    $
    0.15
    
    
    $
    0.15
  5




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##### 



WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per share amounts)
 Nine Months Ended September 30,2006
    
    2005Operating revenue:Rooms
    
    $
    120,293
    
    
    $
    92,225Food and beverage
    
    
    10,074
    
    
    
    7,073Other operating departments
    
    
    4,000
    
    
    
    2,655Joint venture fee income
    
    
    163
    
    
    
    187Total operating revenue
    
    
    134,530
    
    
    
    102,140Hotel operating expenses:Rooms
    
    
    24,775
    
    
    
    19,793Food and beverage
    
    
    7,166
    
    
    
    5,341Other operating departments
    
    
    2,865
    
    
    
    1,943Undistributed operating expenses:Property operating expenses
    
    
    25,686
    
    
    
    19,401Real estate taxes and property and casualty insurance
    
    
    5,831
    
    
    
    4,957Franchise costs
    
    
    8,224
    
    
    
    6,660Maintenance and repair
    
    
    6,339
    
    
    
    5,108Management fees
    
    
    4,609
    
    
    
    2,709General and administrative
    
    
    8,336
    
    
    
    6,151Depreciation
    
    
    15,680
    
    
    
    12,068Amortization
    
    
    1,530
    
    
    
    1,041Total operating expenses
    
    
    111,041
    
    
    
    85,172Operating income
    
    
    23,489
    
    
    
    16,968Extinguishment of debt
    
    
    (3,961
    )
    
    
    Interest and other income
    
    
    5,730
    
    
    
    4,809Interest expense
    
    
    (13,426
    )
    
    
    (7,652
    )Income 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
    
    
    11,832
    
    
    
    14,125Income allocation to minority interest in Partnership
    
    
    (175
    )
    
    
    (354
    )Income allocation to minority interest in consolidated joint ventures
    
    
    (701
    )
    
    
    (539
    )Income tax expense
    
    
    (1,820
    )
    
    
    (514
    )Equity in income of unconsolidated joint ventures
    
    
    98
    
    
    
    42Income from continuing operations
    
    
    9,234
    
    
    
    12,760Discontinued operations:Income from discontinued operations
    
    
    1,276
    
    
    
    1,106Gain on sale of discontinued operations
    
    
    14,615
    
    
    
    366Loss on impairment of assets held for sale
    
    
    
    
    
    
    (12,386
    )Net income
    
    
    25,125
    
    
    
    1,846Preferred stock distribution
    
    
    (5,520
    )
    
    
    (5,520
    )Net income (loss) available to common shareholders
    
    $
    19,605
    
    
    $
    (3,674
    )Basic weighted average number of common shares outstanding
    
    
    26,803
    
    
    
    26,298Diluted weighted average number of common shares outstanding
    
    
    28,251
    
    
    
    27,609Income (loss) per common share basic and diluted:Income from continuing operations
    
    $
    0.14
    
    
    $
    0.28Income (loss) from discontinued operations
    
    
    0.59
    
    
    
    (0.42
    )Net income (loss) available to common shareholders
    
    $
    0.73
    
    
    $
    (0.14
    )Per share dividends to common shareholders
    
    $
    0.45
    
    
    $
    0.45
  6




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##### 



WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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
    )
    
    $
    223,211Issuance of shares and other
    
    
    
    
    
    
    
    
    
    
    2,683
    
    
    
    27
    
    
    
    25,861
    
    
    
    
    
    
    
    
    
    
    
    25,888Presentation reclassification  SFAS 123R adoption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,454
    )
    
    
    1,454
    
    
    
    
    
    
    
    Restricted stock expense recognition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,428
    
    
    
    
    
    
    
    
    
    
    
    1,428Distributions ($0.45 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,420
    )
    
    
    (12,420
    )Distributions ($1.50 per preferred B share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,520
    )
    
    
    (5,520
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,125
    
    
    
    25,125$Balances at September 30, 2006
    
    
    3,680
    
    
    $
    37
    
    
    
    29,192
    
    
    $
    292
    
    
    $
    351,073
    
    
    
    
    
    
    $
    (93,690
    )
    
    $
    257,712$
  7




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##### 



WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS  ($ in thousands)
 Nine Months Ended September 30,2006
    
    2005Cash flows from operating activities:Net income
    
    $
    25,125
    
    
    $
    1,846Adjustments to reconcile net income to net cash
provided by operating activities:Loss on impairment of assets held for sale
    
    
    
    
    
    
    12,993Income (loss) allocation to minority interest
    
    
    925
    
    
    
    (183
    )Income allocation to consolidated joint ventures
    
    
    701
    
    
    
    539Depreciation
    
    
    16,338
    
    
    
    14,462Amortization
    
    
    1,560
    
    
    
    1,068Extinguishment of debt
    
    
    3,961
    
    
    
    Income tax expense
    
    
    1,569
    
    
    
    507Gain on sale of hotel properties
    
    
    (15,306
    )
    
    
    (383
    )Equity in income of unconsolidated joint ventures
    
    
    (98
    )
    
    
    (42
    )Distributions from joint ventures
    
    
    109
    
    
    
    111Unearned compensation amortization
    
    
    1,428
    
    
    
    772Changes in assets and liabilities:Accounts receivable
    
    
    356
    
    
    
    (825
    )Prepaid expenses and other assets
    
    
    (675
    )
    
    
    1,217Accounts payable and accrued expenses
    
    
    (1,508
    )
    
    
    4,161Net cash provided by operating activities
    
    
    34,485
    
    
    
    36,243Cash flows from investing activities:Investment in hotel properties
    
    
    (44,125
    )
    
    
    (46,369
    )Proceeds from sale of hotel properties
    
    
    42,579
    
    
    
    10,087Issuance of notes receivable
    
    
    (23,728
    )
    
    
    (7,700
    )Collection of notes receivable
    
    
    47
    
    
    
    7,721Investment in unconsolidated joint ventures
    
    
    (7,987
    )
    
    
    (29
    )Franchise and loan origination costs
    
    
    (367
    )
    
    
    Net cash used in investing activities
    
    
    (33,581
    )
    
    
    (36,290
    )Cash flows from financing activities:Proceeds from common stock issuance
    
    
    26,499
    
    
    
    Net increase (decrease) in lines of credit
    
    
    (126,700
    )
    
    
    34,531Proceeds from mortgage loans
    
    
    197,637
    
    
    
    940Payment of mortgage loans
    
    
    (77,026
    )
    
    
    (1,544
    )Distributions to shareholders
    
    
    (17,537
    )
    
    
    (17,433
    )Distributions to minority interest in partnership
    
    
    (584
    )
    
    
    (583
    )Distributions to minority interest in consolidated
joint ventures, net of contributions
    
    
    (357
    )
    
    
    (763
    )Fees paid in connection with financing activities
    
    
    (4,385
    )
    
    
    (3,201
    )Net cash provided by (used in) financing activities
    
    
    (2,453
    )
    
    
    11,947Net increase (decrease) in cash
    
    
    (1,549
    )
    
    
    11,900Cash at beginning of period
    
    
    15,047
    
    
    
    4,115Cash at end of period
    
    $
    13,498
    
    
    $
    16,015Supplemental disclosure:Cash paid for interest (net of amounts capitalized)
    
    $
    16,133
    
    
    $
    7,838Summary of non-cash investing and financing activities:Purchase of Stanley Hotel with mortgage loan
    
    $
    
    
    
    $
    13,000Sale of hotel property for note receivable
    
    $
    
    
    
    $
    1,425
  8




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1. ORGANIZATION
      9




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##### 



2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
 Basis of Presentation
  Principles of Consolidation
  Accounting for Long-Lived Assets
 Investment in Hotel Properties.
 General.
 10




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##### 



Franchise Agreements
  Year of Expiration
    
    Number of Hotels2007
    
    22008
    
    22009
    
    22010
    
    12011
    
    22012
    
    22013
    
    52014
    
    12015
    
    12016
    
    22017
    
    102018
    
    42019
    
    62020
    
    12022
    
    32023
    
    12024
    
    32025
    
    12026
    
    12031
    
    1
   Asbestos and Other
  Recently Issued Accounting Standards
  11




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##### 



FASB issued Interpretation No. 48.
 Staff Accounting Bulletin No. 108.
  3. MINORITY INTEREST IN PARTNERSHIP
   12




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##### 



4. CONCENTRATION RISK
    5. DISCONTINUED OPERATIONS
     13




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##### 



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Total revenue
    
    $
    1,398
    
    
    $
    5,588
    
    
    $
    9,967
    
    
    $
    15,860Total expenses
    
    
    1,315
    
    
    
    4,947
    
    
    
    8,883
    
    
    
    14,707Income from hotel operations
    
    
    83
    
    
    
    641
    
    
    
    1,084
    
    
    
    1,153Allocation to minority interest in Partnership
- income
from discontinued operations
    
    
    (8
    )
    
    
    (29
    )
    
    
    (59
    )
    
    
    (53
    )Gain on sale of discontinued operations
    
    
    7,203
    
    
    
    2
    
    
    
    15,306
    
    
    
    383Allocation to minority interest in Partnership -
gain on sale of discontinued operations
    
    
    (316
    )
    
    
    
    
    
    
    (691
    )
    
    
    (17
    )Loss on impairment of assets held for sale
    
    
    
    
    
    
    (12,993
    )
    
    
    
    
    
    
    (12,993
    )Allocation to minority interest in
Partnership  loss on
impairment of assets held for sale
    
    
    
    
    
    
    607
    
    
    
    
    
    
    
    607Income tax (expense) benefit
    
    
    99
    
    
    
    (17
    )
    
    
    251
    
    
    
    6Income (loss) from discontinued operations
    
    $
    7,061
    
    
    $
    (11,789
    )
    
    $
    15,891
    
    
    $
    (10,914
    )
 6. SUMMARIZED FINANCIAL STATEMENT INFORMATION FOR JOINT VENTURES
  Consolidated Joint Ventures
 Hotel Under Development
  Operating Hotels
  14




---



##### 



15




---



##### 



September 30,
    
    
    December 31,2006
    
    
    2005Gateway Hotel Associates, LLCAssets
    
    $
    9,082
    
    
    $
    2,336Liabilities
    
    
    5,022
    
    
    
    36Equity
    
    $
    4,060
    
    
    $
    2,300Winston Kansas City, LPAssets
    
    $
    25,777
    
    
    $
    16,984Liabilities
    
    
    14,761
    
    
    
    1,887Equity
    
    $
    11,016
    
    
    $
    15,097Stanley AssociatesAssets
    
    $
    18,256
    
    
    $
    18,192Liabilities
    
    
    12,911
    
    
    
    13,059Equity
    
    $
    5,345
    
    
    $
    5,133Stanley LesseeAssets
    
    $
    1,611
    
    
    $
    789Liabilities
    
    
    800
    
    
    
    650Equity (deficit)
    
    $
    811
    
    
    $
    139131 East Redwood (Tenant) LLCAssets
    
    $
    1,780
    
    
    $
    1,372Liabilities
    
    
    608
    
    
    
    428Equity
    
    $
    1,172
    
    
    $
    944Marsh Landing Hotel AssociatesAssets
    
    $
    6,747
    
    
    $
    6,532Liabilities
    
    
    4,821
    
    
    
    4,782Equity
    
    $
    1,926
    
    
    $
    1,750Marsh Landing LesseeAssets
    
    $
    379
    
    
    $
    48Liabilities
    
    
    339
    
    
    
    43Equity
    
    $
    40
    
    
    $
    5Chapel Hill Hotel AssociatesAssets
    
    $
    12,974
    
    
    $
    13,431Liabilities
    
    
    10,407
    
    
    
    10,712Equity
    
    $
    2,567
    
    
    $
    2,719Chapel Hill LesseeAssets
    
    $
    653
    
    
    $
    151Liabilities
    
    
    336
    
    
    
    68Equity
    
    $
    317
    
    
    $
    83
 16




---



##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gateway Hotel Associates, LLCRevenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expense
    
    
    188
    
    
    
    
    
    
    
    195
    
    
    
    Net loss
    
    $
    (188
    )
    
    $
    
    
    
    $
    (195
    )
    
    $
    Winston Kansas City, LPRevenue
    
    $
    376
    
    
    $
    
    
    
    $
    673
    
    
    $
    Expense
    
    
    548
    
    
    
    
    
    
    
    1,169
    
    
    
    Net loss
    
    $
    (172
    )
    
    $
    
    
    
    $
    (496
    )
    
    $
    Stanley AssociatesRevenue
    
    $
    785
    
    
    $
    426
    
    
    $
    1,708
    
    
    $
    426Expense
    
    
    674
    
    
    
    278
    
    
    
    1,495
    
    
    
    278Net income
    
    $
    111
    
    
    $
    148
    
    
    $
    213
    
    
    $
    148Stanley LesseeRevenue
    
    $
    4,285
    
    
    $
    2,105
    
    
    $
    7,546
    
    
    $
    2,105Expense
    
    
    3,155
    
    
    
    1,707
    
    
    
    6,874
    
    
    
    1,707Net income
    
    $
    1,130
    
    
    $
    398
    
    
    $
    672
    
    
    $
    398131 East Redwood (Tenant) LLCRevenue
    
    $
    1,568
    
    
    $
    450
    
    
    $
    4,197
    
    
    $
    450Expense
    
    
    1,387
    
    
    
    415
    
    
    
    3,968
    
    
    
    415Net income
    
    $
    181
    
    
    $
    35
    
    
    $
    229
    
    
    $
    35Marsh Landing Hotel AssociatesRevenue
    
    $
    315
    
    
    $
    270
    
    
    $
    1,056
    
    
    $
    983Expense
    
    
    215
    
    
    
    223
    
    
    
    626
    
    
    
    654Net income
    
    $
    100
    
    
    $
    47
    
    
    $
    430
    
    
    $
    329Marsh Landing LesseeRevenue
    
    $
    768
    
    
    $
    649
    
    
    $
    2,561
    
    
    $
    2,345Expense
    
    
    796
    
    
    
    701
    
    
    
    2,525
    
    
    
    2,310Net income (loss)
    
    $
    (28
    )
    
    $
    (52
    )
    
    $
    36
    
    
    $
    35Chapel Hill Hotel AssociatesRevenue
    
    $
    544
    
    
    $
    487
    
    
    $
    1,670
    
    
    $
    1,464Expense
    
    
    491
    
    
    
    476
    
    
    
    1,465
    
    
    
    1,385Net income
    
    $
    53
    
    
    $
    11
    
    
    $
    205
    
    
    $
    79Chapel Hill LesseeRevenue
    
    $
    1,291
    
    
    $
    1,155
    
    
    $
    3,973
    
    
    $
    3,458Expense
    
    
    1,225
    
    
    
    1,125
    
    
    
    3,739
    
    
    
    3,340Net income
    
    $
    66
    
    
    $
    30
    
    
    $
    234
    
    
    $
    118
  17




---



##### 



Unconsolidated Joint Ventures
 Hotel Under Development
  Operating Hotels
      18




---



##### 



September 30,
    
    December 31,2006
    
    2005Gross fixed assets
    
    $
    41,351
    
    
    $
    40,791Accumulated depreciation
    
    
    (4,383
    )
    
    
    (2,912
    )Other assets
    
    
    3,484
    
    
    
    4,304Total assets
    
    
    40,452
    
    
    
    42,183Miscellaneous liabilities
    
    
    4,401
    
    
    
    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%
    
    
    2,775
    
    
    
    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
    
    
    9,267
    
    
    
    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%
    
    
    4,623
    
    
    
    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
    
    
    30,066
    
    
    
    30,007Equity
    
    
    10,386
    
    
    
    12,176Companys share of equity
    
    
    1,640
    
    
    
    1,644Companys additional basis
    
    
    146
    
    
    
    151Investment in joint ventures
    
    $
    1,786
    
    
    $
    1,795
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    3,971
    
    
    $
    4,812
    
    
    $
    12,088
    
    
    $
    12,084Hotel department expenses
    
    
    (2,397
    )
    
    
    (2,423
    )
    
    
    (6,812
    )
    
    
    (6,891
    )Management fees
    
    
    (65
    )
    
    
    (246
    )
    
    
    (351
    )
    
    
    (588
    )Undistributed and fixed expenses
    
    
    (1,185
    )
    
    
    (1,443
    )
    
    
    (3,961
    )
    
    
    (3,946
    )Hotel net income
    
    
    324
    
    
    
    700
    
    
    
    964
    
    
    
    659Charlesbank Ventures 87% share of net income (loss)
    
    
    282
    
    
    
    609
    
    
    
    839
    
    
    
    573Corporate charges
    
    
    (45
    )
    
    
    (83
    )
    
    
    (153
    )
    
    
    (219
    )Charlesbank Venture net income
    
    
    237
    
    
    
    526
    
    
    
    686
    
    
    
    354Winstons 15% share of Charlesbank
Venture net income
    
    
    36
    
    
    
    79
    
    
    
    103
    
    
    
    53Amortization of investment true-up
    
    
    (2
    )
    
    
    (4
    )
    
    
    (5
    )
    
    
    (11
    )Equity in income of
unconsolidated joint ventures
    
    $
    34
    
    
    $
    75
    
    
    $
    98
    
    
    $
    42
 19




---



##### 



7. NOTES RECEIVABLE
  September 30,
    
    December 31,Notes receivable as of
    
    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
    
    $
    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
    
    
    5,500
    
    
    
    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)
    
    
    1,312
    
    
    
    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 based on a six and
one-half year amortization schedule
    
    
    2,336
    
    
    
    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 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
    
    
    14,000
    
    
    
    14,000
 20




---



##### 



September 30,
    
    December 31,Notes receivable as of
    
    2006
    
    2005$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
    
    
    1,965
    
    
    
    $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 a
3.29% accrual; thereafter the interest
rate is 90-day LIBOR plus 7.43%, with a
3.29% accrual during the first year, and
with no accrual thereafter; 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
    
    
    529
    
    
    
    $8.5 million five-year first mortgage for
a 101-room Hampton Inn & Suites under
construction in Murfreesboro, TN;
interest rate of 30-day LIBOR plus 3.60%,
with another 1.0% of the original
principal balance accruing until the loan
is paid in full; payments are interest
only during construction of the hotel and
the first 12 months of hotel operations
and thereafter include principal payments
based on a 25-year amortization period
(a)
    
    
    926
    
    
    
    $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
    
    
    20,308
    
    
    
    Total notes receivable
    
    $
    61,731
    
    
    $
    38,050Total interest receivable related to notes
    
    $
    2,017
    
    
    $
    1,116
 (a)
    
    In October 2006, the Company sold $6.3 million of the $8.5 million Murfreesboro loan to
GE Commercial Capital Corporation (GECC) and now holds a $2.2 million B note. The B
note bears interest at 30-day LIBOR plus 6.05%; with an additional 3.86% accrual per annum.
On October 2, 2006 GECC funded their pro rata share of $0.7 million, leaving the Companys
funding of the B note at $0.2 million. The Company is obligated to fund the remaining
$2.0 million balance of the B note ratably over the projected construction period, which
is expected to continue through the second quarter of 2007.
  8. INCOME TAXES
  21




---



##### 



9. EARNINGS PER SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income from continuing operations
    
    $
    6,218
    
    
    $
    4,881
    
    
    $
    9,234
    
    
    $
    12,760Less: preferred stock distributions
    
    
    (1,840
    )
    
    
    (1,840
    )
    
    
    (5,520
    )
    
    
    (5,520
    )Income from continuing operations
available to common shareholders
    
    $
    4,378
    
    
    $
    3,041
    
    
    $
    3,714
    
    
    $
    7,240Income (loss) from discontinued operations
    
    $
    7,061
    
    
    $
    (11,789
    )
    
    $
    15,891
    
    
    $
    (10,914
    )Net income (loss) available to common shareholders
    
    
    11,439
    
    
    
    (8,748
    )
    
    
    19,605
    
    
    
    (3,674
    )Plus: income from continuing operations
allocated to minority interest
    
    
    206
    
    
    
    146
    
    
    
    175
    
    
    
    354Plus: income (loss) from discontinued operations
allocated to minority interest
    
    
    324
    
    
    
    (578
    )
    
    
    750
    
    
    
    (537
    )Net income (loss) available to common shareholders
assuming dilution
    
    $
    11,969
    
    
    $
    (9,180
    )
    
    $
    20,530
    
    
    $
    (3,857
    )Weighted average number of common shares basic
    
    
    27,500
    
    
    
    26,314
    
    
    
    26,803
    
    
    
    26,298Minority interest units with redemption rights
    
    
    1,298
    
    
    
    1,298
    
    
    
    1,298
    
    
    
    1,298Stock options and unvested stock grants
    
    
    130
    
    
    
    8
    
    
    
    150
    
    
    
    13Weighted average number of common shares assuming dilution
    
    
    28,928
    
    
    
    27,620
    
    
    
    28,251
    
    
    
    27,609Earnings per share  basic and dilutedIncome from continuing operations
available to common shareholders
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.28Income (loss) from discontinued operations
    
    
    0.25
    
    
    
    (0.45
    )
    
    
    0.59
    
    
    
    (0.42
    )Net income (loss) available to common shareholders
    
    $
    0.41
    
    
    $
    (0.33
    )
    
    $
    0.73
    
    
    $
    (0.14
    )
  22




---



##### 



10. STOCK INCENTIVE PLAN
   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 September 30, 2006
    
    
    10,000
    
    
    $
    9.38Options exercisable at September 30, 2006
    
    
    10,000
 Share Awards
  23




---



##### 



Number of
    
    Weighted AverageShares
    
    Grant-Date Fair Value(in thousands)
    
    Per Share
    
    Fair ValueNon-vested at December 31, 2005
    
    
    136
    
    
    $
    10.69
    
    
    $
    1,454Granted
    
    
    293
    
    
    $
    9.75
    
    
    $
    2,856Vested
    
    
    (144
    )
    
    $
    9.92
    
    
    $
    (1,428
    )Forfeited
    
    
    (11
    )
    
    $
    10.18
    
    
    $
    (112
    )Non-vested at September 30, 2006
    
    
    274
    
    
    $
    10.11
    
    
    $
    2,770
  11. SEGMENT REPORTING
  24




---



##### 



Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    47,900
    
    
    $
    
    
    
    $
    
    
    
    $
    47,900Operating expenses
    
    
    (29,654
    )
    
    
    (1
    )
    
    
    (2,809
    )
    
    
    (32,464
    )Depreciation and amortization
    
    
    (5,906
    )
    
    
    
    
    
    
    
    
    
    
    (5,906
    )Interest and other income
    
    
    
    
    
    
    2,151
    
    
    
    173
    
    
    
    2,324Interest expense
    
    
    (2,774
    )
    
    
    (1,302
    )
    
    
    
    
    
    
    (4,076
    )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
    
    
    9,566
    
    
    
    848
    
    
    
    (2,636
    )
    
    
    7,778Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (206
    )
    
    
    (206
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (482
    )
    
    
    
    
    
    
    
    
    
    
    (482
    )Income tax expense
    
    
    (906
    )
    
    
    
    
    
    
    
    
    
    
    (906
    )Equity in income of unconsolidated joint ventures
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Income (loss) from continuing operations
    
    $
    8,212
    
    
    $
    848
    
    
    $
    (2,842
    )
    
    $
    6,218Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,061Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,279Total assets (as of September 30, 2006)
    
    $
    488,963
    
    
    $
    63,748
    
    
    $
    
    
    
    $
    552,711
  Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    36,145
    
    
    $
    
    
    
    $
    
    
    
    $
    36,145Operating expenses
    
    
    (22,949
    )
    
    
    (2
    )
    
    
    (2,259
    )
    
    
    (25,210
    )Depreciation and amortization
    
    
    (4,613
    )
    
    
    
    
    
    
    
    
    
    
    (4,613
    )Interest and other income
    
    
    
    
    
    
    1,973
    
    
    
    89
    
    
    
    2,062Interest expense
    
    
    (2,370
    )
    
    
    (452
    )
    
    
    
    
    
    
    (2,822
    )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
    
    
    6,213
    
    
    
    1,519
    
    
    
    (2,170
    )
    
    
    5,562Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    (146
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (272
    )
    
    
    
    
    
    
    
    
    
    
    (272
    )Income tax expense
    
    
    (338
    )
    
    
    
    
    
    
    
    
    
    
    (338
    )Equity in income of unconsolidated joint ventures
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Income (loss) from continuing operations
    
    $
    5,678
    
    
    $
    1,519
    
    
    $
    (2,316
    )
    
    $
    4,881Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,789
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,908
    )Total assets (as of September 30, 2005)
    
    $
    429,428
    
    
    $
    33,373
    
    
    $
    
    
    
    $
    462,801
 25




---



##### 



Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    134,530
    
    
    $
    
    
    
    $
    
    
    
    $
    134,530Operating expenses
    
    
    (85,495
    )
    
    
    (2
    )
    
    
    (8,334
    )
    
    
    (93,831
    )Depreciation and amortization
    
    
    (17,210
    )
    
    
    
    
    
    
    
    
    
    
    (17,210
    )Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,961
    )
    
    
    (3,961
    )Interest and other income
    
    
    
    
    
    
    5,219
    
    
    
    511
    
    
    
    5,730Interest expense
    
    
    (10,498
    )
    
    
    (2,928
    )
    
    
    
    
    
    
    (13,426
    )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
    
    
    21,327
    
    
    
    2,289
    
    
    
    (11,784
    )
    
    
    11,832Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    (175
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (701
    )
    
    
    
    
    
    
    
    
    
    
    (701
    )Income tax expense
    
    
    (1,820
    )
    
    
    
    
    
    
    
    
    
    
    (1,820
    )Equity in income of unconsolidated joint ventures
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Income (loss) from continuing operations
    
    $
    18,904
    
    
    $
    2,289
    
    
    $
    (11,959
    )
    
    $
    9,234Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,891Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,125
  Hotel
    
    
    HotelOwnership
    
    
    Financing
    
    
    Corporate
    
    
    ConsolidatedOperating revenues
    
    $
    102,140
    
    
    $
    
    
    
    $
    
    
    
    $
    102,140Operating expenses
    
    
    (65,912
    )
    
    
    (9
    )
    
    
    (6,142
    )
    
    
    (72,063
    )Depreciation and amortization
    
    
    (13,109
    )
    
    
    
    
    
    
    
    
    
    
    (13,109
    )Interest and other income
    
    
    
    
    
    
    4,587
    
    
    
    222
    
    
    
    4,809Interest expense
    
    
    (6,381
    )
    
    
    (1,271
    )
    
    
    
    
    
    
    (7,652
    )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
    
    
    16,738
    
    
    
    3,307
    
    
    
    (5,920
    )
    
    
    14,125Income allocation to minority interest in Partnership
    
    
    
    
    
    
    
    
    
    
    (354
    )
    
    
    (354
    )Income allocation to minority interest in consolidated
joint ventures
    
    
    (539
    )
    
    
    
    
    
    
    
    
    
    
    (539
    )Income tax expense
    
    
    (514
    )
    
    
    
    
    
    
    
    
    
    
    (514
    )Equity in income of unconsolidated joint ventures
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Income (loss) from continuing operations
    
    $
    15,727
    
    
    $
    3,307
    
    
    $
    (6,274
    )
    
    $
    12,760Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,914
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,846
 26




---



##### 



12. CREDIT FACILITIES AND MORTGAGE DEBT
 Credit Facilities
  Mortgage Loans
     27




---



##### 



September 30,
    
    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, 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 $12.7 million, collateralized
by the Homewood Suites hotel in Princeton, NJ,
expected to open 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.
    
    
    6,930
    
    
    
    Five-year recourse construction-to-permanent
first mortgage loan for $9.0 million,
collateralized by the Hilton Garden Inn hotel
under construction in Wilmington, NC, 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.
    
    
    593
    
    
    
    Collateralized by joint venture hotels (see Note
6)Construction loan converted to permanent loan on
March 8, 2005, collateralized by the Chapel Hill
Courtyard by Marriott hotel, 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.
    
    
    8,749
    
    
    
    8,907Ten-year loan with GECC collateralized by the
Ponte Vedra Hampton Inn hotel, 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.
    
    
    4,682
    
    
    
    4,751Five-year loan collateralized by the Stanley
hotel, matures August 11, 2010, with a 10-year
amortization period, at a fixed interest rate of
6.19%, with interest and principal payments.
    
    
    12,750
    
    
    
    12,915Five-year construction-to-permanent first
mortgage loan for $10.9 million, collateralized
by the Courtyard by Marriott hotel in Kansas
City, MO, at a variable interest rate of 90-day
LIBOR plus 3.50% (reduced to 1.75% on October
31, 2006), interest is added to principal during
construction, principal and interest payments
starting two months after the final disbursement
are based on a 20-year amortization period.
    
    
    10,160
    
    
    
    Five-year construction-to-permanent first
mortgage loan for $7.9 million, collateralized
by the Hilton Garden Inn hotel in Akron, OH, 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.
    
    
    3,954
    
    
    
    Total
    
    $
    223,818
    
    
    $
    99,874
 28




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations($ in thousands except room revenue statistics)
  OVERVIEW
  Hotel Ownership
     29




---



##### 



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 strong
fundamentals in the lodging industry create the
opportunity for improvement in the operating results
of its hotels for the remainder of 2006 and into
2007.
    
    The Company also implements selective capital
improvements designed to increase profitability
consistent with franchisor standards and mandates.
During the nine months ended September 30, 2006, the
Company spent approximately $9.6 million for capital
improvements at its hotels. The Company expects to
fund an additional $3.5 million of capital
expenditures for improvements at its hotels during
the remainder of 2006.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 or boutique
non-franchised hotels in the premium limited
service, full service, extended stay, mid-scale
without food and beverage, upscale, and upper
upscale market segments. In August 2006, the
Company
 30




---



##### 



acquired the 121-room Courtyard by Marriott
in St. Charles, Ill. for $9.2 million. In August
2006, the Company announced the entry into definitive
agreements to acquire two hotels in New York City,
New York for an aggregate purchase price of $110
million. Located in the Tribeca and Chelsea area,
the hotels currently are under construction and are
expected to open during the 2007 first quarter. The
Company has been approved by Hilton
Hotels Corporation for a Hilton Garden Inn franchise for the Tribeca hotel and
negotiations are underway with Hilton to brand the Chelsea hotel as a Hilton
Garden Inn.
 
    
    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. On November 2, 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. The Company
expects to open a 142-room Homewood Suites hotel in
Princeton, N.J. during the month of November. The
Company expects one more hotel currently under
development to open in the first quarter of 2007 and
another to open in late 2007. The Company also has
entered into a joint venture that is developing a
120-room Courtyard by Marriott hotel in Jacksonville,
Fla., which is expected to open in late 2007. The
Company has also been designated a preferred
developer for the new select-service aloftbrand by
Starwood Hotels and Resorts Worldwide, Inc. (aloft)
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.
    
    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. During the nine months ended September
30, 2006, the Company sold the Alpharetta, GA Homewood
Suites, the West Springfield, MA Hampton Inn, the
Dallas, TX Holiday Inn Select, the Boone, NC Hampton
Inn, the Wilmington, NC Comfort Inn and the Southlake,
GA Hampton Inn. The Company realized aggregate net
proceeds on hotel sales during the nine months ended
September 30, 2006 of $42.6 million, resulting in an
aggregate net gain of $15.3 million.
 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 2006, the Company closed on
its first two loans in conjunction with this program and
expects to loan a total of $4.0 million during the
construction of the respective hotels, of which the
Company had loaned $2.5 million as of September 30,
2006. In May 2006, the Company also provided a $20.3
million B note as part of a $66 million senior note.
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 to GECC and now holds a $2.2 million
B note.
  31




---



##### 



Results of Operations for the Three and Nine Months Ended September 30, 2006 versus the Three and
Nine Months Ended September 30, 2005
 HOTEL OWNERSHIP SEGMENT
 Revenues
  Three Months Ended September 30, (a)
    
    Nine Months Ended September 30, (a)2006 vs.
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006 vs.2006 vs.
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    20052005
    
    Percentage
    
    
    
    
    
    
    
    
    
    2006 vs.
    
    Percentage2006
    
    2005
    
    Change
    
    Change
    
    2006
    
    2005
    
    2005 Change
    
    ChangeHotel room revenues
    
    $
    42,321
    
    
    $
    32,121
    
    
    $
    10,200
    
    
    
    31.8
    %
    
    $
    120,293
    
    
    $
    92,225
    
    
    $
    28,068
    
    
    
    30.4
    %RevPAR
    
    $
    74.63
    
    
    $
    66.06
    
    
    $
    8.57
    
    
    
    13.0
    %
    
    $
    72.28
    
    
    $
    64.89
    
    
    $
    7.39
    
    
    
    11.4
    %Occupancy
    
    
    72.6
    %
    
    
    70.8
    %
    
    
    1.8
    %
    
    
    2.5
    %
    
    
    72.2
    %
    
    
    70.8
    %
    
    
    1.4
    %
    
    
    2.0
    %Average daily rate (ADR)
    
    $
    102.85
    
    
    $
    93.33
    
    
    $
    9.52
    
    
    
    10.2
    %
    
    $
    100.05
    
    
    $
    91.63
    
    
    $
    8.42
    
    
    
    9.2
    %Operating Margin
    
    
    46.2
    %
    
    
    44.7
    %
    
    150
    bps
    
    
    
    
    
    
    44.2
    %
    
    
    43.6
    %
    
    60
    bps
 (a)
    
    Includes all owned or partially owned consolidated hotels, excluding discontinued operations
as of September 30, 2006.
  Three Months Ended September 30, (b)
    
    Nine Months Ended September 30, (b)2006 vs.
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006 vs.2006 vs.
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    20052005
    
    Percentage
    
    
    
    
    
    
    
    
    
    2006 vs.
    
    Percentage2006
    
    2005
    
    Change
    
    Change
    
    2006
    
    2005
    
    2005 Change
    
    ChangeHotel room revenues
    
    $
    33,778
    
    
    $
    30,629
    
    
    $
    3,149
    
    
    
    10.3
    %
    
    $
    99,926
    
    
    $
    90,733
    
    
    $
    9,193
    
    
    
    10.1
    %RevPAR
    
    $
    71.84
    
    
    $
    64.50
    
    
    $
    7.34
    
    
    
    11.4
    %
    
    $
    71.62
    
    
    $
    64.35
    
    
    $
    7.27
    
    
    
    11.3
    %Occupancy
    
    
    71.8
    %
    
    
    70.7
    %
    
    
    1.1
    %
    
    
    1.6
    %
    
    
    72.6
    %
    
    
    70.8
    %
    
    
    1.8
    %
    
    
    2.5
    %Average daily rate (ADR)
    
    $
    100.00
    
    
    $
    91.24
    
    
    $
    8.76
    
    
    
    9.6
    %
    
    $
    98.60
    
    
    $
    90.91
    
    
    $
    7.69
    
    
    
    8.5
    %Operating Margin
    
    
    45.2
    %
    
    
    44.2
    %
    
    100
    bps
    
    
    
    
    
    
    44.5
    %
    
    
    43.6
    %
    
    90
    bps
 (b)
    
    Includes all owned or partially owned consolidated hotels, excluding discontinued operations
as of September 30, 2006 and excluding the New Hotels (defined below).
 Room
  32




---



##### 



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
 33




---



##### 



Maintenance and Repair Costs
 Management Fees
 Depreciation and Amortization
 Interest Expense
 (Income) Loss Allocation to Minority Interest in Consolidated Joint Ventures
 Income Tax Expense
 34




---



##### 



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
 35




---



##### 



Income (Loss) Allocation to Minority Interest in Partnership
 Discontinued Operations
   LIQUIDITY AND CAPITAL RESOURCES
 Overview
  Operating
  Investing
 Overview
  36




---



##### 



Investment in hotel properties
     Proceeds from sale of hotel properties
    Issuance of notes receivable
  37




---



##### 



Collection of notes receivable
  Investment in unconsolidated joint venture
   Financing
 Overview
  Proceeds from issuance of securities
  38




---



##### 



Net increase (decrease) in lines of credit
   Proceeds from mortgage loans
     39




---



##### 



Payment of mortgage loans
  Distributions to shareholders
  SEASONALITY
  OFF-BALANCE SHEET ARRANGEMENTS
  CONTRACTUAL OBLIGATIONS
  40




---



##### 



OTHER MATTERS
 Critical Accounting Policies
  Allowances for Doubtful Notes Receivable.
 Accounting for Long-Lived Assets
 General.
 Impairment on Planned Dispositions
 41




---



##### 



Franchise Agreements
  Funds From Operations (FFO) and FFO Available to Common Shareholders
   42




---



##### 




    
    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 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 secured 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, 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.
  43




---



##### 



WINSTON HOTELS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO FFO,
FFO AVAILABLE TO COMMON SHAREHOLDERS AND
FFO AVAILABLE TO COMMON SHAREHOLDERS, EXCLUDING UNUSUAL CHARGES  ($ in thousands)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net income (loss )
    
    $
    13,279
    
    
    $
    (6,908
    )
    
    $
    25,125
    
    
    $
    1,846Gain on sale
    
    
    (7,203
    )
    
    
    (2
    )
    
    
    (15,306
    )
    
    
    (383
    )Minority interest in Partnership allocation of income (loss)
    
    
    206
    
    
    
    146
    
    
    
    175
    
    
    
    354Minority interest in Partnership allocation of gain
on sale of discontinued operations
    
    
    316
    
    
    
    
    
    
    
    691
    
    
    
    17Minority interest in Partnership allocation of income
from discontinued operations
    
    
    8
    
    
    
    29
    
    
    
    59
    
    
    
    53Depreciation
    
    
    4,980
    
    
    
    3,842
    
    
    
    14,498
    
    
    
    11,158Depreciation from discontinued operations
    
    
    
    
    
    
    782
    
    
    
    658
    
    
    
    2,395Depreciation from joint ventures
    
    
    267
    
    
    
    280
    
    
    
    790
    
    
    
    660FFO
    
    
    11,853
    
    
    
    (1,831
    )
    
    
    26,690
    
    
    
    16,100Preferred stock dividend
    
    
    (1,840
    )
    
    
    (1,840
    )
    
    
    (5,520
    )
    
    
    (5,520
    )FFO Available to Common Shareholders
    
    $
    10,013
    
    
    $
    (3,671
    )
    
    $
    21,170
    
    
    $
    10,580Unusual Charges:Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3,961
    
    
    
    Asset retirement obligation
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    Tax on joint venture development fees
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    Impairment of wholly owned hotels, net of minority interest
    
    
    
    
    
    
    12,386
    
    
    
    
    
    
    
    12,386FFO Available to Common Shareholders,
excluding unusual charges
    
    $
    10,013
    
    
    $
    8,715
    
    
    $
    25,746
    
    
    $
    22,966
 44




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk ($ in thousands)
    45




---



##### 



As of September 30, 2006
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total
    
    Fair ValueVariable rate  GE line:
    
    $
    13,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,000
    
    
    $
    13,000Average 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  CMBS
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,000
    
    
    $
    172,000
    
    
    $
    176,000
    
    
    $
    174,463Average interest
rate
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %
    
    
    5.94
    %Variable rate -
Princeton, NJHomewood Suites (h)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,930
    
    
    $
    6,930Average interest
rate
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Variable rate -
Wilmington, NCHilton Garden Inn (h)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    593
    
    
    $
    593Average interest
rate
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )Consolidated joint venture loans:Fixed rate -Chapel
Hill, NCCourtyard by
Marriott
    
    $
    55
    
    
    $
    229
    
    
    $
    247
    
    
    $
    267
    
    
    $
    7,951
    
    
    $
    
    
    
    $
    8,749
    
    
    $
    8,711Average interest rate
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %
    
    
    7.51
    %Variable rate
-Ponte Vedra, FLHampton Inn
    
    $
    22
    
    
    $
    100
    
    
    $
    109
    
    
    $
    119
    
    
    $
    130
    
    
    $
    4,202
    
    
    $
    4,682
    
    
    $
    4,682Average
interest rate
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )
    
    
    (e
    )Fixed rate  The
Stanley Hotel
    
    $
    37
    
    
    $
    232
    
    
    $
    245
    
    
    $
    263
    
    
    $
    11,973
    
    
    $
    
    
    
    $
    12,750
    
    
    $
    12,750Average interest
rate
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %
    
    
    6.19
    %Variable rate -
Kansas City, MOCourtyard by
Marriott (h)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,160
    
    
    $
    10,160Average interest
rate
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )
    
    
    (f
    )Variable rate
-Akron, OHHilton Garden Inn (h)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,954
    
    
    $
    3,954Average interest
rate
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
    
    
    (g
    )
 (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 September 30, 2006).(b)
    
    Rate is 30-day LIBOR plus 2.25% or 2.75% or 3.00%.(c)
    
    Construction-to-permanent note of $12.7 million. Rate is 90-day LIBOR plus 2.60%
(90-day LIBOR was 5.37% at September 30, 2006).(d)
    
    Construction-to-permanent note of $9.0 million. Rate is 90-day LIBOR plus 1.80%.(e)
    
    Rate is 30-day LIBOR plus 3.0%.(f)
    
    Construction-to-permanent note of $10.9 million. Rate is 90-day LIBOR plus 1.75%.(g)
    
    Construction-to-permanent note of $7.9 million. Rate is 90-day LIBOR plus 3.0%.(h)
    
    Construction-to-permanent notes will not have final payment schedules until they become permanent, see note 12 to the Consolidated Financial Statements. 46




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##### 



Item 4. Controls and Procedures
     47




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##### 



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 *
    
    Amendment No. 9 dated as of May 9, 2006, to Second Amended and Restated Agreement of
Limited Partnership of WINN Limited Partnership.10.2 *
    
    Amendment No. 10 dated as of September 12, 2006, to Second Amended and Restated Agreement
of Limited Partnership of WINN Limited Partnership.31.1
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).31.2
    
    Certification of Principal Financial Officer 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. 48




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##### 



SIGNATURES
  WINSTON HOTELS, INC.Date November 9, 2006
    /s/ Joseph V. GreenJoseph V. GreenPresident and Chief Financial
Officer
(Authorized officer and Principal Financial
Officer) 49




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##### 



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 *
    
    Amendment No. 9 dated as of May 9, 2006, to Second Amended and Restated Agreement of
Limited Partnership of WINN Limited Partnership.10.2 *
    
    Amendment No. 10 dated as of September 12, 2006, to Second Amended and Restated Agreement
of Limited Partnership of WINN Limited Partnership.31.1
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).31.2
    
    Certification of Principal Financial Officer 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. 50