United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q/A1
Amendment No.1
To
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ____ to ____.
Commission file number 0-23256
JAMESON INNS, INC.
(Exact name of registrant as specified in its Articles)
Georgia 58-2079583
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
(Address of principal executive offices including zip codes)
(770) 901-9020
(Registrant's telephone number, including area code)
_____________________________
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date - Common Stock, $.10 Par Value
- - 9,912,064 shares outstanding as of April 30, 1999.
-1-
<PAGE>
INDEX
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998...................................3
Condensed Consolidated Statements of Income for the
Three Month Periods Ended March 31, 1999 and 1998 (unaudited).......4
Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended March 31, 1999 and 1998 (unaudited)......5
Notes to Condensed Consolidated Financial Statements (unaudited)....6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................17
SIGNATURES.........................................................18
EXHIBITS
</TABLE>
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Jameson Inns, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
============= =============
(Unaudited)
<S> <C> <C>
Assets
Property and equipment, at cost $175,196,316 $168,880,042
Less accumulated depreciation (18,223,780) (16,754,843)
------------- ------------
156,972,536 152,125,199
Cash -- 500,377
Lease revenue receivable 2,023,000 2,289,753
Prepaid expenses 180,202 13,608
Deferred finance costs, net 1,633,701 1,110,336
Other assets 859,575 289,889
------------ ------------
$161,669,014 $156,329,162
============ ============
Liabilities and stockholders' equity
Mortgage notes payable $62,191,357 $53,697,435
Accounts payable and accrued expenses 531,179 199,730
Accounts payable to affiliates 98,131 2,087,106
Accrued interest payable 297,430 350,436
Accrued property taxes 299,096 432,168
Preferred stock dividends payable 693,750 693,750
---------- ----------
64,110,943 57,460,625
Stockholders' equity:
Preferred stock, 10,000,000 shares
authorized, $1 par value, 1,200,000
shares of 9.25% Series A Cumulative
Preferred Stock issued and outstanding 1,200,000 1,200,000
Common stock, $.10 par value, 40,000,000
shares authorized,9,910,896 shares
(9,895,810 in 1998) issued and outstanding 991,090 989,581
Additional paid-in capital 96,393,972 97,705,947
Retained deficit (1,026,991) (1,026,991)
------------- -------------
Total stockholders' equity 97,558,071 98,868,537
------------- -------------
$161,669,014 $156,329,162
============= =============
</TABLE>
See accompanying notes.
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<PAGE>
Jameson Inns, Inc.
Condensed Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Lease revenue $4,875,038 $3,852,678
Expenses:
Property tax expense 302,559 217,904
Insurance expense 82,588 113,041
Depreciation 1,701,323 1,295,271
General and administrative expenses 128,050 138,037
Loss on disposal of furniture and equipment 120,708 106,763
---------- ----------
Total expenses 2,335,228 1,871,016
Income from operations 2,539,810 1,981,662
Interest expense, net of capitalized amounts 912,004 516,248
---------- ----------
Income before extraordinary loss 1,627,806 1,465,414
Extraordinary loss -- 28,036
---------- ----------
Net income 1,627,806 1,437,378
---------- ----------
Less preferred stock dividends 693,750 106,800
---------- ----------
Net income attributable to common
stockholders $934,056 $1,330,578
========== ==========
Per common share:
Income before extraordinary loss:
Basic $.10 $.14
Diluted $.09 $.14
Net income:
Basic $.10 $.14
Diluted $.09 $.13
Dividends paid $.24 $.23
</TABLE>
See accompanying notes.
-4-
<PAGE>
Jameson Inns, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating Activities
Net income $1,627,806 $1,437,378
Adjustments to reconcile
net income to net cash provided
by (used in) operating activities:
Extraordinary item -- 28,036
Depreciation and amortization 1,747,210 1,321,039
Loss on disposal of furniture and equipment 120,708 106,763
Changes in assets and liabilities
increasing (decreasing) cash:
Lease revenue receivable 266,752 (478,149)
Prepaid expenses and other assets (736,281) (130,530)
Accounts payable and accrued expenses 331,449 139,268
Accounts payable to affiliates (1,988,975) (1,362,663)
Accrued interest (53,006) 5,902
Accrued property taxes (133,072) (43,956)
------------ -----------
Net cash provided by operating activities 1,182,591 1,023,088
Investing Activities
Additions to property and equipment (6,678,957) (10,600,228)
------------ ------------
Net cash used in investing activities (6,678,957) (10,600,228)
Financing Activities
Proceeds from issuance of preferred stock -- 28,530,236
Common stock dividends paid (2,375,207) (2,250,812)
Preferred stock dividends paid (693,750) --
Proceeds from issuance of common stock 140,273 162,758
Proceeds from exercise of stock options -- 199,051
Proceeds from mortgage notes payable 25,664,393 12,711,754
Payment of deferred finance costs (569,250) (83,672)
Payments on mortgage notes payable (17,170,470) (29,678,446)
------------- ------------
Net cash provided by financing activities 4,995,989 9,590,869
Net increase (decrease) in cash (500,377) 13,729
Cash at beginning of period 500,377 338,581
------------- ------------
Cash at end of period $-- $352,310
============= ============
</TABLE>
See accompanying notes.
-5-
<PAGE>
Jameson Inns, Inc.
Notes to Condensed Consolidated Financial Statements
1. Business and Basis of Financial Statements
Jameson Inns, Inc. (the "Company") is a self-administered real estate
investment trust ("REIT") headquartered in Atlanta which develops and owns
limited service hotel properties ("Inns") operating in the southeastern
United States under the trademark "The Jameson Inn ." At March 31, 1999,
the Company had a total of 114 Inns either in operation or under development
including 85 Inns in operation (4,078 available rooms), 17 Inns under
construction, 1 tract of land on which construction will begin in 1999 and
contracts to acquire 11 parcels of land on which additional Inns are expected
to be constructed. In addition, at that date, two of the Inns in operation
were undergoing 20-room expansions. Upon completion of these projects, the
Company will have 5,922 available rooms.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The condensed
consolidated balance sheet at December 31, 1998, has been derived from the
audited consolidated financial statements at that date. Operating results
for the three month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1999, or any other interim period. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K for the year ended December 31, 1998.
2. Stockholders' Equity
On March 18, 1998, the Company completed the sale of 1,200,000 newly issued
shares of 9.25% Series A Cumulative Preferred Stock (the "Series A Preferred
Stock") at $25 per share before underwriting discounts and expenses. Net
proceeds of approximately $28.5 million were used to repay certain existing
mortgage indebtedness at that date. The Company recorded an extraordinary
loss of $28,036 due to the write off of unamortized deferred finance costs.
Declared and undeclared dividends on the Series A Preferred Stock earned to
date have been considered in determining net income attributable to common
stockholders. The first dividends on the Series A Preferred Stock were
declared in April 1998 and paid in May 1998.
Dividends on the Series A Preferred Stock are cumulative from the date of
original issue and are payable quarterly in arrears on or about the 20th day
of January, April, July and October to shareholders of record on the last
business day of December, March, June and September at the fixed rate of
9.25% per annum of the liquidation preference of $25 per share (equivalent to
a fixed annual rate of $2.3125 per share).
3. Earnings Per Share
Earnings per share has been calculated in accordance with Financial
Accounting Standards Board Statement No. 128, Earnings per Share ("FAS 128")
and the Securities and Exchange Commission Staff Accounting Bulletin No. 98
("SAB 98").
Basic earnings per share is calculated using weighted average shares
outstanding less issued and outstanding but unvested restricted shares of
Common Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of outstanding restricted shares of
Common Stock and outstanding stock options, using the treasury stock method
and the average stock price during the period.
-6-
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Numerator:
Income before extraordinary loss $1,627,806 $1,465,414
Extraordinary loss -- (28,036)
------------ -----------
Net income 1,627,806 1,437,378
Less: cumulative preferred stock dividends (693,750) (106,800)
------------ -----------
Numerator for basic and diluted
earnings per share-income available
to common stockholders $934,056 $1,330,578
============ ===========
Denominator:
Weighted average shares outstanding 9,902,809 9,791,360
Less: unvested restricted shares of
Common Stock (84,472) (64,401)
------------ -----------
Denominator for basic earnings per share 9,818,337 9,726,959
Plus: effect of dilutive securities
Employee and director stock options 41,369 138,438
Unvested restricted shares of Common Stock 77,371 43,734
------------ -----------
Total potential dilutive common shares 118,740 182,172
------------ -----------
Denominator for diluted earnings
per share-adjusted weighted average
shares and assumed conversions 9,937,077 9,909,131
============ ===========
Basic Earnings Per Common Share:
Income before extraordinary loss (net
of cumulative preferred stock dividends) $.10 $.14
Extraordinary loss -- --
------------ -----------
Net income per common share (net
of cumulative preferred stock dividends) $.10 $.14
============ ===========
Diluted Earnings Per Common Share
Income before extraordinary loss (net
of cumulative preferred stock dividends) $.09 $.14
Extraordinary loss -- (.01)
------------ -----------
Net income per common share (net
of cumulative preferred stock dividends) $.09 $.13
============ ===========
</TABLE>
-7-
<PAGE>
Options to purchase 578,333 and -0- shares of common stock for the three
months ended March 31, 1999 and 1998 were outstanding but were not included
in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
4. Sale of Milledgeville Hotel Property
On April 6, 1999, the Company entered into a contract to sell the Inn located
in Milledgeville, Georgia. Based on the contract price, selling costs and
the property's basis, the sale is not expected to result in a loss. During
the quarter ended June 30, 1998, the Company recognized an impairment loss of
$2,501,000 on this property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Jameson Inns,
Inc. condensed consolidated financial statements and notes thereto appearing
elsewhere in this quarterly report.
Jameson Inns, Inc. (the "Company") is a self-administered real estate
investment trust ("REIT") headquartered in Atlanta which develops and owns
limited service hotel properties ("Inns") operating in the southeastern
United States under the trademark "The Jameson Inn ." At March 31, 1999,
the Company had a total of 114 Inns either in operation or under development,
including 85 Inns in operation (4,078 available rooms), 17 Inns under
construction, one tract of land on which construction will begin in 1999 and
contracts to acquire 11 parcels of land on which additional Inns are expected
to be constructed. In addition, at that date, two of the Inns in operation
were undergoing 20-room expansions. Upon completion of these projects, the
Company expects to have 5,922 available rooms.
The Company's primary source of revenue is rent payments by Jameson
Hospitality, LLC ("JH") under master leases (the "Leases") covering all of
the Inns in operation. Prior to March 31, 1998, Jameson Operating Company,
LLC was the lessee. On that date Jameson Operating Company, LLC merged with
Jameson Development Company, LLC and several other related entities to form
Jameson Hospitality, LLC. The expenses of the Company consist of property
taxes, insurance, corporate overhead, interest on mortgage debt and
depreciation of the Inns. The Leases provide for the payment of base rent
and percentage rent. For the quarter ended March 31, 1999, base rent and
percentage rent in the aggregate amount of $4.88 million was earned by the
Company. The principal determinant of percentage rent is JH's Room Revenues
of the Inns, as defined by the Leases. Therefore, management believes that a
review of the historical performance of the operations of the operating Inns,
particularly with respect to occupancy, average daily rate ("ADR") and
revenue per available room ("REVPAR") is appropriate for understanding
revenue from the Leases.
The following table shows certain historical financial and other information
for the periods indicated.
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Occupancy rate 56.79% 61.45%
ADR $52.18 $47.81
REVPAR $29.63 $29.38
Room Revenues (000s) $10,604 $8,197
Room nights available 349,432 272,481
Room nights occupied 198,428 167,440
Operating Inns (at period end) 85 67
Rooms available (at period end) 4,078 3,159
</TABLE>
-8-
<PAGE>
Results of Operations
Comparison of the Three Months Ended March 31, 1999 to the Three Months Ended
March 31, 1998.
Revenue from the Leases for the Company for the three month period ended
March 31, 1999, increased 26% to $4.9 million as compared to $3.9 million for
the same period in 1998. The increase was due to the increase in JH's Room
Revenues.
The number of room nights available increased from 272,481 in 1998 to 349,432
in 1999, or 28%, due to the opening from January 1, 1998 through March 31,
1999, of 23 new Inns (totaling 910 rooms), and 13 expansions of existing Inns
(adding 244 rooms). ADR increased 9% from $47.81 in the first quarter of 1998
to $52.18 in the same period in 1999. The occupancy rate decreased from
61.45% during the first quarter of 1998 to 56.79% during the first quarter of
1999. As a result of these three factors, first quarter Room Revenues rose
29% from $8.2 million for the first quarter of 1998 to $10.6 million in the
first quarter of 1999. Same Inn Room Revenues in the first quarter of 1999
versus the first quarter of 1998 grew to $9.0 million from $8.2 million, or
10%. The same Inn growth is due to an increase in ADR from $47.81 to $51.98
for these Inns, an increase in room nights available (due to expansions of
certain of these Inns) from 272,481 to 288,035, offset by a decrease in the
occupancy rate from 61.45% to 58.46% for these Inns for the first quarter of
1999 compared to the same period in 1998.
General and administrative expense includes overhead charges for management,
accounting and legal services for the corporate home office. General and
administrative expense for the three months ended March 31, 1999, was
$128,050, as compared to $138,037 for the three months ended March 31, 1998.
The 1999 expense is lower than 1998 due to less time spent in 1999 by shared
employees on the Company's business matters as compared to other related
entities.
Property taxes and insurance expense totaled $385,147 for the three month
period ended March 31, 1999, compared with $330,945 for the same period in
1998. The increase is attributable to the increase in number of Inns and the
expansion of existing Inns.
Interest expense increased from $516,248 for the three-month period ended
March 31, 1998, to $912,004 for the same period ended March 31, 1999, due to
the greater amounts of average principal indebtedness outstanding in the
first quarter of 1999. Interest expense amounts exclude interest capitalized
in the cost of new Inn development.
Depreciation expense increased from $1,295,271 to $1,701,323 for the three
month periods ended March 31, 1998 and 1999, respectively, due to an increase
in the number of operating Inns and the expansion of existing Inns.
-9-
<PAGE>
Funds from Operations
The Company notes that industry analysts and investors use funds from
operations as another tool to evaluate and compare equity REITs. The Company
also believes it is meaningful as an indicator of net income excluding most
non-cash items and provides information about the Company's cash available
for distributions, debt service and capital expenditures. The Company
follows the March 1995 interpretation of the National Association of Real
Estate Investment Trusts ("NAREIT") definition of funds from operations
("Funds from Operations") which is calculated (in the Company's case) as net
income plus depreciation, loss on disposal of furniture and equipment, loss
on impairment of real estate and extraordinary items, if applicable. Other
non-cash expenses such as amortization and stock option expense have not been
added back in Funds from Operations. Funds from Operations does not
represent cash flow from operating activities in accordance with generally
accepted accounting principles ("GAAP") and is not indicative of cash
available to fund all of the Company's cash needs. Funds from Operations
should not be considered as an alternative to net income or any other GAAP
measure as an indicator of performance and should not be considered as an
alternative to cash flows as a measure of liquidity. In addition, the
Company's Funds from Operations may not be comparable to other companies'
Funds from Operations due to differing methods of calculating Funds from
Operations and varying interpretations of the NAREIT definition.
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income attributable
to common stockholders $934,056 $1,330,578
Depreciation 1,701,323 1,295,271
Extraordinary loss -- 28,036
Loss on disposal of
furniture and equipment 120,708 106,763
----------- -----------
Funds from Operations $2,756,087 $2,760,648
=========== ===========
</TABLE>
-10-
<PAGE>
Liquidity and Capital Resources
Jameson expects to continue to develop additional Jameson Inns, Signature
Inns, and expand existing Jameson Inns, as suitable opportunities arise.
Jameson will not undertake such investments, however, unless adequate sources
of financing are available. Since its election to be taxed as a REIT,
Jameson has financed and currently intends to continue financing the
construction of new Jameson Inns and Signature Inns entirely with bank
borrowings. Jameson believes it can continue to finance new hotels and
expansions, with these construction and long-term mortgage loans. At March
31, 1999, Jameson had approximately $62.2 million in outstanding debt and
Jameson had three operating Jameson Inns which were debt free and could be
used as collateral should Jameson require additional borrowing capacity.
Jameson has a $46.2 million line of credit (the "Line") convertible beginning
in 1998 to term notes. At March 31, 1999, Jameson had borrowed $15.2 million
under the Line with $31 million remaining available credit. Loans made under
the Line bear interest at rates initially ranging from 8.5% to 9.0%, which
are adjustable annually to equal a major lender's prime rate as published in
the Wall Street Journal plus .25 or .5 percentage points. The minimum annual
interest rate payable under the Line is 7% and the maximum is 13%. The
annual interest rates at March 31, 1999, ranged from 8.5% to 9.0%. Loans
made under the Line are secured by mortgages on 41 of the Jameson Inns.
Payments of interest are due monthly, and monthly payments of principal and
interest commence at various dates. Principal under each term loan under the
Line is amortized using a 15-year period and is payable in full at various
dates through 2007. Jameson uses the Line to finance construction costs, if
there is no construction loan in place, and certain other operating needs
including the payment of dividends and other operating expenses.
Historically, Jameson has employed construction and long-term mortgage
financing to fund the balance of construction costs not funded under the
Line. For each new Jameson Inn to be built, Jameson generally obtains a
construction loan for approximately $1.1 to $2.35 million depending on the
size of the Jameson Inn to be built. After an 18-month interest-only period,
each construction loan converts to a long-term mortgage financing upon
completion of the Jameson Inn without any further action by Jameson,
amortized over 15 years and payable in full seven years from its inception.
The interest rate on each of such loans is adjusted annually to rates ranging
from the prime rate then prevailing to prime plus .5%. As of March 31, 1999,
the construction loans are secured by mortgages on 11 of the Jameson Inns
under construction.
-11-
<PAGE>
As of March 31, 1999, Jameson had a total of 17 Jameson Inns and two
expansions under construction with total construction costs, excluding land
and closing costs, expected to total $52.4 million when the projects are
complete. For 11 of these properties, Jameson had obtained construction
loans totaling $21.5 million.
On January 14, 1999, Jameson entered into an agreement with a bank to provide
$17 million in new financing, which is secured by 14 Jameson Inns which were
previously debt free. This bank note bears interest at the weekly average
yield in the United States Treasury securities adjusted to the constant
maturity of one year plus 3.75 % per annum and is payable in monthly
installments of principal and interest of $147,000 until January 2019 when
the note matures. In addition, each month $15,000 must be deposited into a
replacement reserve escrow until such time as the reserve account has a
balance not less than $200,000. The proceeds of this financing were used to
repay amounts outstanding under the Line.
Since Jameson presently intends to rely primarily on borrowings for
construction and permanent financing of new Jameson Inns and the expansion of
existing properties, the lack of sufficient financing on favorable terms and
conditions could prevent or significantly deter Jameson from constructing new
hotels or expanding existing hotels. The availability of such financing
depends on a number of factors over which Jameson has no control, including
general economic conditions, the economic and competitive environments of the
communities in which Jameson's hotels are located and the level and stability
of long-term interest rates. Jameson also is considering possible additional
long-term debt or equity financing that would be available to fund its
ongoing development activities.
In January 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission that provides for the issuance of an
aggregate of up to $100 million in Common Stock, Preferred Stock and Common
Stock warrants to be offered and sold from time to time. On March 18, 1998,
the Company completed the sale of 1,200,000 newly issued shares of 9.25%
Series A Cumulative Preferred Stock at $25 per share before underwriting
discounts and expenses. Net proceeds of approximately $28.5 million were
used to repay certain existing mortgage indebtedness at that date. On March
10, 1997, under the same registration statement, the Company completed the
sale of 2,300,000 newly issued shares of common stock at $12 per share before
underwriting discounts and expenses. Net proceeds of approximately $26
million were used to repay certain existing mortgage indebtedness at that
date. The Company intends to use future net proceeds, if any, from any sale
of securities under such registration statement for the repayment of existing
indebtedness, working capital and general corporate purposes.
As with most real estate investments, Jameson's investments in the Jameson
Inns are relatively illiquid and such illiquidity is further increased by the
location of many Jameson Inns in small communities. As a result, the ability
of Jameson to sell or otherwise dispose of any Jameson Inn to provide
liquidity will be very limited.
-12-
<PAGE>
Recent Developments
On April 2, 1999, the Company completed the acquisition of the outdoor
advertising assets and operations of JH. These assets consist of
approximately 100 roadside billboards on which advertising for the Company's
hotel properties and, in certain instances, other services or products for
third parties is placed. These assets and operations were previously owned
and conducted by Jameson Outdoor Advertising, LLC, which is one of the
entities that merged into JH on March 31, 1998 (see "the Lessee"). These
billboards will be leased back to JH and will continue to be used for the
same type of advertising. JH is wholly-owned by Thomas W. Kitchin, Chairman
of the Board of the Company, and his wife. The consideration payable to JH
consists of (i) 72,727 newly issued shares of the Company's Series A
Preferred Stock, (ii) $400,000 in cash, and (iii) the assumption of
indebtedness of approximately $735,000 which is secured by mortgages on the
billboards and the revenues generated therefrom. The amount and nature of
the consideration was negotiated by Thomas W. Kitchin and the other members
of the Board of Directors of the Company with the advice and assistance of an
independent investment banking firm engaged by the Board. Such firm also
rendered its opinion to the Company's Board of Directors that, based on its
review of the proposed transaction and the assumptions stated in the opinion,
the proposed consideration is fair, from a financial point of view, to the
shareholders of the Company.
On May 7, 1999 the Company completed its merger with Signature Inns, Inc.
("SII"). SII owns and operates 25 hotels in the midwestern United States,
and manages one additional Signature Inn owned by a non-consolidated
affiliate partnership. Prior to the merger, JH acquired certain assets and
assumed certain liabilities related to the operation of the Inns in order to
enable Jameson to remain in compliance with rules governing its status as a
REIT. Upon completion of the merger, the common stockholders of SII received
half a share of the Company's common stock plus $1.22 in cash for each share
of SII common stock. In addition, a 28 cent dividend was paid to the holders
of SII common stock prior to the consummation of the merger. The holders of
the outstanding shares of the SII $1.70 Cumulative Convertible Preferred
Stock, Series A, received the equivalent number of shares of a newly created
$1.70 Cumulative Convertible Preferred Stock, Series S ("Series S Preferred
Stock"), of the Company which, upon conversion at the election of the holder
thereof, the holder would receive 1.04 shares of the Company's common stock,
plus cash payment of $3.125 for each share of Series S Preferred Stock
converted. This merger transaction will be accounted for using the purchase
method of accounting.
-13-
<PAGE>
Year 2000
As the year 2000 approaches, a critical business issue has emerged regarding
how existing application software programs and operating systems can
accommodate this date value. Many existing application software products in
the marketplace were designed to accommodate only two-digit date entries.
Beginning in the year 2000, these systems and products will need to be able
to accept four-digit entries to distinguish years beginning with 2000 from
prior years. As a result, computer systems and software used by many
companies may need to be upgraded to comply with such "Year 2000"
requirements. The Company has evaluated its financial software and building
operating systems of the Inns. Based on assessments to date, management
believes that the arrival of the year 2000, and the potential related
computer problems, will not have a material adverse impact on the Company or
JH. The Company believes that its current software and operating systems are
year 2000 compliant. Based on current information, costs of addressing and
solving year 2000 problems are not expected to have a material effect on
Jameson's financial position or results of operations. The ability of third
parties, with whom the Company transacts business, to address adequately
their Year 2000 issues is outside of the Company's control. There can be no
assurance that the failure of the Company, or such third parties, to address
adequately their respective Year 2000 issues will not have a material adverse
effect on the Company's future financial condition or results of operations.
Jameson maintains contingency plans in its normal course of business designed
to be deployed in the event of various potential business interruptions. These
generally include manual workarounds and adjusting staffing.
Forward-Looking Statements
There are a number of statements in this report which address activities,
events or developments which the Company expects or anticipates will or may
occur in the future, including such things as the Company's expansion plans,
including construction of new Inns and expansion of existing Inns,
availability of debt financing and capital, payment of quarterly dividends,
expected Year 2000 compliance and other matters. These statements are based
on certain assumptions and analyses made by the Company in the light of its
experience and its perception of historical trends, current conditions and
expected future developments, as well as other factors it believes are
appropriate under the circumstances. However, whether actual results and
developments will conform to the Company's expectations and predictions is
subject to a number of risks and uncertainties, including (1) the Company's
ability to (a) secure construction and permanent financing to finance such
development on terms and conditions favorable to the Company, (b) assess
accurately the market demand for new Inns and expansions of existing Inns,
(c) identify and purchase new sites which meet its various criteria,
including reasonable land prices, (d) contract for the construction of new
Inns and expansions of existing Inns in a manner which produces Inns
consistent with its present quality and standards at a reasonable cost and
without significant delays, (e) provide ongoing renovation and refurbishment
of the Inns sufficient to maintain consistent quality among the Inns, and (f)
manage its business in a cost-effective manner given the increase in the
number of Inns; (2) JH's willingness and ability to manage the Inns
profitably; (3) general economic, market and business conditions,
particularly those in the lodging industry generally and in the geographic
markets where the Inns are located; (4) the business opportunities (or lack
thereof) that may be presented to and pursued by the Company; (5) the
availability of qualified managers and employees necessary for the Company's
planned growth; (6) changes in laws or regulations and (7) other factors,
most of which are beyond the control of the Company. Consequently, all of
the forward-looking statements made in this report are qualified by these
cautionary statements and there can be no assurance that the actual results
of developments anticipated by the Company will be realized, or even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations.
-14-
<PAGE>
The Lessee
The Company seeks to enhance Lease revenue by working in a collaborative
manner with JH, lessee of the Inns. Presently, JH also has an exclusive
relationship with the Company in that JH does not manage any hotel properties
other than the Inns. The Company believes this exclusive relationship
ensures that the Company's and JH's interests are well-aligned. JH is the
successor to Jameson Operating Company, LLC ("JOCLLC") and its predecessor
Jameson Operating Company ("JOC"). These companies were both wholly owned by
Thomas W. Kitchin, Chairman and Chief Executive Officer of the Company,
JOCLLC since its inception and JOC since Mr. Kitchin's acquisition of the
remaining 90.1% stock of JOC in September 1997. Effective March 31, 1998,
JOCLLC merged with Jameson Development Company, LLC, the company which
constructs the Inns, and other related Jameson entities. The resulting
company, which constructs and operates the Inns, subsequently changed its
name to Jameson Hospitality, LLC. Thomas W. Kitchin and his spouse are the
sole owners of Jameson Hospitality, LLC. While the Company does not control
the operations of JH or the day-to-day operation of the Inns, the two
companies work together to enhance both occupancy and ADR. The Leases'
formula allows the Company to benefit from increases in Room Revenues,
regardless of the mix between occupancy and ADR.
The following table summarizes the unaudited financial results of Jameson
Hospitality, LLC, the lessee. Since Jameson Operating Company, LLC and the
other companies which were parties to the March 1998 merger with Jameson
Development Company, LLC were under common control of Thomas W. Kitchin and
his spouse at the time of the merger, the financial statements present the
financial position, results of operations and cash flows of both Jameson
Operating Company, LLC and its predecessor Jameson Operating Company as well
as other parties to the merger. This merger has been accounted for in a
manner similar to a pooling of interests due to the common ownership and
control of the companies. The comparison of Inn Room Revenues of JH between
the two periods is the same as that described above for the Company.
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Room Revenues as defined by Lease $10,604,828 $8,197,188
Construction and other revenues 5,692,029 6,943,247
----------- -----------
Total revenues 16,296,857 15,140,435
Inn operating expenses (5,203,966) (4,220,490)
Cost of construction and other revenues (5,754,193) (6,815,449)
Advertising (428,997) (605,343)
Lease expense to Jameson Inns, Inc. (4,875,038) (3,852,678)
----------- -----------
Income before income taxes $34,663 $(353,525)
=========== ===========
</TABLE>
-15-
<PAGE>
Distributions to Stockholders
The table below sets forth, for the periods indicated, the cash distributions
declared per share since January 1, 1998.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------ ---------------
<S> <C> <C>
First Quarter, 1998 $0.23 $0.089**
Second Quarter, 1998 0.24 0.581x
Third Quarter, 1998 0.24 0.581x
Fourth Quarter, 1998 0.24 0.581x
First Quarter, 1999 0.24* 0.581x***
</TABLE>
x These amounts have been corrected for a typographical error in decimal
placement in the original March 31, 1999 Form 10-Q.
* On April 23, 1999 the Company declared this dividend, which is payable
on May 20, 1999 to shareholders of record on May 4, 1999.
** On April 20, 1998, the Company declared a dividend of $.089 per share
for the 9.25% Series A Cumulative Preferred Stock for the period
March 18 to March 31, 1998. The dividend was paid on May 1, 1998 to
shareholders of record on March 31, 1998.
*** On March 15, 1999 the Company declared this dividend, which was paid on
April 20, 1999, to shareholders of record on April 1, 1999.
-16-
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company filed two Current Reports on Form 8-K during the three
months ended March 31, 1999. One, dated February 2, 1999, related to
the announcement of the proposed merger of the Company and Signature
Inns, Inc. The second, dated March 9, 1999, was filed to provide the
consolidated financial statements of the Company as of December 31,
1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the consolidated financial statements of Jameson
Hospitality, LLC as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998. This second report
also included Selected Financial Information and Management's
Discussion and Analysis Financial Condition and Results of Operations
for (i) the year ended December 31, 1998, compared to the year ended
December 31, 1997 and (ii) the year ended December 31, 1997 compared to
the year ended December 31, 1996.
Exhibits
12.1 Calculation of Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
27.1 Financial Data Schedule*
* Previously filed
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Jameson Inns, Inc.
(Registrant)
Dated: May 27, 1999 By: /s/ Craig R. Kitchin
--------------------------------------
Craig R. Kitchin
President and Chief Financial Officer
(Principal Financial Officer)
-18-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------- ----
<S> <C> <C>
12.1 Calculation of Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.....................
27.1 Financial Data Schedule*........................................
* Previously filed
-19-
</TABLE>
EXHIBIT 12.1
Jameson Inns, Inc.
Calculation of Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
<TABLE>
<CAPTION>
For the Three Month Period Ended
March 31
--------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Consolidated income before
extraordinary items $1,627,806 $1,465,414
Interest 866,117 490,480
Amortization 45,887 25,768
---------- ----------
Earnings $2,539,810 $1,981,662
========== ==========
Interest $866,117 $490,480
Amortization 45,887 25,768
Cumulative preferred stock dividends 693,750 106,800
Interest capitalized during the period 368,756 168,539
---------- ----------
Fixed Charges $1,974,510 $791,587
========== ==========
Ratio of earnings to fixed
charges and preferred stock dividends 1.29 2.50
========== ==========
</TABLE>
