<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
--------------------
Form 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended June 30, 2000.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period from _______________ 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 30346-1604
(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 -
11,522,260 shares outstanding as of August 1, 2000.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999................................................ 3
Condensed Consolidated Statements of Operations for the Three and Six
Month Periods Ended June 30, 2000 (unaudited) and 1999 (unaudited)... 4
Condensed Consolidated Statements of Stockholders' Equity for the Six
Month Period Ended June 30, 2000 (unaudited) and the Year Ended
December 31, 1999.................................................... 5
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 2000 (unaudited) and 1999 (unaudited)......... 6
Notes to Condensed Consolidated Financial Statements (unaudited)..... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 16
SIGNATURES........................................................... 17
EXHIBITS
2
<PAGE>
JAMESON INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Assets
Operating property and equipment $333,463,740 $318,601,921
Property and equipment held for sale 7,365,162 2,532,131
Less: accumulated depreciation (30,586,088) (24,551,080)
------------ ------------
310,242,814 296,582,972
Cash 9,981,188 2,531,009
Restricted cash 501,482 12,616,482
Lease revenue receivable 8,325,650 6,941,315
Deferred finance costs, net 3,620,317 2,942,324
Other assets 1,117,806 1,237,642
------------ ------------
$333,789,257 $322,851,745
============ ============
Liabilities and Stockholders' Equity
Mortgage notes payable $191,541,077 $173,957,998
Accounts payable and accrued expenses 621,588 1,269,334
Accounts payable to affiliates 4,370,348 6,475,510
Accrued interest payable 1,239,050 972,544
Accrued property taxes 2,395,176 2,178,719
Preferred stock dividend payable 1,667,183 1,694,595
------------ ------------
201,834,422 186,548,700
Stockholders' equity:
Preferred stock, $1 par value,
1,272,727 shares of 9.25%
Series A Cumulative Preferred Stock
issued and outstanding 1,272,727 1,272,727
Preferred stock, $1 par value,
2,191,500 shares (2,256,000 in 1999)
of 8.5% Series S Cumulative Preferred Stock
issued and outstanding 2,191,500 2,256,000
Common stock, $.10 par value, 40,000,000
shares authorized, 11,517,059 shares
(11,083,952 shares in 1999) issued and
outstanding 1,151,706 1,108,395
Additional paid-in capital 128,365,893 132,692,914
Retained deficit (1,026,991) (1,026,991)
------------ ------------
Total stockholders' equity 131,954,835 136,303,045
------------ ------------
$333,789,257 $322,851,745
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Lease revenue
Jameson Hospitality, LLC $11,660,920 $9,300,292 $20,747,225 $14,175,330
Third-Party 21,247 21,772 44,219 21,772
Expenses:
Property tax expense 863,422 658,740 1,643,772 961,299
Insurance expense 215,240 200,815 418,922 283,403
Depreciation 3,523,073 2,204,549 6,880,969 3,905,872
General and administrative expenses 312,484 318,172 691,685 446,222
Loss on disposal of real estate - 140,697 32,852 261,405
----------- ---------- ----------- -----------
Total expenses 4,914,219 3,522,973 9,668,200 5,858,201
----------- ---------- ----------- -----------
Income from operations 6,767,948 5,799,091 11,123,244 8,338,901
Other income 7,993 25,448 10,585 25,448
Interest expense, net 3,551,704 2,013,023 6,565,376 2,925,027
----------- ---------- ----------- -----------
Income before extraordinary loss 3,224,237 3,811,516 4,568,453 5,439,322
Extraordinary loss - early extinguishment of debt 37,382 - 69,229 -
----------- ---------- ----------- -----------
Net income 3,186,855 3,811,516 4,499,224 5,439,322
Less preferred stock dividends 1,667,183 1,304,307 3,361,778 1,998,057
----------- ---------- ----------- -----------
Net income attributable to
common stockholders $ 1,519,672 $2,507,209 $ 1,137,446 $ 3,441,265
=========== ========== =========== ===========
Per common share:
Income before extraordinary loss:
Basic $ 0.14 $ 0.24 $ 0.11 $ 0.34
Diluted $ 0.14 $ 0.24 $ 0.11 $ 0.34
Net income:
Basic $ 0.14 $ 0.24 $ 0.10 $ 0.34
Diluted $ 0.13 $ 0.24 $ 0.10 $ 0.34
Dividends paid on common stock $ 0.245 $ 0.24 $ 0.49 $ 0.48
</TABLE>
See accompanying notes.
4
<PAGE>
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Preferred
Stock Stock Common Contributed Retained Stockholders'
Series A Series S Stock Capital Deficit Equity
----------- ---------- -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $1,200,000 $ - $ 989,581 $ 97,705,947 $ (1,026,991) $ 98,868,537
Issuance of preferred and common
stock, net of offering expense 72,727 2,256,000 117,341 39,585,070 - 42,031,138
Exercise of stock options - - 1,501 100,302 - 101,803
Vesting of restricted stock grant - - (28) 67,653 - 67,625
Common stock dividends - - - (4,072,307) (6,077,070) (10,149,377)
Preferred stock dividends (Series S) - - - - (2,486,112) (2,486,112)
Preferred stock dividends (Series A) - - - (693,751) (2,207,385) (2,901,136)
Net income - - - - 10,770,567 10,770,567
----------- ----------- ----------- ------------- ------------ -------------
Balance at December 31, 1999 1,272,727 2,256,000 1,108,395 132,692,914 (1,026,991) 136,303,045
Issuance of common stock, net
of offering expense - - 3,793 174,190 - 177,983
Vesting of restricted stock grant - - 32,810 115,416 - 148,226
Conversion of Series S Preferred Stock - (64,500) 6,708 (143,771) - (201,563)
Common stock dividends - - - (4,472,856) (1,137,446) (5,610,302)
Preferred stock dividends (Series S) - - - - (1,890,188) (1,890,188)
Preferred stock dividends (Series A) - - - - (1,471,590) (1,471,590)
Net income - - - - 4,499,224 4,499,224
---------- ---------- ---------- ------------ ----------- ------------
Balance at June 30, 2000 $1,272,727 $2,191,500 $1,151,706 $128,365,893 ($1,026,991) $131,954,835
========== ========== ========== ============ =========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
JAMESON INNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Six Month Period Ended
June 30
2000 1999
------------- --------------
<S> <C> <C>
Operating Activities
Net income $ 4,499,224 $ 5,439,322
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary loss 69,229 --
Depreciation and amortization 7,154,705 4,005,514
Equity in income of hotel limited partnership -- (25,448)
Loss on disposal of furniture and equipment -- 261,404
Stock-based compensation expense 148,226 32,397
Loss on disposal of real estate 32,852 --
Changes in assets and liabilities increasing (decreasing) cash
Lease revenue receivable (1,384,335) (2,908,949)
Restricted cash 12,115,000 491,909
Other assets 119,836 (139,751)
Accounts payable and accrued expenses (648,682) 996,222
Accounts payable to affiliates (2,105,162) (870,319)
Accrued interest payable 266,506 (908)
Accrued property taxes and other accrued liabilities 197,493 445,831
------------ ------------
Net cash provided by operating activities 20,464,892 7,727,224
Investing Activities
Acquisition of Signature and billboards, net -- 3,821
Proceeds from disposition of property and equipment 1,490,000 --
Additions to property and equipment (22,036,542) (18,196,983)
------------ ------------
Net cash used in investing activities (20,546,542) (18,193,162)
Financing Activities
Common stock dividends paid (5,610,302) (4,754,102)
Preferred stock dividends paid (3,389,190) (1,998,057)
Proceeds from issuance of common stock, net of offering expense 177,983 235,153
Proceeds from exercise of stock options -- 101,803
Conversion of Series S preferred stock (201,563) --
Proceeds from mortgage notes payable 44,247,233 43,091,060
Payment of deferred finance costs (1,028,178) (931,958)
Payments on mortgage notes payable (26,664,154) (25,071,394)
------------ ------------
Net cash provided by financing activities 7,531,829 10,672,505
Net increase in cash 7,450,179 206,567
Cash at beginning of year 2,531,009 500,377
------------ ------------
Cash at end of period $ 9,981,188 $ 706,944
============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
JAMESON INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Business and Basis of Financial Statements
Jameson Inns, Inc. 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/R/." We also own Inns in the Midwest operating under
the name "Signature Inn/R/" as a result of the acquisition of Signature Inns,
Inc. in May 1999.
At June 30, 2000, we had a total of 111 Jameson Inns either in operation or
under development, including 92 operating Jameson Inns (4,544 available rooms),
17 Inns under development, and contracts to acquire 2 parcels of land on which
additional Inns are expected to be constructed. In addition, we own 26
operating Signature Inns (3,051 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, 1999
has been derived from the audited consolidated financial statements at that
date. Operating results for the six month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000, 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, 1999.
2. Merger with Signature Inns, Inc.
On May 7, 1999, we completed our merger with Signature Inns, Inc. In the
merger, we acquired 25 Signature Inns located in six midwestern states and a 40%
interest in a partnership, which owned one Signature Inn. In December 1999, we
acquired the remaining partnership interest in this partnership and took direct
ownership of the hotel.
Immediately prior to the merger, the Signature operating assets were sold to,
and the liabilities pertaining to the operations of the Signature Inns were
assumed by Jameson Hospitality, LLC. During 1999, we entered into a new master
lease with Jameson Hospitality covering the Signature Inns, with terms similar
to the terms of the master leases covering the Jameson Inns.
We accounted for the merger of Signature as a purchase. Accordingly, our
historical results include the effects of the merger beginning May 8, 1999.
7
<PAGE>
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------------------------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator
Income before extraordinary loss $ 3,224,237 $ 3,811,516 $ 4,568,453 $ 5,439,322
Extraordinary loss (37,382) -- (69,229) --
----------- ----------- ----------- -----------
Net income 3,186,855 3,811,516 4,499,224 5,439,322
Preferred stock dividends (1,667,183) (1,304,307) (3,361,778) (1,998,057)
----------- ----------- ----------- -----------
Numerator for basic earnings per
share-income available to common
stockholders $ 1,519,672 $ 2,507,209 $ 1,137,446 $ 3,441,265
=========== =========== =========== ===========
Denominator
Weighted average shares outstanding 11,480,355 10,551,772 11,439,841 10,229,083
Unvested restricted shares (408,517) (85,964) (399,427) (85,135)
----------- ----------- ----------- -----------
Denominator for basic earnings per share 11,071,838 10,465,808 11,040,414 10,143,948
Plus effect of dilutive securities:
Employee and director stock options 8,056 58,295 6,629 49,832
Unvested restricted shares 379,837 69,476 381,956 72,148
----------- ----------- ----------- -----------
Total dilutive potential common shares 387,893 127,771 388,585 121,980
----------- ----------- ----------- -----------
Denominator for diluted earnings per
share- adjusted weighted average
shares and assumed conversions 11,459,731 10,593,579 11,428,999 10,265,928
=========== =========== =========== ===========
Basic Earnings Per Common Share
Income before extraordinary loss $ .14 $ .24 $ .11 $ .34
Extraordinary loss -- -- (.01) --
------------ ----------- ----------- -----------
Net income per common share $ .14 $ .24 $ .10 $ .34
============ =========== =========== ===========
Diluted Earnings Per Common Share
Income before extraordinary loss $ .13 $ .24 $ .11 $ .34
Extraordinary loss -- -- (.01) --
----------- ----------- ----------- -----------
Net income $ .13 $ .24 $ .10 $ .34
=========== =========== =========== ===========
</TABLE>
Options to purchase 704,904 and 682,501 shares of Common Stock for the three
months ended June 30, 2000 and 1999 were outstanding but were not included in
the computation of diluted earnings per share because the effect would be
antidilutive. Options to purchase 704,904 and 944,282 shares of Common Stock for
the six months ended June 30, 2000 and 1999 were outstanding but were not
included in the computation of diluted earnings per share because the effect
would be antidilutive. The potential conversion of the series S Preferred Stock
was not included in the computation of diluted earnings per share as the effect
of the conversion would be antidilutive.
5. Sale of Hotel Property
On February 29, 2000 we sold the Inn located in Clinton, Tennessee resulting in
a loss of approximately $33,000.
6. Property and Equipment Held For Sale
Two operating Signature Inns and various outlots are currently held for sale.
We do not expect the sales of these properties to result in a significant gain
or loss.
8
<PAGE>
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.
Our primary source of revenue is rent payments by Jameson Hospitality, LLC
("Jameson Hospitality") under master leases (the "Leases") covering all of the
Jameson Inns and Signature Inns in operation. Our expenses 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 and six months ended June 30, 2000, we earned base rent and percentage
rent in the aggregate amount of $11.7 million and $20.7 million, respectively.
The principal determinant of percentage rent is Jameson Hospitality's Room
Revenues from 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>
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------- -----------------------------------
2000 1999 2000 1999
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Occupancy rate 62.5% 65.6% 57.9% 62.1%
ADR $ 58.77 $ 55.62 $ 58.09 $ 54.38
REVPAR $ 36.75 $ 36.51 $ 33.65 $ 33.79
Room Rentals (000s) $ 25,278 $ 19,494 $ 45,535 $ 29,848
Other Inn Revenues (000s) $ 705 $ 553 $ 1,408 $ 803
Room Revenues (000s) $ 25,983 $ 20,047 $ 46,943 $ 30,651
Room nights available 687,810 533,984 1,353,177 883,416
Operating Inns (at period end) 118 111 -- --
Rooms available (at period end) 7,595 7,079 -- --
</TABLE>
Results of Operations
Comparison of the Three Months Ended June 30, 2000 to the Three Months Ended
June 30, 1999.
Our revenue from the Leases for the three month period ended June 30, 2000,
increased 25.8% to $11.7 million as compared to $9.3 million for the same period
in 1999. The increase was due to the increase in Jameson Hospitality's Room
Revenues, which was primarily a result of the following factors:
. The total number of room nights available increased from 533,984 in 1999 to
687,810 in 2000, or 28.8%, due to the opening from January 1, 1999 through
June 30, 2000, of 13 new Jameson Inns (720 total additional rooms), the
expansion of 12 existing Jameson Inns (adding 237 rooms) and the operations
of the Signature Inns from May 7, 1999, offset partially by the sale of two
Jameson Inns, Milledgeville, Georgia (100 rooms) in July 1999 and Clinton,
Tennessee (40 rooms) in February 2000.
. All Inns ADR increased 5.7% from $55.62 in the second quarter of 1999 to
$58.77 in the same period in 2000.
9
<PAGE>
. All inns occupancy decreased from 65.6% during the second quarter of 1999 to
62.5% during the second quarter of 2000 due primarily to additional
competition in certain markets in which our hotels are located.
As a result of these factors, Jameson Hospitality's second quarter Room Revenues
rose from $20.0 million to $26.0 million in the second quarter of 2000. Same
Inn Room Revenues for Jameson Inns amounted to $12.6 million in both the second
quarters of 2000 and 1999. The same Inns experienced an increase in ADR from
$52.88 to $54.36 offset by a decrease in occupancy from 65.9% to 64.2% for the
second quarter of 2000 compared to the same period in 1999.
Property taxes and insurance expense totaled $1,079,000 for the three month
period ended June 30, 2000, compared with $860,000 for the same period in 1999.
The increase is attributable to the increase in number of Inns as a result of
the Signature acquisition and to the construction and expansion of Jameson Inns.
Depreciation expense increased from $2,205,000 to $3,523,000 for the three month
periods ended June 30, 2000 compared to 1999 due primarily to the Signature
acquisition and to an increase in the number of operating Jameson Inns and the
expansion of existing Jameson Inns.
General and administrative expense includes overhead charges for management,
accounting and legal services provided by the corporate home office and,
effective April 2, 1999, ground leases and other expenses related to our
ownership of billboards. General and administrative expense for the three
months ended June 30, 2000, was $312,000, as compared to $318,000 for the three
months ended June 30, 1999 due to less time spent in 2000 by shared employees on
our business matters as compared to Jameson Hospitality's and other related
entities' business matters.
Interest expense increased from $2,013,000 for the three-month period ended June
30, 1999, to $3,551,000 for the same period ended June 30, 2000, due to interest
rate increases and greater amounts of average principal indebtedness outstanding
during the second quarter of 2000 as a result of our assumption of $67.1 million
of mortgage indebtedness in connection with the Signature acquisition and
increased indebtedness related to the development of new Jameson Inns.
Comparison of the Six Months Ended June 30, 2000 to the Six Months Ended June
30, 1999.
Our revenue from the Leases for the six month period ended June 30, 2000,
increased 46.5% to $20.8 million as compared to $14.2 million for the same
period in 1999. The increase was due to the increase in Jameson Hospitality's
Room Revenues, which was primarily a result of the following factors:
. The total number of room nights available increased from 883,416 in 1999 to
1,353,177 in 2000, or 53.1%, due to the opening from January 1, 1999 through
June 30, 2000, of 13 new Jameson Inns (720 total additional rooms), and the
expansion of 12 existing Jameson Inns (237 total additional rooms), and the
operations of the Signature Inns from May 7, 1999, offset partially by the
sale of two Jameson Inns, Milledgeville, Georgia (100 rooms) in July 1999 and
Clinton, Tennessee (40 rooms) in February 2000.
. All Inns ADR increased 10.6% from $54.38 in the first half of 1999 to $58.09
in the same period in 2000.
. All inns occupancy decreased from 62.1% during the first six months of 1999
to 57.9% during the first six months of 2000 due primarily to additional
competition in certain markets.
As a result of these factors, Jameson Hospitality's Room Revenues rose from
$30.7 million for the first six months of 1999 to $46.9 million in the first six
months of 2000. Same Inn Room Revenues for the Jameson Inns amounted to $22.5
million in both the first six months of 2000 and 1999. The same Inns
experienced an increase in ADR from $52.53 to $53.81 offset by a decrease in
occupancy from 62.1% to 60.2% for the first half of 2000 compared to the same
period in 1999.
10
<PAGE>
Property taxes and insurance expense totaled $2,063,000 for the six month period
ended June 30, 2000, compared with $1,245,000 for the same period in 1999. The
increase is attributable to the increase in number of Inns, as a result of the
Signature acquisition and to the construction and expansion of Jameson Inns.
Depreciation expense increased from $3,906,000 to $6,881,000 for the six month
periods ended June 30, 2000 compared to 1999 due primarily to the Signature
acquisition and to an increase in the number of operating Jameson Inns and the
expansion of existing Jameson Inns.
General and administrative expense includes overhead charges for management,
accounting and legal services provided by the corporate home office and
effective April 2, 1999 ground leases and other expenses related to our
ownership of billboards. General and administrative expense for the six months
ended June 30, 2000 was $692,000, as compared to $446,000 for the six months
ended June 30, 1999. The increase was due to more time spent primarily in the
first quarter of 2000 by shared employees on our business matters as compared to
those of Jameson Hospitality and other related entities' and our acquisition of
the billboard assets of Jameson Hospitality in April of 1999.
Interest expense increased from $2,925,000 for the six-month period ended June
30, 1999, to $6,565,000 for the same period ended June 30, 2000, due to interest
rate increases and greater amounts of average principal indebtedness outstanding
during the first six months of 2000 as a result of our assumption of $67.1
million of mortgage indebtedness in connection with the Signature acquisition
and increased indebtedness related to the development of new Jameson Inns.
Funds from Operations
The following table illustrates the calculation of funds from operations ("FFO")
on a historical basis. In March 1995, NAREIT published a new interpretation of
funds from operations, which we retroactively adopted at that time.
In October 1999, NAREIT issued additional clarification effective as of January
1, 2000 stipulating that FFO should include both recurring and non-recurring
operating results. Consistent with this clarification, non-recurring items that
are not defined as "extraordinary" under GAAP will be reflected in the
calculation of FFO. Gains and losses from the sale of operating property will
continue to be excluded from the calculation of FFO.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------------- -----------------------------
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net income attributable to common
Stockholders $1,519,672 $2,507,208 $1,137,446 $3,441,264
Loss on disposal of real estate -- -- 32,852 --
Depreciation expense 3,523,073 2,204,549 6,880,969 3,905,872
FFO adjustment for equity share of
Hotel partnership -- 5,761 -- 5,761
Extraordinary loss 37,382 -- 69,229 --
Loss on disposal of furniture and
Equipment -- 140,697 -- 261,405
---------- ---------- ---------- ----------
Funds from Operations $5,080,127 $4,858,215 $8,120,496 $7,614,302
========== ========== ========== ==========
</TABLE>
As described elsewhere in this Form 10-Q, including in note 2 to the condensed
consolidated statements, the Company merged with Signature Inns, Inc. on May 7,
1999. The following presents the unaudited pro forma funds from operations as
if the purchases and all related transactions were consummated on April 1 of the
respective period for the three month periods ended June 30 and January 1 of the
respective period for the six month periods ended June 30:
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1999 1999
-------------------- --------------------
<S> <C> <C>
Pro forma:
Net income attributable to common
Stockholders $2,169,013 $1,938,347
Loss on disposal of real estate -- --
Depreciation expense 2,758,432 5,815,310
FFO adjustment for equity share of hotel partnership 9,822 19,644
Extraordinary loss -- --
Loss on disposal of furniture and equipment 140,697 261,405
Loss on impairment of property -- --
---------- ----------
Funds from Operations $5,077,964 $8,034,706
========== ==========
</TABLE>
Liquidity and Capital Resources
We expect to continue to develop additional Jameson Inns and Signature Inns and
to expand Jameson Inns, as suitable opportunities arise. We will not undertake
such investments, however, unless adequate sources of financing are available.
Since our election to be taxed as a REIT, we have financed construction of new
Inns and currently intend to continue financing the construction of new Inns
entirely with bank borrowings. We believe we can continue to finance new Inns
and expansions with construction and long-term mortgage loans. At June 30, 2000
we had approximately $192 million in outstanding debt. At that date, we had one
Signature Inn, which was debt free and could be used as collateral if we need
additional borrowing capacity.
We have $10.0 million available for borrowing under lines of credit (the
"Line") with some convertible notes beginning in 2000. At June 30, 2000, $1.0
million had been drawn down under the Line, with $9.0 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 a spread over the
prime rate plus 0.25% to .50% points. The minimum annual interest rate payable
is 7% and the maximum is 13%. The annual interest rates at June 30, 2000,
ranged from 8.125% to 8.5%. Loans made under the Line are secured by mortgages
on nine of the Jameson Inns. Payments of interest are due monthly and monthly
payments of principal and interest commence at various dates. Principal for
each term loan under the Line is amortized using a 15- or 20-year period and is
payable in full at various dates through 2007. We use the Line to purchase land
and supplement the financing of construction costs, and for certain other
operating needs, including the payment of dividends and other operating
expenses.
In December 1999 and January 2000, we refinanced indebtedness secured by four
Signature Inns by issuance of adjustable rate economic development revenue
refunding bonds in the aggregate principal amount of $12,115,000. The bonds
mature on December 1, 2016, subject to prior optional and mandatory redemption,
and are subject to mandatory purchase under certain conditions. The interest
rates on the bonds adjust weekly and were 5.0% at June 30, 2000.
Historically, we have utilized construction and long term mortgage financing to
fund the balance of construction costs of Inns not funded under the Line. For
each new Jameson Inn to be built, we generally obtain a construction loan of
$1.1 to $2.8 million depending on the size and location of the Inn to be built.
After an 18-month interest-only period, each construction loan automatically
converts to a long-term mortgage financing upon completion of the Inn with a 15-
or 20-year amortization period and is payable in full seven years from
inception. The interest rate on each of the loans adjusts annually to rates
ranging from the prevailing prime rate plus 0.125% to prime plus 0.375%. As of
June 30, 2000, the construction loans are secured by mortgages on 17 of the
Jameson Inns under construction.
As of June 30, 2000, we had a total of 17 Jameson Inns under construction with
total remaining construction costs, excluding land and closing costs, expected
to total $40.7 million when the projects are complete. For these
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properties, the Company had obtained commitments for construction loans totaling
$38.5 million, with remaining availability of $30.4 million at June 30, 2000. To
fund the completion of the properties under construction we will use the
remaining availability under the construction loans, availability on the Line of
$9.0 million, proceeds from the financing of the unencumbered Inn and proceeds
from the refinancing of Inns with increased borrowing capacity.
In January 1997, we filed a shelf registration statement on Form S-3 with the
SEC to register shares of our common and preferred stock for potential sale to
the public in order to provide additional financing. In September 1999, we
filed a post-effective amendment to that registration statement to permit us to
sell up to 1,000,000 shares of our common stock at prevailing market prices
through our designated sales agent. During 1999, we sold a total of 61,100
shares of common stock at-the-market resulting in approximately $493,000 in net
proceeds, which we used to repay indebtedness and for general corporate
purposes. Through June 30, 2000 we made no additional sales through this shelf
registration. We intend to use additional net proceeds, if any, from any sale
of securities under that registration statement for the repayment of existing
indebtedness, working capital and general corporate purposes.
In August 2000, we announced a share repurchase program of up to $10 million of
our outstanding stock. Most of our repurchases will probably be for shares of
our preferred stock, but they may include our common stock as well.
Since we presently intend to rely primarily on borrowings for construction and
permanent financing of new Jameson Inns and Signature Inns and for the expansion
of existing Jameson Inns, the lack of sufficient financing on favorable terms
and conditions could prevent or significantly deter Jameson from constructing
new Inns or expanding existing Inns. The availability of such financing depends
on a number of factors over which we have no control, including general economic
conditions, the economic and competitive environments of the communities in
which our Inns are located and the level and stability of long term interest
rates. We are also considering possible additional long-term debt or equity
financing that would be available to fund our ongoing development activities.
As with most real estate environments, investments in Inns are relatively
illiquid and this illiquidity is further increased by the location of many of
our Inns in small communities. As a result, our ability to sell or otherwise
dispose of any Inn to provide liquidity will be very limited.
We have four stock incentive plans in place. As of June 30, 2000, 650,847
shares of our common stock were reserved for the future stock options and
restricted stock grants. Previously issued options to purchase 919,471 shares
of our common stock were outstanding (including 455,171 which were exercisable).
As of June 30, 2000, 412,370 shares of our common stock issued to certain key
employees of Jameson and Jameson Hospitality are restricted as to sale until
fully vested beginning in 2006 through 2010.
Forward-Looking Statements
There are a number of statements in this report which address activities, events
or developments which we expect or anticipate will or may occur in the future,
including such things as our expansion plans, including construction of new Inns
and expansion of existing Inns, availability of debt financing and capital,
payment of quarterly dividends, and other matters. These statements are based
on certain assumptions and analyses we have made in the light of our experience
and our perception of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate under the
circumstances. However, whether actual results and developments will conform to
our expectations and predictions is subject to a number of risks and
uncertainties, including (1) our ability to (a) secure construction and
permanent financing to finance such development on terms and conditions
favorable to us, (b) assess accurately the market demand for new Inns and
expansions of existing Inns, (c) identify and purchase new sites which meet our
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 our 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 our business in a cost-effective manner given the increase
in the number of Inns; (2) Jameson Hospitality's willingness and ability to
manage the Inns profitably; (3) general economic, market and business
conditions,
13
<PAGE>
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 us; (5) the availability of
qualified managers and employees necessary for our planned growth; (6) changes
in laws or regulations and (7) other factors, most of which are beyond our
control. 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 which we anticipate will be realized, or even
if substantially realized, that they will have the expected consequences to or
effects on us or our business or operations.
The Lessee - Jameson Hospitality, LLC
We seek to enhance Lease revenue by working in a collaborative manner with
Jameson Hospitality, lessee of the Jameson and Signature Inns. Jameson
Hospitality is wholly-owned by Thomas W. Kitchin, chairman and chief executive
officer, and other members of his family.
Presently, Jameson Hospitality also has an exclusive relationship with us in
that Jameson Hospitality does not manage any hotel properties other than the
Inns. We believe this exclusive relationship ensures that our and Jameson
Hospitality's interests are well aligned. While we do 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' rent formula allows us to
benefit from increases in Room Revenues, regardless of the mix between occupancy
and ADR.
The following table summarizes the unaudited financial results of JH including
the operating results of the Signature Inns beginning May 8, 1999.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Room Revenues $25,983,498 $20,046,146 $46,942,704 $30,650,974
Construction Revenues 9,340,717 7,728,937 19,702,339 13,396,613
Other Income 390,458 206,157 776,587 227,768
----------- ----------- ----------- -----------
Total Revenues 35,714,673 27,981,240 67,421,630 44,275,355
Inn operating expenses 12,902,892 9,336,404 24,682,759 14,812,528
Lease expense 11,636,447 9,299,547 20,703,905 14,174,585
Construction and other expenses 8,424,084 6,857,130 17,592,145 11,572,922
General and administrative 2,121,563 1,859,503 3,910,942 2,930,634
Depreciation and amortization 79,144 16,370 157,893 73,303
----------- ----------- ----------- -----------
Total expenses 35,164,130 27,368,954 67,047,644 43,563,972
----------- ----------- ----------- -----------
Net income $ 550,543 $ 612,286 $ 373,986 $ 711,383
=========== =========== =========== ===========
</TABLE>
14
<PAGE>
The following presents the unaudited pro forma results of operations of JH as if
the purchases of Signature Inns, the billboard assets and all related
transactions were consummated on April 1 for the three month period ended June
30 and January 1 for the six month period ended June 30:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1999 1999
-------------------- -------------------
<S> <C> <C>
Pro forma:
Room Revenues $24,439,777 $43,834,144
Construction revenues 7,728,937 13,396,613
Other income 173,419 195,030
----------- -----------
Total Revenues 32,342,133 57,425,787
Inn operating expenses 11,156,593 20,946,587
Lease expense 10,604,422 18,999,456
Construction and other expenses 6,857,130 11,572,922
General and administrative 3,412,846 5,815,474
Depreciation and amortization 26,667 113,773
----------- -----------
Total expenses 32,057,658 57,448,212
----------- -----------
Net income (loss) $ 284,475 $ (22,425)
=========== ===========
</TABLE>
Distributions to Stockholders
The table below sets forth, for the periods indicated, the cash distributions
declared per share since January 1, 1999.
<TABLE>
<CAPTION>
Series A Series S
Common Stock Preferred Stock Preferred Stock
--------------- ------------------ ------------------
<S> <C> <C> <C>
First Quarter, 1999 $0.240 $0.5781 --
Second Quarter, 1999 $0.245 $0.5781 $0.252
Third Quarter, 1999 $0.245 $0.5781 $0.425
Fourth Quarter, 1999 $0.245 $0.5781 $0.425
First Quarter, 2000 $0.245 $0.5781 $0.425
Second Quarter, 2000 $0.245(1) $0.5781(2) $0.425(2)
</TABLE>
(1) On June 16, 2000 we declared this dividend, which is payable on August 18,
2000 to shareholders of record on June 30, 2000.
(2) On June 15, 2000 we declared this dividend, which was paid on July 20, 2000
to shareholders of record on June 30, 2000.
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual stockholders meeting held June 17, 2000, the following
matters were submitted to a vote of the Company's stockholders, and the
stockholders' votes were as follows:
1. Robert D. Hisrich was elected as director for a three-year term. There
were 9,977,313 votes cast in favor of the election and 96,960 votes to
abstain. Thomas J. O'Haren was elected as director for a three-year
term. There were 9,975,921 votes cast in favor of the election and
98,352 votes to abstain. The terms of Thomas W. Kitchin and Michael E.
Lawrence continued after the meeting.
2. The selection of the firm of Ernst & Young LLP was ratified as the
independent auditor of the Company's consolidated financial statements
for the fiscal year ending December 31, 2000. There were 9,995,437 votes
cast in favor of the proposal, 28,104 votes cast against the proposal,
and 50,732 votes abstained. There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
The Company filed no Form 8-K during the three months ended June 30,
2000.
Exhibits
27.1 Financial Data Schedule (for SEC use only)
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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.
Dated: August 10, 2000 By: /s/ Craig R. Kitchin
--------------------
Craig R. Kitchin
President and Chief Financial Officer
(Principal Financial Officer)
Dated: August 10, 2000 By: /s/ Martin D. Brew
------------------
Martin D. Brew
Treasurer and Corporate Controller
(Chief Accounting Officer)
17
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INDEX TO EXHIBITS
Exhibit
Number
------
27.1 Financial Data Schedule...........................................
18
