<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 quarterly period ended September 30, 2000
or
[ ] 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 0-23256
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 zip codes)
_______________________________
(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. Yes X 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 -
11,537,219 shares outstanding as of November 7, 2000.
<PAGE>
<TABLE>
<CAPTION>
INDEX
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999.......................................................... 3
Condensed Consolidated Statements of Operations for the Three and Nine Month
Periods Ended September 30, 2000 and 1999
(unaudited)................................................................................ 4
Condensed Consolidated Statements of Stockholders' Equity for the
Nine Month Period Ended September 30, 2000 (unaudited) and the
Year Ended December 31, 1999............................................................... 5
Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods Ended September 30, 2000 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 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 17
SIGNATURES................................................................................. 18
EXHIBITS
</TABLE>
2
<PAGE>
JAMESON INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
Assets
Operating property and equipment $346,313,520 $318,601,921
Property and equipment held for sale 7,394,022 2,532,131
Less: accumulated depreciation (34,231,613) (24,551,080)
------------ ------------
319,475,929 296,582,972
Cash 4,905,431 2,531,009
Restricted cash 623,947 12,616,482
Lease revenue receivable 5,201,616 6,941,315
Deferred finance costs, net 3,535,302 2,942,324
Other assets 1,044,639 1,237,642
------------ ------------
$334,786,864 $322,851,745
============ ============
Liabilities and Stockholders' Equity
Mortgage notes payable $194,793,887 $173,957,998
Accounts payable and accrued expenses 613,485 1,269,334
Accounts payable to affiliates 2,763,425 6,475,510
Accrued interest payable 1,376,019 972,544
Accrued property taxes 2,827,115 2,178,719
Preferred stock dividend payable 1,667,183 1,694,595
----------- ------------
204,041,114 186,548,700
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, 11,537,219 shares
(11,083,952 shares in 1999) issued and
outstanding 1,153,722 1,108,395
Additional paid-in capital 127,154,792 132,692,914
Retained deficit (1,026,991) (1,026,991)
------------ ------------
Total stockholders' equity 130,745,750 136,303,045
------------ ------------
$334,786,864 $322,851,745
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Lease revenue:
Jameson Hospitality, LLC $12,204,352 $11,357,394 $32,951,577 $25,532,724
Third-Party 14,892 21,772 59,111 43,544
Expenses:
Property and other tax expense 1,001,170 700,166 2,661,977 1,666,817
Insurance expense 220,593 205,760 639,515 489,163
Depreciation 3,645,525 3,324,688 10,526,494 7,230,560
General and administrative expenses 318,558 303,819 993,208 744,689
Loss on disposal of real estate 4,465 218,839 37,317 480,244
----------- ----------- ----------- -----------
Total expenses 5,190,311 4,753,272 14,858,511 10,611,473
----------- ----------- ----------- -----------
Income from operations 7,028,933 6,625,894 18,152,177 14,964,795
Other income 12,106 54,058 22,691 79,506
Interest expense, net 3,962,281 2,696,324 10,527,657 5,621,351
----------- ----------- ----------- -----------
Income before extraordinary loss 3,078,758 3,983,628 7,647,211 9,422,950
Extraordinary loss-early extinguishment of debt -- -- 69,229 --
----------- ----------- ----------- -----------
Net income 3,078,758 3,983,628 7,577,211 9,422,950
Less preferred stock dividends 1,667,183 1,694,596 5,028,961 3,692,653
----------- ----------- ----------- -----------
Net income attributable to common stockholders $ 1,411,575 $2,289,032 $ 2,549,021 $5,730,297
=========== =========== =========== ===========
Per common share:
Income before extraordinary loss:
Basic $ 0.13 $ 0.21 $ 0.24 $ 0.55
Diluted $ 0.12 $ 0.21 $ 0.23 $ 0.54
Net income:
Basic $ 0.13 $ 0.21 $ 0.23 $ 0.55
Diluted $ 0.12 $ 0.21 $ 0.22 $ 0.54
Dividends paid on common stock $ 0.245 $ 0.245 $ 0.735 $ 0.725
</TABLE>
See accompanying notes.
4
<PAGE>
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<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 preferred and common
stock, net of offering expense - - 5,509 295,788 - 301,297
Vesting of restricted stock grant - - 33,110 193,091 - 226,201
Conversion of Series S Preferred
Stock - (64,500) 6,708 (143,771) - (201,563)
Common stock dividends - - - (5,883,230) (2,549,021) (8,432,251)
Preferred stock dividends (Series S) - - - - (2,821,575) (2,821,575)
Preferred stock dividends (Series A) - - - - (2,207,386) (2,207,386)
Net income - - - - 7,577,982 7,577,982
---------- ---------- ---------- ------------ ----------- ------------
Balance at September 30, 2000 $1,272,727 $2,191,500 $1,153,722 $127,154,792 $(1,026,991) $130,745,750
========== ========== ========== ============ =========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
JAMESON INNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Month Period Ended
September 30
2000 1999
------------ ------------
<S> <C> <C>
Operating Activities
Net income $ 7,577,982 $ 9,422,950
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary loss 69,229 --
Depreciation and amortization 10,958,389 7,388,446
Equity in income of hotel limited partnership -- (79,506)
Stock-based compensation expense 226,201 50,803
Loss on disposal of real estate 32,852 480,244
Changes in assets and liabilities increasing
(decreasing) cash:
Lease revenue receivable 1,739,699 (2,699,492)
Restricted cash 11,992,535 (87,210)
Other assets 193,003 (573,387)
Accounts payable and accrued expenses (656,785) 1,215,855
Accounts payable to affiliates (3,712,085) (139,433)
Accrued interest payable 403,475 236,890
Accrued property taxes and other accrued liabilities 629,432 670,994
------------ ------------
Net cash provided by operating activities 29,453,927 15,887,154
Investing Activities
Acquisition of Signature and billboards, net -- 3,821
Proceeds from disposition of property and equipment 1,490,000 1,441,586
Additions to property and equipment (34,915,182) (29,851,094)
------------ ------------
Net cash used in investing activities (33,425,182) (28,405,687)
Financing Activities
Common stock dividends paid (8,432,251) (7,447,949)
Preferred stock dividends paid (5,056,373) (3,692,653)
Proceeds from issuance of common stock, net of offering expense 301,297 360,253
Proceeds from exercise of stock options -- 101,803
Conversion of Series S preferred stock (201,563) --
Proceeds from mortgage notes payable 51,454,665 50,502,188
Payment of deferred finance costs (1,101,322) (1,109,133)
Payments on mortgage notes payable (30,618,776) (25,799,292)
------------ ------------
Net cash provided by financing activities 6,345,677 12,915,217
Net increase in cash 2,374,422 396,684
Cash at beginning of year 2,531,009 500,377
------------ ------------
Cash at end of period $ 4,905,431 $ 897,061
============ ============
</TABLE>
6
<PAGE>
Jameson Inns, Inc.
Notes To Condensed Consolidated Financial Statements
(unaudited)
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." We also own Inns in the Midwest operating under the
name "Signature Inns" as a result of the acquisition of Signature Inns, Inc. in
May 1999.
At September 30, 2000, we had a total of 111 Jameson Inns either in operation or
under development, including 95 operating Jameson Inns (4,733 available rooms),
14 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 nine month period ended September 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 Nine Months
Ended September 30 Ended September 30
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator
Income before extraordinary loss $ 3,078,758 $ 3,983,628 $ 7,647,211 $ 9,422,950
Extraordinary loss -- -- 69,229 --
----------- ----------- ----------- -----------
Net income 3,078,758 3,983,628 7,577,982 9,422,950
Preferred stock dividends (1,667,183) (1,694,596) (5,028,961) (3,692,653)
----------- ----------- ----------- -----------
Numerator for basic earnings
per share-income available
to common stockholders $ 1,411,575 $ 2,289,032 $ 2,549,021 $ 5,730,297
=========== =========== =========== ===========
Denominator
Weighted average shares outstanding 11,526,356 11,000,612 11,468,890 10,489,085
Unvested restricted shares (413,696) (87,031) (404,105) (85,854)
----------- ----------- ----------- -----------
Denominator for basic earnings per share 11,112,660 10,913,581 11,064,785 10,403,231
Plus: Effect of dilutive securities:
Employee and director stock options 30,631 57,251 13,521 52,305
Unvested restricted shares 352,557 69,566 366,591 71,071
----------- ----------- ----------- -----------
Total dilutive potential common shares 383,188 126,817 380,112 123,376
----------- ----------- ----------- -----------
Denominator for diluted earnings
per share-adjusted weighted average
shares and assumed conversions 11,495,848 11,040,398 11,444,897 10,526,607
=========== =========== =========== ===========
Basic Earnings Per Common Share:
Income before extraordinary loss $ .13 $ .21 $ 24 $ .55
Extraordinary loss -- -- (.01) --
----------- ----------- ----------- -----------
Net income per common share $ .13 $ .21 $ .23 $
=========== =========== =========== ===========
Diluted Earnings Per Common Share:
Income before extraordinary loss $ .12 $ .21 $ 23 $ .54
Extraordinary loss -- -- (.01) --
----------- ----------- ----------- -----------
Net income per common share $ .12 $ .21 $ .22 $ .54
=========== =========== =========== ===========
</TABLE>
Options to purchase 521,033 and 515,833 shares of Common Stock for the three
months ended September 30, 2000 and 1999 and options to purchase 521,033 and
610,001 shares of Common Stock for the nine months ended September 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.
8
<PAGE>
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.
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
and other 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 nine months ended September 30, 2000, we earned base rent and
percentage rent in the aggregate amount of $12.2 million and $33.0 million,
respectively. The principal determinant of percentage rent is Jameson
Hospitality's Room Revenues from the Inns, as defined by the Leases. Therefore,
we believe 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 Nine Months
Ended September 30 Ended September 30
----------------------- -------------------------
2000 1999 2000 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Occupancy rate 61.7% 65.4% 59.2% 63.4%
ADR $ 59.92 $ 57.99 $ 58.75 $ 55.84
REVPAR $ 36.94 $ 37.92 $ 34.79 $ 35.42
Room Rentals (000's) $ 26,293 $ 24,401 $ 71,828 $ 54,247
Other Inn revenues (000's) $ 745 $ 716 $ 2,153 $ 1,553
Room Revenues $ 27,038 $ 25,117 $ 73,981 $ 55,800
Room nights available 711,671 648,211 2,064,848 1,531,744
Operating Inns (at period end) 121 111 -- --
Rooms available (at period end) 7,784 7,125 -- --
</TABLE>
Results Of Operations
Comparison of the Three Months Ended September 30, 2000 to the Three Months
Ended September 30, 1999.
Our revenue from the Leases for the three month period ended September 30, 2000,
increased 7.5% to $12.2 million as compared to $11.4 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:
9
<PAGE>
. The total number of room nights available increased 9.8% due to the opening
from July 1, 1999 through September 30, 2000 of 12 new Jameson Inns (752 total
additional rooms) and the expansion of three existing Jameson Inns (adding 60
rooms), 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 3.3% from $57.99 in the third quarter of 1999 to $59.92
in the same period in 2000.
. All Inns occupancy decreased from 65.4% during the third quarter of 1999 to
61.7% during the third quarter of 2000 due primarily to additional competition
in certain markets in which our hotels are located and the impact from our
recently opened larger hotel properties which achieved start-up occupancies
which are lower than our mature hotel properties.
As a result of these factors, Jameson Hospitality's third quarter room revenues
rose from $25.1 million for the third quarter of 1999 to $27.0 million in the
third quarter of 2000. same inn room revenues in the third quarter of 2000
versus the third quarter of 1999 grew to $26.3 million from $24.9 million. The
same inn growth is due to an increase in ADR from $58.02 to $59.86 for these
Inns, an increase in room nights available (due to expansions of certain of
these Inns) from 645,594 to 646,944 offset by a decrease in the occupancy rate
from 65.8% to 63.5% for these Inns for the third quarter of 2000 compared to the
same period in 1999.
Property and other taxes and insurance expense totaled $1,222,000 for the three
month period ended September 30, 2000, compared with $905,000 for the same
period in 1999. The increase is attributable to the increase in number of Inns
due to the construction and expansion of Jameson Inns, and an increase in
franchise taxes of $116,000.
Depreciation expense increased from $3,325,000 to $3,646,000 for the three month
periods ended September 30, 1999 and 2000, respectively, due primarily 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 for the corporate home office and, ground leases
and other expenses related to our ownership of billboards. General and
administrative expense for the three months ended September 30, 2000, was
$319,000, as compared to $304,000 for the three months ended September 30, 1999.
The increase was due to more time spent in 2000 by shared employees on our
business matters as compared to Jameson Hospitality's and other related
entities'.
Interest expense increased from $2,696,000 for the three-month period ended
September 30, 1999, to $3,962,000 for the same period ended September 30, 2000,
due to greater amounts of average principal indebtedness outstanding in the
third quarter of 2000 and a higher weighted average interest rate. Interest
expense amounts exclude interest capitalized in the cost of new Inn development.
Comparison of the Nine Months Ended September 30, 2000 to the Nine Months Ended
September 30, 1999.
Our revenue from the Leases for the nine month period ended September 30, 2000,
increased 29.0% to $33.0 million as compared to $25.6 million for the same
period in 1999. The increase was due to the increase in Jameson Hospitality's
room revenues.
. The total number of room nights available increased from 1,531,744 in 1999 to
2,064,848 in 2000, or 34.8%, due to the opening from January 1, 1999 through
September 30, 2000, of 16 new Jameson Inns (909 total additional rooms), the
expansions of 12 existing Jameson Inns (237 total additional rooms), 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 5.2% from $55.84 in the first nine months of 1999 to
$58.75 in the same period in 2000.
10
<PAGE>
. All Inns occupancy decreased from 63.4% during the first nine months of 1999
to 59.2% during the first nine months of 2000 due primarily to additional
competition in certain markets and the impact from recently opened larger
hotel properties which achieved start-up occupancies which are lower than our
mature hotel properties.
As a result of these factors, Jameson Hospitality's room revenues rose 32.4%
from $55.8 million for the first nine months of 1999 to $74.0 million in the
first nine months of 2000. Same inn room revenues in the first nine months of
2000 versus the same period in 1999 grew to $66.0 million from $65.83 million.
The same Inn growth is due to an increase in ADR from $57.34 to $58.77 for these
Inns, an increase in room nights available (due to expansions of certain of
these Inns) from 1,853,274 to 1,861,838, offset by a decrease in the occupancy
rate from 63.4% to 59.2% for these Inns for the first nine months of 2000
compared to the same period in 1999.
Property and other taxes and insurance expense totaled $3,301,000 for the nine
month period ended September 30, 2000, compared with $2,156,000 for the same
period in 1999. The increase is attributable to the increase in the number of
Inns, as a result of the Signature acquisition and to the construction and
expansion of Jameson Inns, and an increase in franchise taxes of $128,000.
Depreciation expense increased from $7,231,000 to $10,526,000 for the nine month
periods ended September 30, 1999 and 2000, respectively, 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 for 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 nine months ended September 30, 2000,
was $993,000, as compared to $745,000 for the nine months ended September 30,
1999. The 2000 increase is due to more time spent in 2000 by shared employees on
our business matters as compared to those of Jameson Hospitality and other
related entities and our acquisition of the billboards assets of Jameson
Hospitality in April, 1999.
Interest expense increased from $5,621,000 for the nine month period ended
September 30, 1999, to $10,528,000 for the same period ended September 30, 2000,
due to the greater amounts of average principal indebtedness outstanding during
2000, a higher weighted average interest rate and the $67.1 million of mortgage
indebtedness assumed with the acquisition of Signature. Interest expense
amounts exclude interest capitalized in the cost of new Inn development.
Funds From Operations ("FFO")
The following table illustrates the calculation of funds from operations ("FFO")
on a historical basis.
In October 1999, NAREIT issued 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 Nine Months
Ended September 30 Ended September 30
------------------------ ---------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net income attributable to
Common Stockholders $1,411,575 $2,289,032 $ 2,549,021 $ 5,730,297
Loss on disposal of Real Estate 4,465 218,839 37,317 480,244
Depreciation expense 3,645,525 3,324,688 10,526,494 7,230,560
FFO adjustment for equity
Share of hotel partnership -- 8,939 -- 14,700
Extraordinary loss -- -- 69,229 --
---------- ---------- ----------- -----------
Funds from Operations $5,061,565 $5,841,498 $13,182,061 $13,455,801
========== ========== =========== ===========
</TABLE>
11
<PAGE>
As described elsewhere in this Form 10-Q, including in note 2 to the condensed
consolidated statements, we 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 July 1 for the three
month period ended September 30 and on January 1 for the nine month period ended
September 30:
12
<PAGE>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1999
------------------ -----------------
Pro Forma:
Net income attributable to
common stockholders $2,289,032 $4,227,379
Depreciation expense 3,324,688 9,139,998
FFO adjustment for equity
share of hotel partnership 8,939 28,583
Loss on disposal of furniture
and equipment 218,839 480,244
---------- -----------
Funds from Operations $5,841,498 $13,876,204
========== ===========
Liquidity And Capital Resources
We expect to continue to develop additional Jameson Inns and Signature Inns and
to expand existing 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 September 30, 2000, we had approximately $195 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 $8.9 million available for borrowing under lines of credit (the "Line")
with some convertible notes beginning to amortize in 2000. At September 30,
2000, $1.9 million had been drawn down under the Line, with $7.0 million
remaining available credit. Loans made under the Line bear interest at rates
initially ranging from 8.875% to 9.0%, which are adjustable annually to a spread
over the prime rate plus .375% to .50% points. The minimum annual interest rate
payable is 7% and the maximum is 12%. The annual interest rate for each of the
notes at September 30, 2000, was 9.875%. Loans made under the Line are secured
by mortgages on eight 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 2004. 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 5.8% at September 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 for 60%
to 65% of total construction costs. 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 September 30, 2000, construction loans are secured by
mortgages on 14 of the Jameson Inns under construction.
As of September 30, 2000, we have a total of 14 Jameson Inns under construction
with total remaining construction costs, excluding land and closing costs,
expected to total $29.6 million when the projects are complete. For these
properties, we had obtained commitments for construction loans totaling $32.0
million, with remaining availability of 27.4 million at September 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
$7.0 million, proceeds from the financing of the unencumbered Inn and proceeds
from the refinancing of Inns with increased borrowing capacity.
13
<PAGE>
In January 1997, we filed a shelf registration statements 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 September 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 most likely be of 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 us 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 investments, 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 September 30, 2000, 635,363
shares of our common stock were reserved for the future stock options and
restricted stock grants. Previously issued options to purchase 933,971 shares
of our common stock were outstanding (including 459,671 which were exercisable).
As of September 30, 2000, 415,370 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 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, particularly those in the lodging industry generally and in the
geographic markets where the Inns are located; (4) rising interest rates paid on
existing loans and new financings; (5) the business opportunities (or lack
thereof) that may be presented to and pursued by us; (6) the availability of
qualified managers and employees necessary for our planned growth; (7) changes
in laws or regulations and (8) 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.
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<PAGE>
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 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 Jameson
Hospitality 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 Jameson
Hospitality, including the operating results of the Signature Inns beginning May
8, 1999.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------------ -------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Room Revenues $27,038,366 $25,149,765 $ 73,981,070 $55,800,739
Construction revenues 11,023,724 8,058,776 30,726,063 21,455389
Other Income 303,267 (14,984) 1,079,854 212,784
----------- ----------- ------------ -----------
Total revenues 38,365,357 33,193,557 105,786,988 77,468,912
Inn operating expenses 7,744,899 10,353,496 32,427,658 25,166,024
Construction and other
Expenses 9,678,575 8,417,746 27,270,720 19,990,668
General and Administrative 8,533,597 3,425,901 12,444,539 6,356,535
Lease expense 12,185,799 11,355,098 32,889,704 25,529,683
Depreciation and amortization 81,177 12,901 239,070 86,204
----------- ----------- ------------ -----------
Total expenses 38,224,047 33,565,142 105,271,691 77,129,114
----------- ----------- ------------ -----------
Net income (loss) $ 141,310 $ (371,585) $ 515,297 $ 339,798
=========== =========== ============ ===========
</TABLE>
The following presents the unaudited pro forma results of operations of Jameson
Hospitality as if the purchase of Signature Inns, the billboard assets and all
related transactions were consummated on July 1 for the three month period ended
September 30 and on January 1 for the nine month period ended September 30:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1999 1999
------------------ ------------------
<S> <C> <C>
Pro forma:
Room Revenues $25,117,027 $68,951,171
Construction revenues 8,058,776 21,455,389
Other income 17,754 212,784
----------- -----------
Total Revenues 33,193,557 90,619,344
Inn operating expenses 9,098,344 30,044,931
Lease expense 11,488,501 30,487,957
Construction and other expenses 6,978,224 18,551,146
General and administrative 6,180,050 11,995,524
Depreciation and amortization 12,901 126,674
----------- -----------
Total expenses 33,758,020 91,206,232
----------- -----------
Net income (loss) $ (564,463) $ (586,888)
=========== ===========
</TABLE>
15
<PAGE>
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 0.5781 $0.425
Third Quarter, 2000 0.245(1) 0.5781(1) $0.425(1)
</TABLE>
(1) On September 15, 2000 we declared these dividends, payable to shareholders
of record on September 30, 2000. The dividends on the Series A and Series S
Preferred Stock were paid on October 20, 2000 and the dividends on the
Common Stock are payable on November 20, 2000.
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<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
10.1 Employment contract with Thomas W. Kitchin dated July 27, 2000
10.2 Employment contract with Craig R. Kitchin dated July 27, 2000
10.3 Employment contract with William D. Walker dated July 27, 2000
10.4 Employment contract with Steven A. Curlee dated July 27, 2000
10.5 Agreement between Jameson Inns, Inc. and Jameson Hospitality, LLC
dated July 27, 2000
27.1 Financial data schedule
(b) The Company filed no current reports on Form 8-K during the three months
ended September 30, 2000.
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: November 10, 2000 By: /s/ Craig R. Kitchin
--------------------------------
Craig R. Kitchin, President and
Chief Financial Officer
(Principal Financial Officer)
Dated: November 10, 2000 By: /s/ Martin D. Brew
--------------------------------
Martin D. Brew, Treasurer and
Corporate Controller
(Chief Accounting Officer)
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