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Jameson Inns, Inc. (NASDAQ:JAMS), a leading hotel company, and owner of Jameson Inn and Signature Inn hotels, today announced financial results for the quarter and year ended December 31, 2003.
Strategic Restructuring and Acquisition Update
On January 2, 2004, the Company completed the transaction resulting in Jameson Inns, Inc. terminating its status as a real estate investment trust and acquiring Kitchin Hospitality, LLC, the operating company that leased and operated all of the hotel properties owned by Jameson Inns, Inc. The Company will no longer be treated as a REIT for income tax purposes in 2004.
Jameson Inns' Chairman and Chief Executive Officer, Thomas W. Kitchin said, "We are very pleased to have the transaction behind us. We no longer have any conflicts of interest in our structure or management. The timing of the deal is advantageous, as we will own and operate all of our properties for the full year of 2004. As the hotel industry rebounds from a difficult environment in the last few years, Jameson Inns, Inc. shareholders won't have to share the upside with a lessee. The Company is well positioned to benefit from an improving industry and economy."
Costs of the acquisition totaling $880,000 and $1,605,000 were expensed for the fourth quarter and full year of 2003, respectively. The consideration for the purchase of Kitchin Hospitality that relates to the lease buy-out will be expensed in first quarter 2004.
Jameson Inns Named Top Brand in Guest Satisfaction
In an article entitled "Customer Satisfaction: Applying Concepts to Industry Wide Measures," written by Jonathon Barsky, PhD, and Leonard Nash and appearing in the Cornell Hotel and Restaurant Administration Quarterly, Vol. 44, Nos. 5 & 6 (October-December, 2003), pages 173-183, the authors noted that Jameson Inns was ranked number one in customer satisfaction for the economy segment of the hotel market from the third quarter of 2002 to the third quarter of 2003, based on the quarterly ratings published by Market Metrix, LLC, a leading provider of comprehensive market research services for the hospitality industry. Market Metrix queries more than 35,000 hotel guests quarterly in areas including room cleanliness, friendly staff and value for price.
Thomas W. Kitchin, President and CEO said, "We are pleased with this finding. Our consistent focus continues to be on providing quality accommodations and superior service to our loyal clientele as we realize that it is the complete satisfaction of our guests that ensures our continued success."
Fourth Quarter 2003 Results
Lease revenues for the fourth quarter 2003 were $9,549,000 versus $9,577,000 for the 2002 fourth quarter. The Company reported a net loss attributable to the common stockholders of ($3,951,000) or ($0.35) per share for fourth quarter 2003 versus a net loss of ($2,234,000) or ($0.20) per share of common stock for fourth quarter 2002. Funds from operations (FFO), a non- GAAP measure, was $117,000 in fourth quarter 2003 versus $2,576,000 in fourth quarter 2002. The increase in the net loss and corresponding decrease in FFO were primarily attributable to costs related to the Company's strategic restructuring and acquisition of Kitchin Hospitality, LLC, early extinguishment of debt and impairment losses on certain Inns, including:
- Loss on impairment of real estate of $1,310,000
- Costs of acquisition of $880,000
Combined revenue per available room (REVPAR) for all of the Company's Inns was $26.46 for fourth quarter 2003, down $0.37 or 1.4%, from fourth quarter 2002 due to a decrease in average daily rate from $60.02 to $59.26, as occupancy remained flat at 44.7%. REVPAR for the Jameson Inn brand increased 0.7% to $29.27 for fourth quarter 2003, resulting from an increase in occupancy to 50.5% from 49.6%, offset partially by a $0.66 decrease in average daily rate from the fourth quarter of 2002. REVPAR for the Signature Inn brand decreased 7.1% to $21.17 for fourth quarter 2003 compared to $22.80 for fourth quarter 2002. This was due to a $0.61 decrease in the average daily rate and a decrease in occupancy from 36.0% to 33.7%.
Full Year 2003 Results
Lease revenues for 2003 increased slightly to $40,951,000 from $40,786,000 in 2002. The Company reported a net loss attributable to common stockholders of ($7,534,000) or ($0.67) per share for 2003 versus a net loss of ($5,932,000) or ($0.53) per share of common stock for 2002. FFO, a non-GAAP measure, for the year was $10,044,000 for 2003 versus $13,237,000 for 2002. The increase in the net loss and the decrease in FFO were primarily attributable to the costs related to the Company's strategic restructuring and acquisition of Kitchin Hospitality, LLC, early extinguishment of debt and impairment losses on certain Inns, including:
- Loss on impairment of real estate of $1,310,000
- Costs of acquisition of $1,605,000
Combined REVPAR for all of the Company's Inns was $29.53 for 2003, down $.06 or .02% from 2002 due to a decrease in average daily rate from $59.81 to $59.20. Occupancy increased from 49.5% for 2002 to 49.9% for 2003. REVPAR for the Jameson Inn brand increased 1.5% to $31.65 for 2003, resulting from an increase in occupancy to 54.3% from 53.7% and an increase in the average daily rate from $58.09 in 2002 to $58.30 in 2003. REVPAR for the Signature Inn brand decreased 4.4% to $25.55 for 2003 compared to $26.72 for 2002. This was due to a decrease in occupancy from 41.9% to 41.6% and a $2.38 decrease in the average daily rate.
"We are relatively pleased with the Company's performance in 2003. It marked a turning point in the business cycle for us. We were able to increase occupancy rates overall during the year, which is the key to driving a recovery in REVPAR," said Mr. Thomas Kitchin.
Funds from Operations and EBITDA
The Company believes FFO and EBITDA to be meaningful non-GAAP measures of operating performance. However, they should not be considered an alternative to accounting principles generally accepted in the United States. The Company calculates FFO for all periods consistent with the National Association of Real Estate Investment Trusts, Inc. definition. FFO has been calculated as net income attributable to common stockholders before depreciation expense and gains or losses on disposal of depreciable real estate assets. However, FFO as presented in this table may not be comparable to similarly titled measures presented by other companies.
EBITDA is defined as income before interest expense, income tax expense, depreciation and amortization. Restructuring and other special items and gains and losses on asset dispositions and impairments are also excluded from EBITDA as these items do not impact operating results on a recurring basis. Management considers EBITDA to be one measure of the cash flows from operations of the Company before debt service that provides a relevant basis for comparison, and EBITDA is presented to assist investors and lenders in analyzing the performance of the Company. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States, nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.
The following table illustrates the Company's calculation of funds from operations and EBITDA for the three and twelve months ended December 31, 2003 and 2002.
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
Net loss available
to common
stockholders $(3,950,576) $(2,234,110) $(7,534,034) $(5,932,473)
Depreciation
expense (1) 4,068,036 4,809,631 17,601,470 19,727,794
(Gain) loss on
disposal of
operating property
and equipment - - (23,576) (558,427)
FFO 117,460 2,575,521 10,043,860 13,236,894
Loss on impairment
of real estate 1,310,000 - 1,310,000 -
Costs of acquisition 880,398 - 1,605,000 -
Early extinguishments
of debt 95,374 4,508 211,009 62,153
Interest expense (1) 3,188,890 3,411,177 12,893,840 14,936,782
Preferred dividends 1,667,190 1,667,190 6,668,760 6,668,441
EBITDA $7,259,312 $7,658,396 $32,732,469 $34,904,270
(1) Including amounts of depreciation expense and interest expense
related to discontinued operations.
Properties
On December 31, 2003, the Company owned 95 Jameson Inns and 24 Signature Inns, compared to 96 Jameson Inns and 25 Signature Inns at December 31, 2002. The Company completed the expansion of one existing Jameson Inn and sold one Signature Inn and one Jameson Inn during 2003. Our 119 operating properties are located in the following fourteen states:
Jameson Inns Signature Inns Combined Brands
State Hotels Rooms Hotels Rooms Hotels Rooms Rooms %
Alabama 18 955 -- -- 18 955 11.7%
Florida 6 390 -- -- 6 390 4.8%
Georgia 24 1,310 -- -- 24 1,310 16.1%
Illinois -- -- 3 372 3 372 4.6%
Indiana -- -- 14 1,594 14 1,594 19.6%
Iowa -- -- 1 119 1 119 1.5%
Kentucky 1 67 2 238 3 305 3.7%
Louisiana 3 213 -- -- 3 213 2.6%
Mississippi 6 351 -- -- 6 351 4.3%
N. Carolina 14 675 -- -- 14 675 8.3%
Ohio -- -- 3 380 3 380 4.7%
S. Carolina 10 569 -- -- 10 569 7.0%
Tennessee 11 656 1 124 12 780 9.6%
Virginia 2 122 -- -- 2 122 1.5%
Total 95 5,308 24 2,827 119 8,135 100.0%
The Company invested approximately $4.1 million into refurbishing projects and product upgrades on existing hotels during 2003. The Company anticipates investing $4.4 million in 2004 for refurbishment projects and product upgrades.
Long-term Debt
As of December 31, 2003, the Company had total indebtedness of $213.8 million compared to $222.8 million on December 31, 2002, a reduction in debt of $9.0 million. During 2003, the Company made scheduled long-term debt payments of $10.0 million and further reduced debt by $3.1 million by retiring debt secured by two Inns that were sold during 2003. The Company refinanced two hotel loans resulting in $4.1 million of net proceeds to the Company.
Craig Kitchin, President and CFO of Jameson Inns, Inc. stated, "We are pleased to continue on our path of repaying long term indebtedness. In 2003 we reduced debt by approximately $9.0 million. We will pay down almost $1.0 million of debt per month during 2004."
On December 31, 2003, approximately $197.1 million of our outstanding debt is subject to adjustment during the next 12 months. The adjustment schedule is as follows:
Amount Weighted Average Interest
Adjustment Date (in millions) Rate at Adjustment Date
January 2004 $ 40.3 4.8%
February 2004 $ 16.4 5.1%
March 2004 $ 4.7 4.5%
April 2004 $ 39.9 4.5%
May 2004 $ 3.2 4.2%
July 2004 $ 47.9 5.2%
September 2004 $ 4.4 7.5%
October 2004 $ 22.2 5.2%
Adjusts Daily $ 18.1 3.4%
During 2003, the weighted average interest rate on all debt was 5.5% compared to 6.1% during the same period in 2002, a reduction of 60 basis points.
2004 Full Year Guidance
The Company expects REVPAR growth between 1% and 5% for 2004. The Company further expects EBITDA to be between $31 and $34 million. Historically, the Company has given FFO per share guidance. However, since FFO is typically a measure of performance used by the REIT industry, the Company believes that it is more appropriate to set expectations around EBITDA.
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