Financial

Jameson Inn Brand RevPAR Up 11.4%

Jameson Inns, Inc. Reports Strong Third Quarter 2005 Results

Jameson Inns - Jameson Inn Brand RevPAR Up 11.4% Resulting from Record Occupancy Growth

- Net Income Attributable Common Stockholders for the Third Quarter Increased to $1.7 Million

- Earnings Per Common Share for the Third Quarter Increased to $0.03

- Two Additional Hotel Conversions Substantially Completed

- Debt Maturities Extended, Interest Rates Fixed and 21 Additional Inns Unencumbered with Completion of $35.0 Million Convertible Notes Financing


Jameson Inns, Inc. (NASDAQ:JAMS) , owner and operator of Jameson Inn and Signature Inn hotels, announced financial results for the quarter ended September 30, 2005.

Third Quarter Results

For the quarter ended September 30, 2005, total revenue was $24.8 million, net income totaled $1.7 million or $0.03 per common share, and EBITDA was $8.7 million.

- Lodging revenues grew by approximately $1.6 million or 7.1% to $24.6 million in third quarter 2005 from $22.9 million in the same period in 2004. Combined brands RevPAR increased 8.8%. Along with an increase in ADR of $2.11 or 3.4%, occupancy rose by a full three percentage points, to 60.2%.
- The Jameson Inn brand occupancy rate increased to 64.1% in third quarter 2005 from 59.7% in the same period in 2004, while ADR increased 3.8% in third quarter 2005 as compared to the same period in 2004. This combination drove RevPAR to $40.80, $4.16 or 11.4% higher than the same period in 2004. "Last quarter our Jameson Inn brand occupancy rate grew by 3.0 percentage points, our largest quarterly gain ever. This quarter occupancy grew 4.4 percentage points. Clearly our business continues to get stronger," said Thomas W. Kitchin, Chairman and Chief Executive Officer of Jameson Inns, Inc. "This was our fifth quarter in a row of better than 7.0% RevPAR growth for our Jameson Inn brand."
- ADR for the Signature Inn brand increased to $69.20 in third quarter 2005 from $66.13 in the same period in 2004, while the occupancy rate fell to 44.1% from 49.5%, which resulted in a RevPAR decrease of 6.8%. "The Signature Inn brand performance in the third quarter 2005 was adversely impacted by the South Bend and Elkhart, Indiana renovation and conversion projects," said Kitchin. "RevPAR for these two properties was down 29.5% for the quarter. Excluding these two Inns, the remaining Signature Inns to be converted had RevPAR growth of 3.2% for the quarter."

Nine-Month Results

Net income attributable to common stockholders was approximately $2.3 million, or $0.04 per share in the nine months ended September 30, 2005, compared to a net loss of approximately $26.4 million, or $(1.10) per share in the same period of 2004. The net change was primarily due to a one time lease termination expense in 2004 of approximately $9.0 million as a result of the acquisition of Kitchin Hospitality, LLC, partially offset by an income tax benefit of approximately $1.4 million to establish initial deferred tax asset as a result of the change in taxable status in 2004, by the elimination of the preferred dividends of approximately $4.4 million and a loss on redemption of the preferred stock of approximately $16.0 million.

- Despite having approximately 1.6% fewer rooms available to rent, lodging revenues rose 4.1% to $66.5 million during the first nine months of 2005, compared to $63.9 million in the same period in 2004.
- During the first nine months of 2005, the occupancy rate for the Jameson Inn brand increased to 59.9% from 57.2%. ADR for the Jameson Inn brand increased 6.0% for the nine months ended September 30, 2005 as compared to the same period of 2004. This combination resulted in a RevPAR increase of 11.1% for the Jameson Inn brand.
- During the first nine months of 2005, ADR for the Signature Inn brand increased 2.0%, while occupancy decreased to 38.3% from 42.4%. This combination resulted in a RevPAR decrease of 7.9% for the Signature Inn brand.

Fourth Quarter Update - Combined Brands

For the first 38 days of the 4th quarter 2005, occupancy for continuing operations hotels was 59.9% versus 53.2% in the same period in 2004. The ADR for these hotels was $66.50 compared to $64.70 in the same period in 2004. Consequently, RevPAR was $39.80, up 15.8% over RevPAR of $34.40 in the same period in 2004.

For the Jameson Inn brand, RevPAR was up 18.1% during this period. RevPAR for the five hotels converted to Jameson Inns was up 14.6% during this period.

For the South Bend and Elkhart, Indiana properties, which were officially converted on October 1, 2005, RevPAR for the first 38 days after the conversion was up 18.4%. During the 3rd quarter 2005, when these two hotels were still under renovation and conversion, RevPAR was down 29.5%.

Hotels under Renovation and Conversion

The Company continues to execute a strategy of selling certain Signature Inn hotels and converting the remaining Signature Inns to our more recognizable and better performing Jameson Inn brand. The conversions are accompanied by a significant renovation and upgrade to the physical property. "The operating results at our converted hotels are very positive," said Kitchin. "Both the occupancy gain and improved lodging revenues make us very optimistic about our conversion strategy." In the nine months ended September 30, 2005, the Company completed the renovation and conversion of three Signature Inns to the Jameson Inn brand, and substantially completed the renovation and conversion of two others. Additionally, work has already begun to convert four additional Signature Inns to the Jameson Inn brand. These projects should be completed in the early spring of 2006.

The Company invested approximately $6.3 million in the third quarter of 2005 and approximately $11.1 million in the nine months ended of 2005 for its capital refurbishment, renovation and conversion projects. The total expected capital expenditures for 2005 are $19.0 million.

Discontinued Operations

During the third quarter of 2005, the Company sold one Signature Inn located in Indianapolis, Indiana for approximately $2.3 million resulting in a net gain of approximately $48,000. In October 2005, the Company decided to remove the Signature Inns in Evansville, Indiana and Springfield, Illinois from the held for sale category, and plans to convert them to the Jameson Inn brand. The local markets in which these two Inns are located are performing well relative to the prior years. During the nine months ended 2005, RevPAR increased 22.9% and 14.5% for the Evansville, Indiana and Springfield, Illinois Inns, respectively. Effective October 1, 2005, these two Inns are no longer included in discontinued operations for financial reporting purposes.

Convertible Notes

On September 30, 2005, the Company issued an aggregate of $35.0 million of 7.0% Convertible Senior Subordinated Notes due 2010 (the "Convertible Notes") in a private placement. The Convertible Notes have a maturity date of September 30, 2010. Interest is payable semi-annually on June 30 and December 31, commencing December 31, 2005. The Convertible Notes are convertible at the option of the holder at any time prior to maturity into shares of the Company's common stock, initially at the conversion price of $2.77 per share.

The Company used the proceeds from the sale of the Convertible Notes to repay floating rate mortgage notes totaling approximately $32.1 million that were maturing over the next twelve months. As a result, the current maturities of mortgage notes payable as of September 30, 2005 totaled approximately $4.9 million, which represents the principal amortization of long term debt over the next twelve months.

"This was an important financing for us as we continue to improve our balance sheet and meet our goals of fixing interest rate exposure and extending debt maturities," said Craig R. Kitchin, President and Chief Financial Officer of Jameson Inns, Inc. "Today we have no loans maturing in the next twelve months compared to approximately $54.2 million of current maturities at the end of last quarter. Furthermore, over half of our total outstanding debt has been fixed, compared to nearly all of our debt being subject to variable interest rates a year ago. We also improved our free cash flow by significantly reducing required principal amortization payments to approximately $4.9 million from $11.3 million a year ago, allowing for an effective redeployment of capital."

Inns

At September 30, 2005, the Company owned and operated 109 Inns, of which 93 are Jameson Inns, located predominantly in the southeastern United States, and 16 are Signature Inns, located predominantly in the mid-western United States. The Company licenses the use of the Jameson Inn brand to the owners of 12 other Jameson Inns.





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