Financial

Jameson Inns, Inc. Reports Fourth Quarter and FY 2005 Financial Results

Jameson Inn Brand RevPAR Up 19% Due to Record Gains in Occupancy - RevPAR for All Hotels in Continuing Operations Increased 18%

Jameson Inns Fourth Quarter Highlights

• Jameson Inn Brand RevPAR Up 19% Due to Record Gains in Occupancy

• RevPAR for All Hotels in Continuing Operations Increased 18%

• RevPAR for 5 Newly Converted Jameson Inns Grew 21%

• Net Loss Per Common Share Improves to ($0.03) from ($0.14)

• Adjusted EBITDA for Continuing Operations Rises 51% to $6.3 million

• Fiscal Year Net Income Per Common Share Improves to $0.01 from a Loss of ($1.06)

    Fourth Quarter Results

Three Months Ended December 31, 2005 2004 Net Change
Jameson Inn Brand RevPAR $37.55 $31.66 +19%
Combined Brands RevPAR $34.16 $29.02 +18%
Newly Converted Inns RevPAR $33.12 $27.45 +21%
Jameson Inn Brand Occupancy 57.3% 50.7% +660 basis points
Net Loss per Common Share ($0.03) ($0.14) +79%
Adjusted EBITDA for
Continuing Operations $6.3 million $4.2 million +51%


For the quarter ended December 31, 2005, total revenue was $22.6 million, net loss totaled $1.7 million or ($0.03) per common share, and adjusted EBITDA was $6.3 million.

Lodging revenues grew by approximately $3.2 million or 16.8% to $22.3 million in the fourth quarter 2005 from $19.1 million in the same period in 2004. The improvement resulted from an increase in average daily rate (ADR) of $1.89, or 3.0%, and an increase in occupancy of 6.6 percentage points, to 52.3%. This combination drove a 17.7% increase in revenue per available room (RevPAR) for combined brands.

Occupancy for the Company's core brand, Jameson Inn, increased 6.6 percentage points to 57.3% in fourth quarter 2005 from 50.7% in the same period in 2004 while ADR increased 4.9% to $65.50 in the fourth quarter 2005 as compared to $62.43 in the same period in 2004. This combination drove RevPAR 18.6% higher to $37.55, or $5.89 better than the same period in 2004.

Gross operating profit, defined as total revenues less direct lodging expenses, improved to $10.3 million in fourth quarter 2005 from $8.2 million in the same period of 2004. As a percentage of revenues, gross operating profit improved to 45.5% in fourth quarter 2005 from 42.7% in the same period of 2004.

ADR for the Signature Inn brand was $64.40 in fourth quarter 2005 compared to $67.91 in the same period in 2004, while occupancy was 30.3% compared to 32.5%, in the same period last year. This resulted in a RevPAR decline of 11.5%. Four Signature Inns were under renovation and conversion during the fourth quarter 2005, causing an overall decrease in performance of these Inns during the period. Through a combination of asset sales and conversions, we have reduced the number of Signature Inns from 26 to 12 (excluding two classified as held-for-sale) at December 31, 2005. Our plan remains to convert the remaining 12 Signature Inns to Jameson Inns, completing six by the end of 2006 and the last six in 2007.

Thomas W. Kitchin, Chairman and Chief Executive Officer of Jameson Inns, Inc., stated "This was one of the best years in the Company's recent history. We believe that we are building momentum and producing very positive results driven by our capital investment programs, including the on-going conversion of our Signature Inns to the Jameson Inn brand."

    Fiscal Year Results

Twelve Months Ended December 31, 2005 2004 Net Change
Jameson Inn Brand RevPAR $37.82 $33.50 +13%
Combined Brands RevPAR $34.72 $31.38 +11%
Jameson Inn Brand Occupancy 59.3% 55.6% +370 basis points
Net Income (Loss) per
Common Share $0.01 ($1.06) +101%
Adjusted EBITDA for
Continuing Operations $28.6 million $26.5 million +8%


Net income attributable to common stockholders was approximately $0.6 million, or $0.01 per share for fiscal year 2005, compared to a net loss of approximately $34.1 million, or ($1.06) per share in 2004. The net change was primarily due to a one time lease termination expense in 2004 of approximately $9.0 million resulting from the acquisition of Kitchin Hospitality, LLC and a loss on redemption of the preferred stock of approximately $16.0 million, which were partially offset by an income tax benefit of approximately $1.4 million to establish an initial deferred tax asset due to the change in taxable status in 2004 and the elimination of preferred dividends of approximately $4.4 million.

Lodging revenues rose 7.2% to $90.6 million for fiscal year 2005, compared to $84.5 million in 2004 driven by an occupancy rate increase of 3.7 percentage points for Jameson Inns to 59.3% from 55.6%. ADR for the Jameson Inn brand increased 5.8% to $63.83 for the year ended December 31, 2005. This combination resulted in a RevPAR increase of 12.9% for the Jameson Inn brand.

Mr. Kitchin continued, "The Company is also benefiting from industry-wide improvement. The double digit RevPAR gain of 13% for our Jameson Inn brand in 2005 far exceeds the 8% gain for the lodging industry. Our 3.7 percentage point improvement in occupancy for the year is more than double the industry- wide results. As we have previously noted, achieving higher occupancy levels is a critical part of our long-term growth strategy as it allows the Company to focus on improving our ADR, which is key to increasing our profitability."

Gross operating profit improved to $43.6 million in 2005 from $39.7 million in 2004. As a percentage of revenue, gross operating profit improved to 47.7 % in 2005 from 46.7% in 2004. "Our margins have historically been strong since we do not pay franchise fees," said Kitchin. "We are pleased to see growth in gross operating profit for both the quarter and year."

During 2005, ADR for the Signature Inn brand increased less than 1%, while occupancy decreased to 36.7% from 39.1%. This combination resulted in a RevPAR decrease of 6.0% for the Signature Inn brand.

Mr. Kitchin concluded, "The migration of the Company to our core brand, Jameson Inn, continues to minimize the impact of the Signature Inn brand. By the end of 2006, our conversion and renovation program should be 65% complete. We are convinced that our transition from the two brands to our strong Jameson Inn brand alone will enhance our opportunity to increase market share and improve performance in the coming years."

Balance Sheet

At December 31, 2005 variable rate debt as a percentage of total outstanding debt was reduced to approximately 50% from 94% at December 31, 2004. Also, at December 31, 2005, the Company had $6.1 million debt outstanding classified as current maturities compared to $50.0 million at December 31, 2004. The weighted average interest rate of the Company's debt was 6.3% in 2005 as compared to 5.2% in 2004.

Mr. Craig Kitchin, President and Chief Financial Officer of Jameson Inns, Inc. commented, "During 2005, we made significant strides in improving our balance sheet by fixing the interest rates on a large portion of our debt and reducing current maturities of our mortgage debt to $6.1 million from $50.0 million at December 31, 2004. We were also able to unencumber 31 of our hotels which further strengthens our balance sheet and financial flexibility. In 2006, we will continue to focus on fixing interest rates and extending maturities."

First Quarter 2006 Update

For the first two months of 2006, occupancy for all continuing operations hotels was 47.6% versus 43.2% in the same period in 2005. The ADR for these hotels was $63.77 compared to $62.85 in the same period in 2005. Consequently, RevPAR was $30.33, up 11.8% over RevPAR of $27.12 in the same period in 2005.

For the five Inns converted to Jameson Inns in 2005, RevPAR was up 39.8% for the first two months of 2006. Three of those Inns were in the construction stage during all or a substantial part of the first two months of 2005.

In February 2006, as part of the Company's ongoing divestiture strategy, the Company closed the sale of the two remaining Signature Inns that were classified as held-for-sale.

Inns Undergoing Renovation and Conversion

The Company continues to increase its focus on the stronger performing proprietary Jameson Inn brand through the conversion of Signature Inns. The conversions include a significant renovation and upgrade to the physical property. The Company completed the conversion of five Inns in 2005 and expects to complete four additional Inns by the start of the third quarter 2006 and two more by the end of 2006. The Company expects to complete the remaining six hotel conversions by the end of 2007.

During the fourth quarter, based on the perceived success of the Company's conversion strategy in 2005, the Company removed the Signature Inns in Evansville, Indiana and Springfield, Illinois from the held-for-sale category, and will now convert them to the Jameson Inn brand.

The Company invested approximately $7.5 million in the fourth quarter of 2005 and approximately $18.6 million for the year ended December 31, 2005 for its capital refurbishment program, renovation and conversion projects. The 2006 budget for capital improvement projects is $19.0 million which includes the renovation and conversion of Signature Inns and refurbishment of existing Jameson Inns.

Total Inns

At December 31, 2005, the Company owned 95 Jameson Inns (including five which are converted Signature Inns), and franchised an additional 12 Jameson Inns in the southeastern and midwestern United States. At the same date, the Company also owned 14 Signature Inns (including four that were in the process of being converted to Jameson Inns and two that were held-for-sale) in the midwestern United States.

The Company's 109* owned and 12 franchised Inns are located in the following states:

                                                        Combined Brands
Percentage
Jameson Inns Signature Inns of Total
State Hotels Rooms Hotels Rooms Hotels Rooms Rooms
Georgia 31 1,596 -- -- 31 1,596 20.4%
Indiana 2 246 10 1,096 12 1,342 17.2%
Alabama 18 960 -- -- 18 960 12.3%
Tennessee 12 780 -- -- 12 780 10.0%
N. Carolina 14 677 -- -- 14 677 8.7%
S. Carolina 10 577 -- -- 10 577 7.4%
Florida 6 390 -- -- 6 390 5.0%
Illinois -- -- 3 371 3 371 4.7%
Mississippi 6 349 -- -- 6 349 4.5%
Kentucky 3 305 -- -- 3 305 3.9%
Louisiana 3 213 -- -- 3 213 2.7%
Ohio -- -- 1 125 1 125 1.6%
Virginia 2 122 -- -- 2 122 1.6%
Total 107 6,215 14 1,592 121 7,807 100.0%

* Includes two Signature Inns (totaling 263 rooms) held-for-sale at December 31, 2005.




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