W2007 Grace Acquisition I 10Q 2007 Q1 Quarterly report

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 March 31, 2007 Commission File Number 01-12073

EQUITY INNS, INC.

(Exact Name of Registrant as Specified in its Charter)

Tennessee		62-1550848
(State or Other Jurisdiction of Incorporation or Organization		(I.R.S. Employer Identification No.)

7700 Wolf River Boulevard, Germantown, TN		38138
(Address of Principal Executive Office)		(Zip Code)

(901) 754-7774

(Registrant's Telephone Number, Including Area Code)

Not Applicable

(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 period 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 o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One)

Large Accelerated Filer x

Accelerated Filer o

Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

The number of shares of the Registrant's Common Stock, $.01 par value, outstanding on April 25, 2007 was 55,044,615.

EQUITY INNS, INC.

INDEX

		PAGE

PART I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) - March 31, 2007 and December 31, 2006	3

	Condensed Consolidated Statements of Operations (unaudited) - For the three months ended March 31, 2007 and 2006	4

	Condensed Consolidated Statements of Cash Flows (unaudited) - For the three months ended March 31, 2007 and 2006	5

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	45


PART II.	Other Information

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6.	Exhibits	47

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

EQUITY INNS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2007			2006

Assets:
Investment in hotel properties, at cost	$	1,453,299		$	1,409,508
Accumulated depreciation		(333,627	)		(318,189	)
Investment in hotel properties, net		1,119,672			1,091,319
Cash and cash equivalents		11,209			7,484
Accounts receivable, net of doubtful accounts of $200 and $200, respectively		9,140		��	7,767
Interest rate swap		406			516
Notes receivable, net		1,892			1,896
Deferred expenses, net		14,490			13,286
Deposits and other assets, net		18,200			15,014

Total Assets	$	1,175,009		$	1,137,282

Liabilities and Shareholders' Equity:
Long-term debt	$	678,654		$	635,365
Accounts payable and accrued expenses		42,864			42,445
Distributions payable		16,045			14,855
Minority interests in Partnership		4,718			4,853

Total Liabilities		742,281			697,518

Commitments and contingencies

Shareholders' Equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized:
Series B, 8.75%, $.01 par value, 3,450,000 and 3,450,000 shares issued and outstanding		83,524			83,524
Series C, 8.00%, $.01 par value, 2,400,000 and 2,400,000 shares issued and outstanding		57,862			57,862
Common stock, $.01 par value, 100,000,000 shares authorized, 55,042,369 and 54,735,137 shares issued and outstanding		550			547
Additional paid-in capital		575,505			574,238
Distributions in excess of net earnings		(285,119	)		(276,923	)
Unrealized gain on interest rate swap		406			516

Total Shareholders' Equity		432,728			439,764

Total Liabilities and Shareholders' Equity	$	1,175,009		$	1,137,282

The accompanying notes are an integral part of these condensed consolidated financial statements.

EQUITY INNS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	For the Three Months Ended March 31,
	2007			2006

Revenue:
Room revenue	$	101,658		$	88,735
Other hotel revenue		4,119			3,390
Total hotel revenues		105,777			92,125

Operating expenses:
Direct hotel expenses		56,244			49,888
Other hotel expenses		2,961			2,553
Depreciation		15,438			12,672
Property taxes, insurance and other		7,424			6,001
General and administrative expenses		4,081			3,715
Loss on impairment of hotels		-			2,210
Total operating expenses		86,148			77,039

Operating income		19,629			15,086

Interest expense, net		10,881			9,813

Income from continuing operations before minority interests and income taxes		8,748			5,273

Minority interests income (expense)		(92	)		58
Deferred income tax benefit (expense)		-			-

Income from continuing operations		8,656			5,331

Discontinued operations:
Gain (loss) on sale of hotel properties		-			(17	)
Loss on impairment of hotels held for sale		-			(6,690	)
Income (loss) from operations of discontinued operations		(5	)		547
Income (loss) from discontinued operations		(5	)		(6,160	)

Net income (loss)		8,651			(829	)

Preferred stock dividends		(3,087	)		(2,473	)

Net income (loss) applicable to common shareholders	$	5,564		$	(3,302	)

Net income (loss) per share data
Basic and diluted income (loss) per share:
Continuing operations	$	0.10		$	0.05
Discontinued operations		0.00			(0.11	)

Net income (loss) per common share	$	0.10		$	(0.06	)

Weighted average number of common shares outstanding, basic and diluted		55,014			54,309

The accompanying notes are an integral part of these condensed consolidated financial statements.

EQUITY INNS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Three Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	8,651		$	(829	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(Gain) loss on sale of hotel properties		-			17
Loss on impairment of hotels		-			8,900
Depreciation		15,438			12,672
Depreciation of discontinued operations		-			541
Amortization of loan costs and franchise fees		566			558
Amortization of mortgage note premium		(655	)		(481	)
Non-cash stock-based compensation		944			1,002
Provision for doubtful accounts		-			25
Minority interests (income) expense		92			(58	)
Changes in operating assets and liabilities:
Accounts receivable		(1,373	)		97
Deposits and other assets		(4,721	)		(5,303	)
Accounts payable and accrued expenses		1,309			84
Other		(564	)		-
Net cash provided by operating activities		19,687			17,225

Cash flows from investing activities:
Improvements and additions to hotel properties		(13,269	)		(12,128	)
Acquisition of hotel properties, excluding long-term debt assumed		(24,816	)		(26,852	)
Payments for franchise applications		(125	)		(245	)
Notes receivable		4			12
Net proceeds from sale of hotel properties		-			4,888
Net cash used in investing activities		(38,206	)		(34,325	)

Cash flows from financing activities:
Gross proceeds from issuance of Series C Preferred Stock		-			60,000
Payment of offering expenses		-			(2,080	)
Distributions paid		(15,884	)		(11,303	)
Payments for loan costs		(109	)		(205	)
Proceeds from borrowings		65,000			42,250
Payments on long-term debt		(26,763	)		(69,199	)

Net cash provided by financing activities		22,244			19,463

Net increase (decrease) in cash		3,725			2,363
Cash and cash equivalents at beginning of period		7,484			6,556

Cash and cash equivalents at end of period	$	11,209		$	8,919

The accompanying notes are an integral part of these condensed consolidated financial statements.

Supplemental disclosure of non-cash investing and financing activities:

Three Months Ended March 31, 2007

During January 2007, we issued to several key officers 178,384 shares of restricted common stock at prices ranging from $15.88 to $16.31 per share under the 1994 Stock Incentive Plan as part of management's long-term incentive compensation.

During January 2007, we issued to two of our officers 54,578 shares of common stock at $16.28 per share under the 1994 Stock Incentive Plan in lieu of cash as a performance bonus.

During the three months ended March 31, 2007, we completed the purchase of three hotels and assumed approximately $5.7 million in collateralized long-term debt, including approximately $125,000 of a mortgage note premium.

During the three months ended March 31, 2007, we issued 3,798 shares of common stock at prices ranging from $15.30 to $16.67 per share to our independent directors in lieu of cash as compensation.

At March 31, 2007, approximately $14.0 million in common stock and unit dividends were declared and unpaid. We paid these dividends on May 1, 2007. Additionally, approximately $1.3 million and $800,000 in Series B and Series C preferred stock dividends, respectively, were declared and unpaid at March 31, 2007. We paid the Series B and Series C preferred stock dividends on April 30, 2007.

Three Months Ended March 31, 2006

During January and February 2006, we issued to several key officers 187,990 shares of restricted common stock at prices ranging from $13.55 to $16.11 per share under the 1994 Stock Incentive Plan as part of management’s long-term incentive compensation.

During February 2006, we issued to four of our officers 33,161 shares of common stock at $16.11 per share under the 1994 Stock Incentive Plan in lieu of cash as a performance bonus.

During the three months ended March 31, 2006, we completed the purchase of four hotels and assumed approximately $12.5 million in collateralized long-term debt, including approximately $950,000 of a mortgage note premium.

During the three months ended March 31, 2006, the Company reclassed approximately $2.7 million related to our hurricane insurance claim from deposits and other assets to improvements and additions to hotel properties.

During the three months ended March 31, 2006, we issued 203,416 shares of common stock upon redemption of Partnership units.

During the three months ended March 31, 2006, we issued 3,575 shares of common stock at prices ranging from $13.55 to $16.11 per share to our independent directors in lieu of cash as compensation.

At March 31, 2006, approximately $10.6 million in common stock and unit dividends were declared and unpaid. We paid these dividends on May 1, 2006. Additionally, approximately $1.3 million and $585,000 in Series B and Series C preferred stock dividends, respectively, were declared and unpaid at March 31, 2006. We paid the Series B and Series C preferred stock dividends on April 28, 2006.

The accompanying notes are an integral part of these condensed consolidated financial statements.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

Throughout this Form 10-Q, the words "Company", "Equity Inns", "we", "our", and "us" refer to Equity Inns, Inc., a Tennessee corporation, and its consolidated subsidiaries, unless otherwise stated or the context requires otherwise.

1.	Organization

Equity Inns is a hotel real estate investment trust ("REIT") for federal income tax purposes. The Company, through its wholly-owned subsidiary, Equity Inns Trust (the "Trust"), is the sole general partner of Equity Inns Partnership, L.P. (the "Partnership") and at March 31, 2007 owned an approximate 98% interest in the Partnership.

Our hotel properties are leased to our wholly-owned taxable REIT subsidiaries (the "TRS Lessees"). Our hotel properties are managed by independent third parties. At March 31, 2007, the independent managers of our hotels are as follows:

	Number of Hotels

Interstate Hotels & Resorts, Inc.	39
McKibbon Hotel Group	23
Hyatt Corporation	18
Hilton Hotels Corporation	14
Other (12)	38

	132

Our management agreements with Hyatt, which purchased the AmeriSuites brand in January 2005 from the Blackstone Group, are structured to provide the TRS Lessees minimum net operating income at each of our 18 AmeriSuites hotels. In addition, the management agreements specify a net operating income threshold for each of our 18 AmeriSuites hotels. As the manager, Hyatt's subsidiaries can earn an incentive management fee of 25% of hotel net operating income above the threshold, as defined, to a maximum of 6.5% of gross hotel revenues. If the management fee calculation exceeds 6.5% of gross hotel revenues, Hyatt's subsidiaries may earn an additional fee of 10% on any additional net operating income. If a hotel fails to generate net operating income sufficient to reach the threshold, Hyatt's subsidiaries are required to contribute the greater of a predetermined minimum return or the net operating income plus 25% of the shortfall between the threshold amount and the net operating income of the hotel. We record all shortfall contributions as a reduction of base management fees, which are included as a component of direct hotel expenses in the accompanying condensed consolidated statements of operations, when all contingencies related to such amounts have been resolved. The minimum net operating income guarantee agreements are set to expire for nine of our hotels at December 31, 2007 and for nine of our hotels at June 30, 2008. For the three months ended March 31, 2007 and 2006, we recorded approximately $1.8 million and $1.1 million, respectively, in minimum income guarantees from Hyatt as a reduction of our base management fee expense in the accompanying condensed consolidated statements of operations.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

1.	Organization, Continued

In October 2006, we entered into a master agreement (the “Master Agreement”) with affiliates of Hyatt whereby we have agreed to renovate and convert our 18 AmeriSuites branded hotels into Hyatt Place hotels at an estimated total conversion cost of $55.0 million to $65.0 million for all of the hotels. Hyatt will be performing the conversion of our 18 AmeriSuites hotels to Hyatt Place hotels pursuant to a project management agreement. After full conversion of the hotels to Hyatt Place hotels, we expect to have a total investment in these hotels of approximately $245.0 million to $255.0 million. In connection with the Master Agreement, we have agreed to amend the current management agreements and to execute new franchise and management agreements following conversion. In summary:

Upon conversion to Hyatt Place hotels, the Company and Hyatt will enter into 18 new Hyatt Place management agreements with 10-year terms and 18 new Hyatt Place franchise agreements with 20-year terms pursuant to which, among other things:

Each hotel will pay a franchise fee (4%) and management fee (3%) based on hotel revenue. The payment of the franchise and management fees will be subject to each hotel earning a 9.5% preferred return on total hotel investment, at cost, and including the conversion costs (“Total Hotel Investment”). In the event a hotel does not achieve the 9.5% preferred return, the franchise and management fees will be reduced by the amount of the shortfall. The 9.5% preferred return, as defined, will be calculated as hotel net operating income minus real estate taxes, property insurance and a maintenance capital reserve, divided by Total Hotel Investment. The 9.5% preferred return shall be calculated annually. Hyatt will also receive an incentive management fee equal to 10% of adjusted net operating income, as defined, in excess of the 9.5% preferred return, and after the payment of full franchise and management fees.

·	After all hotels are converted to Hyatt Place hotels, the 9.5% preferred return shall last for five years with respect to the payment of the franchise fee and 10 years with respect to the payment of the management fee.

·	At the end of the fifth year after all hotels are converted to Hyatt Place hotels, either party may terminate the management agreements if the hotels are not receiving the 9.5% preferred return after payment of full franchise and management fees.

·	These agreements shall be assignable, provided, among other things, that we sell at least 50% of the hotels to a single buyer or there is a change of control of our Company, as defined in the Master Agreement.

The Company and Hyatt also entered into an amendment to each of the existing management agreements for each of the 18 hotels, pursuant to which, among other things:

We will continue to be entitled to receive the minimum income guarantees as discussed above. These guarantees are currently set to expire on December 31, 2007 for nine of the hotels and June 30, 2008 for nine of the hotels (such dates being referred to herein collectively as the “Guarantee Termination Date”).

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

1.	Organization, Continued

·	If the hotels are not converted to Hyatt Place hotels before the Guarantee Termination Date, the minimum income guarantees will be extended until the earlier of: (i) the date of conversion of the hotel or (ii) 150 days after the existing Guarantee Termination Date.

·	During the hotel conversion, the minimum return, as defined, shall be increased by 9.5% of our conversion costs paid during the construction period.

If the hotels are not converted by the expiration of the Guarantee Termination Date, subject to the 150-day extension discussed above, the minimum income guarantees shall expire and each hotel will pay a franchise fee (4%) and a management fee (3%) based on hotel revenue. The payment of the franchise and management fees will be subject to each hotel earning a 9.5% preferred return similar to the calculation discussed above. Hyatt will also receive an incentive management fee equal to 10% of adjusted net operating income, as defined, in excess of the 9.5% preferred return, and after the payment of full franchise and management fees.

·	These agreements shall be assignable, provided, among other things, that we sell at least 50% of the hotels to a single buyer or there is a change of control of our Company, as defined.

The management contracts for our remaining hotels have terms ranging from one to four years and generally provide for payment of management fees ranging from 1.5% to 3.0% of hotel revenues and an incentive fee consisting of a percentage of gross operating profits in excess of predetermined targets, as defined by the management agreements.

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with our audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. The results of our operations for the current period(s) are not necessarily indicative of the results to be expected for the full year.

2.	Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

2.	Summary of Significant Accounting Policies, Continued

Investment in Hotel Properties

Our hotel properties are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets which range from 5 to 40 years for buildings and components and 5 to 7 years for furniture and equipment.

We record maintenance and repairs expense as incurred, and major renewals and improvements are capitalized. Upon hotel disposition, both the asset and accumulated depreciation accounts are relieved, and the related gain or loss is credited or charged to the statement of operations.

We record an impairment charge when we believe an investment in a hotel has been impaired such that future undiscounted cash flows would not recover the book basis of the hotel property, or the hotel is being held for sale and a loss is anticipated. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's carrying value, thereby possibly requiring an impairment charge in the future. During the three months ended March 31, 2007, we did not record any non-cash impairment losses related to our hotels. During the three months ended March 31, 2006, we recorded approximately $8.9 million of non-cash impairment losses related to four hotels in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” Three of the hotels were subsequently sold in August 2006. Accordingly, under the Company’s accounting policy, the non-cash impairment loss of approximately $6.7 million related to these three sold hotels has been reclassified, along with operations, to discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented. The average age of these hotels was approximately 25 years. Impairments of hotels not held for sale are recorded as a component of continuing operations in the accompanying condensed consolidated statements of operations.

We classify certain assets as held for sale based on management having the authority and intent of entering into commitments for sale transactions expected to close in the next twelve months. We consider a hotel as held for sale once we have executed a contract for sale, allowed the buyer to complete its due diligence review, and received a substantial non-refundable deposit. Until a buyer has completed its due diligence review of the asset, necessary approvals have been received and substantive conditions to the buyer's obligation to perform have been satisfied, we do not consider a sale to be probable. When the Company identifies an asset as held for sale, we estimate the net realizable value of such asset. If the net realizable value of the asset is less than the carrying amount of the asset, we record an impairment charge for the estimated loss. We no longer record depreciation expense once we identify an asset as held for sale. Net realizable value is estimated as the amount at which we believe the asset could be bought or sold (fair value) less estimated costs to sell. We estimate the fair value by determining prevailing market conditions, appraisals or current estimated net sales proceeds from pending offers, if appropriate. We record operations for hotels designated as held for sale and hotels which have been sold as part of discontinued operations for all periods presented. We also allocate to discontinued operations the estimated interest on debt that is to be assumed by the buyer and interest on debt that is required to be repaid as a result of the disposal transaction. For the three months ended March 31, 2007, we did not realize any losses on impairments of hotels held for sale. For the three months ended March 31, 2006, we did not realize any losses on impairments of hotels held for sale, other than the $6.7 million in non-cash impairment losses reclassified as discussed above. Impairments recorded, if any, are reflected as a

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

2.	Summary of Significant Accounting Policies, Continued

component of discontinued operations for the respective periods in the accompanying condensed consolidated statements of operations.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers and other borrowers to make required payments. The allowance for doubtful accounts is maintained at a level believed adequate by us to absorb estimated probable receivable losses. Our periodic evaluation of the adequacy of the allowance is primarily based on past receivable loss experience, known and inherent credit risks, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates including the amounts and timing of future collections. If the financial condition of our customers or other borrowers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Distributions

We pay regular quarterly cash distributions to shareholders. These distributions are determined quarterly by our Board of Directors ("Board") based on our operating results, economic conditions, capital expenditure requirements, the Internal Revenue Code's REIT annual distribution requirements, leverage covenants imposed by our Line of Credit and other debt documents, and any other matters that our Board deems relevant.

Net Income Per Common Share

We compute basic earnings per common share from continuing operations by taking our income (loss) from continuing operations as adjusted for gains or losses on the sale of hotel properties not included in discontinued operations and dividends on our preferred stock, divided by the weighted average number of shares of our common stock outstanding. We compute diluted earnings per common share from continuing operations by taking our income (loss) from continuing operations as adjusted for gains or losses on the sale of hotel properties not included in discontinued operations and dividends on our preferred stock, divided by the weighted average number of shares of our common stock outstanding plus other potentially dilutive securities. Additionally, potential dilutive securities included in our calculation of diluted earnings per share include shares issuable upon exercise of stock options.

Stock-Based Compensation

At March 31, 2007, we have two stock-based employee and director compensation plans. Prior to January 1, 2006, we accounted for our stock-based employee compensation by adopting the recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” under the prospective method as defined in SFAS No. 148. Effective January 1, 2006, we adopted the provisions of SFAS 123(R), “Share-Based Payment.” SFAS No. 123(R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The effects of the adoption of SFAS No. 123(R) on our earnings, financial condition and cash flows are discussed in Note 11.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

2.	Summary of Significant Accounting Policies, Continued

Segment Reporting

We consider each of our hotels to be an operating segment, none of which meets the threshold for a reportable segment as prescribed by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." We allocate resources and assess operating performance based on each individual hotel. Additionally, we aggregate these individually immaterial operating segments into one segment using the criteria established by SFAS No. 131, including the similarities of our product offering, types of customers and method of providing service.

Concentration of Credit Risk

At March 31, 2007, we owned approximately 5,400 hotel rooms, or approximately 34% of our total hotel rooms, in the South Atlantic region of the United States, which includes approximately 2,900 hotel rooms, or approximately 19% of our total hotel rooms, in the state of Florida.

3.	Investment in Hotel Properties

During the three months ended March 31, 2007, we purchased three hotels for approximately $30.5 million related to previously announced acquisitions. The hotels were purchased from two hotel developers. These hotels represent a combined 366 rooms and have an average age of approximately nine years. We funded these acquisitions primarily through the assumption of approximately $5.7 million in collateralized long-term debt and approximately $24.8 million in borrowings under our Line of Credit. Included in our debt assumption is a mortgage note premium of approximately $125,000 to record the debt at its estimated fair value. This premium is being amortized using the interest method over the remaining life of the assumed debt as a reduction of interest expense.

The hotel acquisitions that we completed for the three months ended March 31, 2007 are as follows:

Hotel	Location	Rooms	Date Acquired

Hilton Garden Inn	Austin, Texas	122	March 1, 2007
SpringHill Suites by Marriott	Austin, Texas	104	March 1, 2007
Courtyard by Marriott	Chicago, Illinois	140	March 21, 2007

Based on our estimate of fair value, determined by prevailing market conditions or appraisals, we allocated the purchase price of these hotels at March 31, 2007 as follows (in thousands):

Land	$5,555
Buildings and improvements	21,092
Furniture, fixtures and equipment	3,875

	$30,522

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

3.	Investment in Hotel Properties, Continued

During 2006, we purchased 13 hotels for approximately $159.2 million related to previously announced acquisitions. The hotels were purchased from several hotel developers. These hotels represent a combined 1,526 rooms and had an average age of approximately nine years at date of acquisition. We funded these acquisitions primarily through $57.9 million in net cash proceeds from a February 2006 issuance of our Series C cumulative preferred stock, the assumption of approximately $38.3 million in collateralized long-term debt and approximately $63.0 million in borrowings under our Line of Credit. Included in our debt assumption is a mortgage note premium of approximately $2.0 million to record the debt at its estimated fair value. This premium is being amortized using the interest method over the remaining lives of the assumed debt as a reduction of interest expense.

The hotel acquisitions that we completed in 2006 are as follows:

Hotel	Location	Rooms/ Suites	Date Acquired

SpringHill Suites by Marriott	Sarasota, Florida	84	January 17, 2006
TownePlace Suites by Marriott	Savannah, Georgia	95	January 17, 2006
Courtyard by Marriott	Orlando, Florida	112	February 16, 2006
Residence Inn by Marriott	Tampa, Florida	78	February 16, 2006
Residence Inn by Marriott	Mobile, Alabama	66	April 24, 2006
Embassy Suites by Hilton	Orlando, Florida	246	June 22, 2006
Fairfield Inn & Suites by Marriott	Atlanta, Georgia	144	August 3, 2006
SpringHill Suites by Marriott	Houston, Texas	122	August 3, 2006
SpringHill Suites by Marriott	San Antonio, Texas	112	August 3, 2006
Courtyard by Marriott	Lexington, Kentucky	90	December 7, 2006
Courtyard by Marriott	Louisville, Kentucky	140	December 13, 2006
SpringHill Suites by Marriott	Lexington, Kentucky	108	December 15, 2006
Hilton Garden Inn	Rio Rancho, New Mexico	129	December 22, 2006

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

3.	Investment in Hotel Properties, Continued

The following unaudited pro forma results are presented as if all acquisitions for the three months ended March 31, 2007 had occurred on January 1, 2006 (in thousands, except per share data):

	Three Months Ended March 31,
	2007			2006
Revenues
Equity Inns, as reported	$	105,777		$	92,125
Acquisitions		1,501			1,922

Pro forma combined revenues	$	107,278		$	94,047


Net income (loss) applicable to common shareholders
Equity Inns, as reported	$	5,564		$	(3,302	)
Acquisitions		(81	)		(172	)

Pro forma combined net income (loss)	$	5,483		$	(3,474	)

Pro forma basic and diluted income (loss) per share	$	0.10		$	(0.06	)

Pro forma weighted average number of common shares outstanding - basic and diluted		55,014			54,309

Note: These unaudited pro forma results are presented for comparative purposes only. The pro forma results are not necessarily indicative of what our actual results would have been had these acquisitions been completed on January 1, 2006, or of future results.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

3.	Investment in Hotel Properties, Continued

The following unaudited pro forma results are presented as if all acquisitions for the year ended December 31, 2006 had occurred on January 1, 2006 (in thousands, except per share data):

	Three Months Ended March 31, 2006

Revenues
Equity Inns, as reported	$92,125
Acquisitions	9,252

Pro forma combined revenues	$101,377

Net income (loss) applicable to common shareholders
Equity Inns, as reported	$(3,302)
Acquisitions	(503)

Pro forma combined net income (loss)	$(3,805)

Pro forma basic and diluted income (loss) per share	$(0.07)

Pro forma weighted average number of common shares outstanding - basic and diluted	54,309

During the three months ended March 31, 2007 and 2006, we invested approximately $13.3 million and $12.1 million, respectively, to fund capital improvements in our hotels, including replacement of carpets, drapes, furniture and equipment, renovation of common areas and improvements of hotel exteriors.

During the three months ended March 31, 2007, we did not record any non-cash impairment losses related to our hotels. During the three months ended March 31, 2006, we recorded approximately $8.9 million of non-cash impairment losses related to four hotels in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” Three of the hotels were subsequently sold in August 2006. Accordingly, under the Company’s accounting policy, the non-cash impairment loss of approximately $6.7 million related to these three sold hotels has been reclassified, along with operations, to discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented. The average age of these hotels was approximately 25 years. Impairments of hotels not held for sale are recorded as a component of continuing operations in the accompanying condensed consolidated statements of operations.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

3.	Investment in Hotel Properties, Continued

During December 2005, we recorded a $975,000 non-cash impairment loss in accordance with SFAS No. 144, based on the estimated net realizable value of a hotel over its remaining estimated holding period. This hotel was subsequently sold in March 2006 for its approximate carrying value of $4.9 million (after selling costs of approximately $200,000). The hotel sold was a 126-room Hampton Inn hotel located in Atlanta, Georgia. The age of the hotel was approximately 18 years.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

4.	Long-Term Debt

The following details our debt outstanding at March 31, 2007 and December 31, 2006 (dollars in thousands):

						Collateral	Collateral
						# of	Net Book
	Principal Balance					Hotels at	Value at
	3/31/07	12/31/06	Interest Rate		Maturity	3/31/07	12/31/06

Unsecured Line of Credit	$80,000	$25,000	LIBOR plus	Variable	Sept 2010	-	$ -
			Percentage
Mortgage	84,869	85,428	8.37%	Fixed	July 2009	19	160,457
Mortgage	63,009	63,364	8.25%	Fixed	Nov 2010	16	101,369
Mortgage	32,711	32,885	8.25%	Fixed	Nov 2010	8	53,198
Mortgage	6,039	6,069	8.70%	Fixed	Nov 2010	1	10,286
Mortgage	4,024	4,054	7.97%	Fixed	Oct 2007	1	6,692
Mortgage	4,958	4,995	7.97%	Fixed	Oct 2007	1	7,272
Mortgage	4,197	4,229	7.10%	Fixed	Sept 2008	1	8,180
Mortgage	3,576	3,602	8.04%	Fixed	Nov 2007	1	6,216
Mortgage	4,982	5,019	8.04%	Fixed	Nov 2007	1	7,089
Mortgage	-	3,021	9.375%	Fixed	April 2007	-	5,902
Mortgage	-	3,233	9.375%	Fixed	April 2007	-	5,988
Mortgage	4,858	4,893	8.04%	Fixed	Nov 2007	1	6,031
Mortgage	-	3,772	9.375%	Fixed	April 2007	-	8,683
Mortgage	-	3,685	9.05%	Fixed	May 2007	-	6,646
Mortgage	5,707	5,737	5.83%	Fixed	July 2014	1	9,523
Mortgage	37,863	38,174	5.64%	Fixed	Nov 2014	5	70,456
Mortgage	5,442	5,472	5.39%	Fixed	Dec 2014	1	12,265
Mortgage	3,043	3,060	9.02%	Fixed	June 2024	1	7,715
Mortgage	3,832	3,862	7.18%	Fixed	April 2023	1	6,651
Mortgage	4,579	4,613	7.10%	Fixed	Sept 2008	1	9,580
Mortgage	4,192	4,224	7.97%	Fixed	Oct 2007	1	9,577
Mortgage	3,187	3,211	7.97%	Fixed	Oct 2007	1	10,368
Mortgage	5,354	5,397	7.07%	Fixed	Jan 2008	1	10,471
Trust Preferred Securities	50,000	50,000	6.93%	Fixed	July 2035	-	-
Mortgage	71,768	72,135	5.44%	Fixed	Dec 2015	7	81,890
Mortgage	6,230	6,263	8.25%	Fixed	Feb 2011	1	13,894
Mortgage	5,106	5,145	7.10%	Fixed	Sept 2008	1	7,455
Mortgage	3,720	3,748	8.15%	Fixed	Nov 2007	1	7,067
Mortgage	49,616	49,847	5.65%	Fixed	Oct 2016	9	55,863
Mortgage	94,708	95,000	5.865%	Fixed	Dec 2016	8	82,308
Mortgage	10,511	10,612	8.55%	Fixed	Nov 2010	1	20,770
Mortgage	5,629	5,675	5.49%	Fixed	Jan 2015	1	11,060
Mortgage	4,626	4,650	5.77%	Fixed	Mar 2015	1	11,632
Mortgage	5,558	-	7.46%	Fixed	June 2008	1	-
	673,894	630,074				94	$832,554
Unamortized Mortgage
Note Premium	4,760	5,291

Total Long-term Debt	$678,654	$635,365

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

4.	Long-Term Debt, Continued

In November 2006, we completed an aggregate of $95.0 million in collateralized financing under eight individual loan agreements. Each loan bears interest at a fixed rate of 5.865% per annum, with principal and interest payments due monthly until maturity on December 1, 2016, based on a 30-year amortization schedule. The individual loans are collateralized by eight of the Company's hotels. We used the proceeds from these loans primarily to repay outstanding borrowings under our Line of Credit.

In September 2006, we entered into a new unsecured Line of Credit for $150.0 million, subject to certain restrictions. The Line of Credit allows us, subject to certain lender approval, to extend the borrowing capacity up to $250.0 million. The Line of Credit bears interest at LIBOR plus 1.25% to 1.88% per annum, as determined by our quarterly leverage, and the facility matures in September 2010 but may be extended at our option for an additional year. At March 31, 2007, the interest rate on our Line of Credit was LIBOR (5.32% at March 30, 2007) plus 1.375%. Commitment fees ranging from 0.15% to 0.25% per annum, as determined by our average daily unused facility amount, are paid quarterly. The Line of Credit maintains certain restrictions regarding capital expenditures and other quarterly financial covenants, including a fixed charge test and a leverage test, among other covenants. At March 31, 2007, we were in compliance with all covenants required by our Line of Credit.

In September 2006, we completed a refinancing of a $44.4 million existing mortgage with an aggregate of $50.0 million in collateralized financing under nine individual loan agreements. Each loan bears interest at a fixed rate of 5.65% per annum, with principal and interest payments due monthly until maturity on October 1, 2016, based on a 25-year amortization schedule. The individual loans are collateralized by nine of the Company’s hotels. The excess proceeds of $5.6 million were used to repay outstanding borrowings under our Line of Credit.

Approximately 80.8% of our debt is collateralized by first mortgages on our hotels. At March 31, 2007, our debt has maturity dates that range from October 2007 to July 2035 with certain debt requiring annual principal payments and certain debt representing term maturities. The terms of our debt generally require prepayment penalties if repaid prior to maturity.

Certain of our loan agreements require quarterly deposits into separate room renovation accounts for the amount by which 4% of revenues at our hotels exceeds the amount expended by us during the year for replacement of furniture and equipment, maintenance, and capital improvements for our hotels. For 2007, we expect that amounts expended will exceed, in the aggregate, the amounts required under the loan covenants. If, for any reason, we do not meet the renovation requirements at the individual hotel level, we could be required to fund such shortfalls into cash escrow accounts.

Our unsecured Line of Credit has a stated borrowing capacity of $150.0 million. This capacity is further limited to the implied value of our unsecured hotels based on their net operating income divided by a capitalization rate, among other things, as defined in the Line of Credit agreement. At March 31, 2007, we had additional borrowing capacity of approximately $68.7 million under our Line of Credit.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

5.	Interest Rate Swap Contract

In 2003, we entered into an interest rate swap agreement with a financial institution on a notional amount of $25.0 million. The agreement expires in November 2008. The agreement effectively fixes the interest rate on the first $25.0 million of floating rate debt outstanding at a rate of 3.875% per annum plus the interest rate spreads on our variable rate debt, thus reducing our exposure to interest rate fluctuations. The notional amount does not represent amounts exchanged by the parties, and thus is not a measure of exposure to us. The differences to be paid or received by us under the interest rate swap agreement are recognized as an adjustment to interest expense. The agreement is with a major financial institution, which is expected to fully perform under the terms of the agreement.

6.	Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income," requires the disclosure of the components included in comprehensive income (loss). For the three months ended March 31, 2007, we recorded comprehensive income of approximately $8.6 million, comprised of net income of approximately $8.7 million and an unrealized loss on our interest rate swap of approximately $(110,000).

For the three months ended March 31, 2006, we recorded a comprehensive loss of approximately $(759,000), comprised of a net loss of approximately $(829,000) and an unrealized gain on our interest rate swaps of approximately $70,000.

7.	Income Taxes

The components of our deferred income tax benefit (expense) related to our TRS Lessees for the three months ended March 31 are as follows (in thousands):

	Three Months Ended March 31,
	2007			2006

Deferred:
Federal	$	88		$	764
State		7			65
Valuation allowance		(95	)		(829	)

Deferred income tax benefit (expense), net	$	-		$	-

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

7.	Income Taxes, Continued

The deferred income tax benefit (expense) and related deferred tax asset were historically calculated using a statutory tax rate of 38% applied to the losses of our TRS Lessees. In 2003, we determined that a valuation allowance was necessary for the entire deferred income tax asset due to the continued softness in the lodging industry and the uncertainty associated with its future recovery. Our TRS Lessees continue to accumulate net operating losses primarily due to the lease payments that our TRS Lessees pay to their respective lessors, in conjunction with our assumption of the operating leases from several of our independent management companies in 2001. As a result of these continued losses, we continue to record a valuation allowance for the full amount of our deferred income tax asset, which at March 31, 2007, was approximately $25.6 million. Our net operating loss carryforwards will expire in years beginning after 2021.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting For Uncertainty in Income Taxes” (“FIN 48’). FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company’s adoption of FIN 48, effective January 1, 2007, had no impact on our financial condition or results of operations.

8.	Discontinued Operations

Under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we report as discontinued operations any assets held for sale and assets sold during the periods presented. We identify and assess discontinued operations at the individual hotel operating level because we can identify cash flows at this level. All results of these discontinued operations, less applicable income taxes, are included as a separate component of income in the accompanying condensed consolidated statements of operations. This change has resulted in certain reclassifications of the previously reported statements of operations for 2006.

We classify certain assets as held for sale based on management having the authority and intent of entering into commitments for sale transactions expected to close in the next twelve months. We consider a hotel as held for sale once we have executed a contract for sale, allowed the buyer to complete its due diligence review, and received a substantial non-refundable deposit. Until a buyer has completed its due diligence review of the asset, necessary approvals have been received and substantive conditions to the buyer's obligation to perform have been satisfied, we do not consider a sale to be probable. When the Company identifies an asset as held for sale, we estimate the net realizable value of such asset. If the net realizable value of the asset is less than the carrying amount of the asset, we record an impairment charge for the estimated loss. We no longer record depreciation expense once we identify an asset as held for sale. Net realizable value is estimated as the amount at which we believe the asset could be bought or sold (fair value) less estimated costs to sell. We estimate the fair value by determining prevailing market conditions, appraisals or current estimated net sales proceeds from pending offers, if appropriate. We record operations for hotels designated as held for sale and hotels which have been sold as part of discontinued operations for all periods presented. We also allocate to discontinued operations the estimated interest on debt that is to be assumed by the buyer and interest on debt that is required to be repaid as a result of the disposal transaction. For the three months ended March 31, 2007, we did not realize any losses on impairments of hotels held for sale. For the three months ended March 31, 2006, we did not realize any losses on impairments of hotels held for sale, other than the $6.7 million in non-cash impairment losses reclassified as discussed in Note 2. Impairments recorded, if any, are reflected as

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

8.	Discontinued Operations, Continued

a component of discontinued operations for the respective periods in the accompanying condensed consolidated statements of operations.

During 2006, we sold seven hotels and a parcel of land previously classified as held for sale for approximately $38.3 million (after selling costs of approximately $1.9 million). The hotels sold were a 130-room Hampton Inn located in Atlanta, Georgia, a 126-room Hampton Inn located in Scottsdale, Arizona, a 122-room Hampton Inn located in Chapel Hill, North Carolina, a 123-room Hampton Inn located in Little Rock, Arkansas, a 130-room Hampton Inn located in Dallas, Texas, a 160-room Holiday Inn located in Winston-Salem, North Carolina and a 132-room Hampton Inn located in Denver Colorado. The average age of these hotels was approximately 21 years. The parcel of land was previously held for hotel development and was located in Sandy, Utah. We utilized the net proceeds from these dispositions to pay down existing long-term debt. The operations for these seven hotels have been reclassified to discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented.

For all periods presented, the operations of all of our hotels sold or classified as held for sale are included in the accompanying condensed consolidated statements of operations under the heading "Income (loss) from discontinued operations." The components of income (loss) from discontinued operations for the three months ended March 31 are shown below (in thousands):

	Three Months Ended March 31,
	2007			2006
Revenue:
Room revenue	$	-		$	4,088
Other hotel revenue		-			181

Operating costs:
Direct hotel expenses		5			2,584
Other hotel expenses		-			185
Depreciation		-			541
Property taxes, insurance and other		-			253
Amortization of franchise fees		-			10
Interest		-			149

Income (loss) from operations of discontinued operations		(5	)		547

Gain (loss) on sale of hotel properties		-			(17	)
Loss on impairment of hotels held for sale		-			(6,690	)

Income (loss) from discontinued operations	$	(5	)	$	(6,160	)

9.	Commitments and Contingencies

At March 31, 2007, all of our hotels are operated under franchise agreements and are licensed as Hampton Inn (45), Residence Inn (22), AmeriSuites (18), Courtyard (16), Homewood Suites (10), SpringHill Suites (7), Hilton Garden Inn (4), Holiday Inn (3), Hampton Inn & Suites (2), Comfort Inn (2), Embassy Suites (1), TownePlace Suites (1) and Fairfield Inn & Suites (1). The TRS Lessees hold

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

9.	Commitments and Contingencies, Continued

the franchise licenses for our hotels. The franchise agreements generally require the payment of fees based on a percentage of hotel room revenue.

Under our franchise agreements, we are periodically required to make capital improvements in order to maintain our brand standards. Additionally, under certain of our loan covenants, we are generally obligated to fund 4% of total hotel revenues per quarter on a cumulative basis, to a separate room renovation account for the ongoing replacement or refurbishment of furniture, fixtures and equipment at our hotels. For 2007, we expect that amounts expended will exceed, in the aggregate, the amounts required under the loan covenants. If, for any reason, we do not meet the renovation requirements at the individual hotel level, we could be required to fund such shortfalls into cash escrow accounts.

We are obligated to pay the costs of real estate and personal property taxes and to maintain underground utilities and structural elements of our hotels. In addition, we are obligated to fund the cost of periodic repair and the replacement and refurbishment of furniture, fixtures and equipment in our hotels. We also may be required by our franchisors to fund certain capital improvements to our hotels, which we fund from borrowings under our Line of Credit, operating cash flows, or the room renovation accounts. For the three months ended March 31, 2007 and 2006, capital improvements of approximately $13.3 million and $12.1 million, respectively, were made to our hotels.

We maintain agreements with certain senior officers that provide for severance payments in the event of a change in control of Equity Inns. At March 31, 2007, the maximum amount of cash that would be payable under all agreements, if a change in control occurred, would be approximately $18.1 million. Additionally, vesting of certain restricted stock held by our senior officers would accelerate under a change in control.

We maintain hotel property insurance coverage in certain areas that are susceptible to catastrophic losses such as hurricanes or earthquakes. In these areas, the Company maintains higher insurance deductibles given the lack of insurance capacity in certain markets. Consequently, the Company's risk of loss may increase due to these higher deductibles given certain geographic locations which are more susceptible to these types of catastrophic losses.

We are also involved in various legal actions arising in the ordinary course of business. We do not believe that any of the pending actions will have a material adverse effect on our business, financial condition or results of operations.

10.	Capital Stock

In February 2006, we issued 2.4 million shares of 8.00% Series C cumulative preferred stock. Net proceeds were approximately $57.9 million and were used for identified acquisitions and to repay outstanding borrowings under our Line of Credit. The Series C preferred stock may be redeemed at $25.00 per share plus accrued but unpaid dividends at the election of the Company, on or after February 15, 2011. These securities have no stated maturity, sinking fund or mandatory redemption and are not convertible into any other securities of the Company. Dividend payments are required to be made quarterly.

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

11.	Stock-Based Compensation Plans

The Company is authorized, under our 1994 Stock Incentive Plan (the "1994 Plan") and the Directors' Compensation Plan (the "Directors’ Plan"), to issue a total of 4.1 million shares of common stock to directors, officers and key employees in the form of stock options, restricted stock, or performance stock. The Company issues stock options, restricted stock and performance stock based on the fair value of our common stock at the date of approval by the Compensation Committee of our Board. Under our 1994 Plan, the total shares available for grant is 4.0 million, of which not more than 2.0 million shares may be in the form of restricted stock awards. At March 31, 2007, we have approximately 1.9 million shares available for stock options and approximately 411,000 shares available for performance or restricted stock awards. Under our Directors’ Plan, at March 31, 2007, the total shares available for grants of options is 100,000. At March 31, 2007, we have approximately 15,000 exercisable stock options outstanding related to directors' compensation. No additional stock options have been granted since June 2002.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, as amended, "Accounting for Stock-Based Compensation" and supersedes Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) eliminates the alternative to use the intrinsic value method of accounting that was provided for in SFAS No. 123, which generally resulted in no compensation expense being recorded in the financial statements related to the issuance of equity awards to employees. SFAS No. 123(R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees.

Prior to the adoption of SFAS No. 123(R), the Company adopted and applied the recognition provisions of SFAS No. 123 under the prospective method as defined in SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure" on January 1, 2003. Under the prospective method, we applied the fair-value-based method of accounting for stock-based employee compensation prospectively to all awards granted, modified or settled beginning January 1, 2003.

On January 1, 2006, the Company adopted SFAS No. 123(R) using a modified prospective application, as permitted under SFAS No. 123(R). Accordingly, prior period amounts have not been restated. Under this application, we are required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

For the three months ended March 31, 2006, there was no incremental non-cash stock-based compensation expense due to the adoption of SFAS No. 123(R). Consequently, there was no effect on net income, basic and diluted earnings per share or cash flows related to the adoption of SFAS No. 123(R).

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

11.	Stock-Based Compensation Plans, Continued

Below represents the changes in the Company's outstanding shares of restricted common stock for the three months ended March 31, 2007:

				Weighted
				Average
				Grant Date
	# of Shares			Fair Value

Unvested restricted shares outstanding, at December 31, 2006		680,073		$	11.43

Total restricted shares granted		178,384		$	14.56

Restricted shares vested		(375,329	)	$	10.78

Unvested restricted shares outstanding, at March 31, 2007		483,128		$	13.13

In January 2007, we issued approximately 180,000 shares of restricted stock awards to certain executive officers and key managers of our Company. These awards vest ratably over three years after the date of issuance, based on the Company’s total shareholder return, as defined, as a percentile of the NAREIT Hotel Index total return. Our executives will be entitled to vote and receive dividends on the unvested shares of restricted stock over the vesting periods. Vesting will occur on January 5^th following the applicable year-end. Unvested shares will also be subject to accelerated vesting upon a change in control of the Company, as defined in the award agreement. The initial fair value of the restricted stock awards was determined to be approximately $2.6 million. Under SFAS No. 123(R), we intend to record this compensation expense ratably over the respective requisite service periods.

In December 2006, the Company modified vesting terms related to certain February 2006 restricted stock awards of approximately 160,000 shares. Before the modification, these shares were scheduled to vest at the end of the three years ending December 31, 2008, based on the Company’s total shareholder return, as defined, as a percentile of the NAREIT Hotel Index total return. These grants now vest ratably over three years that commenced with 2006, and vesting each year is based on the Company’s total return as compared to the NAREIT Hotel Index. Vesting will occur on January 5^th following the applicable year-end. Unvested shares will also be subject to accelerated vesting upon a change in control of the Company, as defined in the award agreement. Under SFAS No. 123(R), we were required to revalue these awards pursuant to the modification, and we hired an independent consulting firm to complete the valuation.

In February 2006, we modified certain of our restricted stock awards related to 2005 and 2004. This modification resulted in approximately $1.3 million of additional 2006 compensation expense, which was recognized ratably over the year. Consequently, approximately $320,000 of additional compensation expense was recognized in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2006.

During the three months ended March 31, 2007 and 2006, under SFAS No. 123(R), the fair value of each restricted stock award was estimated on the grant date using a Monte Carlo simulation with the assumptions noted in the following table. Volatility is based on the historical volatility of our common stock. The expected term of the long-term incentive plan is based on the criteria for the plan and the

EQUITY INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

________________

11.	Stock-Based Compensation Plans, Continued

expected life of the awards. The Company uses a U.S. constant-maturity Treasury for the same term as the expected term of the long-term incentive plan to represent the risk-free rate. Turnover is based on the historical experience of our executive officers and key managers. We use our current dividend yield at the time of grant to estimate the dividend yield over the life of the awards.

	January 2007 Restricted Stock Awards	December 2006 Modification of February 2006 Restricted Stock Awards	February 2006 Modification of 2005 and 2004 Restricted Stock Awards

Volatility	24.37%	24.77%	24.68%
Expected life in years	3	3	3
Risk-free rate	4.64%	4.64%	4.35%
Dividend yield	5.90%	5.90%	4.40%

At March 31, 2007, there was approximately $3.8 million of total unrecognized compensation expense as measured under SFAS No. 123(R) related to unvested restricted common stock awards, included as a reduction of additional paid-in capital in the accompanying condensed consolidated balance sheets. We intend to recognize this expense over a weighted average requisite service period of approximately two years. For the three months ended March 31, 2007 and 2006, we recorded approximately $945,000, and $1.0 million of total non-cash stock-based compensation expense as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS

This report contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements containing the words, "may", "believes", "estimates", "projects", "plans", "intends", "will", "anticipates", "expects" and words of similar import. Such forward-looking statements relate to future events, the future financial performance of our Company, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following: the ability of the Company to cope with domestic economic and political disruption, war, terrorism, states of emergency or similar activities; risks associated with debt financing; risks associated with the hotel and hospitality industry; the ability of the Company to successfully implement our operating strategy; availability of capital; changes in economic cycles; competition from other hospitality companies; and changes in the laws and government regulations applicable to us. Readers should specifically consider these factors along with the various other factors identified or incorporated by reference into this report, including, but not limited to those discussed in our Annual Report on Form 10-K filed February 28, 2007, and in any other documents filed by us with the Securities and Exchange Commission (“SEC”) that could cause actual results to differ from those implied by the forward-looking statements. We undertake no obligation and do not intend to publicly update or revise any forward-looking statements contained herein to reflect future events or developments, whether as a result of new information, future events or otherwise.

BACKGROUND

Equity Inns, Inc. (NYSE: ENN) is a Memphis-based, self-advised hotel real estate investment trust ("REIT") primarily focused on the upscale and midscale without food and beverage segments of the hotel industry. The Company, through its wholly-owned subsidiary, Equity Inns Trust (the "Trust"), is the sole general partner of Equity Inns Partnership, L.P. (the "Partnership") and at March 31, 2007 owned an approximate 98% interest in the Partnership. The Partnership and its affiliates lease all of our hotels to wholly-owned taxable REIT subsidiaries of the Company (the "TRS Lessees"). We had approximately $1.2 billion and $1.1 billion of total assets at March 31, 2007 and December 31, 2006, respectively.

We commenced operations on March 1, 1994 upon completion of our initial public offering and the simultaneous acquisition of eight Hampton Inn hotels with a total of 995 rooms. Since then, we have grown with a focus on both geographic and brand diversity. We believe that diversity in our asset portfolio reduces operational variance from year-to-year and results in less volatility as compared to other publicly-traded hotel REITs.

At March 31, 2007, we owned 132 hotel properties with a total of 15,731 rooms located in 35 states. In order to qualify as a REIT, we cannot operate hotels. Therefore, our hotels are leased to our TRS Lessees and are managed by unrelated third parties. By maintaining these leases through our TRS Lessees, we realize the economic benefits and risks of operating these hotels and report all hotel revenues and expenses in our accompanying condensed consolidated statements of operations. Additionally, the TRS Lessees are subject to federal and state income taxes.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

We maintain management agreements with unrelated third parties for our hotels that range in remaining terms from one to ten years. The majority of our management contracts renew annually. The management fees consist of a base fee ranging from 1.5% to 3.0% of hotel revenues and an incentive fee consisting of a percentage of gross operating profits in excess of predetermined targets, as defined by the management agreements. We record these fees as a component of direct hotel expenses in our accompanying condensed consolidated statements of operations.

The diversity of our portfolio is such that, at March 31, 2007, no individual hotel exceeded 1.6% of the total rooms in the portfolio. Our geographical distribution and franchise diversity at March 31, 2007 is illustrated by the following charts:

Brand Diversity

	Number of Hotel Properties	Number of Rooms/Suites
Upper Upscale Hotels:
Embassy Suites (1)	1	246

Upscale Hotels:
Residence Inn (2)	22	2,208
AmeriSuites (3)	18	2,291
Courtyard (2)	16	1,664
Homewood Suites (1)	10	1,378
SpringHill Suites (2)	7	694
Hilton Garden Inn (1)	4	489
Sub-total	77	8,724

Midscale without Food and Beverage:
Hampton Inn (1)	45	5,554
Hampton Inn & Suites (1)	2	291
Comfort Inn (4)	2	281
TownePlace Suites (2)	1	95
Fairfield Inn & Suites (2)	1	143
Sub-total	51	6,364

Midscale with Food and Beverage
Holiday Inn (5)	3	397

Total	132	15,731

Franchise Affiliation

(1)	Hilton Hotels Corporation

(2)	Marriott International, Inc.

(3)	Hyatt Corporation

(4)	Choice Hotels International, Inc.

(5)	Intercontinental Hotels Group, PLC

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

We believe that geographic diversity helps to limit our exposure to any one market. The following table illustrates our geographic presence by the number of rooms at March 31, 2007:

Region

East North Central	15.3%
East South Central	14.2%
Middle Atlantic	5.2%
Mountain	7.3%
New England	5.1%
Pacific	3.0%
South Atlantic	34.4%
West North Central	5.3%
West South Central	10.2%

Our hotel portfolio includes upper upscale hotels, upscale hotels, midscale without food and beverage hotels and midscale with food and beverage hotels. This array of product offerings coupled with a property mix that is spread between suburban and urban locations helps to insulate us from various economic climates, including a depressed business travel climate.

The following table sets forth certain information for the three months ended March 31, 2007 and 2006 with respect to our hotels:

					Three Months Ended March 31, 2007 (1)						Three Months Ended March 31, 2006 (1)
Brand	Number of Hotel Properties		Number of Rooms/ Suites		% Occupancy		Average Daily Rate		Revenue Per Available Room (2)		% Occupancy		Average Daily Rate		Revenue Per Available Room (2)

Hampton Inn		45		5,554		68.3	$	99.01	$	67.62		67.7	$	93.34	$	63.21
AmeriSuites		18		2,291		64.1	$	89.19	$	57.17		68.6	$	85.47	$	58.60
Residence Inn		22		2,208		73.8	$	113.10	$	83.47		73.0	$	105.76	$	77.23
Courtyard		16		1,664		72.7	$	113.68	$	82.62		78.0	$	105.32	$	82.12
Homewood Suites		10		1,378		72.3	$	122.04	$	88.24		77.0	$	112.45	$	86.60
SpringHill Suites		7		694		73.3	$	95.29	$	69.84		71.3	$	88.15	$	62.86
Hilton Garden Inn		4		489		69.8	$	112.25	$	78.34		67.8	$	111.50	$	75.63
Holiday Inn		3		397		56.7	$	81.44	$	46.21		58.2	$	69.99	$	40.72
Hampton Inn & Suites		2		291		80.4	$	146.70	$	117.90		85.0	$	145.74	$	123.94
Comfort Inn		2		281		63.1	$	98.32	$	62.03		61.2	$	98.00	$	59.95
Embassy Suites		1		246		73.8	$	147.58	$	108.97		79.3	$	140.16	$	111.14
Fairfield Inn & Suites		1		143		67.4	$	81.24	$	54.72		73.5	$	73.70	$	54.19
TownePlace Suites		1		95		73.3	$	73.76	$	54.09		88.6	$	69.41	$	61.50

		132		15,731		69.5	$	104.88	$	72.88		71.0	$	98.73	$	70.07

Notes

(1)	Represents "all comparable" statistics for hotels owned by us at the latest period end as if we had owned the hotels for both periods presented.

(2)	Determined by multiplying occupancy times the average daily rate.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

Over 97% of our hotel portfolio is comprised of the following leading franchise brands: Embassy Suites, Homewood Suites, Hilton Garden Inn, Hampton Inn & Suites and Hampton Inn by Hilton, Residence Inn, Courtyard, SpringHill Suites, Fairfield Inn & Suites and TownePlace Suites by Marriott and AmeriSuites by Hyatt. We believe that multiple brands at the upscale and midscale levels help to insulate our asset portfolio against the volatility of individual brand results relative to industry revenue per available room ("RevPAR") performance. Descriptions of our significant brands are as follows:

Homewood Suites by Hilton:

A premier upscale extended stay hotel, focusing on extended stay, corporate transient and family travelers.

Hampton Inn by Hilton:

A premier midscale without food and beverage hotel chain with over 1,000 locations.

Residence Inn by Marriott:

A premier upscale extended stay hotel, focusing on extended stay, corporate transient and family travelers.

Courtyard by Marriott:

An upscale full service hotel designated as the hotel designed by business travelers for business travelers.

AmeriSuites by Hyatt:

An upscale all-suite hotel, billed as America's most affordable all-suite hotel. Conversion of these hotels to Hyatt Place hotels is expected to occur as discussed beginning on page 39.

Over 97% of our hotels are branded by Marriott, Hilton and Hyatt, which provide national marketing support and frequent stay programs that we believe drives additional revenue. We believe that better brands generate RevPAR premiums over their peers and focusing on these premium brands is another factor in our strategy to limit risk in the volatility of our hotel portfolio.

In order to qualify as a REIT, we cannot operate hotels and, consequently, we outsource the management of our hotels to leading independent management companies. We use relatively short-term contracts with our third-party managers that provide for incentive management fees based on operating results. At March 31, 2007, our hotel managers are as follows:

	Number of Hotels

Interstate Hotels & Resorts, Inc.	39
McKibbon Hotel Group	23
Hyatt Corporation	18
Hilton Hotels Corporation	14
Other (12)	38

	132

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

GROWTH STRATEGY

The Company's business objectives are to increase funds from operations and dividends, while enhancing shareholder value primarily through (i) aggressive asset management and the strategic investment of capital in its diversified hotel portfolio, primarily with upscale and midscale properties in strategic urban and suburban areas, (ii) selectively acquiring hotels that have been underperforming due to the lack of sufficient capital improvements, poor management or franchise affiliation, and (iii) selectively disposing of hotels that have reached their earnings potential or may, in management's judgment, suffer adverse changes in their local market, or require large capital outlays. This process is ongoing, and activity could potentially increase given a more fluid marketplace.

COMPETITION

The hotel industry is highly competitive with various participants competing on the basis of price, level of service and geographic location. Each of our hotels is located in a developed area that includes other hotel properties. Many of our management agreements do not have restrictions on the ability of our management companies to convert, franchise or develop other hotel properties in our markets. As a result, our hotels in a given market sometimes compete with other hotels that our managers may own, invest in, manage or franchise. The number of competitive hotel properties in a particular area could have a material adverse effect on the occupancy, average daily rate ("ADR") and RevPAR of our hotels or at hotel properties that we acquire in the future. We believe that brand recognition, location, the quality of the hotel, consistency of services provided, supply of rooms in the market and price are the principal competitive factors affecting our hotels.

FRANCHISE AGREEMENTS

A part of our asset management program is the licensing of all of our hotels under nationally franchised brands. We believe that the public's perception of quality associated with a franchisor is an important feature in the operation of a hotel. We also believe that franchised properties generally have higher levels of RevPAR than unfranchised properties due to access to national reservation systems and national advertising and marketing programs provided by franchisors. Our franchise agreements generally have initial terms ranging from 10 to 25 years and expire beginning in 2008 through 2026.

We are also committed to franchisors to make certain capital improvements to our hotels, which will be funded primarily through our operating cash flows. We made capital improvements of approximately $13.3 million to our hotels for the three months ended March 31, 2007. In 2007, we expect to fund approximately $90.0 million to $100.0 million of capital improvements to our hotels, with approximately $55.0 million to $65.0 million representing the conversion of our 18 AmeriSuites hotels to Hyatt Place hotels, as discussed beginning on page 39, and approximately $18.0 million representing major refurbishment projects related primarily to brand enhancements to certain of our key hotels.

SEASONALITY

Our operations historically have been seasonal in nature, generally reflecting higher RevPAR during the second and third quarters. This seasonality can be expected to cause fluctuations in our quarterly operating results. To the extent that cash flows from our hotel operations are insufficient to fund our operating or investing requirements or dividend distributions, we may fund seasonal-related shortfalls with borrowings under our Line of Credit.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

INFLATION

Operators of hotels in general have the ability to adjust room rates quickly. However, competitive pressures may limit our ability to raise room rates in the face of inflation.

TAX STATUS

We intend to operate so as to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. As long as we qualify for taxation as a REIT, with certain exceptions, we will not be taxed at the corporate level on our taxable income that is distributed to our shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it must distribute annually at least 90% of its taxable income in the form of dividends to its shareholders. Failure to qualify as a REIT will render us subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and distributions to the shareholders in any such year will not be deductible by us. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property. In connection with our election to be taxed as a REIT, our Company charter imposes certain restrictions on the transfer of shares of our common stock and preferred stock. We have adopted the calendar year as our taxable year.

Pursuant to the REIT Modernization Act, we are allowed to own all of the stock in our TRS Lessees. In addition, our TRS Lessees are allowed to perform "non-customary" services for hotel guests and are permitted to enter into many new businesses. However, our TRS Lessees are not allowed to manage hotels. Instead, our TRS Lessees are required to enter into management contracts for our hotels with independent management companies. The use of TRS Lessees, however, is subject to certain restrictions, including the following:

no more than 20% of our assets may consist of securities of our TRS Lessees;

the tax deductibility of interest paid or accrued by our TRS Lessees to us is limited; and

a 100% excise tax is imposed on non-arm's length transactions between TRS Lessees and us or our tenants.

ENVIRONMENTAL MATTERS

Under various Federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. These laws may impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, certain environmental laws and common law principles could be used to impose liability for release of asbestos-containing materials, and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released asbestos-containing materials. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require corrective or other expenditures. In connection with our current or prior ownership or operation of hotels, we may be potentially liable for various environmental costs or liabilities. Although we are currently not aware of any material environmental claims pending or threatened against us, we can offer no assurance that a material environmental claim will not be asserted against us in the future.

In connection with most of our acquisitions, Phase I environmental site assessments were obtained for our hotels. These assessments included historical reviews of the hotels, reviews of certain public records, preliminary investigations of the sites and surrounding properties, screenings for hazardous and toxic substances and underground storage tanks, and the preparation and issuance of a written report. These assessments did not include invasive procedures to detect contaminants from former operations of our hotels or those migrating from neighbors or caused by third parties. These assessments have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets, results of operations or liquidity, nor are we aware of any such liability or material environmental issues.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

AVAILABLE INFORMATION

Our Internet website address is: www.equityinns.com. We also make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC.

We have also made available our Corporate Governance Guidelines and the charters of the Audit Committee, Compensation Committee and Corporate Governance and Nomination Committee of our Board on our website under "Governance Documents." We have also adopted a Code of Ethics that applies to our president and chief executive officer, our chief financial officer, our controller, and all other employees and have posted this Code of Ethics, along with our Whistleblower policy, on our website. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the Code of Ethics by posting such information on our website. Our corporate governance documents, including our Code of Ethics, are also available in print, without charge, upon written shareholder request to our Secretary, J. Mitchell Collins, at 7700 Wolf River Boulevard, Germantown, Tennessee 38138, or by filling out an information request on our website under "Information Requests."

Each year we are required to submit an annual written certification (Section 303A) to the New York Stock Exchange regarding certain corporate governance and compliance issues. In 2006 and 2005, the Company filed this written certification noting no qualifications.

The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings that we make with the SEC.

RESULTS OF OPERATIONS

For purposes of management’s discussion surrounding the Company’s results of operations, same-store revenue and expense items represent the operating results of Company-owned hotels, other than hotels that have been reclassified to discontinued operations, if such hotels were owned for all periods presented.

(in thousands)	For the Three Months Ended March 31,
	2007		%		2006		%

Total hotel revenues	$	105,777		100.0	$	92,125		100.0

Total hotel expenses		59,205		56.0		52,441		56.9
Depreciation		15,438		14.6		12,672		13.8
Property taxes, insurance and other		7,424		7.0		6,001		6.5
General and administrative expenses		4,081		3.8		3,715		4.0
Loss on impairment of hotels		-		-		2,210		2.4

Operating income	$	19,629		18.6	$	15,086		16.4

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

Comparison of the Company's operating results for the three months ended March 31, 2007 and 2006.

Revenues

Hotel revenues of approximately $105.8 million in 2007 increased approximately $13.7 million, or 14.9%, as compared to approximately $92.1 million in 2006. After eliminating net revenues of approximately $10.3 million related to our 16 hotel acquisitions for 2007 and 2006, our same-store hotel revenues increased by approximately $3.4 million in 2007 as compared to 2006. This increase was primarily due to a same-store RevPAR increase of 3.9%, driven by a 6.0% increase in our ADR from $98.72 to $104.67, offset by a decrease in occupancy of approximately 140 basis points to 69.0%. The decrease in occupancy was primarily related to our Florida hotels, which had experienced positive occupancy growth in 2006 due to certain hurricane activity in the state. Excluding these Florida hotels, our same-store RevPAR increased approximately 6.0% in 2007 as compared to 2006.

Operating Expenses

Hotel expenses of approximately $59.2 million in 2007 increased approximately $6.8 million, or 13.0%, as compared to approximately $52.4 million in 2006. After eliminating net expenses of approximately $5.7 million related to our 16 hotel acquisitions for 2007 and 2006, our same-store hotel expenses increased by approximately $1.1 million in 2007 as compared to 2006, primarily due to an increase in revenue and related costs. This increase was primarily due to an increase in payroll and related benefits of approximately $1.0 million, an increase in utility costs of approximately $115,000 and an increase in credit card fees of approximately $100,000, partially offset by a decrease in franchise fees, management fees and loyalty programs of approximately $125,000. Hotel expenses as a percentage of hotel revenues were 56.0% in 2007 and 56.9% in 2006.

Depreciation expense of approximately $15.4 million in 2007 increased approximately $2.7 million, or 21.3%, as compared to approximately $12.7 million in 2006, due to a net increase in depreciation expense related to our 16 hotel acquisitions of approximately $1.7 million and an increase in same-store depreciation expense of approximately $1.0 million related to additional capital expenditures.

Property taxes, insurance and other of approximately $7.4 million in 2007 increased approximately $1.4 million, or 23.3%, as compared to approximately $6.0 million in 2006, primarily due to a net increase in property taxes and insurance related to our 16 hotel acquisitions of approximately $650,000 and an increase in same-store property taxes and insurance of approximately $745,000.

General and administrative expenses of approximately $4.1 million in 2007 increased approximately $400,000, or 10.8%, as compared to approximately $3.7 million in 2006, primarily due to an increase of approximately $250,000 related to payroll and related benefits, an increase of approximately $50,000 related to professional fees, an increase of approximately $40,000 related to dues and subscriptions and an increase of approximately $40,000 related to computer equipment.

Loss on impairment of hotels of approximately $2.2 million in 2006 relates to a non-cash impairment charge for one hotel based on the estimated net realizable value of the asset over its remaining holding period. The age of the impaired hotel is approximately 24 years.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

Operating Income

For 2007, we recorded operating income of approximately $19.6 million as compared to operating income of approximately $15.1 million in 2006. The principal components of the change in operating income for 2007 as compared to 2006 were an increase in same-store revenues of approximately $3.4 million, a net increase in operating income related to our 16 hotel acquisitions of approximately $2.2 million and a decrease in loss on impairment of hotels of approximately $2.2 million, partially offset by an increase in same-store hotel expenses of approximately $1.1 million, an increase in same-store depreciation expense of approximately $1.0 million, an increase in same-store property taxes and insurance of approximately $745,000 and an increase in general and administrative expenses of approximately $400,000.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2007, net cash provided by operating activities of approximately $19.7 million increased approximately $2.5 million, or 14.5%, as compared to approximately $17.2 million for the three months ended March 31, 2006. The principal components of this change were an increase in net income of approximately $9.5 million, an increase in depreciation and amortization expense of approximately $2.1 million, a change in deposits and other assets of approximately $580,000 and a change in accounts payable and accrued expense of approximately $1.2 million, partially offset by a decrease in the loss on impairment of hotels of approximately $8.9 million and a change in accounts receivable of approximately $1.5 million. For the three months ended March 31, 2007, net cash used in investing activities of approximately $38.2 million increased approximately $3.9 million, or 11.4%, as compared to approximately $34.3 million for the three months ended March 31, 2006. The principal components of this change were an increase in improvements and additions to hotel properties of approximately $1.1 million and a decrease in net proceeds from sale of hotel properties of approximately $4.9 million, partially offset by a decrease in acquisition of hotel properties of approximately $2.0 million. For the three months ended March 31, 2007, net cash provided by financing activities of approximately $22.2 million increased approximately $2.7 million, or 13.8%, as compared to approximately $19.5 million for the three months ended March 31, 2006. The principal components of this change were a net increase in net proceeds from borrowings of approximately $65.3 million, partially offset by a net decrease in net proceeds of stock offerings of approximately $57.9 million and an increase in distributions paid of approximately $4.6 million.

Equity Inns' principal source of cash to meet our operating requirements, including distributions to our shareholders and repayments of indebtedness, is from our hotels' results of operations. For the three months ended March 31, 2007, net cash flows provided by our operating activities were approximately $19.7 million. We currently expect that our operating cash flows will be sufficient to fund our continuing operations, including our required debt service obligations and distributions to shareholders required to maintain our REIT status. We expect to fund any short-term liquidity requirements above our operating cash flows through short-term borrowings under our Line of Credit. In September 2006, we entered into a new unsecured Line of Credit for $150.0 million, subject to certain restrictions. Borrowings under our Line of Credit bear interest at LIBOR plus 1.25% to 1.88% per annum, as determined by our quarterly leverage, and this new facility matures in September 2010 but may be extended at our option for an additional year. The Line of Credit maintains certain restrictions regarding capital expenditures and other quarterly financial covenants, including a fixed charge test and a leverage test, among other covenants. At March 31, 2007, we were in compliance with all covenants required by our Line of Credit. At March 31, 2007, the interest rate on our Line of Credit was LIBOR (5.32% at March 30, 2007) plus 1.375%, and we had the ability to borrow an additional $68.7 million under this facility. Additionally, at March 31, 2007, we had approximately $11.2 million of cash and cash equivalents.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

We may make additional investments in hotel properties and may incur indebtedness to make such investments or to meet distribution requirements imposed on a REIT under the Internal Revenue Code to the extent that working capital and cash flows from our investments are insufficient to make such distributions. In December 2006, our Board modified our policy limiting aggregate indebtedness to 50% (from 45%) of our investment in hotel properties, at cost, after giving effect to our use of proceeds from any indebtedness. This policy may be amended at any time by the Board without shareholder vote. Our consolidated indebtedness was 46.2% of our investment in hotels, at cost, at March 31, 2007.

The following details our debt outstanding at March 31, 2007 and December 31, 2006 (dollars in thousands):

						Collateral	Collateral
						# of	Net Book
	Principal Balance					Hotels at	Value at
	3/31/07	12/31/06	Interest Rate		Maturity	3/31/07	12/31/06

Unsecured Line of Credit	$80,000	$25,000	LIBOR plus	Variable	Sept 2010	-	$ -
			Percentage
Mortgage	84,869	85,428	8.37%	Fixed	July 2009	19	160,457
Mortgage	63,009	63,364	8.25%	Fixed	Nov 2010	16	101,369
Mortgage	32,711	32,885	8.25%	Fixed	Nov 2010	8	53,198
Mortgage	6,039	6,069	8.70%	Fixed	Nov 2010	1	10,286
Mortgage	4,024	4,054	7.97%	Fixed	Oct 2007	1	6,692
Mortgage	4,958	4,995	7.97%	Fixed	Oct 2007	1	7,272
Mortgage	4,197	4,229	7.10%	Fixed	Sept 2008	1	8,180
Mortgage	3,576	3,602	8.04%	Fixed	Nov 2007	1	6,216
Mortgage	4,982	5,019	8.04%	Fixed	Nov 2007	1	7,089
Mortgage	-	3,021	9.375%	Fixed	April 2007	-	5,902
Mortgage	-	3,233	9.375%	Fixed	April 2007	-	5,988
Mortgage	4,858	4,893	8.04%	Fixed	Nov 2007	1	6,031
Mortgage	-	3,772	9.375%	Fixed	April 2007	-	8,683
Mortgage	-	3,685	9.05%	Fixed	May 2007	-	6,646
Mortgage	5,707	5,737	5.83%	Fixed	July 2014	1	9,523
Mortgage	37,863	38,174	5.64%	Fixed	Nov 2014	5	70,456
Mortgage	5,442	5,472	5.39%	Fixed	Dec 2014	1	12,265
Mortgage	3,043	3,060	9.02%	Fixed	June 2024	1	7,715
Mortgage	3,832	3,862	7.18%	Fixed	April 2023	1	6,651
Mortgage	4,579	4,613	7.10%	Fixed	Sept 2008	1	9,580
Mortgage	4,192	4,224	7.97%	Fixed	Oct 2007	1	9,577
Mortgage	3,187	3,211	7.97%	Fixed	Oct 2007	1	10,368
Mortgage	5,354	5,397	7.07%	Fixed	Jan 2008	1	10,471
Trust Preferred Securities	50,000	50,000	6.93%	Fixed	July 2035	-	-
Mortgage	71,768	72,135	5.44%	Fixed	Dec 2015	7	81,890
Mortgage	6,230	6,263	8.25%	Fixed	Feb 2011	1	13,894
Mortgage	5,106	5,145	7.10%	Fixed	Sept 2008	1	7,455
Mortgage	3,720	3,748	8.15%	Fixed	Nov 2007	1	7,067
Mortgage	49,616	49,847	5.65%	Fixed	Oct 2016	9	55,863
Mortgage	94,708	95,000	5.865%	Fixed	Dec 2016	8	82,308
Mortgage	10,511	10,612	8.55%	Fixed	Nov 2010	1	20,770
Mortgage	5,629	5,675	5.49%	Fixed	Jan 2015	1	11,060
Mortgage	4,626	4,650	5.77%	Fixed	Mar 2015	1	11,632
Mortgage	5,558	-	7.46%	Fixed	June 2008	1	-
	673,894	630,074				94	$832,554
Unamortized Mortgage
Note Premium	4,760	5,291

Total Long-term Debt	$678,654	$635,365

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

For the three months ended March 31, 2007, interest expense, net of approximately $10.9 million increased approximately $1.1 million, or 11.2%, as compared to approximately $9.8 million for the three months ended March 31, 2006. This increase was primarily due to an increase in average borrowings from $564.5 million to $656.7 million related to increased borrowings for hotel acquisitions, partially offset by a reduction in the weighted average interest rate from 6.87% to 6.54%. At March 31, 2007, our debt maturities had an average life of 7.5 years and a weighted average interest rate of 6.50%.

The hotel acquisitions that we completed for the three months ended March 31, 2007 are as follows:

Hotel	Location	Rooms	Date Acquired

Hilton Garden Inn	Austin, Texas	122	March 1, 2007
SpringHill Suites by Marriott	Austin, Texas	104	March 1, 2007
Courtyard by Marriott	Chicago, Illinois	140	March 21, 2007

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

Company’s hotels. The excess proceeds of $5.6 million were used to repay outstanding borrowings under our Line of Credit.

The hotel acquisitions that we completed in 2006 are as follows:

Hotel	Location	Rooms/ Suites	Date Acquired

SpringHill Suites by Marriott	Sarasota, Florida	84	January 17, 2006
TownePlace Suites by Marriott	Savannah, Georgia	95	January 17, 2006
Courtyard by Marriott	Orlando, Florida	112	February 16, 2006
Residence Inn by Marriott	Tampa, Florida	78	February 16, 2006
Residence Inn by Marriott	Mobile, Alabama	66	April 24, 2006
Embassy Suites by Hilton	Orlando, Florida	246	June 22, 2006
Fairfield Inn & Suites by Marriott	Atlanta, Georgia	144	August 3, 2006
SpringHill Suites by Marriott	Houston, Texas	122	August 3, 2006
SpringHill Suites by Marriott	San Antonio, Texas	112	August 3, 2006
Courtyard by Marriott	Lexington, Kentucky	90	December 7, 2006
Courtyard by Marriott	Louisville, Kentucky	140	December 13, 2006
SpringHill Suites by Marriott	Lexington, Kentucky	108	December 15, 2006
Hilton Garden Inn	Rio Rancho, New Mexico	129	December 22, 2006

During December 2005, we recorded a $975,000 non-cash impairment loss in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, based on the estimated net realizable value of a hotel over its remaining estimated holding period. This hotel was subsequently sold in March 2006 for its approximate carrying value of $4.9 million (after selling costs of approximately $200,000). The hotel sold was a 130-room Hampton Inn located in Atlanta, Georgia. The age of the hotel was approximately 18 years.

During the three months ended March 31, 2007 and 2006, we invested approximately $13.3 million, and $12.1 million, respectively, to fund capital improvements in our hotels, including replacement of carpets, drapes, furniture and equipment, renovation of common areas and improvements of hotel exteriors. In 2007, we expect to fund approximately $90.0 million to $100.0 million of capital improvements to our hotels, with approximately $55.0 million to $65.0 million representing the conversion of our 18 AmeriSuites hotels to Hyatt Place hotels, as discussed beginning on page 39, and approximately $18.0 million representing major refurbishment projects related primarily to brand enhancements to certain of our key hotels. Hyatt will be performing the conversion of our 18 AmeriSuites hotels to Hyatt Place hotels pursuant to a project management agreement. We intend to fund such improvements out of our cash flows from operations, current cash balances and borrowings under our Line of Credit. Under our franchise agreements, we are periodically

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

required to make capital improvements in order to maintain our brand standards. Additionally, under certain of our loan covenants, we are generally obligated to fund 4% of total hotel revenues per quarter on a cumulative basis, to a separate room renovation account for replacement of furniture, fixtures and equipment, maintenance, and capital improvements for our hotels. For 2007, we expect that amounts expended will exceed, in the aggregate, the amounts required under our loan covenants. If, for any reason, we do not meet the renovation requirements at the individual hotel level, we could be required to fund such shortfalls into cash escrow accounts.

REITs are subject to a number of organizational and operational requirements. For example, for federal income tax purposes, we are required to pay distributions of at least 90% of our taxable income to shareholders. We intend to pay these distributions from operating cash flows. During the three months ended March 31, 2007, our Partnership declared aggregate distributions of approximately $14.0 million to its limited partners, or $0.25 per unit (including approximately $13.8 million of distributions to the Company to fund distributions to our shareholders of $0.25 per share). Additionally, during the three months ended March 31, 2007, we declared approximately $1.9 million and $1.2 million in dividends related to our 8.75% Series B cumulative preferred stock and 8.00% Series C cumulative preferred stock, respectively. We expect to make future quarterly distributions to our shareholders. The amount of our future distributions will be based upon quarterly operating results, economic conditions, capital requirements, the Internal Revenue Code's annual REIT distribution requirements, leverage restrictions imposed by our Line of Credit and other factors which our Board deems relevant.

We expect to meet our long-term liquidity requirements, such as scheduled debt maturities and property acquisitions, through long-term collateralized and uncollateralized borrowings, the issuance of additional debt and equity securities, or, in connection with acquisitions of hotel properties, the issuance of Partnership units. Our ability to raise capital through the issuance of debt and equity securities is dependent upon market conditions.

Under our Partnership's limited partnership agreement, subject to certain holding period requirements, holders of units in our Partnership have the right to require the Partnership to redeem their units. During the three months ended March 31, 2007, no Partnership units were tendered for redemption. Under the Partnership agreement, we have the option to redeem units tendered for redemption on a one-for-one basis for shares of common stock or for an equivalent amount of cash.

FUNDS FROM OPERATIONS

The National Association of Real Estate Investment Trusts, or NAREIT, defines Funds From Operations, or FFO, as net income (loss) applicable to common shareholders excluding gains or losses from sales of real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not include the cost of capital improvements or any related capitalized interest. We use FFO as a measure of performance

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

to adjust for certain non-cash expenses such as depreciation and amortization because historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time.

Because real estate values have historically risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be less informative. NAREIT adopted the definition of FFO in order to promote an industry-wide standard measure of REIT operating performance. Accordingly, as a member of NAREIT, Equity Inns adopted FFO as a measure to evaluate performance and facilitate comparisons between the Company and other REITs, although our FFO may not be comparable to FFO measures reported by other companies. Additionally, FFO is also used by management in the annual budget process.

The following reconciliation of net income applicable to common shareholders to FFO, illustrates the difference in these measures of operating performance (in thousands):

	For the Three Months Ended March 31,
	2007		2006
Net income (loss) applicable to common shareholders	$	5,564	$	(3,302	)

Add (subtract):
(Gain) loss on sale of hotel properties		-		17
Minority interests (income) expense		92		(58	)
Depreciation		15,438		12,672
Depreciation from discontinued operations		-		541

Funds From Operations (FFO) (1)	$	21,094	$	9,870

Weighted average number of diluted common shares and Partnership units outstanding		55,919		55,554

(1)	For the three months ended March 31, 2006, FFO included approximately $8.9 million of non-cash impairment losses related to four hotels.

MANAGEMENT CONTRACTS

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

recorded approximately $1.8 million and $1.1 million, respectively, in minimum income guarantees from Hyatt as a reduction of our base management fee expense in the accompanying condensed consolidated statements of operations.

·	After all hotels are converted to Hyatt Place hotels, the 9.5% preferred return shall last for five years with respect to the payment of the franchise fee and 10 years with respect to the payment of the management fee.

·	At the end of the fifth year after all hotels are converted to Hyatt Place hotels, either party may terminate the management agreements if the hotels are not receiving the 9.5% preferred return after payment of full franchise and management fees.

·	These agreements shall be assignable, provided, among other things, that we sell at least 50% of the hotels to a single buyer or there is a change of control of our Company, as defined in the Master Agreement.

The Company and Hyatt also entered into an amendment to each of the existing management agreements for each of the 18 hotels, pursuant to which, among other things:

·	If the hotels are not converted to Hyatt Place hotels before the Guarantee Termination Date, the minimum income guarantees will be extended until the earlier of: (i) the date of conversion of the hotel or (ii) 150 days after the existing Guarantee Termination Date.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

·	During the hotel conversion, the minimum return, as defined, shall be increased by 9.5% of our conversion costs paid during the construction period.

·	These agreements shall be assignable, provided, among other things, that we sell at least 50% of the hotels to a single buyer or there is a change of control of our Company, as defined.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, all estimates are evaluated by our management, including those related to bad debts, carrying value of investments in hotel properties, income taxes, contingencies and litigation. All estimates are based upon historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

Allowance for Doubtful Accounts

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

Investment in Hotel Properties

We record an impairment charge when we believe an investment in a hotel has been impaired such that future undiscounted cash flows would not recover the book basis of the hotel property, or the hotel is being held for sale and a loss is anticipated. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's carrying value, thereby possibly requiring an impairment charge in the future. During the three months ended March 31, 2007, we did not record any non-cash impairment losses related to our hotels. During the three months ended March 31, 2006, we recorded approximately $8.9 million of non-cash impairment losses related to four hotels in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” Three of the hotels were subsequently sold in August 2006. Accordingly, under the Company’s accounting policy, the non-cash impairment loss of approximately $6.7 million related to these three sold hotels has been reclassified, along with operations, to discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented. The average age of these hotels was approximately 25 years. Impairments of hotels not held for sale are recorded as a component of continuing operations in the accompanying condensed consolidated statements of operations.

Income Taxes

We have elected to be treated as a REIT under the Internal Revenue Code. Under this status, income from the REIT is not subject to federal income taxes, provided that certain circumstances are satisfied, the most restrictive being that at least 90% of our taxable income is paid out as distributions to our shareholders. We do, however, maintain TRS Lessees that are subject to federal and state income taxes. The TRS Lessees maintain leases with subsidiaries of Equity Inns, as parent, that provide for certain rents to be paid to us. As the TRS Lessees are subject to income taxes, we account for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, we use the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases within the TRS Lessees.

Management's Discussion and Analysis of

Financial Condition and Results of Operations, Continued

Our TRS Lessees continue to accumulate net operating losses primarily due to the lease payments that our TRS Lessees pay to their respective lessors, in conjunction with our assumption of the operating leases from several of our independent management companies in 2001. As a result of these continued losses, we continue to record a valuation allowance for the full amount of our deferred income tax asset, which at March 31, 2007, was approximately $25.6 million. Our net operating loss carryforwards will expire in years beginning after 2021.

OTHER DEVELOPMENTS

Acquisitions

The hotel acquisitions that we completed for the three months ended March 31, 2007 are as follows:

Hotel	Location	Rooms	Date Acquired

Hilton Garden Inn	Austin, Texas	122	March 1, 2007
SpringHill Suites by Marriott	Austin, Texas	104	March 1, 2007
Courtyard by Marriott	Chicago, Illinois	140	March 21, 2007

Recent Accounting Developments

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS No. 159 on its condensed consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting For Uncertainty in Income Taxes” (“FIN 48’). FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company’s adoption of FIN 48, effective January 1, 2007, had no impact on our financial condition or results of operations.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, the most predominant of which is the fluctuation in LIBOR and other market index interest rates. At March 31, 2007, our exposure to market risk for a change in interest rates is related to our debt outstanding under the Line of Credit. Total debt outstanding under our Line of Credit was approximately $80.0 million at March 31, 2007. Our $50.0 million in trust preferred securities bear interest at a fixed rate of 6.93% per annum until 2010 and then bear interest at LIBOR plus 2.85% per annum thereafter. Our remaining indebtedness bears interest at fixed rates. As discussed below, we seek to manage our interest rate risks by maintaining an interest rate swap agreement for a notional amount of $25.0 million. The Company does not enter into derivative or interest rate transactions for speculative purposes.

Our Line of Credit bears interest at a variable rate of LIBOR plus 1.25% to 1.88% per annum as determined by our quarterly leverage. At March 31, 2007, our interest rate on our Line of Credit was LIBOR (5.32% at March 30, 2007) plus 1.375%. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for borrowings under our Line of Credit through the use of an interest rate swap, in order to effectively lock the interest rate on a portion of our variable rate debt. We do not enter into derivative or interest rate transactions for speculative purposes. We also regularly review interest rate exposure on our outstanding borrowings in an effort to minimize the risk of interest rate fluctuation.

Our Line of Credit matures in September 2010, but may be extended at our option for an additional year. As discussed above, our Line of Credit bears interest at variable rates, and therefore, cost approximates market value. At March 31, 2007, the fair value of our interest rate swap was an asset of approximately $406,000.

Our operating results are affected by changes in interest rates, primarily as a result of borrowings under our Line of Credit. If interest rates increased by 60 basis points, our interest expense would have increased by approximately $46,000, based on balances outstanding during the three months ended March 31, 2007.

ITEM 4.

CONTROLS AND PROCEDURES

The Company carried out an evaluation with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files, or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company's internal control over financial reporting during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are involved in various legal actions arising in the ordinary course of business. Management does not believe that any of the pending actions will have a material adverse effect on our business, financial condition or results of operations.

ITEM 1A.

RISK FACTORS

The Company previously disclosed risk factors under "Item 1A. Risk Factors" in its Annual Report on Form 10-K for the year ended December 31, 2006. In addition to those risk factors and the other information included elsewhere in this report, you should also carefully consider the risk factor discussed below. The risks described below and in the Annual Report on Form 10-K for the year ended December 31, 2006 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

Insurance Risk

We maintain hotel property insurance coverage on properties in certain areas that are susceptible to catastrophic losses such as hurricanes or earthquakes. In these areas, the Company maintains higher insurance deductibles given the lack of insurance capacity in certain markets. Consequently, the Company's risk of loss may increase due to these higher deductibles given certain geographic locations which are more susceptible to these types of catastrophic losses. In 2006, the Company also maintained certain self-insurance risk associated with the lack of insurance capacity in certain markets. Effective April 1, 2007, the Company no longer maintains self-insurance risk in these markets as a result of renegotiations of our insurance premiums.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 6. EXHIBITS


3.1(a)--	Second Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on October 23, 1997)

3.1(b)--	Articles of Amendment to the Second Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on May 28, 1998)

3.1(c)--	Articles of Amendment to the Second Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 4.1(d) to the Company's Registration Statement on Form 8-A12B (Registration No. 01-12073) filed with the SEC on July 7, 2003, as amended on August 7, 2003)

3.1(d)--	Articles of Amendment to the Second Amended and Restated Charter of the Company (incorporated by reference to Exhibit 4.1(e) to the Company's Registration Statement on Form 8-A filed with the SEC on February 15, 2006)

3.2--	By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (Registration No. 33-73304)

4.1(a)--	Form of Share Certificate for the Company’s Common Stock, $.01 par value (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11 (Registration No. 33-73304))

4.1(b)--	Form of share certificate for the Company's 8.75% Series B Cumulative Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 11, 2003)

4.1(c)--	Form of share certificate for the Company's 8.00% Series C Cumulative Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form 8-A filed with the SEC on February 15, 2006)

4.2(a)--	Third Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 24, 1997 (Registration No. 01-12073) filed with the SEC on July 10, 1997)

4.2(b)--	Amendment No. 2 to Third Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.2(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003)

4.2(c)--	Amendment No. 3 to Third Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.2(d) of the Company’s Quarterly Report on From 10-Q (Registration No. 01-12073) for the quarter ended March 31, 2006 and filed with the SEC on May 10, 2006)

10.1(a)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Howard A. Silver (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(b)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and J. Mitchell Collins (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(c)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Phillip H. McNeill, Jr. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(d)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Richard F. Mitchell (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(e)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Edwin F. Ansbro (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(f)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and J. Ronald Cooper (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(a)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Howard A. Silver (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(b)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and J. Mitchell Collins (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(c)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Phillip H. McNeill, Jr. (incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(d)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Richard F. Mitchell (incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(e)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Edwin F. Ansbro (incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(f)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and J. Ronald Cooper (incorporated by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(g)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Phillip H. McNeill, Sr. (incorporated by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

31.1* --	Certification of Howard A. Silver, Chief Executive Officer of Equity Inns, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated May 10, 2007

31.2* --	Certification of J. Mitchell Collins, Chief Financial Officer of Equity Inns, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated May 10, 2007


32.1* --	Certification of Howard A. Silver, Chief Executive Officer of Equity Inns, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 10, 2007

32.2* --	Certification of J. Mitchell Collins, Chief Financial Officer of Equity Inns, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 10, 2007

______________________

*Filed herewith.

SIGNATURES

Pursuant to the requirements 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.

	Equity Inns, Inc.


May 10, 2007	By:	/s/J. Mitchell Collins
Date		J. Mitchell Collins
		Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer), Secretary and Treasurer

INDEX OF EXHIBITS

Exhibits


Number	Description

3.1(a)--	Second Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on October 23, 1997)

3.1(b)--	Articles of Amendment to the Second Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on May 28, 1998)

3.1(c)--	Articles of Amendment to the Second Amended and Restated Charter of the Registrant (incorporated by reference to Exhibit 4.1(d) to the Company's Registration Statement on Form 8-A12B (Registration No. 01-12073) filed with the SEC on July 7, 2003, as amended on August 7, 2003)

3.1(d)--	Articles of Amendment to the Second Amended and Restated Charter of the Company (incorporated by reference to Exhibit 4.1(e) to the Company's Registration Statement on Form 8-A filed with the SEC on February 15, 2006)

3.2--	By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (Registration No. 33-73304)

4.1(a)--	Form of Share Certificate for the Company’s Common Stock, $.01 par value (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11 (Registration No. 33-73304))

4.1(b)--	Form of share certificate for the Company's 8.75% Series B Cumulative Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 11, 2003)

4.1(c)--	Form of share certificate for the Company's 8.00% Series C Cumulative Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form 8-A filed with the SEC on February 15, 2006)

4.2(a)--	Third Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 24, 1997 (Registration No. 01-12073) filed with the SEC on July 10, 1997)

4.2(b)--	Amendment No. 2 to Third Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.2(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003)

4.2(c)--	Amendment No. 3 to Third Amended and Restated Agreement of Limited Partnership of Equity Inns Partnership, L.P. (incorporated by reference to Exhibit 4.2(d) of the Company’s Quarterly Report on From 10-Q (Registration No. 01-12073) for the quarter ended March 31, 2006 and filed with the SEC on May 10, 2006)

10.1(a)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Howard A. Silver (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(b)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and J. Mitchell Collins (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(c)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Phillip H. McNeill, Jr. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(d)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Richard F. Mitchell (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(e)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and Edwin F. Ansbro (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.1(f)--	2007 Restricted Stock Award Agreement, dated as of January 3, 2007, between the Company and J. Ronald Cooper (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(a)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Howard A. Silver (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(b)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and J. Mitchell Collins (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(c)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Phillip H. McNeill, Jr. (incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(d)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Richard F. Mitchell (incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(e)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Edwin F. Ansbro (incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(f)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and J. Ronald Cooper (incorporated by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

10.2(g)--	Change in Control and Termination Agreement as amended as of January 1, 2007 between the Company and Phillip H. McNeill, Sr. (incorporated by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K (Registration No. 01-12073) filed with the SEC on January 5, 2007)

31.1* --	Certification of Howard A. Silver, Chief Executive Officer of Equity Inns, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated May 10, 2007


31.2* --	Certification of J. Mitchell Collins, Chief Financial Officer of Equity Inns, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, dated May 10, 2007

32.1* --	Certification of Howard A. Silver, Chief Executive Officer of Equity Inns, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 10, 2007

32.2* --	Certification of J. Mitchell Collins, Chief Financial Officer of Equity Inns, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 10, 2007

______________________

*Filed herewith.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Good

W2007 Grace Acquisition I (WGCBP) Inactive 10-Q2007 Q1 Quarterly report

Content analysis