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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 Commission File
Ended September 30, 2003 Number 01-12073

EQUITY INNS, INC.
(Exact Name of Registrant as Specified in its Charter)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .
----- -----

The number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on November 10, 2003 was 42,557,620.

1 of 32






EQUITY INNS, INC.

INDEX


PAGE

PART I. Financial Information

Item 1. Financial Statements


Condensed Consolidated Balance Sheets -September 30, 2003
(unaudited) and December 31, 2002 3

Condensed Consolidated Statements of Operations (unaudited) -
For the three and nine months ended September 30,
2003 and 2002 4

Condensed Consolidated Statements of Cash Flows (unaudited) -
For the nine months ended September 30, 2003 and 2002 5

Notes to Condensed Consolidated Financial Statements 7


Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16

Item 3. Quantitative and Qualitative Disclosures About Market Risk 29

Item 4. Controls and Procedures 30


PART II. Other Information


Item 6. Exhibits and Reports on Form 8-K 31


2





PART I. Financial Information
Item 1. Financial Statements
EQUITY INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS



September 30, December 31,
2003 2002
------------ ------------
(unaudited)

ASSETS
Investment in hotel properties, net $693,535,775 $740,145,842
Assets held for sale 11,219,100
Cash and cash equivalents 11,430,288 5,916,209
Accounts receivable, net 6,354,454 4,142,901
Notes receivable, net 1,335,025 1,335,025
Deferred expenses, net 8,547,884 8,743,477
Deferred tax asset 14,866,000 9,777,000
Deposits and other assets 6,844,277 4,391,484
------------ ------------

Total assets $754,132,803 $774,451,938
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Debt $352,714,988 $362,881,131
Accounts payable and accrued expenses 26,816,576 27,817,365
Distributions payable 6,381,833 6,505,528
Interest rate swap 1,708,579 2,198,809
Minority interest in Partnership 7,869,545 8,781,685
------------ ------------

Total liabilities 395,491,521 408,184,518
------------ ------------

Commitments and Contingencies

Shareholders' equity:

Preferred Stock, $.01 par value, 10,000,000 shares authorized:
9-1/2% Series A Cumulative Preferred Stock, $.01 par value,
0 and 2,750,000 shares issued and outstanding, respectively 68,750,000
8.75% Series B Cumulative Preferred Stock, $.01 par value,
3,162,500 and 0 shares issued and outstanding, respectively
(liquidation value of $79,062,500) 76,383,693
Common Stock, $.01 par value, 100,000,000
shares authorized, 41,303,064 and 41,220,639
shares issued and outstanding 413,031 412,206
Additional paid-in capital 448,758,644 445,793,107
Treasury stock, at cost, 747,600 shares (5,173,110) (5,173,110)
Unearned directors' and officers' compensation (228,458) (545,528)
Distributions in excess of net earnings (159,803,939) (140,770,446)
Accumulated other comprehensive income:
Unrealized loss on interest rate swap (1,708,579) (2,198,809)
------------ ------------

Total shareholders' equity 358,641,282 366,267,420
------------ ------------

Total liabilities and shareholders' equity $754,132,803 $774,451,938
============ ============




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

3





EQUITY INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)



For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- --------------------------------
2003 2002 2003 2002
----------- ----------- ------------ ------------

Revenue:
Rooms $60,629,177 $59,443,837 $169,750,404 $168,755,981
Other operating departments 2,943,903 2,783,031 8,408,959 8,180,647
Other revenue 120,125 246,325 483,302 753,539
----------- ----------- ------------ ------------
Total revenue 63,693,205 62,473,193 178,642,665 177,690,167
----------- ----------- ------------ ------------

Operating costs and other expenses:
Property operating costs 35,096,811 34,586,178 99,644,477 98,838,157
Other operating departments 2,179,183 1,937,265 6,255,237 5,635,501
Property taxes and insurance 4,344,641 4,244,276 13,102,256 12,885,823
Depreciation 9,662,676 9,833,169 28,991,228 29,343,823
Amortization of franchise fees 72,783 81,379 218,349 250,137
General and administration expenses:
Stock based or non-cash compensation 127,543 173,438 392,571 517,674
Other general and administrative expenses 1,736,600 1,439,213 5,153,418 4,263,790
Rental expense 221,869 431,395 668,294 1,091,679
----------- ----------- ------------ ------------
Total operating expenses 53,442,106 52,726,313 154,425,830 152,826,584
----------- ----------- ------------ ------------

Operating income 10,251,099 9,746,880 24,216,835 24,863,583

Amortization of debt costs 378,240 511,035 1,787,079 1,533,105
Interest 6,964,351 7,042,671 20,878,867 21,367,092
----------- ----------- ------------ ------------

Income from continuing operations before
minority interest and income taxes 2,908,508 2,193,174 1,550,889 1,963,386

Minority interest 6,576 63,798 8,821 58,776
Income tax benefit 1,450,066 1,426,465 4,757,260 4,394,656
----------- ----------- ------------ ------------

Income from continuing operations 4,351,998 3,555,841 6,299,328 6,299,266

Discontinued operations:
Gain (loss) on sale of hotel properties (52,530) 1,222,014
Loss on impairment of hotels held for sale (3,556,067)
Income from operations of discontinued
operations 51,150 167,433 173,322 527,383
----------- ----------- ------------ -----------
Income (loss) from discontinued operations (1,380) 167,433 (2,160,731) 527,383
----------- ----------- ------------ -----------

Net income 4,350,618 3,723,274 4,138,597 6,826,649

Loss on redemption of Series A preferred stock 2,408,257 2,408,257
Preferred stock dividends 1,686,517 1,632,813 4,952,143 4,898,439
----------- ----------- ------------ -----------

Net income (loss) applicable to common
shareholders $ 255,844 $ 2,090,461 $ (3,221,803) $ 1,928,210
============ =========== ============ ============

Net income (loss) per share data:
Basic and diluted income (loss) per share
from continuing operations $ 0.01 $ 0.05 $ ( 0.03) $ 0.04
Discontinued operations 0.00 0.00 (0.05) 0.01
----------- ----------- ------------ ------------

Net income (loss) per common share $ 0.01 $ 0.05 $ (0.08) $ 0.05
=========== =========== ============ ============

Weighted average number of common shares
outstanding, diluted 40,554,827 40,469,973 40,538,808 39,343,470
=========== =========== ============ ============



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

4





EQUITY INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)




For the Nine Months Ended
September 30,
---------------------------------
2003 2002
----------- -----------

Cash flows from operating activities:
Net income $ 4,138,597 $ 6,826,649
Adjustments to net income provided by operating activities:
(Gain) loss on sale of hotel properties (1,222,014)
Loss on impairment of hotels held for sale 3,556,067
Depreciation and amortization 29,791,997 31,018,093
Amortization of loan costs 1,787,079 1,533,105
Amortization of unearned directors' and officers' compensation 317,070 448,065
Directors' stock-based compensation 75,501 68,351
Income tax benefit (5,089,000) (4,712,000)
Minority interest 8,821 58,776
Provision for doubtful accounts 25,000
Changes in assets and liabilities:
Accounts receivable (2,211,553) (3,103,526)
Due from Lessees 162,265
Notes receivable (596,114)
Deposits and other assets (2,452,793) (2,779,383)
Accounts payable and accrued expenses (798,591) 5,203,674
----------- -----------
Net cash provided from operating activities 27,901,181 34,152,955
----------- -----------

Cash flows from investing activities:
Improvements and additions to hotel properties (10,094,476) (5,483,656)
Cash paid for franchise applications (116,601)
Proceeds from sale of hotel properties 13,625,297
----------- -----------
Net cash provided by (used in) investing activities 3,530,821 (5,600,247)
----------- -----------

Cash flows from financing activities:
Gross proceeds from public offering of preferred stock 79,062,500
Gross proceeds from public offering of common stock 28,520,000
Payment of offering expenses (2,678,807) (1,575,807)
Redemption of Series A preferred stock (68,750,000)
Distributions paid (21,337,477) (15,314,453)
Cash paid for loan costs (2,047,996) (125,103)
Proceeds from borrowings 43,875,000 16,639,907
Payments on debt (54,041,143) (53,915,607)
----------- -----------
Net cash used in financing activities (25,917,923) (25,771,063)
----------- -----------

Net increase in cash 5,514,079 2,781,645
Cash and cash equivalents at beginning of period 5,916,209 4,358,787
----------- -----------

Cash and cash equivalents at end of period $11,430,288 $ 7,140,432
=========== ===========



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

5





Supplemental disclosure of noncash investing and financing activities:

During January 2003, the Company issued to one of its officers, 19,081 shares of
common stock at $5.88 per share under the 1994 Stock Incentive Plan in lieu of
cash as a performance bonus.

During the nine months ended September 30, 2003, the Company issued 51,521
shares of common stock upon redemption of 51,521 units of limited partnership
interest in the Company's operating partnership ("Units").

During the nine months ended September 30, 2003, the Company issued 11,823
shares of common stock at prices ranging from $5.82 to $7.53 per share to its
independent directors in lieu of cash as compensation.

During January 2002, the Company issued to certain officers 51,704 shares of
common stock at $6.62 per share under the 1994 Stock Incentive Plan in lieu of
cash as a performance bonus.

During the nine months ended September 30, 2002, the Company recorded $4 million
of investment in hotel properties and a liability related to the purchase of a
hotel property.

During the nine months ended September 30, 2002, the Company issued 2,566 shares
of common stock upon redemption of 2,566 Units.

During the nine months ended September 30, 2002, the Company issued 10,466
shares of common stock at prices ranging from $6.20 to $8.19 per share to its
independent directors in lieu of cash as compensation.


























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

6





EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------

1. Organization

Equity Inns, Inc. (the "Company") 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
September 30, 2003 owned an approximate 97.3% interest in the
Partnership.

The Company's hotel properties are leased to the Company's taxable REIT
subsidiaries (the "TRS Lessees"). The Company's hotel properties are
managed by unrelated third parties. At September 30, 2003, the managers
of the Company's hotels were as follows:

Number of Hotels
----------------

Interstate Hotels & Resorts, Inc. 51
Hilton Hotels Corporation 18
Prime Hospitality Corporation (subsidiaries) 19
Other 6
--

94
==

The Company has management agreements with Prime's subsidiaries that are
structured to provide the TRS Lessees minimum net operating income at
each of the 19 AmeriSuites hotels. In addition, the management agreements
specify a net operating income threshold for each of the 19 AmeriSuites
hotels. As the manager, the Prime subsidiaries can earn an incentive
management fee of 25% of hotel net operating income above the threshold,
to a maximum of 6.5% of gross hotel revenues. If the management fee
exceeds 6.5% of gross hotel revenue, the Prime 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,
Prime's subsidiaries are required to contribute 25% of the shortfall in
net operating income to the Company. Management records such shortfall
contributions as revenue when all contingencies related to such amounts
have been resolved.

In May 2003, the Company updated its current franchise contracts and
management agreements with Prime on its 19 AmeriSuites hotels. The
minimum net operating income guarantee agreements were not extended
beyond their original terms and are set to expire between 2007 and 2008.
Under the new agreements, Prime and the Company extended the existing
franchise agreements to 2028 and the management agreements were extended
to 2010 as long as Prime continues to be in compliance with the minimum
net operating income guarantees in the original agreements.



7




EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------


1. Organization, Continued

The management contracts for the Company's remaining 75 hotels have terms
ranging up to five years and generally provide for payment of management
fees equal to a percentage of hotel revenues and an incentive fee
consisting of a percentage of gross operating profits in excess of
budget.

In August 2003, the Company completed its offering of 8.75% Series B
Cumulative Preferred Stock, selling 3,162,500 shares, including 162,500
shares issued upon exercise of the underwriters over-allotment option.
The offering price was $25 per share, resulting in gross proceeds of
$79.1 million. The Company received approximately $76.4 million after
underwriters' discount and offering expenses were paid.

On August 11, 2003, the Company redeemed all of its outstanding 9 1/2%
Series A Cumulative Preferred Stock at a redemption price of $25, plus
accrued dividends. The cost of the redemption of the 9 1/2% Series A
Cumulative Preferred Stock was approximately $68.8 million.

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 the
financial statements and notes thereto of the Company included in the
Company's Annual Report on Form 10-K for the year ended December 31,
2002. The accompanying unaudited condensed consolidated financial
statements reflect, in the opinion of the Company's 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 operations for the current three and nine month periods
are not necessarily indicative of the results to be expected for the full
year.

2. Summary of Significant Accounting Policies

Net Income Per Common Share

Basic earnings per common share from continuing operations are computed
by dividing income from continuing operations as adjusted for gains or
losses on the sale of hotel properties and for dividends on preferred
stock by the weighted average number of shares of common stock
outstanding. Diluted earnings per common share from continuing operations
are computed by dividing income from continuing operations as adjusted
for gains or losses on the sale of hotel properties and for dividends on
preferred stock by the weighted average number of shares of common stock
outstanding plus other potentially dilutive securities.

8




EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------

2. Summary of Significant Accounting Policies, Continued

Potential dilutive securities included in the Company's calculation of
diluted earnings per share include shares issuable upon exercise of stock
options. The majority of the options to purchase shares of the Company's
common stock that were outstanding during the nine months ended September
30, 2003 and 2002 were not included in the computation of diluted EPS
because their effect would have been anti-dilutive.

Stock-Based Compensation

The FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The Company will apply
the fair value based method of accounting for stock-based employee
compensation prospectively to all awards granted, modified or settled
beginning January 1, 2003.

There were no grants of options to purchase shares of the Company's
common stock made during the nine months ended September 30, 2003. Had
compensation costs for the Company's grants for stock-based compensation
plans prior to January 1, 2003 been determined consistent with SFAS No.
123, the Company's pro forma net income and net income per common share
for the nine months ended September 30, 2003 and 2002 would have
decreased by an insignificant amount.

3. Investment in Hotel Properties

Management classifies 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. When management
identifies an asset held for sale, the Company estimates the net selling
price of such asset. If the net selling price of the asset is less than
the carrying amount of the asset, a reserve for loss is established.
Depreciation is no longer recorded once management has identified an
asset held for sale. Net selling price is estimated as the amount at
which the asset could be bought or sold (fair value) less costs to sell.
Fair value is determined at prevailing market conditions, appraisals or
current estimated net sales proceeds from pending offers, if appropriate.
Only 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 is allocated to discontinued operations. The Company recorded
impairment of $3,556,067 in June 2003 to write down the assets held for
sale to their fair value less cost to sell. This impairment is reflected
in the results of operations for the nine month period ended September
30, 2003.


9




EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------


4. Debt

The following details the Company's debt outstanding at September 30,
2003:



Interest
Rate Maturity
----------------- -------------


Commercial Mortgage Bonds
Class A $ 4,373,846 6.83% Fixed November 2006
Class B 50,600,000 7.37% Fixed December 2015
Class C 10,000,000 7.58% Fixed February 2017
------------
64,973,846

Line of Credit 71,700,000 LIBOR plus Variable June 2006
Percentage

Mortgage 91,420,587 8.37% Fixed July 2009
Mortgage 67,152,451 8.25% Fixed November 2010
Mortgage 34,739,540 8.25% Fixed November 2010
Mortgage 10,750,000 LIBOR plus Variable August 2008
285 pts.
Mortgage 2,934,392 6.00% Fixed May 2008
Mortgage 5,490,900 10.00% Fixed September 2005
Mortgage 3,553,272 6.37% Fixed Nov 2016
------------

$352,714,988
============



On June 11, 2003, the Company repaid the remaining outstanding balance
under its prior collateralized line of credit with Bank One, NA with
borrowings under a new $110 million collateralized line of credit with
Bank One, NA (the "Line of Credit"). The Line of Credit has an initial
term of three years, with a one-year extension option, subject to certain
conditions.

The Line of Credit has a stated borrowing capacity of $110 million. This
capacity is further limited to a stated percentage of the appraised value
of the assets pledged as collateral. The borrowing capacity of the Line
of Credit based on these appraised values is approximately $102 million
as of September 30, 2003.

The Line of Credit bears interest at a variable rate of LIBOR plus 2.25%,
2.50%, 2.75% or 3.00% as determined by the Company's percentage of total
debt to adjusted earnings before interest, taxes, depreciation and
amortization ("EBITDA"), as defined in the loan agreement (the
"Percentage"). The Percentage is adjusted quarterly. At September 30,
2003, the interest rate on the Line of Credit was LIBOR (1.12% at
September 30, 2003) plus 2.75%. Fees ranging from .45% to .60%, as
determined by the Company's ratio of total indebtedness to EBITDA, are
paid quarterly on the unused portion of the Line of Credit. The Line of
Credit contains various covenants, including the maintenance of a minimum
net worth, minimum debt coverage and interest coverage ratios, and total
indebtedness limitations. At September 30, 2003, the Company was in
compliance with all covenants contained in the Line of Credit.

10




EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------


5. Interest Rate Swap Contracts

Effective January 16, 2001, the Company entered into an interest rate
swap agreement with a financial institution on a notional amount of $50
million. The agreement effectively fixes the interest rate on the first
$50 million of floating rate debt outstanding under the Line of Credit at
a rate of 6.4275% plus the Percentage, thus reducing 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 the
Company. The term of the interest rate swap agreement is through November
2003. The differences to be paid or received by the Company 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.

On March 20, 2003, the Company entered into an interest rate swap
agreement with a financial institution on a notional amount of $25
million. The agreement becomes effective November 2003 and expires in
November 2008. The agreement effectively fixes the interest rate on the
first $25 million of floating rate debt outstanding under the Line of
Credit at a rate of 3.875% plus the interest rate spread on the Line of
Credit, thus reducing 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 the Company. The differences to be
paid or received by the Company 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.

On March 20, 2003, the Company entered into an interest rate swap
agreement with a financial institution on a notional amount of $25
million. The agreement becomes effective in November 2003 and expires in
November 2006. The agreement effectively fixes the interest rate on the
second $25 million of floating rate debt outstanding under the Line of
Credit at a rate of 3.22% plus the interest rate spread on the Line of
Credit, thus reducing 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 the Company. The differences to be
paid or received by the Company 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.


11




EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------


6. Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income", requires the disclosure
of the components included in comprehensive income (loss). For the nine
months ended September 30, 2003, the Company's comprehensive income was
$4,628,827, comprised of a net income of $4,138,597 and the change in the
unrealized income on its interest rate swap of $490,230. For the nine
months ended September 30, 2002, the Company's comprehensive income was
$7,080,879, comprised of a net income of $6,826,649 and the change in the
unrealized income on its interest rate swap of $254,230.

7. Income Taxes

The Company's income tax benefit related to its TRS Lessee subsidiaries
consists of the following for the nine months ended September 30:




2003 2002
----------- -----------

Deferred:
Federal $(4,553,000) $(4,216,000)
State (536,000) (496,000)
----------- -----------

(5,089,000) (4,712,000)
Included in discontinued operations 331,740 317,344
----------- -----------

Total $(4,757,260) $(4,394,656)
=========== ===========


The TRS Lessees' net deferred tax asset of $14,866,000 is comprised of
net operating loss carry-forwards which expire beginning on December 31,
2021. The Company believes that the tax planning strategies which have
been initiated will allow the TRS Lessees to generate sufficient future
taxable income to realize this deferred tax asset in full. Accordingly,
no valuation allowance has been recorded at September 30, 2003. The
difference between the TRS Lessees' effective income tax rate and the
statutory Federal income tax rate is as follows for the nine months ended
September 30:

2003 2002
---- ----

Statutory Federal rate 34.0% 34.0%
State income taxes 4.0% 4.0%
---- ----

Effective tax rate 38.0% 38.0%
==== ====

12




EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------

8. Discontinued Operations

In 2002, the Company adopted the provisions of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 established criteria beyond
that previously specified in Statement of Financial Accounting Standard
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), to determine when a
long-lived asset is classified as held for sale, and it provides a single
accounting model for the disposal of long-lived assets. Due to the
adoption of SFAS 144, the Company now reports as discontinued operations
any assets held for sale (as defined by SFAS 144), and assets sold in the
current period. All results of these discontinued operations, less
applicable income taxes, are included in a separate component of income
on the consolidated statement of operations under the heading, "income
from discontinued operations." This change has resulted in certain
reclassifications of the previously reported 2002 statements of
operations.

In 2003, the Company sold its Hampton Inn in Ft. Worth, Texas, its
Hampton Inn & Suites in Bartlett, Tennessee and its Holiday Inn Express
in Wilkesboro, North Carolina for an aggregate cash price of $14.1
million, resulting in a gain on the sales of approximately $1.2 million.
The operations of these hotels, plus the operations of three other hotels
classified as held for sale effective September 30, 2003 are included in
the statement of operations under the heading,


13





EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------

8. Discontinued Operations, Continued

"Income (loss) from discontinued operations." The components of income
(loss) from discontinued operations for the three and nine months ended
September 30, 2003 and 2002 are shown below:



Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------- ---------- ----------- ----------

Revenue:
Room revenue $1,165,421 $2,462,353 $ 4,501,978 $7,756,082
Other operating departments 56,920 114,394 204,022 327,385

Operating Costs:
Property operating costs (977,115) (1,597,977) (3,225,638) (4,962,021)
Other operating departments (50,560) (122,987) (176,290) (378,040)
Property taxes and insurance (115,912) (192,227) (350,455) (579,619)
Depreciation (424,326) (576,060) (1,412,748)
Amortization of franchise fees (5,795) (6,360) (11,385)
Interest (176,538) (176,538) (529,615) (529,615)
Income tax benefit 148,934 110,536 331,740 317,344
---------- ---------- ----------- ----------

Income from operations of
discontinued operations 51,150 167,433 173,322 527,383
---------- ---------- ----------- ----------

Gain (loss) on sale of hotel properties (52,530) 1,222,014
Loss on impairment of hotels held
for sale (3,556,067)
---------- ---------- ----------- ----------

Income (loss) from discontinued
operations $ (1,380) $ 167,433 $(2,160,731) $ 527,383
========== ========== =========== ==========



9. Recent Accounting Pronouncements

In May 2003, FAS 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity," was issued. FAS 150
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. It requires that a company classify a financial instrument that
is within its scope as a liability (or an asset in some instances). Many
of those instruments were previously classified as equity. This statement
is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective for the first fiscal period
beginning after December 15, 2003. The adoption of FAS 150 did not have a
material effect on our results of operations or financial position.

14






EQUITY INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
----------------

10. Subsequent Events

On October 10, 2003, the Company sold 2,000,000 shares of common stock,
$.01 par value ("Common Stock") to institutional investors. The offering
price was $7.55 per share, resulting in gross proceeds of $15.1 million.
On October 10, the Company sold 287,500 shares of Series B preferred
stock to institutional investors. The offering price was $25.00 per
share, resulting in gross proceeds of $7.2 million. The Company received
approximately $22.3 million after offering expenses from the combined
offerings. The Company expects to use the proceeds for acquisitions and
to repay a portion of its outstanding borrowings under the Line of
Credit.

15





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


BACKGROUND

Equity Inns, Inc. (the "Company") is a Memphis-based, self-advised hotel real
estate investment trust ("REIT") focused on the upscale extended stay, all-suite
and midscale limited-service 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
September 30, 2003 owned an approximate 97.3% interest in the Partnership.

The Company commenced operations on March 1, 1994 upon completion of its initial
public offering and the simultaneous acquisition of eight Hampton Inn hotels
with 995 rooms. Over the next nine years, the Company grew with a focus on
geographic and brand diversity. The Company believes that diversity in its asset
portfolio reduces operational variance from year to year and results in less
volatility relative to the overall hotel industry. Management believes that this
diversity provides minimal operational variances in comparison to industry
norms.

The following table illustrates the Company's geographic presence by the number
of hotels as of September 30, 2003.

Region
------------------

East North Central 14.9%
East South Central 13.8%
Middle Atlantic 6.4%
Mountain 10.6%
New England 5.3%
Pacific Northwest 2.1%
South Atlantic 27.7%
West North Central 7.5%
West South Central 11.7%

Management believes that geographic diversity helps to limit its exposure to any
one market. At September 30, 2003, the Company owned a geographically diverse
portfolio of 94 hotels with 12,109 rooms, located in 34 states with eight
national brands. Additionally, this property mix is spread between suburban and
urban locations, helping to insulate the Company from various economic climates,
including a depressed business travel climate.

The Company's hotel portfolio includes premium limited service hotels, all-suite
hotels, premium extended stay hotels, and full service hotels. This array of
product allows management to diversify the asset portfolio in an effort to
reduce risk in various economic environments.

16






Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


BACKGROUND, Continued

The following chart summarizes information regarding the Company's franchise
diversity at September 30, 2003:



Number of Number of
Franchise Affiliation Hotel Properties Rooms/Suites
--------------------- ---------------- ------------

Premium Limited Service Hotels:
Hampton Inn 47 5,905
Comfort Inn 2 245
-- ------
Sub-total 49 6,150
-- ------

All-Suite Hotels:
AmeriSuites 19 2,403

Premium Extended Stay Hotels:
Residence Inn 11 1,351
Homewood Suites 9 1,295
-- ------
Sub-total 20 2,646
-- ------

Full Service Hotels:
Holiday Inn 4 557
Comfort Inn 1 177
Courtyard by Marriott 1 176
-- ------
Sub-total 6 910
-- ------

Total 94 12,109
== ======


Ninety-three percent of the hotel portfolio is comprised of the following
leading franchise brands: Homewood Suites and Hampton Inn by Hilton, Residence
Inn by Marriott, Courtyard by Marriott and AmeriSuites by Prime Hospitality.
Management believes that multiple brands at the midscale level, without food and
beverage, help to insulate the asset portfolio against the volatility of results
relative to industry revenue per available room ("RevPAR") performance.
Descriptions of each of the Company's brands are as follows:

Homewood Suites by Hilton:
A premier upscale extended stay hotel, focusing on extended stay,
corporate transient and family travelers. Voted the #1 extended stay
hotel brand by JD Powers in 2003.



17





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


BACKGROUND, Continued

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. Voted the #2 extended stay
hotel brand by JD Powers in 2003.

AmeriSuites by Prime Hospitality:
An upscale all-suite hotel, billed as America's most affordable
all-suite hotel.

Approximately 72% of the Company's hotels are branded by Marriott and Hilton,
which both provide national marketing support and frequent stay programs that
continue to drive additional revenue. The fact that better brands generate
premium RevPAR over their peers is another factor in Equity Inns' effort to
limit its risk and the volatility of the portfolio. The chart below illustrates
the 2002 RevPAR premium for the Company's premier brands.



Chain
Brand Segment
RevPAR RevPAR Premium % Premium
------ ------ ------- ---------

Hampton Inn (Hilton) $51.66 $42.34 $9.32 22%
Residence Inn (Marriott) $73.47 $60.36 $13.11 22%
Homewood Suites (Hilton) $68.53 $60.36 $8.17 14%


(Sources: Brand RevPAR -- Hilton and Marriott press releases; Chain Segment
RevPAR -- Smith Travel)

Effective January 1, 2002, the Company, through its TRS Lessees, outsourced the
management of its hotels to leading management companies. By utilizing third
party managers with contracts providing for relatively short-term incentives,
the Company is able to better control the results the third party management
companies produce. The managers of the Company's hotels are as follows:

Number of Hotels
----------------

Interstate Hotels & Resorts, Inc. 51
Hilton Hotels Corporation 18
Prime Hospitality Corporation (subsidiaries) 19
Others 6
--

94
==


18





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


BACKGROUND, Continued

The Company pursues an active asset management strategy and constantly considers
the purchase of assets in strategic locations or the sale of assets when they no
longer fit the Company's long-term goals. This process is ongoing, and activity
could potentially increase given a more fluid marketplace.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2003 and 2002

Hotel revenue for the current period totaled $63.6 million. Hotel revenue for
the same period of the prior year totaled $62.2 million. This represents an
increase in hotel revenues of approximately $1.4 million. Included in the
current period hotel revenue is approximately $1.2 million of revenue related to
the Company's most recent hotel acquisition in December 2002. Excluding the
revenue from this acquired property, the Company's hotel revenue increased by
approximately $.2 million. For the quarter, revenue per available room increased
..2% as compared to the same period last year.

Other revenue decreased by approximately $126,000 as compared to the same period
last year, due primarily to a decrease in the income received from the provision
of certain management services to the Company's joint venture partner, GHII,
LLC.

Property operating costs and other operating department expenses increased by
approximately $753,000 as compared to the same period last year. The increase
was due primarily to an increase in the cost of utilities.

Property taxes and insurance increased by approximately $100,000 due primarily
to increases in property taxes attributable to the acquisition of the Courtyard
by Marriott hotel located in Houston, Texas in December 2002.

Depreciation expense decreased slightly as compared to the same period last
year, due primarily to certain components becoming fully depreciated in prior
periods.

Amortization of franchise fees decreased by approximately $9,000 due primarily
to extensions of certain of the Company's hotel franchise licenses for extended
periods.

General and administrative expenses, including non-cash compensation, increased
approximately $251,000 over the prior quarter, due primarily to an increase in
accrued incentive wages.

Rental expense decreased by approximately $210,000, as compared to the prior
quarter, due to the recording of non-recurring adjustments in the prior period.

19





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued



RESULTS OF OPERATIONS, Continued

Amortization of debt costs decreased by approximately $133,000, as compared to
the prior quarter, due to of renewal of the Company's line of credit, which was
completed in June 2003.

Interest expense decreased by approximately $78,000, as compared to the prior
quarter, due to a decrease in the weighted average interest rate from 8.17% to
7.86%, offset by an increase in average borrowings outstanding from $349.8
million to $360.4 million.

Income tax benefit increased by approximately $24,000 over the prior quarter as
the Company's taxable REIT subsidiaries incurred larger losses.

Income from operations of discontinued operations represents the operating
results of three hotels sold by the Company in 2003 and three hotels which the
Company expects to sell in the next year. Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment of Long-Lived Assets, requires
the results of operations of both sold hotels and hotels held for sale to be
reported as discontinued operations.

Nine Months Ended September 30, 2003 and 2002

Hotel revenue for the current period totaled $178.2 million. Hotel revenue for
the same period of the prior year totaled $176.9 million. This represents an
increase in hotel revenue of approximately $1.3 million. Included in the current
period hotel revenue is approximately $3.9 million of revenue related to the
Company's most recent hotel acquisition in December 2002. Excluding the revenue
from this acquired property, the Company's hotel revenues decreased by
approximately $2.6 million compared to the prior year period. For the period,
revenue per available room declined 1.3% as compared to the same period last
year, due primarily to a decline in average daily rate from $77.81 to $76.15.

Other revenue decreased by approximately $270,000 as compared to the same period
last year, due primarily to a decrease in the income received from the provision
of certain management services to the Company's joint venture partner, GHII,
LLC.

Property operating costs and other operating department expenses increased by
approximately $1.4 million, as compared to the same period last year, due
primarily to an increase in the cost of utilities and insurance.

Property taxes and insurance increased over the comparable period last year by
approximately $216,000 due primarily to increases in property taxes,
attributable to the acquisition of the Courtyard by Marriott hotel located in
Houston, Texas in December 2002.

20






Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


RESULTS OF OPERATIONS, Continued

Depreciation expense decreased slightly as compared to the same period last
year, due primarily to certain components becoming fully depreciated in prior
periods.

Amortization of franchise fees decreased by approximately $32,000 due primarily
to extensions of certain of the Company's hotel franchise licenses for extended
periods and the sale of three hotels in 2003.

General and administrative expenses, including non-cash compensation, increased
approximately $765,000 over the comparable period last year, due primarily to
increased professional fees, franchise taxes, and an increase in accrued
incentive wages.

Rental expense decreased by approximately $423,000, as compared to the prior
period, due to the recording of non-recurring adjustments in the prior period.

Amortization of debt costs increased by approximately $254,000, as compared to
the same period last year, due primarily to the write-off of debt costs as a
result of the early replacement of the Company's line of credit, which was
originally scheduled to expire in October 2003.

Interest expense decreased by approximately $488,000 as compared to the prior
quarter, due to a decrease in the weighted average interest rate from 8.03% to
7.89%, and by a decrease in average borrowings outstanding from $364.2 million
to $362.7 million.

Income tax benefit increased $363,000 over the prior quarter as the Company's
taxable REIT subsidiaries incurred larger losses.

Gain on the sale of hotel properties relates to the sale of three hotels in
2003.

Loss on impairment of hotels held for sale represents the anticipated losses
recorded in June 2003 on the sale of three hotels that the Company expects to
sell in the next year, at a combined loss of approximately $3.6 million. The
sale of one of these hotels was completed in August 2003.

Income from operations of discontinued operations represents the operating
results of three hotels sold by the Company in 2003 and three hotels which the
Company expects to sell in the next year. Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment of Long-Lived Assets, requires
the results of operations of both sold hotels and hotels held for sale to be
reported as discontinued operations.

21





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its cash requirements, including
distributions to its shareholders and repayments of indebtedness, is from its
operating cash flow. For the nine months ended September 30, 2003, net cash flow
provided by operating activities was $27.9 million. The Company currently
expects that its operating cash flow will be sufficient to fund its continuing
operations, including its required debt service obligations and distributions to
shareholders required to maintain its status as a REIT. The Company expects to
fund any short-term liquidity requirements above its operating cash flows
through short-term borrowings under the line of credit with Bank One, NA (the
"Line of Credit"). At September 30, 2003, the Company had approximately $11.4
million of cash and cash equivalents.

The Company may make additional investments in hotel properties and may incur,
or cause the Partnership to incur, indebtedness to make such investments or to
meet distribution requirements imposed on a REIT under the Internal Revenue Code
of 1986 (the "Code") to the extent that working capital and cash flow from the
Company's investments are insufficient to make such distributions. The Company's
Board of Directors has adopted a policy limiting aggregate indebtedness to 45%
of the Company's investment in hotel properties, at cost, after giving effect to
the Company's use of proceeds from any indebtedness. This policy may be amended
at any time by the Board of Directors without a shareholder vote.

At September 30, 2003, the Company had outstanding debt of approximately $352.7
million, including $71.7 million under the Line of Credit, leaving approximately
$29.7 million of borrowing capacity under the Line of Credit, after
consideration of outstanding letters of credit. The Company's consolidated
indebtedness was 37.6% of its investment in hotels, at cost, at September 30,
2003.



22





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


LIQUIDITY AND CAPITAL RESOURCES, Continued

The following details the Company's debt outstanding at September 30, 2003:



Interest
Rate Maturity
------------------ -------------

Commercial Mortgage Bonds
Class A $ 4,373,846 6.83% Fixed November 2006
Class B 50,600,000 7.37% Fixed December 2015
Class C 10,000,000 7.58% Fixed February 2017
------------
64,973,846

Line of Credit 71,700,000 LIBOR plus Variable June 2006
Percentage

Mortgage 91,420,587 8.37% Fixed July 2009
Mortgage 67,152,451 8.25% Fixed November 2010
Mortgage 34,739,540 8.25% Fixed November 2010
Mortgage 10,750,000 LIBOR plus Variable August 2008
285 pts.
Mortgage 2,934,392 6.00% Fixed May 2008
Mortgage 5,490,900 10.00% Fixed September 2005
Mortgage 3,553,272 6.37% Fixed November 2016
------------

$352,714,988
============


At September 30, 2003, the Line of Credit had a borrowing capacity of
approximately $102 million. The weighted average interest rate incurred by the
Company during the nine months ended September 30, 2003 was 7.89%. Payment of
outstanding indebtedness under the Line of Credit is due at maturity in June
2006.

Effective January 16, 2001, the Company entered into an interest rate swap
agreement with a financial institution on a notional amount of $50 million. The
agreement effectively fixes the interest rate on the first $50 million of
floating rate debt outstanding under the Line of Credit at a rate of 6.4275%
plus the Percentage, thus reducing 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 the Company. The term of the interest rate swap
agreement is through November 2003. The differences to be paid or received by
the Company 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.

On March 20, 2003, the Company entered into an interest rate swap agreement with
a financial institution on a notional amount of $25 million. The agreement
becomes effective November 2003 and expires in November 2008. The agreement
effectively fixes the interest rate on the first $25 million of floating rate
debt outstanding under the Line of Credit at a rate of 3.875% plus the interest

23





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


LIQUIDITY AND CAPITAL RESOURCES, Continued

rate spread on the Line of Credit, thus reducing 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 the Company. The differences
to be paid or received by the Company 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.

On March 20, 2003, the Company entered into an interest rate swap agreement with
a financial institution on a notional amount of $25 million. The agreement
becomes effective in November 2003 and expires in November 2006. The agreement
effectively fixes the interest rate on the second $25 million of floating rate
debt outstanding under the Line of Credit at a rate of 3.22% plus the interest
rate spread on the Line of Credit, thus reducing 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 the Company. The differences
to be paid or received by the Company 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.

During the nine months ended September 30, 2003, the Company invested $10.1
million to fund capital improvements to its hotels, including replacement of
carpets, drapes, renovation of common areas and improvements of hotel exteriors.
In addition, the Company expects to fund an additional $5.9 million during the
remainder of 2003 for capital improvements. The Company intends to fund such
improvements out of future cash from operations, present cash balances and
borrowings under the Line of Credit. Under certain of its loan agreements, the
Partnership is obligated to fund 4% of room 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 the
Company's hotels.

The Company intends to fund cash distributions to shareholders and limited
partners principally out of cash generated from operations. The Company may
incur, or cause its subsidiaries to incur, indebtedness to meet distribution
requirements imposed on a REIT under the Internal Revenue Code including the
requirement that a REIT distribute to its shareholders annually at least 90% of
its taxable income to the extent that working capital and cash flow from the
Company's investments are insufficient to make such distributions. The Company's
decision to pay a quarterly common dividend will be determined each quarter, at
the discretion of the Board of Directors, based upon operating results, other
cash requirements, economic conditions and other operating trends.

The Company expects to meet its long-term liquidity requirements, such as
scheduled debt maturities and property acquisitions, through long-term secured
and unsecured borrowings, the issuance of


24





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


LIQUIDITY AND CAPITAL RESOURCES, Continued

additional equity securities of the Company, the sale of selected assets or, in
connection with acquisitions of hotel properties, the issuance of Units. Under
the Partnership's limited partnership agreement (the "Partnership Agreement"),
subject to certain holding period requirements, holders of Units in the
Partnership have the right to require the Partnership to redeem their Units.
During the nine months ended September 30, 2003, 51,521 Units were tendered for
redemption and the Company issued 51,521 shares of Common Stock in redemption of
the Units. Under the Partnership Agreement, the Company has 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. The Company anticipates that it will
acquire any Units tendered for redemption in the foreseeable future in exchange
for shares of Common Stock and, to date, has registered such shares so as to be
freely tradeable by the recipient.

FUNDS FROM OPERATIONS

The Company generally considers Funds from Operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. Under the resolution
adopted by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT"), FFO represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from sales of property, plus depreciation, and
after adjustments for unconsolidated partnerships and joint ventures. For the
periods presented, depreciation (including depreciation from discontinued
operations), gains and losses from sales of property, and minority interest were
the Company's only adjustments to net income for the definition of FFO. The
Company further adjusts Funds from Operations by adding back loss on impairment
of hotels held for sale and loss on redemption of Series A preferred stock. The
Company refers to this further adjustment to FFO as "Adjusted Funds from
Operations." The Company's method of calculation of FFO and Adjusted FFO may not
strictly comply with the NAREIT definition and may not be comparable to other
REITs. FFO should not be considered an alternative to net income or other
measurements under generally accepted accounting principles as an indicator of
operating performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. FFO does not reflect working capital
changes, cash expenditures for capital improvements or principal payments with
respect to indebtedness on the hotels.



25






Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


FUNDS FROM OPERATIONS, Continued

The following reconciliation of net income to adjusted FFO illustrates the
difference in the two measures of operating performance:



For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------

Net income (loss) $ 4,350,618 $ 3,723,274 $ 4,138,597 $ 6,826,649

Less:
Preferred stock dividends (1,686,517) (1,632,813) (4,952,143) (4,898,439)
Loss on redemption of Series A
preferred stock (2,408,257) (2,408,257)
(Gain) loss on sale of hotel properties 52,530 (1,222,014)

Add:
Minority interest 6,576 63,798 8,821 58,776
Depreciation 9,662,676 9,833,169 28,991,228 29,343,823
Depreciation from discontinued operations 424,326 576,060 1,412,748
----------- ----------- ----------- -----------

Funds From Operations 9,977,626 12,411,754 25,132,292 32,743,557

Add:
Loss on impairment of hotels held for sale 3,556,067
Loss on redemption of Series A
preferred stock 2,408,257 2,408,257
----------- ----------- ----------- -----------

Adjusted Funds from Operations $12,385,883 $12,411,754 $31,096,616 $32,743,557
=========== =========== =========== ===========

Weighted average number of outstanding
shares of common stock and units of
partnership 41,699,390 41,666,057 41,693,705 40,540,551
=========== =========== =========== ===========

Funds From Operations per Share and Unit $ 0.24 $ 0.30 $ 0.60 $ 0.81
=========== =========== =========== ===========

Adjusted Funds from Operations per share
and unit $ 0.30 $ 0.30 $ 0.75 $ 0.81
=========== =========== =========== ===========



INFLATION

Operators of hotels, including third-party managers retained by the TRS Lessees,
in general possess the ability to adjust room rates quickly. However,
competitive pressures and a slow economy have limited and may in the future
limit the ability of the third-party managers retained by the TRS Lessees to
raise room rates in response to inflation.



26





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations are based upon its 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
the Company's management 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 the Company's 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.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:

o The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers and other borrowers to make
required payments. If the financial condition of its customers or other
borrowers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.

o The Company records an impairment charge when it believes an investment in
hotels has been impaired such that future undiscounted cash flows would not
recover the book basis of the investment in the hotel property. 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.

o The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. The Company's
management has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation
allowance. If management determines that the Company will not be able to
realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset will be charged to income in the
periods such determination was made.






27





Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued


FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains 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 "believes", "estimates", "projects", "anticipates",
"intends," "expects" and words of similar import. Such forward-looking
statements relate to future events and the future financial performance of the
Company, and involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from the results or achievement 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 and Federal and state governmental
regulations or war, terrorism, states of emergency or similar activities; risks
associated with debt financing; hotel operating risks; the ability of the
Company to successfully implement its operating strategy; changes in economic
cycles; competition from other hospitality companies; and changes in the laws
and government regulations applicable to the Company. Risk factors relating to
such forward-looking statements are contained from time to time in the Company's
filings with the SEC, including the Company's Current Report on Form 8-K dated
March 27, 2003 filed under the Securities Exchange Act of 1934, as amended. The
Company is not obligated to update any such forward-looking statements or risk
factors.

SEASONALITY

The hotel industry is seasonal in nature. The Company's hotel operations
historically reflect higher occupancy rates and average daily rates during the
second and third quarters. This seasonality can be expected to cause
fluctuations in quarterly operating income. To the extent that cash flow from
the hotels for a quarter is insufficient to fund all of the distributions for
such quarter, the Company may fund seasonal-related shortfalls with available
cash or borrowing under the Line of Credit.



28





Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to certain financial market risks, the most predominant
of which is the fluctuation in interest rates. At September 30, 2003, the
Company's exposure to market risk for a change in interest rates is related
solely to its debt outstanding under the Line of Credit. Total debt outstanding
under the Line of Credit totaled $71.7 million at September 30, 2003.

The Company's Line of Credit bears interest at a variable rate of LIBOR plus
2.25%, 2.5%, 2.75% or 3.0% as determined by the Company's percentage of total
debt to earnings before interest, taxes, depreciation and amortization, as
defined in the loan agreement (the "Percentage"). At September 30, 2003, the
interest rate on the line of credit was LIBOR (1.12% at September 30, 2003) plus
2.75%. The Company's interest rate risk objective is to limit the impact of
interest rate fluctuations on earnings and cash flows and to lower its overall
borrowing costs. To achieve this objective, the Company manages its exposure to
fluctuations in market interest rates for its borrowings through the use of
fixed rate debt instruments to the extent that reasonably favorable rates are
obtainable through such arrangements and derivative financial instruments such
as interest rate swaps, to effectively lock the interest rate on a portion of
its variable rate debt. The Company does not enter into derivative or interest
rate transactions for speculative purposes. The Company regularly reviews
interest rate exposure on its outstanding borrowings in an effort to minimize
the risk of interest rate fluctuations.

Effective January 16, 2001, the Company entered into an interest rate swap
agreement with a financial institution on a notional amount of $50 million. The
agreement effectively fixes the interest rate on the first $50 million of
floating rate debt outstanding under the Line of Credit at a rate of 6.4275%
plus the Percentage, thus reducing 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 the Company. The term of the interest rate swap
agreement is through November 2003. The differences to be paid or received by
the Company 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.

On March 20, 2003, the Company entered into an interest rate swap agreement with
a financial institution on a notional amount of $25 million. The agreement
becomes effective November 2003 and expires in November 2008. The agreement
effectively fixes the interest rate on the first $25 million of floating rate
debt outstanding under the Line of Credit at a rate of 3.875% plus the interest
rate spread on the Line of Credit, thus reducing 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 the Company. The differences
to be paid or received by the Company 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.

On March 20, 2003, the Company entered into an interest rate swap agreement with
a financial institution on a notional amount of $25 million. The agreement
becomes effective in November

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2003 and expires in November 2006. The agreement effectively fixes the interest
rate on the second $25 million of floating rate debt outstanding under the Line
of Credit at a rate of 3.22% plus the interest rate spread on the Line of
Credit, thus reducing 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 the Company. The differences to be paid or received by
the Company 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.

Thus, at September 30, 2003, the Company has $21.7 million of variable rate debt
outstanding under the Line of Credit that was exposed to fluctuations in the
market rate of interest.

The Company's Line of Credit matures in June 2006. As discussed above, the
Company's Line of Credit bears interest at variable rates, and therefore, cost
approximates market value. As of September 30, 2003, the fair value liability of
the Company's interest rate swaps was approximately $1.7 million.

The Company's operating results are affected by changes in interest rates,
primarily as a result of its borrowing under the Line of Credit. If interest
rates increased by 25 basis points, the Company's interest expense for the nine
months ended September 30, 2003 would have increased by approximately $64,000,
based on balances outstanding during the period ended September 30, 2003.


Item 4. Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the
Company carried out an evaluation, with the participation of the Company's
management, including Phillip H. McNeill, Sr., the Company's chief executive
officer ("CEO") and Donald H. Dempsey, the Company's chief financial officer
("CFO"). Based upon that evaluation, the Company's CEO and CFO concluded that
the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company required to be
included in the Company's periodic SEC filings. There has been no change in the
Company's internal control over financial reporting during the quarter ended
September 30, 2003 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.



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PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits -- The following exhibits were filed with this Quarterly Report on
Form 10-Q:

4.1 -- Form of Preferred Stock Certificate for 8.75% Series B
Cumulative Preferred Stock, $.01 par value per share (Liquidation Preference $25
per share), of the Company (incorporated by reference to Exhibit 4.1 of Current
Report on Form 8-K dated August 11, 2003 and filed August 11, 2003).

31.1 -- Rule 13a-14(a) Certification of Phillip H. McNeill, Sr.
31.2 -- Rule 13a-14(a) Certification of Donald H. Dempsey
32.1 -- Section 1350 Certification of Phillip H. McNeill, Sr.
32.2 -- Section 1350 Certification of Donald H. Dempsey

(b) Reports on Form 8-K -- During the period covered by this Quarterly Report on
Form 10-Q, the Company filed the following six (6) Current Reports on Form 8-K:

(1) Current Report on Form 8-K dated June 11, 2003 and filed on July 2,
2003, (Items 5 and 7) disclosing that the Company entered into an Amended and
Restated Secured Revolving Credit Agreement, dated as of June 11, 2003, in the
maximum principal amount of $110 million.

(2) Current Report on Form 8-K dated July 3, 2003 and filed on July 3,
2003, (Item 5) disclosing the sale by the Company of four of its hotels and its
intention to record an impairment charge of $3.6 million with regard to the sale
of these hotels.

(3) Current Report on Form 8-K dated July 7, 2003 and field on July 9,
2003, (Item 7) presenting the Statement regarding Computation of Ratios in
accordance with Item 503(d) of Regulation S-K.

(4) Current Report on Form 8-K dated July 11, 2003 and filed on July
11, 2003, (Items 5 and 7) announcing the pricing of an underwritten public
offering of 3,000,000 shares of the Company's 8.75% Series B Cumulative
Preferred Stock, $.01 par value per share.

(5) Current Report on Form 8-K dated August 7, 2003 and filed on August
7, 2003, (Items 7 and 12) announcing the Company's issuance of its earnings
press release for the three months and six months ended June 30, 2003.

(6) Current Report on Form 8-K dated August 11, 2003 and filed on
August 11, 2003, (Items 5 and 7) announcing the Company's completion of its
underwritten public offering of the Company's 8.75% Series B Cumulative
Preferred Stock, $.01 par value per share.





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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.



November 13, 2003 By: /s/Donald H. Dempsey
- ----------------------- -----------------------------------------------
Date Donald H. Dempsey
Executive Vice President, Secretary, Treasurer,
and Chief Financial Officer (Principal Financial
and Accounting Officer)



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