SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

EQUITY INNS, INC.

7700 Wolf River Boulevard, Germantown, Tennessee 38138

(901) 754-7774

Securities registered pursuant to Section 12(b) of the Act:
8.75% Series B Cumulative Preferred Stock, $.01 par value

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value

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 and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

Aggregate market value of voting stock and non-voting common stock held by nonaffiliates of the registrant as of June 30, 2004: $407,381,615.

Number of shares of Common Stock, $.01 par value, outstanding as of March 9, 2005: 53,966,935

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s proxy statement for its 2005 Annual Meeting of Shareholders to be held May 12, 2005 (the “Proxy Statement”) are incorporated by reference into Part III of this Report.

Exhibit Index beginning on Page 81.

EQUITY INNS, INC
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2004

TABLE OF CONTENTS

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PART I

Throughout this Form 10-K, 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.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

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 and Federal and state governmental regulations or 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 the various factors identified, or incorporated by reference in this report including, but not limited to those discussed in our Current Report on Form 8-K filed March 16, 2005, and in any other documents filed by us with the Securities and Exchange Commission 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.

ITEM 1. BUSINESS

(a) General Development of Business

Equity Inns is a Memphis-based, self-advised hotel real estate investment trust (“REIT”) primarily focused on the upscale extended stay, all-suite, midscale limited service and full 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 December 31, 2004 owned an approximate 97.3% 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”).

(b) Narrative Description of Business

We commenced operations on March 1, 1994 upon completion of our initial public offering and the simultaneous acquisition of eight Hampton Inn hotels with 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 the overall hotel industry.

At December 31, 2004, we owned 110 hotel properties with a total of 13,508 rooms located in 34 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

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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 consolidated statements of operations.

We maintain management agreements with unrelated third parties for our hotels that range in remaining terms from one to four 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 budget, as defined by the management agreements. These fees are recorded by us as a component of direct hotel expenses in our accompanying consolidated statements of operations.

The diversity of our portfolio is such that, at December 31, 2004, no individual hotel exceeded 1.9% of the total rooms in the portfolio. Our geographical distribution and franchise diversity is illustrated by the following charts.

Brand Diversity

Franchise Affiliation

(1)	Hilton Hotels Corporation
(2)	Marriott International, Inc.
(3)	Hyatt Corporation, which purchased the AmeriSuites brand from the Blackstone Group in January 2005, which purchased the brand from Prime Hospitality Corporation in October 2004
(4)	Choice Hotels International, Inc.
(5)	Intercontinental Hotels Group, PLC

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Geographical Diversity

We believe that geographic diversity helps to limit our exposure to any one market. At December 31, 2004, we owned a geographically diverse portfolio of 110 hotels with 13,508 rooms located in 34 states. Additionally, our property mix is spread between suburban and urban locations, helping to insulate us from various economic climates, including a depressed business travel climate.

Our hotel portfolio includes midscale limited service hotels, all-suite hotels, upscale extended stay hotels and full service hotels. This array of product offering allows us to diversify the asset portfolio in an effort to reduce risk in various economic environments.

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Approximately 95% of our hotel portfolio is comprised of the following leading franchise brands: Homewood Suites, Hilton Garden Inn, Hampton Inn & Suites and Hampton Inn by Hilton, Residence Inn, Courtyard and SpringHill Suites by Marriott and AmeriSuites by Hyatt Corporation. We believe that multiple brands at the midscale, upscale extended stay and all-suite 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 each 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. Rated the #1 extended stay hotel brand by Business Travel News in 2005.

Hampton Inn by Hilton:

A premier midscale without food and beverage hotel chain with over 1,000 locations. Rated the #1 midprice without food and beverage by Business Travel News in 2005.

Residence Inn by Marriott:

A premier upscale extended stay hotel, focusing on extended stay, corporate transient and family travelers. Rated the #2 extended stay hotel brand by Business Travel News in 2005.

Courtyard by Marriott:

An upscale full service hotel designated as the hotel designed by business travelers for business travelers. Rated the #1 midprice with food and beverage by Business Travel News in 2005.

AmeriSuites by Hyatt Corporation:

An upscale all-suite hotel, billed as America’s most affordable all-suite hotel.

Approximately 80% of our hotels are branded by Hilton and Marriott, which both provide national marketing support and frequent stay programs that continue to drive 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. By utilizing third-party managers with relatively short-term contracts that provide for strong operating incentive management fees, we believe that we have better control over the operating results of our hotels. At December 31, 2004, our hotel managers are as follows:

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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 mid-scale and upscale 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.

EMPLOYEES

At March 9, 2005, we employed, through a wholly-owned subsidiary, 19 employees.

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. 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 acquired 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 advertising and marketing programs provided by franchisors. Our franchise agreements generally have initial terms ranging from 10 to 25 years and expire beginning in 2005 through 2028. Franchise renewal procedures are currently underway for several of our hotels.

We are also committed to franchisors to make certain capital improvements to our hotel properties, which will be funded primarily through our operating cash flows. We made capital improvements of approximately $25.3 million to our hotels in 2004. In 2005, we expect to fund approximately $25.0 million of capital improvements to our hotels, with approximately $13.0 million representing major refurbishment projects to six 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.

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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.

The REIT Modernization Act (“RMA”), which generally took effect on January 1, 2001, includes several REIT provisions which revised extensively the tax rules applicable to our TRS Lessees. Under the RMA provisions, 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 the REIT’s assets may consist of securities of its TRS Lessees;
	•	the tax deductibility of interest paid or accrued by TRS Lessees to their affiliated REIT is limited; and
	•	a 100% excise tax is imposed on non-arm’s length transactions between TRS Lessees and their affiliated REIT or the REIT’s tenants.

ENVIRONMENTAL MATTERS

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 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.

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EXECUTIVE OFFICERS OF THE COMPANY

The Company’s executive officers, listed below, serve in their respective capacities for approximate one year terms and are subject to re-election annually by the Board of Directors, normally in May of each year.

Phillip H. McNeill, Sr. (age 66) has served as our Chairman of the Board of Directors and Chief Executive Officer since our Company was founded in 1993. In January 2005, Mr. McNeill, Sr. became non-executive Chairman and Mr. Silver assumed the role of Chief Executive Officer. Mr. McNeill, Sr. has been Chairman and President of McNeill Investment Company, Inc. since 1977. From 1963 to 1977, he served in various capacities, including President and Chief Executive Officer with Schumacher Mortgage Company, Inc., a mortgage banking firm and subsidiary of Time, Inc. Mr. McNeill, Sr. has served as President and Director of the Memphis Mortgage Bankers Association and the Tennessee State Mortgage Bankers Association. He has been a past director of National Commerce Financial Corporation and Interstate Hotels Corporation, a member of the Board of Trustees of Rhodes College, a trustee of Wetlands America Trust, Inc., a member of the Board of Visitors of the University of Memphis and a board member of the Society of Entrepreneurs and Youth Villages, Inc. Mr. McNeill, Sr. is the father of Phillip H. McNeill, Jr., our Executive Vice President of Development.

Howard A. Silver (age 50) is our President and Chief Executive Officer, positions he has held since January 2005. From June 1998 until December 2004, Mr. Silver served as our President and Chief Operating Officer. Mr. Silver joined our Company in May 1994 and has served in various capacities, including Executive Vice President of Finance, Secretary, Treasurer and Chief Financial Officer of our Company until June 1998. From 1992 until joining our Company, Mr. Silver served

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as Chief Financial Officer of Alabaster Originals, L.P., Memphis, Tennessee, a fashion jewelry wholesaler. From 1978 to 1985, Mr. Silver was a certified public accountant with the national accounting firm of Coopers & Lybrand L.L.P., from 1985 to 1987, Mr. Silver served as Vice President of Finance of Fogelman Properties, Inc., Memphis, Tennessee, an apartment management company, and from 1987 to 1992, Mr. Silver was employed as a certified public accountant with the national accounting firm of Ernst & Young. He has been a certified public accountant since 1980. Mr. Silver has been a director of our Company since December 1998. Mr. Silver is a director of Capital Lease Funding, Inc. (NYSE: LSE) (Audit Committee (Chairman), Corporate Governance and Nomination Committee, Investment Committee) and Great Wolf Resorts, Inc. (NASDAQ: WOLF) (Audit Committee, Compensation Committee (Chairman)). Mr. Silver serves as the financial expert for the Audit Committee of Capital Lease Funding, Inc. Mr. Silver is also on the Board of Managers of GHII, LLC, a private furniture and equipment contractor in which we own a 45% interest. Mr. Silver is also Treasurer of the Ridgeway Country Club.

J. Mitchell Collins (age 36) is our Executive Vice President, Chief Financial Officer, Treasurer and Secretary, positions he has held since January 2004. From 2000 until 2003, he served as Executive Vice President and Chief Financial Officer of ResortQuest International, Inc., a public company that performed rental property management in resort areas. ResortQuest was purchased by Gaylord Entertainment, Inc. in late 2003. From 1990 until 2000, Mr. Collins worked with Arthur Andersen LLP, where he represented the firm as part of its National Hospitality practice and also was a Team Leader for Andersen’s Real Estate and Hospitality practice in its Mid-South region. Mr. Collins currently serves on the Board of Trustees of the Dixon Gallery and Gardens, serves as a member of the Zoological Council of the Memphis Zoo, and also serves on the Accountancy Alumni Board of the University of Mississippi (“Ole Miss”). Mr. Collins is also a member of the American Institute of Certified Public Accountants.

Phillip H. McNeill, Jr. (age 43) is Executive Vice President of Development of the Company, a position he has held since 1996. From 1994 to 1996, he served as President of Trust Leasing, Inc., formerly McNeill Hotel Co., Inc., the Company’s former lessee, and from 1984 to 1996 served as Vice President of Trust Management, Inc., formerly McNeill Hospitality Corporation, which was an affiliate of McNeill Hotel Company. Mr. McNeill, Jr. is on the Board of Managers of GHII, LLC. Mr. McNeill, Jr. is the son of Phillip H. McNeill, Sr., our non-executive Chairman.

Richard F. Mitchell (age 59) is Senior Vice President of Asset Management of the Company, a position that he has held since 1997. From 1995 to 1996, he was Vice President of Operations for Trust Leasing and joined Trust Leasing in 1994 as an Area Manager. From 1989 to 1994, Mr. Mitchell held various positions with North American Hospitality, Inc., including Director of Training and Development. Prior to 1989, Mr. Mitchell has held management positions in a number of hotels including Sheraton, Hampton Inn, Residence Inn and Best Western. Mr. Mitchell is a member of the Homewood Suites Franchise Advisory Council, a member of the Hampton Inn Brand Operations Council and is President of the AmeriSuites Franchise Advisory Council.

Edwin F. Ansbro (age 47) is Senior Vice President of Real Estate. Mr. Ansbro joined our Company in January 2005 after serving as an in-house consultant for approximately six months. From 2002 to February 2004, he served as Senior Vice President of New Business Development for Storage USA, a wholly-owned unit of GE Real Estate. From 1998 to 2002, Mr. Ansbro served as Senior Vice President and Chief Development Officer for Storage USA Franchise Corporation, a wholly-owned subsidiary of Storage USA prior to its acquisition by GE Real Estate. From 1994 to 1998, he served as Vice President of Development for Promus Hotel Corporation.

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J. Ronald Cooper (age 56) is Vice President, Controller, Assistant Secretary and Assistant Treasurer of the Company, positions he has held since 1996. From October 1994 to 1996, he was Controller and Director of Financial Reporting for McNeill Hotel Company. Mr. Cooper has been a certified public accountant since 1972. From 1978 until joining McNeill Hotel Company, Mr. Cooper was employed as Secretary, Treasurer and Controller of Wall Street Deli, Inc., a publicly-owned delicatessen company. Prior to that, Mr. Cooper was a certified public accountant with the national accounting firm of Coopers & Lybrand L.L.P. from 1970 to 1976.

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 and Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (“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 on our website under “Corporate Governance.” 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 10 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 are also available in print 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.”

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.

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ITEM 2. PROPERTIES

Our principal executive offices are located at 7700 Wolf River Boulevard, Germantown, Tennessee 38138. We carry out all aspects of our business at this location. We lease approximately 8,000 square feet at our headquarters building. We believe that our present facilities are adequate for our current and presently projected needs.

The following table sets forth certain information for two years ended December 31, 2004 with respect to our hotels:

(1)	Represents “all comparable” statistics for hotels owned by us at year end as if we had owned the hotels for both periods presented.
(2)	Determined by multiplying occupancy times the average daily rate.

ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our shareholders during the fourth quarter of 2004, through the solicitation of proxies or otherwise.

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ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information

The Company’s common stock, $.01 par value, is traded on the NYSE under the symbol “ENN.” The following table sets forth for the indicated periods the high and low closing prices for the common stock as traded through the facilities of the NYSE and the cash distributions declared per share:

(b) Shareholder Information

On March 9, 2005, there were 660 record holders of the Company’s common stock, including shares held in “street name” by nominees who are record holders, and approximately 20,400 beneficial owners.

(c) Distributions

We have adopted a policy of paying regular quarterly distributions on our common stock, and cash distributions were paid on our common stock each quarter since our initial public offering in March 1994, except for the fourth quarter of 2001. Earnings and profits determine whether distributions to our shareholders are taxable as ordinary income or are a non-taxable return of capital. Earnings and profits for federal income tax purposes will differ from net income reported for financial purposes primarily due to the difference for federal tax purposes in the estimated lives used to compute depreciation on our hotels.

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 distribution requirements, leverage restrictions imposed by our Line of Credit and other factors which our Board of Directors deems relevant.

A portion of the distribution to our shareholders is expected to represent a return of capital for federal income tax purposes. Our distributions made in 2004, 2003 and 2002 are considered to be approximately 15%, 1% and 3% return of capital, respectively, for federal income tax purposes.

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(d) Equity Compensation Plan Information

We do not have any equity compensation plans not approved by security holders.

(e) Recent Sales of Unregistered Securities

For 2004, we issued approximately 36,000 shares of common stock in transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, upon the redemption of units of limited partnership interest in our Partnership.

We did not purchase any of our registered equity securities in 2004.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected historical financial data for the Company that has been derived from the financial statements of the Company and the notes thereto. Such data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and all of the financial statements and notes thereto.

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EQUITY INNS, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share data)

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Comparison of the Company’s operating results for the years ended December 31, 2004 and 2003.

Revenues

Hotel revenues of approximately $256.5 million in 2004 increased approximately $28.7 million, or 12.6%, as compared to approximately $227.8 million in 2003. After eliminating revenues of approximately $20.1 million related to our hotel acquisitions for 2004, our same-store hotel revenues increased by approximately $8.6 million in 2004 as compared to 2003. This increase was primarily due to a same-store RevPAR increase of 3.7%, driven by an increase in our ADR from $76.82 to $78.94, and an increase of 58 basis points in occupancy to 67.6%.

Other revenue of $429,000 in 2004 decreased $194,000, or 31.1%, as compared to $623,000 in 2003, primarily due to a decrease in income related to our joint venture, GHII, LLC of approximately $44,000 and a decrease of approximately $90,000 in travel agent refunds and rebates.

Operating Expenses

Hotel expenses of approximately $154.6 million in 2004 increased approximately $17.8 million, or 13.0%, as compared to approximately $136.8 million in 2003. After eliminating expenses of approximately $10.5 million related to our hotel acquisitions for 2004, our same-store hotel expenses increased by approximately $7.3 million in 2004 as compared to 2003. This increase was primarily due to an increase in payroll and related benefits of approximately $3.2 million, an increase in franchise fees, management fees and loyalty programs of approximately $1.0 million, an increase in enhanced complimentary hot breakfasts of approximately $925,000, an increase in travel agent commissions and credit card fees of approximately $670,000, an increase in maintenance costs of approximately $220,000, an increase in utility costs of approximately $565,000, an increase in bad debt expense of approximately $235,000 and an increase in professional and legal costs of approximately $230,000. Hotel expenses as a percentage of hotel revenues were 60.3% in 2004 and 60.1% in 2003.

Depreciation expense of approximately $40.8 million in 2004 increased approximately $2.7 million, or 7.1%, as compared to approximately $38.1 million in 2003, primarily due to an increase in depreciation expense related to our hotel acquisitions.

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Property taxes, rental expense and insurance of approximately $18.0 million in 2004 increased approximately $300,000, or 1.7%, as compared to approximately $17.7 million in 2003, primarily due to an increase in property taxes, rental expense and insurance of approximately $1.0 million related to our hotel acquisitions, partially offset by a net decrease in same-store property taxes, rental expense and insurance of approximately $750,000, primarily due to a decrease in a real estate tax reserve related to one of our hotels.

General and administrative expenses of approximately $8.3 million in 2004 increased approximately $1.1 million, or 15.3%, as compared to $7.2 million in 2003, primarily due to an increase of approximately $295,000 in non-cash stock-based compensation, a net increase of approximately $160,000 in professional fees primarily related to Sarbanes Oxley costs, an increase of approximately $160,000 related to payroll and related benefits, an increase of approximately $155,000 in severance and relocation costs, an increase of approximately $95,000 related to public-company expenses, an increase of approximately $60,000 related to franchise fees and an increase of approximately $60,000 related to the write-off of obsolete equipment.

Operating Income

For 2004, we recorded operating income of approximately $35.2 million as compared to operating income of approximately $28.6 million in 2003. The principal components of the change in operating income for 2004 as compared to 2003 was an increase in same-store revenues of approximately $8.6 million, an increase in operating income related to our hotel acquisitions of approximately $5.6 million, a decrease in same-store property taxes, rental expense and insurance of approximately $750,000, partially offset by an increase in same-store hotel expenses of approximately $7.3 million and an increase in general and administrative expenses of approximately $1.1 million.

Comparison of the Company’s operating results for the years ended December 31, 2003 and 2002.

Revenues

Hotel revenues of approximately $227.8 million in 2003 were relatively flat as compared to 2002. After eliminating net revenues of approximately $4.8 million related to one hotel acquisition for both periods, our same-store hotel revenues decreased by approximately $3.8 million in 2003 as compared to 2002, primarily due to a RevPAR decline of 1.6%, driven primarily by a decline in our ADR from $77.59 to $75.99.

Other revenue of $623,000 in 2003 decreased $329,000, or 34.6%, as compared to $952,000 in 2002 primarily due to a reduction in income related to our joint venture, GHII, LLC.

Operating Expenses

Hotel expenses of approximately $136.8 million in 2003 were relatively flat as compared to 2002. After eliminating net expenses of approximately $3.0 million related to one hotel acquisition for both periods, our same-store hotel expenses decreased by approximately $1.3 million in 2003 as compared to 2002, primarily due to an increase in Hyatt’s minimum net operating income guarantee to us under our management agreements of approximately $1.1 million (which was recorded as a reduction in base management fees), a decrease in maintenance costs of approximately $630,000 and a net reduction in payroll and related benefits of approximately $410,000, partially offset by an increase in utility and insurance expenses of approximately $865,000. Hotel expenses as a percentage of hotel revenues were 60.1% in 2003 and 59.6% in 2002.

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Depreciation expense of approximately $38.1 million in 2003 was relatively flat as compared to 2002.

Property taxes, rental expense and insurance of approximately $17.7 million in 2003 was relatively flat as compared to 2002. Property taxes and insurance expenses increased approximately $450,000 primarily due to our one hotel acquisition that was mostly offset by a reduction in our land lease expense.

General and administrative expenses of approximately $7.2 million for 2003 increased approximately $800,000, or 12.5%, as compared to approximately $6.4 million in 2002. This increase was primarily due to an increase in insurance of approximately $100,000, an increase in franchise taxes of approximately $400,000, an increase in payroll and related benefits of approximately $500,000, partially offset by a decrease in our non-cash stock-based compensation of approximately $160,000.

Operating Income

For 2003, we recorded operating income of approximately $28.6 million as compared to operating income of approximately $30.3 million for 2002. The principal component of the change in operating income for 2003 as compared to 2002 was an increase in operating income of approximately $1.8 million related to one hotel acquisition, a decrease in same-store hotel revenues of approximately $3.8 million, a decrease in other revenue of $329,000, an increase in general and administrative expenses of approximately $800,000, and a decrease in same-store hotel expenses of approximately $1.3 million.

LIQUIDITY AND CAPITAL RESOURCES

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 2004, net cash flows provided by our operating activities were approximately $47.6 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 2003, we entered into our collateralized Line of Credit for $110.0 million, subject to certain restrictions. Borrowings under the Line of Credit bear interest at LIBOR plus 2.25% to 3.0% per annum as determined by our quarterly leverage, and this facility matures in June 2006 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 test for cash available for dividend payouts, a fixed charge test and a leverage test, among other covenants. At December 31, 2004, we were in compliance with all covenants required by our Line of Credit. At December 31, 2004, we had the ability to borrow an additional $37.1 million under our Line of Credit. At December 31, 2004, we had approximately $7.0 million of cash and cash equivalents.

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 of 1986 to the extent that working capital and cash flows from our investments are insufficient to make such distributions. Our Board has adopted a policy limiting aggregate indebtedness to 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 39.2% of our investment in hotels, at original cost, at December 31, 2004.

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On January 21, 2004 and March 26, 2004, we amended our Line of Credit to provide for more flexibility regarding our financial covenants through June 2006, including the redefining of our cash available for dividend payouts to exclude certain non-cash operating items, including the deferred income tax benefit that we will no longer record due to losses from our TRS Lessees. We incurred total amendment fees of approximately $120,000.

The following details our debt outstanding at December 31, 2004 and 2003 (dollars in thousands):

Interest expense, net of approximately $29.5 million in 2004 was relatively flat as compared to 2003. Interest expense increased approximately $2.5 million related to our hotel acquisitions that was mostly offset by a decrease in same-store interest expense due to savings of approximately $1.9 million due to the replacement of an expired interest rate swap in November 2003. At December 31, 2004, our debt maturities have an average life of 4.6 years and a weighted average interest rate of 7.0%.

Interest expense, net of approximately $29.6 million in 2003 decreased approximately $800,000, or 2.6%, as compared to approximately $30.4 million in 2002. This decrease was primarily due to a reduction in average borrowings from $361.1 million to $355.4 million and a reduction in the weighted average interest rate from 8.03% to 7.92%. At December 31, 2003, our debt maturities had an average life of 5 years and a weighted average interest rate of 7.80%.

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During 2004, we purchased 20 hotels for approximately $192.9 million related to previously announced acquisitions. The hotels were purchased from three hotel developers. These hotels represent a combined 1,871 rooms and have an average age of approximately five years. Of the 20 hotels purchased, 13 hotels are managed by McKibbon Hotel Management, Inc., five hotels are managed by Hospitality Group, Inc. and two hotels are managed by Gateway Lodging Company, Inc. We funded these acquisitions primarily through $74.6 million in net cash proceeds from April 2004 and October 2004 issuances of our common stock, the issuance of approximately 325,000 Partnership units valued at approximately $3.2 million, the assumption of approximately $54.1 million in secured long-term debt, the issuance of approximately $40.6 million in secured long-term debt and approximately $20.4 million in borrowings under our Line of Credit. Included in our debt assumption is a mortgage note premium of approximately $4.9 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.

During 2004, we invested approximately $25.3 million to fund capital improvements in our hotels, including replacement of carpets, drapes, furniture and equipment, renovation of common areas and improvements of hotel exteriors. We expect to fund an aggregate of approximately $25.0 million throughout 2005 for capital improvements, with approximately $13.0 million representing major refurbishment projects to six hotels. 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 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 2004, the amounts expended exceeded, 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. We currently have one lender that could require us to deposit approximately $1.0 million into an escrow account, but the lender has thus far decided not to trigger the escrow funding based on our future capital improvement plans for the individual hotels.

During 2004, we sold three hotels for approximately $10.9 million, including approximately $9.1 million in cash (after selling costs of approximately $980,000) and an increase to an existing note receivable of $800,000. We utilized the net proceeds to pay down existing long-term debt.

During 2004, we completed a refinancing of an existing mortgage related to our San Antonio Hampton Inn. We refinanced $5.3 million of senior debt at a fixed rate of 10.00% per annum with $5.7 million of 10-year senior debt at a fixed rate of 5.39%. In conjunction with this refinancing, the Company incurred a prepayment penalty of approximately $300,000, and this prepayment penalty is included as a component of interest expense, net in the accompanying consolidated statement of operations.

During 2004, we completed a $6.0 million, 10-year secured loan related to our Courtyard by Marriott in Tallahassee, Florida. The loan has a fixed rate of 5.83% per annum.

During 2004, we experienced significant hurricane damage at one of our hotels located in Jacksonville Beach, Florida. This hotel was subsequently repaired and became operational in late January 2005. The total cost of the hurricane loss is estimated to be approximately $3.8 million, and we are currently working with our insurance carrier in processing this claim. Based on the total estimated project cost, the estimated net insurance proceeds and the estimated net book value of the assets destroyed, we expect to record a net gain on insurance proceeds upon the conclusion of the processed claim. This gain will be recorded upon receipt of the net insurance proceeds and closure of the insurance claim.

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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 under our Line of Credit at a rate of 3.875% per annum plus the interest rate spread on our Line of Credit, or 6.63% at December 31, 2004, 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.

In 2003, we entered into an additional interest rate swap agreement with a financial institution on a notional amount of $25.0 million. The agreement expires in November 2006. The agreement effectively fixes the interest rate on the second $25.0 million of floating rate debt outstanding under our Line of Credit at a rate of 3.22% per annum plus the interest rate spread on our Line of Credit, or 5.97% at December 31, 2004, 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.

REITs are subject to a number of organizational and operational requirements. For example, for federal income tax purposes, a REIT, and therefore the Company, is required to pay distributions of at least 90% of its taxable income to our shareholders. We intend to pay these distributions from operating cash flows. During 2004, our Partnership distributed an aggregate of approximately $24.7 million to its limited partners, or $.13 per unit per quarter (including approximately $24.1 million of distributions to the Company to fund distributions to our shareholders of $.13 per share per quarter). 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 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 secured and unsecured borrowings, the issuance of additional debt and equity securities of the Company or, in connection with acquisitions of hotel properties, the issuance of Partnership units. 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 2004, approximately 36,000 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. FFO is presented on a per share basis, including the assumed conversion of all Partnership units, and after making adjustments for the effects of dilutive securities. We use FFO per share as a measure of performance 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.

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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 and FFO per share may not be comparable to FFO measures reported by other companies.

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

We have obligations and commitments to make future payments under debt, construction and operating lease contracts. The following schedule details these obligations at December 31, 2004 (in thousands):

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We also maintain certain contractual agreements with property managers and franchisors that require us to pay fees in conjunction with operating our hotels. Generally, the amounts payable under these agreements are dependent upon the operating results of our hotels. The following schedule details these fees for the years ended December 31 (in thousands):

RECENT ACCOUNTING PRONOUNCEMENTS

Note 14 of the Notes to Consolidated Financial Statements discusses the expected impact of accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards affects our financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of the Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements.

MANAGEMENT CONTRACTS

Our management agreements with Hyatt, which purchased the AmeriSuites brand in January 2005 from the Blackstone Group, which purchased the brand from Prime Hospitality Corporation in October 2004, 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 revenue, 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 our accompanying consolidated statements of operations, when all contingencies related to such amounts have been resolved. In May 2003, we updated our current franchise contracts and management agreements with Hyatt’s subsidiaries for all of our AmeriSuites hotels. The minimum net operating income guarantee agreements were not extended beyond their original terms and are set to expire in 2007 and 2008. Under the new agreements, we extended the existing franchise agreements to 2028 and the management agreements to 2010, as long as Hyatt continues to be in compliance with the minimum net operating income guarantees in the original agreements. For 2004, 2003 and 2002, we recorded approximately $4.8 million, $4.7 million and $3.6 million, respectively, in minimum income guarantees from Hyatt as a reduction of our base management fee expense in the accompanying consolidated statements of operations. 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 budget, as defined by the management agreements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with

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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 consolidated financial statements:

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.

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. 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.

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. When the Company identifies an asset 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 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 2004, we recorded a loss on impairment of a hotel held for sale of approximately $1.9 million. For 2003, we recorded losses on impairments of hotels held for sale of approximately $4.6 million. These impairments are reflected as a component of discontinued operations for the respective periods in the accompanying statements of operation.

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Income Taxes

We record a valuation allowance to reduce our deferred income tax asset to the amount that is more likely than not to be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. At year-end 2003, we determined, it was more likely than not, that we would not be able to realize our $16.8 million deferred income tax asset, and we recorded a full valuation allowance for this asset. 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. Additionally, we will not record a deferred income tax benefit until it is more likely than not that such benefit will be realized.

OTHER DEVELOPMENTS

Acquisitions

During 2004, we purchased 20 hotels for approximately $192.9 million related to previously announced acquisitions. The hotels were purchased from three hotel developers. These hotels represent a combined 1,871 rooms and have an average age of approximately five years. Of the 20 hotels purchased, 13 hotels are managed by McKibbon Hotel Management, Inc., five hotels are managed by Hospitality Group, Inc. and two hotels are managed by Gateway Lodging Company, Inc. We funded these acquisitions primarily through $74.6 million in net cash proceeds from April 2004 and October 2004 issuances of our common stock, the issuance of approximately 325,000 Partnership units valued at approximately $3.2 million, the assumption of approximately $54.1 million in secured long-term debt, the issuance of approximately $40.6 million in secured long-term debt and approximately $20.4 million in borrowings under our Line of Credit. Included in our debt assumption is a mortgage note premium of approximately $4.9 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.

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The acquisitions that we completed in 2004 are as follows:

See "Management's Report on Internal Control over Financial Reporting" beginning on page 31 of this Annual Report on Form 10-K for a discussion of the scope of our evaluation of the effectiveness of internal control over financial reporting with respect to 18 of these hotels.

Common Stock Offerings

In April 2004, we completed an offering of 2.4 million shares of common stock for net proceeds of approximately $21.4 million. The proceeds were used to fund our hotel acquisitions discussed above.

In October 2004, we completed an offering of 5.7 million shares of common stock, including approximately 415,000 shares issued upon the exercise of the underwriters’ over-allotment option, for net proceeds of approximately $53.2 million. The proceeds were used to fund our hotel acquisitions discussed above.

Additional Long-Term Debt

During 2004, we completed a refinancing of an existing mortgage related to our San Antonio Hampton Inn. We refinanced $5.3 million of senior debt at a fixed rate of 10.00% per annum with $5.7 million of 10-year senior debt at a fixed rate of 5.39%. In conjunction with this refinancing, the Company incurred a prepayment penalty of approximately $300,000, and this prepayment penalty is included as a component of interest expense, net in the accompanying consolidated statement of operations.

During 2004, we completed a $6.0 million, 10-year secured loan related to our Courtyard by Marriott in Tallahassee, Florida. The loan as a fixed rate of 5.83% per annum.

Hotel Development

We may develop a 200-room, full service Marriott hotel in Sandy, Utah, a suburb of Salt Lake City, Utah. We estimate that the development cost of this hotel will be approximately $24.0 million,

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including approximately $2.2 million in land previously purchased by us. If we decide to develop this hotel, we plan to obtain additional financing sources to complete the construction of this hotel.

Long-Lived Asset Impairments and Hotel Sales

During 2004, we recorded a charge for impairment of approximately $1.9 million in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting For Impairment or Disposal of Long-Lived Assets,” based on the estimated net realizable value of a hotel held for sale. This hotel was subsequently sold in January 2005 for its approximate carrying value of $3.8 million. During 2003, we recorded charges for impairments of approximately $4.6 million as a result of our strategic decision to market four properties for sale. For the hotels related to both impairment charges, we have accounted for the operations of such properties as discontinued operations for the respective periods in the accompanying statements of operations.

During 2004, we sold three hotels previously classified as held for sale for approximately $10.9 million, including approximately $9.1 million in cash (after selling costs of approximately $980,000) and an increase to an existing note receivable, as discussed below, of $800,000. The hotels sold were a 97-room Hampton Inn located in Sarasota, Florida, a 122-room Hampton Inn located in Jacksonville, Florida, and a 141-room Comfort Inn located in Arlington, Texas. The average age of these hotels was approximately 17 years. We utilized the net proceeds from these dispositions to pay down existing long-term debt. In conjunction with these sales, we recorded a loss of approximately $320,000 as part of discontinued operations in the accompanying consolidated statement of operations. Additionally, in 2003 we sold a hotel and had initially deferred a gain of approximately $420,000 in conjunction with accepting the note receivable discussed below. In November 2004, this note was collected in full, less a $50,000 discount, and we recognized a net gain of approximately $370,000 as part of discontinued operations in the accompanying consolidated statement of operations.

In 2003, we sold four hotels (Hampton Inn in Ft. Worth, Texas; Hampton Inn & Suites in Bartlett, Tennessee; Holiday Inn Express in Wilkesboro, North Carolina; and AmeriSuites in Jacksonville, Florida) for an aggregate price of $20.1 million, resulting in a gain on the sales of approximately $1.6 million, net of impairment charges previously recorded. The sales prices were paid in cash, except for the Jacksonville hotel, $4.0 million of which was in the form of a 15-month note bearing interest at 7.75% per annum. The proceeds were utilized to pay down our existing long-term debt.

Subsequent Events

On January 26, 2005, we completed the sale of a hotel that was previously classified as held for sale. We sold a 123-room Hampton Inn hotel located near Birmingham, Alabama, for approximately $3.8 million in cash, which approximated its carrying value in the accompanying consolidated balance sheet. This hotel was approximately 19 years old.

On March 1, 2005, we completed our acquisition of a 126-room Hilton Garden Inn located in Fort Myers, Florida. The total purchase price for the hotel was approximately $14.5 million, which we funded through borrowings under our Line of Credit.

On March 4, 2005, we completed an offering of approximately 2.7 million shares of common stock for net proceeds of approximately $28.5 million. The net proceeds will be used for identified acquisitions and to repay indebtedness under our Line of Credit.

On March 9, 2005, we completed our acquisition of a 78-room Residence Inn located in Jacksonville, Florida. The total purchase price for the hotel was approximately $6.1 million, which we funded through borrowings under our Line of Credit.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to certain financial market risks, the most predominant of which is the fluctuation in interest rates. At December 31, 2004, our exposure to market risk for a change in interest rates is related to our debt outstanding under the Line of Credit and certain hotel secured debt. Total debt outstanding under these two debentures totaled approximately $82.7 million at December 31, 2004. As discussed below, we do maintain two interest rate swap agreements for a combined notional amount of $50.0 million.

Our Line of Credit bears interest at a variable rate of LIBOR plus 2.25% to 3.0% per annum as determined by our quarterly leverage. At December 31, 2004, our interest rate on our Line of Credit was LIBOR (2.42% at December 31, 2004) plus 2.75%. 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 interest rate swaps, 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.

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 under our Line of
Credit at a rate of 3.875% per annum plus the interest rate spread on our Line of Credit, 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.

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 2006. The agreement effectively fixes the interest rate on the second $25.0 million of floating rate debt outstanding under our Line of Credit at a rate of 3.22% per annum plus the interest rate spread on our Line of Credit, 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.

Our Line of Credit matures in June 2006. As discussed above, our Line of Credit bears interest at variable rates, and therefore, cost approximates market value. At December 31, 2004, the fair value of our interest rate swaps was a liability of approximately $119,000.

Our operating results are affected by changes in interest rates, primarily as a result of our borrowings under the Line of Credit. If interest rates increased by 25 basis points, our interest expense would have increased by approximately $54,000, based on balances outstanding during the twelve months ended December 31, 2004.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)	Financial Statements:

The following financial statements are located in this report on the pages indicated.

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(b)	Supplementary Data:

Quarterly Financial Information

     Unaudited quarterly results for 2004 and 2003 are summarized as follows:

Earnings per share amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year. In the fourth quarter of 2004, we recorded a charge for impairment of approximately $1.9 million, in accordance with SFAS No. 144, due to one hotel being designated as held for sale. In the fourth quarter of 2003, we recorded a tax valuation allowance of approximately $16.8 million in accordance with SFAS No. 109. In the second and fourth quarters of 2003, we also recorded charges for impairments of approximately $3.6 million and $1.0 million, respectively, due to the designation of four properties as held for sale. We have accounted for the operations of such properties as discontinued operations in each of the 2004 and 2003 quarters presented above. Reclassification of revenues to discontinued operations for each of the quarters presented above are as follows (in thousands):

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Management’s Report on
Internal Control over Financial Reporting

Management of Equity Inns, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this assessment, management has concluded that as of December 31, 2004, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. We have excluded thirteen hotels managed by McKibbon Hotel Management, Inc. and five hotels managed by Hospitality Group, Inc. from our evaluation of the effectiveness of internal control over financial reporting as of December 31, 2004, because the hotels were acquired by us during 2004. The total assets and total revenues of the aforementioned hotels represent 0.3% and 7.6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2004.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, have issued an attestation report on management’s assessment of internal control over financial reporting as of December 31, 2004, a copy of which appears on the next page of this annual report.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Equity Inns, Inc.:

We have completed an integrated audit of Equity Inns, Inc.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below:

Consolidated financial statements and financial statement schedules

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Equity Inns, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in “Management’s Report on Internal Control Over Financial Reporting,” appearing on page 31, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on Internal Control-Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over

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financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in “Management’s Report on Internal Control over Financial Reporting,” appearing on page 31, management has excluded thirteen hotels managed by McKibbon Hotel Management, Inc. and five hotels managed by Hospitality Group, Inc. from its assessment of internal control over financial reporting as of December 31, 2004 because the hotels were acquired during 2004. The total assets and total revenues of the aforementioned hotels represent 0.3% and 7.6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2004.

PricewaterhouseCoopers LLP
Memphis, Tennessee
March 16, 2005

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EQUITY INNS, INC.

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

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EQUITY INNS, INC.