ENN Equity Inns

Equity Inns, Inc. (NYSE: ENN): AFFO Per Diluted Share Increases 8.8% to $0.37 Average Daily Rate Increases 8.1%, Versus 6.8% for Industry Occupancy Remains Strong at 74.2% Versus 68.5% for Industry Company Commits to Convert 18 AmeriSuites to Hyatt Place Hotels Updates 2006 Guidance Equity Inns, Inc. (NYSE: ENN), the third largest hotel real estate investment trust (REIT), today announced its results for the three and the nine months ended September 30, 2006. Adjusted funds from operations (AFFO) per diluted share for the three months ended September 30, 2006 increased 8.8% to $0.37 as compared to $0.34 per diluted share in the same period last year. Adjusted EBITDA rose 17.2% to $34.5 million in the third quarter 2006 as compared to $29.4 million in the third quarter 2005. Net income applicable to common shareholders for the third quarter 2006 was $7.3 million, or $0.13 per diluted share, as compared to net income of $6.7 million, or $0.12 per diluted share in the prior year period. There was no difference between funds from operations (FFO) and AFFO for the third quarter 2006. For the nine months ended September 30, 2006, Equity Inns reported a 16.3% increase in AFFO per diluted share to $1.07, as compared to $0.92 per diluted share in the same period a year ago. Adjusted EBITDA increased 22.8% to $99.1 million for the nine months ended September 30, 2006. Net income applicable to common shareholders for the nine months ended September 30, 2006 was $12.5 million, or $0.23 per diluted share, as compared to net income of $11.7 million, or $0.22 per diluted share in the prior year period. Financial Highlights for the Third Quarter and Nine Months of 2006: Total hotel revenue increased 17.0% to $101.3 million for the third quarter 2006 as compared to $86.6 million for the third quarter 2005. Of the Company�s total hotel revenue increase of $14.7 million, $11.0 million was due to net incremental revenue from hotel acquisitions completed during 2005 and 2006 and $3.7 million was due to improved same-store results. The Company�s all comparable RevPAR growth of 4.8% was driven by an 8.1% increase in average daily rate (ADR) to $96.59, partially offset by a 240 basis point decline in occupancy to 74.2%. Equity Inns� third quarter 2006 occupancy of 74.2% compares to an overall industry occupancy of 68.5%. The decline in occupancy for the Company this quarter was primarily due to the impact of reduced hurricane-related demand at the Company�s 25 Florida hotels, as compared to the third quarter 2005. The Company�s total hotel revenue for the nine months ended September 30, 2006 was $292.9 million, an increase of 22.4% from $239.2 million for the nine months ended September 30, 2005. RevPAR increased 7.2% on a year-to-date basis versus the same period in the prior year for all comparable hotels, driven by 8.1% growth in ADR, offset slightly by a 60 basis point decline in occupancy. Howard A. Silver, President and Chief Executive Officer, stated, �We produced another solid quarter of profitable growth, with our results being within the range of our previously issued guidance. The impact from our 25 Florida hotels notwithstanding, our business was actually stronger than we had anticipated, which was driven by the continued pricing power of our brands and markets. Specifically, our 25 Florida hotels performed lower than our initial expectations due to the difficulty of estimating how much of the hurricane-supplemented demand of 2004 and 2005 could be replaced in a non-hurricane aided year. However, we are encouraged that demand at these hotels remains strong and that we continue to possess the ability to increase average daily rate. Excluding the Florida hotels, our RevPAR performance for the remaining portfolio was up a robust 7.5%.� The Company�s gross operating profit margin (GOP margin) increased 10 basis points to 43.9% in the third quarter 2006 as compared to the third quarter 2005. GOP margin expansion was impacted by increased expenses at the Company�s 18 AmeriSuites, as Hyatt began investing in the operating infrastructure of these hotels in preparation for the conversion to Hyatt Place hotels in 2007. Due to minimum income guarantees that the Company receives from Hyatt, the additional costs had a nominal impact to Equity Inns' net operating income. Excluding the impact of the AmeriSuites, GOP margin would have increased 80 basis points to 44.5%. GOP margin for the nine months ended September 30, 2006 improved 90 basis points to 44.8% as compared to the same period last year. Non-financial Third Quarter 2006 Highlights: The Company purchased three Marriott-branded hotels for an aggregate of $26.3 million, which equates to a capitalization rate of approximately 10%, or $69,000 per key. The average age of these hotels is eight years. Equity Inns signed a definitive agreement to purchase the Hilton Garden Inn in Albuquerque, New Mexico for $11.5 million, or $89,000 per key. The transaction is expected to be completed by the end of 2006. The Company sold four older hotels including three Hampton Inns and a Holiday Inn. The average age of these hotels was 24 years and the hotels were sold on a blended capitalization rate of approximately 5.1%. In addition, the Company sold a land tract in Salt Lake City (Sandy), Utah for its estimated carrying value of $2.0 million. Subsequent Events: The Company signed an agreement to purchase four Marriott-branded hotels located in Kentucky with an average age of four years for an aggregate of approximately $53.8 million, equating to a capitalization rate of approximately 10%. This transaction was a result of a newly formed relationship with a management/development group. Equity Inns executed an agreement with Global Hyatt Corporation to convert all 18 of the Company�s AmeriSuites hotels to the Hyatt Place brand. The conversion of the hotels is expected to be completed by the end of 2007. The cost of the conversion is estimated to be between $50 and $60 million. Capital Structure: At September 30, 2006, Equity Inns had $573.3 million of long-term debt outstanding. The Company had $86.1 million of capacity under its $150.0 million unsecured line of credit. The weighted average interest rate of the Company's debt at the end of the third quarter 2006 was 6.5% versus 6.9% at the end of the third quarter 2005. Total debt represented 42.2% of the historical cost of the Company�s hotels and represented 36% of the Company�s total market capitalization at the end of the third quarter 2006. Equity Inns� leverage ratio was 4.4 times at the end of the third quarter 2006, which is near a five-year low for the Company. Fixed rate debt, including variable rate debt hedged by interest rate swaps, amounted to approximately 96.3% of total debt. At September 30, 2006, the Company�s outstanding common stock and partnership units were a combined 55.6 million. During the third quarter, Equity Inns received an increase in its line of credit and closed a mortgage debt offering. The line of credit increased to $150 million from $125 million and went from a secured line to an unsecured line. The Company expects to save approximately $600,000 annually in interest expense due to the lower interest rate on the new line. The Company also refinanced a new 10-year, $50 million mortgage loan bearing interest of 5.65%, which is expected to save approximately $975,000 in annual interest expense. Equity Inns now has 37 unencumbered hotels as compared to none at the end of 2003. Dividend: During the third quarter 2006, the Company increased its common stock dividend by 35%, as compared to the third quarter 2005, to $0.23 per share. Equity Inns� trailing twelve months� cash available for distribution (CAD) payout ratio was 68.9%. Mr. Silver concluded, �We have continued confidence in the ability of our portfolio to produce strong cash flows, as evidenced by our decision to increase the dividend, which remains in a solid position based upon our low payout ratio. We continue to reposition our portfolio, having announced or completed the acquisition of 14 hotels during 2006 amounting to approximately $170 million, at an average capitalization rate of approximately 9.6% and having sold seven older hotels with limited remaining franchise life for an aggregate of $36.5 million. Our acquisition pipeline remains robust with opportunities in excess of $150 million. While we currently anticipate that our RevPAR comparisons will be negatively impacted for the remainder of this year by the unusually strong hurricane-related results of 2004 and 2005, we believe that we are well-positioned for 2007 based upon our projection of minimal new supply, sustained strong demand and fewer ENN hotels under renovation. Due to our minimum income guarantees, we expect an immaterial impact to ENN from renovation activity at our AmeriSuites hotels undergoing rebranding in 2007.� Updated 2006 Guidance: Based upon the Company�s expectations for continued improvement of the U.S. economy, moderate supply growth, further improvement in the upscale and mid-scale lodging sectors, recent acquisitions and divestitures, additional planned expense increases, room renovations, and given the results of the third quarter 2006, Equity Inns is updating the Company�s RevPAR, Adjusted EBITDA, AFFO and net income per diluted share guidance, which is as follows: RevPAR growth for 2006 is now expected to range from 5.5% to 6%, with nearly all of the increase being attributed to ADR. The fourth quarter RevPAR change is expected to be in the range of 0% to an increase of 2% due to an expected lower occupancy as compared to the high occupancies of the Company�s Florida hotels in 2005. Adjusted EBITDA for 2006 is now expected to range from approximately $126 million to $127 million. AFFO for 2006 is now expected to be in the range of $1.28 to $1.30 per diluted share. The fourth quarter 2006 AFFO is expected to range from $0.20 to $0.22 per diluted share. Net income applicable to common shareholders for 2006 is now expected to be in the range of $0.19 to $0.20 per diluted share. For the fourth quarter 2006, net loss applicable to common shareholders is expected to be ($0.04) to ($0.06) per diluted share. Additionally, capital expenditures for the full year 2006 are now expected to be approximately $45 million to $50 million. Conference Call: Equity Inns will hold a conference call and webcast to discuss the Company's third quarter results after the market close on November 2, 2006, at 4:30 p.m. (Eastern Time). Interested investors and other parties may listen to the conference call by dialing 800-811-8845 or 913-981-4905 for international participants. A simultaneous webcast of the conference call may be accessed by logging onto the Company's website at http://www.equityinns.com/ and selecting the microphone icon. A replay of the conference call will be available on the Internet at www.streetevents.com and the Company's website, http://www.equityinns.com, for seven days following the call. A recording of the call will also be available by telephone November 2, 2006 through November 9, 2006 by dialing 888-203-1112 or�719-457-0820 for international participants. The pass code is 6512548. Forward Looking Statements Certain matters discussed in this press release which are not historical facts are �forward-looking statements� within the meaning of the federal securities laws and involve risks and uncertainties. The words �may,� �plan,� �project,� �anticipate,� �believe,� �estimate,� �forecast, �expect,� �intend,� �will,� and similar terms are intended to identify forward-looking statements, which include, without limitation, statements concerning our outlook for the hotel industry, acquisition and disposition plans for our hotels and assumptions and forecasts of future results for fiscal year 2006. Forward-looking statements are not guarantees of future performance and involve numerous risks and uncertainties which may cause our actual financial condition, results of operations and performance to be materially different from the results of expectations expressed or implied by such statements. General economic conditions, future acts of terrorism or war, risks associated with the hotel and hospitality business, the availability of capital, risks associated with our debt financing, hotel operating risks and numerous other factors, may affect our future results and performance and achievements. These risks and uncertainties are described in greater detail in our 2005 Annual Report on Form 10-K filed on March 15, 2006, and our other periodic filings with the United States Securities and Exchange Commission (SEC). We undertake no obligation and do not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although we believe our current expectations to be based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that actual results will not differ materially. Notes to Financial Information The Company operates as a self-managed and self-administered real estate investment trust, or REIT. Readers are encouraged to find further detail regarding Equity Inns� organizational structure in its annual report on Form 10-K for the year ended December 31, 2005 as filed with the SEC. Non-GAAP Financial Measures Included in this press release are certain "non-GAAP financial measures," which are measures of the Company's historical or future financial performance that are different from measures calculated and presented in accordance with generally accepted accounting principles, or GAAP, within the meaning of applicable SEC rules. These include: (i) Gross Operating Profit Margin, (ii) Funds From Operations, (iii) Adjusted Funds From Operations, (iv) Adjusted EBITDA, (v) Cash Available for Distribution (CAD), (vi) CAD Payout Ratio, (vii) Capitalization Rate (viii) Leverage Ratio, (ix) Total Shareholder Return and (x) Hotel Operating Statistics. The following discussion defines these terms, which the Company believes can be useful measures of its performance. Gross Operating Profit Margin The Company uses a measure common in the hotel industry to evaluate its operating results. Gross operating profit margin (GOP margin) is defined as hotel revenues minus hotel operating costs before property taxes, insurance and management fees, divided by hotel revenues. 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. Equity Inns uses FFO per diluted 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. 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 FFO and FFO per diluted share may not be comparable to those measures, or similarly titled measures, as reported by other companies. Additionally, FFO is used by management in the annual budget process. Adjusted Funds From Operations Equity Inns further adjusts FFO for losses on impairment of hotels, prepayment penalties on extinguishment of debt and other non-cash or unusual items. We refer to this as adjusted funds from operations, or AFFO. The Company�s computation of AFFO and AFFO per diluted share is not comparable to the NAREIT definition of FFO or to similar measures reported by other REITs, but the Company believes it is an appropriate measure for this Company. The Company uses AFFO because it believes that this measure provides investors a useful indicator of the operating performance of the Company�s hotels by adjusting for the effects of certain non-cash or non-recurring items arising from the Company�s financing activities, impairment charges on hotels held for sale and other areas. In addition to being used by management in the annual budget process, AFFO per diluted share is also used by the Compensation Committee of the Board of Directors as one of the criteria for performance-based executive compensation. Adjusted EBITDA Earnings before Interest Expense, Income Taxes, Depreciation and Amortization, or EBITDA, is a commonly used measure of performance in many industries, which the Company believes provides useful information to investors regarding its results of operations. The Company believes that EBITDA helps investors evaluate the ongoing operating performance of its properties and facilitates comparisons with other lodging REITs, hotel owners who are not REITs, and other capital-intensive companies. The Company uses EBITDA to provide a baseline when evaluating hotel results. The Company also uses EBITDA as one measure in determining the value of acquisitions and dispositions and, like FFO and AFFO; it is also used by management in the annual budget process. The Company further adjusts EBITDA to exclude preferred stock dividends, income or losses from discontinued operations, minority interests and losses on impairment of hotels because it believes that including such items in EBITDA is not consistent with reflecting the ongoing operating performance of the remaining assets. The Company has historically adjusted EBITDA when evaluating its performance because management believes that the exclusion of certain non-cash and non-recurring items described above assists the Company in measuring the performance of its hotels and reflects the ongoing value of the Company as a whole. Therefore, the Company modifies EBITDA and refers to this measure as Adjusted EBITDA. Cash available for distribution (CAD) and CAD Payout Ratio Cash available for distribution (CAD) is defined as AFFO, adjusted for certain non-cash amortization and an allowance for recurring capital expenditures equal to four percent of hotel room revenue from continuing operations. The Company computes the CAD Payout Ratio by dividing common dividends per share and unit paid over the last twelve months by trailing twelve-month CAD per share for the same period. The Company believes the CAD Payout Ratio also helps improve equity holders' ability to understand the Company�s ability to make distributions to its shareholders. Capitalization Rate The Company uses a measure common in the hotel industry to discuss its underwriting of acquired or disposed hotel assets. Capitalization rate, for this discussion, is defined as the percentage derived by dividing the net operating income of the hotel asset(s), less a management fee and an allowance for recurring capital expenditures, by the purchase price paid or received for the hotel asset(s). Leverage Ratio The Company uses a measure common in the hotel industry to evaluate its financial leverage. Leverage ratio is defined as the Company�s long-term debt divided by EBITDA as defined in the financial covenants of its Line of Credit. Total Shareholder Return The Company uses a measure common in the hotel industry to discuss its return to common shareholders. Total shareholder return is defined as reinvested stock dividend income plus the percentage of stock price appreciation or minus the percentage of stock price reduction over the respective period. Total shareholder return is also used by the Compensation Committee of the Board of Directors as one of the criteria for performance-based executive compensation. Hotel Operating Statistics The Company uses a measure common in the hotel industry to evaluate the operations of its hotel room revenue per available room, or RevPAR. RevPAR is the product of the average daily rate, or ADR, charged and the average daily occupancy achieved. RevPAR does not include food and beverage or other ancillary revenues such as parking, telephone, or other guest services generated by the property. Similar to the reporting periods for the Company's statement of operations, hotel operating statistics (i.e., RevPAR, ADR and average occupancy) are reported based on a quarter end. This facilitates year-to-year comparisons of hotel results, as each reporting period will be comprised of the same number of days of operations as in the prior year. GOP Margin, FFO, AFFO, FFO per share, AFFO per share, Adjusted EBITDA, CAD, CAD Payout Ratio, Capitalization Rate, Leverage Ratio, Total Shareholder Return and Hotel Operating Statistics presented, may not be comparable to the same or similarly titled measures calculated by other companies and may not be helpful to investors when comparing Equity Inns to other companies. This information should not be considered as an alternative to net income, income from operations, cash from operations, or any other operating performance measure prescribed by GAAP. Cash expenditures for various long-term assets (such as renewal and replacement capital expenditures), interest expense (for Adjusted EBITDA purposes) and other items have been and will be incurred and are not reflected in the Adjusted EBITDA, FFO and AFFO per share presentations. Equity Inns' statement of operations and cash flows include disclosure of its interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating the Company's performance, as well as the usefulness of its non-GAAP financial measures. Additionally, FFO, AFFO, FFO per share, AFFO per share, Adjusted EBITDA and CAD should not be considered as a measure of the Company's liquidity or indicative of funds available to fund its cash needs, including the Company's ability to make cash distributions. In addition, FFO per share, AFFO per share and CAD do not measure, and should not be used as measures of, amounts that accrue directly to shareholders' benefit. About Equity Inns Equity Inns, Inc. is a self-advised REIT that focuses on the upscale extended stay, all-suite and midscale limited-service segments of the hotel industry. The Company, which ranks as the third largest hotel REIT based on number of hotels, currently owns 125 hotels with 14,924 rooms located in 35 states. For more information about Equity Inns, visit the Company's Web site at www.equityinns.com. EQUITY INNS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) � September 30, 2006 December 31, 2005 (unaudited) ASSETS Investment in hotel properties, at cost $ 1,347,983� $ 1,276,966� Accumulated depreciation � (310,268) � (298,733) Investment in hotel properties, net 1,037,715� 978,233� Assets held for sale -� -� Cash and cash equivalents 7,652� 6,556� Accounts receivable, net of doubtful accounts of $200 and $175, respectively 9,416� 8,960� Interest rate swaps 592� 877� Notes receivable, net 1,905� 1,688� Deferred expenses, net 13,812� 11,927� Deposits and other assets, net � 17,854� � 17,595� � Total Assets $ 1,088,946� $ 1,025,836� � LIABILITIES AND SHAREHOLDERS� EQUITY Long-term debt $ 573,260� $ 557,475� Accounts payable and accrued expenses 42,367� 39,204� Distributions payable 14,854� 10,674� Minority interests in Partnership � 5,177� � 8,363� � Total Liabilities � 635,658� � 615,716� � Commitments and Contingencies � Shareholders� Equity: � Preferred Stock, $.01 par value, 10,000,000 shares authorized Series B, 8.75%, $.01 par value, 3,450,000 and 3,450,000 shares issued and outstanding 83,524� 83,524� Series C, 8.00%, $.01 par value, 2,400,000 and 0 shares issued and outstanding 57,861� -� Common stock, $.01 par value, 100,000,000 shares authorized, 55,464,961 and 54,749,308 shares issued and outstanding 555� 547� Additional paid-in capital 577,049� 570,658� Treasury stock, at cost, 747,600 shares (5,173) (5,173) Distributions in excess of net earnings (261,120) (240,313) Unrealized gain (loss) on interest rate swaps � 592� � 877� � Total Shareholders� Equity � 453,288� � 410,120� � Total Liabilities and Shareholders� Equity $ 1,088,946� $ 1,025,836� EQUITY INNS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) � For the Three Months Ended September 30, For the Nine Months Ended September 30, � 2006� � 2005� � 2006� � 2005� Revenue: Room revenue $ 97,389� $ 83,106� $ 281,856� $ 229,508� Other hotel revenue � 3,901� � 3,479� � 11,013� � 9,715� Total hotel revenue 101,290� 86,585� 292,869� 239,223� � Operating expenses: Direct hotel expenses 55,261� 47,597� 159,482� 130,546� Other hotel expenses 3,169� 2,582� 8,461� 7,177� Depreciation 13,591� 11,721� 39,220� 33,498� Property taxes, rental expense and insurance 6,490� 5,138� 18,645� 15,308� General and administrative expenses: Non-cash stock-based compensation 910� 290� 2,952� 1,053� Other general and administrative expenses 1,995� 1,941� 7,480� 5,765� Loss on impairment of hotels � -� � -� � 5,210� � -� Total operating expenses � 81,416� � 69,269� � 241,450� � 193,347� � Operating income 19,874� 17,316� 51,419� 45,876� � Interest expense, net � 10,338� � 9,100� � 29,737� � 25,515� � Income (loss) from continuing operations before minority interests and income taxes 9,536� 8,216� 21,682� 20,361� Minority interest income (expense) (131) (192) (241) (311) Deferred income tax benefit (expense) � -� � -� � -� � -� � Income (loss) from continuing operations 9,405� 8,024� 21,441� 20,050� � Discontinued operations: Gain (loss) on sale of hotel properties 582� 625� 5,117� 625� Loss on impairment of hotels held for sale -� -� (6,690) (3,500) Income (loss) from operations of discontinued operations � 355� � (38) � 1,296� � 190� Income (loss) from discontinued operations � 937� � 587� � (277) � (2,685) � Net income (loss) 10,342� 8,611� 21,164� 17,365� � Preferred stock dividends � (3,087) � (1,887) � (8,647) � (5,660) � Net income (loss) applicable to common shareholders $ 7,255� $ 6,724� $ 12,517� $ 11,705� � Net income (loss) per share data: Basic and diluted income (loss) per share: Continuing operations $ 0.11� $ 0.11� $ 0.23� $ 0.27� Discontinued operations � 0.02� � 0.01� � 0.00� � (0.05) � Net income (loss) per common shares $ 0.13� $ 0.12� $ 0.23� $ 0.22� � Weighted average number of common shares outstanding, basic and diluted � 54,727� � 54,005� � 54,557� � 53,360� EQUITY INNS, INC. RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS, ADJUSTED FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION (unaudited) � The following is a reconciliation of net income (loss) to FFO and AFFO, both applicable to common shareholders, and cash available for distribution and illustrates the difference in these measures of operating performance (in thousands, except per share and unit data): � For the Three Months Ended September 30, For the Nine Months Ended September 30, � 2006� � 2005� � 2006� � 2005� � Net income (loss) applicable to common shareholders $ 7,255� $ 6,724� $ 12,517� $ 11,705� � Add (subtract): (Gain) loss on sale of hotel properties (582) (625) (5,117) (625) Minority interests (income) expense 131� 192� 241� 311� Depreciation 13,591� 11,721� 39,220� 33,498� Depreciation from discontinued operations � 30� � 614� � 783� � 1,984� � Funds From Operations (FFO) 20,425� 18,626� 47,644� 46,873� � Loss on impairment of hotels -� -� 11,900� 3,500� Fees incurred on indefinitely postponed unsecured offering � -� � -� � -� � 245� � Adjusted Funds From Operations (AFFO) 20,425� 18,626� 59,544� 50,618� � Add: Amortization of debt issuance costs 574� 482� 1,551� 1,443� Amortization of deferred expenses and non-cash stock-based compensation 999� 379� 3,226� 1,311� � Capital reserves � (4,052) � (3,463) � (11,715) � (9,569) � Cash Available for Distribution $ 17,946� $ 16,024� $ 52,606� $ 43,803� � Weighted average number of diluted common shares and Partnership units outstanding � 55,641� � 55,393� � 55,608� � 54,774� � FFO per Share and Unit $ 0.37� $ 0.34� $ 0.86� $ 0.86� � AFFO per Share and Unit $ 0.37� $ 0.34� $ 1.07� $ 0.92� � Cash Available for Distribution per Share and Unit $ 0.32� $ 0.29� $ 0.95� $ 0.80� EQUITY INNS, INC. RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA (unaudited) � The following is a reconciliation of net income (loss) applicable to common shareholders to Adjusted EBITDA and illustrates the difference in these measures of operating performance (in thousands): � For the Three Months Ended September 30, For the Nine Months Ended September 30, � 2006� � 2005� � 2006� � 2005� � Net income (loss) applicable to common shareholders $ 7,255� $ 6,724� $ 12,517� $ 11,705� � Add (subtract): Preferred stock dividends 3,087� 1,887� 8,647� 5,660� (Income) loss from discontinued operations (937) (587) 277� 2,685� Minority interests (income) expense 131� 192� 241� 311� Interest expense, net 10,338� 9,100� 29,737� 25,515� Loss on impairment of hotels -� -� 5,210� -� Depreciation 13,591� 11,721� 39,220� 33,498� Amortization of deferred expenses and non-cash stock-based compensation � 999� � 379� � 3,226� � 1,311� � Adjusted EBITDA $ 34,464� $ 29,416� $ 99,075� $ 80,685� EQUITY INNS, INC. 2006 GUIDANCE RECONCILIATION (unaudited) � The following is a reconciliation of the Company�s 2006 forecast of net income (loss) to FFO and AFFO, both applicable to common shareholders, and Adjusted EBITDA, and illustrates the difference in these measures of operating performance (in thousands, except per share and unit data): � Three Months Ended December 31, 2006 Twelve Months Ended December 31, 2006 Low End Range High End Range Low End Range High End Range FFO AND AFFO RECONCILIATION: � Net income (loss) applicable to common shareholders $ (3,085) $ (2,110) $ 10,392� $ 10,642� � Add (subtract): (Gain) loss on sale of hotel properties -� -� (5,117) (5,117) Minority interests (income) expense (15) (15) 225� 225� Depreciation 14,000� 14,500� 53,220� 53,720� Depreciation from discontinued operations � -� � -� � 780� � 780� � Funds From Operations (FFO) 10,900� 12,375� 59,500� 60,250� � Loss on impairment of hotels -� -� 11,900� 11,900� Other � � � � � Adjusted Funds From Operations (AFFO) $ 10,900� $ 12,375� $ 71,400� $ 72,150� � Weighted average number of diluted common shares and Partnership units outstanding � 55,643� � 55,643� � 55,609� � 55,609� � FFO per Share and Unit $ 0.20� $ 0.22� $ 1.07� $ 1.08� � AFFO per Share and Unit $ 0.20� $ 0.22� $ 1.28� $ 1.30� � ADJUSTED EBITDA RECONCILIATION: � Net income (loss) applicable to common shareholders $ (3,085) $ (2,110) $ 10,392� $ 10,642� � Add (subtract): Preferred stock dividends 3,087� 3,087� 11,733� 11,733� (Income) loss from discontinued operations 300� 300� 577� 577� Minority interests (income) expense (15) (15) 225� 225� Interest expense, net 10,750� 11,200� 40,400� 40,850� Loss on impairment of hotels -� -� 5,210� 5,210� Depreciation 14,000� 14,500� 53,220� 53,720� Amortization of deferred expenses and non-cash stock-based compensation � 975� � 975� � 4,200� � 4,200� � Adjusted EBITDA $ 26,012� $ 27,937� $ 125,957� $ 127,157� Equity Inns, Inc. Hotel Performance For the Three Months Ended September 30, 2006 and 2005 All Comparable (1) � RevPAR (2) Occupancy ADR # of Hotels � 2006� Variance to 2005 2006� Variance to 2005 � 2006� Variance to 2005 Portfolio 125� $ 71.65� 4.8% 74.2% -2.4 pts. $ 96.59� 8.1% � Franchise AmeriSuites 18� $ 57.83� -0.4% 69.8% -3.2 pts. $ 82.90� 4.2% Comfort Inn 2� $ 65.32� -8.0% 65.1% -8.3 pts. $ 100.31� 3.7% Courtyard 13� $ 82.48� 4.7% 76.0% -4.0 pts. $ 108.58� 10.2% Embassy Suites 1� $ 69.92� -7.7% 63.6% -5.3 pts. $ 109.99� 0.0% Fairfield Inn & Suites 1� $ 56.82� 17.8% 69.5% -2.6 pts. $ 81.72� 22.2% Hampton Inn 45� $ 66.66� 7.8% 74.5% 0.0 pts. $ 89.47� 7.8% Hampton Inn & Suites 2� $ 68.95� 0.4% 69.4% -4.3 pts. $ 99.41� 6.6% Hilton Garden Inn 2� $ 60.09� -11.1% 58.0% -11.5 pts. $ 103.54� 6.4% Holiday Inn 3� $ 59.05� 5.9% 70.6% -7.9 pts. $ 83.60� 17.8% Homewood Suites 10� $ 95.01� 6.9% 80.2% -3.6 pts. $ 118.47� 11.7% Residence Inn 22� $ 85.41� 5.2% 79.0% -1.9 pts. $ 108.14� 7.6% SpringHill Suites 5� $ 67.36� 6.7% 73.8% -4.6 pts. $ 91.27� 13.3% TownePlace Suites 1� $ 48.71� -2.4 % 71.9% -1.9 pts. $ 67.75� 0.2% � Region East North Central 18� $ 73.22� 9.5% 73.3% -0.8 pts. $ 99.92� 10.7% East South Central 18� $ 64.39� 3.0% 73.6% -3.8 pts. $ 87.47� 8.3% Middle Atlantic 6� $ 89.60� 7.5% 80.1% 3.6 pts. $ 111.86� 2.7% Mountain 8� $ 67.39� -4.4% 77.5% -6.0 pts. $ 86.90� 3.0% New England 7� $ 75.21� 13.6% 79.8% 7.2 pts. $ 94.30� 3.3% Pacific 3� $ 114.54� 7.1% 85.9% -2.1 pts. $ 133.37� 9.6% South Atlantic 48� $ 67.70� -0.3% 70.8% -5.4 pts. $ 95.58� 7.3% West North Central 7� $ 72.88� 11.0% 75.8% 1.2 pts. $ 96.17� 9.3% West South Central 10� $ 69.47� 15.6% 75.2% 0.3 pts. $ 92.39� 15.1% � Type All Suite 19� $ 59.00� -1.3% 69.2% -3.4 pts. $ 85.31� 3.6% Extended Stay 33� $ 88.06� 5.8% 79.3% -2.5 pts. $ 111.11� 9.1% Full Service 4� $ 62.16� -3.7% 66.1% -11.5 pts. $ 93.99� 13.1% Limited Service 69� $ 68.84� 6.6% 74.0% -1.3 pts. $ 93.00� 8.5% � (1) All Comparable is defined as our system-wide gross lodging revenues for hotels that the Company owned at period end. � (2) RevPAR is calculated by multiplying the Company�s average daily rate (ADR) by occupancy. Equity Inns, Inc. Hotel Performance For the Nine Months Ended September 30, 2006 and 2005 All Comparable (1) � RevPAR (2) Occupancy ADR # of Hotels � 2006� Variance to 2005 2006� Variance to 2005 � 2006� Variance to 2005 Portfolio 125� $ 72.02� 7.2% 73.9% -0.6 pts. $ 97.52� 8.1% � Franchise AmeriSuites 18� $ 59.22� 8.1% 70.2% 0.8 pts. $ 84.30� 6.8% Comfort Inn 2� $ 63.98� -6.5% 63.5% -5.5 pts. $ 100.69� 1.7% Courtyard 13� $ 85.06� 7.3% 79.9% -0.7 pts. $ 106.50� 8.2% Embassy Suites 1� $ 92.73� 2.4% 73.6% -1.3 pts. $ 126.00� 4.2% Fairfield Inn & Suites 1� $ 56.82� 17.9% 73.2% 0.9 pts. $ 77.66� 16.4% Hampton Inn 45� $ 65.71� 9.4% 72.5% 0.7 pts. $ 90.68� 8.4% Hampton Inn & Suites 2� $ 91.93� 9.0% 76.7% -1.8 pts. $ 119.87� 11.6% Hilton Garden Inn 2� $ 78.71� -3.3% 65.0% -8.5 pts. $ 121.04� 9.4% Holiday Inn 3� $ 53.41� 9.5% 66.6% -4.1 pts. $ 80.19� 16.2% Homewood Suites 10� $ 92.77� 8.2% 79.7% -0.8 pts. $ 116.41� 9.3% Residence Inn 22� $ 81.67� 3.0% 76.6% -2.8 pts. $ 106.59� 6.8% SpringHill Suites 5� $ 69.66� 14.7% 76.1% 0.2 pts. $ 91.50� 14.4% TownePlace Suites 1� $ 52.24� -6.9% 75.0% -6.4 pts. $ 69.62� 1.0% � Region East North Central 18� $ 65.60� 10.6% 68.5% 0.5 pts. $ 95.77� 9.9% East South Central 18� $ 64.35� 6.3% 73.9% -1.2 pts. $ 87.08� 8.0% Middle Atlantic 6� $ 72.76� -0.3% 68.7% -2.7 pts. $ 105.96� 3.7% Mountain 8� $ 70.56� 1.6% 77.0% -3.3 pts. $ 91.70� 5.9% New England 7� $ 64.77� 10.1% 71.7% 5.0 pts. $ 90.35� 2.3% Pacific 3� $ 101.87� 11.4% 82.1% 1.8 pts. $ 124.04� 9.0% South Atlantic 48� $ 77.30� 4.8% 75.3% -2.5 pts. $ 102.62� 8.2% West North Central 7� $ 66.75� 13.4% 72.5% 3.6 pts. $ 92.02� 7.7% West South Central 10� $ 70.51� 17.4% 76.8% 2.4 pts. $ 19.75� 13.8% � Type All Suite 19� $ 62.47� 7.2% 70.6% 0.6 pts. $ 88.52� 6.3% Extended Stay 33� $ 85.06� 4.9% 77.7% -2.1 pts. $ 109.44� 7.8% Full Service 4� $ 59.47� 0.5% 64.9% -6.5 pts. $ 91.61� 10.5% Limited Service 69� $ 69.97� 9.0% 73.8% 0.1 pts. $ 94.88� 8.8% � (1) All Comparable is defined as our system-wide gross lodging revenues for hotels that the Company owned at period end. � (2) RevPAR is calculated by multiplying the Company�s average daily rate (ADR) by occupancy. Equity Inns, Inc. (NYSE: ENN): -- AFFO Per Diluted Share Increases 8.8% to $0.37 -- Average Daily Rate Increases 8.1%, Versus 6.8% for Industry -- Occupancy Remains Strong at 74.2% Versus 68.5% for Industry -- Company Commits to Convert 18 AmeriSuites to Hyatt Place Hotels -- Updates 2006 Guidance Equity Inns, Inc. (NYSE: ENN), the third largest hotel real estate investment trust (REIT), today announced its results for the three and the nine months ended September 30, 2006. Adjusted funds from operations (AFFO) per diluted share for the three months ended September 30, 2006 increased 8.8% to $0.37 as compared to $0.34 per diluted share in the same period last year. Adjusted EBITDA rose 17.2% to $34.5 million in the third quarter 2006 as compared to $29.4 million in the third quarter 2005. Net income applicable to common shareholders for the third quarter 2006 was $7.3 million, or $0.13 per diluted share, as compared to net income of $6.7 million, or $0.12 per diluted share in the prior year period. There was no difference between funds from operations (FFO) and AFFO for the third quarter 2006. For the nine months ended September 30, 2006, Equity Inns reported a 16.3% increase in AFFO per diluted share to $1.07, as compared to $0.92 per diluted share in the same period a year ago. Adjusted EBITDA increased 22.8% to $99.1 million for the nine months ended September 30, 2006. Net income applicable to common shareholders for the nine months ended September 30, 2006 was $12.5 million, or $0.23 per diluted share, as compared to net income of $11.7 million, or $0.22 per diluted share in the prior year period. Financial Highlights for the Third Quarter and Nine Months of 2006: Total hotel revenue increased 17.0% to $101.3 million for the third quarter 2006 as compared to $86.6 million for the third quarter 2005. Of the Company's total hotel revenue increase of $14.7 million, $11.0 million was due to net incremental revenue from hotel acquisitions completed during 2005 and 2006 and $3.7 million was due to improved same-store results. The Company's all comparable RevPAR growth of 4.8% was driven by an 8.1% increase in average daily rate (ADR) to $96.59, partially offset by a 240 basis point decline in occupancy to 74.2%. Equity Inns' third quarter 2006 occupancy of 74.2% compares to an overall industry occupancy of 68.5%. The decline in occupancy for the Company this quarter was primarily due to the impact of reduced hurricane-related demand at the Company's 25 Florida hotels, as compared to the third quarter 2005. The Company's total hotel revenue for the nine months ended September 30, 2006 was $292.9 million, an increase of 22.4% from $239.2 million for the nine months ended September 30, 2005. RevPAR increased 7.2% on a year-to-date basis versus the same period in the prior year for all comparable hotels, driven by 8.1% growth in ADR, offset slightly by a 60 basis point decline in occupancy. Howard A. Silver, President and Chief Executive Officer, stated, "We produced another solid quarter of profitable growth, with our results being within the range of our previously issued guidance. The impact from our 25 Florida hotels notwithstanding, our business was actually stronger than we had anticipated, which was driven by the continued pricing power of our brands and markets. Specifically, our 25 Florida hotels performed lower than our initial expectations due to the difficulty of estimating how much of the hurricane-supplemented demand of 2004 and 2005 could be replaced in a non-hurricane aided year. However, we are encouraged that demand at these hotels remains strong and that we continue to possess the ability to increase average daily rate. Excluding the Florida hotels, our RevPAR performance for the remaining portfolio was up a robust 7.5%." The Company's gross operating profit margin (GOP margin) increased 10 basis points to 43.9% in the third quarter 2006 as compared to the third quarter 2005. GOP margin expansion was impacted by increased expenses at the Company's 18 AmeriSuites, as Hyatt began investing in the operating infrastructure of these hotels in preparation for the conversion to Hyatt Place hotels in 2007. Due to minimum income guarantees that the Company receives from Hyatt, the additional costs had a nominal impact to Equity Inns' net operating income. Excluding the impact of the AmeriSuites, GOP margin would have increased 80 basis points to 44.5%. GOP margin for the nine months ended September 30, 2006 improved 90 basis points to 44.8% as compared to the same period last year. Non-financial Third Quarter 2006 Highlights: -- The Company purchased three Marriott-branded hotels for an aggregate of $26.3 million, which equates to a capitalization rate of approximately 10%, or $69,000 per key. The average age of these hotels is eight years. -- Equity Inns signed a definitive agreement to purchase the Hilton Garden Inn in Albuquerque, New Mexico for $11.5 million, or $89,000 per key. The transaction is expected to be completed by the end of 2006. -- The Company sold four older hotels including three Hampton Inns and a Holiday Inn. The average age of these hotels was 24 years and the hotels were sold on a blended capitalization rate of approximately 5.1%. In addition, the Company sold a land tract in Salt Lake City (Sandy), Utah for its estimated carrying value of $2.0 million. Subsequent Events: -- The Company signed an agreement to purchase four Marriott-branded hotels located in Kentucky with an average age of four years for an aggregate of approximately $53.8 million, equating to a capitalization rate of approximately 10%. This transaction was a result of a newly formed relationship with a management/development group. -- Equity Inns executed an agreement with Global Hyatt Corporation to convert all 18 of the Company's AmeriSuites hotels to the Hyatt Place brand. The conversion of the hotels is expected to be completed by the end of 2007. The cost of the conversion is estimated to be between $50 and $60 million. Capital Structure: At September 30, 2006, Equity Inns had $573.3 million of long-term debt outstanding. The Company had $86.1 million of capacity under its $150.0 million unsecured line of credit. The weighted average interest rate of the Company's debt at the end of the third quarter 2006 was 6.5% versus 6.9% at the end of the third quarter 2005. Total debt represented 42.2% of the historical cost of the Company's hotels and represented 36% of the Company's total market capitalization at the end of the third quarter 2006. Equity Inns' leverage ratio was 4.4 times at the end of the third quarter 2006, which is near a five-year low for the Company. Fixed rate debt, including variable rate debt hedged by interest rate swaps, amounted to approximately 96.3% of total debt. At September 30, 2006, the Company's outstanding common stock and partnership units were a combined 55.6 million. During the third quarter, Equity Inns received an increase in its line of credit and closed a mortgage debt offering. The line of credit increased to $150 million from $125 million and went from a secured line to an unsecured line. The Company expects to save approximately $600,000 annually in interest expense due to the lower interest rate on the new line. The Company also refinanced a new 10-year, $50 million mortgage loan bearing interest of 5.65%, which is expected to save approximately $975,000 in annual interest expense. Equity Inns now has 37 unencumbered hotels as compared to none at the end of 2003. Dividend: During the third quarter 2006, the Company increased its common stock dividend by 35%, as compared to the third quarter 2005, to $0.23 per share. Equity Inns' trailing twelve months' cash available for distribution (CAD) payout ratio was 68.9%. Mr. Silver concluded, "We have continued confidence in the ability of our portfolio to produce strong cash flows, as evidenced by our decision to increase the dividend, which remains in a solid position based upon our low payout ratio. We continue to reposition our portfolio, having announced or completed the acquisition of 14 hotels during 2006 amounting to approximately $170 million, at an average capitalization rate of approximately 9.6% and having sold seven older hotels with limited remaining franchise life for an aggregate of $36.5 million. Our acquisition pipeline remains robust with opportunities in excess of $150 million. While we currently anticipate that our RevPAR comparisons will be negatively impacted for the remainder of this year by the unusually strong hurricane-related results of 2004 and 2005, we believe that we are well-positioned for 2007 based upon our projection of minimal new supply, sustained strong demand and fewer ENN hotels under renovation. Due to our minimum income guarantees, we expect an immaterial impact to ENN from renovation activity at our AmeriSuites hotels undergoing rebranding in 2007." Updated 2006 Guidance: Based upon the Company's expectations for continued improvement of the U.S. economy, moderate supply growth, further improvement in the upscale and mid-scale lodging sectors, recent acquisitions and divestitures, additional planned expense increases, room renovations, and given the results of the third quarter 2006, Equity Inns is updating the Company's RevPAR, Adjusted EBITDA, AFFO and net income per diluted share guidance, which is as follows: -- RevPAR growth for 2006 is now expected to range from 5.5% to 6%, with nearly all of the increase being attributed to ADR. The fourth quarter RevPAR change is expected to be in the range of 0% to an increase of 2% due to an expected lower occupancy as compared to the high occupancies of the Company's Florida hotels in 2005. -- Adjusted EBITDA for 2006 is now expected to range from approximately $126 million to $127 million. -- AFFO for 2006 is now expected to be in the range of $1.28 to $1.30 per diluted share. The fourth quarter 2006 AFFO is expected to range from $0.20 to $0.22 per diluted share. -- Net income applicable to common shareholders for 2006 is now expected to be in the range of $0.19 to $0.20 per diluted share. For the fourth quarter 2006, net loss applicable to common shareholders is expected to be ($0.04) to ($0.06) per diluted share. Additionally, capital expenditures for the full year 2006 are now expected to be approximately $45 million to $50 million. Conference Call: Equity Inns will hold a conference call and webcast to discuss the Company's third quarter results after the market close on November 2, 2006, at 4:30 p.m. (Eastern Time). Interested investors and other parties may listen to the conference call by dialing 800-811-8845 or 913-981-4905 for international participants. A simultaneous webcast of the conference call may be accessed by logging onto the Company's website at http://www.equityinns.com/ and selecting the microphone icon. A replay of the conference call will be available on the Internet at www.streetevents.com and the Company's website, http://www.equityinns.com, for seven days following the call. A recording of the call will also be available by telephone November 2, 2006 through November 9, 2006 by dialing 888-203-1112 or 719-457-0820 for international participants. The pass code is 6512548. Forward Looking Statements Certain matters discussed in this press release which are not historical facts are "forward-looking statements" within the meaning of the federal securities laws and involve risks and uncertainties. The words "may," "plan," "project," "anticipate," "believe," "estimate," "forecast, "expect," "intend," "will," and similar terms are intended to identify forward-looking statements, which include, without limitation, statements concerning our outlook for the hotel industry, acquisition and disposition plans for our hotels and assumptions and forecasts of future results for fiscal year 2006. Forward-looking statements are not guarantees of future performance and involve numerous risks and uncertainties which may cause our actual financial condition, results of operations and performance to be materially different from the results of expectations expressed or implied by such statements. General economic conditions, future acts of terrorism or war, risks associated with the hotel and hospitality business, the availability of capital, risks associated with our debt financing, hotel operating risks and numerous other factors, may affect our future results and performance and achievements. These risks and uncertainties are described in greater detail in our 2005 Annual Report on Form 10-K filed on March 15, 2006, and our other periodic filings with the United States Securities and Exchange Commission (SEC). We undertake no obligation and do not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although we believe our current expectations to be based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that actual results will not differ materially. Notes to Financial Information The Company operates as a self-managed and self-administered real estate investment trust, or REIT. Readers are encouraged to find further detail regarding Equity Inns' organizational structure in its annual report on Form 10-K for the year ended December 31, 2005 as filed with the SEC. Non-GAAP Financial Measures Included in this press release are certain "non-GAAP financial measures," which are measures of the Company's historical or future financial performance that are different from measures calculated and presented in accordance with generally accepted accounting principles, or GAAP, within the meaning of applicable SEC rules. These include: (i) Gross Operating Profit Margin, (ii) Funds From Operations, (iii) Adjusted Funds From Operations, (iv) Adjusted EBITDA, (v) Cash Available for Distribution (CAD), (vi) CAD Payout Ratio, (vii) Capitalization Rate (viii) Leverage Ratio, (ix) Total Shareholder Return and (x) Hotel Operating Statistics. The following discussion defines these terms, which the Company believes can be useful measures of its performance. Gross Operating Profit Margin The Company uses a measure common in the hotel industry to evaluate its operating results. Gross operating profit margin (GOP margin) is defined as hotel revenues minus hotel operating costs before property taxes, insurance and management fees, divided by hotel revenues. 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. Equity Inns uses FFO per diluted 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. 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 FFO and FFO per diluted share may not be comparable to those measures, or similarly titled measures, as reported by other companies. Additionally, FFO is used by management in the annual budget process. Adjusted Funds From Operations Equity Inns further adjusts FFO for losses on impairment of hotels, prepayment penalties on extinguishment of debt and other non-cash or unusual items. We refer to this as adjusted funds from operations, or AFFO. The Company's computation of AFFO and AFFO per diluted share is not comparable to the NAREIT definition of FFO or to similar measures reported by other REITs, but the Company believes it is an appropriate measure for this Company. The Company uses AFFO because it believes that this measure provides investors a useful indicator of the operating performance of the Company's hotels by adjusting for the effects of certain non-cash or non-recurring items arising from the Company's financing activities, impairment charges on hotels held for sale and other areas. In addition to being used by management in the annual budget process, AFFO per diluted share is also used by the Compensation Committee of the Board of Directors as one of the criteria for performance-based executive compensation. Adjusted EBITDA Earnings before Interest Expense, Income Taxes, Depreciation and Amortization, or EBITDA, is a commonly used measure of performance in many industries, which the Company believes provides useful information to investors regarding its results of operations. The Company believes that EBITDA helps investors evaluate the ongoing operating performance of its properties and facilitates comparisons with other lodging REITs, hotel owners who are not REITs, and other capital-intensive companies. The Company uses EBITDA to provide a baseline when evaluating hotel results. The Company also uses EBITDA as one measure in determining the value of acquisitions and dispositions and, like FFO and AFFO; it is also used by management in the annual budget process. The Company further adjusts EBITDA to exclude preferred stock dividends, income or losses from discontinued operations, minority interests and losses on impairment of hotels because it believes that including such items in EBITDA is not consistent with reflecting the ongoing operating performance of the remaining assets. The Company has historically adjusted EBITDA when evaluating its performance because management believes that the exclusion of certain non-cash and non-recurring items described above assists the Company in measuring the performance of its hotels and reflects the ongoing value of the Company as a whole. Therefore, the Company modifies EBITDA and refers to this measure as Adjusted EBITDA. Cash available for distribution (CAD) and CAD Payout Ratio Cash available for distribution (CAD) is defined as AFFO, adjusted for certain non-cash amortization and an allowance for recurring capital expenditures equal to four percent of hotel room revenue from continuing operations. The Company computes the CAD Payout Ratio by dividing common dividends per share and unit paid over the last twelve months by trailing twelve-month CAD per share for the same period. The Company believes the CAD Payout Ratio also helps improve equity holders' ability to understand the Company's ability to make distributions to its shareholders. Capitalization Rate The Company uses a measure common in the hotel industry to discuss its underwriting of acquired or disposed hotel assets. Capitalization rate, for this discussion, is defined as the percentage derived by dividing the net operating income of the hotel asset(s), less a management fee and an allowance for recurring capital expenditures, by the purchase price paid or received for the hotel asset(s). Leverage Ratio The Company uses a measure common in the hotel industry to evaluate its financial leverage. Leverage ratio is defined as the Company's long-term debt divided by EBITDA as defined in the financial covenants of its Line of Credit. Total Shareholder Return The Company uses a measure common in the hotel industry to discuss its return to common shareholders. Total shareholder return is defined as reinvested stock dividend income plus the percentage of stock price appreciation or minus the percentage of stock price reduction over the respective period. Total shareholder return is also used by the Compensation Committee of the Board of Directors as one of the criteria for performance-based executive compensation. Hotel Operating Statistics The Company uses a measure common in the hotel industry to evaluate the operations of its hotel room revenue per available room, or RevPAR. RevPAR is the product of the average daily rate, or ADR, charged and the average daily occupancy achieved. RevPAR does not include food and beverage or other ancillary revenues such as parking, telephone, or other guest services generated by the property. Similar to the reporting periods for the Company's statement of operations, hotel operating statistics (i.e., RevPAR, ADR and average occupancy) are reported based on a quarter end. This facilitates year-to-year comparisons of hotel results, as each reporting period will be comprised of the same number of days of operations as in the prior year. GOP Margin, FFO, AFFO, FFO per share, AFFO per share, Adjusted EBITDA, CAD, CAD Payout Ratio, Capitalization Rate, Leverage Ratio, Total Shareholder Return and Hotel Operating Statistics presented, may not be comparable to the same or similarly titled measures calculated by other companies and may not be helpful to investors when comparing Equity Inns to other companies. This information should not be considered as an alternative to net income, income from operations, cash from operations, or any other operating performance measure prescribed by GAAP. Cash expenditures for various long-term assets (such as renewal and replacement capital expenditures), interest expense (for Adjusted EBITDA purposes) and other items have been and will be incurred and are not reflected in the Adjusted EBITDA, FFO and AFFO per share presentations. Equity Inns' statement of operations and cash flows include disclosure of its interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating the Company's performance, as well as the usefulness of its non-GAAP financial measures. Additionally, FFO, AFFO, FFO per share, AFFO per share, Adjusted EBITDA and CAD should not be considered as a measure of the Company's liquidity or indicative of funds available to fund its cash needs, including the Company's ability to make cash distributions. In addition, FFO per share, AFFO per share and CAD do not measure, and should not be used as measures of, amounts that accrue directly to shareholders' benefit. About Equity Inns Equity Inns, Inc. is a self-advised REIT that focuses on the upscale extended stay, all-suite and midscale limited-service segments of the hotel industry. The Company, which ranks as the third largest hotel REIT based on number of hotels, currently owns 125 hotels with 14,924 rooms located in 35 states. For more information about Equity Inns, visit the Company's Web site at www.equityinns.com. -0- *T EQUITY INNS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) September 30, December 31, 2006 2005 ------------- ------------- (unaudited) ASSETS Investment in hotel properties, at cost $1,347,983 $1,276,966 Accumulated depreciation (310,268) (298,733) ------------- ------------- Investment in hotel properties, net 1,037,715 978,233 Assets held for sale - - Cash and cash equivalents 7,652 6,556 Accounts receivable, net of doubtful accounts of $200 and $175, respectively 9,416 8,960 Interest rate swaps 592 877 Notes receivable, net 1,905 1,688 Deferred expenses, net 13,812 11,927 Deposits and other assets, net 17,854 17,595 ------------- ------------- Total Assets $1,088,946 $1,025,836 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Long-term debt $ 573,260 $ 557,475 Accounts payable and accrued expenses 42,367 39,204 Distributions payable 14,854 10,674 Minority interests in Partnership 5,177 8,363 ------------- ------------- Total Liabilities 635,658 615,716 ------------- ------------- Commitments and Contingencies Shareholders' Equity: Preferred Stock, $.01 par value, 10,000,000 shares authorized Series B, 8.75%, $.01 par value, 3,450,000 and 3,450,000 shares issued and outstanding 83,524 83,524 Series C, 8.00%, $.01 par value, 2,400,000 and 0 shares issued and outstanding 57,861 - Common stock, $.01 par value, 100,000,000 shares authorized, 55,464,961 and 54,749,308 shares issued and outstanding 555 547 Additional paid-in capital 577,049 570,658 Treasury stock, at cost, 747,600 shares (5,173) (5,173) Distributions in excess of net earnings (261,120) (240,313) Unrealized gain (loss) on interest rate swaps 592 877 ------------- ------------- Total Shareholders' Equity 453,288 410,120 ------------- ------------- Total Liabilities and Shareholders' Equity $1,088,946 $1,025,836 ============= ============= *T -0- *T EQUITY INNS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited) For the Three For the Nine Months Months Ended Ended September September 30, 30, ------------------ ------------------- 2006 2005 2006 2005 --------- -------- --------- --------- Revenue: Room revenue $ 97,389 $83,106 $281,856 $229,508 Other hotel revenue 3,901 3,479 11,013 9,715 --------- -------- --------- --------- Total hotel revenue 101,290 86,585 292,869 239,223 Operating expenses: Direct hotel expenses 55,261 47,597 159,482 130,546 Other hotel expenses 3,169 2,582 8,461 7,177 Depreciation 13,591 11,721 39,220 33,498 Property taxes, rental expense and insurance 6,490 5,138 18,645 15,308 General and administrative expenses: Non-cash stock-based compensation 910 290 2,952 1,053 Other general and administrative expenses 1,995 1,941 7,480 5,765 Loss on impairment of hotels - - 5,210 - --------- -------- --------- --------- Total operating expenses 81,416 69,269 241,450 193,347 --------- -------- --------- --------- Operating income 19,874 17,316 51,419 45,876 Interest expense, net 10,338 9,100 29,737 25,515 --------- -------- --------- --------- Income (loss) from continuing operations before minority interests and income taxes 9,536 8,216 21,682 20,361 Minority interest income (expense) (131) (192) (241) (311) Deferred income tax benefit (expense) - - - - --------- -------- --------- --------- Income (loss) from continuing operations 9,405 8,024 21,441 20,050 Discontinued operations: Gain (loss) on sale of hotel properties 582 625 5,117 625 Loss on impairment of hotels held for sale - - (6,690) (3,500) Income (loss) from operations of discontinued operations 355 (38) 1,296 190 --------- -------- --------- --------- Income (loss) from discontinued operations 937 587 (277) (2,685) --------- -------- --------- --------- Net income (loss) 10,342 8,611 21,164 17,365 Preferred stock dividends (3,087) (1,887) (8,647) (5,660) --------- -------- --------- --------- Net income (loss) applicable to common shareholders $ 7,255 $ 6,724 $ 12,517 $ 11,705 ========= ======== ========= ========= Net income (loss) per share data: Basic and diluted income (loss) per share: Continuing operations $ 0.11 $ 0.11 $ 0.23 $ 0.27 Discontinued operations 0.02 0.01 0.00 (0.05) --------- -------- --------- --------- Net income (loss) per common shares $ 0.13 $ 0.12 $ 0.23 $ 0.22 ========= ======== ========= ========= Weighted average number of common shares outstanding, basic and diluted 54,727 54,005 54,557 53,360 ========= ======== ========= ========= *T -0- *T EQUITY INNS, INC. RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS, ADJUSTED FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION (unaudited) The following is a reconciliation of net income (loss) to FFO and AFFO, both applicable to common shareholders, and cash available for distribution and illustrates the difference in these measures of operating performance (in thousands, except per share and unit data): For the Three For the Nine Months Ended Months Ended September 30, September 30, ----------------- ------------------ 2006 2005 2006 2005 -------- -------- --------- -------- Net income (loss) applicable to common shareholders $ 7,255 $ 6,724 $ 12,517 $11,705 Add (subtract): (Gain) loss on sale of hotel properties (582) (625) (5,117) (625) Minority interests (income) expense 131 192 241 311 Depreciation 13,591 11,721 39,220 33,498 Depreciation from discontinued operations 30 614 783 1,984 -------- -------- --------- -------- Funds From Operations (FFO) 20,425 18,626 47,644 46,873 Loss on impairment of hotels - - 11,900 3,500 Fees incurred on indefinitely postponed unsecured offering - - - 245 -------- -------- --------- -------- Adjusted Funds From Operations (AFFO) 20,425 18,626 59,544 50,618 Add: Amortization of debt issuance costs 574 482 1,551 1,443 Amortization of deferred expenses and non-cash stock-based compensation 999 379 3,226 1,311 Capital reserves (4,052) (3,463) (11,715) (9,569) -------- -------- --------- -------- Cash Available for Distribution $17,946 $16,024 $ 52,606 $43,803 ======== ======== ========= ======== Weighted average number of diluted common shares and Partnership units outstanding 55,641 55,393 55,608 54,774 ======== ======== ========= ======== FFO per Share and Unit $ 0.37 $ 0.34 $ 0.86 $ 0.86 ======== ======== ========= ======== AFFO per Share and Unit $ 0.37 $ 0.34 $ 1.07 $ 0.92 ======== ======== ========= ======== Cash Available for Distribution per Share and Unit $ 0.32 $ 0.29 $ 0.95 $ 0.80 ======== ======== ========= ======== *T -0- *T EQUITY INNS, INC. RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA (unaudited) The following is a reconciliation of net income (loss) applicable to common shareholders to Adjusted EBITDA and illustrates the difference in these measures of operating performance (in thousands): For the Three For the Nine Months Ended Months Ended September 30, September 30, ----------------- ----------------- 2006 2005 2006 2005 -------- -------- -------- -------- Net income (loss) applicable to common shareholders $ 7,255 $ 6,724 $12,517 $11,705 Add (subtract): Preferred stock dividends 3,087 1,887 8,647 5,660 (Income) loss from discontinued operations (937) (587) 277 2,685 Minority interests (income) expense 131 192 241 311 Interest expense, net 10,338 9,100 29,737 25,515 Loss on impairment of hotels - - 5,210 - Depreciation 13,591 11,721 39,220 33,498 Amortization of deferred expenses and non-cash stock-based compensation 999 379 3,226 1,311 -------- -------- -------- -------- Adjusted EBITDA $34,464 $29,416 $99,075 $80,685 ======== ======== ======== ======== *T -0- *T EQUITY INNS, INC. 2006 GUIDANCE RECONCILIATION (unaudited) The following is a reconciliation of the Company's 2006 forecast of net income (loss) to FFO and AFFO, both applicable to common shareholders, and Adjusted EBITDA, and illustrates the difference in these measures of operating performance (in thousands, except per share and unit data): Three Months Ended Twelve Months Ended December 31, 2006 December 31, 2006 ------------------ ------------------- Low End High End Low End High End Range Range Range Range --------- -------- --------- --------- FFO AND AFFO RECONCILIATION: Net income (loss) applicable to common shareholders $(3,085) $(2,110) $ 10,392 $ 10,642 Add (subtract): (Gain) loss on sale of hotel properties - - (5,117) (5,117) Minority interests (income) expense (15) (15) 225 225 Depreciation 14,000 14,500 53,220 53,720 Depreciation from discontinued operations - - 780 780 --------- -------- --------- --------- Funds From Operations (FFO) 10,900 12,375 59,500 60,250 Loss on impairment of hotels - - 11,900 11,900 Other --------- -------- --------- --------- Adjusted Funds From Operations (AFFO) $10,900 $12,375 $ 71,400 $ 72,150 ========= ======== ========= ========= Weighted average number of diluted common shares and Partnership units outstanding 55,643 55,643 55,609 55,609 ========= ======== ========= ========= FFO per Share and Unit $ 0.20 $ 0.22 $ 1.07 $ 1.08 ========= ======== ========= ========= AFFO per Share and Unit $ 0.20 $ 0.22 $ 1.28 $ 1.30 ========= ======== ========= ========= ADJUSTED EBITDA RECONCILIATION: Net income (loss) applicable to common shareholders $(3,085) $(2,110) $ 10,392 $ 10,642 Add (subtract): Preferred stock dividends 3,087 3,087 11,733 11,733 (Income) loss from discontinued operations 300 300 577 577 Minority interests (income) expense (15) (15) 225 225 Interest expense, net 10,750 11,200 40,400 40,850 Loss on impairment of hotels - - 5,210 5,210 Depreciation 14,000 14,500 53,220 53,720 Amortization of deferred expenses and non-cash stock- based compensation 975 975 4,200 4,200 --------- -------- --------- --------- Adjusted EBITDA $26,012 $27,937 $125,957 $127,157 ========= ======== ========= ========= *T -0- *T Equity Inns, Inc. Hotel Performance For the Three Months Ended September 30, 2006 and 2005 All Comparable (1) RevPAR (2) Occupancy ADR ----------------- -------------- ----------------- # of Variance Variance Variance Hotels 2006 to 2005 2006 to 2005 2006 to 2005 ------ -------- -------- ----- -------- -------- -------- Portfolio -2.4 125 $ 71.65 4.8% 74.2% pts. $ 96.59 8.1% Franchise AmeriSuites -3.2 18 $ 57.83 -0.4% 69.8% pts. $ 82.90 4.2% Comfort Inn -8.3 2 $ 65.32 -8.0% 65.1% pts. $100.31 3.7% Courtyard -4.0 13 $ 82.48 4.7% 76.0% pts. $108.58 10.2% Embassy -5.3 Suites 1 $ 69.92 -7.7% 63.6% pts. $109.99 0.0% Fairfield Inn & -2.6 Suites 1 $ 56.82 17.8% 69.5% pts. $ 81.72 22.2% Hampton Inn 45 $ 66.66 7.8% 74.5% 0.0 pts. $ 89.47 7.8% Hampton Inn -4.3 & Suites 2 $ 68.95 0.4% 69.4% pts. $ 99.41 6.6% Hilton -11.5 Garden Inn 2 $ 60.09 -11.1% 58.0% pts. $103.54 6.4% Holiday Inn -7.9 3 $ 59.05 5.9% 70.6% pts. $ 83.60 17.8% Homewood -3.6 Suites 10 $ 95.01 6.9% 80.2% pts. $118.47 11.7% Residence -1.9 Inn 22 $ 85.41 5.2% 79.0% pts. $108.14 7.6% SpringHill -4.6 Suites 5 $ 67.36 6.7% 73.8% pts. $ 91.27 13.3% TownePlace -1.9 Suites 1 $ 48.71 -2.4 % 71.9% pts. $ 67.75 0.2% Region East North -0.8 Central 18 $ 73.22 9.5% 73.3% pts. $ 99.92 10.7% East South -3.8 Central 18 $ 64.39 3.0% 73.6% pts. $ 87.47 8.3% Middle Atlantic 6 $ 89.60 7.5% 80.1% 3.6 pts. $111.86 2.7% Mountain -6.0 8 $ 67.39 -4.4% 77.5% pts. $ 86.90 3.0% New England 7 $ 75.21 13.6% 79.8% 7.2 pts. $ 94.30 3.3% Pacific -2.1 3 $114.54 7.1% 85.9% pts. $133.37 9.6% South -5.4 Atlantic 48 $ 67.70 -0.3% 70.8% pts. $ 95.58 7.3% West North Central 7 $ 72.88 11.0% 75.8% 1.2 pts. $ 96.17 9.3% West South Central 10 $ 69.47 15.6% 75.2% 0.3 pts. $ 92.39 15.1% Type All Suite -3.4 19 $ 59.00 -1.3% 69.2% pts. $ 85.31 3.6% Extended -2.5 Stay 33 $ 88.06 5.8% 79.3% pts. $111.11 9.1% Full Service -11.5 4 $ 62.16 -3.7% 66.1% pts. $ 93.99 13.1% Limited -1.3 Service 69 $ 68.84 6.6% 74.0% pts. $ 93.00 8.5% (1) All Comparable is defined as our system-wide gross lodging revenues for hotels that the Company owned at period end. (2) RevPAR is calculated by multiplying the Company's average daily rate (ADR) by occupancy. *T -0- *T Equity Inns, Inc. Hotel Performance For the Nine Months Ended September 30, 2006 and 2005 All Comparable (1) RevPAR (2) Occupancy ADR ----------------- -------------- ----------------- # of Variance Variance Variance Hotels 2006 to 2005 2006 to 2005 2006 to 2005 ------ -------- -------- ----- -------- -------- -------- Portfolio -0.6 125 $ 72.02 7.2% 73.9% pts. $ 97.52 8.1% Franchise AmeriSuites 18 $ 59.22 8.1% 70.2% 0.8 pts. $ 84.30 6.8% Comfort Inn -5.5 2 $ 63.98 -6.5% 63.5% pts. $100.69 1.7% Courtyard -0.7 13 $ 85.06 7.3% 79.9% pts. $106.50 8.2% Embassy -1.3 Suites 1 $ 92.73 2.4% 73.6% pts. $126.00 4.2% Fairfield Inn & Suites 1 $ 56.82 17.9% 73.2% 0.9 pts. $ 77.66 16.4% Hampton Inn 45 $ 65.71 9.4% 72.5% 0.7 pts. $ 90.68 8.4% Hampton Inn -1.8 & Suites 2 $ 91.93 9.0% 76.7% pts. $119.87 11.6% Hilton -8.5 Garden Inn 2 $ 78.71 -3.3% 65.0% pts. $121.04 9.4% Holiday Inn -4.1 3 $ 53.41 9.5% 66.6% pts. $ 80.19 16.2% Homewood -0.8 Suites 10 $ 92.77 8.2% 79.7% pts. $116.41 9.3% Residence -2.8 Inn 22 $ 81.67 3.0% 76.6% pts. $106.59 6.8% SpringHill Suites 5 $ 69.66 14.7% 76.1% 0.2 pts. $ 91.50 14.4% TownePlace -6.4 Suites 1 $ 52.24 -6.9% 75.0% pts. $ 69.62 1.0% Region East North Central 18 $ 65.60 10.6% 68.5% 0.5 pts. $ 95.77 9.9% East South -1.2 Central 18 $ 64.35 6.3% 73.9% pts. $ 87.08 8.0% Middle -2.7 Atlantic 6 $ 72.76 -0.3% 68.7% pts. $105.96 3.7% Mountain -3.3 8 $ 70.56 1.6% 77.0% pts. $ 91.70 5.9% New England 7 $ 64.77 10.1% 71.7% 5.0 pts. $ 90.35 2.3% Pacific 3 $101.87 11.4% 82.1% 1.8 pts. $124.04 9.0% South -2.5 Atlantic 48 $ 77.30 4.8% 75.3% pts. $102.62 8.2% West North Central 7 $ 66.75 13.4% 72.5% 3.6 pts. $ 92.02 7.7% West South Central 10 $ 70.51 17.4% 76.8% 2.4 pts. $ 19.75 13.8% Type All Suite 19 $ 62.47 7.2% 70.6% 0.6 pts. $ 88.52 6.3% Extended -2.1 Stay 33 $ 85.06 4.9% 77.7% pts. $109.44 7.8% Full Service -6.5 4 $ 59.47 0.5% 64.9% pts. $ 91.61 10.5% Limited Service 69 $ 69.97 9.0% 73.8% 0.1 pts. $ 94.88 8.8% (1) All Comparable is defined as our system-wide gross lodging revenues for hotels that the Company owned at period end. (2) RevPAR is calculated by multiplying the Company's average daily rate (ADR) by occupancy. *T