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
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