<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
                                       --
               X Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

For the fiscal year ended December 31, 1997       Commission File Number 0-23290

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

           Tennessee                                   62-1550848
-------------------------------          ---------------------------------------
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)

              4735 Spottswood, Suite 102, Memphis, Tennessee 38117
--------------------------------------------------------------------------------
         (Address of Registrant's Principal Executive Office) (Zip Code)

                                 ( 901) 761-9651
--------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  proceeding  12 months and (2) has been subject to such filing  requirements
for the past 90 days.

                              Yes   X       No
                                 -------        -------

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

Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of March 10, 1998: $536,903,997.
Number of shares of Common Stock, $.01 par value, outstanding as of March 10,
1998:  35,585,663

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 14, 1998 (the "Proxy Statement") are incorporated by
reference into Part III of this Report.  Portions of the Registrant's
Registration Statements on Form S-11 (No. 33-73304 and No. 33-80318) and
Registration Statements on Form S-3 (No. 33-90364, No. 33-93158, No. 33-99480
and No. 333-26559) are incorporated by reference into Part IV of this report.

Exhibit Index beginning on Page 62.

                                  Page 1 of 66



<PAGE>



                                EQUITY INNS, INC
                           ANNUAL REPORT ON FORM 10-K
                      For the Year Ended December 31, 1997


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                     PART I
                                                                            Page
<S>        <C>                                                              <C>

Item 1.    Business                                                            3

Item 2.    Properties                                                         19

Item 3.    Legal Proceedings                                                  21

Item 4.    Submission of Matters to a Vote of Security Holders                21

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related
             Stockholder Matters                                              21

Item 6.    Selected Financial Data                                            22

Item 7.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                              25

Item 8.    Financial Statements and Supplementary Data                        33

Item 9.    Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                              54

                                    Part III

Item 10.   Directors and Executive Officers of the Registrant                 54

Item 11.   Executive Compensation                                             54

Item 12.   Security Ownership of Certain Beneficial Owners and
             Management                                                       54

Item 13.   Certain Relationships and Related Transactions                     54

                                     PART IV

Item 14.   Exhibits, Financial Statements, Schedules, and Reports on
             Form 8-K                                                         55
</TABLE>


                                        2

<PAGE>



                                                      PART I

ITEM 1.       BUSINESS

(a)      General Development of Business

Equity  Inns,  Inc.  (the  "Company")  is in the  business of  acquiring  equity
interests in hotel  properties.  The Company is a real estate  investment  trust
("REIT") for federal income tax purposes. The Company,  through its wholly-owned
subsidiary,  Equity Inns Trust (the  "Trust"),  is the sole  general  partner of
Equity Inns  Partnership,  L.P.  (the  "Partnership")  and at December 31, 1997,
owned an approximate 95.0% interest in the Partnership.

(b)      Financial Information About Industry Segment

The  Company  is  in  the  business  of  acquiring  equity  interests  in  hotel
properties. See the Consolidated Financial Statements and notes thereto included
in Item 8 of this Annual Report on Form 10-K for certain  financial  information
required in Item 1.

(c)      Narrative Description of Business

In order to qualify as a REIT,  neither  the  Company  nor the  Partnership  can
operate  hotels.  At  December  31,  1997,  the  Partnership  leased  79  hotels
collectively to Crossroads/Memphis Partnership, L.P., Crossroads Future Company,
L.L.C.  and   Crossroads/Memphis   Financing   Company,   L.L.C.   (collectively
"Crossroads"),  each of which  is an  affiliate  of  Interstate  Hotels  Company
("Interstate").  Interstate  has a right of first  refusal,  subject  to certain
exceptions,  to lease hotels acquired by the  Partnership,  through November 15,
2001. The Partnership leased 10 hotels to Caldwell Holding Company ("Caldwell"),
a wholly-owned subsidiary of Prime Hospitality Corporation ("Prime").

All  hotels  owned  by  the  Company  are  leased  to  Crossroads  and  Caldwell
(collectively,  the  "Lessees"  and  individually,  the  "Lessee")  pursuant  to
percentage leases  ("Percentage  Leases") which provide for rent based, in part,
on the  revenues  from the hotels and which are designed to allow the Company to
participate  in the  growth of room  revenues,  and where  applicable,  food and
beverage revenue.

At December 31, 1997, the Partnership owned 89 hotel properties, with a total of
10,777 rooms in 30 states (the "Current Hotels"). The diversity of the portfolio
is such that at December 31, 1997, no individual  hotel exceeded 2% of the total
rooms, and hotels owned in any one state do not exceed 10% of the total rooms in
the portfolio. This geographical distribution and franchise diversity is further
illustrated by the following chart.
<TABLE>
<CAPTION>
                                                          % Of
                                  Franchise               Total       Date
        State/City               Affiliation      Rooms   Rooms      Opened
-------------------------------  -----------      -----   -----   --------------
<S>                               <C>            <C>      <C>     <C> 
ALABAMA:
    Birmingham (Mountain Brook)  Hampton Inn        131    1.2%   December 1987
    Birmingham (Vestavia)        Hampton Inn        123    1.1%   November 1986
    Enterprise                   Comfort Inn         78    0.7%   May 1987

</TABLE>

                                        3

<PAGE>


<TABLE>
<CAPTION>
                                                          % Of
                                  Franchise               Total       Date
        State/City               Affiliation      Rooms   Rooms      Opened
-------------------------------  -----------      -----    -----  --------------
<S>                               <C>            <C>      <C>     <C>
ARIZONA:
    Flagstaff                    AmeriSuites        117    1.1%   September 1993
    Phoenix                      Homewood Suites    124    1.1%   September 1996
    Scottsdale                   Hampton Inn        126    1.2%   January 1996
    Tucson                       Residence Inn      128    1.2%   July 1985

ARKANSAS:
    Little Rock-North            Hampton Inn        123    1.1%   June 1985
    Little Rock-South            Hampton Inn        122    1.1%   September 1985

COLORADO:
    Colorado Springs             Residence Inn       96    0.9%   October 1984
    Colorado Springs             Hampton Inn        128    1.2%   December 1985
    Denver (Aurora)              Hampton Inn        132    1.2%   June 1985

CONNECTICUT:
    Hartford                     Homewood Suites    132    1.2%   May 1990
    Meriden                      Hampton Inn        125    1.2%   May 1988
    Milford                      Hampton Inn        148    1.4%   August 1986

FLORIDA:
    Destin                       Hampton Inn        104    1.0%   June 1994
    Jacksonville                 Hampton Inn        122    1.1%   November 1986
    Jacksonville                 AmeriSuites        112    1.0%   July 1996
    Jacksonville Beach           Comfort Inn        177    1.6%   October 1973
    Miami                        AmeriSuites        126    1.2%   February 1996
    Sarasota                     Hampton Inn         97    0.9%   March 1987
    Tampa                        AmeriSuites        126    1.2%   November 1994

GEORGIA:
    Atlanta (Northlake)          Hampton Inn        130    1.2%   February 1988
    Augusta                      Homewood Suites     65    0.6%   April 1997
    Columbus                     Hampton Inn        119    1.1%   September 1986
    Savannah                     Hampton Inn        129    1.2%   August 1986

ILLINOIS:
    Chicago (Gurnee)             Hampton Inn        134    1.2%   June 1988
    Chicago (Naperville)         Hampton Inn        130    1.2%   October 1987

INDIANA:
    Indianapolis                 Hampton Inn        129    1.2%   March 1987
    Indianapolis (Keystone)      AmeriSuites        126    1.2%   March 1992

KANSAS:
    Overland Park                Hampton Inn        134    1.2%   March 1991
    Overland Park                AmeriSuites        126    1.2%   April 1994

KENTUCKY:
    Louisville                   Hampton Inn        119    1.1%   December 1986

MARYLAND:
    Baltimore (Glen Burnie)      Hampton Inn        116    1.1%   December 1989

MICHIGAN:
    Ann Arbor                    Hampton Inn        150    1.3%   November 1986
    Detroit  (Northville)        Hampton Inn        125    1.2%   August 1989
    Detroit (Madison Heights)    Hampton Inn        124    1.2%   October 1987
    Traverse City                Hampton Inn        127    1.2%   January 1987

MINNESOTA:
    Minneapolis (Eagan)          Residence Inn      120    1.1%   January 1988

MISSISSIPPI:
    Memphis (Southaven)          Hampton Inn         86    0.8%   March 1995
</TABLE>

                                        4

<PAGE>
<TABLE>
<CAPTION>

                                                          % Of
                                  Franchise               Total       Date
        State/City               Affiliation      Rooms   Rooms      Opened
-------------------------------  -----------      -----   -----   --------------
<S>                              <C>              <C>     <C>     <C>
MISSOURI:
    Kansas City                  Hampton Inn        120    1.1%   June 1987
    St. Louis                    Hampton Inn        122    1.1%   July 1987

NEBRASKA:
    Omaha                        Residence Inn       80    0.7%   January 1981

NEW JERSEY:
    Princeton                    Residence Inn      208    1.9%   May 1988
    Tinton Falls                 Residence Inn       96    0.9%   June 1988

NEW YORK:
    Albany                       Hampton Inn        154    1.4%   July 1986

NORTH CAROLINA:
    Chapel Hill                  Hampton Inn        122    1.1%   August 1986
    Fayetteville                 Hampton Inn        122    1.1%   May 1986
    Gastonia                     Hampton Inn        109    1.0%   February 1989
    Shelby                       Hampton Inn         78    0.7%   February 1989
    Wilkesboro                   Holiday Inn
                                   Express          101    0.9%   August 1985
    Winston-Salem                Holiday Inn        160    1.5%   October 1969

OHIO:
    Cincinnati (Blue Ash)        AmeriSuites        127    1.2%   June 1990
    Cincinnati (Forest Park)     AmeriSuites        126    1.2%   June 1992
    Cleveland                    Hampton Inn        123    1.1%   January 1987
    Columbus                     AmeriSuites        126    1.2%   May 1994
    Columbus (Dublin)            Hampton Inn        123    1.1%   April 1988

OKLAHOMA:
    Oklahoma City                Residence Inn      135    1.3%   December 1982

PENNSYLVANIA:
    Scranton                     Hampton Inn        129    1.2%   February 1994
    State College                Hampton Inn        120    1.1%   January 1987

SOUTH CAROLINA:
    Charleston (Airport)         Hampton Inn        125    1.2%   October 1985
    Charleston (Mt. Pleasant)    Holiday Inn        158    1.5%   May 1988
    Columbia                     Hampton Inn        121    1.1%   January 1985

TENNESSEE
    Chattanooga                  Hampton Inn        168    1.6%   April 1988
    Cleveland                    Hampton Inn         60    0.6%   March 1993
    Knoxville                    Hampton Inn        118    1.1%   February 1991
    Memphis (Germantown)         Homewood Suites     92    0.9%   May 1996
    Memphis (Poplar)             Hampton Inn        126    1.2%   November 1985
    Memphis (Sycamore View)      Hampton Inn        117    1.1%   August 1984
    Nashville (Brentwood)        Hampton Inn        114    1.1%   August 1985
    Nashville (Briley)           Hampton Inn        120    1.1%   January 1987
    Pickwick Dam                 Hampton Inn         50    0.5%   June 1994

TEXAS:
    Austin                       Hampton Inn        122    1.1%   July 1987
    College Station              Hampton Inn        135    1.3%   May 1986
    Dallad (Addison)             Hampton Inn        160    1.5%   December 1985
    Dallas (Arlington)           Hampton Inn        141    1.3%   December 1985
    Dallas (Garland)             Hampton Inn        125    1.2%   October 1986
    Dallas (Richardson)          Hampton Inn        130    1.2%   January 1987
    Ft. Worth                    Hampton Inn        125    1.2%   February 1987
    San Antonio                  Homewood Suites    123    1.1%   August 1996
</TABLE>



                                        5

<PAGE>
<TABLE>
<CAPTION>

                                                          % Of
                                  Franchise               Total       Date
        State/City               Affiliation      Rooms   Rooms      Opened
-------------------------------  -----------      -----   -----   --------------
<S>                               <C>             <C>     <C>     <C>
VERMONT:
    Burlington                   Residence Inn       96    0.9%   November 1988
    Rutland                      Comfort Inn        104    1.0%   August 1985

VIRGINIA:
    Norfolk                      Hampton Inn        119    1.1%   November 1990
    Richmond                     AmeriSuites        126    1.2%   January 1992

WEST VIRGINIA:
    Beckley                      Hampton Inn        108    1.0%   March 1992
    Bluefield                    Holiday Inn        120    1.1%   May 1980
    Morgantown                   Hampton Inn        108    1.0%   June 1991
    Oak Hill                     Holiday Inn        119    1.1%   August 1983

WISCONSIN:
    Madison                      Residence Inn       80    0.7%   January 1988
                                                 ------  -----

                                 TOTAL ROOMS     10,777  100.0%
                                                 ======  =====
</TABLE>

The Company has contracted to acquire a Residence hotel Inn in Portland,  Oregon
for $23.5 million; a Residence Inn hotel in Boise, Idaho for $7.0 million; and a
Hampton  Inn  hotel in San  Antonio,  Texas  for $12.6  million,  with  closings
expected from late March through the end of April 1998.  The 92 hotels owned and
contracted to own by the Company at March 10, 1998 are herein referred to as the
"Hotels."

BUSINESS STRATEGY

The  Company  has  developed  a  growth  strategy  which   management   believes
capitalizes  on attractive  acquisition  opportunities  and  improving  industry
conditions. The Company's primary objective is to increase funds from operations
and enhance  shareholder  value by participating in increased  revenues from the
Hotels through leases which provide for rent payments based on the revenues from
the Hotels and by acquiring equity interests in additional  hotels that meet the
Company's investment criteria.

ACQUISITION STRATEGY

The Company intends to acquire  additional  existing hotel  properties that meet
its  investment   criteria,   primarily   premier   upscale   limited   service,
extended-stay,  all-suite  and  underperforming  hotels,  that can be  renovated
and/or  converted to premium  mid-price  franchise  brands.  In particular,  the
Company has increasingly emphasized the acquisition of hotel portfolios in order
to capitalize on the Company's efficiency and experience in acquisition analysis
and transaction structuring and to enable the Company to more rapidly expand its
hotel portfolio.

The Company  considers  investment in hotel properties which meet some or all of
the following criteria:

    Particular emphasis is given to premium extended stay and all-suite
    properties in the mid-price segment, such as AmeriSuites(R), Homewood
    Suites(R), Residence Inn(R), Hampton Inn & Suites(R) and Hawthorn Suites(R)
    and premium limited service hotels, such as Hampton Inn(R) and Marriott
    Courtyard(R), with major franchisors such as Promus Hotel Corporation,
    Marriott Corporation, Prime Hospitality Corporation and U.S. Franchise
    Systems;



                                        6

<PAGE>



    Properties in attractive  locations that the Company  believes could benefit
    significantly  by  changing  franchise  affiliations  to a brand the Company
    believes will  strengthen  the acquired  hotel's  competitive  position.  In
    general,  the Company  focuses on acquisitions in markets with the following
    characteristics:

        o high barriers to entry,  such as the scarcity or high cost of land for
          additional   development,    restrictive   zoning,   stringent   local
          development laws, extended permit-approval processes, and a relatively
          low supply of competing hotels;

        o historically stable demand generators,  such as major corporate office
          or retail complexes,  airports, major universities and medical centers
          with convenient access to major thoroughfares and airports;

    Properties with relatively stable operating histories; and

    Properties  with purchase  prices  which,  coupled with the  elimination  or
    significant  reduction of debt, may allow the Company to realize a favorable
    return on its investment.

The Company has rights of first refusal to acquire from Affiliates of Phillip H.
McNeill,  Sr., the  Company's  Chairman of the Board,  two Hampton Inn hotels in
Memphis (Collierville), Tennessee, and White River Junction, Vermont. The rights
of first  refusal  require  that before a property is sold to a person or entity
other than the  Partnership,  the seller  must first  offer the  property to the
Partnership  on the same terms and  conditions  as the proposed  sale to a third
party. The option provides that the Company or Partnership may purchase any such
hotel at any time  twelve  months  after  the  opening  of the hotel for a price
determined by appraisal.  Management currently  anticipates that a property will
have  achieved  stabilized  operating  performance  and cash flows  prior to the
Partnership  considering the purchase of such property. All investment decisions
relating to transactions  between the Company or the Partnership and Mr. McNeill
or his Affiliates must be approved by a majority of the Independent Directors.

DEVELOPMENT STRATEGY

The  Company  intends  to  consider  selective  internal  development  of  hotel
properties,  principally  in the premium  extended  stay,  all-suite and limited
service segment of the market.  At December 31, 1997, the Company had a 125-room
Hampton Inn & Suites hotel under construction in Memphis (Bartlett),  Tennessee,
with a scheduled opening date in the spring of 1998.

The  Company  may also seek to obtain  certain of the  benefits  of  development
without  incurring  certain  of the  risks  of  development,  by  (a)  acquiring
newly-developed  hotels or (b) contracting  with developers to build hotels that
the  Company  will buy upon  completion.  The  Company  has  established  and is
pursuing  relationships  with developers who have established good relationships
with the franchisors of the Company's  preferred hotel brands. The Company seeks
established developers who have demonstrated, among other things, the ability to
(a) find  attractive  sites  which,  when  developed,  would meet the  Company's
acquisition criteria and (b) manage the franchise brand approval and development
processes.  The Company has agreed to purchase a 161-room  Homewood Suites hotel
in Seattle,  Washington for $22 million and a 252-room  Homewood Suites hotel in
Orlando,  Florida for $22.8  million.  Both of these hotels are currently  under
construction  with  completion  dates  expected  in June  1998 and  April  1999,
respectively.

INTERNAL GROWTH STRATEGY

The Percentage Leases are designed to allow the Company to participate in any
growth in room revenues at the Hotels and to a lesser extent, food and beverage
revenue, if any.  The Percentage Leases provide for rent equal to the greater of

                                        7

<PAGE>



(i) a fixed Base Rent or (ii) Percentage  Rent.  The Percentage  Leases  provide
that the Base  Rent and  the  thresholds for the payment of Percentage Rent will
be adjusted annually (subject to an annual cap  of  7%) based on  changes in the
United States Consumer Price Index ("CPI").

EMPLOYEES

At March 1, 1998, the Company had 16 employees.

COMPETITION

The hotel  industry  is highly  competitive.  Each of the Hotels is located in a
developed area that includes other hotel  properties.  The number of competitive
hotel  properties in a particular  area could have a material  adverse effect on
occupancy,  Average Daily Rate ("ADR") and Revenue Per Available Room ("REVPAR")
of the  Hotels  or at hotel  properties  acquired  in the  future.  The  Company
believes that brand recognition, location, the quality of the hotel and services
provided,  and  price  are  the  principal  competitive  factors  affecting  the
Company's hotels.

The Company may be competing for  investment  opportunities  with entities which
have substantially greater financial resources than the Company.  These entities
generally may be able to accept more risk than the Company prudently can manage.
Competition generally may reduce the number of suitable investment opportunities
available to the Company and increase the  bargaining  power of property  owners
seeking to sell.  Further,  the Company  believes that competition from entities
organized for purposes  substantially  similar to the Company's  objectives will
increase significantly.

FRANCHISE AGREEMENTS

The  Lessees  hold or will hold the  franchise  license  for each of the Hotels.
Fifty-eight of the ninety- two Hotels  currently  owned and contracted to own by
the  Partnership  are  licensed  as  Hampton  Inn  hotels.  Hampton  Inn(R) is a
registered  trademark of Promus Hotels,  Inc.  ("Promus").  Promus  approved the
transfer of the franchise  license to Crossroads when the  Partnership  acquired
each  Hotel  that is  operated  as a Hampton  Inn  hotel.  Ten of the Hotels are
licensed as  AmeriSuites  hotels.  AmeriSuites(R)  is a registered  trademark of
Prime  Hospitality  Corporation.  Eleven of the Hotels are licensed as Residence
Inn hotels.  Residence Inn(R) is a registered  trademark of Marriott Corporation
("Marriott").  Marriott  approved  the  transfer  of the  franchise  license  to
Crossroads  when the  Partnership  acquired  each  Hotel that is  operated  as a
Residence Inn hotel.  Five of the Hotels are licensed as Homewood Suites hotels.
Homewood Suites(R) is a registered trademark of Promus Hotel Corporation. Promus
approved  the  transfer  of  the  franchise   license  to  Crossroads  when  the
Partnership  acquired  each Hotel that is operated as a Homewood  Suites  hotel.
Five of the Hotels are  licensed  as Holiday  Inn hotels or Holiday  Inn Express
hotels.  Holiday Inn(R) and Holiday Inn Express(R) are registered  trademarks of
Holiday Inns, Inc.,  ("Holiday  Inn").  Holiday Inn approved the transfer of the
franchise license to Crossroads when the Partnership acquired each Hotel that is
operated  as a Holiday  Inn or  Holiday  Inn  Express.  Three of the  Hotels are
licensed as Comfort Inn hotels.  Comfort  Inn(R) is a  registered  trademark  of
Choice Hotels International,  Inc., ("Choice").  Choice approved the transfer of
the franchise  license to Crossroads  when the  Partnership  acquired each Hotel
that is operated as a Comfort Inn. The Company currently intends to maintain the
existing franchise affiliations of all the Hotels.

The Company anticipates that most of the additional hotel properties in which it
invests will be operated under franchise licenses. The Company believes that the
public's  perception  of quality  associated  with a franchisor  is an important
feature in the operation of a hotel.  Franchisors  provide a variety of benefits
for  franchisees  which  include  national  advertising,   publicity  and  other
marketing programs designed to increase brand awareness,  training of personnel,
continuous review of quality

                                        8

<PAGE>



standards and centralized reservation systems.

The Hampton Inn, Homewood Suites,  Comfort Inn,  Residence Inn,  AmeriSuites and
Holiday  Inn  franchise   licenses   generally  specify  (and  in  the  case  of
AmeriSuites,  will  specify)  certain  management,  operational,  recordkeeping,
accounting,  reporting and marketing  standards  and  procedures  with which the
applicable Lessee must comply.  Such franchise  licenses obligate the applicable
Lessee to comply with the franchisors'  standards and requirements  with respect
to training of operation personnel, safety, maintaining specified insurance, the
types of services and  products  ancillary  to guest room  services  that may be
provided by the applicable Lessee, display of signage, and the type, quality and
age of furniture,  fixtures and equipment  included in guest rooms,  lobbies and
other common areas.

Each new franchise  license  generally gives the Lessee the right to operate the
particular  Hotel under a franchise  license for periods ranging up to 20 years.
The franchise agreements provide for termination at the franchisor's option upon
the  occurrence  of  certain  events,  including  the  Lessee's  failure  to pay
royalties and fees or perform its other covenants  under the license  agreement,
bankruptcy,  abandonment of the franchise, commission of a felony, assignment of
the license  without the  consent of the  franchisor,  or failure to comply with
applicable  law in the  operation  of the  relevant  Hotel.  The Lessee  will be
entitled to terminate the  franchise  license only by giving at least 12 months'
notice  and  paying  a  specific  amount  of  liquidated  damages.  The  license
agreements will not renew  automatically  upon expiration.  The Partnership made
franchise transfer payments to franchisors aggregating $2.1 million in 1997. The
Partnership  is  also   committed  to   franchisors  to  fund  certain   capital
improvements  to  hotel   properties  when  acquired,   which  are  funded  from
borrowings,  working capital, or the room renovation  accounts.  The Partnership
made capital improvements of approximately $18.1 million to its hotel properties
in 1997,  including  approximately  $12.3  million in  renovations  required  by
franchisors.  In 1998,  the  Partnership  expects  to fund  approximately  $25.3
million  of  capital  improvements,  approximately  $8.4  million  of  which  is
renovation  required  by  franchisors,   for  the  hotel  properties  owned  and
contracted  to own at December 31, 1997.  The Lessee is  responsible  for making
royalty payments under the franchise  agreements to the  franchisors.  Under the
Hampton Inn franchise agreements,  the Lessee pays a franchise fee of 8% of room
revenue  (plus  additional  fees).  One  half of such  fee is  designated  for a
marketing and reservation fund for the benefit of Hampton Inn hotels systemwide.
Under the Homewood Suites franchise agreements,  the Lessee pays a franchise fee
of  8% of  room  revenue,  of  which  4%  is  designated  for  a  marketing  and
reservations fund. Under the Comfort Inn franchise agreements, the Lessee pays a
franchise fee of 8.05% of room revenue,  of which 3.05 % (plus  additional fees)
is  designated  for a marketing  and  reservations  fund.  Under the Holiday Inn
franchise  agreements,  the Lessee pays a franchise fee of 7.3% of room revenue,
of  which  2.3%  (plus  additional  fees)  is  designated  for a  marketing  and
reservations fund. Under the Residence Inn franchise agreements, the Lessee pays
a franchise  fee of 6.5%-7.5% of room  revenue,  of which 2.5% (plus  additional
fees) is designated for a marketing and  reservations  fund.  Under the proposed
AmeriSuites franchise agreements, the Lessee will pay a franchise fee based upon
a percentage of room revenue.  Promus has agreed that, in the event of a default
by the  Lessees  under a franchise  agreement  for the Hampton Inn hotels or the
Homewood Suites hotels, or the  Partnership's  termination of a Percentage Lease
for a  Hampton  Inn  hotel or a  Homewood  Suites  hotel,  upon  request  by the
Partnership  and the curing of any event of default,  including  payment of past
due franchise fees, Promus will allow that hotel to be operated by a designee of
the  Partnership  acceptable to Promus for a reasonable  period of time,  not to
exceed twelve (12) months, to allow the designee of the Partnership to apply for
a new franchise license. The Partnership will be obligated to pay Promus' actual
costs of investigating the Partnership's designee. In addition,  Promus requires
that normal change of ownership  commitment fees be paid when a designee applies
for a new franchise license.



                                        9

<PAGE>



THE PERCENTAGE LEASES

Each hotel owned by the Partnership is separately  leased to the Lessees under a
Percentage Lease.  Effective November 15, 1996, each of the existing  Percentage
Leases  assigned to Crossroads was amended and restated in a Consolidated  Lease
Amendment  between the  Partnership  and  Crossroads  (the  "Consolidated  Lease
Amendment").  The principal  amendments were as follows: (i) the initial term of
each Percentage  Lease was increased to 15 years from the date of closing,  with
rent for the final five years of the initial term to be re-negotiated  after ten
years,  and, if the parties  cannot agree to new rent terms,  the new rent terms
will be determined by arbitration; (ii) the non-compete provision precluding the
Lessee  or  its  affiliates  from  owning,  leasing,   operating,   managing  or
franchising any hotel or motel within a 20-mile radius of any hotel in which the
Partnership  or an affiliate of the  Partnership  has an interest,  was deleted;
(iii)  events of  default  shall  include,  among  others,  (a) the  failure  of
Crossroads  to make Base Rent or  Percentage  Rent payments when due and payable
and continuing for a 10-day period after receipt of notice from the Partnership,
as compared to the previous 90-day period for non-payment of Percentage Rent and
(b)  occurrence of a breach of any  representation  or warranty  under the Lease
Guaranties;  (iv) Crossroads shall be required,  not later than 30 days prior to
the  commencement  or each lease year, to prepare and submit to the  Partnership
for its approval a capital  budget;  (v)  prohibitions on payment of fees to any
affiliate of  Crossroads  was  deleted;  (vi) the  Partnership  has the right to
approve any manager of its hotels that is not an affiliate of Crossroads;  (vii)
Crossroads  will have an extended  period (up to 30 days) to cure defaults under
the franchise  agreements;  (viii) certain  amendments were made in the casualty
restoration and condemnation provisions;  (ix) the respective obligations of the
parties relating to franchise  agreements,  capital expenditures and repairs and
maintenance  were amended;  (x) the  Partnership  has the right to terminate the
lease (a) upon a sale of the property,  provided that the Partnership either (1)
offers  Crossroads  a  substitute  lease or  leases  creating  for the  Lessee a
leasehold  estate  having  substantially  the  same  fair  market  value  as the
Percentage  Lease  for  the  property  being  sold  or  (2)  pays  Crossroads  a
termination  payment equal to the net present value of the property's  cash flow
to Crossroads,  and (b) in the event that the Company terminates its REIT status
and the Partnership  makes the applicable lease  termination  payment;  and (xi)
Crossroads  has a  right  of  first  offer  to  acquire  hotels  subject  to the
Percentage  Leases.  Future leases between the  Partnership and the Lessees will
contain provisions substantially similar to the Consolidated Lease Amendment.

All  Percentage  Leases with the Lessees have a  non-cancelable  initial term of
ten-fifteen years, subject to earlier termination upon the occurrence of certain
contingencies  described  in the  Percentage  Leases.  During  the  term of each
Percentage  Lease, the Lessees are obligated to pay (i) the greater of Base Rent
or Percentage Rent and (ii) certain other amounts, including interest accrued on
any late  payments  or  charges.  Base Rent  accrues  and is required to be paid
monthly.  Percentage  Rent is based on  percentages  of room  revenues  and to a
lesser extent, food and beverage revenues,  if any, for each of the Hotels. Both
the Base Rent and the  threshold  room revenue  amount in each  Percentage  Rent
formula will be adjusted for changes in the CPI. The adjustment is calculated at
the beginning of each lease year after a holding  period of a full calendar year
based  upon the  average  change  in the CPI  during  the prior 24  months.  The
adjustment  in any lease year may not  exceed 7% of the Base Rent and  threshold
room  revenue  amounts for the prior  fiscal  year.  Percentage  Rent is payable
quarterly,  on or before the 30th day  following the end of each of the calendar
quarters in each fiscal year.



                                       10

<PAGE>



The following  table  summarizes  the  percentages of room revenues in excess of
certain  levels  payable as Percentage  Rent under the  Percentage  Leases as of
January 1, 1998.
<TABLE>
<CAPTION>
                                   Range of Percentages of Room Revenue
                                   ------------------------------------
                                   First Tier                 Top Tier
                                   ----------                 --------
<S>                                 <C>                       <C>
Full Service (1)                   28% to 38%                 65% to 77%

Extended Stay                      27% to 37.2%               65% to 75%

All-Suite                          35.5% to 38%               71.3% to 76.1%

Limited Service                    22% to 37%                 62% to 74%
</TABLE>

(1) Percentage Rent formula also includes 15%-30% of beverage revenue and 5%-15%
of food revenue.

Other  than  real  estate  and  personal   property  taxes  and  maintenance  of
underground  utilities and  structural  elements,  which are  obligations of the
Partnership,  the  Percentage  Leases  require  the  Lessees  to pay  insurance,
utilities  and all other costs and  expenses  incurred in the  operation  of the
Hotels. The Percentage Leases also provide for rent reductions and abatements in
the event of damage or destruction or a partial taking of any Hotel.

Maintenance and  Modifications.  Under the Percentage Leases, the Partnership is
required to maintain the  underground  utilities and the structural  elements of
the improvements,  including exterior and interior load bearing walls (excluding
plate glass) and the roof of each Hotel.  In  addition,  the  Percentage  Leases
obligate the  Partnership  to fund certain  capital  expenditures  at the Hotels
pursuant to the capital budgets approved by the Partnership,  when and as deemed
necessary  by the Lessees,  up to an amount equal to 4% of annual room  revenue,
net of amounts actually expended for capital  expenditures for each Hotel during
any fiscal year. The  Partnership's  obligation  will be carried  forward to the
extent  that the Lessees  have not  expended  such  amount,  and any  unexpended
amounts  will remain the property of the  Partnership  upon  termination  of the
Percentage Leases.  Otherwise,  the Lessees are required,  at their expense,  to
maintain the Hotels in good order and repair, except for ordinary wear and tear,
and  to  make  non-structural,   foreseen  and  unforeseen,   and  ordinary  and
extraordinary, repairs which may be necessary and appropriate to keep the Hotels
in good order and repair.

The Lessees,  at their  expense and with the  Partnership's  approval,  may make
non-capital and capital additions,  modifications or improvements to the Hotels,
provided that such action does not significantly alter the character or purposes
of the Hotels or significantly detract from the value or operating  efficiencies
of the Hotels.  All such  alterations,  replacements and  improvements  shall be
subject to all the terms and provisions of the Percentage Leases and will become
the property of the Partnership upon termination of the Percentage  Leases.  The
Partnership  owns  substantially  all personal  property  (other than inventory,
linens and other  nondepreciable  personal property) not affixed to, or deemed a
part of, the real  estate or  improvements  thereon,  except to the extent  that
ownership  of such  personal  property  would cause the rents under a Percentage
Lease  not to  qualify  as "rents  from  real  property"  for REIT  income  test
purposes.

Insurance and Property  Taxes.  The  Partnership is responsible  for paying real
estate and  personal  property  taxes on the Hotels  (except to the extent  that
personal  property  associated  with the  Hotels  is owned by the  Lessee).  The
Lessees are required to keep in force and pay or reimburse the  Partnership  for
all  insurance  on the  Hotels,  with  extended  coverage,  including  casualty,
comprehensive general public liability, workers' compensation, earthquake, flood
and other insurance

                                       11

<PAGE>



appropriate  and customary for properties  similar to the Hotels and is required
to name the Partnership as an additional named insured.

Indemnification.  Under each of the Percentage Leases, the Lessees are obligated
to  indemnify,  and are obligated to hold  harmless,  the  Partnership  from and
against liabilities,  costs and expenses (including  reasonable  attorneys' fees
and expenses)  incurred by, imposed upon or asserted  against the Partnership on
account of, among other things, (i) any accident or injury to person or property
on or about the  Hotels,  (ii) any misuse by the Lessees or any of its agents of
the leased property, (iii) any environmental liability resulting from any action
or  negligence  of the  Lessees,  (iv) taxes and  assessments  in respect of the
Hotels (other than real estate and personal  property  taxes and income taxes of
the  Partnership  on  income  attributable  to the  Hotels),  (v)  the  sale  or
consumption  of alcoholic  beverages on or in the real property or  improvements
thereon,  or (vi) any  breach of the  Percentage  Leases by  Lessees;  provided,
however,  that such indemnification will not be construed to require the Lessees
to indemnify the Partnership  against the  Partnership's  own grossly  negligent
acts or omissions or willful misconduct or third-party  contractual  liabilities
arising from termination of the Percentage  Leases due to an event of default by
the Partnership thereunder.

Assignment  and  Subleasing.  The Lessees are not permitted to sublet all or any
part of the Hotels or assign its interest  under any of the  Percentage  Leases,
other than to an Affiliate of the Lessees,  without the prior written consent of
the  Partnership.  No assignment or subletting will release the Lessees from any
of their obligations under the Percentage Leases.

Damage to Hotels.  In the event of damage to or destruction of any hotel covered
by  insurance  which  renders  the Hotel  unsuitable  for the  Lessee's  use and
occupancy,  the Lessee, at its option, will be obligated to (i) repair, rebuild,
or restore  the Hotel or (ii) offer to acquire  the Hotel on the terms set forth
in the  applicable  Percentage  Lease.  If a  Lessee  rebuilds  the  Hotel,  the
Partnership  is obligated to disburse to the Lessee,  from time to time and upon
satisfaction of certain conditions,  any insurance proceeds actually received by
the Partnership as a result of such damage or destruction,  and any excess costs
of repair or restoration  will be paid by the Lessee.  If the Lessee decides not
to  rebuild  and the  Partnership  exercises  its right to reject  the  Lessee's
mandatory  offer to purchase the Hotel on the terms set forth in the  Percentage
Lease,  the Percentage  Lease will terminate and the insurance  proceeds will be
retained by the  Partnership.  If the Partnership  accepts the Lessee's offer to
purchase the Hotel,  the Percentage  Lease will terminate and the Lessee will be
entitled to the insurance  proceeds.  In the event that damage to or destruction
of a Hotel  which is covered  by  insurance  does not  render  the Hotel  wholly
unsuitable  for the Lessee's use and  occupancy,  the Lessee  generally  will be
obligated  to  repair  or  restore  the  Hotel.  In the  event of  damage  to or
destruction  of any Hotel which is not covered by insurance,  the Lessee will be
obligated to either repair,  rebuild,  or restore the Hotel or offer to purchase
the Hotel on the terms and  conditions set forth in the  Percentage  Lease.  The
Percentage  Lease  shall  remain in full  force and  effect  during  the  period
required for repair or restoration of any damaged or destroyed  Hotel,  with the
Lessee to  receive a credit  against  rental  payments  and other  charges in an
amount equal to any  loss-of-income  insurance proceeds actually received by the
Partnership.

Condemnation  of Hotel.  In the event of a total  condemnation  of a Hotel,  the
relevant  Percentage  Lease will  terminate with respect to such Hotel as of the
date of taking,  and the  Partnership  and the Lessee  will be entitled to their
shares  of the  condemnation  award in  accordance  with the  provisions  of the
Percentage  Lease.  In the event of a partial  taking  which does not render the
Hotel  unsuitable  for the Lessee's  use,  the Lessee shall  restore the untaken
portion of the Hotel to a complete  architectural unit and the Partnership shall
contribute to the cost of such restoration  that part of the condemnation  award
specified  for  restoration,  provided  that  if  the  condemnation  awards  are
inadequate  to restore  the  affected  Hotel to a complete  architectural  unit,
either the  Partnership  or the Lessee  shall  have the right to  terminate  the
applicable Percentage Lease.


                                       12

<PAGE>



Events of Default.   Events  of  Default  under the  existing  Percentage Leases
include the following:

         (i) the occurrence of an Event of Default under any other lease between
the  Partnership  and a  Lessee  or any  Affiliate  of a Lessee  (including  the
Consolidated Lease Amendment);

         (ii) the failure by a Lessee to pay Base Rent,  Percentage  Rent or any
additional charges within 10 days after written notice from the Partnership that
such has become due and payable;

         (iii) the failure by a Lessee to observe or perform any other term of a
Percentage  Lease and the  continuation  of such failure for a period of 30 days
after receipt by the Lessee of notice from the Partnership thereof,  unless such
failure cannot be cured within such period and the Lessee commences  appropriate
action  to cure such  failure  within  said 30 days and  thereafter  acts,  with
diligence, to correct such failure within such time as is necessary;

         (iv) if a Lessee or a guarantor of the  Percentage  Leases shall file a
petition  in  bankruptcy  or  reorganization  pursuant  to any  federal or state
bankruptcy  law or any similar  federal or state law, or shall be  adjudicated a
bankrupt or shall make an assignment for the benefit of creditors or shall admit
in writing its inability to pay its debts  generally as they become due, or if a
petition or answer  proposing the  adjudication  of the Lessee or a guarantor of
the Percentage Leases as bankrupt or its reorganization  pursuant to any federal
or state  bankruptcy  law or any similar  federal or state law shall be filed in
any court and the  Lessee  or a  guarantor  of the  Percentage  Leases  shall be
adjudicated a bankrupt and such  adjudication  shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if a
receiver of the Lessee or a guarantor of the  Percentage  Leases or of the whole
or  substantially  all of the assets of the  Lessee  shall be  appointed  in any
proceeding  brought by the Lessee or a guarantor of the Percentage  Leases or if
any such  receiver,  trustee or liquidator  shall be appointed in any proceeding
brought  against the Lessee or any guarantor of the Percentage  Leases and shall
not be vacated or set aside or stayed within 60 days after such appointment;

         (v) if the Lessee  voluntarily  discontinues  operations of a Hotel for
more than 30 days, except as a result of damage, destruction, or condemnation;

         (vi) if the franchise  agreement  with respect to a Hotel is terminated
as a result of any action or  failure to act by the Lessee or its agents  (other
than a failure to  complete a capital  improvement  required  by the  franchisor
resulting from the Partnership's failure to fund such capital improvements); or

         (vii) the occurrence of an event of default under the Lease  Guaranties
pursuant  to  which   Interstate  and  a  wholly-owned   subsidiary   guarantees
Crossroads' obligation under the Percentage Leases.

If an Event of Default  occurs and  continues  beyond any curative  period,  the
Partnership  will have the option of terminating the Percentage  Lease or any or
all other  Percentage  Leases  between  the  Partnership  and the Lessee and the
Consolidated  Lease Amendment and the Percentage  Leases shall terminate and the
Lessee will be required to surrender possession of the affected Hotels.

Right of First  Offer.  In the event  that the  Partnership  desires to sell its
interest  in a Hotel,  the  Partnership  shall  first offer to Lessee by written
notice  the  opportunity  to  acquire  the  Hotel  at the  price  at  which  the
Partnership  intends to offer the Hotel (the "Offer  Price").  In the event that
the Lessee  elects  within 15 days after  receipt of such  notice to acquire the
Hotel at the Offer Price, the Partnership will be obligated to sell the Hotel to
the Lessee or its nominee at the Offer Price, and upon such sale, the applicable
Percentage  Lease shall  terminate  with respect to the Hotel.  Such  provisions
shall not apply to any sale,  transfer or conveyance by the  Partnership  of any
interest in

                                       13

<PAGE>



the Hotels to any affiliate of the Partnership.

Termination of Percentage  Leases on Disposition of the Hotels. In the event the
Partnership  enters into an agreement to sell or otherwise  transfer a Hotel and
the Lessee does not elect to acquire the Hotel in  accordance  with the right of
first offer  described  above,  the  Partnership  shall be permitted to sell the
Hotel to a third  party at a price  equal to or  greater  than 95% of the  Offer
Price.  As  compensation  for the early  termination  of the Lessee's  leasehold
estate,  the Partnership  will have the right to terminate the Percentage  Lease
with  respect to such Hotel  upon  either (i) paying the Lessee the net  present
value of the Lessee's leasehold interest in the remaining term of the Percentage
Lease to be  terminated  or (ii)  offering  to lease to the  Lessee  one or more
substitute hotels on terms that would create a leasehold interest in such hotels
with a fair market  value  equal to or  exceeding  the fair market  value of the
Lessee's  remaining   leasehold  interest  under  the  Percentage  Lease  to  be
terminated.

Termination of Percentage Leases on Company's Termination of REIT Status. In the
event that the Company  terminates  its REIT status or the Code  provisions  are
amended so that REITs are permitted to operate hotels, the Partnership may elect
to terminate the Percentage  Leases.  In such event,  the  Partnership  shall be
obligated to pay to the Lessees the termination  payment calculated as set forth
in "The Percentage Leases-Termination of Percentage Leases on Disposition of the
Hotels."

Other  Lease  Covenants.  The  Lessees  have  agreed that they will not make any
payments to any Affiliate of the Lessee in  connection  with the Hotels as gross
operating  expenses  unless  expressly set forth in the  operating  budget or an
approved  capital  budget or otherwise  agreed to by the  Partnership.  A Lessee
shall be permitted to contract  with its  Affiliates  for  management  and other
services and pay fees for such  services,  provided that such contracts and fees
(i) are disclosed in writing to the  Partnership  and (ii) shall not be included
in gross  operating  expenses.  A Lessee's  obligation to pay such fees shall be
subordinated to its obligation to pay Base Rent,  Percentage Rent and additional
charges to the Partnership pursuant to the Percentage Leases.

Approval of Management  Agreement.  The Partnership  shall have the right in its
sole and  absolute  discretion  to approve in advance  any  manager or  proposed
manager  of a  Hotel  which  is not an  Affiliate  of  either  Lessee  or is not
controlled  by  Interstate,  Prime or their  senior  management,  as well as any
agreement  relating to the  management or operation of the Hotel (a  "Management
Agreement")  by a manager  which is not an Affiliate of either  Lessee,  and the
Lessee will  provide the  Partnership  with an executed  copy of any  Management
Agreement so approved by the Partnership.  Any Management  Agreement (whether or
not with a manager which is an Affiliate of either Lessee) must provide that (i)
upon  termination  of the  applicable  Percentage  Lease or  termination  of the
Partnership's  or the Lessee's  right to possession of the Hotel for any reason,
the Management  Agreement may be terminated by the Partnership without liability
for any  payment  due or to  become  due to the  manager  thereunder;  (ii)  any
management fees shall be  subordinated  to payments of rent to the  Partnership;
and (iii) in the event that the Lessee is in default,  the manager shall, at the
election of the  Partnership  and  provided  the manager  continues  to be paid,
continue to perform under the terms of the Management Agreement for a period not
to exceed 90 days. No fees or other amounts payable by the Lessee to any manager
shall  excuse  the Lessee  from its  obligations  to pay rent and other  amounts
payable by the Lessee to the Partnership under the applicable Percentage Lease.

Breach by Partnership.  If the Partnership  fails to cure a breach by it under a
Percentage   Lease,  the  Lessee  may  purchase  the  relevant  Hotel  from  the
Partnership  for a purchase  price equal to that Hotel's then fair market value.
Upon notice from the Lessee that the  Partnership  has breached  the Lease,  the
Partnership has 30 days to cure the breach or proceed to cure the breach,  which
period may be extended  in the event of certain  specified,  unavoidable  delays
with such extension not to

                                       14

<PAGE>



exceed 90 days after the notice of breach from the Lessee.

Inventory.  All  inventory  required in the operation of the Hotels is purchased
and owned by the Lessee at its  expense.  The Company has the option to purchase
all  inventory  related  to  a  particular  hotel  at  fair  market  value  upon
termination of the related Percentage Lease.

SEASONALITY

The Hotels'  operations  historically  have been  seasonal in nature,  generally
reflecting  higher  occupancy rates during the second and third  quarters.  This
seasonality  can be expected to cause  fluctuations  in the Company's  quarterly
lease revenue to the extent that it receives Percentage Rent.

TAX STATUS

The  Company  intends  to  operate  so as to be taxed as a REIT  under  Sections
856-860 of the Internal  Revenue Code of 1986, as amended (the "Code").  As long
as the Company  qualifies for taxation as a REIT, with certain  exceptions,  the
Company will not be taxed at the corporate  level on its taxable  income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and  operational  requirements,  including  a  requirement  that  it  distribute
annually at least 95% of its taxable  income.  Failure to qualify as a REIT will
render the Company subject to tax (including any applicable  minimum tax) on its
taxable income at regular  corporate rates and distributions to the shareholders
in any such year will not be  deductible  by the  Company.  Even if the  Company
qualifies  for taxation as a REIT,  the Company may be subject to certain  state
and local taxes on its income and  property.  In  connection  with the Company's
election to be taxed as a REIT, the Company's  Charter  imposes  restrictions on
the  transfer of shares of Common  Stock.  The Company has adopted the  calendar
year as its taxable year.

In order for the Company to maintain its  qualification as a REIT, not more than
50% in value of its outstanding stock may be owned,  directly or indirectly,  by
five or fewer individuals (as defined in the Code to include certain  entities).
Furthermore,  if any  shareholder or group of  shareholders  of the Lessee owns,
actually or constructively,  10% or more of the stock of the Company, the Lessee
could  become a related  party  tenant of the  Partnership,  which  likely would
result in loss of REIT status for the Company. For the purpose of preserving the
Company's REIT qualification, the Company's Charter prohibits direct or indirect
ownership  of more  than  9.9% of the  outstanding  shares  of any  class of the
Company's stock by any person or group (the "Ownership Limitation").  Generally,
the capital stock owned by affiliated  owners will be aggregated for purposes of
the Ownership Limitation.

Any transfer of shares that would prevent the Company from continuing to qualify
as a REIT under the Code will be void ab initio, and the intended  transferee of
such  shares  will be  deemed  never to have  had an  interest  in such  shares.
Further, if, in the opinion of the Board of Directors,  (i) a transfer of shares
would result in any shareholder or group of shareholders  acting together owning
in excess of the Ownership  Limitation or (ii) a proposed transfer of shares may
jeopardize the  qualification of the Company as a REIT under the Code, the Board
of  Directors  may,  in its sole  discretion,  refuse to allow the  shares to be
transferred  to the  proposed  transferee.  Finally,  the  Company  may,  in the
discretion  of the Board of  Directors,  redeem  any stock held of record by any
shareholder in excess of the Ownership Limitation.

ENVIRONMENTAL MATTERS

Under  various  federal,  state  and  local  laws and  regulations,  an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain  hazardous or toxic substances on such property.  Such laws often impose
such liability  without regard to whether the owner knew of, or was  responsible
for, the presence of hazardous or toxic substances. Furthermore, a person that

                                       15

<PAGE>



arranges  for the disposal or  transports  for disposal or treatment a hazardous
substance at a property  owned by another may be liable for the costs of removal
or remediation  of hazardous  substances  released into the  environment at that
property.  The  costs  of  remediation  or  removal  of such  substances  may be
substantial  and the  presence  of such  substances,  or the failure to promptly
remediate such substances, may adversely affect the owner's ability to sell such
real  estate  or to use such  real  estate  as  collateral  for  borrowings.  In
connection  with the  ownership and  operation of the Hotels,  the Company,  the
Partnership or the Lessee, as the case may be, may be potentially liable for any
such costs.

In  connection  with  the  Partnership's  acquisition  of the  Hotels,  Phase  I
environmental site assessments  ("ESAs") were obtained on all of the Hotels from
various independent  environmental  engineers. The Phase I ESAs were intended to
identify  potential  environmental  contamination  for which the  Hotels  may be
responsible   and  the  potential  for   environmental   regulatory   compliance
liabilities.  The Phase I ESAs included historical review of the Hotels, reviews
of  certain  public  records,   preliminary  investigations  of  the  sites  and
surrounding  properties,  screening  for the presence of  hazardous  substances,
toxic substances and underground storage tanks, and the preparation and issuance
of a written report. The Phase I ESAs did not include invasive procedures,  such
as soil  sampling or ground water  analysis to detect  contaminants  from former
operations on the Current  Hotels or migrating from neighbors or caused by third
parties.

The Phase I ESAs have not revealed any environmental  liability that the Company
believes would have a material adverse effect on the Company's business, assets,
results  of  operations  or  liquidity,  nor is the  Company  aware  of any such
liability  or that there are  material  environmental  liabilities  of which the
Company is unaware.  Nevertheless,  no  assurances  can be given that (i) future
laws,  ordinances  or  regulations  will not impose any  material  environmental
liability or (ii) the current environmental  condition of the Hotels will not be
affected by the  condition of the  properties in the vicinity of Hotels (such as
the presence of leaking underground storage tanks) or by third parties unrelated
to the Partnership or the Company.

The Company believes that its Hotels are in compliance in all material  respects
with all federal, state and local statutes, ordinances and regulations regarding
hazardous  or toxic  substances  and other  environmental  matters.  Neither the
Company nor, to the  knowledge of the Company,  any of the most recent owners of
the  Hotels  prior  to the  Partnership's  acquisition  of the  Hotels  has been
notified by any governmental authority of any material noncompliance,  liability
or claim relating to hazardous or toxic substances or other environmental matter
in connection with any of its present or former properties.

DEPRECIATION

The Partnership  has acquired 77 of the Current Hotels  exclusively for cash and
12 of the Current  Hotels for a combination of cash and the issuance of units of
limited partnership interest in the Partnership ("Units"), including four hotels
acquired from Phillip H. McNeill,  Sr., or certain of his affiliates at the time
of the Company's  initial  public  offering in March 1994 (the "McNeill  Initial
Hotels").  To that extent,  the  Partnership's  initial basis in such hotels for
federal income tax purposes generally is equal to the purchase price paid by the
Partnership.  The Partnership depreciates such hotel property for federal income
tax purposes  under  either the modified  accelerated  cost  recovery  system of
depreciation  ("MACRS") or the alternative  depreciation  system of depreciation
("ADS"). The Partnership uses MACRS for furnishings and equipment.  Under MACRS,
the  Partnership  depreciates  such  furnishings  and equipment over a five-year
recovery  period  using  a  200%  declining   balance  method  and  a  half-year
convention. If, however, the Partnership places more than 40% of its furnishings
and  equipment  in service  during the last three  months of a taxable  year,  a
mid-quarter  depreciation  convention  must be  used  for  the  furnishings  and
equipment  placed in service  during  that year.  The  Partnership  uses ADS for
buildings and

                                       16

<PAGE>



improvements.   Under  ADS,  the  Partnership  generally  will  depreciate  such
buildings and improvements  over a 40-year recovery period using a straight line
method and a mid-month convention.

To the extent  that the  Partnership  acquired  the  McNeill  Initial  Hotels in
exchange for Partnership Units, the Partnership's  initial basis in each McNeill
Initial  Hotel  for  federal  income  tax  purposes  should  be the  same as the
transferor's  basis in that McNeill  Initial  Hotel on the date of  acquisition.
Although the law is not entirely clear,  the Partnership  depreciates such hotel
property for federal  income tax purposes over the same  remaining  useful lives
and  under the same  methods  used by the  transferors.  The  Partnership's  tax
depreciation  deductions  are allocated  among the partners in  accordance  with
their  respective  interest  in the  Partnership  (except to the extent that the
Partnership  is  required  under  Code  Section  704  (c)  to use a  method  for
allocating depreciation deductions attributable to the McNeill Initial Hotels or
other   contributed   properties  that  results  in  the  Company   receiving  a
disproportionately  large share of such  deductions).  Because the Partnership's
initial basis in the McNeill  Initial  Hotels is less than the fair market value
of  those  hotels  on  the  date  of  acquisition,  the  Company's  depreciation
deductions  may be less than they otherwise  would have been if the  Partnership
had purchased the McNeill Initial Hotels entirely for cash.

EXECUTIVE OFFICERS OF THE COMPANY

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

      NAME                       POSITION
      ----                       --------
      <S>                         <C>

      Phillip H. McNeill, Sr.    Chairman of the Board, Chief Executive Officer
                                   and Director

      David L. Levine            President and Chief Operating Officer

      Howard A. Silver           Executive Vice President of Finance, Secretary,
                                   Treasurer and Chief Financial Officer

      Phillip H. McNeill, Jr.    Executive Vice President of Development

      J. Ronald Cooper           Vice President, Assistant Secretary, Assistant
                                   Treasurer and Controller
</TABLE>

Phillip H. McNeill, Sr. (age 59) is Chairman and Chief Executive Officer of the
Company  and has been Chairman of McNeill Hospitality Corporation since 1984.
From 1963 to 1977, he served in various capacities, including President and
Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage
banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President
and Director of the Memphis Mortgage Bankers Association and the Tennessee State
Mortgage Bankers Association.  He has served as a member of the Board of
Trustees of the University of Memphis  Foundation and as a Director of First
Commercial Bank of Memphis.  He is currently serving as a member of the Board of
Directors of National Commerce Bancorporation.  Mr. McNeill holds both a B.S.
and a J.D. degree from the University of Memphis and is a graduate of the
Northwestern School of Mortgage Banking.

David L. Levine (age 50) is President and Chief Operating Officer of the Company
and joined the Company in June 1994.  Mr. Levine entered the hospitality
industry in 1969 with the E.F. McDonald Incentive Travel Company, an incentive
and corporate travel arrangement company.   In 1974 Mr. Levine was made director
of the Corporate Travel Division of the E.F. McDonald Incentive Travel Company.

                                       17

<PAGE>



In 1975 Mr. Levine joined Intercontinental Hotels Corporation to direct their
Midwest Travel Industry Sales Department.  From 1977 to 1981, Mr. Levine held
various positions with Holiday Inns, Inc. including Director of Worldwide Sales-
USA and Canada, and National Sales Director and in  1982 became the Director of
Corporate and Franchise Hotel Operations for its Chicago district.  From 1984 to
1985 Mr. Levine was Vice President of Operations of a regional Holiday Inn hotel
operator.  In 1985, Mr. Levine formed North American Hospitality, Inc. and
served as its President before joining the Company.  North American Hospitality,
Inc. operates Hampton Inn hotels and other properties for financial institutions
and private developers.

Howard A. Silver (age 43) is Executive  Vice  President  of Finance,  Secretary,
Treasurer  and Chief  Financial  Officer of the Company and has been a certified
public  accountant  since 1980. Mr. Silver joined the Company in May 1994.  From
1992 until joining the Company,  Mr. Silver served as Chief Financial Officer of
Alabaster  Originals,  L.P., Memphis,  Tennessee,  a fashion jewelry wholesaler.
From  1978 to 1985,  Mr.  Silver  was a  certified  public  accountant  with the
national  accounting firm of Coopers & Lybrand L.L.P., and from 1987 to 1992 Mr.
Silver  was  employed  as  a  certified  public  accountant  with  the  national
accounting firm of Ernst & Young. Mr. Silver holds a B.S. in Accounting from the
University of Memphis.

Phillip H. McNeill, Jr. (age 36) is Executive Vice President of Development of
the Company.  From 1994 to 1996, he served as President of Trust Leasing, Inc.,
formerly McNeill Hotel Co., Inc., the Company's former lessee ("Former Lessee"),
and from 1984 to 1996 served as Vice President of Trust Management, Inc.,
formerly McNeill Hospitality Corporation, both of which are affiliates of the
Former Lessee.  Mr. McNeill is the son of Phillip H. McNeill, Sr. and holds a
B.B.A. from the University of Memphis and is a graduate of the Northwestern
School of Mortgage Banking.

J. Ronald  Cooper (age 49) is Vice  President,  Assistant  Secretary,  Assistant
Treasurer and  Controller of the Company.  From 1994 to 1996, he was  Controller
and Director of Financial  Reporting for the Former Lessee and joined the Former
Lessee in October 1994. Mr. Cooper has been a certified public  accountant since
1972.  From 1978 until  joining the Former  Lessee,  Mr.  Cooper was employed as
Secretary,  Treasurer and Controller of Wall Street Deli, Inc., a publicly-owned
delicatessen  company.  Prior  to  that,  Mr.  Cooper  was  a  certified  public
accountant with the national  accounting  firm of Coopers & Lybrand L.L.P.  from
1970 to 1976.  Mr. Cooper holds a B.S.  degree in  accounting  from Murray State
University.




                                       18

<PAGE>

ITEM 2.       PROPERTIES

The following table sets forth certain  information  with respect to the Current
Hotels on a pro forma basis:
<TABLE>
<CAPTION>
                                                Year Ended December 31, 1997
                                                                                                          Revenue
                                        Number     Pro Forma       Pro Forma                   Average     Per
                            Date         Of          Room           Lease                       Daily    Available
                           Opened       Rooms      Revenue(3)    Payment (1)(3)   Occupancy     Rate      Room (2)
                           ------      -------     ----------    --------------   ---------    -------   ---------
<S>                        <C>         <C>         <C>           <C>              <C>          <C>        <C>
Hampton Inn:
   Albany, New York         1986         154          3,205          1,541          71.5%      $79.76     $57.02
   Ann Arbor, Michigan      1986         150          2,718          1,261          72.1%      $68.87     $49.65
   Atlanta (Northlake),
     Georgia                1988         130          1,993            970          68.0%      $61.78     $42.00
   Austin, Texas            1987         122          2,143          1,024          75.9%      $63.80     $48.42
   Baltimore (Glen Burnie),
     Maryland               1989         116          2,211            973          73.9%      $70.78     $52.29
   Beckley, West Virginia   1992         108          2,127          1,140          83.4%      $64.94     $54.17
   Birmingham (Mountain
     Brook), Alabama        1987         131          2,381          1,277          74.7%      $66.63     $49.79
   Birmingham (Vestavia),
     Alabama                1986         123          2,105            955          73.8%      $63.52     $46.88
   Chapel Hill, North
     Carolina               1986         122          2,483          1,327          82.7%      $67.41     $55.75
   Charleston, South
     Carolina               1985         125          1,993            900          71.6%      $61.02     $43.68
   Chattanooga, Tennessee   1988         168          2,490          1,107          65.4%      $62.07     $40.61
   Chicago (Gurnee),
     Illinois               1988         134          2,421          1,121          71.2%      $69.58     $49.50
   Chicago (Naperville),
     Illinois               1987         130          2,382          1,095          75.5%      $66.49     $50.19
   Cleveland, Ohio          1987         123          2,257          1,173          75.0%      $67.05     $50.27
   Cleveland, Tennessee     1993          60            959            405          78.1%      $56.07     $43.78
   College Station, Texas   1986         135          2,130            990          74.6%      $57.94     $43.22
   Colorado Springs,
     Colorado               1985         128          2,402          1,192          82.2%      $62.55     $51.42
   Columbia, South Carolina 1985         121          1,821            856          68.1%      $60.54     $41.23
   Columbus, Georgia        1986         119          1,934            923          78.2%      $56.96     $44.52
   Columbus (Dublin), Ohio  1988         123          2,053            971          68.6%      $66.69     $45.73
   Dallas (Addison), Texas  1985         160          2,908          1,556          73.8%      $67.48     $49.80
   Dallas (Arlington),
     Texas                  1985         141          2,014            817          61.1%      $64.09     $39.14
   Dallas (Garland), Texas  1987         125          1,545            609          60.5%      $56.02     $33.86
   Dallas (Richardson),
     Texas                  1987         130          1,966            925          67.4%      $61.52     $41.44
   Denver (Aurora),
     Colorado               1985         132          2,094            944          72.1%      $60.24     $43.45
   Destin, Florida          1994         104          1,765            931          65.6%      $80.63     $52.86
   Detroit (Northfield),
     Michigan               1989         125          2,457          1,225          80.3%      $67.10     $53.85
   Detroit (Madison Heights),
       Michigan             1987         124          2,129            980          72.7%      $64.74     $47.04
   Fayetteville, North
     Carolina               1986         122          1,573            645          66.8%      $52.89     $35.33
   Ft. Worth, Texas         1987         125          1,732            680          64.8%      $58.58     $37.97
   Gastonia, North Carolina 1989         109          1,689            853          68.7%      $61.82     $42.46
   Indianapolis, Indiana    1987         129          2,457          1,193          73.6%      $70.86     $52.18
   Jacksonville, Florida    1986         122          1,788            713          72.4%      $55.51     $40.16
   Kansas City (Overland
     Park), Kansas          1991         134          2,417          1,160          74.1%      $66.83     $49.51
   Kansas City, Missouri    1987         120          2,243          1,077          72.3%      $70.88     $51.22
   Knoxville, Tennessee     1991         118          1,755            714          73.4%      $55.55     $40.75
   Little Rock (North),
       Arkansas             1985         123          1,709            754          68.8%      $55.32     $38.07
   Little Rock (South),
        Arkansas            1985         122          1,271            378          53.8%      $53.02     $28.54
   Louisville, Kentucky     1986         119          1,841            834          68.9%      $61.54     $42.38
   Memphis (Poplar),
       Tennessee            1985         126          2,672          1,381          81.9%      $70.94     $58.09
   Memphis (Sycamore View),
       Tennessee            1984         117          1,845            751          76.6%      $56.42     $43.22
   Meriden, Connecticut     1988         125          1,914            900          65.1%      $64.46     $41.94
   Milford, Connecticut     1986         148          2,922          1,430          80.2%      $67.47     $54.09
   Morgantown, West
     Virginia               1991         108          1,922            963          75.7%      $64.40     $48.77
   Nashville (Brentwood),
     Tennessee              1985         114          2,269          1,055          76.5%      $71.24     $54.52
   Nashville (Briley
     Parkway), Tennessee    1987         120          2,495          1,191          81.4%      $70.00     $56.96
   Norfolk, Virginia        1990         119          1,930            908          62.9%      $70.43     $44.32
   Pickwick, Tennessee      1994          50            748            247          64.4%      $63.58     $40.97
</TABLE>


                                       19

<PAGE>

<TABLE>
<CAPTION>

                                                           Year Ended December 31, 1997
                                                                                                           Revenue
                                        Number      Pro Forma       Pro Forma                  Average      Per
                            Date         Of           Room           Lease                      Daily     Available
                           Opened       Rooms      Revenue (3)   Payment (1)(3)   Occupancy     Rate      Room (2)
                           ------      -------     -----------   --------------   ---------   --------    ---------
<S>                        <C>         <C>         <C>           <C>              <C>          <C>        <C>

Hampton Inn (Continued):
   Sarasota, Florida        1987          97          1,451            551          62.5%      $65.59     $40.98
   Savannah, Georgia        1986         129          1,744            776          66.6%      $55.64     $37.05
   Scottsdale, Arizona      1996         126          2,140          1,037          54.3%      $85.69     $46.53
   Scranton, Pennsylvania   1994         129          2,507          1,171          77.1%      $69.05     $53.25
   Shelby, North Carolina   1989          78            992            442          68.5%      $50.86     $34.84
   Southaven (Memphis),
       Mississippi          1995          86          1,471            642          78.8%      $59.44     $46.86
   St. Louis (Westport),
       Missouri             1987         122          1,938            834          65.8%      $66.13     $43.52
   State College,
       Pennsylvania         1987         120          2,279          1,125          74.3%      $69.96     $52.00
   Traverse City, Michigan  1987         127          1,960            894          57.7%      $73.35     $42.29

Comfort Inn:
   Enterprise, Alabama      1987          78            981            416          70.7%      $48.74     $34.45
   Jacksonville Beach,
     Florida                1973         177          3,389          1,492          65.2%      $80.42     $52.46
   Rutland, Vermont         1985         104          1,710            731          77.0%      $58.52     $45.06

Residence Inn:
   Burlington, Vermont      1988          96          2,643          1,328          84.6%      $89.14     $75.44
   Colorado Springs,
     Colorado               1984          96          2,563          1,367          81.0%      $90.35     $73.15
   Madison, Wisconsin       1988          80          1,607            520          73.9%      $74.47     $55.04
   Minneapolis (Eagan),
       Minnesota            1988         120          3,214          1,625          84.2%      $87.11     $73.38
   Oklahoma City, Oklahoma  1982         135          3,270          1,634          82.8%      $80.16     $66.37
   Omaha, Nebraska          1981          80          1,906            759          79.8%      $81.78     $65.27
   Princeton, New Jersey    1988         208          5,992          3,141          81.5%      $96.89     $78.92
   Tinton Falls, New Jersey 1988          96          2,831          1,336          85.6%      $94.43     $80.80
   Tucson, Arizona          1985         128          3,015          1,429          75.7%      $85.26     $64.53

Holiday Inn:
   Bluefield, West Virginia 1980         120          2,060            980          67.4%      $69.79     $47.03
   Charleston (Mt. Pleasant),
       South Carolina       1988         158          3,177          1,640          75.1%      $73.41     $55.09
   Oak Hill, West Virginia  1983         119          1,251            613          44.6%      $64.58     $28.81
   Winston-Salem, North
       Carolina             1969         160          2,146            825          63.8%      $57.62     $36.75

Holiday Inn Express:
   Wilkesboro, North
     Carolina               1985         101          1,405            739          62.0%      $61.52     $38.13

Homewood Suites:
   Augusta, Georgia (4)     1997          65                           395
   Hartford, Connecticut    1990         132          3,433          1,629          79.4%      $89.81     $71.26
   Memphis (Germantown),
       Tennessee            1996          92          2,002            957          68.2%      $87.35     $59.61
   Phoenix, Arizona         1996         124          3,296          1,479          69.9%     $104.22     $72.81
   San Antonio, Texas       1996         123          2,453          1,000          69.8%      $78.24     $54.64

AmeriSuites:
   Cincinnati (Blue Ash),
     Ohio                   1990         127          2,215          1,064          66.7%      $71.67     $47.78
   Cincinnati (Forest
     (Park), Ohio           1992         126          2,106            946          65.5%      $69.88     $45.79
   Columbus, Ohio           1994         126          2,628          1,300          74.4%      $76.80     $57.15
   Flagstaff, Arizona       1993         117          1,838            801          65.4%      $65.35     $42.76
   Indianapolis, Indiana    1992         126          2,244          1,097          65.2%      $74.84     $48.80
   Jacksonville, Florida    1996         112          1,965            946          71.5%      $67.20     $48.06
   Kansas City (Overland
     Park), Kansas          1994         126          2,729          1,392          78.3%      $75.78     $59.34
   Miami, Florida           1996         126          2,969          1,671          83.2%      $77.59     $64.57
   Richmond, Virginia       1992         126          3,070          1,697          80.0%      $83.46     $66.75
   Tampa, Florida           1994         126          2,915          1,626          78.7%      $80.57     $63.38
                                      ------       --------        -------          ----       ------     ------

Consolidated Totals/Weighted
    Average for all Hotels            10,777       $195,783        $93,062          72.0%      $69.67     $50.14
                                      ======       ========        =======          ====       ======     ======
</TABLE>


                                       20

<PAGE>



------------------------

(1)   Represents lease payments  calculated on a pro forma basis by applying the
      rent provisions in the Percentage Leases using historical room revenues of
      the hotels as if January 1, 1997 was the beginning of the lease year.

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

(3)   Amounts in thousands.

(4)   Hotel was not open for the entire period; therefore, pro forma results are
      not available, minimum rent has been assumed.

ITEM 3.       LEGAL PROCEEDINGS

Neither the Company nor the  Partnership  currently  is involved in any material
litigation nor, to the Company's knowledge, is any material litigation currently
threatened against the Company or the Partnership.  The Lessees have advised the
Company  that they  currently  are not  involved in any  litigation,  other than
routine litigation arising in the ordinary course of business.  The Lessees have
advised the Company that none of such  litigation is material and  substantially
all of any liability is expected to be covered by liability insurance.

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

No matters  were  submitted  to a vote of the  Company  shareholders  during the
fourth quarter of 1997, through the solicitation of proxies or otherwise.

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

(a)      Market Information

The Company's common stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "ENN." The following table sets forth for the indicated periods
the high and low  closing  prices for the  common  stock as traded  through  the
facilities of the NYSE and, prior to September 9, 1996, the Nasdaq Stock Market,
and the cash dividends declared per share:
<TABLE>
<CAPTION>
                                                Distributions
                                                  Declared
                                  Price Range     Per Share       Record
                                 High     Low     and Unit         Date
                                 ----     ---   ------------- ------------------
<S>                              <C>      <C>   <C>            <C>
Year Ended December 31, 1996:
     First Quarter              13 1/4   11 1/2      0.28     March 29, 1996
     Second Quarter             12 3/4   11 1/4      0.28     June 28, 1996
     Third Quarter              13       11          0.28     September 30, 1996
     Fourth Quarter             13 1/8   11 1/8      0.28     December 31, 1996

Year Ended December 31, 1997:
     First Quarter              14 1/2   12 1/2      0.28     March 31, 1997
     Second Quarter             14 1/8   12 7/8      0.28     June 30, 1997
     Third Quarter              15 13/16 13 1/4      0.29     September 30, 1997
     Fourth Quarter             16 9/16  14 1/8      0.29     December 30, 1997
</TABLE>

(b)      Stockholder Information

On March 10,  1998,  there were 1,069  record  holders of the  Company's  common
stock,  including  shares  held in  "street  name" by  nominees  who are  record
holders, and approximately 28,000 beneficial owners.


                                       21

<PAGE>



(c)      Distributions

The Company intends to make regular quarterly distributions to its shareholders.
The  Company's  ability to make  distributions  is  dependent  on the receipt of
distributions  from the  Partnership.  In order to qualify as a REIT for federal
income tax purposes,  the Company must  distribute to  shareholders  annually at
least  95% of its  taxable  income.  The  Company,  as  general  partner  of the
Partnership through the Trust, intends to cause the Partnership to distribute to
its partners  sufficient amounts to permit the Company to make regular quarterly
distributions to its shareholders.  The Partnership's  primary source of revenue
consists of rent payments from the Lessees under the Percentage Leases.

A portion of the  distribution to shareholders is expected to represent a return
of capital for federal income tax purposes  which  generally will not be subject
to federal  income tax under  current law. The Company's  distributions  made in
1997 and 1996 are considered to be approximately  10% and 29% return of capital,
respectively, for federal income tax purposes.

Future  distributions paid by the Company will be at the discretion of the Board
of  Directors  of the  Company  and will  depend on the actual  cash flow of the
Company, its financial condition, capital requirements,  the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
directors of the Company deem relevant.

ITEM 6.  SELECTED FINANCIAL DATA

The following tables set forth selected historical financial information for the
Company and the McNeill Initial Hotels,  which are deemed under the rules of the
Securities  and Exchange  Commission  (the "SEC") to be the  predecessor  of the
Company.

With  respect  to the  Company,  the  following  tables  set forth (i)  selected
historical  operating  and  other  financial  information  for the  years  ended
December 31, 1997, 1996 and 1995 and the period from March 1, 1994 (inception of
operations)  through  December 31, 1994,  and (ii) selected  historical  balance
sheet data as of December 31, 1997, 1996, 1995 and 1994. The selected historical
financial  information has been derived from the historical financial statements
of the Company audited by Coopers & Lybrand L.L.P., independent accountants.

With  respect to the McNeill  Initial  Hotels,  the  following  tables set forth
selected  combined  historical  financial  data for the  period  January 1, 1994
through  February  28,  1994,  and for the year ended  December  31,  1993.  The
selected  combined  historical  financial  information  for the McNeill  Initial
Hotels  for the  year  ended  December  31,  1993,  has  been  derived  from the
historical combined financial statements.

The following selected financial  information should be read in conjunction with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  and all of the  financial  statements  and notes  thereto  included
elsewhere in this report.



                                       22

<PAGE>



                                EQUITY INNS, INC
                             SELECTED FINANCIAL DATA
                      (in thousands, Except Per Share Data)

<TABLE>
<CAPTION>


                                                                 March 1, 1994
                                                                 (inception of
                                                                  operations)
                                     Year Ended December 31,       through
                                    1997      1996      1995   December 31, 1994
                                  -------   -------   -------  -----------------
<S>                               <C>       <C>       <C>      <C>
Operating Data:

 Revenue                          $71,761   $38,430   $24,145         $9,798
 Net income                        23,543    14,473     8,511          4,620
 Income before extraordinary
   item per common share              .88       .69       .70            .60
 Net income per common share          .82       .69       .70            .60
 Distributions declared per
   common share and Unit             1.14      1.12      1.00            .70
 Funds from operations (1)         45,748    26,397    15,804          7,611
 Funds from operations per
   common share and Unit             1.53      1.22      1.22            .89
 Weighted average number of
   common shares and Units
   outstanding                     29,963    21,652    12,920          8,551

Balance Sheet Data:

 Investments in hotel
   properties, net               $617,072  $309,202  $218,429       $140,970
 Total assets                     635,525   317,880   225,067        145,555
 Debt                             233,206    77,399    74,939         45,838
 Minority interest in
   Partnership                     19,035     7,728     6,073          6,081
 Shareholders' Equity             360,172   222,951   137,493         89,802
</TABLE>



(1)    Represents Funds from Operations of the Company on a consolidated basis.
       Industry analysts generally consider Funds from Operations to be an
       appropriate measure of the performance of an equity REIT.  In accordance
       with the resolution adopted by the Board of Governors of NAREIT, Funds
       from Operations represent net income (loss) (computed in accordance with
       generally accepted accounting principles), excluding gains (or losses)
       from debt restructuring or sales of property, plus depreciation, and
       after adjustments for unconsolidated partnerships and joint ventures. For
       the periods presented, depreciation, gain on the sale of hotel 
       properties, minority interest and the 1997 extraordinary charge from
       write-off of deferred financing fees were the only non-cash adjustments.
       Funds from Operations should not be considered an alternative to net
       income or other measurements under generally accepted accounting
       principles as an indicator of operating performance or to cash flows
       from operating, investing or financing activities as a measure of
       liquidity.  Funds from Operations does not reflect working capital
       changes, cash expenditures for capital improvements or principal payments
       with respect to indebtedness on the hotels.



                                       23

<PAGE>



The following information reflects the combined selected financial data for four
hotels acquired from affiliates of the Company's Chairman of the Board and Chief
Executive  Officer in connection  with the Company's IPO. Under the rules of the
SEC, such combined hotels are deemed to be the predecessor of the Company.


                             MCNEILL INITIAL HOTELS
                             SELECTED FINANCIAL DATA
                                 (in thousands)
<TABLE>
<CAPTION>

                                      January 1, 1994             Year Ended
                                             to                  December 31,
                                      February 28, 1994              1993
                                      -----------------          -----------
<S>                                   <C>                        <C>

Operating Data:

     Room revenue                           $1,026                  $6,052
     Other revenue                              46                     286
                                            -------                 ------
     Total revenue                           1,072                   6,338

     Hotel operating expenses                  657                   3,628
     Depreciation and amortization             116                     699
     Interest                                  218                   1,036
     Other corporate expenses                   82                     614
                                            ------                  ------

     Net income (loss)                      $   (1)                 $  361
                                            ======                  ======
</TABLE>



                                       24

<PAGE>



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

The Company

Equity Inns, Inc. (the "Company") is a self-advised real estate investment trust
("REIT") which commenced  operations on March 1, 1994. The Company,  through its
wholly-owned  subsidiary,  Equity Inns Trust (the "Trust"),  is the sole general
partner of Equity Inns Partnership, L.P. (the "Partnership") and at December 31,
1997 owned an approximate 95.0% interest in the Partnership.

In order to qualify as a REIT,  neither  the  Company  nor the  Partnership  can
operate  hotels.  Therefore,  the Partnership  leases 79 hotels  collectively to
Crossroads/Memphis  Partnership,  L.P.,  Crossroads  Future Company,  L.L.C. and
Crossroads/Memphis Financing Company, L.L.C. (collectively  "Crossroads"),  each
of which is an affiliate of Interstate Hotels Company ("Interstate"). Interstate
has managed hotel  properties  since 1961,  and as of December 31, 1997,  owned,
managed,  leased or performed  related services for 223 hotels with 45,329 rooms
in 35 states,  including 75 of the Hotels.  The Partnership  leases 10 hotels to
Caldwell  Holding  Company  ("Caldwell"),  a  wholly-owned  subsidiary  of Prime
Hospitality  Corporation  ("Prime").  Prime has managed hotel  properties  since
1992,  and as of December 31,  1997,  managed 140 hotels with 19,513 rooms in 29
states, including 10 of the Hotels. Both Crossroads and Caldwell are required to
perform  all  operational  and  management  functions  necessary  to operate the
Hotels.  All  hotels  owned by the  Partnership  are  leased to  Crossroads  and
Caldwell,  collectively, as the lessees (the "Lessees"), and individually as the
lessee  (the  "Lessee")  pursuant  to the  percentage  leases  (the  "Percentage
Leases")  which  provide  for the  greater of (i) fixed  annual base rent ("Base
Rent") or (ii) rent based,  in part,  on the revenue of the hotels  ("Percentage
Rent").  The  Partnership's,  and therefore the Company's,  principal sources of
revenue are lease  payments  made by the Lessees  under the  Percentage  Leases.
Percentage  Rent is based  primarily  upon the hotels' room  revenues  and, to a
lesser extent, food and beverage revenues.

Recent Highlights

Since its inception, the Company has taken steps to position itself for growth
and stability.  Several changes have occurred since December 31, 1996 which add
significantly to these efforts.  These events are as follows:

         Formation of Strategic Alliances with Prime Hospitality Corporation and
         US Franchise Systems, Inc.

         On September 22, 1997,  the Company  entered into a strategic  alliance
         with  Prime,  the  exclusive   developer  of  AmeriSuites.   Under  the
         agreement,  the Company  will have the right of first offer to purchase
         from  Prime up to  twenty  AmeriSuites  per year for  three  years.  In
         December 1997, the Company  purchased ten AmeriSuites for approximately
         $86 million.

         On January 20, 1998, the Company entered into a strategic alliance with
         US Franchise  Systems,  Inc.,  ("USFS"),  the  exclusive  franchisor of
         Hawthorn Suites.  Under the agreement,  the Company will have the right
         of first offer to purchase from USFS up to twelve  Hawthorn  Suites per
         year for three years.

         Equity Offerings

         On May 29, 1997, the Company completed a follow-on  offering  resulting
         in the sale of 8.1  million  shares  priced at  $13.38  per  share.  On
         December 1, 1997, the Company completed a follow-on  offering resulting
         in the sale of 3  million  shares  priced  at  $15.13  per  share.  Net
         proceeds from these offerings totaled approximately $144.5 million.



                                       25

<PAGE>



         On February 12, 1998,  the Company  completed an offering  resulting in
         the sale of 641,556  shares  priced at $15.81 per share.  Net  proceeds
         from this offering totaled approximately $9.6 million.

         Improved Financing Strategy

         On February 10, 1997,  the Company,  through a  subsidiary,  issued $88
         million of rated  Commercial  Mortgage Bonds (the "Bonds") in a private
         placement  transaction,  at a  combined  interest  rate fixed at 7.22%.
         Proceeds  from the  issuance  of the Bonds were used to repay  existing
         debt under the line of credit.  The Company  expects to repay the Bonds
         in full within 10 years.

         On October 10, 1997, the Company  replaced its existing secured line of
         credit with a $250  million  unsecured  line of credit (the  "Unsecured
         Line of Credit").  The  Unsecured  Line of Credit  bears  interest at a
         variable rate of LIBOR plus 1.4%,  1.5%,  1.625% or 1.75% as determined
         by the  Company's  percentage  of total debt to the total  value of the
         Company's  investment  in  hotel  properties,  as  defined  in the loan
         agreement (the "Percentage"). The Percentage is reviewed quarterly, and
         the interest  rate is adjusted as  necessary.  Currently,  the interest
         rate  on the  Unsecured  Line of  Credit  is  LIBOR  plus  1.625%.  The
         Unsecured Line of Credit has a three-year term plus a one-year  renewal
         option.

         On December 18, 1997,  the Company  arranged an interest rate swap on a
         notional  amount of $75 million with The First National Bank of Chicago
         as a hedge  against  the  floating  rate.  The swap  results in a fixed
         interest rate of 5.90% plus the Percentage on the notional amount.  The
         swap agreement will expire in October 2000.

         Acquisitions

         Since the IPO, the Company has  actively  implemented  its  acquisition
         strategy.  During 1997 and 1996,  the Company  acquired  the  following
         types  of  hotels  at   advantageous   capitalization   rates  for  the
         approximate amounts indicated:
<TABLE>
<CAPTION>
                                        1997                    1996
                                  -----------------       ------------------
                                  No. of   Purchase       No. of    Purchase
                                  Hotels     Price        Hotels      Price
                                  ------   --------       ------    --------
                                         (in thousands)           (in thousands)
         <S>                      <C>       <C>           <C>       <C>

         Premium Limited Service    34     $198,574          5       $36,200
         Premium Extended Stay       6       61,650          5        41,300
         All-Suite                  10       86,966
         Full Service                                        1         5,100
                                    --     --------         --       -------

                                    50     $347,190         11       $82,600
                                    ==     ========         ==       =======
</TABLE>

         On October 31, 1997,  nine premium  limited  service  hotels  purchased
         during 1997 were sold at a gain of approximately $666,000.



                                       26

<PAGE>



         The following chart summarizes information regarding the 89 hotels (the
         "Current Hotels") owned at December 31, 1997:
<TABLE>
<CAPTION>

                                               # of Hotel         # of Rooms/
         Franchise Affiliation                 Properties           Suites
         ---------------------                 ----------           ------
         <S>                                   <C>                  <C>

         Premium Limited Service Hotels:
              Hampton Inn                          57                6,947
              Comfort Inn                           2                  182
              Holiday Inn Express                   1                  101
                                                   --               ------
                  Sub-total                        60                7,230
                                                   --               ------

         All-Suite Hotels:
              AmeriSuites                          10                1,238

         Premium Extended Stay Hotels:
              Residence Inn                         9                1,039
              Homewood Suites                       5                  536
                                                   --               ------
                  Sub-total                        14                1,575
                                                   --               ------

         Full Service Hotels:
              Holiday Inn                           4                  557
              Comfort Inn                           1                  177
                                                   --               ------
                  Sub-total                         5                  734
                                                   --               ------

                  Total                            89               10,777
                                                   ==               ======
</TABLE>

         The Current Hotels are located in 30 states.  Management believes it is
         prudent  to  diversify  geographically,  by  market  segment  and among
         franchise brands.

Results of Operations

Comparison of the Company's  operating  results for the year ended  December 31,
1997 with the year ended December 31, 1996.

For the year ended  December 31, 1997,  the Company had total  revenues of $71.7
million,  consisting  substantially of Percentage  Lease revenue.  This compares
with total revenues of $38.4 million for the year ended December 31, 1996.

Increases in revenue from hotel  operations for the year ended December 31, 1997
as compared to 1996 are due to (i) an increased number of hotels being owned and
leased  by the  Partnership  throughout  1997,  (ii)  increases  in  ADR  and/or
occupancy at many of the hotels leased during both years,  and (iii) a full year
of operation in 1997 of hotels acquired in 1996.  Assuming all hotels which were
in  operation  a full year in both 1997 and 1996 had been owned and leased as of
January 1, 1996,  revenue per  available  room  ("REVPAR")  on a pro forma basis
would have increased 5.7% over 1996.

Real estate and personal property taxes and general and administrative  expenses
in the aggregate  remained  fairly  constant in 1997 and 1996 as a percentage of
total revenue.  Interest expense increased to $12.6 million from $4.4 million in
1996 due primarily to borrowings incurred to finance the Company's acquisitions.
The Company's  weighted average interest rate on outstanding  borrowings  during
the years ended December 31, 1997 and 1996, was 7.53% for both years. Net income
for 1997 was $23.5  million or $0.82 per  share,  compared  to $14.5  million or
$0.69 per share for 1996. Funds from Operations  ("FFO"),  as defined below, for
1997 was $45.7 million or $1.53 per share and Unit, compared to $26.4 million or
$1.22 per share and Unit for 1996, an increase of 25%.

                                       27

<PAGE>



The increase in FFO/share is  attributable to (i) an increase in REVPAR on a pro
forma  basis of 5.7% over  1996 and (ii)  acquisition  of fifty  hotels in 1997,
acquired at accretive capitalization rates.

Comparison of the Company's  operating  results for the year ended  December 31,
1996 with the year ended December 31, 1995.

For the year ended  December 31, 1996,  the Company had total  revenues of $38.4
million,  consisting  substantially of Percentage  Lease revenue.  This compares
with total revenues of $24.1 million for the year ended December 31, 1995.

Increases in revenue from hotel  operations for the year ended December 31, 1996
as compared to 1995 are due to (i) an increased number of hotels being owned and
leased  by the  Partnership  throughout  1996,  (ii)  increases  in  ADR  and/or
occupancy at many of the hotels leased during both years,  and (iii) a full year
of operation in 1996 of hotels acquired in 1995.  Assuming all hotels which were
in  operation  a full year in both 1996 and 1995 had been owned and leased as of
January 1, 1995,  REVPAR on a pro forma  basis  would have  increased  2.8% over
1995.

Real estate and personal property taxes and general and administrative  expenses
in the aggregate  remained  fairly  constant in 1996 and 1995 as a percentage of
total revenue.  Interest expense  increased to $4.4 million from $3.7 million in
1995 due primarily to borrowings incurred to finance the Company's  acquisitions
subsequent to the fourth offering.  The Company's weighted average interest rate
on  outstanding  borrowings at December 31, 1996 was 7.53%.  Net income for 1996
was $14.5  million or $0.69 per  share,  compared  to $8.5  million or $0.70 per
share for  1995.  FFO for 1996 was  $26.4  million  or $1.22 per share and Unit,
compared  to $15.8  million  or $1.22 per share and Unit for 1995.  FFO for 1996
compared to 1995 remained flat, due to an  unanticipated  delay in the Company's
1996  acquisition  program  and a  follow-on  stock  offering in April 1996 that
greatly increased the Company's weighted number of shares outstanding.

The Current Hotels - Actual

The following  room revenue data  reflects the actual  operations of the Current
Hotels  which  were in  operation  a full  year in both  1997  and  1996  and is
independent  of  ownership  and other pro forma  consideration  for the  periods
indicated.

ROOM REVENUE
(in thousands)
<TABLE>
<CAPTION>
                                              Year Ended December 31,    Percent
                                                1997          1996       Change
                                              --------      --------     -------
<S>                                           <C>           <C>          <C>
Hampton Inn
       Albany, New York                       $  3,205      $  3,004        6.7%
       Ann Arbor, Michigan                       2,718         2,501        8.7%
       Atlanta (Northlake), Georgia              1,993         2,167       -8.0%
       Austin, Texas                             2,143         2,136        0.3%
       Baltimore (Glen Burnie), Maryland         2,211         2,120        4.3%
       Beckley, West Virginia                    2,127         2,156       -1.3%
       Birmingham (Mountain Brook), Alabama      2,381         2,365        0.7%
       Birmingham (Vestavia), Alabama            2,105         2,086        0.9%
       Chapel Hill, North Carolina               2,483         2,371        4.7%
       Charleston, South Carolina                1,993         1,932        3.2%
       Chattanooga, Tennessee                    2,490         2,438        2.2%
       Chicago (Gurnee), Illinois                2,421         2,197       10.2%
       Chicago (Naperville), Illinois            2,382         2,172        9.7%
       Cleveland, Ohio                           2,257         1,895       19.1%
       Cleveland, Tennessee                        959           889        7.8%
       College Station, Texas                    2,130         1,933       10.2%
       Colorado Springs, Colorado                2,402         2,228        7.8%
       Columbia, South Carolina                  1,821         1,986       -8.3%
       Columbus, Georgia                         1,934         1,934       -0.0%
       Columbus (Dublin), Ohio                   2,053         1,862       10.3%
       Dallas (Addison), Texas                   2,908         2,850        2.0%
       Dallas (Arlington), Texas                 2,014         2,075       -2.9%
</TABLE>

                                       28

<PAGE>


<TABLE>
<CAPTION>


                                              Year Ended December 31,    Percent
                                                1997          1996       Change
                                              --------      --------     -------
<S>                                           <C>           <C>          <C>
       Dallas (Garland), Texas                   1,545         1,598       -3.3%
       Dallas (Richardson), Texas                1,966         2,062       -4.6%
       Denver (Aurora), Colorado                 2,094         2,045        2.4%
       Destin, Florida                           1,765         1,512       16.8%
       Detroit (Northfield), Michigan            2,457         2,255        9.0%
       Detroit (Madison Heights), Michigan       2,129         1,962        8.5%
       Fayetteville, North Carolina              1,573         1,574       -0.1%
       Ft. Worth, Texas                          1,732         1,801       -3.8%
       Gastonia, North Carolina                  1,689         1,961      -13.9%
       Indianapolis, Indiana                     2,457         2,056       19.5%
       Jacksonville, Florida                     1,788         1,645        8.7%
       Kansas City (Overland Park), Kansas       2,417         2,358        2.5%
       Kansas City, Missouri                     2,243         2,064        8.7%
       Knoxville, Tennessee                      1,755         1,561       12.4%
       Little Rock (North), Arkansas             1,709         1,841       -7.2%
       Little Rock (South), Arkansas             1,271         1,363       -6.8%
       Louisville, Kentucky                      1,841         1,766        4.2%
       Memphis (Poplar), Tennessee               2,672         2,582        3.5%
       Memphis (Sycamore View), Tennessee        1,845         1,790        3.1%
       Meriden, Connecticut                      1,914         1,702       12.4%
       Milford, Connecticut                      2,922         2,615       11.7%
       Morgantown, West Virginia                 1,922         1,809        6.3%
       Nashville (Brentwood), Tennessee          2,269         2,252        0.7%
       Nashville (Briley Parkway), Tennessee     2,495         2,393        4.3%
       Norfolk, Virginia                         1,930         2,038       -5.3%
       Pickwick, Tennessee                         748           799       -6.4%
       Sarasota, Florida                         1,451         1,495       -2.9%
       Savannah, Georgia                         1,744         1,877       -7.1%
       Scottsdale, Arizona                       2,140         1,701       25.8%
       Scranton, Pennsylvania                    2,507         2,675       -6.3%
       Shelby, North Carolina                      992           935        6.1%
       Southaven (Memphis), Mississippi          1,471         1,368        7.5%
       St. Louis (Westport), Missouri            1,938         1,887        2.7%
       State College, Pennsylvania               2,279         2,149        6.0%
       Traverse City, Michigan                   1,960         1,855        5.7%

Comfort Inn
       Enterprise, Alabama                         981           950        3.2%
       Jacksonville Beach, Florida               3,389         3,273        3.6%
       Rutland, Vermont                          1,710         1,618        5.7%

Residence Inn
       Burlington, Vermont                       2,643         2,583        2.4%
       Colorado Springs, Colorado                2,563         2,702       -5.1%
       Madison, Wisconsin                        1,607         1,377       16.7%
       Minneapolis (Eagan), Minnesota            3,214         2,746       17.0%
       Oklahoma City, Oklahoma                   3,270         3,159        3.5%
       Omaha, Nebraska                           1,906         1,834        3.9%
       Princeton, New Jersey                     5,992         5,620        6.6%
       Tinton Falls, New Jersey                  2,831         2,645        7.0%
       Tucson, Arizona                           3,015         3,087       -2.3%

Holiday Inn
       Bluefield, West Virginia                  2,060         1,974        4.3%
       Charleston (Mt. Pleasant),
         South Carolina                          3,177         3,122        1.8%
       Oak Hill, West Virginia                   1,251         1,204        3.9%
       Winston-Salem, North Carolina             2,146         2,152       -0.3%

Holiday Inn Express
       Wilkesboro, North Carolina                1,405         1,285        9.4%

Homewood Suites
       Augusta, Georgia (1)
       Hartford, Connecticut                     3,433         3,231        6.3%
       Memphis (Germantown), Tennessee (1)
       Phoenix, Arizona (1)
       San Antonio, Texas (1)
</TABLE>

                                       29

<PAGE>

<TABLE>
<CAPTION>

                                              Year Ended December 31,    Percent
                                                1997          1996       Change
                                              --------      --------     -------
<S>                                           <C>           <C>          <C>

AmeriSuites
       Cincinnati (Blue Ash), Ohio               2,215         2,104        5.3%
       Cincinnati (Forest Park), Ohio            2,106         2,078        1.4%
       Columbus, Ohio                            2,628         2,370       10.9%
       Flagstaff, Arizona                        1,838         1,945       -5.5%
       Indianapolis, Indiana                     2,244         2,124        5.6%
       Jacksonville, Florida                     1,965         1,852        6.1%
       Kansas City (Overland Park), Kansas       2,729         2,410       13.2%
       Miami, Florida (1)
       Richmond, Virginia                        3,070         2,637       16.4%
       Tampa, Florida                            2,915         2,601       12.1%
                                              --------      --------       ----

                                              $185,063      $177,326        4.4%
                                              ========      ========       ====
</TABLE>

(1)  Hotel  was not open for the full two  years;  therefore,  revenues  are not
comparable.

As shown above,  room revenues for the Current  Hotels  increased  4.4% on a pro
forma  basis,  average  daily rate  increased  an average of 6.4% from $64.77 to
$68.90 with  occupancy  experiencing  a decrease  from 73.4% in 1996 to 72.1% in
1997.

For the forty-five  hotels owned by the Company and managed by Crossroads  since
December 31, 1996,  average daily rate increased 5.6% from $64.24 to $67.83, and
occupancy was stable at 70.8%,  resulting in a REVPAR increase of 5.7% on a same
store basis for 1997 over 1996.

Funds from Operations

Industry  analysts  generally  consider Funds from  Operations  ("FFO") to be an
appropriate measure of the performance of an equity REIT. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate  Investment   Trusts,  FFO  represent  net  income  (loss)  (computed  in
accordance with generally accepted accounting  principles),  excluding gains (or
losses) from debt  restructuring or sales of property,  plus  depreciation,  and
after adjustments for  unconsolidated  partnerships and joint ventures.  For the
periods presented,  depreciation, gain on the sale of hotel properties, minority
interest and the 1997 extraordinary  charge from write-off of deferred financing
fees  were the only  non-cash  adjustments.  FFO  should  not be  considered  an
alternative  to net  income  or  other  measurements  under  generally  accepted
accounting  principles as an indicator of operating performance or to cash flows
from operating, investing or financing activities as a measure of liquidity. FFO
does  not  reflect  working  capital  changes,  cash  expenditures  for  capital
improvements or principal payments with respect to indebtedness on the hotels.



                                       30

<PAGE>



The  following   reconciliation  of  income  before  minority  interest  to  FFO
illustrates the difference in the two measures of operating performance:
<TABLE>
<CAPTION>
                                         For the Years Ended December 31,
                                          1997                     1996
                                         -------                  -------
                                  (in thousands, except per share and Unit data)
<S>                                      <C>                      <C>
Income before extraordinary item
    and minority interest                $26,445                  $14,933

Less:
    Gain on sale of hotel properties        (666)

Add:
    Depreciation of buildings,
        furniture and fixtures            19,969                   11,464
                                         -------                  -------

Funds from Operations                    $45,748                  $26,397
                                         =======                  =======

Weighted average number of
    common shares and Units
    outstanding                           29,963                   21,652
                                         =======                  =======

Funds from Operations per share
  and Unit                               $  1.53                  $  1.22
                                         =======                  =======
</TABLE>


Liquidity and Capital Resources

The Company's principal source of cash to meet its cash requirements,  including
distributions  to  its  shareholders,   is  its  cash   distributions  from  the
Partnership. The Partnership receives cash payments from the Lessees pursuant to
the Percentage  Leases. The Company's  liquidity,  including its ability to make
distributions  to  shareholders,  is dependent upon the Lessees' ability to make
payments under the Percentage  Leases.  All of Crossroads lease  obligations are
guaranteed by Interstate.  The Company's  other Lessee,  Caldwell,  is required,
under the terms of its master lease  agreement,  to maintain 20% of its expected
annual  percentage  rents  generated  from  the  Percentage  Leases  in  cash or
marketable securities.

Cash and cash  equivalents  were  $190,000 at  December  31,  1997,  compared to
$129,000 at December  31,  1996.  Excess  cash  balances  are used to reduce the
Company's  outstanding  debt.  For the year ended  December 31, 1997,  cash flow
provided by  operating  activities,  consisting  primarily of  Percentage  Lease
revenue, was $50.4 million.

The Company's  Charter  limits debt to 45% of the Company's  investment in hotel
properties,  at cost. At December 31, 1997, the Company had outstanding  debt of
approximately  $233.2  million,  including  $86.3 million  under the Bonds,  and
$146.9 million under the Unsecured Line of Credit,  leaving approximately $103.1
million   available  for  future   acquisitions.   The  Company's   consolidated
indebtedness  was 35.3% of its  investments in hotels,  at cost, at December 31,
1997.

During  1997,  the Company  spent $18.1  million,  including  $12.3  million for
renovations  required  by  franchisors,  to  fund  capital  improvements  to its
properties, including replacement of carpets, drapes, renovation of common areas
and improvements of hotel exteriors.  In addition,  the Company has committed to
fund approximately $25.3 million in 1998 for capital improvements,  $8.4 million
of which is renovations required by franchisors.



                                       31

<PAGE>



The  Company  intends  to  fund  such  improvements  out  of  future  cash  from
operations,  present cash balances and  borrowings  under its Unsecured  Line of
Credit.  Under the Unsecured  Line of Credit and the Bonds,  the  Partnership is
obligated to fund 4% of room  revenues per quarter on a cumulative  basis,  to a
separate room renovation account for the ongoing replacement or refurbishment of
furniture,  fixtures  and  equipment  at  the  hotels.  During  1997  and  1996,
non-recurring  enhancements  for  capital  expenditures,  based  upon 4% of room
revenue, were $6.1 million and $3.4 million,  respectively.  Management believes
that these amounts will be sufficient to fund required expenditures for the term
of the Percentage Leases with the capital improvements anticipated and recurring
repairs and maintenance performed by the Lessees.

The Company elected to be taxed as a REIT commencing with its taxable year ended
December 31, 1994,  and expects to continue to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986. Accordingly,  no provision
for federal income taxes has been reflected in the financial statements.

REITs are subject to a number of  organizational  and operational  requirements.
For example, for federal income tax purposes, a REIT, and therefore the Company,
is required to pay  distributions  of at least 95% of its taxable  income to its
shareholders. The Company intends to pay these distributions from operating cash
flows. During 1997, the Partnership distributed an aggregate of $36.4 million to
its partners, or $1.14 per Unit (including $34.9 million of distributions to the
Company  to fund  distributions  to  shareholders  of $1.14  per share in 1997).
During 1996,  the  Partnership  distributed an aggregate of $24.8 million to its
partners,  or $1.12 per Unit (including  $24.0 million of  distributions  to the
Company to fund  distributions  to shareholders of $1.12 per share in 1996). For
federal income tax purposes,  10% of 1997 distributions  represented a return of
capital, compared with 29% for 1996.

The Company  expects to meet its  short-term  liquidity  requirements  generally
through  net cash  provided  by  operations,  existing  cash  balances  and,  if
necessary, short-term borrowings under the Unsecured Line of Credit. The Company
believes that its net cash provided by operations  will be adequate to fund both
operating requirements and payment of distributions by the Company in accordance
with REIT requirements.

The  Company  expects  to meet its  long-term  liquidity  requirements,  such as
scheduled debt maturities and property  acquisitions,  through long-term secured
and unsecured  borrowings,  the issuance of additional  equity securities of the
Company or, in connection with acquisitions of hotel properties, the issuance of
Partnership  Units.  Pursuant to the Partnership  Agreement for the Partnership,
subject to certain holding period requirements,  holders of Units have the right
to require the Partnership to redeem their Units. During the year ended December
31, 1997, no Units were  tendered for  redemption.  Pursuant to the  Partnership
agreement, the Company has the option to redeem Units tendered for redemption on
a one-for-one  basis for shares of Common Stock or for an  equivalent  amount of
cash.  The  Company  anticipates  that it will  acquire any Units  tendered  for
redemption in the foreseeable  future in exchange for shares of Common Stock and
has  agreed  to  register  such  shares  so as to be  freely  tradeable  by  the
recipient.

Inflation

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

Seasonality

Hotel  operations  historically  are  seasonal in nature,  generally  reflecting
higher  occupancy rates during the second and third quarters.  This  seasonality
can be expected to cause fluctuations in the Company's  quarterly lease revenues
to the extent that it receives Percentage Rent.


                                       32

<PAGE>



ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to the general  instructions  to Rule 305 of SEC  Regulation  S-K,  the
quantitative and qualitative  disclosures called for by this Item 7a and by Rule
305 of SEC Regulation S-K are inapplicable to the Company at this time.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)    Financial Statements:

The  following  financial  statements  are  located in this  report on the pages
indicated.
<TABLE>
<CAPTION>
Equity Inns, Inc.                                                           Page
<S>                                                                         <C>

        Report of Independent Accountants                                     34
        Consolidated Balance Sheets as of December 31, 1997 and
            1996                                                              35
        Consolidated Statements of Operations for the years ended
            December 31, 1997, 1996 and 1995                                  36
        Consolidated Statements of Shareholders' Equity for the
            years ended December 31, 1997, 1996 and 1995                      37
        Consolidated Statements of Cash Flows for the years ended
            December 31, 1997, 1996 and 1995                                  39
        Notes to Consolidated Financial Statements                            40
</TABLE>

(b)     Supplementary Data:

Equity Inns, Inc. Quarterly Financial Information

        Unaudited quarterly results for 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
                                 First       Second       Third        Fourth
                              Quarter (1)  Quarter (1)  Quarter (1)  Quarter (1)
                              -----------  -----------  -----------  -----------
                  1997               (in thousands, except per share data)
                  ----
<S>                            <C>          <C>          <C>          <C> 
         Revenue                $11,795      $16,039       $24,745     $19,182
         Net income               3,167        5,746        11,235       3,395
         Income before
           extraordinary item   
           per common share         .13          .22           .35         .16
         Net income per common
             share                  .13          .22           .35         .10

                  1996
                  ----
         Revenue                 $6,984       $9,652       $12,341      $9,453
         Net income               1,312        4,620         6,022       2,519
         Net income per
          common share              .09          .21           .26         .11
</TABLE>

------------------------

(1)  Acquisitions of hotel  properties  throughout both years,  coupled with the
seasonality of the hotels,  have impacted the trend of quarterly results for the
periods shown.

                                       33

<PAGE>



Report of Independent Accountants



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


We  have  audited  the  consolidated  financial  statements  and  the  financial
statement  schedule of Equity Inns, Inc. listed in Item 14(a) of this Form 10-K.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of Equity Inns, Inc.
as of December 31, 1997 and 1996 and the consolidated  results of its operations
and its cash flows for each of the three years in the period ended  December 31,
1997 in conformity with generally accepted accounting  principles.  In addition,
in our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.


                                      COOPERS & LYBRAND L.L.P.






Memphis, Tennessee
January 22, 1998


                                       34

<PAGE>



                                EQUITY INNS, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
<TABLE>
<CAPTION>

                                            December 31,            December 31,
                                               1997                     1996
                                            ------------            ------------
<S>                                         <C>                     <C> 
Assets:
Investment in hotel properties, net          $617,072                 $309,202
Cash and cash equivalents                         190                      129
Due from Lessees                                5,925                    3,377
Note receivable                                 3,884
Deferred expenses, net                          7,276                    3,779
Deposits and other assets                       1,178                    1,393
                                             --------                 --------

    Total Assets                             $635,525                 $317,880
                                             ========                 ========

Liabilities and Shareholders' Equity:
Debt                                         $233,206                 $ 77,399
Accounts payable and accrued expenses          12,467                    2,938
Distributions payable                          10,645                    6,864
Minority interest in Partnership               19,035                    7,728
                                             --------                 --------

    Total Liabilities                         275,353                   94,929
                                             --------                 --------

Commitments and contingencies (Note 5)

Shareholders' Equity:
Common stock, $.01 par value,
    50,000,000  shares  authorized,
    34,865,578 and 23,693,278 shares
    issued and outstanding at December
    31, 1997 and 1996, respectively               349                      237
Preferred stock, $.01 par value,
    10,000,000 shares authorized, no
    shares issued and outstanding
Additional paid-in capital                    387,134                  238,748
Unearned directors' and officers'
    compensation                                 (274)                    (366)
Predecessor basis assumed                      (1,264)                  (1,264)
Distributions in excess of net
    earnings                                  (25,773)                 (14,404)
                                             --------                 --------
    Total Shareholders' Equity                360,172                  222,951
                                             --------                 --------

    Total Liabilities and Shareholders'
      Equity                                 $635,525                 $317,880
                                             ========                 ========
</TABLE>







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


                                       35

<PAGE>



                                EQUITY INNS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                             For the Years Ended December 31,
                                             1997          1996           1995
                                           -------       -------        -------
<S>                                        <C>           <C>            <C> 
Revenue:
Percentage lease revenues                  $70,478       $38,314        $24,101
Gain on sale of hotel properties               666
Other income                                   617           116             44
                                           -------       -------        -------
    Total Revenue                           71,761        38,430         24,145
                                           -------       -------        -------

Expenses:
Real estate and personal property
  taxes                                      6,688         3,693          2,158
Depreciation and amortization               20,214        11,631          6,904
Interest                                    12,601         4,382          3,701
Amortization of loan costs                   1,013         1,565            793
General and administrative                   4,142         1,975          1,438
Amortization of unearned directors'
  and officers' compensation                    92            33             31
Rental expense                                 566           218            107
                                           -------       -------        -------
    Total Expenses                          45,316        23,497         15,132
                                           -------       -------        -------

Income before extraordinary item
  and minority interest                     26,445        14,933          9,013

Extraordinary charge from write-off
  of deferred financing fees                 1,984
                                           -------       -------        -------
Income before minority interest             24,461        14,933          9,013

Minority interest                              918           460            502
                                           -------       -------        -------

Net income                                 $23,543       $14,473       $  8,511
                                           =======       =======       ========

Net income per common share, basic
 and diluted:
  Income before extraordinary item         $   .88       $   .69       $    .70
  Extraordinary charge                         .06
                                           -------       -------        -------                                     

        Net income                         $   .82       $   .69       $    .70
                                           =======       =======       ========

Weighted average number of common
  shares outstanding - diluted              28,834        20,957         12,227
                                           =======       =======       ========
</TABLE>





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

                                       36

<PAGE>



                                EQUITY INNS, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                          Unearned
                                                            Additional    Directors'     Predecessor    Distributions
                                   Common Stock              Paid-In     and Officers'      Basis       In Excess of
                                Shares        Dollars        Capital     Compensation      Assumed      Net Earnings      Total
                             -----------    -----------    -----------   ------------    -----------    -----------    -----------
<S>                          <C>            <C>            <C>            <C>            <C>            <C>             <C>

Balance at
  December 31, 1994            9,615,000    $        96    $    92,073    $      (124)   $    (1,264)   $      (979)   $    89,802
                             -----------    -----------    -----------    -----------    -----------    -----------    -----------

Issuance of common
  shares, net of offering
  expenses and allocation
  to minority interest         5,125,000             51         50,218                                                      50,269

Conversion of Units to
  common shares                  152,013              2          1,121                                                       1,123

Payment of advisory fees          15,218                           164                                                         164

Amortization of unearned
  directors' compensation                                                          31                                           31

Net income                                                                                                    8,511          8,511

Distributions ($1.00
  per share)                                                                                                (12,407)       (12,407)
                             -----------    -----------    -----------    -----------    -----------    -----------    -----------


Balance at
  December 31, 1995           14,907,231            149        143,576            (93)        (1,264)        (4,875)       137,493
                             -----------    -----------    -----------    -----------    -----------    -----------    -----------

Issuance of common
  shares, net of
  offering expenses
  and allocation to
  minority interest            7,947,000             80         85,787                                                      85,867

Issuance of common
  shares to officers in
  lieu of cash bonus              25,000            294                                                                        294

Issuance of restricted
  common shares to
  officers                        25,000            306           (306)

Issuance of common
  shares in private
  placements                     606,232              6          7,082                                                       7,088

Conversion of Units
  to common shares               182,815              2          1,703                                                       1,705

Amortization of unearned
  officers' and directors'
  compensation                                                      33                                                          33

Net income                                                                                                   14,473         14,473

Distributions ($1.12
  per share)                                                                                                (24,002)       (24,002)
                             -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance at
  December 31, 1996           23,693,278            237        238,748           (366)        (1,264)       (14,404)       222,951
                             -----------    -----------    -----------    -----------    -----------    -----------    -----------
</TABLE>


                                       37

<PAGE>



                                EQUITY INNS, INC.
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                          Unearned
                                                            Additional    Directors'     Predecessor    Distributions
                                     Common Stock            Paid-In     and Officers'      Basis       In Excess of
                                Shares        Dollars        Capital     Compensation      Assumed      Net Earnings      Total
                             -----------    -----------    -----------   ------------    -----------    ------------   -----------
<S>                          <C>            <C>            <C>            <C>            <C>            <C>             <C>
Issuance of common
  shares, net of
  offering expenses           11,082,300            111        144,428                                                     144,539

Issuance of common
  shares to officers
  through exercise
  of stock options                90,000              1          1,124                                                       1,125

Amortization of unearned
  officers' and directors'
  compensation                                                                     92                                           92

Net income                                                                                                   23,543         23,543

Distributions ($1.14
  per share)                                                                                                (34,912)       (34,912)

Adjustments to
  minority interest
  from issuance of
  common shares
  and partnership
  units                                                          2,834                                                       2,834
                             -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance at
  December 31, 1997           34,865,578    $       349    $   387,134   $      (274)   $    (1,264)   $   (25,773)   $   360,172
                             ===========    ===========    ===========   ===========    ===========    ===========    ===========
</TABLE>































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

                                       38

<PAGE>



                                EQUITY INNS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                            For the Years Ended December 31,
                                                             1997         1996         1995
                                                          ---------    ---------   ----------
<S>                                                       <C>          <C>         <C>
Cash flows from operating activities:
Net income applicable to common shareholders              $  23,543    $  14,473    $   8,511
Adjustment to reconcile net income to net cash
   provided by operating activities:
      Gain on sale of hotel properties                         (666)
      Depreciation and amortization                          20,214       11,631        6,904
      Amortization of loan costs                              1,013        1,565          793
      Write-off of debt costs                                 1,984
      Amortization of unearned directors' and
         officers' compensation                                  92           33           31
      Minority interest                                         918          460          502
      Changes in assets and liabilities:
         Due from Lessees                                    (2,548)      (1,078)        (259)
         Note receivable from sale of hotels                 (3,884)
         Deferred expenses                                       (8)        (225)        (192)
         Deposits and other assets                              215       (1,376)          89
         Accounts payable and accrued expenses                9,529          717        1,138
                                                          ---------    ---------    ---------
             Net cash flow provided by operating
                activities                                   50,402       26,200       17,517
                                                          ---------    ---------    ---------

Cash flows from investing activities:
Acquisitions of hotel properties                           (337,069)     (81,395)     (77,704)
Improvements and additions to hotel properties              (18,083)     (19,440)      (6,509)
Cash paid for franchise applications                         (2,144)        (340)        (518)
Proceeds from sale of hotel properties                       43,207
                                                          ---------    ---------    ---------
             Net cash flow used in investing activities    (314,089)    (101,175)     (84,731)
                                                          ---------    ---------    ---------

Cash flows from financing activities:
Gross proceeds from public offerings                        153,388       91,390       55,094
Payment of offering expenses                                 (8,849)      (5,653)      (3,556)
Proceeds from exercise of stock options                       1,125
Distributions paid                                          (32,656)     (21,962)     (11,345)
Borrowings under revolving credit facility                  326,411      102,890       85,480
Payments on revolving credit facility                      (256,885)    (100,724)     (56,366)
Borrowings under CMBS credit facility                        88,000
Payments under CMBS credit facility                          (1,717)
Proceeds from issuance of common stock                        7,087
Proceeds from sale of Units                                   2,875
Cash paid for loan costs                                     (5,067)        (926)      (3,033)
Payments on capital lease obligations                            (2)          (6)         (13)
                                                          ---------    ---------    ---------
             Net cash flow provided by financing
                activities                                  263,748       74,971       66,261
                                                          ---------    ---------    ---------

Net increase (decrease) in cash and cash
   equivalents                                                   61           (4)        (953)

Cash and cash equivalents at beginning of year                  129          133        1,086
                                                          ---------    ---------    ---------

Cash and cash equivalents at end of year                  $     190    $     129    $     133
                                                          =========    =========    =========

Supplemental disclosure of cash flow information --
   Interest paid                                          $  12,226    $   4,399    $   3,588
                                                          =========    =========    =========
</TABLE>


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

                                       39

<PAGE>



                                EQUITY INNS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     Organization

Equity  Inns,  Inc.  (the  "Company")  is in the  business of  acquiring  equity
interests in hotel  properties.  The Company is a real estate  investment  trust
("REIT") for federal income tax purposes. The Company,  through its wholly owned
subsidiary,  Equity Inns Trust (the  "Trust"),  is the sole  general  partner of
Equity Inns Partnership, L.P. (the "Partnership") and at December 31, 1997 owned
an approximate 95.0% interest in the Partnership.

As of December 31, 1997, the Partnership owned 89 hotel properties, with a total
of 10,777 rooms in 30 states. The Partnership,  under operating leases providing
for the payment of percentage rent (the "Percentage  Leases"),  leased 25 of the
current hotels to Crossroads/Memphis Partnership, L.P., 31 of the current hotels
to  Crossroads  Future  Company,   L.L.C.  and  23  of  the  current  hotels  to
Crossroads/Memphis  Financing  Company,  L.L.C.  (referred  to  collectively  as
"Crossroads").  Each of these  lessees  is an  affiliate  of  Interstate  Hotels
Company  ("Interstate").  All  payments  due under these  Percentage  Leases are
guaranteed by Interstate.  The Partnership  leased 10 hotels to Caldwell Holding
Company ("Caldwell"), a wholly-owned subsidiary of Prime Hospitality Corporation
("Prime").  Caldwell is required, under the terms of its master lease agreement,
to maintain 20% of its expected  annual  percentage  rents in cash or marketable
securities.  All  hotels  owned by the  Company  are  leased to  Crossroads  and
Caldwell  (collectively,  the  "Lessees"),  and  individually as the Lessee (the
"Lessee").  The  Lessees  operate  and  lease  hotels  owned by the  Partnership
pursuant to separate  Percentage Leases which provide for rent payments equal to
the greater of (i) a fixed base rent ("Base Rent") or (ii) percentage rent based
on the revenues of the hotels ("Percentage Rent").

2.     Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements include the accounts of the Company, the
Trust  and  the   Partnership.   All  significant   intercompany   balances  and
transactions have been eliminated.

Investment in Hotel Properties

The hotel  properties are recorded at cost.  Depreciation  is computed using the
straight-line  method over estimated useful lives of the assets which range from
31 to 40 years for buildings and 5 to 7 years for furniture and equipment.

Maintenance and repairs are the  responsibility  of the Lessees;  major renewals
and  improvements  are  capitalized.   Upon  disposition,  both  the  asset  and
accumulated  depreciation accounts are relieved, and the related gain or loss is
credited or charged to the income statement.

The Company  reviews the carrying  value of each hotel  property to determine if
circumstances  exist  indicating  an  impairment  in the  carrying  value of the
investment  in the  hotel  property  or  that  depreciation  periods  should  be
modified.  If impairment is indicated,  the carrying value of the hotel property
is adjusted  based on the  discounted  future cash flows.  The Company  does not
believe that there are any current facts or circumstances  indicating impairment
of any of its investment in hotel properties.



                                       40

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2.     Summary of Significant Accounting Policies, Continued

Cash and Cash Equivalents

All highly  liquid  investments  with  maturities  of three  months or less when
purchased are considered to be cash equivalents.

Deferred Expenses

Deferred  expenses are recorded at cost and consist of the following at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
                                                    1997                 1996
                                                   ------               ------
                                                          (in thousands)
<S>                                                <C>                  <C>
         Initial franchise fees                    $3,615               $1,963
         Loan costs                                 4,380                3,409
         Other                                        254                  247
                                                   --------             ------
                                                    8,249                5,619
         Accumulated amortization                    (973)              (1,840)
                                                   ------               ------ 

                                                   $7,276               $3,779
                                                   ======               ======
</TABLE>

Amortization of franchise fees is computed using the  straight-line  method over
the remaining lives of the franchise  agreements  which range up to 20 years and
is included in depreciation and amortization expense. Amortization of loan costs
is computed using the straight-line method over the term of the related debt. In
1997, the Company expensed  approximately $2.0 million of unamortized loan costs
relating to debt that was replaced in 1997.

Deposits and Other Assets

Deposits include escrow deposits and other prepayments relating to the potential
acquisitions of hotel properties.

Interest Rate Swap Agreements

The Company  enters into interest  rate swap  agreements to reduce the impact of
changes  in  interest  rates on its  floating  rate  debt.  The  agreements  are
contracts to exchange  floating rates for fixed interest  payments  periodically
over the life of the agreements without the exchange of the underlying  notional
amounts.  The notional  amounts of interest rate  agreements are used to measure
the interest to be received or paid and do not  represent the amount of exposure
to credit loss. The differential paid or received on interest rate agreements is
recognized as an adjustment to interest expense.



                                       41

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2.       Summary of Significant Accounting Policies, Continued

Revenue Recognition

Percentage  Lease revenue is  recognized  when earned from the Lessees under the
Percentage  Leases from the date of acquisition of each hotel property (Note 5).
The Lessees are in compliance with all of their obligations as stipulated in the
Percentage Leases.

Net Income Per Common Share

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No. 128, "Earnings per Share" (SFAS 128), which
changes  the  computation  and  presentation  of  earnings  per share.  SFAS 128
requires the  presentation  of basic and diluted  earnings per share,  replacing
primary and fully diluted earnings per share previously  required.  Earnings per
share for all prior years  presented have been presented in accordance with SFAS
128.

A reconciliation of the numerator and denominator used in the basic earnings per
share  computation to the numerator and denominator used in the diluted earnings
per share  computation is presented  below for the year ended December 31, 1997.
For the years ended  December 31, 1996 and 1995,  the  dilutive  effect of stock
options  outstanding was not significant  (i.e., the numerators and denominators
for the basic and diluted computations were the same).
<TABLE>
<CAPTION>
                                             Income        Shares      Per Share
                                           (Numerator)  (Denominator)    Amount
                                           -----------  -------------  ---------
                                            (in thousands except per share data)
<S>                                        <C>          <C>            <C> 
     Income before extraordinary charge      $25,453                      $0.88
     Extraordinary charge                     (1,910)                     (0.06)
                                             -------                      ----- 
     Net income - basic                       23,543        28,773         0.82

     Dilutive effect of stock options
       outstanding using the treasury
       stock method                                             61
                                             -------        ------        -----
     Net income - diluted                    $23,543        28,834        $0.82
                                             =======        ======        =====
</TABLE>

Distributions

The Company pays regular quarterly cash  distributions to shareholders which are
dependent upon receipt of distributions from the Partnership.

Minority Interest

Minority   interest  in  the  Partnership   represents  the  limited   partners'
proportionate  share of the equity of the  Partnership.  Income is  allocated to
minority interest based on weighted average percentage  ownership throughout the
year.



                                       42

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2.   Summary of Significant Accounting Policies, Continued

Stock-Based Compensation Plans

The Company applies APB Opinion No. 25 and related interpretations in its
accounting for Stock Based Compensation Plans.  Accordingly, the Company has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."

Income Taxes

The  Company  has  qualified  as a REIT under  Sections  856  through 860 of the
Internal Revenue Code, as amended.  Accordingly, no provision for federal income
taxes has been reflected in the financial statements.

Earnings and profits,  which will determine the taxability of  distributions  to
shareholders,  will  differ from net income  reported  for  financial  reporting
purposes  primarily  due to the  differences  for  federal  tax  purposes in the
estimated useful lives and methods used to compute  depreciation.  Distributions
made to shareholders in 1997 and 1996 are considered to be approximately 10% and
29% return of capital, respectively, for federal income tax purposes.

Concentration of Credit Risk

The Company  maintains  cash  balances  with  financial  institutions  with high
ratings.  The  Company  has not  experienced  any  losses  with  respect to bank
balances in excess of government-provided insurance.

Use of Estimates

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

3.     Investment in Hotel Properties

Hotel properties consist of the following at December 31:
<TABLE>
<CAPTION>
                                                  1997                  1996
                                               ---------             ---------
                                                       (in thousands)
         <S>                                   <C>                    <C>

         Land                                  $  76,730             $  39,336
         Buildings and improvements              505,715               252,218
         Furniture and equipment                  72,878                40,974
         Construction in progress                  5,568                 1,033
                                               ---------             ---------
                                                 660,891               333,561
         Less accumulated depreciation           (43,819)              (24,359)
                                               ---------             --------- 

                                               $617,072              $309,202
                                               ========              ========
</TABLE>

                                       43

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



3.     Investment in Hotel Properties, Continued

Sixty of the hotel properties are premium limited service hotels,  five are full
service hotels, fourteen are premium extended stay hotels, and ten are all-suite
hotels.

During 1997 and 1996, the Company acquired the following types of hotels for the
approximate amounts indicated:

<TABLE>
<CAPTION>
                                       1997                    1996
                                 -------------------     -------------------
                                 No. of    Purchase      No. of    Purchase
                                 Hotels     Price        Hotels     Price
                                 ------    --------      ------    --------
                                        (in thousands)          (in thousands)
<S>                               <C>       <C>          <C>       <C>  
    Premium Limited Service        34      $198,574         5      $36,200
    Premium Extended Stay           6        61,650         5       41,300
    All-Suite                      10        86,966
    Full Service                                            1        5,100
                                   --      --------        --      -------

                                   50      $347,190        11      $82,600
                                   ==      ========        ==      =======
</TABLE>

The above acquisitions were accounted for as purchases,  and the results of such
acquisitions are included in the Company's consolidated statements of operations
from the dates of acquisition.

In connection with the purchase of  twenty-eight  premium limited service hotels
in  June  1997,  the  Company  received  $2.25  million  from  Interstate  as an
inducement  to enter into  percentage  lease  contracts  with  Interstate.  This
inducement is being amortized into other income over ten years, the lives of the
percentage lease contracts.  As part of the purchase,  the Company agreed to pay
Interstate a lease termination fee equal to 50% of the net book gain on the sale
of nine of the hotels.

On October 31, 1997, the Company sold nine premium  limited  service hotels to a
subsidiary  of  Hudson  Hotel  Corporation  ("Hudson")  resulting  in a gain  of
approximately $666,000, after the lease termination fee.

Approximately  $3.9  million  of the  total  sales  price  was in the  form of a
two-year  note  bearing  interest  at 10% per annum which is  collateralized  by
2,000,000 shares of common stock of Hudson.

4.  Debt

Debt is comprised of the following at December 31:
<TABLE>
<CAPTION>
                                                   1997                1996
                                                 --------             -------
                                                        (in thousands)
<S>                                              <C>                  <C> 

         Revolving credit facility               $146,850             $77,025
         Commercial Mortgage Bonds                 86,283
         Other                                         73                 374
                                                 --------             -------

                                                 $233,206             $77,399
                                                 ========             =======
</TABLE>



                                       44

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



4.       Debt, Continued

On February 10, 1997, the Company,  through a subsidiary,  issued $88 million of
rated Commercial Mortgage Bonds ("Bonds") in a private placement  transaction as
follows:
<TABLE>
<CAPTION>
                       Initial
                      Principal       Interest          Stated
         Class         Amount           Rate          Maturity          Rating
         -----      -------------     --------    -----------------     ------
         <S>        <C>               <C>         <C>                   <C>
            A       $27.4 million      6.825%     November 20, 2006       AA
            B       $50.6 million      7.370%     December 20, 2015       A
            C       $10.0 million      7.580%     February 20, 2017       BBB
</TABLE>

The  combined  interest  rate for all  three  issues of Bonds is fixed at 7.22%.
Proceeds from the issuance of these Bonds were used to repay existing debt under
the  line  of  credit  of   approximately   $85.6  million  and  loan  costs  of
approximately  $2.4 million.  Principal payments are to be applied to each class
of Bonds in order of their  respective  maturities with no principal  payment on
any Bond until all Bonds in a bond class with an earlier  stated  maturity  have
been paid in full.  The  Company  expects to repay these Bonds in full within 10
years.  Twenty-three  hotel  properties  with a carrying value of  approximately
$130.5 million at December 31, 1997 and their  respective  leases  collateralize
the Bonds.

Aggregate annual principal payments for the next five years at December 31, 1997
for the Bonds are as follows (in thousands):
<TABLE>
<CAPTION>
                              Year             Amount
                              ----             ------
                              <S>              <C>
                              1998             $2,195
                              1999              2,351
                              2000              2,518
                              2001              2,698
                              2002              2,890
</TABLE>

On October 10,  1997,  the Company  replaced  its  previous  line of credit with
borrowings under a $250 million unsecured line of credit (the "Unsecured Line of
Credit").  The  Unsecured  Line of Credit bears  interest at a variable  rate of
LIBOR  plus  1.4%,  1.5%,  1.625%,  or  1.75%  as  determined  by the  Company's
percentage of total debt to the total value of the Company's investment in hotel
properties, as defined in the loan agreement (the "Percentage").  The Percentage
is reviewed  quarterly,  and the  interest  rate is adjusted  as  necessary.  At
December 31, 1997,  the interest rate on the Unsecured  Line of Credit was LIBOR
(5.94% at December  31, 1997) plus 1.625%.  The  Unsecured  Line of Credit has a
three-year term, expiring in October 2000, plus a one-year renewal option.

On December 18, 1997,  the Company  entered into an interest rate swap agreement
with a financial institution.  The agreement effectively fixes the interest rate
on  floating  rate debt at a rate of 5.90%  plus the  Percentage  for a notional
principal amount of $75 million. The swap agreement will expire in October 2000.


                                       45

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



4.       Debt, Continued

On November 14, 1997,  the Company  obtained an  additional  $5,000,000  line of
credit with the  National  Bank of Commerce  (the "NBC  Credit  Line").  The NBC
Credit Line bears  interest at the bank's prime rate (8.5% at December 31, 1997)
and is also unsecured.  The NBC Credit Line has a three-year  term,  expiring in
September  2000.  There were no outstanding  borrowings  under this agreement at
December 31, 1997.

The weighted  average  interest  rate on the  Company's  outstanding  borrowings
during  1997 and 1996 was 7.53% for both  years.  Fees of .25% and .20% are paid
quarterly  on the  unused  portion of the  Unsecured  Line of Credit and the NBC
Credit Line,  respectively.  The carrying amount of the Company's  borrowings on
its revolving  credit  facilities  approximates  fair value due to the Company's
ability to obtain such borrowings at comparable interest rates.

The Company's charter limits total borrowings to 45% of the Company's investment
in hotel properties. The Unsecured Line of Credit agreement requires the Company
to maintain  certain debt coverage  ratios and certain levels of cash flow, with
which the Company was in  compliance  at December  31, 1997.  Additionally,  the
Unsecured Line of Credit agreement  requires a quarterly deposit into a separate
room  renovation  account  for the  amount by which 4% of room  revenues  at the
Company's  hotels exceeds the amount  expended by the Company during the quarter
for  replacement of furniture,  fixtures and equipment and capital  improvements
for the  hotels.  For the  years  ended  December  31,  1997  and  1996,  actual
expenditures exceeded the amounts required.

5.     Commitments and Related Party Transactions

The hotel properties are operated under franchise agreements and are licensed as
Hampton Inn hotels  (57),  AmeriSuites  hotels (10),  Residence  Inn hotels (9),
Homewood Suites hotels (5),  Holiday Inn hotels (4), Comfort Inn hotels (3), and
Holiday Inn Express  hotels (1).  The  franchisors  approve the  transfer of the
franchise  licenses  to the  Lessee  when the  Partnership  acquires  each hotel
property.  The  franchise  agreements  require  the  payment  of fees based on a
percentage  of  hotel  room  revenue,  beverage  revenue  and food  revenue,  if
applicable, which are paid by the Lessee.

The Lessees have future lease  commitments  to the Company under the  Percentage
Leases for various terms  extending  through 2012.  Minimum future rental income
(Base Rents) under these non-cancelable operating leases is as follows:
<TABLE>
<CAPTION>
                              Year                     Amount
                              ----                    --------
                                                   (in thousands)
                              <S>                     <C>  
                              1998                    $ 54,057
                              1999                      54,057
                              2000                      54,057
                              2001                      54,057
                              2002                      54,057
                              2003 and thereafter      396,375
                                                      --------

                                                      $666,660
                                                      ========
</TABLE>



                                       46

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5.     Commitments and Related Party Transactions, Continued

The Company earned Base Rents of $38.3 million,  $20.1 million and $12.6 million
and Percentage Rents in excess of Base Rents of $32.2 million, $18.2 million and
$11.5 million,  respectively, for the years ended December 31, 1997 and 1996 and
1995.  The  Percentage  Lease  revenue  is based on a  percentage  of gross room
revenue,  and food and  beverage  revenue,  if  applicable,  of the hotels.  The
Percentage Leases range in terms from ten to fifteen years.  Rental rates on all
fifteen-year  leases are required to be re-negotiated  after ten years. Both the
Base Rent and the threshold room revenue amount in each  Percentage Rent formula
are  adjusted  for  changes  in the  U.S.  Consumer  Price  Index  ("CPI").  The
adjustment is calculated on January 1 of each year,  provided the lease has been
in effect for a complete  calendar year and is based upon the average  change in
the CPI  during the prior 24 months.  The  adjustment  in any lease year may not
exceed 7%. Effective January 1, 1998,  forty-eight of the Percentage Leases were
adjusted,  resulting in a 2.67%  increase in both Base Rent and  threshold  room
revenue.

At December  31,  1997,  the Lessees  owed the Company  $5,925,000  representing
fourth  quarter  Percentage  Rent  which is due and  payable  to the  Company by
January 30, 1998.

Under the Percentage  Leases,  the  Partnership is obligated to pay the costs of
real estate and personal  property taxes and to maintain  underground  utilities
and  structural  elements of the Hotels.  In  addition,  the  Percentage  Leases
obligate the  Partnership to fund the cost of periodic  repair,  replacement and
refurbishment of furniture, fixtures and equipment in the Hotels.

During 1996,  Promus Hotels,  Inc.  ("Promus")  purchased  606,232 shares of the
Company's common stock in private placement  transactions in connection with the
Company's purchase of four hotels from Promus.  Additionally,  Promus has agreed
to purchase up to an additional $8.0 million of common stock over the next three
years as the  Company  develops or converts  additional  hotels to Promus  brand
hotels.

The  Company  also  may be  required  by  franchisors  to fund  certain  capital
improvements  to  hotel   properties  when  acquired,   which  are  funded  from
borrowings,  working capital,  or the room renovation  account (Note 4). Capital
improvements of $18.1 million, $19.4 million and $6.5 million in 1997, 1996, and
1995, respectively, were made to the hotel properties,  including those required
by the  franchisors  at the  acquisition  of the property.  In 1998, the Company
expects to fund approximately $25 million of capital  improvements for the hotel
properties owned at December 31, 1997.

The Company has  commitments  under  operating land leases through  December 31,
2062, at nine hotel properties for payments as follows:  1998 -- $733,929;  1999
-- $736,429; 2000 -- $766,138; 2001 -- $777,861; 2002 -- $804,288; thereafter --
$12.7 million.

In 1996, the Partnership began construction on a 124-room Hampton Inn and Suites
hotel in Memphis (Bartlett), Tennessee. Construction costs are estimated at $7.5
million, with completion of the hotel expected in the second quarter of 1998. In
addition, the Company has agreed to purchase a 161-room Homewood Suites hotel in
Seattle,  Washington  for $22 million and a 252- room  Homewood  Suites hotel in
Orlando,  Florida for $22.8  million.  Both of these hotels are currently  under
construction  with  completion  dates  expected in June 1998,  and January 1999,
respectively.  Total costs incurred  relating to these  developments at December
31, 1997 were approximately $5.6 million,  of which $264,000  represents related
interest costs.

                                       47

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



6.     Supplemental Disclosure of Noncash Investing and Financing Activities

In 1995,  152,013  units of  limited  partnership  interest  in the  Partnership
("Units")  with a book value of $1.1 million were exchanged for shares of common
stock by certain limited partners;  15,218 shares of common stock were issued to
McNeill  Investment  Company,  Inc.  in payment of  incentive  advisory  fees of
$164,000;  3,238  Units  valued  at  $37,000  were  issued  as part of the total
acquisition  cost  of  a  hotel  property;  $4.0  million  in  distributions  to
shareholders and limited partners had been declared but not paid at December 31,
1995;  $1.3  million of the net  proceeds of the  Company's  third  offering was
allocated to minority interest;  and offering expenses of approximately $170,000
which were paid in 1995 and included in deferred  expenses at December 31, 1995,
were deducted from the net proceeds of the fourth offering in April 1996.

In 1996,  the Company  issued 25,000 shares of common stock valued at $11.75 per
share to its officers in lieu of cash to satisfy bonus  compensation  accrued at
December  31,  1995;  182,815  Units  with a book  value  of $1.7  million  were
exchanged for shares of common stock by certain limited  partners;  96,303 Units
valued at $1.1 million and an  assumption of a $300,000 note payable were issued
as part of the total  acquisition  cost of a hotel  property;  25,000  shares of
restricted  common stock valued at $12.25 per share were issued to the Company's
officers;  $297,000 of the net  proceeds of the  Company's  public  offering was
allocated to minority interest with the remainder of the net proceeds increasing
common stock and additional  paid-in capital;  and $6.9 million in distributions
to shareholders  and limited partners had been declared but not paid at December
31, 1996.

In 1997,  the Company  issued  90,000  shares of common stock to an officer upon
exercise of options; 1,021,062 Units valued at $14.7 million were issued as part
of the total  acquisition  cost of six hotel  properties;  and $10.6  million in
distributions  to  shareholders  and limited  partners had been declared but not
paid at December 31, 1997.

7.     Capital Stock

The Board of Directors is  authorized to provide for the issuance of ten million
shares of  preferred  stock in one or more series,  to  establish  the number of
shares in each  series  and to fix the  designation,  powers,  preferences,  and
rights of each such series and the  qualifications,  limitations  or restriction
thereof. As of December 31, 1997 and 1996, no preferred stock was issued.

The  outstanding  Units in the  Partnership  are redeemable at the option of the
holder  for a like  number of shares of common  stock,  or at the  option of the
Company,  the cash equivalent  thereof.  Total Units outstanding at December 31,
1997 and 1996 were 1,842,520 and 821,458,  respectively.  The total market value
of these Units at December 31, 1997,  based on the last reported  sales price of
the common stock on the NYSE of $14.75, was approximately $27.2 million.

The  Company  issued  5,000  shares  to each of its  three  initial  independent
directors,  which shares vest over five years at a rate of 1,000 shares per year
beginning in 1994. The unvested shares are subject to forfeiture if the director
does not remain a director of the Company for the specified vesting period.  The
Company began charging operations for compensation expense with respect to these
shares in 1994.



                                       48

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



7.     Capital Stock, Continued

In December  1996,  the Company  issued a total of 25,000  shares of  restricted
shares of common  stock to its  officers,  which  shares vest  ratably over five
years.  The shares were valued at $12.25 per share at the date of issuance.  The
unvested  shares are subject to  forfeiture  if the  officer  does not remain an
officer of the Company for the specified vesting period.

8.     Stock Option Plans

On June 13, 1994, the Board of Directors of the Company  approved the 1994 Stock
Incentive Plan (the "1994 Plan") to provide for  incentives  awarded to officers
and key employees of the Company.  The 1994 Plan provides for the grant of stock
options to purchase a specified number of shares of common stock  ("Options") or
grants of performance shares of common stock ("Performance Stock") or restricted
shares of common stock ("Restricted Stock"). Under the plan, the total number of
shares  available for grant is 2,300,000  shares of common  stock,  of which not
more than 100,000 shares may be grants of Restricted Stock or Performance Stock.
The exercise  price of the options shall be determined on the date of each grant
and expire in 2002.

On July 6, 1994,  the Company  granted  options to officers and key employees of
the Company to purchase  600,000  shares of common stock at an exercise price of
$12.50 per share,  which  options vest ratably over five years.  At December 31,
1997, options for 90,000 shares have been exercised.

On June 13,  1994,  the Board of  Directors  of the Company  also  approved  the
Non-Employee   Directors'  Stock  Option  Plan  (the  "Directors'   Plan").  The
Directors'  Plan  provides for the award of options to purchase  common stock to
each director who is not an employee of the Company or a related  entity.  Under
the Directors'  Plan,  the total number of shares  available for grant is 50,000
shares  of common  stock.  In June  1997,  1996 and April  1995,  each  eligible
director was awarded an option to acquire 1,000 shares  (aggregate 3,000 shares)
of common  stock at an exercise  price of $13.50,  $11.75 and  $11.25,  the fair
market  value on their  respective  dates of grant.  At December  31,  1997,  no
options have been exercised.  During the remaining term of the Directors'  Plan,
each  eligible  director will receive an option for 1,000 shares of common stock
at the first meeting of the Board of Directors  following each annual meeting of
the  Company's  shareholders.  The  exercise  price  of  the  options  shall  be
determined on the date of each grant and expire ten years after the date of each
grant.

At December 31, 1997 and 1996, exercisable options under both plans were 519,000
and 606,000 shares, respectively.

9.     Pro Forma Financial Information (Unaudited)

Due to the impact of the  acquisitions  discussed in Note 1, Note 3 and Note 10,
historical  operations may not be indicative of future results of operations and
net income per common share.

The following unaudited pro forma consolidated  statements of operations for the
year ended December 31, 1997 and 1996 are presented as if the acquisition of all
89 hotels owned at December 31, 1997, and the  consummation of the offerings and
the  application of the net proceeds  therefrom had occurred on January 1, 1996,
and all of the hotels had been leased to the Lessees  pursuant to the Percentage
Leases.  Additionally,  the pro forma consolidated  statements of operations are
presented without  consideration of the gain on the sale of hotel properties and
the extraordinary  charge from the write-off of deferred financing fees, both of
which occurred in 1997.

                                       49

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



9.     Pro Forma Financial Information (Unaudited), Continued

The pro forma  consolidated  statements  of operations do not purport to present
what actual results of operations  would have been if the  acquisitions  and the
consummation  of the offerings  had occurred on such date or to project  results
for any future period.
<TABLE>
<CAPTION>
                                                        For the Years Ended
                                                            December 31,
                                                   1997                  1996
                                                 -------                -------
                                           (in thousands, except per share data)
<S>                                               <C>                   <C>
Percentage lease revenues                        $93,062                $86,685
Other income                                         617                    116
                                                 -------                -------
         Total revenues                           93,679                 86,801
                                                 -------                -------

Expenses:
Real estate and personal property taxes            9,049                  7,965
Depreciation and amortization                     26,834                 24,889
Compensation                                       2,099                  1,870
Interest                                          18,968                 16,429
Amortization of loan costs                         1,040                  1,805
General and administrative                         2,043                  1,536
Amortization of unearned directors' and
    officers' compensation                            92                     33
Rental expense                                       815                    745
                                                 -------                -------
     Total expenses                               60,940                 55,272
                                                 -------                -------

Income before minority interest                   32,739                 31,529

Minority interest                                  1,644                  1,583
                                                 -------                -------

Net income applicable to common shareholders     $31,095                $29,946
                                                 =======                =======

Net income per common share                      $   .89                $   .86
                                                 =======                =======

Weighted average number of common shares
    outstanding                                   34,866                 34,866
                                                 =======                =======
</TABLE>


10.    Significant Lessee Information

As discussed in Note 1, the Percentage  Leases relating to hotels accounting for
more than 20% of the  Company's  assets are  guaranteed  by  Interstate  and its
parent,  Interstate Hotels Company, a publicly traded hotel management  company.
At December 31, 1997,  Interstate  owned,  managed,  leased or performed related
services for a portfolio of 223 hotels totaling 45,329 rooms.



                                       50

<PAGE>


                                EQUITY INNS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



10.    Significant Lessee Information, Continued

Summarized financial information for Interstate Hotels Company as of and for the
year ended December 31, 1997 is as follows (in thousands):
<TABLE>
         <S>                                                        <C>
         Balance Sheet Data:
             Investment in hotel real estate                        $   41,297
             Cash and short-term investments                            28,920
             Total assets                                            1,373,463
             Total debt                                                800,124
             Shareholders' equity                                      456,375

         Income Statement Data:
             Total revenue                                          $  661,712
             Net income                                                 43,586
</TABLE>




                                       51

<PAGE>



                                EQUITY INNS, INC.
            SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1997
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                                               
                                                                        Cost Capitalized Subsequent       Gross Amount at Which 
                                                Initial Cost                   to Acquisition           Carried at Close of Period
                                       ------------------------------  -----------------------------  ------------------------------
                                                           Furniture          Buildings   Furniture            Buildings   Furniture
                                                               and                and        and                  and         and 
Description of Property                 Land   Improvements Fixtures    Land  Improvements Fixture     Land   Improvements Fixtures
-----------------------                ------- ------------ ---------  ------ ------------ --------   ------- ------------ ---------
<S>                                    <C>      <C>         <C>        <C>     <C>         <C>        <C>     <C>          <C>  
Hampton Inn-Albany, NY                 $   953    $ 9,897   $   802    $    0   $   158     $   733   $   953    $10,055    $ 1,535
Hampton Inn-Cleveland, OH                  820      4,428       217         0       173         391       820      4,601        608
Hampton Inn-College Station, TX            656      4,655       671         0       213         530       656      4,868      1,201
Hampton Inn-Columbus, GA                   603      2,591     1,073         0       470         650       603      3,061      1,723
Hampton Inn-Ft. Worth, TX                  385      1,754       896         0       334         726       385      2,088      1,622
Hampton Inn-Little Rock, AR                549      2,688       328         0       107         575       549      2,795        903
Hampton Inn-Louisville, KY                 395      2,406       919         0       239         804       395      2,645      1,723
Hampton Inn-Sarasota, FL                   553      3,389       753         0       231         489       553      3,620      1,242
Hampton Inn-Ann Arbor, MI                  565      4,499       506         0       372         712       565      4,871      1,218
Comfort Inn-Enterprise, AL                 544      2,398       112         0        99         323       544      2,497        435
Hampton Inn-Gurnee, IL                     630      3,397       277         0       431         927       630      3,828      1,204
Hampton Inn-Traverse City, MI              526      6,153       335         0        94         536       526      6,247        871
Hampton Inn-Arlington, TX                  425      6,387       582         0       207         355       425      6,594        937
Residence Inn-Eagan, MN                    540      8,130       652         0       541       1,230       540      8,671      1,882
Residence Inn-Tinton Falls, NJ               0      7,711       419         0       246         176         0      7,957        595
Hampton Inn-Milford, CT                    759      5,689       467         0       226         566       759      5,915      1,033
Hampton Inn-Meriden, CT                    648      3,226       435         0       142         299       648      3,368        734
Hampton Inn-Beckley, WV                  1,876      5,557       402         0        90         188     1,876      5,647        590
Holiday Inn-Bluefield, WV                1,661      6,141       342         0       520         897     1,661      6,661      1,239
Hampton Inn-Gastonia, NC                 1,835      4,741       358         0        79         588     1,835      4,820        946
Hampton Inn-Morgantown, WV               1,573      4,311       324         4        62         519     1,577      4,373        843
Holiday Inn-Oak Hill, WV                   269      3,727        85         0     1,031         674       269      4,758        759
Hampton Inn-Shelby, NC                     401      2,457       165         0       154         407       401      2,611        572
Holiday Inn Express-Wilkesboro, NC         269      2,778       177         0       250         391       269      3,028        568
Hampton Inn-Naperville, IL                 678      6,455       396         0       261         583       678      6,716        979
Hampton Inn-State College, PA              718      7,310       525         0       180         480       718      7,490      1,055
Comfort Inn-Rutland, VT                    359      3,683       354         0       292         490       359      3,975        844
Hampton Inn-Cleveland, TN                  181      1,825       171         0       106         106       181      1,931        277
Hampton Inn-Scranton, PA                   403      7,017       720         0        64          62       403      7,081        782
Residence Inn-Omaha, NE                    953      2,650       162         6       515         372       959      3,165        534
Hampton Inn-Fayetteville NC                403      5,043       148        18       497         732       421      5,540        880
Hampton Inn-Indianapolis, IN             1,207      6,513       126         0       300       1,073     1,207      6,813      1,199
Hampton Inn-Jacksonville, FL               403      4,793       126         0       234         938       403      5,027      1,064
Holiday Inn-Mt. Pleasant, SC             1,205      7,874       247         0       423         587     1,205      8,297        834
Comfort Inn-Jacksonville Beach, FL         849      7,307       371         2     1,222         760       851      8,529      1,131
Hampton Inn-Austin, TX                     500      6,659       375         6       220         544       506      6,879        919
Hampton Inn-Garland, TX                    375      4,959       450         3       181         386       378      5,140        836
Hampton Inn-Knoxville, TN                  617      3,871       232         0       189         494       617      4,060        726
Hampton Inn-Glen Burnie, MD                  0      5,075       322         0       240         346         0      5,315        668
Hampton Inn-Detroit, MI                  1,207      5,785       526         0       165          91     1,207      5,950        617
Homewood Suites-Hartford, CT             2,866      7,660       915         0       280          85     2,866      7,940      1,000
Residence Inn-Madison, WI                  700      2,879       356         0       101         129       700      2,980        485
Holiday Inn-Winston-Salem, NC            1,350      3,124       639         0        28          39     1,350      3,152        678
Hampton Inn-Scottsdale, AZ               2,227      6,566       723         0        40           9     2,227      6,606        732
Hampton Inn-Chattanooga, TN              1,475      6,824       752         0       271         237     1,475      7,095        989
Homewood Suites-San Antonio, TX            907      6,661     1,029         0        42          16       907      6,703      1,045
Residence Inn-Burlington, VT               679      6,677       342         0       362         259       679      7,039        601
Homewood Suites-Phoenix, AZ                  0      7,086       902         0     1,623           0         0      8,708        903
Residence Inn-Colorado Springs, CO       1,350      7,638       740         0        68         139     1,350      7,706        879
Residence Inn-Oklahoma City, OK          1,450      8,921       850         0       172         140     1,450      9,093        889
Residence Inn-Tucson, AZ                   832      7,078       705         0        66          48       832      7,144        753
Hampton Inn-Savannah, GA                   705      4,186       334         0       125         522       705      4,310        856
Hampton Inn-Norfolk, VA                             5,092       520         0       209         423         0      5,301        943
Hampton Inn-Pickwick, TN                   370      1,484       263         0        79          43       370      1,563        306
Hampton Inn-Southaven, MS                  698      3,138       522         0        77          60       698      3,215        582
Hampton Inn-Overland Park, KS              906      5,931       330         0        80          72       906      6,011        402
Hampton Inn-Addison, TX                  2,981      6,336       810         0       179          88     2,981      6,521        895
Hampton Inn-Atlanta (Northlake), GA                 6,905       600         0       124         11          0      7,029        611
<CAPTION>
                                                                Accumulated          Net Book
                                                                Depreciation           Value                         Life Upon
                                                                Building and       Buildings and                       Which
                                                                Improvements;      Improvements;                    Depreciation
                                                                 Furniture &        Furniture &        Date of      In Statement
                                                   Total          Fixtures           Fixtures       Construction    Is Computed
                                                  --------      -------------      --------------   ------------    ------------
<S>                                                <C>           <C>                <C>              <C>            <C> 
Hampton Inn-Albany, NY                            $ 12,543        $ 2,043            $ 10,500           1986          5-40 Yrs
Hampton Inn-Cleveland, OH                            6,029            845               5,184           1987          5-40 Yrs
Hampton Inn-College Station, TX                      6,725          1,237               5,488           1986          5-40 Yrs
Hampton Inn-Columbus, GA                             5,387          1,906               3,481           1986          5-40 Yrs
Hampton Inn-Ft. Worth, TX                            4,095          1,323               2,772           1987          5-40 Yrs
Hampton Inn-Little Rock, AR                          4,247            781               3,466           1985          5-40 Yrs
Hampton Inn-Louisville, KY                           4,763          2,053               2,710           1986          5-40 Yrs
Hampton Inn-Sarasota, FL                             5,415          1,290               4,125           1987          5-40 Yrs
Hampton Inn-Ann Arbor, MI                            6,654          1,109               5,545           1986          5-31 Yrs
Comfort Inn-Enterprise, AL                           3,476            469               3,007           1987          5-31 Yrs
Hampton Inn-Gurnee, IL                               5,662            919               4,743           1988          5-31 Yrs
Hampton Inn-Traverse City, MI                        7,644          1,158               6,486           1987          5-31 Yrs
Hampton Inn-Arlington, TX                            7,956          1,128               6,828           1985          7-31 Yrs
Residence Inn-Eagan, MN                             11,093          1,461               9,632           1988          7-31 Yrs
Residence Inn-Tinton Falls, NJ                       8,552          1,081               7,471           1988          7-31 Yrs
Hampton Inn-Milford, CT                              7,707            986               6,721           1986          7-31 Yrs
Hampton Inn-Meriden, CT                              4,750            617               4,133           1988          7-31 Yrs
Hampton Inn-Beckley, WV                              8,113            767               7,346           1992          7-31 Yrs
Holiday Inn-Bluefield, WV                            9,561          1,022               8,539           1980          7-31 Yrs
Hampton Inn-Gastonia, NC                             7,601            783               6,818           1989          7-31 Yrs
Hampton Inn-Morgantown, WV                           6,793            685               6,108           1991          7-31 Yrs
Holiday Inn-Oak Hill, WV                             5,786            620               5,166           1983          7-31 Yrs
Hampton Inn-Shelby, NC                               3,584            432               3,152           1989          7-31 Yrs
Holiday Inn Express-Wilkesboro, NC                   3,865            458               3,407           1985          7-31 Yrs
Hampton Inn-Naperville, IL                           8,373          1,023               7,350           1978          7-31 Yrs
Hampton Inn-State College, PA                        9,213          1,019               8,194           1987          7-31 Yrs
Comfort Inn-Rutland, VT                              5,178            560               4,618           1985          7-31 Yrs
Hampton Inn-Cleveland, TN                            2,389            239               2,150           1993          7-31 Yrs
Hampton Inn-Scranton, PA                             8,266            772               7,494           1994          7-31 Yrs
Residence Inn-Omaha, NE                              4,658            296               4,362           1985          7-31 Yrs
Hampton Inn-Fayetteville NC                          6,841            615               6,226           1986          7-31 Yrs
Hampton Inn-Indianapolis, IN                         9,219            786               8,433           1987          7-31 Yrs
Hampton Inn-Jacksonville, FL                         6,494            618               5,876           1986          7-31 Yrs
Holiday Inn-Mt. Pleasant, SC                        10,336            816               9,520           1988          7-31 Yrs
Comfort Inn-Jacksonville Beach, FL                  10,511            754               9,757           1990          7-31 Yrs
Hampton Inn-Austin, TX                               8,304            652               7,652           1987          7-31 Yrs
Hampton Inn-Garland, TX                              6,354            554               5,800           1986          7-31 Yrs
Hampton Inn-Knoxville, TN                            5,403            384               5,019           1988          7-31 Yrs
Hampton Inn-Glen Burnie, MD                          5,983            431               5,552           1989          7-31 Yrs
Hampton Inn-Detroit, MI                              7,774            424               7,350           1989          7-31 Yrs
Homewood Suites-Hartford, CT                        11,806            613              11,193           1990          7-31 Yrs
Residence Inn-Madison, WI                            4,165            244               3,921           1988          7-31 Yrs
Holiday Inn-Winston-Salem, NC                        5,180            292               4,888           1969          7-31 Yrs
Hampton Inn-Scottsdale, AZ                           9,565            463               9,102           1996          7-31 Yrs
Hampton Inn-Chattanooga, TN                          9,559            519               9,040           1988          7-31 Yrs
Homewood Suites-San Antonio, TX                      8,655            456               8,199           1996          7-31 Yrs
Residence Inn-Burlington, VT                         8,319            359               7,960           1988          7-31 Yrs
Homewood Suites-Phoenix, AZ                          9,611            476               9,135           1996          7-31 Yrs
Residence Inn-Colorado Springs, CO                   9,935            361               9,574           1984          7-31 Yrs
Residence Inn-Oklahoma City, OK                      1,450            411              11,122           1982          7-31 Yrs
Residence Inn-Tucson, AZ                             8,729            327               8,402           1985          7-31 Yrs
Hampton Inn-Savannah, GA                             5,871            188               5,684           1986          7-31 Yrs
Hampton Inn-Norfolk, VA                              6,244            216               6,028           1990          7-31 Yrs
Hampton Inn-Pickwick, TN                             2,239             71               2,168           1994          7-31 Yrs
Hampton Inn-Southaven, MS                            4,495            145               4,350           1995          7-31 Yrs
Hampton Inn-Overland Park, KS                        7,319            172               7,147           1991          7-31 Yrs
Hampton Inn-Addison, TX                             10,397            175              10,219           1985          7-31 Yrs
Hampton Inn-Atlanta (Northlake), GA                  7,640            163               7,477           1988          7-31 Yrs
</TABLE>



                                       52

<PAGE>




                                EQUITY INNS, INC.
      SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
                             AS OF DECEMBER 31, 1997
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                                        Cost Capitalized Subsequent       Gross Amount at Which 
                                                Initial Cost                   to Acquisition           Carried at Close of Period
                                       ------------------------------  -----------------------------  ------------------------------
                                                           Furniture          Buildings   Furniture            Buildings   Furniture
                                                               and                and        and                  and         and 
Description of Property                 Land   Improvements Fixtures    Land  Improvements Fixture     Land   Improvements Fixtures
-----------------------                ------- ------------ ---------  ------ ------------ --------   ------- ------------ ---------
<S>                                    <C>      <C>         <C>        <C>     <C>         <C>        <C>     <C>          <C>  
Hampton Inn-Birmingham (Mtn. Brook),
  AL                                                7,988       687         0       190          53         0      8,178        740
Hampton Inn-Birmingham (Vestavia),
  AL                                     1,057      5,162       541         0        88          48     1,057      5,250        589
Hampton Inn-Chapel Hill, NC              1,834      6,504       725         0       177          85     1,834      6,680        811
Hampton Inn-Charleston, SC                 712      5,219       516         0       128          73       712      5,346        589
Hampton Inn-Colorado Springs, CO           803      3,925       411         0        70          37       803      3,995        448
Hampton Inn-Columbia, SC                   650      6,572       628         0       152          75       650      6,724        703
Hampton Inn-Aurora, CO                     784      3,344       359         0       173         142       784      3,517        501
Hampton Inn-Detroit (Madison Heights),
  MI                                       881      4,304       451         0       198           0       881      4,502        451
Hampton Inn-Dublin, OH                     944      3,612       483         0       240          19       944      3,852        502
Hampton Inn-Kansas City, KS                585      4,294       425         0       160         114       585      4,454        539
Hampton Inn-Little Rock (North), AR        898      5,520       558         0       192          45       898      5,712        603
Hampton Inn-Memphis (Poplar), TN         1,955      6,547       739         0       191         121     1,955      6,738        860
Hampton Inn-Memphis (Sycamore), TN                  2,751       239         0       109          72         0      2,860        311
Hampton Inn-Nashville (Brentwood), TN      928      5,705       577         0       175         100       928      5,880        677
Hampton Inn-Nashville (Briley Parkway),
  TN                                                6,550       569         0        98          16         0      6,647        585
Hampton Inn-Richardson, TX               1,750      5,252       609         0       181          67     1,750      5,433        676
Hampton Inn-St. Louis, MO                  665      3,775       386         0       123          88       665      3,898        474
Hampton Inn-Destin, FL                     952      5,166       680         0        50           0       952      5,216        680
Homewood Suites-Germantown, TN           1,011      5,760     1,011         0        54           0     1,011      5,814      1,011
Homewood Suites-Augusta, GA                330      4,164       516         0        15           0       330      4,179        516
Residence Inn-Princeton, NJ              1,920     15,875     1,500         0        39           0     1,920     15,914      1,500
AmeriSuites-Cincinnati (Blue Ash), OH      900      6,241       466         0        34           0       900      6,275        466
AmeriSuites-Cincinnati (Forest Park),
  OH                                       800      5,616       569         0        31           0       800      5,647        569
AmeriSuites-Columbus, OH                   903      6,774       856         0        25           0       903      6,799        856
AmeriSuites-Flagstaff, AZ                  600      3,832       737         0        13           0       600      3,845        737
AmeriSuites-Jacksonville, FL             1,168      5,734       436         0         9           0     1,168      5,743        436
AmeriSuites-Indianapolis, IN               700      4,775       800         0        44           0       700      4,819        800
AmeriSuites-Miami, FL                    1,500      9,387       900         0        96           0     1,500      9,483        900
AmeriSuites-Overland Park, KS            1,300      7,030       900         0        11           0     1,300      7,041        900
AmeriSuites-Richmond, VA                 1,772      9,640       921         0        34           0     1,772      9,673        922
AmeriSuites-Tampa, FL                    1,400      9,786       523         0       212           0     1,400      9,998        523
Construction in Progress                 3,663                           1,905                          5,568
Corporate Office--Memphis, TN                                                0        0          75                    0         75


                                       $80,354   $486,919   $47,598    $1,944   $18,796     $25,280   $82,298   $505,715    $72,878
                                       =======   ========   =======    ======   =======     =======   =======   ========    ======= 

<CAPTION>
                                                                Accumulated          Net Book
                                                                Depreciation           Value                         Life Upon
                                                                Building and       Buildings and                       Which
                                                                Improvements;      Improvements;                    Depreciation
                                                                 Furniture &        Furniture &        Date of      In Statement
                                                   Total          Fixtures           Fixtures       Construction    Is Computed
                                                  --------      -------------      --------------   ------------    ------------
<S>                                               <C>           <C>                <C>              <C>             <C>  
Hampton Inn-Birmingham (Mtn. Brook), AL              8,918            153               8,765           1987          7-31 Yrs
Hampton Inn-Birmingham (Vestavia), AL1,057           6,898            131               6,765           1986          7-31 Yrs
Hampton Inn-Chapel Hill, NC                          9,325            171               9,154           1986          7-31 Yrs
Hampton Inn-Charleston, SC                           6,647            133               6,515           1985          7-31 Yrs
Hampton Inn-Colorado Springs, CO                     5,246            100               5,146           1985          7-31 Yrs
Hampton Inn-Columbia, SC                             8,077            165               7,912           1985          7-31 Yrs
Hampton Inn-Aurora, CO                               4,802             96               4,706           1985          7-31 Yrs
Hampton Inn-Detroit (Madison Heights), MI            5,834            108               5,726           1987          7-31 Yrs
Hampton Inn-Dublin, OH                               5,298             99               5,199           1988          7-31 Yrs
Hampton Inn-Kansas City, KS                          5,578            114               5,464           1987          7-31 Yrs
Hampton Inn-Little Rock (North), AR                  7,213            139               7,074           1985          7-31 Yrs
Hampton Inn-Memphis (Poplar), TN                     9,553            174               9,379           1985          7-31 Yrs
Hampton Inn-Memphis (Sycamore), TN                   3,171             68               3,103           1984          7-31 Yrs
Hampton Inn-Nashville (Brentwood), TN                7,485            149               7,336           1985          7-31 Yrs
Hampton Inn-Nashville (Briley Parkway), TN           7,232            155               7,078           1987          7-31 Yrs
Hampton Inn-Richardson, TX                           7,859            140               7,719           1987          7-31 Yrs
Hampton Inn-St. Louis, MO                            5,037            100               4,937           1987          7-31 Yrs
Hampton Inn-Destin, FL                               6,848            137               6,711           1994          7-31 Yrs
Homewood Suites-Germantown, TN                       7,836            171               7,665           1986          7-31 Yrs
Homewood Suites-August, GA                           5,025             98               4,927           1997          7-31 Yrs
Residence Inn-Princeton, NJ                         19,334            212              19,122           1988          7-31 Yrs
AmeriSuites-Cincinnati (Blue Ash), OH                7,641             18               7,623           1990          7-31 Yrs
AmeriSuites-Cincinnati (Forest Park), OH             7,016             18               6,998           1992          7-31 Yrs
AmeriSuites-Columbus, OH                             8,558             23               8,535           1994          7-31 Yrs
AmeriSuites-Flagstaff, AZ                            5,182             16               5,166           1993          7-31 Yrs
AmeriSuites-Jacksonville, FL                         7,347             16               7,331           1996          7-31 Yrs
AmeriSuites-Indianapolis, IN                         6,319             19               6,300           1992          7-31 Yrs
AmeriSuites-Miami, FL                               11,883             29              11,854           1996          7-31 Yrs
AmeriSuites-Overland Park, KS                        9,241             24               9,217           1994          7-31 Yrs
AmeriSuites-Richmond, VA                            12,367             36              12,331           1992          7-31 Yrs
AmeriSuites-Tampa, FL                               11,921             31              11,890           1994          7-31 Yrs
Construction in Progress                             5,568                              5,568
Corporate Office--Memphis, TN                           75              9                  66                         7 Yrs

                                                  --------        -------            --------

                                                  $660,891        $43,819            $617,072
                                                  ========        =======            ========
</TABLE>



<TABLE>
<S>                                                <C>    

(a) Reconciliation of Real Estate:                                
     Balance at December 31, 1995                  $231,324                        
       Additions during the period                  102,237                       
                                                   --------                       
     Balance at December 31, 1996                   333,561                        
       Additions during the period                  366,840                        
       Sales during the period                      (39,510)                       
                                                   --------                        

     Balance at December 31, 1997                  $660,891                        
                                                   ========                        

(b) Reconciliation of Accumulated Depreciation:            
      Balance At December 31, 1995                  $12,895            
         Depreciation expense during the period      11,464    
                                                    -------    
      Balance at December 31, 1996                   24,359            
         Depreciation expense during the period      19,969   
         Depreciation on sales during the period       (509)
                                                    -------
                                                           
      Balance at December 31, 1997                  $43,819            
                                                    =======            
</TABLE>




                                       53

<PAGE>



ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE

During the fiscal  year ended  December  31,  1997 and  through the date of this
report, there has been no change in the Company's independent  accountants,  nor
have any disagreements with such accountants or reportable events occurred.


                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information  required by this item is incorporated by reference from the section
entitled "Proposal One - Election of Class I Director" in the Proxy Statement as
to the Company's directors.  See also Item 1 -- "Business-Executive  Officers of
the Company."


ITEM 11.      EXECUTIVE COMPENSATION

Information  required by this item is incorporated by reference from the section
entitled "Executive Compensation" in the Proxy Statement.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference from the sections
entitled  "Ownership of the Company's Common Stock" and "Proposal One - Election
of Class I Director" in the Proxy Statement.


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  required by this item is incorporated by reference from the section
entitled  "Certain   Relationships  and  Related   Transactions"  in  the  Proxy
Statement.



                                       54

<PAGE>



                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:

(a)    Financial Statements:

The following financial statements and financial statement schedules are located
in this report on the pages indicated:
<TABLE>
<CAPTION>
Equity Inns, Inc.                                                           Page
                                                                            ----
<S>                                                                         <C>
         Report of Independent Accountants                                    34
         Consolidated Balance Sheets at December 31, 1997 and 1996            35
         Consolidated Statements of Operations for the years ended
           December 31, 1997, 1996 and 1995                                   36
         Consolidated Statements of Shareholders' Equity for the
           years ended December 31, 1997, 1996 and 1995                       37
         Consolidated Statements of Cash Flows for the years ended
           December 31, 1997, 1996 and 1995                                   39
         Notes to Consolidated Financial Statements                           40
         Schedule III - Real Estate and Accumulated Depreciation
           as of December 31, 1997                                            52
</TABLE>

All other schedules to the consolidated financial statements required by Article
7 of  Regulation  S-X are not  required  under the related  instructions  or are
inapplicable and therefore have been omitted.

(b)      Reports on Form 8-K:

The following  Current Reports on Form 8-K were filed during the last quarter of
the period covered by this Report on Form 10-K.

         (1) Current Report on Form 8-K reporting (a) the Company's agreement on
         September  22, 1997 to acquire  ten  AmeriSuites  brand  hotels with an
         aggregate of 1,239 rooms for a purchase  price of  approximately  $87.0
         million,  (b) the Company's sale of nine hotels on October 31, 1997 for
         an aggregate  sales price of  approximately  $46.3  million and (c) the
         closing of the Company's new $250 million  unsecured  line of credit on
         October 10, 1997,  such report being dated September 22, 1997 and filed
         on November 24, 1997 (no financial statements were required to be filed
         with this report).

         (2) Current  Report on Form 8-K  reporting the approval and adoption of
         the Company's  Second Amended and Restated  Charter,  such report being
         dated  October  15,  1997 and  filed  October  23,  1997 (no  financial
         statements were required to be filed with this report).

         (3)  Current  Report  on  Form  8-K  reporting  the  execution  of  the
         Underwriting  Agreement  and  opinion  of Hunton &  Williams  as to tax
         matters in connection with the Company's Fifth Follow-On Offering, such
         report  being  both dated and filed  November  25,  1997 (no  financial
         statements were required to be filed with this report).

         (4) Current  Report on Form 8-K  reporting the closing of the Company's
         acquisition of ten AmeriSuites  brand hotels with an aggregate of 1,239
         rooms for a purchase price of approximately $87.0 million,  such report
         being dated December 10, 1997 and filed December 24, 1997 (no financial
         statements were required to be filed with this report).

                                       55

<PAGE>




(c)     Exhibits:
<TABLE>
<CAPTION>

Exhibit
Number            Description
------            -----------
<S>               <C>
3.1(a)       --   Charter of the Registrant (incorporated by reference to
                  Exhibit 3.1 to the Company's Registration Statement on Form
                  S-11 (Registration No. 33-73304)

3.1(b)       --   Articles of Amendment to the Charter of the Registrant
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on April 27, 1995)

3.1(c)       --   Articles of Amendment to the Charter of the Registrant
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on May 31, 1996)

3.1(d)       --   Second Amended and Restated Charter of the Registrant
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Current Report on Form 8-K dated October 15, 1997 Registration
                  No. 0-23290) filed  with the Securities and Exchange
                  Commission on October 23, 1997)

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

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

4.2(a)       --   Second Amended and Restated Agreement of Limited Partnership
                  of Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 4.1 to the Company's Registration Statement on Form
                  S-3 (Registration No. 33-90364))

4.2(b)       --   Third Amended and Restated Agreement of Limited Partnership of
                  Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 4.1 to the Company's Current Report on Form 8-K dated
                  June 24, 1997 (Registration No. 0-23290) filed with the
                  Securities and Exchange Commission on July 10, 1997)

4.3, 10.1    --   Indenture  dated as of  February  6,  1997  among  EQI
                  Financing  Partnership  I, L.P., as Issuer,  LaSalle  National
                  Bank,  as Trustee,  and ABN AMBRO Bank N.V.,  as Fiscal  Agent
                  (incorporated  by reference  to Exhibit 10.1 to the  Company's
                  Quarterly Report on Form 10-Q  (Registration  No. 0-23290) for
                  the quarter ended March 31, 1997 and filed with the Securities
                  and Exchange Commission on April 30, 1997)

10.2(a)      --   Form of Percentage Lease Agreement (incorporated by reference
                  to Exhibit 10.3 to the Company's Registration Statement on
                  Form S-11 (Registration No. 33-73304))

10.2(b)      --   Consolidated Lease Amendment dated as of November 15, 1996
                  between Equity Inns Partnership, L.P. and Crossroads/Memphis
                  Partnership, L.P. (incorporated by reference to Exhibit
                  10.1(a) to the Company's Current Report on Form 8-K
                  (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on December 13, 1996)
</TABLE>

                                       56

<PAGE>

<TABLE>
<S>               <C>  
10.2(c)      --   Form of Percentage Lease Amendment between Equity Inns
                  Partnership, L.P. and Crossroads/Future Company, L.L.C.
                  (incorporated by reference to Exhibit 10.1(b) to the Company's
                  Amended Current Report on Form 8-K (Registration No. 0-23290)
                  filed with the Securities and Exchange Commission on July 22,
                  1997)

10.2(d)      --   Form of Percentage Lease Amendment between Equity Inns
                  Partnership, L.P. and Caldwell Holding Corp. (incorporated by
                  reference to Exhibit 10.5 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on December 24, 1997)

10.3(a)      --   Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
                  reference to Exhibit 10.29(a) to the Company's Registration
                  Statement on Form S-11 (Registration No. 33-80318))

10.3(b)      --   Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
                  (incorporated by reference to Exhibit 10.29(b) to the
                  Company's Registration Statement on Form S-11 (Registration
                  No. 33-80318))

10.4         --   Right of First Refusal Agreement between Wolf River Hotel,
                  L.P. and Equity Inns Partnership, L.P. (incorporated by
                  reference to Exhibit 10.5 to the Company's Registration
                  Statement on Form S-3 (Registration No. 33-93158))

10.5         --   Right of First Refusal Agreement between SAHI I L.P. and
                  Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 10.6 to the Company's Registration Statement on Form
                  S-3 (Registration No. 33-93158))

10.6(a)      --   Credit Agreement between Equity Inns, Inc., Equity Inns Trust,
                  Equity Inns Partnership, L.P., Smith Barney Mortgage Capital
                  Group, Inc., National Bank of Commerce, First National Bank of
                  Chicago, Leader Federal Bank for Savings, AmSouth Bank, First
                  National Bank of Commerce, Bank of Mississippi, Mercantile
                  Bank of St. Louis, First National Bank of Chicago and Smith
                  Barney Mortgage Capital Group, Inc. as collateral agent
                  (incorporated by reference to Exhibit 10.7 to the Company's
                  Annual Report on Form 10-K/A for the year ended December 31,
                  1995 (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on March 20, 1996)

10.6(b)      --   Unsecured Revolving Credit Agreement dated as of October 10,
                  1997, by and among Equity Inns Partnership, L.P. and Equity
                  Inns/West Virginia Partnership, L.P. as Borrower and The First
                  National Bank of Chicago, Credit Lyonnais New York Branch, and
                  AmSouth Bank as Lenders, Credit Lyonnais New York Branch, as
                  Syndication Agent and The First National Bank of Chicago as
                  Administrative Agent (incorporated by reference to Exhibit
                  10.3 to the Company's Current Report on Form 8-K (Registration
                  No. 0-23290) filed with the Securities and Exchange Commission
                  on November 24, 1997)

10.7         --   Memorandum of Understanding between Promus Hotels, Inc.,
                  Equity Inns, Inc. and McNeill Hotel Co., Inc. (incorporated by
                  reference to Exhibit 10.1 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on March 20, 1996)
</TABLE>



                                       57

<PAGE>

<TABLE>
<S>               <C>  
10.8         --   Agreement of Phillip H. McNeill, Sr. concerning investments of
                  the income of McNeill Hotel Co., Inc. (incorporated by
                  reference to Exhibit 10.2 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on March 20, 1996)

10.9         --   Agreement of Phillip H. McNeill, Sr. concerning purchase of
                  250,000 units of limited partnership interest in Equity Inns
                  Partnership, L.P. (incorporated by reference to Exhibit 10.3
                  to the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  March 20, 1996)

10.10        --   Agreement of Phillip H. McNeill, Sr. concerning development
                  activities (incorporated by reference to Exhibit 10.4 to the
                  Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  March 20, 1996)

10.11        --   Amendment to Agreement of Phillip H. McNeill, Sr. concerning
                  the purchase of 250,000 units of limited partnership interest
                  in Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 10.2 to the Company's Current Report on Form 8-K
                  (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on March 22, 1996)

10.12        --   Stock Purchase Agreement dated as of May 31, 1996 by and among
                  Equity Inns, Inc., Equity Inns Partnership, L.P. and Promus
                  Hotels, Inc. (incorporated by reference to Exhibit 10.1 to the
                  Company's Current Report on Form 8-K (Registration No.
                  23290) filed with the Securities and Exchange Commission on
                  June 13, 1996)

10.13        --   Development Agreement dated as of May 31, 1996 between Equity
                  Inns Partnership, L.P., Trust Leasing, Inc. and Promus Hotels,
                  Inc. (incorporated by reference to Exhibit 10.2 to the
                  Company's Current Report on Form 8-K (Registration No. 0-
                  23290) filed with the Securities and Exchange Commission on
                  June 13, 1996)

10.14        --   Form of Management Agreement between Equity Inns Partnership,
                  L.P., Trust Leasing, Inc. and Promus Hotels, Inc.
                  (incorporated by reference to Exhibit 10.3 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on June 13, 1996)

10.15        --   Guaranty of Leases dated November 15, 1996 by Interstate
                  Hotels Company (incorporated by reference to Exhibit 10.2 to
                  the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission
                  on December 13, 1996)

10.16        --   Guaranty of Leases dated November 15, 1996 by Interstate
                  Hotels Corporation (incorporated by reference to Exhibit 10.3
                  to the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  December 13, 1996)

10.17        --   Master Agreement dated as of November 4, 1996 among Equity
                  Inns, Inc., Equity Inns Partnership, L.P., Interstate Hotels
                  Corporation, Crossroads/Memphis Partnership, L.P. and
                  Crossroads Future Company, L.L.C. (incorporated by reference
                  to Exhibit 10.4 to the Company's Current Report on Form 8-K
                  (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on December 13, 1996)
</TABLE>



                                       58

<PAGE>

<TABLE>
<S>               <C>    
10.18        --   First Amendment to Master Agreement dated as of November 15,
                  1996 among Equity Inns, Inc., Equity Inns Partnership, L.P.,
                  Interstate Hotels Corporation, Crossroads/Memphis Partnership,
                  L.P. and Crossroads Future Company, L.L.C. (incorporated by
                  reference to Exhibit 10.5 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on December 13, 1996)

10.19        --   Second Amendment to Master Agreement dated as of February 6,
                  1997 by Equity Inns, Inc., Equity Inns Partnership, L.P., EQI
                  Financing Partnership 1, L.P., Interstate Hotels Corporation,
                  Crossroads/Memphis Partnership, L.P., Crossroads/Memphis
                  Financing Company, L.L.C., and Crossroads Future Company,
                  L.L.C. (incorporated by reference to Exhibit 10.3 to the
                  Company's Quarterly Report on Form 10-Q Registration No.
                  0-23290) for the quarter ended March 31, 1997 and filed with
                  the Securities and Exchange Commission on April 30, 1997)

10.20        --   Form of Deed of Trust dated as of February 6, 1997 by EQI
                  Financing Partnership 1, L.P. in favor of LaSalle National
                  Bank, as Trustee (incorporated by reference to Exhibit 10.2 to
                  the Company's Quarterly Report on Form 10-Q (Registration No.
                  0-23290) for the quarter ended March 31, 1997 and filed with
                  the Securities and Exchange Commission on April 30, 1997)

10.21        --   Credit Agreement dated June 25, 1997, by and among Equity Inns
                  Partnership, L.P. and Equity Inns Trust, The First National
                  Bank of Chicago, Credit Lyonnais, New York Branch and AmSouth
                  Bank of Alabama, as Lenders, Credit Lyonnais, New York Branch,
                  as Documentation Agent and The First National Bank of Chicago,
                  as Administrative Agent and Syndication Agent (incorporated by
                  reference to Exhibit 10.1 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on July 10, 1997)

10.22        --   Hotel Asset Purchase Agreement by and between Hudson Hotels
                  Corporation, Hudson Hotels Properties Corp. and Equity Inns
                  Partnership, L.P. (incorporated by reference to Exhibit 10.1
                  to the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  November 24, 1997)

10.23        --   Amendment No. 1 to Hotel Asset Purchase Agreement by and
                  between Hudson Hotels Corporation, Hudson Hotels Properties
                  Corp. and Equity Inns Partnership, L.P. (incorporated by
                  reference to Exhibit 10.2 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on November 24, 1997)

10.24        --   Amended and Restated Purchase and Sale Agreement between Prime
                  Hospitality Corp. and Equity Inns Partnership, L.P. dated
                  December 2, 1997 (incorporated by reference to Exhibit 10.1 to
                  the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  December 24, 1997)

10.25        --   Second Purchase and Sale Agreement between Prime Hospitality
                  Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
                  (incorporated by reference to Exhibit 10.2 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on December 24,
                  1997)
</TABLE>



                                       59

<PAGE>

<TABLE>
<S>               <C>  
10.26        --   Third Purchase and Sale Agreement between Prime Hospitality
                  Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
                  (incorporated by reference to Exhibit 10.3 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on December 24,
                  1997)

10.27        --   Fourth Purchase and Sale Agreement between Prime Hospitality
                  Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
                  (incorporated by reference to Exhibit 10.4 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on December 24,
                  1997)

10.28*       --   Revolving Credit Loan Agreement dated as of November 14, 1997
                  by and among Equity Inns Partnership, L.P., Equity Inns/West
                  Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
                  Trust and National Bank of Commerce

21.1*        --   List of subsidiaries of Equity Inns, Inc.

23.1*        --   Consent of Coopers & Lybrand L.L.P.

27.1*        --   Financial Data Schedule (filed electronically with the
                  Securities and Exchange Commission)
</TABLE>

--------------
*  Filed herewith.

(d)  Financial Statement Schedules

             The  response to this portion of Item 14 is submitted as a separate
             section of this Annual Report on Form 10-K. See Item 14 (a).


                                       60

<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned  thereunto duly  authorized on the 11th day of March,
1998.

                                             EQUITY INNS, INC.



                                             By:  /s/Phillip H. McNeill, Sr.
                                                  --------------------------
                                                  Phillip H. McNeill, Sr.
                                                  Chairman of the Board and
                                                  Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities indicated on the 11th day of March, 1998.
<TABLE>
<CAPTION>


         Signature                      Title                          Date
         ---------                      -----                          ----
<S>                            <C>                                <C> 
/s/ Phillip H. McNeill, Sr.    Chairman of the Board and          March 11, 1998
---------------------------
Phillip H. McNeill, Sr.        Chief Executive Officer
                               (Principal Executive Officer)
                               and Director

/s/ David L. Levine            President and Chief Operating      March 11, 1998
-------------------
David L. Levine                Officer


/s/ Howard A. Silver           Executive Vice President-Finance,  March 11, 1998
---------------------
Howard A. Silver               Secretary, Treasurer, and Chief
                               Financial Officer (Principal
                               Financial and Accounting Officer)  

William A. Deupree, Jr.        Director                           March 11, 1998
---------------------------
William A. Deupree, Jr.


/s/ James A. Thomas III        Director                           March 11, 1998
----------------------
James A. Thomas III


/s/ Joseph W. McLeary          Director                           March 11, 1998
---------------------
Joseph W. McLeary
</TABLE>


                                       61

<PAGE>



                                INDEX OF EXHIBITS
<TABLE>
<CAPTION>

Exhibit
Number            Description
<S>               <C>  
3.1(a)       --   Charter of the Registrant (incorporated by reference to
                  Exhibit 3.1 to the Company's Registration Statement on Form
                  S-11 (Registration No. 33-73304)

3.1(b)       --   Articles of Amendment to the Charter of the Registrant
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on April 27, 1995)

3.1(c)       --   Articles of Amendment to the Charter of the Registrant
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on May 31, 1996)

3.1(d)       --   Second Amended and Restated Charter of the Registrant
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Current Report on Form 8-K dated October 15, 1997 
                  (Registration No. 0-23290) filed  with the Securities and
                  Exchange Commission on October 23, 1997)

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

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

4.2(a)       --   Second Amended and Restated Agreement of Limited Partnership
                  of Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 4.1 to the Company's Registration Statement on Form
                  S-3 (Registration No. 33-90364))

4.2(b)       --   Third Amended and Restated Agreement of Limited Partnership of
                  Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 4.1 to the Company's Current Report on Form 8-K dated
                  June 24, 1997 (Registration No. 0-23290) filed with the 
                  Securities and Exchange Commission on July 10, 1997)

4.3, 10.1    --  Indenture  dated as of  February  6,  1997  among  EQI
                  Financing  Partnership  I, L.P., as Issuer,  LaSalle  National
                  Bank,  as Trustee,  and ABN AMBRO Bank N.V.,  as Fiscal  Agent
                  (incorporated  by reference  to Exhibit 10.1 to the  Company's
                  Quarterly Report on Form 10-Q  (Registration  No. 0-23290) for
                  the quarter ended March 31, 1997 and filed with the Securities
                  and Exchange Commission on April 30, 1997)

10.2(a)      --   Form of Percentage Lease Agreement (incorporated by reference
                  to Exhibit 10.3 to the Company's Registration Statement on
                  Form S-11 (Registration No. 33-73304))

10.2(b)      --   Consolidated Lease Amendment dated as of November 15, 1996
                  between Equity Inns Partnership, L.P. and Crossroads/Memphis
                  Partnership, L.P. (incorporated by reference to Exhibit
                  10.1(a) to the Company's Current Report on Form 8-K
                  (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on December 13, 1996)

10.2(c)      --   Form of Percentage Lease Amendment between Equity Inns
                  Partnership, L.P. and Crossroads/Future Company, L.L.C.
                  (incorporated by reference to Exhibit 10.1(b) to the Company's
                  Amended Current Report on Form 8-K (Registration No. 0-23290)
                  filed with the Securities and Exchange Commission on July 22,
                  1997)
</TABLE>

                                       62

<PAGE>

<TABLE>

<S>               <C> 
10.2(d)      --   Form of Percentage Lease Amendment between Equity Inns
                  Partnership, L.P. and Caldwell Holding Corp. (incorporated by
                  reference to Exhibit 10.5 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on December 24, 1997)

10.3(a)      --   Equity Inns, Inc. 1994 Stock Incentive Plan (incorporated by
                  reference to Exhibit 10.29(a) to the Company's Registration
                  Statement on Form S-11 (Registration No. 33-80318))

10.3(b)      --   Equity Inns, Inc. Non-Employee Directors' Stock Option Plan
                  (incorporated by reference to Exhibit 10.29(b) to the
                  Company's Registration Statement on Form S-11 (Registration
                  No. 33-80318))

10.4         --   Right of First Refusal Agreement between Wolf River Hotel,
                  L.P. and Equity Inns Partnership, L.P. (incorporated by
                  reference to Exhibit 10.5 to the Company's Registration
                  Statement on Form S-3 (Registration No. 33-93158))

10.5         --   Right of First Refusal Agreement between SAHI I L.P. and
                  Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 10.6 to the Company's Registration Statement on Form
                  S-3 (Registration No. 33-93158))

10.6(a)      --   Credit Agreement between Equity Inns, Inc., Equity Inns Trust,
                  Equity Inns Partnership, L.P., Smith Barney Mortgage Capital
                  Group, Inc., National Bank of Commerce, First National Bank of
                  Chicago, Leader Federal Bank for Savings, AmSouth Bank, First
                  National Bank of Commerce, Bank of Mississippi, Mercantile
                  Bank of St. Louis, First National Bank of Chicago and Smith
                  Barney Mortgage Capital Group, Inc. as collateral agent
                  (incorporated by reference to Exhibit 10.7 to the Company's
                  Annual Report on Form 10-K/A for the year ended December 31,
                  1995 (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on March 20, 1996)

10.6(b)      --   Unsecured Revolving Credit Agreement dated as of October 10,
                  1997, by and among Equity Inns Partnership, L.P. and Equity
                  Inns/West Virginia Partnership, L.P. as Borrower and The First
                  National Bank of Chicago, Credit Lyonnais New York Branch, and
                  AmSouth Bank as Lenders, Credit Lyonnais New York Branch, as
                  Syndication Agent and The First National Bank of Chicago as
                  Administrative Agent (incorporated by reference to Exhibit
                  10.3 to the Company's Current Report on Form 8-K (Registration
                  No. 0-23290) filed with the Securities and Exchange Commission
                  on November 24, 1997)

10.7         --   Memorandum of Understanding between Promus Hotels, Inc.,
                  Equity Inns, Inc. and McNeill Hotel Co., Inc. (incorporated by
                  reference to Exhibit 10.1 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on March 20, 1996)

10.8         --   Agreement of Phillip H. McNeill, Sr. concerning investments of
                  the income of McNeill Hotel Co., Inc. (incorporated by
                  reference to Exhibit 10.2 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on March 20, 1996)
</TABLE>


                                       63

<PAGE>

<TABLE>

<S>               <C>  
10.9         --   Agreement of Phillip H. McNeill, Sr. concerning purchase of
                  250,000 units of limited partnership interest in Equity Inns
                  Partnership, L.P. (incorporated by reference to Exhibit 10.3
                  to the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  March 20, 1996)

10.10        --   Agreement of Phillip H. McNeill, Sr. concerning development
                  activities (incorporated by reference to Exhibit 10.4 to the
                  Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  March 20, 1996)

10.11        --   Amendment to Agreement of Phillip H. McNeill, Sr. concerning
                  the purchase of 250,000 units of limited partnership interest
                  in Equity Inns Partnership, L.P. (incorporated by reference to
                  Exhibit 10.2 to the Company's Current Report on Form 8-K
                  (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on March 22, 1996)

10.12        --   Stock Purchase Agreement dated as of May 31, 1996 by and among
                  Equity Inns, Inc., Equity Inns Partnership, L.P. and Promus
                  Hotels, Inc. (incorporated by reference to Exhibit 10.1 to the
                  Company's Current Report on Form 8-K (Registration No.
                  23290) filed with the Securities and Exchange Commission on
                  June 13, 1996)

10.13        --   Development Agreement dated as of May 31, 1996 between Equity
                  Inns Partnership, L.P., Trust Leasing, Inc. and Promus Hotels,
                  Inc. (incorporated by reference to Exhibit 10.2 to the
                  Company's Current Report on Form 8-K (Registration No. 0-
                  23290) filed with the Securities and Exchange Commission on
                  June 13, 1996)

10.14        --   Form of Management Agreement between Equity Inns Partnership,
                  L.P., Trust Leasing, Inc. and Promus Hotels, Inc.
                  (incorporated by reference to Exhibit 10.3 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on June 13, 1996)

10.15        --   Guaranty of Leases dated November 15, 1996 by Interstate
                  Hotels Company (incorporated by reference to Exhibit 10.2 to
                  the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  December 13, 1996)

10.16        --   Guaranty of Leases dated November 15, 1996 by Interstate
                  Hotels Corporation (incorporated by reference to Exhibit 10.3
                  to the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  December 13, 1996)

10.17        --   Master Agreement dated as of November 4, 1996 among Equity
                  Inns, Inc., Equity Inns Partnership, L.P., Interstate Hotels
                  Corporation, Crossroads/Memphis Partnership, L.P. and
                  Crossroads Future Company, L.L.C. (incorporated by reference
                  to Exhibit 10.4 to the Company's Current Report on Form 8-K
                  (Registration No. 0-23290) filed with the Securities and
                  Exchange Commission on December 13, 1996)

10.18        --   First Amendment to Master Agreement dated as of November 15,
                  1996 among Equity Inns, Inc., Equity Inns Partnership, L.P.,
                  Interstate Hotels Corporation, Crossroads/Memphis Partnership,
                  L.P. and Crossroads Future Company, L.L.C. (incorporated by
                  reference to Exhibit 10.5 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on December 13, 1996)
</TABLE>

                                       64

<PAGE>

<TABLE>

<S>               <C>    
10.19        --   Second Amendment to Master Agreement dated as of February 6,
                  1997 by Equity Inns, Inc., Equity Inns Partnership, L.P., EQI
                  Financing Partnership 1, L.P., Interstate Hotels Corporation,
                  Crossroads/Memphis Partnership, L.P., Crossroads/Memphis
                  Financing Company, L.L.C., and Crossroads Future Company,
                  L.L.C. (incorporated by reference to Exhibit 10.3 to the
                  Company's Quarterly Report on Form 10-Q (Registration No.
                  0-23290) for the quarter ended March 31, 1997 and filed with
                  the Securities and Exchange Commission on April 30, 1997)

10.20        --   Form of Deed of Trust dated as of February 6, 1997 by EQI
                  Financing Partnership 1, L.P. in favor of LaSalle National
                  Bank, as Trustee (incorporated by reference to Exhibit 10.2 to
                  the Company's Quarterly Report on Form 10-Q (Registration No.
                  0-23290) for the quarter ended March 31, 1997 and filed with
                  the Securities and Exchange Commission on April 30, 1997)

10.21        --   Credit Agreement dated June 25, 1997, by and among Equity Inns
                  Partnership, L.P. and Equity Inns Trust, The First National
                  Bank of Chicago, Credit Lyonnais, New York Branch and AmSouth
                  Bank of Alabama, as Lenders, Credit Lyonnais, New York Branch,
                  as Documentation Agent and The First National Bank of Chicago,
                  as Administrative Agent and Syndication Agent (incorporated by
                  reference to Exhibit 10.1 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on July 10, 1997)

10.22        --   Hotel Asset Purchase Agreement by and between Hudson Hotels
                  Corporation, Hudson Hotels Properties Corp. and Equity Inns
                  Partnership, L.P. (incorporated by reference to Exhibit 10.1
                  to the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  November 24, 1997)

10.23        --   Amendment No. 1 to Hotel Asset Purchase Agreement by and
                  between Hudson Hotels Corporation, Hudson Hotels Properties
                  Corp. and Equity Inns Partnership, L.P. (incorporated by
                  reference to Exhibit 10.2 to the Company's Current Report on
                  Form 8-K (Registration No. 0-23290) filed with the Securities
                  and Exchange Commission on November 24, 1997)

10.24        --   Amended and Restated Purchase and Sale Agreement between Prime
                  Hospitality Corp. and Equity Inns Partnership, L.P. dated
                  December 2, 1997 (incorporated by reference to Exhibit 10.1 to
                  the Company's Current Report on Form 8-K (Registration No.
                  0-23290) filed with the Securities and Exchange Commission on
                  December 24, 1997)

10.25        --   Second Purchase and Sale Agreement between Prime Hospitality
                  Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
                  (incorporated by reference to Exhibit 10.2 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on December 24,
                  1997)

10.26        --   Third Purchase and Sale Agreement between Prime Hospitality
                  Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
                  (incorporated by reference to Exhibit 10.3 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on December 24,
                  1997)

10.27        --   Fourth Purchase and Sale Agreement between Prime Hospitality
                  Corp. and Equity Inns Partnership, L.P. dated December 2, 1997
                  (incorporated by reference to Exhibit 10.4 to the Company's
                  Current Report on Form 8-K (Registration No. 0-23290) filed
                  with the Securities and Exchange Commission on December 24,
                  1997)
</TABLE>


                                       65

<PAGE>

<TABLE>

<S>               <C>   
10.28*       --   Revolving Credit Loan Agreement dated as of November 14, 1997
                  by and among Equity Inns Partnership, L.P., Equity Inns/West
                  Virginia Partnership, L.P., Equity Inns, Inc., Equity Inns
                  Trust and National Bank of Commerce

21.1*        --   List of subsidiaries of Equity Inns, Inc.

23.1*        --   Consent of Coopers & Lybrand L.L.P.

27.1*        --   Financial Data Schedule (filed electronically with the
                  Securities and Exchange Commission)
</TABLE>

--------------
* Filed herewith.




                                       66