##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2009
|- | -------------------------------------------------------------------------------------------------------------------------------------

or



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
             to             .
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number: 001-34087





SUPERTEL HOSPITALITY, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Virginia                                                       |  | 52-1889548                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

309 N. 5thSt., Norfolk, NE 68701

(Address of principal executive
offices)

Telephone number: (402) 371-2520





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO   ̈

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as described in Rule 12b-2 of the Exchange
Act).    YES   ̈    NO  x

As of April 13, 2009, there were 21,788,288 shares of common stock, par value $.01 per share, outstanding.









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##### Table of Contents

SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



|         |  |                                                                                          |  |           
|-------- |  | ---------------------------------------------------------------------------------------- |  | ----------
|         |  |                                                                                          |  | PageNumber
|Part I.  |  | FINANCIAL INFORMATION                                                                    |  |           
|         |  |                                                                                         
|Item 1.  |  | Financial Statements                                                                     |  |           
|         |  |                                                                                         
|         |  | Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008                   |  | 3         
|         |  |                                                                                         
|         |  | Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008 |  | 4         
|         |  |                                                                                         
|         |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 |  | 5         
|         |  |                                                                                         
|         |  | Notes to Consolidated Financial Statements                                               |  | 6         
|         |  |                                                                                         
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 17        
|         |  |                                                                                         
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 28        
|         |  |                                                                                         
|Item 4.  |  | Controls and Procedures                                                                  |  | 28        
|         |  |                                                                                         
|Part II. |  | OTHER INFORMATION                                                                        |  |           
|         |  |                                                                                         
|Item 5.  |  | Other Information                                                                        |  | 29        
|         |  |                                                                                         
|Item 6.  |  | Exhibits                                                                                 |  | 33        



2



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##### Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share and share data)



|                                                                                                                    |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                    |  | As of         |        
|                                                                                                                    |  | March 31,2009 |         |   | December 31,2008 |  
|                                                                                                                    |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                                                              |  |               |         |   |                  |   |         |  
|Investments in hotel properties                                                                                     |  | $             | 381,046 |   |                  | $ | 380,604 |  
|Less accumulated depreciation                                                                                       |  |               | 84,983  |   |                  |   | 81,549  |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|                                                                                                                    |  |               | 296,063 |   |                  |   | 299,055 |  
|                                                                                                                    |  |              
|Cash and cash equivalents                                                                                           |  |               | 906     |   |                  |   | 712     |  
|Accounts receivable                                                                                                 |  |               | 2,533   |   |                  |   | 2,401   |  
|Prepaid expenses and other assets                                                                                   |  |               | 4,088   |   |                  |   | 2,903   |  
|Deferred financing costs, net                                                                                       |  |               | 1,525   |   |                  |   | 1,580   |  
|Investment in hotel properties, held for sale, net                                                                  |  |               | 13,531  |   |                  |   | 14,826  |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|                                                                                                                    |  | $             | 318,646 |   |                  | $ | 321,477 |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|                                                                                                                    |  |              
|LIABILITIES AND EQUITY                                                                                              |  |               |         |   |                  |   |         |  
|LIABILITIES                                                                                                         |  |               |         |   |                  |   |         |  
|Accounts payable, accrued expenses and other liabilities                                                            |  | $             | 13,568  |   |                  | $ | 13,697  |  
|Debt related to held for sale                                                                                       |  |               | 10,734  |   |                  |   | 10,849  |  
|Long-term debt                                                                                                      |  |               | 192,213 |   |                  |   | 191,957 |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|                                                                                                                    |  |               | 216,515 |   |                  |   | 216,503 |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|                                                                                                                    |  |              
|Redeemable noncontrolling interest in consolidated partnership, at redemption value                                 |  |               | 1,778   |   |                  |   | 1,778   |  
|                                                                                                                    |  |              
|Redeemable preferred stock                                                                                          |  |               |         |   |                  |   |         |  
|Series B, 800,000 shares authorized; $.01 par value, 332,500 shares outstanding, liquidation preference of $8,312   |  |               | 7,662   |   |                  |   | 7,662   |  
|                                                                                                                    |  |              
|EQUITY                                                                                                              |  |               |         |   |                  |   |         |  
|Shareholders equity                                                                                                |  |               |         |   |                  |   |         |  
|Preferred stock, 40,000,000 shares authorized;                                                                      |  |               |         |   |                  |   |         |  
|Series A, 2,500,000 shares authorized, $.01 par value, 803,270 shares outstanding, liquidation preference of $8,033 |  |               | 8       |   |                  |   | 8       |  
|Common stock, $.01 par value, 100,000,000 shares authorized;                                                        |  |               |         |   |                  |   |         |  
|20,924,677 shares outstanding.                                                                                      |  |               | 209     |   |                  |   | 209     |  
|Additional paid-in capital                                                                                          |  |               | 112,804 |   |                  |   | 112,804 |  
|Distributions in excess of retained earnings                                                                        |  |               | (28,258 | ) |                  |   | (25,551 | )
|                                                                                                                    |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                                                          |  |               | 84,763  |   |                  |   | 87,470  |  
|Noncontrolling interest                                                                                             |  |               |         |   |                  |   |         |  
|Noncontrolling interest in consolidated partnership, redemption value $1,050 and $2,101                             |  |               | 7,928   |   |                  |   | 8,064   |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|Total equity                                                                                                        |  |               | 92,691  |   |                  |   | 95,534  |  
|                                                                                                                    |  |               |         |   |                  |   |         |  
|COMMITMENTS AND CONTINGENCIES                                                                                       |  |               |         |   |                  |   |         |  
|                                                                                                                    |  | $             | 318,646 |   |                  | $ | 321,477 |  
|                                                                                                                    |  |               |         |   |                  |   |         |  

See accompanying notes to consolidated financial statements.



3



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:



SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited  in thousands, except per share data)



|                                                                                                                  |  |                             |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                                                  |  | 2009                        |        |   | 2008 |  
|REVENUES                                                                                                          |  |                             |        |   |      |   |        |  
|Room rentals and other hotel services                                                                             |  | $                           | 23,065 |   |      | $ | 25,527 |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|EXPENSES                                                                                                          |  |                             |        |   |      |   |        |  
|Hotel and property operations                                                                                     |  |                             | 18,636 |   |      |   | 19,626 |  
|Depreciation and amortization                                                                                     |  |                             | 3,596  |   |      |   | 3,287  |  
|General and administrative                                                                                        |  |                             | 971    |   |      |   | 955    |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                             | 23,203 |   |      |   | 23,868 |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|EARNINGS (LOSS) BEFORE NET GAIN (LOSS) ON DISPOSITIONS OF ASSETS, OTHER INCOME, INTEREST EXPENSE AND INCOME TAXES |  |                             | (138   | ) |      |   | 1,659  |  
|                                                                                                                  |  |                            
|Net gain (loss) on dispositions of assets                                                                         |  |                             | (67    | ) |      |   | 2      |  
|Other income                                                                                                      |  |                             | 38     |   |      |   | 31     |  
|Interest expense                                                                                                  |  |                             | (2,980 | ) |      |   | (3,407 | )
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                                               |  |                             | (3,147 | ) |      |   | (1,715 | )
|Income tax benefit                                                                                                |  |                             | 957    |   |      |   | 662    |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|LOSS FROM CONTINUING OPERATIONS                                                                                   |  |                             | (2,190 | ) |      |   | (1,053 | )
|                                                                                                                  |  |                            
|Earnings (loss) from discontinued operations                                                                      |  |                             | (235   | ) |      |   | 147    |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|NET LOSS                                                                                                          |  |                             | (2,425 | ) |      |   | (906   | )
|                                                                                                                  |  |                            
|Noncontrolling interest                                                                                           |  |                             | 87     |   |      |   | 13     |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS                                                                    |  |                             | (2,338 | ) |      |   | (893   | )
|                                                                                                                  |  |                            
|Preferred stock dividends                                                                                         |  |                             | (369   | ) |      |   | (186   | )
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                            
|NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                                                                      |  | $                           | (2,707 | ) |      | $ | (1,079 | )
|                                                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|NET EARNINGS (LOSS) PER COMMON SHAREBASIC AND DILUTED                                                            |  |                             |        |   |      |   |        |  
|EPS from continuing operations                                                                                    |  | $                           | (0.12  | ) |      | $ | (0.06  | )
|                                                                                                                  |  |                             |        |   |      |   |        |  
|EPS from discontinued operations                                                                                  |  | $                           | (0.01  | ) |      | $ | 0.01   |  
|                                                                                                                  |  |                             |        |   |      |   |        |  
|EPS Basic and Diluted                                                                                             |  | $                           | (0.13  | ) |      | $ | (0.05  | )
|                                                                                                                  |  |                             |        |   |      |   |        |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:



SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited  in thousands)



|                                                                                  |  |                             |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                  |  | 2009                        |        |   | 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                             |        |   |      |   |         |  
|Net loss attributable to controlling interests                                    |  | $                           | (2,338 | ) |      | $ | (893    | )
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                     |  |                             | 3,717  |   |      |   | 3,579   |  
|Amortization of intangible assets and deferred financing costs                    |  |                             | 127    |   |      |   | 132     |  
|(Gain) loss on dispositions of assets                                             |  |                             | 60     |   |      |   | (2      | )
|Writedown to fair value related to held for sale assets                           |  |                             | 150    |   |      |   |        |  
|Noncontrolling interest                                                           |  |                             | (87    | ) |      |   | (13     | )
|Deferred income taxes                                                             |  |                             | (1,043 | ) |      |   | (698    | )
|Changes in operating assets and liabilities:                                      |  |                             |        |   |      |   |         |  
|(Increase) decrease in assets                                                     |  |                             | (277   | ) |      |   | 858     |  
|Increase in liabilities                                                           |  |                             | 1,646  |   |      |   | 2,123   |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 1,955  |   |      |   | 5,086   |  
|                                                                                  |  |                             |        |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                             |        |   |      |   |         |  
|Additions to hotel properties                                                     |  |                             | (720   | ) |      |   | (2,700  | )
|Acquisition and development of hotel properties                                   |  |                             |       |   |      |   | (22,903 | )
|Proceeds from sale of hotel assets                                                |  |                             | 1,080  |   |      |   | 6       |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash (used in) provided by investing activities                               |  |                             | 360    |   |      |   | (25,597 | )
|                                                                                  |  |                             |        |   |      |   |         |  
|                                                                                  |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                             |        |   |      |   |         |  
|Deferred financing costs                                                          |  |                             | (71    | ) |      |   | (106    | )
|Principal payments on long-term debt                                              |  |                             | (3,669 | ) |      |   | (790    | )
|Proceeds from long-term debt, net                                                 |  |                             | 3,810  |   |      |   | 25,123  |  
|Distributions to noncontrolling interest                                          |  |                             | (148   | ) |      |   | (212    | )
|Dividends paid to common shareholders                                             |  |                             | (1,674 | ) |      |   | (2,639  | )
|Dividends paid to preferred shareholders                                          |  |                             | (369   | ) |      |   | (186    | )
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash (used in) provided by financing activities                               |  |                             | (2,121 | ) |      |   | 21,190  |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Increase in cash and cash equivalents                                             |  |                             | 194    |   |      |   | 679     |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                    |  |                             | 712    |   |      |   | 1,166   |  
|                                                                                  |  |                             |        |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                          |  | $                           | 906    |   |      | $ | 1,845   |  
|                                                                                  |  |                             |        |   |      |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |  |                             |        |   |      |   |         |  
|Interest paid, net of amounts capitalized                                         |  | $                           | 3,026  |   |      | $ | 3,521   |  
|                                                                                  |  |                            
|SCHEDULE OF NONCASH FINANCING ACTIVITIES                                          |  |                             |        |   |      |   |         |  
|Dividends declared common                                                         |  |                             |       |   |      |   | 2,640   |  
|Dividends declared preferred                                                      |  |                             | 369    |   |      |   | 186     |  
|Dividends declared common units                                                   |  |                             |       |   |      |   | 158     |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three
Months Ended March 31, 2009 and 2008

(Unaudited)



General

Supertel Hospitality, Inc. (SHI) was incorporated in Virginia on August 23, 1994. SHI is a self-administered real estate investment trust (REIT) for Federal income tax purposes.

SHI, through its wholly owned subsidiaries, Supertel Hospitality REIT Trust and E&P REIT Trust (collectively, the Company) owns a
controlling interest in Supertel Limited Partnership (SLP) and E&P Financing Limited Partnership (E&P LP). All of the Companys interests in 112 properties with the exception of furniture, fixtures and equipment
on 82 properties held by TRS Leasing, Inc. and its subsidiaries are held directly or indirectly by E&P LP, Supertel Limited Partnership or Solomons Beacon Inn Limited Partnership (SBILP) (collectively, the Partnerships). The
Companys interests in ten properties are held directly by either SPPR-Hotels, LLC (SHLLC), SPPR-South Bend, LLC (SSBLLC), or SPPR-BMI, LLC (SBMILLC). SHI, through Supertel Hospitality REIT Trust, is the sole general partner in Supertel Limited
Partnership and at March 31, 2009 owned approximately 94% of the partnership interests in Supertel Limited Partnership. Supertel Limited Partnership is the general partner in SBILP. At March 31, 2009, Supertel Limited Partnership and SHI
owned 99% and 1% interests in SBILP, respectively, and SHI owned 100% of Supertel Hospitality Management, Inc, SPPR Holdings, Inc. (SPPRHI), and SPPR-BMI Holdings, Inc. (SBMIHI). Supertel Limited Partnership and SBMIHI owned 99% and 1% of SBMILLC,
respectively. Supertel Limited Partnership and SPPRHI owned 99% and 1% of SHLLC, respectively, and Supertel Limited Partnership owned 100% of SSBLLC.

As of March 31, 2009, the Company owned 122 limited service hotels and one office building. All of the hotels are leased to our wholly owned taxable REIT subsidiary, TRS Leasing, Inc. (TRS), and its
wholly owned subsidiaries (collectively TRS Lessee), and are managed by Royco Hotels, Inc (Royco Hotels), and HLC Hotels, Inc. (HLC).

The hotel management agreement, as amended, between TRS Lessee and Royco Hotels, the manager of 107 of the Companys hotels, provides for Royco Hotels to operate and manage the hotels through December 31,
2011, with extension to December 31, 2016 upon achievement of average annual net operating income of at least 10% of the Companys investment in the hotels. Under the agreement, Royco Hotels receives a base management fee ranging from
4.25% to 3.0% of gross hotel revenues as revenues increase above thresholds that range from up to $75 million to over $100 million, and, an annual incentive fee of 10% of up to the first $1 million of annual net operating income in excess of 10% of
the Companys investment in the hotels, and 20% of the excess above $1 million.

On May 16, 2007, Supertel Limited Partnership
acquired 15 hotels which are operated under the Masters Inn name. In connection with the acquisition, TRS entered into a management agreement with HLC, an affiliate of the sellers of the hotels. The management agreement, as amended, provides for HLC
to operate and manage the 15 hotels through December 31, 2011 and receive management fees equal to 5.0% of the gross revenues derived from the operation of the hotels and incentive fees equal to 10% of the annual operating income of the hotels
in excess of 10.5% of the Companys investment in the hotels.

The management agreements generally require TRS Lessee to fund debt
service, working capital needs, capital expenditures and third-party operating expenses for Royco Hotels and HLC excluding those expenses not related to the operation of the hotels. TRS Lessee is responsible for obtaining and maintaining insurance
policies with respect to the hotels.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



Consolidated Financial Statements

The Company has prepared the consolidated balance sheet as of March 31, 2009, the consolidated statements of operations for the three months ended
March 31, 2009 and 2008, and the consolidated statements of cash flows for the three months ended March 31, 2009 and 2008 without audit, in conformity with U. S. generally accepted accounting principles. In the opinion of management, all
necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial position as of March 31, 2009 and the results of operations and cash flows for all periods presented. Balance sheet data as of
December 31, 2008 has been derived from the audited consolidated financial statements as of that date.

Certain information and
footnote disclosures, normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, have been condensed or omitted, although management believes that the disclosures are adequate to make the
information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the operating results for the full year. Certain prior period amounts have been reclassified to conform to the current
period presentation, including changes resulting from the adoption of FAS 160 on January 1, 2009 as discussed later in the notes.

Fair Value
Measurements

In accordance with FASB Staff Position No. FAS 157-2, which amended FAS No. 157 by delaying its effective date by one
year to fiscal year 2009 for certain assets, we adopted the provisions of FAS No. 157 to non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis on January 1, 2009.

FAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related
disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FAS No. 157 details the disclosures that are required for items measured at fair value.

We currently do not have any financial instruments that must be measured on a recurring basis under FAS No. 157. However, we apply the measurement
provisions of FAS No. 157 to non-recurring measurements for our non-financial assets, which include our held for sale hotels. We measure these assets using inputs from level 3 of the fair value hierarchy:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement
date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by
observable market data by correlation or other means (market corroborated inputs).



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



Level 3 includes unobservable inputs that reflect our assumptions about the assumptions that market
participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

During the three months ended March 31, 2009, Level 3 inputs were used to determine an impairment loss of $150,000 for two hotels held for sale. The fair value of an asset held for sale is based on the estimated selling price less
estimated selling costs. We engage independent real estate brokers to assist us to determine the estimated selling price. The estimated selling costs are based on our experience with similar asset sales.



8



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



Hotel Properties Held for Sale and Discontinued Operations

In accordance with SFAS 144, gains, losses and impairment losses on hotel properties sold or classified as held for sale are presented in discontinued
operations. The basic and diluted earnings per common share for the sales of properties are not material. Gains, losses and impairment losses for both continuing and discontinued operations are summarized as follows (in thousands):



|                              |  |                             |      |   |      |   |  
|----------------------------- |  | --------------------------- | ---- | - | ---- | - | -
|                              |  | Three Months EndedMarch 31,
|                              |  | 2009                        |      |   | 2008
|Continuing Operations         |  |                             |      |   |      |   |  
|Sales of properties           |  | $                           |     |   |      | $ | 
|Impairment losses             |  |                             |     |   |      |   | 
|Gain (loss) on sale of assets |  |                             | (67  | ) |      |   | 2
|                              |  |                             |      |   |      |   |  
|                              |  |                             | (67  | ) |      |   | 2
|                              |  |                             |      |   |      |   |  
|                              |  |                            
|Discontinued Operations       |  |                             |      |   |      |   |  
|Sales of properties           |  |                             | 7    |   |      |   | 
|Impairment losses             |  |                             | (150 | ) |      |   | 
|Gain (loss) on sale of assets |  |                             |     |   |      |   | 
|                              |  |                             |      |   |      |   |  
|                              |  |                             | (143 | ) |      |   | 
|                              |  |                             |      |   |      |   |  
|Total                         |  | $                           | (210 | ) |      | $ | 2
|                              |  |                             |      |   |      |   |  

During the three months ended March 31, 2009 the Company had identified eight hotels that it
intends to sell and that met the Companys criteria to be classified as held for sale (the Sale Hotels). One of the Sale Hotels was sold during the three months ended March 31, 2009, with the Company recognizing a gain on sale
of approximately $7,000. Two of the Sale Hotels have an impairment loss recognized during the three months ended March 31, 2009, in the amount of $150,000. The fair value of an asset held for sale is based on the estimated selling price less
estimated selling costs. We engage independent real estate brokers to assist us to determining the estimated selling price. The estimated selling costs are based on our experience with similar asset sales. We record impairment charges and write down
the carrying value of an asset if the carrying value exceeds the estimated selling price less costs to sell.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



The operating results of the hotels held for sale and sold are included in discontinued operations
and are summarized below. The operating results for the three months ended March 31, 2009 include the seven hotels held for sale and the one hotel that was sold in March of 2009. The operating results for the three months ended March 31,
2008 include the seven hotels held for sale, the one hotel sold in March of 2009 and the two hotels sold in December 2008 (in thousands):



|                                          |  |                             |        |   |      |   |        |  
|----------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Three Months EndedMarch 31, |       
|                                          |  | 2009                        |        |   | 2008 |  
|Revenues                                  |  | $                           | 1,309  |   |      | $ | 2,449  |  
|Hotel and property operations expenses    |  |                             | (1,223 | ) |      |   | (1,793 | )
|Interest expense                          |  |                             | (143   | ) |      |   | (253   | )
|Depreciation expense                      |  |                             | (121   | ) |      |   | (292   | )
|Net gain (loss) on disposition of assets, |  |                             | 7      |   |      |   |       |  
|Impairment loss                           |  |                             | (150   | ) |      |   |       |  
|Income tax benefit                        |  |                             | 86     |   |      |   | 36     |  
|                                          |  |                             |        |   |      |   |        |  
|                                          |  | $                           | (235   | ) |      | $ | 147    |  
|                                          |  |                             |        |   |      |   |        |  

Earnings (loss) Per Share

Basic earnings (loss) per share (EPS) is computed by dividing earnings (loss) available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed after
adjusting the numerator and denominator of the basic EPS computation for the effects of any dilutive potential common shares outstanding during the period, if any. The computation of basic and diluted earnings per common share is presented below:



|                                                                                |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                |  | Three months endedMarch 31, |           
|(dollars in thousands, except share data)                                       |  | 2009                        |            |   | 2008 |  
|Basic and Diluted Earnings per Share Calculation:                               |  |                             |            |   |      |   |            |  
|                                                                                |  |                            
|Numerator:                                                                      |  |                             |            |   |      |   |            |  
|Net loss attributable to common shareholders:                                   |  |                             |            |   |      |   |            |  
|Continuing operations                                                           |  | $                           | (2,472     | ) |      | $ | (1,226     | )
|Discontinued operations earnings (loss)                                         |  |                             | (235       | ) |      |   | 147        |  
|                                                                                |  |                             |            |   |      |   |            |  
|Net loss attributable to common shareholderstotal                              |  | $                           | (2,707     | ) |      | $ | (1,079     | )
|                                                                                |  |                            
|Denominator:                                                                    |  |                             |            |   |      |   |            |  
|Weighted average number of common sharesbasic and diluted                      |  |                             | 20,924,677 |   |      |   | 20,701,083 |  
|                                                                                |  |                            
|Basic and Diluted Earnings Per Common Share:                                    |  |                             |            |   |      |   |            |  
|Net loss attributable to common shareholders per weighted average common share: |  |                             |            |   |      |   |            |  
|Continuing operations                                                           |  | $                           | (0.12      | ) |      | $ | (0.06      | )
|Discontinued operations                                                         |  |                             | (0.01      | ) |      |   | 0.01       |  
|                                                                                |  |                             |            |   |      |   |            |  
|Total                                                                           |  | $                           | (0.13      | ) |      | $ | (0.05      | )
|                                                                                |  |                             |            |   |      |   |            |  



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



Noncontrolling Interest of Common and Preferred Units in SLP

At March 31, 2009 and 2008 there were 1,235,806 and 1,235,806 of SLP common operating units outstanding, respectively. These units have been excluded
from the diluted earnings per share calculation as there would be no effect on the amounts allocated to the common operating unit holders (whose units are convertible on a one-to-one basis to common shares) since their share of income (loss) would
be added back to income (loss). In addition, at March 31, 2009 and 2008, the 177,786 and 195,610 shares, of SLP preferred operating units, respectively, are antidilutive.

Preferred Stock of SHI

There were 803,270 and 924,489 shares, respectively, of Series A
Convertible Preferred Stock that remained outstanding at March 31, 2009 and 2008. There were 7,537 share of Series A Convertible Preferred Stock converted into 13,340 shares of common stock during the three months ended March 31,
2008. The convertible provision of the Series A Convertible Preferred Stock, after adjusting the numerator and denominator for the basic EPS computation, is antidilutive for the earnings per share computation for the three months ended
March 31, 2009 and 2008.

The conversion rights of the holders of the Series A preferred stock were subject to cancellation on or
after December 31, 2008 if the closing price of the Company common stock on the Nasdaq Global Market exceeded $7.36 for at least 20 trading days within any period of 30 consecutive trading days. The Company issued a conversion cancellation
notice to holders of the Series A convertible preferred stock and the conversion rights were cancelled as of February 20, 2009.

At
March 31, 2009 there were 332,500 shares of Series B Cumulative Preferred Stock outstanding. There is no convertible provision for Series B, therefore, there is no dilutive effect on earnings per share.

Stock Options

The potential common shares
represented by outstanding stock options for the three months ended March 31, 2009 and 2008 totaled 192,143 and 162,143, respectively, of which 192,143 and 160,681 shares, respectively, are assumed to be purchased with proceeds from the
exercise of stock options resulting in -0- and 1,462 shares, respectively, that are dilutive.

Debt Financing

On February 4, 2009, the Company amended its credit facility with Great Western Bank to (a) increase the principal amount of the short-term line
of credit portion of the facility from $2 million to $3.2 million, (b) increase the interest rate applicable to the short-term line of credit portion of the facility from the greater of prime plus 50 basis points and 5.00% to 7.00%, and
(c) extend the maturity date of the short-term line of credit portion of the facility from February 1, 2009 to May 3, 2009.This facility was paid down to $1.3 million, and then subsequently paid in full as of May 1, 2009
from our existing lines of credit.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



Stock-Based Compensation

Options

The Company has a 2006 Stock Plan (the Plan) which has been approved by the
Companys shareholders. The Plan authorized the grant of stock options, stock appreciation rights, restricted stock and stock bonuses for up to 200,000 shares of common stock.

Income Taxes

The components of a TRS income tax benefit were as follows (dollars in thousands):



|                         |  |                             |       |      |   |    
|------------------------ |  | --------------------------- | ----- | ---- | - | ---
|                         |  | Three Months EndedMarch 31,
|                         |  | 2009                        |       | 2008
|Federal                  |  |                             |       |      |   |    
|Deferred                 |  | $                           | 836   |      | $ | 576
|State & Local            |  |                             |       |      |   |    
|Deferred                 |  |                             | 207   |      |   | 122
|                         |  |                             |       |      |   |    
|Total income tax benefit |  | $                           | 1,043 |      | $ | 698
|                         |  |                             |       |      |   |    

The provision for income taxes differs from the amount of income tax determined by applying the
applicable U.S. statutory federal income tax rate to pretax income as a result of the following difference (dollars in thousands):



|                                                           |  |                             |       |   |      |   |    
|---------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ---
|                                                           |  | Three Months EndedMarch 31,
|                                                           |  | 2009                        |       |   | 2008
|Expected Federal tax benefit at 34%                      |  | $                           | 909   |   |      | $ | 593
|State income tax benefit, net of Federal income tax effect |  |                             | 137   |   |      |   | 81 
|Other benefit (expense), net                               |  |                             | (3    | ) |      |   | 24 
|                                                           |  |                             |       |   |      |   |    
|Total income tax benefit                                   |  | $                           | 1,043 |   |      | $ | 698
|                                                           |  |                             |       |   |      |   |    

The TRS has estimated its income tax benefit using a combined federal and state rate of 39%. As of
March 31, 2009, TRS had a deferred tax asset of $2.5 million primarily due to current and past years tax net operating losses. These loss carryforwards will expire in 2023. Management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to realize the deferred tax asset and has determined that no valuation allowance is required. Reversal of the deferred tax asset in the subsequent year cannot be reasonably
estimated.

Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate
based on the facts and circumstances at the time while the actual effective rate is calculated at year-end. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Noncontrolling Interest in Redeemable Preferred Units

At March 31, 2009, 177,786 of SLPs preferred operating partnership units (Preferred OP Units) were outstanding. The redemption value for the Preferred OP Units is $1.8 million for March 31, 2009. Each limited
partner of SLP may, subject to certain limitations, require that SLP redeem all or a portion of his or her Preferred OP Units, at any time after a specified period following the date the units were acquired, by delivering a redemption notice to SLP.
The Preferred OP Units are convertible by the holders into Common OP Units on a one-for-one basis or may be redeemed for cash at $10 per unit until October 2009. The Preferred OP Units receive a preferred dividend distribution of $1.10 per preferred
unit annually, payable on a monthly basis and do not participate in the allocations of profits and losses of SLP. Distributions to holders of Preferred OP Units have priority over distributions to holders of Common OP Units. There were no Preferred
OP Units redeemed during the three months ending March 31, 2009. The Company has agreed to allow the redemption of the 109,615 Preferred OP Units at any time until October 2009, subject to a 60-day notification period.

Noncontrolling Interest Reconciliation of Common and Preferred Units



|                                |  |                                           |       |   |                              |   |       |                             |  |   |       |  
|------------------------------- |  | ----------------------------------------- | ----- | - | ---------------------------- | - | ----- | --------------------------- |  | - | ----- | -
|(in thousands)                  |  | PreferredRedeemablenoncontrollingInterest |       |   | CommonNoncontrollingInterest |   |       | TotalNoncontrollingInterest | 
|Balance @ 12/31/08              |  | $                                         | 1,778 |   |                              | $ | 8,064 |                             |  | $ | 9,842 |  
|                                |  |                                           |      
|Partner Distribution            |  |                                           | (49   | ) |                              |   |      |                             |  |   | (49   | )
|Noncontrolling Interest Expense |  |                                           | 49    |   |                              |   | (136  | )                           |  |   | (87   | )
|                                |  |                                           |       |   |                              |   |       |                             |  |   |       |  
|Balance @ 3/31/09               |  | $                                         | 1,778 |   |                              | $ | 7,928 |                             |  | $ | 9,706 |  
|                                |  |                                           |       |   |                              |   |       |                             |  |   |       |  

Equity Reconciliation of Parent and Noncontrolling Interest



|                                               |  |                          |   |                       |   |                          |  |                                          |         |  |                       |         |   |                                                   |   |        |             |  |   |       |   |  |   |        |  
|---------------------------------------------- |  | ------------------------ | - | --------------------- | - | ------------------------ |  | ---------------------------------------- | ------- |  | --------------------- | ------- | - | ------------------------------------------------- | - | ------ | ----------- |  | - | ----- | - |  | - | ------ | -
|(in thousands)                                 |  | PreferredSharesPar Value |   | CommonSharesPar Value |   | AdditionalPaid-inCapital |  | Distributionin ExcessAccumulatedEarnings |         |  | NetShareholdersEquity |         |   | NoncontrollingInterest inConsolidatedPartnerships |   |        | TotalEquity | 
|                                               |  |                          |   |                       |   |                         
|                                               |  |                          |   |                       |   |                         
|Balance @ 12/31/08                             |  | $                        | 8 |                       | $ | 209                      |  | $                                        | 112,804 |  | $                     | (25,551 | ) |                                                   | $ | 87,470 |             |  | $ | 8,064 |   |  | $ | 95,534 |  
|Noncontrolling interest                        |  |                          |  |                       |   |                         |  |                                          |        |  |                       |        |   |                                                   |   |       |             |  |   | (136  | ) |  |   | (136   | )
|Preferred Dividends                            |  |                          |  |                       |   |                         |  |                                          |        |  |                       | (369    | ) |                                                   |   | (369   | )           |  |   |      |   |  |   | (369   | )
|Net Loss Attributable To Controlling Interests |  |                          |  |                       |   |                         |  |                                          |        |  |                       | (2,338  | ) |                                                   |   | (2,338 | )           |  |   |      |   |  |   | (2,338 | )
|                                               |  |                          |   |                       |   |                          |  |                                          |         |  |                       |         |   |                                                   |   |        |             |  |   |       |   |  |   |        |  
|Balance @3/31/09                               |  | $                        | 8 |                       | $ | 209                      |  | $                                        | 112,804 |  | $                     | (28,258 | ) |                                                   | $ | 84,763 |             |  | $ | 7,928 |   |  | $ | 92,691 |  
|                                               |  |                          |   |                       |   |                          |  |                                          |         |  |                       |         |   |                                                   |   |        |             |  |   |       |   |  |   |        |  

Redeemable Preferred Stock

On March 31, 2009 there were 332,500 shares of 10.0% Series B Cumulative Preferred Stock outstanding. The shares were sold on June 3, 2008 for $25.00 per share
and bear a liquidation preference of $25.00 per share. Underwriting and other costs of the offering totaled approximately $0.6 million to the Company. The net proceeds plus additional cash were used by the Company to pay an $8.5 million bridge loan
with General Electric Capital Corporation.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



Dividends on the Series B preferred stock are cumulative and are payable quarterly in arrears on each
March 31, June 30, September 30 and December 31, or, if not a business day, the next succeeding business day, at the annual rate of 10.0% of the $25.00 liquidation preference per share, equivalent to a fixed annual amount of
$2.50 per share. Dividends on the Series B preferred stock accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and
whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series B preferred stock will not bear interest.

The Series B preferred stock will, with respect to dividend rights and rights upon the Companys liquidation, dissolution or winding up, rank senior to the Companys common stock, senior to all classes or series of preferred stock
issued by the Company and ranking junior to the Series B preferred stock with respect to dividend rights or rights upon the Companys liquidation, dissolution or winding up, on a parity with the Companys Series A preferred stock and with
all classes or series of preferred stock issued by the Company and ranking on a parity with the Series B preferred stock with respect to dividend rights or rights upon the Companys liquidation, dissolution or winding up and junior to all of
the Companys existing and future indebtedness.

The Company will not pay any distributions, or set aside any funds for the payment of
distributions, on its common shares, unless it has also paid (or set aside for payment) the full cumulative distributions on the preferred shares for the current and all past dividend periods. The Series B preferred stock has no stated maturity and
is not subject to any sinking fund or mandatory redemption.

The Series B preferred stock is not redeemable prior to June 3, 2013,
except in certain limited circumstances relating to the maintenance of the Companys ability to qualify as a REIT as provided in the Companys articles of incorporation or a change of control (as defined in the Companys amendment to
its articles of incorporation establishing the Series B preferred stock). The Company may redeem the Series B preferred stock, in whole or in part, at any time or from time to time on or after June 3, 2013 for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends. Also, upon a change of control, each outstanding share of the Companys Series B preferred stock will be redeemed for cash at a redemption price of $25.00 per share, plus all accrued and
unpaid dividends. At March 31, 2009, no events have occurred that would lead the Company to believe redemption of the preferred stock, due to a change of control or failure to maintain its REIT qualification, is probable.

Adoption of New Accounting Pronouncements

In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in the
those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. This guidance was issued to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008 did not have a material effect on
the Company. FSAB staff position FAS157-2 deferred application of FAS 157 with respect to non-financial assets and liabilities to fiscal years beginning after November 15, 2008. Adoption on January 1, 2009 did not have a material effect on
the Company.



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



In December 2007, the FASB issued revised SFAS No. 141, Business Combinations
(FAS 141(R)). FAS 141(R) establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquirer; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The objective of the guidance is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business
combination and its effects. FAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Adoption on January 1,
2009 impacts the Companys accounting for future acquisitions and related transaction costs.

Noncontrolling Interests

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (FAS 160),
effective for fiscal years beginning on or after December 15, 2008. The Company has adopted FAS 160 effective January 1, 2009. Per FAS 160, noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable,
directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Under FAS 160, such noncontrolling interests are reported on the consolidated balance sheets
within equity, separately from the Companys equity. On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the
amounts attributable to the Company and noncontrolling interests. Consolidated statements of equity are included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for
shareholders equity, noncontrolling interests and total equity.

However, per FASB Emerging Issues Task Force Topic No. D-98,
Classification and Measurement of Redeemable Securities (EITF D-98), securities that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside
of permanent equity. This would result in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity in the consolidated balance sheets. The Company makes this determination based on terms
in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the
guidance in EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock to evaluate whether the Company controls the actions or events necessary to issue the maximum
number of shares that could be required to be delivered under share settlement of the contract.



15



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

Item 1. FINANCIAL STATEMENTS, CONTINUED:

Supertel Hospitality, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2009
and 2008

(Unaudited)



The consolidated results of the Company include the following ownership interests held by owners
other than the Company: the common units in the Operating Partnership held by third parties (1,235,806 at March 31, 2009), and the preferred units in the Operating Partnership held by third parties (177,786 at March 31, 2009).

Regarding the common units in the Operating Partnership, the Company controls the actions or events necessary to issue the maximum number of shares
that could be required to be delivered under share settlement at redemption. The Company has determined that these interests are noncontrolling interests to be included in permanent equity, separate from the Companys shareholders equity,
in the consolidated balance sheets and statements of equity. Net income or loss related to the noncontrolling interest is included in net income or loss in the consolidated statements of operations.

Regarding the preferred units in the Operating Partnership, in certain circumstances, redemption of the units could result in a net cash settlement
outside the control of the Company. Accordingly, consistent with EITF D-98, the Company will continue to record this noncontrolling interest outside of permanent equity in the consolidated balance sheets. Based on the Companys evaluation of
the redemption value of the redeemable noncontrolling interest, the Company has reflected this interest at its redemption value as of March 31, 2009 and December 31, 2008.

Subsequent Event

On April 2, 2009, the Board of Directors of Supertel Hospitality, Inc.
authorized the issuance of 863,611 shares of common stock, $.01 par value per share, of the company to Budget Motels, Inc. (BMI) in exchange for 863,611 common limited partnership units of the companys operating partnership,
Supertel Limited Partnership. The common limited partnership units were issued to BMI in 2007 in connection with the companys purchase of hotels. Mr. William Latham, a director of the company, is the owner of BMI.

On May 1, 2009, the Company paid in full the $1.3 million balance remaining on a $3.2 million short-term credit facility with Great Western Bank from its
existing lines of credit.

On May 6, 2009 the Company borrowed $10 million (fixed rate of 5.5%) from the previously unused $10 million term
loan facility available under the Amended and Restated Loan Agreement with Great Western Bank dated December 3, 2008 and used a portion of the borrowings to repay in full the FNBO $9.0 million mortgage loan (fixed rate 8.4%).



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
|------- | --------------------------------------------------------------------------------------

Forward-Looking Statements

Certain information both included and incorporated by reference in this
managements discussion and analysis and other sections of this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, or achievements to be materially different from future results, performance, or achievements
expressed or implied by such forward-looking statements. These forward-looking statements are based on assumptions that management has made in light of experience in the business in which we operate, as well as managements perceptions of
historical trends, current conditions, expected future developments, and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of
which are beyond our control), and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions.

Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words may, will, should,
expect, anticipate, estimate, believe, intend or project or the negative thereof or other variations thereon or comparable terminology. Factors that could have a material
adverse effect on our operations and future prospects include, but are not limited to, changes in: economic conditions, generally, and the real estate market specifically; legislative/regulatory changes (including changes to laws governing the
taxation of real estate investment trusts); availability of capital; risks associated with debt financing, interest rates; competition; supply and demand for hotel rooms in our current and proposed market areas; and policies and guidelines
applicable to real estate investment trusts and other risks and uncertainties described herein and in our filings with the SEC from time to time. These risks and uncertainties should be considered in evaluating any forward-looking statements
contained or incorporated by reference herein. We caution readers not to place undue reliance on any forward-looking statements included in this report that speak only as of the date of this report.

Following is managements discussion and analysis of our operating results as well as liquidity and capital resources which should be read together
with our financial statements and related notes contained in this report and with the financial statements and managements discussion and analysis in our annual report on Form 10-K for the fiscal year ended December 31, 2008. Results
for the three months ended March 31, 2009 are not necessarily indicative of results that may be attained in the future.

References to
we, our, us, Company, and Supertel Hospitality refer to Supertel Hospitality, Inc., including as the context requires, its direct and indirect subsidiaries.

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Preparation of these
statements requires management to make certain estimates and judgments that affect our financial position and results of operations. A summary of significant accounting policies and a description of accounting policies that are considered critical
may be found in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

We are a self-administered real estate investment trust, and through our subsidiaries, as of March 31, 2009 we owned 122 hotels in 24 states. Our
hotels operate under several national and independent brands.



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Significant events for the three months ended March 31, 2009 include the sale on March 20,
2009, of our Super 8 hotel located in Charles City, IA with a total of 43 rooms. The sale price was approximately $1.1 million.

We conduct
our business through a traditional umbrella partnership REIT, or UPREIT, in which our hotel properties are owned by our operating partnerships, Supertel Limited Partnership and E & P Financing Limited Partnership, and limited partnerships,
limited liability companies or other subsidiaries of our operating partnerships. As of March 31, 2009 we owned, indirectly, an approximate 94% general partnership interest in Supertel Limited Partnership and a 100% partnership interest in E
& P Financing Limited Partnership.

As of March 31, 2009, we owned 122 limited service hotels and one office building. The hotels
are leased to our wholly owned taxable REIT subsidiary, TRS Leasing, Inc, and its wholly owned subsidiaries (collectively TRS Lessee), and are managed by Royco Hotels Inc (Royco Hotels) and HLC Hotels Inc. (HLC). Royco Hotels is the
manager of 107 of our hotels and HLC is the manager of 15 of our hotels.

Overview of Discontinued Operations

The condensed consolidated statements of operations for discontinued operations for the three months ended March 31, 2009 and 2008 include the
results of operations for the seven hotels classified as held for sale at March 31, 2009, as well as all properties that have been sold during 2009 and 2008 in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).

The assets held
for sale at March 31, 2009 and 2008 are separately disclosed in the Condensed Consolidated Balance Sheets. Among other criteria, we classify an asset as held for sale if we expect to dispose of it within one year, we have initiated an active
marketing plan to sell the asset at a reasonable price and it is unlikely that significant changes to the plan to sell the asset will be made. While we believe that the completion of these dispositions is probable, the sale of these assets is
subject to market conditions and we cannot provide assurance that we will finalize the sale of all or any of these assets on favorable terms or at all. We believe that all our held for sale assets as of March 31, 2009 remain properly classified
in accordance with SFAS No. 144.

Where the carrying values of the assets held for sale exceeded the estimated fair values, net of
selling costs, we reduced the carrying values and recorded impairment charges. During the three months ended March 31, 2009, we recorded impairment charges of $150,000 on assets held for sale. The fair value of an asset held for sale is based
on the estimated selling price less estimated selling costs. We engage independent real estate brokers to assist us in determining the estimated selling price. The estimated selling costs are based on our experience with similar asset sales. We
record impairment charges and write down the carrying value of an asset if the carrying value exceeds the estimated selling price less costs to sell.

Our continuing operations reflect the results of operations of those hotels which we are likely to retain in our portfolio for the foreseeable future as well as those assets which do not currently meet the held for
sale criteria in SFAS No. 144. We periodically evaluate the assets in our portfolio to ensure they continue to meet our performance objectives. Accordingly, from time to time, we could identify other assets for disposition.

General

The discussion that follows is based
primarily on the consolidated financial statements of the Company for the three months ended March 31, 2009 and 2008, and should be read along with the consolidated financial statements and notes.



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The comparisons below reflect the revenues and expenses of the Companys 122 and 125 hotels
owned as of March 2009 and March 2008, respectively.

Results of Operations

Comparison of the three months ended March 31, 2009 to the three months ended March 31, 2008.

Operating
results are summarized as follows (in thousands):



|                                          |  |                                  |         |   |                                  |   |        |                              |  |   |                      |   |  |                        |         |   |       |   |        |   |  |   |         |   |  |   |        |  
|----------------------------------------- |  | -------------------------------- | ------- | - | -------------------------------- | - | ------ | ---------------------------- |  | - | -------------------- | - |  | ---------------------- | ------- | - | ----- | - | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                          |  | Three months endedMarch 31, 2009 |         |   | Three months endedMarch 31, 2008 |   |        | ContinuingOperationsVariance | 
|                                          |  | ContinuingOperations             |         |   | DiscontinuedOperations           |   |        | Total                        |  |   | ContinuingOperations |   |  | DiscontinuedOperations |         |   | Total |   |       
|Revenues                                  |  | $                                | 23,065  |   |                                  | $ | 1,309  |                              |  | $ | 24,374               |   |  | $                      | 25,527  |   |       | $ | 2,449  |   |  | $ | 27,975  |   |  | $ | (2,462 | )
|Hotel and property operations expenses    |  |                                  | (18,636 | ) |                                  |   | (1,223 | )                            |  |   | (19,859              | ) |  |                        | (19,626 | ) |       |   | (1,793 | ) |  |   | (21,418 | ) |  |   | 990    |  
|Interest expense                          |  |                                  | (2,980  | ) |                                  |   | (143   | )                            |  |   | (3,123               | ) |  |                        | (3,407  | ) |       |   | (253   | ) |  |   | (3,660  | ) |  |   | 427    |  
|Depreciation and amortization expense     |  |                                  | (3,596  | ) |                                  |   | (121   | )                            |  |   | (3,717               | ) |  |                        | (3,287  | ) |       |   | (292   | ) |  |   | (3,579  | ) |  |   | (309   | )
|General and administrative expenses       |  |                                  | (971    | ) |                                  |   |       |                              |  |   | (971                 | ) |  |                        | (955    | ) |       |   |       |   |  |   | (955    | ) |  |   | (16    | )
|Net gain (loss) on dispositions of assets |  |                                  | (67     | ) |                                  |   | 7      |                              |  |   | (60                  | ) |  |                        | 2       |   |       |   |       |   |  |   | 2       |   |  |   | (69    | )
|Other income                              |  |                                  | 38      |   |                                  |   |       |                              |  |   | 38                   |   |  |                        | 31      |   |       |   |       |   |  |   | 31      |   |  |   | 7      |  
|Impairment loss                           |  |                                  |        |   |                                  |   | (150   | )                            |  |   | (150                 | ) |  |                        |        |   |       |   |       |   |  |   |        |   |  |   |       |  
|Income tax benefit                        |  |                                  | 957     |   |                                  |   | 86     |                              |  |   | 1,043                |   |  |                        | 662     |   |       |   | 36     |   |  |   | 698     |   |  |   | 295    |  
|                                          |  |                                  |         |   |                                  |   |        |                              |  |   |                      |   |  |                        |         |   |       |   |        |   |  |   |         |   |  |   |        |  
|Net loss                                  |  | $                                | (2,190  | ) |                                  | $ | (235   | )                            |  | $ | (2,425               | ) |  | $                      | (1,053  | ) |       | $ | 147    |   |  | $ | (906    | ) |  | $ | (1,137 | )
|                                          |  |                                  |         |   |                                  |   |        |                              |  |   |                      |   |  |                        |         |   |       |   |        |   |  |   |         |   |  |   |        |  

Revenues and Operating Expenses

Revenues from continuing operations for the three months ended March 31, 2009 compared to the three months ended March 31, 2008, decreased $2.5
million or 9.6%, which was primarily due to decreased occupancy resulting from unfavorable economic conditions. We refer to our entire portfolio as limited service hotels which we further describe as midscale without food and beverage hotels,
economy hotels and extended stay hotels. The same store portfolio used for comparison of the first quarter of 2009 over the same period of 2008 consists of the 105 hotels owned by the Company as of January 1, 2008 (excluding Held For Sale
hotels), and ten properties purchased January 2, 2008. Our 30 same store midscale without food and beverage hotels reflected an average daily rate (ADR) decrease of 3.4% to $65.85, a 6.7% decrease in occupancy and a revenue per
available room (RevPAR) decrease of 9.8% to $33.93 for the first quarter of 2009 over the same period of 2008. Our 77 same store economy hotels reflected an ADR increase of 0.2%, to $45.35, a decrease in occupancy of 7.2% and a RevPAR
decrease of 6.9% to $23.51 for the first quarter of 2009 over the same period of 2008. Our eight same store extended stay properties reflected an ADR decrease of 0.6% to $24.82, a decrease in occupancy of 14.2%, and a RevPAR decrease of 14.7% to
$15.00. During the first quarter of 2009 compared to the year ago period, ADR for the entire 115 same store hotel portfolio was essentially flat at $47.04 and RevPAR decreased 8.4% to $24.85. The occupancy for all same store hotels for the three
months ended March 31, 2009 decreased 8.0% from that of the year ago period.

During the first quarter of 2009, hotel and property
operations expenses from continuing operations decreased $1.0 million. The decrease was driven by lower occupancy levels, with payroll expense down $0.3 million, room and office supplies down $0.2 million, and other expenses down $0.6 million, with
an offsetting $0.1 million increase in utilities expense.



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Interest Expense, Depreciation and Amortization Expense and General and Administration Expense

Interest expense from continuing operations decreased by $0.4 million. This was a result of loan payoffs and favorable rates on the variable rate debt.
The depreciation and amortization expense from continuing operations increased $0.3 million for the three months ended March 31, 2009 compared to the year ago period. This is primarily related to asset additions for the hotels outpacing the
amount of assets exceeding their useful life. The general and administrative expense from continuing operations for the same period did not experience a material change.

Impairment loss

For the first quarter of 2009, we recorded an impairment charge of $150,000 on two
hotels. There was no impairment charge recorded for the first quarter of 2008.

Dispositions

In the first quarter of 2009, we recognized net losses on the disposition of assets of approximately $60,000, due primarily to normal operations.

Income Tax Benefit

The income tax
benefit from continuing operations is related to the taxable loss from our taxable subsidiary, the TRS Lessee. Management believes the combined federal and state income tax rate for the TRS Lessee will be approximately 39%. The tax benefit is a
result of TRS Lessees losses for the three months ended March 31, 2009 and the year ago period. The income tax benefit will vary based on the taxable earnings or loss of the TRS Lessee, a C corporation.

The income tax benefit from continuing operations increased by approximately $0.3 million during the three months ended March 31, 2009 compared to
the year ago period, due to an increased loss by the TRS Lessee, primarily related to the recent economic downturn.

Liquidity and Capital Resources

Our income and ability to meet our debt service obligations, and make distributions to our shareholders, depends upon the operations of
the hotels being conducted in a manner that maintains or increases revenue, or reduces expenses, to generate sufficient hotel operating income for TRS Lessee to pay the hotels operating expenses, including management fees and rents to us. We
depend on rent payments from TRS Lessee to pay our operating expenses and debt service and to make distributions to shareholders.

We
expect to meet our short-term liquidity requirements generally through borrowings on our revolving credit facility with Great Western Bank and net cash provided by operations. We believe that our available borrowing capacity and net cash provided by
operations will be adequate to fund both operating requirements and the payment of dividends in accordance with REIT requirements.

We
expect to meet our long-term liquidity requirements, such as scheduled debt maturities, through long-term secured and unsecured borrowings and the issuance of additional securities.

The Companys operating performance, as well as its liquidity position, has been and continues to be negatively affected by recent economic
conditions, many of which are beyond our control. The Company does not believe it is likely that these adverse economic conditions, and their effect on the hospitality industry, will improve significantly in the near term.



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Financing

At March 31, 2009, the Company had long-term debt of $192.2 million, consisting of notes and mortgages payable, with a weighted average term to maturity of 5.7 years and a weighted average interest rate of 5.8%. Aggregate annual
principal payments for the remainder of 2009 and thereafter are as follows (in thousands):



|                  |  |   |        
|----------------- |  | - | -------
|Remainder of 2009 |  | $ | 23,335 
|2010              |  |   | 5,018  
|2011              |  |   | 18,934 
|2012              |  |   | 51,663 
|2013              |  |   | 4,735  
|Thereafter        |  |   | 88,528 
|                  |  |   |        
|                  |  | $ | 192,213
|                  |  |   |        

Of the maturities in 2009, approximately $3.5 million consist of principal amortization on
mortgage loans, which we expect to fund through cash flows from operations. The remaining maturities as of March 31, 2009 consist of:



| |  |  | a $9.5 million balance on the revolving credit facility with Wells Fargo Bank;
| | - |  | ------------------------------------------------------------------------------



| |  |  | a $1.3 million note payable to Great Western Bank, was paid in full May 1, 2009; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | a balloon payment of $9.0 million payable to First National Bank of Omaha (FNBO), was paid in full May 6, 2009
| | - |  | ----------------------------------------------------------------------------------------------------------------

The loans with Wells Fargo Bank and Susquehanna Bank are expected to be refinanced using our existing lines of credit or other financing or sale of
hotels.

The Great Western Bank $1.3 million bank note was paid in full as of May 1, 2009, from our existing lines of credit. On May
6, 2009 the Company borrowed $10 million (fixed rate of 5.5%) from the previously unused $10 million term loan facility available under the Amended and Restated Loan Agreement with Great Western Bank dated December 3, 2008 and used a portion of the
borrowings to repay in full the FNBO $9.0 million mortgage loan (fixed rate 8.4%).

The Company is required to comply with certain
quarterly covenant compliance tests for some of its lenders. As of March 31, 2009 we are in compliance with the financial covenants of our lenders.



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A summary of the Companys long term debt as of March 31, 2009 is as follows (in
thousands):



|                                     |  |         |         |              |           |   |          |  |                 |        
|------------------------------------ |  | ------- | ------- | ------------ | --------- | - | -------- |  | --------------- | -------
|                                     |  | Balance |         | InterestRate |           |   | Maturity | 
|Fixed Rate Debt                      |  |         |         |              |           |   |          |  |                 |        
|                                     |  |         |        
|Lender                               |  |         |         |              |           |   |          |  |                 |        
|Great Western Bank                   |  | $       | 1,300   |              | 7.00      | % |          |  | 5/2009          | (1)    
|Susquehanna Bank                     |  |         | 1,265   |              | 7.75      | % |          |  | 7/2009          | (5)    
|First National Bank of Omaha         |  |         | 9,039   |              | 8.40      | % |          |  | 11/2009         | (2)    
|Great Western Bank                   |  |         | 13,906  |              | 5.50      | % |          |  | 12/2011         |        
|Greenwich Capital Financial Products |  |         | 33,434  |              | 7.50      | % |          |  | 12/2012         |        
|Small Business Administration        |  |         | 105     |              | 6.71      | % |          |  | 6/2013          | (5)    
|Elkhorn Valley Bank                  |  |         | 1,000   |              | 6.50      | % |          |  | 4/2014          |        
|Citigroup Global Markets Realty Corp |  |         | 13,923  |              | 5.97      | % |          |  | 11/2015         |        
|GE Capital                           |  |         | 35,942  |              | 5.67      | % |          |  | 9/2016 - 3/2017 | (3) (5)
|GE Capital                           |  |         | 27,108  |              | 6.19      | % |          |  | 6/2017          | (3)    
|Wachovia Bank                        |  |         | 10,343  |              | 7.38      | % |          |  | 3/2020          |        
|Village Bank                         |  |         | 2,364   |              | 7.57      | % |          |  | 11/2024         | (5)    
|                                     |  |         |         |              |           |   |          |  |                 |        
|Total Fixed Rate Debt                |  |         | 149,729 |              |           |   |          |  |                 |        
|                                     |  |         |         |              |           |   |          |  |                 |        
|                                     |  |         |        
|Variable Rate Debt                   |  |         |         |              |           |   |          |  |                 |        
|                                     |  |         |        
|Lender                               |  |         |         |              |           |   |          |  |                 |        
|Wells Fargo                          |  |         | 9,489   |              | 4.31-4.88 | % |          |  | 9/2009          | (4)    
|Great Western Bank                   |  |         | 17,784  |              | 4.50      | % |          |  | 2/2012          |        
|GE Capital                           |  |         | 23,475  |              | 3.27      | % |          |  | 2/2018          | (3)    
|GE Capital                           |  |         | 2,470   |              | 3.83      | % |          |  | 2/2018          | (3)    
|                                     |  |         |         |              |           |   |          |  |                 |        
|Total Variable Rate Debt             |  |         | 53,218  |              |           |   |          |  |                 |        
|                                     |  |         |         |              |           |   |          |  |                 |        
|                                     |  |         |        
|Subtotal debt                        |  | $       | 202,947 |              |           |   |          |  |                 |        
|                                     |  |         |         |              |           |   |          |  |                 |        
|                                     |  |         |        
|Less: debt related to held for sale  |  |         | 10,734  |              |           |   |          |  |                 | (5)    
|                                     |  |         |         |              |           |   |          |  |                 |        
|                                     |  |         |        
|Total Long-Term Debt                 |  | $       | 192,213 |              |           |   |          |  |                 |        
|                                     |  |         |         |              |           |   |          |  |                 |        



|(1) | Paid off May 1, 2009
|--- | --------------------

|(2) | Paid off May 6, 2009 using the $10 million Great Western Bank note per approval in the December 3, 2008 loan agreement.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(3) | GE rate scheduled to increase 1% effective April 1, 2009
|--- | --------------------------------------------------------

|(4) | Wells Fargo rate scheduled to increase 1.75% effective April 1, 2009
|--- | --------------------------------------------------------------------

|(5) | Using proceeds from the sale of the hotels, the Company anticipates paying off in full the loans with Susquehanna Bank, the Village Bank and the Small Business Administration. The
Company further anticipates paying approximately $7.0 million towards the retirement of GE Capital debt.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we fail to pay
our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness and ultimately
lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our Great Western Bank credit facility contains a cross-default provision which would allow Great Western Bank to declare a
default and accelerate our indebtedness to them if we default on certain other loans, and such default would permit that lender to accelerate its indebtedness. We are not in default of any of our loans.



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On February 4, 2009, the Company amended its credit facility with Great Western Bank to
(a) increase the principal amount of the short-term line of credit portion of the facility from $2 million to $3.2 million, (b) increase the interest rate applicable to the short-term line of credit portion of the facility from the greater
of prime plus 50 basis points and 5.00% to 7.00%, and (c) extend the maturity date of the short-term line of credit portion of the facility from February 1, 2009 to May 3, 2009.This facility was subsequently paid in full as of
May 1, 2009 from our existing lines of credit.

Redemption of Noncontrolling Preferred and Common Operating Partnership Units

As of March 31, 2009 we owned, through our subsidiary, Supertel Hospitality REIT Trust, an approximate 94% general partnership interest in Supertel
Limited Partnership, through which we own 63 of our hotels. We are the sole general partner of the limited partnership, and the remaining approximate 6% is held by limited partners. Limited partners hold, as of March 31, 2009, 1,235,806 common
operating partnership units. A limited partner may, subject to certain limitations, require that Supertel Limited Partnership redeem all or a portion of his or her common units, at any time after a specified period following the date he or she
acquired the common units, by delivering a redemption notice to Supertel Limited Partnership. When a limited partner tenders his or her common units to the partnership for redemption, we can, at our sole discretion, choose to purchase the units for
either (1) a number of our shares of common stock equal to the number of units redeemed (subject to certain adjustments) or (2) cash in an amount equal to the market value of the number of our shares of common stock the limited partner
would have received if we chose to purchase the units for common stock. We anticipate that we generally will elect to purchase the common units for common stock. Limited partners also held 177,786 preferred operating partnership units as of
March 31, 2009. The preferred units are convertible by the holders into common units on a one-for-one basis or may be redeemed for cash at $10 per unit until October 2009. The preferred units receive a preferred dividend distribution of $1.10
per preferred unit annually, payable on a monthly basis and do not participate in the allocations of profits and losses of Supertel Limited Partnership. There were no common operating partnership units or preferred operating partnership units
converted during the three months ended March 31, 2009.

On April 2, 2009, the Board of Directors of Supertel Hospitality, Inc.
authorized the issuance of 863,611 shares of common stock, $.01 par value per share, of the Company to Budget Motels, Inc. (BMI) in exchange for 863,611 common limited partnership units of the Companys operating partnership,
Supertel Limited Partnership. The common limited partnership units were issued to BMI in 2007 in connection with the companys purchase of hotels. Mr. William Latham, a director of the company, is the owner of BMI.

Capital Commitments

Below is a summary of certain
obligations that will require capital (in thousands):



|                                  |  |       |         |                        |   |           |  |           |        |                  |   |        |  |   |        
|--------------------------------- |  | ----- | ------- | ---------------------- | - | --------- |  | --------- | ------ | ---------------- | - | ------ |  | - | -------
|                                  |  |       |         | Payments Due by Period
|Contractual Obligations           |  | Total |         | Less than1 Year        |   | 1-3 Years |  | 4-5 Years |        | More than5 years
|Long-term debt including interest |  | $     | 258,219 |                        | $ | 42,745    |  | $         | 42,790 |                  | $ | 68,871 |  | $ | 103,813
|Land leases                       |  |       | 7,008   |                        |   | 132       |  |           | 358    |                  |   | 359    |  |   | 6,159  
|                                  |  |       |         |                        |   |           |  |           |        |                  |   |        |  |   |        
|Total contractual obligations     |  | $     | 265,227 |                        | $ | 42,877    |  | $         | 43,148 |                  | $ | 69,230 |  | $ | 109,972
|                                  |  |       |         |                        |   |           |  |           |        |                  |   |        |  |   |        

The column titled Less than 1 Year represents payments due for the balance of 2009.



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We have various standing or renewable contracts with vendors. These contracts are all cancelable with
immaterial or no cancellation penalties. Contract terms are generally one year or less. In addition, the Company has management agreements with Royco Hotels and HLC Hotels, providing for the management and operation of the hotels, which is discussed
further within this document.

Other

To maintain our REIT tax status, we generally must distribute at least 90% of our taxable income to our shareholders annually. In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to shareholders in
a calendar year is less than a minimum amount specified under the federal income tax laws. We have a general dividend policy of paying out approximately 100% of annual REIT taxable income. The actual amount of any future dividends will be determined
by the Board of Directors based on our actual results of operations, economic conditions, capital expenditure requirements and other factors that the Board of Directors deems relevant.

Off Balance Sheet Financing Transactions

We have not entered into any off balance sheet financing
transactions.

Funds from Operations

The Companys funds from operations (FFO) for the three months ended March 31, 2009 were $1.1 million, representing a decrease of $1.4 million from FFO of $2.5 million reported for the three months ended March 31,
2008. FFO is reconciled to net loss as follows (in thousands):



|                                                     |  |                             |        |   |      |   |        |  
|---------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                     |  | Three months endedMarch 31, |       
|                                                     |  | 2009                        |        |   | 2008 |  
|Net loss attributable to common shareholders         |  | $                           | (2,707 | ) |      | $ | (1,079 | )
|Depreciation and amortization                        |  |                             | 3,717  |   |      |   | 3,579  |  
|Net (gain) loss on disposition of real estate assets |  |                             | 60     |   |      |   | (2     | )
|                                                     |  |                             |        |   |      |   |        |  
|FFO available to common shareholders                 |  | $                           | 1,070  |   |      | $ | 2,498  |  
|                                                     |  |                             |        |   |      |   |        |  

FFO is a non-GAAP financial measure. We consider FFO to be a market accepted measure of an equity
REITs operating performance, which is necessary, along with net earnings (loss), for an understanding of our operating results. FFO, as defined under the National Association of Real Estate Investment Trusts (NAREIT) standards, consists of net
income computed in accordance with GAAP, excluding gains (or losses) from sales of real estate assets, plus depreciation and amortization of real estate assets. We believe our method of calculating FFO complies with the NAREIT definition. FFO does
not represent amounts available for managements discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. FFO should not be considered as an alternative to net
income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. All REITs do not calculate FFO in the
same manner; therefore, our calculation may not be the same as the calculation of FFO for similar REITs.

We use FFO as a performance
measure to facilitate a periodic evaluation of our operating results relative to those of our peers, who, like us, are typically members of NAREIT. We consider FFO a useful additional measure of performance for an equity REIT because it facilitates
an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, we believe that FFO provides a meaningful indication of our performance.



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
|------- | -------------------------------------------------------------------------------------------------



Revenue Per Available Room (RevPAR), Average Daily Rate (ADR), and Occupancy

The following table presents our RevPAR, ADR and Occupancy, by region, for the three months ended March 31, 2009 and 2008,
respectively. The comparisons of same store operations (excluding Held For Sale hotels) are for 105 hotels owned as of January 1, 2008 and ten hotels acquired as of January 2, 2008.



|                               |  |                                                                                                  |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|------------------------------ |  | ------------------------------------------------------------------------------------------------ |  | --------------------------------- | ----- | --------- | ---- | --------------------------------- | --- | - | --------- |  | ------ |  | --------- | ----- |  | ---- | - |  | - | -----
|                               |  |                                                                                                  |  | Three months ended March 31, 2009 |       |           |      | Three months ended March 31, 2008
|Same Store * Region            |  | RoomCount                                                                                        |  | RevPAR                            |       | Occupancy |      |                                   | ADR |   | RoomCount |  | RevPAR |  | Occupancy |       |  | ADR 
|Mountain                       |  | 214                                                                                              |  | $                                 | 26.73 |           | 55.8 | %                                 |     | $ | 47.89     |  | 214    |  | $         | 31.33 |  | 67.4 | % |  | $ | 46.52
|West North Central             |  | 2,928                                                                                            |  |                                   | 24.08 |           | 51.9 | %                                 |     |   | 46.44     |  | 2,928  |  |           | 25.72 |  | 55.1 | % |  |   | 46.69
|East North Central             |  | 1,081                                                                                            |  |                                   | 30.55 |           | 51.5 | %                                 |     |   | 59.37     |  | 1,081  |  |           | 33.53 |  | 55.9 | % |  |   | 59.99
|Middle Atlantic/New England    |  | 205                                                                                              |  |                                   | 26.40 |           | 44.3 | %                                 |     |   | 59.59     |  | 205    |  |           | 27.29 |  | 45.4 | % |  |   | 60.07
|South Atlantic                 |  | 4,038                                                                                            |  |                                   | 23.17 |           | 54.4 | %                                 |     |   | 42.57     |  | 4,038  |  |           | 26.33 |  | 61.4 | % |  |   | 42.89
|East South Central             |  | 1,070                                                                                            |  |                                   | 26.41 |           | 50.7 | %                                 |     |   | 52.05     |  | 1,070  |  |           | 27.21 |  | 50.4 | % |  |   | 53.97
|West South Central             |  | 456                                                                                              |  |                                   | 25.86 |           | 55.3 | %                                 |     |   | 46.72     |  | 456    |  |           | 26.05 |  | 58.5 | % |  |   | 44.51
|                               |  |                                                                                                  |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Total Same Store               |  | 9,992                                                                                            |  | $                                 | 24.85 |           | 52.8 | %                                 |     | $ | 47.04     |  | 9,992  |  | $         | 27.14 |  | 57.4 | % |  | $ | 47.25
|                               |  |                                                                                                  |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|                               | 
|States included in the Regions |  |                                                                                                 
|Mountain                       |  | Idaho and Montana                                                                               
|West North Central             |  | Iowa, Kansas, Missouri, Nebraska and South Dakota                                               
|East North Central             |  | Indiana and Wisconsin                                                                           
|Middle Atlantic/New England    |  | Maine and Pennsylvania                                                                          
|South Atlantic                 |  | Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia
|East South Central             |  | Alabama, Kentucky and Tennessee                                                                 
|West South Central             |  | Arkansas and Louisiana                                                                          



|* | Same Store reflects 115 hotels (excluding Held For Sale hotels). The same store includes ten hotels acquired as of January 2, 2008.
|- | -----------------------------------------------------------------------------------------------------------------------------------



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
|------- | -------------------------------------------------------------------------------------------------



Our RevPAR, ADR, and Occupancy, by franchise affiliation, for the three months ended March 31,
2009 and 2008, were as follows:



|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|--------------------------- |  | ----------------------------------------------------------------- |  | --------------------------------- | ----- | --------- | ---- | --------------------------------- | --- | - | --------- |  | ------ |  | --------- | ----- |  | ---- | - |  | - | -----
|                            |  |                                                                   |  | Three months ended March 31, 2009 |       |           |      | Three months ended March 31, 2008
|Same Store * Brand          |  | RoomCount                                                         |  | RevPAR                            |       | Occupancy |      |                                   | ADR |   | RoomCount |  | RevPAR |  | Occupancy |       |  | ADR 
|Limited Service             |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Midscale w/o F&B**          |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Comfort Inn/ Comfort Suites |  | 1,732                                                             |  | $                                 | 32.16 |           | 48.4 | %                                 |     | $ | 66.38     |  | 1,732  |  | $         | 36.13 |  | 52.6 | % |  | $ | 68.62
|Hampton Inn                 |  | 135                                                               |  |                                   | 42.13 |           | 54.7 | %                                 |     |   | 77.04     |  | 135    |  |           | 48.01 |  | 63.8 | % |  |   | 75.21
|Holiday Inn Express         |  | 125                                                               |  |                                   | 44.29 |           | 65.8 | %                                 |     |   | 67.31     |  | 125    |  |           | 40.69 |  | 62.1 | % |  |   | 65.50
|Other Midscale (1)          |  | 291                                                               |  |                                   | 36.23 |           | 62.3 | %                                 |     |   | 58.17     |  | 291    |  |           | 40.32 |  | 63.3 | % |  |   | 63.67
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Total Midscale w/o F&B**    |  | 2,283                                                             |  |                                   | 33.93 |           | 51.5 | %                                 |     |   | 65.85     |  | 2,283  |  |           | 37.62 |  | 55.2 | % |  |   | 68.16
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Economy                     |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Days Inn                    |  | 1,146                                                             |  |                                   | 24.86 |           | 47.7 | %                                 |     |   | 52.15     |  | 1,146  |  |           | 24.33 |  | 49.9 | % |  |   | 48.78
|Super 8                     |  | 3,474                                                             |  |                                   | 24.53 |           | 53.6 | %                                 |     |   | 45.74     |  | 3,474  |  |           | 25.93 |  | 56.7 | % |  |   | 45.74
|Other Economy (2)           |  | 350                                                               |  |                                   | 30.35 |           | 49.8 | %                                 |     |   | 60.99     |  | 350    |  |           | 33.46 |  | 52.0 | % |  |   | 64.34
|Masters Inn                 |  | 1,514                                                             |  |                                   | 18.58 |           | 51.4 | %                                 |     |   | 36.16     |  | 1,514  |  |           | 22.46 |  | 59.0 | % |  |   | 38.08
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Total Economy               |  | 6,484                                                             |  |                                   | 23.51 |           | 51.8 | %                                 |     |   | 45.35     |  | 6,484  |  |           | 25.25 |  | 55.8 | % |  |   | 45.28
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Total Midscale/Economy      |  | 8,767                                                             |  |                                   | 26.22 |           | 51.8 | %                                 |     |   | 50.67     |  | 8,767  |  |           | 28.47 |  | 55.6 | % |  |   | 51.19
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|                            |  |                                                                   |  |                                   |       |           |      |                                  
|Extended Stay (3)           |  | 1,225                                                             |  |                                   | 15.00 |           | 60.4 | %                                 |     |   | 24.82     |  | 1,225  |  |           | 17.59 |  | 70.4 | % |  |   | 24.97
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|Total Same Store            |  | 9,992                                                             |  | $                                 | 24.85 |           | 52.8 | %                                 |     | $ | 47.04     |  | 9,992  |  | $         | 27.14 |  | 57.4 | % |  | $ | 47.25
|                            |  |                                                                   |  |                                   |       |           |      |                                   |     |   |           |  |        |  |           |       |  |      |   |  |   |      
|                            |  | 1       Includes Ramada Limited, Baymont Inn and Sleep Inn brands
|                            |  | 2       Includes Guesthouse Inn and independent hotels           
|                            |  | 3       Includes Savannah Suites and Tara Inn                    

|* | Same Store reflects 115 hotels (excluding Held For Sale hotels). The same store includes ten hotels acquired as of January 2, 2008.
|- | -----------------------------------------------------------------------------------------------------------------------------------

|** | w/o F&B indicates without food and beverage
|-- | ---------------------------------------------

Adoption
of New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in the those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements. This guidance was issued to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. FAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007. Adoption on January 1, 2008 did not have a material effect on the Company. FSAB staff position FAS157-2 deferred application of FAS 157 with respect to
non-financial assets and liabilities to fiscal years beginning after November 15, 2008. Adoption on January 1, 2009 did not have a material effect on the Company.



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
|------- | -------------------------------------------------------------------------------------------------



In December 2007, the FASB issued revised SFAS No. 141, Business Combinations
(FAS 141(R)). FAS 141(R) establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquirer; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The objective of the guidance is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business
combination and its effects. FAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Adoption on January 1,
2009 impacts the Companys accounting for future acquisitions and related transaction costs.

Noncontrolling Interests

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (FAS 160),
effective for fiscal years beginning on or after December 15, 2008. The Company has adopted FAS 160 effective January 1, 2009. Per FAS 160, noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable,
directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Under FAS 160, such noncontrolling interests are reported on the consolidated balance sheets
within equity, separately from the Companys equity. On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the
amounts attributable to the Company and noncontrolling interests. Consolidated statements of equity are included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for
shareholders equity, noncontrolling interests and total equity.

However, per FASB Emerging Issues Task Force Topic No. D-98,
Classification and Measurement of Redeemable Securities (EITF D-98), securities that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside
of permanent equity. This would result in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity in the consolidated balance sheets. The Company makes this determination based on terms
in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the
guidance in EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock to evaluate whether the Company controls the actions or events necessary to issue the maximum
number of shares that could be required to be delivered under share settlement of the contract.

The consolidated results of the Company
include the following ownership interests held by owners other than the Company: the common units in the Operating Partnership held by a third party (1,235,806 at March 31, 2009), and the preferred units in the Operating Partnership held by
third parties (177,786 at March 31, 2009).

Regarding the common units in the Operating Partnership, the Company controls the actions
or events necessary to issue the maximum number of shares that could be required to be delivered under share



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED:
|------- | -------------------------------------------------------------------------------------------------



settlement at redemption. The Company has determined that these interests are noncontrolling interests to be included in permanent equity, separate from the
Companys shareholders equity, in the consolidated balance sheets and statements of equity. Net income or loss related to the noncontrolling interest is included in net income or loss in the consolidated statements of operations.

Regarding the preferred units in the Operating Partnership, in certain circumstances, redemption of the units could result in a net cash
settlement outside the control of the Company. Accordingly, consistent with EITF D-98, the Company will continue to record this noncontrolling interest outside of permanent equity in the consolidated balance sheets. Based on the Companys
evaluation of the redemption value of the redeemable noncontrolling interest, the Company has reflected this interest at its redemption value as of March 31, 2009 and December 31, 2008.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the Companys market risk exposure subsequent to December 31, 2008.

Item 4. CONTROLS AND PROCEDURES

Evaluation was performed under the supervision of management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as
defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by
this report, the Companys disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act
of 1934 was (1) accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized
and reported, within the time periods specified in the Commissions rules and forms. No changes in the Companys internal control over financial reporting occurred during the quarter covered by this report that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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Part II. OTHER INFORMATION

|Item 5. | Other Information
|------- | -----------------



Summary Financial Data

The following sets forth summary financial data that has been prepared by the Company without audit. The Company believes the following data should be used as a supplement to the consolidated statements of operations
and should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2008.



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Item 5. Other Information



|                                                                                              |  |                             |        |   |      |   |         |  
|--------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|(In thousands, except per share and statistical data)                                         |  |                             |        |   |      |  
|                                                                                              |  | Three months endedMarch 31, |       
|                                                                                              |  | 2009                        |        |   | 2008 |  
|Loss from continuing operations before income taxes                                           |  | $                           | (3,147 | ) |      | $ | (1,715  | )
|                                                                                              |  |                             |        |   |      |   |         |  
|Net loss attributable to common shareholders                                                  |  | $                           | (2,707 | ) |      | $ | (1,079  | )
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|Earnings per share from continuing operations - basic                                         |  | $                           | (0.12  | ) |      | $ | (0.06   | )
|                                                                                              |  |                             |        |   |      |   |         |  
|Earnings per share from discontinued operations - basic                                       |  | $                           | (0.01  | ) |      | $ | 0.01    |  
|                                                                                              |  |                             |        |   |      |   |         |  
|Earnings per share - basic                                                                    |  | $                           | (0.13  | ) |      | $ | (0.05   | )
|                                                                                              |  |                             |        |   |      |   |         |  
|Earnings per share - diluted                                                                  |  | $                           | (0.13  | ) |      | $ | (0.05   | )
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|Adjusted EBITDA (1)                                                                           |  | $                           | 3,372  |   |      | $ | 5,635   |  
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|FFO attributable to common shareholders (2)                                                   |  | $                           | 1,070  |   |      | $ | 2,498   |  
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|FFO per share - basic                                                                         |  |                             | 0.05   |   |      |   | 0.12    |  
|                                                                                              |  |                             |        |   |      |   |         |  
|FFO per share - diluted                                                                       |  |                             | 0.05   |   |      |   | 0.12    |  
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|Net cash flow:                                                                                |  |                             |        |   |      |   |         |  
|Provided by operating activities                                                              |  | $                           | 1,955  |   |      | $ | 5,086   |  
|Provided by (used in) investing activities                                                    |  | $                           | 360    |   |      | $ | (25,597 | )
|Provided by (used in) financing activities                                                    |  | $                           | (2,121 | ) |      | $ | 21,190  |  
|                                                                                              |  |                            
|Weighted average number of shares outstanding for:                                            |  |                             |        |   |      |   |         |  
|calculation of earnings per share - basic                                                     |  |                             | 20,925 |   |      |   | 20,701  |  
|                                                                                              |  |                             |        |   |      |   |         |  
|calculation of earnings per share - diluted                                                   |  |                             | 20,925 |   |      |   | 20,701  |  
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|Weighted average number of shares outstanding for:                                            |  |                             |        |   |      |   |         |  
|calculation of FFO per share - basic                                                          |  |                             | 20,925 |   |      |   | 20,701  |  
|                                                                                              |  |                             |        |   |      |   |         |  
|calculation of FFO per share - diluted                                                        |  |                             | 20,925 |   |      |   | 22,347  |  
|                                                                                              |  |                             |        |   |      |   |         |  
|                                                                                              |  |                            
|RECONCILIATION OF WEIGHTED AVERAGE NUMBER OF SHARES FOR EPS DILUTED TO FFO PER SHARE DILUTED: |  |                             |        |   |      |   |         |  
|EPS diluted shares                                                                            |  |                             | 20,925 |   |      |   | 20,701  |  
|Common stock issuable upon exercise or conversion of:                                         |  |                             |        |   |      |   |         |  
|Options                                                                                       |  |                             |       |   |      |   | 1       |  
|Series A Preferred Stock                                                                      |  |                             |       |   |      |   | 1,645   |  
|                                                                                              |  |                             |        |   |      |   |         |  
|FFO per share diluted shares                                                                  |  |                             | 20,925 |   |      |   | 22,347  |  
|                                                                                              |  |                             |        |   |      |   |         |  



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Part II. OTHER INFORMATION, CONTINUED:

Item 5. Other Information



|                                                      |  |                             |        |   |      |   |        |  
|----------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|(In thousands, except per share and statistical data) |  |                             |        |   |      |  
|                                                      |  | Three months endedMarch 31, |       
|                                                      |  | 2009                        |        |   | 2008 |  
|RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA         |  |                             |        |   |      |   |        |  
|Net loss attributable to common shareholders          |  | $                           | (2,707 | ) |      | $ | (1,079 | )
|Interest, including disc ops                          |  |                             | 3,123  |   |      |   | 3,660  |  
|Income tax benefit, including disc ops                |  |                             | (1,043 | ) |      |   | (698   | )
|Depreciation and amortization, including disc ops     |  |                             | 3,717  |   |      |   | 3,579  |  
|                                                      |  |                             |        |   |      |   |        |  
|EBITDA                                                |  |                             | 3,090  |   |      |   | 5,462  |  
|Noncontrolling interest                               |  |                             | (87    | ) |      |   | (13    | )
|Preferred stock dividends                             |  |                             | 369    |   |      |   | 186    |  
|                                                      |  |                             |        |   |      |   |        |  
|Adjusted EBITDA (1)                                   |  | $                           | 3,372  |   |      | $ | 5,635  |  
|                                                      |  |                             |        |   |      |   |        |  
|                                                      |  |                            
|RECONCILIATION OF NET LOSS TO FFO                     |  |                             |        |   |      |   |        |  
|Net loss attributable to common shareholders          |  | $                           | (2,707 | ) |      | $ | (1,079 | )
|Depreciation and amortization, including disc ops     |  |                             | 3,717  |   |      |   | 3,579  |  
|Net (gain) loss on disposition of assets              |  |                             | 60     |   |      |   | (2     | )
|                                                      |  |                             |        |   |      |   |        |  
|FFO attributable to common shareholders (2)           |  | $                           | 1,070  |   |      | $ | 2,498  |  
|                                                      |  |                             |        |   |      |   |        |  
|                                                      |  |                            
|ADDITIONAL INFORMATION                                |  |                             |        |   |      |   |        |  
|Average Daily Rate                                    |  | $                           | 47.04  |   |      | $ | 47.25  |  
|Revenue Per Available Room                            |  | $                           | 24.85  |   |      | $ | 27.14  |  
|Occupancy                                             |  |                             | 52.8   | % |      |   | 57.4   | %



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Item 5. Other Information



Adjusted EBITDA is a financial measure that is not calculated in accordance with
accounting principles generally accepted in the United States of America (GAAP). We calculate Adjusted EBITDA by adding back to net earnings (loss) available to common shareholders certain non-operating expenses and non-cash charges
which are based on historical cost accounting and we believe may be of limited significance in evaluating current performance. We believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing
decisions and facilitate comparisons of core operating profitability between periods, even though Adjusted EBITDA also does not represent an amount that accrues directly to common shareholders. In calculating Adjusted EBITDA, we also add back
preferred stock dividends and noncontrolling interests, which are cash charges.

Adjusted EBITDA doesnt represent cash generated from
operating activities determined by GAAP and should not be considered as an alternative to net income, cash flow from operations or any other operating performance measure prescribed by GAAP. Adjusted EBITDA is not a measure of our liquidity, nor is
Adjusted EBITDA indicative of funds available to fund our cash needs, including our ability to make cash distributions. Neither does the measurement reflect cash expenditures for long-term assets and other items that have been and will be incurred.
Adjusted EBITDA may include funds that may not be available for managements discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties. To
compensate for this, management considers the impact of these excluded items to the extent they are material to operating decisions or the evaluation of our operating performance. Adjusted EBITDA, as presented, may not be comparable to similarly
titled measures of other companies.

FFO is a non-GAAP financial measure. We consider FFO to be a market accepted measure of an equity
REITs operating performance, which is necessary, along with net earnings (loss), for an understanding of our operating results. FFO, as defined under the National Association of Real Estate Investment Trusts (NAREIT) standards, consists of net
income computed in accordance with GAAP, excluding gains (or losses) from sales of real estate assets, plus depreciation and amortization of real estate assets. We believe our method of calculating FFO complies with the NAREIT definition. FFO does
not represent amounts available for managements discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. FFO should not be considered as an alternative to net
income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. All REITs do not calculate FFO in the
same manner; therefore, our calculation may not be the same as the calculation of FFO for similar REITs.

We use FFO as a performance
measure to facilitate a periodic evaluation of our operating results relative to those of our peers, who, like us, are typically members of NAREIT. We consider FFO a useful additional measure of performance for an equity REIT because it facilitates
an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assume that the value of real estate assets diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, we believe that FFO provides a meaningful indication of our performance.



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Item 6. Exhibits



|            |  |                                                                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                       
|10.1        |  | First Amendment to Amended and Restated Loan Agreement dated February 4, 2009 between Supertel Hospitality, Inc. and Great Western Bank                                                           
|            | 
|10.2        |  | Global Amendment and Consent dated as of March 16, 2009 by and between General Electric Capital Corporation, Supertel Limited Partnership and SPPR-South Bend, LLC                                
|            | 
|10.3        |  | Unconditional Guaranties of Payment and Performance dated March 16, 2009 of Supertel Hospitality, Inc. and Supertel Hospitality REIT Trust for the benefit of General Electric Capital
Corporation
|            | 
|31.1        |  | Section 302 Certificate of Chief Executive Officer                                                                                                                                                
|            | 
|31.2        |  | Section 302 Certificate of Chief Financial Officer                                                                                                                                                
|            | 
|32.1        |  | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer                                                                                                                 



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Supertel Hospitality, Inc., and Subsidiaries



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                           |  |                                      
|-------------------------- |  | -------------------------------------
|SUPERTEL HOSPITALITY, INC.
|                           | 
|By:                        |  | /s/ Kelly A. Walters                 
|                           |  | Kelly A. Walters                     
|                           |  | President and Chief Executive Officer

Dated this 7th day of May, 2009



|    |  |                                      
|--- |  | -------------------------------------
|By: |  | /s/ Donavon A. Heimes                
|    |  | Donavon A. Heimes                    
|    |  | Chief Financial Officer and Secretary

Dated this 7th day of May, 2009



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