##### 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 June 30, 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 ofincorporation 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   ̈                      |  | Small reporting company   ̈
|                           |  |                      |  | (Do not check if a 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 July 27, 2009, there were 21,880,017 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 June 30, 2009 and December 31, 2008                           |  | 3         
|         |  |                                                                                                
|         |  | Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 |  | 4         
|         |  |                                                                                                
|         |  | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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                                      |  | 33        
|         |  |                                                                                                
|Item 4.  |  | Controls and Procedures                                                                         |  | 34        
|         |  |                                                                                                
|Part II. |  | OTHER INFORMATION                                                                               |  |           
|         |  |                                                                                                
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                     |  | 35        
|         |  |                                                                                                
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                             |  | 35        
|         |  |                                                                                                
|Item 5.  |  | Other Information                                                                               |  | 36        
|         |  |                                                                                                
|Item 6.  |  | Exhibits                                                                                        |  | 39        



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        |        
|                                                                                                                                                                   |  | June 30,2009 |         |   | December 31,2008 |  
|                                                                                                                                                                   |  | (unaudited)  |         |   |                  |  
|ASSETS                                                                                                                                                             |  |              |         |   |                  |   |         |  
|Investments in hotel properties                                                                                                                                    |  | $            | 381,583 |   |                  | $ | 380,604 |  
|Less accumulated depreciation                                                                                                                                      |  |              | 88,409  |   |                  |   | 81,549  |  
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|                                                                                                                                                                   |  |              | 293,174 |   |                  |   | 299,055 |  
|                                                                                                                                                                   |  |             
|Cash and cash equivalents                                                                                                                                          |  |              | 750     |   |                  |   | 712     |  
|Accounts receivable                                                                                                                                                |  |              | 2,375   |   |                  |   | 2,401   |  
|Prepaid expenses and other assets                                                                                                                                  |  |              | 4,937   |   |                  |   | 2,903   |  
|Deferred financing costs, net                                                                                                                                      |  |              | 1,495   |   |                  |   | 1,580   |  
|Investment in hotel properties, held for sale, net                                                                                                                 |  |              | 12,155  |   |                  |   | 14,826  |  
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|                                                                                                                                                                   |  | $            | 314,886 |   |                  | $ | 321,477 |  
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|LIABILITIES AND EQUITY                                                                                                                                             |  |              |         |   |                  |   |         |  
|LIABILITIES                                                                                                                                                        |  |              |         |   |                  |   |         |  
|Accounts payable, accrued expenses and other liabilities                                                                                                           |  | $            | 13,934  |   |                  | $ | 13,697  |  
|Debt related to hotel properties held for sale                                                                                                                     |  |              | 9,442   |   |                  |   | 10,849  |  
|Long-term debt                                                                                                                                                     |  |              | 188,453 |   |                  |   | 191,957 |  
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|                                                                                                                                                                   |  |              | 211,829 |   |                  |   | 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; 21,880,017 and 20,924,677 shares outstanding                                                          |  |              | 219     |   |                  |   | 209     |  
|Additional paid-in capital                                                                                                                                         |  |              | 119,693 |   |                  |   | 112,804 |  
|Distributions in excess of retained earnings                                                                                                                       |  |              | (27,353 | ) |                  |   | (25,551 | )
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                         |  |              | 92,567  |   |                  |   | 87,470  |  
|Noncontrolling interest                                                                                                                                            |  |              |         |   |                  |   |         |  
|Noncontrolling interest in consolidated partnership, redemption value $510 and $2,101                                                                              |  |              | 1,050   |   |                  |   | 8,064   |  
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|Total equity                                                                                                                                                       |  |              | 93,617  |   |                  |   | 95,534  |  
|                                                                                                                                                                   |  |              |         |   |                  |   |         |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                      |  |              |         |   |                  |   |         |  
|                                                                                                                                                                   |  | $            | 314,886 |   |                  | $ | 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 EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                                                           |  | 2009                       |        |   | 2008                     |   |        | 2009 |  |   | 2008   |  
|REVENUES                                                                                                   |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Room rentals and other hotel services                                                                      |  | $                          | 27,889 |   |                          | $ | 31,812 |      |  | $ | 50,955 |   |  | $ | 57,339 |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|EXPENSES                                                                                                   |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Hotel and property operations                                                                              |  |                            | 19,936 |   |                          |   | 21,806 |      |  |   | 38,573 |   |  |   | 41,432 |  
|Depreciation and amortization                                                                              |  |                            | 3,594  |   |                          |   | 3,455  |      |  |   | 7,190  |   |  |   | 6,741  |  
|General and administrative                                                                                 |  |                            | 1,047  |   |                          |   | 1,040  |      |  |   | 2,018  |   |  |   | 1,996  |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            | 24,577 |   |                          |   | 26,301 |      |  |   | 47,781 |   |  |   | 50,169 |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|EARNINGS BEFORE NET GAIN (LOSS) ON DISPOSITIONS OF ASSETS, OTHER INCOME, INTEREST EXPENSE AND INCOME TAXES |  |                            | 3,312  |   |                          |   | 5,511  |      |  |   | 3,174  |   |  |   | 7,170  |  
|                                                                                                           |  |                            |        |  
|Net gain (loss) on dispositions of assets                                                                  |  |                            | (49    | ) |                          |   | (1     | )    |  |   | (116   | ) |  |   | 1      |  
|Other income                                                                                               |  |                            | 34     |   |                          |   | 32     |      |  |   | 72     |   |  |   | 63     |  
|Interest expense                                                                                           |  |                            | (3,145 | ) |                          |   | (3,193 | )    |  |   | (6,125 | ) |  |   | (6,600 | )
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                               |  |                            | 152    |   |                          |   | 2,349  |      |  |   | (2,995 | ) |  |   | 634    |  
|                                                                                                           |  |                            |        |  
|Income tax (expense) benefit                                                                               |  |                            | 49     |   |                          |   | (309   | )    |  |   | 1,006  |   |  |   | 353    |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS                                                                   |  |                            | 201    |   |                          |   | 2,040  |      |  |   | (1,989 | ) |  |   | 987    |  
|                                                                                                           |  |                            |        |  
|Earnings from discontinued operations                                                                      |  |                            | 1,142  |   |                          |   | 277    |      |  |   | 907    |   |  |   | 424    |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|NET INCOME (LOSS)                                                                                          |  |                            | 1,343  |   |                          |   | 2,317  |      |  |   | (1,082 | ) |  |   | 1,411  |  
|                                                                                                           |  |                            |        |  
|Noncontrolling interest                                                                                    |  |                            | (69    | ) |                          |   | (194   | )    |  |   | 17     |   |  |   | (181   | )
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTERESTS                                                    |  |                            | 1,274  |   |                          |   | 2,123  |      |  |   | (1,065 | ) |  |   | 1,230  |  
|                                                                                                           |  |                            |        |  
|Preferred stock dividends                                                                                  |  |                            | (369   | ) |                          |   | (236   | )    |  |   | (737   | ) |  |   | (422   | )
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS                                                      |  | $                          | 905    |   |                          | $ | 1,887  |      |  | $ | (1,802 | ) |  | $ | 808    |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                           |  |                            |        |  
|NET EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED                                                   |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|EPS from continuing operations                                                                             |  | $                          | (0.01  | ) |                          | $ | 0.08   |      |  | $ | (0.12  | ) |  | $ | 0.02   |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|EPS from discontinued operations                                                                           |  | $                          | 0.05   |   |                          | $ | 0.01   |      |  | $ | 0.04   |   |  | $ | 0.02   |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|EPS Basic and Diluted                                                                                      |  | $                          | 0.04   |   |                          | $ | 0.09   |      |  | $ | (0.08  | ) |  | $ | 0.04   |  
|                                                                                                           |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  

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)



|                                                                                         |  |                          |         |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                         |  | Six Months EndedJune 30, |        
|                                                                                         |  | 2009                     |         |   | 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                          |         |   |      |   |         |  
|Net income (loss)                                                                        |  | $                        | (1,082  | ) |      | $ | 1,411   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                          |         |   |      |   |         |  
|Depreciation and amortization                                                            |  |                          | 7,311   |   |      |   | 7,320   |  
|Amortization of intangible assets and deferred financing costs                           |  |                          | 264     |   |      |   | 269     |  
|Gain on dispositions of assets                                                           |  |                          | (964    | ) |      |   | (1      | )
|Amortization of stock option expense                                                     |  |                          |        |   |      |   | 2       |  
|Writedown to fair value related to held for sale assets                                  |  |                          | 150     |   |      |   |        |  
|Deferred income taxes                                                                    |  |                          | (1,057  | ) |      |   | (364    | )
|Changes in operating assets and liabilities:                                             |  |                          |         |   |      |   |         |  
|(Increase) decrease in assets                                                            |  |                          | (957    | ) |      |   | 422     |  
|Increase in liabilities                                                                  |  |                          | 2,015   |   |      |   | 4,475   |  
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                                                |  |                          | 5,680   |   |      |   | 13,534  |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                          |         |   |      |   |         |  
|Additions to hotel properties                                                            |  |                          | (1,548  | ) |      |   | (5,888  | )
|Acquisition and development of hotel properties                                          |  |                          |        |   |      |   | (22,903 | )
|Proceeds from sale of hotel assets                                                       |  |                          | 3,603   |   |      |   | 6       |  
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash (used in) provided by investing activities                                      |  |                          | 2,055   |   |      |   | (28,785 | )
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                          |         |   |      |   |         |  
|Deferred financing costs                                                                 |  |                          | (178    | ) |      |   | (165    | )
|Principal payments on long-term debt                                                     |  |                          | (16,360 | ) |      |   | (12,273 | )
|Proceeds from long-term debt, net                                                        |  |                          | 11,449  |   |      |   | 26,396  |  
|Distributions to noncontrolling interest                                                 |  |                          | (197    | ) |      |   | (423    | )
|Preferred stock offering                                                                 |  |                          |        |   |      |   | 7,684   |  
|Dividends paid to common shareholders                                                    |  |                          | (1,674  | ) |      |   | (5,280  | )
|Dividends paid to preferred shareholders                                                 |  |                          | (737    | ) |      |   | (422    | )
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash (used in) provided by financing activities                                      |  |                          | (7,697  | ) |      |   | 15,517  |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Increase in cash and cash equivalents                                                    |  |                          | 38      |   |      |   | 266     |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           |  |                          | 712     |   |      |   | 1,166   |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |  | $                        | 750     |   |      | $ | 1,432   |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|SUPPLEMENTAL CASH FLOW INFORMATION                                                       |  |                          |         |   |      |   |         |  
|Interest paid, net of amounts capitalized                                                |  | $                        | 6,200   |   |      | $ | 6,918   |  
|                                                                                         |  |                         
|SCHEDULE OF NONCASH FINANCING ACTIVITIES                                                 |  |                          |         |   |      |   |         |  
|Dividends declared common                                                                |  |                          |        |   |      |   | 5,303   |  
|Dividends declared preferred                                                             |  |                          | 737     |   |      |   | 422     |  
|Dividends declared common units                                                          |  |                          |        |   |      |   | 315     |  

See accompanying notes to consolidated financial statements.



5



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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 and Six
Months Ended June 30, 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 111 properties with the exception of furniture, fixtures and equipment on 81 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 June 30, 2009 owned approximately 98% of the partnership interests in Supertel Limited Partnership. Supertel Limited Partnership is the
general partner in SBILP. At June 30, 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 June 30, 2009, the Company owned 121 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 106 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.

Supertel Limited Partnership owns 16 hotels which are operated under the Masters Inn name. TRS, the lessee of the hotels, entered into a management agreement with HLC, an affiliate of the sellers of 15 of the hotels.
The management agreement, as amended, provides for HLC to operate and manage 15 of the 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.



6



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

Consolidated
Financial Statements

The Company has prepared the consolidated balance sheet as of June 30, 2009, the consolidated statements of
operations for the three and six months ended June 30, 2009 and 2008, and the consolidated statements of cash flows for the six months ended June 30, 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 June 30, 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 and six months ended June 30, 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).

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.



7



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

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. There has been no additional impairment loss recognized for the three months ended
June 30, 2009. 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.

Fair Value of Financial Instruments

In April 2009, the FASB issued FASB Staff Position on SFAS 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion 28,
Interim Financial Reporting, entitled Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends SFAS 107 by requiring disclosures about fair
value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and APB 28 by requiring disclosures in summarized financial information at interim reporting periods. This FSP is
effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Disclosures about fair value of financial instruments are based on pertinent information available to
management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could
be purchased, sold or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates
or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. As of June 30, 2009, the carrying value and estimated fair value of
the Companys debt was $188.5 million and $190.8 million, respectively. As of December 31, 2008, the carrying value and estimated fair value of the Companys debt was $192.0 million and $196.2 million, respectively. The carrying value of
the Companys other financial instruments approximates fair value due to the short-term nature of these financial instruments.

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 EndedJune 30, |       |   | Six Months EndedJune 30,
|                              |  | 2009                       |       |   | 2008                     |   |    | 2009 |  |   | 2008 
|Continuing Operations         |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  
|Sale of properties            |  | $                          |      |   |                          | $ |   |      |  | $ |      |   |  | $ | 
|Impairment losses             |  |                            |      |   |                          |   |   |      |  |   |      |   |  |   | 
|Gain (loss) on sale of assets |  |                            | (49   | ) |                          |   | (1 | )    |  |   | (116  | ) |  |   | 1
|                              |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  
|                              |  |                            | (49   | ) |                          |   | (1 | )    |  |   | (116  | ) |  |   | 1
|                              |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  
|Discontinuing Operations      |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  
|Sale of properties            |  | $                          | 1,073 |   |                          | $ |   |      |  | $ | 1,080 |   |  | $ | 
|Impairment losses             |  |                            |      |   |                          |   |   |      |  |   | (150  | ) |  |   | 
|Gain (loss) on sale of assets |  |                            |      |   |                          |   |   |      |  |   |      |   |  |   | 
|                              |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  
|                              |  |                            | 1,073 |   |                          |   |   |      |  |   | 930   |   |  |   | 
|                              |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  
|Total                         |  | $                          | 1,024 |   |                          | $ | (1 | )    |  | $ | 814   |   |  | $ | 1
|                              |  |                            |       |   |                          |   |    |      |  |   |       |   |  |   |  

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). Two of the Sale Hotels were sold during the six months ended June 30, 2009, one in each quarter of 2009 with the Company
recognizing a gain on sale of approximately $1.1 million and $7,000 for quarter ended June 30, 2009 and March 31, 2009, respectively. Two of the Sale Hotels have an impairment loss recognized during the three months ended March 31,
2009, in the amount of $150,000, with no additional impairment loss recognized during the three months ended June 30, 2009. 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.

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 June 30, 2009 include the six hotels held for sale and the one hotel that was sold in May of 2009. The operating results for the
three months ended June 30, 2008 include the six hotels held for sale, the one hotel sold in May of 2009 and one



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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

hotel sold in March
of 2009 and the two hotels sold in December 2008. The operating results for the six months ended June 30, 2009 include the six hotels held for sale, one hotel sold in May of 2009 and one hotel sold in March of 2009. The operating results for
the six months ended June 30, 2008 include the six hotels held for sale, one hotel sold in May of 2009, one hotel sold in March of 2009 and two sold in December 2008 (in thousands):



|                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                       |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                       |  | 2009                       |        |   | 2008                     |   |        | 2009 |  |   | 2008   |  
|Revenues                               |  | $                          | 1,357  |   |                          | $ | 2,832  |      |  | $ | 2,665  |   |  | $ | 5,281  |  
|Hotel and property operations expenses |  |                            | (1,116 | ) |                          |   | (1,996 | )    |  |   | (2,338 | ) |  |   | (3,788 | )
|Interest expense                       |  |                            | (138   | ) |                          |   | (248   | )    |  |   | (281   | ) |  |   | (501   | )
|Depreciation expense                   |  |                            |       |   |                          |   | (286   | )    |  |   | (121   | ) |  |   | (579   | )
|Net gain on disposition of assets      |  |                            | 1,073  |   |                          |   |       |      |  |   | 1,080  |   |  |   |       |  
|Impairment loss                        |  |                            |       |   |                          |   |       |      |  |   | (150   | ) |  |   |       |  
|Income tax (expense) benefit           |  |                            | (34    | ) |                          |   | (25    | )    |  |   | 52     |   |  |   | 11     |  
|                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                       |  | $                          | 1,142  |   |                          | $ | 277    |      |  | $ | 907    |   |  | $ | 424    |  
|                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  



9



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

Earnings Per
Share

Basic earnings per share (EPS) is computed by dividing earnings 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:



|                                                                                           |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|------------------------------------------------------------------------------------------ | ---- | -------------------------- | ---------- | ------------------------ |  | ---- | ---------- |  | ---- | ---------- | - |  | - | ----------
|(dollars in thousands, except share data)                                                  |      | Three months endedJune 30, |            | Six months endedJune 30,
|                                                                                           | 2009 |                            |            | 2008                     |  | 2009 |            |  | 2008
|Basic and Diluted Earnings per Share Calculation:                                          |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|                                                                                           |      |                            |            |                         
|Numerator:                                                                                 |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Net earnings (loss) available to common shareholders:                                      |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Continuing operations                                                                      |      | $                          | (237       | )                        |  | $    | 1,610      |  | $    | (2,709     | ) |  | $ | 384       
|Discontinued operations earnings (loss)                                                    |      |                            | 1,142      |                          |  |      | 277        |  |      | 907        |   |  |   | 424       
|                                                                                           |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Net earnings (loss) attributable to common shareholders - total                            |      | $                          | 905        |                          |  | $    | 1,887      |  | $    | (1,802     | ) |  | $ | 808       
|                                                                                           |      |                            |            |                         
|Denominator:                                                                               |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Weighted average number of common shares - basic                                           |      |                            | 21,812,062 |                          |  |      | 20,826,079 |  |      | 21,370,821 |   |  |   | 20,763,583
|Weighted average number of common shares - diluted                                         |      |                            | 21,812,062 |                          |  |      | 20,826,079 |  |      | 21,370,821 |   |  |   | 20,764,314
|                                                                                           |      |                            |            |                         
|Basic and Diluted Earnings Per Common Share:                                               |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Net earnings (loss) attributable to common shareholders per weighted average common share: |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Continuing operations - basic                                                              |      | $                          | (0.01      | )                        |  | $    | 0.08       |  | $    | (0.12      | ) |  | $ | 0.02      
|Continuing operations - diluted                                                            |      |                            | (0.01      | )                        |  |      | 0.08       |  |      | (0.12      | ) |  |   | 0.02      
|Discontinued operations - basic                                                            |      |                            | 0.05       |                          |  |      | 0.01       |  |      | 0.04       |   |  |   | 0.02      
|Discontinued operations - diluted                                                          |      |                            | 0.05       |                          |  |      | 0.01       |  |      | 0.04       |   |  |   | 0.02      
|                                                                                           |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Total - Basic                                                                              |      | $                          | 0.04       |                          |  | $    | 0.09       |  | $    | (0.08      | ) |  | $ | 0.04      
|                                                                                           |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           
|Total - Diluted                                                                            |      | $                          | 0.04       |                          |  | $    | 0.09       |  | $    | (0.08      | ) |  | $ | 0.04      
|                                                                                           |      |                            |            |                          |  |      |            |  |      |            |   |  |   |           

Noncontrolling Interest of Common and Preferred Units in SLP

At June 30, 2009 and 2008 there were 280,466 and 1,235,806, respectively, of SLP common operating units outstanding held by the limited partners.
These units have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts allocated to the limited partners holding common operating units (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). During the second quarter of 2009, 955,340 common operating units were converted into 955,340 shares of common stock. In addition, the 177,786 and 195,610 shares of SLP
preferred operating units held by the limited partners, as of June 30, 2009 and 2008, respectively, are antidilutive.

Preferred Stock of SHI

There were 803,270 and 826,089 shares, respectively, of Series A Convertible Preferred Stock that remained outstanding at
June 30, 2009 and 2008. There were 98,400 shares of Series A Convertible Preferred Stock converted into 174,168 shares of common stock during the three months ended June 30, 2008. There were 105,937 shares of Series A Convertible
Preferred Stock converted into 187,508 shares of common stock during the six months ended June 30, 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 and six months ended June 30, 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.



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

At
June 30, 2009 and 2008 there were 332,500 shares of Series B 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 and six months ended June 30, 2009 totaled 192,143 all of which are assumed to be purchased with proceeds from the exercise of stock options and are antidilutive.

The potential common shares represented by outstanding stock options for the three and six months ended June 30, 2008 totaled 192,143. For the six
months ended June 30, 2008 95,000 shares are antidilutive and 96,412 shares are assumed to be purchased with proceeds from the exercise of stock options resulting in 731 shares that are dilutive. For the three months ended June 30, 2008
all 192,143 shares are antidulitive.

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.

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%).

On May 21, 2009, the Company paid in full the $1.2 million loan with Susquehanna Bank, from a portion of the Gettysburg, PA hotel (Holiday Inn
Express) sale proceeds.

We are required to comply with certain financial covenants for some of our lenders. As of June 30, 2009, we either
were in compliance with the financial covenants or obtained waivers for non-compliance (as discussed below). As a result, we are not in default of any of our loans.

Our credit facilities with Great Western Bank require that we maintain a consolidated debt service coverage ratio (as defined in the loan agreement) of at least 1:50 to 1. As of June 30, 2009, the ratio was 1:49 to 1.
We received a waiver of non compliance with this covenant.

Our credit facility with Wells Fargo Bank requires us to maintain a
consolidated loan to value ratio that does not exceed 65%. As of June 30, 2009, the ratio was 68.05%. The credit facility also requires us to maintain a minimum consolidated fixed charge coverage ratio (as defined in the loan agreement) of not less
than 1:30 to 1. As of June 30, 2009, this ratio was 1.27 to 1. The company received a waiver of non compliance for both of these covenants by Wells Fargo Bank.

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. At the annual shareholders meeting on May 28, 2009, the shareholders of Supertel Hospitality, Inc. approved an amendment to the Supertel 2006 Stock Plan. The amendment increases the
maximum number of shares reserved for issuance under the plan from 200,000 to 300,000 and changes the definition of fair market value to mean the closing price of Supertel common stock with respect to future awards under the plan.



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

Share-Based
Compensation Expense

The expense recognized in the consolidated financial statements for the six months ended June 30, 2008 for
share-based compensation related to employees and directors was $2,100.

Income Taxes

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



|                                   |  |                            |    |      |                          |      |      |  |      |       |  |   |    
|---------------------------------- |  | -------------------------- | -- | ---- | ------------------------ | ---- | ---- |  | ---- | ----- |  | - | ---
|                                   |  | Three Months EndedJune 30, |    |      | Six Months EndedJune 30,
|                                   |  | 2009                       |    | 2008 |                          |      | 2009 |  | 2008
|Federal                            |  |                            |    |      |                          |      |      |  |      |       |  |   |    
|Deferred                           |  | $                          | 12 |      | $                        | (268 | )    |  | $    | 848   |  | $ | 308
|State & Local                      |  |                            |    |      |                          |      |      |  |      |       |  |   |    
|Deferred                           |  |                            | 3  |      |                          | (66  | )    |  |      | 210   |  |   | 56 
|                                   |  |                            |    |      |                          |      |      |  |      |       |  |   |    
|Total income tax (expense) benefit |  | $                          | 15 |      | $                        | (334 | )    |  | $    | 1,058 |  | $ | 364
|                                   |  |                            |    |      |                          |      |      |  |      |       |  |   |    

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 EndedJune 30, |    |      | Six Months EndedJune 30,
|                                                                     |  | 2009                       |    | 2008 |                          |      | 2009 |  |   | 2008 
|Expected federal tax (expense) benefit at 34%                      |  | $                          | 13 |      | $                        | (291 | )    |  | $ | 922   |   |  | $ | 302
|State income tax (expense) benefit, net of federal income tax effect |  |                            | 2  |      |                          | (44  | )    |  |   | 139   |   |  |   | 37 
|Other (expense) benefit, net                                         |  |                            |   |      |                          | 1    |      |  |   | (3    | ) |  |   | 25 
|                                                                     |  |                            |    |      |                          |      |      |  |   |       |   |  |   |    
|Total income tax (expense) benefit                                   |  | $                          | 15 |      | $                        | (334 | )    |  | $ | 1,058 |   |  | $ | 364
|                                                                     |  |                            |    |      |                          |      |      |  |   |       |   |  |   |    

The TRS has estimated its income tax benefit using a combined federal and state rate of 39%. As of
June 30, 2009, TRS had a deferred tax asset of $2.3 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 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.



12



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

Noncontrolling
Interest in Redeemable Preferred Units

At June 30, 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 June 30, 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 operating units (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
June 30, 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 @ 3/31/09               |  | $                                         | 1,778 |   |                              | $ | 7,928  |                             |  | $ | 9,706  |  
|Partner Distribution            |  |                                           | (48   | ) |                              |   |       |                             |  |   | (48    | )
|Conversion of OP units          |  |                                           |      |   |                              |   | (6,899 | )                           |  |   | (6,899 | )
|Noncontrolling Interest Expense |  |                                           | 48    |   |                              |   | 21     |                             |  |   | 69     |  
|Other                           |  |                                           |      |   |                              |   |       |                             |  |   |       |  
|                                |  |                                           |       |   |                              |   |        |                             |  |   |        |  
|Balance @ 6/30/09               |  | $                                         | 1,778 |   |                              | $ | 1,050  |                             |  | $ | 2,828  |  
|                                |  |                                           |       |   |                              |   |        |                             |  |   |        |  



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

Equity Reconciliation of Parent and Noncontrolling Interest



|                                                |  |                          |   |                        |   |                       |  |                          |     |                                          |   |         |                       |   |         |                                                   |  |   |             |   |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | ------------------------ | - | ---------------------- | - | --------------------- |  | ------------------------ | --- | ---------------------------------------- | - | ------- | --------------------- | - | ------- | ------------------------------------------------- |  | - | ----------- | - |  | - | ------ | - |  | - | ------ | -
|(in thousands)                                  |  | PreferredSharesPar Value |   | PreferredStockWarrants |   | CommonSharesPar Value |  | AdditionalPaid-inCapital |     | Distributionin ExcessAccumulatedEarnings |   |         | NetShareholdersEquity |   |         | NoncontrollingInterest inConsolidatedPartnerships |  |   | TotalEquity |  
|Balance @ 3/31/09                               |  | $                        | 8 |                        | $ |                      |  | $                        | 209 |                                          | $ | 112,804 |                       | $ | (28,258 | )                                                 |  | $ | 84,763      |   |  | $ | 7,928  |   |  | $ | 92,691 |  
|Noncontrolling interest                         |  |                          |  |                        |   |                      |  |                          |    |                                          |   |        |                       |   |        |                                                   |  |   |            |   |  |   | 21     |   |  |   | 21     |  
|Conv of Common NICP                             |  |                          |  |                        |   |                      |  |                          | 10  |                                          |   | 6,889   |                       |   |        |                                                   |  |   | 6,899       |   |  |   | (6,899 | ) |  |   |       |  
|Preferred Dividends                             |  |                          |  |                        |   |                      |  |                          |    |                                          |   |        |                       |   | (369    | )                                                 |  |   | (369        | ) |  |   |       |   |  |   | (369   | )
|Net Income Attributable to Controlling Interest |  |                          |  |                        |   |                      |  |                          |    |                                          |   |        |                       |   | 1,274   |                                                   |  |   | 1,274       |   |  |   |       |   |  |   | 1,274  |  
|                                                |  |                          |   |                        |   |                       |  |                          |     |                                          |   |         |                       |   |         |                                                   |  |   |             |   |  |   |        |   |  |   |        |  
|Balance @ 6/30/09                               |  | $                        | 8 |                        | $ |                      |  | $                        | 219 |                                          | $ | 119,693 |                       | $ | (27,353 | )                                                 |  | $ | 92,567      |   |  | $ | 1,050  |   |  | $ | 93,617 |  
|                                                |  |                          |   |                        |   |                       |  |                          |     |                                          |   |         |                       |   |         |                                                   |  |   |             |   |  |   |        |   |  |   |        |  

Series B Redeemable Preferred Stock

At June 30, 2009 there were 332,500 shares of 10.0% Series B 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 proceeds were used by the Company to pay an $8.5 million bridge loan with General
Electric Capital Corporation.

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 (except as described below).



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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 and Six Months Ended
June 30, 2009 and 2008

(Unaudited)

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 June 30, 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 May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 165, Subsequent Events (FAS 165). FAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. FAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of
financials statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. FAS 165 is effective for financial periods ending after June 15, 2009. The Company is adhering to the
requirements of FAS 165 starting in the second quarter of 2009.

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.



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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 and Six Months Ended
June 30, 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 (280,466 at June 30, 2009), and the preferred units in the
Operating Partnership held by third parties (177,786 at June 30, 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 June 30, 2009 and December 31, 2008.

Recently Issued Accounting Pronouncements

In June
2009, the FASB issued Statement No.168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 (FAS 168). The Codification will
become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. On the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become
non-authoritative. FAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. FAS 168 is not expected to have a material impact on the Companys financial statements.

Subsequent Event

On July 20, 2009, we sold our
Masters Inn in Kissimmee, FL (116 rooms) for approximately $1.6 million with a nominal net gain. These funds were used to reduce the Companys borrowings from GE Capital.

The Company has disclosed the following subsequent events in accordance with FAS 165. Subsequent events have been evaluated through August 6, 2009,
the date the financial statements were issued.



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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 and six months ended June 30, 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 June 30, 2009 we owned 121 hotels in 24 states. Our hotels operate under several national and independent brands.



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Part I. FINANCIAL INFORMATION, CONTINUED:

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

Our significant events for the six months ended June 30, 2009 include:



| |  |  | On March 20, 2009, we sold our Super 8 hotel located in Charles City, IA with a total of 43 rooms. The sale price was approximately $1.1 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On May 6, 2009, the Company borrowed $10 million (fixed rate of 5.5%) from the previously unused $10 million loan facility available with Great Western Bank
and used a portion of the borrowings to repay in full the FNBO $9.0 million mortgage loan (fixed rate 8.4%);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On May 21, 2009, we sold our Holiday Inn Express in Gettysburg, PA with a total of 51 rooms. The sale price was approximately $2.6 million and a portion of the
proceeds were used to pay in full the $1.2 million loan with Susquehanna Bank; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On July 20, 2009, we sold our Masters Inn in Kissimmee, FL (116 rooms) for approximately $1.6 million and used the proceeds to reduce our borrowings with GE
Capital.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, limited partnerships, limited liability companies or other subsidiaries of our operating partnerships. We currently own,
indirectly, an approximate 98% general partnership interest in Supertel Limited Partnership and a 100% partnership interest in E & P Financing Limited Partnership.

As of June 30, 2009, we owned 121 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 106 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 and six months ended June 30, 2009 and 2008 include the results of operations for the six hotels classified as held for sale at June 30, 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 June 30, 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 June 30, 2009 remain properly classified in accordance with SFAS No. 144.



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

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, with no additional impairment loss recorded during the three months ended June 30, 2009. 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 three and six months ended June 30, 2009 and 2008, and should be read along with the consolidated financial
statements and notes.

The comparisons below reflect revenues and expenses of the companys 121 and 125 hotels as of June 2009 and
2008, respectively.

Results of Operations

Comparison of the three months ended June 30, 2009 to the three months ended June 30, 2008

Operating results are summarized as
follows (in thousands):



|                                          |  |                                 |         |   |                                 |   |        |                              |  |   |            |   |  |              |         |   |       |   |        |   |  |   |         |   |  |   |        |  
|----------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------- | - | ------ | ---------------------------- |  | - | ---------- | - |  | ------------ | ------- | - | ----- | - | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                          |  | Three months endedJune 30, 2009 |         |   | Three months endedJune 30, 2008 |   |        | ContinuingOperationsVariance | 
|                                          |  | Continuing                      |         |   | Discontinued                    |   |        |                              |  |   | Continuing |   |  | Discontinued |         |   |       |   |       
|                                          |  | Operations                      |         |   | Operations                      |   |        | Total                        |  |   | Operations |   |  | Operations   |         |   | Total |   |       
|Revenues                                  |  | $                               | 27,889  |   |                                 | $ | 1,357  |                              |  | $ | 29,246     |   |  | $            | 31,812  |   |       | $ | 2,832  |   |  | $ | 34,644  |   |  | $ | (3,923 | )
|Hotel and property operations expenses    |  |                                 | (19,936 | ) |                                 |   | (1,116 | )                            |  |   | (21,052    | ) |  |              | (21,806 | ) |       |   | (1,996 | ) |  |   | (23,802 | ) |  |   | 1,870  |  
|Interest expense                          |  |                                 | (3,145  | ) |                                 |   | (138   | )                            |  |   | (3,283     | ) |  |              | (3,193  | ) |       |   | (248   | ) |  |   | (3,441  | ) |  |   | 48     |  
|Depreciation and amortization expense     |  |                                 | (3,594  | ) |                                 |   |       |                              |  |   | (3,594     | ) |  |              | (3,455  | ) |       |   | (286   | ) |  |   | (3,741  | ) |  |   | (139   | )
|General and administrative expenses       |  |                                 | (1,047  | ) |                                 |   |       |                              |  |   | (1,047     | ) |  |              | (1,040  | ) |       |   |       |   |  |   | (1,040  | ) |  |   | (7     | )
|Net gain (loss) on dispositions of assets |  |                                 | (49     | ) |                                 |   | 1,073  |                              |  |   | 1,024      |   |  |              | (1      | ) |       |   |       |   |  |   | (1      | ) |  |   | (48    | )
|Other income                              |  |                                 | 34      |   |                                 |   |       |                              |  |   | 34         |   |  |              | 32      |   |       |   |       |   |  |   | 32      |   |  |   | 2      |  
|Impairment loss                           |  |                                 |        |   |                                 |   |       |                              |  |   |           |   |  |              |        |   |       |   |       |   |  |   |        |   |  |   |       |  
|Income tax (expense) benefit              |  |                                 | 49      |   |                                 |   | (34    | )                            |  |   | 15         |   |  |              | (309    | ) |       |   | (25    | ) |  |   | (334    | ) |  |   | 358    |  
|                                          |  |                                 |         |   |                                 |   |        |                              |  |   |            |   |  |              |         |   |       |   |        |   |  |   |         |   |  |   |        |  
|Net income (loss)                         |  | $                               | 201     |   |                                 | $ | 1,142  |                              |  | $ | 1,343      |   |  | $            | 2,040   |   |       | $ | 277    |   |  | $ | 2,317   |   |  | $ | (1,839 | )
|                                          |  |                                 |         |   |                                 |   |        |                              |  |   |            |   |  |              |         |   |       |   |        |   |  |   |         |   |  |   |        |  

Revenues and Operating Expenses

Revenues from continuing operations for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, decreased $3.9
million or 12.3%, which was primarily due to decreased occupancy resulting from unfavorable economic conditions. We refer to our entire portfolio as limited



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Part I. FINANCIAL INFORMATION, CONTINUED:

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

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 second quarter of 2009 over the same period of 2008 consists of the 115 hotels owned by the Company as of April 1, 2008 (excluding Held For Sale hotels). Our 30 same store midscale without food and beverage hotels reflected an
average daily rate (ADR) decrease of 4.4% to $69.53, a decrease in occupancy of 10.5% and a revenue per available room (RevPAR) decrease of 14.4% to $41.61 for the second quarter of 2009 over the same period of 2008. Our 77
same store economy hotels reflected an ADR decrease of 2.1% to $46.90, a 10.2% decrease in occupancy and a RevPAR decrease of 12.0% to $28.19 for the second quarter of 2009 over the same period of 2008. Our eight same store extended stay properties
reflected an ADR decrease of 1.7% to $25.05. Occupancy for the eight same store extended stay properties stayed essentially flat at 65.0%, and RevPAR decreased 2.5% to $16.27. During the second quarter of 2009 compared to the year ago period, ADR
for the entire 115 same store hotel portfolio decreased 3.5% to $49.13 and RevPAR decreased 12.2% to $29.79. The occupancy for all same store hotels for the three months ended June 30, 2009 decreased 9.1% from that of the year ago period.

During the second quarter of 2009, hotel and property operations expenses from continuing operations decreased $1.9 million. The decline
resulted primarily from lower occupancy levels, with payroll expense down $0.4 million, hotel franchise related expenses down $0.5 million, room and office supplies down $0.3 million, utilities expense down $0.2 million, management fees down $0.2
million, and miscellaneous expenses down $0.3 million.

Interest Expense, Depreciation and Amortization Expense and General and Administrative Expense

Interest expense from continuing operations did not experience a material change compared to the year ago period. The depreciation and
amortization expense from continuing operations increased $0.1 million for the three months ended June 30, 2009 compared to the year ago period. The general and administrative expense from continuing operations for the same period did not
experience a material change compared to the year ago period.

Impairment loss

There was no impairment charge recorded for the second quarter of 2009 or 2008.

Dispositions

In the second quarter of 2009, we recognized a net gain on the disposition of assets of
approximately $1.0 million. This primarily resulted from the sale of a Holiday Inn Express in Gettysburg, PA, with an offsetting $49,000 loss occurring from 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 loss for the three months ended
June 30, 2009. The income tax will vary based on the taxable earnings or loss of the TRS Lessee.



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

The income tax benefit from continuing operations was $49,000 compared to an expense of $309,000 in the year ago period, due to a decrease in income by
the TRS.

Comparison of the six months ended June 30, 2009 to the six months ended June 30, 2008

Operating results are summarized as follows (in thousands):



|                                          |  |            |         |   |              |   |        |                              |  |   |            |   |  |              |         |   |       |   |        |   |  |   |         |   |  |   |        |  
|----------------------------------------- |  | ---------- | ------- | - | ------------ | - | ------ | ---------------------------- |  | - | ---------- | - |  | ------------ | ------- | - | ----- | - | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                          |  | 2009       |         |   | 2008         |   |        | ContinuingOperationsVariance | 
|                                          |  | Continuing |         |   | Discontinued |   |        |                              |  |   | Continuing |   |  | Discontinued |         |   |       |   |       
|                                          |  | Operations |         |   | Operations   |   |        | Total                        |  |   | Operations |   |  | Operations   |         |   | Total |   |       
|Revenues                                  |  | $          | 50,955  |   |              | $ | 2,665  |                              |  | $ | 53,620     |   |  | $            | 57,339  |   |       | $ | 5,281  |   |  | $ | 62,620  |   |  | $ | (6,384 | )
|Hotel and property operations expenses    |  |            | (38,573 | ) |              |   | (2,338 | )                            |  |   | (40,911    | ) |  |              | (41,432 | ) |       |   | (3,788 | ) |  |   | (45,220 | ) |  |   | 2,859  |  
|Interest expense                          |  |            | (6,125  | ) |              |   | (281   | )                            |  |   | (6,406     | ) |  |              | (6,600  | ) |       |   | (501   | ) |  |   | (7,101  | ) |  |   | 475    |  
|Depreciation and amortization expense     |  |            | (7,190  | ) |              |   | (121   | )                            |  |   | (7,311     | ) |  |              | (6,741  | ) |       |   | (579   | ) |  |   | (7,320  | ) |  |   | (449   | )
|General and administrative expenses       |  |            | (2,018  | ) |              |   |       |                              |  |   | (2,018     | ) |  |              | (1,996  | ) |       |   |       |   |  |   | (1,996  | ) |  |   | (22    | )
|Net gain (loss) on dispositions of assets |  |            | (116    | ) |              |   | 1,080  |                              |  |   | 964        |   |  |              | 1       |   |       |   |       |   |  |   | 1       |   |  |   | (117   | )
|Other income                              |  |            | 72      |   |              |   |       |                              |  |   | 72         |   |  |              | 63      |   |       |   |       |   |  |   | 63      |   |  |   | 9      |  
|Impairment Loss                           |  |            |        |   |              |   | (150   | )                            |  |   | (150       | ) |  |              |        |   |       |   |       |   |  |   |        |   |  |   |       |  
|Income tax benefit                        |  |            | 1,006   |   |              |   | 52     |                              |  |   | 1,058      |   |  |              | 353     |   |       |   | 11     |   |  |   | 364     |   |  |   | 653    |  
|                                          |  |            |         |   |              |   |        |                              |  |   |            |   |  |              |         |   |       |   |        |   |  |   |         |   |  |   |        |  
|Net income (loss)                         |  | $          | (1,989  | ) |              | $ | 907    |                              |  | $ | (1,082     | ) |  | $            | 987     |   |       | $ | 424    |   |  | $ | 1,411   |   |  | $ | (2,976 | )
|                                          |  |            |         |   |              |   |        |                              |  |   |            |   |  |              |         |   |       |   |        |   |  |   |         |   |  |   |        |  

Revenues and Operating Expenses

Revenues from continuing operations for the six months ended June 30, 2009 compared to the six months ended June 30, 2008, decreased $6.4
million or 11.1%, which was primarily due to decreased occupancy resulting from unfavorable economic conditions. The same store portfolio used for comparison of the six months 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
4.0% to $67.84, a decrease in occupancy of 8.7% and a revenue per available room (RevPAR) decrease of 12.3% to $37.79. Our 77 same store economy hotels reflected an ADR decrease of 1.1% to $46.19, an 8.6% decrease in occupancy and a
RevPAR decrease of 9.7% to $25.86 for the first six months of 2009 over the same period of 2008. Our eight same store extended stay properties reflected an ADR decrease of 1.1% to $24.94, a decrease in occupancy of 7.8% and a RevPAR decrease of 8.8%
to $15.64. During the first six months of 2009 compared to the year ago period, ADR for the entire 115 same store hotel portfolio decreased 2.1% to $48.16 and RevPAR decreased 10.5% to $27.33. The occupancy for all same store hotels for the six
months ended June 30, 2009 decreased 8.5% from that of the year ago period.

During the six months ended June 30, 2009, hotel and
property operations expenses from continuing operations decreased $2.9 million. The decrease was driven by lower occupancy levels as well as increased cost control measures, with payroll expense down $0.8 million, hotel franchise related expenses
down $0.6 million, room and office supplies down $0.5 million, utilities expense down $0.1 million, management fees down $0.3 million, and other expenses down $0.6 million.

Interest Expense, Depreciation and Amortization Expense and General and Administrative Expense

Interest expense from continuing operations decreased by $0.5 million for the six months ended June 30, 2009 compared to the year ago period. The decrease was partially a result of the paydown of a bridge loan using proceeds from the
sale of the Series B preferred stock; the remaining $0.2 million decrease was from regular debt principal paydown. The depreciation and amortization expense from continuing operations increased $0.4 million for the six months ended June 30,
2009 compared to the year ago period. This is primarily related to capital expenditures made on the hotels. The general and administrative expense from continuing operations for the same period did not experience a material change.



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Part I. FINANCIAL INFORMATION, CONTINUED:

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

Impairment loss

During the six months ending
June 30, 2009, we recorded an impairment charge of $150,000 on two hotels. There was no impairment charge recorded for the first six months of 2008.

Dispositions

During the six months ended June 30, 2009, the Company sold its interests in two hotels, recognizing a
gain of approximately $1.1 million on one property and a $7,000 gain on the other. This was offset by a $0.1 million loss on the disposition of assets, due primarily to replacement of furniture and fixtures which were not fully depreciated.

Income Tax Benefit

The income tax
benefit from continuing operations is related to the taxable loss from the TRS Lessee. The tax benefit is a result of TRS Lessees losses for the six months ended June 30, 2009 and the year ago period. The income tax benefit will vary
based on the taxable earnings of the TRS Lessee.

The income tax benefit from continuing operations increased by approximately $653,000
during the six months ended June 30, 2009 compared to the year ago period, due to an increased loss by the TRS Lessee for the same period.

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.

The Company is required to meet various financial covenants required by its existing lenders. In addition, approximately
$9.5 million of the Companys debt is scheduled to mature during the remainder of 2009.



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

The Companys management has prepared contingency plans for its liquidity requirements which include ongoing operations at reduced revenue levels
from that of 2008 coupled with the sale of several of its hotels in 2009. The Company sold two hotels in the fourth quarter of 2008, the proceeds of which were used to reduce debt. During the first quarter of 2009 the Company identified eight hotels
that it intended to sell. Two of these hotels were sold during the first half of 2009. A third hotel was sold in July 2009. The proceeds were used to reduce debt. We expect to sell the remaining five hotels during 2009.

We believe these transactions demonstrated that there is a market for our type of hotels. We have received numerous inquiries regarding some of our other
hotels and we anticipate additional sales will occur when it makes economic sense to do so or conditions so dictate. Following the close of the first quarter, the Company paid off a $9.0 million 8.4 percent note payable to First National Bank of
Omaha that was scheduled to mature in November 2009. The loan was refinanced using a $10 million facility provided by Great Western Bank. The new facility bears interest at 5.5 percent and matures in May 2012. The refinancing leaves approximately
$1.0 million available for support of general operations and also unencumbered five continuing operations hotels from mortgage debt. The Companys other outstanding near-term debt includes a $9.5 million note payable to Wells Fargo Bank in
September 2009. The Company currently expects to either refinance the loan or retire the debt with funds from operations or sale of properties. If the Companys future financial performance fails to meet these financial covenants, or the
Company is unable to repay or refinance its debt as it becomes due then its lenders have the ability to take control of its encumbered hotel assets. If this were to happen, the Companys ability to conduct business could be severely impacted as
there can be no assurance that the adequacy and timeliness of cash flow would be available to the meet the Companys liquidity requirements.

The Company did not declare a common stock dividend for the 2009 first or second quarters. The Company will monitor requirements to maintain its REIT status and will routinely evaluate the dividend policy. The Company intends to continue to
meet its dividend requirements to retain its REIT status. The Company believes it has the ability to repay its indebtedness when due from operations, sales of hotels and refinancings while at the same time continue to be a substantial owner of
limited service and economy hotels.

If the Companys future financial performance fails to meet these financial covenants, or the
Company is unable to repay or refinance its debt as it becomes due, then its lenders have the ability to take control of its encumbered hotel assets. If this were to happen, the Companys ability to conduct business could be severely impacted
as there can be no assurance that the adequacy and timeliness of cash flow would be available to the meet the Companys liquidity requirements.

Financing

At June 30, 2009, the Company had long-term debt of $188.5 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 6.0% (weighted average interest rate on variable debt 4.2% and fixed debt 6.7%). Aggregate annual principal payments for the remainder of 2009 and
thereafter are as follows (in thousands):



|                  |  |   |        
|----------------- |  | - | -------
|Remainder of 2009 |  | $ | 11,819 
|2010              |  |   | 5,161  
|2011              |  |   | 19,066 
|2012              |  |   | 58,351 
|2013              |  |   | 4,580  
|Thereafter        |  |   | 89,476 
|                  |  |   |        
|                  |  | $ | 188,453
|                  |  |   |        



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

Of the maturities in 2009, approximately $2.3 million consist of principal amortization on mortgage loans, which we expect to fund through cash flows
from operations. The remaining single payment maturity as of June 30, 2009 is a $9.5 million balance on the revolving credit facility with Wells Fargo Bank, which we intend to refinance or repay using other financing, funds from operations or
proceeds from sale of hotels.

We are required to comply with certain financial covenants for some of our lenders. As of June 30, 2009, we
either were in compliance with the financial covenants or obtained waivers for non-compliance (as discussed below). As a result, we are not in default of any of our loans.

Our credit facilities with Great Western Bank require that we maintain a consolidated debt service coverage ratio (as defined in the loan agreement) of
at least 1:50 to 1. As of June 30, 2009, the ratio was 1:49 to 1. We received a waiver of non compliance with this covenant.

Our credit
facility with Wells Fargo Bank requires us to maintain a consolidated loan to value ratio that does not exceed 65%. As of June 30, 2009, the ratio was 68.05%. The credit facility also requires us to maintain a minimum consolidated fixed charge
coverage ratio (as defined in the loan agreement) of not less than 1:30 to 1. As of June 30, 2009, this ratio was 1.27 to 1. The company received a waiver of non compliance for both of these covenants by Wells Fargo Bank.

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

A summary of the Companys long term debt as of June 30, 2009 is as follows (in thousands):



|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|---------------------------------------------------- |  | ------- | ------- | ------------ | ---- | - | -------- | --------------- |  | -- | -
|                                                     |  | Balance |         | InterestRate |      |   | Maturity |                 |  |   
|Fixed Rate Debt                                      |  |         |         |              |      |   |          |                 |  |    |  
|Lender                                               |  |         |         |              |      |   |          |                 |  |    |  
|Great Western Bank                                   |  | $       | 13,810  |              | 5.50 | % |          | 12/2011         |  |    |  
|Great Western Bank                                   |  |         | 9,977   |              | 5.50 | % |          | 5/2012          |  |    |  
|Greenwich Capital Financial Products                 |  |         | 33,105  |              | 7.50 | % |          | 12/2012         |  |    |  
|Small Business Administration                        |  |         | 99      |              | 6.71 | % |          | 6/2013          |  | (1 | )
|Elkhorn Valley Bank                                  |  |         | 984     |              | 6.50 | % |          | 4/2014          |  |    |  
|Citigroup Global Markets Realty Corp                 |  |         | 13,850  |              | 5.97 | % |          | 11/2015         |  |    |  
|GE Capital                                           |  |         | 35,712  |              | 6.67 | % |          | 9/2016 - 3/2017 |  |    |  
|GE Capital                                           |  |         | 26,957  |              | 7.19 | % |          | 6/2017          |  | (1 | )
|Wachovia Bank                                        |  |         | 10,201  |              | 7.38 | % |          | 3/2020          |  |    |  
|Village Bank                                         |  |         | 2,343   |              | 7.57 | % |          | 11/2024         |  | (1 | )
|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|Total Fixed Rate Debt                                |  |         | 147,038 |              |      |   |          |                 |  |    |  
|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|Variable Rate Debt                                   |  |         |         |              |      |   |          |                 |  |    |  
|Lender                                               |  |         |         |              |      |   |          |                 |  |    |  
|Wells Fargo                                          |  |         | 9,489   |              | 5.00 | % |          | 9/2009          |  |    |  
|Great Western Bank                                   |  |         | 15,423  |              | 4.50 | % |          | 2/2012          |  |    |  
|GE Capital                                           |  |         | 23,475  |              | 3.66 | % |          | 2/2018          |  |    |  
|GE Capital                                           |  |         | 2,470   |              | 4.22 | % |          | 2/2018          |  |    |  
|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|Total Variable Rate Debt                             |  |         | 50,857  |              |      |   |          |                 |  |    |  
|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|Subtotal debt                                        |  |         | 197,895 |              |      |   |          |                 |  |    |  
|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|Less: debt related to hotel properties held for sale |  |         | 9,442   |              |      |   |          |                 |  | (1 | )
|                                                     |  |         |         |              |      |   |          |                 |  |    |  
|Total Long-Term Debt                                 |  | $       | 188,453 |              |      |   |          |                 |  |    |  
|                                                     |  |         |         |              |      |   |          |                 |  |    |  



|(1) | Using proceeds from the sale of the hotels, the Company anticipates paying off in full the loans with the Village Bank and the Small Business Administration. The Company further
anticipates paying approximately $7.0 million towards the retirement of GE Capital debt.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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.

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%).

On May 21, 2009, we sold our Holiday Inn Express in Gettysburg, PA (51 rooms). The sale price was approximately $2.6 million and a portion of the
proceeds were used to pay in full the $1.2 million loan with Susquehanna Bank (fixed rate 7.75%).

Additionally, on July 20, 2009, we
sold our Masters Inn in Kissimmee, FL (116 rooms) for approximately $1.6 million and used the proceeds to reduce our borrowings with GE Capital.

Redemption of Noncontrolling Preferred and Common Operating Partnership Units

As of June 30, 2009 we owned, through
our subsidiary, Supertel Hospitality REIT Trust, an approximate 98% general partnership interest in Supertel Limited Partnership, through which we own 62 of our hotels. We are the sole general partner of the limited partnership, and the remaining
approximate 2% is held by limited partners. Limited partners hold, as of June 30, 2009, 280,466 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 June 30, 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.

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.



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

The Board of Directors authorized the issuance of 91,729 shares of common stock, $.01 par value per share, of the Company to a holder of common operating
units of Supertel Limited Partnership on May 29, 2009 in exchange for 91,729 common limited partnership units of the Companys operating partnership, Supertel Limited Partnership. The 91,729 common limited partnership units were previously
issued in connection with the Companys September 2005 purchase of the Sleep Inn located in Omaha, NE.

Capital Commitments

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



|                                  |  |       |                 |                        |           |        |           |   |                  |  |   |        |  |   |        
|--------------------------------- |  | ----- | --------------- | ---------------------- | --------- | ------ | --------- | - | ---------------- |  | - | ------ |  | - | -------
|                                  |  | Total |                 | Payments Due by Period
|Contractual Obligations           |  |       | Less than1 Year |                        | 1-3 Years |        | 4-5 Years |   | More than5 years
|Long-term debt including interest |  | $     | 246,592         |                        | $         | 17,516 |           | $ | 45,237           |  | $ | 76,880 |  | $ | 106,959
|Land leases                       |  |       | 6,964           |                        |           | 88     |           |   | 358              |  |   | 359    |  |   | 6,159  
|                                  |  |       |                 |                        |           |        |           |   |                  |  |   |        |  |   |        
|Total contractual obligations     |  | $     | 253,556         |                        | $         | 17,604 |           | $ | 45,595           |  | $ | 77,239 |  | $ | 113,118
|                                  |  |       |                 |                        |           |        |           |   |                  |  |   |        |  |   |        

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

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.

Fair Value of Financial Instruments

In April 2009,
the FASB issued FASB Staff Position on SFAS 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion 28, Interim Financial Reporting, entitled Interim Disclosures about Fair Value of Financial
Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends SFAS 107 by requiring disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual
financial statements and APB 28 by requiring disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop
estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.

The Company estimates the fair value of its fixed rate debt and the credit
spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit
spreads take into consideration general market conditions and maturity. As of June 30, 2009, the carrying value and estimated fair value of the Companys debt was $188.5 million and $190.8 million, respectively. As of December 31,
2008, the carrying value and estimated fair value of the Companys debt was $192.0 million and $196.2 million, respectively. The carrying value of the Companys other financial instruments approximates fair value due to the short-term
nature of these financial instruments.



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

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 and six months ended June 30, 2009 were $3.5 million and $4.5 million, respectively, representing a decrease of $2.2 million and $3.6 million from FFO reported for the three and six months ended
June 30, 2008, respectively. FFO is reconciled to net earnings (loss) as follows (in thousands):



|                                                        |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | ---- | - | ----- |  | - | ------ | - |  | - | ----- | -
|                                                        |  | Three months endedJune 30, |        | Six months endedJune 30, |     
|                                                        |  | 2009                       |        |                          | 2008 |   | 2009  |  |   | 2008   |  
|Net earnings (loss) attributable to common shareholders |  | $                          | 905    |                          |      | $ | 1,887 |  | $ | (1,802 | ) |  | $ | 808   |  
|Depreciation and amortization                           |  |                            | 3,594  |                          |      |   | 3,741 |  |   | 7,311  |   |  |   | 7,320 |  
|Net (gain) loss on disposition of real estate assets    |  |                            | (1,024 | )                        |      |   | 1     |  |   | (964   | ) |  |   | (1    | )
|                                                        |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|FFO available to common shareholders                    |  | $                          | 3,475  |                          |      | $ | 5,629 |  | $ | 4,545  |   |  | $ | 8,127 |  
|                                                        |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  

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 its 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.



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Part I. FINANCIAL INFORMATION, CONTINUED:

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

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.

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 June 30, 2009 and 2008, respectively. The
comparisons of same store operations (excluding Held For Sale hotels) are for 115 hotels owned as of April 1, 2008.



|                                        |  |                                                                                                  |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | -------------------------------- | ----- | --------- | ---- | -------------------------------- |  | ------ | ----- | --------- | ----- |  | --- | ----- |  | ---- | - |  | - | -----
|Same Store* Region                      |  | RoomCount                                                                                        |  | Three months ended June 30, 2009 |       | RoomCount |      | Three months ended June 30, 2008
|                                        |  | RevPAR                                                                                           |  | Occupancy                        |       |           | ADR  |                                  |  | RevPAR |       | Occupancy |       |  | ADR
|Mountain                                |  | 214                                                                                              |  | $                                | 35.28 |           | 65.8 | %                                |  | $      | 53.62 |           | 214   |  | $   | 41.52 |  | 79.3 | % |  | $ | 52.38
|West North Central                      |  | 2,928                                                                                            |  |                                  | 30.71 |           | 63.1 | %                                |  |        | 48.70 |           | 2,928 |  |     | 34.15 |  | 69.7 | % |  |   | 48.97
|East North Central                      |  | 1,081                                                                                            |  |                                  | 36.84 |           | 60.7 | %                                |  |        | 60.66 |           | 1,081 |  |     | 44.57 |  | 70.4 | % |  |   | 63.29
|Middle Atlantic/New England             |  | 205                                                                                              |  |                                  | 38.01 |           | 56.8 | %                                |  |        | 66.94 |           | 205   |  |     | 46.11 |  | 66.7 | % |  |   | 69.16
|South Atlantic                          |  | 4,038                                                                                            |  |                                  | 26.58 |           | 60.1 | %                                |  |        | 44.25 |           | 4,038 |  |     | 30.73 |  | 65.7 | % |  |   | 46.76
|East South Central                      |  | 1,070                                                                                            |  |                                  | 31.19 |           | 58.0 | %                                |  |        | 53.75 |           | 1,070 |  |     | 32.65 |  | 57.5 | % |  |   | 56.77
|West South Central                      |  | 456                                                                                              |  |                                  | 26.12 |           | 55.5 | %                                |  |        | 47.09 |           | 456   |  |     | 29.84 |  | 63.0 | % |  |   | 47.39
|                                        |  |                                                                                                  |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Same Store                        |  | 9,992                                                                                            |  | $                                | 29.79 |           | 60.6 | %                                |  | $      | 49.13 |           | 9,992 |  | $   | 33.94 |  | 66.7 | % |  | $ | 50.89
|                                        |  |                                                                                                  |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|                                        | 
|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).
|- | ----------------------------------------------------------------



29



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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, CONTINUED:

Our RevPAR, ADR, and Occupancy, by franchise affiliation, for the three months ended June 30, 2009 and 2008, were as follows:



|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|--------------------------- |  | --------- |  | -------------------------------- | ----- | --------- | ---- | -------------------------------- |  | ------ | ----- | --------- | ----- |  | --- | ----- |  | ---- | - |  | - | -----
|Same Store* Brand           |  | RoomCount |  | Three months ended June 30, 2009 |       | RoomCount |      | Three months ended June 30, 2008
|                            |  | RevPAR    |  | Occupancy                        |       |           | ADR  |                                  |  | RevPAR |       | Occupancy |       |  | ADR
|Limited Service             |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Midscale w/o F&B**          |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Comfort Inn/ Comfort Suites |  | 1,732     |  | $                                | 42.30 |           | 60.2 | %                                |  | $      | 70.31 |           | 1,732 |  | $   | 49.62 |  | 67.0 | % |  | $ | 74.07
|Hampton Inn                 |  | 135       |  |                                  | 48.09 |           | 64.4 | %                                |  |        | 74.66 |           | 135   |  |     | 56.21 |  | 73.5 | % |  |   | 76.45
|Holiday Inn Express         |  | 125       |  |                                  | 47.91 |           | 72.6 | %                                |  |        | 66.04 |           | 125   |  |     | 45.53 |  | 67.6 | % |  |   | 67.34
|Other Midscale (1)          |  | 291       |  |                                  | 31.82 |           | 50.5 | %                                |  |        | 63.07 |           | 291   |  |     | 40.23 |  | 62.3 | % |  |   | 64.63
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Midscale w/o F&B**    |  | 2,283     |  |                                  | 41.61 |           | 59.8 | %                                |  |        | 69.53 |           | 2,283 |  |     | 48.59 |  | 66.8 | % |  |   | 72.73
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Economy                     |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Days Inn                    |  | 1,146     |  |                                  | 31.64 |           | 58.7 | %                                |  |        | 53.90 |           | 1,146 |  |     | 34.78 |  | 63.7 | % |  |   | 54.60
|Super 8                     |  | 3,474     |  |                                  | 30.66 |           | 64.2 | %                                |  |        | 47.78 |           | 3,474 |  |     | 34.46 |  | 71.6 | % |  |   | 48.15
|Other Economy (2)           |  | 350       |  |                                  | 27.86 |           | 45.0 | %                                |  |        | 61.84 |           | 350   |  |     | 30.93 |  | 51.9 | % |  |   | 59.57
|Masters Inn                 |  | 1,514     |  |                                  | 19.99 |           | 55.4 | %                                |  |        | 36.11 |           | 1,514 |  |     | 24.68 |  | 62.1 | % |  |   | 39.77
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Economy               |  | 6,484     |  |                                  | 28.19 |           | 60.1 | %                                |  |        | 46.90 |           | 6,484 |  |     | 32.04 |  | 66.9 | % |  |   | 47.90
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Midscale/Economy      |  | 8,767     |  |                                  | 31.68 |           | 60.0 | %                                |  |        | 52.77 |           | 8,767 |  |     | 36.34 |  | 66.9 | % |  |   | 54.35
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Extended Stay (3)           |  | 1,225     |  |                                  | 16.27 |           | 65.0 | %                                |  |        | 25.05 |           | 1,225 |  |     | 16.69 |  | 65.5 | % |  |   | 25.48
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Same Store            |  | 9,992     |  | $                                | 29.79 |           | 60.6 | %                                |  | $      | 49.13 |           | 9,992 |  | $   | 33.94 |  | 66.7 | % |  | $ | 50.89
|                            |  |           |  |                                  |       |           |      |                                  |  |        |       |           |       |  |     |       |  |      |   |  |   |      



|                                                                 
|-----------------------------------------------------------------
|1       Includes Ramada Limited, Baymont Inn and Sleep Inn brands
|                                                                 
|2       Includes Guesthouse Inn and independent hotels           
|                                                                 
|3       Includes Savannah Suites and Tara Inn                    



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



|* | Same Store reflects 115 hotels (excluding Held For Sale hotels).
|- | ----------------------------------------------------------------



30



---

##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

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

The following table presents our RevPAR, ADR and Occupancy, by region, for the six months ended June 30, 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.



|                                        |  |                                                                                                  |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ------------------------------ | ----- | --------- | ---- | ------------------------------ |  | ------ | ----- | --------- | ----- |  | --- | ----- |  | ---- | - |  | - | -----
|Same Store* Region                      |  | RoomCount                                                                                        |  | Six months ended June 30, 2009 |       | RoomCount |      | Six months ended June 30, 2008
|                                        |  | RevPAR                                                                                           |  | Occupancy                      |       |           | ADR  |                                |  | RevPAR |       | Occupancy |       |  | ADR
|Mountain                                |  | 214                                                                                              |  | $                              | 31.03 |           | 60.8 | %                              |  | $      | 51.00 |           | 214   |  | $   | 36.43 |  | 73.3 | % |  | $ | 49.69
|West North Central                      |  | 2,928                                                                                            |  |                                | 27.42 |           | 57.5 | %                              |  |        | 47.69 |           | 2,928 |  |     | 29.93 |  | 62.4 | % |  |   | 47.96
|East North Central                      |  | 1,081                                                                                            |  |                                | 33.71 |           | 56.1 | %                              |  |        | 60.07 |           | 1,081 |  |     | 39.05 |  | 63.2 | % |  |   | 61.83
|Middle Atlantic/New England             |  | 205                                                                                              |  |                                | 32.23 |           | 50.6 | %                              |  |        | 63.74 |           | 205   |  |     | 36.70 |  | 56.0 | % |  |   | 65.48
|South Atlantic                          |  | 4,038                                                                                            |  |                                | 24.88 |           | 57.3 | %                              |  |        | 43.46 |           | 4,038 |  |     | 28.53 |  | 63.6 | % |  |   | 44.89
|East South Central                      |  | 1,070                                                                                            |  |                                | 28.81 |           | 54.4 | %                              |  |        | 52.96 |           | 1,070 |  |     | 29.93 |  | 54.0 | % |  |   | 55.47
|West South Central                      |  | 456                                                                                              |  |                                | 25.99 |           | 55.4 | %                              |  |        | 46.91 |           | 456   |  |     | 27.94 |  | 60.7 | % |  |   | 46.00
|                                        |  |                                                                                                  |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Same Store                        |  | 9,992                                                                                            |  | $                              | 27.33 |           | 56.8 | %                              |  | $      | 48.16 |           | 9,992 |  | $   | 30.54 |  | 62.1 | % |  | $ | 49.20
|                                        |  |                                                                                                  |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|                                        | 
|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.

Our RevPAR, ADR, and Occupancy, by franchise affiliation, for the six
months ended June 30, 2009 and 2008, were as follows:



|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|--------------------------- |  | --------- |  | ------------------------------ | ----- | --------- | ---- | ------------------------------ |  | ------ | ----- | --------- | ----- |  | --- | ----- |  | ---- | - |  | - | -----
|Same Store* Brand           |  | RoomCount |  | Six months ended June 30, 2009 |       | RoomCount |      | Six months ended June 30, 2008
|                            |  | RevPAR    |  | Occupancy                      |       |           | ADR  |                                |  | RevPAR |       | Occupancy |       |  | ADR
|Limited Service             |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Midscale w/o F&B            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Comfort Inn/ Comfort Suites |  | 1,732     |  | $                              | 37.26 |           | 54.3 | %                              |  | $      | 68.57 |           | 1,732 |  | $   | 42.87 |  | 59.8 | % |  | $ | 71.67
|Hampton Inn                 |  | 135       |  |                                | 45.12 |           | 59.6 | %                              |  |        | 75.75 |           | 135   |  |     | 52.11 |  | 68.7 | % |  |   | 75.87
|Holiday Inn Express         |  | 125       |  |                                | 46.11 |           | 69.2 | %                              |  |        | 66.64 |           | 125   |  |     | 43.11 |  | 64.9 | % |  |   | 66.46
|Other Midscale (1)          |  | 291       |  |                                | 34.01 |           | 56.3 | %                              |  |        | 60.38 |           | 291   |  |     | 40.28 |  | 62.8 | % |  |   | 64.14
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Midscale w/o F&B      |  | 2,283     |  |                                | 37.79 |           | 55.7 | %                              |  |        | 67.84 |           | 2,283 |  |     | 43.10 |  | 61.0 | % |  |   | 70.66
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Economy                     |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Days Inn                    |  | 1,146     |  |                                | 28.27 |           | 53.2 | %                              |  |        | 53.12 |           | 1,146 |  |     | 29.56 |  | 56.8 | % |  |   | 52.04
|Super 8                     |  | 3,474     |  |                                | 27.61 |           | 58.9 | %                              |  |        | 46.86 |           | 3,474 |  |     | 30.20 |  | 64.1 | % |  |   | 47.08
|Other Economy (2)           |  | 350       |  |                                | 29.10 |           | 47.4 | %                              |  |        | 61.40 |           | 350   |  |     | 32.20 |  | 52.0 | % |  |   | 61.96
|Masters Inn                 |  | 1,514     |  |                                | 19.29 |           | 53.4 | %                              |  |        | 36.14 |           | 1,514 |  |     | 23.57 |  | 60.5 | % |  |   | 38.95
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Economy               |  | 6,484     |  |                                | 25.86 |           | 56.0 | %                              |  |        | 46.19 |           | 6,484 |  |     | 28.64 |  | 61.3 | % |  |   | 46.71
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Midscale/Economy      |  | 8,767     |  |                                | 28.97 |           | 55.9 | %                              |  |        | 51.80 |           | 8,767 |  |     | 32.41 |  | 61.2 | % |  |   | 52.92
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Extended Stay (3)           |  | 1,225     |  |                                | 15.64 |           | 62.7 | %                              |  |        | 24.94 |           | 1,225 |  |     | 17.14 |  | 68.0 | % |  |   | 25.21
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      
|Total Same Store            |  | 9,992     |  | $                              | 27.33 |           | 56.8 | %                              |  | $      | 48.16 |           | 9,992 |  | $   | 30.54 |  | 62.1 | % |  | $ | 49.20
|                            |  |           |  |                                |       |           |      |                                |  |        |       |           |       |  |     |       |  |      |   |  |   |      



|                                                                 
|-----------------------------------------------------------------
|1       Includes Ramada Limited, Baymont Inn and Sleep Inn brands
|                                                                 
|2       Includes Guesthouse Inn and independent hotels           
|                                                                 
|3       Includes Savannah Suites and Tara Inn                    







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



|* | Same Store reflects 115 hotels (excluding Held For Sale hotels).
|- | ----------------------------------------------------------------

The
same store includes ten hotels acquired as of January 2, 2008.



31



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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, CONTINUED:

Adoption of New Accounting Pronouncements

In May
2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent Events (FAS 165). FAS 165 sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make about events or transactions that occurred after the balance sheet date. FAS 165 requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of financials statements that an entity has not evaluated subsequent events after that date in the set of financial
statements being presented. FAS 165 is effective for financial periods ending after June 15, 2009. The Company is adhering to the requirements of FAS 165 starting in the second quarter of 2009.

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 third parties (280,466 at June 30, 2009), and the preferred units in the Operating Partnership held by third parties (177,786 at June 30, 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.



32



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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, CONTINUED:

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 June 30, 2009 and December 31, 2008.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued Statement No.168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 (FAS 168). The Codification will become the source of authoritative GAAP recognized
by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FAS 168, the
Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. FAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. FAS 168 is not expected to have a material impact on the Companys financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has
been no material change in our market risk exposure subsequent to December 31, 2008.



33



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##### Table of Contents

Part I. FINANCIAL INFORMATION, CONTINUED:

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.



34



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##### Table of Contents

Part II. OTHER INFORMATION:

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Board of Directors of
Supertel Hospitality, Inc. authorized the issuance of 91,729 shares of common stock, $.01 par value per share, in exchange for 91,729 common limited partnership units of the Companys operating partnership, Supertel Limited Partnership, in
accordance with the Third Amended and Restated Agreement of Limited Partnership, as amended, of the partnership. The common limited partnership units were issued in 2005 in connection with the companys purchase of a hotel. The issuance of
these common shares was effected in reliance upon the exemption from registration under Section 
4(2) of the Securities Act of 1933, as amended.

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

We held our 2009 annual meeting of shareholders on Thursday, May 28, 2009. The vote for each matter voted upon at the meeting is set forth below.

Seven nominees were elected to serve as directors of the Company for an annual term by the following vote:



|                     |  |            |  |          
|-------------------- |  | ---------- |  | ---------
|                     |  | For        |  | Withheld 
|Paul J. Schulte      |  | 15,979,533 |  | 3,819,108
|Steve H. Borgmann    |  | 15,949,861 |  | 3,848,780
|Jeffrey M. Zwerdling |  | 19,058,939 |  | 739,702  
|George R. Whittemore |  | 18,463,948 |  | 1,334,693
|Allen L. Dayton      |  | 19,466,892 |  | 331,749  
|Patrick J. Jung      |  | 17,134,817 |  | 2,663,824
|William C. Latham    |  | 17,338,833 |  | 2,459,808

Amendment of the Companys 2006 Stock Plan was approved by the following vote:



|                 |  |          
|---------------- |  | ---------
|FOR              |  | 9,022,372
|AGAINST          |  | 3,098,739
|ABSTAIN          |  | 76,237   
|BROKER NON-VOTES |  | 7,601,293

Shareholders ratified the appointment of KPMG LLP as the Companys independent registered public accounting
firm for 2009 by the following vote:



|        |  |           
|------- |  | ----------
|FOR     |  | 19,608,233
|AGAINST |  | 160,119   
|ABSTAIN |  | 30,289    



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Part II. OTHER INFORMATION, CONTINUED:

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.



|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|--------------------------------------------------------------------------------------------- | ---- | --------------------------- | ------ | ---- | ------------------------- | - | ------ | - |  | ---- | ------ | - |  | - | ------- | -
|(In thousands, except per share and statistical data)                                         |      | Three months ended June 30, |        |      | Six months ended June 30, |  
|                                                                                              | 2009 |                             |        | 2008 |                           |   | 2009   |   |  | 2008 |       
|Income (loss) from continuing operations before income taxes                                  |      | $                           | 152    |      |                           | $ | 2,349  |   |  | $    | (2,995 | ) |  | $ | 634     |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|Net income (loss) available to common shareholders                                            |      | $                           | 905    |      |                           | $ | 1,887  |   |  | $    | (1,802 | ) |  | $ | 808     |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|                                                                                              |      |                             |        |     
|Earnings per share from continuing operations - basic                                         |      | $                           | (0.01  | )    |                           | $ | 0.08   |   |  | $    | (0.12  | ) |  | $ | 0.02    |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|Earnings per share from discontinued operations - basic                                       |      | $                           | 0.05   |      |                           | $ | 0.01   |   |  | $    | 0.04   |   |  | $ | 0.02    |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|Earnings per share - basic                                                                    |      | $                           | 0.04   |      |                           | $ | 0.09   |   |  | $    | (0.08  | ) |  | $ | 0.04    |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|Earnings per share - diluted                                                                  |      | $                           | 0.04   |      |                           | $ | 0.09   |   |  | $    | (0.08  | ) |  | $ | 0.04    |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|                                                                                              |      |                             |        |     
|Adjusted EBITDA (1)                                                                           |      | $                           | 8,205  |      |                           | $ | 9,833  |   |  | $    | 11,577 |   |  | $ | 15,468  |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|                                                                                              |      |                             |        |     
|FFO attributable to common shareholders (2)                                                   |      | $                           | 3,475  |      |                           | $ | 5,629  |   |  | $    | 4,545  |   |  | $ | 8,127   |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|FFO per share - basic                                                                         |      |                             | 0.16   |      |                           |   | 0.27   |   |  |      | 0.21   |   |  |   | 0.39    |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|FFO per share - diluted                                                                       |      |                             | 0.16   |      |                           |   | 0.26   |   |  |      | 0.21   |   |  |   | 0.38    |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|                                                                                              |      |                             |        |     
|Net cash flow:                                                                                |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|Provided by operating activities                                                              |      | $                           | 3,725  |      |                           | $ | 8,448  |   |  | $    | 5,680  |   |  | $ | 13,534  |  
|Provided by (used in) investing activities                                                    |      | $                           | 1,695  |      |                           | $ | (3,188 | ) |  | $    | 2,055  |   |  | $ | (28,785 | )
|Provided by (used in) financing activities                                                    |      | $                           | (5,576 | )    |                           | $ | (5,673 | ) |  | $    | (7,697 | ) |  | $ | 15,517  |  
|                                                                                              |      |                             |        |     
|Weighted average number of shares outstanding for:                                            |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|calculation of earnings per share - basic                                                     |      |                             | 21,812 |      |                           |   | 20,826 |   |  |      | 21,371 |   |  |   | 20,764  |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|calculation of earnings per share - diluted                                                   |      |                             | 21,812 |      |                           |   | 20,826 |   |  |      | 21,371 |   |  |   | 20,764  |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|                                                                                              |      |                             |        |     
|Weighted average number of shares outstanding for:                                            |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|calculation of FFO per share - basic                                                          |      |                             | 21,812 |      |                           |   | 20,826 |   |  |      | 21,371 |   |  |   | 20,764  |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|calculation of FFO per share - diluted                                                        |      |                             | 21,812 |      |                           |   | 22,346 |   |  |      | 21,371 |   |  |   | 22,347  |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|                                                                                              |      |                             |        |     
|RECONCILIATION OF WEIGHTED AVERAGE NUMBER OF SHARES FOR EPS DILUTED TO FFO PER SHARE DILUTED: |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|EPS diluted shares                                                                            |      |                             | 21,812 |      |                           |   | 20,826 |   |  |      | 21,371 |   |  |   | 20,764  |  
|Common stock issuable upon exercise or conversion of:                                         |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|Options                                                                                       |      |                             |       |      |                           |   |       |   |  |      |       |   |  |   |        |  
|Series A Preferred Stock                                                                      |      |                             |       |      |                           |   | 1,520  |   |  |      |       |   |  |   | 1,583   |  
|                                                                                              |      |                             |        |      |                           |   |        |   |  |      |        |   |  |   |         |  
|FFO per share diluted shares                                                                  |      |                             | 21,812 |      |                           |   | 22,346 |   |  |      | 21,371 |   |  |   | 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 ended June 30, |        |      | Six months ended June 30, |  
|                                                       | 2009 |                             |        | 2008 |                           |   | 2009  |   |  | 2008 |       
|RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|Net income (loss) attributable to common shareholders  |      | $                           | 905    |      |                           | $ | 1,887 |   |  | $    | (1,802 | ) |  | $ | 808    |  
|Interest, including disc ops                           |      |                             | 3,283  |      |                           |   | 3,441 |   |  |      | 6,406  |   |  |   | 7,101  |  
|Income tax benefit, including disc ops                 |      |                             | (15    | )    |                           |   | 334   |   |  |      | (1,058 | ) |  |   | (364   | )
|Depreciation and amortization, including disc ops      |      |                             | 3,594  |      |                           |   | 3,741 |   |  |      | 7,311  |   |  |   | 7,320  |  
|                                                       |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|EBITDA                                                 |      |                             | 7,767  |      |                           |   | 9,403 |   |  |      | 10,857 |   |  |   | 14,865 |  
|Noncontrolling interest                                |      |                             | 69     |      |                           |   | 194   |   |  |      | (17    | ) |  |   | 181    |  
|Preferred stock dividends                              |      |                             | 369    |      |                           |   | 236   |   |  |      | 737    |   |  |   | 422    |  
|                                                       |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|Adjusted EBITDA (1)                                    |      | $                           | 8,205  |      |                           | $ | 9,833 |   |  | $    | 11,577 |   |  | $ | 15,468 |  
|                                                       |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|                                                       |      |                             |        |     
|RECONCILIATION OF NET LOSS TO FFO                      |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|Net income (loss) attributable to common shareholders  |      | $                           | 905    |      |                           | $ | 1,887 |   |  | $    | (1,802 | ) |  | $ | 808    |  
|Depreciation and amortization                          |      |                             | 3,594  |      |                           |   | 3,741 |   |  |      | 7,311  |   |  |   | 7,320  |  
|Net (gain) loss on disposition of assets               |      |                             | (1,024 | )    |                           |   | 1     |   |  |      | (964   | ) |  |   | (1     | )
|                                                       |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|FFO available to common shareholders (2)               |      | $                           | 3,475  |      |                           | $ | 5,629 |   |  | $    | 4,545  |   |  | $ | 8,127  |  
|                                                       |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|                                                       |      |                             |        |     
|ADDITIONAL INFORMATION                                 |      |                             |        |      |                           |   |       |   |  |      |        |   |  |   |        |  
|Average Daily Rate                                     |      | $                           | 49.13  |      |                           | $ | 50.89 |   |  | $    | 48.16  |   |  | $ | 49.20  |  
|Revenue Per Available Room                             |      | $                           | 29.79  |      |                           | $ | 33.94 |   |  | $    | 27.33  |   |  | $ | 30.54  |  
|Occupancy                                              |      |                             | 60.6   | %    |                           |   | 66.7  | % |  |      | 56.8   | % |  |   | 62.1   | %



|(1) | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | 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,
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Part II. OTHER INFORMATION, CONTINUED:

Item 5. Other Information

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.

Because this Quarterly Report on Form 10-Q is being filed within four business days after the applicable triggering events, the information below is being disclosed under this Item 5 instead of under Item 1.01 (Entry into a Material
Definitive Agreement) of Form 8-K.

The Company received waivers to certain of its financial covenants with certain of its lenders on
August 6, 2009, as described in, and incorporated herein by reference from, Item 2 of this Quarterly Report on Form 10-Q under Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources.



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Supertel Hospitality, Inc., and Subsidiaries

Item 6. Exhibits



|            |  |                                                                                  
|----------- |  | ---------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                      
|            | 
|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 6thday of August, 2009

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



Dated this 6thday of August, 2009



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Supertel Hospitality, Inc., and Subsidiaries

Exhibits



|            |  |                                                                                  
|----------- |  | ---------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                      
|            | 
|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



41