OVERVIEW

We are engaged in the ownership and operation of hotel properties. At January 31, 2009, the InnSuites system included five moderate and full-service hotels with 843 hotel suites. Four of our Hotels are branded through franchise agreements with Best Western. All five Hotels are trademarked as InnSuites Hotels. We are also involved in various operations incidental to the operation of hotels, such as the operation of restaurants and meeting/banquet room rentals.

Our operations consist of one reportable segment, hotel ownership, which derives its revenue from the operation of the Hotels. In addition, we receive management fees, trademark license fees and reservation fees from four hotels owned by Mr. Wirth and his affiliates and trademark license fees from one hotel owned by a non-related third party.

Our results are significantly affected by occupancy and room rates at the Hotels, our ability to manage costs, and changes in the number of available suites caused by acquisition and disposition activities. Results are also significantly impacted by overall economic conditions and conditions in the travel industry. Unfavorable changes in these factors could negatively impact hotel room demand and pricing, which would reduce our profit margins on rented suites. Additionally, our ability to manage costs could be adversely impacted by significant increases in operating expenses, resulting in lower operating margins.

Improved economic conditions, both generally and specifically in the travel industry, had a positive impact on our operations in fiscal year 2008 and in most of fiscal year 2009. We anticipate the negative trend in the travel industry, which began in the fourth quarter of fiscal year 2009, to continue through fiscal year 2010. Declining overall economic conditions are expected to result in decreased business and leisure travel and lower room rates, and therefore lower operating margins. We expect the major challenge for fiscal year 2010 to be strong competition for group business in the markets in which we operate, which may affect our ability to increase room rates while maintaining market share. We believe that we have positioned the hotels to remain competitive through selective refurbishment and carrying a relatively large number of two-room suites at each location. While the downturn in the economy did not significantly affect the hospitality industry during fiscal year 2009, we believe that we will be prepared for such an event by continuing to maintain tight costs controls and high labor efficiency throughout fiscal year 2010.

We reclassified all of our hotel properties from "held for sale" to "held and used" in the third quarter ended October 31, 2008. Due to the economic conditions and credit market restraints, the funds were not available to potential buyers to finance a purchase of one or more of our hotels. As a result of this reclassification, we recorded $1.9 million in depreciation expense that was previously suspended while the assets were "held for sale."

We continue to seek qualified buyers for our hotels and will continue to migrate our primary business from a hotel owner to a hospitality service company providing trademark licensing and management services.

GENERAL

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.

The accounting policies that we believe are most critical and involve the most subjective judgments include our estimates and assumptions of future revenue and expenditures used to project hotel cash flows. Future cash flows are used in the valuation calculation of our hotel properties to determine the recoverability (or impairment) of the carrying amounts in the event management is required to test the asset for recoverability of its carrying value under Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." If the carrying amount of an asset exceeds the estimated future cash flows over its estimated remaining life, the Trust recognizes an impairment expense to reduce the asset's carrying value to its fair value. Fair value is determined by either the most current third-party property appraisal, if available or the present value of future undiscounted cash flows over the remaining life of the asset. Our evaluation of future cash flows is based on our historical experience and other factors, including certain economic conditions and committed future bookings. See "- Critical Accounting Policies and Estimates" below.

At January 31, 2009 and 2008, we owned a 70.94% and 70.66%, respectively, interest in four of the Hotels through our sole general partner's interest in the Partnership and owned a 99.9% interest in one Hotel. We purchased 36,911 and 47,636 Partnership units during the years ended January 31, 2009 and 2008, respectively.

Our expenses consist primarily of property taxes, insurance, corporate overhead, interest on mortgage debt, professional fees, depreciation of the Hotels and hotel operating expenses. Hotel operating expenses consist primarily of payroll, guest and maintenance supplies, marketing and utilities expenses. Under the terms of its Partnership Agreement, the Partnership is required to reimburse us for all such expenses. Accordingly, management believes that a review of the historical performance of the operations of the Hotels, particularly with respect to occupancy, which is calculated as rooms sold divided by total rooms available, average daily rate ("ADR"), calculated as total room revenue divided by number of rooms sold, and revenue per available room ("REVPAR"), calculated as total room revenue divided by number of rooms available, is appropriate for understanding revenue from the Hotels. Occupancy decreased 8.44% to 62.42% from 70.86% in the prior year. ADR increased by $3.18 to $80.55 in fiscal year 2009 from $77.37 in fiscal year 2008, which resulted in a decrease in REVPAR of $4.55 to $50.28 in fiscal year 2009 from $54.83 in fiscal year 2008.

The following table shows certain historical financial and other information for the periods indicated:

                                             For the Year Ended January 31,
                                                 2009              2008

      Occupancy                                      62.42 %            70.86 %

      Average Daily Rate (ADR)                 $     80.55       $      77.37

      Revenue Per Available Room (REVPAR)      $     50.28       $      54.83

We enter into transactions with certain related parties from time to time. For information relating to such related party transactions see the following:

• For a discussion of management and licensing agreements with certain related parties, see "Item 1 - Business - Management and Licensing Contracts."

• For a discussion of guarantees of our mortgage notes payable by certain related parties, see Note 6 to our Consolidated Financial Statements - "Mortgage Notes Payable."

• For a discussion of notes and advances payable by us to certain related parties, see Note 8 to our Consolidated Financial Statements - "Notes and Advances Payable to Related Parties."

• For a discussion of our employment agreement with Mr. Wirth, see Note 13 to our Consolidated Financial Statements - "Advisory Agreement/Employment Agreements."

Results of Operations of the Trust for the year ended January 31, 2009 compared to the year ended January 31, 2008.

Overview

A summary of operating results for the fiscal years ended January 31, 2009 and
2008 is:

                                 2009            2008           Change       % Change
    Revenue                  $ 20,391,835    $ 22,100,135    $ (1,708,300 )     (7.7) %
    Operating Income         $    274,487    $  2,981,795    $ (2,707,308 )    (90.8) %
    Net Income (Loss)        $   (630,526 )  $  1,119,160    $ (1,749,686 )  >(100.0) %
    Income (Loss) Per
    Share - Basic            $      (0.07 )  $       0.12    $      (0.19 )  >(100.0) %
    Income (Loss) Per
    Share - Diluted          $      (0.07 )  $       0.07    $      (0.14 )  >(100.0) %

Our overall results in 2009 were positively affected by the results from increased rate management efforts and were offset by the recording of $1.9 million of depreciation on assets reclassified from "held for sale" to "held and used," as discussed below.

For the twelve months ended January 31, 2009, we had total revenue of $20.4 million compared to $22.1 million for the twelve months ended January 31, 2008, a decrease of approximately $1.7 million. This decrease in total revenue is primarily due to lower occupancies at the Hotels, resulting in decreased room revenues. During 2010, we expect lower occupancy and revenue levels compared to prior years. Total expenses of $21.6 million for the twelve months ended January 31, 2009 reflects an increase of approximately $680,000 compared to total expenses of $20.9 million for the twelve months ended January 31, 2008. The increase was primarily due to recording deferred depreciation on assets previously classified as "held for sale" of $1.9 million in the third quarter of fiscal year 2009.

General and administrative expenses include overhead charges for management, accounting, shareholder and legal services. General and administrative expenses of $3.4 million for the twelve months ended January 31, 2009 was consistent with the prior year total of $3.3 million.

Total operating expenses for the twelve months ended January 31, 2009 were $20.1 million, an increase of approximately $1.0 million, or 5.2%, from $19.1 million in the twelve months ended January 31, 2008. The increase was primarily due to recording deferred depreciation on assets "held for sale" of $1.9 million in the third quarter of fiscal year 2009.

Hotel property depreciation for the twelve months ended January 31, 2009 was $2.9 million, an increase of approximately $1.9 million from $1.0 million in the twelve months ended January 31, 2008. The increase was due to the recording of $1.9 million of deferred depreciation on assets previously classified as "held for sale" when they were reclassified to "held and used" in the third quarter of fiscal 2009.

We had a net loss before minority interest and income taxes of $1.2 million for the twelve months ended January 31, 2009, compared to net income of $1.2 million in the prior year. After deducting the loss allocated to the minority interest of $630,519 and taxes of $34,692, we had a net loss attributable to Shares of Beneficial Interest of approximately $631,000 for fiscal year 2009. This represented a decrease of approximately $1.7 million in net income (loss) attributable to Shares of Beneficial Interest comparing the twelve months ended January 31, 2009 and 2008. Basic and diluted net loss per share was $(0.07) and $(0.07), respectively, for the twelve months ended January 31, 2009, compared to a basic and diluted net income per share of $0.12 and $0.07, respectively, for fiscal year 2008. The change since the prior year is attributable to reclassifying assets as "held for sale" to "held and used" and recording $1.9 million of depreciation in the third quarter of fiscal 2009.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal source of cash to meet our cash requirements, including distributions to its shareholders, is our share of the Partnership's cash flow and its direct ownership of the Yuma, Arizona property. The Partnership's principal source of revenue is hotel operations for the four hotel properties it owns. Our liquidity, including our ability to make distributions to our shareholders, will depend upon our ability and the Partnership's ability to generate sufficient cash flow from hotel operations.

Hotel operations are significantly affected by occupancy, which decreased from fiscal year 2008 to 2009, and room rates at the Hotels, which improved over the prior fiscal year, our ability to manage costs, and changes in the number of available suites caused by acquisition and disposition activities. Results are also significantly impacted by overall economic conditions and conditions in the travel industry. Unfavorable changes in these factors could negatively impact hotel room demand and pricing, which would reduce our profit margins on rented suites.

We anticipate a continuation of the slowing of the overall economic conditions that occurred late in fiscal 2009, which could result in increased competition for business and leisure travel and that may not support the higher room rates of fiscal 2009, and therefore could lower operating margins. Challenges in fiscal year 2010 are expected to include continued competition for group business in the markets in which we operate and our ability to increase room rates while maintaining market share.

Net cash provided by operating activities totaled $1.2 million and $1.6 million for the years ended January 31, 2009 and 2008, respectively. The decrease in fiscal year 2009 compared to fiscal year 2008 was due to the aggressive reduction of our payables and an increase in prepaid expenses during the year.

Net cash used in investing activities totaled $(1.2) million and $(989,000) for the years ended January 31, 2009, and 2008, respectively. The increase in 2009 as compared to 2008 was due to increased spending on capital improvements.

Net cash provided in financing activities totaled $900,000 for the year ended January 31, 2009 and net cash used in financing activities was $(518,000) for the year ended January 31, 2008. The increases year to year were primarily due to mortgage refinance of the Yuma hotel property.

As of January 31, 2009, we had no commitments for capital expenditures beyond a 4% reserve for refurbishment and replacements that is set aside annually, as described below.

We continue to contribute to a Capital Expenditures Fund (the "Fund") an amount equal to 4% of the InnSuites Hotels' revenues from operation of the Hotels. The Fund is restricted by the mortgage lender for four of our properties. As of January 31, 2009, $96,262 was held in these accounts and is reported on our Consolidated Balance Sheet as "Restricted Cash." The Fund is intended to be used for capital improvements to the Hotels and refurbishment and replacement of furniture, fixtures and equipment. During the twelve months ended January 31, 2009 and 2008, the Hotels spent approximately $1.3 million and $978,000, respectively, for capital expenditures. We consider the majority of these improvements to be revenue producing. Therefore, these amounts are capitalized and depreciated over their estimated useful lives. Depreciation was suspended on the Hotel's capitalized assets between August 1, 2007 until August 1, 2008 while the Hotels were classified as "held for sale." We plan to spend approximately $527,000 for capital expenditures in fiscal year 2010. The Hotels also spent approximately $1.4 million during both fiscal years 2009 and 2008 on repairs and maintenance and these amounts have been charged to expense as incurred.

As of January 31, 2009, we had mortgage notes payable of $22.0 million outstanding with respect to the Hotels, $85,776 in secured promissory notes outstanding to unrelated third parties arising from the Share of Beneficial Interest and Partnership unit repurchases, and no principal due and payable under notes and advances payable to Mr. Wirth and his affiliates.

Management believes that cash on hand and future cash receipts from operations in fiscal year 2010 will be sufficient to meet the Trust's obligations as they become due for the next twelve months.

We may seek to negotiate additional credit facilities or issue debt instruments. Any debt incurred or issued by us may be secured or unsecured, long-term, medium-term or short-term, bear interest at a fixed or variable rate and be subject to such other terms as we consider prudent.

FUTURE POSITIONING

The Board of Trustees in viewing the hotel industry cycles determined that 2008-2009 may have been the high point of the current hotel industry cycle and further determined it was appropriate to classify the five Hotels owned by the Trust as "Held for Sale." We began actively seeking buyers for our properties. We engaged the services of several hotel brokers and began independently advertising our Hotels for sale. On August 1, 2008, the Trust reclassified its hotel properties from "held for sale" to "held and used." After one year of efforts, we failed to find any qualified buyers for our hotel properties. As a result of this reclassification, we recorded $1.9 million in depreciation expense that was previously suspended during the period in which the assets were classified as "held for sale." We continue to independently advertise our Hotels for sale.

Our long-term strategic plan is to obtain full benefit of our real estate equity and to migrate our focus from a hotel owner to a hospitality service company by expanding our trademark license, management, reservation, and advertising services. This plan is similar to strategies followed by international diversified hotel industry leaders, which over the last several years have reduced real estate holdings and concentrated on hospitality services. We began our long-term corporate strategy when we relinquished our REIT status in January 2004, which had previously prevented us from providing management services to hotels. In June 2004, we acquired our trademark license and management agreements and began providing management, trademark and reservations services to our Hotels. In July 2007, the Board of Trustees voted to list and/or present for sale all five of our hotel properties.

The table below lists the hotel properties, their respective carrying and mortgage value and the estimated sales value for the hotel properties.

Hotel Property Asset Values as of January 31, 2009

      Hotel Property      Book Value       Mortgage Balance       Listed Sales Price
    Albuquerque          $  1,559,243     $          954,984     $          6,750,000
    Ontario                 6,684,786              7,958,765               23,500,000
    Tucson Oracle           4,822,624              3,236,741               12,700,000
    Tucson City Center      8,441,360              5,920,075               14,400,000
    Yuma                    6,242,512              4,000,000               15,500,000
    Totals               $ 27,750,525     $       22,070,565     $         72,850,000

There is no assurance that the listed sales price for the individual hotel properties will be realized, however our management believes that these sales prices are reasonable based on local market conditions and comparable sales. Changes in market conditions have in part and may in the future result in our changing one or all of the sales prices.

As part of the Board study for 2008-2009, greater emphasis has been placed on priority for additional management, trademark and reservations fee income. We have determined that it is easier to sell management contracts when the trademark services are also provided. Therefore, the primary emphasis is on trademark and reservation services. As part of the emphasis on trademark services, we have developed two trademark packages. The first is the "Traditional InnSuites Hotels & Suites" regional package and the second is the "InnSuites Boutique Collection," which now includes four affiliate hotels managed by us. Sales and marketing are being handled internally.

SHARE REPURCHASE PROGRAM

On January 2, 2001, the Board of Trustees approved a share repurchase program under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, for the purchase of up to 250,000 limited partnership units in the Partnership and/or Shares of Beneficial Interest in open market or privately negotiated transactions. On September 10, 2002, August 18, 2005 and September 10, 2008, the Board of Trustees approved the purchase of up to 350,000 additional limited partnership units in the Partnership and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Additionally, on January 5, 2009, the Board of Trustees approved the purchase of up to 300,000 additional limited partnership units in the Partnership and/or Shares of Beneficial Interest in open market or privately negotiated transactions. Acquired Shares of Beneficial Interest will be held in treasury and will be available for future acquisitions and financings and/or for awards granted under the InnSuites Hospitality Trust 1997 Stock Incentive and Option Plan. During fiscal year 2009, we acquired 184,680 Shares of Beneficial Interest in open market transactions at an average price of $1.34 per share and 35,162 Shares of Beneficial Interest in privately-negotiated transactions at an average price of $1.30 per share. Also, we acquired 36,911 RRF Limited Partnership Units at an average price of $1.30 per unit. We intend to continue repurchasing Shares of Beneficial Interest and RRF Limited Partnership Units in compliance with applicable legal and NYSE Amex requirements.

OFF-BALANCE SHEET FINANCINGS AND LIABILITIES

Other than lease commitments, legal contingencies incurred in the normal course of business and employment contracts for key employees, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned subsidiaries that are not included in the consolidated financial statements. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Accounting Matters" below for a discussion of new accounting interpretations with respect to variable interest entities and the impact of such interpretations on us.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We believe that the policies we follow for the valuation of our hotel properties, which constitute the majority of our assets, are our most critical policies. We apply SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to determine when it is necessary to test an asset for recoverability. On an events and circumstances basis, we review the carrying value of our hotel properties both "held for use" and "held for sale." We will record an impairment loss and reduce the carrying value of a property when anticipated undiscounted future cash flows and the current market value of the property do not support its carrying value. In cases where we do not expect to recover the carrying cost of hotel properties held for use, we will reduce the carrying value to the fair value of the hotel, as determined by a current appraisal or other acceptable valuation methods. In cases where we do not expect to recover the carrying cost of hotel properties "held for sale," we will reduce the carrying value to the sales price less costs to sell. We did not recognize impairment loss in fiscal years 2009 or 2008. As of January 31, 2009, our management does not believe that the carrying values of any of its hotel properties are impaired.

ACCOUNTING MATTERS

In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 10" ("FIN 48"), which became effective for years beginning on January 1, 2007. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. We are subject to U.S. federal income taxes as well as numerous state tax jurisdictions. We adopted FIN 48 on February 1, 2008. Our assessments of our tax positions in accordance with FIN 48 did not result in changes that had a material impact on results of operations, financial condition or liquidity. It is our policy to recognize any interest and penalties related to income taxes as tax expense.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. . . .