Forward-Looking Statements

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

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

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

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

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

Overview

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

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

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

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

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

Overview of Discontinued Operations

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

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

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

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

General

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

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

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

Results of Operations

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

Operating results are summarized as follows (in thousands):



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

Net loss                             $     (2,190 )   $         (235 )   $  (2,425 )   $     (1,053 )   $          147     $    (906 )   $     (1,137 )

Revenues and Operating Expenses

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

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

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

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

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

Impairment loss

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

Dispositions

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

Income Tax Benefit

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

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

Liquidity and Capital Resources

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

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

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

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

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

Financing

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



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

                                               $ 192,213

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

• a $9.5 million balance on the revolving credit facility with Wells Fargo Bank;

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

• a balloon payment of $9.0 million payable to First National Bank of Omaha ("FNBO"), was paid in full May 6, 2009

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

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

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

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 March 31, 2009 is as follows (in thousands):

                                                          Interest
                                             Balance        Rate              Maturity
Fixed Rate Debt

Lender
Great Western Bank                          $   1,300          7.00 %                5/2009  (1)
Susquehanna Bank                                1,265          7.75 %                7/2009  (5)
First National Bank of Omaha                    9,039          8.40 %               11/2009  (2)
Great Western Bank                             13,906          5.50 %               12/2011
Greenwich Capital Financial Products           33,434          7.50 %               12/2012
Small Business Administration                     105          6.71 %                6/2013  (5)
Elkhorn Valley Bank                             1,000          6.50 %                4/2014
Citigroup Global Markets Realty Corp           13,923          5.97 %               11/2015
GE Capital                                     35,942          5.67 %       9/2016 - 3/2017  (3) (5)
GE Capital                                     27,108          6.19 %                6/2017  (3)
Wachovia Bank                                  10,343          7.38 %                3/2020
Village Bank                                    2,364          7.57 %               11/2024  (5)

Total Fixed Rate Debt                         149,729


Variable Rate Debt

Lender
Wells Fargo                                     9,489     4.31-4.88 %                9/2009  (4)
Great Western Bank                             17,784          4.50 %                2/2012
GE Capital                                     23,475          3.27 %                2/2018  (3)
GE Capital                                      2,470          3.83 %                2/2018  (3)

Total Variable Rate Debt                       53,218


Subtotal debt                               $ 202,947


Less: debt related to held for sale            10,734                                       (5)


Total Long-Term Debt                        $ 192,213

(1) Paid off May 1, 2009

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

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

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

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

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

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.

Redemption of Noncontrolling Preferred and Common Operating Partnership Units

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

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

Capital Commitments

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



                                                                     Payments Due by Period
                                                       Less than                                More than
Contractual Obligations                     Total       1 Year       1-3 Years     4-5 Years     5 years
Long-term debt including interest         $ 258,219   $    42,745   $    42,790   $    68,871   $  103,813
Land leases                                   7,008           132           358           359        6,159

Total contractual obligations             $ 265,227   $    42,877   $    43,148   $    69,230   $  109,972

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

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

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

Other

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