Supertel Reports 1Q '09 Results

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. May 11, 2009

MAY 11, 2009 - Supertel Hospitality, Inc. (NASDAQ: SPPR), a real estate investment trust (REIT) which owns 122 hotels in 24 states, today announced results for the first quarter ended March 31, 2009.

Revenues from continuing operations for the 2009 first quarter declined 9.6 percent to $23.1 million, compared to the 2008 first quarter. Net loss attributable to common shareholders in the 2009 first quarter was $(2.7) million, or $(0.13) per fully diluted share, compared to $(1.1) million, or $(0.05) per diluted share, in the 2008 first quarter.

Funds from operations (FFO) in the 2009 first quarter was $1.1 million, or $0.05 per diluted share, compared to $2.5 million or $0.12 per diluted share in the 2008 first quarter. Adjusted earnings before interest, taxes, depreciation and amortization, non-controlling interest and preferred stock dividends (Adjusted EBITDA) decreased 40.2 percent to $3.4 million, compared to the 2008 first quarter.

First Quarter Highlights

o Outperformed the hotel industry in revenue per available room (RevPAR) with a decline of 8.4 percent, compared to an industry-wide decline of 17.7 percent, according to Smith Travel Research data.

o Sold one hotel, began marketing seven additional hotels for sale.

Operating Results

"It was another difficult quarter for the economy and the hotel industry, which recorded the deepest decline in RevPAR since Smith Travel Research (STR) began tracking that data in 1987," said Kelly A. Walters, Supertel's president and chief executive officer. "In spite of the slack business climate, we are encouraged by how our portfolio performed against the industry, reporting an 8.4 percent decline in RevPAR, which compares to the industry-wide decrease of 17.7 percent, according to STR data. Nearly all of the decline was due to a drop in occupancy, down 8.0 percent. We were able to hold our average daily room rate (ADR), to a decline of only 0.4 percent for the quarter, which compares favorably to the market's 7.7 percent drop overall for the same period.

"We believe we are gaining some benefit from travelers moving down a tier in their lodging preferences due to the economy," he said. "We are working hard to satisfy these new guests with the intent of retaining their business after the economy rebounds. Given the difficult operating environment, we believe our operators did a commendable job in the first quarter."

RevPAR for the company's 77 same store economy hotels, which account for about two-thirds of the same store portfolio, declined 6.9 percent, with average daily rate (ADR) improving 0.2 percent, and occupancy declining 7.2 percent. The company's 30 same store midscale without food and beverage properties' RevPAR declined 9.8 percent, with ADR down 3.4 percent and occupancy off 6.7 percent. The company's eight extended-stay properties reported a 14.7 percent decline in RevPAR, reflecting a 14.2 percent decrease in occupancy and a 0.6 percent drop in ADR.

Revenues from continuing operations for the 2009 first quarter, historically one of the lowest occupancy periods for the industry and the company, decreased $2.5 million or 9.6 percent to $23.1 million, compared to the 2008 first quarter. Lower occupancy was attributable to unfavorable economic conditions. Hotel and property operations expense from continuing operations for the 2009 first quarter decreased $1.0 million, or 5.0 percent, to $18.6 million, compared to the 2008 first quarter. The decline resulted primarily from lower occupancy levels, with payroll expense down $0.3 million, room and office supplies expense down $0.2 million, and other expenses down $0.6 million, partially offset by a $0.1 million increase in utilities expense.

Interest expense from continuing operations decreased $0.4 million, compared to the year ago period. The reduction was a result of loan payoffs and favorable rates on the company's variable rate debt. Depreciation and amortization expense from continuing operations increased $0.3 million for the 2009 first quarter, compared to the year ago period. The increase resulted primarily from asset additions outpacing the amount of assets exceeding their fully depreciable life. The general and administrative expenses from continuing operations for the same period did not change materially.

Property operating income (POI), defined as revenue from room rentals and other hotel services less hotel and property operating expenses, decreased $1.5 million from the year ago period, resulting in a decline in operating margins to 19.2 percent in the 2009 first quarter from 23.1 percent in the 2008 first quarter.

"We continue to work closely with our operators, focusing on both revenue enhancement and controlling costs," Walters said. "Our operators have been diligent in controlling variable costs such as labor, but in this declining occupancy environment there are fewer opportunities to affect fixed costs, which led to the erosion in operating margins."

Dispositions

Supertel began marketing eight hotels for sale in the 2009 first quarter, placing them in discontinued operations. In March, the company sold a Super 8 hotel, located in Charles City, Iowa for $1.1 million, with a nominal net gain. "We are actively marketing the remaining seven properties and have received positive buyer interest," said Donavon A. Heimes, chief financial officer. "Financing remains difficult to obtain; however, we anticipate that qualified buyers for properties priced under $5 million will find it somewhat easier to obtain loans from local banks and other sources."

Balance Sheet

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 April 2012. The refinancing leaves approximately $1.0 million available for support of general operations and also unencumbered five continuing operations hotels from mortgage debt.

Supertel'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 and sale of properties.

"We have no other material debt maturities due until 2011," Heimes said. "Approximately 70 percent of our debt is fixed with the remaining at floating rate.

Strengthening our balance sheet and conserving capital remain a primary focus. We will continue to look for ways to further strengthen our balance sheet and continue to raise capital through the select sale of properties to give us additional flexibility and liquidity."

Dividend

The company did not declare a common stock dividend for the 2009 first quarter. The company will monitor requirements to maintain its REIT status and will routinely evaluate the dividend policy.

Outlook

"The economy remains in deep recession, and it is difficult to have clarity over the short term," Walters commented. "Some forecasts indicate that the hotel industry will begin to stabilize in the second half of the year and post a slight improvement in RevPAR in 2010. Regardless of the timing of the recovery, our operations focus will remain on building revenues while restraining costs.

"One of the few benefits of this difficult economy is that it has caused us to find ways to do things better. We've found a number of small items that, when combined, add up to meaningful savings. We will continue to benefit from these savings when the economy begins to turn around.

"While it is still early, we expect to see some benefit, especially in the Southeast region, from the government's stimulus package investment in construction projects," he noted. "We expect this to bolster our occupancy, particularly among construction workers, who have a long history of staying at our properties, especially in the Southeast where occupancy has been especially hard hit.

"We will continue to concentrate our energies on preserving capital and strengthening our balance sheet," he said. "We also are looking to the future and are reviewing our strategies to prepare for the economic rebound. Hotels will remain our core investment strategy, but we also are examining the benefits of investing on a very selective basis in other commercial real estate segments that can provide risk-adjusted returns that will add balance to our hospitality portfolio."

About Supertel Hospitality, Inc.

As of May 7, 2009, Supertel Hospitality, Inc. (NASDAQ: SPPR) owns 122 hotels comprised of 10,659 rooms in 24 states. The company's hotel portfolio includes Super 8, Comfort Inn/Comfort Suites, Hampton Inn, Holiday Inn Express, Supertel Inn, Days Inn, Ramada Limited, Guest House Inn, Sleep Inn, Savannah Suites, Masters Inn, Key West Inn and Baymont Inn. This diversity enables the company to participate in the best practices of each of these respected hospitality partners. The company specializes in limited-service hotels, which do not normally offer food and beverage service. For more information or to make a hotel reservation, visit www.supertelinc.com.