Supertel Hospitality Reports 2010 Second Quarter Results

SOURCE: Supertel Hospitality, Inc.

NORFOLK, NE–(Marketwire – August 12, 2010) – Supertel Hospitality, Inc. (NASDAQ: SPPR), a
real estate investment trust (REIT) which owns 111 hotels in 23 states,
today announced its results for the second quarter ended June 30, 2010.

Revenues from continuing operations for the 2010 second quarter increased
3.1 percent to $24.7 million, compared to the same year-ago period. Net
loss attributable to common shareholders for the 2010 second quarter was
$(4.0) million, or $(0.18) per diluted share, compared to net income
attributable to common shareholders of $0.9 million, or $0.04 per diluted
share, in the 2009 same quarter, a decline of $4.9 million. The decrease
was primarily the result of $4.5 million of impairment.

Funds from operations (FFO), which includes the impairment expense, for the
2010 second quarter was $(1.5) million, or $(0.07) per diluted share. The
$4.5 million impairment in the quarter resulted from declining markets and
expectations related to recoverability of carrying values on specific
hotels — one hotel in continuing operations and 12 of 18 hotels held for
sale (HFS) classified in discontinued operations.

Funds from operations (FFO) without impairment, a non-cash item, were $3.1
million, or $0.14 per diluted share, in the 2010 second quarter, compared
to $3.5 million, or $0.16 per diluted share, in the same 2009 period.

Earnings before interest, taxes, depreciation and amortization,
noncontrolling interest and preferred stock dividends (Adjusted EBITDA)
decreased to $2.4 million compared to $8.2 million for the second quarter
of 2009.

Second Quarter Highlights

--  Revenue per available room (RevPAR) rose 3.2 percent, led by a
    9.8 percent increase in occupancy

--  Completed the sale of a Masters Inn in Cave City, Ky.

--  Completed the sale of a Super 8 in Kingdom City, Mo.

--  Signed sales contracts on five additional held for sale hotels, for a
    total of six contracts signed at June 30

--  Raised a total of $1.0 million through a sale of common stock and
    warrants

--  Raised $420,000 using a standby equity distribution agreement

“On balance, our second quarter results demonstrated how the nation’s
economic recovery began to positively impact our operating performance at
the top line,” said Kelly A. Walters, Supertel’s president and CEO. “The
3.2 percent increase in our quarterly RevPAR represents the first time
since first quarter 2008 that we have experienced a gain in this key
metric. The favorable RevPAR performance was driven by a solid 9.8 percent
gain in our occupancy from continuing operations to 68.2 percent, which is
7.5 percentage points above the industry average, according to Smith Travel
Research. As is typical in most hospitality recovery cycles, average daily
rate (ADR) is the lagging metric, as we posted a 6.0 percent decline for
the quarter to $48.35. We are working aggressively with our operators and
currently expect modest room rate improvement in the third quarter.”

He added that the company continues to make progress with its plan to
remake Supertel and its portfolio. “During the past three months, we
completed two dispositions and signed sales contracts on five additional
properties that we recently classified as held for sale assets. Our
financial and operating performance was in line with our budget, and the
execution of the business plan is being carried out as it was designed.
The primary obstacle to more rapid execution of this phase of our plan
currently, and for the foreseeable future, is the availability of credit
for buyers of our properties. The tight credit conditions have frustrated
our timeline, but we are confident that market conditions will improve as
lenders reenter the hospitality sector.

“Supertel’s capital access has shown improvement as we have issued a
measured amount of equity to strengthen the balance sheet, and our banks
have demonstrated a willingness to extend maturities on loans while we work
through our corporate repositioning.”

Operating Results

Second quarter 2010 revenues of $24.7 million from continuing operations
increased $0.7 million, or 3.1 percent, over second quarter 2009. The
portfolio of 94 hotels in continuing operations in the 2010 second quarter,
compared with the same period a year earlier, reported a 9.8 percent
increase in occupancy, and a 6.0 percent decrease in ADR, for a 3.2 percent
increase in RevPAR, compared to a 6.2 percent RevPAR increase for the
industry, as reported by Smith Travel Research.

        Second Qtr 2010 vs Second Qtr 2009 (Continuing Operations)

                  Occupancy               ADR                RevPar
             -------------------  -------------------- --------------------
              Chg   2010   2009    Chg    2010   2009   Chg    2010   2009
             -----  -----  -----  -----  ------ ------ -----  ------ ------
Industry -
 Total US
 Market *      6.1%  60.7%  57.2%   0.0% $97.87 $97.89   6.2% $59.44 $55.96
Supertel -
 Continuing
 Operations
 Portfolio     9.8%  68.2%  62.1%  -6.0%  48.35  51.43   3.2%  32.95  31.92

Chain Scale

Industry -
 All
 Midscale
 without
 food and
 beverage *    5.4%  62.2%  59.0%  -1.3%  85.24  86.36   4.1%  53.04  50.97
Supertel -
 Midscale
 without
 food and
 beverage     13.4%  68.4%  60.3%  -6.2%  65.38  69.71   6.5%  44.72  42.01

Industry -
 All Economy
 *             5.1%  53.9%  51.3%  -4.1%  49.65  51.79   0.7%  26.74  26.55
Supertel -
 Economy       6.9%  66.5%  62.2%  -6.2%  47.09  50.21   0.3%  31.30  31.22

Supertel -
 Extended
 Stay         13.8%  74.0%  65.0%  -4.2% $24.00 $25.05   9.2% $17.76 $16.27

      * Industry Source: STR Quarterly Hotel Review, Volume 10, Issue Q2

Economy

The company’s 57 continuing operations economy hotels reported a 0.3
percent increase in RevPAR to $31.30 in the 2010 second quarter, resulting
from a 6.9 percent rise in occupancy to 66.5 percent and a 6.2 percent
decrease in ADR to $47.09.

Midscale without food and beverage

Second quarter RevPAR for the company’s 29 continuing operations midscale
without food and beverage hotels increased 6.5 percent to $44.72. Occupancy
for these properties rose 13.4 percent while ADR decreased 6.2 percent to
$65.38.

Extended stay

The company’s eight continuing operations extended stay hotels reported a
9.2 percent increase in RevPAR to $17.76, reflecting a 13.8 percent rise in
occupancy to 74.0 percent, partially offset by a 4.2 percent decline in ADR
to $24.00.

“Over the last year, we have worked closely with our management companies
to improve the guest experience at our properties,” Walters commented.
“When the downturn hit, many operators, including Supertel, were forced to
cut costs wherever possible, which we believe had an impact on our guests.
We understand how valuable our guests are, and we have placed renewed
emphasis on the ‘clean rooms and friendly service’ attitude that has long
been our mantra. This renewed emphasis has marginally increased our
operating costs over last year, but will serve to attract and retain our
valued customers.

“During the second quarter our managers were encouraged to become more
aggressive on pricing to increase activity at the hotels, and the strategy
was effective as we outperformed our peers in the Economy and Midscale
without food and beverage sectors of the industry in both the Occupancy and
RevPAR metrics. This plan impacted our ADR results, which were down 6.0
percent for the period, but we believe the trade off was worthwhile and
that our ADR will begin to show improvement in the coming quarters.”

Hotel and property operations expenses from continuing operations for the
2010 second quarter increased $1.3 million, or 7.6 percent, over the like
2009 period. The majority of the increase was hotel payroll-related, with
repairs and maintenance, room supplies, breakfast expenses and franchise
fees contributing to the remainder of the variance. The increase in these
types of expenses is directly related to increased occupancy at the
company’s hotels. Revenue increased 3.1 percent over the same time period.

For the 2010 second quarter, property operating income (POI) from
continuing operations decreased $0.5 million to $6.6 million, compared to
the year-ago period. POI as a percent of revenue decreased 3.1 percentage
points from 29.9 percent to 26.8 percent from the second quarter of 2009 to
the second quarter of 2010. POI is calculated as revenue from room rentals
and other hotel services less hotel and property operations expenses. This
decrease resulted from the increased cost of operating expenses mentioned
above.

General and administration expense from continuing operations for the 2010
second quarter dropped $0.2 million compared to the prior period. The
major causes of the decrease include lower salary expense due to management
changes, as well as decreased professional and legal fees.

“In the second quarter, we were very successful with our strategy to
increase our occupancies,” said Connie Scarpello, Supertel’s chief
financial officer. “Our next step is to improve room rates while
maintaining higher occupancy levels. This tactic will increase our costs
in the short term, but as the market takes our rates higher, the increase
in ADR will fall to the bottom line. As a result, we expect our POI
percentages to improve.”

Dispositions

As of March 31, 2010, 18 properties were held for sale, and in the second
quarter of 2010, two of these properties were sold. An additional two
properties were declared held for sale, resulting in a total of 18
properties held for sale as of June 30, 2010. By the end of the second
quarter, six of the 18 HFS hotels had signed purchase contracts.

Impairment of $2.4 million was recorded on 12 of the 18 properties
classified in discontinued operations in the second quarter. This was the
result of the continued decline of real estate prices, resulting in a
reduction in the estimated value of these hotels.

“We continue to be encouraged by the interest shown in our for sale
properties; however, certain areas of the country, like the Southeast,
where 12 of our older, non-branded held for sale properties are located,
continue to suffer significantly from the economic downturn,” Scarpello
commented. “These particular hotels cater to the construction industry,
and as construction projects return to these areas, we believe hotel
revenues will increase, as will interest in these properties. We began to
see some favorable revenue changes in certain of these markets in the month
of July.”

Balance Sheet

The company as of June 30, 2010 has $155.3 million in outstanding debt on
hotels in continuing operations with an average term of 4.5 years and
weighted average annual interest rate of 6.1 percent.

The Wells Fargo mortgage loan maturing August 12, 2010 with a balance at
maturity of $8.1 million on six properties was extended to March 12, 2011.
A $1.8 million pay down of the Wells Fargo note was funded through the
company’s revolving credit facility with Great Western, and two properties
were released from the loan, leaving a balance of $6.3 million on four
properties. The interest rate on the Wells Fargo note was increased from
LIBOR plus 3.5 percent with a 4 percent floor, to LIBOR plus 5 percent with
a 5.5 percent floor. The two newly unencumbered properties are currently
held for sale and are anticipated to be sold in the August – September 2010
timeframe with estimated net proceeds of $1.8 million.

During the quarter, the company raised an aggregate $1.42 million through
equity sales. Of that amount, $420,000 was raised in the sale of common
stock under a standby equity distribution agreement.

“We continued to make steady progress in reducing our debt levels and
strengthening our balance sheet during the quarter,” Scarpello added. “The
credit markets continue to thaw, and banks are increasingly willing to work
with borrowers to find viable solutions.”

Dividends

The company did not declare a common stock dividend for the 2010 second
quarter. Preferred dividends have continued uninterrupted. The company
will monitor requirements to maintain its REIT status and will regularly
evaluate the dividend policy.

Outlook

“Given what we observe in the marketplace and hear from the industry
experts, we believe the outlook for the hospitality business is on a
positive path,” Walters said. “The silver lining of the tough capital
markets climate is that the supply of new hotels will continue to be
constrained while demand is rising. The result, we believe, will be higher
occupancies at higher ADRs, leading to improved financial performance
within the hotel industry. With the continued execution of our long-term
strategic plan, we believe Supertel is well positioned to capture more than
our fair share during the recovery.”

About Supertel Hospitality, Inc.

As of June 30, 2010, Supertel Hospitality, Inc. (NASDAQ: SPPR) owns 112
hotels comprised of 9,772 rooms in 23 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 Inns 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.

Certain matters within this press release are discussed using
forward-looking language as specified in the Private Securities Litigation
Reform Act of 1995, and, as such, may involve known and unknown risks,
uncertainties and other factors that may cause the actual results or
performance to differ from those projected in the forward-looking
statement. These risks are discussed in the Company’s filings with the
Securities and Exchange Commission.

SELECTED FINANCIAL DATA:

The following table sets forth the Company’s balance sheet as of June 30,
2010 and December 31, 2009. The Company owned 112 hotels (including 18
hotels held for sale) at June 30, 2010 and 115 hotels (including 19 hotels
held for sale) as of December 31, 2009 respectively.

(in thousands, except share and per share data).

                                                          As of
                                                  June 30,    December 31,
                                                    2010          2009
                                                ------------  ------------
                                                (unaudited)

ASSETS
  Investments in hotel properties               $    314,196  $    315,732
  Less accumulated depreciation                       89,128        83,806
                                                ------------  ------------
                                                     225,068       231,926

  Cash and cash equivalents                              564           428
  Accounts receivable, net of allowance for
   doubtful accounts of $84 and $95                    2,246         2,043
  Prepaid expenses and other assets                    7,898         4,779
  Deferred financing costs, net                        1,161         1,414
  Investment in hotel properties, held for
   sale, net                                          27,250        33,805
                                                ------------  ------------
                                                $    264,187  $    274,395
                                                ============  ============

LIABILITIES AND EQUITY
LIABILITIES
  Accounts payable, accrued expenses and other
   liabilities                                  $     14,351  $     10,340
  Debt related to hotel properties held for
   sale                                               26,051        27,797
  Long-term debt                                     155,272       161,716
                                                ------------  ------------
                                                     195,674       199,853
                                                ------------  ------------

  Redeemable noncontrolling interest in
   consolidated partnership, at redemption
   value                                                 511           511

  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; 22,869,485 and 22,002,322
   shares outstanding.                                   229           220
  Common stock warrants                                  252             -
  Additional paid-in capital                         121,320       120,153
  Distributions in excess of retained earnings       (61,831)      (54,420)
                                                ------------  ------------
      Total shareholders' equity                      59,978        65,961
Noncontrolling interest
  Noncontrolling interest in consolidated
   partnership, redemption value $221 and $237           362           408

                                                ------------  ------------
      Total equity                                    60,340        66,369
                                                ------------  ------------

COMMITMENTS AND CONTINGENCIES
                                                $    264,187  $    274,395
                                                ============  ============

The following table sets forth the Company’s unaudited results of
operations for the three and six months ended June 30, 2010 and 2009,
respectively.

(in thousands, except per share data)

                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
REVENUES
  Room rentals and other hotel
   services                         $ 24,682  $ 23,939  $ 43,313  $ 43,566
                                    --------  --------  --------  --------

EXPENSES
  Hotel and property operations       18,062    16,779    33,774    32,380
  Depreciation and amortization        3,012     3,093     6,026     6,189
  General and administrative             800     1,047     1,799     2,018
                                    --------  --------  --------  --------
                                      21,874    20,919    41,599    40,587
                                    --------  --------  --------  --------

EARNINGS BEFORE NET LOSS ON
 DISPOSITIONS OF ASSETS, OTHER
 INCOME, INTEREST EXPENSE AND
 INCOME TAXES                          2,808     3,020     1,714     2,979

Net loss on dispositions of assets       (24)      (26)      (42)      (53)
Other income                              35        34        61        72
Interest expense                      (2,578)   (2,616)   (5,144)   (5,111)
Impairment                            (2,147)        -    (2,147)        -
                                    --------  --------  --------  --------

INCOME (LOSS) FROM CONTINUING
 OPERATIONS BEFORE INCOME TAXES       (1,906)      412    (5,558)   (2,113)

Income tax (expense) benefit             (18)      (31)      821       742
                                    --------  --------  --------  --------

INCOME (LOSS) FROM CONTINUING
 OPERATIONS                           (1,924)      381    (4,737)   (1,371)

Gain (loss) from discontinued
 operations, net of tax               (1,751)      962    (1,955)      289
                                    --------  --------  --------  --------

NET INCOME (LOSS)                     (3,675)    1,343    (6,692)   (1,082)

Noncontrolling interest                   11       (69)       18        17
                                    --------  --------  --------  --------

NET INCOME (LOSS) ATTRIBUTABLE TO
 CONTROLLING INTERESTS                (3,664)    1,274    (6,674)   (1,065)

Preferred stock dividends               (369)     (369)     (737)     (737)
                                    --------  --------  --------  --------

NET INCOME (LOSS) ATTRIBUTABLE
 TO COMMON SHAREHOLDERS             $ (4,033) $    905  $ (7,411) $ (1,802)
                                    ========  ========  ========  ========

NET INCOME (LOSS) PER COMMON SHARE
 - BASIC AND DILUTED
EPS from continuing operations      $  (0.10) $      -  $  (0.24) $  (0.10)
EPS from discontinued operations       (0.08)     0.04     (0.09)     0.02
                                    --------  --------  --------  --------
EPS Basic and Diluted               $  (0.18) $   0.04  $  (0.33) $  (0.08)
                                    ========  ========  ========  ========




RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Unaudited - In thousands, except per share data:




                                       Three months         Six Months
                                      ended June 30,      ended June 30,
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
Weighted average shares outstanding
 for:
  calculation of earnings per share
   - basic                            22,412    21,812    22,209    21,371
                                    ========  ========  ========  ========
  calculation of earnings per share
   - diluted                          22,412    21,812    22,209    21,371
                                    ========  ========  ========  ========

Weighted average shares outstanding
 for:
  calculation of FFO per share -
   basic                              22,412    21,812    22,209    21,371
                                    ========  ========  ========  ========
  calculation of FFO per share -
   diluted                            22,412    21,812    22,209    21,371
                                    ========  ========  ========  ========

Reconciliation of net income (loss)
 to FFO
Net income (loss) attributable to
 common shareholders                $ (4,033) $    905  $ (7,411) $ (1,802)
Depreciation and amortization          3,012     3,594     6,052     7,311
Net gain on disposition of assets       (503)   (1,024)     (467)     (964)
                                    --------  --------  --------  --------
FFO available to common
 shareholders                         (1,524)    3,475    (1,826)    4,545
                                    --------  --------  --------  --------
Impairment charges of hotel
 properties held for sale or sold      2,449         -     2,569       150
Impairment charges of hotel
 properties held for use               2,147         -     2,147         -
                                    --------  --------  --------  --------
FFO without impairment, a non-cash
 item                               $  3,072  $  3,475  $  2,890  $  4,695
                                    ========  ========  ========  ========

FFO per share - basic               $  (0.07) $   0.16  $  (0.08) $   0.21
                                    ========  ========  ========  ========
FFO without impairment, a non-cash
 item, per share - basic            $   0.14  $   0.16  $   0.13  $   0.22
                                    ========  ========  ========  ========
FFO per share - diluted             $  (0.07) $   0.16  $  (0.08) $   0.21
                                    ========  ========  ========  ========
FFO without impairment, a non-cash
 item, per share - diluted          $   0.14  $   0.16  $   0.13  $   0.22
                                    ========  ========  ========  ========

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

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

FFO, without impairment, a non-cash item, is a non-GAAP financial measure.
As a result of a significant downturn in hotel and lodging fundamentals
that took place in 2008 and 2009 and the related decrease in hotel and real
estate valuations, we decided that FFO available to common shareholders did
not provide all of the information that allows us to better evaluate our
operating performance in this unprecedented economic time.

To arrive at FFO without impairment, a non-cash item, we adjust FFO
available to common shareholders, to exclude the following items:

(i)  impairment charges of hotel properties that we have sold or expect to
     sell, included in discontinued operations; and
(ii) impairment charges of hotel properties classified as held for use.

We believe that these items are driven by factors relating to the
fundamental disruption in the global financial and real estate markets,
rather than factors specific to the company or the performance of our
properties or investments.

The impairment charges of hotel properties that were recognized in 2009 and
2010 were primarily based on valuations of hotels, which had declined due
to market conditions, that we no longer expected to hold for long-term
investment, and/or for which we have reduced our prior expected holding
periods. In order to enhance liquidity, we have declared certain
properties as held for sale and may declare other properties held for sale.
To the extent these properties are expected to be sold at a loss, we record
an impairment charge when the loss is known. We have recognized certain of
these impairment charges over several quarters in 2009 and 2010 and we
believe it is reasonably likely that we will recognize similar charges and
gains in the near future. However, we believe that as the financial markets
stabilize and our liquidity needs change, the potential for impairment
charges of our hotel properties will disappear or become immaterial. We
believe FFO, without impairment, provides investors with an additional
measure to better evaluate our operating performance during this period of
fundamental disruption in the global financial and real estate markets.

We analyze our operating performance primarily by revenues from our hotel
properties, net of operating, administrative and financing expenses which
are not directly impacted by short term fluctuations in the market value of
our hotel properties. As a result, although these non-cash impairment
charges have had a material impact on our operations and are reflected in
our financial statements, the removal of the effects of these items allows
us to better understand the core operating performance of our properties
over the long term.

Unaudited - In thousands, except
 statistical data:                     Three months         Six months
                                      ended June 30,      ended June 30,
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
RECONCILIATION OF NET INCOME (LOSS)
 TO ADJUSTED EBITDA
Net income (loss) attributable to
 common shareholders                $ (4,033) $    905  $ (7,411) $ (1,802)
Interest expense, including disc
 ops                                   3,075     3,283     6,130     6,406
Income tax benefit, including disc
 ops                                     (62)      (15)   (1,168)   (1,058)
Depreciation and amortization,
 including disc ops                    3,012     3,594     6,052     7,311
                                    --------  --------  --------  --------
    EBITDA                             1,992     7,767     3,603    10,857
Noncontrolling interest                  (11)       69       (18)      (17)
Preferred stock dividend                 369       369       737       737
                                    --------  --------  --------  --------
    ADJUSTED EBITDA                 $  2,350  $  8,205  $  4,322  $ 11,577
                                    ========  ========  ========  ========

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.

The following table sets forth the operations of the Company’s same store
hotel properties for the three months ended June 30, 2010 and 2009,
respectively.

Unaudited - In thousands, except
 statistical data:                        Three months       Six months
                                         ended June 30,    ended June 30,
                                          2010     2009     2010     2009
                                        -------  -------  -------  -------
Same Store:
    Revenue per available room
     (RevPAR):
         Midscale w/o F&B               $ 44.72  $ 42.01  $ 38.81  $ 38.26
         Economy                        $ 31.30  $ 31.22  $ 27.34  $ 28.37
         Extended Stay                  $ 17.76  $ 16.27  $ 17.51  $ 15.64
                                        -------  -------  -------  -------
                 Total                  $ 32.95  $ 31.92  $ 29.02  $ 29.17
                                        =======  =======  =======  ======= 

    Average daily room rate (ADR):
         Midscale w/o F&B               $ 65.38  $ 69.71  $ 63.80  $ 68.04
         Economy                        $ 47.09  $ 50.21  $ 46.33  $ 49.40
         Extended Stay                  $ 24.00  $ 25.05  $ 23.82  $ 24.94
                                        -------  -------  -------  -------
                 Total                  $ 48.35  $ 51.43  $ 47.00  $ 50.37
                                        =======  =======  =======  =======

    Occupancy percentage:
         Midscale w/o F&B                  68.4%    60.3%    60.8%    56.2%
         Economy                           66.5%    62.2%    59.0%    57.4%
         Extended Stay                     74.0%    65.0%    73.5%    62.7%
                                        -------  -------  -------  -------
                 Total                     68.2%    62.1%    61.7%    57.9%
                                        =======  =======  =======  =======

“w/o F & B” indicates without food and beverage.

This presentation includes non-GAAP financial measures. The Company
believes that the presentation of hotel property operating income (POI) is
helpful to investors, and represents a more useful description of its
operations, as it better communicates the comparability of its hotels’
operating results.

Unaudited - In thousands, except     Three months          Six months
 statistical data:                  ended June 30,        ended June 30,
                                   2010       2009       2010       2009
                                ---------  ---------  ---------  ---------

Total Hotels:
    Revenue per available room
     (RevPAR):                  $   32.95  $   31.92  $   29.02  $   29.17
    Average daily room rate
     (ADR):                     $   48.35  $   51.43  $   47.00  $   50.37
    Occupancy percentage:            68.2%      62.1%      61.7%      57.9%

Revenue from room rentals and
 other hotel services consists
 of:
Room rental revenue             $  23,967  $  23,218  $  41,982  $  42,202
Telephone revenue                      76         78        155        148
Other hotel service revenues          639        643      1,176      1,216
                                ---------  ---------  ---------  ---------
  Total revenue from room
   rentals and other hotel
   services                     $  24,682  $  23,939  $  43,313  $  43,566
                                =========  =========  =========  =========

Hotel and property operations
 expense
  Total hotel and property
   operations expense           $  18,062  $  16,779  $  33,774  $  32,380
                                =========  =========  =========  =========

Property Operating Income
 ("POI")
  Total property operating
   income                       $   6,620  $   7,160  $   9,539  $  11,186
                                =========  =========  =========  =========

  Total POI as a percentage of
   revenue                           26.8%      29.9%      22.0%      25.7%
                                =========  =========  =========  =========

RECONCILIATION OF NET (INCOME)
 LOSS FROM CONTINUING
 OPERATIONS TO POI
Net (income) loss               $  (1,924) $     381  $  (4,737) $  (1,371)
Depreciation and amortization       3,012      3,093      6,026      6,189
Net loss on disposition of
 assets.                               24         26         42         53
Other income                          (35)       (34)       (61)       (72)
Interest expense                    2,578      2,616      5,144      5,111
General and administrative
 expense                              800      1,047      1,799      2,018
Income tax expense (benefit)           18         31       (821)      (742)
Impairment                          2,147          -      2,147          -
                                ---------  ---------  ---------  ---------
POI                             $   6,620  $   7,160  $   9,539  $  11,186
                                =========  =========  =========  =========

Net income (loss) as a
 percentage of continuing
 operations revenue from
 room rentals and other
 hotel services                      -7.8%       1.6%     -10.9%      -3.1%
                                =========  =========  =========  =========

Same Store reflects 94 hotels in continuing operations for the three months
and year to date ended June 30, 2010 and 2009.

The following unaudited table presents our RevPAR, ADR and Occupancy, by
region, for the three months ended June 30, 2010 and 2009, respectively.
The comparisons of same store operations are for 94 hotels in continuing
operations as of April 1, 2009.

                     Three months ended              Three months ended
                        June 30, 2010                   June 30, 2009
                  -------------------------       -------------------------
Same Store  Room                            Room
Region      Count RevPAR  Occupancy   ADR   Count RevPAR  Occupancy   ADR
            ----- ------- ----------  ----- ----- ------- ----------  -----
Mountain      214   35.79       72.7% 49.26   214   35.28       65.8% 53.62
West North
 Central    2,506   30.49       64.2% 47.52 2,506   31.68       64.4% 49.16
East North
 Central    1,081   39.07       65.9% 59.32 1,081   36.84       60.7% 60.66
Middle
 Atlantic     142   46.44       81.3% 57.12   142   42.65       61.9% 68.89
South
 Atlantic   2,772   30.87       71.4% 43.22 2,772   29.51       62.6% 47.14
East South
 Central      822   36.92       65.2% 56.68   822   34.84       57.5% 60.58
West South
 Central      456   31.92       74.8% 42.67   456   26.12       55.5% 47.09
            ----- ------- ----------  ----- ----- ------- ----------  -----
Total Same
 Store      7,993   32.95       68.2% 48.35 7,993   31.92       62.1% 51.43
            ===== ======= ==========  ===== ===== ======= ==========  =====

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   Pennsylvania
South
 Atlantic   Delaware, Florida, Georgia, Maryland, North Carolina,
            South Carolina, Virginia and West Virginia
East South
 Central    Kentucky and Tennessee
West South
 Central    Arkansas and Louisiana

The following table presents our RevPAR, ADR and Occupancy, by region, for
the six months ended June 30, 2010 and 2009, respectively. The comparisons
of same store operations are for 94 hotels in continuing operations owned
as of January 1, 2009.

                      Six months ended                 Six months ended
                       June 30, 2010                    June 30, 2009
                  -------------------------       -------------------------
Same Store  Room                            Room
Region      Count RevPAR  Occupancy   ADR   Count RevPAR  Occupancy   ADR
            ----- ------- ----------  ----- ----- ------- ----------  -----
Mountain      214   30.71       64.6% 47.54   214   31.03       60.8% 51.00
West North
 Central    2,506   26.67       57.2% 46.61 2,506   28.26       58.8% 48.08
East North
 Central    1,081   33.58       57.6% 58.32 1,081   33.71       56.1% 60.07
Middle
 Atlantic     142   37.10       64.2% 57.81   142   37.06       56.3% 65.78
South
 Atlantic   2,772   27.64       66.7% 41.45 2,772   27.27       59.1% 46.11
East South
 Central      822   31.97       56.6% 56.49   822   32.28       54.3% 59.39
West South
 Central      456   30.85       73.4% 42.01   456   25.99       55.4% 46.91
            ----- ------- ----------  ----- ----- ------- ----------  -----
Total Same
 Store      7,993   29.02       61.7% 47.00 7,993   29.17       57.9% 50.37
            ===== ======= ==========  ===== ===== ======= ==========  =====

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  Pennsylvania
South
 Atlantic  Delaware, Florida, Georgia, Maryland, North Carolina, South
           Carolina, Virginia and West Virginia
East South
 Central   Kentucky and Tennessee
West South
 Central   Arkansas and Louisiana

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