10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-34087

Supertel Hospitality, Inc.

(Exact name of registrant as specified in its charter)

Virginia	52-1889548
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1800 W Pasewalk Ave, Ste. 200, Norfolk, NE	68701
(Address of principal executive offices)	(Zip Code)

(402) 371-2520

(Registrant’s telephone number, including area code)

309 N. 5^th St., Norfolk, NE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.01 par value per share Series A Preferred Stock, $.01 par value per share Series B Preferred Stock, $.01 par value per share	The NASDAQ Stock Market, LLC The NASDAQ Stock Market, LLC The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2011 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $17.2 million based on the $0.92 closing price as reported on the Nasdaq Global Market.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at February 23, 2012
Common Stock, $.01 par value per share	23,070,387 shares

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

		Form 10-K
		Report
Item No.		Page
PART I
1.	Business		3
1A.	Risk Factors		7
1B.	Unresolved Staff Comments		21
2.	Properties		22
3.	Legal Proceedings		23
4.	Mine Safety Disclosures		23
PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		24
6	Selected Financial Data		26
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
7A.	Quantitative and Qualitative Disclosures about Market Risk		49
8.	Financial Statements and Supplementary Data		50
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		94
9A.	Controls and Procedures		94
9B.	Other Information		94
PART III
10.	Directors, Executive Officers and Corporate Governance		95
11.	Executive Compensation		98
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		103
13.	Certain Relationships and Related Transactions, and Director Independence		105
14.	Principal Accountant Fees and Services		107
PART IV
15.	Exhibits and Financial Statement Schedules		108

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PART I

Item 1. Business

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

(a) Description of Business

Overview

We are a self-administered real estate investment trust (REIT), and through our subsidiaries, as of December 31, 2011 we owned 100 limited service hotels in 23 states. Our hotels operate under several national franchise and independent brands.

Our significant events for 2011 include:

• We sold six hotels for gross proceeds of $11.8 million and used the net proceeds primarily to pay off the underlying mortgages;

• Non cash impairment charges of $14.3 million were booked against hotels sold, held for sale, and held for use;

• As of December 31, 2011, we had 24 hotels classified as held for sale with a total net book value of $33.0 million. Gross proceeds from the sales are expected to be approximately $42.7 million, and net proceeds will be used to pay off the underlying mortgages with remaining cash used for operations;

• We entered into an agreement in November 2011 for the sale of Series C preferred stock to Real Estate Strategies, L.P. for $30 million, which was completed in February 2012; and

• On December 9, 2011, we amended our credit facilities with Great Western Bank and subsequently extended the maturity dates to June 30, 2013.

General Development of Business

We are a REIT for federal income tax purposes and we were incorporated in Virginia on August 23, 1994. Our common stock began to trade on The Nasdaq Global Market on October 30, 1996. Our Series A and Series B preferred stock began to trade on The Nasdaq Global Market on December 30, 2005 and June 3, 2008, respectively.

Through our wholly owned subsidiaries, Supertel Hospitality REIT Trust and E&P REIT Trust, we own a controlling interest in Supertel Limited Partnership and E&P Financing Limited Partnership. We conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our hotel properties are owned by our operating partnerships, Supertel Limited Partnership and E&P Financing Limited Partnership, limited partnerships, limited liability companies or other subsidiaries of our operating partnerships. We currently own, indirectly, an approximate 99% general partnership interest in Supertel Limited Partnership and a 100% partnership interest in E&P Financing Limited Partnership. In the future, these limited partnerships may issue limited partnership interests to third parties from time to time in connection with our acquisitions of hotel properties or the raising of capital.

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In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, we lease each of our hotel properties to our wholly owned taxable REIT subsidiaries. Under the REIT Modernization Act (“RMA”), which became effective January 1, 2000, REITs are permitted to lease their hotels to wholly owned taxable REIT subsidiaries. We formed TRS Leasing, Inc. and its wholly owned subsidiaries TRS Subsidiary LLC; SPPR TRS Subsidiary, LLC and SPPR-BMI TRS Subsidiary, LLC (collectively the “TRS Lessee”) in accordance with the RMA. Pursuant to the RMA, the TRS Lessee is required to enter into management agreements with an “eligible independent contractor” who will manage the hotels leased by the TRS Lessee. Accordingly the hotels are leased to our taxable TRS Lessee and are managed by Hospitality Management Advisors, Inc. (“HMA”), Strand Development Company LLC (“Strand”), Kinseth Hotel Corporation (“Kinseth”), and HLC Hotels Inc. (“HLC”) pursuant to management agreements.

(b) Financial Information About Industry Segments

We are engaged primarily in the business of owning equity interests in hotel properties and therefore our business is disclosed as one reportable segment. See the Consolidated Financial Statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for certain financial information required in this Item 1.

(c) Narrative Description of Business

General At December 31, 2011, we owned, through our subsidiaries, 100 hotels in 23 states. The hotels are operated by HMA (25 hotels), Strand (23 hotels), Kinseth (45 hotels) and HLC (7 hotels).

Mission Statement Our primary objective is to consistently generate a competitive rate of return for our shareholders through a disciplined approach to real estate investing.

Sale of Hotels We may undertake the sale of one or more of the hotels from time to time in response to changes in market conditions, our current or projected return on our investment in the hotels or other factors which we deem relevant. During the year 2009, eight of our hotels were sold and 19 properties were held for sale as of December 31, 2009; during the year 2010, nine of our hotels were sold and 18 properties were held for sale as of December 31, 2010; and during the year 2011, six of our hotels were sold and 24 properties were held for sale as of December 31, 2011.

Just as we carefully evaluate the hotels we plan to acquire, our asset management team periodically evaluates our existing properties to determine if an asset is likely to underperform in the market. If we determine that a property no longer is competitive in a market and has limited opportunity to be repositioned, we will look to monetize the asset in a disciplined and timely manner. The process of identifying assets for disposition is closely related to the acquisition criteria and the overall direction of the organization. Every asset is periodically reviewed by management in the context of the entire portfolio to evaluate its relative ranking against all of the properties. If an asset is determined to be underperforming our projections and is thereby no longer accretive, and has a low probability of being repositioned, we will look to dispose of the investment as soon as possible within the constraints of the market and lender’s covenants.

Internal Growth Strategy We seek to grow internally through improvements to our existing hotels’ operating results, principally through increased occupancy and average daily rates, and through reductions in operating expenses. Internally generated cash flow and any residual cash flow, together with funds generated through external financing sources, will principally be used to fund acquisitions and ongoing capital improvements to our hotels, including furniture, fixtures and equipment. In addition to the aforementioned uses, the Company must generate sufficient cash flow to meet other working capital needs, which include debt and dividend payments.

Acquisition Strategy Any acquisition, investment or purchase of property in excess of $5 million requires approval of the Investment Committee of our Board of Directors. Our general investment criteria are described below:

• hotels with proven historical cash flows and reasonable leverage;

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• hotels with brand affiliations that are performing at specifically defined metrics levels;

• hotels constructed or renovated which enjoy a design consistent with contemporary standards;

• hotels located in larger markets where our management companies have prior experience;

• hotels in markets with improving demographics and durable, long-term, definable economic drivers of growth; and

• hotels usually containing a minimum of 80 rooms.

Our organizational documents do not limit the types of investments we can make; however, our intent for new acquisitions is to focus primarily on upper midscale and upscale properties with orderly divestiture of the economy properties and a majority of the midscale properties over the next seven to ten years.

Hotel Management HMA, Strand, Kinseth and HLC, all independent contractors, manage our hotels pursuant to hotel management agreements with TRS Lessee. The hotel management agreements provide that the management companies have control of all operational aspects of the hotels, including employee-related matters. The management companies must generally maintain each hotel under their management in good repair and condition and make routine maintenance, repairs and minor alterations. Additionally, the management companies must operate the hotels in accordance with the national franchise agreements that cover the hotels, which includes, as applicable, using franchisor sales and reservation systems as well as abiding by franchisors’ marketing standards. The management companies may not assign their management agreements without our consent.

The management agreements generally require TRS Lessee to fund debt service, working capital needs and capital expenditures and fund the management companies’ third-party operating expenses, except those expenses not related to the operation of the hotels. TRS Lessee is responsible for obtaining and maintaining insurance policies with respect to the hotels.

Management Company Fees (HMA, Strand and Kinseth) On April 21, 2011, the Company through TRS Lessee entered into separate management agreements with HMA, Strand and Kinseth as eligible independent operators to manage 95 of the Company’s hotels (two of which were subsequently sold) commencing June 1, 2011. These hotels were previously managed by Royco Hotels.

Each of HMA, Strand and Kinseth receives a monthly management fee with respect to the hotels they manage equal to 3.5% of the gross hotel income and 2.25% of hotel net operating income (“NOI”). NOI is equal to gross hotel income less operating expenses (exclusive of management fees, certain insurance premiums and employee bonuses, and personal and real property taxes).

The Company may terminate a management agreement, subject to cure rights, with respect to a hotel if the hotel fails to achieve at least 80% budgeted NOI and 90% of the benchmark for revenue per available room for the hotel. The Company may also terminate a management agreement, subject to cure rights, for all of the hotels subject to the agreement if the hotels as a group fail to achieve at least 80% budgeted NOI and 90% of the benchmark for revenue per available room for the hotels. A management agreement terminates with respect to a hotel upon sale of the hotel, subject to certain notice requirements. The Company may also terminate a management agreement with respect to a hotel at any time without reason upon payment of a termination fee equal to 50% of the management fee paid with respect to the hotel during the prior 12 months.

With the exception of certain events of default as to which no grace period exists, if an event of default occurs and continues beyond the grace period set forth in the management agreement, the non-defaulting party has the option of terminating the agreement.

The management agreement provides that each party, subject to certain exceptions, indemnifies and holds harmless the other party against any liabilities stemming from certain negligent acts or omissions, breach of contract, willful misconduct or tortuous actions by the indemnifying party or any of its affiliates.

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HMA manages 25 Company hotels in Arkansas, Louisiana, Tennessee, Kentucky, Indiana, Virginia and Florida. Strand manages the Company’s seven economy extended-stay hotels located in Georgia and South Carolina as well as 16 additional Company hotels located in Georgia, Delaware, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and West Virginia. Kinseth manages 45 Company hotels in eight states primarily in the Midwest. Each of the management agreements expire on May 31, 2014 and will renew for additional terms of one year unless either party to the agreement gives the other party written notice of termination at least 90 days before the end of a term.

HLC Management Fee The hotel management agreement with HLC, as amended, provides for HLC to operate and manage our seven Masters Inn hotels, located in South Carolina, Georgia, Florida and Alabama, through December 31, 2013. The agreement provides for HLC to receive management fees equal to 5.0% of the gross revenues derived from the operation of the hotels and incentive fees equal to 10% of the annual operating income of the hotels in excess of 10.5% of the Company’s investment in the hotels.

Franchise Affiliation

Our 100 hotels owned at December 31, 2011 operate under the following national and independent brands:

Franchise Brand	Number of Hotels
Super 8 (1)		43
Comfort Inn/Comfort Suites (2)		19
Days Inn (1)		10
Savannah Suites (7)		7
Masters Inn (6)		7
Quality Inn (2)		3
Hampton Inn (3)		2
Sleep Inn (2)		2
Guesthouse Inn/Guesthouse Inn and Suites (5)		2
Holiday Inn Express (4)		1
Ramada Limited (1)		1
Supertel Inn (6)		1
Baymont Inn (1)		1
Key West Inns (8)		1
		100

(1) Super 8 ^®, Ramada Limited ^®, Days Inn ^®, and Baymont Inn ^® are registered trademarks of Wyndham Worldwide.

(2) Comfort Inn ^® , Comfort Suites ^®, Sleep Inn ^®, and Quality Inn^® are registered trademarks of Choice Hotels International, Inc.

(3) Hampton Inn ^® is a registered trademark of Hilton Hotels Corporation.

(4) Holiday Inn Express ^® is a registered trademark of Six Continents Hotels, Inc.

(5) Guesthouse ^® is a registered trademark of Guesthouse International Franchise Systems, Inc.

(6) Supertel Inn^® and Masters Inn^® are registered trademarks of Supertel Hospitality, Inc.

(7) Savannah Suites^® is a registered trademark of Guest House Inn Corp.

(8) Key West Inn ^® is a registered trademark of Key West Inns.

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Seasonality of Hotel Business

The hotel industry is seasonal in nature. Generally, occupancy rates, revenues and operating results for hotels operating in the geographic areas in which we operate are greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of our hotels located in Florida, which experience peak demand in the first and fourth quarters of the year.

Competition

The hotel industry is highly competitive. Each of our hotels is located in a developed area that includes other hotel properties. The number of competitive hotel properties in a particular area could have a material adverse effect on revenues, occupancy and the average daily room rate of the hotels or at hotel properties acquired in the future. A number of our hotels have experienced increased competition in the form of newly constructed competing hotels in the local markets, and we expect the entry of new competition to continue in several additional markets over the next several years.

We may compete for investment opportunities with entities that have substantially greater financial resources than us. These entities generally may be able to accept more risk than we can prudently manage. Competition in general may reduce the number of suitable investment opportunities for us and increase the bargaining power of property owners seeking to sell. Further, we believe that competition from entities organized for purposes substantially similar to our objectives could increase significantly.

Employees

At December 31, 2011, the REIT had 19 employees. The management companies, which manage the 100 hotels, had workforces of approximately 1,656 employees, which are dedicated to the operation of the hotels.

(d) Available Information

Our executive offices are located at 1800 West Pasewalk Avenue, Suite 200, Norfolk, Nebraska 68701, our telephone number is (402) 371-2520, and we maintain an Internet website located at www.supertelinc.com. Our annual reports on Form 10-K and quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports are available free of charge on our website as soon as reasonably practicable after they are filed with the SEC. We also make available the charters of our board committees and our Code of Business Conduct and Ethics on our website. Copies of these documents are available in print to any shareholder who requests them. Requests should be sent to Supertel Hospitality, Inc., 1800 West Pasewalk Avenue, Suite 200, P.O. Box 1448, Norfolk, Nebraska 68701, Attn: Corporate Secretary.

Item 1A. RISK FACTORS

Risks Related to Our Business

The weak economy may adversely impact our current and future borrowings.

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. Given the deterioration and uncertainty in the economy and financial markets, management believes that access to conventional sources of capital will be challenging. We may not be able to successfully extend, refinance or repay our debt due to a number of factors, including decreased property valuations, limited availability of credit, tightened lending standards and deteriorating economic conditions. We expect lenders will continue to maintain tight lending standards, which could make it more difficult for us to obtain future credit facilities on terms similar to the terms of our current credit facilities or to obtain long-term financing on favorable terms or at all. If our plans to meet our liquidity requirements in the weak economy are not successful, we may violate our loan covenants. If we violate covenants in our debt agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on favorable terms, if at all.

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Our plans for meeting our short-term liquidity needs include the sale of hotels and we may not be able to timely sell hotels to meet our liquidity needs.

In the near-term, our cash flow from operations is not projected to be sufficient to meet all of our liquidity needs. In response, we have identified non-core assets in our portfolio to be liquidated. We cannot predict whether we will be able to find buyers or sell any of these hotels at an acceptable price or on reasonable terms or whether potential buyers will be able to secure financing. We also cannot predict the length of time needed to find a willing buyer and to close the sale of a hotel. Because investments in hotels are relatively illiquid, our ability to meet our liquidity needs through the sale of hotels may be limited. If we are unable to generate cash from the sale of hotels and other sources, we may have liquidity-related capital shortfalls and will be exposed to default risks.

We will likely seek to sell equity and/or debt securities to meet our need for additional cash, and we cannot assure you that such financing will be available and further, in connection with such sales our current shareholders could experience a material amount of dilution.

We will require additional cash resources due to current business conditions and any acquisitions we may decide to pursue. We will likely seek to sell additional equity and/or debt securities. We cannot assure you that the sale of such securities will be available in amounts or on terms acceptable to us, if at all. If our board determines to sell additional shares of common stock or other debt or equity securities, a material amount of dilution may cause the market price of the common stock to decline.

The engagement of multiple new management companies could adversely affect our operating results.

Our management agreement with the independent operator of 95 of our hotels (two of which were subsequently sold) terminated on May 31, 2011 pursuant to the settlement of a lawsuit with that operator. We have engaged three new management companies to operate these hotels commencing June 1, 2011. If the integration of the new independent operators in the management of our hotels is not accomplished efficiently as planned, we will experience a decrease in our operating results from decreased occupancy, revenue per available room and average daily rates and other significant disruptions at our hotels and in our operations generally.

The current economy has negatively impacted the hotel industry and our business.

The current difficulties in the credit markets, a soft economy and apprehension among consumers have negatively impacted the hotel industry and our business. In recent years, the slowing economy has caused a softening in business travel, especially among construction-related workers, a particularly strong guest group for many of our hotels. Accordingly, our financial results and growth could be harmed if the economic slowdown continues for a significant period or becomes worse.

The impact of the weak economy on lenders may impact our future borrowings.

The weakness of the national economy has increased the financial instability of some lenders. As a result, we expect lenders may continue to maintain tight lending standards, which could make it more difficult for us to obtain future credit facilities on terms similar to the terms of our current credit facilities or to obtain long-term financing on favorable terms or at all. Our financial condition and results of operations would be adversely affected if we were unable to obtain cost-effective financing.

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We cannot assure you that we will qualify, or remain qualified, as a REIT.

We currently are taxed as a REIT, and we expect to qualify as a REIT for future taxable years, but we cannot assure you that we will remain qualified as a REIT. If we fail to remain qualified as a REIT, all of our earnings will be subject to federal income taxation, which will reduce the amount of cash available for distribution to our stockholders, and we will not be required to distribute our income to our stockholders.

Current economic conditions have adversely affected the valuation of our hotels which may result in further impairment charges on our properties.

We analyze our assets for impairment when events or circumstances occur that indicate an asset’s carrying value may not be recoverable. For impaired assets, we record an impairment charge equal to the excess of the property’s carrying value over its fair value. Our operating results for 2011 and 2010 included $14.3 million and $8.2 million, respectively, of impairment charges related to our hotels sold, held for sale, and held for use. As a result of continued economic weakness, we may incur additional impairment charges, which will negatively affect our results of operations. We can provide no assurance that any impairment loss recognized would not be material to our results of operations.

Our returns depend on management of our hotels by third parties.

In order to qualify as a REIT, we cannot operate any hotel or participate in the decisions affecting the daily operations of any hotel. Under the REIT Modernization Act of 1999, REITs are permitted to lease their hotels to TRSs. However, a TRS, such as TRS Lessee, may not operate or manage the leased hotels and, therefore, must enter into management agreements with third-party eligible independent contractors to manage the hotels. Thus, an independent operator under a management agreement with TRS Lessee controls the daily operations of each of our hotels.

Under the terms of the management agreements between TRS Lessee and HMA, Strand, Kinseth and HLC, our ability to participate in operating decisions regarding the hotels is limited. We depend on our management companies to adequately operate our hotels as provided in the management agreements. We do not have the authority to require any hotel to be operated in a particular manner or to govern any particular aspect of the daily operations of any hotel (for instance, setting room rates). Thus, even if we believe our hotels are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, revenue per available room and average daily rates, we may not be able to force HMA, Strand, Kinseth or HLC to change their methods of operation of our hotels. We can only seek redress if a management company violates the terms of the management agreement with TRS Lessee, and then only to the extent of the remedies provided for under the terms of the applicable management agreement. If any of the foregoing occurs at franchised hotels, our relationship with the franchisors may be damaged, and we may be in breach of one or more of our franchise agreements. Additionally, in the event that we need to replace a management company, we may experience decreased occupancy and other significant disruptions at our hotels and in our operations generally.

Failure of the hotel industry to continue to improve or remain stable may adversely affect our ability to execute our business strategies, which, in turn, would adversely affect our ability to make distributions to our stockholders.

Our business strategy is focused in the hotel industry, and we cannot assure you that hotel industry fundamentals will continue to improve or remain stable. Economic slowdown and world events outside our control, such as terrorism, have adversely affected the hotel industry in the recent past and if these events reoccur, may adversely affect the industry in the future. In the event conditions in the hotel industry do not continue to improve or remain stable, our ability to execute our business strategies will be adversely affected, which, in turn, would adversely affect our ability to make distributions to our stockholders.

Arranging financing for acquisitions and dispositions of hotels is difficult in the current capital markets.

The capital markets are weakened as a consequence of the weak economy. Although we will continue to carefully evaluate and discuss both buying and selling opportunities, debt and equity financing could be a challenge to obtain for acquisitions and dispositions of hotels.

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We face competition for the acquisition of hotels and we may not be successful in identifying or completing hotel acquisitions that meet our criteria, which may impede our growth.

One component of our business strategy is expansion through acquisitions, and we may not be successful in identifying or completing acquisitions that are consistent with our strategy, particularly in the current economy. We compete with institutional pension funds, private equity investors, REITs, hotel companies and others who are engaged in the acquisition of hotels. This competition for hotel investments may increase the price we pay for hotels and these competitors may succeed in acquiring those hotels that we seek to acquire. Furthermore, our potential acquisition targets may find our competitors to be more attractive suitors because they may have greater marketing and financial resources, may be willing to pay more or may have a more compatible operating philosophy. In addition, the number of entities competing for suitable hotels may increase in the future, which would increase demand for these hotels and the prices we must pay to acquire them. If we pay higher prices for hotels, our returns on investment and profitability may be reduced. Also, future acquisitions of hotels or hotel companies may not yield the returns we expect and may result in stockholder dilution.

Our TRS lessee structure subjects us to the risk of increased operating expenses.

Our hotel management agreements require us to bear the operating risks of our hotel properties. Our operating risks include not only changes in hotel revenues and changes in TRS Lessee’s ability to pay the rent due under the leases, but also increased operating expenses, including, among other things:

• wage and benefit costs;

• repair and maintenance expenses;

• energy costs;

• property taxes;

• insurance costs; and

• other operating expenses.

Any decreases in hotel revenues or increases in operating expenses could have a material adverse effect on our earnings and cash flow.

Our debt service obligations could adversely affect our operating results, may require us to liquidate our properties and limit our ability to make distributions to our stockholders.

We seek to maintain a total stabilized debt level of no more than 60% of our aggregate property investment at cost. We, however, may change or eliminate this target at any time without the approval of our stockholders. At January 31, 2012, our debt to property investment was approximately 54.5%. In the future, we and our subsidiaries may incur substantial additional debt, including secured debt. Incurring such debt could subject us to many risks, including the risks that:

• our cash flow from operations will be insufficient to make required payment of principal and interest;

• we may be more vulnerable to adverse economic and industry conditions;

• we may be required to dedicate a substantial portion of our cash flow from operations to the repayment of our debt, thereby reducing the cash available for distribution to our stockholders, funds available for operations and capital expenditures, future investment opportunities or other purposes;

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• the terms of any refinancing may not be as favorable as the terms of the debt being refinanced; and

• the use of leverage could adversely affect our stock price and the ability to make distributions to our stockholders.

If we violate covenants in our indebtedness agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on favorable terms, if at all. Our Great Western Bank and General Electric Capital Corporation credit facilities contain cross-default provisions which would allow Great Western Bank and General Electric Capital Corporation 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 our indebtedness under any such loan.

Approximately $34.6 million of the Company’s debt is currently scheduled to mature in 2012. Because we do not expect to have sufficient funds from operating activities to repay our debt at maturity, we intend to refinance this debt through additional debt financing, private or public offerings of debt securities, or additional equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancings, increases in interest expense could adversely affect our cash flow, and, consequently, our cash available for distribution to our stockholders. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our hotel properties on disadvantageous terms, potentially resulting in losses adversely affecting cash flow from operating activities. In addition, we may place mortgages on our hotel properties to secure our lines of credit or other debt. To the extent we cannot meet these debt service obligations, we risk losing some or all of those properties to foreclosure. Additionally, our debt covenants could impair our planned strategies and, if violated, result in a default of our debt obligations.

Higher interest rates could increase debt service requirements on our floating rate debt and could reduce the amounts available for distribution to our stockholders, as well as reduce funds available for our operations, future investment opportunities or other purposes. At January 31, 2012, approximately 19.7% of our debt had floating rates. We may obtain in the future one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or similar agreements—to “hedge” against the possible negative effects of interest rate fluctuations. However, we cannot assure you that any hedging will adequately mitigate the adverse effects of interest rate increases or that counterparties under these agreements will honor their obligations. In addition, we may be subject to risks of default by hedging counterparties. Adverse economic conditions could also cause the terms on which we borrow to be unfavorable.

Our ability to make distributions on our common and preferred stock is subject to fluctuations in our financial performance, operating results and capital improvement requirements.

As a REIT, we generally are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction, each year to our stockholders. Downturns in our operating results and financial performance or unanticipated capital improvements to our hotel properties may affect our ability to declare or pay distributions to our stockholders. Further, we may not generate sufficient cash in order to fund distributions to our stockholders, which may require us to sell assets or borrow money to satisfy the REIT distribution requirements.

Among the factors which could adversely affect our results of operations and our distributions to stockholders are reduced net operating profits or operating losses, increased debt service requirements and capital expenditures at our hotel properties. Among the factors which could reduce our net operating profits are decreases in hotel property revenues and increases in hotel property operating expenses. Hotel property revenue can decrease for a number of reasons, including increased competition from a new supply of rooms and decreased demand for rooms. These factors can reduce both occupancy and room rates at our hotel properties.

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The timing and amount of distributions are in the sole discretion of our Board of Directors, which will consider, among other factors, our actual results of operations, debt service requirements, capital expenditure requirements for our properties and our operating expenses. We suspended our quarterly common stock dividend in March 2009 to preserve our capital in a difficult economic environment. Our future dividends on our preferred stock may be reduced or also suspended if economic circumstances warrant.

We have restrictive debt covenants that could adversely affect our ability to run our business.

We file quarterly loan compliance certificates with certain of our lenders. Weakness in the economy, and the lodging industry at large, may result in our non-compliance with our loan covenants. Such non-compliance with our loan covenants may result in our lenders restricting the use of our operating funds for capital improvements to our existing hotels, including improvements required by our franchise agreements or calling the debt. We cannot assure you that our loan covenants will permit us to maintain our business strategy.

Our restrictive debt covenants may jeopardize our tax status as a REIT.

To maintain our REIT status, we generally must distribute at least 90% of our REIT taxable income to our stockholders annually. In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws. In the event we do not comply with our debt service obligations, our lenders may limit our ability to make distributions to our shareholders, which could adversely affect our REIT status.

Operating our hotels under franchise agreements could adversely affect distributions to our shareholders.

Eighty five of our hotels operate under third party franchise agreements and we are subject to the risks of concentrating our hotel investments in several franchise brands. These risks include reductions in business following negative publicity related to any one of our particular brands. Risks associated with our brands could adversely affect our lease revenues and the amounts available for distribution to our shareholders.

The maintenance of the franchise licenses for our hotels is subject to our franchisors’ operating standards and other terms and conditions. Our franchisors periodically inspect our hotels to ensure that we and TRS Lessee follow their standards. Failure to maintain these standards or other terms and conditions could result in a franchise license being canceled. As a condition of our continued holding of a franchise license, a franchisor could also possibly require us to make capital expenditures, even if we do not believe the capital improvements are necessary or desirable or will result in an acceptable return on our investment. Nonetheless, we may risk losing a franchise license if we do not make franchisor-required capital expenditures.

If a franchisor terminates the franchise license, we may try either to obtain a suitable replacement franchise or to operate the hotel without a franchise license. The loss of a franchise license could materially and adversely affect the operations or the underlying value of the hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Loss of a franchise license for several of our hotels could materially and adversely affect our revenues. This loss of revenues could, therefore, also adversely affect our cash available for distribution to shareholders.

Our inability to obtain financing could limit our growth.

We are required to distribute at least 90% of our REIT taxable income to our shareholders each year in order to continue to qualify as a REIT. Our debt service obligations and distribution requirements limit our ability to fund capital expenditures, acquisitions and hotel development through retained earnings. Our ability to grow through acquisitions or development of hotels will be limited if we cannot obtain debt or equity financing.

Neither our articles of incorporation nor our bylaws limit the amount of debt we can incur. Our Board of Directors can implement and modify a debt limitation policy without shareholder approval. We cannot assure you that we will be able to obtain additional equity financing or debt financing or that we will be able to obtain any financing on favorable terms.

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We may not be able to complete development of new hotels on time or within budget.

We may develop hotel properties as suitable opportunities arise. New project development is subject to a number of risks that could cause increased costs or delays in our ability to generate revenue from any development hotel, reducing our cash available for distribution to shareholders. These risks include:

• construction delays or cost overruns that may increase project costs;

• competition for suitable development sites;

• receipt of zoning, land use, building, construction, occupancy and other required governmental permits and authorizations; and

• substantial development costs in connection with projects that are not completed.

We may not be able to complete the development of any projects we begin and, if completed, our development and construction activities may not be completed in a timely manner or within budget.

We may also rehabilitate hotels that we believe are underperforming. These rehabilitation projects will be subject to the same risks as development projects.

Hotels that we develop have no operating history and may not achieve levels of occupancy that result in levels of operating income that provide us with an attractive return on our investment.

The new hotels that we may develop will have no operating history. These hotels, both during the start-up period and after they have stabilized, may not achieve anticipated levels of occupancy, average daily room rates, or gross operating margins, and could result in operating losses and reduce the amount of distributions to our shareholders.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturers.

We may co-invest in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. In such event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Investments in joint ventures may require that we provide the joint venture entity with the right of first offer or right of first refusal to acquire any new property we consider acquiring directly. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by, or disputes with, partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. We may also, in certain circumstances, be liable for the actions of our third-party partners or co-venturers. For example, we may be required to guarantee indebtedness incurred by a partnership, joint venture or other entity for the purchase or renovation of a hotel property. Such a guarantee may be on a joint and several basis with our partner or co-venturer in which case we may be liable in the event such party defaults on its guaranty obligation.

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Our business could be disrupted if we need to find a new manager upon termination of an existing management agreement.

If a hotel manager that we engage fails to materially comply with the terms of the management agreement, we have the right to terminate the management agreement. Upon termination, we would have to find another manager to manage the properties. We cannot operate the hotels directly due to federal income tax restrictions. We cannot assure you that we would be able to find another manager or that, if another manager were found, we would be able to enter into a new management agreement favorable to us. In addition, any new manager may operate other hotels that may compete with our hotels or divert attention away from the management of our hotels and may not be successful in managing our hotels. Our franchisors may require us to make substantial capital improvements to the hotels prior to their approval, if required, of a new manager. There would be disruption during any change of hotel management that could adversely affect our operating results and reduce our distributions to our shareholders.

We may not be able to sell hotels on favorable terms.

We sold six hotels in 2011, and we sold nine hotels in 2010. At December 31, 2011, we have 24 hotel properties held for sale. We may not be able to sell such hotels on favorable terms, and such hotels may be sold at a loss. As with acquisitions, we face competition for buyers of our hotel properties. Other sellers of hotels may have the financial resources to dispose of their hotels on unfavorable terms that we would be unable to accept. If we cannot find buyers for any properties that are designated for sale, we will not be able to implement our disposition strategy. In the event that we cannot fully execute our disposition strategy or realize the benefits therefrom, we may not be able to satisfy our liquidity needs (including meeting our debt service obligations) and will not be able to fully execute our growth strategy.

Geographic concentration of our hotels will make our business vulnerable to economic downturns in the Midwestern and Eastern United States.

Most of our hotels are located in the Midwestern and Eastern United States. Economic conditions in the Midwestern and Eastern United States will significantly affect our revenues and the value of our hotels. Business layoffs or downsizing, industry slowdowns, changing demographics and other similar factors may adversely affect the economic climate in these areas. Any resulting oversupply or reduced demand for hotels in the Midwestern and Eastern United States and our markets in particular would therefore have a disproportionate negative impact on our revenues and limit our ability to make distributions to stockholders.

Unanticipated expenses and insufficient demand for hotels we acquire in new geographic markets could adversely affect our profitability and our ability to make distributions to our stockholders.

We may develop or acquire hotels in geographic areas in which our management may have little or no operating experience and in which potential customers may not be familiar with our franchise brands. As a result, we may have to incur costs relating to the opening, operation and promotion of those new hotel properties that are substantially greater than those incurred in other areas. These hotels may attract fewer customers than our existing hotels, while at the same time, we may incur substantial additional costs with these new hotel properties. Unanticipated expenses and insufficient demand at a new hotel property, therefore, could adversely affect our profitability and our ability to make distributions to our stockholders.

An economic recession and industry downturn could adversely affect our results of operations.

If room supply outpaces demand, our operating margins may deteriorate and we may be unable to execute our business plan. In addition, if this trend continues, we may be unable to continue to meet our debt service obligations or to obtain necessary additional financing.

Our borrowing costs are sensitive to fluctuations in interest rates.

Higher interest rates could increase debt service requirements on our floating rate debt including any borrowings under our credit facilities. Any borrowings under our credit facilities having floating interest

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rates may increase due to market conditions. Adverse economic conditions could also cause the terms on which we borrow to be unfavorable. We could be required to liquidate one or more of our hotel investments at times which may not permit us to receive an attractive return on our investments in order to meet our debt service obligations.

Future acquisitions may not yield the returns expected, may result in disruptions to our business, may strain management resources, may not be efficiently integrated into operations, and may result in stockholder dilution.

Our business strategy may not ultimately be successful and may not provide positive returns on our investments. Acquisitions may cause disruptions in our operations and divert management’s attention away from day-to-day operations. If the integration of our acquisitions into our management companies’ operations is not accomplished as efficiently as planned, we will not achieve the expected operating results from the acquisitions. The issuance of equity securities in connection with any acquisition could be substantially dilutive to our stockholders.

We depend on key personnel.

We depend on the efforts and expertise of our executive officers to drive our day-to-day operations and strategic business direction. The loss of any of their services could have an adverse effect on our operations. Our ability to replace key individuals may be difficult because of the limited number of individuals with the breadth of skills and experience needed to excel in the hotel industry. There can be no assurance that we would be able to hire, train, retain or motivate such individuals.

Risks Related to the Hotel Industry

Our ability to make distributions to our shareholders may be affected by factors in the hotel industry that are beyond our control.

Operating Risks

Our hotels are subject to various operating risks found throughout the hotel industry. Many of these risks are beyond our control. These include, among other things, the following:

• competitors with substantially greater marketing and financial resources than us;

• over-building in our markets, which adversely affects occupancy and revenues at our hotels;

• dependence on business and commercial travelers and tourism;

• terrorist incidents which may deter travel;

• increases in hotel operating costs, energy costs, airline fares and other expenses, which may affect travel patterns and reduce the number of business and commercial travelers and tourists; and

• adverse effects of general, regional and local economic conditions.

These factors could adversely affect the amount of rent we receive from leasing our hotels and reduce the net operating profits of TRS Lessee, which in turn could adversely affect our ability to make distributions to our shareholders. Decreases in room revenues of our hotels will result in reduced operating profits for TRS Lessee and decreased lease revenues to our company under our current percentage leases with TRS Lessee.

Competition and Financing for Acquisitions

We compete for investment opportunities with entities that have substantially greater financial resources than we do. These entities generally may be able to accept more risk than we can manage wisely. This competition may generally limit the number of suitable investment opportunities offered to us. This competition may

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also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms. Additionally, current economic conditions present difficult challenges to obtaining financing for acquisitions.

Seasonality of Hotel Business

The hotel industry is seasonal in nature. Generally, occupancy rates, hotel revenues, and operating results are greater in the second and third quarters than in the first and fourth quarters, with the exception of our hotels located in Florida. This seasonality can be expected to cause quarterly fluctuations in our lease revenues. Our quarterly earnings may be adversely affected by factors outside our control, including bad weather conditions and poor economic factors. As a result, we may have to enter into short-term borrowings in our first and fourth quarters in order to offset these fluctuations in revenues.

Investment Concentration in Particular Segments of Single Industry

Our current investment strategy, adopted in 2009 as a response to near term and projected long term market trends, is to acquire interests in well-located, upper midscale and upscale properties with premier flags in growing markets with populations in excess of 100,000, while divesting underperforming and/or non-branded hotels. Our entire business is hotel-related. Therefore, a downturn in the hotel industry in general will have a material adverse effect on our lease revenues and amounts available for distribution to our shareholders.

Capital Expenditures

Our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. The franchisors of our hotels also require periodic capital improvements as a condition of keeping the franchise licenses. The costs of all of these capital improvements could adversely affect our financial condition and reduce the amounts available for distribution to our shareholders. These renovations may give rise to the following risks:

• possible environmental problems;

• construction cost overruns and delays;

• a possible shortage of available cash to fund renovations and the related possibility that financing for these renovations may not be available to us on affordable terms; and

• uncertainties as to market demand or a loss of market demand after renovations have begun.

For the twelve months ended December 31, 2011, we spent approximately $5.0 million for capital improvements to our hotels.

Recent economic trends, the military action in Afghanistan and Iraq and prospects for future terrorist acts and military action have adversely affected the hotel industry generally, and similar future events could adversely affect the industry in the future.

Terrorist attacks and the after-effects (including the prospects for more terror attacks in the United States and abroad), combined with economic trends and the U.S. led military action in Afghanistan and Iraq, substantially reduced business and leisure travel and lodging industry RevPAR generally. We cannot predict the extent to which these factors will directly or indirectly impact your investment in our common stock, the lodging industry or our operating results in the future. Declining RevPAR at our hotels would reduce our net income and restrict our ability to fund capital improvements at our hotels and our ability to make distributions to stockholders necessary to maintain our status as a REIT. Additional terrorist attacks, acts of war or similar events could have further material adverse effects on the markets on which shares of our stock will trade, the lodging industry in general and our operations in particular.

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Uninsured and underinsured losses could adversely affect our operating results and our ability to make distributions to our stockholders.

We intend to maintain comprehensive insurance on each of our hotel properties, including liability, fire and extended coverage, of the type and amount we believe are customarily obtained for or by hotel owners. There are no assurances that current coverage will continue to be available at reasonable rates. Various types of catastrophic losses, like earthquakes and floods, losses from foreign or domestic terrorist activities, may not be insurable or may not be economically insurable. Initially, we do not expect to obtain terrorism insurance on our hotel properties because it is costly. Lenders may require such insurance and our failure to obtain such insurance could constitute a default under loan agreements. Depending on our access to capital, liquidity and the value of the properties securing the affected loan in relation to the balance of the loan, a default could reduce our net income and limit our ability to obtain future financing.

In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel, as well as the anticipated future revenue from the hotel. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

The hotel business is capital intensive, and our inability to obtain financing could limit our growth.

Our hotel properties will require periodic capital expenditures and renovation to remain competitive. Acquisitions or development of additional hotel properties will require significant capital expenditures. See our risk factors above concerning the impact of the weakening economy on capital markets, the hotel industry and borrowing. The lenders under some of the mortgage debt that we will assume will require us to set aside varying amounts each year for capital improvements at our hotels. We may not be able to fund capital improvements or acquisitions solely from cash provided from our operating activities because we must distribute at least 90% of our REIT taxable income, excluding net capital gains, each year to maintain our REIT tax status. Consequently, we rely upon the availability of debt or equity capital to fund hotel acquisitions and improvements. As a result, our ability to fund capital expenditures, acquisitions or hotel development through retained earnings is very limited. Our ability to grow through acquisitions or development of hotels will be limited if we cannot obtain satisfactory debt or equity financing which will depend on market conditions. Neither our charter nor our bylaws limits the amount of debt that we can incur. However, we cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.

Noncompliance with governmental regulations could adversely affect our operating results.

Environmental Matters

Our hotel properties are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have the authority to require the owner of a contaminated property to clean up the property, even if the owner did not know of or was not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated. In addition to the costs of cleanup, contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral.

Under these environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, like a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment. Furthermore, court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various activities at a property. One example is laws that require a business using chemicals to manage them carefully and to notify local officials that the chemicals are being used.

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Our company could be responsible for the costs discussed above if it found itself in one or more of these situations. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could affect the funds available for distribution to our shareholders. To determine whether any costs of this nature might be required, we commissioned Phase I environmental site assessments, or “ESAs” before we acquired our hotels, and in 2002, commissioned new ESAs for 32 of our hotels in conjunction with a refinancing of the debt obligations of those hotels. These studies typically included a review of historical information and a site visit, but not soil or groundwater testing. We obtained the ESAs to help us identify whether we might be responsible for cleanup costs or other costs in connection with our hotels. The ESAs on our hotels did not reveal any environmental conditions that are likely to have a material adverse effect on our business, assets, results of operations or liquidity. However, ESAs do not always identify all potential problems or environmental liabilities. Consequently, we may have material environmental liabilities of which we are unaware.

Americans with Disabilities Act and Other Changes in Governmental Rules and Regulations

Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements could require removal of access barriers and non-compliance could result in the U.S. government imposing fines or in private litigants obtaining damages. If we were required to make substantial modifications to our hotels, whether to comply with the ADA or other changes in governmental rules and regulations, our ability to make distributions to our shareholders and meet our other obligations could be adversely affected.

General Risks Related to the Real Estate Industry

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel properties or investments in our portfolio in response to changing economic, financial and investment conditions may be limited. The real estate market is affected by many factors that are beyond our control, including:

• adverse changes in international, national, regional and local economic and market conditions;

• changes in interest rates and in the availability, cost and terms of debt financing;

• changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;

• the ongoing need for capital improvements, particularly in older structures;

• changes in operating expenses; and

• civil unrest, acts of God, including earthquakes, floods and other natural disasters and acts of war or terrorism, including the consequences of terrorist acts such as those that occurred on September 11, 2001, which may result in uninsured losses.

We may decide to sell our hotel properties in the future. We cannot predict whether we will be able to sell any hotel property or investment for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property or loan.

We may be required to expend funds to correct defects or to make improvements before a hotel property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a hotel property, we may agree to lock-out provisions that materially restrict us from

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selling that hotel property for a period of time or impose other restrictions, such as limitation on the amount of debt that can be placed or repaid on that hotel property. These facts and any others that would impede our ability to respond to adverse changes in the performance of our hotel properties could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to stockholders.

Our hotels may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property, which would reduce our cash available for distribution, and we could face legal claims from guests. In addition, the presence of significant mold could expose us to liability from our guests, employees or our management companies and others if property damage or health concerns arise.

Risks Related to our Organization and Structure

Our failure to qualify as a REIT under the federal tax laws would result in adverse tax consequences.

The federal income tax laws governing REITs are complex.

We currently operate as a REIT under the federal income tax laws. The REIT qualification requirements are extremely complex, however, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we would be successful in operating so that we can qualify as a REIT. At any time, new laws, interpretations, or court decisions may change the federal tax laws or the federal income tax consequences of our qualification as a REIT. We have not applied for or obtained rulings from the Internal Revenue Service that we will qualify as a REIT.

Failure to qualify as a REIT would subject us to federal income tax.

If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income. We might need to borrow money or sell assets in order to pay any such tax. If we cease to be a REIT, we no longer would be required to distribute most of our taxable income to our stockholders. Unless we were entitled to relief under certain federal income tax laws, we could not re-elect REIT status during the four calendar years after the year in which we failed to qualify as a REIT.

Failure to make required distributions would subject us to tax.

In order to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% non-deductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. As a result, for example, of differences between cash flow and the accrual of income and expenses for tax purposes, or of nondeductible expenditures, our REIT taxable income in any given year could exceed our cash available for distribution. In addition, to the extent we may retain earnings of TRS Lessee in those subsidiaries, such amount of cash would not be available for distribution to our stockholders to satisfy the 90% distribution requirement. Accordingly, we may be required to borrow money or sell assets to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid federal corporate income tax and the 4% non-deductible excise tax in a particular year.

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The formation of TRS Lessee increases our overall tax liability.

TRS Lessee is subject to federal and state income tax on its taxable income, which in the case of TRS Lessee currently consists and generally will continue to consist of revenues from the hotel properties leased by TRS Lessee, net of the operating expenses for such properties and rent payments to us. Accordingly, although our ownership of TRS Lessee allows us to participate in the operating income from our hotel properties in addition to receiving rent, that operating income is fully subject to income tax. Such taxes could be substantial. The after-tax net income of TRS Lessee is available for distribution to us.

We incur a 100% excise tax on transactions with TRS Lessee that are not conducted on an arm’s-length basis. For example, to the extent that the rent paid by TRS Lessee exceeds an arm’s-length rental amount, such amount potentially is subject to the excise tax. We intend that all transactions between us and TRS Lessee will continue to be conducted on an arm’s-length basis and, therefore, that the rent paid by TRS Lessee to us will not be subject to the excise tax.

Complying with REIT requirements may cause us to forego attractive opportunities that could otherwise generate strong risk-adjusted returns and instead pursue less attractive opportunities, or none at all.

To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of generating strong risk-adjusted returns on invested capital for our stockholders.

Complying with REIT requirements may force us to liquidate otherwise attractive investments, which could result in an overall loss on our investments.

To continue to qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. If we fail to comply with these requirements at the end of any calendar quarter, we may be able to preserve our REIT status by benefiting from certain statutory relief provisions. Except with respect to a de minimis failure of the 5% asset test or the 10% vote or value test, we can maintain our REIT status only if the failure was due to reasonable cause and not to willful neglect. In that case, we will be required to dispose of the assets causing the failure within six months after the last day of the quarter in which we identified the failure, and we will be required to pay an additional tax of the greater of $50,000 or the product of the highest applicable tax rate (currently 35%) multiplied by the net income generated on those assets. As a result, we may be required to liquidate otherwise attractive investments.

Taxation of dividend income could make our common stock less attractive to investors and reduce the market price of our common stock.

At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a stockholder. Legislation enacted in 2003, 2006, and 2010 generally reduced the maximum rate of tax applicable to individuals, trusts and estates on dividend income from regular C corporations to 15.0% through 2012. This reduced substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) that has generally applied to corporations that are not taxed as REITs. Generally, dividends from REITs do not qualify for the dividend tax reduction because, as a result of the dividends paid deduction to which REITs are entitled, REITs generally do not pay corporate level tax on income that they distribute to stockholders. As a result of that legislation, individual, trust, and estate investors could view stocks of non-REIT corporations as more attractive relative to shares of REITs than was the case previously because the dividends paid by non-REIT corporations are subject to lower tax rates for such investors.

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Provisions of our charter and substantial voting power held by a shareholder may limit the ability of a third party to acquire control of our company.

In order to maintain our REIT qualification, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws to include various kinds of entities) during the last half of any taxable year. Our articles of incorporation contain the ownership limitation, which prohibits both direct and indirect ownership of more than 9.9% of the outstanding shares of our common stock or 9.9% of any series of our preferred stock by any person, subject to several exceptions. Generally, any shares of our capital stock owned by affiliated owners will be added together for purposes of the ownership limitation.

Our articles of incorporation permit our board, in its sole discretion, to exempt a person from the 9.9% ownership limitation if the person provides representations and undertakings that enable our board to determine that granting the exemption would not result in the loss of our REIT qualification. Under the Internal Revenue Service rules, REIT shares owned by certain entities are considered owned proportionately by owners of the entities for REIT qualification purposes. Real Estate Strategies L.P. (“RES”) provided a letter at the time of the issuance of the Series C preferred stock and warrants with representations and undertakings that permitted our board to grant such an exemption, including a representation that no individual will own 9.9% or more of any class of our stock as a result of the acquisition of the Series C preferred stock and warrants. The stock ownership by RES, which was permitted with our board’s approval, represents 34% of the voting power of the our stock entitled to vote and such substantial voting power may limit the ability of a third party to acquire control of our company.

These ownership limitations may prevent an acquisition of control of our company by a third party without our board of directors’ approval, even if our stockholders believe the change of control is in their best interests. Our charter authorizes our board of directors to issue shares of common stock and shares of preferred stock, and to set the preferences, rights and other terms of the preferred stock. Furthermore, our board of directors may, without any action by the stockholders, amend our charter from time to time to increase or decrease the aggregate number of shares of stock of any class or series of preferred stock that we have authority to issue. Issuances of additional shares of stock may have the effect of delaying, deferring or preventing a transaction or a change in control of our company that might involve a premium to the market price of our common stock or otherwise be in our stockholders’ best interests.

Our ownership limitation may prevent you from engaging in certain transfers of our capital stock.

If anyone transfers shares in a way that would violate the ownership limitation described above or prevent us from continuing to qualify as a REIT under the federal income tax laws, we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by our company or sold to a person whose ownership of the shares will not violate the ownership limitation. Anyone who acquires shares in violation of the ownership limitation or the other restrictions on transfer in our articles of incorporation bears the risk that he will suffer a financial loss when the shares are redeemed or sold if the market price of our stock falls between the date of purchase and the date of redemption or sale.

We may be subject to the 100% prohibited transaction tax on the gain recognized on the hotels we sold.

A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We undertook specific disposition programs beginning in 2001 (that included the sale of 23 hotels through December 31, 2004) and 2008 (that included the sale of 25 hotels through December 31, 2011). We held the disposed hotels for an average period of 8.7 years and did not acquire the hotels for purposes of resale. Accordingly, we do not believe any of those hotels were held primarily for sale in the ordinary course of our trade or business. However, if the Internal Revenue Service would successfully assert that we held such hotels primarily for sale in the ordinary course of our business, the gain from such sales could be subject to a 100% prohibited transaction tax.

The ability of our board of directors to change our major corporate policies may not be in your interest.

Our board of directors determines our major corporate policies, including our acquisition, financing, growth, operations and distribution policies. Our board may amend or revise these and other policies from time to time without the vote or consent of our stockholders.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Our Company headquarters is located in Norfolk, Nebraska. The following table sets forth certain information with respect to the hotels owned by us as of December 31, 2011:

Hotel Brand	Rooms		Hotel Brand	Rooms		Hotel Brand	Rooms
Baymont Inn			Holiday Inn Express			Super 8 - Continued
Brooks, KY		65	Harlan, KY		62	Clarinda, IA		40
						Clinton, IA		62
Comfort Inn /Comfort Suites			Key West Inns			Columbus, GA		74
Alexandria, VA		150	Key Largo, FL		40	Columbus, NE		63
Beacon Marina-Solomons, MD		60				Cornhusker–Lincoln, NE		133
Chambersburg, PA		63	Masters Inn			Creston, IA		121
Culpeper, VA		49	Charleston, SC		150	El Dorado, KS		49
Dover, DE		64	Columbia, SC (I26)		112	Fayetteville, AR		83
Erlanger, KY		145	Columbia, SC (Knox Abbott)		109	Ft. Madison, IA		40
Farmville, VA		51	Garden City, GA		128	Green Bay, WI		83
Fayetteville, NC		120	Seffner, FL (East Tampa)		120	Hays, KS		76
Fort Wayne, IN		127	Tampa, FL (Fairgrounds)		127	Iowa City, IA		84
Glasgow, KY		60	Tuscaloosa, AL		151	Jefferson City, MO		77
Lafayette, IN		62				Keokuk, IA		61
Louisville, KY		69	Quality Inn			Kirksville, MO		61
Marion, IN		62	Danville, KY		63	Manhattan, KS		85
Morgantown, WV		80	Minocqua, WI		51	Menomonie, WI		81
New Castle, PA		79	Sheboygan, WI		59	Moberly, MO		60
Princeton, WV		51				Mt. Pleasant, IA		55
Rocky Mount, VA		61	Ramada Limited			Muscatine, IA		63
South Bend, IN		135	Ellenton, FL		73	Norfolk, NE		64
Warsaw, IN		71				O’Neill, NE		72
			Savannah Suites			Omaha, NE		116
Days Inn			Augusta, GA		172	Pella, IA		40
Alexandria, VA		200	Chamblee, GA		120	Pittsburg, KS		64
Ashland, KY		63	Greenville, SC		170	Portage, WI		61
Bossier City, LA		176	Jonesboro, GA		172	Sedalia, MO		87
Farmville, VA		59	Pine Street - Atlanta, GA		164	Shawano, WI		55
Fredericksburg, VA (North)		120	Savannah, GA		160	Storm Lake, IA		59
Fredericksburg, VA (South)		156	Stone Mountain, GA		140	Terre Haute, IN		117
Glasgow, KY		59				Tomah, WI		65
Shreveport, LA		148	Sleep Inn			Watertown, SD		57
Sioux Falls, SD (Airport)		86	Louisville, KY		63	Wayne, NE		40
Sioux Falls, SD (Empire)		79	Omaha, NE		90	West “O” – Lincoln, NE		82
						West Dodge– Omaha, NE		101
Guest House Inn			Super 8			West Plains, MO		49
Ellenton, FL		63	Aksarben-Omaha, NE		73	Wichita, KS		119
Jackson, TN		114	Antigo, WI		52
			Batesville, AR		49	Supertel Inn
Hampton Inn			Billings, MT		106	Creston, IA		41
Cleveland, TN		59	Boise, ID		108
Shelby, NC		76	Burlington, IA		62	Total		8,768

Additional property information is found in Item 8 Schedule III of this Annual Report on Form 10-K.

22

Item 3. Legal Proceedings

Litigation

Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties. Based upon the information available, the Company believes that the resolution of any of these claims and legal proceedings should not have a material adverse affect on its consolidated financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

Executive Officers of the Company as of March 23, 2012

The following are executive officers of the Company as of March 23, 2012:

Kelly A. Walters, Director, President and Chief Executive Officer. Mr. Walters joined the Company and became President and Chief Executive Officer on April 14, 2009 as the successor to Paul Schulte, the firm’s co-founder and then president. Mr. Walters, age 51, is a former Senior Vice President for North Dakota-based Investors Real Estate Trust (IRET), a self-advised equity real estate investment trust. Prior to IRET, he was Senior Vice President and Chief Investment Officer of Omaha based Magnum Resources, Inc., a privately held real estate investment and operating company. Preceding Magnum Resources, Walters was an officer and senior portfolio manager at Brown Brothers Harriman & Company in Chicago. He also held investment positions with Peter Kiewit Sons’ Inc. He holds a B.S.B.A. degree in banking and finance from the University of Nebraska at Omaha and an EMBA from the University of Nebraska.

Corrine L. Scarpello, Senior Vice President and Chief Financial Officer. Ms. Scarpello became Chief Financial Officer of the Company on August 31, 2009. She joined the Company in November 2005 having worked for a year as a consultant for the Company and its management company. Ms. Scarpello, age 57, previously worked for Mutual of Omaha for 17 years, serving as the Vice President of Accounting and Administration for a subsidiary and as Manager in their mergers and acquisitions department. Ms. Scarpello also has accounting and auditing experience with PricewaterhouseCoopers (formerly Coopers and Lybrand) and is a CPA. Ms. Scarpello is currently a director of Nature Technology Corp., a biotech company. Ms. Scarpello is a graduate of the University of Nebraska at Omaha.

Steven C. Gilbert, Senior Vice President and Chief Operating Officer. Mr. Gilbert joined the Company as Senior Vice President of CAPEX in July 2001 and became Chief Operating Officer on August 27, 2009. Mr. Gilbert, age 63, had previously served as Senior Vice President of CAP-EX for Humphrey Hospitality Management, Inc. (1999-2001) and for old Supertel Hospitality, Inc. (1991-1999). Mr. Gilbert worked in various sales, purchasing and construction management positions prior to joining old Supertel Hospitality, Inc. in 1991.

David L. Walter, Senior Vice President and Treasurer. Mr. Walter joined the Company as Controller, September 1, 2004. Mr. Walter, age 64, previously served as a Vice President and Controller of Emprise Financial Corporation since March 1998. The position was managing the accounting department for the holding company and four bank charters. Mr. Walter also served the prior 26 years in Banking as Vice President, Treasurer and Controller, in functions of lending, appraising and accounting. Mr. Walter is a graduate of Newman University, Wichita, Kansas, with a Bachelor of Science in Business.

23

PART II

Item 5. Market for the Registrant’s Common Equity / Related Shareholder Matters and Issuer Purchases of Equity Securities.

(a) Market Information

The common stock trades on the Nasdaq Global Market under the symbol “SPPR.” The closing sales price for the common stock on March 9, 2012 was $1.02 per share. The table below sets forth the high and low sales prices per share reported on the Nasdaq Global Market for the periods indicated.

	Supertel Hospitality,  Inc. Common Stock
	High		Low
2010
First Quarter	$	1.97	$	1.41
Second Quarter	$	2.22	$	1.40
Third Quarter	$	1.60	$	1.14
Fourth Quarter	$	2.00	$	1.20
2011
First Quarter	$	1.90	$	1.51
Second Quarter	$	1.68	$	0.90
Third Quarter	$	1.18	$	0.70
Fourth Quarter	$	0.93	$	0.60

(b) Holders

As of March 12, 2012, the approximate number of holders of record of the common stock was 119 and the approximate number of beneficial owners was 3,144.

(c) Dividends

No dividends on common stock were paid for 2010 and 2011. The actual amount of future dividends will be determined by the board of directors based on the actual results of operations, economic conditions, capital expenditure requirements and other factors that the board of directors deems relevant.

The Company continued to timely pay dividends on its shares of preferred stock during 2010 and 2011.

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PERFORMANCE GRAPH

The following graph compares the yearly percentage change in the cumulative total shareholder return on our common stock for the period December 31, 2006 through December 31, 2011, with the cumulative total return on the SNL securities Hotel REIT Index (“Hotel REITs Index”) and the NASDAQ Composite (“NASDAQ—Total US Index”) for the same period. The Hotel REITs Index is comprised of publicly traded REITs that focus on investments in hotel properties. The NASDAQ Composite is comprised of all United States common shares traded on the NASDAQ Stock Market (previously titled NASDAQ—Total US). The comparison assumes a starting investment of $100 on December 31, 2006 in our common stock and in each of the indices shown, and assumes that all dividends are reinvested. The performance graph is not necessarily indicative of future investment performance.

	Period Ending
Index	12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
Supertel Hospitality, Inc.		100.00		94.71		29.72		26.22		27.62		11.45
NASDAQ Composite		100.00		110.66		66.42		96.54		114.06		113.16
SNL REIT Hotel		100.00		77.83		31.13		51.56		72.52		63.08

Source : SNL Financial LC, Charlottesville, VA

© 2011

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Item 6. Selected Financial Data

The following table sets forth our selected financial information. The selected operating data and balance sheet data have been extracted from our consolidated financial statements for each of the periods presented and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

(In thousands, except per share data)	As of and for the Years Ended December 31,
	2011			2010			2009			2008			2007
Operating data (1):
Room rentals and other hotel services (2)	$	75,827		$	75,300		$	72,493		$	80,933		$	73,567
Net earnings (loss) from continuing operations		(10,941	)		(5,631	)		(11,603	)		1,098			2,040
Discontinued operations		(6,536	)		(4,971	)		(15,922	)		6,161			2,375
Net earnings (loss)		(17,477	)		(10,602	)		(27,525	)		7,259			4,415
Noncontrolling interest		32			17			130			(603	)		(337	)
Net earnings (loss) attributable to controlling interests		(17,445	)		(10,585	)		(27,395	)		6,656			4,078
Preferred stock dividends		(1,474	)		(1,474	)		(1,474	)		(1,160	)		(948	)
Net earnings (loss) available to common shareholders		(18,919	)		(12,059	)		(28,869	)		5,496			3,130
Adjusted EBITDA (3)		3,017			11,573			(1,916	)		35,784			29,230
FFO (4)		3,933			6,571			7,256			15,147			15,358
Weighted average number of shares outstanding:
basic		22,978			22,556			21,647			20,840			20,197
diluted for EPS calculation		22,978			22,556			21,647			20,840			20,217
diluted for FFO per share calculation		22,978			22,556			21,647			22,346			22,343
Net earnings (loss) per common share from continuing operations - basic		(0.54	)		(0.31	)		(0.60	)		(0.03	)		0.03
Net earnings (loss) per common share from discontinued operations - basic		(0.28	)		(0.22	)		(0.73	)		0.29			0.12
Net earnings (loss) per common share basic		(0.82	)		(0.53	)		(1.33	)		0.26			0.15
Net earnings (loss) per common share diluted		(0.82	)		(0.53	)		(1.33	)		0.26			0.15
FFO - basic		0.17			0.29			0.34			0.73			0.76
FFO - diluted		0.17			0.29			0.34			0.71			0.73
Total assets		221,172			256,644			274,395			321,477			311,025
Total debt		165,845			175,010			189,513			202,806			196,840
Net cash flow:
Provided by operating activities		2,865			7,672			6,101			20,605			16,640
Provided (used) by investing activities		8,147			6,865			12,025			(22,558	)		(104,153	)
Provided (used) by financing activities		(11,066	)		(14,632	)		(18,410	)		1,499			83,243
Dividends per share (5)		—			—			—			0.4625			0.48
Reconciliation of Weighted average number of shares for EPS diluted to FFO diluted:
EPS diluted shares		22,978			22,556			21,647			20,840			20,217
Common stock issuable upon exercise or conversion of:
Warrants		—			—			—			—			8
Series A Preferred Stock (6)		—			—			—			1,506			2,118
FFO diluted shares		22,978			22,556			21,647			22,346			22,343

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(In thousands, except per share data)	For the years ended December 31,
	2011			2010			2009			2008			2007
RECONCILIATION OF NET EARNINGS (LOSS) TO ADJUSTED EBITDA
Net earnings (loss) available to common shareholders	$	(18,919	)	$	(12,059	)	$	(28,869	)	$	5,496		$	3,130
Interest, including discontinued operations		12,402			12,224			13,015			13,848			12,908
Income tax benefit, including discontinued operations		(1,904	)		(1,757	)		(1,647	)		(305	)		(304	)
Depreciation and amortization, including discontinued operations		9,996			11,708			14,241			14,982			12,211
EBITDA		1,575			10,116			(3,260	)		34,021			27,945
Noncontrolling interest		(32	)		(17	)		(130	)		603			337
Preferred stock dividend		1,474			1,474			1,474			1,160			948
Adjusted EBITDA (3)	$	3,017		$	11,573		$	(1,916	)	$	35,784		$	29,230
RECONCILIATION OF NET EARNINGS (LOSS) TO FFO
Net earnings (loss) available to common shareholders	$	(18,919	)	$	(12,059	)	$	(28,869	)	$	5,496		$	3,130
Depreciation and amortization, including discontinued operations		9,996			11,708			14,241			14,982			12,211
Net (gain) loss on disposition of continuing and discontinued assets		(1,452	)		(1,276	)		(2,264	)		(5,581	)		17
Impairment		14,308			8,198			24,148			250			—
FFO (4)	$	3,933		$	6,571		$	7,256		$	15,147		$	15,358

(1) Revenues for all periods exclude revenues from hotels sold or classified as held for sale, which are classified in discontinued operations in the statements of operations.

(2) Hotel revenues include room and other revenues from the operations of the hotels.

(3) 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.

27

(4) 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. Additionally, in October and November 2011, NAREIT issued guidance reaffirming its view that impairment write-downs of depreciable real estate should be excluded from the computation of FFO. 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 meaningful 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.

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(5) Represents dividends declared by us. The 2008 fourth quarter dividend of $0.08 was paid in February 2009, and was reported as a component of 2009 dividend payments for income tax purposes (representing $0.053 capital gain distribution and $0.027 nondividend distribution).

(6) The conversion rights of the Series A preferred stock were cancelled as of February 20, 2009.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain information both included and incorporated by reference in this management’s discussion and analysis and other sections of this Form 10-K 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 which 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, 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 which speak only as of the date of this report.

Overview

We are a self-administered REIT, and through our subsidiaries, we owned 100 limited service hotels in 23 states at December 31, 2011. Our hotels operate under several national franchise and independent brands.

Our significant events for 2011 include:

• We sold six hotels for gross proceeds of $11.8 million and used the net proceeds primarily to pay off the underlying mortgages;

• Non cash impairment charges of $14.3 million were booked against hotels sold, held for sale, and held for use;

• As of December 31, 2011, we had 24 hotels classified as held for sale with a total net book value of $33.0 million. Gross proceeds from the sales are expected to be $42.7 million, and net proceeds will be used to pay off the underlying mortgages with remaining cash used for operations;

• We entered into an agreement in November 2011 for the sale of Series C preferred stock to Real Estate Strategies, L.P. for $30 million, which was completed in February 2012; and

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• On December 9, 2011, we amended our credit facilities with Great Western Bank and subsequently extended the maturity dates to June 30, 2013.

As of December 31, 2011, the Company had 24 hotels classified as held for sale. At the beginning of 2011, the Company had 18 hotels held for sale and during the year classified an additional nineteen hotels as held for sale. Six of these hotels were sold during 2011, and seven of the hotels were reclassified as held for use due to changes in the property’s market condition. Since our previously filed financial statements on Form 10-Q as of September 30, 2011, in addition to the six hotels reclassified as held for use, eleven hotels were reclassified as held for sale. The impact of these changes was to increase losses from continuing operations by $0.2 million and $0.6 million for the years ended 2010 and 2009, respectively, compared to the previously filed financial statements.

We conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our hotel properties are owned by our operating partnerships, Supertel Limited Partnership and E&P Financing Limited Partnership, limited partnerships, limited liability companies or other subsidiaries of our operating partnerships. We currently own, indirectly, an approximate 99% general partnership interest in Supertel Limited Partnership and a 100% partnership interest in E&P Financing Limited Partnership.

The discussion that follows is based primarily on our consolidated financial statements as of December 31, 2011 and 2010, and results of operations for the years ended December 31, 2011, 2010 and 2009, and should be read along with the consolidated financial statements and related notes.

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RevPAR, ADR and Occupancy

The following table presents our revenue per available room (“RevPAR”), average daily rate (“ADR”) and occupancy by region for 2011 and 2010, respectively. The comparisons of same store operations are for 76* hotels owned and held in continuing operations as of January 1, 2010.

	2011									2010
Same Store Region	Room Count		RevPAR		Occupancy			ADR		Room Count		RevPAR		Occupancy			ADR
Mountain		214	$	32.05		63.8	%	$	50.23		214	$	31.75		65.0	%	$	48.85
West North Central		1,780		30.61		61.7	%		49.60		1,780		29.59		61.7	%		47.99
East North Central		978		35.92		56.8	%		63.19		978		37.29		61.9	%		60.23
Middle Atlantic		142		43.52		75.3	%		57.83		142		41.43		71.1	%		58.30
South Atlantic		2,369		29.50		67.0	%		44.00		2,369		28.72		68.2	%		42.10
East South Central		677		34.32		54.8	%		62.64		677		34.60		56.8	%		60.91
West South Central		197		28.04		66.1	%		42.43		197		32.34		82.5	%		39.21
Total Same Store Hotels		6,357	$	31.67		62.7	%	$	50.49		6,357	$	31.40		64.6	%	$	48.62

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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The following table presents our RevPAR, ADR, and occupancy by franchise affiliation for 2011 and 2010, respectively. The comparisons of same store operations are for 76* hotels owned and held in continuing operations as of January 1, 2010.

	2011									2010
Same Store	Room									Room
Brand	Count		RevPAR		Occupancy			ADR		Count		RevPAR		Occupancy			ADR
Limited Service
Midscale
Comfort Inn/ Comfort Suites		1,414	$	43.47		62.9	%	$	69.15		1,414	$	42.33		63.7	%	$	66.46
Hampton Inn		135		55.26		70.8	%		78.00		135		48.62		65.4	%		74.35
Sleep Inn		153		31.42		51.6	%		60.92		153		32.70		51.7	%		63.28
Quality Inn		122		29.49		43.9	%		67.18		122		37.69		53.2	%		70.79
Guesthouse Inn		177		16.45		37.0	%		44.45		177		18.26		43.6	%		41.86
Other Midscale (1)		200		35.20		55.4	%		63.57		200		35.59		59.6	%		59.76
Total Midscale		2,201	$	39.65		58.8	%	$	67.49		2,201	$	39.24		60.4	%	$	64.98
Economy
Days Inn		694		33.01		63.8	%		51.74		694		33.64		66.9	%		50.26
Super 8		2,283		29.74		61.7	%		48.19		2,283		29.30		63.1	%		46.45
Other Economy (2)		81		54.45		64.0	%		85.08		81		48.42		60.3	%		80.35
Total Economy		3,058	$	31.13		62.2	%	$	50.02		3,058	$	30.79		63.9	%	$	48.20
Total Same Store Midscale/Economy		5,259	$	34.70		60.8	%	$	57.09		5,259	$	34.33		62.4	%	$	55.00
Extended Stay (3)		1,098		17.14		72.0	%		23.79		1,098		17.41		75.0	%		23.21
Total Same Store Hotels		6,357	$	31.67		62.7	%	$	50.49		6,357	$	31.40		64.6	%	$	48.62

1 Includes Ramada Limited, Baymont Inn, and Holiday Inn Express brands

2 Includes Key West Inns and non franchised independent hotels

3 Includes Savannah Suites

* The following properties have been moved from the same store portfolio during the reporting period and classified as held for sale:

Muscatine, IA Super 8	Wayne, NE Super 8	Sedalia, MO Super 8
Lincoln (West “O”), NE Super 8	Watertown, SD Super 8	El Dorado, KS Super 8
Minocqua, WI Quality Inn	Bossier City, LA Days Inn	Omaha (West Dodge), NE Super 8
Omaha (M Street), NE Super 8	Erlanger, KY Comfort Inn

The following properties which were included in discontinued operations (held for sale) as of fiscal 2011 were subsequently reclassified as held for use and moved back to the same store portfolio:

Clinton, IA Super 8	Pella, IA Super 8	Ellenton, FL Ramada Limited
Ellenton, FL Guesthouse Inn	Jackson, TN Guesthouse Inn	Shreveport, LA Days Inn

Key Performance Indicators

Earnings before interest, taxes, depreciation and amortization, noncontrolling interest and preferred stock dividends (“Adjusted EBITDA”) decreased to $3.0 million for fiscal 2011, compared to $11.6 million for fiscal 2010. Of the $ 8.6 million decrease, $1.7 million was due to discontinued operations.

The company’s funds from operations (“FFO”) in fiscal 2011 was $3.9 million, or $0.17 per diluted share, compared with $6.6 million, or $0.29 per diluted share, in fiscal 2010. Of the $0.12 per diluted share decrease, $0.06 was due to discontinued operations.

For fiscal 2011, property operating income (“POI”) from continuing operations decreased $0.5 million, or 2.8 percent, compared to fiscal 2010. The decrease in POI over the prior year is largely due to higher operating expenses.

POI from discontinued operations for the twelve months ended December 31, 2011 and 2010, was $2.6 million and $3.6 million, respectively, representing a decrease of $1.0 million over the prior year’s results.

Net operating income (“NOI”) for fiscal 2011 was $31.4 million, a decrease from $33.9 million for fiscal 2010. The decrease is largely due to decreased operating results from discontinued operations.

Adjusted EBITDA, FFO, POI and NOI are non-GAAP financial measures of performance that the Company believes are helpful to its investors. A reconciliation for Adjusted EBITDA and FFO is provided in the notes in Item 6 Selected Financial Data, and a reconciliation for POI and NOI is provided below.

Net Operating Income

NOI is one of the performance indicators the Company uses to assess and measure operating results. The Company believes that NOI is a useful additional measure of operating performance of its hotels because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. NOI is also an important performance measure used to determine the amount of the management fees paid by the Company to the operators of its hotels.

NOI is a non-GAAP measure, and is not necessarily indicative of available earnings and should not be considered an alternative to Earnings Before Net Gain (Loss) on Dispositions of Assets, Other Income, Interest Expense and Income Taxes. NOI is reconciled to Earnings Before Net Gain (Loss) on Dispositions of Assets, Other Income, Interest Expense and Income Taxes as follows (in thousands):

Reconciliation of Earnings before net loss on dispositions of assets, other income, interest expense, and income taxes to NOI:

	Year ended December  31,
	2011			2010
Earnings Before Net Loss on Dispositions of Assets, Other Income, Interest Expense, and Income Taxes	$	4,955		$	4,882
Add back:
General and Administrative		4,008			3,443
Depreciation and Amortization		8,825			9,970
Hotel Operating Revenue - discontinued		22,080			27,080
Hotel Operating Expenses - discontinued		(19,504	)		(23,488	)
Other Expenses *		11,025			11,971
NOI	$	31,389		$	33,858

* Other Expenses include both continuing and discontinued operations for Management Fees, Bonus Wages, Insurance, Real Estate and Personal property taxes, and miscellaneous expenses.

Property Operating Income

POI is a non-GAAP financial measure, and should not be considered as an alternative to loss from continuing operations or loss from discontinued operations, net of tax. The Company believes that the presentation of hotel property operating results (POI) is helpful to investors, and represents a more useful description of its core operations, as it better communicates the comparability of its hotels’ operating results for all of the company’s hotel properties.

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POI from continuing operations is reconciled to net loss as follows (in thousands):

Reconciliation of net loss to POI-continuing operations:

	Year ended December 31,
	2011			2010
Net loss	$	(17,477	)	$	(10,602	)
Depreciation and amortization, including discontinued operations		9,996			11,708
Net gain on disposition of assets, including discontinued operations		(1,452	)		(1,276	)
Other income		(107	)		(122	)
Interest expense, including discontinued operations		12,402			12,224
General and administrative expense		4,058			3,514
Impairment losses		14,308			8,198
Termination cost		540			—
Income tax benefit, including discontinued operations		(1,904	)		(1,757	)
Room rentals and other hotel services - discontinued operations		(22,080	)		(27,080	)
Hotel and property operations expense - discontinued operations		19,504			23,488
POI–continuing operations	$	17,788		$	18,295

POI from discontinued operations is reconciled to loss from discontinued operations, net of tax, as follows (in thousands):

Reconciliation of loss from discontinued operations to POI – discontinued operations:

	Year ended December 31,
	2011			2010
Loss from discontinued operations	$	(6,536	)	$	(4,971	)
Depreciation and amortization from discontinued operations		1,171			1,738
Net gain on disposition of assets from discontinued operations		(323	)		(1,342	)
Interest expense from discontinued operations		3,717			3,330
General and administrative expense from discontinued operations		50			71
Impairment losses from discontinued operations		5,763			6,051
Income tax benefit from discontinued operations		(1,266	)		(1,285	)
POI–discontinued operations	$	2,576		$	3,592

Results of Operations

Comparison of the year ended December 31, 2011 to the year ended December 31, 2010

Operating results are summarized as follows for the years ended December 31 (table in thousands):

	2011									2010									Continuing
	Continuing Operations			Discontinued Operations			Total			Continuing Operations			Discontinued Operations			Total			Operations Variance
Revenues	$	75,827		$	22,080		$	97,907		$	75,300		$	27,080		$	102,380		$	527
Hotel and property operations expenses		(58,039	)		(19,504	)		(77,543	)		(57,005	)		(23,488	)		(80,493	)		(1,034	)
Interest expense		(8,685	)		(3,717	)		(12,402	)		(8,894	)		(3,330	)		(12,224	)		209
Depreciation and amortization expense		(8,825	)		(1,171	)		(9,996	)		(9,970	)		(1,738	)		(11,708	)		1,145
General and administrative expenses		(4,008	)		(50	)		(4,058	)		(3,443	)		(71	)		(3,514	)		(565	)
Termination costs		(540	)		—			(540	)		—			—			—			(540	)
Impairment losses		(8,545	)		(5,763	)		(14,308	)		(2,147	)		(6,051	)		(8,198	)		(6,398	)
Net gains (losses) on dispositions of assets		1,129			323			1,452			(66	)		1,342			1,276			1,195
Other income		107			—			107			122			—			122			(15	)
Income tax benefit		638			1,266			1,904			472			1,285			1,757			166
	$	(10,941	)	$	(6,536	)	$	(17,477	)	$	(5,631	)	$	(4,971	)	$	(10,602	)	$	(5,310	)

Revenues and Operating Expenses

Loss from continuing operations for the twelve months ended December 31, 2011 was $(10.9) million, compared to loss from continuing operations of $(5.6) million for 2010. After recognition of discontinued operations, noncontrolling interests and dividends for preferred stock shareholders, the net loss attributable to common shareholders was $(18.9) million or $(0.82) per diluted share, for the year ended December 31, 2011, compared to net loss attributable to common shareholders of $(12.1) million or $(0.53) per diluted share for 2010.

During 2011 revenues from continuing operations were essentially flat at $75.8 million.

We refer to our entire portfolio as limited service hotels, which we further describe as midscale hotels, economy hotels and extended stay hotels. The same store portfolio used for comparison of the twelve months ending 2011 over the same period of 2010 consists of the 76 hotels in continuing operations that were owned by the company as of January 1, 2010. The Company’s 40 same-store economy hotels reflected a 1.1 percent increase in RevPAR to $31.13 in 2011 with a 2.7 percent decrease in occupancy to 62.2 percent and an increase in ADR of 3.8 percent. The Company’s 29 same-store midscale hotels experienced a 1.0 percent increase in RevPAR. Occupancy declined 2.6 percent and ADR was up 3.9 percent to $67.49. The extended stay hotels are economy hotels with significantly lower ADR and RevPAR than other limited service hotels. RevPAR for the seven same-store extended stay hotels was down 1.6 percent from the prior year to $17.14. Occupancy dropped 4.0 percent, and ADR increased 2.5 percent to $23.79. The total same-store portfolio of 76 hotels for the year ended 2011, compared with the prior year, had a 0.9 percent rise in RevPAR with a 2.9 percent decrease in occupancy, and a 3.8 percent increase in ADR. Overall the Company experienced a slight increase in RevPAR, however, the company did not experience the full benefit of the improvement in economic conditions in 2011.

Hotel and property operations expenses from continuing operations for the year ended 2011 increased $1.0 million or 1.8 percent. The increase was primarily driven by the following: $0.4 million was payroll related; $0.2 million was from increased utilities costs; and $0.2 million resulted from increased brand breakfast requirements. With marginal increases in revenue and decreased occupancy, the general increase in hotel expenses is attributed to the transition to new management companies.

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

Interest expense from continuing operations decreased by $0.2 million, due primarily to declining principal balances. The depreciation and amortization expense from continuing operations decreased $1.1 million for 2011 over 2010, which was primarily caused by furniture, fixtures and equipment from acquisitions becoming fully depreciated.

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The general and administration expense from continuing operations for 2011 is up $0.6 million or 16.4 percent compared to 2010. The primary drivers for this increase are an increase in salaries and wages due to additional employees and increased legal fees due to management company changes and release of costs associated with discontinued equity programs.

Impairment Losses

In 2011 we had $8.5 million of impairment losses in continuing operations and $5.8 million of impairment losses in discontinued operations for the year. In 2010 we had $2.1 million of impairment losses in continuing operations and $6.1 million of impairment losses in discontinued operations for the year. Discontinued operations consist of hotels held for sale at December 31, 2011 or sold during 2010 or 2011. See Note 6 in the footnotes to the consolidated financial statements for additional information including a discussion of our impairment analysis of our hotel assets.

The impairment losses consisted of the following:

	2011									2010
	Continuing Operations			Discontinued Operations			Total			Continuing Operations		Discontinued Operations			Total
Impairment losses, held for use	$	8,970		$	—		$	8,970		$	2,147	$	—		$	2,147
Impairment losses, held for sale		—			5,775			5,775			—		5,433			5,433
Impairment losses, sold		—			246			246			—		1,534			1,534
Impairment recovery		(425	)		(258	)		(683	)		—		(916	)		(916	)
	$	8,545		$	5,763		$	14,308		$	2,147	$	6,051		$	8,198

Dispositions

In 2011 the $1.2 million variance in net gains (losses) on dispositions of assets is primarily related to the sale of the corporate office building. The $0.3 million in discontinued operations is due mainly to the gain on the sale of Wichita North. In 2010, discontinued operations reflected a $1.3 million gain on the disposition of assets. Of this, net gains of $1.4 million are attributable to properties that have been sold; while $0.1 million of net losses on the sale of assets are attributable to assets held for sale.

Income Tax Benefit

The income tax benefit from continuing operations is related to the taxable loss from our taxable REIT subsidiary, the TRS Lessee. Management believes the federal and state income tax rate for the TRS Lessee will be approximately 38%. The tax benefit is a result of TRS Lessee’s losses for the years ended December 31, 2011 and 2010. 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 $0.2 million during 2011 compared to the year ago period, due to an increased loss from continuing operations by the TRS Lessee in 2011.

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Comparison of the year ended December 31, 2010 to the year ended December 31, 2009

Operating results are summarized as follows for the years ended December 31 (table in thousands):

	2010									2009									Continuing Operations Variance
	Continuing Operations			Discontinued Operations			Total			Continuing Operations			Discontinued Operations			Total
Revenues	$	75,300		$	27,080		$	102,380		$	72,493		$	33,001		$	105,494		$	2,807
Hotel and property operations expenses		(57,005	)		(23,488	)		(80,493	)		(53,966	)		(27,881	)		(81,847	)		(3,039	)
Interest expense		(8,894	)		(3,330	)		(12,224	)		(8,811	)		(4,204	)		(13,015	)		(83	)
Depreciation and amortization expense		(9,970	)		(1,738	)		(11,708	)		(10,427	)		(3,814	)		(14,241	)		457
General and administrative expenses		(3,443	)		(71	)		(3,514	)		(3,813	)		—			(3,813	)		370
Impairment losses		(2,147	)		(6,051	)		(8,198	)		(7,399	)		(16,749	)		(24,148	)		5,252
Net gains (losses) on dispositions of assets		(66	)		1,342			1,276			(109	)		2,373			2,264			43
Other income		122			—			122			134			—			134			(12	)
Income tax benefit		472			1,285			1,757			295			1,352			1,647			177
	$	(5,631	)	$	(4,971	)	$	(10,602	)	$	(11,603	)	$	(15,922	)	$	(27,525	)	$	5,972

Revenues and Operating Expenses

Loss from continuing operations for the twelve months ended December 31, 2010 reflected $(5.6) million, compared to net loss of $(11.6) million for 2009. After recognition of discontinued operations, noncontrolling interest and dividends for preferred stock shareholders, the net loss attributable to common shareholders reflected $(12.1) million or $(0.53) per diluted share, for the year ended December 31, 2010, compared to $(28.9) million or $(1.33) per diluted share for 2009.

During 2010 revenues from continuing operations increased $2.8 million or 3.9 percent. This increase is primarily due to the economic recovery. The same store portfolio used for comparison of the twelve months ending 2010 over the same period of 2009 consists of 76 hotels in continuing operations that were owned by the company as of January 1, 2009. The Company’s 40 same-store economy hotels posted a 1.4 percent increase in RevPAR to $30.79 in 2010 with a 4.6 percent increase in occupancy to 63.9 percent, and a 3.0 percent decrease in ADR from $49.68 to $48.20. The Company’s 29 same-store midscale hotels had a 5.0 percent increase in RevPAR and a 9.8 percent increase in occupancy. ADR was $64.98, down 4.3 percent from 2009. The extended stay hotels are economy hotels with significantly lower ADR and RevPAR than other limited service hotels. RevPAR for the seven same store extended stay hotels was up 12.1 percent from the prior year to $17.41. Occupancy was up 18.5 percent, and ADR decreased 5.3 percent to $23.21. The total same-store portfolio of 76 hotels for the year ended 2010, compared with the prior year, had a 3.9 percent increase in RevPAR and an 8.8 percent increase in occupancy. ADR was down 4.5 percent from the prior year.

Hotel and property operations expenses from continuing operations for the year ended 2010 increased $3.0 million or 5.6 percent. The increase in occupancy was responsible for the majority of the variance, with franchise related fees up $0.8 million, payroll related expenses up $1.0 million, utilities costs up $0.4 million, supplies expense up $0.4 million, and management fees up $0.1 million in relation to the increased revenue.

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

Interest expense from continuing operations increased slightly to $8.9 million. The depreciation and amortization expense from continuing operations decreased $0.5 million for 2010 over 2009. The general and administration expense from continuing operations for 2010 was down $0.4 million or 9.7 percent compared to 2009. The primary driver for this decrease is a reduction in salaries and wages caused by management changes and retirement, partially offset by an increase in professional fees.

Impairment Losses

See the discussion above regarding impairment charges for 2010. For 2009, we recorded an impairment charge of $7.4 million on hotels in continuing operations, and $16.7 million on hotels in discontinued operations, twelve of which were subsequently sold.

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Dispositions

In 2010 we recognized net losses from continuing operations of approximately $0.1 on the disposition of furniture, fixtures, and equipment in the normal course of operations. Discontinued operations in 2010 included gains of $1.4 million on properties sold in 2010, offset by $0.1 million of net losses on assets held for sale. Discontinued operations in 2009 included gains of $2.4 million primarily as a result of the sale of two properties.

Income Tax Benefit

The income tax benefit from continuing operations is related to the taxable loss from our taxable REIT subsidiary, the TRS Lessee. Management believes the federal and state income tax rate for the TRS Lessee will be approximately 38%. The tax benefit is a result of TRS Lessee’s losses for the year ended December 31, 2010 and 2009. The income tax benefit will vary based on the taxable earnings of the TRS Lessee, a C corporation.

The income tax benefit from continuing operations increased by approximately $0.2 million during 2010 compared to the prior period, due to an increased loss from continuing operations by the TRS Lessee in 2010.

36

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.

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 anticipates that these adverse economic conditions may improve somewhat over the next year; however, in addition to our operating performance, the other sources described below will be essential to our liquidity and financial position.

Our business requires continued access to adequate capital to fund our liquidity needs. In 2011 and 2010, the Company reviewed its entire portfolio, identified properties considered non-core and developed timetables for disposal of those assets deemed non-core.

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We focused on improving our liquidity through cash generating asset sales and disposition of assets that are not generating cash at levels consistent with our investment principles. In 2012, our foremost priorities continue to be preserving and generating capital sufficient to fund our liquidity needs. Given the deterioration and uncertainty in the economy and financial markets, management believes that access to conventional sources of capital will be challenging and management has planned accordingly. We are also working to proactively address challenges to our short-term and long-term liquidity position.

The following are the expected actual and potential sources of liquidity, which if realized we currently believe will be sufficient to fund our near-term obligations:

• Cash and cash equivalents;

• Cash generated from operations;

• Proceeds from asset dispositions;

• Proceeds from additional secured or unsecured debt financings; and/or

• Proceeds from public or private issuances of debt or equity securities.

The Company has significant indebtedness maturing over the next year, including a $29.4 million balance on a loan with Greenwich Capital maturing in December 2012. If we are not successful in negotiating the refinancing of this debt or any other maturing debt, or finding alternate sources of financing in a difficult borrowing environment, we will be unable to meet the Company’s near-term liquidity requirements.

These above sources are essential to our liquidity and financial position, and we cannot assure you that we will be able to successfully access them (particularly in the current economic environment). If we are unable to generate cash from these sources, we may have liquidity-related capital shortfalls and will be exposed to default risks. The significant issues with access to the liquidity sources identified above could lead to our insolvency.

In the near-term, the Company’s cash flow from operations is not projected to be sufficient to meet all of our liquidity needs. In response, management has identified non-core assets in our portfolio to be liquidated over a one to ten year period. Among the criteria for determining properties to be sold was the potential upside when hotel fundamentals return to stabilized levels. The properties held for sale as of December 31, 2011 were determined to be less likely to participate in increased cash flow levels when markets do improve. As such, we expect these dispositions to help us (1) preserve cash, through potential disposition of properties with current or projected negative cash flow and/or other potential near-term cash outlay requirements (including debt maturities) and (2) generate cash, through the potential disposition of strategically identified non-core assets that we believe have equity value above debt.

We are actively marketing the 24 properties held for sale, which we anticipate will result in the elimination of $34.5 million of debt and generate an expected $4.9 million of proceeds for operations. We continue to have interest from potential buyers in our 24 held for sale properties. The marketing process has been affected by deteriorating economic conditions and we have experienced some decreases in expected pricing. If this trend continues to worsen, we may be unable to complete the disposition of identified properties in a manner that would generate cash flow in line with management’s estimates as noted above. Our ability to dispose of these assets is impacted by a number of factors. Many of these factors are beyond our control, including general economic conditions, availability of financing and interest rates. In light of the current economic conditions, we cannot predict:

• whether we will be able to find buyers for identified assets at prices and/or other terms acceptable to us;

• whether potential buyers will be able to secure financing; and

• the length of time needed to find a buyer and to close the sale of a property.

As our debt matures, our principal payment obligations also present significant future cash requirements. We expect lenders will continue to maintain tight lending standards, which could make it more difficult for us to obtain future credit facilities on terms similar to the terms of our current credit facilities or to obtain long-term financing on favorable terms or at all.

38

We may not be able to successfully extend, refinance or repay our debt due to a number of factors, including decreased property valuations, limited availability of credit, tightened lending standards and deteriorating economic conditions. Historically, extending or refinancing loans has required the payment of certain fees to, and expenses of, the applicable lenders. Any future extensions or refinancing will likely require increased fees due to tightened lending practices. These fees and cash flow restrictions will affect our ability to fund other liquidity uses. In addition, the terms of the extensions or refinancing may include operational and financial covenants significantly more restrictive than our current debt covenants.

The Company is required to meet various financial covenants required by its existing lenders. If the Company’s future financial performance fails to meet these financial covenants, then its lenders also have the ability to take control of its encumbered hotel assets. Defaults with lenders due to failure to repay or refinance debt when due or failure to comply with financial covenants could also result in defaults under our credit facilities with Great Western Bank and General Electric Capital Corporation. Our Great Western Bank and General Electric Capital Corporation credit facilities contain cross-default provisions which would allow Great Western Bank and General Electric Capital Corporation to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. If this were to happen, whether due to failure to repay or refinance debt when due or failure to comply with financial covenants, the Company’s ability to conduct business could be severely impacted as there can be no assurance that the adequacy and timeliness of cash flow would be available to meet the Company’s liquidity requirements.

The Company did not declare a common stock dividend during 2011. The Company will monitor requirements to maintain its REIT status and will routinely evaluate the dividend policy. The Company intends to continue to meet its dividend requirements to retain its REIT status.

Sources and Uses of Cash

At December 31, 2011, available cash was $0.3 million and the Company’s available borrowing capacity on the Great Western Bank revolver was $2 million. The Company projected that at December 31, 2011 cash flows from operations and the available borrowing capacity from the revolver would be insufficient to meet both short term and long term liquidity requirements. As a consequence, in November 2011 the Company entered into an agreement to sell 3.0 million shares of Series C preferred stock and obtained a $5 million revolving credit facility from Elkhorn Valley Bank to fund the Company until the closing of the Series C preferred stock sale.

Short term outflows include monthly operating expenses, $0.2 million of termination fees to Royco Hotels, estimated annual debt service of $15.0 million and payment of dividends on Series A and Series B preferred stock. Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that need to be made periodically with respect to hotel properties and $76.7 million of scheduled debt repayments.

We have budgeted to increase our spending on capital improvements from $5 million in 2011 to $7 million on our existing hotels during 2012. The increase in capital expenditures is a result of complying with brand mandated improvements and initiating projects that we believe will generate a return on investment as we enter a period of recovery in the lodging sector. We will seek to satisfy these long-term liquidity requirements through the various sources of capital identified above, including the recently issued Series C preferred stock and net proceeds on sales of non performing hotels.

We completed a private offering of 3.0 million shares of Series C preferred stock in February 2012. Net proceeds of the offering, less expenses, were approximately $28.7 million. $7.1 million of the net proceeds were used to repay a $2.1 million promissory note and to repay the $5 million revolving credit facility with Elkhorn Valley Bank. The remaining net proceeds from the offering will be used to acquire upper midscale and upscale hotels and to meet our long term liquidity requirements. In addition, management has identified non-core assets in our portfolio to be liquidated over a one to ten year period. We project that proceeds from anticipated property sales during 2012, net of expenses and debt repayment, of $4.9 million will be available for the Company’s cash needs.

We project that our operating cash flow, revolving credit facility and the sources identified above will be sufficient to satisfy all of our liquidity and other capital needs over the next twelve to eighteen months.

Financing

On March 29, 2011, we entered into an equity distribution agreement with JMP Securities LLC (“JMP”) pursuant to which we may offer and sell up to 2.0 million shares of common stock from time to time through JMP. Sales of shares of the Company common stock, if any, under the agreement may be made in negotiated transactions or other transactions that are deemed to be “at the market” offerings, including sales made directly on the Nasdaq Global Market or sales made to or through a market maker other than on an exchange. The common stock will be sold pursuant to our registration statement on Form S-3 (333-170756). The Company sold through JMP, as its agent, an aggregate of 91,725 shares of common stock in 2011 and 65,000 shares of common stock in the fourth quarter of 2011, pursuant to ordinary brokers’ transactions on the Nasdaq Global Market. Gross proceeds in 2011 were $96,876, commissions to agent were $4,844, other miscellaneous expenses were $2,897, and net proceeds to the Company were $89,135. Gross proceeds in the fourth quarter of 2011 were $53,191, commissions to agent were $2,660 and net proceeds to Company were $50,531.

On March 26, 2010, we entered into a standby equity distribution agreement with YA Global Master SPV Ltd., or YA Global, for the offer and sale of up to $10 million of shares of our common stock at a price per share determined in accordance with the agreement. The common stock will be sold pursuant to our registration statement on Form S-3 (333-170756). No shares were sold under this agreement during 2011. The agreement has a termination date of April 1, 2012.

On November 16, 2011, the Company and Supertel Limited Partnership entered into a Purchase Agreement (the “Purchase Agreement”) with Real Estate Strategies L.P., a Bermuda limited partnership (“RES”), for the purchase from the Company of up to 3,000,000 shares of Series C Cumulative Convertible Preferred Stock (the “Series C preferred stock”). RES is an affiliate of IRSA Inversiones y Representaciones Sociedad Anónima, a publicly-traded company (NYSE: “IRS”) based in Buenos Aires, Argentina (“IRSA”). On January 31, 2012 at a special meeting, the shareholders of the Company, by the requisite vote, approved the issuance and sale of up to 3,000,000 shares of the Series C preferred stock, up to 30,000,000 shares of common stock of the Company which may be issued upon conversion of the Series C preferred stock, and warrants to purchase up to an additional 30,000,000 shares of common stock, to RES pursuant to the Purchase Agreement. The Company issued an aggregate of 3,000,000 shares of Series C preferred stock to RES for $30 million in closings on February 1 and February 15, 2012.

Each share of Series C preferred stock is entitled to a dividend of $0.625 per year payable in equal quarterly dividends. Each share of Series C preferred stock has a liquidation preference of $10.00 per share, in cash, plus an amount equal to any accrued and unpaid dividends.

The Series C preferred stock is convertible, at the option of the holder, at any time into common stock at a conversion price of $1.00 for each share of common stock, which is equal to the rate of ten shares of common stock for each share of Series C preferred stock. A holder of Series C preferred stock will not have conversion rights to the extent the conversion would cause the holder and its affiliates to beneficially own more than 34% of voting stock (the “Beneficial Ownership Limitation”). “Voting stock” means capital stock having the power to vote generally for the election of directors of the Company.

The Series C preferred stock will vote with the common stock as one class, subject to certain voting limitations. For any vote, the voting power of the Series C preferred stock will be equal to the lesser of: (a) 6.29 votes per share, or (b) an amount of votes per share such that the vote of all shares of Series C preferred stock in the aggregate equal 34% of the combined voting power of all the Company voting stock, minus an amount equal to the number of votes represented by the other shares of voting stock beneficially owned by RES and its affiliates (the “Voting Limitation”).

As long as RES has the right to designate two or more directors to the Company Board of Directors pursuant to the Directors Designation Agreement (described below), the following requires the approval of RES and IRSA:

• the merger, consolidation, liquidation or sale of substantially all of the assets of the Company;

• the sale by the Company of common stock or securities convertible into common stock equal to 20% or more of the outstanding common stock or voting stock; or

• any Company transaction of more than $120,000 in which any of its directors or executive officers or any member of their immediate family will have a material interest, exclusive of employment compensation and interests arising solely from the ownership of the Company equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis.

On February 1, 2012 and February 15, 2012, in connection with the purchase of the Series C preferred stock, the Company issued and RES received warrants (“Warrants”) to purchase 30,000,000 shares of the Company’s common stock. Subject to the Beneficial Ownership Limitation, the Warrants are exercisable at any time on or before January 31, 2017 at an exercise price of $1.20 per share of common stock. The exercise price may be paid in cash, or the holder may also elect to pay the exercise price by having the Company withhold a sufficient number of shares from the exercise with a market value equal to the exercise price.

The Company, with the unanimous approval of the Board of Directors, entered into an Investor Rights and Conversion Agreement (the “Investor Rights and Conversion Agreement”) dated February 1, 2012 with RES and IRSA pursuant to which the Company granted RES and its affiliates and their respective subsidiaries, among other rights, the right to purchase equity shares or securities convertible into equity shares in future Company offerings on a pro rata basis based on their combined ownership of common stock and Series C preferred stock, provided that such purchase would not cause RES and its affiliates to exceed the Beneficial Ownership Limitation. In the agreement, RES agreed to certain standstill provisions including that neither RES nor its affiliates will acquire any securities that would result in RES and its affiliates owning more than 34% of the voting stock of the Company.

The Company, with the unanimous approval of the Board of Directors, entered into a registration rights agreement (the “Registration Rights Agreement”) dated February 1, 2012 with RES and IRSA. The Registration Rights Agreement requires the Company to register for resale by the holders the common stock issued upon conversion of the Series C preferred stock and upon exercise of the Warrants, and the Warrants and the Series C preferred stock. The Registration Rights Agreement also grants RES the right to participate in certain future underwritten offerings of securities by the Company.

The Company, with the unanimous approval of the Board of Directors, entered into a directors designation agreement (the “Directors Designation Agreement”) dated February 1, 2012 with RES and IRSA pursuant to which the Company will appoint up to four directors designated by RES and IRSA to the Company Board of Directors and to maintain the Company Board of Directors at no more than nine members. Messrs. Elsztain, Friend, Landry, and Sabin have been appointed to the Board of Directors pursuant to the agreement.

Pursuant to the agreement, RES agreed to vote for the election of the current Board of Directors who remain on the Board of Directors and their successors as nominated by the nominating committee of the Board of Directors. One of the directors designated by RES will be appointed to the nominating committee. As long as RES beneficially owns 7% or more of the voting power of the capital stock of the Company, the RES designees will be nominated and recommended for election at each annual meeting of the Company shareholders.

At December 31, 2011, we had long-term debt of $131.3 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 3.5 years and a weighted average interest rate of 6.37%. The weighted average fixed rate was 6.9%, and the weighted average variable rate was 4.7%. Debt held on properties in continuing operations is classified as held for use. Debt is classified as held for sale if the properties collateralizing it are included in discontinued operations.

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Debt associated with assets held for sale is classified as a short-term liability due within the next year irrespective of whether the notes and mortgages evidencing such debt mature within the next year. Aggregate annual principal payments on debt associated with assets held for use for the next five years and thereafter, and debt associated with assets held for sale, are as follows (in thousands):

		Held For Sale		Held For Use		TOTAL
	2012	$	34,500	$	57,330	$	91,830
	2013		—		3,537		3,537
	2014		—		3,763		3,763
	2015		—		15,434		15,434
	2016		—		18,656		18,656
Thereafter			—		32,625		32,625
		$	34,500	$	131,345	$	165,845

2012 Maturities

At December 31, 2011, the Company had $91.8 million of principal due in 2012. Of this amount, $76.7 million of the principal due is associated with either assets held for use or assets held for sale, and matures in 2012 pursuant to the notes and mortgages evidencing such debt. The remaining $15.1 million is associated with assets held for sale and is not contractually due in 2012 unless the related assets are sold. The maturities comprising the $76.7 million consist of:

• a $7.5 million balance on a term loan with Great Western Bank;

• a $9.8 million balance on a term loan with Great Western Bank;

• a $9.2 million balance on a term loan with Great Western Bank;

• a $10.5 million balance on a revolving line of credit with Great Western Bank;

• a $29.4 million balance on the loan with Greenwich Capital;

• a $0.8 million note payable to First National Bank of Omaha;

• a $3.0 million balance on a revolving credit facility with Elkhorn Valley Bank;

• a $2.1 million note payable to Fredericksburg North Investors, LLC;

• a $1.1 million balance on a note payable to General Electric Capital Corporation; and

• approximately $3.3 million of principal amortization on mortgage loans.

Subsequent to December 31, 2011, $42.1 million of the $76.7 million of the 2012 loan maturities were extended beyond 2012 or paid off, leaving $34.6 million of contractual debt maturities currently due in 2012. On February 21, 2012, the maturity dates of three term loans and the revolver with Great Western Bank were extended to June 30, 2013. In February 2012, the $5 million balance on the revolving credit facility with Elkhorn Valley Bank ($3.0 million at December 31, 2011) and the $2.1 million note payable to Fredericksburg North Investors, LLC were paid off using a portion of the net proceeds from the sale of the Series C preferred stock. Both of the properties which were encumbered by these loans were held for sale as of December 31, 2011. The $1.1 million note payable to General Electric Capital Corporation is expected to be paid with available funds at the end of 2012.

The $29.4 million balance of the loan with Greenwich Capital matures in December 2012. The loan is secured by 32 hotels. The Company intends to break up the portfolio into several tranches and secure financing with several local and/or regional banks. The process to identify lenders began in March 2012.

On March 29, 2012, our credit facilities with General Electric Capital Corporation (GE) were amended to, among other things, require a principal prepayment of $7 million on or before December 31, 2012. This debt is expected to be funded from the proceeds of refinancing our hotels secured by Greenwich Capital.

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2011 Transactions

In January 2011, the Company borrowed $1.95 million from Elkhorn Valley Bank in Norfolk, Nebraska. The note had a maturity date of October 1, 2011, bore interest at 5.9% and was secured by hotels located in Wichita, Kansas and Watertown, South Dakota. The borrowings were used to fund operations. The note was subsequently paid down on May 6, 2011 in connection with the sale of the Wichita, Kansas hotel and refinanced on September 20, 2011, as discussed further below.

In March 2011, covenant waivers and other amendments were obtained for our credit facilities with Great Western Bank and Wells Fargo Bank. These changes were reflected in the notes to our consolidated financial statements included in our Form 10-K for year ended December 31, 2010.

On March 29, 2011, we sold a Masters Inn in Atlanta (Tucker), Georgia (107 rooms) for approximately $2.4 million with no gain or loss on the sale. The majority of the proceeds were used to pay down the loan with General Electric Capital Corporation, with approximately $0.2 million used to reduce the revolving line of credit with Great Western Bank.

In March 2011, the maturity date of the $0.8 million promissory note to First National Bank of Omaha was extended to March 1, 2012.

On May 6, 2011, we sold a Super 8 in Wichita, Kansas (59 rooms) for approximately $1.4 million with a $0.4 million gain. Approximately $0.9 million of the proceeds were used to reduce borrowings from Elkhorn Valley Bank, with the remaining amount used to reduce the revolving line of credit with Great Western Bank.

On May 16, 2011, the Company borrowed $1.0 million from Yorkville Advisors. The note required scheduled installment payments, and the final installment was paid on October 5, 2011. The note bore interest at 9.5%.

On May 27, 2011, we sold the Tara Inn in Jonesboro, Georgia (127 rooms) for approximately $1.85 million with no gain or loss on the sale. Approximately $1.6 million of the proceeds were used to pay the mortgage loan on the property with Great Western Bank, with the remaining amount used to reduce the revolving line of credit with Great Western Bank.

On May 27, 2011, our credit facility with Wells Fargo Bank was amended to (a) provide for the release of the Sleep Inn in Omaha, Nebraska from the collateral portfolio upon a principal payment of $2.5 million and (b) decrease the required monthly principal payments from $75,000 to $50,000.

On June 7, 2011, the Company refinanced the Sleep Inn in Omaha, Nebraska for $3.1 million with Elkhorn Valley Bank. The note bears interest at 6.25% and matures on June 15, 2016. Of this amount, $2.5 million was used to reduce the mortgage loan with Wells Fargo Bank, with the balance of the proceeds used to reduce the revolving line of credit with Great Western Bank.

On July 28, 2011, we sold a Masters Inn in Charleston, South Carolina (119 rooms) for $3.75 million with no gain or loss on the sale. The proceeds were used to pay down the loan with General Electric Capital Corporation. Prepayment penalties of $0.4 million have been deferred.

On July 29, 2011, we sold a Masters Inn in Marietta, Georgia (87 rooms) for $1.35 million with no gain or loss on the sale. The funds were used to pay down the loan with General Electric Capital Corporation. Prepayment penalties of $0.2 million have been deferred.

On September 20, 2011, the Company refinanced its existing $0.86 million loan with Elkhorn Valley Bank

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and borrowed an additional $0.1 million, which was used to reduce the revolving line of credit with Great Western Bank. The $0.96 million note matures on September 15, 2013, bears interest at 5.75% and is secured by a hotel located in Watertown, South Dakota.

On September 30, 2011, the Company sold its corporate office building with a $1.1 million gain. Proceeds of $1.75 million were used to pay off the $0.8 million mortgage with Elkhorn Valley Bank, and the remaining balance was used to reduce the revolving line of credit with Great Western Bank.

On September 30, 2011, the maturity date of the $2.2 million promissory note owed to Wells Fargo Bank was extended from September 30, 2011 to November 2011 and subsequently purchased by four company directors on November 21, 2011 as described below.

On November 9, 2011, the Company entered into a $5.0 million credit facility with Elkhorn Valley Bank. The borrowings were used to fund operations. The credit facility is secured by the Days Inn hotel located in Bossier City, Louisiana and guaranteed by four Company directors. The credit facility matures on June 1, 2012 and bears interest at 5.75%.

On November 16, 2011, the Company entered into a purchase agreement for the issuance and sale of $30 million of convertible preferred stock to Real Estate Strategies L.P., an investment vehicle indirectly controlled by IRSA Inversiones y Representaciones Sociedad Anonima (“IRSA”), an Argentina-based company. The sale of the Series C preferred stock occurred in February 2012.

On November 21, 2011, Fredericksburg North Investors, LLC, a Nebraska limited liability company formed by our Chairman of the Board, William C. Latham, our President, Chief Executive Officer and Director, Kelly A. Walters and two members of our Board of Directors, Steve H. Borgmann and Allen L. Dayton (the “Fred North Investors”), purchased the promissory note owed to Wells Fargo Bank for $2.1 million, which represented the principal amount owing on the credit facility to Wells Fargo Bank. In connection with the purchase, (a) the lien on the Days Inn hotel located in Fredericksburg, Virginia (North) was assigned to the Fred North Investors, (b) the lien on the Days Inn hotel located in Bossier City, Louisiana was released, (c) the maturity date was extended from November 30, 2011 to May 31, 2012, (d) the interest rate on the promissory note was increased from LIBOR plus 4.0% (subject to a 4.5% floor) to 10%, (e) the required monthly principal payments were decreased from $50,000 to $0 and (f) the financial covenants were eliminated.

On December 9, 2011, the Company amended its credit facilities with Great Western Bank. The maturity date of all loans was extended to June 30, 2013 after the purchase from the Company of the Series C preferred stock by Real Estate Strategies L.P.

On December 20, 2011, the Company closed on the sale of its 88-room Masters Inn in Doraville, Georgia for $1.02 million with no gain or loss on the sale. The proceeds from the sale were used to reduce related mortgage debt with General Electric Capital Corporation.

Covenants

The key financial covenants for certain of our loan agreements and compliance calculations as of December 31, 2011 are discussed below (each such covenant is calculated pursuant to the applicable loan agreement). As of December 31, 2011, we were in compliance with the financial covenants. As a result, we are not in default of any of our loans.

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(dollar amounts in thousands) Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				37,433
Adjusted NOI per loan agreement (A)			$	19,956
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				6,215
Debt service per loan agreement (B)			$	18,617
Consolidated debt service coverage ratio				1.07:1
* Calculations based on prior four quarters
Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				21,105
Adjusted NOI per loan agreement (A)			$	3,628
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				(8,885	)
Debt service per loan agreement (B)			$	3,517
Loan-specific debt service coverage ratio				1.03:1
* Calculations based on prior four quarters

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Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated leverage ratio calculated as follows:		£4.25
Total liabilities (A) / Tangible net worth (B)
Total liabilities per financial statements and loan agreement (A)			$	176,549
Total assets per financial statements				221,172
Total liabilities per financial statements				176,549
Tangible net worth per loan agreement (B)			$	44,623
Consolidated Leverage Ratio:				3.96

The Great Western Bank credit facilities also require maintenance of consolidated and loan-specific loan to value ratios that do not exceed 70%, tested annually commencing on December 31, 2012, and that we not pay dividends in excess of 75% of our funds from operations per year. The consolidated and loan-specific debt service coverage ratios for the credit facilities remain at 0.9 to 1, tested quarterly, through June 29, 2012. The consolidated debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through the maturity of the credit facilities. The loan-specific debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through December 30, 2012 and 1.20 to 1, tested quarterly, from December 31, 2012 through the maturity of the credit facilities.

The credit facilities with Great Western Bank currently consist of a $12.5 million revolving credit facility and term loans of $14 million, $10 million and $7.5 million. All loans under the credit facilities mature on June 30, 2013. The interest rate on the revolving credit portion of the credit facilities is 5.95% and the interest rate on the term loan portion of the credit facilities is 6.00%.

The credit facilities provide for $12.5 million of availability under the revolving credit facility through June 30, 2012, after which the loans available to us through the revolving credit facility and term loans may not exceed the lesser of (a) an amount equal to 70% of the total appraised value of the hotels securing the credit facilities and (b) an amount that would result in a loan-specific debt service coverage ratio of less than 1.05 to 1 from July 1, 2012 through December 30, 2012 and 1.20 to 1 from December 31, 2012 through the maturity of the credit facilities. The credit facilities require a $500,000 reduction in the availability of the revolving credit facility by September 30, 2012 and an additional $500,000 reduction by December 31, 2012.

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GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³1.05:1
Adjusted EBITDA (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				35,832
Adjusted EBITDA per loan agreement (A)			$	18,355
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				5,063
Debt service per loan agreement (B)			$	17,465
Consolidated debt service coverage ratio				1.05:1
* Calculations based on prior four quarters
GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific total adjusted EBITDA calculated as follows: *	³	$3.9 million
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				22,273
Loan-specific total adjusted EBITDA			$	4,796
* Calculations based on prior four quarters

On March 29, 2012, our credit facilities with General Electric Capital Corporation (GE) were amended to replace existing financial covenant requirements with new financial covenant requirements. The new financial covenants require that, through the term of the loans, we maintain: (a) a minimum before dividend fixed charge coverage ratio (FCCR) with respect to our GE-encumbered properties (based on a rolling 12-month period) of 0.85:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2015; (b) a maximum loan to value ratio with respect to our GE-encumbered properties of 100% as of March 31, 2012, which requirement decreases quarterly thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.95:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.00:1 as of December 31, 2013.

The GE amendment, among other things, also: (a) shortens the maturity date of the loans secured by the Masters Inn hotels and Savannah Suites hotels to December 31, 2014; (b) requires a principal prepayment of $7 million on or before December 31, 2012; (c) provides that the previous increases to the interest rates on the loans will remain in effect and will not be reduced in the future if we achieve a particular FCCR; (d) adds cross-default provisions with our other material debt and most favored lender provisions; and (e) implements restrictions on the prepayment of other debt.

In May 2008, we converted the interest rates on certain of our GE loans to fixed rates. Because interest rates have since decreased, there are yield maintenance costs associated with prepayments of those loans. The yield maintenance cost associated with the most recent Masters Inn sale was 16.5% of the amount prepaid. The GE amendment implements fixed prepayment fees on the loans secured by the Masters Inn hotels and Savannah Suites hotels (in lieu of the yield maintenance costs) which start at 2.5% of the amount prepaid in 2012 and increase over time up to 10% of the amount prepaid.

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 and GE credit facilities contain cross-default provisions which would allow Great Western Bank and GE to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. We are not in default of any of our loans.

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Acquisition of Hotels

There were no acquisitions made during 2011, 2010, or 2009.

Disposition of Hotels

Sale Date 2011	Hotel Location	Brand	Rooms		Sale Price (millions)
March	Atlanta (Tucker), GA	Masters Inn		107	$	2.40
May	Wichita North, KS	Super 8		59		1.40
May	Jonesboro, GA	Tara Inn		127		1.85
July	Charleston, SC	Masters Inn		119		3.75
July	Marietta, GA	Masters Inn		87		1.35
December	Doraville, GA	Masters Inn		88		1.02
				587	$	11.77

Additionally, the company sold its corporate office building for $1.75 million. In 2010 a total of nine hotels with 675 rooms were sold for $11.65 million. In 2009 we sold eight hotels with 674 rooms for approximately $17.2 million. Sale proceeds were primarily used to reduce debt.

Redemption of Preferred Operating Partnership Units

We own, through our subsidiary, Supertel Hospitality REIT Trust, an approximate 99% general partnership interest in Supertel Limited Partnership, through which we own 45 of our hotels. We are the sole general partner of the limited partnership, and the remaining approximate 1% is held by limited partners who transferred property interests to us in return for limited partnership interests in Supertel Limited Partnership. These limited partners hold, as of December 31, 2011, 97,008 common operating partnership units and 11,424 preferred operating partnership units. Each limited partner of Supertel Limited Partnership may, subject to certain limitations, require that Supertel Limited Partnership redeem all or a portion of his or her common or preferred units, at any time after a specified period following the date he or she acquired the 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, in 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.

The preferred units were, as noted below, convertible by the holders into common units on a one-for-one basis or, at the option of the holders, redeemable for cash at $10 per unit until October 2011. 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. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit.

Contractual Obligations

Below is a summary of certain obligations from continuing operations that will require capital (in thousands) as of December 31, 2011:

Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt, including interest	$	156,369	$	65,602	$	15,976	$	40,767	$	34,024
Land leases		5,812		226		481		471		4,634
Other		449		309		140		—		—
Total contractual obligations	$	162,630	$	66,137	$	16,597	$	41,238	$	38,658

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The column titled Less Than 1 Year represents payments due for the balance of 2012. Long-term debt includes debt on properties classified in continued operations. The debt related to properties held for sale (and expected to be sold in the next 12 months, with the respective debt paid) of $34.5 million is not included in the table above.

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. The land leases reflected in the table above represent continuing operations. In addition, the Company has two land leases associated with properties in discontinued operations. These two properties are expected to be sold in the next 12 months. The annual lease payments of $105,000 are not included in the table above. We also have management agreements with HMA, Strand, Kinseth and HLC for the management of our hotel properties.

Other

To maintain our REIT tax status, we generally must distribute at least 90% of our taxable income to our shareholders annually. In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws. We have a general dividend policy of paying out approximately 100% of annual REIT taxable income. The actual amount of any future dividends will be determined by the Board of Directors based on our actual results of operations, economic conditions, capital expenditure requirements and other factors that the Board of Directors deems relevant.

Off Balance Sheet Financing Transactions

We have not entered into any off balance sheet financing transactions.

Critical Accounting Policies

Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex or subjective judgments. We have identified the following principal accounting policies that have a material effect on our consolidated financial statements:

Impairment of assets

In accordance with FASB ASC 360-10-35 Property Plant and Equipment – Overall - Subsequent Measurement, the Company analyzes its assets for impairment when events or circumstances occur that indicate the carrying amount may not be recoverable. As part of this process, the Company utilizes a two-step analysis to determine whether a trigger event (within the meaning of ASC 360-10-35) has occurred with respect to cash flow of, or a significant adverse change in business climate for, its hotel properties. Quarterly and annually the Company reviews all of its hotels to determine any property whose cash flow or operating performance significantly underperformed from budget or prior year, which the Company has set as a shortfall against budget or prior year as 15% or greater.

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At year end the Company applies a second analysis on the entire held for use portfolio. The analysis estimates the expected future cash flows to identify any property whose carrying amount potentially exceeded the recoverable value. (Note that at the end of each quarter, this analysis is performed only on those properties identified in the 15% change analysis). In performing this year end analysis, the Company makes the following assumptions:

• Holding periods range from three to five years, for non-core assets, and ten years for those assets considered as core.

• Cash flow from trailing twelve months for the individual properties multiplied by the holding period as noted above. The Company did not assume growth rates on cash flows as part of its step one analysis.

• A revenue multiplier for the terminal value based on an average of historical sales from a leading industry broker of like properties was applied according to the assigned holding period.

As of June 30, 2011 and December 31, 2011, the analysis above was used to determine that a trigger event as described in ASC 360-10-35 occurred for one and two of our held for use properties, respectively. In each case the carrying value of the hotel exceeded the sum of the undiscounted cash flows expected over its remaining anticipated holding period and from its disposition. Each property was then tested to determine if the carrying amount was recoverable using property specific assumptions. When testing the recoverability for a property, in accordance with FASB ASC 360-10-35 35-29 Property Plant and Equipment – Overall – Subsequent Measurement, Estimates of Future Cash Flows Used to Test a Long-Lived Asset for Recoverability, the Company uses estimates of future cash flows associated with the individual property over the expected holding period and eventual disposition. In estimating these future cash flows, the Company incorporates its own assumptions about its use of the hotel property and expected hotel performance. Assumptions used for the individual hotels were determined by management, based on discussions with our asset management group and our third party management companies. Each property was then subjected to a probability-weighted cash flow analysis as described in FASB ASC 360-10-55 Property Plant and Equipment – Overall – Implementation. In this analysis, the Company completed a detailed review of each hotel’s market conditions and future prospects, which incorporated specific detailed cash flow and revenue multiplier assumptions over the remaining expected holding periods, including the probability that the property will be sold. Based on the results of this analysis, it was determined that the Company’s investment in the subject properties was not fully recoverable; accordingly, impairment was recognized.

To determine the amount of impairment on the properties identified above, in accordance with FASB ASC 360-10-55, the Company calculated the excess of the carrying value of the property in comparison to its fair market value as of June 30, 2011 and December 31, 2011. As discussed in Note 1 - Fair Value Measurements, the fair market values were determined using Level 3 inputs in accordance with ASC 820-10-35 Fair Value Measurements and Disclosures – Overall – Subsequent Measurement. Based on this calculation, the Company determined total impairment of $2.8 million existed as of June 30, 2011 on the one held for use asset and $2.8 million existed as of December 31, 2011 on the two assets previously noted. Fair market value was determined by multiplying trailing 12 months’ revenue for the property by a revenue multiplier that was determined based on the company’s experience with similar hotel sales in the current year, available industry information and brokers’ opinions of value. As the fair market value of the properties impaired for the year ending December 31, 2011, was determined in part by management estimates, a reasonable possibility exists that future changes to inputs and assumptions could affect the accuracy of management’s estimates and such future changes could lead to further possible impairment in the future. During the 12 months ending December 31, 2011, the Company recorded impairment losses of $3.3 million and the recovery of previously recorded impairment of $0.4 million on four hotels reclassified from held for sale to held for use in the fourth quarter of 2011.

In accordance with ASC 360-10-35 Property Plant and Equipment—Overall—Subsequent Measurement, the Company determines the fair value of an asset held for sale 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 using a market approach. The estimated selling costs are based on our experience with similar asset sales.

Acquisition of Hotel Properties

Upon acquisition, we allocate the purchase price of asset classes based on the fair value of the acquired real estate, furniture, fixtures and equipment, and intangible assets, if any. Our investments in hotel properties are carried at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and building improvements and three to twelve years for furniture, fixtures and equipment. Renovations and/or replacements that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives.

48

We are required to make subjective assessments as to the useful lives and classification of our properties for purposes of determining the amount of depreciation expense to reflect each year with respect to those properties. These assessments have a direct impact on our net income. Should we change the expected useful life or classification of particular assets, it would result in a change in depreciation expense and annual net income.

Accounting for Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with GAAP. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis and for net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management’s evaluation of the need for a valuation allowance must consider positive and negative evidence, and the weight given to the potential effects of such positive and negative evidence is based on the extent to which it can be objectively verified.

Related to accounting for uncertainty in income taxes, we follow a process by which the likelihood of a tax position is gauged based upon the technical merits of the position, perform a subsequent measurement related to the maximum benefit and the degree of likelihood, and determine the amount of benefit to be recognized in the financial statements, if any.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk Information

The market risk associated with financial instruments and derivative financial or commodity instruments is the risk of loss from adverse changes in market prices or rates. Our market risk arises primarily from interest rate risk relating to variable rate borrowings. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows. In order to achieve this objective, we have used both long term fixed rate loans and variable rate loans from institutional lenders to finance our hotels. We are not currently using derivative financial or commodity instruments to manage interest rate risk.

Management monitors our interest rate risk closely. The table below presents the annual maturities, weighted average interest rates on outstanding debt, excluding debt related to hotel properties held for sale, at the end of each year and fair values required to evaluate the expected cash flows under debt and related agreements, and our sensitivity to interest rate changes at December 31, 2011. Information relating to debt maturities is based on expected maturity dates and is summarized as follows (in thousands):

	2012			2013			2014			2015			2016			Thereafter			Total			Fair Value
Fixed Rate Debt	$	45,900		$	2,508		$	2,692		$	14,317		$	17,492		$	15,926		$	98,835		$	100,662
Average Interest Rate		6.98	%		6.90	%		6.89	%		6.90	%		7.17	%		7.33	%		6.97	%		—
Variable Rate Debt	$	11,430		$	1,028		$	1,072		$	1,117		$	1,164		$	16,699		$	32,510		$	32,510
Average Interest Rate		4.83	%		4.10	%		4.10	%		4.10	%		4.10	%		4.10	%		4.30	%		—

49

As the table incorporates only those exposures that exist as of December 31, 2011, it does not consider exposures or positions that could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations would depend on the exposures that arise after December 31, 2011.

If market rates of interest on the Company’s variable rate long-term debt fluctuate by 1.0%, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows by $0.3 million annually. This assumes that the amount outstanding under the Company’s held for use variable rate debt remains at $32.5 million, the balance as of December 31, 2011.

Item 8. Financial Statements and Supplementary Data

SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		51
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010		52
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009		53
CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009		54
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009		55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		56
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION		88
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION		93

50

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Supertel Hospitality, Inc.:

We have audited the accompanying consolidated balance sheets of Supertel Hospitality, Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity, and cash flows for each of the years in the three-year period ended December 31, 2011. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedule, Schedule III – Real Estate and Accumulated Depreciation. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Supertel Hospitality, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Omaha, Nebraska

March 30, 2012

51

Supertel Hospitality, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share and share data)

	As of
	December 31, 2011			December 31, 2010
ASSETS
Investments in hotel properties	$	255,471		$	268,107
Less accumulated depreciation		79,236			77,719
		176,235			190,388
Cash and cash equivalents		279			333
Accounts receivable, net of allowance for doubtful accounts of $194 and $133		1,891			1,717
Prepaid expenses and other assets		8,917			13,372
Deferred financing costs, net		850			988
Investment in hotel properties, held for sale, net		33,000			49,846
	$	221,172		$	256,644
LIABILITIES AND EQUITY
LIABILITIES
Accounts payable, accrued expenses and other liabilities	$	10,704		$	17,732
Debt related to hotel properties held for sale		34,500			42,739
Long-term debt		131,345			132,271
		176,549			192,742
Redeemable noncontrolling interest in consolidated partnership, at redemption value		114			511
Redeemable preferred stock 10% Series B, 800,000 shares authorized; $.01 par value, 332,500 shares outstanding, liquidation preference of $8,312		7,662			7,662
EQUITY
Preferred stock, 40,000,000 shares authorized; 8% 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; 23,070,387 and 22,917,509 shares outstanding		231			229
Common stock warrants		252			252
Additional paid-in capital		121,619			121,384
Distributions in excess of retained earnings		(85,398	)		(66,479	)
Total shareholders’ equity		36,712			55,394
Noncontrolling interest
Noncontrolling interest in consolidated partnership, redemption value $64 and $250		135			335
Total equity		36,847			55,729
	$	221,172		$	256,644

See accompanying notes to consolidated financial statements.

52

Supertel Hospitality, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Years ended December 31,
	2011			2010			2009
REVENUES
Room rentals and other hotel services	$	75,827		$	75,300		$	72,493
EXPENSES
Hotel and property operations		58,039			57,005			53,966
Depreciation and amortization		8,825			9,970			10,427
General and administrative		4,008			3,443			3,813
		70,872			70,418			68,206
EARNINGS BEFORE NET GAINS (LOSSES) ON DISPOSITIONS OF ASSETS, OTHER INCOME, INTEREST EXPENSE, AND INCOME TAXES		4,955			4,882			4,287
Net gain (loss) on dispositions of assets		1,129			(66	)		(109	)
Other income		107			122			134
Interest expense		(8,685	)		(8,894	)		(8,811	)
Impairment		(8,545	)		(2,147	)		(7,399	)
Termination cost		(540	)		—			—
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(11,579	)		(6,103	)		(11,898	)
Income tax benefit		638			472			295
LOSS FROM CONTINUING OPERATIONS		(10,941	)		(5,631	)		(11,603	)
Loss from discontinued operations, net of tax		(6,536	)		(4,971	)		(15,922	)
NET LOSS		(17,477	)		(10,602	)		(27,525	)
Noncontrolling interest		32			17			130
NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS		(17,445	)		(10,585	)		(27,395	)
Preferred stock dividend		(1,474	)		(1,474	)		(1,474	)
NET LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS	$	(18,919	)	$	(12,059	)	$	(28,869	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
EPS from continuing operations	$	(0.54	)	$	(0.31	)	$	(0.60	)
EPS from discontinued operations	$	(0.28	)	$	(0.22	)	$	(0.73	)
EPS Basic and Diluted	$	(0.82	)	$	(0.53	)	$	(1.33	)
AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS
Income from continuing operations, net of tax	$	(12,411	)	$	(7,117	)	$	(13,112	)
Discontinued operations, net of tax		(6,508	)		(4,942	)		(15,757	)
Net loss	$	(18,919	)	$	(12,059	)	$	(28,869	)

See accompanying notes to consolidated financial statements.

53

Supertel Hospitality, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

	Years ended December 31, 2011, 2010, and 2009
	Preferred Stock		Common Stock Warrants		Common Stock		Additional Paid- In Capital		Distributions in Excess of Retained Earnings			Total Shareholder Equity			Noncontrolling Interest			Total Equity
Balance at January 1, 2009	$	8	$	—	$	209	$	112,804	$	(25,551	)	$	87,470		$	8,064		$	95,534
Deferred compensation		—		—		—		6		—			6			—			6
Conversion of OP Units		—		—		11		7,343		—			7,354			(7,354	)		—
Preferred dividends		—		—		—		—		(1,474	)		(1,474	)		—			(1,474	)
Net loss		—		—		—		—		(27,395	)		(27,395	)		(302	)		(27,697	)
Balance at December 31, 2009	$	8	$	—	$	220	$	120,153	$	(54,420	)	$	65,961		$	408		$	66,369
Deferred compensation		—		—		—		30		—			30			—			30
Common stock offerings		—		252		9		1,201		—			1,462			—			1,462
Preferred dividends		—		—		—		—		(1,474	)		(1,474	)		—			(1,474	)
Net loss		—		—		—		—		(10,585	)		(10,585	)		(73	)		(10,658	)
Balance at December 31, 2010	$	8	$	252	$	229	$	121,384	$	(66,479	)	$	55,394		$	335		$	55,729
Deferred compensation		—		—		—		29		—			29			—			29
Common stock offerings		—		—		1		88		—			89			—			89
Conversion of OP Units		—		—		1		118		—			119			(119	)		—
Preferred dividends		—		—		—		—		(1,474	)		(1,474	)		—			(1,474	)
Net loss		—		—		—		—		(17,445	)		(17,445	)		(81	)		(17,526	)
Balance at December 31, 2011	$	8	$	252	$	231	$	121,619	$	(85,398	)	$	36,712		$	135		$	36,847

See accompanying notes to consolidated financial statements.

54

Supertel Hospitality, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years ended December 31,
	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(17,477	)	$	(10,602	)	$	(27,525	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		9,996			11,708			14,241
Amortization of intangible assets and deferred financing costs		469			487			595
Net gains on dispositions of assets		(1,452	)		(1,276	)		(2,264	)
Amortization of stock option expense		29			30			6
Provision for impairment loss		14,308			8,198			24,148
Changes in operating assets and liabilities:
(Increase) decrease in assets		4,281			(8,267	)		(1,525	)
Increase (decrease) in liabilities		(7,289	)		7,394			(1,575	)
Net cash provided by operating activities		2,865			7,672			6,101
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to hotel properties		(4,964	)		(4,344	)		(4,484	)
Proceeds from sale of hotel assets		13,111			11,209			16,509
Net cash provided by investing activities		8,147			6,865			12,025
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs		(331	)		(61	)		(431	)
Principal payments on long-term debt		(24,426	)		(16,920	)		(28,834	)
Proceeds from long-term debt, net		15,261			2,417			15,541
Redemption of operating partnership units		(397	)		—			(1,267	)
Distributions to minority partners		(49	)		(56	)		(271	)
Common stock offering		89			1,462			—
Dividends paid		(1,213	)		(1,474	)		(3,148	)
Net cash used by financing activities		(11,066	)		(14,632	)		(18,410	)
Decrease in cash and cash equivalents		(54	)		(95	)		(284	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		333			428			712
CASH AND CASH EQUIVALENTS, END OF YEAR	$	279		$	333		$	428
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized	$	11,953		$	11,795		$	12,487
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends declared	$	1,474		$	1,474		$	1,474

See accompanying notes to consolidated financial statements.

55

Supertel Hospitality, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Note 1. Organization and Summary of Significant Accounting Policies

Description of Business

Supertel Hospitality, Inc. (SHI) was incorporated in Virginia on August 23, 1994. SHI is a self-administered real estate investment trust (REIT) for federal income tax purposes.

SHI, through its wholly owned subsidiaries, Supertel Hospitality REIT Trust and E&P REIT Trust (collectively, the “Company”) owns a controlling interest in Supertel Limited Partnership (“SLP”) and E&P Financing Limited Partnership (“E&P LP”). All of the Company’s interests in 90 properties with the exception of furniture, fixtures and equipment on 70 properties held by TRS Leasing, Inc. and its subsidiaries are held directly or indirectly by E&P LP, SLP or Solomon’s Beacon Inn Limited Partnership (SBILP) (collectively, the “Partnerships”). The Company’s interests in ten properties are held directly by either SPPR-Hotels, LLC (SHLLC), SPPR-South Bend, LLC (SSBLLC), or SPPR-BMI, LLC (SBMILLC). SHI, through Supertel Hospitality REIT Trust, is the sole general partner in SLP and at December 31, 2011 owned approximately 99% of the partnership interests in SLP. SLP is the general partner in SBILP. At December 31, 2011, SLP and SHI owned 99% and 1% interests in SBILP, respectively, and SHI owned 100% of Supertel Hospitality Management, Inc, SPPR Holdings, Inc. (SPPRHI), and SPPR-BMI Holdings, Inc. (SBMIHI). SLP and SBMIHI owned 99% and 1% of SBMILLC, respectively. SLP and SPPRHI owned 99% and 1% of SHLLC, respectively, and SLP owned 100% of SSBLLC. References to “we”, “our”, and “us” herein refer to Supertel Hospitality, Inc., including as the context requires, its direct and indirect subsidiaries.

As of December 31, 2011, the Company owned 100 limited service hotels. All of the hotels are leased to our wholly owned taxable REIT subsidiary, TRS Leasing, Inc. (“TRS”), and its wholly owned subsidiaries (collectively “TRS Lessee”), and are managed by Hospitality Management Advisors, Inc. (“HMA”), Strand Development Company LLC (“Strand”), Kinseth Hotel Corporation (“Kinseth”), and HLC Hotels, Inc. (“HLC”).

The hotel management agreement, as amended, between TRS Lessee and Royco Hotels, the previous manager of 95 of the Company’s hotels, was terminated effective May 31, 2011. The agreement provided for Royco Hotels to operate and manage the hotels through December 31, 2011, with extension to December 31, 2016 upon achievement of average annual net operating income of at least 10% of the Company’s investment in the hotels. Under the agreement, Royco Hotels received a base management fee ranging from 4.25% to 3.0% of gross hotel revenues as revenues increased above thresholds that ranged from up to $75 million to over $100 million, and was entitled, if earned, to an annual incentive fee of 10% of up to the first $1.0 million of annual net operating income in excess of 10% of the Company’s investment in the hotels, and 20% of the excess above $1.0 million. On March 25, 2011, Royco Hotels and the Company settled a lawsuit filed by Royco Hotels against the Company. The settlement agreement between the parties provides that the Company will pay an aggregate of $590 in varying amounts of installments through July 1, 2013 to Royco Hotels (of which $255 has been paid as of December 31, 2011) as financial settlement of the lawsuit and fees owed to Royco Hotels as termination fees for hotels that have been sold.

On April 21, 2011, the Company through TRS Lessee entered into separate management agreements with HMA, Strand and Kinseth as eligible independent operators to manage 95 of the Company’s hotels (two of which were subsequently sold) commencing June 1, 2011. These hotels were previously managed by Royco Hotels.

HMA manages 25 Company hotels in Arkansas, Louisiana, Tennessee, Kentucky, Indiana, Virginia and Florida. Strand manages the Company’s seven economy extended-stay hotels in Georgia and South Carolina as well as 16 additional Company hotels located in Georgia, Delaware, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and West Virginia. Kinseth manages 45 Company hotels in eight states primarily in the Midwest. Each of the management agreements expire on May 31, 2014 and will renew for additional terms of one year unless either party to the agreement gives the other party written notice of termination at least 90 days before the end of a term.

56

Supertel Hospitality, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Each of HMA, Strand and Kinseth receives a monthly management fee with respect to the hotels they manage equal to 3.5% of the gross hotel income and 2.25% of hotel net operating income (“NOI”). NOI is equal to gross hotel income less operating expenses (exclusive of management fees, certain insurance premiums and employee bonuses, and personal and real property taxes).

SLP owns 7 hotels which are operated under the Masters Inn name. TRS, the lessee of the hotels, entered into a management agreement with HLC, an affiliate of the sellers of the 7 hotels. The management agreement, as amended, provides for HLC to operate and manage the hotels through December 31, 2013 and receive management fees equal to 5.0% of the gross revenues derived from the operation of the hotels and incentive fees equal to 10% of the annual operating income of the hotels in excess of 10.5% of the Company’s investment in the hotels.

The management agreements generally require TRS Lessee to fund debt service, working capital needs, capital expenditures and third-party operating expenses for the management companies excluding those expenses not related to the operation of the hotels. TRS Lessee is responsible for obtaining and maintaining insurance policies with respect to the hotels.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Partnerships and the TRS Lessee. All significant intercompany balances and transactions have been eliminated in consolidation.

Estimates, Risks and Uncertainties

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses recognized during the reporting period. The significant estimates pertain to impairment analysis and allocation of purchase price (FASB ASC 805-10 Business Combinations - Overall). Actual results could differ from those estimates.

Because of the adverse conditions that exist in the real estate markets, as well as the credit and financial markets, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change. Specifically as it relates to the Company’s business, the recent economic conditions are expected to continue to negatively affect the Company’s operating performance, as well as its liquidity position.

Liquidity

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.

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 anticipates that these adverse economic conditions may improve somewhat over the next year; however, in addition to our operating performance, the other sources described below will be essential to our liquidity and financial position.

57

Supertel Hospitality, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Our business requires continued access to adequate capital to fund our liquidity needs. In 2011 and 2010, the Company reviewed its entire portfolio, identified properties considered non-core and developed timetables for disposal of those assets deemed non-core. We focused on improving our liquidity through cash generating asset sales and disposition of assets that are not generating cash at levels consistent with our investment principles. In 2012, our foremost priorities continue to be preserving and generating capital sufficient to fund our liquidity needs. Given the deterioration and uncertainty in the economy and financial markets, management believes that access to conventional sources of capital will be challenging and management has planned accordingly. We are also working to proactively address challenges to our short-term and long-term liquidity position.

The following are the expected actual and potential sources of liquidity, which if realized we currently believe will be sufficient to fund our near-term obligations:

• Cash and cash equivalents;

• Cash generated from operations;

• Proceeds from asset dispositions;

• Proceeds from additional secured or unsecured debt financings; and/or

• Proceeds from public or private issuances of debt or equity securities.

The Company has significant indebtedness maturing over the next year, including a $29.4 million balance on a loan with Greenwich Capital maturing in December 2012. If we are not successful in negotiating the refinancing of this debt, or any other maturing debt, or finding alternate sources of financing in a difficult borrowing environment, we will be unable to meet the Company’s near-term liquidity requirements.

These above sources are essential to our liquidity and financial position, and we cannot assure shareholders that we will be able to successfully access them (particularly in the current economic environment). If we are unable to generate cash from these sources, we may have liquidity-related capital shortfalls and will be exposed to default risks. The significant issues with access to the liquidity sources identified above could lead to our insolvency.

In the near-term, the Company’s cash flow from operations is not projected to be sufficient to meet all of our liquidity needs. In response, management has identified non-core assets in our portfolio to be liquidated over a one to ten year period. Among the criteria for determining properties to be sold was potential upside when hotel fundamentals return to stabilized levels. The 24 properties held for sale as of December 31, 2011 were determined to be less likely to participate in increased cash flow levels when markets do improve. As such, we expect these dispositions to help us (1) preserve cash, through potential disposition of properties with current or projected negative cash flow and/or other potential near-term cash outlay requirements (including debt maturities) and (2) generate cash, through the potential disposition of strategically identified non-core assets that we believe have equity value above debt.

We are actively marketing the 24 properties held for sale, which we anticipate will result in the elimination of an estimated $34.5 million of debt and generate an expected $4.9 million of proceeds for operations. The marketing process has been affected by deteriorating economic conditions and we have experienced some decreases in expected pricing. If this trend continues to worsen, we may be unable to complete the disposition of identified properties in a manner that would generate cash flow in line with management’s estimates as noted above. Our ability to dispose of these assets is impacted by a number of factors. Many of these factors are beyond our control, including general economic conditions, availability of financing and interest rates. In light of the current economic conditions, we cannot predict:

• whether we will be able to find buyers for identified assets at prices and/or other terms acceptable to us;

• whether potential buyers will be able to secure financing; and

• the length of time needed to find a buyer and to close the sale of a property.

As our debt matures, our principal payment obligations also present significant future cash requirements. We expect lenders will continue to maintain tight lending standards, which could make it more difficult for us to obtain future credit facilities on terms similar to the terms of our current credit facilities or to obtain long term financing on favorable terms or at all.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

We may not be able to successfully extend, refinance or repay our debt due to a number of factors, including decreased property valuations, limited availability of credit, tightened lending standards and deteriorating economic conditions. Historically, extending or refinancing loans has required the payment of certain fees to, and expenses of, the applicable lenders. Any future extensions or refinancing will likely require increased fees due to tightened lending practices. These fees and cash flow restrictions will affect our ability to fund other liquidity uses. In addition, the terms of the extensions or refinancing may include operational and financial covenants significantly more restrictive than our current debt covenants.

The Company is required to meet various financial covenants required by its existing lenders. If the Company’s future financial performance fails to meet these financial covenants, then its lenders also have the ability to take control of its encumbered hotel assets. Defaults with lenders due to failure to repay or refinance debt when due or failure to comply with financial covenants could also result in defaults under our credit facilities with Great Western Bank and General Electric Capital Corporation. Our Great Western Bank and General Electric Capital Corporation credit facilities contain cross-default provisions which would allow Great Western Bank and General Electric Capital Corporation to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. If this were to happen, whether due to failure to repay or refinance debt when due or failure to comply with financial covenants, the Company’s ability to conduct business could be severely impacted as there can be no assurance that the adequacy and timeliness of cash flow would be available to meet the Company’s liquidity requirements.

The Company did not declare a common stock dividend during 2011 or 2010. The Company will monitor requirements to maintain its REIT status and will routinely evaluate the dividend policy. The Company intends to continue to meet its dividend requirements to retain its REIT status.

Sources and Uses of Cash

At December 31, 2011, available cash was $0.3 million and the Company’s available borrowing capacity on the Great Western Bank revolver was $2 million. The Company projected that at December 31, 2011 cash flows from operations and the available borrowing capacity from the revolver would be insufficient to meet both short term and long term liquidity requirements. As a consequence, in November 2011 the Company entered into an agreement to sell 3.0 million shares of Series C preferred stock and obtained a $5 million revolving credit facility from Elkhorn Valley Bank to fund the Company until the closing of the Series C preferred stock sale.

Short term outflows include monthly operating expenses, $0.2 million of termination fees to Royco Hotels, estimated annual debt service of $15.0 million and payment of dividends on Series A and Series B preferred stock. Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that need to be made periodically with respect to hotel properties and $76.7 million of scheduled debt repayments.

We have budgeted to increase our spending on capital improvements from $5 million in 2011 to $7 million on our existing hotels during 2012. The increase in capital expenditures is a result of complying with brand mandated improvements and initiating projects that we believe will generate a return on investment as we enter a period of recovery in the lodging sector. We will seek to satisfy these long-term liquidity requirements through the various sources of capital identified above, including the recently issued Series C preferred stock and net proceeds on sales of non performing hotels.

We completed a private offering of 3.0 million shares of Series C preferred stock in February 2012. Net proceeds of the offering, less expenses, were approximately $28.7 million. $7.1 million of the net proceeds were used to repay a $2.1 million promissory note and to repay the $5 million revolving credit facility with Elkhorn Valley Bank. The remaining net proceeds from the offering will be used to acquire upper midscale and upscale hotels and to meet our long term liquidity requirements. In addition, management has identified non-core assets in our portfolio to be liquidated over a one to ten year period. We project that proceeds from anticipated property sales during the 2012, net of expenses and debt repayment, of $4.9 million will be available for the Company’s cash needs.

We project that our operating cash flow, revolving credit facility and proceeds from additional secured or unsecured debt financings along with the sources identified above will be sufficient to satisfy all of our liquidity and other capital needs over the next twelve to eighteen months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Capitalization Policy

Development and construction costs of properties in development are capitalized including, where applicable, direct and indirect costs, including real estate taxes and interest costs. Development and construction costs and costs of significant improvements, replacements, renovations to furniture and equipment expenditures for hotel properties are capitalized while costs of maintenance and repairs are expensed as incurred.

Deferred Financing Cost

Direct costs incurred in financing transactions are capitalized as deferred costs and amortized to interest expense over the term of the related loan using the effective interest method.

Investment in Hotel Properties

Upon acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture, fixtures and equipment, and intangible assets, if any. The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and three to twelve years for furniture, fixtures and equipment.

The Company periodically reviews the carrying value of each hotel to determine if circumstances exist indicating impairment to the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel to reflect the hotel at fair value.

In accordance with the provisions of FASB ASC 360-10-45 Property, Plant, and Equipment - Overall - Other Presentation Matters, a hotel is considered held for sale when a contract for sale is entered into, a substantial, non refundable deposit has been committed by the purchaser, and sale is expected to occur within one year, or if management has determined to sell the property within one year. Depreciation of these properties is discontinued at that time, but operating revenues, other operating expenses and interest continue to be recognized until the date of sale. Revenues and expenses of properties that are classified as held for sale or sold are presented as discontinued operations for all periods presented in the statements of operations if the properties will be or have been sold on terms where the Company has limited or no continuing involvement with them after the sale. If active marketing ceases or the properties no longer meet the criteria to be classified as held for sale, the properties are reclassified as operating and measured at the lower of their (a) carrying amount before the properties were classified as held for sale, adjusted for any depreciation expense that would have been recognized had the properties been continuously classified as operating or (b) their fair value at the date of the subsequent decision not to sell.

Gains on sales of real estate are recognized in accordance with FASB ASC 360-20 Property, Plant, and Equipment – Real Estate Sales (“ASC 360-20”). The specific timing of the sale is measured against various criteria of ASC 360-20 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent we sell a property and retain a partial ownership interest in the property, we generally recognize gain to the extent of the third party ownership interest in accordance with ASC 360-20.

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Supertel Hospitality, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Cash and Cash Equivalents

Cash and cash equivalents include cash and various highly liquid investments with original maturities of three months or less when acquired, and are carried at cost which approximates fair value.

Revenue Recognition

Revenues from the operations of the hotel properties are recognized when earned. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of operations.

Income Taxes

The Company qualifies and intends to continue to qualify as a REIT under applicable provisions of the Internal Revenue Code, as amended. In general, under such Code provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income will not be subject to federal income tax to the extent of the income which it distributes. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation of hotel properties for federal tax purposes. Except with respect to the TRS Lessee, the Company does not believe that it will be liable for significant federal or state income taxes in future years.

Deferred income taxes relate primarily to the TRS Lessee and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of the TRS Lessee and their respective tax basis and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors.

Under the REIT Modernization Act (“RMA”), which became effective January 1, 2001, the Company is permitted to lease its hotels to one or more wholly owned taxable REIT subsidiaries (“TRS”) and may continue to qualify as a REIT provided that the TRS enters into management agreements with an “eligible independent contractor” that will manage the hotels leased by the TRS. The Company formed the TRS Lessee and, effective January 1, 2002, the TRS Lessee leased all of the hotel properties. The TRS Lessee is subject to taxation as a C-Corporation. The TRS Lessee has incurred operating losses for financial reporting and federal income tax purposes for 2011, 2010 and 2009.

Fair Value Measurements

We currently do not have any financial instruments that must be measured on a recurring basis under Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 820-10 Fair Value Measurements and Disclosures - Overall; however, we apply the fair value provisions of ASC 820-10-35 Fair Value Measurements and Disclosures - Overall - Subsequent Measurement, for our nonfinancial assets which include our held for sale and held for use hotels. We measure these assets using inputs from Level 3 of the fair value hierarchy.

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Level 3 includes unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

During the 12 months ending December 31, 2011, Level 3 inputs were used to determine impairment losses of $5.8 million on held for sale and sold hotels. This includes the recovery of previously recorded impairment for which sale price or fair value exceeded management’s previous estimates in the amount of $0.3 million on assets held for sale and sold. The Company also recorded $8.5 million in impairment loss on seven held for use hotels. This includes the impairment loss of $3.3 million and the recovery of previously recorded impairment of $0.4 million on four hotels reclassified from held for sale to held for use in the fourth quarter of 2011.

During the 12 months ending December 31, 2010, Level 3 inputs were used to determine impairment losses of $6.1 million on held for sale and sold hotels. These impairment losses include the recovery of previously recorded impairment for which fair value exceeded management’s previous estimates in the amount of $0.9 million on assets held for sale and sold. The Company also recorded $2.1 million in impairment loss on one held for use hotel.

During the 12 months ending December 31, 2009, Level 3 inputs were used to determine impairment losses of $16.7 million on held for sale and sold hotels. These impairment losses include the recovery of previously recorded impairment for which fair value exceeded management’s previous estimates in the amount of $0.07 million on two assets sold in 2009. This recovery was recorded in the period the sale occurred. The Company also recorded $7.4 million in impairment loss on five held for use hotels.

In accordance with ASC 360-10-35 Property Plant and Equipment—Overall—Subsequent Measurement, the Company determines the fair value of an asset held for sale 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 using a market approach. The estimated selling costs are based on our experience with similar asset sales.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. The carrying value and estimated fair value of the Company’s debt, as of December 31, 2011, are presented in the table below:

(In thousands)	Carrying Value				Estimated Fair Value
	December 31,				December 31,
	2011		2010		2011		2010
Continuing operations	$	131,345	$	132,271	$	133,172	$	136,444
Discontined operations		34,500		42,739		35,274		44,417
Total	$	165,845	$	175,010	$	168,446	$	180,861

Preferred and Common Limited Partnership Units in SLP

At December 31, 2011, 2010, and 2009 there were 97,008, 158,161 and 158,161, respectively of SLP common operating units outstanding. These units have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts allocated to the limited partners holding common operating units (whose units are convertible on a one-to-one basis to common shares) since their share of income (loss) would be added back to income (loss). During 2011 and 2009, 61,153 and 1,077,645 common operating units, respectively, were converted into 61,153 and 1,077,645 shares of common stock, respectively. In addition, the 11,424, 51,035 and 51,035 shares of SLP preferred operating units held by the limited partners as of December 31, 2011, 2010 and 2009, respectively, are antidilutive and are therefore excluded from the earnings per share calculation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Preferred Stock of SHI

At December 31, 2011, 2010 and 2009, there were 803,270 shares each year of Series A Preferred Stock. The shares of Series A Preferred Stock, after adjusting the numerator and denominator for the basic EPS computation, are antidilutive for the year ended December 31, 2011, 2010 and 2009, for the earnings per share computation. The exercise price of the preferred stock warrants exceeded the market price of the common stock, and therefore these shares were excluded from the computation of diluted earnings per share. The conversion rights of the Series A Preferred Stock were cancelled as of February 20, 2009. See additional information regarding preferred stock and warrants in Note 12.

At December 31, 2011, 2010 and 2009, there were 332,500 shares, each year, of Series B Cumulative Preferred Stock outstanding. The Series B Cumulative Preferred Stock is not convertible into common stock, therefore, there is no dilutive effect on earnings per share.

Stock-Based Compensation

Options

The Company has a 2006 Stock Plan (the “Plan”) which has been approved by the Company’s shareholders. The Plan authorized the grant of stock options, stock appreciation rights, restricted stock and stock bonuses for up to 200,000 shares of common stock. At the annual shareholders meeting on May 28, 2009, the shareholders of Supertel Hospitality, Inc. approved an amendment to the Supertel 2006 Stock Plan. The amendment increases the maximum number of shares reserved for issuance under the plan from 200,000 to 300,000 and changes the definition of fair market value to mean the closing price of Supertel common stock with respect to future awards under the plan.

The potential common shares represented by outstanding stock options for the years ended December 31, 2011, 2010 and 2009 totaled 215,500, 255,143, and 230,715 respectively, of which 215,500, 255,143 and 230,715 shares, respectively are assumed to be repurchased with proceeds from the exercise of stock options with no shares being dilutive for the purposes of calculating earnings per share.

Share-Based Compensation Expense

The Plan is accounted for in accordance with FASB ASC Topic 718 – 10 Compensation – Stock Compensation – Overall, requiring the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. The expense recognized in the consolidated financial statements for the year ended December 31, 2011, 2010, and 2009 for share-based compensation related to employees and directors was $29, $30 and $6, respectively.

Noncontrolling Interest

Noncontrolling interest in SLP represents the limited partners’ proportionate share of the equity in the operating partnership. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit. See additional information regarding SLP units in Note 11. There were no common operating units redeemed in 2010. During 2011 and 2009, 61,153 and 1,077,645 SLP common operating units of limited partnership interest were redeemed by unit holders for common shares of SHI. At December 31, 2011, the aggregate partnership interest held by the limited partners in SLP was approximately 1.0%. Income is allocated to noncontrolling interest based on the weighted average percentage ownership throughout the year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Concentration of Credit Risk

The Company maintained a major portion of its deposits with Great Western Bank, a Nebraska Corporation at December 31, 2011, 2010 and 2009. The balance on deposit at Great Western Bank exceeded the federal deposit insurance limit; however, management believes that no significant credit risk exists with respect to the uninsured portion of this cash balance.

Note 2. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of any dilutive potential common shares outstanding during the period, if any. The computation of basic and diluted earnings per common share is presented below (dollars in thousands, except share and per share amounts):

	2011			2010			2009
Basic and Diluted Earnings per Share Calculation:
Numerator:
Net loss attributable to common shareholders:
* Continuing operations	$	(12,411	)	$	(7,117	)	$	(13,112	)
* Discontinued operations		(6,508	)		(4,942	)		(15,757	)
Net loss attributable to common shareholders - total	$	(18,919	)	$	(12,059	)	$	(28,869	)
Denominator:
Weighted average number of common shares - basic and diluted		22,977,747			22,556,382			21,646,612
Basic and Diluted Earnings Per Common Share:
Net loss attributable to common shareholders per weighted average common share:
* Continuing Operations	$	(0.54	)	$	(0.31	)	$	(0.60	)
* Discontinued Operations		(0.28	)		(0.22	)		(0.73	)
Total - Basic and Diluted	$	(0.82	)	$	(0.53	)	$	(1.33	)

* The net loss attributable to noncontrolling interest is allocated between continuing and discontinued operations for the purpose of the EPS calculation.

Note 3. Acquisitions and Development

There were no acquisitions and no properties under construction or redevelopment during 2011, 2010, or 2009.

Note 4. Investments in Hotel Properties

Investments in hotel properties consisted of the following at December 31:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

	2011						2010
	Held For Sale		Held For Use		TOTAL		Held For Sale		Held For Use		TOTAL
Land	$	6,367	$	31,624	$	37,991	$	9,390	$	33,585	$	42,975
Acquired below market lease intangibles		69		883		952		69		883		952
Buildings, improvements, vehicle		34,277		180,546		214,823		48,246		192,157		240,403
Furniture and equipment		10,917		42,051		52,968		12,449		41,269		53,718
Construction-in-progress		52		367		419		119		213		332
		51,682		255,471		307,153		70,273		268,107		338,380
Less accumulated depreciation		18,682		79,236		97,918		20,427		77,719		98,146
	$	33,000	$	176,235	$	209,235	$	49,846	$	190,388	$	240,234

Note 5. Net Gains (Losses) on Sales of Properties and Discontinued Operations

In accordance with FASB ASC 205-20 Presentation of Financial Statements – Discontinued Operations, gains, losses and impairment losses on hotel properties sold or classified as held for sale are presented in discontinued operations. Gains, losses and impairment losses for both continuing and discontinued operations are summarized as follows:

	2011			2010			2009
Continuing Operations
Sale of office building	$	1,129		$	—		$	—
Impairment losses		(8,545	)		(2,147	)		(7,399	)
Loss on sale of assets		—			(66	)		(109	)
		(7,416	)		(2,213	)		(7,508	)
Discontinued Operations
Sales of properties	$	376		$	1,414		$	2,520
Impairment losses		(5,763	)		(6,051	)		(16,749	)
Loss on sale of assets		(53	)		(72	)		(147	)
		(5,440	)		(4,709	)		(14,376	)
Total	$	(12,856	)	$	(6,922	)	$	(21,884	)

As of December 31, 2011, the Company has 24 properties classified as held for sale. In 2011, 2010 and 2009, the Company sold six hotels, nine hotels and eight hotels, respectively, resulting in gains of $376, $1,414 and $2,520, respectively. In 2011, 2010, and 2009, the Company recognized net losses and impairment on the disposition of assets of approximately $5,440, $4,775, and $14,485.

The Company allocates interest expense to discontinued operations for debt that is to be assumed or that is required to be repaid as a result of the disposal transaction. The Company allocated $3,717, $3,330, and $4,204 to discontinued operations for the years ended December 31, 2011, 2010, and 2009, respectively.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

The operating results of hotel properties included in discontinued operations are summarized as follows:

	2011			2010			2009
Revenues	$	22,080		$	27,080		$	33,001
Hotel and property operations expenses		(19,504	)		(23,488	)		(27,881	)
Interest expense		(3,717	)		(3,330	)		(4,204	)
Depreciation and amortization expense		(1,171	)		(1,738	)		(3,814	)
General and administrative expense		(50	)		(71	)		—
Net gain on dispositions of assets		323			1,342			2,373
Impairment loss		(5,763	)		(6,051	)		(16,749	)
Income tax benefit		1,266			1,285			1,352
	$	(6,536	)	$	(4,971	)	$	(15,922	)

As of December 31, 2011, the Company had 24 hotels classified as held for sale. At the beginning of 2011 the Company had 18 hotels held for sale and during the year classified an additional nineteen hotels as held for sale. Six of these hotels were sold during 2011, and seven of the hotels were reclassified as held for use due to changes in the property’s market condition. Since our previously filed financial statements on Form 10-Q as of September 30, 2011, in addition to the six hotels reclassified as held for use, eleven hotels were reclassified as held for sale. The impact of these changes was to increase losses from continuing operations by $0.2 million and $0.6 million for the years ended 2010 and 2009, respectively, compared to the previously filed financial statements in the 2010 Form 10-K.

Note 6. Impairment Losses

In accordance with FASB ASC 360-10-35 Property Plant and Equipment – Overall - Subsequent Measurement, the Company analyzes its assets for impairment loss when events or circumstances occur that indicate the carrying amount may not be recoverable. As part of this process, the Company utilizes a two-step analysis to determine whether a trigger event (within the meaning of ASC 360-10-35) has occurred with respect to cash flow of, or a significant adverse change in business climate for, its hotel properties. Quarterly and annually the Company reviews all of its held for use hotels to determine any property whose cash flow or operating performance significantly underperformed from budget or prior year, which the Company has set as a shortfall against budget or prior year as 15% or greater.

At year end the Company applies a second analysis on the entire held for use portfolio. The analysis estimates the expected future cash flows to identify any property whose carrying amount potentially exceeded the recoverable value. (Note that at the end of each quarter, this analysis is performed only on those properties identified in the 15% change analysis). In performing this year end analysis, the Company makes the following assumptions:

• Holding periods range from three to five years for non-core assets, and ten years for those assets considered as core.

• Cash flow from trailing twelve months for the individual properties multiplied by the holding period as noted above. The Company does not assume growth rates on cash flows as part of its step one analysis.

• A revenue multiplier for the terminal value based on an average of historical sales from leading industry brokers of like properties was applied according to the assigned holding period.

As of June 30, 2011 and December 31, 2011, the analysis above was used to determine that a trigger event as described in ASC 360-10-35 occurred for one and two of our held for use properties, respectively. In each case the carrying value of the hotel exceeded the sum of the undiscounted cash flows expected over its remaining anticipated holding period and from its disposition. Each property was then tested to determine if the carrying amount was recoverable using property specific assumptions. When testing the recoverability for a property, in accordance with FASB ASC 360-10-35 35-29 Property Plant and Equipment – Overall – Subsequent Measurement, Estimates of Future Cash Flows Used to Test a Long-Lived Asset for Recoverability, the Company uses estimates of future cash flows associated with the individual property over the expected holding period and eventual disposition.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

In estimating these future cash flows, the Company incorporates its own assumptions about its use of the hotel property and expected hotel performance. Assumptions used for the individual hotels were determined by management, based on discussions with our asset management group and our third party management companies. Each property was then subjected to a probability-weighted cash flow analysis as described in FASB ASC 360-10-55 Property Plant and Equipment – Overall – Implementation. In this analysis, the Company completed a detailed review of each hotel’s market conditions and future prospects, which incorporated specific detailed cash flow and revenue multiplier assumptions over the remaining expected holding periods, including the probability that the property will be sold. Based on the results of this analysis, it was determined that the Company’s investment in the subject properties was not fully recoverable; accordingly, impairment was recognized.

To determine the amount of impairment on the properties identified above, in accordance with FASB ASC 360-10-55, the Company calculated the excess of the carrying value of the property in comparison to its fair market value as of June 30, 2011 and December 31, 2011. As discussed in Note 1 - Fair Value Measurements, the fair market values were determined using Level 3 inputs in accordance with ASC 820-10-35 Fair Value Measurements and Disclosures – Overall – Subsequent Measurement. Based on this calculation, the Company determined total impairment of $2.8 million existed as of June 30, 2011 on the one held for use asset and $2.8 million existed as of December 31, 2011 on the two assets previously noted. Fair market value was determined by multiplying trailing 12 months’ revenue for the property by a revenue multiplier that was determined based on the company’s experience with similar hotel sales in the current year, available industry information and brokers’ opinions of value. As the fair market value of the properties impaired for the year ending December 31, 2011, was determined in part by management estimates, a reasonable possibility exists that future changes to inputs and assumptions could affect the accuracy of management’s estimates and such future changes could lead to further possible impairment in the future. During the 12 months ending December 31, 2011, the Company recorded impairment losses of $3.3 million and the recovery of previously recorded impairment of $0.4 million on four hotels reclassified from held for sale to held for use in the fourth quarter of 2011.

Note 7. Long-Term Debt

Long-term debt consisted of the following notes and mortgages payable at December 31:

	2011		2010
Mortgage loan payable to Greenwich Capital Financial Products, Inc. (“Greenwich”), evidenced by a promissory note dated November 26, 2002, in the amount of $40 million. The note bears interest at 7.50% per annum. Monthly principal and interest payments are payable through maturity on December 1, 2012, at which point the remaining principal and accrued interest are due.	$	29,406	$	30,972
Revolving credit facility from Great Western Bank, previously evidenced by a promissory note dated December 3, 2008. The revolving line of credit had a limit of $20 million with interest payable monthly. On December 9, 2011, the facility was refinanced into a $12.5 million revolving credit facility and a $7.5 million mortgage loan (see below). The facility bears interest at 5.95% per annum. On February 21, 2012, the maturity was extended to June 30, 2013.	$	10,443	$	15,793

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

	2011		2010
Mortgage loan payable to Great Western Bank evidenced by a promissory note dated December 9, 2011, in the amount of $7.5 million. The note bears interest at 6% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On February 21, 2012, the maturity was extended to June 30, 2013.	$	7,500	$	0
Mortgage loan payable to Great Western Bank evidenced by a promissory note dated December 3, 2008, in the amount of $14 million. The note bears interest at 6% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On February 21, 2012, the maturity was extended to June 30, 2013.	$	9,830	$	11,832
Mortgage loan payable to Great Western Bank evidenced by a promissory note dated May 5, 2009, in the amount of $10 million. The note bears interest at 6% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On February 21, 2012, the maturity was extended to June 30, 2013.	$	9,244	$	9,551
Credit facility from Wells Fargo Bank for up to $12 million, previously evidenced by a promissory note dated September 28, 2007. The note was modified on March 16, 2009 to reduce the amount available for borrowing to $9.5 million and eliminate the revolving feature. The note was sold to Fredericksburg North Investors, LLC on November 21, 2011. The note bears interest at 10% per annum and requires the outstanding principal and interest to be paid in full on May 31, 2012. The note was paid in full on February 16, 2012.	$	2,120	$	5,294
Mortgage loan payable to Citigroup Global Markets Realty Corp. evidenced by a promissory note dated November 7, 2005, in the amount of $14.8 million. The note bears interest at 5.97% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on November 11, 2015.	$	13,030	$	13,373
Mortgage loan payable to General Electric Capital Corporation (“GECC”) evidenced by a promissory note dated December 31, 2007, in the amount of $7.9 million. The note bears interest at three-month LIBOR plus 2.00% (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	4,806	$	5,268
Mortgage loan payable to GECC evidenced by a promissory note dated August 18, 2006, in the amount of $17.9 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until September 1, 2016 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	16,343	$	16,718

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

	2011		2010
Mortgage loan payable to GECC evidenced by a promissory note dated January 5, 2007, in the amount of $15.6 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until February 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	12,674	$	13,061
Mortgage loan payable to GECC evidenced by a promissory note dated February 6, 2007, in the amount of $3.4 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until March 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	3,173	$	3,239
Mortgage loan payable to GECC evidenced by a promissory note dated May 16, 2007, in the amount of $27.8 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until June 1, 2017, when the remaining principal balance is due. The principal amount owing on this loan includes $1.09 million of prepayment fees related to principal prepayments required in connection with hotel sales. GECC has agreed to forbear from requiring payment of such prepayment fees until December 31, 2012. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.69%.	$	13,562	$	20,994
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.5 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	1,481	$	1,597
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.8 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.2 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	1,629	$	1,756
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $4.2 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $3.3 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	2,478	$	2,671

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

	2011		2010
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $5.1 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $4.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	3,024	$	3,260
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $6.8 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	6,460	$	6,709
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $3.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	3,228	$	3,352
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $1.1 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	1,050	$	1,091
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008 in the amount of $4.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	4,159	$	4,319
Mortgage Loan payable to GECC evidenced by a promissory note dated January 31, 2008 in the amount of $2.5 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 256 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.59%.	$	2,363	$	2,449

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

	2011		2010
Mortgage Loan payable to Elkhorn Valley Bank evidenced by a promissory note, dated March 19, 2009, in the amount of $1.0 million. The note bears interest at 6.5%. Monthly principal and interest payments are due through March 2014, with the balance of the loan payable on April 1, 2014. On September 30, 2011, the balance of the loan was paid in full with proceeds from the sale of the corporate office building.	$	0	$	871
Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated September 20, 2011, in the amount of $0.96 million. The note bears interest at 5.75%. Monthly principal and interest payments are due through September 2013, with the balance of the loan payable on September 15, 2013.	$	943	$	0
Mortgage Loan payable to First National Bank of Omaha evidenced by a promissory note dated January 26, 2010, in the amount of $0.8 million. The note bears interest at the one month London Interbank Offered Rate plus 4.0 percentage points with a 5.0% floor. The rate as of December 31, 2011 was 5.0%. Monthly interest payments are due through maturity, with the balance of the loan due on the maturity date. On March 1, 2012, the maturity of the note was extended to May 1, 2012.	$	840	$	840
Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated June 7, 2011, in the amount of $3.1 million. The note bears interest at 6.25%. Monthly principal and interest payments are due through June 2016, with the balance of the loan payable on June 15, 2016.	$	3,059	$	0
Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated November 9, 2011, in the amount of $5.0 million. The note bears interest at 5.75%. Monthly interest payments are due through June 2012, with the balance of the loan payable on June 1, 2012. The loan was paid in full on February 3, 2012.	$	3,000	$	0
Total Debt	$	165,845	$	175,010

The long-term debt is secured by 100 and 106 of the Company’s hotel properties, as of December 31, 2011 and 2010, respectively. The Company’s debt agreements contain requirements as to the maintenance of minimum EBITDA levels, minimum levels of debt service and fixed charge coverage and required loan-to-value ratios and net worth, and place certain restrictions on distributions.

The key financial covenants for certain of our loan agreements and compliance calculations as of December 31, 2011 are discussed below (each such covenant is calculated pursuant to the applicable loan agreement). As of December 31, 2011, we were either in compliance with the financial covenants or obtained waivers for non-compliance (as discussed below). As a result, we are not in default of any of our loans.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				37,433
Adjusted NOI per loan agreement (A)			$	19,956
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				6,215
Debt service per loan agreement (B)			$	18,617
Consolidated debt service coverage ratio				1.07:1

* Calculations based on prior four quarters

Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				21,105
Adjusted NOI per loan agreement (A)			$	3,628
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				(8,885	)
Debt service per loan agreement (B)			$	3,517
Loan-specific debt service coverage ratio				1.03:1

* Calculations based on prior four quarters

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated leverage ratio calculated as follows:		£4.25
Total liabilities (A) / Tangible net worth (B)
Total liabilities per financial statements and loan agreement (A)			$	176,549
Total assets per financial statements				221,172
Total liabilities per financial statements				176,549
Tangible net worth per loan agreement (B)			$	44,623
Consolidated Leverage Ratio:				3.96

The Great Western Bank credit facilities also require maintenance of consolidated and loan-specific loan to value ratios that do not exceed 70% tested annually commencing on December 31, 2012, and that we not pay dividends in excess of 75% of our funds from operations per year. The consolidated and loan-specific debt service coverage ratios for the credit facilities remain at 0.9 to 1, tested quarterly, through June 29, 2012. The consolidated debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through the maturity of the credit facilities. The loan-specific debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through December 30, 2012 and 1.20 to 1, tested quarterly, from December 31, 2012 through the maturity of the credit facilities.

The credit facilities with Great Western Bank currently consist of a $12.5 million revolving credit facility and term loans of $14 million, $10 million and $7.5 million. All loans under the credit facilities mature on June 30, 2013. The interest rate on the revolving credit portion of the credit facilities is 5.95% and the interest rate on the term loan portion of the credit facilities is 6.00%.

The credit facilities provide for $12.5 million of availability under the revolving credit facility through June 30, 2012, after which the loans available to us through the revolving credit facility and term loans may not exceed the lesser of (a) an amount equal to 70% of the total appraised value of the hotels securing the credit facilities and (b) an amount that would result in a loan-specific debt service coverage ratio of less than 1.05 to 1 from July 1, 2012 through December 30, 2012 and 1.20 to 1 from December 31, 2012 through the maturity of the credit facilities. The credit facilities require a $500 reduction in the availability of the revolving credit facility by September 30, 2012 and an additional $500 reduction by December 31, 2012.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³1.05:1
Adjusted EBITDA (A) / Debt service (B)
Net loss per financial statements				(17,477	)
Net adjustments per loan agreement				35,832
Adjusted EBITDA per loan agreement (A)			$	18,355
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				5,063
Debt service per loan agreement (B)				17,465
Consolidated debt service coverage ratio				1.05:1

* Calculations based on prior four quarters

GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific total adjusted EBITDA calculated as follows: *		³$3.9 million
Net loss per financial statements				(17,477	)
Net adjustments per loan agreement				22,273
Loan-specific total adjusted EBITDA			$	4,796

* Calculations based on prior four quarters

On March 29, 2012, our credit facilities with General Electric Capital Corporation (GE) were amended to replace existing financial covenant requirements with new financial covenant requirements. The new financial covenants require that, through the term of the loans, we maintain: (a) a minimum before dividend fixed charge coverage ratio (FCCR) with respect to our GE-encumbered properties (based on a rolling 12-month period) of 0.85:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2015; (b) a maximum loan to value ratio with respect to our GE-encumbered properties of 100% as of March 31, 2012, which requirement decreases quarterly thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.95:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.00:1 as of December 31, 2013.

The GE amendment, among other things, also: (a) shortens the maturity date of the loans secured by the Masters Inn hotels and Savannah Suites hotels to December 31, 2014; (b) requires a principal prepayment of $7 million on or before December 31, 2012; (c) provides that the previous increases to the interest rates on the loans will remain in effect and will not be reduced in the future if we achieve a particular FCCR; (d) adds cross-default provisions with our other material debt and most favored lender provisions; and (e) implements restrictions on the prepayment of other debt.

In May 2008, we converted the interest rates on certain of our GE loans to fixed rates. Because interest rates have since decreased, there are yield maintenance costs associated with prepayments of those loans. The yield maintenance cost associated with the most recent Masters Inn sale was 16.5% of the amount prepaid. The GE amendment implements fixed prepayment fees on the loans secured by the Masters Inn hotels and Savannah Suites hotels (in lieu of the yield maintenance costs) which start at 2.5% of the amount prepaid in 2012 and increase over time up to 10% of the amount prepaid.

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 and GE credit facilities contain cross-default provisions which would allow Great Western Bank and GE to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. We are not in default of any of our loans.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

At December 31, 2011, we had long-term debt of $131.3 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 3.5 years and a weighted average interest rate of 6.37%. The weighted average fixed rate was 6.9%, and the weighted average variable rate was 4.7%. Debt held on properties in continuing operations is classified as held for use. Debt is classified as held for sale if the properties collateralizing it are included in discontinued operations. Debt associated with assets held for sale is classified as a short-term liability due within the next year irrespective of whether the notes and mortgages evidencing such debt mature within the next year. Aggregate annual principal payments on debt associated with assets held for use for the next five years and thereafter, and debt associated with assets held for sale, are as follows:

	Held For Sale		Held For Use		TOTAL
2012	$	34,500	$	57,330	$	91,830
2013		—		3,537		3,537
2014		—		3,763		3,763
2015		—		15,434		15,434
2016		—		18,656		18,656
Thereafter		—		32,625		32,625
	$	34,500	$	131,345	$	165,845

At December 31, 2011, the Company had $91.8 million of principal due in 2012. Of this amount, $76.7 million of the principal due is associated with either assets held for use or assets held for sale, and matures in 2012 pursuant to the notes and mortgages evidencing such debt. The remaining $15.1 million is associated with assets held for sale and is not contractually due in 2012 unless the related assets are sold. The maturities comprising the $76.7 million consist of:

• a $7.5 million balance on a term loan with Great Western Bank;

• a $9.8 million balance on a term loan with Great Western Bank;

• a $9.2 million balance on a term loan with Great Western Bank;

• a $10.5 million balance on a revolving line of credit with Great Western Bank;

• a $29.4 million balance on the loan with Greenwich Capital;

• a $0.8 million note payable to First National Bank of Omaha;

• a $3.0 million balance on a revolving credit facility with Elkhorn Valley Bank;

• a $2.1 million note payable to Fredericksburg North Investors, LLC;

• a $1.1 million balance on a note payable to General Electric Capital Corporation; and

• approximately $3.3 million of principal amortization on mortgage loans.

The carrying value and estimated fair value of the Company’s debt, as of December 31, 2011, are presented in the table below:

	Carrying Value				Estimated Fair Value
	December 31,				December 31,
	2011		2010		2011		2010
Continuing operations	$	131,345	$	132,271	$	133,172	$	136,444
Discontinued operations		34,500		42,739		35,274		44,417
Total	$	165,845	$	175,010	$	168,446	$	180,861

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

The fair values were estimated by discounting future cash payments to be made at rates that approximate rates currently offered for loans with similar maturities.

Note 8. Income Taxes

The RMA was included in the Tax Relief Extension Act of 1999, which was enacted into law on December 17, 1999. The RMA includes numerous amendments to the provisions governing the qualification and taxation of REITs, and these amendments were effective January 1, 2001. One of the principal provisions included in the Act provides for the creation of TRS. TRS’s are corporations that are permitted to engage in nonqualifying REIT activities. A REIT is permitted to own up to 100% of the voting stock in a TRS. Previously, a REIT could not own more than 10% of the voting stock of a corporation conducting nonqualifying activities. Relying on this legislation, in November 2001, the Company formed the TRS Lessee.

As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income of a TRS is subject to federal, state and local income taxes.

In connection with the Company’s election to be taxed as a REIT, it has also elected to be subject to the “built-in gain” rules on the assets formerly held by the old Supertel. Under these rules, taxes will be payable at the time and to the extent that the net unrealized gains on assets at the date of conversion to REIT status are recognized in taxable dispositions of such assets in the ten-year period following conversion. The ten-year period ended November 1, 2011.

At December 31, 2011, the income tax bases of the Company’s assets and liabilities excluding those of TRS were approximately $237,775 and $150,572, respectively; at December 31, 2010, they were approximately $263,706 and $166,997, respectively.

The TRS net operating loss carryforward from December 31, 2011 as determined for federal income tax purposes was approximately $14.6 million. The availability of such loss carryforward will begin to expire in 2022.

Income tax benefit from continuing operations for the years ended December 31, 2011, 2010 and 2009 consists of the following:

	2011									2010									2009
	Federal			State			Total			Federal			State			Total			Federal			State			Total
Deferred tax benefit		(536	)		(102	)		(638	)		(396	)		(76	)		(472	)		(242	)		(53	)		(295	)
Total income tax benefit	$	(536	)	$	(102	)	$	(638	)	$	(396	)	$	(76	)	$	(472	)	$	(242	)	$	(53	)	$	(295	)

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

The actual income tax benefit from continuing operations of the TRS for the years ended December 31, 2011, 2010 and 2009 differs from the “expected” income tax benefit (computed by applying the appropriate U.S. federal income tax rate of 34% to earnings before income taxes) as a result of the following:

	2011			2010			2009
Computed “expected” income tax benefit	$	(571	)	$	(465	)	$	(254	)
State income taxes, net Federal income tax benefit		(67	)		(55	)		(35	)
Other		—			48			(6	)
Total income tax benefit	$	(638	)	$	(472	)	$	(295	)

The continuing and discontinued combined tax effects of temporary differences that give rise to significant portions of the deferred tax assets and the deferred tax liability at December 31, 2011, 2010 and 2009 are as follows:

	2011		2010		2009
Deferred Tax Assets:
Expenses accrued for consolidated financial statement purposes, nondeductible for tax return purposes	$	326	$	297	$	281
Net operating losses carried forward for federal income tax purposes		5,524		3,827		2,511
Total deferred tax assets		5,850		4,124		2,792
Deferred Liabilities:
Tax depreciation in excess of book depreciation		240		418		843
Total deferred tax liabilities		240		418		843
Net deferred tax assets	$	5,610	$	3,706	$	1,949

The TRS has estimated its income tax benefit using a combined federal and state rate of approximately 38%. As of the year ended 2011, 2010 and 2009 the TRS had deferred tax assets of $5.9 million, $4.1 million and $2.8 million, respectively, primarily due to current and past years’ tax net operating losses. These loss carryforwards will begin to expire in 2022 through 2031. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers projected scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. These estimates of future taxable income inherently require significant judgment. Management uses historical experience and short and long-range business forecasts to develop such estimates. Further, we employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent management does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material impact on our financial condition and results of operations. Based on consideration of these items, management has determined that no valuation allowance is required.

Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate based on the facts and circumstances at the time while the actual effective rate is calculated at year end. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. There is no valuation allowance at December 31, 2011, 2010 or 2009. As of December 31, 2011, the tax years that remain subject to examination by major tax jurisdictions generally include 2007 through 2011.

Dividends Paid

There were no dividends paid during the years ended December 31, 2011 and 2010. Dividends paid were $0.08 per share during the year ended December 31, 2009; of which $0.053 represented capital gain distribution and $0.027 represented a nondividend distribution to shareholders.

Note 9. Commitments and Contingencies and Other Related Party Transactions

Hospitality Management Advisors, Inc. (“HMA”), Strand Development Company LLC (“Strand”), Kinseth Hotel Corporation (“Kinseth”), and HLC Hotels, Inc. (“HLC”), independent contractors, manage our hotels pursuant to hotel management agreements with TRS Lessee. The management agreements provide that the management companies have control of all operational aspects of the hotels, including employee-related matters. HMA, Strand, Kinseth, and HLC must generally maintain each hotel in good repair and condition and make routine maintenance, repairs and minor alterations. Additionally, the management companies must operate the hotels in accordance with third party franchise agreements that cover the hotels, which includes using franchisor sales and reservation systems as well as abiding by franchisors’ marketing standards. HMA, Strand, Kinseth and HLC may not assign their management agreements without our consent. For further information regarding terms of the agreements see note 1.

The management agreements generally require TRS Lessee to fund debt service, working capital needs, capital expenditures and to reimburse the management companies for all budgeted direct operating costs and expenses incurred in the operation of the hotels. TRS Lessee is responsible for obtaining and maintaining insurance policies with respect to the hotels.

The remaining amount due Royco Hotels as financial settlement of the lawsuit and fees owed to Royco Hotels as termination fees for hotels that have been sold is $335.

With the exception of certain events of default as to which no grace period exists, if an event of default occurs and continues beyond the grace period set forth in the management agreement, the non-defaulting party has the option of terminating the agreement.

The management agreements provide that each party, subject to certain exceptions, indemnifies and holds harmless the other party against any liabilities stemming from certain negligent acts or omissions, breach of contract, willful misconduct or tortuous actions by the indemnifying party or any of its affiliates.

In an effort to meet the Company’s short-term liquidity needs, and because of the difficulty encountered in obtaining sources of borrowing to meet such needs, on November 10, 2011 the Audit Committee of the Board of Directors, then consisting of Messrs. Jung, Whittemore, and Zwerdling, approved a proposal for the purchase by four of the Company directors, Messrs. Borgmann, Dayton, Latham, and Walters (the “Purchasing Directors”), of the Amended and Restated Master Promissory Note maturing November 30, 2011 from Wells Fargo Bank, National Association (the “Note”) for the balance owed of principal and interest in the amount of $2.1 million.

The Purchasing Directors purchased the Note from Wells Fargo on November 21, 2011. The Note was secured by two of the Company’s hotels and the Purchasing Directors released one of the hotels from security for the Note so that it could be used as security by the Company to obtain a $5.0 million line of credit with Elkhorn Valley Bank. Each of the Purchasing Directors also separately guaranteed $0.75 million of the line of credit (the “Elkhorn Line of Credit”).

The Audit Committee approved an amendment of the Note to extend its maturity to May 31, 2012 and to increase the per annum interest rate of 4.5% to 10% as consideration for the Purchasing Directors releasing the Company’s hotel from security for the Note. As consideration for the personal guaranties by the Purchasing Directors of Elkhorn Line of Credit, the Audit Committee approved payment of a fee of 2% per annum of the amount of their personal guaranties.

Proceeds from the sale of the Series C preferred stock were used in February 2012 to repay the Note and the Elkhorn Line of Credit, and the Purchasing Directors were released from their personal guaranties. Each of the Purchasing Directors received $13 in interest payments on the Note and a $4 fee for their personal guarantee of the Elkhorn Line of Credit.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Litigation

Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties. Based upon the information available, the Company believes that the resolution of any of these claims and legal proceedings should not have a material adverse affect on its consolidated financial position, results of operations or cash flows.

Other

The Company assumed land lease agreements in conjunction with the purchase of three hotels. One lease requires monthly payments of the greater of $2 or 5% of room revenue through November 2091. A second lease requires monthly payments of $1 through 2017 with approximately $1 annual increase beginning January 1, 2018, with additional increases in 2033, 2043, 2053 and 2063. A third lease requires annual payments of $34, with approximately $3 increases every five years throughout twelve renewal periods. Land lease expense from continuing operations totaled approximately $112, $111 and $109 in 2011, 2010 and 2009, respectively, and is included in property operating expense.

The Company entered into office lease agreements in May of 2010 and December of 2011. The two office leases mature in 2016 with the option to renew an additional five years. Office lease expense totaled $59 and $14 during 2011 and 2010, respectively. No office lease expense was incurred during 2009.

As of December 31, 2011, the future minimum lease payments applicable to non-cancellable operating leases are as follows:

	Lease rents
2012	$	226
2013		240
2014		241
2015		242
2016		229
Thereafter		4,634
	$	5,812

The land leases reflected in the table above represent continuing operations. In addition, the Company has two land leases associated with properties in discontinued operations. These two properties are expected to be sold in the next 12 months. The annual lease payments of $105 are not included in the table above.

The Company as of December 31, 2011 has agreements with two restaurants and one cell tower operator for leased space at our hotel locations related to continuing operations. The restaurant leases have maturity dates ranging from 2012 to 2020 and the cell tower lease has a maturity date of 2014. The restaurant leases have escalation clauses. The escalations are based on percentages of gross sales. The restaurant and cell tower lease income from continuing operations totaled approximately $289, $285 and $284 in 2011, 2010 and 2009, respectively, and is included in room rentals and other hotel services.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

As of December 31, 2011, the future minimum lease receipts from the non-cancellable restaurants and cell tower leases are as follows:

	Lease receipts
2012	$	55
2013		44
2014		44
2015		30
2016		30
Thereafter		120
	$	323

Note 10. Redeemable Preferred Stock

On June 3, 2008 the Company offered and sold 332,500 shares of 10.0% Series B Cumulative Preferred Stock. The shares were sold for $25.00 per share and bear a liquidation preference of $25.00 per share. Underwriting and other costs of the offering totaled approximately $0.6 million to the Company. The net proceeds plus additional cash were used by the Company to pay an $8.5 million bridge loan with General Electric Capital Corporation. At December 31, 2011, 332,500 shares of 10.0% Series B preferred stock remained outstanding.

Dividends on the Series B preferred stock are cumulative and are payable quarterly in arrears on each March 31, June 30, September 30 and December 31, or, if not a business day, the next succeeding business day, at the annual rate of 10.0% of the $25.00 liquidation preference per share, equivalent to a fixed annual amount of $2.50 per share. Dividends on the Series B preferred stock accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series B preferred stock will not bear interest.

The Series B preferred stock will, with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up, rank senior to the Company’s common stock, senior to all classes or series of preferred stock issued by the Company and ranking junior to the Series B preferred stock with respect to dividend rights or rights upon the Company’s liquidation, dissolution or winding up, on a parity with the Company’s Series A preferred stock and with all classes or series of preferred stock issued by the Company and ranking on a parity with the Series B preferred stock with respect to dividend rights or rights upon the Company’s liquidation, dissolution or winding up and junior to all of the Company’s existing and future indebtedness.

The Company will not pay any distributions, or set aside any funds for the payment of distributions, on its common shares, unless it has also paid (or set aside for payment) the full cumulative distributions on the preferred shares for the current and all past dividend periods. The Series B preferred stock has no stated maturity and is not subject to any sinking fund or mandatory redemption.

The Series B preferred stock is not redeemable prior to June 3, 2013, except in certain limited circumstances relating to the maintenance of the Company’s ability to qualify as a REIT as provided in the Company’s articles of incorporation or a change of control (as defined in the Company’s amendment to its articles of incorporation establishing the Series B preferred stock). The Company may redeem the Series B preferred stock, in whole or in part, at any time or from time to time on or after June 3, 2013 for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends. Also, upon a change of control, each outstanding share of the Company’s Series B preferred stock will be redeemed for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends. At December 31, 2011, no events have occurred that would lead the Company to believe redemption of the preferred stock, due to a change of control or failure to maintain its REIT qualification, is probable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Note 11. Noncontrolling Interest of Common and Preferred Units in SLP

At December 31, 2011, 97,008 of SLP’s common operating partnership units (“Common OP Units”) were outstanding. The redemption values for the Common OP Units are $64 and $250 for 2011 and 2010 respectively. Each limited partner of SLP may, subject to certain limitations, require that SLP redeem all or a portion of his or her Common OP Units, at any time after a specified period following the date the units were acquired, by delivering a redemption notice to SLP. When a limited partner tenders Common OP Units to SLP for redemption, the Company can, in its sole discretion, choose to purchase the units for either (1) a number of shares of Company 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 shares of Company common stock the limited partner would have received if the Company chose to purchase the units for common stock. During 2011 and 2009, 61,153 and 1,077,645, respectively, Common OP Units were redeemed for common shares of SHI.

At December 31, 2011, 11,424 of SLP’s preferred operating partnership units (“Preferred OP Units”) were outstanding. The redemption value for the Preferred OP Units is $114 for December 31, 2011. The Preferred OP Units receive a preferred dividend distribution of $1.10 per preferred unit annually, payable on a monthly basis and do not participate in the allocations of profits and losses of SLP. Distributions to holders of Preferred OP Units have priority over distributions to holders of Common OP Units. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit. The remaining 11,424 units will continue to be carried outside of permanent equity at redemption value.

Noncontrolling Interest Reconciliation of Common and Preferred Units

	Redeemable Noncontrolling Interest			Noncontrolling Interest			Total Noncontrolling Interest
Balance at January 1, 2009	$	1,778		$	8,064		$	9,842
Partner draws		(172	)		—			(172	)
Conversion of OP units		—			(7,354	)		(7,354	)
Reclassification of OP units to current liability		(1,267	)		—			(1,267	)
Noncontrolling interest expense		172			(302	)		(130	)
Balance at December 31, 2009	$	511		$	408		$	919
Partner draws		(56	)		—			(56	)
Noncontrolling interest expense		56			(73	)		(17	)
Balance at December 31, 2010	$	511		$	335		$	846
Partner draws		(49	)		—			(49	)
Conversion of OP units		(397	)		(119	)		(516	)
Noncontrolling interest expense		49			(81	)		(32	)
Balance at December 31, 2011	$	114		$	135		$	249

Note 12. Common and Preferred Stock

The Company’s common stock is duly authorized, full paid and non-assessable. At December 31, 2011 and 2010, members of the Board of Directors and executive officers owned approximately 18.5% and 19%, respectively, of the Company’s outstanding common stock.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

At December 31, 2011, 97,008 of SLP’s common operating partnership units (“Common OP Units”) and 11,424 of SLP’s preferred operating partnership units (“Preferred OP Units”) were outstanding. The combined redemption value for the Common OP Units and Preferred OP Units are $178 and $761 as of December 31, 2011 and 2010, respectively. Each limited partner of SLP may, subject to certain limitations, require that SLP redeem all or a portion of his or her Common OP Units or Preferred OP Units, at any time after a specified period following the date the units were acquired, by delivering a redemption notice to SLP. When a limited partner tenders Common OP Units to SLP for redemption, the Company can, in its sole discretion, choose to purchase the units for either (1) a number of shares of Company 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 shares of Company common stock the limited partner would have received if the Company chose to purchase the units for common stock. The Preferred OP Units were, as noted below, convertible by the holders into Common OP Units on a one-for-one basis or, at the option of the holders, redeemable for cash at $10 per unit until October 2010. The Preferred OP Units receive a preferred dividend distribution of $1.10 per preferred unit annually, payable on a monthly basis and do not participate in the allocations of profits and losses of SLP. During 2011 and 2009, 61,153 and 1,077,645, respectively, Common OP Units of limited partnership interest were redeemed for common shares of SHI. During 2010, no Common OP Units were redeemed for common shares of SHI. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit.

On December 30, 2005 the Company offered and sold 1,521,258 shares of 8% Series A preferred stock. The shares were sold for $10.00 per share and bear a liquidation preference of $10.00 per share. At December 31, 2011, 2010 and 2009, 803,270 shares each year of Series A preferred stock remained outstanding.

Dividends on the Series A preferred stock are cumulative and are payable monthly in arrears on the last day of each month, at the annual rate of 8% of the $10.00 liquidation preference per share, equivalent to a fixed annual amount of $.80 per share. Dividends on the Series A preferred stock accrue regardless of whether or not the Company has earnings, whether there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Unpaid dividends will accumulate and bear additional dividends at 8%, compounded monthly.

The Series A preferred stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up, ranks senior to all classes or series of the Company’s common stock, senior or on parity with all other classes or series of preferred stock and junior to all of the Company’s existing and future indebtedness. Upon liquidation all Series A preferred stock will be entitled to $10.00 per share plus accrued but unpaid dividends. The Company will not pay any distributions, or set aside any funds for the payment of distributions, on its common shares unless it has also paid (or set aside for payment) the full cumulative distributions on the preferred shares for the current and all past dividend periods. The outstanding preferred shares do not have any maturity date, and are not subject to mandatory redemption.

The Series A preferred stock had no conversion rights, the former conversion rights of the Series A preferred stock were cancelled as of February 20, 2009.

The Series A preferred stock will be redeemable on or after January 1, 2009 for cash, at the Company’s option, in whole or from time to time in part, at $10.00 per share, plus accrued and unpaid dividends to the redemption date.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

On May 10, 2010, the Company consummated the sale of 598,803 shares of its common stock and 299,403 warrants to purchase up to an additional 299,403 shares of the Company’s common stock for aggregate gross proceeds of $1.0 million, pursuant to the terms of a Private Placement Memorandum with accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. The warrants are exercisable for a period of three years from the date of issuance at an exercise price of $2.50.

During 2010 we sold 316,384 shares of common stock using a Standby Equity Distribution Agreement. Net proceeds of $480 were used for corporate purposes.

On March 29, 2011, the Company entered into an equity distribution agreement with JMP Securities LLC (“JMP”) pursuant to which the Company may offer and sell up to 2.0 million shares of common stock from time to time through JMP. Sales of shares of the Company common stock, if any, under the agreement may be made in negotiated transactions or other transactions that are deemed to be “at the market” offerings, including sales made directly on the Nasdaq Global Market or sales made to or through a market maker other than on an exchange. The common stock will be sold pursuant to the Company’s registration statement on Form S-3 (333-170756). The Company sold through JMP, as its agent, an aggregate of 91,725 shares of common stock in 2011 and 65,000 shares of common stock in the fourth quarter of 2011, pursuant to ordinary brokers’ transactions on the Nasdaq Global Market. Gross proceeds in 2011 were $97, commissions to agent were $5, other miscellaneous expenses were $3 and net proceeds to the Company were $89. Gross proceeds in the fourth quarter of 2011 were $53, commissions to agent were $3 and net proceeds to company were $50.

The Company also has Series B preferred stock outstanding. See Note 10. Subsequent to December 31, 2011, the Company issued and sold 3,000,000 shares of its Series C Preferred Stock. See Note 15.

Note 13. Stock-Based Compensation

Upon initial issuance of stock options on May 25, 2006, the Company adopted the provisions of FASB ASC 718-10-30 Compensation – Stock Compensation – Overall – Initial Measurement, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values.

Options

The Company has a 2006 Stock Plan (the “Plan”) which has been approved by the Company’s shareholders. The Plan authorized the grant of stock options, stock appreciation rights, restricted stock and stock bonuses for up to 200,000 shares of common stock. At the annual shareholders meeting on May 28, 2009, the shareholders of Supertel Hospitality, Inc. approved an amendment to the Supertel 2006 Stock Plan. The amendment increases the maximum number of shares reserved for issuance under the plan from 200,000 to 300,000 and changes the definition of fair market value to mean the closing price of Supertel common stock with respect to future awards under the plan.

As of December 31, 2011, 215,500 stock options have been awarded under the Plan. The exercise price is equal to the average of the high and low sales price of the stock as reported on the National Association of Securities Dealers Automated Quotation system (NASDAQ) on the grant date. A total of 215,500 shares of common stock have been reserved for issuance pursuant to the Plan with respect to the granted options. There is no intrinsic value for the vested options as of December 31, 2011. The following table summarizes the options awarded:

	Options Grant Date
	12/05/10		11/17/09
Awarded Options		95,500		90,000
Exercise Price	$	1.42	$	1.54
Date Vested		06/30/11		06/30/10
Expiration Date		12/2/2014		11/17/2013

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The Company uses historical data among other factors to estimate the expected price volatility, the expected option life, the dividend rate and expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for the estimated life of the option. The following table summarizes the estimates used in the Black-Scholes option-pricing model related to the 2010 and 2009 grants:

	Grant Date
	12/02/10			11/17/09
Volatility		50.00	%		45.00	%
Expected dividend yield		6.33	%		6.33	%
Expected term (in years)		3.79			3.81
Risk free interest rate		1.27	%		1.74	%

The following table summarizes the Company’s activities with respect to its stock options for the year ended December 31, 2011 as follows (in thousands, except per share and share data):

	Shares		Weighted- Average Exercise Price		Aggregate Fair Value		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2010		255,143	$	2.87	$	109
Granted		—		—		—
Exercised		—		—		—
Forfeited or expired		39,643		7.55		33
Outstanding at December 31, 2011		215,500	$	2.01	$	76		2.14	$	—
Exercisable at December 31, 2011		215,500	$	2.01	$	76		2.14	$	—

Share-Based Compensation Expense

The expense recognized in the consolidated financial statements for the share-based compensation related to employees and directors for the years ended December 31, 2011, 2010 and 2009 was $29, $30 and $6, respectively. At December 31, 2011, we had no unrecognized compensation expense, net of estimated forfeitures. We recognize compensation expense using the straight-line method over the vesting period. During 2011 the Company did not grant any options. During 2010 and 2009 the Company’s options granted were 95,500 and 90,000, respectively, with a weighted average grant date fair value per option of $0.35 and $0.35, respectively. The total intrinsic value of options exercised was $0 for all three fiscal years 2011, 2010 and 2009. The closing market price of our common stock on the last day of 2011 was $0.66 per share.

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December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Note 14. Supplementary Data

The following tables present our unaudited quarterly results of operations for 2011 and 2010:

	Quarters Ended (unaudited)
	March 31,			June 30,			September 30,			December 31,			YTD
	2011			2011			2011			2011			2011
2011
Revenues	$	16,159		$	20,460		$	21,678		$	17,530		$	75,827
Expenses		16,823			18,182			18,902			16,965			70,872
Earnings (loss) before net gains (losses) on disposition of assets, other income, interest expense and income taxes		(664	)		2,278			2,776			565			4,955
Net gain (losses) on dispositions of assets		(5	)		(8	)		1,143			(1	)		1,129
Other income		85			20			2			—			107
Interest		(2,326	)		(2,143	)		(2,039	)		(2,177	)		(8,685	)
Impairment		—			(4,105	)		(2,044	)		(2,396	)		(8,545	)
Termination cost		(540	)		—			—			—			(540	)
Loss from continuing operations before income taxes		(3,450	)		(3,958	)		(162	)		(4,009	)		(11,579	)
Income tax expense (benefit)		(626	)		119			157			(288	)		(638	)
Loss from continuing operations		(2,824	)		(4,077	)		(319	)		(3,721	)		(10,941	)
Loss from discontinued operations, net of tax		(887	)		(35	)		(1,085	)		(4,529	)		(6,536	)
Net loss		(3,711	)		(4,112	)		(1,404	)		(8,250	)		(17,477	)
Noncontrolling interest		11			3			(8	)		26			32
Net loss attributable to controlling interests		(3,700	)		(4,109	)		(1,412	)		(8,224	)		(17,445	)
Preferred stock dividend		(368	)		(369	)		(369	)		(368	)		(1,474	)
Net loss attributable to common shareholders	$	(4,068	)	$	(4,478	)	$	(1,781	)	$	(8,592	)	$	(18,919	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
EPS from continuing operations	$	(0.14	)	$	(0.20	)	$	(0.03	)	$	(0.17	)	$	(0.54	)
EPS from discontinued operations*	$	(0.04	)	$	(0.00	)	$	(0.05	)	$	(0.20	)	$	(0.28	)
EPS Basic and Diluted*	$	(0.18	)	$	(0.20	)	$	(0.08	)	$	(0.37	)	$	(0.82	)

* Quarterly EPS data does not add to total year, due to rounding

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

	Quarters Ended (unaudited)
	March 31,			June 30,			September 30,			December 31,			YTD
	2010			2010			2010			2010			2010
2010
Revenues	$	15,647		$	20,544		$	21,847		$	17,262		$	75,300
Expenses		16,407			18,185			18,984			16,842			70,418
Earnings before net gains (losses) on disposition of assets, other income, interest expense, and income taxes		(760	)		2,359			2,863			420			4,882
Net losses on dispositions of assets		(16	)		(23	)		(16	)		(11	)		(66	)
Other income		27			34			31			30			122
Interest		(2,203	)		(2,198	)		(2,192	)		(2,301	)		(8,894	)
Impairment		—			(2,147	)		—			—			(2,147	)
Earnings (loss) from continuing operations before income taxes		(2,952	)		(1,975	)		686			(1,862	)		(6,103	)
Income tax expense (benefit)		(521	)		146			223			(320	)		(472	)
Earnings (loss) from continuing operations		(2,431	)		(2,121	)		463			(1,542	)		(5,631	)
Loss from discontinued operations, net of tax		(586	)		(1,554	)		(554	)		(2,277	)		(4,971	)
Net loss		(3,017	)		(3,675	)		(91	)		(3,819	)		(10,602	)
Noncontrolling interest		7			11			(13	)		12			17
Net loss attributable to controlling interests		(3,010	)		(3,664	)		(104	)		(3,807	)		(10,585	)
Preferred stock dividend		(368	)		(369	)		(368	)		(369	)		(1,474	)
Net loss attributable to common shareholders	$	(3,378	)	$	(4,033	)	$	(472	)	$	(4,176	)	$	(12,059	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
EPS from continuing operations *	$	(0.13	)	$	(0.11	)	$	0.00		$	(0.08	)	$	(0.31	)
EPS from discontinued operations *	$	(0.02	)	$	(0.07	)	$	(0.02	)	$	(0.10	)	$	(0.22	)
EPS Basic and Diluted	$	(0.15	)	$	(0.18	)	$	(0.02	)	$	(0.18	)	$	(0.53	)

* Quarterly EPS data does not add to total year, due to rounding

86

Supertel Hospitality, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2011, 2010 and 2009

(Dollars in thousands, except per share data)

Note 15. Subsequent Events

On January 20, 2012, the Company sold a Super 8 in Fayetteville, AR (83 rooms) for approximately $1.56 million with a $0.4 million gain. The proceeds were used primarily to reduce a term loan with Great Western Bank.

On February 21, 2012, the Company amended its credit facilities with Great Western Bank to extend the maturity date of all loans to June 30, 2013. 

On September 21, 2011, the Company received a notice from The NASDAQ Stock Market stating that the minimum bid price of its common stock was below $1.00 per share for 30 consecutive business days and that the Company was therefore not in compliance with Marketplace Rule 5450(a)(1). The notification letter had no effect at that time on the listing of the Company’s common stock on The NASDAQ Global Market. The Company’s common stock continued to trade on The NASDAQ Global Market under the symbol SPPR.

On February 16, 2012, the Company received a notice from The NASDAQ Listing Qualifications that the staff had determined that for the last 10 consecutive business days, from February 2, 2012 to February 15, 2012, the closing bid price of the Company’s common stock has been at $1.00 per share or greater. The staff advised that the Company has regained compliance with Listing Rule 5450(a)(1) and this matter is now closed.

The Company entered into a Purchase Agreement dated November 16, 2011 for the issuance and sale of Supertel’s Series C Cumulative Convertible Preferred Stock (the “Series C preferred stock”) and warrants under a private transaction to Real Estate Strategies, L.P. (“RES”). On January 31, 2012 at a special meeting, the shareholders of Supertel, by the requisite vote, approved the issuance and sale of up to 3,000,000 shares of the Series C preferred stock of Supertel, up to 30,000,000 shares of common stock of Supertel which may be issued upon conversion of the Series C preferred stock, and warrants to purchase up to an additional 30,000,000 shares of common stock, to RES pursuant to the Purchase Agreement. In two closings on February 1, 2012 and February 15, 2012, the Company completed the sale to RES of 3,000,000 shares of Series C preferred stock and warrants to purchase 30,000,000 shares of common stock at an exercise price of $1.20 per common share.

Each share of Series C preferred stock is entitled to a dividend of $0.625 per year payable in equal quarterly dividends. Each share of Series C preferred stock has a liquidation preference of $10.00 per share, in cash, plus an amount equal to any accrued and unpaid dividends.

The Series C preferred stock is convertible, at the option of the holder, at any time into common stock at a conversion price of $1.00 for each share of common stock, which is equal to the rate of ten shares of common stock for each share of Series C preferred stock. A holder of Series C preferred stock will not have conversion rights to the extent the conversion would cause the holder and its affiliates to beneficially own more than 34% of voting stock (the “Beneficial Ownership Limitation”). “Voting stock” means capital stock having the power to vote generally for the election of directors of the Company.

The Series C preferred stock will vote with the common stock as one class, subject to certain voting limitations. For any vote, the voting power of the Series C preferred stock will be equal to the lesser of: (a) 6.29 votes per share, or (b) an amount of votes per share such that the vote of all shares of Series C preferred stock in the aggregate equal 34% of the combined voting power of all the Company voting stock, minus an amount equal to the number of votes represented by the other shares of voting stock beneficially owned by RES and its affiliates (the “Voting Limitation”).

As long as RES has the right to designate two or more directors to the Company Board of Directors pursuant to the Directors Designation Agreement (described below), the following requires the approval of RES and IRSA:

• the merger, consolidation, liquidation or sale of substantially all of the assets of the Company;

• the sale by the Company of common stock or securities convertible into common stock equal to 20% or more of the outstanding common stock or voting stock; or

• any Company transaction of more than $120,000 in which any of its directors or executive officers or any member of their immediate family will have a material interest, exclusive of employment compensation and interests arising solely from the ownership of the Company equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis.

On February 1, 2012 and February 15, 2012, in connection with the purchase of the Series C preferred stock, the Company issued and RES received warrants (“Warrants”) to purchase 30,000,000 shares of the Company’s common stock. Subject to the Beneficial Ownership Limitation, the Warrants are exercisable at any time on or before January 31, 2017 at an exercise price of $1.20 per share of common stock. The exercise price may be paid in cash, or the holder may also elect to pay the exercise price by having the Company withhold a sufficient number of shares from the exercise with a market value equal to the exercise price.

The Company, with the unanimous approval of the Board of Directors, entered into an Investor Rights and Conversion Agreement (the “Investor Rights and Conversion Agreement”) dated February 1, 2012 with RES and IRSA pursuant to which the Company granted RES and its affiliates and their respective subsidiaries, among other rights, the right to purchase equity shares or securities convertible into equity shares in future Company offerings on a pro rata basis based on their combined ownership of common stock and Series C preferred stock, provided that such purchase would not cause RES and its affiliates to exceed the Beneficial Ownership Limitation. In the agreement, RES agreed to certain standstill provisions including that neither RES nor its affiliates will acquire any securities that would result in RES and its affiliates owning more than 34% of the voting stock of the Company.

The Company, with the unanimous approval of the Board of Directors, entered into a registration rights agreement (the “Registration Rights Agreement”) dated February 1, 2012 with RES and IRSA. The Registration Rights Agreement requires the Company to register for resale by the holders the common stock issued upon conversion of the Series C preferred stock and upon exercise of the Warrants, and the Warrants and the Series C preferred stock. The Registration Rights Agreement also grants RES the right to participate in certain future underwritten offerings of securities by the Company.

The Company, with the unanimous approval of the Board of Directors, entered into a directors designation agreement (the “Directors Designation Agreement”) dated February 1, 2012 with RES and IRSA pursuant to which the Company will appoint up to four directors designated by RES and IRSA to the Company Board of Directors and to maintain the Company Board of Directors at no more than nine members. Messrs. Elsztain, Friend, Landry, and Sabin have been appointed to the Board of Directors pursuant to the agreement.

Pursuant to the agreement, RES agreed to vote for the election of the current Board of Directors who remain on the Board of Directors and their successors as nominated by the nominating committee of the Board of Directors. One of the directors designated by RES will be appointed to the nominating committee. As long as RES beneficially owns 7% or more of the voting power of the capital stock of the Company, the RES designees will be nominated and recommended for election at each annual meeting of the Company shareholders.

On February 3, 2012, the Company paid in full the $5.0 million balance on the revolving credit facility with Elkhorn Valley Bank, with a portion of the net proceeds from the sale of the Series C preferred stock.

On February 16, 2012, the Company paid in full the $2.1 million note payable to Fredericksburg North Investors, LLC, with a portion of the net proceeds from the sale of the Series C preferred stock.

On March 1, 2012 the Company amended its credit facility with First National Bank of Omaha to extend the maturity date to May 1, 2012.

On March 29, 2012, the Company amended its credit facilities with General Electric Capital Corporation to replace existing financial covenant requirements with new financial covenant requirements. The new financial covenants require that, through the term of the loans, the Company maintain: (a) a minimum before dividend fixed charge coverage ratio (FCCR) with respect to its GE-encumbered properties (based on a rolling 12-month period) of 0.85:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2015; (b) a maximum loan to value ratio with respect to its GE-encumbered properties of 100% as of March 31, 2012, which requirement decreases quarterly thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.95:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.00:1 as of December 31, 2013.

The GE amendment, among other things, also: (a) shortens the maturity date of the loans secured by the Masters Inn hotels and Savannah Suites hotels to December 31, 2014; (b) requires a principal prepayment of $7 million on or before December 31, 2012; (c) provides that the previous increases to the interest rates on the loans will remain in effect and will not be reduced in the future if the Company achieves a particular FCCR; (d) adds cross-default provisions with the Company’s other material debt and most favored lender provisions; and (e) implements restrictions on the prepayment of other debt.

In May 2008, the Company converted the interest rates on certain of its GE loans to fixed rates. Because interest rates have since decreased, there are yield maintenance costs associated with prepayments of those loans. The yield maintenance cost associated with the most recent Masters Inn sale was 16.5% of the amount prepaid. The GE amendment implements fixed prepayment fees on the loans secured by the Masters Inn hotels and Savannah Suites hotels (in lieu of the yield maintenance costs) which start at 2.5% of the amount prepaid in 2012 and increase over time up to 10% of the amount prepaid.

On March 27, 2012, the Company sold a Super 8 in Muscatine, LA (63 rooms) for approximately $1.3 million. The proceeds were used primarily to reduce a term loan with Great Western Bank, with the remaining amount used to reduce the revolving line of credit with Great Western Bank.

87

Supertel Hospitality, Inc. and Subsidiaries

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2011

		Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance	Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation			Net Book Value
Comfort Inn
Chambersburg, Pennsylvania	GRW	$	89,000	$	2,346,362	$	—		$	375,424		$	89,000	$	2,721,786	$	(1,180,527	)	$	1,630,259
Culpeper, Virginia	GRW		182,264		2,142,652		—			617,945			182,264		2,760,597		(1,189,343	)		1,753,518
Farmville, Virginia	GRW		253,618		2,162,087		—			607,270			253,618		2,769,357		(1,380,709	)		1,642,266
Morgantown, West Virginia	GRW		398,322		3,853,651		—			978,435			398,322		4,832,086		(2,306,450	)		2,923,958
New Castle, Pennsylvania	GRW		56,648		4,101,254		—			739,002			56,648		4,840,256		(2,036,199	)		2,860,705
Princeton, West Virginia	GRW		387,567		1,774,501		—			725,490			387,567		2,499,991		(1,326,342	)		1,561,216
Rocky Mount, Virginia	GRW		193,841		2,162,429		—			216,568			193,841		2,378,997		(1,137,093	)		1,435,745
Solomons, Maryland	GRW		2,303,990		2,988,255		—			2,031,809			2,303,990		5,020,064		(2,843,050	)		4,481,004
Erlanger, Kentucky	GWB		750,000		2,822,201		(289,153	)		(531,631	)		460,847		2,290,570		(696,199	)		2,055,218
Fayetteville, North Carolina	CITI		725,000		3,910,514		—			556,397			725,000		4,466,911		(1,256,704	)		3,935,207
Fayetteville Car Wash, North Carolina	CITI		—		164,128		—			8,707			—		172,835		(66,810	)		106,025
Alexandria, Virginia	WA BMI		2,500,000		9,373,060		—			1,716,123			2,500,000		11,089,183		(2,050,948	)		11,538,235
Glasgow, Kentucky	GE 3CI		500,000		2,456,305		—			578,410			500,000		3,034,715		(534,722	)		2,999,993
Super 8
Creston, Iowa	GRW		56,000		840,580		89,607			2,348,015			145,607		3,188,595		(1,857,300	)		1,476,902
Columbus, Nebraska	GWB		51,716		571,178		51,666			730,322			103,382		1,301,500		(920,201	)		484,681
O’Neill, Nebraska	GRW		75,000		667,074		46,075			1,146,285			121,075		1,813,359		(1,091,078	)		843,356
Omaha, Nebraska	GWB		164,034		1,053,620		—			1,266,781			164,034		2,320,401		(1,711,198	)		773,237
Lincoln, Nebraska (West “O”)	GWB		139,603		1,234,988		63,153			989,311			202,756		2,224,299		(1,515,079	)		911,976
Lincoln, Nebraska (Cornhusker)	GWB		226,174		1,068,520		271,817			1,934,230			497,991		3,002,750		(1,910,058	)		1,590,683
Keokuk, Iowa	GRW		55,000		642,783		71,175			641,611			126,175		1,284,394		(931,611	)		478,958
Iowa City, Iowa	GRW		227,290		1,280,365		—			635,279			227,290		1,915,644		(1,423,725	)		719,209
Omaha, Nebraska (Ak-sar-ben)	GWB		203,453		1,054,497		—			403,273			203,453		1,457,770		(1,011,881	)		649,342
Kirksville, Missouri	GWB		151,225		830,457		—			397,679			151,225		1,228,136		(845,448	)		533,913
Burlington, Iowa	GRW		145,000		867,116		—			372,250			145,000		1,239,366		(884,392	)		499,974
Sedalia, Missouri	GWB		185,025		917,809		—			739,466			185,025		1,657,275		(1,059,124	)		783,176
Hays, Kansas	GWB		317,762		1,133,765		19,519			506,576			337,281		1,640,341		(1,153,659	)		823,963
Moberly, Missouri	GWB		60,000		1,075,235		—			468,123			60,000		1,543,358		(1,081,880	)		521,478
Pittsburg, Kansas	GRW		130,000		852,131		—			324,815			130,000		1,176,946		(855,381	)		451,565
Manhattan, Kansas	GWB		261,646		1,254,175		(10,000	)		614,686			251,646		1,868,861		(1,235,814	)		884,693
Clinton, Iowa	GRW		135,153		805,067		(46,089	)		356,519			89,064		1,161,586		(811,311	)		439,339

88

Supertel Hospitality, Inc. and Subsidiaries

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

As of December 31, 2011

		Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance	Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation			Net Book Value
Super 8 - continued
Mt. Pleasant, Iowa	GRW		85,745		536,064		21,507			563,691			107,252		1,099,755		(738,840	)		468,167
Wichita, Kansas	GWB		435,087		1,806,979		—			769,818			435,087		2,576,797		(1,791,045	)		1,220,839
Pella, Iowa	GRW		61,853		664,610		—			192,974			61,853		857,584		(569,669	)		349,768
Storm Lake, Iowa	GRW		90,033		819,202		41,344			640,749			131,377		1,459,951		(866,009	)		725,319
West Plains, Missouri	GWB		112,279		861,178		—			259,989			112,279		1,121,167		(696,385	)		537,061
Jefferson City, Missouri	GWB		264,707		1,206,886		—			429,709			264,707		1,636,595		(1,044,854	)		856,448
El Dorado, Kansas	FNB		96,764		418,333		467			696,300			97,231		1,114,633		(696,622	)		515,242
Wayne, Nebraska	GWB		79,127		685,135		—			236,573			79,127		921,708		(561,474	)		439,361
Batesville, Arkansas	GWB		81,483		811,371		—			269,394			81,483		1,080,765		(646,629	)		515,619
Fayetteville, Arkansas	GWB		255,731		1,549,271		—			338,489			255,731		1,887,760		(1,097,345	)		1,046,146
Omaha, Nebraska (West Dodge)	GWB		593,518		1,758,275		—			422,394			593,518		2,180,669		(1,254,883	)		1,519,304
Watertown, South Dakota	EVB		51,237		1,296,312		—			593,951			51,237		1,890,263		(1,037,455	)		904,045
Norfolk, Nebraska	GRW		226,971		1,587,581		—			570,972			226,971		2,158,553		(1,105,665	)		1,279,859
Muscatine, Iowa	GWB		204,890		1,616,090		—			393,289			204,890		2,009,379		(1,046,069	)		1,168,200
Fort Madison, Iowa	GWB		104,855		871,075		—			275,497			104,855		1,146,572		(630,130	)		621,297
Portage, Wisconsin	GRW		203,032		1,839,321		—			347,589			203,032		2,186,910		(1,083,711	)		1,306,231
Antigo, Wisconsin	GWB		234,605		1,485,579		(22,574	)		203,162			212,031		1,688,741		(870,797	)		1,029,975
Shawano, Wisconsin	GRW		244,935		1,672,123		—			228,532			244,935		1,900,655		(939,045	)		1,206,545
Tomah, Wisconsin	GWB		211,975		2,079,714		(59,834	)		465,169			152,141		2,544,883		(1,245,156	)		1,451,868
Menomonie, Wisconsin	GRW		451,520		2,398,446		—			393,094			451,520		2,791,540		(1,270,499	)		1,972,561
Clarinda, Iowa	GWB		75,000		1,276,923		—			146,284			75,000		1,423,207		(339,274	)		1,158,933
Billings, Montana	GE MOA		518,000		4,807,220		—			169,500			518,000		4,976,720		(825,231	)		4,669,489
Boise, Idaho	GE MOA		612,000		5,709,976		(308,414	)		(2,981,552	)		303,586		2,728,424		(255,305	)		2,776,705
Columbus, Georgia	GE MOA		441,000		4,173,299		(223,155	)		(2,009,675	)		217,845		2,163,624		(310,034	)		2,071,435
Terre Haute, Indiana	GE MOA		547,000		4,976,600		—			339,414			547,000		5,316,014		(960,913	)		4,902,101
Green Bay, Wisconsin	GE-GB		570,000		2,784,052		—			106,935			570,000		2,890,987		(419,412	)		3,041,575
Sleep Inn
Omaha, Nebraska	EVB		400,000		3,275,773		—			484,560			400,000		3,760,333		(968,129	)		3,192,204
Louisville, Kentucky	GE LSI		350,000		1,288,002		—			537,973			350,000		1,825,975		(431,525	)		1,744,450
Holiday Inn Express
Harlan, Kentucky	GRW		—		2,949,276		—			900,714			—		3,849,990		(1,719,561	)		2,130,429

89

Supertel Hospitality, Inc. and Subsidiaries

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

As of December 31, 2011

		Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance	Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation			Net Book Value
Quality Inn
Danville, Kentucky	GRW		155,717		2,971,403		—			835,614			155,717		3,807,017		(1,775,169	)		2,187,565
Minocqua, Wisconsin	GWB		214,505		1,458,389		—			356,496			214,505		1,814,885		(898,399	)		1,130,991
Sheboygan, Wisconsin	GWB		286,970		1,716,782		—			404,305			286,970		2,121,087		(1,055,166	)		1,352,891
Hampton Inn
Cleveland, Tennessee	GRW		212,914		2,370,499		—			1,050,885			212,914		3,421,384		(1,709,276	)		1,925,022
Shelby, North Carolina	GRW		253,921		2,782,042		—			1,164,372			253,921		3,946,414		(2,140,050	)		2,060,285
Comfort Suites
Dover, Delaware	GRW		337,113		5,179,187		(83,287	)		(2,047,857	)		253,826		3,131,330		(810,156	)		2,575,000
Ft. Wayne, Indiana	CITI		1,200,000		4,803,605		—			794,326			1,200,000		5,597,931		(1,802,339	)		4,995,592
Lafayette, Indiana	CITI		850,000		3,473,808		—			575,470			850,000		4,049,278		(916,836	)		3,982,442
Marion, Indiana	CITI		430,000		1,945,383		—			412,419			430,000		2,357,802		(849,188	)		1,938,614
South Bend, Indiana	GE SB		500,000		11,512,314		(196,456	)		1,018,020			303,544		12,530,334		(2,227,932	)		10,605,946
Warsaw, Indiana	CITI		650,000		2,500,570		—			305,403			650,000		2,805,973		(878,881	)		2,577,092
Louisville, Kentucky	GE 3CI		500,000		2,186,715		—			797,440			500,000		2,984,155		(694,101	)		2,790,054
Ramada Ltd
Ellenton, Florida	GRW		546,945		2,293,464		(139,234	)		(171,957	)		407,711		2,121,507		(893,434	)		1,635,784
Guest House Inn
Ellenton, Florida	GRW		290,373		2,102,371		(78,051	)		(752,853	)		212,322		1,349,518		(321,419	)		1,240,421
Jackson, Tennessee	GRW		261,506		3,430,541		(86,234	)		(1,181,141	)		175,272		2,249,400		(1,043,418	)		1,381,254
Baymont Inn
Brooks, Kentucky	GE 3CI		500,000		2,008,474		(212,952	)		(522,708	)		287,048		1,485,766		(330,109	)		1,442,705
Days Inn
Farmville, Virginia	GRW		384,591		1,967,727		—			448,925			384,591		2,416,652		(1,156,843	)		1,644,400
Alexandria, Virginia	WA BMI		2,500,000		6,544,271		—			1,702,357			2,500,000		8,246,628		(1,657,486	)		9,089,142
Fredericksburg South, Virginia	WA BMI		1,510,000		1,786,979		(909,345	)		(326,009	)		600,655		1,460,970		(427,378	)		1,634,247
Shreveport, Louisiania	WA BMI		1,250,000		2,964,484		(534,964	)		(499,762	)		715,036		2,464,722		(519,959	)		2,659,799
Bossier City, Louisiania	EVB		1,025,000		5,117,686		(297,374	)		(93,895	)		727,626		5,023,791		(1,329,336	)		4,422,081
Fredericksburg North, Virginia	FNI		650,000		3,142,312		(292,533	)		(522,367	)		357,467		2,619,945		(630,243	)		2,347,169
Ashland, Kentucky	GE 2DI		320,000		1,303,003		—			415,003			320,000		1,718,006		(382,334	)		1,655,672
Glasgow, Kentucky	GE 2DI		425,000		2,206,805		—			167,489			425,000		2,374,294		(373,195	)		2,426,099
Sioux Falls, Airport	GE SF		—		2,397,714		—			224,729			—		2,622,443		(447,742	)		2,174,701
Sioux Falls, Empire	GE SF		480,000		1,988,692		—			247,366			480,000		2,236,058		(390,026	)		2,326,032

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SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

As of December 31, 2011

			Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance		Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation				Net Book Value
Extended Stay-Savannah Suites
Atlanta, Georgia	GE PINE	*		1,865,000		3,997,960		(981,833	)		(1,856,795	)		883,167		2,141,165		(410,399	)			2,613,933
Augusta, Georgia	GE SS			750,000		3,816,246		—			217,257			750,000		4,033,503		(790,218	)			3,993,285
Chamblee, Georgia	GE SS			1,650,000		3,563,648		—			141,556			1,650,000		3,705,204		(771,101	)			4,584,103
Greenville, South Carolina	GE SS			550,000		3,408,375		(255,316	)		(1,545,291	)		294,684		1,863,084		(306,564	)			1,851,204
Jonesboro, Georgia	GE SS			875,000		2,978,463		(394,903	)		(1,291,788	)		480,097		1,686,675		(268,548	)			1,898,224
Savannah, Georgia	GE SS			1,250,000		4,052,678		(535,827	)		(1,856,434	)		714,173		2,196,244		(185,417	)			2,725,000
Stone Mountain, Georgia	GE SS			725,000		3,840,600		—			148,431			725,000		3,989,031		(771,505	)			3,942,526
Supertel Inn
Creston, Iowa	GWB			234,866		2,708,224		—			12,527			234,866		2,720,751		(705,576	)			2,250,041
Key West Inns
Key Largo, Florida	GRW			339,425		3,238,530		—			1,271,753			339,425		4,510,283		(1,969,223	)			2,880,485
Masters
Columbia-I26, South Carolina	GE Masters			450,000		1,395,861		(110,184	)		(162,007	)		339,816		1,233,854		(172,774	)			1,400,896
Columbia-Knox Abbot Dr, South Carolina	GE Masters			—		1,474,612		—			(388,817	)		—		1,085,795		(255,795	)			830,000
Charleston North, South Carolina	GE Masters			700,000		2,895,079		(374,227	)		(1,186,990	)		325,773		1,708,089		(301,361	)			1,732,501
Garden City, Georgia	GE Masters			570,000		2,443,603		(281,448	)		(886,463	)		288,552		1,557,140		(255,692	)			1,590,000
Tampa East, Florida	GE Masters			192,416		3,413,132		(123,228	)		(2,102,982	)		69,188		1,310,150		(309,384	)			1,069,954
Tampa Fairgrounds, Florida	GE Masters			580,000		3,018,614		(273,780	)		(1,124,202	)		306,220		1,894,412		(278,132	)			1,922,500
Tuscaloosa, Alabama	GE Masters			740,000		4,025,844		(347,094	)		(1,485,665	)		392,906		2,540,179		(345,574	)			2,587,511
Subtotal Hotel Properties				45,733,940		246,038,114		(6,791,159	)		21,186,818			38,942,781		267,224,932		(97,483,580	)	—		208,684,133
Construction in Progress				—		—		—			419,325			—		419,325						419,325
Other	NON			68,765		1,516,627		(68,765	)		(950,723	)		—		565,904		(435,091	)			130,813
Total			$	45,802,705	$	247,554,741	$	(6,859,924	)	$	20,655,420		$	38,942,781	$	268,210,161	$	(97,918,671	)		$	209,234,271

* Atlanta Land includes value of land lease

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Supertel Hospitality, Inc. and Subsidiaries

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

As of December 31, 2011

Encumbrance codes refer to the following lenders:

GRW	Greenwich Capital Loan	EVB	Elkhorn Valley Bank
GWB	Great Western Bank	CITI	Citigroup Global Markets Realty
GE SB	GE Capital Franchise Finance	FNI	Fredericksburg North Investors, LLC
GE SS	GE Capital Corporation	WF BMI	Wells Fargo Bank
GE Pine	GE Capital Corporation	GE MOA	GE Capital Corporation
GE Masters	GE Capital Corporation	GE SF	GE Capital Corporation
GE GB	GE Capital Corporation	GE 3CI	GE Capital Corporation
GE LSI	GE Capital Corporation	GE 2 DI	GE Capital Corporation
FNB	First National Bank of Omaha	NON	Non-encumbered

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Supertel Hospitality, Inc. and Subsidiaries

NOTES TO SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2011

	ASSET BASIS	Total
(a)	Balance at January 1, 2009	$	400,871,996
	Additions to buildings and improvements	$	4,485,009
	Disposition of buildings and improvements		(18,942,418	)
	Impairment loss		(26,722,187	)
	Balance at December 31, 2009	$	359,692,400
	Additions to buildings and improvements	$	4,344,356
	Disposition of buildings and improvements		(17,101,252	)
	Impairment loss		(8,555,306	)
	Balance at December 31, 2010	$	338,380,198
	Additions to buildings and improvements	$	4,963,538
	Disposition of buildings and improvements		(16,983,570	)
	Impairment loss		(19,207,224	)
	Balance at December 31, 2011	$	307,152,942
	ACCUMULATED DEPRECIATION	Total
(b)	Balance at January 1, 2009	$	86,990,942
	Depreciation for the period ended December 31, 2009	$	14,242,727
	Depreciation on assets sold or disposed		(4,697,660	)
	Impairment loss		(2,574,353	)
	Balance at December 31, 2009	$	93,961,656
	Depreciation for the period ended December 31, 2010	$	11,710,060
	Depreciation on assets sold or disposed		(7,168,962	)
	Impairment loss		(356,732	)
	Balance at December 31, 2010	$	98,146,022
	Depreciation for the period ended December 31, 2011	$	9,996,077
	Depreciation on assets sold or disposed		(5,324,345	)
	Impairment loss		(4,899,083	)
	Balance at December 31, 2011	$	97,918,671

(c) The aggregate cost of land, buildings, furniture and equipment for Federal income tax purposes is approximately $350 million (unaudited).

(d) Depreciation is computed based upon the following useful lives:

Buildings and improvements	15 - 40 years
Furniture and equipment	3 - 12 years

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(e) The Company has mortgages payable on the properties as noted. Additional mortgage information can be found in Note 7 to the consolidated financial statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation was performed under the supervision of management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 was (1) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. No changes in the Company’s internal controls over financial reporting occurred during the last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report On Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Securities Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting. The Company’s management used the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) to perform this evaluation. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2011.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Internal control over financial reporting was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors

The Company’s articles of incorporation provide that the Board of Directors (the “Board”) can set the number of directors, but also provides that the Board of Directors must have no less than three nor more than nine directors. The Board is presently comprised of nine members. The names of the members of the Company’s Board and certain information about them, are set forth below. Each of the directors serves a term expiring at the next annual meeting of Company stockholders or until a successor is elected. Their ages are as of March 17, 2012.

Steve H. Borgmann, Director. Mr. Borgmann joined the Company’s Board in October 1999, and since the merger between the former Supertel and the Company he has been engaged in developing and owning apartment buildings. Mr. Borgmann, age 66, was a founder, director and the Executive Vice President of former Supertel. Prior to the merger, Mr. Borgmann had been involved in acquiring, developing, owning, managing and operating limited service hotels for the former Supertel or its predecessors since 1978. Mr. Borgmann is a graduate of the University of Nebraska - Lincoln. Mr. Borgmann’s experience as a developer of real estate and as a founder of the former Supertel greatly assists the conduct, development, and operation of the Company’s business.

Committee: Nominating

Allen L. Dayton, Director. Mr. Dayton joined the Company’s Board in May 2003, upon election by the Company’s shareholders. Mr. Dayton, age 63, has been Chairman of the Board of Video Service of America since 1977 and Southern Improvement Company since 2000. Mr. Dayton is a private investor and his investment holdings include positions in companies operating in the printing, cable television, distribution and real estate industries. Mr. Dayton was previously Chairman of the Kellogg Savings Bank. Mr. Dayton sits on the boards of several business schools, and also serves as a Trustee of the University of Nebraska Foundation. Mr. Dayton’s experience as a private investor provides the Board with valuable insight on stockholder interests and sources of capital.

Committee: Compensation

Daniel R. Elsztain, Director. Mr. Elsztain, age 39, obtained a degree in Economic Sciences from the Torcuato Di Tella University and has a Masters in Business Administration from the Austral IAE University. At present, he is a member of the board of IRSA Inversiones y Representaciones Sociedad Anónima (IRSA), a real estate public company listed both on the New York Stock Exchange (“NYSE”) and the Buenos Aires Stock Exchange (“BASE”), as well as its Director for Real Estate Business since 2004. He is a board member of Alto Palermo S.A. (APSA), a retail public company listed both on NASDAQ and BASE. He also serves on the board of Hersha Hospitality Trust. His extensive experience in IRSA’s real estate operations and his participation on other public company boards provides the Board with a source of substantial lodging and real estate knowledge.

Committee: Investment

James H. Friend, Director. Mr. Friend, age 60, has been president and CEO at Friend Development Group LLC since 1997 and has been actively involved in the hotel and real estate business for more than 25 years. Mr. Friend has extensive experience in ground-up development, has partnered and advised NYSE companies, major institutions, REITs, banks and privately held companies in a wide range of real estate product types including hotels, retail, assisted living, multi-family, and mixed-use development. His years of work with REITs, banks and other companies provides the Board with a very knowledgeable source of development for a wide range of real estate, including hotels.

Committees: Audit, Nominating

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Donald J. Landry, Director. Mr. Landry, age 63 is president and owner of Top Ten, an independent hospitality industry consulting company. Mr. Landry has over forty years of lodging and hospitality experience in a variety of leadership positions. Most recently, Mr. Landry was the Chief Executive Officer, President and Vice Chairman of Sunburst Hospitality Inc. Mr. Landry has also served as President of Choice Hotels International, Inc., Manor Care Hotel Division and Richfield Hotel Management. Mr. Landry currently serves on the corporate advisory boards of Campo Architects, UniFocus and VOILA Hotel Rewards, Revenue Performance and numerous nonprofit boards. Mr. Landry is a frequent guest lecturer at Johnson and Wales University and the University of New Orleans. Mr. Landry holds a bachelor of science from the University of New Orleans, which awarded him Alumnus of the Year in 1999. Mr. Landry is a Certified Hotel Administrator.

Mr. Landry’s 40 years of experience in the lodging and real estate industries, including his roles as Chief Executive Officer, President and Vice Chairman of Sunburst Hospitality Inc. and President of Choice Hotels International, Inc., Manor Care Hotel Division and Richfield Hotel Management provides the Board with an experienced source on lodging and real estate industries.

Committee: Investment

William C. Latham, Chairman of the Board. Mr. Latham has served as a director of the Company since December 2008. Mr. Latham, age 78, is the founder and Chairman of the Board of Budget Motels, Inc. since 1972. Budget Motel, Inc. owns and operates multiple hotels in several states. Mr. Latham was previously a member of the Board of Directors and served as Chairman of the Commonwealth Savings and Loan Association in Manassas, Virginia. Mr. Latham currently sits on several advisory boards and is an active member of the Virginia Tech Foundation’s Board of Directors and its audit committee. Mr. Latham is a graduate of Virginia Polytechnic Institute. He has been active in the ownership and management of hotels since 1972 and, as a veteran of hotel operations and with many years of experience from serving on business and advisory boards, he provides the Board with experienced leadership in his role as Chairman of the Board and is a significant resource for Company operations.

Committee: Nominating

John M. Sabin, Director. Since May 2011 Mr. Sabin, age 57, has been the Executive Vice President and Chief Financial Officer of Revolution LLC as well as the Chief Financial Officer of The Stephen Case Foundation and the Case Family Office. Previously he was the Chief Financial Officer and General Counsel of Phoenix Health Systems, Inc. a private healthcare information technology outsourcing and consulting firm, from October 2004 to May 2011. Mr. Sabin was the Chief Financial Officer, General Counsel and Secretary of NovaScreen Biosciences Corporation, a private bioinformatics and contract research biotech company (which was subsequently acquired by Caliper Life Sciences) from January 2000 to October 2004. Prior to joining NovaScreen, Mr. Sabin served as a finance executive with Hudson Hotels Corporation, Vistana, Inc., Choice Hotels International, Inc., Manor Care, Inc. and Marriott International, Inc. all of which were public companies at the time of his service. In his professional life Mr. Sabin has had commercial lease experience with a national law firm, transactional real estate experience with national hospitality and health care firms, commercial real estate financing experience, IPO experience, as well as experience as an audit committee and board member of five other public companies. Mr. Sabin is a member of the board of trustees of Hersha Hospitality Trust and a director of Prime Group Realty Trust. Mr. Sabin has received Bachelor of Science degrees in Accounting and in University Studies; a Masters of Accountancy and a Masters in Business Administration from Brigham Young University, and he also received a Juris Doctor from the J. Reuben Clark Law School at Brigham Young University. Mr. Sabin is a licensed CPA and is admitted to the bar in several states.

Mr. Sabin’s qualifications include substantial hospitality industry experience, as well as his substantial legal, finance and accounting experience. His current and prior service as both General Counsel and Chief Financial Officer of various companies provides the Board with valuable insights with respect to finance, accounting, legal and corporate governance matters.

Committees: Audit, Compensation, Investment

Kelly A. Walters, Director, President and Chief Executive Officer. Mr. Walters joined the Company and became President and Chief Executive Officer on April 14, 2009. Mr. Walters, age 51, is a former Senior Vice President from October 2006 to April 2009 for North Dakota-based Investors Real Estate Trust (IRET), a self-advised equity real estate investment trust. Prior to IRET, he was Senior Vice President and Chief Investment Officer from 1993 to 2006 of Omaha-based Magnum Resources, Inc., a privately held real estate investment and operating company. Preceding Magnum Resources, Mr. Walters was an officer and senior portfolio manager at Brown Brothers Harriman & Company in Chicago. He also held investment positions with Peter Kiewit Sons’ Inc.

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He holds a B.S.B.A. degree in banking and finance from the University of Nebraska at Omaha and an EMBA from the University of Nebraska. Mr. Walters’ experience with real estate investment trusts and many years experience in real estate investment provides the Board with extensive knowledge of the operation of real estate investment trusts and real estate investments.

Committee: Investment

George R. Whittemore, Director. Mr. Whittemore has served as a director of the Company since November 1994. Mr. Whittemore, age 62, retired, served as President and Chief Executive Officer of the Company until August 15, 2004. Mr. Whittemore served as Senior Vice President and director of both Anderson & Strudwick, Incorporated, a brokerage firm based in Richmond, Virginia, and Anderson & Strudwick Investment Corporation, from October 1996 until October 2001. Anderson & Strudwick has served as an underwriter for Company public stock offerings. He served as a director and the President and Managing Officer of Pioneer Federal Savings Bank and its parent, Pioneer Financial Corporation, from September 1982 until August 1994, when these institutions were acquired by a merger with Signet Banking Corporation (now Wells Fargo Corporation). Mr. Whittemore was appointed President of Mills Value Adviser, Inc., a registered investment advisor, in April 1996. Mr. Whittemore is currently a director of Village Bank & Trust in Richmond, Virginia. He is also a director of Prime Group Realty Trust, Lightstone Value Plus Real Estate Investment Trust, Inc. and Lightstone Value Plus Real Estate Investment Trust II, Inc. and serves on the audit committee of all three of these companies. Mr. Whittemore is a graduate of the University of Richmond. Mr. Whittemore’s experience as a director of real estate trusts and as a former chief executive of the Company provides significant assistance to the Board in the oversight of Company business and the conduct of Company operations as a real estate investment trust.

Committees: Audit, Compensation, Investment

Directors Designation Agreement

In connection with a $30 million investment by Real Estate Strategies L.P. (“RES”) in preferred stock of the Company, the Company and RES entered into Directors Designation Agreement dated February 1, 2012. Pursuant to the agreement, RES may appoint up to four directors for the Board based on RES’s voting power on a fully diluted basis (exclusive of the warrants held by RES). RES may appoint the following number of directors if it owns the indicated percentage of voting power:

Voting Power	No. of Directors
34%	4
22% or more but less than 34%	3
14% or more but less than 22%	2
7% or more but less than 14%	1

RES holds 34% of the Company voting stock and is entitled to appoint four directors to the Board. Pursuant to the designation of RES, the Board on February 1, 2012 appointed Messrs. Elsztain, Friend, Landry, and Sabin as members of the Board.

The Company has also agreed that the Board will be maintained at no more than nine members. RES has agreed to vote for the election of Messrs. Borgmann, Dayton, Latham, Walters and Whittemore and their successors as nominated by the nominating committee of the Board. One of the directors designated by RES will be appointed to the nominating committee. As long as RES beneficially owns 7% or more of the voting power of the capital stock of the Company, the RES designees will be nominated and recommended for election at each annual meeting of Company stockholders.

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Executive Officers

Information concerning the directors and executive officers of the Company is incorporated by reference from information relating to executive officers of the Company set forth in Part I of this Form 10-K.

Section 16(A) Beneficial Ownership Reporting Compliance

Under United States securities laws, the Company’s directors and executive officers, and persons who own more than 10% of our common stock, are required to report their ownership of the common stock and any changes in ownership to the SEC. These persons are also required by SEC regulations to furnish the Company with copies of these reports. Specific due dates for these reports have been established, and the Company is required to report in this Form 10-K any failure to file such reports by those due dates during the 2011 fiscal year.

Based solely upon a review of the reports furnished to the Company or written representations from the Company’s directors and executive officers, the Company believes that all of these filing requirements were satisfied by the Company’s directors and executive officers, and owners of more than 10% of the common stock on a timely basis.

The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s Chief Executive Officer and Chief Financial Officer and has posted the Code of Business Conduct and Ethics on its Web site. The Company intends to satisfy the disclosure requirement under Item 10 of Form 8-K relating to amendments to or waivers from any provision of the Code of Business Conduct and Ethics applicable to the Company’s Chief Executive Officer and Chief Financial Officer by posting that information on the Company’s Web site at www.supertelinc.com.

Audit Committee

The Audit Committee currently consists of Messrs. Sabin (Chairman), Friend and Whittemore. Each member of the Audit Committee is independent, as independence for audit committee members is defined by the applicable rules and regulations of the SEC and the NASDAQ Global Market. The Audit Committee is responsible for the engagement of the independent registered public accounting firm, reviews with the independent registered public accounting firm the plans and results of the audit engagement, approves professional services provided by the independent registered public accounting firm, reviews the independence of the independent registered public accounting firm, considers the range of audit and non-audit fees and reviews the adequacy of the Company’s internal accounting controls. The Audit Committee pre-approves all audit and non-audit services performed by the independent auditor. The Board has determined that Mr. Sabin and Mr. Whittemore are audit committee financial experts within the meaning of SEC regulations. The Audit Committee operates pursuant to a written charter adopted by the Board. A copy of the charter is available on our website at www.supertelinc.com in the Investor Relations section under “Governance Docs.” The Audit Committee has a written policy with respect to its review and approval or ratification of transactions between the Company and a director, executive officer or related person covered by the SEC’s rule S-K 404(a).

Item 11. Executive Compensation

Compensation Discussion and Analysis

The following compensation discussion and analysis provides information which the Compensation Committee of the Board of Directors (the “Committee”) believes is relevant to an assessment and understanding of compensation awarded to, earned by or paid to the Company’s executive officers listed in the summary compensation table (named executive officers). This discussion should be read in conjunction with the summary compensation table and related tables below.

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During fiscal 2011, the members of the Committee were George R. Whittemore, Patrick Jung and Richard Frandeen. Messrs. Jung and Frandeen resigned from the Board of Directors (the “Board”) on January 31, 2012, and on February 1, 2012 the Board appointed Messrs. Dayton and Sabin to the Committee.

Compensation Overview and Objective. The Committee has the responsibility for developing and maintaining an executive compensation policy for named executive officers that creates a direct relationship between pay levels and corporate performance and returns to shareholders. The objective of the Company’s compensation program is to attract and retain a high caliber of management who will manage the Company in a manner that will promote its goals to achieve long term profitability and to advance the interest of the Company’s shareholders. The Committee believes that the performance in 2011 of the named executive officers indicate their commitment to achieving such goals for the Company and its shareholders. The compensation program for named executive officers seeks to achieve the objective of retaining a high caliber of management by:

• providing overall competitive pay levels,

• creating proper incentives to enhance shareholder value,

• rewarding superior performance, and

• compensating at levels that are justified by the returns available to shareholders.

Compensation Practices. The Committee reviews and evaluates the performance of the executive officers during the year, and will award cash bonuses or long-term incentives for significant performance.

The Company adopted the Supertel 2006 Stock Plan in 2006 for the benefit of its named officers and other employees. The plan, approved by the Company shareholders, is the first equity based compensation plan adopted by the Company. The Company does not have a pension plan. The Company’s executive officers may participate in its 401(k) Plan on the same terms as other participating employees. The Company does not maintain a perquisite program for its executive officers.

Employment Agreements

On November 17, 2009 the Company entered into employment agreements, approved by the Committee, with the named executive officers, Kelly A. Walters, the Company’s Chief Executive Officer; Corrine L. Scarpello, the Company’s Chief Financial Officer; Steven C. Gilbert, the Company’s Chief Operating Officer; and David L. Walter, the Company’s Senior Vice President and Treasurer. In connection with the $30 million investment by Real Estate Strategies L.P. (“RES”) in preferred stock of the Company, the Company and the executives entered into new employment agreements on February 1, 2012. The new agreements maintain the named executive officers’ 2011 base salaries and are generally in the form of the executives’ previous employment agreements except for increase in the term of the agreements and the addition of severance payments in the event the Company terminates the executive’s employment or the executive terminates employment for good reason. The employment agreements of Mr. Walters and Ms. Scarpello terminate on January 31. 2015. Their severance payment is three times their base salary. The employment agreements of Mr. Walter and Mr. Gilbert terminate on January 31, 2014. Their severance payment is two times their base salary. Severance amounts for all four executives reduce by six months during each year of employment. One-third of the severance will be paid in the form of the Company’s equity to the extent available from shareholder approved plans.

As with the prior agreements, the new employment agreements provide that base salaries will be reviewed annually and further provide that the executives will be considered for cash bonuses and option grants annually. Any such bonus is to be based on the recommendation of the Committee and any such option grant is to be made in the sole discretion of the Committee.

Components of Compensation. The Company’s executive compensation has three components, each of which is intended to support the overall compensation objective of retaining a high caliber of management. The

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three components are base salary, annual bonuses, and equity incentives. Since 2006, the Company has had the ability to use equity incentives in the compensation program for named executive officers. The Company paid solely cash compensation in 2011 to its named executive officers.

Base Salary. Base salary is targeted to be competitive to attract and retain executives qualified to manage a hotel REIT. Base salary is intended to compensate the executive for satisfying the requirements of the position. Salaries for executive officers are reviewed by the Committee on an annual basis and may be changed based on the individual’s performance or a change in competitive pay levels in the marketplace.

Historically the Committee reviews with the Chief Executive Officer an annual salary plan for the Company’s executive officers (other than the Chief Executive Officer). The salary plan is modified as deemed appropriate and approved by the Committee. The annual salary plan is developed by the Chief Executive Officer and is based on his judgment as to the past and expected future contributions of the individual executive. The Committee reviews and establishes the base salary of the Chief Executive Officer based on the Committee’s assessment of his past performance, leadership in the conduct of the Company’s business, and its expectation as to his future contribution in directing the long-term success of the Company.

The annual salary review was handled differently in 2011. The Board agreed to the form of the executive employment agreements for the four executives as described above during the Company’s negotiations with RES. Pursuant to the agreements, the base salaries for the executives were maintained at 2011 levels. The annual base salaries for the executives remain at $262,000 for Mr. Walters, $200,100 for Ms. Scarpello, $147,000 for Mr. Walter and $144,000 for Mr. Gilbert.

Annual Bonuses. No discretionary cash bonuses were awarded to the named executive officers in 2011.

Equity Incentive Plan. Equity stock incentives are provided primarily through grants of stock options to executive officers pursuant to the shareholder approved the Company’s 2006 Stock Plan. The Committee recognizes the value of equity incentives in assisting the Company in the hiring and retaining of management personnel and in enhancing the long-term mutuality of interest between the Company shareholders and its directors, officers and employees. Stock options are granted at the market value on the date of the grant and have value only if the Company’s stock price increases. Employees must be employed by the Company at the time of vesting in order to exercise the options. No stock options were granted to the named executive officers in 2011.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussion, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K.

COMPENSATION COMMITTEE

George R. Whittemore, Chairman

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during 2011. Mr. Whittemore was an executive officer of the Company from November 2001 to August 2004. No executive officer of the Company served as a member of the compensation committee or as a director of any company where an executive officer of such company is a member of the Compensation Committee or is a director of the Company.

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Summary Compensation Table

Name and Principal Position	Year		Salary ($)		Bonus ($)		Option Awards ($)(1)		All Other Compensation ($)(2)		Total ($)
Kelly A. Walters Chief Executive Officer (3)		2011		262,000		0		0		37,800		299,800
		2010		262,000		0		7,000		22,430		291,430
		2009		184,807		0		6,925		0		191,732
Corrine L. Scarpello Chief Financial Officer (4)		2011		200,100				0		8,004		208,104
		2010		145,000		0		7,000		5,800		157,800
		2009		127,500		0		6,059		4,707		138,266
Steven C. Gilbert Chief Operating Officer		2011		144,000		0		0		5,760		149,760
		2010		120,000		0		7,000		4,824		131,824
		2009		112,000		0		6,059		4,652		122,711
David L. Walter Senior Vice President and Treasurer		2011		147,000		0		0		5,880		152,880
		2010		140,000		0		7,000		5,600		152,600
		2009		135,000		0		6,059		4,569		145,628

(1) This column reflects the grant date fair value of stock options granted in accordance with FASB Accounting Standards Codification Topic 718. See footnote 13 to the Company’s consolidated financial statements for the assumptions used in the valuation of these awards.

(2) Amounts for the named executive officers represent contributions credited by the Company during 2011, 2010, and 2009 to its 401(k) plan. Amount for Mr. Walters also includes director fees of $28,000 and $14,368, respectively, earned by him from the Company during 2011 and 2010.

(3) Mr. Walters was appointed President and Chief Executive Officer on April 14, 2009.

(4) Ms. Scarpello was appointed Chief Financial Officer on August 31, 2009.

Outstanding Equity Awards at Fiscal Year-End

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)		Option Expiration Date
Kelly A. Walters Chief Executive Officer		20,000		0		1.54	Nov. 17, 2013
		0		20,000		1.42	Dec. 2, 2014
Corrine L. Scarpello Chief Financial Officer		10,000 17,500 0		0 0 20,000		5.28 1.54 1.42	May 22, 2012 Nov. 17, 2013 Dec. 2, 2014
Steven C. Gilbert Chief Operating Officer		10,000 17,500 0		0 0 20,000		5.28 1.54 1.42	May 22, 2012 Nov. 17, 2013 Dec. 2, 2014
David L. Walter Senior Vice President and Treasurer		10,000 17,500 0		0 0 20,000		5.28 1.54 1.42	May 22, 2012 Nov. 17, 2013 Dec. 2, 2014

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The options expiring May 22, 2012 vested on December 31, 2008; options expiring on November 17, 2013 vested on June 30, 2010; and options expiring on December 2, 2014 vested on June 30, 2011.

Potential Payments Upon Termination or Change-in-Control

The employment agreements with the named executive officers provide for the payment of severance in the event the Company terminates the named executive officer’s employment without cause or the executive terminates employment for good reason. “Cause” means (a) an unlawful or criminal act by the executive involving moral turpitude or resulting in a financial loss to Employer, or upon conviction of a felony; or (b) subject to certain cure rights of the executive, the executive fails to obey written directions delivered to the executive by the Board or Chief Executive Officer, or the executive commits a material breach of any of the covenants, terms and provisions of the agreement. “Good Reason” means, subject to certain exceptions and cure rights of the Company, the occurrence of one of the following events, without the Employee’s prior written consent, (a) a material diminution in the executive’s duties or responsibilities or any material demotion of the executive. (b) a requirement that the executive work principally from a location outside the 50 mile radius of the current Company offices in Norfolk, Nebraska or Omaha, Nebraska as of the date of this agreement, (c) a material reduction in the executive’s base salary, or (d) upon a change of control of the Company, the Company’s failure to obtain an agreement from any successor of the Company to assume the employment agreement.

The employment agreements of Mr. Walters’ and Ms. Scarpello’s terminate on January 31. 2015. Their severance payment is three times their base salary. The employment agreements of Mr. Walter’s and Mr. Gilbert’s terminate on January 31, 2014. Their severance payment is two times their base salary. Severance amounts for all four executives reduce by six months during each year of employment. One-third of the severance will be paid in the form of the Company’s equity to the extent available from shareholder approved plans.

If on the last day of fiscal 2011 the Company discharged the executive without cause or the executive quit for good reason then each of the executives would have received a multiple of their current base salary, aggregating for each such executive: Mr. Walters – $786,000; Ms. Scarpello – $600,300; Mr. Walter – $294,000; and Mr. Gilbert – $288,000.

The Company’s shareholder-approved stock plan provides that all outstanding options become immediately exercisable in the event of a change in control. A change in control, defined specifically in the Company’s shareholder-approved stock plan, generally occurs if: (i) a person, entity or group (excluding Company plans) acquires 50% or more of the Company’s common stock or total voting power of the Company’s voting securities; (ii) incumbent directors or their replacements (whose election or nomination was approved by at least a majority of then incumbent directors) cease to constitute a majority of the board; (iii) a reorganization, merger, consolidation, or sale of substantially all of the Company’s assets occurs unless the Company’s shareholders prior to the transaction own after the transaction 50% or more of the voting power of the Company’s securities; and (iv) the Company is liquidated or dissolved. All outstanding options as of December 31, 2011 were vested and exercisable and therefore there would have been no incremental value for unvested options if a change of control of the Company had occurred on December 31, 2011.

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Director Compensation for 2011

Name	Fees Earned or Paid in Cash ($) (1)		Option Awards ($) (2)		Total ($)
Steve H. Borgmann		30,000		0		30,000
Allen L. Dayton		28,000		0		28,000
Richard A. Frandeen*		27,500		0		27,500
Patrick J. Jung*		31,000		0		31,000
William C. Latham		29,500		0		29,500
Paul J. Schulte*		29,000		0		29,000
George R. Whittemore		32,000		0		32,000
Jeffrey M. Zwerdling*		29,000		0		29,000

* Messrs. Frandeen, Jung, Schulte and Zwerdling resigned from the Board of Directors on January 31, 2012.

Each director in 2011 received an annual retainer of $20,000. Additionally, directors received fees of $1,000 per board meeting attended in person and $500 per telephonic board meeting. Committee chairmen received compensation as follows: Audit Committee chairman annual retainer of $3,000; Compensation Committee chairman annual retainer of $1,500 and Investment Committee Chairman annual retainer of $1,500. Each Audit Committee member, other than the chairman, receives a fee of $375 per quarter. Four of the directors who participated on a special committee to interview and recommend new management companies for the Company’s hotels also received the following one-time fees approved by the Board of Directors: Messrs. Borgmann and Schulte, $1,000 each, and Messrs. Latham and Whittemore, $1,500 each. Directors fees paid to Mr. Walters are reported in the summary compensation table.

In 2012, the Board approved fees for independent directors who are members of the Investment Committee. Commencing February 16, 2012, the Investment Committee chairman receives a monthly fee of $750. Each member of the Investment Committee who is an independent director, other than the chairman, receives a monthly fee of $500. The fees to the Investment Committee are paid quarterly in arrears in common stock issued under the 2006 Stock Plan, based on a value per share equal to the average of the closing price of the common stock during the first 20 trading days of the year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

SECURITIES OWNERSHIP

OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common stock and preferred stock as of March 23, 2012 by the following persons (a) each shareholder known to us to beneficially own more than 5% of the outstanding shares of our common stock, (b) each director, (c) each executive officer named in the Summary Compensation Table and (d) all directors and executive officers as a group. A person has beneficial ownership over shares if he or she has or shares voting or investment power over the shares, or the right to acquire that power within 60 days of March 23, 2012.

With respect to our continuing qualification as a real estate investment trust, our Articles of Incorporation contain an ownership limitation, which prohibits both direct and indirect ownership of more than 9.9% of the outstanding shares of our common stock or 9.9% of any series of our preferred stock. Our Articles of Incorporation permit the Board of Directors, in its sole discretion, to exempt a person from this ownership limit if the person provides representations and undertakings that enable the Board to determine that granting the exemption would not result in Supertel losing its qualification as a REIT. Under the Internal Revenue Service rules, REIT shares owned by certain entities are considered owned proportionately by owners of the entities for REIT qualification purposes. The holder of the Series C preferred stock provided representations and undertakings necessary for the Board to grant such an exemption, including a representation that no individual will own 9.9% or more of any class of Supertel stock as a result of the holder’s acquisition of the Series C preferred stock and related warrants for the purchase of common stock.

Name of Beneficial Owner	Title of Class	Amount and Nature of Beneficial Ownership			Percent of Class (1)
Real Estate Strategies L.P. 2 Church Street Hamilton DO HM CX, Bermuda	Series C preferred stock		3,000,000	(2)		100	%
	common stock		11,884,744	(2)		34.0	%
Mark H. Tallman P. O. Box 4397 Lincoln, NE 68504	common stock		2,299,672	(3)		9.9	%
William C. Latham	common stock		943,611	(4)		4.1	%
Allen L. Dayton	common stock		940,455	(5)		4.1	%
Steve H. Borgmann	common stock		901,686	(6)		3.9	%
Kelly A. Walters	common stock		265,000	(7)		1.1	%
	Series B preferred stock		2,604
George R. Whittemore	common stock		119,101	(8)
Daniel R. Elsztain	common stock		0	(9)
James H. Friend	common stock		0	(9)
Donald J. Landry	common stock		0	(9)
John M. Sabin	common stock		0	(9)
Corrine L. Scarpello	common stock		72,000	(10)
	Series B preferred stock		225
Steven C. Gilbert	common stock		56,000	(11)
David L. Walter	common stock		51,570	(12)
All directors and executive officers as a group (12 persons)	common stock		3,349,423	(13)		14.4	%
	Series B preferred stock		2,829

(1) Unless otherwise indicated, beneficial ownership of any named individual does not exceed 1% of the outstanding class of securities. In calculating the indicated percentage, the denominator includes the shares of common stock that would be acquired by the person through the exercise of options. The denominator excludes the shares of common stock that would be acquired by any other person upon such exercise.

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(2) Real Estate Strategies L.P., an investment vehicle indirectly controlled by IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”), an Argentinean-based publicly traded company, acquired 3,000,000 shares of Series C preferred stock and 30,000,000 warrants from Supertel in a private placement. Up to 30,000,000 shares of common stock may be issued upon conversion of the Series C preferred stock, and up to 30,000,000 shares of common stock may be issued upon the exercise of the warrants. Real Estate Strategies L.P. and its affiliates’ beneficial ownership of voting stock at any time is limited to 34% of the issued and outstanding voting stock of Supertel, notwithstanding preferred voting or conversion rights or warrant exercise rights. “Voting stock” includes the common stock, and means capital stock having the power to vote generally for the election of directors of Supertel. The shares of common stock reflect the maximum number of shares that Real Estate Strategies L.P. is entitled to receive on April 9, 2012 through the conversion of shares of Series C preferred stock or warrants held by it to purchase common stock.

Based on information appearing in Amendment No. 1 to a Schedule 13D filed by the Elsztain Group with the Securities and Exchange Commission on February 17, 2012, the Elsztain Group, which includes Real Estate Strategies L.P., has shared voting and shared dispositive power over the 3,000,000 shares of Series C preferred stock. The Elsztain Group, for purposes of Section 13(d)(3) of the Exchange Act, consists of Eduardo S. Elsztain, and the following entities controlled, either directly or indirectly, by Mr. Elsztain: Consultores Assets Management S.A. , Consultores Venture Capital Uruguay S.A., Agroinvestment S.A., Idalgir S.A., Consultores Venture Capital Ltd., Ifis Limited, Inversiones Financieras del Sur S.A., Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, IRSA, Tyrus S.A., Jiwin S.A., Efanur SA and Real Estate Strategies L.P.

(3) Based solely on Schedule 13G delivered to the Company by the beneficial owner.

(4) Includes 863,611 shares of common stock held by Budget Motels, Inc.

(5) Includes 784,055 shares of common stock held by the Southern Improvement Company, Inc. and 138,800 shares of common stock held by Video Service of America, Inc. Mr. Dayton has pledged 252,200 shares of common stock.

(6) Includes 24,500 shares held by Mr. Borgmann’s wife and 1,500 shares held by his child.

(7) Includes 40,000 shares of common stock which Mr. Walters has the rights to acquire through the exercise of options.

(8) Includes 46,176 shares of common stock owned by Mr. Whittemore’s wife.

(9) Messrs. Elsztain, Friend, Landry and Sabin joined the Board of Directors in February 2012.

(10) Includes 47,500 shares of common stock which Ms. Scarpello has the right to acquire through the exercise of options.

(11) Includes 47,500 shares of common stock which Mr. Gilbert has the right to acquire through the exercise of options.

(12) Includes 250 shares of common stock owned by Mr. Walter’s wife and 47,500 shares of common stock which Mr. Walter has the right to acquire through the exercise of options.

(13) Includes 182,500 shares of common stock which the directors and executive officers have the right to acquire through the exercise of options.

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Equity Compensation Plan Information

The following table provides information about the Company’s common stock that may be issued upon exercise of options, warrants and rights under existing equity compensation plans as of December 31, 2011.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and  rights (b)		Number of securities remaining available for future issuance under equity compensation (including securities plans reflected in column(a)) (c)
Equity compensation plans approved by security holders		215,500	$	2.01		81,643
Equity compensation plans not approved by security holders		—		—		—
Total		215,500	$	2.01		81,643

Item 13. Certain Relationships and Related Transactions, and Director Independence

Director Independence

The Board of Directors has determined that the following directors are independent as directors as independence is defined by the applicable rules of the Nasdaq Stock Market and the Company’s articles of incorporation and the rules of the Securities and Exchange Commission: Steve H. Borgmann, Allen Dayton, Daniel Elsztain, James Friend, Donald J. Landry, William C. Latham, John M. Sabin, and Randy Whittemore. The Board has determined that each member of the Audit Committee, Compensation Committee and Nominating Committee is independent as independence is defined by the applicable rules of the Nasdaq Stock Market and the Company’s articles of incorporation and the rules of the Securities and Exchange Commission. The Board of Directors has also determined that Messrs. Sabin and Whittemore are audit committee financial experts within the meaning of the rules of the Securities and Exchange Commission.

Certain Relationships and Related Transactions

Purchase Agreement and Series C Preferred Stock. On November 16, 2011, with the unanimous approval of the Board of Directors the Company and Supertel Limited Partnership entered into a Purchase Agreement (the “Purchase Agreement”) with Real Estate Strategies L.P., a Bermuda limited partnership (“RES”), for the purchase from the Company of up to 3,000,000 shares of Series C Cumulative Convertible Preferred Stock (the “Series C preferred”). RES is an affiliate of IRSA Inversiones y Representaciones Sociedad Anónima, a publicly-traded company (NYSE: “IRS”) based in Buenos Aires, Argentina (“IRSA”). On January 31, 2012 at a special meeting, the shareholders of the Company, by the requisite vote, approved the issuance and sale of up to 3,000,000 shares of the Series C preferred stock, up to 30,000,000 shares of common stock of the Company which may be issued upon conversion of the Series C preferred stock, and warrants to purchase up to an additional 30,000,000 shares of common stock, to RES pursuant to the Purchase Agreement. The Company issued an aggregate of 3,000,000 shares of Series C preferred to RES for $30 million in closings on February 1 and February 15, 2012.

Each share of Series C preferred stock is entitled to a dividend of $0.625 per year payable in equal quarterly dividends. Each share of Series C preferred stock has a liquidation preference of $10.00 per share, in cash, plus an amount equal to any accrued and unpaid dividends.

The Series C preferred stock is convertible, at the option of the holder, at any time into common stock at a conversion price of $1.00 for each share of common stock, which is equal to the rate of ten shares of common stock for each share of Series C preferred stock. A holder of Series C preferred will not have conversion rights to the extent the conversion would cause the holder and its affiliates to beneficially own more than 34% of voting stock (the “Beneficial Ownership Limitation”). “Voting stock” means capital stock having the power to vote generally for the election of directors of the Company.

The Series C preferred stock will vote with the common stock as one class, subject to certain voting limitations. For any vote, the voting power of the Series C preferred stock will be equal to the lesser of: (a) 6.29 votes per share, or (b) an amount of votes per share such that the vote of all shares of Series C preferred stock in the aggregate equal 34% of the combined voting power of all the Company voting stock, minus an amount equal to the number of votes represented by the other shares of voting stock beneficially owned by RES and its affiliates (the “Voting Limitation”).

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As long as RES has the right to designate two or more directors to the Company Board of Directors pursuant to the Directors Designation Agreement (described below), the following requires the approval of RES and IRSA:

• the merger, consolidation, liquidation or sale of substantially all of the assets of the Company;

• the sale by the Company of common stock or securities convertible into common stock equal to 20% or more of the outstanding common stock or voting stock; or

• any Company transaction of more than $120,000 in which any of its directors or executive officers or any member of their immediate family will have a material interest, exclusive of employment compensation and interests arising solely from the ownership of the Company equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis.

Warrants. On February 1, 2012 and February 15, 2012, in connection with the purchase of the Series C preferred stock, the Company issued and RES received warrants (“Warrants”) to purchase 30,000,000 shares of the Company’s common stock. Subject to the Beneficial Ownership Limitation, the Warrants are exercisable at any time on or before January 31, 2017 at an exercise price of $1.20 per share of common stock. The exercise price may be paid in cash, or the holder may also elect to pay the exercise price by having the Company withhold a sufficient number of shares from the exercise with a market value equal to the exercise price.

Investor Rights and Conversion Agreement. The Company, with the unanimous approval of the Board of Directors, entered into an Investor Rights and Conversion Agreement (the “Investor Rights and Conversion Agreement”) dated February 1, 2012 with RES and IRSA pursuant to which the Company granted RES and its affiliates and their respective subsidiaries, among other rights, the right to purchase equity shares or securities convertible into equity shares in future Company offerings on a pro rata basis based on their combined ownership of common stock and Series C preferred stock, provided that such purchase would not cause RES and its affiliates to exceed the Beneficial Ownership Limitation. In the agreement, RES agreed to certain standstill provisions including that neither RES nor its affiliates will acquire any securities that would result in RES and its affiliates owning more than 34% of the voting stock of the Company.

Registration Rights Agreement. The Company, with the unanimous approval of the Board of Directors, entered into a registration rights agreement (the “Registration Rights Agreement”) dated February 1, 2012 with RES and IRSA. The Registration Rights Agreement requires the Company to register for resale by the holders the common stock issued upon conversion of the Series C preferred stock and upon exercise of the Warrants, and the Warrants and the Series C preferred stock. The Registration Rights Agreement also grants RES the right to participate in certain future underwritten offerings of securities by the Company.

Directors Designation Agreement. The Company, with the unanimous approval of the Board of Directors, entered into a directors designation agreement (the “Directors Designation Agreement”) dated February 1, 2012 with RES and IRSA pursuant to which the Company will appoint up to four directors designated by RES and IRSA to the Company Board of Directors and to maintain the Company Board of Directors at no more than nine members. Messrs. Elsztain, Friend, Landry, and Sabin have been appointed to the Board of Directors pursuant to the agreement.

Pursuant to the agreement, RES agreed to vote for the election of the current Board of Directors who remain on the Board of Directors and their successors as nominated by the nominating committee of the Board of Directors. One of the directors designated by RES will be appointed to the nominating committee. As long as RES beneficially owns 7% or more of the voting power of the capital stock of the Company, the RES designees will be nominated and recommended for election at each annual meeting of the Company shareholders.

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Loans by Directors and Guarantees by Directors. In an effort to meet the Company’s short-term liquidity needs, and because of the difficulty encountered in obtaining sources of borrowing to meet such needs, on November 10, 2011 the Audit Committee, then consisting of Messrs. Jung, Whittemore, and Zwerdling, approved a proposal for the purchase by four of the Company directors, Messrs. Borgmann, Dayton, Latham, and Walters (the “Purchasing Directors”), of the Amended and Restated Master Promissory Note maturing November 30, 2011 from Wells Fargo Bank, National Association (the “Note”) for the balance owed of principal and interest in the amount of $2,119,621. The Audit Committee has the authority and responsibility under its charter to review, oversee and approve of transactions between the Company and a director, executive officer or related person covered by the SEC’s rule S-K 404(a).

The Purchasing Directors purchased the Note from Wells Fargo on November 21, 2011. The Note was secured by two of the Company hotels and the Purchasing Directors released one of the hotels from security for the Note so that it could be used as security by the Company to obtain a $5,000,000 line of credit with Elkhorn Valley Bank. Each of the Purchasing Directors also separately guaranteed $750,000 of the line of credit (the “Elkhorn Line of Credit”).

The Audit Committee approved an amendment of the Note to extend its maturity to May 31, 2012 and to increase the per annum interest rate of 4.5% to 10% as consideration for the Purchasing Directors releasing the Company’s hotel from security for the Note. As consideration for the personal guaranties by the Purchasing Directors of Elkhorn Line of Credit, the Audit Committee approved payment of a fee of 2% per annum of the amount of their personal guaranties.

Proceeds from the sale of the Preferred Stock were used in February 2012 to repay the Note and the Elkhorn Line of Credit, and the Purchasing Directors were released from their personal guaranties. Each of the Purchasing Directors received $12,953 in interest payments on the Note and a $3,625 fee for their personal guarantee of the Elkhorn Line of Credit.

Item 14. Principal Accountant Fees and Services

The following table presents the fees for professional audit services rendered by KPMG LLP for the audit of the Company’s consolidated financial statements for the fiscal years ended December 31, 2011 and 2010, and fees billed for other services rendered by KPMG LLP during those periods.

Year Ended December 31,	2011		2010
Audit Fees(1)	$	318,510	$	329,515
Audit Related Fees(2)		0		6,700
Tax Fees(3)		149,470		81,261
All Other Fees		0		0
Total	$	467,980	$	417,476

(1) Includes fees billed for professional services rendered by KPMG LLP for the audit of the Company’s fiscal 2011 and 2010 annual financial statements, review of the Company’s quarterly financial statements during 2011 and 2010.

(2) Includes fees billed for expenses related to professional services rendered by KPMG LLP in connection with the audit and review of the quarterly financial statements during 2011 and 2010.

(3) Includes fees billed for professional services rendered by KPMG LLP for tax compliance, tax advice, and tax planning.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements and Schedules.

	Page
Report of Independent Registered Public Accounting Firm		51
Consolidated Balance Sheets as of December 31, 2011 and 2010		52
Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009		53
Consolidated Statements of Equity for the Years Ended December 31, 2011, 2010 and 2009		54
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009		55
Notes to Consolidated Financial Statements		56
Schedule III – Real Estate and Accumulated Depreciation		88
Notes to Schedule III-Real Estate and Accumulated Depreciation		93

Exhibits.

3.1* Second Amended and Restated Articles of Incorporation of the Company, as amended.

3.2 Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 6, 2007).

10.1 Third Amended and Restated Agreement of Limited Partnership of Supertel Limited Partnership, as amended (incorporated herein by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).

10.2 Loan Agreement dated as of November 26, 2002 by and among Solomons Beacon Inn Limited Partnership, TRS Subsidiary, LLC and Greenwich Capital Financial Products, Inc. (incorporated herein by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.3 Promissory Note dated as of November 26, 2002 between Solomons Beacon Inn Limited Partnership, TRS Subsidiary, LLC and Greenwich Capital Financial Products, Inc. (incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.4 Guaranty of Recourse Obligations dated as of November 26, 2002 made by the Company in favor of Greenwich Capital Financial Products, Inc. (incorporated herein by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.5 Pledge and Security Agreement dated as of November 26, 2002 by the Company, Supertel Limited Partnership, TRS Leasing, Inc. and Solomons GP, LLC, for the benefit of Greenwich Capital Financial Products, Inc. (incorporated herein by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.6 Master Lease Agreement dated as of November 26, 2002 between Solomons Beacon Inn Limited Partnership and TRS Subsidiary, LLC. (incorporated herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.7 First Amended and Restated Master Lease Agreement dated as of November 26, 2002 between Supertel Limited Partnership, E&P Financing Limited Partnership, TRS Leasing, Inc. and Solomons Beacon Inn Limited Partnership. (incorporated herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

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10.8 Hotel Management Agreement dated as of August 1, 2004 between TRS Leasing, Inc., TRS Subsidiary, LLC and Royco Hotels, Inc. (incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009).

10.9 Amendment dated January 1, 2007 to Hotel Management Agreement dated August 1, 2004 by and between Royco Hotels, Inc., TRS Leasing, Inc., TRS Subsidiary, LLC and SPPR TRS Subsidiary, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 1, 2007).

10.10 Management Agreement dated May 16, 2007 between TRS Leasing, Inc. and HLC Hotels, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 16, 2007).

10.11 Amendment to Management Agreement dated July 15, 2008 between TRS Leasing, Inc. and HLC Hotels, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).

10.12 Amended and Restated Loan Agreement dated December 3, 2008 by and between the Company and Great Western Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 3, 2008).

10.13 First Amendment to Amended and Restated Loan Agreement dated February 4, 2009 between the Company and Great Western Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2009).

10.14 Second Amendment to Amended and Restated Loan Agreement dated as of March 29, 2010 by and between the Company and Great Western Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).

10.15 Third Amendment to Amended and Restated Loan Agreement dated as of March 15, 2011 by and between the Company and Great Western Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).

10.16 Fourth Amendment to Amended and Restated Loan Agreement dated as of December 9, 2011 by and between the Company and Great Western Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 9, 2011).

10.17* Promissory Notes, Loan Agreement and form of Deed to Secure Debt, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 18, 2006 by Supertel Limited Partnership to and for the benefit of General Electric Capital Corporation.

10.18* Unconditional Guaranty of Payment and Performance dated August 18, 2006 by the Company to and for the benefit of General Electric Capital Corporation.

10.19 Amendment No. 1 to the Promissory Note dated August 18, 2006 by Supertel Limited Partnership to and for the benefit of General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 1, 2008).

10.20* Promissory Note, Loan Agreement and form of Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated January 5, 2007 by Supertel Limited Partnership to and for the benefit of General Electric Capital Corporation.

10.21 Amendment No. 1 to the Promissory Note dated January 5, 2007 by Supertel Limited Partnership to and for the benefit of General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 1, 2008).

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10.22 Promissory Notes, Loan Agreement and form of Deed to Secure Debt, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated May 16, 2007 by Supertel Limited Partnership to and for the benefit of General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 16, 2007).

10.23 Unconditional Guaranty of Payment and Performance dated May 16, 2007 by the Company to and for the benefit of General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 16, 2007).

10.24 Amendment No. 1 to the Promissory Note dated May 16, 2007 by Supertel Limited Partnership to and for the benefit of General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 1, 2008).

10.25 Loan Modification Agreements dated as of September 30, 2009 by and between General Electric Capital Corporation, the Company, Supertel Limited Partnership, Supertel Hospitality REIT Trust and SPPR-South Bend, LLC, (incorporated herein by reference to Exhibits 10.1 and 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).

10.26 Covenant Waiver dated as of November 9, 2009 by General Electric Capital Corporation to the Company, Supertel Limited Partnership, Supertel Hospitality REIT Trust and SPPR-South Bend, LLC. (incorporated herein by reference to Exhibit 10.24 to the Company’s Annual Report on Form10-K for the year ended December 31, 2009).

10.27 Loan Modification Agreement dated as of March 25, 2010 by and between General Electric Capital Corporation, Supertel Limited Partnership, SPPR-South Bend, LLC, Supertel Hospitality REIT Trust and the Company (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).

10.28 Unconditional Guaranties of Payment and Performance dated March 16, 2009, by the Company and Supertel Hospitality REIT Trust to and for the benefit of General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).

10.29 Global Amendment and Consent dated March 16, 2009 between Supertel Limited Partnership, SPPR-South Bend, LLC and General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).

10.30 Standby Equity Distribution Agreement dated as of March 26, 2010 between YA Global Master SPV Ltd. and the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 26, 2010).

10.31* The Company’s 2006 Stock Plan

10.32* Form of Stock Option Agreement

10.33 Amendment dated May 28, 2009, to the Company’s 2006 Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 28, 2009).

10.34 Employment Agreement of Kelly Walters, dated February 1, 2012 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 1, 2012).

10.35 Employment Agreement of Steven C. Gilbert, dated February 1, 2012 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 1, 2012).

10.36 Employment Agreement of Corrine L. Scarpello, dated February 1, 2012 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 1, 2012).

110

10.37 Employment Agreement of David L. Walter dated February 1, 2012 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated February 1, 2012).

10.38 Purchase Agreement, dated November 16, 2011, by and among Supertel Hospitality, Inc., Supertel Limited Partnership and Real Estate Strategies L.P. incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K/A dated November 16, 2011.

10.39* Warrants issued to Real Estate Strategies L.P. dated February 1, 2012 and February 15, 2012.

10.40 Investor Rights and Conversion Agreement dated February 1, 2012, by and among Supertel Hospitality, Inc., Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anónima, incorporated by reference from Exhibit 10.3 of the Company’s Report on Form 8-K filed on February 3, 2012.

10.41 Registration Rights Agreement dated February 1, 2012, by and among Supertel Hospitality, Inc., Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anónima, incorporated by reference from Exhibit 10.4 of the Company’s Report on Form 8-K filed on February 3, 2012.

10.42 Directors Designation Agreement dated February 1, 2012, by and among Supertel Hospitality, Inc., Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anónima, incorporated by reference from Exhibit 10.5 of the Company’s Report on Form 8-K filed on February 3, 2012.

10.43 Director and Named Executive Officers Compensation is incorporated herein by reference to the Item 11 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

10.44* Management Agreement dated April 21, 2011 between Kinseth Hotel Corporation, TRS Leasing, Inc., TRS Subsidiary, LLC, SPPR TRS Subsidiary, LLC, and SPPR-BMI TRS Subsidiary, LLC.

10.45* Management Agreement dated April 21, 2011 between Strand Development Company, LLC, Strandco, Inc., TRS Leasing, Inc., TRS Subsidiary, LLC, SPPR TRS Subsidiary, LLC, and SPPR-BMI TRS Subsidiary, LLC.

10.46* Management Agreement dated April 21, 2011 between Hospitality Management Advisors, Inc., TRS Leasing, Inc., TRS Subsidiary, LLC, SPPR TRS Subsidiary, LLC, and SPPR-BMI TRS Subsidiary, LLC.

10.47 Amendments dated August 9, 2011 and January 21, 2010 to the Management Agreement dated May 16, 2007 between TRS Leasing, Inc. and HLC Hotels, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2011).

21.0* Subsidiaries.

23.1* Consent of KPMG LLP.

31.1* Section 302 Certification of Chief Executive Officer.

31.2* Section 302 Certification of Chief Financial Officer.

32.1* Section 906 Certifications.

101.1 The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.

Pursuant to Item 601 (b)(4) of Regulation S-K, certain instruments with respect to the Company’s long-term debt are not filed with this Form 10-K. The Company will furnish a copy of any such long-term debt agreement to the Securities and Exchange Commission upon request.

Management contracts and compensatory plans are set forth as Exhibits 10.31 through 10.37.

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SUPERTEL HOSPITALITY, INC.
	By:	/s/ Kelly A. Walters
March 30, 2012		Kelly A. Walters
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date indicated above.

By:	/s/ Kelly A. Walters
	Kelly A. Walters
	President and Chief Executive Officer (principal executive officer)

By:	/s/ Corrine L. Scarpello
	Corrine L. Scarpello
	Chief Financial Officer and Corporate Secretary
	(principal financial and accounting officer)

By:	/s/ William C. Latham
	William C. Latham
	Chairman of the Board

By:	/s/ Kelly A. Walters
	Kelly A. Walters
	Director

By:	/s/ Steve H. Borgmann
	Steve H. Borgmann
	Director

By:	/s/ Allen L. Dayton
	Allen L. Dayton
	Director

By:	/s/ George R. Whittemore
	George R. Whittemore
	Director

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EX-3.1

Exhibit 3.1

Second Amended and Restated Articles of Incorporation of Supertel Hospitality, Inc.

ARTICLES OF AMENDMENT

TO THE

SECOND AMENDED AND

RESTATED ARTICLES OF INCORPORATION

OF

SUPERTEL HOSPITALITY, INC.

The undersigned corporation pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia, hereby executes the following Articles of Amendment and sets forth:

1. The name of the corporation (which is hereinafter referred to as the “Corporation”) is Supertel Hospitality, Inc.

2. The amendment to the Corporation’s Second Amended and Restated Articles of Incorporation is as follows:

The first sentence in Article III of said Second Amended and Restated Articles of Incorporation is deleted in its entirety and replaced by the following:

“The total number of shares of stock that the Corporation has authority to issue is 100 million shares of Common Stock, $0.01 par value per share, and 40 million shares of Preferred Stock, $.01 par value per share.”

3. The Articles of Amendment were unanimously adopted by the Corporation’s Board of Directors on March 16, 2007.

4. The Articles of Amendment were proposed by the Corporation’s Board of Directors and submitted to the shareholders in accordance with the provisions of Chapter 9 of Title 13.1 of the Code of Virginia, and

(a) The designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the Articles of Amendment were:

Designation	No. of Outstanding Shares		No. of Votes
Common Stock, $.01 par value per share		19,917,157		19,917,157

(b) The total number of undisputed votes cast for the Articles of Amendment separately by each voting group was:

Voting Group	Total No. of Undisputed Votes Cast FOR the Articles of Amendment
Common Stock, $.01 par value per share		11,127,834

(c) The number of votes cast for the Articles of Amendment by each voting group was sufficient for approval by that voting group.

Dated: June 11, 2007	Supertel Hospitality, Inc.
	By:	/s/ Paul J. Schulte
	Name:	Paul J. Schulte
	Title:	President and Chief Executive Officer

ARTICLES OF AMENDMENT

TO THE

SECOND AMENDED AND

RESTATED ARTICLES OF INCORPORATION

OF

HUMPHREY HOSPITALITY TRUST, INC.

The undersigned corporation pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia, hereby executes the following Articles of Amendment and sets forth:

1. The name of the corporation (which is hereinafter referred to as the “Corporation”) is Humphrey Hospitality Trust, Inc.

2. The amendment to the Corporation’s Second Amended and Restated Articles of Incorporation is as follows:

Article I of said Second Amended and Restated Articles of Incorporation is deleted in its entirety and replaced by the following:

“I.

The name of the Corporation (which is hereinafter called the “Corporation”) is Supertel Hospitality, Inc.”

3. The Articles of Amendment were unanimously adopted by the Corporation’s Board of Directors on March 4, 2005.

4. The Articles of Amendment were proposed by the Corporation’s Board of Directors and submitted to the shareholders in accordance with the provisions of Chapter 9 of Title 13.1 of the Code of Virginia, and

(a) The designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the Articles of Amendment were:

Designation	No. of Outstanding Shares		No. of Votes
Common Stock, $.01 par value per share		12,059,849		12,059,849

Designation	No. of Outstanding Shares	No. of Votes
Common Stock, $.01 par value per share

(b) The total number of undisputed votes cast for the Articles of Amendment separately by each voting group was:

Voting Group	Total No. of Undisputed Votes Cast FOR the Articles of Amendment
Common Stock, $.01 par value per share		11,126,043

(c) The number of votes cast for the Articles of Amendment by each voting group was sufficient for approval by that voting group.

Dated: May 26, 2005	Humphrey Hospitality Trust, Inc.
	By:	/s/ Paul J. Schulte
	Name:	Paul J. Schulte
	Title:	President and Chief Executive Officer

SECOND

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

HUMPHREY HOSPITALITY TRUST, INC.

(A Stock Corporation)

I.

The name of the corporation (which is hereinafter called the “Corporation”) is Humphrey Hospitality Trust, Inc.

II.

The purpose for which this Corporation is formed is to transact any and all lawful business, not required to be specifically stated in these Articles, for which corporations may be incorporated under the Virginia Stock Corporation Act, as amended from time to time.

III.

The total number of shares of stock that the Corporation has authority to issue is 25 million (25,000,000) shares of Common Stock, $.01 par value per share, and ten million (10,000,000) shares of Preferred Stock, $.01 par value per share.

No holder of shares of capital stock of the Corporation shall have any preemptive or preferential right to subscribe to or purchase (i) any shares of any class of the Corporation, whether now or hereafter authorized; (ii) any warrants, rights, or options to purchase any such shares; or (iii) any securities or obligations convertible into any such shares or into warrants, rights, or options to purchase any such shares.

The Preferred Stock may be issued from time to time by the Board of Directors of the Corporation, in such series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or other provisions as may be fixed by the Board of Directors.

IV.

The address of the Corporation’s initial registered office is Riverfront Plaza, East Tower, 951 E. Byrd Street, which is in the City of Richmond. The name and address of the initial Registered Agent is Thurston R. Moore, who is a resident of Virginia and a member of the Virginia State Bar, and whose business address is Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219-4074, which is in the City of Richmond.

V.

A. The Corporation shall have a Board of Directors consisting of not less than three (3) nor more than nine (9) members unless otherwise determined from time to time by resolution adopted by the affirmative vote of a majority of the shareholders. A director need not be a shareholder. At the annual meeting of shareholders, the shareholders shall elect directors to serve a one-year term and until their successors are duly elected and qualified.

B. Notwithstanding anything herein to the contrary, at all times (except during a period not to exceed sixty (60) days following the death, resignation, incapacity or removal from office of a director prior to expiration of the director’s term of office), a majority of the Board of Directors shall be comprised of persons who are “Independent Directors.” Independent Directors are persons who are not officers or employees of the Corporation or “Affiliates” of (i) any advisor to the Corporation under an advisory agreement, (ii) any lessee of any property of the Corporation, (iii) any subsidiary of the Corporation or (iv) any partnership which is an Affiliate of the Corporation.

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C. For purposes of the foregoing subsection, “Affiliate” of a person shall mean (i) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (ii) any other person that owns, beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests of such person, or (iii) any officer, director, employee, partner or trustee of such person or any person controlling, controlled by or under common control with such person (excluding directors and persons serving in similar capacities who are not otherwise an Affiliate of such person). The term “person” means and includes individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests.

D. Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), the provisions of this Article V shall not be amended, altered, changed or repealed without the approval of a majority of the members of the Board of Directors or the affirmative vote of the holders of not less than a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting separately as a class.

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VI.

Except as expressly otherwise required by these Articles of Incorporation, (i) an amendment to or restatement of these Articles of Incorporation for which the Virginia Stock Corporation Act requires shareholder approval, (ii) the approval of a plan of merger or share exchange for which the Virginia Stock Corporation Act requires shareholder approval, (iii) the approval of a sale of all, or substantially all of the Corporation’s property, other than in the usual and regular course of business or (iv) the approval of the dissolution of the Corporation shall be approved by a majority of the votes entitled to be cast by each voting group that is entitled to vote on the matter, unless in submitting any such matter to the shareholders the Board of Directors shall require a greater vote.

VII.

A. In this Article:

“Applicant” means the Person seeking indemnification pursuant to this Article.

“Expenses” includes counsel fees.

“Liability” means the obligation to pay a judgment, settlement, penalty, fine, including any excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding.

“Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

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“Proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal.

B. In any proceeding brought by or in the right of the Corporation or brought by or on behalf of shareholders of the Corporation, no director or officer of the Corporation shall be liable to the Corporation or its shareholders for monetary damages with respect to any transaction, occurrence or course of conduct, whether prior or subsequent to the effective date of this Article, except for liability resulting from such Person’s having engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law.

C. The Corporation shall indemnify (i) any Person who was or is a party to any proceeding, including a proceeding brought by a shareholder in the right of the Corporation or brought by or on behalf of shareholders of the Corporation, by reason of the fact that he is or was a director or officer of the Corporation, or (ii) any director or officer who is or was serving at the request of the Corporation as a director, trustee, partner, member or officer of another corporation, partnership, joint venture, limited liability company, trust, employee benefit plan or other enterprise, against any liability incurred by him in connection with such proceeding, unless he engaged in gross negligence, willful misconduct or a knowing violation of the criminal law. A Person is considered to be serving an employee benefit plan at the Corporation’s request if his duties to the Corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. The Board of Directors is hereby empowered, by a majority vote of a quorum of disinterested directors, to enter into a contract to indemnify any director or officer in respect of any proceedings arising from any act or omission, whether occurring before or after the execution of such contract.

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D. The provisions of this Article shall be applicable to all proceedings commenced after the adoption hereof by the Corporation, arising from any act or omission, whether occurring before or after such adoption. No amendment or repeal of this Article shall have any effect on the rights provided under this Article with respect to any act or omission occurring prior to such amendment or repeal. The Corporation shall promptly take all such actions, and make all such determinations, as shall be necessary or appropriate to comply with its obligation to make any indemnity under this Article and shall promptly pay or reimburse all reasonable expenses, including attorneys’ fees, incurred by any such indemnified Person in connection with such actions and determinations or proceedings of any kind arising therefrom.

E. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the applicant did not meet the standard of conduct described in Section B or C of this Article.

F. Any indemnification under Section C of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the applicant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section C.

The determination shall be made:

1. By the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding;

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2. If a quorum cannot be obtained under subsection 1 of this Section, by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding;

3. By special legal counsel:

a. Selected by the Board of Directors or its committee in the manner prescribed in subsection 1 or 2 of this Section; or

b. If a quorum of the Board of Directors cannot be obtained under subsection 1 of this Section and a committee cannot be designated under subsection 2 of this Section, selected by majority vote of the full Board of Directors, in which selection directors who are parties may participate; or

4. By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination.

Any evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is appropriate, except that if the determination is made by special legal counsel, such evaluation as to reasonableness of expenses shall be made by those entitled under subsection 3 of this Section F to select counsel.

Notwithstanding the foregoing, in the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to this Article shall be made by special legal counsel agreed upon by the Board of Directors and the applicant.

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If the Board of Directors and the applicant are unable to agree upon such special legal counsel the Board of Directors and the applicant each shall select a nominee, and the nominees shall select such special legal counsel.

G. 1. The Corporation shall pay for or reimburse the reasonable expenses incurred by any applicant who is a party to a proceeding in advance of final disposition of the proceeding or the making of any determination under Section F if the applicant furnishes the Corporation:

a. a written statement of his good faith belief that he has met the standard of conduct described in Section C; and

b. a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet such standard of conduct.

2. The undertaking required by paragraph (b) of subsection 1 of this Section shall be an unlimited general obligation of the applicant but need not be secured and may be accepted without reference to financial ability to make repayment.

3. Authorizations of payments under this Section shall be made by the Persons specified in Section F.

H. The Board of Directors is hereby empowered, by majority vote of a quorum consisting of disinterested directors, to cause the Corporation to indemnify or contract to indemnify any Person not specified in Section B or C of this Article who was, is or may become a party to any proceeding, by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such Person were specified as one to whom indemnification is granted in Section C. The provisions of Sections D through G of this Article shall be applicable to any indemnification provided hereafter pursuant to this Section H.

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I. The Corporation may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article and may also procure insurance, in such amounts as the Board of Directors may determine, on behalf of any Person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by him in any such capacity or arising from his status as such, whether or not the Corporation would have power to indemnify him against such liability under the provisions of this Article.

J. Every reference herein to directors, officers, employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators. The indemnification hereby provided and provided hereafter pursuant to the power hereby conferred by this Article on the Board of Directors shall not be exclusive of any other rights to which any Person may be entitled, including any right under policies of insurance that may be purchased and maintained by the Corporation or others, with respect to claims, issues or matters in relation to which the Corporation would not have the power to indemnify such Person under the provisions of this Article. Such rights shall not prevent or restrict the power of the Corporation to make or provide for any further indemnity, or provisions for determining entitlement to indemnity, pursuant to one or more indemnification agreements, bylaws, or other arrangements (including, without limitation, creation of trust funds or security interests funded by letters of credit or other means) approved

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by the Board of Directors (whether or not any of the directors of the Corporation shall be a party to or beneficiary of any such agreements, bylaws or arrangements); provided, however, that any provision of such agreements, bylaws or other arrangements shall not be effective if and to the extent that it is determined to be contrary to this Article or applicable laws of the Commonwealth of Virginia.

K. Each provision of this Article shall be severable, and an adverse determination as to any such provision shall in no way affect the validity of any other provision.

VIII.

The Corporation shall seek to elect and maintain status as a REIT under the Code. It shall be the duty of the Board of Directors to ensure that the Corporation satisfies the requirements for qualification as a REIT under the Code, including, but not limited to, the ownership of its outstanding stock, the nature of its assets, the sources of its income, and the amount and timing of its distributions to its shareholders. The Board of Directors shall take no action to disqualify the Corporation as a REIT or to otherwise revoke the Corporation’s election to be taxed as a REIT without the affirmative vote of two-thirds (2/3) of the number of shares of Common Stock entitled to vote on such matter at a special meeting of the shareholders.

IX.

A. Restrictions on Transfer.

1. Definitions. The following terms shall have the following meanings:

“Beneficial Ownership” shall mean ownership of shares of Equity Stock by a Person who would be treated as an owner of such shares of Equity Stock either directly or indirectly through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Owns,” and “Beneficially Owned” shall have correlative meanings.

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“Beneficiary” shall mean, with respect to any Trust, one or more organizations described in each of Section 170(b)(1)(A) (other than clauses (vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the Corporation as the beneficiary or beneficiaries of such Trust, in accordance with the provisions of Section (B)(1) of Article VIII hereof.

“Board of Directors” shall mean the Board of Directors of the Corporation.

“Constructive Ownership” shall mean ownership of shares of Equity Stock by a Person who would be treated as an owner of such shares of Equity Stock either directly or indirectly through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns,” and “Constructively Owned” shall have correlative meanings.

“Equity Stock” shall mean Preferred Stock and Common Stock of the Corporation. The term “Equity Stock” shall include all shares of Preferred Stock and Common Stock of the Corporation that are held as Shares-in-Trust in accordance with the provisions of Section (B) of Article VIII hereof.

“Humphrey Partnership Agreement” shall mean the agreement of limited partnership establishing Humphrey Hospitality Limited Partnership, a Virginia limited partnership, as amended and restated from time to time.

“Market Price” on any date shall mean the average of the Closing Price for the five consecutive Trading Days ending on such date. The “Closing Price” on any date shall mean the last sale price, regular way, or, in

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case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Equity Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Equity Stock are listed or admitted to trading or, if the shares of Equity Stock are not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the shares of Equity Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares of Equity Stock selected by the Board of Directors.

“Trading Day” shall mean a day on which the principal national securities exchange on which the shares of Equity Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Equity Stock are not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“Non-Transfer Event” shall mean an event other than a purported Transfer that would cause any Person to Beneficially Own or Constructively Own shares of Equity Stock in excess of the Ownership Limit,

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including, but not limited to, the granting of any option or entering into any agreement for the sale, transfer or other disposition of shares of Equity Stock or the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for shares of Equity Stock.

“Ownership Limit” shall mean, with respect to the Common Stock, 9.9% of the number of outstanding shares of Common Stock and, with respect to any class or series of Preferred Stock, 9.9% of the number of outstanding shares of such class or series of Preferred Stock.

“Permitted Transferee” shall mean any Person designated as a Permitted Transferee in accordance with the provisions of Section (B)(5) of Article VIII hereof.

“Person” shall mean an individual, corporation, partnership, estate, trust, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a “group” as that term is used for purposes of Section 12(d)(3) of the Securities Exchange Act of 1934, as amended.

“Prohibited Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of Section (A)(3) of Article VIII hereof, would own record title to shares of Equity Stock.

“Redemption Rights” shall mean the rights granted under the Humphrey Partnership Agreement to the limited partners to redeem, under certain circumstances, their limited partnership interests for shares of Common Stock (or cash at the option of the Corporation).

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“Restriction Termination Date” shall mean the first day after which (i) the Board of Directors determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT and (ii) there is an affirmative vote of two-thirds of the number of shares of Common Stock entitled to vote on such matter at a special meeting of the shareholders of the Corporation.

“Shares-in-Trust” shall mean any shares of Equity Stock designated Shares-in-Trust pursuant to Section (A)(3) of Article VIII hereof.

“Transfer” (as a noun) shall mean any sale, transfer, gift, assignment, devise or other disposition of shares of Equity Stock, whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. “Transfer” (as a verb) shall not have the correlative meaning.

“Trust” shall mean any separate trust created pursuant to Section (A)(3) of Article VIII hereof and administered in accordance with the terms of Section (B) of Article VIII hereof, for the exclusive benefit of any Beneficiary.

“Trustee” shall mean any Person or entity unaffiliated with both the Corporation and any Prohibited Owner, such Trustee to be designated by the Corporation to act as trustee of any Trust, or any successor trustee thereof.

2. Restriction on Transfers.

a. Except as provided in Section (A)(7) of Article VIII hereof, prior to the Restriction Termination Date, (i) no Person shall Beneficially Own or Constructively Own outstanding shares of Equity Stock in excess of the Ownership Limit and (ii) any Transfer that, if effective, would result in any Person Beneficially Owning or Constructively Owning shares of Equity Stock in excess of

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the Ownership Limit shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would be otherwise Beneficially Owned or Constructively Owned by such Person in excess of the Ownership Limit, and the intended transferee shall acquire no rights in such excess shares of Equity Stock.

b. Except as provided in Section (A)(7) of Article VIII hereof, prior to the Restriction Termination Date, any Transfer that, if effective, would result in shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of that number of shares which would be otherwise beneficially owned (determined without reference to any rules of attribution) by the transferee, and the intended transferee shall acquire no rights in such shares of Equity Stock.

c. Prior to the Restriction Termination Date, any Transfer of shares of Equity Stock that, if effective, would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would cause the Corporation to be “closely held” within the meaning of Section 856(h) of the Code, and the intended transferee shall acquire no rights in such shares of Equity Stock.

d. Prior to the Restriction Termination Date, any Transfer of shares of Equity Stock that, if effective, would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in such excess shares of Equity Stock.

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3. Transfer to Trust.

a. If, notwithstanding the other provisions contained in this Section (A) of Article VIII, at any time prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event such that any Person would either Beneficially Own or Constructively Own shares of Equity Stock in excess of the Ownership Limit, then, (i) except as otherwise provided in Section (A)(7) of Article VIII hereof, the purported transferee shall acquire no right or interest (or, in the case of a Non-Transfer Event, the Person holding record title to the shares of Equity Stock Beneficially Owned or Constructively Owned by such Beneficial Owner or Constructive Owner, shall cease to own any right or interest) in such number of shares of Equity Stock which would cause such Beneficial Owner or Constructive Owner to Beneficially Own or Constructively Own shares of Equity Stock in excess of the Ownership Limit, (ii) such number of shares of Equity Stock in excess of the Ownership Limit (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section (B) of Article VIII hereof, transferred automatically and by operation of law to the Trust to be held in accordance with that Section (B) of Article VIII, and (iii) the Prohibited Owner shall submit such number of shares of Equity Stock to the Corporation for registration in the name of the Trustee. Such transfer to a Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

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b. If, notwithstanding the other provisions contained in this Section (A) of Article VIII, at any time prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would (i) result in the shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (ii) result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or (iii) cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire any right or interest (or, in the case of a Non-Transfer Event, the Person holding record title of the shares of Equity Stock with respect to which such Non-Transfer Event occurred, shall cease to own any right or interest) in such number of shares of Equity Stock, the ownership of which by such purported transferee or record holder would (A) result in the shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (B) result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or (C) cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, (y) such number of shares of Equity Stock (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section (B) of Article VIII hereof, transferred automatically and by operation of law to the Trust to be held in accordance with that Section (B) of Article VIII, and (z) the Prohibited Owner shall submit such number of shares of Equity Stock to the Corporation for registration in the name of the Trustee. Such transfer to a

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Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

4. Remedies For Breach. If the Corporation, or its designees, shall at any time determine in good faith that a Transfer has taken place in violation of Section (A)(2) of Article VIII hereof or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Equity Stock in violation of Section (A)(2) of Article VIII hereof, the Corporation shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or acquisition, including, but not limited to, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or acquisition.

5. Notice of Restricted Transfer. Any Person who acquires or attempts to acquire shares of Equity Stock in violation of Section (A)(2) of Article VIII hereof, or any Person who owned shares of Equity Stock that were transferred to the Trust pursuant to the provisions of Section (A)(3) of Article VIII hereof, shall immediately give written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on the Corporation’s status as a REIT.

6. Owners Required To Provide Information. Prior to the Restriction Termination Date:

a. Every Beneficial Owner or Constructive Owner of more than 5%, or such lower percentages as required pursuant to regulations under the Code, of the outstanding shares of all classes of capital stock of the Corporation shall, within 30 days after January 1 of each year, provide to the Corporation a

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written statement or affidavit stating the name and address of such Beneficial Owner or Constructive Owner, the number of shares of Equity Stock Beneficially Owned or Constructively Owned, and a description of how such shares are held. Each such Beneficial Owner or Constructive Owner shall provide to the Corporation such additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

b. Each Person who is a Beneficial Owner or Constructive Owner of shares of Equity Stock and each Person (including the stockholder of record) who is holding shares of Equity Stock for a Beneficial Owner or Constructive Owner shall provide to the Corporation a written statement or affidavit stating such information as the Corporation may request in order to determine the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

7. Exception. The Ownership Limit shall not apply to the acquisition of shares of Equity Stock by an underwriter that participates in a public offering of such shares for a period of 90 days following the purchase by such underwriter of such shares provided that the restrictions contained in Section (A)(2) of Article VIII hereof will not be violated following the distribution by such underwriter of such shares. In addition, the Board of Directors, upon receipt of a ruling from the Internal Revenue Service or an opinion of counsel in each case to the effect that the restrictions contained in Section (A)(2)(B), Section (A)(2)(C), and/or Section (A)(2)(D) of Article VIII hereof will not be violated, may exempt a Person from the Ownership Limit provided that (i) the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no

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individual’s Beneficial Ownership or Constructive Ownership of shares of Equity Stock will violate the Ownership Limit and (ii) such Person agrees in writing that any violation or attempted violation will result in such transfer to the Trust of shares of Equity Stock pursuant to Section (A)(3) of Article VIII hereof.

B. Shares-in-Trust.

1. Trust. Any shares of Equity Stock transferred to a Trust and designated Shares-in-Trust pursuant to Section (A)(3) of Article VIII hereof shall be held for the exclusive benefit of the Beneficiary. The Corporation shall name a Beneficiary for each Trust within five days after discovery of the existence thereof. Any transfer to a Trust, and subsequent designation of shares of Equity Stock as Shares-in-Trust, pursuant to Section (A)(3) of Article VIII hereof shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event that results in the transfer to the Trust. Shares-in-Trust shall remain issued and outstanding shares of Equity Stock of the Corporation and shall be entitled to the same rights and privileges on identical terms and conditions as are all other issued and outstanding shares of Equity Stock of the same class and series. When transferred to a Permitted Transferee in accordance with the provisions of Section (B)(5) of Article VIII hereof, such Shares-in-Trust shall cease to be designated as Shares-in-Trust.

2. Dividend Rights. The Trust, as record holder of Shares-in-Trust, shall be entitled to receive all dividends and distributions as may be declared by the Board of Directors on such shares of Equity Stock and shall hold such dividends or distributions in trust for the benefit of the Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay to

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the Trust the amount of any dividends or distributions received by it that (i) are attributable to any shares of Equity Stock designated Shares-in-Trust and (ii) the record date of which was on or after the date that such shares became Shares-in-Trust. The Corporation shall take all measures that it determines reasonably necessary to recover the amount of any such dividend or distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future dividends or distributions payable on shares of Equity Stock Beneficially Owned or Constructively Owned by the Person who, but for the provisions of Section (A)(3) of Article VIII hereof, would Constructively Own or Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable following the Corporation’s receipt or withholding thereof, shall pay over to the Trust for the benefit of the Beneficiary the dividends so received or withheld, as the case may be.

3. Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of Shares-in-Trust shall be entitled to receive, ratably with each other holder of shares of Equity Stock of the same class or series, that portion of the assets of the Corporation which is available for distribution to the holders of such class and series of shares of Equity Stock. The Trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution, or winding up, or distribution; provided, however, that the Prohibited Owner shall not be entitled to receive amounts pursuant to this Section (B)(3) of Article VIII in excess of, in the case of a purported Transfer in which the Prohibited Owner gave value for shares of Equity Stock and which Transfer resulted in the transfer of the shares to the Trust, the price per share, if any, such Prohibited Owner paid for the shares of Equity Stock and, in the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be distributed to the Beneficiary.

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4. Voting Rights. The Trustee shall be entitled to vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of shares of Equity Stock prior to the discovery by the Corporation that the shares of Equity Stock are Shares-in-Trust shall, subject to applicable law, be rescinded and shall be void ab initio with respect to such Shares-in-Trust and the Prohibited Owner shall be deemed to have given, as of the close of business on the business day prior to the date of the purported Transfer or Non-Transfer Event that results in the transfer to the Trust of shares of Equity Stock under Section (A)(3) of Article VIII hereof, an irrevocable proxy to the Trustee to vote the Shares-in-Trust in the manner in which the Trustee, in its sole and absolute discretion, desires.

5. Designation of Permitted Transferee. The Trustee shall have the exclusive and absolute right to designate a Permitted Transferee of any and all Shares-in-Trust. In an orderly fashion so as not to materially adversely affect the Market Price of the Shares-in-Trust, the Trustee shall designate any Person as Permitted Transferee, provided, however, that (i) the Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale) the Shares-in-Trust and (ii) the Permitted Transferee so designated may acquire such Shares-in-Trust without such acquisition resulting in a transfer to a Trust and the redesignation of such shares of Equity Stock so acquired as Shares-in-Trust under Section (A)(3) of Article VIII hereof. Upon the designation by the Trustee of a Permitted Transferee in accordance with the provisions of this Section (B)(5) of Article VIII, the Trustee shall (i) cause to be transferred to the Permitted Transferee that number of Shares-in-Trust

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acquired by the Permitted Transferee, (ii) cause to be recorded on the books of the Corporation that the Permitted Transferee is the holder of record of such number of shares of Equity Stock, (iii) cause the Shares-in-Trust to be canceled, and (iv) distribute to the Beneficiary any and all amounts held with respect to the Shares-in-Trust after making that payment to the Prohibited Owner pursuant to Section (B)(6) of Article VIII hereof.

6. Compensation to Record Holder of Shares of Equity Stock that Become Shares-in-Trust. Any Prohibited Owner shall be entitled (following discovery of the Shares-in-Trust and subsequent designation of the Permitted Transferee in accordance with Section (B)(5) of Article VIII hereof or following the acceptance of the offer to purchase such shares in accordance with Section (B)(7) of Article VIII hereof) to receive from the Trustee following the sale or other disposition of such Shares-in-Trust the lesser of (i) in the case of (a) a purported Transfer in which the Prohibited Owner gave value for shares of Equity Stock and which Transfer resulted in the transfer of the shares to the Trust, the price per share, if any, such Prohibited Owner paid for the shares of Equity Stock, or (b) a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer, and (ii) the price per share received by the Trustee from the sale or other disposition of such Shares-in-Trust in accordance with Section (B)(5) of Article VIII hereof. Any amounts received by the Trustee in respect of such Shares-in-Trust and in excess of such amounts to be paid the Prohibited Owner pursuant to this Section (B)(6) shall be distributed to the Beneficiary in accordance with the

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provisions of Section (B)(5) of Article VIII hereof. Each Beneficiary and Prohibited Owner waive any and all claims that they may have against the Trustee and the Trust arising out of the disposition of Shares-in-Trust, except for claims arising out of the gross negligence or willful misconduct of, or any failure to make payments in accordance with this Section (B), by such Trustee or the Corporation.

7. Purchase Right in Shares-in-Trust. Shares-in-Trust shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such Shares-in-Trust (or, in the case of devise, gift or Non-Transfer Event, the Market Price at the time of such devise, gift or Non-Transfer Event) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer for a period of ninety days after the later of (i) the date of the Non-Transfer Event or purported Transfer which resulted in such Shares-in-Trust and (ii) the date the Corporation determines in good faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Corporation does not receive a notice of such Transfer or Non-Transfer Event pursuant to Section (A)(5) of Article VIII hereof.

C. Remedies Not Limited. Nothing contained in this Article VIII shall limit the authority of the Corporation to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its shareholders by preservation of the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

D. Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Article VIII, including any definition contained in

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Section (A)(1) of Article VIII hereof, the Board of Directors shall have the power to determine the application of the provisions of this Article VIII with respect to any situation based on the facts known to it.

E. Legend. Each certificate for shares of Equity Stock shall bear the following legend:

“The shares of [Common or Preferred] Stock represented by this certificate are subject to restrictions on transfer for the purpose of the Corporation’s maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”). No Person may (i) Beneficially Own or Constructively Own shares of Common Stock in excess of 9.9% of the number of outstanding shares of Common Stock, (ii) Beneficially Own or Constructively Own shares of any class or series of Preferred Stock in excess of 9.9% of the number of outstanding shares of such class or series of Preferred Stock, (iii) beneficially own shares of Equity Stock that would result in the shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (iv) Beneficially Own shares of Equity Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code, or (v) Constructively Own shares of Equity Stock that would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code. Any Person who attempts to Beneficially Own or Constructively Own shares of Equity Stock in excess of the above limitations must immediately notify the Corporation in writing. If the restrictions above are violated, the shares of Equity Stock represented hereby will be transferred automatically and by operation of law to a Trust and shall be designated Shares-in-Trust. All capitalized terms in this legend have the meanings defined in the Corporation’s

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Amended and Restated Articles of Incorporation, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests.”

F. Severability. If any provision of this Article VIII or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

Dated: October 26, 1999

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ARTICLES OF AMENDMENT

TO THE

SECOND AMENDED AND

RESTATED ARTICLES OF INCORPORATION

OF

SUPERTEL HOSPITALITY, INC.

DESIGNATING THE

SERIES A CONVERTIBLE PREFERRED STOCK

The undersigned corporation pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia, hereby executes the following Articles of Amendment and sets forth:

1. The name of the corporation (which is hereinafter referred to as the “Corporation”) is Supertel Hospitality, Inc.

2. The amendment adds Article X (attached hereto) to the Corporation’s Second Amended and Restated Articles of Incorporation and thereby creates a series of Preferred Stock (the “Series A Convertible Preferred Stock”), states the designation and number of shares in the series and fixes the preferences, limitations and relative rights thereof.

3. Pursuant to a written consent in lieu of a special meeting, the Board of Directors of the Corporation duly adopted the amendment to the Corporation’s Second Amended and Restated Articles of Incorporation on December 20, 2005. Shareholder approval is not required.

Dated: December 20, 2005	Supertel Hospitality, Inc.
	By:	/s/ PAUL J. SCHULTE
	Name:	Paul J. Schulte
	Title:	President and Chief Executive Officer

X.

A. Terms of the Series A Convertible Preferred Stock.

1. Designation and Number. A series of Preferred Stock, designated the “Series A Convertible Preferred Stock”, is hereby established. The number of authorized shares of Series A Convertible Preferred Stock shall be 2,500,000.

2. Maturity. The Series A Convertible Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption.

3. Rank. The Series A Convertible Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series A Convertible Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation, (c) on a parity with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series A Convertible Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation (the “Parity Shares”) and (d) junior to all existing and future indebtedness of the Corporation.

4. Dividends.

(a) Holders of Series A Convertible Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors of the Corporation, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 8% per annum of the Liquidation Preference (as defined below) per share (equivalent to a fixed annual amount of $.80 per share). Such dividends shall be cumulative from the date of original issue and shall be payable in arrears on the last day of each month (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “Dividend Payment Date”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend will be paid on January 31, 2006 with respect to the period beginning on the date of issue and ending on January 31, 2006. Any dividend payable on the Series A Convertible Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the first day of the calendar month in which the Dividend Payment Date occurs or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

(b) No dividends on Series A Convertible Preferred Stock shall be authorized by the Board of Directors of the Corporation or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series A Convertible Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series A Convertible Preferred Stock will accumulate and earn additional dividends at 8%, compounded monthly. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any other class or series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series A Convertible Preferred Stock (other than a dividend payable in capital stock of the Corporation ranking junior to the Series A Convertible Preferred Stock as to dividends and upon liquidation) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Convertible Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Convertible Preferred Stock and the shares of any other class or series of Preferred Stock ranking on a parity as to dividends with the Series A Convertible Preferred Stock, all dividends declared upon the Series A Convertible Preferred Stock and any other class or series of Preferred Stock ranking on a parity as to dividends with the Series A Convertible Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Convertible Preferred Stock and such other class or series of Preferred Stock, shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Convertible Preferred Stock and such other class or series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

(d) Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series A Convertible Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than a dividend payable in capital stock of the Corporation ranking junior to the Series A Convertible Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series A Convertible Preferred Stock as to dividends or upon liquidation, nor shall the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series A Convertible Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for

any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation ranking junior to the Series A Convertible Preferred Stock as to dividends and upon liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”)). Holders of Series A Convertible Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series A Convertible Preferred Stock as provided above. Any dividend payment made on the Series A Convertible Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable.

(e) If, for any taxable year, the Corporation elects to designate as “capital gain dividends” (as defined in Section 857 of the Code) any portion (the “Capital Gains Amount”) of the dividends (as determined for federal income tax purposes) paid or made available for the year to holders of all classes of shares (the “Total Dividends”), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series A Convertible Preferred Stock shall be the amount that the total dividends (as determined for federal income tax purposes) paid or made available to the holders of the Series A Convertible Preferred Stock for the year bears to the Total Dividends. The Corporation may elect to retain and pay income tax on its net long-term capital gains. In such a case, the holders of Series A Convertible Preferred Stock would include in income their appropriate share of the Corporation’s undistributed long-term capital gains, as designated by the Corporation.

5. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series A Convertible Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $10.00 per share (the “Liquidation Preference”) in cash or property at its fair market value as determined by the Board of Directors of the Corporation, plus an amount equal to any accrued and unpaid dividends to the date of payment, but without interest, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other class or series of capital stock of the Corporation that ranks junior to the Series A Convertible Preferred Stock as to liquidation rights. The Corporation will promptly provide to the holders of the Series A Convertible Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. After payment of the full amount of the Liquidation Preference, plus any accrued and unpaid dividends to which they are entitled, the holders of the Series A Convertible Preferred Stock will have no right or claim to any of the remaining assets of the Corporation. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation, unless a liquidation, dissolution or winding up of the Corporation is effected in connection with, or as a step in a series of transactions by which, a consolidation or merger of the Corporation is effected.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Virginia law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

(b) If upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of Series A Convertible Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A Convertible Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series A Convertible Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series A Convertible Preferred Stock and any Parity Shares, the holders of Common Stock shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A Convertible Preferred Stock and any Parity Shares shall not be entitled to share therein.

6. Redemption.

(a) The Series A Convertible Preferred Stock is not redeemable prior to January 1, 2009 subject, however, to the provisions of Article IX hereof. In the event a Conversion Cancellation Notice (as defined below) is issued by the Corporation, on and after January 1, 2009, the Corporation may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Convertible Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to the Liquidation Preference per share, plus all accrued and unpaid dividends thereon to the date fixed for redemption (the “Redemption Date”), without interest. Otherwise, the Corporation may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Convertible Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to (i) 108% of the Liquidation Preference per share on or after January 1, 2009, (ii) 104% of the Liquidation Preference per share on or after January 1, 2010 and (iii) the Liquidation Preference per share on or after January 1, 2011, plus, in each case, all accrued and unpaid dividends thereon to the Redemption Date, without interest. No Series A Convertible Preferred Stock may be redeemed except with assets legally available for the payment of the redemption price.

Holders of Series A Convertible Preferred Stock to be redeemed shall surrender such Series A Convertible Preferred Stock at the place designated in such notice and shall be entitled to the redemption price and any accrued and

unpaid dividends payable upon such redemption following such surrender. If notice of redemption of any of the Series A Convertible Preferred Stock has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series A Convertible Preferred Stock so called for redemption, then from and after the Redemption Date dividends will cease to accrue on such Series A Convertible Preferred Stock, such Series A Convertible Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series A Convertible Preferred Stock is to be redeemed, the Series A Convertible Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation.

(b) Unless full cumulative dividends on all Series A Convertible Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series A Convertible Preferred Stock shall be redeemed unless all outstanding Series A Convertible Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series A Convertible Preferred Stock (except by exchange for any other class or series of capital stock of the Corporation ranking junior to the Series A Convertible Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of any Series A Convertible Preferred Stock in accordance with Article IX hereof, or the purchase or acquisition of Series A Convertible Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Convertible Preferred Stock. So long as no dividends are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series A Convertible Preferred Stock in open-market transactions duly authorized by the Board of Directors of the Corporation and effected in compliance with applicable laws.

(c) Notice of redemption of the Series A Convertible Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the Redemption Date. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the Redemption Date, addressed to each holder of record of the Series A Convertible Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Convertible Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the Redemption Date; (ii) the redemption price; (iii) the number of shares of Series A Convertible Preferred Stock to be redeemed; and (iv) the place or places where the Series A Convertible Preferred Stock is to be surrendered for payment of the redemption price.

(d) Immediately prior to any redemption of Series A Convertible Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid

dividends through the Redemption Date, unless a Redemption Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Convertible Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) The Series A Convertible Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions, except as provided under Article IX hereof.

(f) Subject to applicable law and the limitation on purchases when dividends on the Series A Convertible Preferred Stock are in arrears, the Corporation may, at any time and from time to time, purchase any Series A Convertible Preferred Stock in the open market, by tender or by private agreement.

(g) All Series A Convertible Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions of these Articles of Incorporation.

7. Voting Rights.

(a) Holders of the Series A Convertible Preferred Stock will not have any voting rights, except as set forth below.

(b) Whenever dividends on any Series A Convertible Preferred Stock shall be in arrears for six consecutive months or nine months, whether or not consecutive, in any twelve month period (a “Preferred Dividend Default”), the number of directors then constituting the Board of Directors of the Corporation shall increase by two (if not already increased by reason of a similar arrearage with respect to any Parity Preferred (as hereinafter defined)). The holders of such Series A Convertible Preferred Stock (voting separately as a class with all other classes or series of Preferred Stock ranking on a parity with the Series A Convertible Preferred Stock as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable (“Parity Preferred”)) will be entitled to vote separately as a class, in order to fill the vacancies thereby created, for the election of a total of two additional directors of the Corporation (the “Preferred Stock Directors”) at a special meeting called by the holders of record of at least 20% of the Series A Convertible Preferred Stock or the holders of record of at least 20% of any series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders) or at the next annual meeting of shareholders, and at each subsequent annual meeting at which a Preferred Stock Director is to be elected until up to twelve months after all dividends accumulated on such Series A Convertible Preferred Stock and Parity Preferred for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In the event the directors of the Corporation are

divided into classes, each such vacancy shall be apportioned among the classes of directors to prevent stacking in any one class and to ensure that the number of directors in each of the classes of directors are as equal as possible. Within twelve months after all accumulated dividends and the dividend for the then current dividend period on the Series A Convertible Preferred Stock shall have been paid in full or declared and set aside for payment in full, the holders thereof shall be divested of the foregoing voting rights (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends and the dividend for the then current dividend period have been paid in full or set aside for payment in full on the Series A Convertible Preferred Stock and all series of Parity Preferred upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Stock Director so elected shall terminate within twelve months thereafter and the number of directors then constituting the Board of Directors of the Corporation shall decrease accordingly. Any Preferred Stock Director may be removed at any time with or without cause by, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series A Convertible Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series A Convertible Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). The Preferred Stock Directors shall each be entitled to one vote per director on any matter.

(c) So long as any shares of Series A Convertible Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of Series A Convertible Preferred Stock entitled to cast a majority of the votes entitled to be cast by the holders of the Series A Convertible Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter or repeal the provisions of these Articles of Incorporation, whether by merger, consolidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Convertible Preferred Stock or the holders thereof; or

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking senior to the Series A Convertible Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, or reclassify any shares of capital stock into any such shares;

provided, however, that with respect to the occurrence of any Event set forth above, so long as the Series A Convertible Preferred Stock (or any

equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in any merger or consolidation to which the Corporation became a party) remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series A Convertible Preferred Stock; and provided, further, that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, (ii) any increase in the amount of the authorized shares of such series, in each case ranking on a parity with or junior to the Series A Convertible Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or (iii) any merger or consolidation in which the Corporation is not the surviving entity if, as a result of the merger or consolidation, the holders of Series A Convertible Preferred Stock receive cash in the amount of the Liquidation Preference in exchange for each of their shares of Series A Convertible Preferred Stock, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(d) With respect to the exercise of the above described voting rights, each share of Series A Convertible Preferred Stock shall have one vote per share, except that when any other class or series of capital stock shall have the right to vote with the Series A Convertible Preferred Stock as a single class, then the Series A Convertible Preferred Stock and such other class or series of capital stock shall each have one vote per $10.00 of liquidation preference.

(e) The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Convertible Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

(f) Except as expressly stated in this Article X, the Series A Convertible Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers, and the consent of the holders thereof shall not be required for the taking of any corporate action, including but not limited to, any merger or consolidation involving the Corporation or a sale of all or substantially all of the assets of the Corporation, irrespective of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the Series A Convertible Preferred Stock.

8. Conversion.

(a) Subject to and upon compliance with the provisions of this subsection 8, a holder of Series A Convertible Preferred Stock shall have the right, at the holder’s option, at any time to convert such shares, in whole or in part, into the number of authorized but previously unissued shares of Common Stock obtained by dividing the aggregate Liquidation Preference of such shares by $5.66, the conversion price per share of Common Stock at which the Series A Convertible Preferred Stock is convertible into shares of Common Stock, as such price may be adjusted pursuant to paragraph (d) of this subsection 8 (the “Conversion Price”) (as in effect at the time and on the date provided for in the

last paragraph of paragraph (b) of this subsection 8) by delivering such shares to be converted, such delivery to be made in the manner provided in paragraph (b) of this subsection 8; provided, however, that the right to convert shares called for redemption pursuant to subsection 6 of this Section A shall terminate at the close of business on the Business Day prior to the Redemption Date, unless the Corporation shall default in making payment of any amounts payable upon such redemption under subsection 6 of this Section A.

The conversion rights of the holders of the Series A Convertible Preferred Stock are subject to cancellation by the Corporation on or after December 31, 2008 if, for at least 20 Trading Days (as defined below) within any period of 30 consecutive Trading Days, the Current Market Price (as defined below) of the Common Stock of the Corporation exceeds the Conversion Price by more than 30% (a “Conversion Cancellation Event”). Following the occurrence of a Conversion Cancellation Event, the Corporation may, at its option, provide notice to the respective holders of record of the Series A Convertible Preferred Stock at their respective addresses as they appear on the share transfer records of the Corporation, via first class mail, specifying a date upon which each such holder’s conversion rights will be deemed cancelled (a “Conversion Cancellation Notice”). The cancellation date specified in the Conversion Cancellation Notice will be more than 30 days, but less than 60 days, after the Conversion Cancellation Notice is mailed. The right to convert Series A Convertible Preferred Stock for which any Conversion Cancellation Notice has been issued will terminate at the close of business on the Business Day prior to the cancellation date specified in the Conversion Cancellation Notice. “Trading Day” shall mean any day on which the securities in question are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the Nasdaq National Market, or if such securities are not quoted on the Nasdaq National Market, in the applicable securities market in which the securities are traded. “Current Market Price” of the Common Stock of the Corporation for any day shall mean the last reported sales price, regular way, on such day or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange (“NYSE”) or, if such security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq National Market or, if such security is not quoted on the Nasdaq National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by Nasdaq or, if bid and asked prices for such security on such day shall not have been reported through Nasdaq, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security and selected for such purpose by the Chief Executive Officer of the Corporation or the Board of Directors of the Corporation or, if such security is not so listed or quoted, as determined in good faith at the sole discretion of the Chief Executive Officer of the Corporation or the Board of Directors of the Corporation, which determination shall be final, conclusive and binding.

(b) In order to exercise the conversion right, the holder of the Series A Convertible Preferred Stock to be converted shall deliver the certificate

evidencing such shares, duly endorsed or assigned to the Corporation or in blank, to the office of the transfer agent of the Corporation, accompanied by written notice to the Corporation that the holder thereof elects to convert such shares of Series A Convertible Preferred Stock. Unless the shares issuable on conversion are to be issued in the same name as the name in which such shares of Series A Convertible Preferred Stock are registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder’s duly authorized agent and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid).

Holders of Series A Convertible Preferred Stock exercising their conversion rights will not be entitled to, nor will the Conversion Price be adjusted for, any accumulated and unpaid dividends, whether or not in arrears, or for dividends on the Common Stock issued upon conversion. Holders of Series A Convertible Preferred Stock at the close of business on a Dividend Record Date will be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion of such shares following such Dividend Record Date and prior to such Dividend Payment Date. However, Series A Convertible Preferred Stock surrendered for conversion during the period between the close of business on any Dividend Record Date and ending with the opening of business on the corresponding Dividend Payment Date (except shares converted after the issuance of a notice of redemption with respect to a Redemption Date during such period or coinciding with such Dividend Payment Date, which will be entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series A Convertible Preferred Stock on a Dividend Record Date who (or whose transferee) tenders any such shares for conversion into Common Stock on such Dividend Payment Date will receive the dividend payable by the Corporation on such Series A Convertible Preferred Stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series A Convertible Preferred Stock for conversion.

As promptly as practicable after the surrender of certificates for Series A Convertible Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on his written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this subsection 8, and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be settled as provided in paragraph (c) of this subsection 8. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series A Convertible Preferred Stock shall have been surrendered and such notice (and if applicable, payment of an amount equal to the dividend payable on such shares as described above) received by the Corporation as aforesaid, and the person or persons in whose name or names any certificate or certificates for Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date, and such conversion shall be at the Conversion Price in effect at such time and on such date, unless the share transfer books of the Corporation shall

be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the opening of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such certificates for Series A Convertible Preferred Stock have been surrendered and such notice received by the Corporation.

(c) No fractional shares or scrip representing fractions of Common Stock shall be issued upon conversion of the Series A Convertible Preferred Stock. Instead of any fractional interest in a share of Common Stock that would otherwise be deliverable upon the conversion of a share of Series A Convertible Preferred Stock, the Corporation shall pay to the holder of such share an amount in cash based upon the Current Market Price of Common Stock on the Trading Day immediately preceding the date of conversion. If more than one share of Series A Convertible Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Convertible Preferred Stock so surrendered.

(d) The Conversion Price shall be adjusted from time to time as follows:

(i) If the Corporation shall (A) make a payment of dividends or distributions to holders of any class or series of capital stock of the Corporation in Common Stock, (B) subdivide its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Price shall be adjusted so that the holder of any Series A Convertible Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or have been entitled to receive after the happening of any of the events described above had such shares been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this paragraph (d)(i) shall become effective immediately after the opening of business on the day next following the record date (except as provided in paragraph (h) of this subsection 8) in the case of a distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. Such adjustment(s) shall be made successively whenever any of the events listed above shall occur.

(ii) If the Corporation shall issue rights, options or warrants to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date fixed for such issuance) to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share less than the Fair Market Value (as defined below) per share of Common Stock on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price shall be adjusted to equal the price

determined by multiplying (A) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (B) a fraction, the numerator of which shall be the sum of (I) the number of shares of Common Stock outstanding on the close of business on the date fixed for such determination and (II) the number of shares of Common Stock that could be purchased at the Current Market Price on the date fixed for such determination with the aggregate proceeds to the Corporation from the exercise of such rights, options or warrants, and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding on the close of business on the date fixed for such determination and (y) the number of additional shares of Common Stock offered, for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall be made successively whenever any such rights, options or warrants are issued, and shall become effective immediately after the opening of business on the day next following the record date for any such rights, options or warrants issued (except as provided in paragraph (h) of this subsection 8). In determining whether any rights, options or warrants entitle the holders of Common Stock to subscribe for or purchase Common Stock at less than the Fair Market Value, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Chief Executive Officer of the Corporation or the Board of Directors of the Corporation whose decision shall be final, conclusive and binding. Any adjustment(s) made pursuant to this paragraph (d)(ii) shall become effective immediately after the opening of business on the Business Day next following such record date. Such adjustment(s) shall be made successively whenever any of the events listed above shall occur. “Fair Market Value” shall mean the number obtained, for the 30 Trading Days before, and ending not later than, the earlier of the day in question and the day before the “ex date” with respect to any issuance or distribution requiring such computation, by dividing (a) the sum of the products for all sales of Common Stock during such 30 Trading Day period of (i) the sales prices per share of Common Stock as reported on the consolidated transaction reporting system contemplated by Rule 11Aa3-1 of the Securities Exchange Act of 1934, as amended, times (ii) the number of shares of Common Stock sold at such prices by (b) the total number of shares of Common Stock sold during such 30 Trading Day period. The term “ex date”, when used with respect to any issuance or distribution, means the first day on which the Common Stock trades regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day’s Current Market Price. Appropriate adjustments shall be made during any 30 Trading Day period in the event of any subdivision or combination of shares of Common Stock, whether by stock split, stock dividend, recapitalization, reverse stock split or otherwise, which occurs during such 30 Trading Day period.

(iii) If the Corporation shall distribute to all holders of its Common Stock any shares of capital stock of the Corporation (other than Common Stock) or evidence of its indebtedness or assets (including

securities, but excluding cash distributions paid out of the total equity applicable to Common Stock, less the amount of stated capital attributable to Common Stock, determined on the basis of the most recent annual or quarterly consolidated cost basis and current value basis and consolidated balance sheets of the Corporation and its consolidated subsidiaries available at the time of the declaration of the distribution) or rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants issued to all holders of Common Stock entitling them for a period expiring within 45 days after the record date referred to in paragraph (d)(ii) of this subsection 8 to subscribe for or purchase Common Stock, which rights and warrants are referred to in and treated under paragraph (d)(ii) of this subsection 8) (any of the foregoing being hereinafter in this paragraph (d)(iii) called the “Securities”), then in each case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (B) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock on the record date described in the immediately following paragraph less the then Fair Market Value of the shares of capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of Common Stock on the record date described in the immediately following paragraph.

Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in paragraph (h) of this subsection 8) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this paragraph (d)(iii), the distribution of a Security which is distributed not only to the holders of the Common Stock on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each share of Common Stock delivered to a person converting a share of Series A Convertible Preferred Stock after such determination date, shall not require an adjustment of the Conversion Price pursuant to this paragraph (d)(iii); provided that on the date, if any, on which a person converting a share of Series A Convertible Preferred Stock would no longer be entitled to receive such Security with a share of Common Stock (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred, and the Conversion Price shall be adjusted as provided in this paragraph (d)(iii) (and such day shall be deemed to be “the date fixed for the determination of the shareholders entitled to receive such distribution” and “the record date” within the meaning of the two preceding sentences). Such adjustment(s) shall be made successively whenever any of the events listed above shall occur.

(iv) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this paragraph (d)(iv) are not required to be made shall be

carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this subsection 8 (other than this paragraph (d)(iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Stock. Notwithstanding any other provisions of this subsection 8, the Corporation shall not be required to make any adjustment to the Conversion Price (A) upon the issuance of any Common Stock or options or rights to purchase Common Stock pursuant to any present or future employee, director or consultant incentive or benefit plan or program of the Corporation or any of its subsidiaries; (B) upon the issuance of any Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on shares of capital stock or indebtedness of the Corporation and the investment of additional optional amounts in Common Stock under any plan; (C) upon a change in the par value of the Common Stock of the Corporation; or (D) for accumulated and unpaid dividends on shares of capital stock of the Corporation. All calculations under this subsection 8 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be.

(e) If the Corporation shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, tender offer for all or substantially all of the Common Stock, sale of all or substantially all of the Corporation’s assets or recapitalization of the Common Stock and excluding any transaction as to which paragraph (d)(i) of this subsection 8 applies (each of the foregoing being referred to herein as a “Transaction”), in each case as a result of which Common Stock shall be converted into the right to receive shares, stock, securities or other property (including cash or any combination thereof), each share of Series A Convertible Preferred Stock which is not converted into the right to receive shares, stock, securities or other property in connection with such Transaction shall thereafter be convertible into the kind and amount of shares, stock, securities and other property receivable (including cash or any combination thereof) upon the consummation of such Transaction by a holder of that number of shares of Common Stock or fraction thereof into which one share of Series A Convertible Preferred Stock was convertible immediately prior to such Transaction, assuming such holder of Common Stock (i) is not a person with which the Corporation consolidated or into which the Corporation merged or which merged into the Corporation or to which such sale or transfer was made, as the case may be (a “Constituent Person”), or an affiliate of a Constituent Person and (ii) failed to exercise his or her rights of election, if any, as to the kind or amount of such stock, securities and other property (including cash) receivable upon consummation of such Transaction (each a “Non-Electing Share”) (provided that if the kind or amount of shares, stock, securities and other property (including cash) receivable upon consummation of such Transaction by each Non-Electing Share is not the same for each Non-Electing Share, then the kind and amount of shares, stock, securities and other property (including cash) receivable upon consummation of such Transaction for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Corporation shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (e), and it shall not consent or agree to the occurrence of any Transaction until

the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series A Convertible Preferred Stock, that will require such successor or purchasing entity, as the case may be, to make provision in its certificate or articles of incorporation or other constituent documents to the end that the provisions of this paragraph (e) shall thereafter correspondingly be made applicable as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable upon conversion of the Series A Convertible Preferred Stock. The provisions of this paragraph (e) shall similarly apply to successive Transactions.

(f) If:

(i) the Corporation shall declare a distribution on the Common Stock other than in cash out of the total equity applicable to Common Stock, less the amount of stated capital attributable to Common Stock, determined on the basis of the most recent annual or quarterly consolidated cost basis and current value basis and consolidated balance sheets of the Corporation and its consolidated subsidiaries available at the time of the declaration of the distribution; or

(ii) the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of any class or any other rights or warrants; or

(iii) there shall be any reclassifications of the Common Stock (other than an event to which paragraph (d)(i) of this subsection 8 applied) or any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation is required, or a statutory share exchange involving the conversion or exchange of Common Stock into securities or other property, or a self tender offer by the Corporation for all or substantially all of its outstanding Common Stock, or the sale or transfer of all or substantially all of the assets of the Corporation as an entity and for which approval of any shareholder of the Corporation is required; or

(iv) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

then the Corporation shall cause to be filed with the transfer agent of the Corporation and shall cause to be mailed to the holders of the Series A Convertible Preferred Stock at their addresses as shown on the share records of the Corporation, as promptly as possible, but at least 15 days prior to the applicable date hereinafter specified, a notice stating (A) the record date as of which the holders of Common Stock of record to be entitled to such distribution or grant of rights or warrants are to be determined, provided, however, that no such notification need be made in respect of a record date for a distribution or grant of rights unless the corresponding adjustment in the Conversion Price would be an increase or decrease of at least 1%, or (B) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property, if any,

deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in subsection 8 of this Section A.

(g) Whenever the Conversion Price is adjusted as herein provided, the Corporation shall promptly file with the transfer agent of the Corporation an officer’s certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the Conversion Price, setting forth the adjusted Conversion Price and the effective date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each share of Series A Convertible Preferred Stock at such holder’s last address as shown on the share records of the Corporation.

(h) In any case in which paragraph (d) of subsection 8 of this Section A provides that an adjustment shall become effective on the date next following the record date for an event, the Corporation may defer until the occurrence of such event (I) issuing to the holder of any Series A Convertible Preferred Stock converted after such record date and before the occurrence of such event the additional Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (II) fractionalizing any Series A Convertible Preferred Stock and/or paying to such holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of this subsection 8.

(i) There shall be no adjustment of the Conversion Price in case of the issuance of any shares of capital stock of the Corporation in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection 8. If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection 8, only one adjustment shall be made, and such adjustment shall be the amount of adjustment that has the highest absolute value.

(j) If the Corporation shall take any action affecting the Common Stock, other than an action described in this subsection 8, that in the opinion of the Board of Directors of the Corporation would materially and adversely affect the conversion rights of the holders of the Series A Convertible Preferred Stock, the Conversion Price for the Series A Convertible Preferred Stock may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors of the Corporation, in its sole discretion, may determine to be equitable under the circumstances.

(k) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock, for the purpose of effecting conversion of the Series A Convertible Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Series A Convertible Preferred Stock not theretofore converted. For purposes of this paragraph (k), the number

of shares of Common Stock that shall be deliverable upon the conversion of all outstanding Series A Convertible Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single holder.

The Corporation covenants that any Common Stock issued upon conversion of the Series A Convertible Preferred Stock shall be validly issued, fully paid and nonassessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value of the Common Stock deliverable upon conversion of the Series A Convertible Preferred Stock, the Corporation will take any action that, in the opinion of its counsel, may be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable Common Stock at such adjusted Conversion Price.

The Corporation shall use its reasonable best efforts to list the Common Stock required to be delivered upon conversion of the Series A Convertible Preferred Stock, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery.

(l) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Stock or other securities or property on conversion of the Series A Convertible Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Stock or other securities or property in a name other than that of the holder of the Series A Convertible Preferred Stock to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the reasonable satisfaction of the Corporation, that such tax has been paid.

In addition to the foregoing adjustments, the Corporation shall be entitled to make such reductions in the Conversion Price, in addition to those required herein, as it in its discretion considers to be advisable in order that any share distributions, subdivisions of shares, reclassification or combination of shares, distribution of rights, options, warrants to purchase shares or securities, or a distribution of other assets (other than cash distributions) will not be taxable or, if that is not possible, to diminish any income taxes that are otherwise payable because of such event.

9. Articles of Incorporation and Bylaws. The rights of all holders of the Series A Convertible Preferred Stock and the terms of the Series A Convertible Preferred Stock are subject to the provisions of these Articles of Incorporation and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of these Articles of Incorporation.

B. Exclusion of Other Rights.

Except as may otherwise be required by law, the Series A Convertible Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or

other special rights, other than those specifically set forth in Article X of these Articles of Incorporation (as such article may be amended from time to time) and in the other articles of these Articles of Incorporation. The Series A Convertible Preferred Stock shall have no preemptive or subscription rights.

C. Headings of Subdivisions.

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

D. Severability of Provisions.

If any voting powers, preferences or relative, participating, optional and other special rights of the Series A Convertible Preferred Stock or qualifications, limitations or restrictions thereof set forth in Article X of these Articles of Incorporation (as such article may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series A Convertible Preferred Stock and qualifications, limitations and restrictions thereof set forth in Article X of these Articles of Incorporation (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series A Convertible Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series A Convertible Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series A Convertible Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

ARTICLES OF AMENDMENT

TO THE

SECOND AMENDED AND

RESTATED ARTICLES OF INCORPORATION

OF

SUPERTEL HOSPITALITY, INC.

DESIGNATING THE

SERIES B CUMULATIVE PREFERRED STOCK

The undersigned corporation pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia, hereby executes the following Articles of Amendment and sets forth:

The name of the corporation (which is hereinafter referred to as the “Corporation”) is Supertel Hospitality, Inc.

The amendment adds Article XI (attached hereto) to the Corporation’s Second Amended and Restated Articles of Incorporation and thereby creates a series of Preferred Stock (the “Series B Cumulative Preferred Stock”), and states the designation and number of shares in the series and fixes the preferences, limitations and relative rights thereof.

Pursuant to a written consent in lieu of a special meeting, the Board of Directors of the Corporation duly adopted the amendment to the Corporation’s Second Amended and Restated Articles of Incorporation on May 28, 2008. Shareholder approval is not required.

Dated: May 29, 2008	Supertel Hospitality. Inc.
	By:	/s/ Paul J. Schulte
	Name:	Paul J. Schulte
	Title:	President and Chief Executive Officer

Articles of Amendment

XI

A. Terms of the Series B Cumulative Preferred Stock.

1. Designation and Number. A series of Preferred Stock, designated the “Series B Cumulative Preferred Stock”, is hereby established. The number of authorized shares of Series B Cumulative Preferred Stock shall be 800,000.

2. Maturity. The Series B Cumulative Preferred Stock has no stated maturity and will not be subject to any sinking fund or, except in the event of a Change of Control (as defined below), mandatory redemption.

3. Rank. The Series B Cumulative Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series B Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation, (c) on a parity with the Series A Convertible Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation and with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series B Cumulative Preferred Stock (the “Parity Shares”) and (d) junior to all existing and future indebtedness of the Corporation.

4. Dividends.

(a) Holders of Series B Cumulative Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors of the Corporation, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 10.0% per annum of the Liquidation Preference (as defined below) per share (equivalent to a fixed annual amount of $25.00 per share). Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “Dividend Payment Date”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend on Series B Cumulative Preferred Stock will be paid on June 30, 2008 with respect to the period beginning on the date of issue and ending on June 30, 2008 and will be less than a full quarter payment. Any dividend payable on the Series B Cumulative Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the fifteenth day of March, June, September or December, as the case may be, immediately preceding the applicable Dividend Payment Date or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

(b) No dividends on Series B Cumulative Preferred Stock shall be authorized by the Board of Directors of the Corporation or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series B Cumulative Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available

for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series B Cumulative Preferred Stock will accumulate but will not bear interest. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any other class or series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series B Cumulative Preferred Stock (other than a dividend payable in capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series B Cumulative Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Cumulative Preferred Stock and the shares of any other class or series of Preferred Stock ranking on a parity as to dividends with the Series B Cumulative Preferred Stock, all dividends declared upon the Series B Cumulative Preferred Stock and any other class or series of Preferred Stock ranking on a parity as to dividends with the Series B Cumulative Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series B Cumulative Preferred Stock and such other class or series of Preferred Stock, shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Cumulative Preferred Stock and such other class or series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

(d) Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series B Cumulative Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than a dividend payable in capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series B Cumulative Preferred Stock as to dividends or upon liquidation, nor shall the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series B Cumulative Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”) or complying with the provisions of Article IX hereof). Holders of Series B Cumulative Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series B Cumulative Preferred Stock as provided above. Any dividend payment made on the Series B Cumulative Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. Accrued but unpaid dividends on the Series B Cumulative Preferred Stock will not bear interest.

5. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series B Cumulative Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $25.00 per share (the “Liquidation Preference”) in cash, plus an amount equal to any accrued and unpaid dividends to the date of payment, but without interest, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other class or series of capital stock of the Corporation that ranks junior to the Series B Cumulative Preferred Stock as to liquidation rights. The Corporation will promptly provide to the holders of the Series B Cumulative Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. The consolidation or merger of the Corporation with or into any other corporation, trust

or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Virginia law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

(b) If upon any liquidation, dissolution or winding up of the Corporation, the available assets of the Corporation, or proceeds thereof, distributable among the holders of Series B Cumulative Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series B Cumulative Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series B Cumulative Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series B Cumulative Preferred Stock and any Parity Shares, the holders of the Series B Cumulative Preferred Stock shall have no right or claim to any of the remaining assets of the Corporation.

6. Redemption.

(a) The Series B Cumulative Preferred Stock is not redeemable at the Corporation’s option prior to June 3, 2013 except upon a Change of Control or pursuant to the provisions of Article IX hereof. The Corporation, upon not less than 30 nor more than 60 days’ written notice, may at its option on or after June 3, 2013 redeem the Series B Cumulative Preferred Stock, in whole or in part, at any time or from time to time, and shall upon a Change of Control redeem each outstanding share of Series B Cumulative Preferred Stock, in all cases for cash at a redemption price equal to the Liquidation Preference per share, plus all accrued and unpaid dividends thereon to the date of redemption, without interest.

If notice of redemption of any of the Series B Cumulative Preferred Stock has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series B Cumulative Preferred Stock so called for redemption, then from and after the date of redemption dividends will cease to accrue on such Series B Cumulative Preferred Stock, such Series B Cumulative Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series B Cumulative Preferred Stock is to be redeemed, the Series B Cumulative Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation.

(b) Unless full cumulative dividends on all Series B Cumulative Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series B Cumulative Preferred Stock shall be redeemed unless all outstanding Series B Cumulative Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series B Cumulative Preferred Stock (except by exchange for any other class or series of capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of any Series B Cumulative Preferred Stock in accordance with Article IX hereof, or the purchase or acquisition of Series B Cumulative Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding

Series B Cumulative Preferred Stock. Subject to applicable law and the limitation on purchases when dividends on the Series B Cumulative Preferred Stock are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series B Cumulative Preferred Stock by tender, by private agreement and in open-market transactions duly authorized by the Board of Directors of the Corporation.

(c) Notice of redemption of the Series B Cumulative Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the date of redemption. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date of redemption, addressed to each holder of record of the Series B Cumulative Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series B Cumulative Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the date of redemption; (ii) the redemption price; (iii) the number of shares of Series B Cumulative Preferred Stock to be redeemed; (iv) the place or places where the Series B Cumulative Preferred Stock is to be surrendered for payment of the redemption price; and (v) dividends will cease to accrue on the redemption date.

(d) Immediately prior to any redemption of Series B Cumulative Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the date of redemption, unless a date of redemption falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series B Cumulative Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) All Series B Cumulative Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions of these Articles of Incorporation.

(f) A “Change of Control” shall be deemed to have occurred at such time as (i) a “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the ultimate “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of Voting Stock that such person or group has the right to acquire regardless of when such right is first exercisable), directly or indirectly, of Voting Stock representing more than 35% of the total voting power of the total Voting Stock of the Corporation on a fully diluted basis; (ii) the date the Corporation sells, transfers or otherwise disposes of all or substantially all of the assets of the Corporation; and (iii) the date of the consummation of a merger or share exchange of the Corporation with another corporation where the shareholders of the Corporation immediately prior to the merger or share exchange would not beneficially own immediately after the merger or share exchange, shares entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate group vote) to which all shareholders of the corporation issuing cash or securities in the merger or share exchange would be entitled in the election of directors, or where members of the Board of Directors of the Corporation immediately prior to the merger or share exchange would not immediately after the merger or share exchange constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or share exchange. “Voting Stock” shall mean capital stock of any class or kind having the power to vote generally for the election of directors of the Corporation.

7. Voting Rights.

(a) Holders of the Series B Cumulative Preferred Stock will not have any voting rights, except as set forth below.

(b) Whenever dividends on any Series B Cumulative Preferred Stock shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Dividend Default”), the number of directors then constituting the Board of Directors of the Corporation shall increase by two (if not already increased by reason of a similar arrearage with respect to any Parity Preferred (as hereinafter defined)). The holders of such Series B Cumulative Preferred Stock (voting separately as a class with all other classes or series of Preferred Stock ranking on a parity with the Series B Cumulative Preferred Stock as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable (“Parity Preferred”)) will be entitled to vote separately as a class, in order to fill the vacancies thereby created, for the election of a total of two additional directors of the Corporation (the “Preferred Stock Directors”) at a special meeting called by the holders of record of at least 20% of the Series B Cumulative Preferred Stock or the holders of record of at least 20% of any series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders) or at the next annual meeting of shareholders, and at each subsequent annual meeting at which a Preferred Stock Director is to be elected until up to twelve months after all dividends accumulated on such Series B Cumulative Preferred Stock and Parity Preferred for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In the event the directors of the Corporation are divided into classes, each such vacancy shall be apportioned among the classes of directors to prevent stacking in any one class and to ensure that the number of directors in each of the classes of directors are as equal as possible. Within twelve months after all accumulated dividends and the dividend for the then current dividend period on the Series B Cumulative Preferred Stock shall have been paid in full or declared and set aside for payment in full, the holders thereof shall be divested of the foregoing voting rights (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends and the dividend for the then current dividend period have been paid in full or set aside for payment in full on the Series B Cumulative Preferred Stock and all series of Parity Preferred upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Stock Director so elected shall terminate (within twelve months thereafter) and the number of directors then constituting the Board of Directors of the Corporation shall decrease accordingly. Any Preferred Stock Director may be removed at any time with or without cause by, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series B Cumulative Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series B Cumulative Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). The Preferred Stock Directors shall each be entitled to one vote per director on any matter.

(c) So long as any shares of Series B Cumulative Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of Series B Cumulative Preferred Stock entitled to cast at least two-thirds of the votes entitled to be cast by the holders of the Series B Cumulative Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter, repeal or make other changes to the provisions of these Articles of Incorporation setting forth the terms of the Series B Cumulative Preferred Stock, whether by merger, consolidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series B Cumulative Preferred Stock or the holders thereof; or

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking senior to the Series B Cumulative Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or otherwise, or reclassify any shares of capital stock into any such shares;

provided, however, that with respect to the occurrence of any Event set forth above, so long as the Series B Cumulative Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in any merger or consolidation to which the Corporation became a party) remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series B Cumulative Preferred Stock; and provided, further, that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, (ii) any increase in the amount of the authorized shares of such series, in each case ranking on a parity with or junior to the Series B Cumulative Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or (iii) any merger or consolidation in which the Corporation is not the surviving entity if, as a result of the merger or consolidation, the holders of Series B Cumulative Preferred Stock receive cash in the amount of the Liquidation Preference in exchange for each of their shares of Series B Cumulative Preferred Stock, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(d) With respect to the exercise of the above described voting rights, each share of Series B Cumulative Preferred Stock shall have one vote per share, except that when any other class or series of capital stock shall have the right to vote with the Series B Cumulative Preferred Stock as a single class, then the Series B Cumulative Preferred Stock and such other class or series of capital stock shall each have one vote per $10.00 of liquidation preference.

(e) The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Cumulative Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

8. Articles of Incorporation and Bylaws.

The rights of all holders of the Series B Cumulative Preferred Stock and the terms of the Series B Cumulative Preferred Stock are subject to the provisions of these Articles of Incorporation and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of these Articles of Incorporation.

B. Exclusion of Other Rights.

Except as may otherwise be required by applicable law, the Series B Cumulative Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth in Article XI of these Articles of Incorporation (as such article may be amended from time to time) and in the other articles of these Articles of Incorporation. The Series B Cumulative Preferred Stock shall have no preemptive or subscription rights.

C. Headings of Subdivisions.

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

D. Severability of Provisions.

If any voting powers, preferences or relative, participating, optional and other special rights of the Series B Cumulative Preferred Stock or qualifications, limitations or restrictions thereof set forth in Article XI of these Articles of Incorporation (as such article may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series B Cumulative Preferred Stock and qualifications, limitations and restrictions thereof set forth in Article XI of these Articles of Incorporation (as so amended) which can be given effect without the invalid, unlawful or

unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series B Cumulative Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series B Cumulative Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series B Cumulative Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

ARTICLES OF AMENDMENT

TO THE

SECOND AMENDED AND

RESTATED ARTICLES OF INCORPORATION

OF

SUPERTEL HOSPITALITY, INC.

DESIGNATING THE

SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK

The undersigned, on behalf of the corporation set forth below, pursuant to Title 13.1, Chapter 9, Article 11 of the Code of Virginia, states as follows:

1. The name of the corporation is Supertel Hospitality, Inc. (the “Corporation”).

2. The amendment adds Article XII (attached hereto) to the Corporation’s Second Amended and Restated Articles of Incorporation and thereby creates a series of preferred stock, the Series C Cumulative Convertible Preferred Stock, and states the designation and number of shares in the series and fixes the preference limitations and relative rights thereof.

3. The foregoing amendment was adopted on November 1, 2011.

4. The board of directors, without shareholder action, duly adopted this amendment to the articles of incorporation to classify unissued preferred shares into a series of Series C Cumulative Convertible Preferred Stock and set the terms, preferences, rights and limitation of such preferred stock before the issuance of any shares of that series. Shareholder approval of the amendment was not required as permitted by §13.1-639(A) of the Code of Virginia and Article III of the Corporation’s articles of incorporation.

Executed in the name of the corporation by:

/s/ Kelly A. Walters	Date: January 30, 2012
Kelly A. Walters
President and Chief Executive Officer
402-371-2520
SCC ID# 04327979

Article XII

A. TERMS OF THE SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK.

2. Designation and Number. A series of Preferred Stock, designated the “Series C Cumulative Convertible Preferred Stock”, is hereby established (and are herein referred to as the “Series C Preferred Stock”). The number of authorized shares of Series C Preferred Stock shall be 2,000,000 (the “Initial Preferred Shares”), with an irrevocable option to purchase up to 1,000,000 additional Series C Preferred Stock (the “Additional Preferred Shares”) as provided for in Section 1 (a) of the Purchase Agreement, dated as of November 16, 2011, (the Initial Preferred Shares plus the Additional Preferred Shares, if applicable, the “Preferred Shares”), and at Closing the Company, as recognition for the expenses incurred by the Purchaser will deduct an Origination Fee that shall be equal to 1.5% from both the Initial Purchase Price, and the Additional Purchase Price, as the case may be.

3. Maturity. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking fund, mandatory redemption, except as described below, forced conversion.

4. Rank. The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of Supertel Hospitality, Inc. (the “Corporation”), rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series C Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation, (c) on a parity with the Series A Convertible Preferred Stock and Series B Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation and with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series C Preferred Stock (the “Parity Shares”) and (d) junior to all existing and future indebtedness of the Corporation.

5. Dividends.

(a) Holders of Series C Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors of the Corporation, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 6.25% per annum of the face value per share (equivalent to a fixed annual amount of $0.625 per share). Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “Dividend Payment Date”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend on Series C Preferred Stock will be paid on March 31, 2012 with respect to the period beginning on the date of issue and ending on March 31, 2012 and will be less than a full quarter payment. Any dividend payable on the Series C Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the fifteenth day of

March, June, September or December, as the case may be, immediately preceding the applicable Dividend Payment Date or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

(b) No dividends on Series C Preferred Stock shall be authorized by the Board of Directors of the Corporation or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation relating to the Corporation’s indebtedness prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series C Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any other class or series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series C Preferred Stock (other than a dividend payable in capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series C Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series C Preferred Stock and the shares of any other class or series of Preferred Stock ranking on a parity as to dividends with the Series C Preferred Stock, all dividends declared upon the Series C Preferred Stock and any other class or series of Preferred Stock ranking on a parity as to dividends with the Series C Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series C Preferred Stock and such other class or series of Preferred Stock, shall in all cases bear to each other the same ratio that accrued dividends per share on the Series C Preferred Stock and such other class or series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series C Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than a dividend payable in capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series C Preferred Stock as to dividends or upon liquidation, nor shall the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series C Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon

liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”) or complying with the provisions of Article IX hereof). Holders of Series C Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series C Preferred Stock as provided above. Any dividend payment made on the Series C Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. As provided herein, accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly.

6. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series C Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $10.00 per share (the “Liquidation Preference”) in cash, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other class or series of capital stock of the Corporation that ranks junior to the Series C Preferred Stock as to liquidation rights. As provided herein, accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly. The Corporation will promptly provide to the holders of the Series C Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Virginia law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

(b) If upon any liquidation, dissolution or winding up of the Corporation, the available assets of the Corporation, or proceeds thereof, distributable among the holders of Series C Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series C Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series C Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series C Preferred Stock and any Parity Shares, the holders of the Series C Preferred Stock shall have no right or claim to any of the remaining assets of the Corporation.

7. Redemption.

(a) The Series C Preferred Stock is not redeemable at the Corporation’s option prior to January 31, 2017. After January 31, 2017, the Series C Preferred Stock is redeemable at the Corporation’s option if the VWAP (as defined below) of the Common Stock of the Corporation is less than the Conversion Price for any 30 Day Period (as defined below) after January 31, 2017 (a “Redemption Event”). The Corporation, upon not less than 30 nor more than 60 days’ written notice, may at its option at any time after a Redemption Event redeem the Series C Preferred Stock, in whole or in part, at any time or from time to time, redeem each outstanding share of Series C Preferred Stock, in all cases for cash at a redemption price equal to the Liquidation Preference per share, plus all accrued and unpaid dividends thereon to the date of redemption. As provided herein, accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly.

If notice of redemption of any of the Series C Preferred Stock has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series C Preferred Stock so called for redemption, then from and after the date of redemption dividends will cease to accrue on such Series C Preferred Stock, such Series C Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series C Preferred Stock is to be redeemed, the Series C Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method reasonably determined by the Corporation.

(b) Unless full cumulative dividends on all Series C Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series C Preferred Stock shall be redeemed unless all outstanding Series C Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series C Preferred Stock (except by exchange for any other class or series of capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of any Series C Preferred Stock in accordance with Article IX hereof, or the purchase or acquisition of Series C Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series C Preferred Stock. Subject to applicable law and the limitation on purchases when dividends on the Series C Preferred Stock are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series C Preferred Stock by tender, by private agreement and in open-market transactions duly authorized by the Board of Directors of the Corporation.

(c) Notice of redemption by the Corporation of the Series C Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the date of redemption. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date of redemption, addressed to each holder of record of the Series C Preferred Stock

to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series C Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the date of redemption; (ii) the redemption price; (iii) the number of shares of Series C Preferred Stock to be redeemed; (iv) the place or places where the Series C Preferred Stock is to be surrendered for payment of the redemption price; and (v) dividends will cease to accrue on the redemption date.

(d) Immediately prior to any redemption of Series C Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the date of redemption, unless a date of redemption falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series C Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) All Series C Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions of these Articles of Incorporation.

(f) “30 Day Period” shall mean any 30 consecutive calendar days. “VWAP” means, for any 30 Day Period (i) the volume weighted average price of the Common Stock for such period on the Nasdaq Stock Market LLC, or if such securities are not listed or admitted for trading on the Nasdaq Stock Market LLC, on the principal national securities exchange on which such securities are listed or admitted as reported by Bloomberg L.P. (based on a trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)), (ii) if not listed or admitted for trading on any national securities exchange, the volume weighted average price of the Common Stock for such period in the applicable securities market in which the securities are traded, or (iii) if the Common Stock is not then listed or quoted for trading on any securities market the average fair market value of a share of Common Stock for such period as determined by an independent appraiser selected in good faith by the Company, the fees and expenses of which shall be paid by the Company and which determination shall be final, conclusive and binding.

8. Voting Rights.

(a) Except as otherwise provided herein, the Holders of Series C Preferred Stock shall not have any voting rights. The Holders of Series C Preferred Stock shall be entitled to vote their Series C Preferred Stock as a single class with the holders of the Common Stock on all matters submitted to such holders for vote or consent. For each such vote or consent, the voting power of the Series C Preferred Stock shall be equal to the lesser of (i) 6.29 votes per share of Series C Preferred Stock or (ii) an amount of votes per share of Series C Preferred Stock such that the vote of all shares of Series C Preferred Stock in the aggregate equal 34% of the combined voting power all of the Voting Stock entitled to vote or consent, minus an amount equal to the number of votes represented by the other shares of Voting Stock Beneficially Owned by Real Estate Strategies L.P., a Bermuda Limited Partnership (“RES” or the “Purchaser”) and its Affiliates and Subsidiaries, as such terms are defined under certain Purchase Agreement dated as of November 16, 2011 by and among the Purchaser and the

Corporation. The foregoing voting rights decline in proportion to the amount of Series C Preferred Stock converted to common shares. “Voting Stock” shall mean capital stock of any class or kind having the power to vote generally for the election of directors of the Corporation.

(b) So long as any shares of Series C Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of Series C Preferred Stock be entitled to cast at least a majority of the votes entitled to be cast by the holders of the Series C Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter, repeal or make other changes to the provisions of these Articles of Incorporation setting forth the terms of the Series C Preferred Stock, whether by merger, consolidation or otherwise (an “Event”), so as to adversely affect any right, preference, privilege or voting power of the Series C Preferred Stock or the holders thereof; or

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking senior or pari passu to the Series C Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or otherwise, or reclassify any shares of capital stock into any such shares;

provided, however, that with respect to the occurrence of any Event, so long as the Series C Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in any merger or consolidation to which the Corporation became a party) remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to adversely affect such rights, preferences, privileges or voting power of holders of the Series C Preferred Stock; and provided, further, that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, (ii) any increase in the amount of the authorized shares of such series, in each case ranking on a parity with or junior to the Series C Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or (iii) any merger or consolidation in which the Corporation is not the surviving entity if, as a result of the merger or consolidation, the holders of Series C Preferred Stock receive cash in the amount of the Liquidation Preference plus accrued and unpaid dividends in exchange for each of their shares of Series C Preferred Stock, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

With respect solely to the exercise of the above described voting rights in this Section 7(b), each share of Series C Preferred Stock shall have one vote per share, except that when any other class or series of capital stock shall have the right to vote with the Series C Preferred Stock as a single class, then the Series C Preferred Stock and such other class or series of capital stock shall each have one vote per $10.00 of liquidation preference.

The foregoing voting provisions in this Section 7(b) will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be

required shall be effected, all outstanding Series C Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

(c) So long as the Purchaser and/or its Affiliates has the right to designate two or more directors to the Board of Directors of the Corporation pursuant to the Directors Designation Agreement dated January 31, 2012, by and among the Corporation, the Purchaser and IRSA Inversiones y Representaciones Sociedad Anónima, an Argentine sociedad anónima (“IRSA”), the following matters shall require the approval of the Purchaser and/or IRSA:

(i) the merger, consolidation, liquidation or sale of substantially all of the assets of the Corporation;

(ii) the sale, issuance or potential issuance in an offering by the Corporation of Common Stock (or securities convertible into or exercisable Common Stock) equal to 20% or more of the Common Stock or 20% or more of the Voting Stock outstanding before the issuance; or

(iii) any transaction in which the Corporation is to be a participant and the amount involved exceeds $120,000 other than employment compensation and in which any of the Corporation’s directors or executive officers or any member of their immediate family will have a material interest, exclusive of interests arising solely from the ownership of a class of equity securities of the Corporation and all holders of that class of equity securities receive the same benefit on a pro rata basis.

9. Conversion.

(a) Subject to the Beneficial Ownership Limitation (as set forth below) each share of Series C Preferred Stock shall be convertible, at any time and from time to time from and after the Date of Issuance at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Liquidation Preference of such share of Series C Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex B (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series C Preferred Stock to be converted, the number of shares of Series C Preferred Stock owned prior to the conversion at issue, the number of shares of Series C Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. To effect conversions of shares of Series C Preferred Stock, a Holder shall surrender the certificate(s) representing the shares of Series C Preferred Stock to be converted to the Corporation together with the delivery of the Notice of Conversion, unless such shares are held in uncertificated form. Shares of Series C Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled.

(b) The conversion price for the Series C Preferred Stock shall equal $1.00, subject to adjustment herein (the “Conversion Price”).

(c) Promptly after each Conversion Date, the Corporation shall deliver, or cause to be delivered, to the converting Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of the Series C Preferred Stock.

(d) No fractional Common Stock shall be issued upon conversion of Series C Preferred Stock. All Common Stock (including fractions thereof) issuable upon conversion of Series C Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the exercise would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional shares, pay cash equal to the product of such fraction multiplied by the fair market value per share of Common Stock on the Conversion Date (as reported by the NASDAQ or any other national securities exchange on which the Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board of Directors of the Company).

(e) The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series C Preferred, free from all liens and preemptive rights. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall use its best efforts to list the Common Stock required to be delivered upon conversion of the Series C Preferred Stock, prior to such delivery, upon any national securities exchange upon which the Common Stock is listed at the time of such delivery.

(f) The issuance of certificates for shares of the Common Stock on conversion of the Series C Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

(g) The Corporation shall not effect any conversion of the Series C Preferred Stock, and a Holder shall not have the right to convert any portion of the Series C Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own Voting Stock in excess of the Beneficial Ownership Limitation. For purposes of this Section 8(g), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (except that a person or group shall be deemed to have beneficial ownership of shares of Voting Stock that such person or group has the right to acquire regardless of when such right is first exercisable), it being acknowledged by such Holder that the Holder does not have the right to acquire Common Stock in excess of the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph. For purposes of this Section 8(g), a Holder may rely on the number of outstanding shares of Voting Stock as stated in the most recent of the

following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Voting Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall promptly confirm orally and in writing to such Holder the number of votes represented by the Voting Stock then outstanding. In any case, the voting power of outstanding shares of Voting Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Voting Stock was reported. The “Beneficial Ownership Limitation” shall be 34.0% of the total number of votes represented by the Voting Stock outstanding immediately after giving effect to the issuance of shares of Common Stock otherwise issuable upon conversion of Preferred Stock pursuant to the applicable Notice of Conversion. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 8(g) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to any successor holder of Series C Preferred Stock

10. Certain Adjustments.

(a) If the Corporation, at any time while this Series C Preferred Stock is outstanding: (i) pays a stock dividend or makes a distribution to holders of any class or series of capital stock of the Corporation in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of this Series C Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a greater number of shares, (iii) combines its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock by reclassification of the Common Stock, or (v) undertakes any transaction similar to or having the effect of the foregoing transactions, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 9(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(b) If the Corporation sells or issues any Common Stock or grants any option or right to purchase Common Stock at an effective price per share that is lower (such lower price, the “Base Conversion Price”) than the greater of (i) the closing market price on January 31, 2012 (as reported on Nasdaq), or (ii) the then applicable Conversion Price (such lower price, the “Base Conversion Price”), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock, option or right are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 9(b) in respect of an Exempt Issuance. “Exempt Issuance” means the issuance of (a) shares of Common Stock to employees, officers, directors or consultants of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the

exercise or exchange of or conversion of any securities issued and outstanding on the date of the establishment of the Series C Preferred Stock, (c) securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock, (d) securities issued pursuant to acquisitions approved by a number of the members of the Board of Directors equal to one more than a majority of the members of the Board of Directors and (e) securities issued upon the exercise of warrants to purchase Common Stock which were issued concurrently with the issuance of the Series C Preferred Stock to the original Holder or Holders.

(c) If at any time the Corporation issues any rights, options or warrants pro rata to all holders of Common Stock to purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (the “Purchase Rights”), then each Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the issuance of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent and such Purchase Right to such extent shall be held in abeyance, for a period not to exceed 71 days, for the Holder until such time during such 71 day period, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

(d) If the Corporation, at any time while this Series C Preferred Stock is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 9(c)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Corporation in good faith. In either case the adjustments shall be described in a statement delivered to the Holders describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

(e) Whenever the Conversion Price is adjusted pursuant to any provision of this Section 9, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(f) Minimum Adjustment. Notwithstanding anything herein to the contrary, no adjustment of the Conversion Price shall be made pursuant to this Section 9 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

11. Articles of Incorporation and Bylaws.

The rights of all holders of the Series C Preferred Stock and the terms of the Series C Preferred Stock are subject to the provisions of these Articles of Incorporation and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of these Articles of Incorporation.

B. EXCLUSION OF OTHER RIGHTS.

Except as may otherwise be required by applicable law, the Series C Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth in Article XII of these Articles of Incorporation (as such article may be amended from time to time) and in the other articles of these Articles of Incorporation. The Series C Preferred Stock shall have no preemptive or subscription rights.

C. HEADINGS OF SUBDIVISIONS.

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

D. SEVERABILITY OF PROVISIONS.

If any voting powers, preferences or relative, participating, optional and other special rights of the Series C Preferred Stock or qualifications, limitations or restrictions thereof set forth in Article XII of these Articles of Incorporation (as such article may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series C Preferred Stock and qualifications, limitations and restrictions thereof set forth in Article XII of these Articles of Incorporation (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series C Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series C Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series C Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

EX-10.17

Exhibit 10.17

PROMISSORY NOTE

	Dated as of August 18, 2006
$17,850,000.00	Scottsdale, Arizona

SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership (“Borrower”), for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Lender”), whose address is 8377 East Hartford Drive, Suite 200, Scottsdale, Arizona 85255, or order, on or before September 1, 2016 (the “Maturity Date”), the principal sum of $17,850,000.00 (“Loan Amount”), as herein provided. Initially capitalized terms which are not otherwise defined in this Note shall have the meanings set forth in that certain Loan Agreement dated as of the date of this Note between Borrower and Lender, as such agreement may be amended, restated and/or supplemented from time to time (the “Loan Agreement”).

In addition, the following terms shall have the following meanings for all purposes of this Note.

“Adjustable Rate” means an annual interest rate equal to the sum of the Adjustable Rate Basis plus 1.70%.

“Adjustable Rate Basis” means, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the three month London Interbank Offered Rate (“LIBOR”) on the Adjustable Rate Reset Date as published in The Wall Street Journal. If for any reason such rate is no longer published in The Wall Street Journal, Lender shall select such replacement index as Lender in its sole discretion determines most closely approximates such rate.

“Adjustable Rate Reset Date” means the last Business Day of each calendar month, prior to the next Interest Period.

“Amortization Period” means two hundred forty months.

“First Payment Date” means October 1, 2006.

“Interest Period” means (a) initially, the period beginning on the date of this Note and ending on the last day of the calendar month in which such date occurs, and (b) thereafter, the period beginning on the first day of the calendar month and ending on the last day of such calendar month.

“Payment Period” means (a) initially, the twelve-month period beginning on the First Payment Date and ending on the day immediately prior to the first Payment Reset Date, and (b) thereafter, the twelve-month period beginning on each Payment Reset Date and ending on the day immediately prior to the next Payment Reset Date.

“Payment Reset Calculation” means the level monthly payment calculated by the full amortization of the outstanding principal amount of this Note on the Payment Reset Date at the Adjustable Rate (with the definition of “Adjustable Rate Reset Date” defined to mean the last Business Day of the calendar month two months prior to the next Payment Reset Date) over the remaining originally scheduled term of this Note.

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“Payment Reset Date” means each anniversary of the First Payment Date.

Borrower shall pay interest on the outstanding principal amount of this Note at the Adjustable Rate, determined monthly as described above, on the basis of a 360-day year for the actual number of days elapsed, in arrears, provided, that, interest on the principal amount of this Note for the period commencing with the date such principal amount is advanced by Lender through the last day in the month in which this Note is dated shall be due and payable upon delivery of this Note.

Commencing on the First Payment Date until and including September 1, 2008, Borrower shall pay consecutive monthly installments on the first day of each calendar month of interest only at the Adjustable Rate in lawful money of the United States. Commencing on October 1, 2008 until and including September 1, 2009, Borrower shall pay consecutive monthly installments of interest on the Loan Amount at the Adjustable Rate and principal payments equal to one-twelfth of one percent (1%) of the Loan Amount. Commencing on October 1, 2009 until the Maturity Date, Borrower shall pay consecutive monthly installments of principal and interest at the Adjustable Rate in arrears on the first day of each calendar month amortized over the Amortization Period. The monthly installments shall be level during a Payment Period. The monthly payments for the Payment Period shall be in equal amounts until the Payment Reset Date, at which time, and on each succeeding Payment Reset Date thereafter, the level monthly payment to be paid by Borrower shall be adjusted for the next succeeding Payment Period based on the Payment Reset Calculation. All outstanding principal and unpaid accrued interest shall be paid on the Maturity Date.

Upon execution of this Note, Borrower shall authorize Lender to establish arrangements whereby all payments of principal and interest hereunder are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to an account designated by Lender. Each payment of principal and interest hereunder shall be applied first toward any past due payments under this Note (including payment of all Costs (as herein defined), then to accrued interest at the Adjustable Rate, and the balance, after the payment of such accrued interest, if any, shall be applied to the unpaid principal balance of this Note; provided, however, each payment hereunder after an Event of Default has occurred under this Note shall be applied as Lender in its sole discretion may determine. After application of any monthly payment in the above manner, in the event that the outstanding principal amount of this Note exceeds 110% of the original principal balance of this Note, Borrower shall prepay, without premium or penalty, on the first day of the next succeeding calendar month after each such occurrence, a principal amount equal to the difference between the outstanding principal balance of this Note and the original principal balance of this Note (the “Negative Amortization Amount”). Lender shall notify Borrower in writing on or before the twenty-fifth day of each calendar month during the term of this Note of Lender’s determination of the Negative Amortization Amount, if any, payable on the first day of the next succeeding calendar month. Lender shall also notify Borrower in writing on or before the twenty-fifth day of the calendar month prior to the next Payment Reset Date during the term of this Note of Lender’s determination of the level monthly payment to be paid by Borrower based on the Payment Reset Calculation for the next Payment Period.

Provided no Event of Default shall have occurred and be continuing, Borrower shall have an option (the “Conversion Option”), exercisable only once between the seventh (7th) and thirty-sixth (36th) month following the Closing Date, to convert the interest rate accruing under this Note (the “Conversion”) from the Adjustable Rate to a fixed rate of interest (the “Base Interest Rate”). Borrower shall exercise the Conversion Option by providing Lender written notice of Borrower’s election (the “Conversion Notice”). The Conversion shall be deemed effective on the

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first day of the second calendar month following delivery of the Conversion Notice to Lender (the “Conversion Date”), and this Note shall be deemed modified as of the Conversion Date to reflect the Conversion. Lender shall notify Borrower ten (10) days following delivery of Conversion Notice of the Base Interest Rate, which Base Interest Rate shall be equal to the seven (7) year weekly U.S. Dollar Interest Rate Swap (as published in Federal Reserve Statistical Release H.15[519] http://www.federalreserve.gov/releases/H15/) plus 1.98%. From and after the Conversion Date, fixed equal monthly payments, based on the amortization of the outstanding principal amount of this Note as of the Conversion Date (including any accrued interest at the Adjustable Rate) over the period from and after the Conversion Date until the Maturity Date at the Base Interest Rate shall be due and payable commencing on the first day of the calendar month following the month in which the Conversion Date occurs and continuing on the first day of each month thereafter until the Maturity Date, at which time the outstanding principal balance of this Note and unpaid interest accrued at the Base Interest Rate shall be due and payable. Lender shall provide Borrower with an amortization schedule setting forth the principal and interest payments due under this Note from and after the Conversion Date, and such amortization schedule shall be prima facie evidence of such principal and interest payments.

Borrower may prepay this Note in full, but not in part (except as otherwise set forth below), including all accrued but unpaid interest hereunder and all sums advanced by Lender pursuant to the Loan Documents and any Other Agreements, provided that (a) no Event of Default has occurred under any of the Loan Documents or any Other Agreements and is continuing, and (b) any such prepayment shall only be made on a regularly scheduled payment date upon not less than 30 days prior written notice from Borrower to Lender.

Except as otherwise set forth herein, while the Note is at the Adjustable Rate, any such prepayment shall be made together with payment of a prepayment premium equal to:

(a) 2% of the principal amount prepaid if the prepayment is made on or following the date of this Note but prior to the first anniversary of the date of this Note; or

(b) 1% of the principal amount prepaid if the prepayment is made on or following the first anniversary of the date of this Note but prior to the second anniversary of the date of this Note.

Except as otherwise set forth herein, from and after the Conversion Date, any such prepayment shall be made together with payment of an amount equal to the sum of:

(a) a prepayment fee equal to 1% of the principal amount prepaid; and

(b) a prepayment premium equal to the positive difference (if any) between (i) the present value of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date (the “Remaining Scheduled Term”), calculated using the interpolated yield, at the time of such prepayment, of the two U.S. Dollar Interest Rate Swaps (as published in Federal Reserve Statistical Release H.15[519]) whose terms most closely match the Remaining Scheduled Term, and (ii) the present value of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date, calculated using the interpolated yield, as of the Conversion Date, of the two U.S. Dollar Interest Rate Swaps whose terms most closely match the term commencing on the Conversion Date and ending on the scheduled Maturity Date.

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The foregoing prepayment fee and prepayment premium, as applicable, shall be due and payable regardless of whether such prepayment is the result of a voluntary prepayment by Borrower or as a result of Lender declaring the unpaid principal balance of this Note, accrued interest and all other sums due under this Note, the Mortgage, the other Loan Documents, and any Other Agreements, due and payable as contemplated below; provided, however, the prohibition on a partial prepayment and the prepayment fee and the prepayment premium, as applicable, shall not be applicable with respect to a prepayment of this Note in connection with an application of condemnation proceeds as contemplated by the Mortgage or if exception is otherwise made in the Loan Documents.

This Note is secured by the Mortgage, five Deeds to Secure Debt and the other Loan Documents. Upon the occurrence of an Event of Default, Lender may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note and any Loan Documents or Other Agreements due and payable at once without notice to Borrower. All past-due principal and/or interest shall bear interest from the due date to the date of actual payment at a rate (the “Default Rate”) equal to the lesser of (a) the highest rate for which the undersigned may legally contract or (b) the greater of 14% and the rate which is 6% per annum above the Adjustable Rate (or 14% per annum in the event the Conversion Option has been exercised), and such Default Rate shall continue to apply following a judgment in favor of Lender under this Note. If Borrower fails to make any payment or installment due under this Note within five days of its due date, Borrower shall pay to Lender, in addition to any other sum due Lender under this Note or any other Loan Document, a late charge equal to 5% of such past-due payment or installment (the “Late Charge”), which Late Charge is a reasonable estimate of the loss that may be sustained by Lender due to the failure of Borrower to make timely payments. All payments of principal and interest due hereunder shall be made (a) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Borrower, and (b) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Borrower will pay the amounts necessary such that the gross amount of the principal and interest received by Lender is not less than that required by this Note.

No delay or omission on the part of Lender in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Borrower hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, notice of intent to accelerate, notice of acceleration and all other notices or demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be given in accordance with the notice provisions in the Loan Agreement. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceedings, or should this Note be placed in the hands of attorneys for collection after default, Borrower shall pay, in addition to the principal and interest due and payable hereon, all costs of collecting or attempting to collect this Note (the “Costs”), including reasonable outside attorneys’ fees and expenses of Lender (including those fees and expenses incurred in connection with any appeal) and court costs whether or not a judicial action is commenced by Lender. This Note may not be amended or modified except by a written agreement duly executed by the party against whom enforcement of this Note is sought. In the event that any one or more of the provisions contained in this Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such provision had never been contained herein or therein. Time is of the essence in the performance of each and every obligation under this Note.

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Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Borrower to Lender under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to Lender shall not be required to the extent that receipt of any such payment by Lender would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by Lender. The portion of any such payment received by Lender that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Borrower. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law.

This obligation shall bind Borrower and its successors and assigns, and the benefits hereof shall inure to Lender and its successors and assigns.

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IN WITNESS WHEREOF, Borrower has executed and delivered this Note effective as of the date first set forth above.

BORROWER:
SUPERTEL LIMITED PARTNERSHIP,
a Virginia limited partnership
By	SUPERTEL HOSPITALITY REIT TRUST,
	a Maryland real estate investment trust,
	Its General Partner
	By
	/s/  Donavon A. Heimes
	Donavon A. Heimes, Vice President/Treasurer

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PROMISSORY NOTE

	Dated as of August 18, 2006
$6,417,500.00	Scottsdale, Arizona

SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership (“Borrower”), for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Lender”), whose address is 8377 East Hartford Drive, Suite 200, Scottsdale, Arizona 85255, or order, on or before March 1, 2007 (the “Maturity Date”), the principal sum of $6,417,500.00 (“Loan Amount”), as herein provided. Initially capitalized terms which are not otherwise defined in this Note shall have the meanings set forth in that certain Loan Agreement dated as of the date of this Note between Borrower and Lender, as such agreement may be amended, restated and/or supplemented from time to time (the “Loan Agreement”).

In addition, the following terms shall have the following meanings for all purposes of this Note.

“Adjustable Rate” means an annual interest rate equal to the sum of the Adjustable Rate Basis plus 5.00%.

“Adjustable Rate Basis” means, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the three month London Interbank Offered Rate (“LIBOR”) on the Adjustable Rate Reset Date as published in The Wall Street Journal. If for any reason such rate is no longer published in The Wall Street Journal, Lender shall select such replacement index as Lender in its sole discretion determines most closely approximates such rate.

“Adjustable Rate Reset Date” means the last Business Day of each calendar month, prior to the next Interest Period.

“First Payment Date” means October 1, 2006.

“Interest Period” means (a) initially, the period beginning on the date of this Note and ending on the last day of the calendar month in which such date occurs, and (b) thereafter, the period beginning on the first day of the calendar month and ending on the last day of such calendar month.

Borrower shall pay interest on the outstanding principal amount of this Note at the Adjustable Rate, determined monthly as described above, on the basis of a 360-day year for the actual number of days elapsed, in arrears, provided, that, interest on the principal amount of this Note for the period commencing with the date such principal amount is advanced by Lender through the last day in the month in which this Note is dated shall be due and payable upon delivery of this Note.

Commencing on the First Payment Date, Borrower shall pay consecutive monthly installments of interest only on the first day of each calendar month at the Adjustable Rate in lawful money of the United States. All outstanding principal and unpaid accrued interest shall be paid on the Maturity Date.

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Upon execution of this Note, Borrower shall authorize Lender to establish arrangements whereby all payments of principal and interest hereunder are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to an account designated by Lender. Each payment of interest hereunder shall be applied first toward any past due payments under this Note (including payment of all Costs (as herein defined), then to accrued interest at the Adjustable Rate, and the balance, after the payment of such accrued interest, if any, shall be applied to the unpaid principal balance of this Note; provided, however, each payment hereunder after an Event of Default has occurred under this Note shall be applied as Lender in its sole discretion may determine.

Borrower may prepay this Note in full, but not in part (except as otherwise set forth below), including all accrued but unpaid interest hereunder and all sums advanced by Lender pursuant to the Loan Documents and any Other Agreements, provided that (a) no Event of Default has occurred under any of the Loan Documents or any Other Agreements and is continuing, and (b) any such prepayment shall only be made on a regularly scheduled payment date upon not less than 30 days prior written notice from Borrower to Lender.

This Note is secured by the Mortgage, five Deeds to Secure Debt and the other Loan Documents. Upon the occurrence of an Event of Default, Lender may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note and any Loan Documents or Other Agreements due and payable at once without notice to Borrower. All past-due principal and/or interest shall bear interest from the due date to the date of actual payment at a rate (the “Default Rate”) equal to the lesser of (a) the highest rate for which the undersigned may legally contract or (b) the greater of 14% and the rate which is 6% per annum above the Adjustable Rate, and such Default Rate shall continue to apply following a judgment in favor of Lender under this Note. If Borrower fails to make any payment or installment due under this Note within five days of its due date, Borrower shall pay to Lender, in addition to any other sum due Lender under this Note or any other Loan Document, a late charge equal to 5% of such past-due payment or installment (the “Late Charge”), which Late Charge is a reasonable estimate of the loss that may be sustained by Lender due to the failure of Borrower to make timely payments. All payments of principal and interest due hereunder shall be made (a) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Borrower, and (b) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Borrower will pay the amounts necessary such that the gross amount of the principal and interest received by Lender is not less than that required by this Note.

No delay or omission on the part of Lender in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Borrower hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, notice of intent to accelerate, notice of acceleration and all other notices or demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be given in accordance with the notice provisions in the Loan Agreement. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceedings, or should this Note be placed in the hands of attorneys for collection after default, Borrower shall pay, in addition to the principal and interest due and payable hereon, all costs of collecting or attempting to collect this Note (the “Costs”), including reasonable outside attorneys’ fees and expenses of Lender (including those fees and expenses incurred in connection with any appeal) and court costs

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whether or not a judicial action is commenced by Lender. This Note may not be amended or modified except by a written agreement duly executed by the party against whom enforcement of this Note is sought. In the event that any one or more of the provisions contained in this Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such provision had never been contained herein or therein. Time is of the essence in the performance of each and every obligation under this Note.

Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Borrower to Lender under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to Lender shall not be required to the extent that receipt of any such payment by Lender would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by Lender. The portion of any such payment received by Lender that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Borrower. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law.

This obligation shall bind Borrower and its successors and assigns, and the benefits hereof shall inure to Lender and its successors and assigns.

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IN WITNESS WHEREOF, Borrower has executed and delivered this Note effective as of the date first set forth above.

BORROWER:
SUPERTEL LIMITED PARTNERSHIP,
a Virginia limited partnership
By	SUPERTEL HOSPITALITY REIT TRUST,
	a Maryland real estate investment trust,
	Its General Partner
	By	/s/    Donavon A. Heimes
		Donavon A. Heimes, Vice President/Treasurer

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LOAN AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) is made as of August 18, 2006 (the “Closing Date”), by and between GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Lender”), and SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership (“Borrower”).

AGREEMENT:

In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows:

1. Definitions. The following terms shall have the following meanings for all purposes of this Agreement:

“ADA” means the Americans with Disabilities Act of 1990, as such act may be amended from time to time.

“Affiliate” means any Person that directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, “controls”, “under common control with” and “controlled by” mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or otherwise.

“Anti-Money Laundering Laws” means all applicable laws, regulations and government guidance on the prevention and detection of money laundering, including 18 U.S.C. § § 1956 and 1957, and the BSA.

“Applicable Regulations” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over the Premises, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, and all applicable standards of the National Board of Fire Underwriters and the ADA in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to any of the Borrower Parties or any of the Lessee Parties.

“Bridge Loan” means that certain loan extended by Lender to Borrower which shall mature in six (6) months from the date hereof.

“Bridge Note” means the promissory note dated as of the date of this Agreement executed by Borrower in favor of Lender evidencing the Bridge Loan in the amount of $6,417,500.00, as the same may be amended, restated or substituted from time to time.

“Borrower Parties” means, collectively, Borrower and any guarantors of the Loan (including, in each case, any predecessors-in-interest).

“BSA” means the Bank Secrecy Act (31 U.S.C. § § 5311 et. seq.), and its implementing regulations, Title 31 Part 103 of the U.S. Code of Federal Regulations.

“Business Day” means any day on which Lender is open for business other than a Saturday, Sunday or a legal holiday, ending at 5:00 P.M. Phoenix, Arizona time.

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“Change of Control” means the occurrence of any of the following: (a) any merger or consolidation by the Guarantor with or into any other entity (other than any Affiliates of the Guarantor) where the Guarantor is not the surviving party; (b) any merger or consolidation by the Borrower with or into any other entity (other than any Affiliates of the Borrower) where, following consummation of such merger or consolidation, the Guarantor ceases to be the “beneficial owner” (as defined in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) of 50% or more of the combined voting power of the outstanding securities of the surviving party to such merger or consolidation; or (c) if any “person” (as defined in Section 3(a)(9) of the Exchange Act and as used in Section 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange Act, but excluding the Borrower Parties and their Affiliates) becomes, subsequent to the Closing, the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act) of securities of any of the Borrower Parties, as applicable, representing 50% or more of the combined voting power of such Borrower Party’s then outstanding securities (other than indirectly as a result of the redemption by any of the Borrower Parties, as applicable, of its securities).

“Closing” means the disbursement of the Loan Amount by Title Company as contemplated by this Agreement.

“Code” means Title 11 of the United States Code, 11 U.S.C. Sec. 101 et seq., as amended.

“Default Rate” has the meaning set forth in the Note.

“Entity” means any entity that is not a natural person.

“Environmental Indemnity Agreement” means the environmental indemnity agreement dated as of the date of this Agreement executed by Borrower for the benefit of the Indemnified Parties and such other parties as are identified in such agreement with respect to the Premises, as the same may be amended from time to time.

“Event of Default” has the meaning set forth in Section 9.

“Fee” means an underwriting, site assessment, valuation, processing and commitment fee equal to 0% of the Loan Amount.

“Fixed Charge Coverage Ratio” has the meaning set forth in Section 6.J.

“GAAP” means generally accepted accounting principles consistently applied.

“Governmental Authority” means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority having jurisdiction or supervisory or regulatory authority over the Premises or any of the Borrower Parties.

“Guarantor” means Supertel Hospitality, Inc.

“Guaranty” means the unconditional guaranty of payment and performance dated as of the date of this Agreement executed by Guarantor for the benefit of Lender with respect to the Loan and the Bridge Loan, as the same may be amended from time to time.

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“Indemnified Parties” means Lender, the trustees under the Mortgage, if applicable, and any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by the Mortgage is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, investors or prospective investors in any Securitization, Participation or Transfer, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefits of third parties), as well as the respective directors, officers, shareholders, partners, members, employees, lenders, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including, but not limited to, any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Premises, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender’s assets and business).

“Indemnity Agreements” means all indemnity agreements executed for the benefit of any of the Borrower Parties, Lessee Parties or any prior owner, lessee or occupant of the Premises in connection with Hazardous Materials, including, without limitation, the right to receive payments under such indemnity agreements.

“Lease” means the lease between Borrower, as lessor, and Lessee, as lessee, with respect to the Premises together with all amendments, modifications and supplements thereto.

“Lender Entities” means, collectively, Lender (including any predecessor-in-interest to Lender) and any Affiliate of Lender (including any Affiliate of any predecessor-in-interest to Lender).

“Lessee” means TRS Leasing, Inc., a Virginia corporation, and its successors.

“Lessee Parties” means, collectively, Lessee and any guarantors of the Lease (including, in each case, any predecessors in interest).

“Loan” means the loan for the Premises described in Section 2.

“Loan Amount” means $17,850,000.00.

“Loan Documents” means, collectively, this Agreement, the Note, the Bridge Note, the Mortgage, the Environmental Indemnity Agreement, the Subordination Agreement, the UCC-1 Financing Statements, the Guaranty, the Authorization Regarding Information form previously delivered on behalf of the Borrower Parties to Lender and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, as the same may be amended from time to time.

“Loan Pool” means: (a) in the context of a Securitization, any pool or group of loans that are a part of such Securitization; (b) in the context of a Transfer, all loans which are sold, transferred or assigned to the same transferee; and (c) in the context of a Participation, all loans as to which participating interests are granted to the same participant.

“Management Agreement” means a management agreement relating to the Premises and reasonably acceptable to Lender between Lessee and Manager.

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“Manager” means any of Guest House Inn Corp., Royal Host Management, Inc. or any other manager reasonably acceptable to Lender.

“Material Adverse Effect” means a material adverse effect on (a) the Premises, including, without limitation, the operation of the Premises as a Permitted Concept, or (b) Borrower’s ability to perform its obligations under the Loan Documents.

“Mortgage” means the Mortgage and Deeds to Secure Debt dated as of the date of this Agreement executed by Borrower for the benefit of Lender with respect to the Premises, as the same may be amended from time to time.

“Note” means the promissory note dated as of the date of this Agreement executed by Borrower in favor of Lender evidencing the Loan, as the same may be amended, restated or substituted from time to time.

“Obligations” has the meaning set forth in the Mortgage.

“OFAC Laws and Regulations” means Executive Order 13224 issued by the President of the United States of America, the Terrorism Sanctions Regulations (Title 31 Part 595 of the U.S. Code of Federal Regulations), the Terrorism List Governments Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions Regulations (Title 31 Part 597 of the U.S. Code of Federal Regulations), and the Cuban Assets Control Regulations (Title 31 Part 515 of the U.S. Code of Federal Regulations), and all other present and future federal, state and local laws, ordinances, regulations, policies, lists (including, without limitation, the Specially Designated Nationals and Blocked Persons List) and any other requirements of any Governmental Authority (including, without limitation, the United States Department of the Treasury Office of Foreign Assets Control) addressing, relating to, or attempting to eliminate, terrorist acts and acts of war, each as hereafter supplemented, amended or modified from time to time, and the present and future rules, regulations and guidance documents promulgated under any of the foregoing, or under similar laws, ordinances, regulations, policies or requirements of other states or localities.

“Other Agreements” means, collectively, all agreements and instruments between or among (a) any of the Borrower Parties or any Affiliate of any of the Borrower Parties (including any Affiliate of any predecessor-in-interest to any of the Borrower Parties)and, (b) any of the Lender Entities, including, without limitation, promissory notes and guaranties; provided, however, the term “Other Agreements” shall not include the agreements and instruments defined as the Loan Documents.

“Participation” means one or more grants by Lender or any of the other Lender Entities to a third party of a participating interest in notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities or any or all servicing rights with respect thereto.

“Permitted Concept” means a hotel using the Savannah Suites trade name or any other trade name reasonably acceptable to Lender and related operations.

“Permitted Exceptions” means (a) the lien for current real property taxes and assessments, not yet due and payable; (b) liens and security interests in favor of Lender; (c) those easements, restrictions, liens and encumbrances set forth as exceptions in the title insurance policy issued by Title Company to Lender and approved by Lender in its sole discretion; (d) the Lease; (e) purchase money security interests not to exceed $100,000 in the aggregate on all the Premises, and (f) any other matters which have been approved in writing by Lender.

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“Person” means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.

“Personal Property” has the meaning set forth in the Mortgage.

“Premises” means the parcel or parcels of real estate legally described on Exhibit A attached hereto, together with all rights, privileges and appurtenances associated therewith and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate) and the Personal Property.

“Restoration” has the meaning set forth in the Mortgage.

“Securitization” means one or more sales, dispositions, transfers or assignments by Lender or any of the other Lender Entities to a special purpose corporation, trust or other entity identified by Lender or any of the other Lender Entities of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, trust or other entity identified by Lender or any of the other Lender Entities), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations.

“Subordination Agreement” means the subordination and attornment agreement dated as of the date of this Agreement executed by Borrower, Lessee and Lender with respect to the Lease as the same may be amended from time to time.

“Substitute Documents” has the meaning set forth in Section 11.

“Substitute Premises” means one or more parcels of real estate substituted for the Premises in accordance with the requirements of Section 11, together with all rights, privileges and appurtenances associated therewith and all buildings, fixtures and other improvements, equipment, trade fixtures, appliances and other personal property located thereon (whether or not affixed to such real estate). For purposes of clarity, where two or more parcels of real estate comprise a Substitute Premises, such parcels or interests shall be aggregated and deemed to constitute the Substitute Premises for all purposes of this Agreement.

“Title Company” means Platte County Title and Escrow Company.

“Transfer” means one or more sales, transfers or assignments by Lender or any of the other Lender Entities to a third party of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any of the other Lender Entities or any or all servicing rights with respect thereto.

“UCC-1 Financing Statements” means such UCC-1 Financing Statements as Lender shall file with respect to the transactions contemplated by this Agreement.

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“UCC” has the meaning set forth in the Mortgage.

“U.S. Publicly-Traded Entity” is an Entity whose securities are listed on a national securities exchange or quoted on an automated quotation system in the U.S. or a wholly-owned subsidiary of such an Entity.

2. Transaction. On the terms and subject to the conditions set forth in the Loan Documents, Lender shall make the Loan and the Bridge Loan. The Loan will be evidenced by the Note and secured by the Mortgage. The Bridge Loan shall be evidenced by the Bridge Note and secured by the Mortgage. Borrower shall repay the outstanding principal amount of the Loan and Bridge Loan together with interest thereon in the manner and in accordance with the terms and conditions of the Note, the Bridge Note and the other Loan Documents. The Premises shall be leased to the Lessee pursuant to the Lease and, at Closing, Borrower shall assign the Lease to Lender pursuant to the Mortgage. The Loan and Bridge Loan shall be advanced at the Closing in cash or otherwise immediately available funds subject to any prorations and adjustments required by this Agreement.

3. Escrow Agent; Closing Costs. Borrower and Lender hereby employ Title Company to act as escrow agent in connection with the transactions described in this Agreement. Borrower and Lender will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policy provided for herein to be issued. Title Company shall not cause the transaction to close unless and until it has received written instructions from Lender and Borrower to do so. Title Company is authorized to pay, from any funds held by it for Lender’s or Borrower’s respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of Lender and Borrower, all charges and obligations payable by them, respectively. Borrower will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Borrower and Lender or to interplead such documents or funds in an action brought in any such court. Deposit by Title Company of such documents and funds shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company’s receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company’s agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by check, certified check or wire transfer, as directed by Borrower and Lender. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such check or draft is deposited that such check or draft has been honored. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof.

4. Closing Conditions. The obligation of Lender to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions:

A. Title Insurance Commitments. Lender shall have received for the Premises a preliminary title report and irrevocable commitment to insure title in the amount of the Loan, by means of a mortgagee’s, ALTA extended coverage policy of title insurance (or its equivalent, in

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the event such form is not issued in the jurisdiction where the Premises is located) issued by Title Company showing Borrower vested with good and marketable fee title in the real property comprising such Premises (except the Premises located at 140 Pine Street, Atlanta, Georgia, in which Borrower has a leasehold interest), committing to insure Lender’s first priority lien upon and security interest in such real property subject only to Permitted Exceptions, and containing such endorsements as Lender may require.

B. Survey. Lender shall have received a current ALTA survey of the Premises or its equivalent, the form and substance of which shall be satisfactory to Lender in its reasonable discretion. Lender shall have obtained a flood certificate indicating that the location of the Premises is not within the 100-year flood plain or identified as a special flood hazard area as defined by the Federal Emergency Management Agency, or if the Premises is in such a flood plain or special flood hazard area, Borrower shall have provided Lender with evidence of flood insurance maintained on the Premises in an amount and on terms and conditions reasonably satisfactory to Lender.

C. Environmental. Lender shall have completed such environmental due diligence of the Premises as it deems necessary or advisable in its sole discretion, and Lender shall have approved the environmental condition of the Premises in its sole discretion.

D. Compliance With Representations, Warranties and Covenants. All of the representations and warranties set forth in Section 5 shall be true, correct and complete in all material respects as of the Closing Date, and Borrower shall be in compliance in all material respects with each of the covenants set forth in Section 6 as of the Closing Date. No event shall have occurred or condition shall exist or information shall have been disclosed by Borrower or discovered by Lender which has had or would be reasonably likely to have a Material Adverse Effect on the Premises, any of the Borrower Parties or Lessee Parties or Lender’s willingness to consummate the transaction contemplated by this Agreement, as determined by Lender in its sole and absolute discretion.

E. Proof of Insurance. Borrower shall have delivered to Lender certificates of insurance and copies of insurance policies showing that all insurance required by the Loan Documents and providing coverage and limits satisfactory to Lender are in full force and effect.

F. Legal Opinions. Borrower shall have delivered to Lender such legal opinions as Lender may reasonably require all in form and substance reasonably satisfactory to Lender and its counsel.

G. Fee and Closing Costs. Borrower shall have paid the Fee to Lender and shall have paid all costs of the transactions described in this Agreement, including, without limitation, the cost of title insurance premiums and all endorsements required by Lender, survey charges, UCC and litigation search charges, the attorneys’ fees of Borrower, reasonable outside attorneys’ fees and expenses of Lender, the cost of the environmental due diligence undertaken pursuant to Section 4.C, Lender’s site inspection costs and fees, stamp taxes, mortgage taxes, transfer fees, escrow, filing and recording fees and UCC filing and recording fees (including preparation, filing and recording fees for UCC continuation statements). Borrower shall have also paid all real and personal property and other applicable taxes and assessments and other charges relating to the Premises which are due and payable on or prior to the Closing Date as well as taxes and assessments due and payable subsequent to the Closing Date but which Title Company requires to be paid at Closing as a condition to the issuance of the title insurance policy described in Section 4.A.

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H. Lease and Subordination Agreement. Borrower and Lessee shall have executed and delivered the Lease and the Subordination Agreement. The Lease and the Subordination Agreement shall be in form and substance reasonably satisfactory to Lender.

I. Management Agreement. The Management Agreement shall be in full force and effect. Lender shall have approved the Management Agreement in its reasonable discretion and Manager and Lessee shall have delivered to Lender such subordination agreements, collateral assignments of management agreement and consents to collateral assignment of management agreement as Lender may require in its sole discretion.

J. Closing Documents. At or prior to the Closing Date, Lender or the Borrower Parties, as may be appropriate, shall have executed and delivered or shall have caused to be executed and delivered to Lender, or as Lender may otherwise direct, the Loan Documents and such other documents, payments, instruments and certificates, as Lender may require in form acceptable to Lender.

Upon fulfillment or waiver of all of the above conditions, Lender shall deposit funds necessary to close this transaction with the Title Company and this transaction shall close in accordance with the terms and conditions of this Agreement.

5. Representations and Warranties of Borrower. The representations and warranties of Borrower contained in this Section are being made by Borrower as of the Closing Date to induce Lender to enter into this Agreement and consummate the transactions contemplated herein and shall survive the Closing. Borrower represents and warrants to Lender as follows:

A. Financial Information. Borrower has delivered to Lender certain financial statements and other information concerning the Borrower Parties in connection with the transaction described in this Agreement (collectively, the “Financial Information”). The Financial Information is true, correct and complete in all material respects; there have been no amendments to the Financial Information since the date such Financial Information was prepared or delivered to Lender. Borrower understands that Lender is relying upon the Financial Information and Borrower represents that such reliance is reasonable. All financial statements included in the Financial Information were prepared in accordance with GAAP (except as otherwise noted) and fairly present as of the date of such financial statements the financial condition of each individual or entity to which they pertain. No change has occurred with respect to the financial condition of any of the Borrower Parties or the Premises as reflected in the Financial Information, which has had, or could reasonably be expected to result in, a Material Adverse Effect, and has not been disclosed in writing to Lender.

B. Organization and Authority. Each of the Borrower Parties (other than individuals), as applicable, is duly organized or formed, validly existing and in good standing under the laws of its state of incorporation or formation. Borrower is qualified as a foreign corporation, partnership or limited liability company, as applicable, to do business in each state where the Premises are located, and each of the Borrower Parties is qualified as a foreign corporation, partnership or limited liability company, as applicable, to do business in any other jurisdiction where the failure to be qualified would reasonably be expected to result in a Material Adverse Effect. All necessary action has been taken to authorize the execution, delivery and performance by the Borrower Parties of this Agreement and the other Loan Documents. The person(s) who have executed this Agreement on behalf of Borrower are duly authorized so to do. Borrower is not a “foreign corporation”, “foreign partnership”, “foreign trust”, “foreign estate” or “foreign person” (as those terms are defined by the Internal Revenue Code of 1986, as

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amended). Borrower’s U.S. Federal Tax Identification number, Organization Identification number and principal place of business are correctly set forth on the signature page of this Agreement. None of the Borrower Parties, and, to the best of their knowledge, no individual or entity owning directly or indirectly any interest in any of the Borrower Parties, is an individual or entity whose property or interests are subject to being blocked under any of the OFAC Laws and Regulations or is otherwise in violation of any of the OFAC Laws and Regulations; provided, however, the representation contained in this sentence shall not apply to any Person to the extent such Person’s interest is in or through a U.S. Publicly-Traded Entity.

C. Enforceability of Documents. Upon execution by the Borrower Parties, this Agreement and the other Loan Documents shall constitute the legal, valid and binding obligations of the Borrower Parties, respectively, enforceable against the Borrower Parties in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity.

D. Litigation. There are no suits, actions, proceedings or investigations pending, or to the best of its knowledge, threatened against or involving the Borrower Parties or the Premises before any arbitrator or Governmental Authority, except for such suits, actions, proceedings or investigations which, individually or in the aggregate, have not had, and would not reasonably be expected to result in, a Material Adverse Effect.

E. Absence of Breaches or Defaults. The Borrower Parties are not, and the authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not result, in any breach or default under any other document, instrument or agreement to which any of the Borrower Parties is a party or by which any of the Borrower Parties, the Premises or any of the property of any of the Borrower Parties is subject or bound, except for such breaches or defaults which, individually or in the aggregate, have not had, and would not reasonably be expected to result in, a Material Adverse Effect. The authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. The Premises is not subject to any right of first refusal, right of first offer or option to purchase or lease granted to a third party (other than the Lease and room rentals in the ordinary course of business).

F. Utilities. Adequate public utilities are available at the Premises to permit utilization of the Premises as a Permitted Concept and all utility connection fees and use charges will have been paid in full prior to delinquency.

G. Zoning; Compliance With Laws. The Premises is in compliance with all applicable zoning requirements, and the use of the Premises as a Permitted Concept does not constitute a nonconforming use under applicable zoning requirements. The Borrower Parties and the Premises are in compliance with all Applicable Regulations except for such noncompliance which has not had, and would not reasonably be expected to result in, a Material Adverse Effect.

H. Area Development; Wetlands. No condemnation or eminent domain proceedings affecting the Premises have been commenced or, to the best of Borrower’s knowledge, are contemplated. Neither the Premises, nor to the best of Borrower’s knowledge, the real property bordering the Premises, are designated by any Governmental Authority as a wetlands.

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I. Licenses and Permits; Access. All required licenses and permits, both governmental and private, to use and operate the Premises as a Permitted Concept are in full force and effect, except for such licenses and permits the failure of which to obtain has not had, and would not reasonably be expected to result in, a Material Adverse Effect. Adequate rights of access to public roads and ways are available to the Premises for unrestricted ingress and egress and otherwise to permit utilization of the Premises for their intended purposes, and all such public roads and ways have been completed and dedicated to public use.

J. Condition of Premises. The Premises, including the Personal Property, is in good condition and repair and well maintained, ordinary wear and tear excepted, fully equipped and operational, free from structural defects, safe and properly lighted.

K. Environmental. The representations and warranties of Borrower set forth in Section 2 of the Environmental Indemnity Agreement, together with the corresponding definitions, are incorporated by reference into this Agreement as if stated in full in this Agreement.

L. Title to Premises; First Priority Lien. Fee title to the real property comprising the Premises is vested in Borrower (except the Premises located at 140 Pine Street, Atlanta, Georgia, in which Borrower has a leasehold interest), free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. Borrower is owner of all Personal Property, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions, and no Affiliate of Borrower owns any of the Personal Property. Upon Closing, Lender shall have a first priority lien upon and security interest in the Premises pursuant to the Mortgage and the UCC-1 Financing Statements, subject only to the Permitted Exceptions.

M. No Mechanics’ Liens. There are no delinquent accounts payable or mechanics’ liens in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of the Premises; and no work has been performed or is in progress nor have materials been supplied to the Premises or agreements entered into for work to be performed or materials to be supplied to the Premises prior to the date hereof, which will be delinquent on or before the Closing Date.

N. Lease. Borrower has delivered to Lender a true, correct and complete copy of the Lease. The Lease is the only lease with respect to the Premises (except room rentals in the ordinary course of business), and is in full force and effect, and constitutes the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity. Except pursuant to the Loan Documents, Borrower has not assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Lease or any rights thereunder or any interest therein, and Borrower has not received any notice that the Lessee has made any assignment, pledge or hypothecation of all or any part of its rights or interests in the Lease. Borrower has not received any notice of default from the Lessee which has not been cured or given any notice of default to the Lessee which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default by the Lessee or Borrower under the Lease.

O. Money Laundering. Borrower is in full compliance with all Applicable Regulations relating to or attempting to eliminate, prevent, or detect money laundering, drug trafficking, terrorist acts and activities, and acts of war (collectively, the “Anti-Money Laundering and Anti-Terrorism

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Laws”). Neither Borrower nor any other Borrower Party is (a) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation; or (b) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation, or any other similar Executive Orders. All businesses in which Borrower and the other Borrower Parties are engaged are and will continue to be legitimate businesses, and all funds of Borrower and the other Borrower Parties have been and will continue to be derived from legitimate sources.

P. Management Agreement. Borrower has delivered to Lender a true, correct and complete copy of the Management Agreement. The Management Agreement is in full force and effect and constitutes the legal, valid and binding obligations of the parties to the Management Agreement, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and general principles of equity. Except pursuant to the Loan Documents, Borrower has not assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Management Agreement or any rights thereunder or any interest therein, and Borrower has not received any notice that Manager has made any assignment, pledge or hypothecation of all or any part of its rights or interest in the Management Agreement. No notice of default from Manager has been received under the Management Agreement that has not been cured and no notice of default to Manager has been given under the Management Agreement which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default under the Management Agreement.

6. Covenants. Borrower covenants to Lender from and after the Closing Date and until all of the Obligations are satisfied in full, as follows:

A. Payment of the Note. Borrower shall punctually pay, or cause to be paid, the principal, interest and all other sums to become due in respect of the Note and the other Loan Documents in accordance with the Note and the other Loan Documents. Borrower shall authorize Lender to establish arrangements whereby all scheduled payments made in respect of the Obligations are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to such account as Lender may designate or as Lender may otherwise designate.

B. Title. Borrower shall maintain good and marketable fee simple title to the real property comprising the Premises (except the Premises located at 140 Pine Street, Atlanta, Georgia, in which Borrower has a leasehold interest), and title to the Personal Property and the remainder of the Premises, free and clear of all liens, encumbrances, charges and other exceptions to title, except the Permitted Exceptions. Lender shall have valid first liens upon and security interests in the Premises, including the Personal Property, pursuant to the Mortgage and the UCC-1 Financing Statements, subject only to the Permitted Exceptions.

C. Organization and Status of Borrower; Preservation of Existence. Each of the Borrower Parties (other than individuals), as applicable, shall be validly existing and in good standing under the laws of its state of incorporation or formation. Borrower shall be qualified as a foreign corporation, partnership or limited liability company to do business in each state where the Premises is located, and each of the Borrower Parties shall be qualified as a foreign corporation, partnership or limited liability company in any other jurisdiction where the failure to be qualified would reasonably be expected to result in a Material Adverse Effect. Borrower shall

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preserve its current form of organization and shall not change its legal name, its state of formation, nor, in one transaction or a series of related transactions, merge with or into, or consolidate with, any other entity without providing, in each case, Lender with 30 days’ prior written notice and obtaining Lender’s prior written consent (to the extent such consent is required under Section 7 of this Agreement).

D. Licenses and Permits. All required licenses and permits, both governmental and private, to use and operate the Premises as a Permitted Concept shall be maintained in full force and effect.

E. Compliance With Laws Generally. The use and occupation of the Premises, and the condition thereof, including, without limitation, any Restoration, shall comply with all Applicable Regulations now or hereafter in effect, including, without limitation, the OFAC Laws and Regulations and Anti-Money Laundering Laws. In addition, the Borrower Parties shall comply with all Applicable Regulations now or hereafter in effect. Without limiting the generality of the other provisions of this Section, Borrower shall materially comply with the ADA, and all regulations promulgated thereunder, as it affects the Premises.

F. Compliance With Environmental Provisions. The covenants, obligations and agreements of Borrower set forth in Sections 3 through 7 of the Environmental Indemnity Agreement, together with the corresponding definitions, are incorporated by reference into this Agreement as if stated in full in this Agreement.

G. Financial Statements. Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Borrower, Borrower shall deliver to Lender (1) complete financial statements of the Borrower Parties including a balance sheet, profit and loss statement (for the individual sites as well as the consolidated statement for Borrower), statement of cash flows and all other related schedules for the fiscal period then ended; (2) income statements for the business at the Premises; (3) standard hotel data of rooms rented and rooms available, as well as gross revenue breakdown of room revenue from other revenue, so that occupancy ADR and RevPar Statistics can be calculated; and (4) such other financial information as Lender may reasonably request in order to establish compliance with the financial covenants in the Loan Documents, including, without limitation, Section 6.J of this Agreement. All such financial statements shall be prepared in accordance with GAAP, or as otherwise allowed by Lender from period to period, and shall be certified to be accurate and complete in all material respects by Borrower (or the Treasurer or other appropriate officer of Borrower). In the event the property and business at the Premises is ordinarily consolidated with other business for financial statement purposes, such financial statements shall be prepared on a consolidated basis and Borrower shall show separately the sales, profits and losses, assets and liabilities pertaining to the Premises with the basis for allocation of overhead of other charges being clearly set forth. The financial statements delivered to Lender need not be audited, but Borrower shall deliver to Lender copies of any audited financial statements of Borrower which may be prepared, as soon as they are available. Borrower shall also cause to be delivered to Lender copies of any financial statements required to be delivered to Borrower by any tenants of the Premises.

H. Lost Note. Borrower shall, if the Note is mutilated, destroyed, lost or stolen (a “Lost Note”), promptly deliver to Lender, upon receipt from Lender of an affidavit and indemnity in a form reasonably acceptable to Lender and Borrower stipulating that the Note has been mutilated, destroyed, lost or stolen, in substitution therefor, a new promissory note containing the same terms and conditions as the Lost Note with a notation thereon of the unpaid principal and accrued and unpaid interest. Borrower shall provide fifteen (15) days’ prior notice to Lender before making any payments to third parties in connection with the Lost Note.

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I. Inspections. Borrower shall, during normal business hours (or at any time in the event of an emergency), (1) provide Lender and Lender’s officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with access to the Premises, all drawings, plans, and specifications for the Premises in possession of any of the Borrower Parties, all engineering reports relating to the Premises in the possession of any of the Borrower Parties, the files, correspondence and documents relating to the Premises, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of the Premises (including, without limitation, any of the foregoing information stored in any computer files), (2) allow such persons to make such inspections, tests, copies, and verifications as Lender considers necessary, and (3) if Borrower is in breach of the Fixed Charge Coverage Ratio requirement set forth in the following subsection J, pay expenses reasonably incurred by Lender from time to time in conducting such inspections, tests, copies and verifications upon demand (such amounts to bear interest at the Default Rate if not paid upon demand until paid).

J. Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge Coverage Ratio that equals or exceeds 1.30 as determined as of the last day of each fiscal year of Borrower. For purposes of this Section, the term “Fixed Charge Coverage Ratio” shall mean with respect to the twelve month period of time immediately preceding the date of determination, the ratio calculated for such period of time, each as determined in accordance with GAAP and calculated according to the Uniform System of Accounts for Hotels, of (a) the sum of net income, interest expense, income taxes, depreciation, amortization, management fees, replacement reserves, and operating lease expense with respect to the Premises, minus 4% of total room revenues with respect to the Premises as an assumed reserve for replacement (or actual reserve for replacement if greater) and 4% of total room revenues with respect to the Premises as an assumed management fee (or actual management fee if greater), plus or minus other non-cash adjustments or non-recurring items with respect to the Premises (as allowed by Lender), plus or minus dividends or distributions with respect to the Premises not otherwise expensed on the Borrower’s income statement, to (b) the sum of operating lease expense with respect to the Premises, principal payments under the Note, current portion of all capital leases with respect to the Premises, and interest expense under the Note (excluding non-cash interest expense and amortization of non-cash financing expenses). Attached hereto as Exhibit B is the computation of the Fixed Charge Coverage Ratio as of December 31, 2005 agreed upon by Borrower and Lender (assuming that the First Payment Date under the Note was October 1, 2005).

K. Affiliate Transactions. Unless otherwise approved by Lender, all transactions between Borrower and any of its Affiliates shall be on terms substantially as advantageous to Borrower as those which could be obtained by Borrower in a comparable arm’s length transaction with a non-Affiliate of Borrower.

L. Compliance Certificates. Within 60 days after the end of each fiscal year of Borrower, Borrower shall deliver a compliance certificate to Lender in a form to be provided by Lender in order to establish that Borrower is in compliance in all material respects with all of its obligations, duties and covenants under the Loan Documents.

M. OFAC Laws and Regulations. Borrower will comply and will use its best efforts to cause each other Borrower Party to comply with the Anti-Money Laundering and Anti-Terrorism Laws, including ensuring that neither Borrower nor any other Borrower Party is or shall be (a) listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order

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or regulation or (b) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders.

N. Management Agreement. The Management Agreement shall be maintained in full force and effect with regard to the Premises. No event shall occur nor shall any condition exist which, with the giving of notice or the lapse of time or both, would constitute a breach or default under the Management Agreement. Borrower shall give prompt notice to Lender of any claim of default by or to the Manager under the Management Agreement and shall provide Lender with a copy of any such default notice given or received by the Manager under the Management Agreement and any information submitted or referenced in support of such claim of default. Borrower shall also give prompt notice to Lender of the expiration or termination of the Management Agreement. Lender acknowledges that the Manager and related Management Agreement are expected to change in six to twelve months and consents to such changes, subject to Lender’s reasonable approval of a new Manager and related Management Agreement.

7. Prohibition on Change of Control and Pledge. A. Without limiting the terms and conditions of Section 3.09 of the Mortgage, Borrower agrees that, from and after the Closing Date and until all of the Obligations are satisfied in full, without the prior written consent of Lender: (1) no Change of Control shall occur; and (2) no interest in any of the Borrower Parties shall be pledged, encumbered, hypothecated or assigned as collateral for any obligation of any of the Borrower Parties (each, a “Pledge”). Notwithstanding the foregoing, individual stockholders or limited partners of the Borrower Parties may pledge their interests in the Borrower Parties so long as such pledge does not, or could not potentially, result in a Change of Control or a change in ownership of a majority interest in the Borrower Parties.

B. Lender’s consent to a Change of Control or Pledge shall be subject to the satisfaction of such conditions as Lender shall determine in its sole discretion, including, without limitation, (1) the execution and delivery of such modifications to the terms of the Loan Documents as Lender shall request, (2) the proposed Change of Control or Pledge having been approved by each of the rating agencies which have issued ratings in connection with any Securitization of the Loan as well as any other rating agency selected by Lender, and (3) the proposed transferee having agreed to comply with all of the terms and conditions of the Loan Documents (including any modifications requested by Lender pursuant to clause (1) above). In addition, any such consent shall be conditioned upon payment by Borrower to Lender of (a) a fee equal to one percent (1%) of the then outstanding principal balance of the Note and (b) all out-of-pocket costs and expenses incurred by Lender in connection with such consent, including, without limitation, reasonable attorneys’ fees. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Obligations immediately due and payable upon a Change of Control or Pledge in violation of this Section. The provisions of this Section shall apply to every Change of Control or Pledge regardless of whether voluntary or not, or whether or not Lender has consented to any previous Change of Control or Pledge.

8. Transaction Characterization. A. It is the intent of the parties hereto that this Agreement and the other Loan Documents are a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Borrower and that the Loan Documents evidence one unitary, unseverable transaction pertaining to the Premises.

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B. It is the intent of the parties hereto that the business relationship created by the Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership (either de jure or de facto) between Borrower and Lender, to make them joint venturers, to make Borrower an agent, legal representative, partner, subsidiary or employee of Lender, nor to make Lender in any way responsible for the debts, obligations or losses of Borrower.

9. Default and Remedies. A. Each of the following shall be deemed an event of default by Borrower (each, an “Event of Default”):

(1) If any representation or warranty of any of the Borrower Parties set forth in any of the Loan Documents is false in any material respect when made, or if any of the Borrower Parties renders any statement or account which is false in any material respect.

(2) If any principal, interest or other monetary sum due under the Note, the Mortgage or any other Loan Document is not paid within five days after the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lender shall not be entitled to exercise its rights and remedies set forth below unless and until Lender shall have given Borrower notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured.

(3) If Borrower fails to observe or perform any of the other covenants, conditions, or obligations of this Agreement (except with respect to a breach of the Fixed Charge Coverage Ratio, which breach is addressed in subitem (7) below); provided, however, if any such failure does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or interest in collateral of Lender in immediate jeopardy, and is within the reasonable power of Borrower to promptly cure after receipt of notice thereof, all as determined by Lender in its reasonable discretion, then such failure shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until Lender shall have given Borrower notice thereof and a period of 30 days shall have elapsed, during which period Borrower may correct or cure such failure, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required. If such failure cannot reasonably be cured within such 30-day period, as determined by Lender in its reasonable discretion, and Borrower is diligently pursuing a cure of such failure, then Borrower shall have a reasonable period to cure such failure beyond such 30-day period, which shall not exceed 90 days after receiving notice of the failure from Lender. If Borrower shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required.

(4) If any of the Borrower Parties becomes insolvent within the meaning of the Code, files or notifies Lender that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an “Action”), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due.

(5) If there is an “Event of Default” or a breach or default, after the passage of all applicable notice and cure or grace periods, under the Lease, any of the Other Agreements, or any other Loan Document.

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(6) If a final, nonappealable judgment is rendered by a court against any of the Borrower Parties which (a) has a Material Adverse Effect on the operation of the Premises as a Permitted Concept, or (b) is in an amount greater than $100,000.00 and not covered by insurance, and, in either case, is not discharged or provision made for such discharge within 60 days from the date of entry of such judgment.

(7) If there is a breach of the Fixed Charge Coverage Ratio requirement and Lender shall have given Borrower notice thereof and Borrower shall have failed within a period of 30 days from the delivery of such notice to (a) pay to Lender the FCCR Amount (without premium or penalty), (b) prepay the Note in whole but not in part (without premium or penalty) or (c) notify Lender of Borrower’s election to substitute a Substitute Premises for the Premises in accordance with the terms of Section 11 (the failure of Borrower to complete such substitution within 60 days after Lender shall have given the notice discussed above shall be deemed to be an Event of Default without further notice or demand of any kind being required). For purposes of the preceding sentence, “FCCR Amount” means that sum of money which, when subtracted from the outstanding principal amount of the Note , and assuming the resulting principal balance is reamortized in equal monthly payments over the remaining term of the Note at the rate of interest set forth therein, will result in an adjusted Fixed Charge Coverage Ratio for the Premises of at least 1.3:1 prior to dividend payouts and 1.1:1 after dividend payouts, based on the prior year’s operations. Promptly after Borrower’s payment of the FCCR Amount, Borrower and Lender shall execute an amendment to the Note in form and substance reasonably acceptable to Lender reducing the principal amount payable to Lender under the Note and reamortizing the principal amount of the Note in equal monthly payments over the then remaining term of the Note at the rate of interest set forth therein.

(8) If there is a breach or default, after the passage of all applicable notice and cure or grace periods, under the Management Agreement, or if the Management Agreement terminates or expires prior to the payment in full of the Note in accordance with its terms and a substitute agreement for the terminated or expired agreement is not entered into with Manager prior to such expiration or termination, which substitute agreement shall be in form and substance reasonably satisfactory to Lender and shall expire after the scheduled maturity date of the Note.

B. Upon the occurrence and during the continuance of an Event of Default, subject to the limitations set forth in subsection A, Lender may declare all or any part of the obligations of Borrower under the Note, this Agreement and any other Loan Document to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest or notice of any kind except as otherwise expressly provided herein, and Borrower hereby waives notice of intent to accelerate the obligations secured by the Mortgage and notice of acceleration. Thereafter, Lender may exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the remedies available under the Note, the Mortgage or any other Loan Document. Neither the acceptance of this Agreement nor its enforcement shall prejudice or in any manner affect Lender’s right to realize upon or enforce any other security now or hereafter held by Lender, it being agreed that Lender shall be entitled to enforce this Agreement and any other security now or hereafter held by Lender in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Lender is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Lender, or to which Lender may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Lender.

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10. Indemnity; Release. A. Initially capitalized terms in this Section that are not otherwise defined in this Agreement shall have the meanings set forth in the Environmental Indemnity Agreement. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, reasonable attorneys’ fees, court costs and other costs of defense) (collectively, “Losses”) (excluding Losses suffered by an Indemnified Party directly arising out of such Indemnified Party’s gross negligence or willful misconduct; provided, however, that the term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Borrower’s interest in the Premises or Borrower’s failure to act in respect of matters which are or were the obligation of Borrower under the Loan Documents), and costs of Remediation (whether or not performed voluntarily), engineers’ fees, environmental consultants’ fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (1) any presence of any Hazardous Materials in, on, above, or under the Premises; (2) any past, present or Threatened Release in, on, above, under or from the Premises; (3) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Premises of any Hazardous Materials at any time located in, under, on or above the Premises; (4) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above the Premises, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (5) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Premises or operations thereon, including but not limited to any failure by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises to comply with any order of any Governmental Authority in connection with any Environmental Laws; (6) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Premises; (7) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Agreement; (8) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Premises, including but not limited to costs to investigate and assess such injury, destruction or loss; (9) any acts of Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by Borrower, any person or entity affiliated with Borrower or any tenant or other user, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Materials; (10) any acts of Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Premises, from which there is a Release, or a Threatened Release of any Hazardous Materials which causes the incurrence of costs for Remediation; (11) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to

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damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Premises; (12) any disclosures of information, financial or otherwise, (x) made by Lender or Lender’s employees, officers, agents and designees to any third party as contemplated by Section 11.R of this Agreement, or (y) obtained from any credit reporting agency with respect to Borrower, any guarantor of the Loan, any of the other Borrower Parties or any operator or lessee of the Premises; or (13) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Agreement.

B. Borrower fully and completely releases, waives and covenants not to assert any claims, liabilities, actions, defenses, challenges, contests or other opposition against Lender, however characterized, known or unknown, foreseen or unforeseen, now existing or arising in the future, relating to any Hazardous Materials, Releases or Remediation on, at or affecting the Premises.

11. Substitution. Borrower shall have the right to obtain a release of all liens granted in favor of Lender with respect to the Premises by substituting a Substitute Premises for the Premises, subject to fulfillment of the following conditions:

(1) Borrower shall provide Lender with thirty (30) days notice of its intention to substitute a Substitute Premises and the closing of the substitution shall take place within 60 days following the giving of such notice.

(2) Borrower must provide for the substitution of a Substitute Premises, and the proposed Substitute Premises must: (a) be a Permitted Concept, in good condition and repair, ordinary wear and tear excepted; (b) have for the twelve month period preceding the date of the closing of such substitution a Fixed Charge Coverage Ratio (with the definitions of Section 6.J being deemed to be modified if necessary and as applicable to provide for a calculation of the Fixed Charge Coverage Ratio for the Premises on an individual basis rather than on an aggregate basis with other properties) at least equal to the Fixed Charge Coverage Ratio for the Premises being replaced and the substitution must cure the breach of the Fixed Charge Coverage Ratio requirement, to the extent that there is one; (c) be owned in fee simple by Borrower; (d) Borrower’s right, title and interest in and to the proposed Substitute Premises shall be free and clear of all liens, restrictions, easements and encumbrances, except such matters as are acceptable to Lender (the “Substitute Premises Permitted Exceptions”); (e) have a fair market value no less than the greater of the then fair market value of the Premises or the fair market value of the Premises as of the Closing, all as reasonably determined by Lender’s in-house inspectors and underwriters.

(3) Lender shall have inspected and approved the Substitute Premises utilizing such site inspection and underwriting approval criteria that would be used by a prudent institutional mortgage loan lender. Borrower shall have paid all costs and expenses resulting from such proposed substitution, including, without limitation, the cost of title insurance premiums and all endorsements required by Lender, survey charges, UCC and litigation search charges, the attorneys’ fees of Borrower, reasonable attorneys’ fees and expenses of Lender, the cost of the environmental due diligence undertaken pursuant to subsection (6) below, including, without limitation, Lender’s site inspection costs and fees, stamp taxes, mortgage taxes, transfer fees, escrow, filing and recording fees and UCC filing and recording fees (including preparation, filing and recording fees for UCC continuation statements).

(4) Lender shall have received a preliminary title report and irrevocable commitment to insure title in the amount of the then outstanding principal balance of the Loan relating to the

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particular property by means of a mortgagee’s ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the proposed Substitute Premises is located) for the proposed Substitute Premises issued by Title Company showing Borrower vested with good and marketable title in the real property comprising the Substitute Premises and committing to insure Lender’s first priority lien upon and security interest in the proposed Substitute Premises, subject only to the Substitute Premises Permitted Exceptions and containing endorsements substantially comparable to those required by Lender at the Closing.

(5) Lender shall have received a current ALTA survey of such proposed Substitute Premises or its equivalent, the form of which shall be comparable to those received by Lender at the Closing and sufficient to cause the standard survey exceptions set forth in the title policy referred to in the preceding subsection to be deleted, and disclosing no matters other than the Substitute Premises Permitted Exceptions.

(6) Lender shall have completed such environmental due diligence of the proposed Substitute Premises as it deems necessary or advisable in its sole discretion, and Lender shall have approved the environmental condition of the Substitute Premises based on such environmental due diligence as Lender deems necessary or advisable in its sole discretion; provided, however, from and after such time as the Loan is included in a Securitization, this subitem (6) shall be modified to read as follows: Lender shall have completed such environmental due diligence of the proposed Substitute Premises as a prudent institutional mortgage loan lender would deem necessary or advisable, and Lender shall have approved the environmental due diligence as a prudent institutional mortgage loan lender would deem necessary or advisable.

(7) Borrower shall deliver, or cause to be delivered, such legal opinions as Lender may reasonably require with respect to the proposed substitution, all in a form and substance which would be satisfactory to a prudent institutional mortgage loan lender and its counsel. If the Loan is part of a Securitization, such opinions shall include, without limitation, an opinion of counsel to the rating agencies which have issued ratings in connection with such Securitization that the substitution does not constitute a “significant modification” of such Loan under Section 1001 of the Internal Revenue Code or otherwise cause a tax to be imposed on a “prohibited transaction” by any REMIC Trust.

(8) no Event of Default shall have occurred and be continuing under any of the Loan Documents.

(9) The Borrower Parties shall have executed such documents as are comparable to the security documents executed and delivered at Closing, as applicable (but with such revisions as may be reasonably required by Lender to address matters unique to the Substitute Premises) or amendments to such documents, including, without limitation, a Mortgage, Guaranty and UCC-1 Financing Statements (the “Substitute Documents”), to provide Lender with a first priority lien on the proposed Substitute Premises, subject only to the Substitute Premises Permitted Exceptions, and all other rights, remedies and benefits with respect to the proposed Substitute Premises which Lender holds in the Premises to be replaced, all of which documents shall be in a form and substance which would be satisfactory to a prudent institutional mortgage loan lender.

(10) The representations and warranties set forth in the Substitute Documents and Section 5 of this Agreement applicable to the proposed Substitute Premises shall be true and correct in all material respects as of the date of substitution, and Borrower shall have delivered to Lender an officer’s certificate to that effect.

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(11) Borrower shall have delivered to Lender certificates of insurance and insurance policies showing that all insurance required by the Substitute Documents is in full force and effect.

Upon satisfaction of the foregoing conditions with respect to the release of the Premises: (a) the proposed Substitute Premises shall be deemed substituted for the Premises; (b) the Loan Amount for the Substitute Premises shall be the same as for the Premises; (c) the Substitute Premises shall be referred to herein as a “Premises” and included within the definition of “Premises” and shall secure the same Obligations as were secured by the Premises; (d) the Substitute Documents shall be dated as of the date of the substitution; and (e) Lender will release, or cause to be released, the lien of the Mortgage, UCC-1 Financing Statements and any other Loan Documents encumbering the replaced Premises.

12. Miscellaneous Provisions.

A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement or any of the other Loan Documents shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next Business Day, if delivered by express overnight delivery service, or (d) the third Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below. If to Borrower: Supertel Limited Partnership, 309 North 5th Street, PO Box 1448, Norfolk, Nebraska 68701, Attention: Donavon Heimes, Telephone: (402) 371-2520, Telecopy: (402) 371-4229; and if to Lender: General Electric Capital Corporation, 8377 East Hartford Drive, Suite 200, Scottsdale, AZ 85255, Attention: Collateral Management, Telephone: 480-585-4500, Telecopy: 480-585-2225.

B. Real Estate Commission. Lender and Borrower represent and warrant to each other that they have dealt with no real estate or mortgage broker, agent, finder or other intermediary in connection with the transactions contemplated by this Agreement or the other Loan Documents. Lender and Borrower shall indemnify and hold each other harmless from and against any costs, claims or expenses, including attorneys’ fees, arising out of the breach of their respective representations and warranties contained within this Section.

C. Waiver and Amendment; Document Review. (1) No provisions of this Agreement or the other Loan Documents shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion.

(2) In the event Borrower makes any request upon Lender requiring Lender or Lender’s attorneys to review or prepare (or cause to be reviewed or prepared) any documents, plans, specifications or other submissions in connection with or arising out of this Agreement or any of the other Loan Documents, then Borrower shall (a) reimburse Lender promptly upon Lender’s demand for all out-of-pocket costs and expenses incurred by Lender in connection with such review or preparation, including, without limitation, reasonable outside attorneys’ fees, and (b) pay Lender a reasonable processing and review fee.

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D. Captions. Captions are used throughout this Agreement and the other Loan Documents for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof.

E. Lender’s Liability. Notwithstanding anything to the contrary provided in this Agreement or the other Loan Documents, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement and the other Loan Documents by Lender, that (1) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of Lender, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents, (2) Borrower waives all claims, demands and causes of action against Lender’s officers, directors, employees and agents in the event of any breach by Lender of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Lender and (3) Borrower shall look solely to the assets of Lender for the satisfaction of each and every remedy of Borrower in the event of any breach by Lender of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by Lender, such exculpation of liability to be absolute and without any exception whatsoever.

F. Severability. The provisions of this Agreement and the other Loan Documents shall be deemed severable. If any part of this Agreement or the other Loan Documents shall be held invalid, illegal or unenforceable, the remainder shall remain in full force and effect, and such invalid, illegal or unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein.

G. Construction Generally. This Agreement and the other Loan Documents have been entered into by parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and the other Loan Documents and are entered into by both parties in reliance upon the economic and legal bargains contained therein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Borrower and Lender were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder.

H. Further Assurances. Borrower will, at its sole cost and expense, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, documents, conveyances, notes, mortgages, deeds of trust, assignments, security agreements, financing statements and assurances as Lender shall from time to time reasonably require or deem advisable to carry into effect the purposes of this Agreement and the other Loan Documents, to perfect any lien or security interest granted in any of the Loan Documents and for the better assuring and confirming of all of Lender’s rights, powers and remedies under the Loan Documents.

I. Attorneys’ Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement or the other Loan Documents, the prevailing party shall be entitled to recover its attorneys’ fees and other costs in addition to any other relief to which it may be entitled.

J. Entire Agreement. This Agreement and the other Loan Documents, together with any other certificates, instruments or agreements to be delivered in connection therewith,

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constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Borrower and Lender with respect to the subject matter of this Agreement and the other Loan Documents. Notwithstanding anything in this Agreement and the other Loan Documents to the contrary, with respect to the Premises, upon the execution and delivery of this Agreement by Borrower and Lender, any bid proposals or loan commitments with respect to the transactions contemplated by this Agreement shall be deemed null and void and of no further force and effect and the terms and conditions of this Agreement shall control notwithstanding that such terms and conditions may be inconsistent with or vary from those set forth in such bid proposals or loan commitments.

K. Forum Selection; Jurisdiction; Venue; Choice of Law. Borrower acknowledges that this Agreement and the other Loan Documents were substantially negotiated in the State of Arizona, this Agreement and the other Loan Documents were executed by Lender in the State of Arizona and delivered by Borrower in the State of Arizona, all payments under the Note will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement or any of the other Loan Documents, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Borrower consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Borrower waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement and the Note shall be governed by and construed under the laws of the State of Arizona, without giving effect to its principles of conflicts of law. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions of this Agreement or the Note, then, as to those provisions only, the laws of the state where the Premises is located shall be deemed to apply. Nothing in this Section shall limit or restrict the right of Lender to commence any proceeding in the federal or state courts located in the state in which the Premises is located to the extent Lender deems such proceeding necessary or advisable to exercise remedies available under this Agreement or the other Loan Documents.

L. Counterparts. This Agreement and the other Loan Documents may be executed in one or more counterparts, each of which shall be deemed an original.

M. Assignments by Lender; Binding Effect. Lender may assign in whole or in part its rights under this Agreement, including, without limitation, in connection with any Transfer, Participation or Securitization, in compliance with all applicable laws. Upon any unconditional assignment of Lender’s entire right and interest hereunder, Lender shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of Lender contained herein. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel.

N. Survival. Except for the conditions of Closing set forth in Section 4, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Borrower and Lender set forth in this Agreement and the other Loan Documents shall survive the Closing.

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O. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER AND ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER OR ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY BORROWER AND LENDER OF ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.

P. Transfers, Participations and Securitizations. (1) A material inducement to Lender’s willingness to complete the transactions contemplated by the Loan Documents is Borrower’s agreement that Lender may, at any time, complete a Transfer, Participation or Securitization with respect to the Note, Mortgage or any of the other Loan Documents or any or all servicing rights with respect thereto.

(2) Borrower agrees to cooperate in good faith with Lender in connection with any such Transfer, Participation or Securitization of the Note, Mortgage or any of the other Loan Documents, or any or all servicing rights with respect thereto, including, without limitation (a) providing such documents, financial and other data, and other information and materials which would typically be required with respect to the Borrower Parties, the Lessee Parties, and the Manager by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation or Securitization, as applicable; provided, however, the Borrower Parties the Lessee Parties and the Manager shall not be required to make disclosures of any confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws (the “Disclosures”); and (b) amending the terms of the transactions evidenced by the Loan Documents to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfer, Participation or Securitization, so long as such amendments would not have a Material Adverse Effect upon the Borrower Parties, the Lessee Parties or the transactions contemplated hereunder. Lender shall be responsible for preparing at its expense any documents evidencing the amendments referred to in the preceding subitem (b) and compliance with any applicable law.

(3) Borrower consents to Lender providing the Disclosures, as well as any other information which Lender may now have or hereafter acquire with respect to the Premises or Manager or the financial condition of the Borrower Parties or the Lessee Parties to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with

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respect to each Transfer, Participation or Securitization, as applicable. Lender and Borrower (and their respective Affiliates) shall each pay their own attorneys’ fees and other out-of-pocket expenses incurred in connection with the performance of their respective obligations under this Section.

(4) Notwithstanding anything to the contrary contained in this Agreement or the other Loan Documents: (a) an Event of Default or a breach or default, after the passage of all applicable notice and cure or grace periods, under any Loan Document or Other Agreement which relates to a loan or sale/leaseback transaction which has not been the subject of a Securitization, Participation or Transfer shall not constitute an Event of Default or a breach or default, as applicable, under any Loan Document or Other Agreement which relates to a loan which has been the subject of a Securitization, Participation or Transfer; (b) an Event of Default or a breach or default, after the passage of all applicable notice and cure or grace periods, under any Loan Document or Other Agreement which relates to a loan which is included in any Loan Pool shall not constitute an Event of Default or a breach or default, as applicable, under any Loan Document or Other Agreement which relates to a loan which is included in any other Loan Pool; (c) the Loan Documents and Other Agreement corresponding to the loans in any Loan Pool shall not secure the obligations of any of the Borrower Parties contained in any Loan Document or Other Agreement which does not correspond to a loan in such Loan Pool; and (d) the Loan Documents and Other Agreement which do not correspond to a loan in any Loan Pool shall not secure the obligations of any of the Borrower Parties contained in any Loan Document or Other Agreement which does correspond to a loan in such Loan Pool.

Q. Estoppel Certificate. At any time, and from time to time, each party agrees, promptly and in no event later than fifteen (15) days after a request from the other party, to execute, acknowledge and deliver to the other party a certificate in the form supplied by the other party, certifying: (a) to its knowledge, whether there are then any existing defaults by it or the other party in the performance of their respective obligations under this Agreement or any of the other Loan Documents, and, if there are any such defaults, specifying the nature and extent thereof; (b) that no notice of default has been given or received by it under this Agreement or any of the other Loan Documents which has not been cured, except as to defaults specified in the certificate; (c) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of it; and (d) any other information reasonably requested by the other party in connection with this Agreement and the other Loan Documents.

R. Borrower authorizes Lender and its employees, officers, agents, representatives and designees to:

(1) distribute to, or publish publicly available information for the use by, any third-parties for statistical analysis purposes the unit-level or corporate level operating results for the Premises, Borrower, any guarantor of the Loan, any Affiliate of Borrower, any of the other Borrower Parties or any operator or lessee of the Premises prepared by Lender from financial statements obtained from Borrower; and

(2) obtain personal credit reports, business credit reports or asset reports, as applicable, with respect to Borrower, any guarantor of the Loan, any Affiliate of Borrower, any of the other Borrower Parties or any operator or lessee of the Premises.

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IN WITNESS WHEREOF, Borrower and Lender have entered into this Agreement as of the date first above written.

LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation
By	/s/    Michelle Underwood

Printed Name: Michelle Underwood

Its: Authorized Signatory

BORROWER:
SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership
By	SUPERTEL HOSPITALITY REIT TRUST,
	a Maryland real estate investment trust,
	Its General Partner
	By	/s/    Donavon A. Heimes
		Donavon A. Heimes, Vice President/Treasurer

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DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND FIXTURE FILING

THIS DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed to Secure Debt”) is made as of August 18, 2006 by SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership, whose address is 309 North 5th Street, PO Box 1448, Norfolk, Nebraska 68701 (“Grantor”), to and for the benefit of GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Grantee”), whose address is 8377 East Hartford Drive, Suite 200, Scottsdale, Arizona 85255.

PRELIMINARY STATEMENT:

The capitalized terms used in this Deed to Secure Debt, if not elsewhere defined herein, are defined as indicated in Article I. Grantor holds a fee simple interest in the Premises, subject to the Permitted Exceptions. Grantor is executing this Deed to Secure Debt for the purpose of granting the interest of Grantor in and to the Deed Estate (as defined in the Granting Clauses below) as security for the payment of the Obligations. The Deed Estate shall be and remain subject to the lien of this Deed to Secure Debt and shall constitute security for the Obligations so long as the Obligations shall remain outstanding.

GRANTING CLAUSES:

GRANTOR IS JUSTLY INDEBTED TO GRANTEE IN THE SUM OF TWENTY-FOUR MILLION TWO HUNDRED SIXTY-SEVEN THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($24,267,500.00) IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, AND HAS AGREED TO PAY THE SAME, WITH INTEREST THEREON, ACCORDING TO THE TERMS OF THE NOTE (WHICH HAS A MATURITY DATE OF SEPTEMBER 1, 2016).

Grantor, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, by these presents does hereby create a security interest in, mortgage, grant, bargain, sell, assign, pledge, give, transfer, set over and convey unto Grantee and to its successors and assigns WITH POWER OF SALE AND RIGHT OF ENTRY, for the benefit and security of Grantee and its successors and assigns, all of Grantor’s estate, right, title and interest in, to and under any and all of the following property (the “Deed Estate”), whether now owned or hereafter acquired, subject only to the Permitted Exceptions:

Premises, Rents and Derivative Interests

The Premises, all rents, room rents, accounts, accounts receivable, receipts, issues, profits, royalties, income and other benefits derived from the property comprising the Premises and the Personal Property (as defined below) or any portion thereof, including, without limitation, any of the foregoing which may arise from any food and beverage service facilities (but not including tips and gratuities received by employees, the receipts of licensees, concessionaires, and any other third parties, or rebates and refunds) and from the use, licensing, leasing or letting of hotel rooms and suites, ballrooms, banquet halls, conference facilities, parking facilities, retail facilities, sports or health facilities, and any other sums received

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or receivable under any lease, sublease, license or rental agreement or in connection with the operation of any business or enterprise (including, but not limited to, a hotel business) conducted on the Premises, in whatever form (including, but not limited to, cash, checks and debit and credit card slips and payments), and all rights to receive the same (collectively, the “Rents”); all leases or subleases covering the Premises and the Personal Property or any portion thereof now or hereafter existing or entered into, including, without limitation, the Permitted Lease (collectively, “Leases” and individually, a “Lease”), including, without limitation, all cash or security deposits, advance rentals and deposits or payments of similar nature and all guaranties relating to the Leases; all options to purchase or lease the Premises and the Personal Property or any portion thereof or interest therein, and any greater estate in the Premises; all interests, estate or other claims, both in law and in equity, with respect to the Premises and the Personal Property or any portion thereof; all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, and all tenements, hereditaments and appurtenances thereof and thereto, and all water rights and shares of stock evidencing the same; all land lying within the right-of-way of any street, open or proposed, adjoining the Premises and any and all sidewalks, alleys and strips and gores of land adjacent to or used in connection with the Premises;

Personal Property

All of the following described property, whether now owned or hereafter acquired, and located on the Premises or used exclusively in connection with the operation of the business located at the Premises, together with all replacements and substitutions therefor and all cash and non-cash proceeds (including insurance proceeds and any title and UCC insurance proceeds) and products thereof, and, in the case of tangible collateral, together with all additions, attachments, accessions, parts, equipment and repairs now or hereafter attached or affixed thereto or used in connection therewith: All of Grantor’s right, title, and interest in: (a) all types of property included within the term “equipment” as defined by the UCC (except vehicles, boats and airplanes), including machinery, furniture, appliances, trade fixtures, tools, and office and record keeping equipment; (b) all of Grantor’s inventory (including all goods held for sale, raw materials, work in process and materials or supplies used or consumed in Grantor’s business); (c) all of Grantor’s documents; general intangibles; accounts; contract rights; chattel paper and instruments; money; securities; investment properties; deposit accounts; supporting obligations; letters of credit and letter of credit rights; commercial tort claims; and records, software and information contained in computer media (such as data bases, source and object codes and information therein), together with any equipment and software to utilize, create, maintain or process any such records or data on electronic media; and (d) any and all plans and specifications, designs, drawings and other matters prepared for any construction on any real property owned by or leased to Grantor at the location(s) described above or regarding any improvements to any of such real property; and (e) all goodwill; provided, however, that the security interest in any franchise, license, or distributorship agreement is subject to the provisions of Section 9-408 of the UCC (all of the foregoing property being collectively referred to as the “Personal Property”); and

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Claims and Awards

All the claims or demands with respect to the Premises and the Personal Property or any portion thereof, including, without limitation, claims or demands with respect to the proceeds of insurance in effect with respect thereto, claims under any indemnity agreement, including, without limitation, any indemnity agreement executed for the benefit of the Premises and the Personal Property or any portion thereof with respect to Hazardous Materials or USTs, and any and all awards made for the taking by eminent domain, or by any proceeding or purchase in lieu thereof, of the whole or any part of the Premises and the Personal Property, including, without limitation, any awards resulting from a change of grade of streets and awards for severance damages. The foregoing, together with any other portion of the Deed Estate as to which a security interest can be granted and perfected under the UCC, is also collectively referred to herein as Personal Property.

The Deed Estate shall include all products and proceeds of the foregoing property.

TO HAVE AND TO HOLD the Deed Estate hereby granted or mortgaged or intended to be granted or mortgaged, unto Grantee, and its successors and assigns, IN FEE SIMPLE FOREVER upon the terms, provisions and conditions set forth herein.

This instrument is a deed to secure debt passing legal title pursuant to the laws of the State of Georgia governing deeds to secure debt and is not a mortgage and should the Obligations (as hereinafter defined) be satisfied and paid in whole according to tenor and effect thereof when the same shall be due and payable and should Grantor perform all covenants contained herein and in all of the other Loan Documents, then this Deed to Secure Debt shall be cancelled and surrendered.

THIS DEED TO SECURE DEBT SHALL SECURE THE FOLLOWING INDEBTEDNESS AND OBLIGATIONS (the “Obligations”):

(i) Payment of indebtedness evidenced by the Note together with all extensions, renewals, amendments and modifications thereof;

(ii) Payment of all other indebtedness and other sums, with interest thereon, which may be owed under, and performance of all other obligations and covenants contained in, any Loan Document (other than the Environmental Indemnity Agreement), together with any other instrument given to evidence or further secure the payment and performance of any obligation secured hereby or thereby; and

(iii) Payment of all indebtedness and other sums, with interest thereon, which may be owed under, and performance of all other obligations and covenants contained in any Other Agreement, together with any other instrument given to evidence or further secure the payment and performance of any obligation secured thereby.

It is the intention of the parties hereto that the Deed Estate shall secure all of the Obligations presently or hereafter owed, and that the priority of the security interest created by this Deed to Secure Debt for all such Obligations shall be controlled by the time of proper recording of this Deed to Secure Debt. In addition, this Deed to Secure Debt shall also secure unpaid balances of advances made with respect to the Deed

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Estate for the payment of taxes, assessments, insurance premiums, costs or any other advances incurred for the protection of the Deed Estate, together with interest thereon until paid at the Default Rate, all as contemplated in this Deed to Secure Debt, all of which shall constitute a part of the Obligations. This paragraph shall serve as notice to all persons who may seek or obtain a lien on the Deed Estate subsequent to the date of recording of this Deed to Secure Debt, that until this Deed to Secure Debt is released, any debt owed Grantee by Grantor, including advances made subsequent to the recording of this Deed to Secure Debt, shall be secured with the priority afforded this Deed to Secure Debt as recorded.

Notwithstanding the foregoing or any other provisions of this Deed to Secure Debt to the contrary:

x) in the event that the Loan becomes the subject of a Securitization, Participation or Transfer, this Deed to Secure Debt shall only secure indebtedness and obligations relating to the Loan and any other loans between any of the Grantor Parties on the one hand and any of the Grantee Entities on the other hand which are part of the same Loan Pool as the Loan; and

y) in the event that any loans between any of the Grantor Parties on the one hand and any of the Grantee Entities on the other hand (other than the Loan) become the subject of a Securitization, Participation or Transfer, this Deed to Secure Debt shall not secure any indebtedness and obligations relating to such loans unless the Loan is part of the same Loan Pool as such loans.

IT IS HEREBY COVENANTED, DECLARED AND AGREED that the Note and the other Loan Documents are to be executed, delivered and secured and that the Deed Estate is to be held and disposed of by Grantee, upon and subject to the provisions of this Deed to Secure Debt.

ARTICLE I

DEFINED TERMS

Section 1.01. Incorporation of Definitions. Initially capitalized terms not otherwise defined in this Deed to Secure Debt shall have the meanings set forth in that certain Loan Agreement dated as of the date of this Deed to Secure Debt between Grantor and Grantee, as the same may be amended from time to time (the “Loan Agreement”).

Section 1.02. Additional Definitions. Unless the context otherwise specifies or requires, the following terms shall have the meanings specified (such definitions to be applicable equally to singular and plural nouns and verbs of any tense):

“Deed Estate” has the meaning set forth in the Granting Clause.

“Environmental Indemnity Agreement” means that certain Environmental Indemnity Agreement dated as of the date of this Deed to Secure Debt executed by Grantor for the benefit of Grantee and such other parties as are identified in such agreement with respect to the Premises, as the same may be amended from time to time.

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“Event of Default” has the meaning set forth in Section 6.01.

“Grantee Entities” shall have the meaning ascribed to “Lender Entities” in the Loan Agreement.

“Grantor Parties” shall have the meaning ascribed to “Borrower Parties” in the Loan Agreement.

“Improvements” means all buildings, fixtures and other improvements now or hereafter located on the Land (whether or not affixed to the Land).

“Indemnified Parties” means Grantee and any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by this Deed to Secure Debt is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, investors or prospective investors in any Securitization, Participation or Transfer, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties), as well as the respective directors, officers, shareholders, partners, members, employees, lenders, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including but not limited to any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Deed Estate, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Grantee’s assets and business).

“Land” means the parcel or parcels of real estate legally described in Exhibit A attached hereto, and all rights, privileges and appurtenances therewith.

“Lease” and “Leases” has the meaning set forth in the Granting Clause.

“Lessee” means TRS Leasing, Inc., a Virginia corporation.

“Loan” means the loan made by Grantee to Grantor, which is evidenced by the Note and secured by this Deed to Secure Debt.

“Loan Agreement” has the meaning set forth in Section 1.01.

“Net Award” has the meaning set forth in Section 4.01(b)(v).

“Net Insurance Proceeds” has the meaning set forth in Section 4.01(a)(iii).

“Note” means, collectively, the promissory note dated as of even date herewith in the amount of $17,850,000.00 and the bridge promissory note dated as of even date herewith in the amount of $6,417,000, executed by Grantor and payable to Grantee which is secured by this Deed to Secure Debt and any amendments, extensions or modifications thereof.

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“Obligations” has the meaning set forth in the Granting Clause.

“Other Agreements” means, collectively, all agreements and instruments between or among (1) any of the Grantor Parties and, (2) any of the Grantee Entities, including, without limitation, promissory notes and guaranties; provided, however, the term “Other Agreements” shall not include the agreements and instruments defined in the Loan Agreement as the Loan Documents.

“Outstanding Obligations” has the meaning set forth in Section 4.01(b)(iv)(x)(aa).

“Partial Taking” has the meaning set forth in Section 4.01(b)(ii).

“Permitted Lease” means the lease dated as of the date of this Deed to Secure Debt between Grantor, as lessor, and Lessee, as lessee, with respect to the Premises as the same may be amended from time to time.

“Personal Property” has the meaning set forth in the Granting Clause.

“Premises” means the Land and the Improvements.

“Rents” has the meaning set forth in the Granting Clause.

“Restoration” means the restoration, replacement or rebuilding of the Premises, or any part thereof, as nearly as possible to its value, condition and character immediately prior to any damage, destruction or Taking.

“State” means the State in which the Premises is located.

“Taking” has the meaning set forth in Section 4.01(b)(i).

“Total Taking” has the meaning set forth in Section 4.01(b)(ii).

“UCC” has the meaning set forth in Section 6.02(c).

ARTICLE II

INCORPORATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF GRANTOR

The representations, warranties and covenants of Grantor set forth in the Loan Agreement are incorporated by reference into this Deed to Secure Debt as if stated in full in this Deed to Secure Debt. All representations and warranties as incorporated herein shall be deemed to have been made as of the date of this Deed to Secure Debt and all representations, warranties and covenants incorporated herein shall survive the execution and delivery of this Deed to Secure Debt.

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ARTICLE III

COVENANTS OF GRANTOR

In addition to any covenants of Grantor set forth in the Loan Agreement or any other Loan Document, Grantor hereby covenants to Grantee and agrees as follows until the Obligations are satisfied in full:

Section 3.01. Recording. Grantor shall, upon the execution and delivery hereof and thereafter from time to time, take such actions as Grantee may reasonably request to cause this Deed to Secure Debt, each supplement and amendment to such instrument and financing statements with respect thereto and each instrument of further assurance (collectively, the “Recordable Documents”), to be filed, registered and recorded as may be required by law to publish notice and maintain the first lien or security interest, as applicable, hereof upon the Deed Estate and to publish notice of and protect the validity of the Recordable Documents. Grantor shall, from time to time, perform or cause to be performed any other act and shall execute or cause to be executed any and all further instruments (including financing statements, continuation statements and similar statements with respect to any of said documents) reasonably requested by Grantee for carrying out the intention of, or facilitating the performance of, this Deed to Secure Debt. Grantee shall be and is hereby irrevocably appointed the agent and attorney-in-fact of Grantor to comply therewith (including the execution, delivery and filing of such financing statements and other instruments), which appointment is coupled with an interest; provided, however, Grantee shall not exercise such power of attorney unless Grantor has first failed to comply with this Section, and provided, further, that this sentence shall not prevent any default in the observance of this Section from constituting an Event of Default. To the extent permitted by law, Grantor shall pay or cause to be paid recording taxes and fees incident thereto and all expenses, taxes and other governmental charges incident to or in connection with the preparation, execution, delivery or acknowledgment of the Recordable Documents, any instruments of further assurance and the Note.

Section 3.02. Use; Maintenance and Repair; Leases. (a) The Deed Estate shall be used solely for the operation of a Permitted Concept and for no other purpose. Except as set forth below, and except during periods when the Premises is untenantable by reason of fire or other casualty or condemnation (provided, however, during all such periods while the Premises is untenantable, Grantor shall strictly comply with the terms and conditions of Section 4.01 of this Deed to Secure Debt), Grantor shall at all times while this Deed to Secure Debt is in effect occupy the Deed Estate, or cause Lessee or Manager to occupy the Deed Estate, and diligently operate its business, or cause Lessee or Manager to diligently operate its business, on the Deed Estate. Grantor may cease (or allow Lessee or Manager to cease) diligent operation of business at the Deed Estate for a period not to exceed 90 days and may do so only once within any five-year period while this Deed to Secure Debt is in effect. If Grantor, Lessee or Manager does discontinue operation as permitted by this Section, Grantor shall (i) give written notice to Grantee within 10 days after Grantor, Lessee or Manager elects to cease operation, (ii) provide adequate protection and maintenance of the Deed Estate during any period of vacancy and (iii) pay all costs necessary to restore the Deed

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Estate to its condition on the day operation of the business ceased at such time as the Deed Estate is reopened for Grantor’s, Lessee’s or Manager’s business operations or other substituted use. Notwithstanding anything herein to the contrary, Grantor shall pay monthly the principal and interest due under the Note during any period in which Grantor, Lessee or Manager discontinues operation.

Grantor shall not, and shall not permit any tenant to, by itself or through any lease or other type of transfer, convert the Premises to an alternative use while this Deed to Secure Debt is in effect without Grantee’s consent, which consent shall not be unreasonably withheld. Grantee may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the converted use will be consistent with the highest and best use of the Deed Estate, and (ii) whether the converted use will increase Grantee’s risks or decrease the value of the Deed Estate.

(b) Grantor shall or shall cause Lessee to, (i) maintain the Deed Estate in good condition and repair, subject to reasonable and ordinary wear and tear, free from actual or constructive waste, (ii) operate, remodel, update and modernize the Deed Estate in accordance with Grantor’s past practices for Permitted Concepts, and (iii) pay all operating costs of the Premises in the ordinary course of business. Grantor shall not do or allow any tenant or other user of the Premises to do any act that (1) materially increases the dangers to human health or the environment, (2) poses an unreasonable risk of harm to any person or entity (whether on or off the Premises), (3) impairs or is reasonably likely to impair in any material respect the value of the Premises, (4) is contrary to any requirement of any insurer, or (5) violates in any material respect any covenant, condition, agreement or easement applicable to the Premises.

(c) Grantor shall not, and shall not permit Lessee or Manager to, (i) enter into any Leases (other than the Permitted Lease and room rentals in the ordinary course of business) without Grantee’s prior written consent; (ii) materially modify or amend the terms of any Lease without Grantee’s prior written consent; (iii) grant any material consents under any Lease, including, without limitation, any consent to an assignment of any Lease, a mortgaging of the leasehold estate created by any Lease or a subletting by the tenant under any Lease (except room rentals in the ordinary course of business), without Grantee’s prior written consent; (iv) terminate, cancel, surrender, or accept the surrender of, any Lease, or waive or release any person from the observance or performance of any obligation to be performed under the terms of any Lease or liability on account of any warranty given thereunder, without Grantee’s prior written consent; or (v) assign, transfer, mortgage, pledge or hypothecate any Lease or any interest therein to any party other than Grantee, without Grantee’s prior written consent. Any lease, modification, amendment, grant, termination, cancellation, surrender, waiver or release in violation of the foregoing provision shall be null and void and of no force and effect. Unless Grantee otherwise consents or elects, Grantor’s title to the Deed Estate and the leasehold interest in the Deed Estate created by any Lease shall not merge, but shall always be kept separate and distinct, notwithstanding the union of such estates in Grantor, Grantee or any other person by purchase, operation of law, foreclosure of this Deed to Secure Debt, sale of the Deed Estate pursuant to this Deed to Secure Debt or otherwise.

(d) Grantor shall (i) fulfill, perform and observe in all material respects each and every condition and covenant of Grantor contained in any Lease; (ii) give prompt notice to Grantee of any claim or event of default under any Lease given to or by Grantor, together with a complete copy or statement of any information submitted or referenced in support of such claim or event of default; (iii) at the sole cost and expense of Grantor, enforce the performance and

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observance of each and every covenant and condition of any Lease to be performed or observed by any other party thereto, unless such enforcement is waived in writing by Grantee; (iv) appear in and defend any action challenging the validity, enforceability or priority of the lien created hereby or the validity or enforceability of any Lease; and (v) hold that portion of the Rents which is sufficient to discharge all current sums due under the Note for use in the payment of such sums.

Section 3.03. Alterations and Improvements. Grantor shall not alter, or permit Lessee or Manager to alter, the exterior, structural, plumbing or electrical elements of the Deed Estate in any manner without the consent of Grantee, which consent shall not be unreasonably withheld or conditioned; provided, however, Grantor or Lessee may undertake nonstructural alterations to the Deed Estate costing less than $100,000 without Grantee’s consent. For purposes of this Deed to Secure Debt, alterations to the exterior, structural, plumbing or electrical elements of the Deed Estate shall mean:

(a) alterations which affect the foundation or “footprint” of the Improvements;

(b) alterations which involve the structural elements of the Improvements, such as a load-bearing wall, structural beams, columns, supports or roof; or

(c) alterations which materially affect any of the building systems, including, without limitation, the electrical systems, plumbing, HVAC and fire and safety systems.

If Grantee’s consent is required hereunder and Grantee consents to the making of any such alterations, the same shall be made by Grantor, Lessee or Manager at Grantor’s Lessee’s or Manager’s sole expense by a licensed contractor and according to plans and specifications approved by Grantee and subject to such other conditions as Grantee shall reasonably require. Any work at any time commenced on the Deed Estate shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Deed to Secure Debt. Upon completion of any alterations for which Grantee’s consent is required hereunder or any Restoration, Grantor shall promptly provide Grantee with (i) evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) an architect’s certificate certifying the alterations to have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy (if the alterations are of such a nature as would require the issuance of a certificate of occupancy), and (iv) any other documents or information reasonably requested by Grantee.

Section 3.04. After-Acquired Property. All right, title and interest of Grantor in and to all improvements, alterations, substitutions, restorations and replacements of, and all additions and appurtenances to, the Deed Estate, hereafter acquired by or released to Grantor, immediately upon such acquisition or release and without any further granting by Grantor, shall become part of the Deed Estate and shall be subject to the lien hereof fully, completely and with the same effect as though now owned by Grantor and specifically described in the Granting Clauses hereof. Grantor shall execute and deliver to Grantee any further assurances, mortgages, grants, conveyances or assignments thereof as the Grantee may reasonably require to subject the same to the lien hereof.

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Section 3.05. Taxes, Assessments, Charges and Other Impositions. (a) Grantor shall do or cause to be done everything necessary to preserve the lien hereof without expense to Grantee, including, without limitation, paying and discharging or causing to be paid and discharged, whether or not payable directly by Grantor or subject to withholding at the source, (i) all taxes, assessments, levies, fees, water and sewer rents and charges and all other governmental charges, general, special, ordinary or extraordinary, and all charges for utility or communications services, which may at any time be assessed, levied or imposed upon Grantor, Lessee, the Deed Estate, this Deed to Secure Debt, the Obligations or the Rents or which may arise in respect of the occupancy, use, possession or operation thereof, (ii) all income, excess profits, sales, gross receipts and other taxes, duties or imposts, whether similar or not in nature, assessed, levied or imposed by any Governmental Authority on Grantor, Lessee, the Deed Estate or the Rents, and (iii) all lawful claims and demands of mechanics, laborers, materialmen and others which, if unpaid, might create a lien on the Deed Estate, or on the Rents, unless Grantor shall contest the amount or validity thereof in accordance with subsection (b).

(b) Grantor may, at its own expense, contest or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any item specified in subsection (a) or lien therefor, provided that (i) Grantor shall provide written notice to Grantee of any contest involving more than $10,000.00, (ii) such proceeding shall suspend the collection thereof from the Deed Estate or any interest therein, (iii) neither the Deed Estate nor any interest therein would be in any danger of being sold, forfeited or lost by reason of such proceedings, (iv) no Event of Default has occurred and is continuing, and (v) Grantor shall have deposited with Grantee adequate reserves for the payment of the taxes, together with all interest and penalties thereon, unless paid in full under protest, or Grantor shall have furnished the security as may be required in the proceeding or as may be required by Grantee to insure payment of any contested taxes.

Section 3.06. Insurance. (a) Grantor shall maintain, or shall cause Lessee or Manager to maintain, with respect to the Deed Estate, at its sole expense, the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied), in addition to such other insurance as Grantee may reasonably require from time to time:

(i) Insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (if the Premises is in a location designated by the Federal Emergency Management Administration as a Special Flood Hazard Area), earthquake (if the Premises is in an area subject to destructive earthquakes within recorded history), boiler explosion (if there is any boiler upon the Premises), plate glass breakage, sprinkler damage (if the Premises have a sprinkler system), all matters covered by a standard extended coverage endorsement, special

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coverage endorsement commonly known as an “all risk” endorsement and such other risks as Grantee may reasonably require, insuring the Deed Estate for not less than 100% of their full insurable replacement cost.

(ii) Commercial general liability and property damage insurance, including a products liability clause, covering Grantee and Grantor against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Deed Estate or adjoining ways, streets or sidewalks and, if applicable, insurance covering Grantee, against liability arising from the sale of liquor, beer or wine on the Premises. Such insurance policy or policies shall contain a broad form contractual liability endorsement under which the insurer agrees to insure Grantor’s obligations under Section 7.09 hereof to the extent insurable, and a “severability of interest” clause or endorsement which precludes the insurer from denying the claim of either Grantor or Grantee because of the negligence or other acts of the other, shall be in amounts of not less than $2,000,000.00 per injury and occurrence with respect to any insured liability, whether for personal injury or property damage, or such higher limits as Grantee may reasonably require from time to time, and shall be of form and substance reasonably satisfactory to Grantee.

(iii) Business income insurance equal to 100% of the principal and interest payable under the Note for a period of not less than twelve months.

(iv) State Worker’s compensation insurance in the statutorily mandated limits, employer’s liability insurance with limits not less than $500,000 or such greater amount as Grantee may from time to time require and such other insurance as may be necessary to comply with applicable laws.

(b) All insurance policies shall:

(i) Provide for a waiver of subrogation by the insurer as to claims against Grantee, its employees and agents and provide that such insurance cannot be unreasonably cancelled, invalidated or suspended on account of the conduct of Grantor, its officers, directors, employees or agents;

(ii) Provide that any “no other insurance” clause in the insurance policy shall exclude any policies of insurance maintained by Grantee and that the insurance policy shall not be brought into contribution with insurance maintained by Grantee;

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(iii) Contain a standard without contribution mortgage clause endorsement in favor of Grantee and its successors and assigns as their interests may appear and any other Grantee designated by Grantee;

(iv) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified without at least thirty (30) days’ prior written notice to Grantee and to any lender covered by any standard mortgage clause endorsement;

(v) Provide that the insurer shall not have the option to restore the Premises if Grantee elects to terminate this Deed to Secure Debt in accordance with the terms hereof;

(vi) Be issued by insurance companies licensed to do business in the state in which the Premises is located and which are rated A-:VIII or better by Best’s Key Rating Guide or otherwise approved by Grantee; and

(vii) Provide that the insurer shall not deny a claim because of the negligence of Grantor, anyone acting for Grantor or any tenant or other occupant of the Deed Estate.

It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Grantor for its acts or omissions as provided in this Deed to Secure Debt. All liability insurance policies (with the exception of worker’s compensation insurance to the extent not available under statutory law) shall designate Grantee and its successors and assigns as additional insureds as their interests may appear and shall be payable as set forth in Article IV hereof. All such policies shall be written as primary policies, with deductibles not to exceed $25,000. Notwithstanding the foregoing, the policy for Wind and Earthquake coverage shall have a deductible not to exceed $250,000. Any other policies, including any policy now or hereafter carried by Grantee, shall serve as excess coverage. Grantor shall procure, or shall cause Lessee or Manager to procure, policies for all insurance for periods of not less than one year and shall provide to Grantee certificates of insurance or, upon Grantee’s request, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Deed to Secure Debt is in effect at all times.

Section 3.07. Impound Account. Upon the occurrence of an Event of Default under this Deed to Secure Debt or any other Loan Document, Grantee may require Grantor to pay to Grantee sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums. Upon such requirement, Grantee will estimate the amounts needed for such purposes and will notify Grantor to pay the same to Grantee in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Deed to Secure Debt. Should additional funds be required at any time,

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Grantor shall pay the same to Grantee on demand. Grantor shall advise Grantee of all taxes and insurance bills which are due and shall cooperate fully with Grantee in assuring that the same are paid. Grantee may deposit all impounded funds in accounts insured by any federal or state agency and may commingle such funds with other funds and accounts of Grantee. Interest or other gains from such funds, if any, shall be the sole property of Grantee. If an Event of Default shall occur subsequent to Grantee requiring the establishment of an impound account pursuant to this Section, Grantee may apply all impounded funds against any sums due from Grantor to Grantee. Grantee shall give to Grantor an annual accounting showing all credits and debits to and from such impounded funds received from Grantor.

Section 3.08. Advances by Grantee. Grantee may make advances to perform any of the covenants contained in this Deed to Secure Debt on Grantor’s behalf and all sums so advanced (and all sums advanced pursuant to any other provision hereof) by Grantee shall be secured hereby. Grantor shall repay on demand all sums so advanced with interest thereon at the Default Rate, such interest to be computed from and including the date of the making of such advance to and including the date of such repayment, and at Grantee’s election, Grantee may add the amount of such advance to the principal balance of the Loan.

Section 3.09. Negative Covenants. Without limiting the terms and conditions of Section 7 of the Loan Agreement, Grantor agrees that Grantor shall not, without the prior written consent of Grantee (each, a “Prohibited Transaction”), sell, convey, mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Deed Estate or any part thereof or permit the Deed Estate or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise transferred, other than (a) sales/consumption of inventory in the ordinary course of business, (b) the replacement of obsolete, damaged or worn-out Personal Property, (c) in accordance with Section 7.01 herein, and (d) Permitted Exceptions. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Section shall be deemed to include, but not limited to, (a) an installment sales agreement wherein Grantor agrees to sell the Deed Estate or any part thereof for a price to be paid in installments; and (b) an agreement by Grantor leasing all or any part of the Deed Estate (other than the Permitted Lease and room rentals in the ordinary course of business) or a sale, assignment or other transfer of, or the grant of a security interest in, Grantor’s right, title and interest in and to any Lease or any Rents. Notwithstanding the foregoing, individual stockholders or limited partners of the Grantor Parties may pledge their interests in the Grantor Parties so long as such pledge does not, or could not potentially, result in a Change of Control or a change in ownership of a majority interest in the Grantor Parties.

Grantee’s consent to a Prohibited Transaction shall be subject to the satisfaction of such conditions as Grantee shall determine in its sole discretion, including, without limitation, (i) Grantor having executed and delivered such modifications to the terms of this Deed to Secure Debt and the other Loan Documents as Grantee shall request, (ii) the Prohibited Transaction having been approved by each of the rating agencies which have issued ratings in connection with any Securitization of the Loan as well as any

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other rating agency selected by Grantee, and (iii) the proposed transferee having assumed the Note, this Deed to Secure Debt and the other Loan Documents (as modified pursuant to clause (i) above). In addition, any such consent shall be conditioned upon the payment by Grantor to Grantee of (x) a fee equal to one percent (1%) of the then outstanding principal balance of the Note and (y) all out-of-pocket costs and expenses incurred by Grantee in connection with such consent, including, without limitation, reasonable attorneys’ fees. Grantee shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Obligations immediately due and payable upon Grantor’s sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Deed Estate without Grantee’s consent, as required hereunder. The provisions of this Section shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Deed Estate regardless of whether voluntary or not, or whether or not Grantee has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Deed Estate.

ARTICLE IV

POSSESSION, USE AND RELEASE OF THE DEED ESTATE

Section 4.01. Casualty or Condemnation. Grantor, immediately upon obtaining knowledge of any casualty to any portion of the Deed Estate or of any proceeding or negotiation for the taking of all or any portion of the Deed Estate in condemnation or other eminent domain proceedings, shall notify Grantee of such casualty, proceeding or negotiation. Any award, compensation or other payment resulting from such casualty or condemnation or eminent domain proceeding, as applicable, shall be applied as set forth below (the “Proceeds”). Grantee may participate in any condemnation or eminent domain proceeding, and Grantor will deliver or cause to be delivered to Grantee all instruments reasonably requested by Grantee to permit such participation.

(a) Casualty. (i) In the event of any material damage to or destruction of the Deed Estate or any part thereof, Grantor will promptly give written notice to Grantee, generally describing the nature and extent of such damage or destruction. No damage to or destruction of the Deed Estate shall relieve Grantor of its obligation to pay any monetary sum due under the Loan Documents at the time and in the manner provided in the Loan Documents.

(ii) In the event of any damage to or destruction of the Deed Estate or any part thereof, Grantor, whether or not the Proceeds, if any, on account of such damage or destruction shall be sufficient for the purpose, at its expense, shall within a reasonable time thereafter cause the Restoration to be commenced and completed.

(iii) Proceeds received by Grantee and Grantor on account of any occurrence of damage to or destruction of the Deed Estate or any part thereof, less the costs, fees and expenses incurred by Grantee and

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Grantor in the collection thereof, including, without limitation, adjuster’s fees and expenses and reasonable attorneys’ fees and expenses (the “Net Insurance Proceeds”), shall be paid to (1) Grantor, if the amount of such Net Insurance Proceeds is less than $100,000 and applied by Grantor toward the cost of the Restoration, and (2) Grantee, if the amount of such Net Insurance Proceeds is $100,000 or greater. Net Insurance Proceeds paid to Grantee shall be held and disbursed by Grantee, or as Grantee may from time to time direct, as the Restoration progresses, to pay or reimburse Grantor for the cost of the Restoration, upon written request of Grantor accompanied by evidence, reasonably satisfactory to Grantee, that (aa) the Restoration is in full compliance with all Applicable Regulations and all private restrictions and requirements, (bb) the amount requested has been paid or is then due and payable and is properly a part of such cost, (cc) there are no mechanics’ or similar liens for labor or materials theretofore supplied in connection with the Restoration, (dd) if the estimated cost of the Restoration exceeds the Net Insurance Proceeds (exclusive of Proceeds received from Grantor’s business income insurance), Grantor has deposited into an escrow satisfactory to Grantee such excess amount, which sum will be disbursed pursuant to escrow instructions satisfactory to Grantee, and (ee) the balance of such Net Insurance Proceeds, together with the funds deposited into escrow, if any, pursuant to the preceding subsection (dd), after making the payment requested will be sufficient to pay the balance of the cost of the Restoration. Upon receipt by Grantee of evidence reasonably satisfactory to it that the Restoration has been completed and the cost thereof paid in full, and that there are no mechanics’ or similar liens for labor or materials supplied in connection therewith, the balance, if any, of such Net Insurance Proceeds shall be paid to Grantor. If at the time of the damage or destruction to the Deed Estate or at any time thereafter an Event of Default shall have occurred and be continuing under the Loan Documents, all Net Insurance Proceeds shall be paid to Grantee, and Grantee may retain and apply the Net Insurance Proceeds toward the Obligations whether or not then due and payable, in such order, priority and proportions as Grantee in its discretion shall deem proper, or to cure such Event of Default, or, in Grantee’s discretion, Grantee may pay such Net Insurance Proceeds in whole or in part to Grantor to be applied toward the cost of the Restoration. If Grantee shall receive and retain Net Insurance Proceeds, the lien of this Deed to Secure Debt shall be reduced only by the amount received and retained by Grantee and actually applied by Grantee in reduction of the Obligations.

(b) Condemnation. (i) In case of a taking of all or any part of the Deed Estate or the commencement of any proceedings or negotiations which might result in a taking, for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or

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eminent domain or by agreement between Grantee, Grantor and those authorized to exercise such right (“Taking”), Grantor will promptly give written notice thereof to Grantee, generally describing the nature and extent of such Taking. Grantee shall file and prosecute on behalf of Grantee and Grantor any and all claims for Proceeds, and all Proceeds on account of a Taking shall be paid to Grantee.

(ii) In case of a Taking of the whole of the Deed Estate, other than for temporary use (“Total Taking”), or in case of a Taking of less than all of the Deed Estate (“Partial Taking”), the Loan Documents shall remain in full force and effect. In the case of a Partial Taking, Grantor, whether or not the Proceeds, if any, on account of such Partial Taking shall be sufficient for the purpose (but provided they are made available by Grantee for such purpose), at its own cost and expense, will within a reasonable time thereafter commence and complete the Restoration. In case of a Partial Taking, other than a temporary use, of such a substantial part of the Deed Estate as shall result in the Deed Estate remaining after such Partial Taking being unsuitable for use, such Taking shall be deemed a Total Taking.

(iii) In case of a temporary use of the whole or any part of the Deed Estate by a Taking, the Loan Documents shall remain in full force and effect without any reduction of any monetary sum payable under the Loan Documents. In any proceeding for such Taking, Grantee shall have the right to intervene and participate; provided that, if such intervention shall not be permitted, Grantor shall consult with Grantee, its attorneys and experts, and make all reasonable efforts to cooperate with Grantee in the prosecution or defense of such proceeding. At the termination of any such use or occupation of the Deed Estate, Grantor will, at its own cost and expense, promptly commence and complete the Restoration.

(iv) Proceeds on account of a Taking, less the costs, fees and expenses incurred by Grantee and Grantor in connection with the collection thereof, including, without limitation, reasonable attorneys’ fees and expenses, shall be applied in the following order:

(x) Proceeds received on account of a Total Taking shall be allocated as follows:

(aa) There shall be paid to the Grantee an amount up to the sum of the outstanding principal, including all sums advanced by Grantee hereunder, and interest under the Note, all as of the date on which such payment is made, such amount shall be applied first against all sums advanced by Grantee under this Deed to Secure Debt, second against the accrued but unpaid interest on the Note, and third to the remaining unpaid principal amount of the Note. If the Proceeds received on account of a

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Total Taking are not sufficient to satisfy the outstanding principal balance of the Note, all accrued but unpaid interest on the Note, all other sums due under the Note, all sums advanced by Grantee under this Deed to Secure Debt and all other sums due and payable under this Deed to Secure Debt and the other Loan Documents corresponding to the Premises (collectively, the “Outstanding Obligations”), Grantor shall pay to Grantee simultaneously with the payment of such Proceeds to Grantee the difference between the amount of such Proceeds and the amount of the Outstanding Obligations.

(bb) Any remaining balance shall be paid to Grantor.

(y) Proceeds received on account of a Partial Taking shall be held and allocated as follows:

(i) first, toward the cost of the Restoration, such application of net awards and other payments to be made substantially in the manner provided in Section 4.01(a)(iii) of this Deed to Secure Debt; and

(ii) then, all or any portion of the balance of such proceeds shall, in Grantee’s sole discretion, either be paid to:

(1) Grantee, as the holder of this Deed to Secure Debt, and applied toward the Outstanding Obligations in such order, priority and proportion, and at such time on or prior to the Maturity Date (as defined in the Note), as Grantee shall determine; or

(2) Grantor; provided, however, in Grantee’s sole discretion, such proceeds shall be pledged to Grantee to secure the Outstanding Obligations pursuant to a security agreement reasonably satisfactory to Grantee, or, with Grantee’s consent, Grantor shall provide Grantee with alternative security satisfactory to Grantee in its sole discretion.

Grantee may deposit any funds held by it in accounts insured by any federal or state agency and may commingle such funds with other funds and accounts of Grantee.

(z) Proceeds received on account of a Taking for temporary use shall be held by Grantee and applied to the payment of the monthly installments of combined interest and principal becoming due under the Note, until such Taking for temporary use is terminated

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and the Restoration, if any, has been completed; provided, however, that, if any portion of any such award or payment is made by reason of any damage to or destruction of the Deed Estate, such portion shall be held and applied as provided in Section 4.01(a)(iii) hereof. The balance, if any, of such awards and payments shall be paid to Grantor.

(v) Notwithstanding the foregoing, if at the time of any Taking or at any time thereafter an Event of Default shall have occurred and be continuing under the Loan Documents, Grantee is hereby authorized and empowered, in the name and on behalf of Grantor and otherwise, to file and prosecute Grantor’s claim, if any, for an award on account of any Taking and to collect such award and apply the same, after deducting all costs, fees and expenses incident to the collection thereof (the “Net Award”), toward the Obligations whether or not then due and payable, in such order, priority and proportions as Grantee in its discretion shall deem proper, or to cure such Event of Default, or, in Grantee’s discretion, Grantee may pay the Net Award in whole or in part to Grantor to be applied toward the cost of the Restoration. If Grantee shall receive and retain the Net Award, the lien of this Deed to Secure Debt shall be reduced only by the amount received and retained by Grantee and actually applied by Grantee in reduction of the Obligations.

Section 4.02. Conveyance in Anticipation of Condemnation, Granting of Easements, Etc. If no Event of Default shall have occurred and be continuing, Grantor may, from time to time with respect to its interest in the Deed Estate, and with Grantee’s prior written consent, (i) sell, assign, convey or otherwise transfer any interest therein to any person legally empowered to take such interest under the power of eminent domain, (ii) grant easements and other rights in the nature of easements, (iii) release existing easements or other rights in the nature of easements which are for the benefit of the Deed Estate, (iv) dedicate or transfer unimproved portions of the Deed Estate for road, highway or other public purposes, (v) execute petitions to have the Deed Estate annexed to any municipal corporation or utility district, and (vi) execute and deliver to any person any instrument appropriate to confirm or effect such grants, releases, dedications and transfers.

Section 4.03. Grantee’s Power. At any time, or from time to time, without liability therefor, Grantee, without affecting the personal liability of any person for payment of the Obligations or the effect of this Deed to Secure Debt upon the remainder of said Deed Estate, may from time to time without notice (i) release any part of said Deed Estate, (ii) consent in writing to the making of any map or plat thereof, (iii) join in granting any easement thereon, (iv) join in any extension agreement or any agreement subordinating the lien or charge hereof, (v) release any person so liable, (vi) extend the maturity or alter any of the terms of any Obligations, (vii) grant other indulgences, (viii) take or release any other or additional security for any Obligations, (ix) make compositions or other arrangements with debtors in relation thereto, or (x) advance additional funds to protect the security hereof or to pay or discharge the Obligations in the event Grantor fails to do so, and all amounts so advanced shall be secured hereby and shall be due and payable upon demand by Grantee.

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ARTICLE V

SECURITY INTEREST

Section 5.01. Security Agreement. With respect to the Personal Property or any portion of the Deed Estate which constitutes fixtures or other property governed by the UCC, this Deed to Secure Debt shall constitute a security agreement between Grantor, as the debtor, and Grantee, as the secured party, and Grantor hereby grants to Grantee a security interest in such portion of the Deed Estate. Cumulative of all other rights of Grantee hereunder, Grantee shall have all of the rights conferred upon secured parties by the UCC. Grantor authorizes Grantee to file financing statements with respect to the security interest of Grantee, continuation statements with respect thereto, and any amendments to such financing statements which may be necessitated by reason of any of the changes described in Section 6.C of the Loan Agreement. Furthermore, at any time, and from time to time, Grantor will execute and deliver to Grantee all financing statements that may from time to time be required by Grantee to establish and maintain the validity and priority of the security interest of Grantee, or any modification thereof. Grantee may exercise any or all of the remedies of a secured party available to it under the UCC with respect to such property. If, upon the occurrence and during the continuance of an Event of Default, Grantee proceeds to dispose of such property in accordance with the provisions of the UCC, 10 days’ notice by Grantee to Grantor shall be deemed to be reasonable notice under any provision of the UCC requiring such notice; provided, however, that Grantee may at its option dispose of such property in accordance with Grantee’s rights and remedies with respect to the real property pursuant to the provisions of this Deed to Secure Debt, in lieu of proceeding under the UCC. Grantor represents that its exact legal name and state of formation or organization are as set forth in the first paragraph of this Deed to Secure Debt. Grantor agrees that, notwithstanding any provision in the UCC to the contrary, Grantor shall not file a termination statement of any financing statement filed by Grantee in connection with any security interest granted under this Deed to Secure Debt if Grantee reasonably objects to the filing of such termination statement.

Section 5.02. Effective as a Financing Statement and Fixture Filing. This Deed to Secure Debt shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Deed Estate and is to be filed for record in the real estate records of each county where any part of the Deed Estate (including said fixtures) is situated. This Deed to Secure Debt shall also be effective as a financing statement covering any other portion of the Deed Estate and may be filed in any other appropriate filing or recording office. The mailing address of Grantor is the address of Grantor set forth in the introductory paragraph of this Deed to Secure Debt, and the address of the Grantee from which information concerning the security interests hereunder may be obtained is the address of Grantee as set forth in the introductory paragraph of this Deed to Secure Debt. A carbon, photographic or other reproduction of this Deed to Secure Debt or of any financing statement relating to this Deed to Secure Debt shall be sufficient as a financing statement for any of the purposes referred to in this Section.

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Information concerning the security interest created by this instrument may be obtained from Grantee, as secured party, at the address of Grantee stated in the introductory paragraph of this Deed to Secure Debt. The mailing address of Grantor, as debtor, is as stated in the introductory paragraph of this Deed to Secure Debt.

Grantor and Grantee agree that the filing of any such financing statement or statements in the records normally having to do with personal property shall not in any way affect the agreement of Grantor and Grantee that the Personal Property at all times and for all purposes and in all proceedings, legal or equitable, shall be, regarded as part of the real estate conveyed hereby regardless of whether (1) any such item is physically attached to the improvements, (2) serial numbers are used for the better identification of certain items capable of being thus identified in an exhibit to this Deed to Secure Debt, or (3) any such item is referred to or reflected in any such financing statement or statements so filed at any time. Similarly, the mention in any such financing statement or statements of the rights in and to (A) the proceeds of any insurance policy, or (B) any award in eminent domain proceedings for a taking or for loss of value, or (C) Grantor’s interest as lessor in any present or future lease or rights to income growing out of any such leases, shall not in any way alter any of the rights of Grantee as determined by this Deed to Secure Debt or affect the priority of Grantee’s security interest granted hereby or by any other recorded document, it being understood and agreed that such mention in such financing statement or statements is solely for the protection of Grantee in the event any court shall at any time hold with respect thereto, that notice of Grantee’s priority of interest, to be effective against all persons or against a particular class of persons, must be filed in the Uniform Commercial Code records.

Grantor warrants that Grantor’s name, identity or corporate structure and residence or principal place of business are set forth herein. Grantor covenants and agrees that Grantor will promptly execute any financing statements or other instruments deemed necessary by Grantee to prevent any filed financing statement from becoming misleading or losing its perfected status.

The mailing address of the “Secured Party” from which information concerning the security interest may be obtained, and the mailing address of “Grantor,” are as set forth herein; and a statement indicating the types, or describing the items, of collateral making up the Deed Estate is set forth hereinabove.

ARTICLE VI

EVENTS OF DEFAULT AND REMEDIES

Section 6.01. Events of Default. Each of the following shall be an event of default under this Deed to Secure Debt (each an “Event of Default”):

(a) Subject to the provisions of Section 3.05(b) of this Deed to Secure Debt, if Grantor fails to pay, prior to delinquency, any taxes, assessments or other charges the failure of which to pay will result in the imposition of a lien against the Deed Estate pursuant to Applicable Regulations.

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(b) If Grantor shall fail to maintain insurance in accordance with the requirements of Section 3.06 of this Deed to Secure Debt.

(c) If Grantor fails to observe or perform any of the covenants, conditions, or obligations of this Deed to Secure Debt, provided, however, if any such failure does not involve the payment of any principal, interest or other monetary sum due under the Note, is not willful or intentional, does not place any rights or interest in collateral of Grantee in immediate jeopardy, and is within the reasonable power of Grantor to promptly cure after receipt of notice thereof, all as determined by Grantee in its reasonable discretion, then such failure shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until Grantee shall have given Grantor notice thereof and a period of 30 days shall have elapsed, during which period Grantor may correct or cure such failure, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required. If such failure cannot reasonably be cured within such 30-day period, as determined by Grantee in its reasonable discretion, and Grantor is diligently pursuing a cure of such failure, then Grantor shall have a reasonable period to cure such failure beyond such 30-day period, which shall in no event exceed 90 days after receiving notice of the failure from Grantee. If Grantor shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required.

(d) If there is an “Event of Default” under the Loan Agreement.

Section 6.02. Remedies. Upon the occurrence and during the continuance of an Event of Default subject to the limitations set forth in Section 6.01, Grantee may declare all or any part of the Obligations to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest or notice (including notice of intent to accelerate and notice of acceleration) of any kind except as otherwise expressly provided herein. Furthermore, upon the occurrence and during the continuance of an Event of Default, Grantee may:

(a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon and take possession of the Deed Estate or any part thereof and do any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Deed Estate, or part thereof or interest therein, increase the income therefrom or protect the security hereof and, with or without taking possession of the Deed Estate, take any action described herein, sue for or otherwise collect the Rents, including those past due and unpaid, and apply

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the same, less costs and expenses of operation and collection including reasonable attorneys’ fees, upon any Obligations, all in such order as Grantee may determine. The entering upon and taking possession of the Deed Estate, the taking of any action described herein, the collection of such Rents, and the application thereof as aforesaid, shall not cure or waive any Event of Default or notice of default or invalidate any act done in response to such Event of Default or pursuant to such notice of default and, notwithstanding the continuance in possession of the Deed Estate or the collection, receipt and application of Rents, Grantee shall be entitled to exercise every right provided for in any of the Loan Documents or by law upon any Event of Default, including the right to exercise the power of sale herein conferred;

(b) Commence an action to foreclose this Deed to Secure Debt in a single parcel or in several parcels, appoint a receiver or specifically enforce any of the covenants hereof;

(c) Exercise any or all of the remedies available to a secured party under the Uniform Commercial Code as adopted in the State (“UCC”), including, without limitation:

(i) Either personally or by means of a court appointed receiver, commissioner or other officer, take possession of all or any of the Personal Property and exclude therefrom Grantor and all others claiming under Grantor, and thereafter hold, store, use, operate, manage, maintain and control, make repairs, replacements, alterations, additions and improvements to and exercise all rights and powers of Grantor in respect of the Personal Property or any part thereof. In the event Grantee demands or attempts to take possession of the Personal Property in the exercise of any rights under any of the Loan Documents, Grantor promises and agrees to promptly turn over and deliver complete possession thereof to Grantee;

(ii) Without notice to or demand upon Grantor, make such payments and do such acts as Grantee may deem necessary to protect its security interest in the Personal Property, including, without limitation, paying, purchasing, contesting or compromising any encumbrance, charge or lien which is prior to or superior to the security interest granted hereunder and, in exercising any such powers or authority, to pay all expenses incurred in connection therewith;

(iii) Require Grantor to assemble the Personal Property or any portion thereof, at the Premises, and promptly to deliver

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such Personal Property to Grantee, or an agent or representative designated by it. Grantee, and its agents and representatives, shall have the right to enter upon the Deed Estate to exercise Grantee’s rights hereunder;

(iv) Sell, lease or otherwise dispose of the Personal Property at public sale, with or without having the Personal Property at the place of sale, and upon such terms and in such manner as Grantee may determine. Grantee may be a purchaser at any such sale;

(v) Unless the Personal Property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Grantee shall give Grantor at least 10 days’ prior written notice of the time and place of any public sale of the Personal Property or other intended disposition thereof. Such notice may be delivered to Grantor at the address set forth at the beginning of this Deed to Secure Debt and shall be deemed to be given as provided herein; and

(vi) Any sale made pursuant to the provisions of this subsection shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with the sale of all or a portion of the other Deed Estate under power of sale as provided herein upon giving the same notice with respect to the sale of the Personal Property hereunder as is required for such sale of the other Deed Estate under power of sale, and such sale shall be deemed to be pursuant to a security agreement covering both real and personal property under the UCC.

(d) Exercise all of Grantor’s rights and remedies under the Indemnity Agreements, including, without limitation, making demands and claims and receiving payments under the Indemnity Agreements. Grantor hereby grants Grantee a power of attorney (which grant shall be deemed irrevocable and coupled with an interest) to exercise such rights and remedies;

(e) Apply any sums then deposited in the impound account described in Section 3.07 toward payment of the taxes, assessment and insurance premiums for the Deed Estate and/or as a credit on the Obligations in such priority and proportion as Grantee may determine in its sole discretion;

(f) If held by Grantee, surrender the insurance policies maintained pursuant to Section 3.06, collect the unearned insurance premiums and apply such sums as a credit on the Obligations in

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such priority and proportion as Grantee in its sole discretion shall deem proper, and in connection therewith, Grantor hereby appoints Grantee as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Grantee to collect such insurance premiums; and

(g) Sell Grantor’s interest in the Deed Estate pursuant to the power of sale herein conferred. If Grantee elects to sell Grantor’s interest in the Deed Estate by exercise of such power of sale, Grantee shall cause such sale to be performed in the manner then required by law.

(i) Grantee, at its option, may sell the Deed Estate or any part of the Deed Estate at one or more public sale or sales before the door of the courthouse of the county in which the Deed Estate or any part of the Deed Estate is situated, to the highest bidder for cash, in order to pay the Obligations, and all expenses of sale and of all proceedings in connection therewith, including reasonable attorneys’ fees, after advertising the time, place and terms of sale once a week for four consecutive weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff’s sales are advertised in said county. At any such public sale, Grantee may execute and deliver to the purchaser a conveyance of the Deed Estate or any part of the Deed Estate in fee simple with full warranties of title, and to this end Grantor hereby constitutes and appoints Grantee the agent and attorney-in-fact of Grantor to make such sale and conveyance, and thereby to divest Grantor of all right, title and equity that Grantor may have in and to the Deed Estate and to vest the same in lawful money of the United States payable at the time of sale, or as otherwise may then be required by law. Grantee shall deliver to such purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Grantor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Obligations and shall not be exhausted by one exercise thereof but may be exercised until full payment of all of the Obligations. In the event of any sale under this Deed to Secure Debt by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceeding or otherwise, the Deed Estate may be sold as an entirety or in separate parcels and in such manner or order as Grantee in its sole discretion may elect, and, if Grantee so elects, Grantee may sell the personal property covered by this Deed to Secure Debt at one or more separate sales in any manner permitted by the Uniform Commercial Code of the State of Georgia, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Deed Estate is sold or the Obligations are paid in full. If the Obligations are now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Grantee may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently and in such order as Grantee may determine.

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(ii) If an Event of Default shall have occurred and be continuing, Grantee may, in addition to and not in abrogation of the rights covered under subsection (i) above, either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (1) to enforce payment of the indebtedness under the Note or the performance of any term, covenant, condition or agreement of this Deed to Secure Debt or any other right and (2) to pursue any other remedy available to it, all as Grantee at its sole discretion shall elect.

(iii) As may be permitted by law, Grantee shall apply the proceeds of sale (1) first, to payment of all costs, fees and expenses, including reasonable attorneys’ fees and expenses incurred by the Grantee in exercising the power of sale or foreclosing this Deed to Secure Debt, and (2) second, as directed by Grantee toward the Obligations or as may be required by law.

(iv) Grantee may in the manner provided by law postpone sale of all or any portion of the Deed Estate.

(v) Upon any foreclosure sale or sales of all or any portion of the Deed Estate under the power herein granted, Grantee may bid for and purchase the Deed Estate and shall be entitled to apply all or any part of the Obligations as a credit to the purchase price.

(vi) Grantor represents and warrants to Grantee that neither the Deed Estate nor any part thereof is to be used as a dwelling place by Grantor at the time this Deed to Secure Debt is entered into, and, accordingly, the notice requirements of O.C.G.A. § 44-14-162.2 shall not be applicable to any exercise of the power of sale contained in this Deed to Secure Debt.

Section 6.03. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, Grantee, as a matter of right and without notice to Grantor or anyone claiming under Grantor, and without regard to the then value of the Deed Estate or the interest of Grantor therein, or the insolvency of Grantor or the then-owner of the Deed Estate, may seek the appointment of a receiver for the Deed Estate upon ex parte application to any court of competent jurisdiction. Grantor waives any right to any hearing or notice of hearing prior to the appointment of a receiver. Such receiver shall be empowered (a) to take possession of the Deed Estate and any businesses conducted by Grantor thereon and any business assets used in connection therewith, (b) to exclude Grantor and Grantor’s agents, servants and employees from the Deed Estate, or, at the option of the receiver, in lieu of such exclusion, to collect a fair market rental from any such persons occupying any part of the Deed Estate, (c) to collect the Rents, (d) to complete any construction that may be in progress, (e) to continue the development, marketing and sale of the Deed Estate, (f) to do such maintenance and make such repairs and alterations as the receiver deems necessary, (g) to use all stores of materials, supplies and maintenance equipment on the Deed Estate and

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replace such items at the expense of the receivership estate, (h) to pay all taxes and assessments against the Deed Estate, all premiums for insurance thereon, all utility and other operating expenses, and all sums due under any prior or subsequent encumbrance, (i) to request that Grantee advance such funds as may reasonably be necessary to the effective exercise of the receiver’s powers, on such terms as may be agreed upon by the receiver and Grantee, but not in excess of the Default Rate, and (j) generally to do anything that Grantor could legally do if Grantor were in possession of the Deed Estate. All expenses incurred by the receiver or his agents, including obligations to repay funds borrowed by the receiver, shall constitute a part of the Obligations. Any revenues collected by the receiver shall be applied first to the expenses of the receivership, including reasonable attorneys’ fees incurred by the receiver and by Grantee, together with interest thereon at the highest rate of interest applicable in the Note from the date incurred until repaid, and the balance shall be applied toward the Obligations or in such other manner as the court may direct.

Section 6.04. Remedies Not Exclusive. Grantee shall be entitled to enforce payment and performance of any Obligations and to exercise all rights and powers under this Deed to Secure Debt or under any Loan Documents or Other Agreements or any laws now or hereafter in force, notwithstanding some or all of the Obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Deed to Secure Debt nor its enforcement, whether by court action or pursuant to the power of sale or other powers herein contained, shall prejudice or in any manner affect Grantee’s right to realize upon or enforce any other security now or hereafter held by Grantee, it being agreed that Grantee shall be entitled to enforce this Deed to Secure Debt and any other security now or hereafter held by Grantee in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Grantee is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Grantee, or to which Grantee may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Grantee. Grantee may pursue inconsistent remedies.

The acceptance by Grantee of any sum after the same is due shall not constitute a waiver of the right either to require prompt payment, when due, of all other sums hereby secured or to declare a subsequent Event of Default as herein provided. The acceptance by Grantee of any sum in an amount less than the sum then due shall be deemed an acceptance on account only and upon condition that it shall not constitute a waiver of the obligation of Grantor to pay the entire sum then due, and failure of Grantor to pay such entire sum then due shall be an Event of Default, notwithstanding such acceptance of such amount on account, as aforesaid. Grantee shall be, at all times thereafter and until the entire sum then due as contemplated by the Loan Documents shall have been paid, and notwithstanding the acceptance by Grantee thereafter of further sums on account, or otherwise, entitled to exercise all rights in this instrument conferred upon them or either of them, and the right to proceed with a sale under any notice of default, or an election to sell, or the right to exercise any other rights or remedies hereunder, shall in no way be impaired, whether any of such amounts are

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received prior or subsequent to such proceeding, election or exercise. Consent by Grantee to any action or inaction of Grantor which is subject to consent or approval of Grantee hereunder shall not be deemed a waiver of the right to require such consent or approval to future or successive actions or inactions.

Section 6.05. Possession of Deed Estate. In the event of a trustee’s sale or foreclosure sale hereunder and after the time of such sale, Grantor occupies the portion of the Deed Estate so sold, or any part thereof, Grantor shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either tenant or landlord, at a reasonable rental per day based upon the value of the portion of the Deed Estate so occupied, such rental to be due and payable daily to the purchaser. An action of unlawful detainer shall lie if the tenant holds over after a demand in writing for possession of such Deed Estate; and this Deed to Secure Debt and a trustee’s or sheriff’s deed shall constitute a lease and agreement under which the tenant’s possession arose and continued. Nothing contained in this Deed to Secure Debt shall be construed to constitute Grantee as a “mortgagee in possession” in the absence of its taking actual possession of the Deed Estate pursuant to the powers granted herein.

Section 6.06. Waiver of Rights. Grantor waives the benefit of all laws now existing or that hereafter may be enacted (i) providing for any appraisement before sale of any portion of the Deed Estate, or (ii) in any way extending the time for the enforcement of the collection of the Obligations or creating or extending a period of redemption from any sale made in collecting the Obligations. Grantor agrees that Grantor will not at any time insist upon, plea, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension, redemption or homestead exemption, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Deed Estate, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, homestead exemption, notice of election to mature or declare due the whole of the Obligations and marshaling in the event of foreclosure of the liens hereby created. If any law referred to in this Section and now in force, of which Grantor, Grantor’s heirs, devisees, representatives, successors and assigns or other person might take advantage despite this Section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this Section. Grantor expressly waives and relinquishes any and all rights, remedies and defenses that Grantor may have or be able to assert by reason of the laws of the State pertaining to the rights, remedies and defenses of sureties.

Section 6.07. Relief From Stay. In the event that Grantor commences a case under the Code or is the subject of an involuntary case that results in an order for relief under the Code, subject to court approval, Grantee shall thereupon be entitled and Grantor irrevocably consents to relief from any stay imposed by Section 362 of the Code on or against the exercise of the rights and remedies otherwise available to Grantee as provided in the Loan Documents and Grantor hereby irrevocably waives its rights to object to such relief. In the event Grantor shall commence a case under the Code or is the subject of an involuntary case that results in an order for relief under the

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Code, Grantor hereby agrees that no injunctive relief against Grantee shall be sought under Section 105 or other provisions of the Code by Grantor or other person or entity claiming through Grantor, nor shall any extension be sought of the stay provided by Section 362 of the Code.

Section 6.08. Cash Collateral. Grantor hereby acknowledges and agrees that in the event that Grantor commences a case under the Code or is the subject of an involuntary case that results in an order for relief under the Code: (i) that all of the Rents are, and shall for purposes be deemed to be, “proceeds, product, offspring, rents, or profits” of the Premises covered by the lien of this Deed to Secure Debt, as such quoted terms are used in Section 552(b) of the Code; (ii) that in no event shall Grantor assert, claim or contend that any portion of the Rents are, or should be deemed to be, “accounts” or “accounts receivable” within the meaning of the Code and/or applicable state law; (iii) that the Rents are and shall be deemed to be in any such bankruptcy proceeding “cash collateral” of Grantee as that term is defined in Section 363 of the Code; and (iv) that Grantee has valid, effective, perfected, enforceable and “choate” rights in and to the Rents without any further action required on the part of Grantee to enforce or perfect its rights in and to such cash collateral, including, without limitation, providing notice to Grantor under Section 546(b) of the Code.

Section 6.09. Assignment of Rents and Leases. (a) Grantor hereby assigns, transfers, conveys and sets over to Grantee all of Grantor’s estate, right, title and interest in, to and under the Leases, whether existing on the date hereof or hereafter entered into, together with any changes, extensions, revisions or modifications thereof and all rights, powers, privileges, options and other benefits of Grantor as the lessor under the Leases regarding the current tenants and any future tenants, and all the Rents from the Leases, including those now due, past due or to become due. Grantor irrevocably appoints Grantee its true and lawful attorney-in-fact, at the option of Grantee, at any time and from time to time upon the occurrence and during the continuance of an Event of Default, to take possession and control of the Premises, pursuant to Grantor’s rights under the Leases, to exercise any of Grantor’s rights under the Leases, and to demand, receive and enforce payment, to give receipts, releases and satisfaction and to sue, in the name of Grantor or Grantee, for all of the Rents. The power of attorney granted hereby shall be irrevocable and coupled with an interest and shall terminate only upon the payment of all sums due Grantee for all losses, costs, damages, fees and expenses whatsoever associated with the exercise of this power of attorney, and Grantor hereby releases Grantee from all liability (other than as a result of the gross negligence or willful misconduct of Grantee) whatsoever for the exercise of the foregoing power of attorney and all actions taken pursuant thereto. The consideration received by Grantor to execute and deliver this assignment and the liens and security interests created herein is legally sufficient and will provide a direct economic benefit to Grantor. It is intended by Grantor and Grantee that the assignment set forth herein constitutes an absolute assignment and not merely an assignment for additional security. Notwithstanding the foregoing, this assignment shall not be construed to bind Grantee to the performance of any of the covenants, conditions or provisions of Grantor contained in the Leases or otherwise to impose any obligation upon Grantee, and, so long as no Event of Default shall have occurred and be

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continuing, Grantor shall have a license, revocable upon an Event of Default, to possess and control the Premises and collect and receive all Rents. Upon an Event of Default, such license shall be automatically revoked.

(b) Upon the occurrence and during the continuance of an Event of Default, Grantee may, at any time without notice (except if required by applicable law), either in person, by agent or by a court-appointed receiver, regardless of the adequacy of Grantee’s security, and at its sole election (without any obligation to do so), enter upon and take possession and control of the Premises, or any part thereof, to perform all acts necessary and appropriate to operate and maintain the Premises, including, but not limited to, execute, cancel or modify the Leases, make repairs to the Premises, execute or terminate contracts providing for the management or maintenance of the Premises, all on such terms as are deemed best to protect the security of this assignment, and in Grantee’s or Grantor’s name, sue for or otherwise collect such Rents as specified in this Deed to Secure Debt as the same become due and payable, including, but not limited to, Rents then due and unpaid. Grantee may so sue for or otherwise collect such Rents with or without taking possession of the Premises. Grantor agrees that upon the occurrence and during the continuance of an Event of Default, each tenant of the Premises shall make its rent payable to and pay such rent to Grantee (or Grantee’s agents) on Grantee’s written demand therefor, delivered to such tenant personally, by mail, or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire further as to the existence of an Event of Default by Grantor.

(c) Rents collected subsequent to any Event of Default shall be applied at the direction of, and in such order as determined by, Grantee to the costs, if any, of taking possession and control of and managing the Premises and collecting such amounts, including, but not limited to, reasonable attorney’s fees, receiver’s fees, premiums on receiver’s bonds, costs of repairs to the Premises, premiums on insurance policies, taxes, assessments and other charges on the Premises, and the costs of discharging any obligation or liability of Grantor with respect to the Leases and to the sums secured by this Deed to Secure Debt. Grantee or the receiver shall have access to the books and records used in the operation and maintenance of the Premises and shall be liable to account only for those Rents actually received.

(d) Grantee shall not be liable to Grantor, anyone claiming under or through Grantor or anyone having an interest in the Premises by reason of anything done or left undone by Grantee hereunder, except to the extent of Grantee’s gross negligence or willful misconduct.

(e) Any entering upon and taking possession and control of the Premises by Grantee or the receiver and any application of Rents as provided herein shall not cure or waive any Event of Default hereunder or invalidate any other right or remedy of Grantee under applicable law or provided therein.

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ARTICLE VII

MISCELLANEOUS

Section 7.01. Satisfaction/Partial Release. If and when the Obligations shall have become due and payable (whether by lapse of time or by acceleration or by the exercise of the privilege of prepayment), and Grantor shall pay or cause to be paid (provided such payment is permitted or required by the Note the full amount thereof and shall also pay or cause to be paid all other sums payable by the Grantor Parties to the Grantee Entities with respect to the Obligations, then this Deed to Secure Debt shall be void (otherwise it shall remain in full force and effect in law and equity forever) and Grantee agrees to execute an instrument evidencing the satisfaction of all obligations under this Deed to Secure Debt and releasing this Deed to Secure Debt which shall be prepared and recorded at Grantor’s sole expense. In addition and notwithstanding the foregoing, Grantor may request release of a single property (the “Release Site”) securing the Obligations (“Partial Release”) provided that (i) no Event of Default has occurred or is continuing under the Loan Documents with Grantee or any of its Affiliates, (ii) the Fixed Charge Coverage Ratio (as defined in the Loan Documents) on all remaining properties securing the Obligations exceeds 1.3:1 on an aggregate and individual basis, (iii) the Release Site is being sold by the Grantor in an arms-length transaction, (iv) proceeds from the sale of the Release Site are being used to repay the Obligations assigned to the Release Site, and such payment shall be subject to any applicable prepayment premiums or penalties, (v) Grantor gives at least 30-days prior notice to Grantee, (vi) a minimum of four (4) hotel real property sites remain in the portfolio (in other words, continue to secure the Obligations), (vii) more than nine (9) months have passed since the date of this Deed to Secure Debt, and (viii) the remaining unexpired term of the Loan exceeds six (6) months.

Section 7.02. Limitation of Rights of Others. Nothing in this Deed to Secure Debt is intended or shall be construed to give to any person, other than Grantor and the holder of the Note, any legal or equitable right, remedy or claim under or in respect of this Deed to Secure Debt or any covenant, condition or provision herein contained.

Section 7.03. Severability. In case any one or more of the provisions contained herein or in the Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Deed to Secure Debt shall be construed as if such provision had never been contained herein or therein.

Section 7.04. Notices; Amendments; Waiver. All notices, demands, designations, certificates, requests, offers, consents, approvals, appointments and other instruments given pursuant to this Deed to Secure Debt (collectively called “Notices”) shall be in writing and given by (a) hand delivery, (b) facsimile, (c) express overnight delivery service or (d) certified or registered mail, return receipt requested and shall be

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deemed to have been delivered upon (i) receipt, if hand delivered, (ii) transmission, if delivered by facsimile, (iii) the next Business Day, if delivered by express overnight delivery service, or (iv) the third Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below:

If to Grantor:	Supertel Limited Partnership 309 North 5th Street, PO Box 1448 Norfolk, Nebraska 68701 Attn: Donavon Heimes Telephone:    (402) 371-2520 Telecopy:      (402) 371-4229
If to Grantee:	General Electric Capital Corporation 8377 East Hartford Drive, Suite 200 Scottsdale, Arizona 85255 Attention: Collateral Management Telephone: 480-585-4500 Telecopy: 480-585-2225

or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. Whenever in this Deed to Secure Debt the giving of Notice is required, the giving thereof may be waived in writing at any time by the person or persons entitled to receive such Notice. Except as in this Deed to Secure Debt otherwise expressly provided, (i) this Deed to Secure Debt may not be modified except by an instrument in writing executed by Grantor and Grantee and (ii) no requirement hereof may be waived at any time except by a writing signed by the party against whom such waiver is sought to be enforced, nor shall any waiver be deemed a waiver of any subsequent breach or default.

Section 7.05. Successors and Assigns. All of the provisions herein contained shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto, to the same extent as if each such successor and assign were in each case named as a party to this Deed to Secure Debt. Wherever used, the singular shall include the plural, the plural shall include the singular and the use of any gender shall include all genders.

Section 7.06. Headings. The headings appearing in this Deed to Secure Debt have been inserted for convenient reference only and shall not modify, define, limit or expand the express provisions of this Deed to Secure Debt.

Section 7.07. Time of the Essence. Time is of the essence in the performance of each and every obligation under this Deed to Secure Debt.

Section 7.08. Forum Selection; Jurisdiction; Venue; Choice of Law. Grantor acknowledges that this Deed to Secure Debt was substantially negotiated in the State of

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Arizona, this Deed to Secure Debt was delivered in the State of Arizona, all payments under the Loan Documents will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Deed to Secure Debt, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Grantor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Grantor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Deed to Secure Debt and the rights and remedies of Grantee with respect to the Deed Estate, as provided herein and by the laws of the State, shall be governed by and construed in accordance with the internal laws of the State without regard to its principles of conflicts of law. With respect to other provisions of this Deed to Secure Debt, this Deed to Secure Debt shall be governed by the internal laws of the State of Arizona, without regard to its principles of conflicts of law. Nothing in this Section shall limit or restrict the right of Grantee to commence any proceeding in the federal or state courts located in the State to the extent Grantee deems such proceeding necessary or advisable to exercise remedies available under the Deed to Secure Debt or the other Loan Documents.

Section 7.09. Indemnification. Grantor shall indemnify and hold harmless each of the Indemnified Parties for, from and against any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, reasonable attorneys’ fees, court costs and other costs of defense) (collectively, “Losses”) (excluding Losses suffered by an Indemnified Party arising out of such Indemnified Party’s gross negligence or willful misconduct; provided, however, that the term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Grantor’s interest in the Deed Estate or Grantor’s failure to act in respect of matters which are or were the obligation of Grantor under the Loan Documents) caused by, incurred or resulting from Grantor’s or Lessee’s operations of, or relating in any manner to, the Deed Estate, whether relating to its original design or construction, latent defects, alteration, maintenance, use by Grantor, Lessee or any person thereon, supervision or otherwise, or from any breach of, default under or failure to perform any term or provision of this Deed to Secure Debt by Grantor, its officers, employees, agents or other persons. It is expressly understood and agreed that Grantor’s obligations under this Section shall survive the expiration or earlier termination of this Deed to Secure Debt for any reason.

Section 7.10. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. GRANTEE, BY ACCEPTING THIS DEED TO SECURE DEBT, AND GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO

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ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS DEED TO SECURE DEBT, THE RELATIONSHIP OF GRANTEE AND GRANTOR, GRANTOR’S USE OR OCCUPANCY OF THE DEED ESTATE, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, GRANTOR AND GRANTEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER AND ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER OR ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS DEED TO SECURE DEBT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY GRANTOR AND GRANTEE OF ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.

Section 7.11. Waiver of Grantor’s Rights. BY EXECUTION OF THIS DEED TO SECURE DEBT, GRANTOR EXPRESSLY (A) ACKNOWLEDGES THE RIGHT OF GRANTEE TO ACCELERATE THE OBLIGATIONS EVIDENCED BY THE NOTE AND ANY OTHER OBLIGATIONS AND THE POWER OF ATTORNEY GIVEN HEREIN TO GRANTEE TO SELL THE DEED ESTATE BY NONJUDICIAL FORECLOSURE UPON AN EVENT OF DEFAULT BY GRANTOR WHICH HAS OCCURRED AND IS CONTINUING WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED TO SECURE DEBT; (B) WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY GRANTEE OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO GRANTEE, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED TO SECURE DEBT AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALLING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS DEED TO SECURE DEBT AND ANY AND ALL QUESTIONS OF GRANTOR REGARDING THE LEGAL EFFECT OF THIS DEED TO SECURE DEBT AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR, AND GRANTOR HAS CONSULTED WITH COUNSEL OF GRANTOR’S CHOICE PRIOR TO EXECUTING THIS DEED TO SECURE DEBT; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE

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BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED-FOR LOAN TRANSACTION AND THAT THIS DEED TO SECURE DEBT IS VALID AND ENFORCEABLE BY GRANTEE AGAINST GRANTOR IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.

INITIALED BY GRANTOR

/s/ DH

By: Donavon A. Heimes

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IN WITNESS WHEREOF, Grantor has executed and delivered this Deed to Secure Debt as of the day and year first above written.

GRANTOR:
SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership
By SUPERTEL HOSPITALITY REIT TRUST, a Maryland real estate investment trust,
Its General Partner
By	/s/ Donavon A. Heimes
	Donavon A. Heimes, Vice President/Treasurer

GECC Contract No. 31437

GECC Property No. 8004-5921

Jonesboro, Georgia

8/22/2006

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EX-10.18

Exhibit 10.18

UNCONDITIONAL GUARANTY

OF PAYMENT AND PERFORMANCE

THIS UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (this “Guaranty”) is made as of August 18, 2006, by SUPERTEL HOSPITALITY, INC., a Virginia corporation (“Guarantor”), for the benefit of GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Lender”).

1. For valuable consideration, the receipt of which is hereby acknowledged, Guarantor, unconditionally, absolutely and irrevocably guarantees and promises to pay to Lender, or order, any and all amounts, including, without limitation, principal and interest, taxes, insurance premiums, impounds, reimbursements, late charges, default interest, damages, indemnity obligations and all other amounts, costs, fees, expenses and charges of any kind or type whatsoever, which may or at any time be due to Lender pursuant to the following agreements (collectively, the “Documents”):

A. Loan Agreement (the “Loan Agreement”), dated as of the date hereof, between Lender and Supertel Limited Partnership, a Virginia limited partnership (“Borrower”), pertaining to that certain loan (the “Loan”) secured by Borrower’s interest in certain land and improvements as described therein (the “Premises”).

B. Promissory Note, dated as of the date hereof, executed by Borrower and payable to Lender in the amount of $17,850,000.00, evidencing the Loan (the “Term Note”);

C. Promissory Note, dated as of the date hereof, executed by Borrower and payable to Lender in the amount of $6,417,500.00, evidencing the Bridge Loan (the “Bridge Note”, collectively with the Term Note, the “Note”);

D. One Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing and five Deeds to Secure Debt, Assignment of Rents and Leases, Security Agreement and Fixture Filing (collectively, the “Mortgage”), dated as of the date hereof, executed by Borrower for the benefit of Lender, providing a lien upon and security interest in the Premises as security for the Note;

E. Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrower for the benefit of Lender;

F. Any other document, agreement, instrument or certificate contemplated by any of the foregoing agreements, or any other documents, agreements, instruments or certificates now or hereafter entered into between Lender and Borrower with respect to the Loan; and

G. Any amendment of the foregoing documents, agreements, instruments or certificates now or hereafter entered into between Lender and Borrower.

2. The Guarantor also unconditionally guarantees the truthfulness and accuracy of all representations, warranties and certifications of Borrower, the satisfaction of all conditions by Borrower and the full and timely performance of all obligations to be performed by Borrower, under or pursuant to the Documents (the matters which are guaranteed pursuant to Sections 1 and 2 are hereinafter collectively referred to as the “Obligations”). This Guaranty shall terminate and be of no further force and effect (the “Termination”), upon Guarantors’ request, if at any time following the payment in full of the Bridge Note; provided, however, the Termination shall be

conditioned upon no Event of Default (as defined in the Loan Agreement) having occurred, nor any event having occurred which with the delivery of notice or the passage of time, would result in an Event of Default. The obligations of the Guarantor under this Guaranty are primary, joint and several and independent of the obligations of any and every other Guarantor or of Borrower, and a separate action or actions may be brought and executed against any one or more of the Guarantors, whether or not such action is brought against Borrower or any other Guarantor and whether or not Borrower or any other Guarantor be joined in such action or actions.

3. This is an absolute and unconditional guaranty of payment and performance and not of collection and the Guarantor unconditionally (a) waives any requirement that Lender first make demand upon, or seek to enforce or exhaust remedies against, Borrower or any other person or entity or any of the collateral or property of Borrower or such other person or entity before demanding payment from, or seeking to enforce this Guaranty against, such Guarantor; (b) waives and agrees not to assert any and all rights, benefits and defenses which might otherwise be available under the provisions of Ariz. Rev. Stat. §§ 12-1641 and §§ 12-1642 et seq., 44-141, 44-142 or 47-3605, Arizona Rules of Civil Procedure Rule 17(f), or any other Arizona statutes or rules (including any statutes or rules amending, supplementing or supplanting same) which might operate, contrary to Guarantor’s agreements in this Guaranty, to limit Guarantor’s liability under, or the enforcement of, this Guaranty; (c) waives the benefits of any statutory provision limiting the right of Lender to recover a deficiency judgment, or to otherwise proceed, against any person or entity obligated for the payment of the Obligations, after any foreclosure or trustee’s sale of any collateral securing payment of the Obligations, including without limitation, the benefits, if any, of Ariz. Rev. Stat. §§ 33-814; (d) covenants that this Guaranty will not be discharged, unless otherwise provided herein, until all of the Obligations are fully satisfied; and (e) agrees that this Guaranty shall remain in full effect without regard to, and shall not be affected or impaired by, any invalidity, irregularity or unenforceability in whole or in part of any of the Documents, or any limitation of the liability of Borrower or Guarantor thereunder, or any limitation on the method or terms of payment thereunder which may now or hereafter be caused or imposed in any manner whatsoever.

4. This Guaranty is a continuing guaranty, and the obligations, undertakings and conditions to be performed or observed by the Guarantor under this Guaranty shall not be affected or impaired by reason of the happening from time to time of the following with respect to the Documents, all without notice to, or the further consent of, the Guarantor: (a) the waiver by Lender of the observance or performance by Borrower or Guarantor of any of the obligations, undertakings, conditions or other provisions contained in any of the Documents, except to the extent of such waiver; (b) the extension, in whole or in part, of the time for payment of any amount owing or payable under the Documents; (c) the modification or amendment (whether material or otherwise) of any of the obligations of Borrower under, or any other provisions of, any of the Documents, except to the extent of such modification or amendment; (d) the taking or the omission of any of the actions referred to in any of the Documents (including, without limitation, the giving of any consent referred to therein); (e) any failure, omission, delay or lack on the part of Lender to enforce, assert or exercise any provision of the Documents, including any right, power or remedy conferred on Lender in any of the Documents or any action on the part of Lender granting indulgence or extension in any form; (f) the assignment to or assumption by any third party of any or all of the rights or obligations of Borrower under all or any of the Documents; (g) the release or discharge of Borrower from the performance or observance of any obligation, undertaking or condition to be performed by Borrower under any of the Documents by operation of law, including any rejection or disaffirmance of any of the Documents in any bankruptcy or similar proceedings; (h) the receipt and acceptance by Lender or any other person or entity of notes, checks or other instruments for the payment of money and extensions and renewals thereof; (i) any action, inaction or election of remedies by Lender which results in any

impairment or destruction of any subrogation, indemnity, reimbursement or contribution rights of Guarantor, or any rights of Guarantor to proceed against any other person or entity for reimbursement; (j) any setoff, defense, counterclaim, abatement, recoupment, reduction, change in law or any other event or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor, indemnitor or surety under the laws of the State of Arizona, the state in which the Premises is located or any other jurisdiction; and (k) the termination or renewal of any of the Obligations or any other provision thereof.

5. The Guarantor represents and warrants to Lender that: (a) neither the execution nor delivery of this Guaranty nor fulfillment of nor compliance with the terms and provisions hereof will conflict with, or result in a breach of the terms or conditions of, or constitute a default under, any agreement or instrument to which Guarantor is now a party or by which Guarantor may be bound, or result in the creation of any lien, charge or encumbrance upon any property or assets of Guarantor, which conflict, breach, default, lien, charge or encumbrance would result in a material adverse change in the financial condition of Guarantor; (b) no further consents, approvals or authorizations are required for the execution and delivery of this Guaranty by Guarantor or for Guarantor’s compliance with the terms and provisions of this Guaranty; (c) this Guaranty is the legal, valid and binding agreement of Guarantor and is enforceable against Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, reorganization and other laws affecting the rights of creditors generally and subject to general principles of equity; (d) Guarantor has the full power, authority, capacity and legal right to execute and deliver this Guaranty, and, to the extent Guarantor is a corporation, partnership, limited liability company or other form of entity, the parties executing this Guaranty on behalf of Guarantor are fully authorized and directed to execute the same to bind Guarantor; (e) Guarantor is not a “foreign individual,” “foreign corporation,” “foreign partnership,” “foreign limited liability company,” “foreign trust,” or “foreign estate,” as those terms are defined in the U.S. Internal Revenue Code and the regulations promulgated thereunder; Guarantor’s Social Security Number or Federal Tax Identification Number is accurately set forth herein next to the signature of Guarantor; (f) Guarantor has delivered to Lender either audited financial statements or, if Guarantor does not have audited financial statements, certified financial statements; such financial statements and other information relating to Guarantor heretofore delivered to Lender are true, correct and complete in all material respects as of the date of this Guaranty; Guarantor understands that Lender is relying upon such information, and Guarantor represents that such reliance is reasonable; and the financial statements of Guarantor delivered by Borrower to Lender pursuant to the Loan Agreement have been prepared in accordance with generally accepted accounting principles (except as otherwise noted) consistently applied and accurately reflect, as of the date thereof, the financial condition of Guarantor; (f) during the term of this Guaranty, Guarantor will not transfer or dispose of any material part of its assets except in the ordinary course of business for full and fair consideration and reasonably equivalent value; furthermore, Guarantor will furnish Lender annually, within ninety (90) days after the close of each calendar year, a financial statement consisting of a balance sheet and such other financial information as Lender may reasonably request; and (g) the Documents are conclusively presumed to have been signed in reliance on this Guaranty and the assumption by the Guarantor of its obligations under this Guaranty results in direct financial benefit to Guarantor.

6. This Guaranty shall commence upon execution and delivery of any of the Documents and shall continue in full force and effect until the earlier of Termination and when all of the Obligations are duly, finally and permanently paid, performed and discharged and are not subject to any right of reborrowing or extension by Borrower, and Lender gives Guarantor written notice of the full and final satisfaction of the Obligations. The Obligations shall not be considered fully paid, performed and discharged unless and until all payments by Borrower to

Lender are no longer subject to any right on the part of any person whomsoever, including but not limited to Borrower, Borrower as a debtor-in-possession or any trustee in bankruptcy, to disgorge such payments or seek to recoup the amount of such payments or any part thereof. This Guaranty shall remain in full force and effect and continue to be effective in the event that (i) any petition is filed by or against Borrower or Guarantor for liquidation or reorganization, including, without limitation, under Title 11 of the United States Code, 11 U.S.C. Sec. 101 et seq. (the “Code”), (ii) Borrower or Guarantor becomes insolvent or makes an assignment for the benefit of creditors or (iii) a receiver or trustee is appointed for all or any significant part of Borrower’s or Guarantor’s assets. This Guaranty shall continue to be effective or be reinstated, as applicable, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Lender, whether as a “voidable preference”, “fraudulent conveyance” or otherwise, all as though such payment or performance had not been made. In the event that any payment of the Obligations, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid to Lender and not so rescinded, reduced, restored or returned.

7. Guarantor shall neither have any right of subrogation, indemnity or reimbursement nor hold any other claim against Borrower, and does hereby release Borrower from any and all claims by such Guarantor now or hereafter arising against Borrower. Furthermore, the Guarantor hereby unconditionally and irrevocably waives (a) any right to participate in any security now or hereafter held by Lender or in any claim or remedy of Lender or any other person against Borrower with respect to the Obligations, (b) any statute of limitations affecting Guarantor’s liability hereunder, (c) all principles and provisions of law which conflict with the terms of this Guaranty and (d) diligence, presentment, protest, demand for performance, notice of nonperformance, notice of intent to accelerate, notice of acceleration, notice of protest, notice of dishonor, notice of execution of any Documents, notice of extension, renewal, alteration or amendment, notice of acceptance of this Guaranty, notice of defaults under any of the Documents and all other notices whatsoever.

8. Notwithstanding the preceding Section 7, in the event that Guarantor shall have any claims against Borrower, any indebtedness of Borrower now or hereafter held by any or all Guarantor is hereby subordinated to the indebtedness of Borrower to Lender. Any such indebtedness of Borrower to Guarantor, if Lender so requests, shall be collected, enforced and received by Guarantor as trustee for Lender and be paid over to Lender on account of the Obligations, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty.

9. It is not necessary for Lender to inquire into the powers of Borrower or its officers, directors, partners or agents acting or purporting to act on its behalf, and Guarantor shall be liable for the Obligations in accordance with their terms notwithstanding any lack of authorization or defect in execution or delivery by Borrower.

10. In addition to the amounts guaranteed under this Guaranty, Guarantor agrees to pay (i) all of Lender’s reasonable attorneys’ fees and other costs and expenses which may be incurred by Lender in the enforcement of this Guaranty and (ii) interest (including postpetition interest to the extent a petition is filed by or against Borrower under the Code) at the Default Rate (as defined in the Note) on any Obligations not paid when due. Guarantor hereby agrees to indemnify and hold harmless Lender for, from and against any loss, cause of action, claim, cost, expense or fee, including but not limited to reasonable attorney’s fees and court costs, suffered or occasioned by (1) the failure of Borrower to satisfy its obligations under the Documents, or (2) any disclosures of information, financial or otherwise, (x) made by Lender or

Lender’s employees, officers, agents and designees to any third party as contemplated by the Loan Agreement, or (y) obtained from any credit reporting agency with respect to Guarantor, Borrower, any other guarantor of the Loan, any Affiliate (as defined in the Loan Agreement) of Borrower, any of the other Borrower Parties (as defined in the Loan Agreement) or any operator or lessee of the Premises. The agreement to indemnify Lender contained in this paragraph shall be enforceable notwithstanding the invalidity or unenforceability of the Documents or any of them or the invalidity or unenforceability of any other paragraph contained in this Guaranty. All moneys available to Lender for application in payment or reduction of the liabilities of Borrower under the Documents may be applied by Lender to the payment or reduction of such liabilities of Borrower, in such manner, in such amounts and at such time or times as Lender may elect.

11. All notices, demands, requests, consents, approvals or other instruments required or permitted to be given pursuant to this Guaranty shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next Business Day (as defined in the Loan Agreement), if delivered by express overnight delivery service, or (d) the third Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the Guarantor at the address (or facsimile number, as applicable) specified on the signature page of this Guaranty and to Lender at the following address (or facsimile number, as applicable): 8377 East Hartford Drive, Suite 200, Scottsdale, AZ 85255, Attention: Collateral Management, Telephone: (480) 585-4500, Facsimile: (480) 585-2225, or to such other address or such other person as either Guarantor or Lender may from time to time hereafter specify to the other party in a notice delivered in the manner provided above.

12. This Guaranty is delivered in the State of Arizona, and it is the intent of Guarantor and Lender that this Guaranty shall be deemed to be a contract made under and governed by the internal laws of the State of Arizona, without regard to its principles of conflicts of law. For purposes of any action or proceeding involving this Guaranty, Guarantor submits to the jurisdiction of all federal and state courts located in the State of Arizona and consent that they may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Guarantor waives and agrees not to assert in any such action, suit or proceeding that they are not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. Nothing contained in this section shall limit or restrict the right of Lender to commence any proceeding in the federal or state courts located in the state in which the Premises is located or where Guarantor resides and maintains its chief executive office, as applicable, to the extent Lender deems such proceeding necessary or advisable to exercise remedies available under the Documents.

13. (a) The Guarantor intends that the business relationship created between Borrower and Lender by the Loan Agreement, the Note, the Mortgage and the other Documents is solely that of creditor and Borrower and has been entered into by such parties in reliance upon the economic and legal bargains contained in the Documents. Furthermore, Guarantor shall support the intent of Guarantor, Borrower and Lender that the Loan, the Note and the Mortgage do not create a joint venture, partnership, trust, trust agreement or the like, if, and to the extent that, any challenge occurs, and Guarantor shall not assert that the Loan, the Note or the Mortgage creates a joint venture, partnership, trust, trust agreement or the like. Guarantor acknowledges that Lender did not prepare or assist in the preparation of any of the projected financial figures used by Borrower in analyzing the economic viability and feasibility of the

transactions contemplated by the Loan Agreement. Furthermore, Guarantor acknowledges that Borrower has not relied upon, nor may it hereafter rely upon, the analysis undertaken by Lender in determining the amount of the Loan and that such analysis will not be made available to Borrower.

(b) Guarantor shall provide to Lender and its representatives any and all information they may reasonably request from time to time regarding any depository, loan or other credit account of Guarantor and the affairs and financial condition of Guarantor. Guarantor also authorizes Lender and its representatives to obtain business credit reports and asset reports with respect to Guarantor and to answer questions about its credit experience with Guarantor. All of the information which Lender or its representatives obtain from time to time in accordance with the foregoing authorization, together with any and all other information which Lender or its representatives now possess or in the future may acquire with respect to Guarantor is referred to collectively as the “Guarantor Information.” Guarantor authorizes Lender to disclose the Guarantor Information to Lender’s Affiliates (as defined in the Loan Agreement) and professional advisors and consultants; and to any proposed transferee, purchaser, assignee, servicer, participant, investor, or ratings agency, with respect to any proposed Lender Transfer (as hereinafter defined). Guarantor will indemnify, defend, and hold Lender and each of the other Indemnified Parties (as defined in the Loan Agreement) harmless for, from and against, any and all Losses (as hereinafter defined), other than Excluded Losses (as hereinafter defined), incurred by Lender in connection with any such disclosures. For the purposes of this section, the following terms shall be defined as indicated:

“Excluded Losses” means Losses suffered by an Indemnified Party to the extent directly arising out of the gross negligence or willful misconduct of such Indemnified Party; provided, however, that the term “gross negligence” shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Lender’s interest in the Collateral or Lender’s failure to act in respect of matters which are or were the obligation of Borrower.

“Lender Transfer” means all assignments, sales, or transfers in whole or in part of Lender’s interests in the Note, the Loan, or any of its rights under any of the Loan Documents, including servicing rights, whether as part of a securitization transaction or by participation, assignment, sale or other transfer.

“Losses” means all claims, suits, liabilities (including strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, judgments, awards, amounts paid in settlement, and damages of whatever kind or nature (including reasonable attorneys’ fees, court costs and other costs of defense).

14. All of Lender’s rights and remedies under the Documents and this Guaranty are intended to be distinct, separate and cumulative and no such right and remedy is intended to be in exclusion of or a waiver of any of the others. If under applicable law, Lender proceeds to realize benefits under any Document granting Lender a lien upon any collateral pledged under such Document, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against Borrower or any pledgor, whether because of any applicable laws pertaining to “election of remedies” or the like, Guarantor hereby consents to such action by Lender and waive any claim upon such action, even if such action by Lender shall result in a full

or partial loss of any rights of subrogation which Guarantor might otherwise have had but for such action by Lender. Any election of remedies which results in the denial or impairment of the right of Lender to seek a deficiency judgment against Borrower or any pledgor shall not impair the Guarantor’s obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee’s sale or at any private or public sale permitted by law or under the Document, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale shall be conclusively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale.

15. This Guaranty is solely for the benefit of Lender, its successors and assigns and is not intended to nor shall it be deemed to be for the benefit of any third party, including, without limitation, Borrower. This Guaranty and all obligations of Guarantor hereunder shall be binding upon the successors and assigns of the Guarantor (including a debtor-in-possession on behalf of such Guarantor) and shall, together with the rights and remedies of Lender, hereunder, inure to the benefit of Lender, all future holders of any instrument evidencing any of the Obligations and its successors and assigns. No sales, participations, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the rights of Lender or its successors and assigns hereunder. Guarantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligations under this Guaranty.

16. If any provision of this Guaranty is unenforceable, the enforceability of the other provisions shall not be affected and they shall remain in full force and effect. The Guarantor agrees to take such action and to sign such other documents as may be appropriate to carry out the intent of this Guaranty. This Guaranty may be executed in one or more counterparts, each of which shall be deemed an original.

17. LENDER, BY ACCEPTING THIS GUARANTY, AND THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY LENDER OR THE GUARANTOR AGAINST THE OTHER OR THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY, THE RELATIONSHIP OF LENDER, BORROWER OR THE GUARANTOR, BORROWER’S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY LENDER AND THE GUARANTOR OF ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS A MATERIAL INDUCEMENT FOR LENDER ACCEPTING THIS GUARANTY. FURTHERMORE, THE GUARANTOR AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER AND ANY OF THE OTHER’S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY THE GUARANTOR AGAINST THE OTHER OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY

DOCUMENTS CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY THE LENDER AND GUARANTOR OF ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.

18. Guarantor shall be liable under this Guaranty for the maximum amount of such liability that can be incurred hereby without rendering this Guaranty, as it relates to the Guarantor, voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of Guarantor hereunder without impairing this Guaranty or affecting the rights and remedies of Lender hereunder.

IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty effective as of the date set forth in the introductory paragraph of this Guaranty.

GUARANTOR:
SUPERTEL HOSPITALITY, INC., a Virginia corporation
By	/s/     Donavon A. Heimes
Donavon A. Heimes, Chief Financial Officer, Treasurer and Corporate Secretary
Send Notices to Attn: Donavon A. Heimes 309 North 5th Street, PO Box 1448 Norfolk, Nebraska 68701 Facsimile: (402) 371-4229

EX-10.20

Exhibit 10.20

PROMISSORY NOTE

	Dated as of January 5, 2007
$15,600,000.00	Scottsdale, Arizona

SUPERTEL LIMITED PARTNERSHIP, a Virginia limited partnership (“Borrower”), for value received, hereby promises to pay to GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Lender”), whose address is 8377 East Hartford Drive, Suite 200, Scottsdale, Arizona 85255, or order, on or before February 1, 2017 (the “Maturity Date”), the principal sum of $15,600,000.00 (“Loan Amount”), as herein provided. Initially capitalized terms which are not otherwise defined in this Note shall have the meanings set forth in that certain Loan Agreement dated as of the date of this Note between Borrower and Lender, as such agreement may be amended, restated and/or supplemented from time to time (the “Loan Agreement”).

In addition, the following terms shall have the following meanings for all purposes of this Note.

“Adjustable Rate” means an annual interest rate equal to the sum of the Adjustable Rate Basis plus 1.70%.

“Adjustable Rate Basis” means, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the three month London Interbank Offered Rate (“LIBOR”) on the Adjustable Rate Reset Date as published in The Wall Street Journal. If for any reason such rate is no longer published in The Wall Street Journal, Lender shall select such replacement index as Lender in its sole discretion determines most closely approximates such rate.

“Adjustable Rate Reset Date” means the last Business Day of each calendar month, prior to the next Interest Period.

“Amortization Period” means two hundred forty months.

“First Payment Date” means March 1, 2007.

“Interest Period” means (a) initially, the period beginning on the date of this Note and ending on the last day of the calendar month in which such date occurs, and (b) thereafter, the period beginning on the first day of the calendar month and ending on the last day of such calendar month.

“Payment Period” means (a) initially, the twelve-month period beginning on the First Payment Date and ending on the day immediately prior to the first Payment Reset Date, and (b) thereafter, the twelve-month period beginning on each Payment Reset Date and ending on the day immediately prior to the next Payment Reset Date.

“Payment Reset Calculation” means the level monthly payment calculated by the full amortization of the outstanding principal amount of this Note on the Payment Reset Date at the Adjustable Rate (with the definition of “Adjustable Rate Reset Date” defined to mean the last Business Day of the calendar month two months prior to the next Payment Reset Date) over the remaining originally scheduled term of this Note.

“Payment Reset Date” means each anniversary of the First Payment Date.

Borrower shall pay interest on the outstanding principal amount of this Note at the Adjustable Rate, determined monthly as described above, on the basis of a 360-day year for the actual number of days elapsed, in arrears, provided, that, interest on the principal amount of this Note for the period commencing with the date such principal amount is advanced by Lender through the last day in the month in which this Note is dated shall be due and payable upon delivery of this Note.

Commencing on the First Payment Date until and including February 1, 2009, Borrower shall pay consecutive monthly installments on the first day of each calendar month of interest only at the Adjustable Rate in lawful money of the United States. Commencing on March 1, 2009 until and including February 1, 2010, Borrower shall pay consecutive monthly installments of interest on the Loan Amount at the Adjustable Rate and principal payments equal to one-twelfth of one percent (1%) of the Loan Amount. Commencing on March 1, 2010 until the Maturity Date, Borrower shall pay consecutive monthly installments of principal and interest at the Adjustable Rate in arrears on the first day of each calendar month amortized over the Amortization Period. The monthly installments shall be level during a Payment Period. The monthly payments for the Payment Period shall be in equal amounts until the Payment Reset Date, at which time, and on each succeeding Payment Reset Date thereafter, the level monthly payment to be paid by Borrower shall be adjusted for the next succeeding Payment Period based on the Payment Reset Calculation. All outstanding principal and unpaid accrued interest shall be paid on the Maturity Date.

Upon execution of this Note, Borrower shall authorize Lender to establish arrangements whereby all payments of principal and interest hereunder are transferred by Automated Clearing House Debit initiated by Lender directly from an account at a U.S. bank in the name of Borrower to an account designated by Lender. Each payment of principal and interest hereunder shall be applied first toward any past due payments under this Note (including payment of all Costs (as herein defined), then to accrued interest at the Adjustable Rate, and the balance, after the payment of such accrued interest, if any, shall be applied to the unpaid principal balance of this Note; provided, however, each payment hereunder after an Event of Default has occurred under this Note shall be applied as Lender in its sole discretion may determine. After application of any monthly payment in the above manner, in the event that the outstanding principal amount of this Note exceeds 110% of the original principal balance of this Note, Borrower shall prepay, without premium or penalty, on the first day of the next succeeding calendar month after each such occurrence, a principal amount equal to the difference between the outstanding principal balance of this Note and the original principal balance of this Note (the “Negative Amortization Amount”). Lender shall notify Borrower in writing on or before the twenty-fifth day of each calendar month during the term of this Note of Lender’s determination of the Negative Amortization Amount, if any, payable on the first day of the next succeeding calendar month. Lender shall also notify Borrower in writing on or before the twenty-fifth day of the calendar month prior to the next Payment Reset Date during the term of this Note of Lender’s determination of the level monthly payment to be paid by Borrower based on the Payment Reset Calculation for the next Payment Period.

Provided no Event of Default shall have occurred and be continuing, Borrower shall have an option (the “Conversion Option”), exercisable only once between the seventh (7th) and thirty-sixth (36th) month following the Closing Date, to convert the interest rate accruing under this Note (the “Conversion”) from the Adjustable Rate to a fixed rate of interest (the “Base Interest Rate”). Borrower shall exercise the Conversion Option by providing Lender written notice of Borrower’s election (the “Conversion Notice”). The Conversion shall be deemed effective on the

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first day of the second calendar month following delivery of the Conversion Notice to Lender (the “Conversion Date”), and this Note shall be deemed modified as of the Conversion Date to reflect the Conversion. Lender shall notify Borrower ten (10) days following delivery of Conversion Notice of the Base Interest Rate, which Base Interest Rate shall be equal to the seven (7) year weekly U.S. Dollar Interest Rate Swap (as published in Federal Reserve Statistical Release H.15[519] http://www.federalreserve.gov/releases/H15/) plus 1.98%. From and after the Conversion Date, fixed equal monthly payments, based on the amortization of the outstanding principal amount of this Note as of the Conversion Date (including any accrued interest at the Adjustable Rate) over the period from and after the Conversion Date until the Maturity Date at the Base Interest Rate shall be due and payable commencing on the first day of the calendar month following the month in which the Conversion Date occurs and continuing on the first day of each month thereafter until the Maturity Date, at which time the outstanding principal balance of this Note and unpaid interest accrued at the Base Interest Rate shall be due and payable. Lender shall provide Borrower with an amortization schedule setting forth the principal and interest payments due under this Note from and after the Conversion Date, and such amortization schedule shall be prima facie evidence of such principal and interest payments.

Borrower may prepay this Note in full, but not in part (except as otherwise set forth below), including all accrued but unpaid interest hereunder and all sums advanced by Lender pursuant to the Loan Documents and any Other Agreements, provided that (a) no Event of Default has occurred under any of the Loan Documents or any Other Agreements and is continuing, and (b) any such prepayment shall only be made on a regularly scheduled payment date upon not less than 30 days prior written notice from Borrower to Lender.

Except as otherwise set forth herein, while the Note is at the Adjustable Rate, any such prepayment shall be made together with payment of a prepayment premium equal to:

(a) 2% of the principal amount prepaid if the prepayment is made on or following the date of this Note but prior to the first anniversary of the date of this Note; or

(b) 1% of the principal amount prepaid if the prepayment is made on or following the first anniversary of the date of this Note but prior to the second anniversary of the date of this Note.

Except as otherwise set forth herein, from and after the Conversion Date, any such prepayment shall be made together with payment of an amount equal to the sum of:

(a) a prepayment fee equal to 1% of the principal amount prepaid; and

(b) a prepayment premium equal to the positive difference (if any) between (i) the present value of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date (the “Remaining Scheduled Term”), calculated using the interpolated yield, at the time of such prepayment, of the two U.S. Dollar Interest Rate Swaps (as published in Federal Reserve Statistical Release H.15[519]) whose terms most closely match the Remaining Scheduled Term, and (ii) the present value of the stream of monthly principal and interest payments due under this Note from the date of such prepayment through the scheduled Maturity Date, calculated using the interpolated yield, as of the Conversion Date, of the two U.S. Dollar Interest Rate Swaps whose terms most closely match the term commencing on the Conversion Date and ending on the scheduled Maturity Date.

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The foregoing prepayment fee and prepayment premium, as applicable, shall be due and payable regardless of whether such prepayment is the result of a voluntary prepayment by Borrower or as a result of Lender declaring the unpaid principal balance of this Note, accrued interest and all other sums due under this Note, the Mortgage, the other Loan Documents, and any Other Agreements, due and payable as contemplated below; provided, however, the prohibition on a partial prepayment and the prepayment fee and the prepayment premium, as applicable, shall not be applicable with respect to a prepayment of this Note in connection with an application of condemnation proceeds as contemplated by the Mortgage or if exception is otherwise made in the Loan Documents.

This Note is secured by the Mortgage and the other Loan Documents. Upon the occurrence of an Event of Default, Lender may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note and any Loan Documents or Other Agreements due and payable at once without notice to Borrower. All past-due principal and/or interest shall bear interest from the due date to the date of actual payment at a rate (the “Default Rate”) equal to the lesser of (a) the highest rate for which the undersigned may legally contract or (b) the greater of 14% and the rate which is 6% per annum above the Adjustable Rate (or 14% per annum in the event the Conversion Option has been exercised), and such Default Rate shall continue to apply following a judgment in favor of Lender under this Note. If Borrower fails to make any payment or installment due under this Note within five days of its due date, Borrower shall pay to Lender, in addition to any other sum due Lender under this Note or any other Loan Document, a late charge equal to 5% of such past-due payment or installment (the “Late Charge”), which Late Charge is a reasonable estimate of the loss that may be sustained by Lender due to the failure of Borrower to make timely payments. All payments of principal and interest due hereunder shall be made (a) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Borrower, and (b) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Borrower will pay the amounts necessary such that the gross amount of the principal and interest received by Lender is not less than that required by this Note.

No delay or omission on the part of Lender in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Borrower hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, notice of intent to accelerate, notice of acceleration and all other notices or demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be given in accordance with the notice provisions in the Loan Agreement. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceedings, or should this Note be placed in the hands of attorneys for collection after default, Borrower shall pay, in addition to the principal and interest due and payable hereon, all costs of collecting or attempting to collect this Note (the “Costs”), including reasonable outside attorneys’ fees and expenses of Lender (including those fees and expenses incurred in connection with any appeal) and court costs whether or not a judicial action is commenced by Lender. This Note may not be amended or modified except by a written agreement duly executed by the party against whom enforcement of this Note is sought. In the event that any one or more of the provisions contained in this Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such provision had never been contained herein or therein. Time is of the essence in the performance of each and every obligation under this Note.

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Notwithstanding anything to the contrary contained in any of the Loan Documents, the obligations of Borrower to Lender under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to Lender shall not be required to the extent that receipt of any such payment by Lender would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by Lender. The portion of any such payment received by Lender that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Borrower. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law.

This obligation shall bind Borrower and its successors and assigns, and the benefits hereof shall inure to Lender and its successors and assigns.

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IN WITNESS WHEREOF, Borrower has executed and delivered this Note effective as of the date first set forth above.

BORROWER:
SUPERTEL LIMITED PARTNERSHIP,
a Virginia limited partnership
By	SUPERTEL HOSPITALITY REIT TRUST,
	a Maryland real estate investment trust,
	Its General Partner
By	/s/ Donavon A. Heimes
	Donavon A. Heimes, Vice President/Treasurer

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EX-10.31

Exhibit 10.31

SUPERTEL 2006 STOCK PLAN

SECTION 1

NAME AND PURPOSE

1.1 Name. The name of the plan shall be the Supertel 2006 Stock Plan (the “Plan”).

1.2. Purpose of Plan. The purpose of the Plan is to foster and promote the long-term financial success of the Company and increase stockholder value by (a) motivating superior performance by means of stock incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees and Directors and (c) enabling the Company to attract and retain the services of a management team responsible for the long-term financial success of the Company.

SECTION 2

DEFINITIONS

2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below:

(a) “Act” means the Securities Exchange Act of 1934, as amended.

(b) “Award” means any Option, Stock Appreciation Right, Restricted Stock, Stock Bonus, or any combination thereof, including Awards combining two or more types of Awards in a single grant.

(c) “Board” means the Board of Directors of the Company.

(d) “Code” means the Internal Revenue Code of 1986, as amended.

(e) “Committee” means the Compensation Committee of the Board, which shall consist of two or more members, each of whom shall be a “non-employee director” within the meaning of Rule 16b-3 as promulgated under the Act.

(f) “Company” means Supertel Hospitality, Inc., a Virginia corporation (and any successor thereto) and its Subsidiaries.

(g) “Director” means any director of the Company.

(h) “Employee” means any employee of the Company or any of its Subsidiaries.

(i) “Fair Market Value” means, on any date, the average of the high and low sales prices of the Stock as reported on the National Association of Securities Dealers Automated Quotation system (or on such other recognized market or quotation system on which the trading prices of the Stock are traded or quoted at the relevant time) on such date. In the event that there are no Stock transactions reported on such system (or such other system) on such date, Fair Market Value shall mean the average of the high and low sale prices on the immediately preceding date on which Stock transactions were so reported.

(j) “Option” means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an Incentive Stock Option within the meaning of Section 422 of the Code or (ii) a Nonstatutory Stock Option.

(k) “Participant” means any Employee or Director designated by the Committee to participate in the Plan.

(l) “Plan” means the Supertel 2006 Stock Plan, as in effect from time to time.

(m) “Restricted Stock” shall mean a share of Stock granted to a Participant subject to such restrictions as the Committee may determine.

(n) “Stock” means the Common Stock of the Company, par value $.01 per share.

(o) “Stock Appreciation Right” means the right, subject to such terms and conditions as the Committee may determine, to receive an amount in cash or Stock, as determined by the Committee, equal to the excess of (i) the Fair Market Value, as of the date such Stock Appreciation Right is exercised, of the number shares of Stock covered by the Stock Appreciation Right being exercised over (ii) the aggregate exercise price of such Stock Appreciation Right.

(p) “Stock Bonus” means the grant of Stock as compensation from the Company, which may be in lieu of cash compensation otherwise receivable by the Participant or in addition to such cash compensation.

(q) “Subsidiary” means any corporation or partnership in which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock of such corporation or of the capital interest or profits interest of such partnership.

2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.

SECTION 3

ELIGIBILITY AND PARTICIPATION

The only persons eligible to participate in the Plan shall be those Employees and Directors selected by the Committee as Participants.

SECTION 4

POWERS OF THE COMMITTEE

4.1 Power to Grant. The Committee shall determine the Participants to whom Awards shall be granted, the type or types of Awards to be granted, and the terms and conditions of any and all such Awards. The Committee may establish different terms and conditions for different types of Awards, for different Participants receiving the same type of Awards, and for the same Participant for each Award such Participant may receive, whether or not granted at different times.

4.2 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration and interpretation of the Plan in order to carry out its provisions and purposes. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding, and conclusive for all purposes and upon all persons.

SECTION 5

STOCK SUBJECT TO PLAN

5.1 Number. Subject to the provisions of Section 5.3, the number of shares of Stock subject to Awards under the Plan may not exceed 200,000 shares of Stock. The shares to be delivered under the Plan may consist, in whole or in part, of treasury Stock or authorized but unissued Stock, not reserved for any other purpose. The maximum number of shares of Stock with respect to which Awards may be granted to any one Participant under the Plan is 20% of the aggregate number of shares of Stock available for Awards under Section 5.1. A maximum of

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20% of the shares of Stock available for issuance under the Plan may be issued as Restricted Stock or Stock Bonuses. A maximum of 20% of the shares of Stock available for issuance under the Plan may be issued in the aggregate to non-employee Directors.

5.2 Cancelled, Terminated or Forfeited Awards. Any shares of Stock subject to an Award which for any reason are cancelled, terminated or otherwise settled without the issuance of any Stock shall again be available for Awards under the Plan. In the event that an Award is exercised through the delivery of Stock or in the event that withholding tax liabilities arising from such Award are satisfied by the withholding of Stock by the Company, the number of shares available for Awards under the Plan shall be increased by the number of shares surrendered or withheld.

5.3 Adjustment in Capitalization. In the event of any Stock dividend or Stock split, recapitalization (including, without limitation, the payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares, or other similar corporate change, (i) the aggregate number of shares of Stock available for Awards under Section 5.1 and (ii) the number of shares and exercise price with respect to Options and the number, prices and dollar value of other Awards, may be appropriately adjusted by the Committee, whose determination shall be conclusive.

SECTION 6

STOCK OPTIONS

6.1 Grant of Options. Options may be granted to Participants at such time or times as shall be determined by the Committee. Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Nonstatutory Stock Options. The Committee shall have complete discretion in determining the number of Options, if any, to be granted to a Participant. Each Option shall be evidenced by an Option agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, the exercisability (if any) of the Option in the event of death, retirement, disability or termination of employment, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine.

6.2 Option Price. Nonstatutory Stock Options and Incentive Stock Options granted pursuant to the Plan shall have an exercise price which is not less than the Fair Market Value on the date the Option is granted. Options may not be repriced.

6.3 Exercise of Options. Options awarded to a Participant under the Plan shall be exercisable at such times and shall be subject to such restrictions and conditions as the Committee may impose, subject to the Committee’s right to accelerate the exercisability of such Option in its discretion. Notwithstanding the foregoing, no Option shall be exercisable for more than ten years after the date on which it is granted.

6.4 Payment. The Committee shall establish procedures governing the exercise of Options, which shall require that written notice of exercise be given and that the Option price be paid in full in cash or cash equivalents, including by personal check, at the time of exercise or pursuant to any arrangement that the Committee shall approve. The Committee may, in its discretion, permit a Participant to make payment (i) by tendering, either by actual delivery of shares or by attestation, shares of Stock already owned by the Participant valued at its Fair Market Value on the date of exercise (if such Stock has been owned by the Participant for at least six months) or (ii) by electing to have the Company retain Stock which would otherwise be issued on exercise of the Option, valued at its Fair Market Value on the date of exercise. As soon as practicable after receipt of a written exercise notice and full payment of the exercise price, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Stock.

6.5 Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of any Participant affected thereby, to cause any Incentive Stock Option previously granted to fail to qualify for the Federal income tax treatment afforded under Section 421 of the Code.

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SECTION 7

STOCK APPRECIATION RIGHTS

7.1 SAR’s In Tandem with Options. Stock Appreciation Rights may be granted to Participants in tandem with any Option granted under the Plan, either at or after the time of the grant of such Option, subject to such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. Each Stock Appreciation Right shall only be exercisable to the extent that the corresponding Option is exercisable, and shall terminate upon termination or exercise of the corresponding Option. Upon the exercise of any Stock Appreciation Right, the corresponding Option shall terminate.

7.2 Other Stock Appreciation Rights. Stock Appreciation Rights may also be granted to Participants separately from any Option, subject to such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine.

SECTION 8

RESTRICTED STOCK

8.1 Grant of Restricted Stock. The Committee may grant Restricted Stock to Participants at such times and in such amounts, and subject to such other terms and conditions not inconsistent with the Plan as it shall determine. Each grant of Restricted Stock shall be subject to such restrictions, which may relate to continued employment with the Company, performance of the Company, or other restrictions, as the Committee may determine. Each grant of Restricted Stock shall be evidenced by a written agreement setting forth the terms of such Award.

8.2 Removal of Restrictions. The Committee may accelerate or waive such restrictions in whole or in part at any time in its discretion.

SECTION 9

STOCK BONUSES

9.1 Grant of Stock Bonuses. The Committee may grant a Stock Bonus to a Participant at such times and in such amounts, and subject to such other terms and conditions not inconsistent with the Plan, as it shall determine.

9.2 Effect on Compensation. The Committee may from time to time determine to grant a Stock Bonus in lieu of salary or cash bonuses otherwise payable to a Participant.

SECTION 10

AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

10.1 General. The Board may from time to time amend, modify or terminate any or all of the provisions of the Plan, subject to the provisions of this Section 10.1. The Board may not change the Plan in a manner which would prevent outstanding Incentive Stock Options granted under the Plan from being Incentive Stock Options without the consent of the optionees concerned. Furthermore, the Board may not make any amendment which would (i) materially modify the requirements for participation in the Plan, (ii) increase the number of shares of Stock subject to Awards under the Plan or to any one Employee pursuant to Section 5.1, or (iii) change the minimum exercise price for Stock Options as provided in Section 6.2, in each case without the consent and approval of the holders of a majority of the outstanding shares of Stock entitled to vote thereon. No amendment or modification shall affect the rights of any Employee with respect to a previously granted Award, nor shall any amendment or modification affect the rights of any Eligible Director pursuant to a previously granted Director Award.

10.2 Termination of Plan. No further Options shall be granted under the Plan subsequent to December 31, 2015, or such earlier date as may be determined by the Board.

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SECTION 11

MISCELLANEOUS PROVISIONS

11.1 Beneficiary Designation. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries (who may be named contingent or successively) to whom any benefit under the Plan is to be paid or by whom any right under the Plan is to be exercised in case of his death. Each designation will revoke all prior designations by the same Participant shall be in a form prescribed by the Committee, and will be effective only when filed in writing with the Committee. In the absence of any such designation, Awards outstanding at death may be exercised by the Participant’s surviving spouse, if any, or otherwise by his estate, subject to the terms and conditions of the Award.

11.2 No Guarantee of Employment or Participation. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary. No Employee shall have a right to be selected as a Participant, or, having been so selected, to receive any future Awards.

11.3 Tax Withholding. The Company shall have the power to withhold, or require a Participant remit to the Company, an amount sufficient to satisfy federal, state, and local withholding tax requirements on any Award under the Plan, and the Company may defer issuance of Stock until such requirements are satisfied. The Committee may, in its discretion, permit a Participant to elect, subject to such conditions as the Committee shall impose, (i) to have shares of Stock otherwise issuable under the Plan withheld by the Company or (ii) to deliver to the Company previously acquired shares of Stock, in each case having a Fair Market Value sufficient to satisfy all or part of the Participant’s estimated total federal, state and local tax obligation associated with the transaction.

11.4 Change of Control. On the date of a Change of Control, all outstanding options and stock appreciation rights shall become immediately exercisable and all restrictions with respect to Restricted Stock shall lapse. “Change of Control” shall mean:

(i) The acquisition (other than from the Company) by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (excluding any acquisition or holding by (i) the Company or its subsidiaries or (ii) any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the then outstanding shares of common stock or the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors; or

(ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for the election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or

(iii) Consummation of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company.

11.5 Company Intent. The Company intends that the Plan comply in all respects with Rule 16b-3 under the Act, and any ambiguities or inconsistencies in the construction of the Plan shall be interpreted to give effect to such intention.

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11.6 Requirements of Law. The granting of Awards and the issuance of shares of Stock shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges as may be required.

11.7 Nontransferability of Awards. Except as otherwise provided by the Committee, Awards under the Plan are not transferable, except by will or by the laws of descent and distribution.

11.8 Agreements with Company. An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee may, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written agreement as is determined by the Committee or its designee.

11.9 Effective Date. The Plan shall be effective upon its adoption by the Board subject to approval by the affirmative vote of the holders of a majority of the shares of Stock present in person or by proxy at the 2006 stockholders’ meeting.

11.10 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Virginia.

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EX-10.32

Exhibit 10.32

STOCK OPTION AGREEMENT

STOCK OPTION AGREEMENT made this (Grant Date), between Supertel Hospitality, Inc., a Virginia corporation (“Company”), and (Holder Name), (an employee / a director) of the Company (“Holder”).

The Company desires, by affording the Holder an opportunity to purchase its common shares as hereinafter provided, to carry out the purpose of the Supertel 2006 Stock Plan (the “Plan”). This option is expressly designated not to be an Incentive Stock Option as defined in I.R.C. §422A.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the parties hereto agree as follows:

1. Grant of Option. The Company hereby irrevocably grants to the Holder, pursuant to and subject to the terms of the Plan, the right and option, hereinafter called the “Option,” to purchase all or any part of an aggregate of (            ) shares of common stock (the “Common Shares”) of the Company (such number being subject to adjustment as provided in Paragraph 7 hereof) on the terms and conditions herein set forth. The holder of the Option shall not have any of the rights of a stockholder with respect to the shares covered by the Option until one or more certificates for such shares shall be delivered to such holder upon the due exercise of the Option.

2. Purchase Price. The purchase price of the Common Shares covered by the Option shall be ($             ) per share. The purchase price of the shares as to which the Option shall be exercised shall be paid in full in cash at the time of exercise or, with the approval of the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”), the purchase price may be paid (1) in common stock of the Company already owned by the Holder valued at fair market value on the date of exercise (if such common stock has been owned by the Holder for at least six months) or (2) by the Holder remitting such amount by an appropriate reduction of the number of shares to be delivered to the Holder upon exercise (valued at fair market value on the date of exercise).

3. Term of Option. The term of the Option shall be for a period of years from the date hereof, subject to earlier termination as provided in Paragraphs 5 & 6 hereof.

4. Non-Transferability. The Option shall not be transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Holder, only by such Holder. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof or the levy of any execution, attachment or similar process upon the Option shall be null and void and without effect.

5. Exercisability. This Option shall be exercisable and ending on . If Holder is an employee of the Company, in the event of any termination of the Holder’s employment (voluntary or involuntary) prior to (Date of Expiration), any portion of this Option not exercisable upon the date of such termination shall never become exercisable (except as provided in Section 6).

The Option may be exercised, at any time or from time to time, as to any part or all the shares exercisable; provided, however, that the Option may not be exercised as to less than one hundred (100) shares at any one time (or the remaining shares then purchasable under the Option, if less than one hundred (100) shares). The Option may not be exercised unless at the date of exercise a Registration Statement under the Securities Act of 1933, as amended, relating to the shares covered by the Option shall be in effect or the Company shall have determined that an exemption from such registration is available. Subject to the extension of the exercise periods set forth in Paragraph 6 hereof, the Option may not be exercised at any time unless the Holder shall have been in the continuous employ of the Company or a subsidiary from the time hereof to the date of the exercise of the Option.

6. Termination of Employment. If holder is an employee, in the event that the employment of the Holder shall be terminated (other than by reason of death), the Option may, subject to the provisions of Paragraph 5 hereof, be exercised by the Holder (to the extent that the Holder shall have been entitled to do so at the termination of employment) at or prior to the time of such termination; provided, if the Holder is terminated by the Company without Cause, the Holder shall have ninety (90) days following such termination to exercise all options exercisable on the date of termination and if the employment of the Holder terminates by reason of the retirement of the Holder at or reaching age 55 and having completed five years of service, the Holder shall have one (1) year following such retirement to exercise all options exercisable on the date of such retirement. In the event of such Holder’s death or total disability (using the definition of total disability of the Company’s long-term disability plan), the Option may, subject to the provisions of Paragraph 5 hereof, be exercised by the personal representative of the Holder’s estate (to the extent the Holder would have been entitled to do so as of the date of death) or the Holder in the case of disability at any time within ninety (90) days following the date of the Holder’s death or termination of employment due to total disability (but not more than the term of this Option). So long as such Holder shall continue to be an employee of the Company, or an affiliate, or a subsidiary the Option shall not be affected by any change of duties or position. Nothing in this Option Agreement shall confer upon a Holder any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate his/her employment at any time. The transfer of employment between any combination of the Company and any affiliate or subsidiary shall not be deemed a termination of employment. For purposes of this Agreement, “Cause” shall include the Holder’s negligence, neglect of duty, incompetence, dishonesty, violation of any of the terms of the Holder’s employment agreement (if any) and the Holder’s indictment, conviction or plea of guilty or nolo contendere to a misdemeanor involving moral turpitude or a felony.

7. Adjustment in Capitalization. If any adjustment in the Company’s capitalization as described in Section 5.3 of the Plan occurs, appropriate adjustments shall be made by the Compensation Committee to the number of shares and price per share of stock subject to this Option.

8. Method of Exercising Option. Subject to the terms and conditions of the Option Agreement, the Option may be exercised by written notice to the Company, care of its Chief Financial Officer, 309 North 5th Street, Norfolk, Nebraska 68701. Such notice shall state the election to execute the Option and the number of shares in respect of which it is being exercised, and shall be signed by the person or persons so exercising the Option. Such notice shall either: (a) be accompanied by payment of the full purchase price of such shares, in which event the Company shall deliver a certificate or certificates representing such shares as soon as

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practicable after the notice shall be received; or (b) fix a date (not less than five (5) nor more than ten (10) business days from the date such notice shall be received by the Chief Financial Officer) for the payment of the full purchase price of such shares at the Company’s Transfer Agent Offices, against delivery of a certificate or certificates representing such shares. Payment of such purchase price shall, in either case, be made by check payable to the order of the Company or, if applicable pursuant to Paragraph 2 hereof with the consent of the Compensation Committee, the transfer of the appropriate shares of stock or reduction of the appropriate number of shares to be delivered upon exercise of the Option. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option (or, if the Option shall be exercised by the Holder and if the Holder shall so request in the notice exercising the Option, shall be registered in the name of the Holder and another person jointly, with right of survivorship or in the name of the Holder’s spouse) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable.

As a condition of the issuance of shares hereunder, the Holder agrees to remit to the Company at the time of any exercise of this Option any taxes required to be withheld by the Company under federal, state or local law as a result of exercise. With the approval of the Committee, the Holder may remit such amount by an appropriate reduction of the number of shares to be delivered to the Holder upon exercise, or by the Holder delivering sufficient shares of common stock of the Company valued at its fair market value (if such common stock has been owned by the Holder for at least six months).

9. General. The Company shall at all times during the term of the Option reserve and keep available such number of Common Shares as will be sufficient to satisfy the requirements of this Option Agreement, shall pay all original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use its best efforts to comply with all laws and regulations which shall be applicable thereto.

IN WITNESS WHEREOF, the Company and the Holder have signed this Option Agreement effective as of the day and year first above written.

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EX-10.39

Exhibit 10.39

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE HOLDER, REASONABLY ACCEPTABLE TO THE CORPORATION, TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION.

COMMON STOCK PURCHASE WARRANT

SUPERTEL HOSPITALITY, INC.

Warrant Shares: 21,000,000

Initial Exercise Date: February 1, 2012

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Real Estate Strategies L.P., a Bermuda Limited Partnership, and, or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on January 31, 2017 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Supertel Hospitality, Inc., a Virginia corporation (the “Company”), 21,000,000 shares (subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1. Definitions. In addition to the definitions provided throughout this Agreement and unless the context otherwise requires, the following terms, when capitalized, shall have the following meanings for the purposes of construing this Agreement:

(a) “Affiliates” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management or policies of such person, whether through the ownership of voting securities by contract or otherwise.

(b) “Base Exercise Price” has the meaning ascribed to such term in Section 3(d).

(c) “Beneficial Ownership Limitation” has the meaning ascribed to such term in Section 2(f).

(d) Business Day: means any day except a Saturday, Sunday or other day on which banks in New York, New York and Ciudad Autónoma de Buenos Aires, Argentina are authorized by law to close, other than the Jewish holidays listed by Bloomberg under CDR-JW

(including Pesach 1st day, Pesach 2nd day, Pesach 7th day, Pesach 8th day, Shavuot, Shavuot (yizcor), Rosh Hashanah, Yom Kippur, Sucot, Shemini Atzeret and Simjat Tora).

(e) “Company” is defined in the first paragraph of the Warrant.

(f) “Conversion Price” has the meaning assigned to it in the Company’s Series C Cumulative Convertible Preferred Stock.

(g) “Exempt Issuance” has the meaning ascribed to such term in Section 3(d).

(h) “Exercise Price” has the meaning ascribed to such term in Section 2(b).

(i) “Holder” is defined in the first paragraph of the Warrant.

(j) “Initial Exercise Date” is defined in the first paragraph of the Warrant.

(k) “Notice of Required Exercise” has the meaning ascribed to such term in Section 2(j).

(l) “Permitted Transferees” has the meaning ascribed to such term in Section 4(a).

(m) “Preferred Shares” means the Company’s Series C Cumulative Convertible Preferred Stock.

(n) “Purchase Agreement” shall mean that certain agreement dated November 16, 2011 by and among Real Estate Strategies L.P., Supertel Limited Partnership, and the Company.

(o) “Termination Date” is defined in the first paragraph of the Warrant.

(p) “Trading Day” means a day on which the Nasdaq Stock Market LLC (or if the Common Stock are not listed or admitted for trading on the Nasdaq Stock Market LLC, on the principal national securities exchange on which such securities are listed, or if not so listed, the OTC Bulletin Board (or any successors to any of the foregoing)) is open for trading.

(q) “VWAP” means (i) the volume weighted average price of the Common Stock on the Nasdaq Stock Market LLC, or if such securities are not listed or admitted for trading on the Nasdaq Stock Market LLC, on the principal national securities exchange on which such securities are listed or admitted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)), (ii) or if not listed or admitted for trading on any national securities exchange, the volume weighted average price of the Common Stock for such period in the applicable securities market in which the securities are traded or (iii) if the Common Stock is not then listed or quoted for trading on any securities market the average fair market value of a share of Common Stock for such period as determined by an independent appraiser selected in good faith by the Company, the fees and expenses of which shall be paid by the Company and which determination shall be final, conclusive and binding.

(r) “Warrant” is defined in the first paragraph of the Warrant.

(s) “Warrant Shares” is defined in the first paragraph of the Warrant.

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(t) “Warrants” means this Warrant and the other warrants issued pursuant to the Purchase Agreement.

(u) “Warrant Register” has the meaning ascribed to such term in Section 4(c).

Section 2. Exercise.

(a) Exercise of Warrant. Subject to the Beneficial Ownership Limitation (set forth below), exercise of this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed copy of the Notice of Exercise form annexed hereto. Within five (5) Trading Days following the date of exercise as aforesaid and upon delivery by Holder of this Warrant and the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise (by wire transfer or cashier’s check drawn on a United States bank, unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise), the Company shall issue and cause to be delivered to Holder the certificate or certificates (or electronic equivalent thereof) representing the number of fully-paid and non-assessable Warrant Shares for which the Warrant is being exercised. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased and, following such partial exercise, the Company shall deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

(b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $1.20, subject to adjustment hereunder (the “Exercise Price”).

(c) Cashless Exercise. This Warrant may be exercised, in whole or in part, by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

(d) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

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(e) Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

(f) Beneficial Ownership Limitation. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that, after giving effect to the exercise set forth on the applicable Notice of Exercise, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation. For purposes of this Section 2(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (except that a person or group shall be deemed to have beneficial ownership of shares of Voting Stock that such person or group has the right to acquire regardless of when such right is first exercisable), it being acknowledged by such Holder that the Holder does not have the right to acquire Warrant Shares in excess of the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Exercise that such Notice of Exercise has not violated the restrictions set forth in this section. For purposes of this Section 2(f), in determining the number of outstanding shares of Voting Stock, a Holder may rely on the number of outstanding shares of Voting Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Voting Stock outstanding. Upon the written or oral request of a Holder, the Company shall promptly confirm orally and in writing to such Holder the number of votes represented by the Voting Stock then outstanding. In any case, the total voting power of the outstanding shares of Voting Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Warrant, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Voting Stock was reported. The “Beneficial Ownership Limitation” shall be 34.0% of the total number of votes represented by the Voting Stock outstanding immediately after giving effect to the issuance of Warrant Shares otherwise issuable pursuant to the applicable Notice of Exercise. The provisions of this section shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(f) to correct this section (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation.

(g) Required Exercise. After January 31, 2015, the Company may from time to time upon a written notice to the Holder require Holder to exercise of some or all of this Warrant under Section 2(a) using the cashless procedure specified in Section 2(c) (a “Notice of Required Exercise”) if the last sales price of the Common Stock equals or exceeds $2.63

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on the Trading Day immediately preceding the date the Notice of Required Exercise is delivered and the VWAP for the Common Stock has equaled or exceeded $2.63 for the prior thirty (30) consecutive Trading Days immediately prior to the date the Notice of Required Exercise is delivered. On the first Trading Day thereafter the Holder shall deliver a Notice of Exercise to the Company exercising this Warrant in whole or part as specified in the Notice of Required Exercise, subject to the Beneficial Ownership Limitation. Any portion of this Warrant that cannot be exercised by Holder to the extent specified in the Notice of Required Exercise because of the Beneficial Ownership Limitation, shall be exercised by Holder at the time or times thereafter if and when the Beneficial Ownership Limitation would not then be exceeded, provided that this Warrant may not in any event be exercised after the close of business on the Termination Date. Further, there will be no required exercise on any day if the VWAP used to calculate the cashless exercise pursuant to Section 2(c) would be less than $2.63 per share.

(h) No Approval Required. No approval of the Company’s Board shall be required to convert any of the Preferred Shares or exercise any of the Warrants; provided, however, any such conversion or exercise shall be made in compliance with the Beneficial Ownership Limitation and with applicable law including any regulatory notices or approvals.

(i) Legend. The Holder agrees that all certificates or other instruments representing the Warrant Shares will bear a legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

Section 3. Certain Adjustments.

(a) If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or makes a distribution to holders of any class or series of capital stock of the Company in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant or warrants issued concurrently with or prior to this Warrant), (ii) subdivides outstanding shares of Common Stock into a greater number of shares, (iii) combines its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock by reclassification of the Common Stock, then the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

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(b) If the Company sells any Common Stock or grants any option or right to purchase Common Stock and as a consequence reduces the Conversion Price then the Exercise Price shall be reduced to equal 120% of such Conversion Price as adjusted (or as it would have been adjusted in the event the Preferred Shares were no longer outstanding).

(c) If at any time the Company issues any rights, options or warrants pro rata to all holders of Common Stock to purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (the “Purchase Rights”), then each Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete exercise of such Holder’s Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the issuance of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent and such Purchase Right to such extent shall be held in abeyance, for a period not to exceed 71 days, for the Holder until such time during such 71 day period, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

(d) If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 3(c)), then in each such case the Exercise Price shall be adjusted by multiplying such Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holders describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

(e) Whenever the Conversion Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Notwithstanding anything herein to the contrary, no adjustment of the Exercise Price shall be made pursuant to this Section 1 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

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Section 4. Transfer of Warrant.

(a) Transferability. Until the effectiveness date of the Shelf Registration Statement, to be filed with the SEC, in connection with the Registration Rights Agreement entered into by and between Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anónima, and Supertel Hospitality, Inc., dated as of January 31, 2012, and subject to compliance with any applicable securities laws, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, to Holder’s Affiliates or, with the consent of a majority of the directors of the Board of Directors who are not designee directors of Real Estate Strategies L.P. or its affiliates pursuant to the Directors Designation Agreement dated January 31, 2012, to a non-affiliate (“Permitted Transferees”), such approval shall not be unreasonably withheld by such Directors (if approval is withheld, such reasons for withholding approval shall be presented in writing to the Holder). Such transfer will be accomplished upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

Once the Warrants have been registered, such Board consent shall no longer be required.

(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the Permitted Transferees and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

(c) Warrant Register and Registration Rights.

(i) The Company shall register this Warrant, upon records to be maintained by the Company for that, in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes. The Warrants, and the shares issuable upon its exercise will be registered for its resale, on a registration statement to be filed with the SEC pursuant to the Registration Rights Agreement dated January 31, 2012 unless such Warrants or shares may be publicly resold under the safe harbor of Rule 144 of the SEC without regard to limitations as to volume or manner of sale thereunder. Such shares shall be transferable to affiliate entities of Purchaser and/or SPPR Board approved third parties.

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Section 5. Miscellaneous.

(a) No Rights as Shareholder. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company.

(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

(d) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Exchange upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

(e) Governing Law and Forum. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the principles of conflicts of laws. Each of the parties hereto hereby irrevocably consents, to the maximum extent permitted by law, that any action or proceeding relating to this Warrant or the transactions contemplated hereby shall be brought, at the option of the party instituting the action or proceeding, in any court of general jurisdiction in New York County, New York, in the United States District Court for the Southern District of New York or in any state or federal court sitting in the area currently comprising the Southern District of New York. Each of the parties hereto waives any objection that it may have to the conduct of any action or proceeding in any such court based on improper venue or forum non conveniens, waives personal service of any and all process upon it, and consents that all service of process may be made by mail or courier service directed

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to it at the address set forth herein and that service so made shall be deemed to be completed upon the earlier of actual receipt or ten days after the same shall have been posted or delivered to a nationally recognized courier service. Nothing contained in this shall affect the right of any party hereto to serve legal process in any other manner permitted by law.

(f) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provision of the Purchase Agreement.

(g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.

(h) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders of a majority in interest of the then outstanding Warrants (calculated based on the number of shares of Common Stock issuable upon the exercise of such Warrants).

(i) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(j) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

  SUPERTEL HOSPITALITY, INC.

  /s/ Kelly A. Walters

  By: Kelly A. Walters

  Title: President and Chief Executive Officer

Acknowledged and accepted

REAL ESTATE STRATEGIES L.P

By:

JIWIN S.A.

General Partner

/s/ Eduardo Elsztain

Name: Eduardo Elsztain

Title: Chairman

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NOTICE OF EXERCISE

TO: SUPERTEL HOSPITALITY, INC.

(1) The undersigned hereby elects to purchase                      Warrant Shares of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

¨ in lawful money of the United States; or

¨ [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

The Warrant Shares shall be delivered to:

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

The undersigned further requests that if the number of shares elected to be purchased herein shall not be all of the shares purchasable pursuant to the terms of the attached Warrant, that a new Warrant of like tenor for the balance of the shares purchasable hereunder be delivered to the undersigned.

[SIGNATURE OF HOLDER]

Name:

Signature of Authorized Officer:

Name of Authorized Officer:

Title of Authorized Officer:

Date:

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [            ] [all of or             ] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

whose address is

Dated:                    ,                     

Holder’s Signature:

Holder’s Address:

Signature Guaranteed:

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE HOLDER, REASONABLY ACCEPTABLE TO THE CORPORATION, TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE CORPORATION.

COMMON STOCK PURCHASE WARRANT

SUPERTEL HOSPITALITY, INC.

Warrant Shares: 9,000,000

Initial Exercise Date: February 15, 2012

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Real Estate Strategies L.P., a Bermuda Limited Partnership, and, or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on January 31, 2017 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Supertel Hospitality, Inc., a Virginia corporation (the “Company”), 9,000,000 shares (subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

(a) Definitions. In addition to the definitions provided throughout this Agreement and unless the context otherwise requires, the following terms, when capitalized, shall have the following meanings for the purposes of construing this Agreement:

(b) “Affiliates” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management or policies of such person, whether through the ownership of voting securities by contract or otherwise.

(c) “Base Exercise Price” has the meaning ascribed to such term in Section 3(d).

(d) “Beneficial Ownership Limitation” has the meaning ascribed to such term in Section 2(f).

(e) Business Day: means any day except a Saturday, Sunday or other day on which banks in New York, New York and Ciudad Autónoma de Buenos Aires, Argentina are authorized by law to close, other than the Jewish holidays listed by Bloomberg under CDR-JW (including Pesach 1st day, Pesach 2nd day, Pesach 7th day, Pesach 8th day, Shavuot, Shavuot (yizcor), Rosh Hashanah, Yom Kippur, Sucot, Shemini Atzeret and Simjat Tora).

(f) “Company” is defined in the first paragraph of the Warrant.

(g) “Conversion Price” has the meaning assigned to it in the Company’s Series C Cumulative Convertible Preferred Stock.

(h) “Exempt Issuance” has the meaning ascribed to such term in Section 3(d).

(i) “Exercise Price” has the meaning ascribed to such term in Section 2(b).

(j) “Holder” is defined in the first paragraph of the Warrant.

(k) “Initial Exercise Date” is defined in the first paragraph of the Warrant.

(l) “Notice of Required Exercise” has the meaning ascribed to such term in Section 2(j).

(m) “Permitted Transferees” has the meaning ascribed to such term in Section 4(a).

(n) “Preferred Shares” means the Company’s Series C Cumulative Convertible Preferred Stock.

(o) “Purchase Agreement” shall mean that certain agreement dated November 16, 2011 by and among Real Estate Strategies L.P., Supertel Limited Partnership, and the Company.

(p) “Termination Date” is defined in the first paragraph of the Warrant.

(q) “Trading Day” means a day on which the Nasdaq Stock Market LLC (or if the Common Stock are not listed or admitted for trading on the Nasdaq Stock Market LLC, on the principal national securities exchange on which such securities are listed, or if not so listed, the OTC Bulletin Board (or any successors to any of the foregoing)) is open for trading.

(r) “VWAP” means (i) the volume weighted average price of the Common Stock on the Nasdaq Stock Market LLC, or if such securities are not listed or admitted for trading on the Nasdaq Stock Market LLC, on the principal national securities exchange on which such securities are listed or admitted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)), (ii) or if not listed or admitted for trading on any national securities exchange, the volume weighted average price of the Common Stock for such period in the applicable securities market in which the securities are traded or (iii) if the Common Stock is not then listed or quoted for trading on any securities market the average fair market value of a share of Common Stock for such period as determined by an independent appraiser selected in good faith by the Company, the fees and expenses of which shall be paid by the Company and which determination shall be final, conclusive and binding.

(s) “Warrant” is defined in the first paragraph of the Warrant.

(t) “Warrant Shares” is defined in the first paragraph of the Warrant.

(u) “Warrants” means this Warrant and the other warrants issued pursuant to the Purchase Agreement.

(v) “Warrant Register” has the meaning ascribed to such term in Section 4(c).

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(w) Exercise.

(x) Exercise of Warrant. Subject to the Beneficial Ownership Limitation (set forth below), exercise of this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed copy of the Notice of Exercise form annexed hereto. Within five (5) Trading Days following the date of exercise as aforesaid and upon delivery by Holder of this Warrant and the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise (by wire transfer or cashier’s check drawn on a United States bank, unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise), the Company shall issue and cause to be delivered to Holder the certificate or certificates (or electronic equivalent thereof) representing the number of fully-paid and non-assessable Warrant Shares for which the Warrant is being exercised. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased and, following such partial exercise, the Company shall deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

(y) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $1.20, subject to adjustment hereunder (the “Exercise Price”).

(z) Cashless Exercise. This Warrant may be exercised, in whole or in part, by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A)	= the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;
(B)	= the Exercise Price of this Warrant, as adjusted hereunder; and
(X)	= the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

(aa) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

(bb) Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

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(cc) Beneficial Ownership Limitation. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that, after giving effect to the exercise set forth on the applicable Notice of Exercise, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation. For purposes of this Section 2(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (except that a person or group shall be deemed to have beneficial ownership of shares of Voting Stock that such person or group has the right to acquire regardless of when such right is first exercisable), it being acknowledged by such Holder that the Holder does not have the right to acquire Warrant Shares in excess of the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Exercise that such Notice of Exercise has not violated the restrictions set forth in this section. For purposes of this Section 2(f), in determining the number of outstanding shares of Voting Stock, a Holder may rely on the number of outstanding shares of Voting Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Voting Stock outstanding. Upon the written or oral request of a Holder, the Company shall promptly confirm orally and in writing to such Holder the number of votes represented by the Voting Stock then outstanding. In any case, the total voting power of the outstanding shares of Voting Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Warrant, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Voting Stock was reported. The “Beneficial Ownership Limitation” shall be 34.0% of the total number of votes represented by the Voting Stock outstanding immediately after giving effect to the issuance of Warrant Shares otherwise issuable pursuant to the applicable Notice of Exercise. The provisions of this section shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(f) to correct this section (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation.

(dd) Required Exercise. After January 31, 2015, the Company may from time to time upon a written notice to the Holder require Holder to exercise of some or all of this Warrant under Section 2(a) using the cashless procedure specified in Section 2(c) (a “Notice of Required Exercise”) if the last sales price of the Common Stock equals or exceeds $2.63 on the Trading Day immediately preceding the date the Notice of Required Exercise is delivered and the VWAP for the Common Stock has equaled or exceeded $2.63 for the prior thirty (30) consecutive Trading Days immediately prior to the date the Notice of Required Exercise is delivered. On the first Trading Day thereafter the Holder shall deliver a Notice of Exercise to the Company exercising this Warrant in whole or part as specified in the Notice of Required Exercise, subject to the Beneficial Ownership Limitation. Any portion of this Warrant that cannot be exercised by Holder to the extent specified in the Notice of Required Exercise because of the Beneficial Ownership Limitation, shall be exercised by Holder at the time or times thereafter if and when the Beneficial Ownership Limitation would not then be exceeded, provided that this Warrant may not in any event be exercised after the close of business on the Termination Date. Further, there will be no required exercise on any day if the VWAP used to calculate the cashless exercise pursuant to Section 2(c) would be less than $2.63 per share.

(ee) No Approval Required. No approval of the Company’s Board shall be required to convert any of the Preferred Shares or exercise any of the Warrants; provided, however, any such conversion or exercise shall be made in compliance with the Beneficial Ownership Limitation and with applicable law including any regulatory notices or approvals.

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(ff) Legend. The Holder agrees that all certificates or other instruments representing the Warrant Shares will bear a legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

(gg) Certain Adjustments.

(hh) If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or makes a distribution to holders of any class or series of capital stock of the Company in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant or warrants issued concurrently with or prior to this Warrant), (ii) subdivides outstanding shares of Common Stock into a greater number of shares, (iii) combines its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock by reclassification of the Common Stock, then the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(ii) If the Company sells any Common Stock or grants any option or right to purchase Common Stock and as a consequence reduces the Conversion Price then the Exercise Price shall be reduced to equal 120% of such Conversion Price as adjusted (or as it would have been adjusted in the event the Preferred Shares were no longer outstanding).

(jj) If at any time the Company issues any rights, options or warrants pro rata to all holders of Common Stock to purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (the “Purchase Rights”), then each Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete exercise of such Holder’s Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the issuance of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent and such Purchase Right to such extent shall be held in abeyance, for a period not to exceed 71 days, for the Holder until such time during such 71 day period, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

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(kk) If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 3(c)), then in each such case the Exercise Price shall be adjusted by multiplying such Exercise Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holders describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

(ll) Whenever the Conversion Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Notwithstanding anything herein to the contrary, no adjustment of the Exercise Price shall be made pursuant to this Section 1 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

(mm) Transfer of Warrant.

(nn) Transferability. Until the effectiveness date of the Shelf Registration Statement, to be filed with the SEC, in connection with the Registration Rights Agreement entered into by and between Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anónima, and Supertel Hospitality, Inc., dated as of January 31, 2012, and subject to compliance with any applicable securities laws, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, to Holder’s Affiliates or, with the consent of a majority of the directors of the Board of Directors who are not designee directors of Real Estate Strategies L.P. or its affiliates pursuant to the Directors Designation Agreement dated January 31, 2012, to a non-affiliate (“Permitted Transferees”), such approval shall not be unreasonably withheld by such Directors (if approval is withheld, such reasons for withholding approval shall be presented in writing to the Holder). Such transfer will be accomplished upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

6

Once the Warrants have been registered, such Board consent shall no longer be required.

(oo) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the Permitted Transferees and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

(pp) Warrant Register and Registration Rights.

(i) The Company shall register this Warrant, upon records to be maintained by the Company for that, in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes. The Warrants, and the shares issuable upon its exercise will be registered for its resale, on a registration statement to be filed with the SEC pursuant to the Registration Rights Agreement dated January 31, 2012 unless such Warrants or shares may be publicly resold under the safe harbor of Rule 144 of the SEC without regard to limitations as to volume or manner of sale thereunder. Such shares shall be transferable to affiliate entities of Purchaser and/or SPPR Board approved third parties.

(qq) Miscellaneous.

(rr) No Rights as Shareholder. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company.

(ss) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

(tt) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

(uu) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Exchange upon which the Common Stock may be listed. The Company covenants

7

that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

(vv) Governing Law and Forum. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the principles of conflicts of laws. Each of the parties hereto hereby irrevocably consents, to the maximum extent permitted by law, that any action or proceeding relating to this Warrant or the transactions contemplated hereby shall be brought, at the option of the party instituting the action or proceeding, in any court of general jurisdiction in New York County, New York, in the United States District Court for the Southern District of New York or in any state or federal court sitting in the area currently comprising the Southern District of New York. Each of the parties hereto waives any objection that it may have to the conduct of any action or proceeding in any such court based on improper venue or forum non conveniens, waives personal service of any and all process upon it, and consents that all service of process may be made by mail or courier service directed to it at the address set forth herein and that service so made shall be deemed to be completed upon the earlier of actual receipt or ten days after the same shall have been posted or delivered to a nationally recognized courier service. Nothing contained in this shall affect the right of any party hereto to serve legal process in any other manner permitted by law.

(ww) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provision of the Purchase Agreement.

(xx) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.

(yy) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders of a majority in interest of the then outstanding Warrants (calculated based on the number of shares of Common Stock issuable upon the exercise of such Warrants).

(zz) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(aaa) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

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[SIGNATURE PAGE FOLLOWS]

9

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

  SUPERTEL HOSPITALITY, INC.

  By: Kelly A. Walters

  Title: President and Chief Executive Officer

Acknowledged and accepted

REAL ESTATE STRATEGIES L.P

By:

JIWIN S.A.

General Partner

Name: Eduardo Elsztain

Title: Chairman

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NOTICE OF EXERCISE

TO: SUPERTEL HOSPITALITY, INC.

The undersigned hereby elects to purchase              Warrant Shares of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

Payment shall take the form of (check applicable box):

¨ in lawful money of the United States; or

¨ [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

The Warrant Shares shall be delivered to:

Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

The undersigned further requests that if the number of shares elected to be purchased herein shall not be all of the shares purchasable pursuant to the terms of the attached Warrant, that a new Warrant of like tenor for the balance of the shares purchasable hereunder be delivered to the undersigned.

[SIGNATURE OF HOLDER]

Name:

Signature of Authorized Officer:

Name of Authorized Officer:

Title of Authorized Officer:

Date:

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [            ] [all of or             ] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

whose address is

Dated:                    ,                     

Holder’s Signature:

Holder’s Address:

Signature Guaranteed:

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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EX-10.44

Exhibit 10.44

HOTEL

MANAGEMENT AGREEMENT

Between

TRS LEASING, INC.,

TRS SUBSIDIARY, LLC

SPPR TRS SUBSIDIARY, LLC

SPPR-BMI TRS SUBSIDIARY, LLC

and

KINSETH HOTEL CORPORATION

Dated

April 21, 2011

TABLE OF CONTENTS

			Page
ARTICLE 1 DEFINITIONS				1
	Section 1.01.	Definitions		1
ARTICLE 2 TERM OF AGREEMENT				7
	Section 2.01.	Term		7
ARTICLE 3 OPERATION OF THE HOTELS				8
	Section 3.01.	Representations by Operator; Engagement of Operator		8
	Section 3.02.	Standards of Operation		8
	Section 3.03.	Reservations Services and Revenue Management		9
	Section 3.04.	Marketing		9
	Section 3.05.	Consultations Between Lessee and Operator		9
	Section 3.06.	Transactions with Affiliates and Other Relationships		9
	Section 3.07.	Employees		10
	Section 3.08.	Regional Manager		10
	Section 3.09.	Certain Expenses		10
ARTICLE 4 INDEPENDENT CONTRACTOR				11
	Section 4.01.	Operator Status		11
	Section 4.02.	Employees		11
	Section 4.03.	Employee Expenses		11
	Section 4.04.	Employee Benefit Plans		12
	Section 4.05.	Execution of Agreements		12
ARTICLE 5 INDEMNIFICATION				13
	Section 5.01.	Indemnification by Operator		13
	Section 5.02.	Limitations on Indemnification		13
	Section 5.03.	Indemnification by Lessee		13
	Section 5.04.	Survival of Indemnity		14
ARTICLE 6 BUDGETS AND POLICY MEETINGS				14
	Section 6.01.	Budgets		14
	Section 6.02.	Budget Meetings		15
	Section 6.03.	Approval by Lessee Required		15
ARTICLE 7 OPERATING EXPENSES				16
	Section 7.01.	Payment of Operating Expenses		16
	Section 7.02.	Operating Expenses Not an Obligation of Operator		16
ARTICLE 8 BANK ACCOUNTS				16
	Section 8.01.	Lessee Revenue Account		16
	Section 8.02.	Bank Accounts		16
	Section 8.03.	Authorized Signatures		17

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ARTICLE 9 BOOKS, RECORDS AND STATEMENTS			17
	Section 9.01.	Books and Records	17
	Section 9.02.	Statements	18
	Section 9.03.	Costs	19
ARTICLE 10 OPERATOR’S FEE AND TRANSFERS TO LESSEE			19
	Section 10.01.	Payment of Operator’s Fee	19
ARTICLE 11 REPAIRS AND MAINTENANCE			19
ARTICLE 12 INSURANCE			20
	Section 12.01.	General	20
	Section 12.02.	Workers’ Compensation and Other Employment Insurance	20
	Section 12.03.	Approval of Companies and Cost by Owner and Lessee	20
	Section 12.04.	Maintenance of Coverages	20
	Section 12.05.	Waiver of Subrogation	20
	Section 12.06.	Blanket Coverage	21
ARTICLE 13 PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS			21
	Section 13.01.	Property Taxes	21
	Section 13.02.	Lessee’s Right to Contest	21
ARTICLE 14 DAMAGE OR DESTRUCTION - CONDEMNATION			21
	Section 14.01.	Damage	21
	Section 14.02.	Condemnation	21
ARTICLE 15 USE OF NAME			22
ARTICLE 16 TERMINATION			22
	Section 16.01.	Inspection Failure	22
	Section 16.02.	Performance Failure	22
	Section 16.03.	Sale of Hotels	23
	Section 16.04.	Optional Termination	23
	Section 16.05.	Lessee Change of Control	23
	Section 16.06.	Operator Change of Control	24
	Section 16.07.	Tax Law Change	25
	Section 16.08.	Termination Fees	25
ARTICLE 17 DEFAULT AND REMEDIES			25
	Section 17.01.	Events of Default- Remedies	25
	Section 17.02.	Rights Not Exclusive	26
ARTICLE 18 NOTICES			27
	Section 18.01.	Notices	27
ARTICLE 19 ASSIGNMENT			28
	Section 19.01.	No Assignment by Operator	28

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	Section 19.02.	Assignment by Lessee.	28
ARTICLE 20 SUBORDINATION			28
	Section 20.01.	Subordination To Mortgage.	28
	Section 20.02.	Foreclosure.	29
	Section 20.03.	Estoppel Certificates.	29
ARTICLE 21 MISCELLANEOUS			29
	Section 21.01.	Further Documentation and Reporting Compliance.	29
	Section 21.02.	Captions.	30
	Section 21.03.	Successors and Assigns.	30
	Section 21.04.	Competitive Market Area.	30
	Section 21.05.	Assumption of Post Termination Obligations.	30
	Section 21.06.	Entire Agreement.	30
	Section 21.07.	Governing Law.	31
	Section 21.08.	No Political Contributions.	31
	Section 21.09.	Eligible Independent Contractor.	31
	Section 21.10.	Time of the Essence.	32
	Section 21.11.	Offsets.	32
	Section 21.12.	Attorney’s Fees.	32
	Section 21.13.	Final Accounting.	32
	Section 21.14.	Franchisor Communications.	33

EXHIBIT A — Hotel Properties and Owners

EXHIBIT A-1 — Competitive Set

EXHIBIT A-2 — Form of SPAR Inspection Form

EXHIBIT A-3 — Accounting Software and Payroll Processes

EXHIBIT A-4 — List of Operator’s Hotels Within 5 Mile Radius

EXHIBIT B — Franchise Agreements

EXHIBIT C – Total Investment

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HOTEL MANAGEMENT AGREEMENT

This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of April 21, 2011, by and among TRS Leasing, Inc., a Virginia corporation (“TRS”), TRS Subsidiary, LLC, a Delaware limited liability company (“TRS Sub”), SPPR TRS Subsidiary, LLC (“SPPR TRS Sub”), SPPR-BMI TRS Subsidiary, LLC, a Delaware limited liability company (“SPPRBMI”) (TRS Sub, SPPR TRS Sub and SPPRBMI, together with TRS, collectively, “Lessee”) and Kinseth Hotel Corporation, an Iowa corporation (“Operator”), with reference to the following facts:

A. Lessee leases from the entities described on Exhibit A (each, an “Owner” and collectively, the “Owners”) the hotel properties described on Exhibit A (each, a “Hotel” and collectively, the “Hotels”) pursuant to one or more Lease Agreements described on Exhibit A (each, a “Lease” and collectively, the “Leases”);

B. Lessee desires to engage Operator to operate and manage the Hotels listed on Exhibit A beginning on the Commencement Date in accordance with the terms of this Agreement;

C. Operator desires to supply the services and to operate the Hotels beginning on the Commencement Date in accordance with the terms of this Agreement; and

D. The parties desire that this Agreement, while it controls all of the Hotels collectively, will represent an individual hotel management agreement for each Hotel described on Exhibit A, as it may be amended from time to time.

NOW, THEREFORE, for and in consideration of the mutual covenants, conditions, stipulations, agreements and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Lessee and Operator covenant and agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions.

(a) As used herein, the following terms shall have the indicated meanings:

“Adjusted Operating Expenses” shall mean Operating Expenses excluding Operator’s Fee, insurance premiums (with the exception of the insurance described in Section 12.02), discretionary employee bonuses (to the extent exclusion is approved by Lessee) and Property real estate and personal property taxes.

“Affiliate” shall mean (a) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (b) any person that owns, beneficially, directly or indirectly, ten percent or more of the outstanding capital stock, shares or equity interests of such person, or (c) any officer, director, employee, partner or trustee of such person or any person controlling, controlled by, or under common control with such person.

“Agreement” shall mean this Hotel Management Agreement and all amendments, modifications, supplements, consolidations, extensions and revisions to this Hotel Management Agreement approved by Lessee and Operator.

“Approved Budget” shall mean the Hotel Operating Budget prepared in accordance with Section 6.01 of this Agreement and approved in writing by Lessee.

“CPI” shall mean the Consumer Price Index, all items for All Urban Consumers, published by the Bureau of Labor Statistics of the United States Department of Labor as reported in The Wall Street Journal.

“Capital Improvements” will mean all expenditures for replacements, substitutions and additions to Hotels and Hotel FF&E which are required to be capitalized in accordance with generally accepted accounting principles.

“Commencement Date” shall mean June 1, 2011.

“Competitive Set” for each Hotel means the hotels listed on Exhibit_A-1 attached hereto, or such other hotels as may be reasonably agreed upon by Lessee and Operator from time to time during the Term. The Lessee and Operator shall discuss at least once a year, and upon any major change to an existing hotel in the Competitive Set, the composition of the Competitive Set. Any changes to a Hotel’s Competitive Set must be mutually agreed upon by Lessee and Operator.

“Event(s) of Default” shall mean one or more of the events or occurrences listed in Section 17.01 of this Agreement.

“Fiscal Year” shall mean each twelve (12) month calendar year ending December 31 during the Operating Term, except that the first Fiscal Year and the last Fiscal Year of the Operating Term may not be full calendar years.

“Franchisors” shall mean the franchisors under the Franchise Agreements.

“Franchisor Agreements” shall mean the franchise license agreements held by Lessee or Operator with respect to each Hotel as described in Exhibit B as it may be amended from time to time.

“GAAP” shall mean generally accepted accounting principles and procedures in the United States.

“Gross Hotel Income” shall mean all income and proceeds of sales received by Operator for guest use, occupancy or enjoyment of the Hotel or for the sale of any goods, services or other items sold on or provided from the Hotel to guests in the ordinary course of the Hotel operation, but excluding the following: (i) any excise, sales or use taxes or similar government charges collected directly from patrons or guests, or as a part of the sales price of any goods, services or displays, such as gross receipts, admission, cabaret or similar or equivalent taxes; (ii) receipts

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from condemnation awards or sales in lieu of or under threat of condemnation; (iii) proceeds of insurance (other than proceeds from business interruption insurance received by Lessee which shall be allocated by Lessee to any applicable periods); (iv) proceeds of sales of capital assets, furniture and Hotel Operating Equipment; (v) consideration received at the Hotel for hotel accommodations, goods and services to be provided at other hotels although arranged by, for or on behalf of, Operator; (vi) proceeds of any financing; (vii) working capital provided by Lessee; (viii) any funds provided by Lessee to Operator whether for Operating Expenses or otherwise; (ix) interest income and fees, rents and other revenues from telecommunications tower or similar leases or other leases or sub-leases of any part of the Property and (x) other income or proceeds resulting other than from guest use or occupancy of the Hotel or the Property, or any part thereof, or other than from the sale of goods, services or other items sold on or provided in connection with guest services at the Hotel in the ordinary course of business. The parties intend that Gross Hotel Income shall be computed in a manner consistent with “room rentals and other hotel services” computation of revenues on the Parent’s audited Consolidated Statements of Operations.

“Holder” shall mean the holder of any Mortgage and the indebtedness secured thereby, and such holder’s successors and assigns.

“Hotel Capital Budget” shall mean the budget relating to capital expenditures at a Hotel as described in Section 6.01.

“Hotel FF&E” shall mean the furniture, furnishings, wall coverings, fixtures and hotel equipment for a Hotel and which includes equipment required for operation of the kitchens, restaurants and laundry, office equipment, material handling equipment, cleaning and engineering equipment and vehicles.

“Hotel Operating Account” shall mean the bank account opened and maintained in Operator’s name, or in a name designated by Operator, with a banking institution selected by Lessee, from which disbursements shall be made pursuant to the terms of this Agreement.

“Hotel Operating Budget” shall mean the budget relating to the operation of a Hotel as described in Section 6.01.

“Hotel Operating Equipment” shall mean linens, chinaware, glassware, silverware, uniforms, utensils and other non-consumable items of similar nature.

“Hotel Operating Supplies” shall mean paper supplies, cleaning materials and similar consumable items.

“Hotel Standards” shall mean the standards established by the respective Franchisors of the Hotels from time to time.

“Hotels” shall mean the hotel properties described in Exhibit A hereto, as it may be amended from time to time by mutual agreement of Lessee and Operator to add hotel properties or to delete hotel properties as a result of termination of this Agreement with respect to one or more hotel properties pursuant to the termination provisions set forth in this Agreement. “Hotel” shall mean any hotel set forth on Exhibit A as it may be amended from time to time.

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“Initial Term” shall have the meaning set forth in Section 2.01.

“Independent CPA” shall mean the firm of independent public accountants which is selected by Lessee from time to time.

“Land” shall mean the real property described in Exhibit A to the Lease.

“Lease” shall have the meaning set forth in the recitals.

“Lessee” shall have the meaning set forth in the recitals.

“Lessee Revenue Account” shall mean the bank accounts opened and maintained in Lessee’s name, or in a name designated by Lessee, with a banking institution selected by Lessee, into which all income, receipts and proceeds included in the definition of Gross Hotel Income (without exclusion of any of the items excluded from the definition of such term) shall be deposited.

“Mortgage” shall mean any mortgage or deed of trust hereafter, from time to time, encumbering all or any portion of a Property, together with all other instruments evidencing or securing payment of the indebtedness secured by such mortgage or deed of trust and all amendments, modifications, supplements, extensions, and revisions of such mortgage, deed of trust and other instruments.

“NOI” shall mean Net Operating Income which shall be determined by deducting Adjusted Operating Expenses from Gross Hotel Income.

“Operating Expenses” shall mean all costs and expenses of maintaining, conducting and supervising the operation of the Property, to the extent set forth in an Approved Budget and the provisions of Section 6.03, incurred pursuant to this Agreement or as otherwise specifically provided herein which are properly attributable to the period under consideration under Lessee’s system of accounting, including without limitation:

(i) The cost of all food and beverages sold or consumed and of all Hotel Operating Equipment and Hotel Operating Supplies;

(ii) Salaries and wages of on-site Hotel personnel, including costs of payroll taxes and employee benefits and amounts payable under bonus plans approved by Lessee. The salaries or wages of other employees or executives of Operator, or any Affiliate of Operator shall in no event be Operating Expenses;

(iii) The cost of all other goods and services obtained by Operator in connection with its operation of the Property including, without limitation, heat and utilities, office supplies and all services performed by third parties, including leasing expenses in connection with telephone and data processing equipment and such other equipment as Lessee shall designate;

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(iv) The cost of repairs to and maintenance of the Property to keep the Property in good condition;

(v) Insurance premiums for all insurance maintained with respect to the Property, including without limitation, property damage insurance, public liability insurance, workers’ compensation insurance or insurance required by similar employee benefits acts, employment liability practices insurance, and such business interruption or other insurance as may be provided for protection against claim, liabilities and losses arising from the use and operation of the Hotel and losses incurred with respect to deductibles applicable to the foregoing types of insurance;

(vi) All taxes, assessments and other charges (other than federal, state or local income taxes and franchise taxes or the equivalent) payable by or assessed against Operator or Lessee with respect to the operation of the Hotel, including water and sewer charges;

(vii) Legal fees relating to Hotel operations (excluding legal fees with respect to employee claims), and real estate tax abatement and appeal services excluding legal fees with respect to employee claims;

(viii) The costs and expenses of technical consultants and specialized operational experts for specialized services in connection with non-recurring work on operational, functional, decorating, design or construction problems and activities, including reasonable third party fees reasonably deemed necessary by Lessee for the efficient operation of the Hotels;

(ix) All expenses for marketing and sales, including all expenses of advertising, sales promotion and public relations activities at the Hotels, exclusive of Operator’s marketing manager and similar administrative personnel (which expenses shall be borne by Operator);

(x) Municipal, county and state license and permit fees;

(xi) All normal and recurring fees, assessments and charges due and payable under Franchisor Agreements;

(xii) Credit card fees, travel agent commissions and other third party reservation fees and charges;

(xiii) All parking charges and other expenses associated with revenues received by the Hotels related to parking operations, including valet services;

(xiv) All expenses related to the revenues included in Gross Hotel Income, including without limitation, expenses relating to telephone, vending, television, cable television, pay television and similar services;

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(xv) The costs of obtaining and keeping in force all licenses or permits (including liquor licenses, if any) necessary for the operation of the Hotel and in complying with governmental laws, rules, regulations, ordinances, orders and requirements;

(xvi) All reasonable travel expenses of Operator’s supervisory personnel on the next level above hotel manager (to the extent approved by Lessee) for visits to the Hotels in the performance of their duties hereunder, but not including travel between Operator’s main office and Operator’s regional offices; and

(xvii) Operator’s Fee, if any.

Operating Expenses shall not include (a) depreciation and amortization except as otherwise provided in this Agreement; (b) debt service; (c) capital expenditures per the Hotel Capital Budget; and (d) lease payments to Owner.

The parties intend that Operating Expenses shall be computed in a manner consistent with “Hotel and property operations expenses” computation of expenses on the Parent’s Audited Consolidated Statements of Operations.

“Operating Loss” shall mean for any period the amount by which Operating Expenses exceed Gross Hotel Income.

“Operating Term” shall mean, with respect to any Hotel, the term of this Agreement as set forth in Section 2.01.

“Operator” shall have the meaning set forth in the recitals.

“Operator’s Fee” shall mean a monthly fee equal to 3.50% of Gross Hotel Income and 2.25% of NOI.

“Owners” shall mean the entities described on Exhibit A as it may be amended from time to time as the owners of the Hotels. “Owner” shall mean any entity described on Exhibit A as it may be amended from time to time.

“Parent” shall mean Supertel Hospitality, Inc.

“Property” shall mean the Land, the Hotel, all real and personal property now or hereafter situated upon the Land and all appurtenant rights and easements thereto.

“Renewal Term” shall have the meaning set forth in Section 2.01.

“RevPAR” shall mean Hotel occupancy percentage multiplied by average daily rate.

“RevPAR Benchmark” means the Hotel’s RevPAR Index for the trailing 12-months ending on the Commencement Date.

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“RevPAR Index” means the RevPAR Index included in the STR Report produced for the Hotel by Smith Travel Research or, if Smith Travel Research no longer is in existence, the successor of Smith Travel Research or such other industry resource that is equally as reputable as Smith Travel Research will be substituted, in order to obtain substantially the same result as would be obtained if Smith Travel Research has not ceased to be in existence.

“SPAR Inspection” shall mean a property inspection as reasonably conducted by Lessee using the Supertel Property Audit Report form attached as Exhibit A-2.

“Total Investment” shall mean Owner’s total investment in the Hotels as of December 31, 2010, more particularly described in the Schedule attached hereto as Exhibit C. If any Hotels are sold during the term of this Agreement, the Total Investment will be reduced by an amount equal to the total investment for that particular Hotel or Hotels (as shown on Exhibit C). If any Hotels are added during the term of this Agreement, if there are any Capital Improvements for the Hotels, the Total Investment will be increased by an amount equal to Lessee’s total investment in said Hotel or Hotels and said Capital Improvements for the Hotels, and Lessee will immediately advise Operator of said increase in the Total Investment. Appropriate adjustment shall be made in the Total Investment if Hotels are added or subtracted or Capital Improvements are made, during the Fiscal Year. The Total Investment for the Hotels at December 31, 2010 is reflected on Exhibit C attached hereto (which excludes construction in progress). Amounts initially included in Total Investment which are subsequently reclassified to other balance sheet line items shall nonetheless remain included in the determination of Total Investment for purposes of this Agreement and for purposes of the amounts set forth on Exhibit C.

“Unrelated Persons” shall have the meaning set forth in Section 21.09.

(b) Terms with initial capital letters which appear within the foregoing definitions are defined in this Article I or as indicated in this Agreement. Dollars are denominated in U.S. Dollars.

ARTICLE 2

TERM OF AGREEMENT

Section 2.01. Term.

The term of this Agreement shall commence on the Commencement Date and shall terminate at midnight on May 31, 2014 (the “Initial Term”), subject to earlier termination or extension as set forth herein. This Agreement shall automatically renew for additional terms of one (1) year each (each, a “Renewal Term”) unless either party gives the other party written notice of termination at least ninety (90) days prior to the end of the Initial Term or the then-current Renewal Term.

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ARTICLE 3

OPERATION OF THE HOTELS

Section 3.01. Representations by Operator; Engagement of Operator.

Operator hereby represents that Operator (i) is experienced and capable and will remain experienced and capable in the management and operation of hotels throughout the United States of America, (ii) has reviewed and understands the terms and provisions of the Lease and the Franchise Agreements and the Hotel Standards, and (iii) will, on the effective date of this Agreement, meet the requirements to be an “eligible independent contractor” under Section 856(d)(9) of the Internal Revenue Code. In reliance on the foregoing representations, Lessee hereby engages Operator to manage and operate the Hotels during the Operating Term and Operator agrees to manage and operate the Hotels during the Operating Term, in accordance with this Agreement. Operator will provide all property management, financial accounting, reporting, marketing and other operational services for each Hotel, including the services of regional managers of operations as necessary for all Hotels and will use commercially reasonable efforts to maximize the operating profitability thereof. Lessee and Operator acknowledge that it is the intention of the parties that the Hotels be operated in a profitable manner and in a manner for comparable hotels operated by a national operator within the Hotel’s market segment, all in accordance with the Hotel Standards. Operator shall diligently pursue all commercially reasonable measures to enable the Hotels to adhere to the Approved Budget.

Section 3.02. Standards of Operation.

Operator agrees to diligently and efficiently operate each Hotel and all of its facilities and activities (i) at all times in accordance with the Hotel Standards; (ii) consistent with the terms of the Lease and Lessee’s obligations thereunder; (iii) in the same manner as is customary and usual in the first-class operation of comparable hotels in its market; (iv) in compliance with this Agreement, all easements, covenants and restrictions affecting the Property (known or disclosed to Operator) and all applicable governmental laws, rules, regulations, ordinances, orders and requirements; (v) in accordance with the terms and conditions of any financing affecting the Property (known or disclosed to Operator); and (vi) in accordance with the requirements of any carrier having insurance on the Hotel or any part thereof. Operator shall also obtain and keep in force any and all licenses or permits necessary for the operation of the Hotel (provided that, at Lessee’s option, liquor licenses or other licenses or permits shall be obtained and held in Lessee’s name). All such licenses and permits shall belong to Lessee and/or the Hotel and upon expiration or termination of this Agreement, Operator shall take any and all actions reasonably requested by Lessee to transfer such licenses and permits to Lessee or its designee. Operator also acknowledges and agrees that this Agreement is subject and subordinate to the Lease and liens, security interest and Mortgages in accordance with Article XX hereof; provided, however, Lessee shall use its commercially reasonable efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in form reasonably acceptable to Operator providing that this Agreement shall remain in full force and effect notwithstanding the fact that the Mortgage has been foreclosed.

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Section 3.03. Reservations Services and Revenue Management.

Operator shall sell, represent and promote the Hotel through the respective Franchisors’ sales and reservations systems and will encourage the use of the Hotel by all recognized sources of hotel business. Operator must employ, at its own expense, at least one employee responsible for revenue management of the Hotels, with certification by a governing body reasonably acceptable to Lessee.

Section 3.04. Marketing.

(a) Operator shall maintain a sales staff dedicated to the Hotels to arrange, contract for and carry out such marketing, advertising, national trade show attendance, and promotion of the Hotel as Operator shall deem advisable and consistent with the Approved Budget and in accordance with the Hotel Standards. Operator will make every effort to ensure that the Hotel shall receive an equitable share of the benefit of the cooperative advertising and promotion reasonably commensurate with its contribution to the costs thereof. The costs thereof shall be equitably allocated by Operator between the Hotel and other participating hotels, subject to Lessee’s prior written approval. Upon Lessee’s request, Operator shall provide reasonable documentation to support such allocations. Operator shall provide Lessee with detailed monthly reports of its marketing, advertising and promotional activities. Each property shall be visited at least once every twelve (12) months by a member of Operator’s sales staff. Lessee will provide appropriate office space for Regional Sales Managers at at least two of the Hotels, without charge to the Operator.

(b) Operator may, consistent with the Approved Budget, and otherwise, with the consent of Lessee, cause the Hotel to participate in sales and promotional campaigns and activities involving complimentary rooms, food and beverages, consistent with customary practices in the travel industry. Operator shall not provide rooms or Hotel facilities at no cash charge or at a discounted cash rate in trade for non-cash consideration or services without the consent of Lessee.

Section 3.05. Consultations Between Lessee and Operator.

When requested by Lessee, Operator shall, from time to time, render advice and assistance to Lessee and Owner in the negotiation and prosecution of all claims for the reduction of real estate or other taxes or assessments affecting the Hotel and for any award for taking by condemnation or eminent domain affecting the Hotel.

Section 3.06. Transactions with Affiliates and Other Relationships.

(a) Operator shall obtain the prior written consent of Lessee (which Lessee may withhold in Lessee’s sole and absolute discretion) prior to contracting with any Affiliate (or companies in which Operator has an ownership or other economic interest if such interest is not sufficient to make such a company an Affiliate) to provide goods and/or services to the Hotels.

(b) Prior to entering into any contract, agreement or arrangement with respect to one or more of the Hotels pursuant to which Operator may receive rebates, cash incentives, administration fees, concessions, profit participations, stock or stock options, investment rights

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or similar payments or economic consideration from or in, as applicable, vendors or suppliers of goods or services (collectively, “Rebates”), Operator shall promptly disclose to Lessee in writing the fact of and the estimated amount of such Rebates, and the charges and other amounts expected to be incurred in connection with any such contracts or agreements (which shall not exceed prevailing market rates with respect to such goods or services). All Rebates will accrue to the benefit of Lessee and will be applied against Operating Expenses.

Section 3.07. Employees.

Operator may offer employment to all employees who work at the Hotels on the date of this Agreement, at substantially the same salaries, wages, benefits and terms of employment as they received immediately prior to the Commencement Date, provided, however, Operator shall offer employment to any corporate level employee of Royco Hotels, Inc. and general managers of the Hotels employed by Royal Hotels, Inc. only with the consent of Royco Hotels, Inc.

Section 3.08. Regional Manager.

Operator shall provide the services of one of its experienced management employees to oversee and manage the operations of the Hotels (the “Regional Manager”). Lessee shall have the right to approve the Regional Manager and any successor provided that such approval shall not be unreasonably withheld. The Regional Manager shall meet telephonically with the designated representatives of Lessee at least monthly to discuss operations at the Hotels and consult with Lessee to answer any questions Lessee may have, and to address any concerns of Lessee. Lessee’s representatives shall have the right to meet with the COO of Operator or his/her mutually acceptable alternative.

Section 3.09. Certain Expenses.

Operator shall not be entitled to charge Lessee for any of its costs and expenses, except as follows:

(a) Operator shall not charge tuition for training courses provided by Operator for employees employed at the Hotels or for course materials but shall be reimbursed the cost of course materials developed by third party companies, subject to approval in the Operating Budget. Reasonable travel and housing expenses of trainees shall be included in Operating Expenses, subject to approval in the Operating Budget.

(b) Travel expenses described in (xvi) of “Operating Expenses” above.

Operator shall be solely responsible and shall reimburse Lessee and Owner for re-inspection fees charged by Franchisors following a “failure” or its equivalent in any quality inspection report unless the failure is for a Capital Improvement that has been previously brought to the attention of the Owner.

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ARTICLE 4

INDEPENDENT CONTRACTOR

Section 4.01. Operator Status.

In the performance of its duties in the administration, management and operation of the Hotel, Operator shall act solely as an independent contractor. Nothing herein shall constitute or be construed to be or create a partnership or joint venture between Lessee and Operator, or be construed to appoint or constitute Operator as an agent of Owner for any purpose, or be construed to create a lease by Operator of the Hotel or the Property and Operator shall not constitute a tenant or subtenant of Lessee or Owner. Operator’s rights under this Agreement shall be those of an agent only and shall not constitute an interest in real property. Lessee or Owner shall have the right to lease, develop or sell excess land or structures not required for operation of the Hotel. It is expressly covenanted that this Agreement is no more than an agreement for the rendering of services by Operator on behalf of Lessee in the operation and management of the Hotels.

Section 4.02. Employees.

(a) Each Hotel employee shall be the employee of Operator, or an affiliate company of Operator, and not of Lessee, and every person performing services in connection with this Agreement shall be acting as the employee of Operator, but their salaries and other related expenses shall be an Operating Expense.

(b) Operator shall provide evidence to Lessee of statutory Worker’s Compensation Insurance and Employer’s Liability Insurance for each such employee. The insurance coverages (including, without limitation, the carrier, policy limits of each and waiver of subrogation endorsements) must be in form, substance and amount satisfactory to Lessee in all respects. Upon request of Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in favor of Lessee and Owner.

(c) The hiring policies and the discharge of employees at the Hotel shall in all respects comply with all “applicable” laws and regulations, and Operator shall comply with all laws, regulations and ordinances regarding the employment and payment of persons engaged in the operation of each Hotel.

(d) Lessee shall have the right to participate in any negotiations with labor unions representing employees at the Hotel, and Operator shall not sign any union contracts covering such employees at the Hotel which have not been previously approved in writing by Lessee.

Section 4.03. Employee Expenses.

(a) All costs of every nature pertaining to all employees at the Hotel, including, without limitation, salaries, benefits, EPLI coverage, the terms of any bonus plan or arrangement, costs incurred in connection with governmental laws and regulations and insurance rules, shall be set forth in the Approved Budget as an Operating Expense.

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(b) Compensation, overhead costs and other expenses of Operator and its Affiliates not specifically provided for herein shall not be Operating Expenses and shall not be payable or reimbursable by Lessee; provided, however, Operator may include in the calculation of Operating Expenses the salary of any of Operator’s employees located at the Operator’s corporate headquarters which have been temporarily transferred to a Hotel to serve that Hotel exclusively; provided, further, that Operator may only include in Operating Expenses that portion of that employee’s salary equal to the normal rate charged for that employment position.

Section 4.04. Employee Benefit Plans.

Operator shall enroll employees at the Hotels in medical and health, life insurance and employee benefit plans which are approved by Lessee. Operator’s contributions to such plans, reasonable administrative fees, at cost, which may be expended in connection therewith, and reasonable expenses for such plans will be estimated and disclosed to Lessee in advance and provided for in the Approved Budget and will be an Operating Expense. Except for employer matching contributions under any 401(k) plan, Lessee, in its sole discretion shall determine whether to require employees at the Hotels to pay all or a portion of the costs of the employees’ participation in such plans. Except as otherwise provided in Section 6.03, all costs referenced in Section 4.03 and this Section 4.04 will be the responsibility of Lessee only to the extent the same are provided for in the Approved Budget. Upon Lessee’s request, Operator will establish a 401(k) plan as an employee benefit plan. All costs incurred by Operator pursuant to actions taken by Operator at Lessee’s direction will be Operating Expenses.

Section 4.05. Execution of Agreements.

(a) Except as provided in Section 4.05(b), Operator shall execute as agent of Lessee all leases and other agreements relating to equipment and/or services provided to each Hotel, all of which, unless otherwise approved in writing in advance by Lessee, shall either be a term of one year or less or be cancelable upon not more than thirty (30) days’ written notice by Operator or Lessee without the payment of a penalty or fee. Notwithstanding the foregoing, without the prior written approval of Lessee, Operator shall not enter into any agreement (i) which provides for the payment of sums not authorized by Lessee in an Approved Budget, (ii) which would give rise to a lien upon all or any part of the Property, (iii) which would result in liability to Lessee for sums other than as set forth in the applicable Approved Budget, (iv) to lease any part of any Property, (v) relating to alterations to the exterior, interior or structural design of the Hotel, (vi) which requires an unbudgeted payment of more than $5,000, or in the case of a repair of any payment of more than $1,500 (vii) which is not cancelable by Lessee upon 30 days’ notice or less unless the term of said agreement is one year or less, or (viii) which provides for any automatic renewal terms. Contracts for multiple rooms and / or multiple days that(i) exceed a 1-year term and / or (ii) exceed 40% of property nightly room inventory for a period of 30 days or more, or (iii) exceed 50 room nights and have a negotiated net rate of $35 for economy properties, and $45 for midscale and above, this includes promoting such rates online, in print ads such as coupons. If Operator desires to enter into any agreements requiring the consent of Lessee, Operator shall first send written notice of intent to enter into such agreement to Lessee, and Lessee shall either approve or disapprove within five (5) business days of receipt of such notice. Lessee’s failure to timely respond to said request shall be deemed disapproval.

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(b) Subject to Lessee’s prior approval of the same and upon Lessee’s request, Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of any space at any Property, and (ii) equipment rental and/or lease agreements which cannot be terminated upon thirty (30) days notice or less without the payment of a penalty or fee. Operator shall exercise its best efforts to obtain in each equipment agreement a right on the part of the lessee of such equipment to terminate the same on thirty (30) days notice or less without the payment of a penalty fee. Notwithstanding anything in this Section 4.05 to the contrary, Lessee reserves the right, exercisable at Lessee’s option, to execute any lease or other agreement relating to equipment and/or services being provided to the Hotel.

ARTICLE 5

INDEMNIFICATION

Section 5.01. Indemnification by Operator.

In addition to all other obligations of Operator to Lessee hereunder, Operator shall indemnify and hold Lessee harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys’ fees and expenses), of every kind and nature whatsoever to or of any party connected with, or arising out of, or by reason of any gross negligent act or omission, breach of contract, willful misconduct, or tortious actions by Operator, or any Affiliate of Operator, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Operator or any Affiliate of Operator and any employment related claims by Operator’s employees. The indemnification provisions of this Section 5.01 are subject to the limitations set forth in Section 5.02.

Section 5.02. Limitations on Indemnification.

None of the indemnifications set forth in Section 5.01 shall be applicable to (1) liability resulting from the design or construction of the Hotel, or (2) that portion of a liability which is covered and paid for by insurance maintained for the Hotel. The standard of performance of which Operator is to be responsible under this Agreement shall be that, reasonably and diligently exercised, of a professional hotel operator. Settlement of a third party claim shall not be prima facie evidence that a party has triggered an indemnification obligation hereunder. Notwithstanding the provisions of Section 5.01 above, neither Lessee nor Operator will assert against the other and each does hereby waive with respect to the other any claims for any losses, damages, liabilities and expenses (including lawyers’ fees and disbursements) incurred or sustained by that party as a result or damage or injury to persons or property arising out of the ownership, operation or management of the Hotels, to the extent that the damage and injury are covered by insurance and the proceeds are actually recovered from the insurer.

Section 5.03. Indemnification by Lessee.

Lessee shall indemnify and hold Operator harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys’ fees and

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expenses), of every kind and nature whatsoever to or of any party connected with or arising out of, or by reason of any gross negligent act or omission, breach of contract, willful misconduct, or tortious actions by Lessee or any Affiliate of Lessee, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Lessee or any Affiliate of Lessee. The indemnification provisions of this Section 5.03 are subject to the limitations set forth in Section 5.02. Lessee will indemnify and hold Operator harmless from all costs, expenses, claims, damages and liabilities, including without limitation, lawyers’ fees and disbursements, arising or resulting from Lessee’s failure following the expiration or earlier termination (for whatever cause) of this Agreement to provide all of the services contracted for in connection with the business booked on commercially reasonable terms for the Hotels on or prior to the date of such expiration or termination. The provisions of this Section will survive any expiration or termination of this Agreement and will be binding upon Lessee and its successors and assigns, including any successor or assign that becomes the beneficial or legal owner of the Hotels after the effective date of any such expiration or termination.

Section 5.04. Survival of Indemnity.

The provisions of this Article V shall survive the expiration or sooner termination of this Agreement with respect to matters arising out of facts or circumstances occurring during the period prior to such expiration or termination.

ARTICLE 6

BUDGETS AND POLICY MEETINGS

Section 6.01. Budgets.

(a) No later than November 1 of each year, Operator will prepare and submit (following discussions with Lessee) to Lessee an annual capital budget for each Fiscal Year for each Hotel (the “Hotel Capital Budget”). Notwithstanding the foregoing, for the Fiscal Year in which this Agreement is executed Operator shall manage the Hotels in accordance with the then existing Hotel Capital Budget. The Hotel Capital Budget will set forth all projected Capital Improvements for such Fiscal Year, which budget shall also be month-to-month as well as annual. The Hotel Capital Budget will be subject to the approval of Lessee and Owner, in their sole and absolute discretion. No later than November 1 of each year, Operator shall prepare and submit (following discussions with Lessee) to Lessee an annual operating budget for the operation of each Hotel for the forthcoming Fiscal Year containing detailed projections of Gross Hotel Income and budgets of Operating Expenses (the “Hotel Operating Budget”). Notwithstanding the foregoing, for the Fiscal Year in which this Agreement is executed Operator shall manage the Hotels in accordance with the then existing Hotel Operating Budget. The Hotel Operating Budget shall be month-to-month as well as annual and shall be in the form designated by Lessee, and approved by Operator, which approval of the form shall not be unreasonably withheld. The Hotel Operating Budget and the Hotel Capital Budget shall provide for operating, equipping and maintaining the Hotel in accordance with the Hotel Standards. Contemporaneously with the submission of the Hotel Capital Budget, Operator shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR statistics for each hotel. The Hotel Operating Budget and the monthly budgeted hotel operating statistics shall contain

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Operator’s reasonable good faith estimates of the amounts set forth therein. Operator shall provide Lessee, upon request, all details, information and assumptions used in preparing the Hotel Capital Budget and the Hotel Operating Budget. Owner shall be responsible for implementing the Hotel Capital Budget and may, in Owner’s sole discretion, increase, decrease, delete or modify in any respect any capital expenditure in any Hotel Capital Budget.

(b) Operator shall review the Hotel Capital Budget and the Hotel Operating Budget with Lessee, and upon Lessee’s written approval of the Budget, it shall constitute the Approved Budget for the succeeding Fiscal Year and shall be implemented by Operator. In the event Lessee does not provide Operator with written objections to the Hotel Capital Budget and Hotel Operating Budget within 30 days following Lessee’s receipt of the same, they shall be deemed approved. If Lessee objects to any portion of the Hotel Capital Budget or the Hotel Operating Budget within 30 days after receipt of the same, or to any portion of the revisions within 20 days after submission of the revisions by Operator to Lessee, the parties hereto will call a special budget meeting to resolve the points of disagreement. In the event that Lessee and Operator are unable to agree on the Hotel Operating Budget for a Hotel prior to the commencement of the applicable Fiscal Year, an interim operating budget shall be implemented which will reflect CPI increases for expenses and RevPAR increases based on the appropriate previous 12-month RevPAR growth percentage for the sector in which the Hotel is included, as published by Smith Travel Research, for revenue growth over the prior year’s actual amounts.

Section 6.02. Budget Meetings.

Budget meetings between Lessee and Operator will be held at times as reasonably scheduled by Lessee. At each budget meeting and at any additional meetings during a Fiscal Year called by Lessee, Operator shall consult with Lessee on matters of policy concerning management, sales, room rates, wage scales, personnel, general overall operating procedures, economics and operation and any other matters affecting the operation of the Hotel as requested by Lessee.

Section 6.03. Approval by Lessee Required.

Any request by Operator for Lessee or a Hotel to make any expenditure or incur any obligations in excess of the Approved Budget shall be submitted to Lessee in writing with an explanation of and accompanied by supporting information for the request. Operator shall not make any such expenditure without Lessee’s prior written consent, except as is necessary, in Operator’s reasonable good faith judgment, for the immediate emergency protection of life or property. Lessee shall endeavor to respond to any such request within five (5) business days of the receipt thereof; provided, however, Lessee shall have no obligation to agree to any such request and no liability for failing to respond and failure to respond to such request within such five (5) business day period shall be deemed a denial of the request. The Approved Budget for each Hotel shall be prepared in both dollar amounts and percentages. Variances from the amounts set forth for the expense categories in the Approved Budget for all Hotels (in the aggregate) shall not require Lessee’s prior written consent until such amounts exceed the budgeted year to date percentages (of total line item expenses to revenue) by 5% or more of the applicable percentages reflected in the Approved Budgets for all Hotels on a year-to-date basis, but, in any such event, Operator shall promptly provide to Lessee an explanation of any such

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variance from the Approved Budget. By way of example, if a line item of expense to revenue was 12%, a 5% change will be exceeded if the variance in the line item exceeds 12.6% as reflected in the Approved Budget.

ARTICLE 7

OPERATING EXPENSES

Section 7.01. Payment of Operating Expenses.

(a) In performing its authorized duties hereunder, Operator shall promptly pay all Operating Expenses, except that if requested by Lessee certain Operating Expenses shall be paid by Operator directly to Lessee for payment by Lessee to the appropriate lender, taxing authority, insurer or other party so identified by Lessee to Operator.

(b) Subject to Article V, all reasonable third party Operating Expenses incurred by Operator in performing its authorized duties shall be reimbursed or borne by Lessee; provided that such Operating Expenses are incurred pursuant to and within the limits set forth in an Approved Budget or otherwise pursuant to the terms of this Agreement.

Section 7.02. Operating Expenses Not an Obligation of Operator.

Except as may be otherwise specifically provided in this Agreement, Operator shall in no event be required to advance any of its own funds for Operating Expenses of the Hotel, nor to incur any liability in connection therewith unless Lessee shall have furnished Operator with funds as required of Lessee under the terms of this Agreement. However, if Lessee has provided funds required of Lessee hereunder, Operator shall advance such funds necessary to pay expenses incurred by Operator in performing its duties and obligations hereunder. Unless agreed to by Lessee in this Agreement, in the Hotel Operating Budget or otherwise in writing in advance, compensation, overhead costs, and other expenses of Operator and its Affiliates shall not be reimbursable to Operator by Lessee.

ARTICLE 8

BANK ACCOUNTS

Section 8.01. Lessee Revenue Account.

All income, receipts, and proceeds included in the definition of Gross Hotel Income shall be deposited into Lessee Revenue Account.

Section 8.02. Bank Accounts.

(a) Operator shall have the responsibility for payment of all Operating Expenses (which may include Operator’s Fee and the monthly accruals of the Hotels) and shall be reimbursed by Lessee for such expenses upon submission of receipts and documentation reasonably requested by Lessee. Lessee funds shall not be commingled with Operator’s funds and Operator shall provide to Lessee monthly a detailed accounting of all Hotel Operating

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Account receipts and disbursements. Operator shall comply with Lessee’s or Owner’s or their lenders’ requirements with respect to lock-box accounts provided that Lessee shall be responsible for any incremental out-of-pocket costs of Operator resulting from any such lock-box arrangement (which shall not be an Operating Expense).

(b) Operator may establish one or more separate bank accounts for handling payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be handled exclusively by the individuals designated by Operator and approved in writing by Lessee. Funds shall be deposited in the payroll account or accounts by the Lessee, as needed, in order to meet payroll requirements; provided, however, all expenditures from such accounts shall be subject to and in accordance with the terms of this Agreement.

Section 8.03. Authorized Signatures.

The Hotel Operating Account shall be under the day-to-day control of Operator, subject to Operator’s obligation to account to Lessee as and when provided for herein. Lessee shall have signatory authority with respect to the Hotel Operating account, provided, however, Lessee shall not remove any funds from the Hotel Operating Account without first providing at least one week notice to Operator. All receipts and income, including, without limitation, Gross Hotel Income shall be promptly deposited in the Lessee Revenue Account. Checks or other documents of withdrawal shall be signed only by the individual representatives of Operator approved in writing by Lessee and duly recognized for such purpose by the bank or banks in which the referenced accounts are maintained. Upon Lessee’s request, Operator shall supply Lessee with fidelity bonds or other insurance insuring the fidelity of authorized signatories to such accounts, unless said bonds or other insurance shall have been placed by Lessee and delivered directly by the bonding or insurance company to Lessee. The cost of such fidelity bonds or other insurance shall be an Operating Expense and subject to Lessee’s approval. Neither Lessee nor Operator shall be responsible for any losses occasioned by the failure or insolvency of the bank or banks in which the referenced accounts are maintained. Upon expiration or termination of this Agreement and the payment to Operator of all amounts due Operator hereunder upon such expiration or termination, as provided in this Agreement, all remaining amounts in the referenced accounts shall be transferred forthwith to Lessee, or made freely available to Lessee.

ARTICLE 9

BOOKS, RECORDS AND STATEMENTS

Section 9.01. Books and Records.

(a) Operator shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with GAAP.

(b) Except for the books and records which may be kept in Operator’s home office or other location approved by Lessee the books of account and all other records relating to or reflecting the operation of the Hotel shall be kept at the Hotel. All such books and records pertaining to the Hotel, including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessee and, except for books of account,

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accounts payable invoices, night audit packages, deposit records and similar documents which may be sent to Operator’s accounting department shall not be removed from any Hotel by Operator without Lessee’s written approval and consent. All books and records pertaining to the Hotel and of Operator (including all budgetary records of Operator), wherever kept, shall be available to Lessee and its representatives at all reasonable times for examination, audit, inspection, transcription and copying. Operator shall not remove, destroy or delete any books and records of the Hotels without the prior written consent of Lessee. Upon any termination of this Agreement, all of such books and records pertaining to the Hotel forthwith shall be turned over to Lessee so as to insure the orderly continuance of the operation of the Hotel, but such books and records shall be available to Operator for a period of seven (7) years at all reasonable times for inspection, audit, examination, and transcription of particulars relating to the period in which Operator managed the Hotel.

Section 9.02. Statements.

(a) Operator shall deliver to Lessee by the eighth (8^th) business day following the last day of each month, for each Hotel, a monthly report of the state of the business and affairs of the operation of the Hotel for the immediately preceding month and for the Fiscal Year to date and within eight (8) days after the end of each quarter, a quarterly report with respect to the preceding quarter. Such reports shall include at least (i) a balance sheet account reconciliation including all intercompany accounts, (ii) a profit and loss statement, comparing current month and Fiscal Year-to-date profit, loss, and operating expenses to the Approved Budget and the prior year and comparing current month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved Budget and the prior year, (iii) a statement which details the computation of all fees payable to Operator for the month and quarter, (iv) the balance of all bank accounts, and (v) an adjusting statement showing the actual cash position of the Hotel for the month, quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to Lessee fifteen (15) days following the end of each month and fifteen (15) days following the end of each quarter a written narrative discussing any of the aforementioned reports and year-to-date variances from the Approved Budget, without thereby implying Lessee’s approval of such variance.

(b) Such reports and statements (i) shall be in form and in detail satisfactory to Lessee as reasonably requested by Lessee and consistent with standard hotel reporting procedures, (ii) shall be taken from the books and records maintained by Operator in the manner hereinabove specified, and (iii) if requested by Lessee, shall be in electronic form.

(c) Within seventy-five (75) days after the end of each Fiscal Year, Operator shall deliver to Lessee reviewed financial statements for Operator, and, if requested by Lessee, within thirty (30) days after the end of each quarter of each Fiscal Year, Operator shall deliver to Lessee unaudited financial statements for Operator.

(d) In addition, Operator shall timely deliver to Lessee a copy of (i) a monthly STAR report from Smith Travel Research for each Hotel, where available (which Operator hereby agrees to order with respect to each Hotel and provide to Lessee), (ii) each Guest Satisfaction report, (iii) a new competition report prepared with respect to each Hotel describing franchise changes, new groundbreakings, new openings and similar market supply changes, (iv) upon

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receipt, each Franchisor inspection report, and (v) such other reports or information in such form as may be reasonably requested by Lessee. Any out-of-pocket costs incurred by Operator to generate such reports will be included in Operating Expenses.

(e) Operator shall use the accounting software and payroll processor specified in Exhibit A-3.

Section 9.03. Costs.

The cost of providing all financial and operating data and accounting services hereunder shall be at Operator’s expense, except for licensing fees for the Great Plains accounting system, which shall be paid by Lessee, and the cost of the payroll processor, which shall be paid as agreed by Operator and Lessee in the Approved Budget.

ARTICLE 10

OPERATOR’S FEE AND TRANSFERS TO LESSEE

Section 10.01. Payment of Operator’s Fee.

Within one (1) business day after the delivery to Lessee of the monthly report required by Section 9.02, Operator shall be paid the Operator’s Fee by Lessee for the immediately prior month, based upon Gross Hotel Income for the immediately prior month, as determined from the books and records referred to in Article IX.

ARTICLE 11

REPAIRS AND MAINTENANCE

Subject to the provisions of the Approved Budget, Operator shall from time to time make such expenditures for repairs and maintenance as are necessary to keep the Hotel in good operating condition in accordance with the Hotel Standards. If any repairs or maintenance shall be made necessary by any condition against the occurrence of which Operator, Lessee or Owner has received the guaranty or warranty of any contractor for the building of the Hotel or of any supplier of labor or materials for the construction of the Hotel, then Operator shall, on Lessee’s or Owner’s request, cooperate with Lessee and Owner in invoking such guarantees or warranties. Notwithstanding the Approved Budget, Owner or Lessee may from time to time at its expense make such alterations, additions, or improvements (including structural changes or repairs) in or to the Hotel as they deem desirable, in their sole discretion and responsibility, for the efficient operation of the Hotels.

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ARTICLE 12

INSURANCE

Section 12.01. General.

Owner and Lessee shall maintain insurance policies with respect to the Hotels as set forth in each Lease. Operator agrees to cooperate with Lessee and Owner in obtaining any such insurance.

Section 12.02. Workers’ Compensation and Other Employment Insurance.

The Hotel Operating Budget shall include, as an Operating Expense, (i) workers’ compensation insurance and employment practices liability insurance with respect to all Hotel employees in such amounts as may be required by applicable law, and (ii) crime insurance in connection with all operations, business and affairs arising out of or in connection with the Hotel, including coverage on persons employed by Operator in an amount specified by Lessee; provided that the cost of such insurance shall be reasonable and shall be approved by Lessee.

Section 12.03. Approval of Companies and Cost by Owner and Lessee.

All insurance shall be with such insurance company or companies as may be selected by Owner or Lessee. Lessee will obtain all insurance but, upon the request of Lessee not less than one hundred twenty (120) days prior to the coverage date, Operator will obtain such insurance, subject to Lessee’s approval of the insurance companies and coverages. Comprehensive general liability insurance and such other liability insurance as may be obtained or afforded shall be in the name of Owner and Lessee, and shall name Operator as an additional named insured as respects liability arising from the operation, maintenance and use of the Hotel and operations incidental thereto. All property insurance policies shall be endorsed specifically to the effect that the proceeds of any building, contents or business interruption insurance shall be made payable to Lessee.

Section 12.04. Maintenance of Coverages.

Lessee shall hold all insurance policies obtained hereunder, and certificates of such policies, if any, shall be delivered to each of Lessee and Operator.

Section 12.05. Waiver of Subrogation.

To the extent obtainable from carriers and to the extent that endorsement forms are approved by the Insurance Commissioner (or comparable office or department) of the state in which the Hotel is located, all policies of property insurance shall provide that the insurance companies will have no rights to subrogation against Lessee or Operator or the agents or employees thereof.

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Section 12.06. Blanket Coverage.

Owner and Lessee reserve the right to provide any insurance referenced in this Article XII by one or more so-called “blanket” or “umbrella” policies of insurance. Operator further acknowledges that the insurance coverage of the Hotel may be part of the general insurance plan of Owner or Lessee or of any of their affiliates. Owner or Lessee may elect to obtain any of the insurance coverages set forth in this Article XII with a “deductible loss” clause providing for per occurrence deductibles.

ARTICLE 13

PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01. Property Taxes.

At Lessee’s request, Operator shall pay from the Hotel Operating Account prior to the dates the same become delinquent, with the right upon Lessee’s request to pay the same in installments to the extent permitted by law, all real and personal property taxes levied against the Property or any of its component parts.

Section 13.02. Lessee’s Right to Contest.

Notwithstanding the foregoing, Lessee or Owner may contest the validity or the amount of any real or personal tax or assessment. Operator agrees to cooperate with Lessee and Owner and execute any documents or pleadings required for such purpose.

ARTICLE 14

DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01. Damage.

If at any time during the Operating Term any Hotel or any portion thereof should be damaged or destroyed, Owner and Lessee shall have the respective rights and obligations set forth in the Lease with respect to damage or destruction. In the event the Hotel is not repaired, rebuilt or replaced, Lessee may terminate this Agreement by written notice to Operator, effective as of the date sent and the parties shall treat such termination as if it were in connection with the sale of the Hotel in accordance with Section 16.03.

Section 14.02. Condemnation.

If at any time during the Operating Term the whole or any part of the Property shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding or sale in lieu thereof by any competent authority, or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable to use the remaining portion as a hotel of the type and class immediately preceding such taking or condemnation, then the parties shall treat such termination as if it were in connection with the sale of Hotel in accordance with Section 16.03. Operator shall have no right to the award from the taking or condemning authority in any such proceeding; provided, however, that this shall not prevent Operator from making a separate claim against the condemning authority for loss of its business or profits.

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ARTICLE 15

USE OF NAME

During the term of this Agreement, each Hotel shall at all times be known by such name as from time to time may be selected by Lessee or Owner.

ARTICLE 16

TERMINATION

Section 16.01. Inspection Failure.

This Agreement may be terminated by Lessee as to one or more Hotels upon the failure within a sixty (60) day period of both a SPAR inspection and a Franchisor’s quality inspection of a Hotel for any reason other than capital related condition items (by way of example, mildewed caulking or scuffed walls would be considered non capital related whereas worn carpet or sagging beds would be capital related), if the failures have not been remedied by Operator within ninety (90) days following the relevant inspection. Such termination shall be by delivery of written notice by Lessee to Operator not less than thirty (30) days prior to the effective date of termination.

Section 16.02. Performance Failure.

(a) Beginning with Fiscal Year 2012, if a Hotel fails to achieve as of the end of any Fiscal Year (i) actual NOI of at least 80% of the budgeted NOI for such Hotel for such Fiscal Year, and (ii) 90% of such Hotel’s RevPAR Benchmark for such Fiscal Year (collectively, an “Individual Hotel Performance Failure”), subject to the cure periods below, Lessee may terminate this Agreement with respect to such Hotel upon sixty (60) days prior written notice to Operator. The effectiveness of any such notice of termination, however, shall be stayed until completion of the following applicable cure periods.

If an Individual Hotel Performance Failure occurs with respect to a Fiscal Year, but the Hotel achieves as of the end of the immediately following three (3) months (x) actual NOI of at least 85% of the budgeted NOI for such Hotel for such three (3) months, or (y) 95% of such Hotel’s RevPAR Benchmark for such three (3) months, then the Individual Hotel Performance Failure shall be deemed cured and Lessee shall have no right to terminate for such Individual Hotel Performance Failure (and any notice of termination with respect thereto shall be deemed null and void).

(b) Beginning with Fiscal Year 2012, if the Hotels fail to achieve as of the end of any Fiscal Year (i) actual NOI of at least 80% of the budgeted NOI for the Hotels for such Fiscal Year, and (ii) 90% of the Hotels’ RevPAR Benchmark for such Fiscal Year (collectively, a “Hotels Performance Failure”), subject to the cure period below, Lessee may terminate this Agreement with respect to all of the Hotels upon sixty (60) days prior written notice to Operator. The effectiveness of any such notice of termination, however, shall be stayed until completion of the following applicable cure periods.

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If the Hotels Performance Failure occurs with respect to a Fiscal Year, but the Hotels achieve as of the end of the immediately following three (3) months (x) actual NOI of at least 85% of the budgeted NOI for the Hotels for such three (3) months, or (y) 95% of the Hotels’ RevPAR Benchmark for such three (3) months, then the Hotels Performance Failure shall be deemed cured and Lessee shall have no right to terminate for the Hotels Performance Failure (and any notice of termination with respect thereto shall be deemed null and void).

Section 16.03. Sale of Hotels.

Owner may sell or otherwise dispose of one or more Hotels to any other person, partnership, firm or corporation at any time. In such event during the Operating Term, Lessee may notify Operator in writing no less than sixty (60) days prior to any such sale of a Hotel and this Agreement shall terminate with respect to such Hotel(s) upon the closing of the sale. This Agreement may be terminated by Operator with respect to the following events by delivery of written notice to Lessee ninety (90) days prior to the effective date of termination provided such termination notice is delivered to Lessee within thirty (30) days following the occurrence of either of the following events: (i) twenty-five (25) percent of the original portfolio of Hotels listed on Exhibit A is sold pursuant to this Section 16.03, exclusive of any Hotels for which Lessee has offered a replacement hotel for management by Operator under this Agreement within twelve (12) months of such sale, or (ii) four (4) or more Hotels are sold pursuant to this Section 16.03 during a twelve (12) month period, exclusive of any Hotels for which Lessee has offered a replacement hotel for management by Operator under this Agreement within twelve (12) months of such sale.

Section 16.04. Optional Termination.

This Agreement may be terminated by Lessee as to one or more Hotels at any time without a reason upon no less than sixty (60) days prior notice to Operator, and Lessee shall pay Operator a termination fee with respect to any such Hotel equal to 50% of the Operator’s Fee paid with respect to the Hotel during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.05. Lessee Change of Control.

This Agreement may be terminated by Lessee or Operator upon a change of control of Lessee (as defined below) during the Operating Term. Said termination will be exercised by delivery of written notice to the other party not less than sixty (60) days prior to the effective date of termination which notice shall set forth the effective date of termination. For purposes hereof, a “change of control” shall be deemed to have occurred if, during the Operating Term, any of the following events occurs:

(i) any “person”, as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1

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(or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of Supertel Hospitality, Inc., the parent of Lessee (the “Parent”) representing 50% or more of the combined voting power of the Parent’s then outstanding securities entitled to vote generally in the election of directors;

(ii) individuals who, as of the date of this Agreement, constitute the Board of Directors of the Parent or their duly elected successors cease for any reason to constitute at least a majority of the Board of Directors of the Parent;

(iii) the Parent is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Parent are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such transaction; or

(iv) the Parent in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such sale.

In the event Lessee terminates this Agreement solely in accordance with this Section 16.05, Lessee shall pay Operator a termination fee equal to 50% of the Operator’s Fee paid to Operator during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.06. Operator Change of Control.

This Agreement may be terminated by Lessee upon a change of control of Operator (as defined below) during the Operating Term. Said termination will be exercised by delivery of written notice to the Operator, such notice to be provided within thirty (30) days following the Lessee being made aware of the event giving rise to the change of control and not less than thirty (30) days prior to the effective date of termination which notice shall set forth the effective date of termination; provided that, in the event such written notice to Operator is not provided in accordance within the terms of this sentence, the Lessee shall be deemed to have waived any rights to terminate this Agreement with respect to the particular change of control giving rise to the required notice. For purposes hereof, a “change of control of Operator” shall mean (i) a change of fifty percent or more of the voting control of Operator or any of its owner entities or (ii) a substantial change in the current management of Operator.

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Section 16.07. Tax Law Change.

Lessee may terminate this Agreement upon 60 days’ notice to Operator if Lessee ceases to be qualified as a real estate investment trust or if the United States tax laws change to allow a hotel REIT to self-manage its properties. In such event, Lessee shall pay Operator a termination fee equal to 50% of the Operator’s Fee paid to Operator during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.08. Termination Fees.

Except as provided in Sections 14.01, 14.02, 16.04, 16.05, and 16.07, Operator shall not be entitled to a termination fee or compensation in the event this agreement is terminated for a Hotel or Hotels by Lessee.

ARTICLE 17

DEFAULT AND REMEDIES

Section 17.01. Events of Default- Remedies.

(a) The following shall constitute Events of Default:

(1) The failure of Operator to diligently and efficiently operate the Hotel in accordance with the provisions of this Agreement;

(2) The failure of Operator to pay any amount to Lessee provided for herein for a period of five (5) days after written notice by Lessee of failure to pay such sum when payable;

(3) The failure of Lessee to pay any amount to Operator provided for herein for a period of five (5) days after written notice by Operator of failure to pay such sum when payable;

(4) The filing of a voluntary petition in suspension of payments, bankruptcy or insolvency by either Lessee or Operator or any entity which owns or controls such party or if any such party otherwise voluntarily avails itself of any federal or state laws for the relief of debtors or admits in writing its inability to pay its debts as they become due;

(5) The consent to an involuntary petition in bankruptcy or the failure to vacate within sixty (60) days from the date of entry thereof any order approving an involuntary petition by or against either Lessee or Operator;

(6) The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating Lessee or Operator a bankrupt or

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insolvent or appointing a judicial receiver, trustee or liquidator of all or a substantial part of such party’s assets, and such order, judgment or decree shall continue unstayed and in effect for a period of one hundred twenty (120) consecutive days;

(7) The failure of either Lessee or Operator to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, and the continuance of any such default for a period of thirty (30) days after written notice of such failure;

(8) Loss of the franchise license for a Hotel as a result of any action, or failure to act, on the part of Operator;

(9) Failure by Operator to pay, when due, the accounts payable for the Hotels for which Lessee had previously reimbursed Operator.

(10) Any of the Hotels receives a “failure” or its equivalent in any quality inspection report from any of the Franchisors, if such deficiencies are within Operator’s reasonable control.

(b) Upon the occurrence of any Event of Default, the nondefaulting party shall give to the defaulting party notice of its intention to terminate this Agreement after the expiration of a period of ten (10) days from such date of notice and, upon the expiration of such period, this Agreement shall terminate and expire without penalty. If, however, with respect to the Events of Default referred to in items (1), (4), (5), (6), (7), (9) and (10) of subsection (a) above, unless a specific right of termination is specified elsewhere in this Agreement for the event in question, upon receipt of such notice, the defaulting party shall promptly and with all due diligence cure the default or take and continue action to cure such default within such ten (10) day period; provided, in the case of an event described in Section 17.01(a)(10), and subject to Lessee’s termination rights pursuant to Section 16.01, the Operator shall cure such default by receipt of a favorable quality inspection report upon an inspection by the Franchisor within six (6) months following the failed inspection. If such default shall not be capable of being cured within such ten (10) day period, then provided the defaulting party diligently pursues the cure of such default, such party shall have an additional five (5) days to cure any such default unless otherwise extended by the non-defaulting party. The procedure set forth in the preceding two sentences shall not be available for the curing of any default under items (2), (3) or (8) of subsection (a) above. In the event such default is not cured by the expiration of such period, the non-defaulting period may terminate this Agreement effective upon expiration of such period without penalty or payment of any fee.

Section 17.02. Rights Not Exclusive.

(a) The rights granted under this Article XVII shall not be in substitution for, but shall be, except as otherwise provided in this Agreement, in addition to any and all rights and remedies for breach of contract granted by applicable provisions of law; provided, however, upon any termination of this Agreement by Operator or Lessee as provided in this Agreement, Operator shall be entitled to recover only such sums as are owing to Operator under this Agreement on the date of any such termination and in no event will Operator have any claim or cause of action for “future profits,” damages resulting from termination or otherwise under this Agreement.

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(b) No failure of Operator or Lessee to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument signed by both Lessee and Operator. No waiver of any breach shall affect or alter this Agreement but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.

ARTICLE 18

NOTICES

Section 18.01. Notices.

(a) Any notice, statement or demand required to be given under this Agreement shall be in writing and shall be delivered by certified or registered mail, postage prepaid, return receipt requested, or by overnight delivery with proof of delivery, or by facsimile with receipt of transmission, addressed to the parties hereto at their respective addresses listed below:

(1) Notices to Lessee shall be addressed:

TRS Leasing, Inc.

309 North 5^th Street

Norfolk, NE 68702

Attention: Chief Executive Officer

Facsimile: (402-371-4229

(2) Notices to Operator shall be addressed:

Kinseth Hotel Corporation

2 Quail Creek Circle

North Liberty, IA 52317

Attention: Chief Executive Officer

Facsimile: (319) 626-8350

(b) All notices, statements, demands and requests shall be effective three (3) days after being deposited in the United States mail or one day after being sent by overnight delivery or by facsimile. However, the time period in which a response to any such notice, statement, demand or request must be given shall commence to run from date of receipt by the addressee thereof as shown on the return receipt of the notice, statement, demand or request, but in all events not later than the tenth (10th) day after it shall have been mailed as required herein.

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(c) By giving to the other party at least thirty (30) days written notice thereof, either party shall have the right from time to time and at any time during the Operating Term to change their respective addresses for notices, statements, demands and requests, provided such new address shall be within the United States of America.

ARTICLE 19

ASSIGNMENT

Section 19.01. No Assignment by Operator.

Notwithstanding anything to the contrary set forth in this Agreement, without the prior written consent of Lessee (which consent may be withheld in Lessee’s sole and absolute discretion), Operator shall have no right to sell, transfer or assign (or permit the sale, transfer or assignment of) any of its rights, duties or obligations under this Agreement in any manner, either directly or indirectly, voluntarily, or by operation of law.

Section 19.02. Assignment by Lessee.

Lessee may transfer or assign its rights and obligations under this Agreement without the consent of Operator but shall deliver to Operator written notice of such transfer or assignment not less than ten (10) days prior to the effective date thereof; provided, however, in the event of the assignment of this Agreement to a party that is not an Affiliate, Operator shall have the right to terminate this Agreement within 15 days after receipt of written notice of such assignment, which termination will be effective within 30 days of Lessee’s receipt of such termination notice. Any transfer or assignment of this Agreement by Lessee shall include an express assumption by the transferee or assignee of Lessee’s obligations hereunder. Nothing herein shall be deemed to require Lessee to assign or attempt to assign this Agreement to any third party, including any buyer of a Hotel.

ARTICLE 20

SUBORDINATION

Section 20.01. Subordination To Mortgage.

Operator hereby agrees that this Agreement, including, but not limited to Operator’s Fee, shall in all respects be and is hereby expressly made subordinate and inferior to the liens, security interest and/or any Mortgage and to any promissory note and other indebtedness secured or to be secured thereby and to all other instruments evidencing or securing or to evidence or secure indebtedness, and all amendments, modifications, supplements, consolidations, extensions and revisions of such note and other instruments and any other indebtedness of Lessee or Owner, secured or unsecured. Operator shall execute any and all subordination agreements, estoppel certificates and other documents requested by Lessee or Owner and/or the Holder to further evidence the subordination of this Agreement and Operator’s rights hereunder including without limitation providing any purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure (including the lender) with the right to terminate this Agreement; provided, however, Lessee shall use its commercially reasonable efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in form reasonably acceptable to Operator providing that this Agreement shall remain in full force and effect notwithstanding the fact that the Mortgage has been foreclosed.

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Section 20.02. Foreclosure.

Prior to termination of this Agreement by foreclosure under the Mortgage or by acquisition of the property to be covered by the Mortgage by deed in lieu of foreclosure, Operator shall have the right to enjoy all rights and privileges conferred upon it pursuant to this Agreement, including, without limitation the rights to the Operator’s Fee, and Operator shall incur no liability to the Holder for acting pursuant to the terms of this Agreement; provided, however, Operator shall be required to (and does hereby agree to) repay to the Holder any Operator’s Fee paid to Operator under this Agreement from and after the date which is thirty (30) days after the date of receipt by Operator of a notice of default under the Mortgage, which default is not cured and results in the acceleration of the indebtedness secured by the Mortgage and the ultimate foreclosure of the liens and/or security interest under the Mortgage and/or other acquisition of the property covered thereby by the Holder in lieu of foreclosure. In the event of such foreclosure, Operator shall have the right to terminate this Agreement on thirty (30) days’ written notice to Lessee. Notwithstanding the foregoing, Operator may pursue, as an unsecured creditor, a claim for all amounts due and owing to Operator under this Management Agreement in accordance with the terms of this Section 20.02.

Section 20.03. Estoppel Certificates.

Lessee and Operator agree, at any time and from time to time, upon not less than 10 days prior written notice from the other party or any purchaser or lender, to provide a statement in writing certifying that this Agreement is unmodified and in full force and effect (or, if there have been modifications, that the same is full and force and effect as modified and stating the modifications), and stating whether or not to the best knowledge of the signer of such certificate, there exists any default in the performance of any obligation contained in this Agreement, and if so, specifying each such default of which a signer may have knowledge. Any statement delivered pursuant to this Section may be relied upon by the other party and by the prospective lender or purchaser.

ARTICLE 21

MISCELLANEOUS

Section 21.01. Further Documentation and Reporting Compliance.

Lessee and Operator shall execute and deliver all appropriate supplemental agreements and other instruments, and take any other action necessary to make this Agreement fully and legally effective, binding, and enforceable in accordance with the terms hereof as between them and as against third parties. Operator acknowledges that Parent is a reporting company under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and other federal laws, including the Sarbanes-Oxley Act of 2002, and Operator shall reasonably cooperate in providing Lessee information as necessary for Parent to prepare and submit its reports under such laws in a timely fashion.

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Section 21.02. Captions.

The titles to the several articles of this Agreement are inserted for convenience only and are not intended to affect the meaning of any of the provisions hereof.

Section 21.03. Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of Lessee, its successors and/or assigns, and subject to the provisions of Article XIX, shall be binding upon and inure to the benefit of Operator, its permitted successors and assigns.

Section 21.04. Competitive Market Area.

Operator hereby agrees, for the benefit of Lessee, its successors and assigns, except for the hotels, if any, listed as Exhibit A-4, that Operator (and its Affiliates) will not own, operate, lease, manage, or otherwise have an interest in, directly or indirectly, any hotel within a five (5) mile radius of any Hotel during the Operating Term unless expressly consented to in writing by Lessee in advance, which consent may be withheld in Lessee’s sole and absolute discretion.

Section 21.05. Assumption of Post Termination Obligations.

In the event of termination of this Agreement, Lessee shall be responsible for assuming obligations under contracts entered into by Operator only to the extent that any such contract shall have been entered into in accordance with Section 4.05(a) and Lessee shall be responsible for the payment of obligations incurred by Operator in the operation of the Hotel only to the extent that such obligations shall have been incurred in accordance with the terms of this Agreement, and Operator hereby agrees to indemnify and to hold Lessee harmless from and against any liability in connection with any such contracts, agreements or obligations not so approved in writing by Lessee. Lessee will indemnify and hold Operator harmless from all costs, expenses, claims, damages and liabilities, including without limitation, lawyers’ fees and disbursements, arising or resulting from Lessee’s failure following the expiration or earlier termination (for whatever cause) of this Agreement to provide all of the services contracted for in connection with the business booked on commercially reasonable terms for the Hotels on or prior to the date of such expiration or termination. The provisions of this Section will survive any expiration or termination of this Agreement and will be binding upon Lessee and its successors and assigns, including any successor or assign that becomes the beneficial or legal owner of the Hotels after the effective date of any such expiration or termination.

Section 21.06. Entire Agreement.

This Agreement, together with the Exhibits hereto, constitutes the entire Agreement between the parties relating to the subject matter hereof, superseding all prior agreements or undertakings, oral or written. This Agreement and the Exhibits hereto shall be construed and interpreted without reference to any canon or rule of law requiring interpretation against the party drafting or causing the drafting of this Agreement or the portions in question, it being agreed and understood that all parties have participated in the preparation of this Agreement.

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Section 21.07. Governing Law.

This Agreement shall be construed and enforced in accordance with the laws of the State of Nebraska.

Section 21.08. No Political Contributions.

Any provision hereof to the contrary notwithstanding, no money or property of the Hotel shall be paid or used or offered, nor shall Lessee or Operator directly or indirectly pay or use or offer, consent or agree to pay or use or offer any money or property of the Hotel, for or in aid of any political party, committee or organization, or for or in aid of, any corporation, joint stock or other association organized or maintained for political purposes, or for, or in aid or, any candidate for political office or for nomination for such office, or in connection with any election including referendum for constitutional amendment, or for any political purpose whatever, or for lobbying in connection with legislation or regulation thereunder, or for the reimbursement for indemnification of any person for money or property so used.

Section 21.09. Eligible Independent Contractor.

(a) At the effective time of this Agreement, Operator shall qualify as an “eligible independent contractor” as defined in Section 856(d)(9) of the Internal Revenue Code of 1986, as amended (the “Code”). To that end:

(i) during the Operating Term, Operator shall not permit wagering activities to be conducted at or in connection with the Hotels;

(ii) during the Operating Term, Operator shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of Supertel Hospitality, Inc.;

(iii) during the Operating Term, no more than 35% of the total combined voting power of Operator’s outstanding stock (or 35% of the total shares of all classes of its outstanding stock) shall be owned, directly or indirectly, by one or more persons owning 35% or more of the outstanding stock of Supertel Hospitality, Inc.; and

(iv) At the effective time, Operator shall be actively engaged in the trade or business of operating “qualified lodging facilities” (defined below) for a person who is not a “related person” within the meaning of Section 856(d)(9)(F) of the Code with respect to the Parent or Lessee (“Unrelated Persons”). In order to meet this requirement, Operator agrees that it (i) shall derive at least 10% of both its revenue and profit from operating “qualified lodging facilities” for Unrelated Persons and (ii) shall comply with any regulations or other administrative guidance under Section 856(d)(9) of the Code with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an “eligible independent contractor” with the meaning of such Code Section.

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(b) A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code and means a “lodging facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A “lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to Supertel Hospitality, Inc.

(c) Operator shall not sublet any Hotel or enter into any similar arrangement on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the rent would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code, or any similar or successor provision thereto.

Section 21.10. Time of the Essence.

Time is of the essence of this Agreement.

Section 21.11. Offsets.

Each party may offset amounts owed to another party hereunder against any amounts owed to such party, except to the extent any such offset is prohibited by the terms of the Lessee (or its Affiliates) credit agreements.

Section 21.12. Attorney’s Fees.

If any party brings an action against another party to enforce any provision of this Agreement, the prevailing party in such action shall be entitled to recover its court costs, attorney’s fees and expenses in the judgment rendered through such action.

Section 21.13. Final Accounting.

(a) In addition to the reports required by Section 9.02, within sixty (60) days following the effective date of expiration or termination of this Agreement, Operator shall prepare and submit to Lessee a final accounting of Hotel operations through the effective date of such expiration or termination, which accounting shall be in the form of the financial statements required hereunder.

(b) Upon the effective date of expiration or termination of this Agreement, Operator shall deliver possession of the Hotel, and any cash, property and other assets pertaining thereto, together with any and all keys or other access devices, to Lessee.

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(c) Upon the expiration or termination of this Agreement, Operator shall reasonably cooperate with and assist Lessee as may be necessary for the transfer of the operations and management of the Hotels to the successor operator and the transfer any and all Hotel licenses and permits to Lessee or Lessee’s designee.

Section 21.14. Franchisor Communications.

During the Operating Term, Operator shall promptly deliver to Lessee copies of any deficiency notices or similar notices received from a Franchisor and any response thereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

LESSEE:
TRS LEASING, INC.
By:	/s/ Kelly A. Walters
Title:	President / Secretary
TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	President / Secretary
SPPR TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	Officer of Manager: TRS Leasing, Inc.
SPPR-BMI TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	Officer of Manager: TRS Leasing, Inc.

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OPERATOR:
KINSETH HOTEL CORPORATION
By:	/s/ Bruce Kinseth
Title:	Vice President

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EXHIBIT A

HOTEL PROPERTIES AND OWNERS

Hotel Owner Location Number of Rooms

EXHIBIT A-1

Competitive Set

EXHIBIT A-2

Form of SPAR Inspection Form

EXHIBIT A-3

Accounting Software and Payroll Processes

EXHIBIT A-4

List of Operator’s Hotels Within 5 Mile Radius

EXHIBIT B

Franchise Agreements

Hotel Location Franchisor

EXHIBIT C

Total Investment

EX-10.45

Exhibit 10.45

HOTEL

MANAGEMENT AGREEMENT

Between

TRS LEASING, INC.,

TRS SUBSIDIARY, LLC

SPPR TRS SUBSIDIARY, LLC

SPPR-BMI TRS SUBSIDIARY, LLC

and

STRAND DEVELOPMENT COMPANY, LLC

Dated

April 21, 2012

TABLE OF CONTENTS

		Page
ARTICLE 1     DEFINITIONS			1
Section 1.01.	Definitions		1
ARTICLE 2     TERM OF AGREEMENT			7
Section 2.01.	Term		7
ARTICLE 3     OPERATION OF THE HOTELS			8
Section 3.01.	Representations by Operator; Engagement of Operator		8
Section 3.02.	Standards of Operation		8
Section 3.03.	Reservations Services and Revenue Management		9
Section 3.04.	Marketing		9
Section 3.05.	Consultations Between Lessee and Operator		9
Section 3.06.	Transactions with Affiliates and Other Relationships		9
Section 3.07.	Employees		10
Section 3.08.	Regional Manager		10
Section 3.09.	Certain Expenses		10
ARTICLE 4     INDEPENDENT CONTRACTOR			11
Section 4.01.	Operator Status		11
Section 4.02.	Employees		11
Section 4.03.	Employee Expenses		11
Section 4.04.	Employee Benefit Plans		12
Section 4.05.	Execution of Agreements		12
ARTICLE 5     INDEMNIFICATION			13
Section 5.01.	Indemnification by Operator		13
Section 5.02.	Limitations on Indemnification		13
Section 5.03.	Indemnification by Lessee		13
Section 5.04.	Survival of Indemnity		14
ARTICLE 6     BUDGETS AND POLICY MEETINGS			14
Section 6.01.	Budgets		14
Section 6.02.	Budget Meetings		15
Section 6.03.	Approval by Lessee Required		15
ARTICLE 7     OPERATING EXPENSES			16
Section 7.01.	Payment of Operating Expenses		16
Section 7.02.	Operating Expenses Not an Obligation of Operator		16
ARTICLE 8     BANK ACCOUNTS			16
Section 8.01.	Lessee Revenue Account		16
Section 8.02.	Bank Accounts		16
Section 8.03.	Authorized Signatures		17

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ARTICLE 9     BOOKS, RECORDS AND STATEMENTS		17
Section 9.01.	Books and Records	17
Section 9.02.	Statements	18
Section 9.03.	Costs	19
ARTICLE 10     OPERATOR’S FEE AND TRANSFERS TO LESSEE		19
Section 10.01.	Payment of Operator’s Fee	19
ARTICLE 11     REPAIRS AND MAINTENANCE		19
ARTICLE 12     INSURANCE		20
Section 12.01.	General	20
Section 12.02.	Workers’ Compensation and Other Employment Insurance	20
Section 12.03.	Approval of Companies and Cost by Owner and Lessee	20
Section 12.04.	Maintenance of Coverages	20
Section 12.05.	Waiver of Subrogation	20
Section 12.06.	Blanket Coverage	21
ARTICLE 13     PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS		21
Section 13.01.	Property Taxes	21
Section 13.02.	Lessee’s Right to Contest	21
ARTICLE 14     DAMAGE OR DESTRUCTION - CONDEMNATION		21
Section 14.01.	Damage	21
Section 14.02.	Condemnation	21
ARTICLE 15     USE OF NAME		22
ARTICLE 16     TERMINATION		22
Section 16.01.	Inspection Failure	22
Section 16.02.	Performance Failure	22
Section 16.03.	Sale of Hotels	23
Section 16.04.	Optional Termination	23
Section 16.05.	Lessee Change of Control	23
Section 16.06.	Operator Change of Control	24
Section 16.07.	Tax Law Change	25
Section 16.08.	Termination Fees	25
ARTICLE 17     DEFAULT AND REMEDIES		25
Section 17.01.	Events of Default- Remedies	25
Section 17.02.	Rights Not Exclusive	26
ARTICLE 18     NOTICES		27
Section 18.01.	Notices	27
ARTICLE 19     ASSIGNMENT		28
Section 19.01.	No Assignment by Operator	28

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Section 19.02.	Assignment by Lessee	28
ARTICLE 20     SUBORDINATION		28
Section 20.01.	Subordination To Mortgage	28
Section 20.02.	Foreclosure	29
Section 20.03.	Estoppel Certificates	29
ARTICLE 21     MISCELLANEOUS		29
Section 21.01.	Further Documentation and Reporting Compliance	29
Section 21.02.	Captions	30
Section 21.03.	Successors and Assigns	30
Section 21.04.	Competitive Market Area	30
Section 21.05.	Assumption of Post Termination Obligations	30
Section 21.06.	Entire Agreement	30
Section 21.07.	Governing Law	31
Section 21.08.	No Political Contributions	31
Section 21.09.	Eligible Independent Contractor	31
Section 21.10.	Time of the Essence	32
Section 21.11.	Offsets	32
Section 21.12.	Attorney’s Fees	32
Section 21.13.	Final Accounting	32
Section 21.14.	Franchisor Communications	33

EXHIBIT A — Hotel Properties and Owners

EXHIBIT A-1 — Competitive Set

EXHIBIT A-2 — Form of SPAR Inspection Form

EXHIBIT A-3 — Accounting Software and Payroll Processes

EXHIBIT A-4 — List of Operator’s Hotels Within 5 Mile Radius

EXHIBIT B — Franchise Agreements

EXHIBIT C – Total Investment

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HOTEL MANAGEMENT AGREEMENT

This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of April 21, 2011, by and among TRS Leasing, Inc., a Virginia corporation (“TRS”), TRS Subsidiary, LLC, a Delaware limited liability company (“TRS Sub”), SPPR TRS Subsidiary, LLC (“SPPR TRS Sub”), SPPR-BMI TRS Subsidiary, LLC, a Delaware limited liability company (“SPPRBMI”) (TRS Sub, SPPR TRS Sub and SPPRBMI, together with TRS, collectively, “Lessee”) and Strand Development Company, LLC, a South Carolina limited liability company (“Operator”), with reference to the following facts:

A. Lessee leases from the entities described on Exhibit A (each, an “Owner” and collectively, the “Owners”) the hotel properties described on Exhibit A (each, a “Hotel” and collectively, the “Hotels”) pursuant to one or more Lease Agreements described on Exhibit A (each, a “Lease” and collectively, the “Leases”);

B. Lessee desires to engage Operator to operate and manage the Hotels listed on Exhibit A beginning on the Commencement Date in accordance with the terms of this Agreement;

C. Operator desires to supply the services and to operate the Hotels beginning on the Commencement Date in accordance with the terms of this Agreement; and

D. The parties desire that this Agreement, while it controls all of the Hotels collectively, will represent an individual hotel management agreement for each Hotel described on Exhibit A, as it may be amended from time to time.

NOW, THEREFORE, for and in consideration of the mutual covenants, conditions, stipulations, agreements and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Lessee and Operator covenant and agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions.

(a) As used herein, the following terms shall have the indicated meanings:

“Adjusted Operating Expenses” shall mean Operating Expenses excluding Operator’s Fee, insurance premiums (with the exception of the insurance described in Section 12.02), discretionary employee bonuses (to the extent exclusion is approved by Lessee) and Property real estate and personal property taxes.

“Affiliate” shall mean (a) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (b) any person that owns, beneficially, directly or indirectly, ten percent or more of the outstanding capital stock, shares or equity interests of such person, or (c) any officer, director, employee, partner or trustee of such person or any person controlling, controlled by, or under common control with such person.

“Agreement” shall mean this Hotel Management Agreement and all amendments, modifications, supplements, consolidations, extensions and revisions to this Hotel Management Agreement approved by Lessee and Operator.

“Approved Budget” shall mean the Hotel Operating Budget prepared in accordance with Section 6.01 of this Agreement and approved in writing by Lessee.

“CPI” shall mean the Consumer Price Index, all items for All Urban Consumers, published by the Bureau of Labor Statistics of the United States Department of Labor as reported in The Wall Street Journal.

“Capital Improvements” will mean all expenditures for replacements, substitutions and additions to Hotels and Hotel FF&E which are required to be capitalized in accordance with generally accepted accounting principles.

“Commencement Date” shall mean June 1, 2011.

“Competitive Set” for each Hotel means the hotels listed on Exhibit_A-1 attached hereto, or such other hotels as may be reasonably agreed upon by Lessee and Operator from time to time during the Term. The Lessee and Operator shall discuss at least once a year, and upon any major change to an existing hotel in the Competitive Set, the composition of the Competitive Set. Any changes to a Hotel’s Competitive Set must be mutually agreed upon by Lessee and Operator.

“Event(s) of Default” shall mean one or more of the events or occurrences listed in Section 17.01 of this Agreement.

“Fiscal Year” shall mean each twelve (12) month calendar year ending December 31 during the Operating Term, except that the first Fiscal Year and the last Fiscal Year of the Operating Term may not be full calendar years.

“Franchisors” shall mean the franchisors under the Franchise Agreements.

“Franchisor Agreements” shall mean the franchise license agreements held by Lessee or Operator with respect to each Hotel as described in Exhibit B as it may be amended from time to time.

“GAAP” shall mean generally accepted accounting principles and procedures in the United States.

“Gross Hotel Income” shall mean all income and proceeds of sales received by Operator for guest use, occupancy or enjoyment of the Hotel or for the sale of any goods, services or other items sold on or provided from the Hotel to guests in the ordinary course of the Hotel operation, but excluding the following: (i) any excise, sales or use taxes or similar government charges collected directly from patrons or guests, or as a part of the sales price of any goods, services or displays, such as gross receipts, admission, cabaret or similar or equivalent taxes; (ii) receipts

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from condemnation awards or sales in lieu of or under threat of condemnation; (iii) proceeds of insurance (other than proceeds from business interruption insurance received by Lessee which shall be allocated by Lessee to any applicable periods); (iv) proceeds of sales of capital assets, furniture and Hotel Operating Equipment; (v) consideration received at the Hotel for hotel accommodations, goods and services to be provided at other hotels although arranged by, for or on behalf of, Operator; (vi) proceeds of any financing; (vii) working capital provided by Lessee; (viii) any funds provided by Lessee to Operator whether for Operating Expenses or otherwise; (ix) interest income and fees, rents and other revenues from telecommunications tower or similar leases or other leases or sub-leases of any part of the Property and (x) other income or proceeds resulting other than from guest use or occupancy of the Hotel or the Property, or any part thereof, or other than from the sale of goods, services or other items sold on or provided in connection with guest services at the Hotel in the ordinary course of business. The parties intend that Gross Hotel Income shall be computed in a manner consistent with “room rentals and other hotel services” computation of revenues on the Parent’s audited Consolidated Statements of Operations.

“Holder” shall mean the holder of any Mortgage and the indebtedness secured thereby, and such holder’s successors and assigns.

“Hotel Capital Budget” shall mean the budget relating to capital expenditures at a Hotel as described in Section 6.01.

“Hotel FF&E” shall mean the furniture, furnishings, wall coverings, fixtures and hotel equipment for a Hotel and which includes equipment required for operation of the kitchens, restaurants and laundry, office equipment, material handling equipment, cleaning and engineering equipment and vehicles.

“Hotel Operating Account” shall mean the bank account opened and maintained in Operator’s name, or in a name designated by Operator, with a banking institution selected by Lessee, from which disbursements shall be made pursuant to the terms of this Agreement.

“Hotel Operating Budget” shall mean the budget relating to the operation of a Hotel as described in Section 6.01.

“Hotel Operating Equipment” shall mean linens, chinaware, glassware, silverware, uniforms, utensils and other non-consumable items of similar nature.

“Hotel Operating Supplies” shall mean paper supplies, cleaning materials and similar consumable items.

“Hotel Standards” shall mean the standards established by the respective Franchisors of the Hotels from time to time.

“Hotels” shall mean the hotel properties described in Exhibit A hereto, as it may be amended from time to time by mutual agreement of Lessee and Operator to add hotel properties or to delete hotel properties as a result of termination of this Agreement with respect to one or more hotel properties pursuant to the termination provisions set forth in this Agreement. “Hotel” shall mean any hotel set forth on Exhibit A as it may be amended from time to time.

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“Initial Term” shall have the meaning set forth in Section 2.01.

“Independent CPA” shall mean the firm of independent public accountants which is selected by Lessee from time to time.

“Land” shall mean the real property described in Exhibit A to the Lease.

“Lease” shall have the meaning set forth in the recitals.

“Lessee” shall have the meaning set forth in the recitals.

“Lessee Revenue Account” shall mean the bank accounts opened and maintained in Lessee’s name, or in a name designated by Lessee, with a banking institution selected by Lessee, into which all income, receipts and proceeds included in the definition of Gross Hotel Income (without exclusion of any of the items excluded from the definition of such term) shall be deposited.

“Mortgage” shall mean any mortgage or deed of trust hereafter, from time to time, encumbering all or any portion of a Property, together with all other instruments evidencing or securing payment of the indebtedness secured by such mortgage or deed of trust and all amendments, modifications, supplements, extensions, and revisions of such mortgage, deed of trust and other instruments.

“NOI” shall mean Net Operating Income which shall be determined by deducting Adjusted Operating Expenses from Gross Hotel Income.

“Operating Expenses” shall mean all costs and expenses of maintaining, conducting and supervising the operation of the Property, to the extent set forth in an Approved Budget and the provisions of Section 6.03, incurred pursuant to this Agreement or as otherwise specifically provided herein which are properly attributable to the period under consideration under Lessee’s system of accounting, including without limitation:

(i) The cost of all food and beverages sold or consumed and of all Hotel Operating Equipment and Hotel Operating Supplies;

(ii) Salaries and wages of on-site Hotel personnel, including costs of payroll taxes and employee benefits and amounts payable under bonus plans approved by Lessee. The salaries or wages of other employees or executives of Operator, or any Affiliate of Operator shall in no event be Operating Expenses;

(iii) The cost of all other goods and services obtained by Operator in connection with its operation of the Property including, without limitation, heat and utilities, office supplies and all services performed by third parties, including leasing expenses in connection with telephone and data processing equipment and such other equipment as Lessee shall designate;

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(iv) The cost of repairs to and maintenance of the Property to keep the Property in good condition;

(v) Insurance premiums for all insurance maintained with respect to the Property, including without limitation, property damage insurance, public liability insurance, workers’ compensation insurance or insurance required by similar employee benefits acts, employment liability practices insurance, and such business interruption or other insurance as may be provided for protection against claim, liabilities and losses arising from the use and operation of the Hotel and losses incurred with respect to deductibles applicable to the foregoing types of insurance;

(vi) All taxes, assessments and other charges (other than federal, state or local income taxes and franchise taxes or the equivalent) payable by or assessed against Operator or Lessee with respect to the operation of the Hotel, including water and sewer charges;

(vii) Legal fees relating to Hotel operations (excluding legal fees with respect to employee claims), and real estate tax abatement and appeal services excluding legal fees with respect to employee claims;

(viii) The costs and expenses of technical consultants and specialized operational experts for specialized services in connection with non-recurring work on operational, functional, decorating, design or construction problems and activities, including reasonable third party fees reasonably deemed necessary by Lessee for the efficient operation of the Hotels;

(ix) All expenses for marketing and sales, including all expenses of advertising, sales promotion and public relations activities at the Hotels, exclusive of Operator’s marketing manager and similar administrative personnel (which expenses shall be borne by Operator);

(x) Municipal, county and state license and permit fees;

(xi) All normal and recurring fees, assessments and charges due and payable under Franchisor Agreements;

(xii) Credit card fees, travel agent commissions and other third party reservation fees and charges;

(xiii) All parking charges and other expenses associated with revenues received by the Hotels related to parking operations, including valet services;

(xiv) All expenses related to the revenues included in Gross Hotel Income, including without limitation, expenses relating to telephone, vending, television, cable television, pay television and similar services;

5

(xv) The costs of obtaining and keeping in force all licenses or permits (including liquor licenses, if any) necessary for the operation of the Hotel and in complying with governmental laws, rules, regulations, ordinances, orders and requirements;

(xvi) All reasonable travel expenses of Operator’s supervisory personnel on the next level above hotel manager (to the extent approved by Lessee) for visits to the Hotels in the performance of their duties hereunder, but not including travel between Operator’s main office and Operator’s regional offices; and

(xvii) Operator’s Fee, if any.

Operating Expenses shall not include (a) depreciation and amortization except as otherwise provided in this Agreement; (b) debt service; (c) capital expenditures per the Hotel Capital Budget; and (d) lease payments to Owner.

The parties intend that Operating Expenses shall be computed in a manner consistent with “Hotel and property operations expenses” computation of expenses on the Parent’s Audited Consolidated Statements of Operations.

“Operating Loss” shall mean for any period the amount by which Operating Expenses exceed Gross Hotel Income.

“Operating Term” shall mean, with respect to any Hotel, the term of this Agreement as set forth in Section 2.01.

“Operator” shall have the meaning set forth in the recitals.

“Operator’s Fee” shall mean a monthly fee equal to 3.50% of Gross Hotel Income and 2.25% of NOI.

“Owners” shall mean the entities described on Exhibit A as it may be amended from time to time as the owners of the Hotels. “Owner” shall mean any entity described on Exhibit A as it may be amended from time to time.

“Parent” shall mean Supertel Hospitality, Inc.

“Property” shall mean the Land, the Hotel, all real and personal property now or hereafter situated upon the Land and all appurtenant rights and easements thereto.

“Renewal Term” shall have the meaning set forth in Section 2.01.

“RevPAR” shall mean Hotel occupancy percentage multiplied by average daily rate.

“RevPAR Benchmark” means the Hotel’s RevPAR Index for the trailing 12-months ending on the Commencement Date.

6

“RevPAR Index” means the RevPAR Index included in the STR Report produced for the Hotel by Smith Travel Research or, if Smith Travel Research no longer is in existence, the successor of Smith Travel Research or such other industry resource that is equally as reputable as Smith Travel Research will be substituted, in order to obtain substantially the same result as would be obtained if Smith Travel Research has not ceased to be in existence.

“SPAR Inspection” shall mean a property inspection as reasonably conducted by Lessee using the Supertel Property Audit Report form attached as Exhibit A-2.

“Total Investment” shall mean Owner’s total investment in the Hotels as of December 31, 2010, more particularly described in the Schedule attached hereto as Exhibit C. If any Hotels are sold during the term of this Agreement, the Total Investment will be reduced by an amount equal to the total investment for that particular Hotel or Hotels (as shown on Exhibit C). If any Hotels are added during the term of this Agreement, if there are any Capital Improvements for the Hotels, the Total Investment will be increased by an amount equal to Lessee’s total investment in said Hotel or Hotels and said Capital Improvements for the Hotels, and Lessee will immediately advise Operator of said increase in the Total Investment. Appropriate adjustment shall be made in the Total Investment if Hotels are added or subtracted or Capital Improvements are made, during the Fiscal Year. The Total Investment for the Hotels at December 31, 2010 is reflected on Exhibit C attached hereto (which excludes construction in progress). Amounts initially included in Total Investment which are subsequently reclassified to other balance sheet line items shall nonetheless remain included in the determination of Total Investment for purposes of this Agreement and for purposes of the amounts set forth on Exhibit C.

“Unrelated Persons” shall have the meaning set forth in Section 21.09.

(b) Terms with initial capital letters which appear within the foregoing definitions are defined in this Article I or as indicated in this Agreement. Dollars are denominated in U.S. Dollars.

ARTICLE 2

TERM OF AGREEMENT

Section 2.01. Term.

The term of this Agreement shall commence on the Commencement Date and shall terminate at midnight on May 31, 2014 (the “Initial Term”), subject to earlier termination or extension as set forth herein. This Agreement shall automatically renew for additional terms of one (1) year each (each, a “Renewal Term”) unless either party gives the other party written notice of termination at least ninety (90) days prior to the end of the Initial Term or the then-current Renewal Term.

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ARTICLE 3

OPERATION OF THE HOTELS

Section 3.01. Representations by Operator; Engagement of Operator.

Operator hereby represents that Operator (i) is experienced and capable and will remain experienced and capable in the management and operation of hotels throughout the United States of America, (ii) has reviewed and understands the terms and provisions of the Lease and the Franchise Agreements and the Hotel Standards, and (iii) will, on the effective date of this Agreement, meet the requirements to be an “eligible independent contractor” under Section 856(d)(9) of the Internal Revenue Code. In reliance on the foregoing representations, Lessee hereby engages Operator to manage and operate the Hotels during the Operating Term and Operator agrees to manage and operate the Hotels during the Operating Term, in accordance with this Agreement. Operator will provide all property management, financial accounting, reporting, marketing and other operational services for each Hotel, including the services of regional managers of operations as necessary for all Hotels and will use commercially reasonable efforts to maximize the operating profitability thereof. Lessee and Operator acknowledge that it is the intention of the parties that the Hotels be operated in a profitable manner and in a manner for comparable hotels operated by a national operator within the Hotel’s market segment, all in accordance with the Hotel Standards. Operator shall diligently pursue all commercially reasonable measures to enable the Hotels to adhere to the Approved Budget.

Section 3.02. Standards of Operation.

Operator agrees to diligently and efficiently operate each Hotel and all of its facilities and activities (i) at all times in accordance with the Hotel Standards; (ii) consistent with the terms of the Lease and Lessee’s obligations thereunder; (iii) in the same manner as is customary and usual in the first-class operation of comparable hotels in its market; (iv) in compliance with this Agreement, all easements, covenants and restrictions affecting the Property (known or disclosed to Operator) and all applicable governmental laws, rules, regulations, ordinances, orders and requirements; (v) in accordance with the terms and conditions of any financing affecting the Property (known or disclosed to Operator); and (vi) in accordance with the requirements of any carrier having insurance on the Hotel or any part thereof. Operator shall also obtain and keep in force any and all licenses or permits necessary for the operation of the Hotel (provided that, at Lessee’s option, liquor licenses or other licenses or permits shall be obtained and held in Lessee’s name). All such licenses and permits shall belong to Lessee and/or the Hotel and upon expiration or termination of this Agreement, Operator shall take any and all actions reasonably requested by Lessee to transfer such licenses and permits to Lessee or its designee. Operator also acknowledges and agrees that this Agreement is subject and subordinate to the Lease and liens, security interest and Mortgages in accordance with Article XX hereof; provided, however, Lessee shall use its commercially reasonable efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in form reasonably acceptable to Operator providing that this Agreement shall remain in full force and effect notwithstanding the fact that the Mortgage has been foreclosed.

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Section 3.03. Reservations Services and Revenue Management.

Operator shall sell, represent and promote the Hotel through the respective Franchisors’ sales and reservations systems and will encourage the use of the Hotel by all recognized sources of hotel business. Operator must employ, at its own expense, at least one employee responsible for revenue management of the Hotels, with certification by a governing body reasonably acceptable to Lessee.

Section 3.04. Marketing.

(a) Operator shall maintain a sales staff dedicated to the Hotels to arrange, contract for and carry out such marketing, advertising, national trade show attendance, and promotion of the Hotel as Operator shall deem advisable and consistent with the Approved Budget and in accordance with the Hotel Standards. Operator will make every effort to ensure that the Hotel shall receive an equitable share of the benefit of the cooperative advertising and promotion reasonably commensurate with its contribution to the costs thereof. The costs thereof shall be equitably allocated by Operator between the Hotel and other participating hotels, subject to Lessee’s prior written approval. Upon Lessee’s request, Operator shall provide reasonable documentation to support such allocations. Operator shall provide Lessee with detailed monthly reports of its marketing, advertising and promotional activities. Each property shall be visited at least once every twelve (12) months by a member of Operator’s sales staff. Lessee will provide appropriate office space for Regional Sales Managers at at least two of the Hotels, without charge to the Operator.

(b) Operator may, consistent with the Approved Budget, and otherwise, with the consent of Lessee, cause the Hotel to participate in sales and promotional campaigns and activities involving complimentary rooms, food and beverages, consistent with customary practices in the travel industry. Operator shall not provide rooms or Hotel facilities at no cash charge or at a discounted cash rate in trade for non-cash consideration or services without the consent of Lessee.

Section 3.05. Consultations Between Lessee and Operator.

When requested by Lessee, Operator shall, from time to time, render advice and assistance to Lessee and Owner in the negotiation and prosecution of all claims for the reduction of real estate or other taxes or assessments affecting the Hotel and for any award for taking by condemnation or eminent domain affecting the Hotel.

Section 3.06. Transactions with Affiliates and Other Relationships.

(a) Operator shall obtain the prior written consent of Lessee (which Lessee may withhold in Lessee’s sole and absolute discretion) prior to contracting with any Affiliate (or companies in which Operator has an ownership or other economic interest if such interest is not sufficient to make such a company an Affiliate) to provide goods and/or services to the Hotels.

(b) Prior to entering into any contract, agreement or arrangement with respect to one or more of the Hotels pursuant to which Operator may receive rebates, cash incentives, administration fees, concessions, profit participations, stock or stock options, investment rights

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or similar payments or economic consideration from or in, as applicable, vendors or suppliers of goods or services (collectively, “Rebates”), Operator shall promptly disclose to Lessee in writing the fact of and the estimated amount of such Rebates, and the charges and other amounts expected to be incurred in connection with any such contracts or agreements (which shall not exceed prevailing market rates with respect to such goods or services). All Rebates will accrue to the benefit of Lessee and will be applied against Operating Expenses.

Section 3.07. Employees.

Operator may offer employment to all employees who work at the Hotels on the date of this Agreement, at substantially the same salaries, wages, benefits and terms of employment as they received immediately prior to the Commencement Date, provided, however, Operator shall offer employment to any corporate level employee of Royco Hotels, Inc. and general managers of the Hotels employed by Royal Hotels, Inc. only with the consent of Royco Hotels, Inc.

Section 3.08. Regional Manager.

Operator shall provide the services of one of its experienced management employees to oversee and manage the operations of the Hotels (the “Regional Manager”). Lessee shall have the right to approve the Regional Manager and any successor provided that such approval shall not be unreasonably withheld. The Regional Manager shall meet telephonically with the designated representatives of Lessee at least monthly to discuss operations at the Hotels and consult with Lessee to answer any questions Lessee may have, and to address any concerns of Lessee. Lessee’s representatives shall have the right to meet with the COO of Operator or his/her mutually acceptable alternative.

Section 3.09. Certain Expenses.

Operator shall not be entitled to charge Lessee for any of its costs and expenses, except as follows:

(a) Operator shall not charge tuition for training courses provided by Operator for employees employed at the Hotels or for course materials but shall be reimbursed the cost of course materials developed by third party companies, subject to approval in the Operating Budget. Reasonable travel and housing expenses of trainees shall be included in Operating Expenses, subject to approval in the Operating Budget.

(b) Travel expenses described in (xvi) of “Operating Expenses” above.

Operator shall be solely responsible and shall reimburse Lessee and Owner for re-inspection fees charged by Franchisors following a “failure” or its equivalent in any quality inspection report unless the failure is for a Capital Improvement that has been previously brought to the attention of the Owner.

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ARTICLE 4

INDEPENDENT CONTRACTOR

Section 4.01. Operator Status.

In the performance of its duties in the administration, management and operation of the Hotel, Operator shall act solely as an independent contractor. Nothing herein shall constitute or be construed to be or create a partnership or joint venture between Lessee and Operator, or be construed to appoint or constitute Operator as an agent of Owner for any purpose, or be construed to create a lease by Operator of the Hotel or the Property and Operator shall not constitute a tenant or subtenant of Lessee or Owner. Operator’s rights under this Agreement shall be those of an agent only and shall not constitute an interest in real property. Lessee or Owner shall have the right to lease, develop or sell excess land or structures not required for operation of the Hotel. It is expressly covenanted that this Agreement is no more than an agreement for the rendering of services by Operator on behalf of Lessee in the operation and management of the Hotels.

Section 4.02. Employees.

(a) Each Hotel employee shall be the employee of Operator, or an affiliate company of Operator, and not of Lessee, and every person performing services in connection with this Agreement shall be acting as the employee of Operator, but their salaries and other related expenses shall be an Operating Expense.

(b) Operator shall provide evidence to Lessee of statutory Worker’s Compensation Insurance and Employer’s Liability Insurance for each such employee. The insurance coverages (including, without limitation, the carrier, policy limits of each and waiver of subrogation endorsements) must be in form, substance and amount satisfactory to Lessee in all respects. Upon request of Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in favor of Lessee and Owner.

(c) The hiring policies and the discharge of employees at the Hotel shall in all respects comply with all “applicable” laws and regulations, and Operator shall comply with all laws, regulations and ordinances regarding the employment and payment of persons engaged in the operation of each Hotel.

(d) Lessee shall have the right to participate in any negotiations with labor unions representing employees at the Hotel, and Operator shall not sign any union contracts covering such employees at the Hotel which have not been previously approved in writing by Lessee.

Section 4.03. Employee Expenses.

(a) All costs of every nature pertaining to all employees at the Hotel, including, without limitation, salaries, benefits, EPLI coverage, the terms of any bonus plan or arrangement, costs incurred in connection with governmental laws and regulations and insurance rules, shall be set forth in the Approved Budget as an Operating Expense.

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(b) Compensation, overhead costs and other expenses of Operator and its Affiliates not specifically provided for herein shall not be Operating Expenses and shall not be payable or reimbursable by Lessee; provided, however, Operator may include in the calculation of Operating Expenses the salary of any of Operator’s employees located at the Operator’s corporate headquarters which have been temporarily transferred to a Hotel to serve that Hotel exclusively; provided, further, that Operator may only include in Operating Expenses that portion of that employee’s salary equal to the normal rate charged for that employment position.

Section 4.04. Employee Benefit Plans.

Operator shall enroll employees at the Hotels in medical and health, life insurance and employee benefit plans which are approved by Lessee. Operator’s contributions to such plans, reasonable administrative fees, at cost, which may be expended in connection therewith, and reasonable expenses for such plans will be estimated and disclosed to Lessee in advance and provided for in the Approved Budget and will be an Operating Expense. Except for employer matching contributions under any 401(k) plan, Lessee, in its sole discretion shall determine whether to require employees at the Hotels to pay all or a portion of the costs of the employees’ participation in such plans. Except as otherwise provided in Section 6.03, all costs referenced in Section 4.03 and this Section 4.04 will be the responsibility of Lessee only to the extent the same are provided for in the Approved Budget. Upon Lessee’s request, Operator will establish a 401(k) plan as an employee benefit plan. All costs incurred by Operator pursuant to actions taken by Operator at Lessee’s direction will be Operating Expenses.

Section 4.05. Execution of Agreements.

(a) Except as provided in Section 4.05(b), Operator shall execute as agent of Lessee all leases and other agreements relating to equipment and/or services provided to each Hotel, all of which, unless otherwise approved in writing in advance by Lessee, shall either be a term of one year or less or be cancelable upon not more than thirty (30) days’ written notice by Operator or Lessee without the payment of a penalty or fee. Notwithstanding the foregoing, without the prior written approval of Lessee, Operator shall not enter into any agreement (i) which provides for the payment of sums not authorized by Lessee in an Approved Budget, (ii) which would give rise to a lien upon all or any part of the Property, (iii) which would result in liability to Lessee for sums other than as set forth in the applicable Approved Budget, (iv) to lease any part of any Property, (v) relating to alterations to the exterior, interior or structural design of the Hotel, (vi) which requires an unbudgeted payment of more than $5,000, or in the case of a repair of any payment of more than $1,500 (vii) which is not cancelable by Lessee upon 30 days’ notice or less unless the term of said agreement is one year or less, or (viii) which provides for any automatic renewal terms. Contracts for multiple rooms and / or multiple days that(i) exceed a 1-year term and / or (ii) exceed 40% of property nightly room inventory for a period of 30 days or more, or (iii) exceed 50 room nights and have a negotiated net rate of $35 for economy properties, and $45 for midscale and above, this includes promoting such rates online, in print ads such as coupons. If Operator desires to enter into any agreements requiring the consent of Lessee, Operator shall first send written notice of intent to enter into such agreement to Lessee, and Lessee shall either approve or disapprove within five (5) business days of receipt of such notice. Lessee’s failure to timely respond to said request shall be deemed disapproval.

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(b) Subject to Lessee’s prior approval of the same and upon Lessee’s request, Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of any space at any Property, and (ii) equipment rental and/or lease agreements which cannot be terminated upon thirty (30) days notice or less without the payment of a penalty or fee. Operator shall exercise its best efforts to obtain in each equipment agreement a right on the part of the lessee of such equipment to terminate the same on thirty (30) days notice or less without the payment of a penalty fee. Notwithstanding anything in this Section 4.05 to the contrary, Lessee reserves the right, exercisable at Lessee’s option, to execute any lease or other agreement relating to equipment and/or services being provided to the Hotel.

ARTICLE 5

INDEMNIFICATION

Section 5.01. Indemnification by Operator.

In addition to all other obligations of Operator to Lessee hereunder, Operator shall indemnify and hold Lessee harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys’ fees and expenses), of every kind and nature whatsoever to or of any party connected with, or arising out of, or by reason of any gross negligent act or omission, breach of contract, willful misconduct, or tortious actions by Operator, or any Affiliate of Operator, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Operator or any Affiliate of Operator and any employment related claims by Operator’s employees. The indemnification provisions of this Section 5.01 are subject to the limitations set forth in Section 5.02.

Section 5.02. Limitations on Indemnification.

None of the indemnifications set forth in Section 5.01 shall be applicable to (1) liability resulting from the design or construction of the Hotel, or (2) that portion of a liability which is covered and paid for by insurance maintained for the Hotel. The standard of performance of which Operator is to be responsible under this Agreement shall be that, reasonably and diligently exercised, of a professional hotel operator. Settlement of a third party claim shall not be prima facie evidence that a party has triggered an indemnification obligation hereunder. Notwithstanding the provisions of Section 5.01 above, neither Lessee nor Operator will assert against the other and each does hereby waive with respect to the other any claims for any losses, damages, liabilities and expenses (including lawyers’ fees and disbursements) incurred or sustained by that party as a result or damage or injury to persons or property arising out of the ownership, operation or management of the Hotels, to the extent that the damage and injury are covered by insurance and the proceeds are actually recovered from the insurer.

Section 5.03. Indemnification by Lessee.

Lessee shall indemnify and hold Operator harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys’ fees and

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expenses), of every kind and nature whatsoever to or of any party connected with or arising out of, or by reason of any gross negligent act or omission, breach of contract, willful misconduct, or tortious actions by Lessee or any Affiliate of Lessee, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Lessee or any Affiliate of Lessee. The indemnification provisions of this Section 5.03 are subject to the limitations set forth in Section 5.02. Lessee will indemnify and hold Operator harmless from all costs, expenses, claims, damages and liabilities, including without limitation, lawyers’ fees and disbursements, arising or resulting from Lessee’s failure following the expiration or earlier termination (for whatever cause) of this Agreement to provide all of the services contracted for in connection with the business booked on commercially reasonable terms for the Hotels on or prior to the date of such expiration or termination. The provisions of this Section will survive any expiration or termination of this Agreement and will be binding upon Lessee and its successors and assigns, including any successor or assign that becomes the beneficial or legal owner of the Hotels after the effective date of any such expiration or termination.

Section 5.04. Survival of Indemnity.

The provisions of this Article V shall survive the expiration or sooner termination of this Agreement with respect to matters arising out of facts or circumstances occurring during the period prior to such expiration or termination.

ARTICLE 6

BUDGETS AND POLICY MEETINGS

Section 6.01. Budgets.

(a) No later than November 1 of each year, Operator will prepare and submit (following discussions with Lessee) to Lessee an annual capital budget for each Fiscal Year for each Hotel (the “Hotel Capital Budget”). Notwithstanding the foregoing, for the Fiscal Year in which this Agreement is executed Operator shall manage the Hotels in accordance with the then existing Hotel Capital Budget. The Hotel Capital Budget will set forth all projected Capital Improvements for such Fiscal Year, which budget shall also be month-to-month as well as annual. The Hotel Capital Budget will be subject to the approval of Lessee and Owner, in their sole and absolute discretion. No later than November 1 of each year, Operator shall prepare and submit (following discussions with Lessee) to Lessee an annual operating budget for the operation of each Hotel for the forthcoming Fiscal Year containing detailed projections of Gross Hotel Income and budgets of Operating Expenses (the “Hotel Operating Budget”). Notwithstanding the foregoing, for the Fiscal Year in which this Agreement is executed Operator shall manage the Hotels in accordance with the then existing Hotel Operating Budget. The Hotel Operating Budget shall be month-to-month as well as annual and shall be in the form designated by Lessee, and approved by Operator, which approval of the form shall not be unreasonably withheld. The Hotel Operating Budget and the Hotel Capital Budget shall provide for operating, equipping and maintaining the Hotel in accordance with the Hotel Standards. Contemporaneously with the submission of the Hotel Capital Budget, Operator shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR statistics for each hotel. The Hotel Operating Budget and the monthly budgeted hotel operating statistics shall contain

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Operator’s reasonable good faith estimates of the amounts set forth therein. Operator shall provide Lessee, upon request, all details, information and assumptions used in preparing the Hotel Capital Budget and the Hotel Operating Budget. Owner shall be responsible for implementing the Hotel Capital Budget and may, in Owner’s sole discretion, increase, decrease, delete or modify in any respect any capital expenditure in any Hotel Capital Budget.

(b) Operator shall review the Hotel Capital Budget and the Hotel Operating Budget with Lessee, and upon Lessee’s written approval of the Budget, it shall constitute the Approved Budget for the succeeding Fiscal Year and shall be implemented by Operator. In the event Lessee does not provide Operator with written objections to the Hotel Capital Budget and Hotel Operating Budget within 30 days following Lessee’s receipt of the same, they shall be deemed approved. If Lessee objects to any portion of the Hotel Capital Budget or the Hotel Operating Budget within 30 days after receipt of the same, or to any portion of the revisions within 20 days after submission of the revisions by Operator to Lessee, the parties hereto will call a special budget meeting to resolve the points of disagreement. In the event that Lessee and Operator are unable to agree on the Hotel Operating Budget for a Hotel prior to the commencement of the applicable Fiscal Year, an interim operating budget shall be implemented which will reflect CPI increases for expenses and RevPAR increases based on the appropriate previous 12-month RevPAR growth percentage for the sector in which the Hotel is included, as published by Smith Travel Research, for revenue growth over the prior year’s actual amounts.

Section 6.02. Budget Meetings.

Budget meetings between Lessee and Operator will be held at times as reasonably scheduled by Lessee. At each budget meeting and at any additional meetings during a Fiscal Year called by Lessee, Operator shall consult with Lessee on matters of policy concerning management, sales, room rates, wage scales, personnel, general overall operating procedures, economics and operation and any other matters affecting the operation of the Hotel as requested by Lessee.

Section 6.03. Approval by Lessee Required.

Any request by Operator for Lessee or a Hotel to make any expenditure or incur any obligations in excess of the Approved Budget shall be submitted to Lessee in writing with an explanation of and accompanied by supporting information for the request. Operator shall not make any such expenditure without Lessee’s prior written consent, except as is necessary, in Operator’s reasonable good faith judgment, for the immediate emergency protection of life or property. Lessee shall endeavor to respond to any such request within five (5) business days of the receipt thereof; provided, however, Lessee shall have no obligation to agree to any such request and no liability for failing to respond and failure to respond to such request within such five (5) business day period shall be deemed a denial of the request. The Approved Budget for each Hotel shall be prepared in both dollar amounts and percentages. Variances from the amounts set forth for the expense categories in the Approved Budget for all Hotels (in the aggregate) shall not require Lessee’s prior written consent until such amounts exceed the budgeted year to date percentages (of total line item expenses to revenue) by 5% or more of the applicable percentages reflected in the Approved Budgets for all Hotels on a year-to-date basis, but, in any such event, Operator shall promptly provide to Lessee an explanation of any such

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variance from the Approved Budget. By way of example, if a line item of expense to revenue was 12%, a 5% change will be exceeded if the variance in the line item exceeds 12.6% as reflected in the Approved Budget.

ARTICLE 7

OPERATING EXPENSES

Section 7.01. Payment of Operating Expenses.

(a) In performing its authorized duties hereunder, Operator shall promptly pay all Operating Expenses, except that if requested by Lessee certain Operating Expenses shall be paid by Operator directly to Lessee for payment by Lessee to the appropriate lender, taxing authority, insurer or other party so identified by Lessee to Operator.

(b) Subject to Article V, all reasonable third party Operating Expenses incurred by Operator in performing its authorized duties shall be reimbursed or borne by Lessee; provided that such Operating Expenses are incurred pursuant to and within the limits set forth in an Approved Budget or otherwise pursuant to the terms of this Agreement.

Section 7.02. Operating Expenses Not an Obligation of Operator.

Except as may be otherwise specifically provided in this Agreement, Operator shall in no event be required to advance any of its own funds for Operating Expenses of the Hotel, nor to incur any liability in connection therewith unless Lessee shall have furnished Operator with funds as required of Lessee under the terms of this Agreement. However, if Lessee has provided funds required of Lessee hereunder, Operator shall advance such funds necessary to pay expenses incurred by Operator in performing its duties and obligations hereunder. Unless agreed to by Lessee in this Agreement, in the Hotel Operating Budget or otherwise in writing in advance, compensation, overhead costs, and other expenses of Operator and its Affiliates shall not be reimbursable to Operator by Lessee.

ARTICLE 8

BANK ACCOUNTS

Section 8.01. Lessee Revenue Account.

All income, receipts, and proceeds included in the definition of Gross Hotel Income shall be deposited into Lessee Revenue Account.

Section 8.02. Bank Accounts.

(a) Operator shall have the responsibility for payment of all Operating Expenses (which may include Operator’s Fee and the monthly accruals of the Hotels) and shall be reimbursed by Lessee for such expenses upon submission of receipts and documentation reasonably requested by Lessee. Lessee funds shall not be commingled with Operator’s funds and Operator shall provide to Lessee monthly a detailed accounting of all Hotel Operating

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Account receipts and disbursements. Operator shall comply with Lessee’s or Owner’s or their lenders’ requirements with respect to lock-box accounts provided that Lessee shall be responsible for any incremental out-of-pocket costs of Operator resulting from any such lock-box arrangement (which shall not be an Operating Expense).

(b) Operator may establish one or more separate bank accounts for handling payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be handled exclusively by the individuals designated by Operator and approved in writing by Lessee. Funds shall be deposited in the payroll account or accounts by the Lessee, as needed, in order to meet payroll requirements; provided, however, all expenditures from such accounts shall be subject to and in accordance with the terms of this Agreement.

Section 8.03. Authorized Signatures.

The Hotel Operating Account shall be under the day-to-day control of Operator, subject to Operator’s obligation to account to Lessee as and when provided for herein. Lessee shall have signatory authority with respect to the Hotel Operating account, provided, however, Lessee shall not remove any funds from the Hotel Operating Account without first providing at least one week notice to Operator. All receipts and income, including, without limitation, Gross Hotel Income shall be promptly deposited in the Lessee Revenue Account. Checks or other documents of withdrawal shall be signed only by the individual representatives of Operator approved in writing by Lessee and duly recognized for such purpose by the bank or banks in which the referenced accounts are maintained. Upon Lessee’s request, Operator shall supply Lessee with fidelity bonds or other insurance insuring the fidelity of authorized signatories to such accounts, unless said bonds or other insurance shall have been placed by Lessee and delivered directly by the bonding or insurance company to Lessee. The cost of such fidelity bonds or other insurance shall be an Operating Expense and subject to Lessee’s approval. Neither Lessee nor Operator shall be responsible for any losses occasioned by the failure or insolvency of the bank or banks in which the referenced accounts are maintained. Upon expiration or termination of this Agreement and the payment to Operator of all amounts due Operator hereunder upon such expiration or termination, as provided in this Agreement, all remaining amounts in the referenced accounts shall be transferred forthwith to Lessee, or made freely available to Lessee.

ARTICLE 9

BOOKS, RECORDS AND STATEMENTS

Section 9.01. Books and Records.

(a) Operator shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with GAAP.

(b) Except for the books and records which may be kept in Operator’s home office or other location approved by Lessee the books of account and all other records relating to or reflecting the operation of the Hotel shall be kept at the Hotel. All such books and records pertaining to the Hotel, including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessee and, except for books of account,

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accounts payable invoices, night audit packages, deposit records and similar documents which may be sent to Operator’s accounting department shall not be removed from any Hotel by Operator without Lessee’s written approval and consent. All books and records pertaining to the Hotel and of Operator (including all budgetary records of Operator), wherever kept, shall be available to Lessee and its representatives at all reasonable times for examination, audit, inspection, transcription and copying. Operator shall not remove, destroy or delete any books and records of the Hotels without the prior written consent of Lessee. Upon any termination of this Agreement, all of such books and records pertaining to the Hotel forthwith shall be turned over to Lessee so as to insure the orderly continuance of the operation of the Hotel, but such books and records shall be available to Operator for a period of seven (7) years at all reasonable times for inspection, audit, examination, and transcription of particulars relating to the period in which Operator managed the Hotel.

Section 9.02. Statements.

(a) Operator shall deliver to Lessee by the eighth (8^th) business day following the last day of each month, for each Hotel, a monthly report of the state of the business and affairs of the operation of the Hotel for the immediately preceding month and for the Fiscal Year to date and within eight (8) days after the end of each quarter, a quarterly report with respect to the preceding quarter. Such reports shall include at least (i) a balance sheet account reconciliation including all intercompany accounts, (ii) a profit and loss statement, comparing current month and Fiscal Year-to-date profit, loss, and operating expenses to the Approved Budget and the prior year and comparing current month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved Budget and the prior year, (iii) a statement which details the computation of all fees payable to Operator for the month and quarter, (iv) the balance of all bank accounts, and (v) an adjusting statement showing the actual cash position of the Hotel for the month, quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to Lessee fifteen (15) days following the end of each month and fifteen (15) days following the end of each quarter a written narrative discussing any of the aforementioned reports and year-to-date variances from the Approved Budget, without thereby implying Lessee’s approval of such variance.

(b) Such reports and statements (i) shall be in form and in detail satisfactory to Lessee as reasonably requested by Lessee and consistent with standard hotel reporting procedures, (ii) shall be taken from the books and records maintained by Operator in the manner hereinabove specified, and (iii) if requested by Lessee, shall be in electronic form.

(c) Within seventy-five (75) days after the end of each Fiscal Year, Operator shall deliver to Lessee reviewed financial statements for Operator, and, if requested by Lessee, within thirty (30) days after the end of each quarter of each Fiscal Year, Operator shall deliver to Lessee unaudited financial statements for Operator.

(d) In addition, Operator shall timely deliver to Lessee a copy of (i) a monthly STAR report from Smith Travel Research for each Hotel, where available (which Operator hereby agrees to order with respect to each Hotel and provide to Lessee), (ii) each Guest Satisfaction report, (iii) a new competition report prepared with respect to each Hotel describing franchise changes, new groundbreakings, new openings and similar market supply changes, (iv) upon

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receipt, each Franchisor inspection report, and (v) such other reports or information in such form as may be reasonably requested by Lessee. Any out-of-pocket costs incurred by Operator to generate such reports will be included in Operating Expenses.

(e) Operator shall use the accounting software and payroll processor specified in Exhibit A-3.

Section 9.03. Costs.

The cost of providing all financial and operating data and accounting services hereunder shall be at Operator’s expense, except for licensing fees for the Great Plains accounting system, which shall be paid by Lessee, and the cost of the payroll processor, which shall be paid as agreed by Operator and Lessee in the Approved Budget.

ARTICLE 10

OPERATOR’S FEE AND TRANSFERS TO LESSEE

Section 10.01. Payment of Operator’s Fee.

Within one (1) business day after the delivery to Lessee of the monthly report required by Section 9.02, Operator shall be paid the Operator’s Fee by Lessee for the immediately prior month, based upon Gross Hotel Income for the immediately prior month, as determined from the books and records referred to in Article IX.

ARTICLE 11

REPAIRS AND MAINTENANCE

Subject to the provisions of the Approved Budget, Operator shall from time to time make such expenditures for repairs and maintenance as are necessary to keep the Hotel in good operating condition in accordance with the Hotel Standards. If any repairs or maintenance shall be made necessary by any condition against the occurrence of which Operator, Lessee or Owner has received the guaranty or warranty of any contractor for the building of the Hotel or of any supplier of labor or materials for the construction of the Hotel, then Operator shall, on Lessee’s or Owner’s request, cooperate with Lessee and Owner in invoking such guarantees or warranties. Notwithstanding the Approved Budget, Owner or Lessee may from time to time at its expense make such alterations, additions, or improvements (including structural changes or repairs) in or to the Hotel as they deem desirable, in their sole discretion and responsibility, for the efficient operation of the Hotels.

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ARTICLE 12

INSURANCE

Section 12.01. General.

Owner and Lessee shall maintain insurance policies with respect to the Hotels as set forth in each Lease. Operator agrees to cooperate with Lessee and Owner in obtaining any such insurance.

Section 12.02. Workers’ Compensation and Other Employment Insurance.

The Hotel Operating Budget shall include, as an Operating Expense, (i) workers’ compensation insurance and employment practices liability insurance with respect to all Hotel employees in such amounts as may be required by applicable law, and (ii) crime insurance in connection with all operations, business and affairs arising out of or in connection with the Hotel, including coverage on persons employed by Operator in an amount specified by Lessee; provided that the cost of such insurance shall be reasonable and shall be approved by Lessee.

Section 12.03. Approval of Companies and Cost by Owner and Lessee.

All insurance shall be with such insurance company or companies as may be selected by Owner or Lessee. Lessee will obtain all insurance but, upon the request of Lessee not less than one hundred twenty (120) days prior to the coverage date, Operator will obtain such insurance, subject to Lessee’s approval of the insurance companies and coverages. Comprehensive general liability insurance and such other liability insurance as may be obtained or afforded shall be in the name of Owner and Lessee, and shall name Operator as an additional named insured as respects liability arising from the operation, maintenance and use of the Hotel and operations incidental thereto. All property insurance policies shall be endorsed specifically to the effect that the proceeds of any building, contents or business interruption insurance shall be made payable to Lessee.

Section 12.04. Maintenance of Coverages.

Lessee shall hold all insurance policies obtained hereunder, and certificates of such policies, if any, shall be delivered to each of Lessee and Operator.

Section 12.05. Waiver of Subrogation.

To the extent obtainable from carriers and to the extent that endorsement forms are approved by the Insurance Commissioner (or comparable office or department) of the state in which the Hotel is located, all policies of property insurance shall provide that the insurance companies will have no rights to subrogation against Lessee or Operator or the agents or employees thereof.

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Section 12.06. Blanket Coverage.

Owner and Lessee reserve the right to provide any insurance referenced in this Article XII by one or more so-called “blanket” or “umbrella” policies of insurance. Operator further acknowledges that the insurance coverage of the Hotel may be part of the general insurance plan of Owner or Lessee or of any of their affiliates. Owner or Lessee may elect to obtain any of the insurance coverages set forth in this Article XII with a “deductible loss” clause providing for per occurrence deductibles.

ARTICLE 13

PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01. Property Taxes.

At Lessee’s request, Operator shall pay from the Hotel Operating Account prior to the dates the same become delinquent, with the right upon Lessee’s request to pay the same in installments to the extent permitted by law, all real and personal property taxes levied against the Property or any of its component parts.

Section 13.02. Lessee’s Right to Contest.

Notwithstanding the foregoing, Lessee or Owner may contest the validity or the amount of any real or personal tax or assessment. Operator agrees to cooperate with Lessee and Owner and execute any documents or pleadings required for such purpose.

ARTICLE 14

DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01. Damage.

If at any time during the Operating Term any Hotel or any portion thereof should be damaged or destroyed, Owner and Lessee shall have the respective rights and obligations set forth in the Lease with respect to damage or destruction. In the event the Hotel is not repaired, rebuilt or replaced, Lessee may terminate this Agreement by written notice to Operator, effective as of the date sent and the parties shall treat such termination as if it were in connection with the sale of the Hotel in accordance with Section 16.03.

Section 14.02. Condemnation.

If at any time during the Operating Term the whole or any part of the Property shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding or sale in lieu thereof by any competent authority, or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable to use the remaining portion as a hotel of the type and class immediately preceding such taking or condemnation, then the parties shall treat such termination as if it were in connection with the sale of Hotel in accordance with Section 16.03. Operator shall have no right to the award from the taking or condemning authority in any such proceeding; provided, however, that this shall not prevent Operator from making a separate claim against the condemning authority for loss of its business or profits.

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ARTICLE 15

USE OF NAME

During the term of this Agreement, each Hotel shall at all times be known by such name as from time to time may be selected by Lessee or Owner.

ARTICLE 16

TERMINATION

Section 16.01. Inspection Failure.

This Agreement may be terminated by Lessee as to one or more Hotels upon the failure within a sixty (60) day period of both a SPAR inspection and a Franchisor’s quality inspection of a Hotel for any reason other than capital related condition items (by way of example, mildewed caulking or scuffed walls would be considered non capital related whereas worn carpet or sagging beds would be capital related), if the failures have not been remedied by Operator within ninety (90) days following the relevant inspection. Such termination shall be by delivery of written notice by Lessee to Operator not less than thirty (30) days prior to the effective date of termination.

Section 16.02. Performance Failure.

(a) Beginning with Fiscal Year 2012, if a Hotel fails to achieve as of the end of any Fiscal Year (i) actual NOI of at least 80% of the budgeted NOI for such Hotel for such Fiscal Year, and (ii) 90% of such Hotel’s RevPAR Benchmark for such Fiscal Year (collectively, an “Individual Hotel Performance Failure”), subject to the cure periods below, Lessee may terminate this Agreement with respect to such Hotel upon sixty (60) days prior written notice to Operator. The effectiveness of any such notice of termination, however, shall be stayed until completion of the following applicable cure periods.

If an Individual Hotel Performance Failure occurs with respect to a Fiscal Year, but the Hotel achieves as of the end of the immediately following three (3) months (x) actual NOI of at least 85% of the budgeted NOI for such Hotel for such three (3) months, or (y) 95% of such Hotel’s RevPAR Benchmark for such three (3) months, then the Individual Hotel Performance Failure shall be deemed cured and Lessee shall have no right to terminate for such Individual Hotel Performance Failure (and any notice of termination with respect thereto shall be deemed null and void).

(b) Beginning with Fiscal Year 2012, if the Hotels fail to achieve as of the end of any Fiscal Year (i) actual NOI of at least 80% of the budgeted NOI for the Hotels for such Fiscal Year, and (ii) 90% of the Hotels’ RevPAR Benchmark for such Fiscal Year (collectively, a “Hotels Performance Failure”), subject to the cure period below, Lessee may terminate this Agreement with respect to all of the Hotels upon sixty (60) days prior written notice to Operator. The effectiveness of any such notice of termination, however, shall be stayed until completion of the following applicable cure periods.

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If the Hotels Performance Failure occurs with respect to a Fiscal Year, but the Hotels achieve as of the end of the immediately following three (3) months (x) actual NOI of at least 85% of the budgeted NOI for the Hotels for such three (3) months, or (y) 95% of the Hotels’ RevPAR Benchmark for such three (3) months, then the Hotels Performance Failure shall be deemed cured and Lessee shall have no right to terminate for the Hotels Performance Failure (and any notice of termination with respect thereto shall be deemed null and void).

Section 16.03. Sale of Hotels.

Owner may sell or otherwise dispose of one or more Hotels to any other person, partnership, firm or corporation at any time. In such event during the Operating Term, Lessee may notify Operator in writing no less than sixty (60) days prior to any such sale of a Hotel and this Agreement shall terminate with respect to such Hotel(s) upon the closing of the sale. This Agreement may be terminated by Operator with respect to the following events by delivery of written notice to Lessee ninety (90) days prior to the effective date of termination provided such termination notice is delivered to Lessee within thirty (30) days following the occurrence of either of the following events: (i) twenty-five (25) percent of the original portfolio of Hotels listed on Exhibit A is sold pursuant to this Section 16.03, exclusive of any Hotels for which Lessee has offered a replacement hotel for management by Operator under this Agreement within twelve (12) months of such sale, or (ii) four (4) or more Hotels are sold pursuant to this Section 16.03 during a twelve (12) month period, exclusive of any Hotels for which Lessee has offered a replacement hotel for management by Operator under this Agreement within twelve (12) months of such sale.

Section 16.04. Optional Termination.

This Agreement may be terminated by Lessee as to one or more Hotels at any time without a reason upon no less than sixty (60) days prior notice to Operator, and Lessee shall pay Operator a termination fee with respect to any such Hotel equal to 50% of the Operator’s Fee paid with respect to the Hotel during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.05. Lessee Change of Control.

This Agreement may be terminated by Lessee or Operator upon a change of control of Lessee (as defined below) during the Operating Term. Said termination will be exercised by delivery of written notice to the other party not less than sixty (60) days prior to the effective date of termination which notice shall set forth the effective date of termination. For purposes hereof, a “change of control” shall be deemed to have occurred if, during the Operating Term, any of the following events occurs:

(i) any “person”, as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1

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(or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of Supertel Hospitality, Inc., the parent of Lessee (the “Parent”) representing 50% or more of the combined voting power of the Parent’s then outstanding securities entitled to vote generally in the election of directors;

(ii) individuals who, as of the date of this Agreement, constitute the Board of Directors of the Parent or their duly elected successors cease for any reason to constitute at least a majority of the Board of Directors of the Parent;

(iii) the Parent is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Parent are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such transaction; or

(iv) the Parent in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such sale.

In the event Lessee terminates this Agreement solely in accordance with this Section 16.05, Lessee shall pay Operator a termination fee equal to 50% of the Operator’s Fee paid to Operator during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.06. Operator Change of Control.

This Agreement may be terminated by Lessee upon a change of control of Operator (as defined below) during the Operating Term. Said termination will be exercised by delivery of written notice to the Operator, such notice to be provided within thirty (30) days following the Lessee being made aware of the event giving rise to the change of control and not less than thirty (30) days prior to the effective date of termination which notice shall set forth the effective date of termination; provided that, in the event such written notice to Operator is not provided in accordance within the terms of this sentence, the Lessee shall be deemed to have waived any rights to terminate this Agreement with respect to the particular change of control giving rise to the required notice. For purposes hereof, a “change of control of Operator” shall mean (i) a change of fifty percent or more of the voting control of Operator or any of its owner entities or (ii) a substantial change in the current management of Operator.

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Section 16.07. Tax Law Change.

Lessee may terminate this Agreement upon 60 days’ notice to Operator if Lessee ceases to be qualified as a real estate investment trust or if the United States tax laws change to allow a hotel REIT to self-manage its properties. In such event, Lessee shall pay Operator a termination fee equal to 50% of the Operator’s Fee paid to Operator during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.08. Termination Fees.

Except as provided in Sections 14.01, 14.02, 16.04, 16.05, and 16.07, Operator shall not be entitled to a termination fee or compensation in the event this agreement is terminated for a Hotel or Hotels by Lessee.

ARTICLE 17

DEFAULT AND REMEDIES

Section 17.01. Events of Default- Remedies.

(a) The following shall constitute Events of Default:

(1) The failure of Operator to diligently and efficiently operate the Hotel in accordance with the provisions of this Agreement;

(2) The failure of Operator to pay any amount to Lessee provided for herein for a period of five (5) days after written notice by Lessee of failure to pay such sum when payable;

(3) The failure of Lessee to pay any amount to Operator provided for herein for a period of five (5) days after written notice by Operator of failure to pay such sum when payable;

(4) The filing of a voluntary petition in suspension of payments, bankruptcy or insolvency by either Lessee or Operator or any entity which owns or controls such party or if any such party otherwise voluntarily avails itself of any federal or state laws for the relief of debtors or admits in writing its inability to pay its debts as they become due;

(5) The consent to an involuntary petition in bankruptcy or the failure to vacate within sixty (60) days from the date of entry thereof any order approving an involuntary petition by or against either Lessee or Operator;

(6) The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating Lessee or Operator a bankrupt or

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insolvent or appointing a judicial receiver, trustee or liquidator of all or a substantial part of such party’s assets, and such order, judgment or decree shall continue unstayed and in effect for a period of one hundred twenty (120) consecutive days;

(7) The failure of either Lessee or Operator to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, and the continuance of any such default for a period of thirty (30) days after written notice of such failure;

(8) Loss of the franchise license for a Hotel as a result of any action, or failure to act, on the part of Operator;

(9) Failure by Operator to pay, when due, the accounts payable for the Hotels for which Lessee had previously reimbursed Operator.

(10) Any of the Hotels receives a “failure” or its equivalent in any quality inspection report from any of the Franchisors, if such deficiencies are within Operator’s reasonable control.

(b) Upon the occurrence of any Event of Default, the nondefaulting party shall give to the defaulting party notice of its intention to terminate this Agreement after the expiration of a period of ten (10) days from such date of notice and, upon the expiration of such period, this Agreement shall terminate and expire without penalty. If, however, with respect to the Events of Default referred to in items (1), (4), (5), (6), (7), (9) and (10) of subsection (a) above, unless a specific right of termination is specified elsewhere in this Agreement for the event in question, upon receipt of such notice, the defaulting party shall promptly and with all due diligence cure the default or take and continue action to cure such default within such ten (10) day period; provided, in the case of an event described in Section 17.01(a)(10), and subject to Lessee’s termination rights pursuant to Section 16.01, the Operator shall cure such default by receipt of a favorable quality inspection report upon an inspection by the Franchisor within six (6) months following the failed inspection. If such default shall not be capable of being cured within such ten (10) day period, then provided the defaulting party diligently pursues the cure of such default, such party shall have an additional five (5) days to cure any such default unless otherwise extended by the non-defaulting party. The procedure set forth in the preceding two sentences shall not be available for the curing of any default under items (2), (3) or (8) of subsection (a) above. In the event such default is not cured by the expiration of such period, the non-defaulting period may terminate this Agreement effective upon expiration of such period without penalty or payment of any fee.

Section 17.02. Rights Not Exclusive.

(a) The rights granted under this Article XVII shall not be in substitution for, but shall be, except as otherwise provided in this Agreement, in addition to any and all rights and remedies for breach of contract granted by applicable provisions of law; provided, however, upon any termination of this Agreement by Operator or Lessee as provided in this Agreement, Operator shall be entitled to recover only such sums as are owing to Operator under this Agreement on the date of any such termination and in no event will Operator have any claim or cause of action for “future profits,” damages resulting from termination or otherwise under this Agreement.

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(b) No failure of Operator or Lessee to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument signed by both Lessee and Operator. No waiver of any breach shall affect or alter this Agreement but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.

ARTICLE 18

NOTICES

Section 18.01. Notices.

(a) Any notice, statement or demand required to be given under this Agreement shall be in writing and shall be delivered by certified or registered mail, postage prepaid, return receipt requested, or by overnight delivery with proof of delivery, or by facsimile with receipt of transmission, addressed to the parties hereto at their respective addresses listed below:

(1) Notices to Lessee shall be addressed:

TRS Leasing, Inc.

309 North 5^th Street

Norfolk, NE 68702

Attention: Chief Executive Officer

Facsimile: (402-371-4229

(2) Notices to Operator shall be addressed:

Strand Development Company, LLC

1109 48^th Avenue North, Suite 211

Myrtle Beach, SC 29577

Attention: John Pharr

Facsimile: (843) 365-5486

(b) All notices, statements, demands and requests shall be effective three (3) days after being deposited in the United States mail or one day after being sent by overnight delivery or by facsimile. However, the time period in which a response to any such notice, statement, demand or request must be given shall commence to run from date of receipt by the addressee thereof as shown on the return receipt of the notice, statement, demand or request, but in all events not later than the tenth (10th) day after it shall have been mailed as required herein.

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(c) By giving to the other party at least thirty (30) days written notice thereof, either party shall have the right from time to time and at any time during the Operating Term to change their respective addresses for notices, statements, demands and requests, provided such new address shall be within the United States of America.

ARTICLE 19

ASSIGNMENT

Section 19.01. No Assignment by Operator.

Notwithstanding anything to the contrary set forth in this Agreement, without the prior written consent of Lessee (which consent may be withheld in Lessee’s sole and absolute discretion), Operator shall have no right to sell, transfer or assign (or permit the sale, transfer or assignment of) any of its rights, duties or obligations under this Agreement in any manner, either directly or indirectly, voluntarily, or by operation of law.

Section 19.02. Assignment by Lessee.

Lessee may transfer or assign its rights and obligations under this Agreement without the consent of Operator but shall deliver to Operator written notice of such transfer or assignment not less than ten (10) days prior to the effective date thereof; provided, however, in the event of the assignment of this Agreement to a party that is not an Affiliate, Operator shall have the right to terminate this Agreement within 15 days after receipt of written notice of such assignment, which termination will be effective within 30 days of Lessee’s receipt of such termination notice. Any transfer or assignment of this Agreement by Lessee shall include an express assumption by the transferee or assignee of Lessee’s obligations hereunder. Nothing herein shall be deemed to require Lessee to assign or attempt to assign this Agreement to any third party, including any buyer of a Hotel.

ARTICLE 20

SUBORDINATION

Section 20.01. Subordination To Mortgage.

Operator hereby agrees that this Agreement, including, but not limited to Operator’s Fee, shall in all respects be and is hereby expressly made subordinate and inferior to the liens, security interest and/or any Mortgage and to any promissory note and other indebtedness secured or to be secured thereby and to all other instruments evidencing or securing or to evidence or secure indebtedness, and all amendments, modifications, supplements, consolidations, extensions and revisions of such note and other instruments and any other indebtedness of Lessee or Owner, secured or unsecured. Operator shall execute any and all subordination agreements, estoppel certificates and other documents requested by Lessee or Owner and/or the Holder to further evidence the subordination of this Agreement and Operator’s rights hereunder including without limitation providing any purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure (including the lender) with the right to terminate this Agreement; provided, however, Lessee shall use its commercially reasonable efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in form reasonably acceptable to Operator providing that this Agreement shall remain in full force and effect notwithstanding the fact that the Mortgage has been foreclosed.

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Section 20.02. Foreclosure.

Prior to termination of this Agreement by foreclosure under the Mortgage or by acquisition of the property to be covered by the Mortgage by deed in lieu of foreclosure, Operator shall have the right to enjoy all rights and privileges conferred upon it pursuant to this Agreement, including, without limitation the rights to the Operator’s Fee, and Operator shall incur no liability to the Holder for acting pursuant to the terms of this Agreement; provided, however, Operator shall be required to (and does hereby agree to) repay to the Holder any Operator’s Fee paid to Operator under this Agreement from and after the date which is thirty (30) days after the date of receipt by Operator of a notice of default under the Mortgage, which default is not cured and results in the acceleration of the indebtedness secured by the Mortgage and the ultimate foreclosure of the liens and/or security interest under the Mortgage and/or other acquisition of the property covered thereby by the Holder in lieu of foreclosure. In the event of such foreclosure, Operator shall have the right to terminate this Agreement on thirty (30) days’ written notice to Lessee. Notwithstanding the foregoing, Operator may pursue, as an unsecured creditor, a claim for all amounts due and owing to Operator under this Management Agreement in accordance with the terms of this Section 20.02.

Section 20.03. Estoppel Certificates.

Lessee and Operator agree, at any time and from time to time, upon not less than 10 days prior written notice from the other party or any purchaser or lender, to provide a statement in writing certifying that this Agreement is unmodified and in full force and effect (or, if there have been modifications, that the same is full and force and effect as modified and stating the modifications), and stating whether or not to the best knowledge of the signer of such certificate, there exists any default in the performance of any obligation contained in this Agreement, and if so, specifying each such default of which a signer may have knowledge. Any statement delivered pursuant to this Section may be relied upon by the other party and by the prospective lender or purchaser.

ARTICLE 21

MISCELLANEOUS

Section 21.01. Further Documentation and Reporting Compliance.

Lessee and Operator shall execute and deliver all appropriate supplemental agreements and other instruments, and take any other action necessary to make this Agreement fully and legally effective, binding, and enforceable in accordance with the terms hereof as between them and as against third parties. Operator acknowledges that Parent is a reporting company under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and other federal laws, including the Sarbanes-Oxley Act of 2002, and Operator shall reasonably cooperate in providing Lessee information as necessary for Parent to prepare and submit its reports under such laws in a timely fashion.

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Section 21.02. Captions.

The titles to the several articles of this Agreement are inserted for convenience only and are not intended to affect the meaning of any of the provisions hereof.

Section 21.03. Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of Lessee, its successors and/or assigns, and subject to the provisions of Article XIX, shall be binding upon and inure to the benefit of Operator, its permitted successors and assigns.

Section 21.04. Competitive Market Area.

Operator hereby agrees, for the benefit of Lessee, its successors and assigns, except for the hotels, if any, listed as Exhibit A-4, that Operator (and its Affiliates) will not own, operate, lease, manage, or otherwise have an interest in, directly or indirectly, any hotel within a five (5) mile radius of any Hotel during the Operating Term unless expressly consented to in writing by Lessee in advance, which consent may be withheld in Lessee’s sole and absolute discretion.

Section 21.05. Assumption of Post Termination Obligations.

In the event of termination of this Agreement, Lessee shall be responsible for assuming obligations under contracts entered into by Operator only to the extent that any such contract shall have been entered into in accordance with Section 4.05(a) and Lessee shall be responsible for the payment of obligations incurred by Operator in the operation of the Hotel only to the extent that such obligations shall have been incurred in accordance with the terms of this Agreement, and Operator hereby agrees to indemnify and to hold Lessee harmless from and against any liability in connection with any such contracts, agreements or obligations not so approved in writing by Lessee. Lessee will indemnify and hold Operator harmless from all costs, expenses, claims, damages and liabilities, including without limitation, lawyers’ fees and disbursements, arising or resulting from Lessee’s failure following the expiration or earlier termination (for whatever cause) of this Agreement to provide all of the services contracted for in connection with the business booked on commercially reasonable terms for the Hotels on or prior to the date of such expiration or termination. The provisions of this Section will survive any expiration or termination of this Agreement and will be binding upon Lessee and its successors and assigns, including any successor or assign that becomes the beneficial or legal owner of the Hotels after the effective date of any such expiration or termination.

Section 21.06. Entire Agreement.

This Agreement, together with the Exhibits hereto, constitutes the entire Agreement between the parties relating to the subject matter hereof, superseding all prior agreements or undertakings, oral or written. This Agreement and the Exhibits hereto shall be construed and interpreted without reference to any canon or rule of law requiring interpretation against the party drafting or causing the drafting of this Agreement or the portions in question, it being agreed and understood that all parties have participated in the preparation of this Agreement.

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Section 21.07. Governing Law.

This Agreement shall be construed and enforced in accordance with the laws of the State of Nebraska.

Section 21.08. No Political Contributions.

Any provision hereof to the contrary notwithstanding, no money or property of the Hotel shall be paid or used or offered, nor shall Lessee or Operator directly or indirectly pay or use or offer, consent or agree to pay or use or offer any money or property of the Hotel, for or in aid of any political party, committee or organization, or for or in aid of, any corporation, joint stock or other association organized or maintained for political purposes, or for, or in aid or, any candidate for political office or for nomination for such office, or in connection with any election including referendum for constitutional amendment, or for any political purpose whatever, or for lobbying in connection with legislation or regulation thereunder, or for the reimbursement for indemnification of any person for money or property so used.

Section 21.09. Eligible Independent Contractor.

(a) At the effective time of this Agreement, Operator shall qualify as an “eligible independent contractor” as defined in Section 856(d)(9) of the Internal Revenue Code of 1986, as amended (the “Code”). To that end:

(i) during the Operating Term, Operator shall not permit wagering activities to be conducted at or in connection with the Hotels;

(ii) during the Operating Term, Operator shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of Supertel Hospitality, Inc.;

(iii) during the Operating Term, no more than 35% of the total combined voting power of Operator’s outstanding stock (or 35% of the total shares of all classes of its outstanding stock) shall be owned, directly or indirectly, by one or more persons owning 35% or more of the outstanding stock of Supertel Hospitality, Inc.; and

(iv) At the effective time, Operator shall be actively engaged in the trade or business of operating “qualified lodging facilities” (defined below) for a person who is not a “related person” within the meaning of Section 856(d)(9)(F) of the Code with respect to the Parent or Lessee (“Unrelated Persons”). In order to meet this requirement, Operator agrees that it (i) shall derive at least 10% of both its revenue and profit from operating “qualified lodging facilities” for Unrelated Persons and (ii) shall comply with any regulations or other administrative guidance under Section 856(d)(9) of the Code with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an “eligible independent contractor” with the meaning of such Code Section.

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(b) A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code and means a “lodging facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A “lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to Supertel Hospitality, Inc.

(c) Operator shall not sublet any Hotel or enter into any similar arrangement on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the rent would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code, or any similar or successor provision thereto.

Section 21.10. Time of the Essence.

Time is of the essence of this Agreement.

Section 21.11. Offsets.

Each party may offset amounts owed to another party hereunder against any amounts owed to such party, except to the extent any such offset is prohibited by the terms of the Lessee (or its Affiliates) credit agreements.

Section 21.12. Attorney’s Fees.

If any party brings an action against another party to enforce any provision of this Agreement, the prevailing party in such action shall be entitled to recover its court costs, attorney’s fees and expenses in the judgment rendered through such action.

Section 21.13. Final Accounting.

(a) In addition to the reports required by Section 9.02, within sixty (60) days following the effective date of expiration or termination of this Agreement, Operator shall prepare and submit to Lessee a final accounting of Hotel operations through the effective date of such expiration or termination, which accounting shall be in the form of the financial statements required hereunder.

(b) Upon the effective date of expiration or termination of this Agreement, Operator shall deliver possession of the Hotel, and any cash, property and other assets pertaining thereto, together with any and all keys or other access devices, to Lessee.

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(c) Upon the expiration or termination of this Agreement, Operator shall reasonably cooperate with and assist Lessee as may be necessary for the transfer of the operations and management of the Hotels to the successor operator and the transfer any and all Hotel licenses and permits to Lessee or Lessee’s designee.

Section 21.14. Franchisor Communications.

During the Operating Term, Operator shall promptly deliver to Lessee copies of any deficiency notices or similar notices received from a Franchisor and any response thereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

LESSEE:
TRS LEASING, INC.
By:	/s/ Kelly A. Walters
Title:	President / Secretary
TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	President / Secretary
SPPR TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	Officer of Manager: TRS Leasing, Inc.
SPPR-BMI TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	Officer of Manager: TRS Leasing, Inc.

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OPERATOR: STRAND DEVELOPMENT COMPANY, LLC
By:	/s/ John Pharr
Title:	President

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EXHIBIT A

HOTEL PROPERTIES AND OWNERS

Hotel Owner Location Number of Rooms

EXHIBIT A-1

Competitive Set

EXHIBIT A-2

Form of SPAR Inspection Form

EXHIBIT A-3

Accounting Software and Payroll Processes

EXHIBIT A-4

List of Operator’s Hotels Within 5 Mile Radius

EXHIBIT B

Franchise Agreements

Hotel Location Franchisor

EXHIBIT C

Total Investment

ASSIGNMENT AND ASSUMPTION OF MANAGEMENT AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION OF MANAGEMENT AGREEMENT (the “Assignment”) is made and entered into as of the 20^th day of May, 2011, by and between STRAND DEVELOPMENT COMPANY, LLC, a South Carolina limited liability company (referred to herein as the “Assignor”) and STRANDCO, INC., a North Carolina corporation (the “Assignee”).

WITNESSETH:

WHEREAS, Assignor, as Operator, entered into that certain Hotel Management Agreement with TRS Leasing, Inc., TRS Subsidiary, LLC, SPPR TRS Subsidiary, LLC and SPPR-BMI TRS Subsidiary, LLC (collectively the “Lessee”), effective as of June 1, 2011 (the “Agreement”), for management services to be rendered for certain hotels leased by Lessee;

WHEREAS, Assignee is a subsidiary of Assignor; and

WHEREAS, all obligations of the Operator under the terms of the Agreement will be performed by Assignee.

NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration set forth herein, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee agree as follows:

Section 1. As of the date hereof, Assignor does hereby assign and transfer all of its right, title and interest in, to and under the Agreement to Assignee, its successors and assigns. Assignee does hereby assume and agree to perform all of Assignor’s rights, duties, obligations and liabilities, as Operator, in, to and under the Agreement arising and to be performed from and after the Commencement Date. It is acknowledged that as of the date hereof, no services have been provided to Lessee under the terms of the Agreement, and that this Assignment is made prior to the Commencement Date.

Section 2. By execution hereof, Lessee consents to this Assignment in accordance with the provisions of Section 19.01 of the Agreement.

Section 3. Assignor agrees that it shall continue to remain liable under the terms of the Agreement, with consent to this Assignment by Lessee not constituting a release of any kind.

Section 4. The covenants, agreements, terms, provisions and conditions contained in this Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

Section 5. Notices to Assignee, as Operator under the Agreement, shall be addressed as follows:

Strandco, Inc.

1109 48^th Avenue North, Suite 211

Myrtle Beach, SC 29577

Attention: John Pharr

Facsimile: (843) 365-5486

Section 6. This Assignment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

Section 7. This Assignment contains the entire understanding of the parties with respect to the subject matters covered hereby. The invalidity or unenforceability of any provision of this Assignment will not affect any of the other provisions hereof.

Section 8. This Assignment shall be governed by, construed and enforced in accordance with the laws of the State of North Carolina, without reference to the conflicts or choice of law principles thereof. Capitalized terms not defined herein shall have the meaning given that term in the Agreement.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, Assignor and Assignee have duly executed this Assignment as of the date set forth on the first page.

Assignor:
STRAND DEVELOPMENT COMPANY, LLC a South Carolina limited liability company
By:	/s/ John Pharr, Manager
	John Pharr, Manager
Assignee:
STRANDCO, INC. a North Carolina corporation
By:	/s/ John Pharr
	John Pharr, President

WE CONSENT:
TRS LEASING, INC.		TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters	By:	/s/ Kelly A. Walters
	Kelly A. Walters, President		Kelly A. Walters, President
SPPR TRS SUBSIDIARY, LLC		SPPR-BMI TRS SUBSIDIARY, LLC
By: TRS Leasing, Inc., as Manager		By:	TRS Leasing, Inc., as Manager
By:	/s/ Kelly A. Walters	By:	/s/ Kelly A. Walters
	Kelly A. Walters, President		Kelly A. Walters, President

EX-10.46

Exhibit 10.46

HOTEL

MANAGEMENT AGREEMENT

Between

TRS LEASING, INC.,

TRS SUBSIDIARY, LLC

SPPR TRS SUBSIDIARY, LLC

SPPR-BMI TRS SUBSIDIARY, LLC

and

HOSPITALITY MANAGEMENT ADVISORS, INC.

Dated

April 21, 2011

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS			1
Section 1.01.	Definitions		1
ARTICLE 2 TERM OF AGREEMENT			7
Section 2.01.	Term		7
ARTICLE 3 OPERATION OF THE HOTELS			8
Section 3.01.	Representations by Operator; Engagement of Operator		8
Section 3.02.	Standards of Operation		8
Section 3.03.	Reservations Services and Revenue Management		9
Section 3.04.	Marketing		9
Section 3.05.	Consultations Between Lessee and Operator		9
Section 3.06.	Transactions with Affiliates and Other Relationships		9
Section 3.07.	Employees		10
Section 3.08.	Regional Manager		10
Section 3.09.	Certain Expenses		10
ARTICLE 4 INDEPENDENT CONTRACTOR			11
Section 4.01.	Operator Status		11
Section 4.02.	Employees		11
Section 4.03.	Employee Expenses		11
Section 4.04.	Employee Benefit Plans		12
Section 4.05.	Execution of Agreements		12
ARTICLE 5 INDEMNIFICATION			13
Section 5.01.	Indemnification by Operator		13
Section 5.02.	Limitations on Indemnification		13
Section 5.03.	Indemnification by Lessee		13
Section 5.04.	Survival of Indemnity		14
ARTICLE 6 BUDGETS AND POLICY MEETINGS			14
Section 6.01.	Budgets		14
Section 6.02.	Budget Meetings		15
Section 6.03.	Approval by Lessee Required		15
ARTICLE 7 OPERATING EXPENSES			16
Section 7.01.	Payment of Operating Expenses		16
Section 7.02.	Operating Expenses Not an Obligation of Operator		16
ARTICLE 8 BANK ACCOUNTS			16
Section 8.01.	Lessee Revenue Account		16
Section 8.02.	Bank Accounts		16
Section 8.03.	Authorized Signatures		17

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ARTICLE 9 BOOKS, RECORDS AND STATEMENTS		17
Section 9.01.	Books and Records	17
Section 9.02.	Statements	18
Section 9.03.	Costs	19
ARTICLE 10 OPERATOR’S FEE AND TRANSFERS TO LESSEE		19
Section 10.01.	Payment of Operator’s Fee	19
ARTICLE 11 REPAIRS AND MAINTENANCE		19
ARTICLE 12 INSURANCE		20
Section 12.01.	General	20
Section 12.02.	Workers’ Compensation and Other Employment Insurance	20
Section 12.03.	Approval of Companies and Cost by Owner and Lessee	20
Section 12.04.	Maintenance of Coverages	20
Section 12.05.	Waiver of Subrogation	20
Section 12.06.	Blanket Coverage	21
ARTICLE 13 PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS		21
Section 13.01.	Property Taxes	21
Section 13.02.	Lessee’s Right to Contest	21
ARTICLE 14 DAMAGE OR DESTRUCTION - CONDEMNATION		21
Section 14.01.	Damage	21
Section 14.02.	Condemnation	21
ARTICLE 15 USE OF NAME		22
ARTICLE 16 TERMINATION		22
Section 16.01.	Inspection Failure	22
Section 16.02.	Performance Failure	22
Section 16.03.	Sale of Hotels	23
Section 16.04.	Optional Termination	23
Section 16.05.	Lessee Change of Control	23
Section 16.06.	Operator Change of Control	24
Section 16.07.	Tax Law Change	25
Section 16.08.	Termination Fees	25
ARTICLE 17 DEFAULT AND REMEDIES		25
Section 17.01.	Events of Default- Remedies	25
Section 17.02.	Rights Not Exclusive	26
ARTICLE 18 NOTICES		27
Section 18.01.	Notices	27
ARTICLE 19 ASSIGNMENT		28
Section 19.01.	No Assignment by Operator	28

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Section 19.02.	Assignment by Lessee	28
ARTICLE 20 SUBORDINATION		28
Section 20.01.	Subordination To Mortgage	28
Section 20.02.	Foreclosure	29
Section 20.03.	Estoppel Certificates	29
ARTICLE 21 MISCELLANEOUS		29
Section 21.01.	Further Documentation and Reporting Compliance	29
Section 21.02.	Captions	30
Section 21.03.	Successors and Assigns	30
Section 21.04.	Competitive Market Area	30
Section 21.05.	Assumption of Post Termination Obligations	30
Section 21.06.	Entire Agreement	30
Section 21.07.	Governing Law	31
Section 21.08.	No Political Contributions	31
Section 21.09.	Eligible Independent Contractor	31
Section 21.10.	Time of the Essence	32
Section 21.11.	Offsets	32
Section 21.12.	Attorney’s Fees	32
Section 21.13.	Final Accounting	32
Section 21.14.	Franchisor Communications	33

EXHIBIT A — Hotel Properties and Owners

EXHIBIT A-1 — Competitive Set

EXHIBIT A-2 — Form of SPAR Inspection Form

EXHIBIT A-3 — Accounting Software and Payroll Processes

EXHIBIT A-4 — List of Operator’s Hotels Within 5 Mile Radius

EXHIBIT B — Franchise Agreements

EXHIBIT C – Total Investment

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HOTEL MANAGEMENT AGREEMENT

This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of April 21, 2011, by and among TRS Leasing, Inc., a Virginia corporation (“TRS”), TRS Subsidiary, LLC, a Delaware limited liability company (“TRS Sub”), SPPR TRS Subsidiary, LLC (“SPPR TRS Sub”), SPPR-BMI TRS Subsidiary, LLC, a Delaware limited liability company (“SPPRBMI”) (TRS Sub, SPPR TRS Sub and SPPRBMI, together with TRS, collectively, “Lessee”) and Hospitality Management Advisors, Inc., a Tennessee corporation (“Operator”), with reference to the following facts:

A. Lessee leases from the entities described on Exhibit A (each, an “Owner” and collectively, the “Owners”) the hotel properties described on Exhibit A (each, a “Hotel” and collectively, the “Hotels”) pursuant to one or more Lease Agreements described on Exhibit A (each, a “Lease” and collectively, the “Leases”);

B. Lessee desires to engage Operator to operate and manage the Hotels listed on Exhibit A beginning on the Commencement Date in accordance with the terms of this Agreement;

C. Operator desires to supply the services and to operate the Hotels beginning on the Commencement Date in accordance with the terms of this Agreement; and

D. The parties desire that this Agreement, while it controls all of the Hotels collectively, will represent an individual hotel management agreement for each Hotel described on Exhibit A, as it may be amended from time to time.

NOW, THEREFORE, for and in consideration of the mutual covenants, conditions, stipulations, agreements and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Lessee and Operator covenant and agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions.

(a) As used herein, the following terms shall have the indicated meanings:

“Adjusted Operating Expenses” shall mean Operating Expenses excluding Operator’s Fee, insurance premiums (with the exception of the insurance described in Section 12.02), discretionary employee bonuses (to the extent exclusion is approved by Lessee) and Property real estate and personal property taxes.

“Affiliate” shall mean (a) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (b) any person that owns, beneficially, directly or indirectly, ten percent or more of the outstanding capital stock, shares or equity interests of such person, or (c) any officer, director, employee, partner or trustee of such person or any person controlling, controlled by, or under common control with such person.

“Agreement” shall mean this Hotel Management Agreement and all amendments, modifications, supplements, consolidations, extensions and revisions to this Hotel Management Agreement approved by Lessee and Operator.

“Approved Budget” shall mean the Hotel Operating Budget prepared in accordance with Section 6.01 of this Agreement and approved in writing by Lessee.

“CPI” shall mean the Consumer Price Index, all items for All Urban Consumers, published by the Bureau of Labor Statistics of the United States Department of Labor as reported in The Wall Street Journal.

“Capital Improvements” will mean all expenditures for replacements, substitutions and additions to Hotels and Hotel FF&E which are required to be capitalized in accordance with generally accepted accounting principles.

“Commencement Date” shall mean June 1, 2011.

“Competitive Set” for each Hotel means the hotels listed on Exhibit_A-1 attached hereto, or such other hotels as may be reasonably agreed upon by Lessee and Operator from time to time during the Term. The Lessee and Operator shall discuss at least once a year, and upon any major change to an existing hotel in the Competitive Set, the composition of the Competitive Set. Any changes to a Hotel’s Competitive Set must be mutually agreed upon by Lessee and Operator.

“Event(s) of Default” shall mean one or more of the events or occurrences listed in Section 17.01 of this Agreement.

“Fiscal Year” shall mean each twelve (12) month calendar year ending December 31 during the Operating Term, except that the first Fiscal Year and the last Fiscal Year of the Operating Term may not be full calendar years.

“Franchisors” shall mean the franchisors under the Franchise Agreements.

“Franchisor Agreements” shall mean the franchise license agreements held by Lessee or Operator with respect to each Hotel as described in Exhibit B as it may be amended from time to time.

“GAAP” shall mean generally accepted accounting principles and procedures in the United States.

“Gross Hotel Income” shall mean all income and proceeds of sales received by Operator for guest use, occupancy or enjoyment of the Hotel or for the sale of any goods, services or other items sold on or provided from the Hotel to guests in the ordinary course of the Hotel operation, but excluding the following: (i) any excise, sales or use taxes or similar government charges collected directly from patrons or guests, or as a part of the sales price of any goods, services or displays, such as gross receipts, admission, cabaret or similar or equivalent taxes; (ii) receipts

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from condemnation awards or sales in lieu of or under threat of condemnation; (iii) proceeds of insurance (other than proceeds from business interruption insurance received by Lessee which shall be allocated by Lessee to any applicable periods); (iv) proceeds of sales of capital assets, furniture and Hotel Operating Equipment; (v) consideration received at the Hotel for hotel accommodations, goods and services to be provided at other hotels although arranged by, for or on behalf of, Operator; (vi) proceeds of any financing; (vii) working capital provided by Lessee; (viii) any funds provided by Lessee to Operator whether for Operating Expenses or otherwise; (ix) interest income and fees, rents and other revenues from telecommunications tower or similar leases or other leases or sub-leases of any part of the Property and (x) other income or proceeds resulting other than from guest use or occupancy of the Hotel or the Property, or any part thereof, or other than from the sale of goods, services or other items sold on or provided in connection with guest services at the Hotel in the ordinary course of business. The parties intend that Gross Hotel Income shall be computed in a manner consistent with “room rentals and other hotel services” computation of revenues on the Parent’s audited Consolidated Statements of Operations.

“Holder” shall mean the holder of any Mortgage and the indebtedness secured thereby, and such holder’s successors and assigns.

“Hotel Capital Budget” shall mean the budget relating to capital expenditures at a Hotel as described in Section 6.01.

“Hotel FF&E” shall mean the furniture, furnishings, wall coverings, fixtures and hotel equipment for a Hotel and which includes equipment required for operation of the kitchens, restaurants and laundry, office equipment, material handling equipment, cleaning and engineering equipment and vehicles.

“Hotel Operating Account” shall mean the bank account opened and maintained in Operator’s name, or in a name designated by Operator, with a banking institution selected by Lessee, from which disbursements shall be made pursuant to the terms of this Agreement.

“Hotel Operating Budget” shall mean the budget relating to the operation of a Hotel as described in Section 6.01.

“Hotel Operating Equipment” shall mean linens, chinaware, glassware, silverware, uniforms, utensils and other non-consumable items of similar nature.

“Hotel Operating Supplies” shall mean paper supplies, cleaning materials and similar consumable items.

“Hotel Standards” shall mean the standards established by the respective Franchisors of the Hotels from time to time.

“Hotels” shall mean the hotel properties described in Exhibit A hereto, as it may be amended from time to time by mutual agreement of Lessee and Operator to add hotel properties or to delete hotel properties as a result of termination of this Agreement with respect to one or more hotel properties pursuant to the termination provisions set forth in this Agreement. “Hotel” shall mean any hotel set forth on Exhibit A as it may be amended from time to time.

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“Initial Term” shall have the meaning set forth in Section 2.01.

“Independent CPA” shall mean the firm of independent public accountants which is selected by Lessee from time to time.

“Land” shall mean the real property described in Exhibit A to the Lease.

“Lease” shall have the meaning set forth in the recitals.

“Lessee” shall have the meaning set forth in the recitals.

“Lessee Revenue Account” shall mean the bank accounts opened and maintained in Lessee’s name, or in a name designated by Lessee, with a banking institution selected by Lessee, into which all income, receipts and proceeds included in the definition of Gross Hotel Income (without exclusion of any of the items excluded from the definition of such term) shall be deposited.

“Mortgage” shall mean any mortgage or deed of trust hereafter, from time to time, encumbering all or any portion of a Property, together with all other instruments evidencing or securing payment of the indebtedness secured by such mortgage or deed of trust and all amendments, modifications, supplements, extensions, and revisions of such mortgage, deed of trust and other instruments.

“NOI” shall mean Net Operating Income which shall be determined by deducting Adjusted Operating Expenses from Gross Hotel Income.

“Operating Expenses” shall mean all costs and expenses of maintaining, conducting and supervising the operation of the Property, to the extent set forth in an Approved Budget and the provisions of Section 6.03, incurred pursuant to this Agreement or as otherwise specifically provided herein which are properly attributable to the period under consideration under Lessee’s system of accounting, including without limitation:

(i) The cost of all food and beverages sold or consumed and of all Hotel Operating Equipment and Hotel Operating Supplies;

(ii) Salaries and wages of on-site Hotel personnel, including costs of payroll taxes and employee benefits and amounts payable under bonus plans approved by Lessee. The salaries or wages of other employees or executives of Operator, or any Affiliate of Operator shall in no event be Operating Expenses;

(iii) The cost of all other goods and services obtained by Operator in connection with its operation of the Property including, without limitation, heat and utilities, office supplies and all services performed by third parties, including leasing expenses in connection with telephone and data processing equipment and such other equipment as Lessee shall designate;

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(iv) The cost of repairs to and maintenance of the Property to keep the Property in good condition;

(v) Insurance premiums for all insurance maintained with respect to the Property, including without limitation, property damage insurance, public liability insurance, workers’ compensation insurance or insurance required by similar employee benefits acts, employment liability practices insurance, and such business interruption or other insurance as may be provided for protection against claim, liabilities and losses arising from the use and operation of the Hotel and losses incurred with respect to deductibles applicable to the foregoing types of insurance;

(vi) All taxes, assessments and other charges (other than federal, state or local income taxes and franchise taxes or the equivalent) payable by or assessed against Operator or Lessee with respect to the operation of the Hotel, including water and sewer charges;

(vii) Legal fees relating to Hotel operations (excluding legal fees with respect to employee claims), and real estate tax abatement and appeal services excluding legal fees with respect to employee claims;

(viii) The costs and expenses of technical consultants and specialized operational experts for specialized services in connection with non-recurring work on operational, functional, decorating, design or construction problems and activities, including reasonable third party fees reasonably deemed necessary by Lessee for the efficient operation of the Hotels;

(ix) All expenses for marketing and sales, including all expenses of advertising, sales promotion and public relations activities at the Hotels, exclusive of Operator’s marketing manager and similar administrative personnel (which expenses shall be borne by Operator);

(x) Municipal, county and state license and permit fees;

(xi) All normal and recurring fees, assessments and charges due and payable under Franchisor Agreements;

(xii) Credit card fees, travel agent commissions and other third party reservation fees and charges;

(xiii) All parking charges and other expenses associated with revenues received by the Hotels related to parking operations, including valet services;

(xiv) All expenses related to the revenues included in Gross Hotel Income, including without limitation, expenses relating to telephone, vending, television, cable television, pay television and similar services;

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(xv) The costs of obtaining and keeping in force all licenses or permits (including liquor licenses, if any) necessary for the operation of the Hotel and in complying with governmental laws, rules, regulations, ordinances, orders and requirements;

(xvi) All reasonable travel expenses of Operator’s supervisory personnel on the next level above hotel manager (to the extent approved by Lessee) for visits to the Hotels in the performance of their duties hereunder, but not including travel between Operator’s main office and Operator’s regional offices; and

(xvii) Operator’s Fee, if any.

Operating Expenses shall not include (a) depreciation and amortization except as otherwise provided in this Agreement; (b) debt service; (c) capital expenditures per the Hotel Capital Budget; and (d) lease payments to Owner.

The parties intend that Operating Expenses shall be computed in a manner consistent with “Hotel and property operations expenses” computation of expenses on the Parent’s Audited Consolidated Statements of Operations.

“Operating Loss” shall mean for any period the amount by which Operating Expenses exceed Gross Hotel Income.

“Operating Term” shall mean, with respect to any Hotel, the term of this Agreement as set forth in Section 2.01.

“Operator” shall have the meaning set forth in the recitals.

“Operator’s Fee” shall mean a monthly fee equal to 3.50% of Gross Hotel Income and 2.25% of NOI.

“Owners” shall mean the entities described on Exhibit A as it may be amended from time to time as the owners of the Hotels. “Owner” shall mean any entity described on Exhibit A as it may be amended from time to time.

“Parent” shall mean Supertel Hospitality, Inc.

“Property” shall mean the Land, the Hotel, all real and personal property now or hereafter situated upon the Land and all appurtenant rights and easements thereto.

“Renewal Term” shall have the meaning set forth in Section 2.01.

“RevPAR” shall mean Hotel occupancy percentage multiplied by average daily rate.

“RevPAR Benchmark” means the Hotel’s RevPAR Index for the trailing 12-months ending on the Commencement Date.

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“RevPAR Index” means the RevPAR Index included in the STR Report produced for the Hotel by Smith Travel Research or, if Smith Travel Research no longer is in existence, the successor of Smith Travel Research or such other industry resource that is equally as reputable as Smith Travel Research will be substituted, in order to obtain substantially the same result as would be obtained if Smith Travel Research has not ceased to be in existence.

“SPAR Inspection” shall mean a property inspection as reasonably conducted by Lessee using the Supertel Property Audit Report form attached as Exhibit A-2.

“Total Investment” shall mean Owner’s total investment in the Hotels as of December 31, 2010, more particularly described in the Schedule attached hereto as Exhibit C. If any Hotels are sold during the term of this Agreement, the Total Investment will be reduced by an amount equal to the total investment for that particular Hotel or Hotels (as shown on Exhibit C). If any Hotels are added during the term of this Agreement, if there are any Capital Improvements for the Hotels, the Total Investment will be increased by an amount equal to Lessee’s total investment in said Hotel or Hotels and said Capital Improvements for the Hotels, and Lessee will immediately advise Operator of said increase in the Total Investment. Appropriate adjustment shall be made in the Total Investment if Hotels are added or subtracted or Capital Improvements are made, during the Fiscal Year. The Total Investment for the Hotels at December 31, 2010 is reflected on Exhibit C attached hereto (which excludes construction in progress). Amounts initially included in Total Investment which are subsequently reclassified to other balance sheet line items shall nonetheless remain included in the determination of Total Investment for purposes of this Agreement and for purposes of the amounts set forth on Exhibit C.

“Unrelated Persons” shall have the meaning set forth in Section 21.09.

(b) Terms with initial capital letters which appear within the foregoing definitions are defined in this Article I or as indicated in this Agreement. Dollars are denominated in U.S. Dollars.

ARTICLE 2

TERM OF AGREEMENT

Section 2.01. Term.

The term of this Agreement shall commence on the Commencement Date and shall terminate at midnight on May 31, 2014 (the “Initial Term”), subject to earlier termination or extension as set forth herein. This Agreement shall automatically renew for additional terms of one (1) year each (each, a “Renewal Term”) unless either party gives the other party written notice of termination at least ninety (90) days prior to the end of the Initial Term or the then-current Renewal Term.

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ARTICLE 3

OPERATION OF THE HOTELS

Section 3.01. Representations by Operator; Engagement of Operator.

Operator hereby represents that Operator (i) is experienced and capable and will remain experienced and capable in the management and operation of hotels throughout the United States of America, (ii) has reviewed and understands the terms and provisions of the Lease and the Franchise Agreements and the Hotel Standards, and (iii) will, on the effective date of this Agreement, meet the requirements to be an “eligible independent contractor” under Section 856(d)(9) of the Internal Revenue Code. In reliance on the foregoing representations, Lessee hereby engages Operator to manage and operate the Hotels during the Operating Term and Operator agrees to manage and operate the Hotels during the Operating Term, in accordance with this Agreement. Operator will provide all property management, financial accounting, reporting, marketing and other operational services for each Hotel, including the services of regional managers of operations as necessary for all Hotels and will use commercially reasonable efforts to maximize the operating profitability thereof. Lessee and Operator acknowledge that it is the intention of the parties that the Hotels be operated in a profitable manner and in a manner for comparable hotels operated by a national operator within the Hotel’s market segment, all in accordance with the Hotel Standards. Operator shall diligently pursue all commercially reasonable measures to enable the Hotels to adhere to the Approved Budget.

Section 3.02. Standards of Operation.

Operator agrees to diligently and efficiently operate each Hotel and all of its facilities and activities (i) at all times in accordance with the Hotel Standards; (ii) consistent with the terms of the Lease and Lessee’s obligations thereunder; (iii) in the same manner as is customary and usual in the first-class operation of comparable hotels in its market; (iv) in compliance with this Agreement, all easements, covenants and restrictions affecting the Property (known or disclosed to Operator) and all applicable governmental laws, rules, regulations, ordinances, orders and requirements; (v) in accordance with the terms and conditions of any financing affecting the Property (known or disclosed to Operator); and (vi) in accordance with the requirements of any carrier having insurance on the Hotel or any part thereof. Operator shall also obtain and keep in force any and all licenses or permits necessary for the operation of the Hotel (provided that, at Lessee’s option, liquor licenses or other licenses or permits shall be obtained and held in Lessee’s name). All such licenses and permits shall belong to Lessee and/or the Hotel and upon expiration or termination of this Agreement, Operator shall take any and all actions reasonably requested by Lessee to transfer such licenses and permits to Lessee or its designee. Operator also acknowledges and agrees that this Agreement is subject and subordinate to the Lease and liens, security interest and Mortgages in accordance with Article XX hereof; provided, however, Lessee shall use its commercially reasonable efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in form reasonably acceptable to Operator providing that this Agreement shall remain in full force and effect notwithstanding the fact that the Mortgage has been foreclosed.

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Section 3.03. Reservations Services and Revenue Management.

Operator shall sell, represent and promote the Hotel through the respective Franchisors’ sales and reservations systems and will encourage the use of the Hotel by all recognized sources of hotel business. Operator must employ, at its own expense, at least one employee responsible for revenue management of the Hotels, with certification by a governing body reasonably acceptable to Lessee.

Section 3.04. Marketing.

(a) Operator shall maintain a sales staff dedicated to the Hotels to arrange, contract for and carry out such marketing, advertising, national trade show attendance, and promotion of the Hotel as Operator shall deem advisable and consistent with the Approved Budget and in accordance with the Hotel Standards. Operator will make every effort to ensure that the Hotel shall receive an equitable share of the benefit of the cooperative advertising and promotion reasonably commensurate with its contribution to the costs thereof. The costs thereof shall be equitably allocated by Operator between the Hotel and other participating hotels, subject to Lessee’s prior written approval. Upon Lessee’s request, Operator shall provide reasonable documentation to support such allocations. Operator shall provide Lessee with detailed monthly reports of its marketing, advertising and promotional activities. Each property shall be visited at least once every twelve (12) months by a member of Operator’s sales staff. Lessee will provide appropriate office space for Regional Sales Managers at at least two of the Hotels, without charge to the Operator.

(b) Operator may, consistent with the Approved Budget, and otherwise, with the consent of Lessee, cause the Hotel to participate in sales and promotional campaigns and activities involving complimentary rooms, food and beverages, consistent with customary practices in the travel industry. Operator shall not provide rooms or Hotel facilities at no cash charge or at a discounted cash rate in trade for non-cash consideration or services without the consent of Lessee.

Section 3.05. Consultations Between Lessee and Operator.

When requested by Lessee, Operator shall, from time to time, render advice and assistance to Lessee and Owner in the negotiation and prosecution of all claims for the reduction of real estate or other taxes or assessments affecting the Hotel and for any award for taking by condemnation or eminent domain affecting the Hotel.

Section 3.06. Transactions with Affiliates and Other Relationships.

(a) Operator shall obtain the prior written consent of Lessee (which Lessee may withhold in Lessee’s sole and absolute discretion) prior to contracting with any Affiliate (or companies in which Operator has an ownership or other economic interest if such interest is not sufficient to make such a company an Affiliate) to provide goods and/or services to the Hotels.

(b) Prior to entering into any contract, agreement or arrangement with respect to one or more of the Hotels pursuant to which Operator may receive rebates, cash incentives, administration fees, concessions, profit participations, stock or stock options, investment rights

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or similar payments or economic consideration from or in, as applicable, vendors or suppliers of goods or services (collectively, “Rebates”), Operator shall promptly disclose to Lessee in writing the fact of and the estimated amount of such Rebates, and the charges and other amounts expected to be incurred in connection with any such contracts or agreements (which shall not exceed prevailing market rates with respect to such goods or services). All Rebates will accrue to the benefit of Lessee and will be applied against Operating Expenses.

Section 3.07. Employees.

Operator may offer employment to all employees who work at the Hotels on the date of this Agreement, at substantially the same salaries, wages, benefits and terms of employment as they received immediately prior to the Commencement Date, provided, however, Operator shall offer employment to any corporate level employee of Royco Hotels, Inc. and general managers of the Hotels employed by Royal Hotels, Inc. only with the consent of Royco Hotels, Inc.

Section 3.08. Regional Manager.

Operator shall provide the services of one of its experienced management employees to oversee and manage the operations of the Hotels (the “Regional Manager”). Lessee shall have the right to approve the Regional Manager and any successor provided that such approval shall not be unreasonably withheld. The Regional Manager shall meet telephonically with the designated representatives of Lessee at least monthly to discuss operations at the Hotels and consult with Lessee to answer any questions Lessee may have, and to address any concerns of Lessee. Lessee’s representatives shall have the right to meet with the COO of Operator or his/her mutually acceptable alternative.

Section 3.09. Certain Expenses.

Operator shall not be entitled to charge Lessee for any of its costs and expenses, except as follows:

(a) Operator shall not charge tuition for training courses provided by Operator for employees employed at the Hotels or for course materials but shall be reimbursed the cost of course materials developed by third party companies, subject to approval in the Operating Budget. Reasonable travel and housing expenses of trainees shall be included in Operating Expenses, subject to approval in the Operating Budget.

(b) Travel expenses described in (xvi) of “Operating Expenses” above.

Operator shall be solely responsible and shall reimburse Lessee and Owner for re-inspection fees charged by Franchisors following a “failure” or its equivalent in any quality inspection report unless the failure is for a Capital Improvement that has been previously brought to the attention of the Owner.

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ARTICLE 4

INDEPENDENT CONTRACTOR

Section 4.01. Operator Status.

In the performance of its duties in the administration, management and operation of the Hotel, Operator shall act solely as an independent contractor. Nothing herein shall constitute or be construed to be or create a partnership or joint venture between Lessee and Operator, or be construed to appoint or constitute Operator as an agent of Owner for any purpose, or be construed to create a lease by Operator of the Hotel or the Property and Operator shall not constitute a tenant or subtenant of Lessee or Owner. Operator’s rights under this Agreement shall be those of an agent only and shall not constitute an interest in real property. Lessee or Owner shall have the right to lease, develop or sell excess land or structures not required for operation of the Hotel. It is expressly covenanted that this Agreement is no more than an agreement for the rendering of services by Operator on behalf of Lessee in the operation and management of the Hotels.

Section 4.02. Employees.

(a) Each Hotel employee shall be the employee of Operator, or an affiliate company of Operator, and not of Lessee, and every person performing services in connection with this Agreement shall be acting as the employee of Operator, but their salaries and other related expenses shall be an Operating Expense.

(b) Operator shall provide evidence to Lessee of statutory Worker’s Compensation Insurance and Employer’s Liability Insurance for each such employee. The insurance coverages (including, without limitation, the carrier, policy limits of each and waiver of subrogation endorsements) must be in form, substance and amount satisfactory to Lessee in all respects. Upon request of Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in favor of Lessee and Owner.

(c) The hiring policies and the discharge of employees at the Hotel shall in all respects comply with all “applicable” laws and regulations, and Operator shall comply with all laws, regulations and ordinances regarding the employment and payment of persons engaged in the operation of each Hotel.

(d) Lessee shall have the right to participate in any negotiations with labor unions representing employees at the Hotel, and Operator shall not sign any union contracts covering such employees at the Hotel which have not been previously approved in writing by Lessee.

Section 4.03. Employee Expenses.

(a) All costs of every nature pertaining to all employees at the Hotel, including, without limitation, salaries, benefits, EPLI coverage, the terms of any bonus plan or arrangement, costs incurred in connection with governmental laws and regulations and insurance rules, shall be set forth in the Approved Budget as an Operating Expense.

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(b) Compensation, overhead costs and other expenses of Operator and its Affiliates not specifically provided for herein shall not be Operating Expenses and shall not be payable or reimbursable by Lessee; provided, however, Operator may include in the calculation of Operating Expenses the salary of any of Operator’s employees located at the Operator’s corporate headquarters which have been temporarily transferred to a Hotel to serve that Hotel exclusively; provided, further, that Operator may only include in Operating Expenses that portion of that employee’s salary equal to the normal rate charged for that employment position.

Section 4.04. Employee Benefit Plans.

Operator shall enroll employees at the Hotels in medical and health, life insurance and employee benefit plans which are approved by Lessee. Operator’s contributions to such plans, reasonable administrative fees, at cost, which may be expended in connection therewith, and reasonable expenses for such plans will be estimated and disclosed to Lessee in advance and provided for in the Approved Budget and will be an Operating Expense. Except for employer matching contributions under any 401(k) plan, Lessee, in its sole discretion shall determine whether to require employees at the Hotels to pay all or a portion of the costs of the employees’ participation in such plans. Except as otherwise provided in Section 6.03, all costs referenced in Section 4.03 and this Section 4.04 will be the responsibility of Lessee only to the extent the same are provided for in the Approved Budget. Upon Lessee’s request, Operator will establish a 401(k) plan as an employee benefit plan. All costs incurred by Operator pursuant to actions taken by Operator at Lessee’s direction will be Operating Expenses.

Section 4.05. Execution of Agreements.

(a) Except as provided in Section 4.05(b), Operator shall execute as agent of Lessee all leases and other agreements relating to equipment and/or services provided to each Hotel, all of which, unless otherwise approved in writing in advance by Lessee, shall either be a term of one year or less or be cancelable upon not more than thirty (30) days’ written notice by Operator or Lessee without the payment of a penalty or fee. Notwithstanding the foregoing, without the prior written approval of Lessee, Operator shall not enter into any agreement (i) which provides for the payment of sums not authorized by Lessee in an Approved Budget, (ii) which would give rise to a lien upon all or any part of the Property, (iii) which would result in liability to Lessee for sums other than as set forth in the applicable Approved Budget, (iv) to lease any part of any Property, (v) relating to alterations to the exterior, interior or structural design of the Hotel, (vi) which requires an unbudgeted payment of more than $5,000, or in the case of a repair of any payment of more than $1,500 (vii) which is not cancelable by Lessee upon 30 days’ notice or less unless the term of said agreement is one year or less, or (viii) which provides for any automatic renewal terms. Contracts for multiple rooms and / or multiple days that(i) exceed a 1-year term and / or (ii) exceed 40% of property nightly room inventory for a period of 30 days or more, or (iii) exceed 50 room nights and have a negotiated net rate of $35 for economy properties, and $45 for midscale and above, this includes promoting such rates online, in print ads such as coupons. If Operator desires to enter into any agreements requiring the consent of Lessee, Operator shall first send written notice of intent to enter into such agreement to Lessee, and Lessee shall either approve or disapprove within five (5) business days of receipt of such notice. Lessee’s failure to timely respond to said request shall be deemed disapproval.

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(b) Subject to Lessee’s prior approval of the same and upon Lessee’s request, Operator shall execute, as agent for Lessee, (i) all leases, as sub-lessor, of any space at any Property, and (ii) equipment rental and/or lease agreements which cannot be terminated upon thirty (30) days notice or less without the payment of a penalty or fee. Operator shall exercise its best efforts to obtain in each equipment agreement a right on the part of the lessee of such equipment to terminate the same on thirty (30) days notice or less without the payment of a penalty fee. Notwithstanding anything in this Section 4.05 to the contrary, Lessee reserves the right, exercisable at Lessee’s option, to execute any lease or other agreement relating to equipment and/or services being provided to the Hotel.

ARTICLE 5

INDEMNIFICATION

Section 5.01. Indemnification by Operator.

In addition to all other obligations of Operator to Lessee hereunder, Operator shall indemnify and hold Lessee harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys’ fees and expenses), of every kind and nature whatsoever to or of any party connected with, or arising out of, or by reason of any gross negligent act or omission, breach of contract, willful misconduct, or tortious actions by Operator, or any Affiliate of Operator, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Operator or any Affiliate of Operator and any employment related claims by Operator’s employees. The indemnification provisions of this Section 5.01 are subject to the limitations set forth in Section 5.02.

Section 5.02. Limitations on Indemnification.

None of the indemnifications set forth in Section 5.01 shall be applicable to (1) liability resulting from the design or construction of the Hotel, or (2) that portion of a liability which is covered and paid for by insurance maintained for the Hotel. The standard of performance of which Operator is to be responsible under this Agreement shall be that, reasonably and diligently exercised, of a professional hotel operator. Settlement of a third party claim shall not be prima facie evidence that a party has triggered an indemnification obligation hereunder. Notwithstanding the provisions of Section 5.01 above, neither Lessee nor Operator will assert against the other and each does hereby waive with respect to the other any claims for any losses, damages, liabilities and expenses (including lawyers’ fees and disbursements) incurred or sustained by that party as a result or damage or injury to persons or property arising out of the ownership, operation or management of the Hotels, to the extent that the damage and injury are covered by insurance and the proceeds are actually recovered from the insurer.

Section 5.03. Indemnification by Lessee.

Lessee shall indemnify and hold Operator harmless against all claims, demands, actions, liabilities, losses, damages, lawsuits and other proceedings at law or in equity, judgments, awards, commissions, fees, costs and expenses (including, without limitation, attorneys’ fees and

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expenses), of every kind and nature whatsoever to or of any party connected with or arising out of, or by reason of any gross negligent act or omission, breach of contract, willful misconduct, or tortious actions by Lessee or any Affiliate of Lessee, or any officer, employee, agent, contractor, subcontractor, or other person or entity working for Lessee or any Affiliate of Lessee. The indemnification provisions of this Section 5.03 are subject to the limitations set forth in Section 5.02. Lessee will indemnify and hold Operator harmless from all costs, expenses, claims, damages and liabilities, including without limitation, lawyers’ fees and disbursements, arising or resulting from Lessee’s failure following the expiration or earlier termination (for whatever cause) of this Agreement to provide all of the services contracted for in connection with the business booked on commercially reasonable terms for the Hotels on or prior to the date of such expiration or termination. The provisions of this Section will survive any expiration or termination of this Agreement and will be binding upon Lessee and its successors and assigns, including any successor or assign that becomes the beneficial or legal owner of the Hotels after the effective date of any such expiration or termination.

Section 5.04. Survival of Indemnity.

The provisions of this Article V shall survive the expiration or sooner termination of this Agreement with respect to matters arising out of facts or circumstances occurring during the period prior to such expiration or termination.

ARTICLE 6

BUDGETS AND POLICY MEETINGS

Section 6.01. Budgets.

(a) No later than November 1 of each year, Operator will prepare and submit (following discussions with Lessee) to Lessee an annual capital budget for each Fiscal Year for each Hotel (the “Hotel Capital Budget”). Notwithstanding the foregoing, for the Fiscal Year in which this Agreement is executed Operator shall manage the Hotels in accordance with the then existing Hotel Capital Budget. The Hotel Capital Budget will set forth all projected Capital Improvements for such Fiscal Year, which budget shall also be month-to-month as well as annual. The Hotel Capital Budget will be subject to the approval of Lessee and Owner, in their sole and absolute discretion. No later than November 1 of each year, Operator shall prepare and submit (following discussions with Lessee) to Lessee an annual operating budget for the operation of each Hotel for the forthcoming Fiscal Year containing detailed projections of Gross Hotel Income and budgets of Operating Expenses (the “Hotel Operating Budget”). Notwithstanding the foregoing, for the Fiscal Year in which this Agreement is executed Operator shall manage the Hotels in accordance with the then existing Hotel Operating Budget. The Hotel Operating Budget shall be month-to-month as well as annual and shall be in the form designated by Lessee, and approved by Operator, which approval of the form shall not be unreasonably withheld. The Hotel Operating Budget and the Hotel Capital Budget shall provide for operating, equipping and maintaining the Hotel in accordance with the Hotel Standards. Contemporaneously with the submission of the Hotel Capital Budget, Operator shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR statistics for each hotel. The Hotel Operating Budget and the monthly budgeted hotel operating statistics shall contain

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Operator’s reasonable good faith estimates of the amounts set forth therein. Operator shall provide Lessee, upon request, all details, information and assumptions used in preparing the Hotel Capital Budget and the Hotel Operating Budget. Owner shall be responsible for implementing the Hotel Capital Budget and may, in Owner’s sole discretion, increase, decrease, delete or modify in any respect any capital expenditure in any Hotel Capital Budget.

(b) Operator shall review the Hotel Capital Budget and the Hotel Operating Budget with Lessee, and upon Lessee’s written approval of the Budget, it shall constitute the Approved Budget for the succeeding Fiscal Year and shall be implemented by Operator. In the event Lessee does not provide Operator with written objections to the Hotel Capital Budget and Hotel Operating Budget within 30 days following Lessee’s receipt of the same, they shall be deemed approved. If Lessee objects to any portion of the Hotel Capital Budget or the Hotel Operating Budget within 30 days after receipt of the same, or to any portion of the revisions within 20 days after submission of the revisions by Operator to Lessee, the parties hereto will call a special budget meeting to resolve the points of disagreement. In the event that Lessee and Operator are unable to agree on the Hotel Operating Budget for a Hotel prior to the commencement of the applicable Fiscal Year, an interim operating budget shall be implemented which will reflect CPI increases for expenses and RevPAR increases based on the appropriate previous 12-month RevPAR growth percentage for the sector in which the Hotel is included, as published by Smith Travel Research, for revenue growth over the prior year’s actual amounts.

Section 6.02. Budget Meetings.

Budget meetings between Lessee and Operator will be held at times as reasonably scheduled by Lessee. At each budget meeting and at any additional meetings during a Fiscal Year called by Lessee, Operator shall consult with Lessee on matters of policy concerning management, sales, room rates, wage scales, personnel, general overall operating procedures, economics and operation and any other matters affecting the operation of the Hotel as requested by Lessee.

Section 6.03. Approval by Lessee Required.

Any request by Operator for Lessee or a Hotel to make any expenditure or incur any obligations in excess of the Approved Budget shall be submitted to Lessee in writing with an explanation of and accompanied by supporting information for the request. Operator shall not make any such expenditure without Lessee’s prior written consent, except as is necessary, in Operator’s reasonable good faith judgment, for the immediate emergency protection of life or property. Lessee shall endeavor to respond to any such request within five (5) business days of the receipt thereof; provided, however, Lessee shall have no obligation to agree to any such request and no liability for failing to respond and failure to respond to such request within such five (5) business day period shall be deemed a denial of the request. The Approved Budget for each Hotel shall be prepared in both dollar amounts and percentages. Variances from the amounts set forth for the expense categories in the Approved Budget for all Hotels (in the aggregate) shall not require Lessee’s prior written consent until such amounts exceed the budgeted year to date percentages (of total line item expenses to revenue) by 5% or more of the applicable percentages reflected in the Approved Budgets for all Hotels on a year-to-date basis, but, in any such event, Operator shall promptly provide to Lessee an explanation of any such variance from the Approved Budget. By way of example, if a line item of expense to revenue was 12%, a 5% change will be exceeded if the variance in the line item exceeds 12.6% as reflected in the Approved Budget.

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ARTICLE 7

OPERATING EXPENSES

Section 7.01. Payment of Operating Expenses.

(a) In performing its authorized duties hereunder, Operator shall promptly pay all Operating Expenses, except that if requested by Lessee certain Operating Expenses shall be paid by Operator directly to Lessee for payment by Lessee to the appropriate lender, taxing authority, insurer or other party so identified by Lessee to Operator.

(b) Subject to Article V, all reasonable third party Operating Expenses incurred by Operator in performing its authorized duties shall be reimbursed or borne by Lessee; provided that such Operating Expenses are incurred pursuant to and within the limits set forth in an Approved Budget or otherwise pursuant to the terms of this Agreement.

Section 7.02. Operating Expenses Not an Obligation of Operator.

Except as may be otherwise specifically provided in this Agreement, Operator shall in no event be required to advance any of its own funds for Operating Expenses of the Hotel, nor to incur any liability in connection therewith unless Lessee shall have furnished Operator with funds as required of Lessee under the terms of this Agreement. However, if Lessee has provided funds required of Lessee hereunder, Operator shall advance such funds necessary to pay expenses incurred by Operator in performing its duties and obligations hereunder. Unless agreed to by Lessee in this Agreement, in the Hotel Operating Budget or otherwise in writing in advance, compensation, overhead costs, and other expenses of Operator and its Affiliates shall not be reimbursable to Operator by Lessee.

ARTICLE 8

BANK ACCOUNTS

Section 8.01. Lessee Revenue Account.

All income, receipts, and proceeds included in the definition of Gross Hotel Income shall be deposited into Lessee Revenue Account.

Section 8.02. Bank Accounts.

(a) Operator shall have the responsibility for payment of all Operating Expenses (which may include Operator’s Fee and the monthly accruals of the Hotels) and shall be reimbursed by Lessee for such expenses upon submission of receipts and documentation reasonably requested by Lessee. Lessee funds shall not be commingled with Operator’s funds and Operator shall provide to Lessee monthly a detailed accounting of all Hotel Operating

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Account receipts and disbursements. Operator shall comply with Lessee’s or Owner’s or their lenders’ requirements with respect to lock-box accounts provided that Lessee shall be responsible for any incremental out-of-pocket costs of Operator resulting from any such lock-box arrangement (which shall not be an Operating Expense).

(b) Operator may establish one or more separate bank accounts for handling payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be handled exclusively by the individuals designated by Operator and approved in writing by Lessee. Funds shall be deposited in the payroll account or accounts by the Lessee, as needed, in order to meet payroll requirements; provided, however, all expenditures from such accounts shall be subject to and in accordance with the terms of this Agreement.

Section 8.03. Authorized Signatures.

The Hotel Operating Account shall be under the day-to-day control of Operator, subject to Operator’s obligation to account to Lessee as and when provided for herein. Lessee shall have signatory authority with respect to the Hotel Operating account, provided, however, Lessee shall not remove any funds from the Hotel Operating Account without first providing at least one week notice to Operator. All receipts and income, including, without limitation, Gross Hotel Income shall be promptly deposited in the Lessee Revenue Account. Checks or other documents of withdrawal shall be signed only by the individual representatives of Operator approved in writing by Lessee and duly recognized for such purpose by the bank or banks in which the referenced accounts are maintained. Upon Lessee’s request, Operator shall supply Lessee with fidelity bonds or other insurance insuring the fidelity of authorized signatories to such accounts, unless said bonds or other insurance shall have been placed by Lessee and delivered directly by the bonding or insurance company to Lessee. The cost of such fidelity bonds or other insurance shall be an Operating Expense and subject to Lessee’s approval. Neither Lessee nor Operator shall be responsible for any losses occasioned by the failure or insolvency of the bank or banks in which the referenced accounts are maintained. Upon expiration or termination of this Agreement and the payment to Operator of all amounts due Operator hereunder upon such expiration or termination, as provided in this Agreement, all remaining amounts in the referenced accounts shall be transferred forthwith to Lessee, or made freely available to Lessee.

ARTICLE 9

BOOKS, RECORDS AND STATEMENTS

Section 9.01. Books and Records.

(a) Operator shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with GAAP.

(b) Except for the books and records which may be kept in Operator’s home office or other location approved by Lessee the books of account and all other records relating to or reflecting the operation of the Hotel shall be kept at the Hotel. All such books and records pertaining to the Hotel, including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessee and, except for books of account,

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accounts payable invoices, night audit packages, deposit records and similar documents which may be sent to Operator’s accounting department shall not be removed from any Hotel by Operator without Lessee’s written approval and consent. All books and records pertaining to the Hotel and of Operator (including all budgetary records of Operator), wherever kept, shall be available to Lessee and its representatives at all reasonable times for examination, audit, inspection, transcription and copying. Operator shall not remove, destroy or delete any books and records of the Hotels without the prior written consent of Lessee. Upon any termination of this Agreement, all of such books and records pertaining to the Hotel forthwith shall be turned over to Lessee so as to insure the orderly continuance of the operation of the Hotel, but such books and records shall be available to Operator for a period of seven (7) years at all reasonable times for inspection, audit, examination, and transcription of particulars relating to the period in which Operator managed the Hotel.

Section 9.02. Statements.

(a) Operator shall deliver to Lessee by the eighth (8^th) business day following the last day of each month, for each Hotel, a monthly report of the state of the business and affairs of the operation of the Hotel for the immediately preceding month and for the Fiscal Year to date and within eight (8) days after the end of each quarter, a quarterly report with respect to the preceding quarter. Such reports shall include at least (i) a balance sheet account reconciliation including all intercompany accounts, (ii) a profit and loss statement, comparing current month and Fiscal Year-to-date profit, loss, and operating expenses to the Approved Budget and the prior year and comparing current month, quarter and Fiscal Year-to-date average daily rate, occupancy and RevPAR to the Approved Budget and the prior year, (iii) a statement which details the computation of all fees payable to Operator for the month and quarter, (iv) the balance of all bank accounts, and (v) an adjusting statement showing the actual cash position of the Hotel for the month, quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to Lessee fifteen (15) days following the end of each month and fifteen (15) days following the end of each quarter a written narrative discussing any of the aforementioned reports and year-to-date variances from the Approved Budget, without thereby implying Lessee’s approval of such variance.

(b) Such reports and statements (i) shall be in form and in detail satisfactory to Lessee as reasonably requested by Lessee and consistent with standard hotel reporting procedures, (ii) shall be taken from the books and records maintained by Operator in the manner hereinabove specified, and (iii) if requested by Lessee, shall be in electronic form.

(c) Within seventy-five (75) days after the end of each Fiscal Year, Operator shall deliver to Lessee reviewed financial statements for Operator, and, if requested by Lessee, within thirty (30) days after the end of each quarter of each Fiscal Year, Operator shall deliver to Lessee unaudited financial statements for Operator.

(d) In addition, Operator shall timely deliver to Lessee a copy of (i) a monthly STAR report from Smith Travel Research for each Hotel, where available (which Operator hereby agrees to order with respect to each Hotel and provide to Lessee), (ii) each Guest Satisfaction report, (iii) a new competition report prepared with respect to each Hotel describing franchise changes, new groundbreakings, new openings and similar market supply changes, (iv) upon

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receipt, each Franchisor inspection report, and (v) such other reports or information in such form as may be reasonably requested by Lessee. Any out-of-pocket costs incurred by Operator to generate such reports will be included in Operating Expenses.

(e) Operator shall use the accounting software and payroll processor specified in Exhibit A-3.

Section 9.03. Costs.

The cost of providing all financial and operating data and accounting services hereunder shall be at Operator’s expense, except for licensing fees for the Great Plains accounting system, which shall be paid by Lessee, and the cost of the payroll processor, which shall be paid as agreed by Operator and Lessee in the Approved Budget.

ARTICLE 10

OPERATOR’S FEE AND TRANSFERS TO LESSEE

Section 10.01. Payment of Operator’s Fee.

Within one (1) business day after the delivery to Lessee of the monthly report required by Section 9.02, Operator shall be paid the Operator’s Fee by Lessee for the immediately prior month, based upon Gross Hotel Income for the immediately prior month, as determined from the books and records referred to in Article IX.

ARTICLE 11

REPAIRS AND MAINTENANCE

Subject to the provisions of the Approved Budget, Operator shall from time to time make such expenditures for repairs and maintenance as are necessary to keep the Hotel in good operating condition in accordance with the Hotel Standards. If any repairs or maintenance shall be made necessary by any condition against the occurrence of which Operator, Lessee or Owner has received the guaranty or warranty of any contractor for the building of the Hotel or of any supplier of labor or materials for the construction of the Hotel, then Operator shall, on Lessee’s or Owner’s request, cooperate with Lessee and Owner in invoking such guarantees or warranties. Notwithstanding the Approved Budget, Owner or Lessee may from time to time at its expense make such alterations, additions, or improvements (including structural changes or repairs) in or to the Hotel as they deem desirable, in their sole discretion and responsibility, for the efficient operation of the Hotels.

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ARTICLE 12

INSURANCE

Section 12.01. General.

Owner and Lessee shall maintain insurance policies with respect to the Hotels as set forth in each Lease. Operator agrees to cooperate with Lessee and Owner in obtaining any such insurance.

Section 12.02. Workers’ Compensation and Other Employment Insurance.

The Hotel Operating Budget shall include, as an Operating Expense, (i) workers’ compensation insurance and employment practices liability insurance with respect to all Hotel employees in such amounts as may be required by applicable law, and (ii) crime insurance in connection with all operations, business and affairs arising out of or in connection with the Hotel, including coverage on persons employed by Operator in an amount specified by Lessee; provided that the cost of such insurance shall be reasonable and shall be approved by Lessee.

Section 12.03. Approval of Companies and Cost by Owner and Lessee.

All insurance shall be with such insurance company or companies as may be selected by Owner or Lessee. Lessee will obtain all insurance but, upon the request of Lessee not less than one hundred twenty (120) days prior to the coverage date, Operator will obtain such insurance, subject to Lessee’s approval of the insurance companies and coverages. Comprehensive general liability insurance and such other liability insurance as may be obtained or afforded shall be in the name of Owner and Lessee, and shall name Operator as an additional named insured as respects liability arising from the operation, maintenance and use of the Hotel and operations incidental thereto. All property insurance policies shall be endorsed specifically to the effect that the proceeds of any building, contents or business interruption insurance shall be made payable to Lessee.

Section 12.04. Maintenance of Coverages.

Lessee shall hold all insurance policies obtained hereunder, and certificates of such policies, if any, shall be delivered to each of Lessee and Operator.

Section 12.05. Waiver of Subrogation.

To the extent obtainable from carriers and to the extent that endorsement forms are approved by the Insurance Commissioner (or comparable office or department) of the state in which the Hotel is located, all policies of property insurance shall provide that the insurance companies will have no rights to subrogation against Lessee or Operator or the agents or employees thereof.

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Section 12.06. Blanket Coverage.

Owner and Lessee reserve the right to provide any insurance referenced in this Article XII by one or more so-called “blanket” or “umbrella” policies of insurance. Operator further acknowledges that the insurance coverage of the Hotel may be part of the general insurance plan of Owner or Lessee or of any of their affiliates. Owner or Lessee may elect to obtain any of the insurance coverages set forth in this Article XII with a “deductible loss” clause providing for per occurrence deductibles.

ARTICLE 13

PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01. Property Taxes.

At Lessee’s request, Operator shall pay from the Hotel Operating Account prior to the dates the same become delinquent, with the right upon Lessee’s request to pay the same in installments to the extent permitted by law, all real and personal property taxes levied against the Property or any of its component parts.

Section 13.02. Lessee’s Right to Contest.

Notwithstanding the foregoing, Lessee or Owner may contest the validity or the amount of any real or personal tax or assessment. Operator agrees to cooperate with Lessee and Owner and execute any documents or pleadings required for such purpose.

ARTICLE 14

DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01. Damage.

If at any time during the Operating Term any Hotel or any portion thereof should be damaged or destroyed, Owner and Lessee shall have the respective rights and obligations set forth in the Lease with respect to damage or destruction. In the event the Hotel is not repaired, rebuilt or replaced, Lessee may terminate this Agreement by written notice to Operator, effective as of the date sent and the parties shall treat such termination as if it were in connection with the sale of the Hotel in accordance with Section 16.03.

Section 14.02. Condemnation.

If at any time during the Operating Term the whole or any part of the Property shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding or sale in lieu thereof by any competent authority, or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable to use the remaining portion as a hotel of the type and class immediately preceding such taking or condemnation, then the parties shall treat such termination as if it were in connection with the sale of Hotel in accordance with Section 16.03. Operator shall have no right to the award from the taking or condemning authority in any such proceeding; provided, however, that this shall not prevent Operator from making a separate claim against the condemning authority for loss of its business or profits.

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ARTICLE 15

USE OF NAME

During the term of this Agreement, each Hotel shall at all times be known by such name as from time to time may be selected by Lessee or Owner.

ARTICLE 16

TERMINATION

Section 16.01. Inspection Failure.

This Agreement may be terminated by Lessee as to one or more Hotels upon the failure within a sixty (60) day period of both a SPAR inspection and a Franchisor’s quality inspection of a Hotel for any reason other than capital related condition items (by way of example, mildewed caulking or scuffed walls would be considered non capital related whereas worn carpet or sagging beds would be capital related), if the failures have not been remedied by Operator within ninety (90) days following the relevant inspection. Such termination shall be by delivery of written notice by Lessee to Operator not less than thirty (30) days prior to the effective date of termination.

Section 16.02. Performance Failure.

(a) Beginning with Fiscal Year 2012, if a Hotel fails to achieve as of the end of any Fiscal Year (i) actual NOI of at least 80% of the budgeted NOI for such Hotel for such Fiscal Year, and (ii) 90% of such Hotel’s RevPAR Benchmark for such Fiscal Year (collectively, an “Individual Hotel Performance Failure”), subject to the cure periods below, Lessee may terminate this Agreement with respect to such Hotel upon sixty (60) days prior written notice to Operator. The effectiveness of any such notice of termination, however, shall be stayed until completion of the following applicable cure periods.

If an Individual Hotel Performance Failure occurs with respect to a Fiscal Year, but the Hotel achieves as of the end of the immediately following three (3) months (x) actual NOI of at least 85% of the budgeted NOI for such Hotel for such three (3) months, or (y) 95% of such Hotel’s RevPAR Benchmark for such three (3) months, then the Individual Hotel Performance Failure shall be deemed cured and Lessee shall have no right to terminate for such Individual Hotel Performance Failure (and any notice of termination with respect thereto shall be deemed null and void).

(b) Beginning with Fiscal Year 2012, if the Hotels fail to achieve as of the end of any Fiscal Year (i) actual NOI of at least 80% of the budgeted NOI for the Hotels for such Fiscal Year, and (ii) 90% of the Hotels’ RevPAR Benchmark for such Fiscal Year (collectively, a “Hotels Performance Failure”), subject to the cure period below, Lessee may terminate this Agreement with respect to all of the Hotels upon sixty (60) days prior written notice to Operator. The effectiveness of any such notice of termination, however, shall be stayed until completion of the following applicable cure periods.

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If the Hotels Performance Failure occurs with respect to a Fiscal Year, but the Hotels achieve as of the end of the immediately following three (3) months (x) actual NOI of at least 85% of the budgeted NOI for the Hotels for such three (3) months, or (y) 95% of the Hotels’ RevPAR Benchmark for such three (3) months, then the Hotels Performance Failure shall be deemed cured and Lessee shall have no right to terminate for the Hotels Performance Failure (and any notice of termination with respect thereto shall be deemed null and void).

Section 16.03. Sale of Hotels.

Owner may sell or otherwise dispose of one or more Hotels to any other person, partnership, firm or corporation at any time. In such event during the Operating Term, Lessee may notify Operator in writing no less than sixty (60) days prior to any such sale of a Hotel and this Agreement shall terminate with respect to such Hotel(s) upon the closing of the sale. This Agreement may be terminated by Operator with respect to the following events by delivery of written notice to Lessee ninety (90) days prior to the effective date of termination provided such termination notice is delivered to Lessee within thirty (30) days following the occurrence of either of the following events: (i) twenty-five (25) percent of the original portfolio of Hotels listed on Exhibit A is sold pursuant to this Section 16.03, exclusive of any Hotels for which Lessee has offered a replacement hotel for management by Operator under this Agreement within twelve (12) months of such sale, or (ii) four (4) or more Hotels are sold pursuant to this Section 16.03 during a twelve (12) month period, exclusive of any Hotels for which Lessee has offered a replacement hotel for management by Operator under this Agreement within twelve (12) months of such sale.

Section 16.04. Optional Termination.

This Agreement may be terminated by Lessee as to one or more Hotels at any time without a reason upon no less than sixty (60) days prior notice to Operator, and Lessee shall pay Operator a termination fee with respect to any such Hotel equal to 50% of the Operator’s Fee paid with respect to the Hotel during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.05. Lessee Change of Control.

This Agreement may be terminated by Lessee or Operator upon a change of control of Lessee (as defined below) during the Operating Term. Said termination will be exercised by delivery of written notice to the other party not less than sixty (60) days prior to the effective date of termination which notice shall set forth the effective date of termination. For purposes hereof, a “change of control” shall be deemed to have occurred if, during the Operating Term, any of the following events occurs:

(i) any “person”, as that term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), becomes, is discovered to be, or files a report on Schedule 13D or 14D-1

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(or any successor schedule, form or report) disclosing that such person is, a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of Supertel Hospitality, Inc., the parent of Lessee (the “Parent”) representing 50% or more of the combined voting power of the Parent’s then outstanding securities entitled to vote generally in the election of directors;

(ii) individuals who, as of the date of this Agreement, constitute the Board of Directors of the Parent or their duly elected successors cease for any reason to constitute at least a majority of the Board of Directors of the Parent;

(iii) the Parent is merged, consolidated or reorganized into or with another corporation or other legal person, or securities of the Parent are exchanged for securities of another corporation or other legal person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such transaction; or

(iv) the Parent in any transaction or series of related transactions, sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or sales are held, directly or indirectly, in the aggregate by the holders of securities entitled to vote generally in the election of directors of the Parent immediately prior to such sale.

In the event Lessee terminates this Agreement solely in accordance with this Section 16.05, Lessee shall pay Operator a termination fee equal to 50% of the Operator’s Fee paid to Operator during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.06. Operator Change of Control.

This Agreement may be terminated by Lessee upon a change of control of Operator (as defined below) during the Operating Term. Said termination will be exercised by delivery of written notice to the Operator, such notice to be provided within thirty (30) days following the Lessee being made aware of the event giving rise to the change of control and not less than thirty (30) days prior to the effective date of termination which notice shall set forth the effective date of termination; provided that, in the event such written notice to Operator is not provided in accordance within the terms of this sentence, the Lessee shall be deemed to have waived any rights to terminate this Agreement with respect to the particular change of control giving rise to the required notice. For purposes hereof, a “change of control of Operator” shall mean (i) a change of fifty percent or more of the voting control of Operator or any of its owner entities or (ii) a substantial change in the current management of Operator.

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Section 16.07. Tax Law Change.

Lessee may terminate this Agreement upon 60 days’ notice to Operator if Lessee ceases to be qualified as a real estate investment trust or if the United States tax laws change to allow a hotel REIT to self-manage its properties. In such event, Lessee shall pay Operator a termination fee equal to 50% of the Operator’s Fee paid to Operator during a number of months prior to the notice of termination equal to the lesser of 12 months or the number of months otherwise remaining of the then Initial Term or Renewal Term.

Section 16.08. Termination Fees.

Except as provided in Sections 14.01, 14.02, 16.04, 16.05, and 16.07, Operator shall not be entitled to a termination fee or compensation in the event this agreement is terminated for a Hotel or Hotels by Lessee.

ARTICLE 17

DEFAULT AND REMEDIES

Section 17.01. Events of Default- Remedies.

(a) The following shall constitute Events of Default:

(1) The failure of Operator to diligently and efficiently operate the Hotel in accordance with the provisions of this Agreement;

(2) The failure of Operator to pay any amount to Lessee provided for herein for a period of five (5) days after written notice by Lessee of failure to pay such sum when payable;

(3) The failure of Lessee to pay any amount to Operator provided for herein for a period of five (5) days after written notice by Operator of failure to pay such sum when payable;

(4) The filing of a voluntary petition in suspension of payments, bankruptcy or insolvency by either Lessee or Operator or any entity which owns or controls such party or if any such party otherwise voluntarily avails itself of any federal or state laws for the relief of debtors or admits in writing its inability to pay its debts as they become due;

(5) The consent to an involuntary petition in bankruptcy or the failure to vacate within sixty (60) days from the date of entry thereof any order approving an involuntary petition by or against either Lessee or Operator;

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(6) The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating Lessee or Operator a bankrupt or insolvent or appointing a judicial receiver, trustee or liquidator of all or a substantial part of such party’s assets, and such order, judgment or decree shall continue unstayed and in effect for a period of one hundred twenty (120) consecutive days;

(7) The failure of either Lessee or Operator to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, and the continuance of any such default for a period of thirty (30) days after written notice of such failure;

(8) Loss of the franchise license for a Hotel as a result of any action, or failure to act, on the part of Operator;

(9) Failure by Operator to pay, when due, the accounts payable for the Hotels for which Lessee had previously reimbursed Operator.

(10) Any of the Hotels receives a “failure” or its equivalent in any quality inspection report from any of the Franchisors, if such deficiencies are within Operator’s reasonable control.

(b) Upon the occurrence of any Event of Default, the nondefaulting party shall give to the defaulting party notice of its intention to terminate this Agreement after the expiration of a period of ten (10) days from such date of notice and, upon the expiration of such period, this Agreement shall terminate and expire without penalty. If, however, with respect to the Events of Default referred to in items (1), (4), (5), (6), (7), (9) and (10) of subsection (a) above, unless a specific right of termination is specified elsewhere in this Agreement for the event in question, upon receipt of such notice, the defaulting party shall promptly and with all due diligence cure the default or take and continue action to cure such default within such ten (10) day period; provided, in the case of an event described in Section 17.01(a)(10), and subject to Lessee’s termination rights pursuant to Section 16.01, the Operator shall cure such default by receipt of a favorable quality inspection report upon an inspection by the Franchisor within six (6) months following the failed inspection. If such default shall not be capable of being cured within such ten (10) day period, then provided the defaulting party diligently pursues the cure of such default, such party shall have an additional five (5) days to cure any such default unless otherwise extended by the non-defaulting party. The procedure set forth in the preceding two sentences shall not be available for the curing of any default under items (2), (3) or (8) of subsection (a) above. In the event such default is not cured by the expiration of such period, the non-defaulting period may terminate this Agreement effective upon expiration of such period without penalty or payment of any fee.

Section 17.02. Rights Not Exclusive.

(a) The rights granted under this Article XVII shall not be in substitution for, but shall be, except as otherwise provided in this Agreement, in addition to any and all rights and remedies for breach of contract granted by applicable provisions of law; provided, however, upon any termination of this Agreement by Operator or Lessee as provided in this Agreement, Operator shall be entitled to recover only such sums as are owing to Operator under this Agreement on the date of any such termination and in no event will Operator have any claim or cause of action for “future profits,” damages resulting from termination or otherwise under this Agreement.

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(b) No failure of Operator or Lessee to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument signed by both Lessee and Operator. No waiver of any breach shall affect or alter this Agreement but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.

ARTICLE 18

NOTICES

Section 18.01. Notices.

(a) Any notice, statement or demand required to be given under this Agreement shall be in writing and shall be delivered by certified or registered mail, postage prepaid, return receipt requested, or by overnight delivery with proof of delivery, or by facsimile with receipt of transmission, addressed to the parties hereto at their respective addresses listed below:

(1) Notices to Lessee shall be addressed:

TRS Leasing, Inc.

309 North 5^th Street

Norfolk, NE 68702

Attention: Chief Executive Officer

Facsimile: (402-371-4229

(2) Notices to Operator shall be addressed:

(b) All notices, statements, demands and requests shall be effective three (3) days after being deposited in the United States mail or one day after being sent by overnight delivery or by facsimile. However, the time period in which a response to any such notice, statement, demand or request must be given shall commence to run from date of receipt by the addressee thereof as shown on the return receipt of the notice, statement, demand or request, but in all events not later than the tenth (10th) day after it shall have been mailed as required herein.

(c) By giving to the other party at least thirty (30) days written notice thereof, either party shall have the right from time to time and at any time during the Operating Term to change their respective addresses for notices, statements, demands and requests, provided such new address shall be within the United States of America.

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ARTICLE 19

ASSIGNMENT

Section 19.01. No Assignment by Operator.

Notwithstanding anything to the contrary set forth in this Agreement, without the prior written consent of Lessee (which consent may be withheld in Lessee’s sole and absolute discretion), Operator shall have no right to sell, transfer or assign (or permit the sale, transfer or assignment of) any of its rights, duties or obligations under this Agreement in any manner, either directly or indirectly, voluntarily, or by operation of law.

Section 19.02. Assignment by Lessee.

Lessee may transfer or assign its rights and obligations under this Agreement without the consent of Operator but shall deliver to Operator written notice of such transfer or assignment not less than ten (10) days prior to the effective date thereof; provided, however, in the event of the assignment of this Agreement to a party that is not an Affiliate, Operator shall have the right to terminate this Agreement within 15 days after receipt of written notice of such assignment, which termination will be effective within 30 days of Lessee’s receipt of such termination notice. Any transfer or assignment of this Agreement by Lessee shall include an express assumption by the transferee or assignee of Lessee’s obligations hereunder. Nothing herein shall be deemed to require Lessee to assign or attempt to assign this Agreement to any third party, including any buyer of a Hotel.

ARTICLE 20

SUBORDINATION

Section 20.01. Subordination To Mortgage.

Operator hereby agrees that this Agreement, including, but not limited to Operator’s Fee, shall in all respects be and is hereby expressly made subordinate and inferior to the liens, security interest and/or any Mortgage and to any promissory note and other indebtedness secured or to be secured thereby and to all other instruments evidencing or securing or to evidence or secure indebtedness, and all amendments, modifications, supplements, consolidations, extensions and revisions of such note and other instruments and any other indebtedness of Lessee or Owner, secured or unsecured. Operator shall execute any and all subordination agreements, estoppel certificates and other documents requested by Lessee or Owner and/or the Holder to further evidence the subordination of this Agreement and Operator’s rights hereunder including without limitation providing any purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure (including the lender) with the right to terminate this Agreement; provided, however, Lessee shall use its commercially reasonable efforts to obtain from the holder of any Mortgage a nondisturbance agreement, in form reasonably acceptable to Operator providing that this Agreement shall remain in full force and effect notwithstanding the fact that the Mortgage has been foreclosed.

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Section 20.02. Foreclosure.

Prior to termination of this Agreement by foreclosure under the Mortgage or by acquisition of the property to be covered by the Mortgage by deed in lieu of foreclosure, Operator shall have the right to enjoy all rights and privileges conferred upon it pursuant to this Agreement, including, without limitation the rights to the Operator’s Fee, and Operator shall incur no liability to the Holder for acting pursuant to the terms of this Agreement; provided, however, Operator shall be required to (and does hereby agree to) repay to the Holder any Operator’s Fee paid to Operator under this Agreement from and after the date which is thirty (30) days after the date of receipt by Operator of a notice of default under the Mortgage, which default is not cured and results in the acceleration of the indebtedness secured by the Mortgage and the ultimate foreclosure of the liens and/or security interest under the Mortgage and/or other acquisition of the property covered thereby by the Holder in lieu of foreclosure. In the event of such foreclosure, Operator shall have the right to terminate this Agreement on thirty (30) days’ written notice to Lessee. Notwithstanding the foregoing, Operator may pursue, as an unsecured creditor, a claim for all amounts due and owing to Operator under this Management Agreement in accordance with the terms of this Section 20.02.

Section 20.03. Estoppel Certificates.

Lessee and Operator agree, at any time and from time to time, upon not less than 10 days prior written notice from the other party or any purchaser or lender, to provide a statement in writing certifying that this Agreement is unmodified and in full force and effect (or, if there have been modifications, that the same is full and force and effect as modified and stating the modifications), and stating whether or not to the best knowledge of the signer of such certificate, there exists any default in the performance of any obligation contained in this Agreement, and if so, specifying each such default of which a signer may have knowledge. Any statement delivered pursuant to this Section may be relied upon by the other party and by the prospective lender or purchaser.

ARTICLE 21

MISCELLANEOUS

Section 21.01. Further Documentation and Reporting Compliance.

Lessee and Operator shall execute and deliver all appropriate supplemental agreements and other instruments, and take any other action necessary to make this Agreement fully and legally effective, binding, and enforceable in accordance with the terms hereof as between them and as against third parties. Operator acknowledges that Parent is a reporting company under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and other federal laws, including the Sarbanes-Oxley Act of 2002, and Operator shall reasonably cooperate in providing Lessee information as necessary for Parent to prepare and submit its reports under such laws in a timely fashion.

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Section 21.02. Captions.

The titles to the several articles of this Agreement are inserted for convenience only and are not intended to affect the meaning of any of the provisions hereof.

Section 21.03. Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of Lessee, its successors and/or assigns, and subject to the provisions of Article XIX, shall be binding upon and inure to the benefit of Operator, its permitted successors and assigns.

Section 21.04. Competitive Market Area.

Operator hereby agrees, for the benefit of Lessee, its successors and assigns, except for the hotels, if any, listed as Exhibit A-4, that Operator (and its Affiliates) will not own, operate, lease, manage, or otherwise have an interest in, directly or indirectly, any hotel within a five (5) mile radius of any Hotel during the Operating Term unless expressly consented to in writing by Lessee in advance, which consent may be withheld in Lessee’s sole and absolute discretion.

Section 21.05. Assumption of Post Termination Obligations.

In the event of termination of this Agreement, Lessee shall be responsible for assuming obligations under contracts entered into by Operator only to the extent that any such contract shall have been entered into in accordance with Section 4.05(a) and Lessee shall be responsible for the payment of obligations incurred by Operator in the operation of the Hotel only to the extent that such obligations shall have been incurred in accordance with the terms of this Agreement, and Operator hereby agrees to indemnify and to hold Lessee harmless from and against any liability in connection with any such contracts, agreements or obligations not so approved in writing by Lessee. Lessee will indemnify and hold Operator harmless from all costs, expenses, claims, damages and liabilities, including without limitation, lawyers’ fees and disbursements, arising or resulting from Lessee’s failure following the expiration or earlier termination (for whatever cause) of this Agreement to provide all of the services contracted for in connection with the business booked on commercially reasonable terms for the Hotels on or prior to the date of such expiration or termination. The provisions of this Section will survive any expiration or termination of this Agreement and will be binding upon Lessee and its successors and assigns, including any successor or assign that becomes the beneficial or legal owner of the Hotels after the effective date of any such expiration or termination.

Section 21.06. Entire Agreement.

This Agreement, together with the Exhibits hereto, constitutes the entire Agreement between the parties relating to the subject matter hereof, superseding all prior agreements or undertakings, oral or written. This Agreement and the Exhibits hereto shall be construed and interpreted without reference to any canon or rule of law requiring interpretation against the party drafting or causing the drafting of this Agreement or the portions in question, it being agreed and understood that all parties have participated in the preparation of this Agreement.

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Section 21.07. Governing Law.

This Agreement shall be construed and enforced in accordance with the laws of the State of Nebraska.

Section 21.08. No Political Contributions.

Any provision hereof to the contrary notwithstanding, no money or property of the Hotel shall be paid or used or offered, nor shall Lessee or Operator directly or indirectly pay or use or offer, consent or agree to pay or use or offer any money or property of the Hotel, for or in aid of any political party, committee or organization, or for or in aid of, any corporation, joint stock or other association organized or maintained for political purposes, or for, or in aid or, any candidate for political office or for nomination for such office, or in connection with any election including referendum for constitutional amendment, or for any political purpose whatever, or for lobbying in connection with legislation or regulation thereunder, or for the reimbursement for indemnification of any person for money or property so used.

Section 21.09. Eligible Independent Contractor.

(a) At the effective time of this Agreement, Operator shall qualify as an “eligible independent contractor” as defined in Section 856(d)(9) of the Internal Revenue Code of 1986, as amended (the “Code”). To that end:

(i) during the Operating Term, Operator shall not permit wagering activities to be conducted at or in connection with the Hotels;

(ii) during the Operating Term, Operator shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than 35% of the shares of Supertel Hospitality, Inc.;

(iii) during the Operating Term, no more than 35% of the total combined voting power of Operator’s outstanding stock (or 35% of the total shares of all classes of its outstanding stock) shall be owned, directly or indirectly, by one or more persons owning 35% or more of the outstanding stock of Supertel Hospitality, Inc.; and

(iv) At the effective time, Operator shall be actively engaged in the trade or business of operating “qualified lodging facilities” (defined below) for a person who is not a “related person” within the meaning of Section 856(d)(9)(F) of the Code with respect to the Parent or Lessee (“Unrelated Persons”). In order to meet this requirement, Operator agrees that it (i) shall derive at least 10% of both its revenue and profit from operating “qualified lodging facilities” for Unrelated Persons and (ii) shall comply with any regulations or other administrative guidance under Section 856(d)(9) of the Code with respect to the amount of hotel management business with Unrelated Persons that is necessary to qualify as an “eligible independent contractor” with the meaning of such Code Section.

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(b) A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code and means a “lodging facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A “lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to Supertel Hospitality, Inc.

(c) Operator shall not sublet any Hotel or enter into any similar arrangement on any basis such that the rental or other amounts to be paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee, or (b) any other formula such that any portion of the rent would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code, or any similar or successor provision thereto.

Section 21.10. Time of the Essence.

Time is of the essence of this Agreement.

Section 21.11. Offsets.

Each party may offset amounts owed to another party hereunder against any amounts owed to such party, except to the extent any such offset is prohibited by the terms of the Lessee (or its Affiliates) credit agreements.

Section 21.12. Attorney’s Fees.

If any party brings an action against another party to enforce any provision of this Agreement, the prevailing party in such action shall be entitled to recover its court costs, attorney’s fees and expenses in the judgment rendered through such action.

Section 21.13. Final Accounting.

(a) In addition to the reports required by Section 9.02, within sixty (60) days following the effective date of expiration or termination of this Agreement, Operator shall prepare and submit to Lessee a final accounting of Hotel operations through the effective date of such expiration or termination, which accounting shall be in the form of the financial statements required hereunder.

(b) Upon the effective date of expiration or termination of this Agreement, Operator shall deliver possession of the Hotel, and any cash, property and other assets pertaining thereto, together with any and all keys or other access devices, to Lessee.

(c) Upon the expiration or termination of this Agreement, Operator shall reasonably cooperate with and assist Lessee as may be necessary for the transfer of the operations and management of the Hotels to the successor operator and the transfer any and all Hotel licenses and permits to Lessee or Lessee’s designee.

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Section 21.14. Franchisor Communications.

During the Operating Term, Operator shall promptly deliver to Lessee copies of any deficiency notices or similar notices received from a Franchisor and any response thereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

LESSEE:
TRS LEASING, INC.
By:	/s/ Kelly A. Walters
Title:	President / Secretary
TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	President / Secretary
SPPR TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	Officer of Manager: TRS Leasing, Inc.
SPPR-BMI TRS SUBSIDIARY, LLC
By:	/s/ Kelly A. Walters
Title:	Officer of Manager: TRS Leasing, Inc.

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OPERATOR:
Hospitality Management Advisors, Inc.
By:	/s/ Charles G. Swan
Title:	President

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EXHIBIT A

HOTEL PROPERTIES AND OWNERS

Hotel Owner Location Number of Rooms

EXHIBIT A-1

Competitive Set

EXHIBIT A-2

Form of SPAR Inspection Form

EXHIBIT A-3

Accounting Software and Payroll Processes

EXHIBIT A-4

List of Operator’s Hotels Within 5 Mile Radius

EXHIBIT B

Franchise Agreements

Hotel Location Franchisor

EXHIBIT C

Total Investment

EX-21.0

EXHIBIT 21.0

LIST OF SUBSIDIARIES

Supertel Hospitality, Inc. owns, directly or indirectly, 100% of the voting securities, partnership interests or limited liability company interests of the entities listed below (unless otherwise indicated).

Subsidiary	Jurisdiction of Incorporation
Supertel Hospitality REIT Trust	Maryland
E&P REIT Trust	Maryland
TRS Leasing, Inc.	Virginia
Supertel Hospitality Management, Inc.	Maryland
Supertel Limited Partnership (SLP) (99%)	Virginia
E&P Financing Limited Partnership	Maryland
Solomons GP, LLC (SGLLC) (100% owned by SLP)	Delaware
Solomons Beacon Inn Limited Partnership (1%; 99% owned by SGLLC)	Maryland
TRS Subsidiary, LLC	Delaware
SPPR Holdings, Inc.	Delaware
SPPR-BMI Holdings, Inc.	Delaware
SPPR – Hotels, LLC (1%; 99% owned by SLP)	Delaware
SPPR – South Bend, LLC (100% owned by SLP)	Delaware
SPPR-BMI, LLC (1%; 99% owned by SLP)	Delaware
SPPR TRS Subsidiary, LLC	Delaware
SPPR-BMI TRS Subsidiary, LLC	Delaware

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Supertel Hospitality, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-138304, 333-147310, and 333-170756) on Form S-3 and (No. 333-134822) on Form S-8 of Supertel Hospitality, Inc. of our report dated March 30, 2012, with respect to the consolidated balance sheets of Supertel Hospitality, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity, and cash flows for each of the years in the three-year period ended December 31, 2011, and the related financial statement schedule, Schedule III – Real Estate and Accumulated Depreciation, which report appears in the December 31, 2011 annual report on Form 10-K of Supertel Hospitality, Inc.

/s/ KPMG LLP

Omaha, Nebraska

March 30, 2012

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Kelly A. Walters, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2011 of Supertel Hospitality, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 30, 2012	/s/ Kelly A. Walters
	Kelly A. Walters
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Corrine L. Scarpello, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2011 of Supertel Hospitality, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 30, 2012	/s/ Corrine L. Scarpello
	Corrine L. Scarpello
	Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Supertel Hospitality, Inc., on Form 10-K for the year ending December 31, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, Kelly A. Walters, President and Chief Executive Officer of Supertel Hospitality, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Supertel Hospitality, Inc. at the dates and for the periods indicated.

March 30, 2012	/s/ Kelly A. Walters
	Kelly A. Walters
	President and Chief Executive Officer

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Supertel Hospitality, Inc., on Form 10-K for the year ending December 31, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, Corrine L. Scarpello, Chief Financial Officer and Secretary of Supertel Hospitality, Inc., certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Supertel Hospitality, Inc. at the dates and for the periods indicated.

March 30, 2012	/s/ Corrine L. Scarpello
	Corrine L. Scarpello
	Chief Financial Officer and Secretary

XML

Acquisitions And Development

12 Months Ended

Dec. 31, 2011

Acquisitions And Development [Abstract]

Acquisitions And Development

Note 3. Acquisitions and Development

There were no acquisitions and no properties under construction or redevelopment during 2011, 2010, or 2009.

XML

Earnings Per Share

12 Months Ended

Dec. 31, 2011

Earnings Per Share [Abstract]

Earnings Per Share

Note 2. Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of any dilutive potential common shares outstanding during the period, if any. The computation of basic and diluted earnings per common share is presented below (dollars in thousands, except share and per share amounts):

	2011			2010			2009
Basic and Diluted Earnings per Share Calculation:
Numerator:
Net loss attributable to common shareholders:
* Continuing operations	$	(12,411	)	$	(7,117	)	$	(13,112	)
* Discontinued operations		(6,508	)		(4,942	)		(15,757	)
Net loss attributable to common shareholders - total	$	(18,919	)	$	(12,059	)	$	(28,869	)
Denominator:
Weighted average number of common shares - basic and diluted		22,977,747			22,556,382			21,646,612
Basic and Diluted Earnings Per Common Share:
Net loss attributable to common shareholders per weighted average common share:
* Continuing Operations	$	(0.54	)	$	(0.31	)	$	(0.60	)
* Discontinued Operations		(0.28	)		(0.22	)		(0.73	)
Total - Basic and Diluted	$	(0.82	)	$	(0.53	)	$	(1.33	)

* The net loss attributable to noncontrolling interest is allocated between continuing and discontinued operations for the purpose of the EPS calculation.

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Investments in hotel properties	$ 255,471	$ 268,107
Less accumulated depreciation	79,236	77,719
Net investments	176,235	190,388
Cash and cash equivalents	279	333
Accounts receivable, net of allowance for doubtful accounts of $194 and $133	1,891	1,717
Prepaid expenses and other assets	8,917	13,372
Deferred financing costs, net	850	988
Investment in hotel properties, held for sale, net	33,000	49,846
Total assets	221,172	256,644
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other liabilities	10,704	17,732
Debt related to hotel properties held for sale	34,500	42,739
Long-term debt	131,345	132,271
Total liabilities	176,549	192,742
Redeemable noncontrolling interest in consolidated partnership, at redemption value	114	511
Redeemable preferred stock 10% Series B, 800,000 shares authorized; $.01 par value, 332,500 shares outstanding, liquidation preference of $8,312	7,662	7,662
EQUITY
Preferred stock, 40,000,000 shares authorized; 8% 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; 23,070,387 and 22,917,509 shares outstanding	231	229
Common stock warrants	252	252
Additional paid-in capital	121,619	121,384
Distributions in excess of retained earnings	(85,398)	(66,479)
Total shareholders' equity	36,712	55,394
Noncontrolling interest
Noncontrolling interest in consolidated partnership, redemption value $64 and $250	135	335
Total equity	36,847	55,729
Total liabilities and equity	$ 221,172	$ 256,644

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (17,477)	$ (10,602)	$ (27,525)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	9,996	11,708	14,241
Amortization of intangible assets and deferred financing costs	469	487	595
Net gains on dispositions of assets	(1,452)	(1,276)	(2,264)
Amortization of stock option expense	29	30	6
Provision for impairment loss	14,308	8,198	24,148
Changes in operating assets and liabilities:
(Increase) decrease in assets	4,281	(8,267)	(1,525)
Increase (decrease) in liabilities	(7,289)	7,394	(1,575)
Net cash provided by operating activities	2,865	7,672	6,101
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to hotel properties	(4,964)	(4,344)	(4,484)
Proceeds from sale of hotel assets	13,111	11,209	16,509
Net cash provided by investing activities	8,147	6,865	12,025
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs	(331)	(61)	(431)
Principal payments on long-term debt	(24,426)	(16,920)	(28,834)
Proceeds from long-term debt, net	15,261	2,417	15,541
Redemption of operating partnership units	(397)		(1,267)
Distributions to minority partners	(49)	(56)	(271)
Common stock offering	89	1,462
Dividends paid	(1,213)	(1,474)	(3,148)
Net cash used by financing activities	(11,066)	(14,632)	(18,410)
Decrease in cash and cash equivalents	(54)	(95)	(284)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	333	428	712
CASH AND CASH EQUIVALENTS, END OF YEAR	279	333	428
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized	11,953	11,795	12,487
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends declared	$ 1,474	$ 1,474	$ 1,474

XML

Schedule III - Real Estate And Accumulated Depreciation

12 Months Ended

Dec. 31, 2011

Schedule III - Real Estate And Accumulated Depreciation [Abstract]

Schedule III - Real Estate And Accumulated Depreciation

Supertel Hospitality, Inc. and Subsidiaries

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2011

		Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance	Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation			Net Book Value
Comfort Inn
Chambersburg, Pennsylvania	GRW	$	89,000	$	2,346,362	$	—		$	375,424		$	89,000	$	2,721,786	$	(1,180,527	)	$	1,630,259
Culpeper, Virginia	GRW		182,264		2,142,652		—			617,945			182,264		2,760,597		(1,189,343	)		1,753,518
Farmville, Virginia	GRW		253,618		2,162,087		—			607,270			253,618		2,769,357		(1,380,709	)		1,642,266
Morgantown, West Virginia	GRW		398,322		3,853,651		—			978,435			398,322		4,832,086		(2,306,450	)		2,923,958
New Castle, Pennsylvania	GRW		56,648		4,101,254		—			739,002			56,648		4,840,256		(2,036,199	)		2,860,705
Princeton, West Virginia	GRW		387,567		1,774,501		—			725,490			387,567		2,499,991		(1,326,342	)		1,561,216
Rocky Mount, Virginia	GRW		193,841		2,162,429		—			216,568			193,841		2,378,997		(1,137,093	)		1,435,745
Solomons, Maryland	GRW		2,303,990		2,988,255		—			2,031,809			2,303,990		5,020,064		(2,843,050	)		4,481,004
Erlanger, Kentucky	GWB		750,000		2,822,201		(289,153	)		(531,631	)		460,847		2,290,570		(696,199	)		2,055,218
Fayetteville, North Carolina	CITI		725,000		3,910,514		—			556,397			725,000		4,466,911		(1,256,704	)		3,935,207
Fayetteville Car Wash, North Carolina	CITI		—		164,128		—			8,707			—		172,835		(66,810	)		106,025
Alexandria, Virginia	WA BMI		2,500,000		9,373,060		—			1,716,123			2,500,000		11,089,183		(2,050,948	)		11,538,235
Glasgow, Kentucky	GE 3CI		500,000		2,456,305		—			578,410			500,000		3,034,715		(534,722	)		2,999,993
Super 8
Creston, Iowa	GRW		56,000		840,580		89,607			2,348,015			145,607		3,188,595		(1,857,300	)		1,476,902
Columbus, Nebraska	GWB		51,716		571,178		51,666			730,322			103,382		1,301,500		(920,201	)		484,681
O'Neill, Nebraska	GRW		75,000		667,074		46,075			1,146,285			121,075		1,813,359		(1,091,078	)		843,356
Omaha, Nebraska	GWB		164,034		1,053,620		—			1,266,781			164,034		2,320,401		(1,711,198	)		773,237
Lincoln, Nebraska (West "O")	GWB		139,603		1,234,988		63,153			989,311			202,756		2,224,299		(1,515,079	)		911,976
Lincoln, Nebraska (Cornhusker)	GWB		226,174		1,068,520		271,817			1,934,230			497,991		3,002,750		(1,910,058	)		1,590,683
Keokuk, Iowa	GRW		55,000		642,783		71,175			641,611			126,175		1,284,394		(931,611	)		478,958
Iowa City, Iowa	GRW		227,290		1,280,365		—			635,279			227,290		1,915,644		(1,423,725	)		719,209
Omaha, Nebraska (Ak-sar-ben)	GWB		203,453		1,054,497		—			403,273			203,453		1,457,770		(1,011,881	)		649,342
Kirksville, Missouri	GWB		151,225		830,457		—			397,679			151,225		1,228,136		(845,448	)		533,913
Burlington, Iowa	GRW		145,000		867,116		—			372,250			145,000		1,239,366		(884,392	)		499,974
Sedalia, Missouri	GWB		185,025		917,809		—			739,466			185,025		1,657,275		(1,059,124	)		783,176
Hays, Kansas	GWB		317,762		1,133,765		19,519			506,576			337,281		1,640,341		(1,153,659	)		823,963
Moberly, Missouri	GWB		60,000		1,075,235		—			468,123			60,000		1,543,358		(1,081,880	)		521,478
Pittsburg, Kansas	GRW		130,000		852,131		—			324,815			130,000		1,176,946		(855,381	)		451,565
Manhattan, Kansas	GWB		261,646		1,254,175		(10,000	)		614,686			251,646		1,868,861		(1,235,814	)		884,693
Clinton, Iowa	GRW		135,153		805,067		(46,089	)		356,519			89,064		1,161,586		(811,311	)		439,339

		Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance	Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation			Net Book Value
Super 8 - continued
Mt. Pleasant, Iowa	GRW		85,745		536,064		21,507			563,691			107,252		1,099,755		(738,840	)		468,167
Wichita, Kansas	GWB		435,087		1,806,979		—			769,818			435,087		2,576,797		(1,791,045	)		1,220,839
Pella, Iowa	GRW		61,853		664,610		—			192,974			61,853		857,584		(569,669	)		349,768
Storm Lake, Iowa	GRW		90,033		819,202		41,344			640,749			131,377		1,459,951		(866,009	)		725,319
West Plains, Missouri	GWB		112,279		861,178		—			259,989			112,279		1,121,167		(696,385	)		537,061
Jefferson City, Missouri	GWB		264,707		1,206,886		—			429,709			264,707		1,636,595		(1,044,854	)		856,448
El Dorado, Kansas	FNB		96,764		418,333		467			696,300			97,231		1,114,633		(696,622	)		515,242
Wayne, Nebraska	GWB		79,127		685,135		—			236,573			79,127		921,708		(561,474	)		439,361
Batesville, Arkansas	GWB		81,483		811,371		—			269,394			81,483		1,080,765		(646,629	)		515,619
Fayetteville, Arkansas	GWB		255,731		1,549,271		—			338,489			255,731		1,887,760		(1,097,345	)		1,046,146
Omaha, Nebraska (West Dodge)	GWB		593,518		1,758,275		—			422,394			593,518		2,180,669		(1,254,883	)		1,519,304
Watertown, South Dakota	EVB		51,237		1,296,312		—			593,951			51,237		1,890,263		(1,037,455	)		904,045
Norfolk, Nebraska	GRW		226,971		1,587,581		—			570,972			226,971		2,158,553		(1,105,665	)		1,279,859
Muscatine, Iowa	GWB		204,890		1,616,090		—			393,289			204,890		2,009,379		(1,046,069	)		1,168,200
Fort Madison, Iowa	GWB		104,855		871,075		—			275,497			104,855		1,146,572		(630,130	)		621,297
Portage, Wisconsin	GRW		203,032		1,839,321		—			347,589			203,032		2,186,910		(1,083,711	)		1,306,231
Antigo, Wisconsin	GWB		234,605		1,485,579		(22,574	)		203,162			212,031		1,688,741		(870,797	)		1,029,975
Shawano, Wisconsin	GRW		244,935		1,672,123		—			228,532			244,935		1,900,655		(939,045	)		1,206,545
Tomah, Wisconsin	GWB		211,975		2,079,714		(59,834	)		465,169			152,141		2,544,883		(1,245,156	)		1,451,868
Menomonie, Wisconsin	GRW		451,520		2,398,446		—			393,094			451,520		2,791,540		(1,270,499	)		1,972,561
Clarinda, Iowa	GWB		75,000		1,276,923		—			146,284			75,000		1,423,207		(339,274	)		1,158,933
Billings, Montana	GE MOA		518,000		4,807,220		—			169,500			518,000		4,976,720		(825,231	)		4,669,489
Boise, Idaho	GE MOA		612,000		5,709,976		(308,414	)		(2,981,552	)		303,586		2,728,424		(255,305	)		2,776,705
Columbus, Georgia	GE MOA		441,000		4,173,299		(223,155	)		(2,009,675	)		217,845		2,163,624		(310,034	)		2,071,435
Terre Haute, Indiana	GE MOA		547,000		4,976,600		—			339,414			547,000		5,316,014		(960,913	)		4,902,101
Green Bay, Wisconsin	GE-GB		570,000		2,784,052		—			106,935			570,000		2,890,987		(419,412	)		3,041,575
Sleep Inn
Omaha, Nebraska	EVB		400,000		3,275,773		—			484,560			400,000		3,760,333		(968,129	)		3,192,204
Louisville, Kentucky	GE LSI		350,000		1,288,002		—			537,973			350,000		1,825,975		(431,525	)		1,744,450
Holiday Inn Express
Harlan, Kentucky	GRW		—		2,949,276		—			900,714			—		3,849,990		(1,719,561	)		2,130,429

		Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance	Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation			Net Book Value
Quality Inn
Danville, Kentucky	GRW		155,717		2,971,403		—			835,614			155,717		3,807,017		(1,775,169	)		2,187,565
Minocqua, Wisconsin	GWB		214,505		1,458,389		—			356,496			214,505		1,814,885		(898,399	)		1,130,991
Sheboygan, Wisconsin	GWB		286,970		1,716,782		—			404,305			286,970		2,121,087		(1,055,166	)		1,352,891
Hampton Inn
Cleveland, Tennessee	GRW		212,914		2,370,499		—			1,050,885			212,914		3,421,384		(1,709,276	)		1,925,022
Shelby, North Carolina	GRW		253,921		2,782,042		—			1,164,372			253,921		3,946,414		(2,140,050	)		2,060,285
Comfort Suites
Dover, Delaware	GRW		337,113		5,179,187		(83,287	)		(2,047,857	)		253,826		3,131,330		(810,156	)		2,575,000
Ft. Wayne, Indiana	CITI		1,200,000		4,803,605		—			794,326			1,200,000		5,597,931		(1,802,339	)		4,995,592
Lafayette, Indiana	CITI		850,000		3,473,808		—			575,470			850,000		4,049,278		(916,836	)		3,982,442
Marion, Indiana	CITI		430,000		1,945,383		—			412,419			430,000		2,357,802		(849,188	)		1,938,614
South Bend, Indiana	GE SB		500,000		11,512,314		(196,456	)		1,018,020			303,544		12,530,334		(2,227,932	)		10,605,946
Warsaw, Indiana	CITI		650,000		2,500,570		—			305,403			650,000		2,805,973		(878,881	)		2,577,092
Louisville, Kentucky	GE 3CI		500,000		2,186,715		—			797,440			500,000		2,984,155		(694,101	)		2,790,054
Ramada Ltd
Ellenton, Florida	GRW		546,945		2,293,464		(139,234	)		(171,957	)		407,711		2,121,507		(893,434	)		1,635,784
Guest House Inn
Ellenton, Florida	GRW		290,373		2,102,371		(78,051	)		(752,853	)		212,322		1,349,518		(321,419	)		1,240,421
Jackson, Tennessee	GRW		261,506		3,430,541		(86,234	)		(1,181,141	)		175,272		2,249,400		(1,043,418	)		1,381,254
Baymont Inn
Brooks, Kentucky	GE 3CI		500,000		2,008,474		(212,952	)		(522,708	)		287,048		1,485,766		(330,109	)		1,442,705
Days Inn
Farmville, Virginia	GRW		384,591		1,967,727		—			448,925			384,591		2,416,652		(1,156,843	)		1,644,400
Alexandria, Virginia	WA BMI		2,500,000		6,544,271		—			1,702,357			2,500,000		8,246,628		(1,657,486	)		9,089,142
Fredericksburg South, Virginia	WA BMI		1,510,000		1,786,979		(909,345	)		(326,009	)		600,655		1,460,970		(427,378	)		1,634,247
Shreveport, Louisiania	WA BMI		1,250,000		2,964,484		(534,964	)		(499,762	)		715,036		2,464,722		(519,959	)		2,659,799
Bossier City, Louisiania	EVB		1,025,000		5,117,686		(297,374	)		(93,895	)		727,626		5,023,791		(1,329,336	)		4,422,081
Fredericksburg North, Virginia	FNI		650,000		3,142,312		(292,533	)		(522,367	)		357,467		2,619,945		(630,243	)		2,347,169
Ashland, Kentucky	GE 2DI		320,000		1,303,003		—			415,003			320,000		1,718,006		(382,334	)		1,655,672
Glasgow, Kentucky	GE 2DI		425,000		2,206,805		—			167,489			425,000		2,374,294		(373,195	)		2,426,099
Sioux Falls, Airport	GE SF		—		2,397,714		—			224,729			—		2,622,443		(447,742	)		2,174,701
Sioux Falls, Empire	GE SF		480,000		1,988,692		—			247,366			480,000		2,236,058		(390,026	)		2,326,032

			Initial Cost				Additions, (Dispositions), (Impairments), Subsequent to Acquisition						Gross Amount at December 31, 2011
Hotel and Location	Encum- brance		Land		Buildings & Improvements		Land			Buildings & Improvements			Land		Buildings & Improvements		Accumulated Depreciation				Net Book Value
Extended Stay-Savannah Suites
Atlanta, Georgia	GE PINE	*		1,865,000		3,997,960		(981,833	)		(1,856,795	)		883,167		2,141,165		(410,399	)			2,613,933
Augusta, Georgia	GE SS			750,000		3,816,246		—			217,257			750,000		4,033,503		(790,218	)			3,993,285
Chamblee, Georgia	GE SS			1,650,000		3,563,648		—			141,556			1,650,000		3,705,204		(771,101	)			4,584,103
Greenville, South Carolina	GE SS			550,000		3,408,375		(255,316	)		(1,545,291	)		294,684		1,863,084		(306,564	)			1,851,204
Jonesboro, Georgia	GE SS			875,000		2,978,463		(394,903	)		(1,291,788	)		480,097		1,686,675		(268,548	)			1,898,224
Savannah, Georgia	GE SS			1,250,000		4,052,678		(535,827	)		(1,856,434	)		714,173		2,196,244		(185,417	)			2,725,000
Stone Mountain, Georgia	GE SS			725,000		3,840,600		—			148,431			725,000		3,989,031		(771,505	)			3,942,526
Supertel Inn
Creston, Iowa	GWB			234,866		2,708,224		—			12,527			234,866		2,720,751		(705,576	)			2,250,041
Key West Inns
Key Largo, Florida	GRW			339,425		3,238,530		—			1,271,753			339,425		4,510,283		(1,969,223	)			2,880,485
Masters
Columbia-I26, South Carolina	GE Masters			450,000		1,395,861		(110,184	)		(162,007	)		339,816		1,233,854		(172,774	)			1,400,896
Columbia-Knox Abbot Dr, South Carolina	GE Masters			—		1,474,612		—			(388,817	)		—		1,085,795		(255,795	)			830,000
Charleston North, South Carolina	GE Masters			700,000		2,895,079		(374,227	)		(1,186,990	)		325,773		1,708,089		(301,361	)			1,732,501
Garden City, Georgia	GE Masters			570,000		2,443,603		(281,448	)		(886,463	)		288,552		1,557,140		(255,692	)			1,590,000
Tampa East, Florida	GE Masters			192,416		3,413,132		(123,228	)		(2,102,982	)		69,188		1,310,150		(309,384	)			1,069,954
Tampa Fairgrounds, Florida	GE Masters			580,000		3,018,614		(273,780	)		(1,124,202	)		306,220		1,894,412		(278,132	)			1,922,500
Tuscaloosa, Alabama	GE Masters			740,000		4,025,844		(347,094	)		(1,485,665	)		392,906		2,540,179		(345,574	)			2,587,511
Subtotal Hotel Properties				45,733,940		246,038,114		(6,791,159	)		21,186,818			38,942,781		267,224,932		(97,483,580	)	—		208,684,133
Construction in Progress				—		—		—			419,325			—		419,325						419,325
Other	NON			68,765		1,516,627		(68,765	)		(950,723	)		—		565,904		(435,091	)			130,813
Total			$	45,802,705	$	247,554,741	$	(6,859,924	)	$	20,655,420		$	38,942,781	$	268,210,161	$	(97,918,671	)		$	209,234,271

* Atlanta Land includes value of land lease

Encumbrance codes refer to the following lenders:

GRW	Greenwich Capital Loan	EVB	Elkhorn Valley Bank
GWB	Great Western Bank	CITI	Citigroup Global Markets Realty
GE SB	GE Capital Franchise Finance	FNI	Fredericksburg North Investors, LLC
GE SS	GE Capital Corporation	WF BMI	Wells Fargo Bank
GE Pine	GE Capital Corporation	GE MOA	GE Capital Corporation
GE Masters	GE Capital Corporation	GE SF	GE Capital Corporation
GE GB	GE Capital Corporation	GE 3CI	GE Capital Corporation
GE LSI	GE Capital Corporation	GE 2 DI	GE Capital Corporation
FNB	First National Bank of Omaha	NON	Non-encumbered

	ASSET BASIS	Total
(a)	Balance at January 1, 2009	$	400,871,996
	Additions to buildings and improvements	$	4,485,009
	Disposition of buildings and improvements		(18,942,418	)
	Impairment loss		(26,722,187	)
	Balance at December 31, 2009	$	359,692,400
	Additions to buildings and improvements	$	4,344,356
	Disposition of buildings and improvements		(17,101,252	)
	Impairment loss		(8,555,306	)
	Balance at December 31, 2010	$	338,380,198
	Additions to buildings and improvements	$	4,963,538
	Disposition of buildings and improvements		(16,983,570	)
	Impairment loss		(19,207,224	)
	Balance at December 31, 2011	$	307,152,942
	ACCUMULATED DEPRECIATION	Total
(b)	Balance at January 1, 2009	$	86,990,942
	Depreciation for the period ended December 31, 2009	$	14,242,727
	Depreciation on assets sold or disposed		(4,697,660	)
	Impairment loss		(2,574,353	)
	Balance at December 31, 2009	$	93,961,656
	Depreciation for the period ended December 31, 2010	$	11,710,060
	Depreciation on assets sold or disposed		(7,168,962	)
	Impairment loss		(356,732	)
	Balance at December 31, 2010	$	98,146,022
	Depreciation for the period ended December 31, 2011	$	9,996,077
	Depreciation on assets sold or disposed		(5,324,345	)
	Impairment loss		(4,899,083	)
	Balance at December 31, 2011	$	97,918,671

(c) The aggregate cost of land, buildings, furniture and equipment for Federal income tax purposes is approximately $350 million (unaudited).

(d) Depreciation is computed based upon the following useful lives:

Buildings and improvements	15 - 40 years
Furniture and equipment	3 - 12 years

(e) The Company has mortgages payable on the properties as noted. Additional mortgage information can be found in Note 7 to the consolidated financial statements.

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Organization And Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Organization And Summary Of Significant Accounting Policies [Abstract]

Organization And Summary Of Significant Accounting Policies

Note 1. Organization and Summary of Significant Accounting Policies

Description of Business

Supertel Hospitality, Inc. (SHI) was incorporated in Virginia on August 23, 1994. SHI is a self-administered real estate investment trust (REIT) for federal income tax purposes.

SHI, through its wholly owned subsidiaries, Supertel Hospitality REIT Trust and E&P REIT Trust (collectively, the "Company") owns a controlling interest in Supertel Limited Partnership ("SLP") and E&P Financing Limited Partnership ("E&P LP"). All of the Company's interests in 90 properties with the exception of furniture, fixtures and equipment on 70 properties held by TRS Leasing, Inc. and its subsidiaries are held directly or indirectly by E&P LP, SLP or Solomon's Beacon Inn Limited Partnership (SBILP) (collectively, the "Partnerships"). The Company's interests in ten properties are held directly by either SPPR-Hotels, LLC (SHLLC), SPPR-South Bend, LLC (SSBLLC), or SPPR-BMI, LLC (SBMILLC). SHI, through Supertel Hospitality REIT Trust, is the sole general partner in SLP and at December 31, 2011 owned approximately 99% of the partnership interests in SLP. SLP is the general partner in SBILP. At December 31, 2011, SLP and SHI owned 99% and 1% interests in SBILP, respectively, and SHI owned 100% of Supertel Hospitality Management, Inc, SPPR Holdings, Inc. (SPPRHI), and SPPR-BMI Holdings, Inc. (SBMIHI). SLP and SBMIHI owned 99% and 1% of SBMILLC, respectively. SLP and SPPRHI owned 99% and 1% of SHLLC, respectively, and SLP owned 100% of SSBLLC. References to "we", "our", and "us" herein refer to Supertel Hospitality, Inc., including as the context requires, its direct and indirect subsidiaries.

As of December 31, 2011, the Company owned 100 limited service hotels. All of the hotels are leased to our wholly owned taxable REIT subsidiary, TRS Leasing, Inc. ("TRS"), and its wholly owned subsidiaries (collectively "TRS Lessee"), and are managed by Hospitality Management Advisors, Inc. ("HMA"), Strand Development Company LLC ("Strand"), Kinseth Hotel Corporation ("Kinseth"), and HLC Hotels, Inc. ("HLC").

The hotel management agreement, as amended, between TRS Lessee and Royco Hotels, the previous manager of 95 of the Company's hotels, was terminated effective May 31, 2011. The agreement provided for Royco Hotels to operate and manage the hotels through December 31, 2011, with extension to December 31, 2016 upon achievement of average annual net operating income of at least 10% of the Company's investment in the hotels. Under the agreement, Royco Hotels received a base management fee ranging from 4.25% to 3.0% of gross hotel revenues as revenues increased above thresholds that ranged from up to $75 million to over $100 million, and was entitled, if earned, to an annual incentive fee of 10% of up to the first $1.0 million of annual net operating income in excess of 10% of the Company's investment in the hotels, and 20% of the excess above $1.0 million. On March 25, 2011, Royco Hotels and the Company settled a lawsuit filed by Royco Hotels against the Company. The settlement agreement between the parties provides that the Company will pay an aggregate of $590 in varying amounts of installments through July 1, 2013 to Royco Hotels (of which $255 has been paid as of December 31, 2011) as financial settlement of the lawsuit and fees owed to Royco Hotels as termination fees for hotels that have been sold.

On April 21, 2011, the Company through TRS Lessee entered into separate management agreements with HMA, Strand and Kinseth as eligible independent operators to manage 95 of the Company's hotels (two of which were subsequently sold) commencing June 1, 2011. These hotels were previously managed by Royco Hotels.

HMA manages 25 Company hotels in Arkansas, Louisiana, Tennessee, Kentucky, Indiana, Virginia and Florida. Strand manages the Company's seven economy extended-stay hotels in Georgia and South Carolina as well as 16 additional Company hotels located in Georgia, Delaware, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and West Virginia. Kinseth manages 45 Company hotels in eight states primarily in the Midwest. Each of the management agreements expire on May 31, 2014 and will renew for additional terms of one year unless either party to the agreement gives the other party written notice of termination at least 90 days before the end of a term.

Each of HMA, Strand and Kinseth receives a monthly management fee with respect to the hotels they manage equal to 3.5% of the gross hotel income and 2.25% of hotel net operating income ("NOI"). NOI is equal to gross hotel income less operating expenses (exclusive of management fees, certain insurance premiums and employee bonuses, and personal and real property taxes).

SLP owns 7 hotels which are operated under the Masters Inn name. TRS, the lessee of the hotels, entered into a management agreement with HLC, an affiliate of the sellers of the 7 hotels. The management agreement, as amended, provides for HLC to operate and manage the hotels through December 31, 2013 and receive management fees equal to 5.0% of the gross revenues derived from the operation of the hotels and incentive fees equal to 10% of the annual operating income of the hotels in excess of 10.5% of the Company's investment in the hotels.

The management agreements generally require TRS Lessee to fund debt service, working capital needs, capital expenditures and third-party operating expenses for the management companies excluding those expenses not related to the operation of the hotels. TRS Lessee is responsible for obtaining and maintaining insurance policies with respect to the hotels.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Partnerships and the TRS Lessee. All significant intercompany balances and transactions have been eliminated in consolidation.

Estimates, Risks and Uncertainties

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses recognized during the reporting period. The significant estimates pertain to impairment analysis and allocation of purchase price (FASB ASC 805-10 Business Combinations - Overall). Actual results could differ from those estimates.

Because of the adverse conditions that exist in the real estate markets, as well as the credit and financial markets, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change. Specifically as it relates to the Company's business, the recent economic conditions are expected to continue to negatively affect the Company's operating performance, as well as its liquidity position.

Liquidity

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.

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 anticipates that these adverse economic conditions may improve somewhat over the next year; however, in addition to our operating performance, the other sources described below will be essential to our liquidity and financial position.

Our business requires continued access to adequate capital to fund our liquidity needs. In 2011 and 2010, the Company reviewed its entire portfolio, identified properties considered non-core and developed timetables for disposal of those assets deemed non-core. We focused on improving our liquidity through cash generating asset sales and disposition of assets that are not generating cash at levels consistent with our investment principles. In 2012, our foremost priorities continue to be preserving and generating capital sufficient to fund our liquidity needs. Given the deterioration and uncertainty in the economy and financial markets, management believes that access to conventional sources of capital will be challenging and management has planned accordingly. We are also working to proactively address challenges to our short-term and long-term liquidity position.

The following are the expected actual and potential sources of liquidity, which if realized we currently believe will be sufficient to fund our near-term obligations:

• Cash and cash equivalents;

• Cash generated from operations;

• Proceeds from asset dispositions;

• Proceeds from additional secured or unsecured debt financings; and/or

• Proceeds from public or private issuances of debt or equity securities.

The Company has significant indebtedness maturing over the next year, including a $29.4 million balance on a loan with Greenwich Capital maturing in December 2012. If we are not successful in negotiating the refinancing of this debt, or any other maturing debt, or finding alternate sources of financing in a difficult borrowing environment, we will be unable to meet the Company's near-term liquidity requirements.

These above sources are essential to our liquidity and financial position, and we cannot assure shareholders that we will be able to successfully access them (particularly in the current economic environment). If we are unable to generate cash from these sources, we may have liquidity-related capital shortfalls and will be exposed to default risks. The significant issues with access to the liquidity sources identified above could lead to our insolvency.

In the near-term, the Company's cash flow from operations is not projected to be sufficient to meet all of our liquidity needs. In response, management has identified non-core assets in our portfolio to be liquidated over a one to ten year period. Among the criteria for determining properties to be sold was potential upside when hotel fundamentals return to stabilized levels. The 24 properties held for sale as of December 31, 2011 were determined to be less likely to participate in increased cash flow levels when markets do improve. As such, we expect these dispositions to help us (1) preserve cash, through potential disposition of properties with current or projected negative cash flow and/or other potential near-term cash outlay requirements (including debt maturities) and (2) generate cash, through the potential disposition of strategically identified non-core assets that we believe have equity value above debt.

We are actively marketing the 24 properties held for sale, which we anticipate will result in the elimination of an estimated $34.5 million of debt and generate an expected $4.9 million of proceeds for operations. The marketing process has been affected by deteriorating economic conditions and we have experienced some decreases in expected pricing. If this trend continues to worsen, we may be unable to complete the disposition of identified properties in a manner that would generate cash flow in line with management's estimates as noted above. Our ability to dispose of these assets is impacted by a number of factors. Many of these factors are beyond our control, including general economic conditions, availability of financing and interest rates. In light of the current economic conditions, we cannot predict:

• whether we will be able to find buyers for identified assets at prices and/or other terms acceptable to us;

• whether potential buyers will be able to secure financing; and

• the length of time needed to find a buyer and to close the sale of a property.

As our debt matures, our principal payment obligations also present significant future cash requirements. We expect lenders will continue to maintain tight lending standards, which could make it more difficult for us to obtain future credit facilities on terms similar to the terms of our current credit facilities or to obtain long term financing on favorable terms or at all.

We may not be able to successfully extend, refinance or repay our debt due to a number of factors, including decreased property valuations, limited availability of credit, tightened lending standards and deteriorating economic conditions. Historically, extending or refinancing loans has required the payment of certain fees to, and expenses of, the applicable lenders. Any future extensions or refinancing will likely require increased fees due to tightened lending practices. These fees and cash flow restrictions will affect our ability to fund other liquidity uses. In addition, the terms of the extensions or refinancing may include operational and financial covenants significantly more restrictive than our current debt covenants.

The Company is required to meet various financial covenants required by its existing lenders. If the Company's future financial performance fails to meet these financial covenants, then its lenders also have the ability to take control of its encumbered hotel assets. Defaults with lenders due to failure to repay or refinance debt when due or failure to comply with financial covenants could also result in defaults under our credit facilities with Great Western Bank and General Electric Capital Corporation. Our Great Western Bank and General Electric Capital Corporation credit facilities contain cross-default provisions which would allow Great Western Bank and General Electric Capital Corporation to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. If this were to happen, whether due to failure to repay or refinance debt when due or failure to comply with financial covenants, the Company's ability to conduct business could be severely impacted as there can be no assurance that the adequacy and timeliness of cash flow would be available to meet the Company's liquidity requirements.

The Company did not declare a common stock dividend during 2011 or 2010. The Company will monitor requirements to maintain its REIT status and will routinely evaluate the dividend policy. The Company intends to continue to meet its dividend requirements to retain its REIT status.

Sources and Uses of Cash

At December 31, 2011, available cash was $0.3 million and the Company's available borrowing capacity on the Great Western Bank revolver was $2 million. The Company projected that at December 31, 2011 cash flows from operations and the available borrowing capacity from the revolver would be insufficient to meet both short term and long term liquidity requirements. As a consequence, in November 2011 the Company entered into an agreement to sell 3.0 million shares of Series C preferred stock and obtained a $5 million revolving credit facility from Elkhorn Valley Bank to fund the Company until the closing of the Series C preferred stock sale.

Short term outflows include monthly operating expenses, $0.2 million of termination fees to Royco Hotels, estimated annual debt service of $15.0 million and payment of dividends on Series A and Series B preferred stock. Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that need to be made periodically with respect to hotel properties and $76.7 million of scheduled debt repayments.

We have budgeted to increase our spending on capital improvements from $5 million in 2011 to $7 million on our existing hotels during 2012. The increase in capital expenditures is a result of complying with brand mandated improvements and initiating projects that we believe will generate a return on investment as we enter a period of recovery in the lodging sector. We will seek to satisfy these long-term liquidity requirements through the various sources of capital identified above, including the recently issued Series C preferred stock and net proceeds on sales of non performing hotels.

We completed a private offering of 3.0 million shares of Series C preferred stock in February 2012. Net proceeds of the offering, less expenses, were approximately $28.7 million. $7.1 million of the net proceeds were used to repay a $2.1 million promissory note and to repay the $5 million revolving credit facility with Elkhorn Valley Bank. The remaining net proceeds from the offering will be used to acquire upper midscale and upscale hotels and to meet our long term liquidity requirements. In addition, management has identified non-core assets in our portfolio to be liquidated over a one to ten year period. We project that proceeds from anticipated property sales during the 2012, net of expenses and debt repayment, of $4.9 million will be available for the Company's cash needs.

We project that our operating cash flow, revolving credit facility and proceeds from additional secured or unsecured debt financings along with the sources identified above will be sufficient to satisfy all of our liquidity and other capital needs over the next twelve to eighteen months.

Capitalization Policy

Development and construction costs of properties in development are capitalized including, where applicable, direct and indirect costs, including real estate taxes and interest costs. Development and construction costs and costs of significant improvements, replacements, renovations to furniture and equipment expenditures for hotel properties are capitalized while costs of maintenance and repairs are expensed as incurred.

Deferred Financing Cost

Direct costs incurred in financing transactions are capitalized as deferred costs and amortized to interest expense over the term of the related loan using the effective interest method.

Investment in Hotel Properties

Upon acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture, fixtures and equipment, and intangible assets, if any. The Company's investments in hotel properties are carried at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and three to twelve years for furniture, fixtures and equipment.

The Company periodically reviews the carrying value of each hotel to determine if circumstances exist indicating impairment to the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel to reflect the hotel at fair value.

In accordance with the provisions of FASB ASC 360-10-45 Property, Plant, and Equipment - Overall - Other Presentation Matters, a hotel is considered held for sale when a contract for sale is entered into, a substantial, non refundable deposit has been committed by the purchaser, and sale is expected to occur within one year, or if management has determined to sell the property within one year. Depreciation of these properties is discontinued at that time, but operating revenues, other operating expenses and interest continue to be recognized until the date of sale. Revenues and expenses of properties that are classified as held for sale or sold are presented as discontinued operations for all periods presented in the statements of operations if the properties will be or have been sold on terms where the Company has limited or no continuing involvement with them after the sale. If active marketing ceases or the properties no longer meet the criteria to be classified as held for sale, the properties are reclassified as operating and measured at the lower of their (a) carrying amount before the properties were classified as held for sale, adjusted for any depreciation expense that would have been recognized had the properties been continuously classified as operating or (b) their fair value at the date of the subsequent decision not to sell.

Gains on sales of real estate are recognized in accordance with FASB ASC 360-20 Property, Plant, and Equipment – Real Estate Sales ("ASC 360-20"). The specific timing of the sale is measured against various criteria of ASC 360-20 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent we sell a property and retain a partial ownership interest in the property, we generally recognize gain to the extent of the third party ownership interest in accordance with ASC 360-20.

Cash and Cash Equivalents

Cash and cash equivalents include cash and various highly liquid investments with original maturities of three months or less when acquired, and are carried at cost which approximates fair value.

Revenue Recognition

Revenues from the operations of the hotel properties are recognized when earned. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of operations.

Income Taxes

The Company qualifies and intends to continue to qualify as a REIT under applicable provisions of the Internal Revenue Code, as amended. In general, under such Code provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income will not be subject to federal income tax to the extent of the income which it distributes. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation of hotel properties for federal tax purposes. Except with respect to the TRS Lessee, the Company does not believe that it will be liable for significant federal or state income taxes in future years.

Deferred income taxes relate primarily to the TRS Lessee and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of the TRS Lessee and their respective tax basis and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors.

Under the REIT Modernization Act ("RMA"), which became effective January 1, 2001, the Company is permitted to lease its hotels to one or more wholly owned taxable REIT subsidiaries ("TRS") and may continue to qualify as a REIT provided that the TRS enters into management agreements with an "eligible independent contractor" that will manage the hotels leased by the TRS. The Company formed the TRS Lessee and, effective January 1, 2002, the TRS Lessee leased all of the hotel properties. The TRS Lessee is subject to taxation as a C-Corporation. The TRS Lessee has incurred operating losses for financial reporting and federal income tax purposes for 2011, 2010 and 2009.

Fair Value Measurements

We currently do not have any financial instruments that must be measured on a recurring basis under Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") 820-10 Fair Value Measurements and Disclosures - Overall; however, we apply the fair value provisions of ASC 820-10-35 Fair Value Measurements and Disclosures - Overall - Subsequent Measurement, for our nonfinancial assets which include our held for sale and held for use hotels. We measure these assets using inputs from Level 3 of the fair value hierarchy.

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

During the 12 months ending December 31, 2011, Level 3 inputs were used to determine impairment losses of $5.8 million on held for sale and sold hotels. This includes the recovery of previously recorded impairment for which sale price or fair value exceeded management's previous estimates in the amount of $0.3 million on assets held for sale and sold. The Company also recorded $8.5 million in impairment loss on seven held for use hotels. This includes the impairment loss of $3.3 million and the recovery of previously recorded impairment of $0.4 million on four hotels reclassified from held for sale to held for use in the fourth quarter of 2011.

During the 12 months ending December 31, 2010, Level 3 inputs were used to determine impairment losses of $6.1 million on held for sale and sold hotels. These impairment losses include the recovery of previously recorded impairment for which fair value exceeded management's previous estimates in the amount of $0.9 million on assets held for sale and sold. The Company also recorded $2.1 million in impairment loss on one held for use hotel.

During the 12 months ending December 31, 2009, Level 3 inputs were used to determine impairment losses of $16.7 million on held for sale and sold hotels. These impairment losses include the recovery of previously recorded impairment for which fair value exceeded management's previous estimates in the amount of $0.07 million on two assets sold in 2009. This recovery was recorded in the period the sale occurred. The Company also recorded $7.4 million in impairment loss on five held for use hotels.

In accordance with ASC 360-10-35 Property Plant and Equipment—Overall—Subsequent Measurement, the Company determines the fair value of an asset held for sale 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 using a market approach. The estimated selling costs are based on our experience with similar asset sales.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. The carrying value and estimated fair value of the Company's debt, as of December 31, 2011, are presented in the table below:

(In thousands)	Carrying Value				Estimated Fair Value
	December 31,				December 31,
	2011		2010		2011		2010
Continuing operations	$	131,345	$	132,271	$	133,172	$	136,444
Discontined operations		34,500		42,739		35,274		44,417
Total	$	165,845	$	175,010	$	168,446	$	180,861

Preferred and Common Limited Partnership Units in SLP

At December 31, 2011, 2010, and 2009 there were 97,008, 158,161 and 158,161, respectively of SLP common operating units outstanding. These units have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts allocated to the limited partners holding common operating units (whose units are convertible on a one-to-one basis to common shares) since their share of income (loss) would be added back to income (loss). During 2011 and 2009, 61,153 and 1,077,645 common operating units, respectively, were converted into 61,153 and 1,077,645 shares of common stock, respectively. In addition, the 11,424, 51,035 and 51,035 shares of SLP preferred operating units held by the limited partners as of December 31, 2011, 2010 and 2009, respectively, are antidilutive and are therefore excluded from the earnings per share calculation.

Preferred Stock of SHI

At December 31, 2011, 2010 and 2009, there were 803,270 shares each year of Series A Preferred Stock. The shares of Series A Preferred Stock, after adjusting the numerator and denominator for the basic EPS computation, are antidilutive for the year ended December 31, 2011, 2010 and 2009, for the earnings per share computation. The exercise price of the preferred stock warrants exceeded the market price of the common stock, and therefore these shares were excluded from the computation of diluted earnings per share. The conversion rights of the Series A Preferred Stock were cancelled as of February 20, 2009. See additional information regarding preferred stock and warrants in Note 12.

At December 31, 2011, 2010 and 2009, there were 332,500 shares, each year, of Series B Cumulative Preferred Stock outstanding. The Series B Cumulative Preferred Stock is not convertible into common stock, therefore, there is no dilutive effect on earnings per share.

Stock-Based Compensation

Options

The Company has a 2006 Stock Plan (the "Plan") which has been approved by the Company's shareholders. The Plan authorized the grant of stock options, stock appreciation rights, restricted stock and stock bonuses for up to 200,000 shares of common stock. At the annual shareholders meeting on May 28, 2009, the shareholders of Supertel Hospitality, Inc. approved an amendment to the Supertel 2006 Stock Plan. The amendment increases the maximum number of shares reserved for issuance under the plan from 200,000 to 300,000 and changes the definition of fair market value to mean the closing price of Supertel common stock with respect to future awards under the plan.

The potential common shares represented by outstanding stock options for the years ended December 31, 2011, 2010 and 2009 totaled 215,500, 255,143, and 230,715 respectively, of which 215,500, 255,143 and 230,715 shares, respectively are assumed to be repurchased with proceeds from the exercise of stock options with no shares being dilutive for the purposes of calculating earnings per share.

Share-Based Compensation Expense

The Plan is accounted for in accordance with FASB ASC Topic 718 – 10 Compensation – Stock Compensation – Overall, requiring the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. The expense recognized in the consolidated financial statements for the year ended December 31, 2011, 2010, and 2009 for share-based compensation related to employees and directors was $29, $30 and $6, respectively.

Noncontrolling Interest

Noncontrolling interest in SLP represents the limited partners' proportionate share of the equity in the operating partnership. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit. See additional information regarding SLP units in Note 11. There were no common operating units redeemed in 2010. During 2011 and 2009, 61,153 and 1,077,645 SLP common operating units of limited partnership interest were redeemed by unit holders for common shares of SHI. At December 31, 2011, the aggregate partnership interest held by the limited partners in SLP was approximately 1.0%. Income is allocated to noncontrolling interest based on the weighted average percentage ownership throughout the year.

Concentration of Credit Risk

The Company maintained a major portion of its deposits with Great Western Bank, a Nebraska Corporation at December 31, 2011, 2010 and 2009. The balance on deposit at Great Western Bank exceeded the federal deposit insurance limit; however, management believes that no significant credit risk exists with respect to the uninsured portion of this cash balance.

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Accounts receivable, allowance for doubtful accounts	$ 194	$ 133
Preferred stock, shares authorized	40,000,000	40,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares outstanding	23,070,387	22,917,509
Noncontrolling interest in consolidated partnership, redemption value	64	250
Preferred Stock Series A [Member]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares outstanding	803,270	803,270
Preferred stock, liquidation preference	8,033	8,033
Redeemable Preferred Stock Series B [Member]
Redeemable preferred stock, shares authorized	800,000	800,000
Preferred stock, par value	$ 0.01	$ 0.01
Redeemable preferred stock, shares outstanding	332,500	332,500
Preferred stock, liquidation preference	$ 8,312	$ 8,312

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Noncontrolling Interest Of Common And Preferred Units In SLP

12 Months Ended

Dec. 31, 2011

Noncontrolling Interest Of Common And Preferred Units In SLP [Abstract]

Noncontrolling Interest Of Common And Preferred Units In SLP

Note 11. Noncontrolling Interest of Common and Preferred Units in SLP

At December 31, 2011, 97,008 of SLP's common operating partnership units ("Common OP Units") were outstanding. The redemption values for the Common OP Units are $64 and $250 for 2011 and 2010 respectively. Each limited partner of SLP may, subject to certain limitations, require that SLP redeem all or a portion of his or her Common OP Units, at any time after a specified period following the date the units were acquired, by delivering a redemption notice to SLP. When a limited partner tenders Common OP Units to SLP for redemption, the Company can, in its sole discretion, choose to purchase the units for either (1) a number of shares of Company 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 shares of Company common stock the limited partner would have received if the Company chose to purchase the units for common stock. During 2011 and 2009, 61,153 and 1,077,645, respectively, Common OP Units were redeemed for common shares of SHI.

At December 31, 2011, 11,424 of SLP's preferred operating partnership units ("Preferred OP Units") were outstanding. The redemption value for the Preferred OP Units is $114 for December 31, 2011. The Preferred OP Units receive a preferred dividend distribution of $1.10 per preferred unit annually, payable on a monthly basis and do not participate in the allocations of profits and losses of SLP. Distributions to holders of Preferred OP Units have priority over distributions to holders of Common OP Units. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit. The remaining 11,424 units will continue to be carried outside of permanent equity at redemption value.

Noncontrolling Interest Reconciliation of Common and Preferred Units

	Redeemable Noncontrolling Interest			Noncontrolling Interest			Total Noncontrolling Interest
Balance at January 1, 2009	$	1,778		$	8,064		$	9,842
Partner draws		(172	)		—			(172	)
Conversion of OP units		—			(7,354	)		(7,354	)
Reclassification of OP units to current liability		(1,267	)		—			(1,267	)
Noncontrolling interest expense		172			(302	)		(130	)
Balance at December 31, 2009	$	511		$	408		$	919
Partner draws		(56	)		—			(56	)
Noncontrolling interest expense		56			(73	)		(17	)
Balance at December 31, 2010	$	511		$	335		$	846
Partner draws		(49	)		—			(49	)
Conversion of OP units		(397	)		(119	)		(516	)
Noncontrolling interest expense		49			(81	)		(32	)
Balance at December 31, 2011	$	114		$	135		$	249

XML

Document And Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Feb. 23, 2012	Jun. 30, 2011
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Fiscal Period Focus	FY
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Entity Registrant Name	SUPERTEL HOSPITALITY INC
Entity Central Index Key	0000929545
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		23,070,387
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Public Float			$ 17.2

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Common And Preferred Stock

12 Months Ended

Dec. 31, 2011

Common And Preferred Stock [Abstract]

Common And Preferred Stock

Note 12. Common and Preferred Stock

The Company's common stock is duly authorized, full paid and non-assessable. At December 31, 2011 and 2010, members of the Board of Directors and executive officers owned approximately 18.5% and 19%, respectively, of the Company's outstanding common stock.

At December 31, 2011, 97,008 of SLP's common operating partnership units ("Common OP Units") and 11,424 of SLP's preferred operating partnership units ("Preferred OP Units") were outstanding. The combined redemption value for the Common OP Units and Preferred OP Units are $178 and $761 as of December 31, 2011 and 2010, respectively. Each limited partner of SLP may, subject to certain limitations, require that SLP redeem all or a portion of his or her Common OP Units or Preferred OP Units, at any time after a specified period following the date the units were acquired, by delivering a redemption notice to SLP. When a limited partner tenders Common OP Units to SLP for redemption, the Company can, in its sole discretion, choose to purchase the units for either (1) a number of shares of Company 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 shares of Company common stock the limited partner would have received if the Company chose to purchase the units for common stock. The Preferred OP Units were, as noted below, convertible by the holders into Common OP Units on a one-for-one basis or, at the option of the holders, redeemable for cash at $10 per unit until October 2010. The Preferred OP Units receive a preferred dividend distribution of $1.10 per preferred unit annually, payable on a monthly basis and do not participate in the allocations of profits and losses of SLP. During 2011 and 2009, 61,153 and 1,077,645, respectively, Common OP Units of limited partnership interest were redeemed for common shares of SHI. During 2010, no Common OP Units were redeemed for common shares of SHI. Supertel offered to each of the Preferred OP Unit holders the option to extend until October 24, 2012 their right to have units redeemed at $10 per unit. In October 2011, 39,611 units were redeemed at $10 each. The holders of the remaining 11,424 units elected to extend to October 24, 2012. In October 2010, all holders elected to extend until October 24, 2011. In October 2009, 126,751 units were redeemed at $10 each. The holders of the remaining 51,035 units elected to extend to October 24, 2010, their right to have units redeemed at $10 per unit.

On December 30, 2005 the Company offered and sold 1,521,258 shares of 8% Series A preferred stock. The shares were sold for $10.00 per share and bear a liquidation preference of $10.00 per share. At December 31, 2011, 2010 and 2009, 803,270 shares each year of Series A preferred stock remained outstanding.

Dividends on the Series A preferred stock are cumulative and are payable monthly in arrears on the last day of each month, at the annual rate of 8% of the $10.00 liquidation preference per share, equivalent to a fixed annual amount of $.80 per share. Dividends on the Series A preferred stock accrue regardless of whether or not the Company has earnings, whether there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Unpaid dividends will accumulate and bear additional dividends at 8%, compounded monthly.

The Series A preferred stock with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, ranks senior to all classes or series of the Company's common stock, senior or on parity with all other classes or series of preferred stock and junior to all of the Company's existing and future indebtedness. Upon liquidation all Series A preferred stock will be entitled to $10.00 per share plus accrued but unpaid dividends. The Company will not pay any distributions, or set aside any funds for the payment of distributions, on its common shares unless it has also paid (or set aside for payment) the full cumulative distributions on the preferred shares for the current and all past dividend periods. The outstanding preferred shares do not have any maturity date, and are not subject to mandatory redemption.

The Series A preferred stock had no conversion rights, the former conversion rights of the Series A preferred stock were cancelled as of February 20, 2009.

The Series A preferred stock will be redeemable on or after January 1, 2009 for cash, at the Company's option, in whole or from time to time in part, at $10.00 per share, plus accrued and unpaid dividends to the redemption date.

On May 10, 2010, the Company consummated the sale of 598,803 shares of its common stock and 299,403 warrants to purchase up to an additional 299,403 shares of the Company's common stock for aggregate gross proceeds of $1.0 million, pursuant to the terms of a Private Placement Memorandum with accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. The warrants are exercisable for a period of three years from the date of issuance at an exercise price of $2.50.

During 2010 we sold 316,384 shares of common stock using a Standby Equity Distribution Agreement. Net proceeds of $480 were used for corporate purposes.

On March 29, 2011, the Company entered into an equity distribution agreement with JMP Securities LLC ("JMP") pursuant to which the Company may offer and sell up to 2.0 million shares of common stock from time to time through JMP. Sales of shares of the Company common stock, if any, under the agreement may be made in negotiated transactions or other transactions that are deemed to be "at the market" offerings, including sales made directly on the Nasdaq Global Market or sales made to or through a market maker other than on an exchange. The common stock will be sold pursuant to the Company's registration statement on Form S-3 (333-170756). The Company sold through JMP, as its agent, an aggregate of 91,725 shares of common stock in 2011 and 65,000 shares of common stock in the fourth quarter of 2011, pursuant to ordinary brokers' transactions on the Nasdaq Global Market. Gross proceeds in 2011 were $97, commissions to agent were $5, other miscellaneous expenses were $3 and net proceeds to the Company were $89. Gross proceeds in the fourth quarter of 2011 were $53, commissions to agent were $3 and net proceeds to company were $50.

The Company also has Series B preferred stock outstanding. See Note 10. Subsequent to December 31, 2011, the Company issued and sold 3,000,000 shares of its Series C Preferred Stock. See Note 15.

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Consolidated Statements Of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
REVENUES
Room rentals and other hotel services	$ 75,827	$ 75,300	$ 72,493
EXPENSES
Hotel and property operations	58,039	57,005	53,966
Depreciation and amortization	8,825	9,970	10,427
General and administrative	4,008	3,443	3,813
Total expenses	70,872	70,418	68,206
EARNINGS BEFORE NET GAINS (LOSSES) ON DISPOSITIONS OF ASSETS, OTHER INCOME, INTEREST EXPENSE, AND INCOME TAXES	4,955	4,882	4,287
Net gain (loss) on dispositions of assets	1,129	(66)	(109)
Other income	107	122	134
Interest expense	(8,685)	(8,894)	(8,811)
Impairment	(8,545)	(2,147)	(7,399)
Termination cost	(540)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(11,579)	(6,103)	(11,898)
Income tax benefit	638	472	295
LOSS FROM CONTINUING OPERATIONS	(10,941)	(5,631)	(11,603)
Loss from discontinued operations, net of tax	(6,536)	(4,971)	(15,922)
NET LOSS	(17,477)	(10,602)	(27,525)
Noncontrolling interest	32	17	130
NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS	(17,445)	(10,585)	(27,395)
Preferred stock dividend	(1,474)	(1,474)	(1,474)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(18,919)	(12,059)	(28,869)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
EPS from continuing operations	$ (0.54)	$ (0.31)	$ (0.60)
EPS from discontinued operations	$ (0.28)	$ (0.22)	$ (0.73)
EPS Basic and Diluted	$ (0.82)	$ (0.53)	$ (1.33)
AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS
Income from continuing operations, net of tax	(12,411)	(7,117)	(13,112)
Discontinued operations, net of tax	(6,508)	(4,942)	(15,757)
Net loss	$ (18,919)	$ (12,059)	$ (28,869)

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Impairment Losses

12 Months Ended

Dec. 31, 2011

Impairment Losses [Abstract]

Impairment Losses

Note 6. Impairment Losses

In accordance with FASB ASC 360-10-35 Property Plant and Equipment – Overall - Subsequent Measurement, the Company analyzes its assets for impairment loss when events or circumstances occur that indicate the carrying amount may not be recoverable. As part of this process, the Company utilizes a two-step analysis to determine whether a trigger event (within the meaning of ASC 360-10-35) has occurred with respect to cash flow of, or a significant adverse change in business climate for, its hotel properties. Quarterly and annually the Company reviews all of its held for use hotels to determine any property whose cash flow or operating performance significantly underperformed from budget or prior year, which the Company has set as a shortfall against budget or prior year as 15% or greater.

At year end the Company applies a second analysis on the entire held for use portfolio. The analysis estimates the expected future cash flows to identify any property whose carrying amount potentially exceeded the recoverable value. (Note that at the end of each quarter, this analysis is performed only on those properties identified in the 15% change analysis). In performing this year end analysis, the Company makes the following assumptions:

• Holding periods range from three to five years for non-core assets, and ten years for those assets considered as core.

• Cash flow from trailing twelve months for the individual properties multiplied by the holding period as noted above. The Company does not assume growth rates on cash flows as part of its step one analysis.

• A revenue multiplier for the terminal value based on an average of historical sales from leading industry brokers of like properties was applied according to the assigned holding period.

As of June 30, 2011 and December 31, 2011, the analysis above was used to determine that a trigger event as described in ASC 360-10-35 occurred for one and two of our held for use properties, respectively. In each case the carrying value of the hotel exceeded the sum of the undiscounted cash flows expected over its remaining anticipated holding period and from its disposition. Each property was then tested to determine if the carrying amount was recoverable using property specific assumptions. When testing the recoverability for a property, in accordance with FASB ASC 360-10-35 35-29 Property Plant and Equipment – Overall – Subsequent Measurement, Estimates of Future Cash Flows Used to Test a Long-Lived Asset for Recoverability, the Company uses estimates of future cash flows associated with the individual property over the expected holding period and eventual disposition.

In estimating these future cash flows, the Company incorporates its own assumptions about its use of the hotel property and expected hotel performance. Assumptions used for the individual hotels were determined by management, based on discussions with our asset management group and our third party management companies. Each property was then subjected to a probability-weighted cash flow analysis as described in FASB ASC 360-10-55 Property Plant and Equipment – Overall – Implementation. In this analysis, the Company completed a detailed review of each hotel's market conditions and future prospects, which incorporated specific detailed cash flow and revenue multiplier assumptions over the remaining expected holding periods, including the probability that the property will be sold. Based on the results of this analysis, it was determined that the Company's investment in the subject properties was not fully recoverable; accordingly, impairment was recognized.

To determine the amount of impairment on the properties identified above, in accordance with FASB ASC 360-10-55, the Company calculated the excess of the carrying value of the property in comparison to its fair market value as of June 30, 2011 and December 31, 2011. As discussed in Note 1 - Fair Value Measurements, the fair market values were determined using Level 3 inputs in accordance with ASC 820-10-35 Fair Value Measurements and Disclosures – Overall – Subsequent Measurement. Based on this calculation, the Company determined total impairment of $2.8 million existed as of June 30, 2011 on the one held for use asset and $2.8 million existed as of December 31, 2011 on the two assets previously noted. Fair market value was determined by multiplying trailing 12 months' revenue for the property by a revenue multiplier that was determined based on the company's experience with similar hotel sales in the current year, available industry information and brokers' opinions of value. As the fair market value of the properties impaired for the year ending December 31, 2011, was determined in part by management estimates, a reasonable possibility exists that future changes to inputs and assumptions could affect the accuracy of management's estimates and such future changes could lead to further possible impairment in the future. During the 12 months ending December 31, 2011, the Company recorded impairment losses of $3.3 million and the recovery of previously recorded impairment of $0.4 million on four hotels reclassified from held for sale to held for use in the fourth quarter of 2011.

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Net Gains (Losses) On Sales Of Properties And Discontinued Operations

12 Months Ended

Dec. 31, 2011

Net Gains (Losses) On Sales Of Properties And Discontinued Operations [Abstract]

Net Gains (Losses) On Sales Of Properties And Discontinued Operations

Note 5. Net Gains (Losses) on Sales of Properties and Discontinued Operations

In accordance with FASB ASC 205-20 Presentation of Financial Statements – Discontinued Operations, gains, losses and impairment losses on hotel properties sold or classified as held for sale are presented in discontinued operations. Gains, losses and impairment losses for both continuing and discontinued operations are summarized as follows:

	2011			2010			2009
Continuing Operations
Sale of office building	$	1,129		$	—		$	—
Impairment losses		(8,545	)		(2,147	)		(7,399	)
Loss on sale of assets		—			(66	)		(109	)
		(7,416	)		(2,213	)		(7,508	)
Discontinued Operations
Sales of properties	$	376		$	1,414		$	2,520
Impairment losses		(5,763	)		(6,051	)		(16,749	)
Loss on sale of assets		(53	)		(72	)		(147	)
		(5,440	)		(4,709	)		(14,376	)
Total	$	(12,856	)	$	(6,922	)	$	(21,884	)

As of December 31, 2011, the Company has 24 properties classified as held for sale. In 2011, 2010 and 2009, the Company sold six hotels, nine hotels and eight hotels, respectively, resulting in gains of $376, $1,414 and $2,520, respectively. In 2011, 2010, and 2009, the Company recognized net losses and impairment on the disposition of assets of approximately $5,440, $4,775, and $14,485.

The Company allocates interest expense to discontinued operations for debt that is to be assumed or that is required to be repaid as a result of the disposal transaction. The Company allocated $3,717, $3,330, and $4,204 to discontinued operations for the years ended December 31, 2011, 2010, and 2009, respectively.

The operating results of hotel properties included in discontinued operations are summarized as follows:

	2011			2010			2009
Revenues	$	22,080		$	27,080		$	33,001
Hotel and property operations expenses		(19,504	)		(23,488	)		(27,881	)
Interest expense		(3,717	)		(3,330	)		(4,204	)
Depreciation and amortization expense		(1,171	)		(1,738	)		(3,814	)
General and administrative expense		(50	)		(71	)		—
Net gain on dispositions of assets		323			1,342			2,373
Impairment loss		(5,763	)		(6,051	)		(16,749	)
Income tax benefit		1,266			1,285			1,352
	$	(6,536	)	$	(4,971	)	$	(15,922	)

As of December 31, 2011, the Company had 24 hotels classified as held for sale. At the beginning of 2011 the Company had 18 hotels held for sale and during the year classified an additional nineteen hotels as held for sale. Six of these hotels were sold during 2011, and seven of the hotels were reclassified as held for use due to changes in the property's market condition. Since our previously filed financial statements on Form 10-Q as of September 30, 2011, in addition to the six hotels reclassified as held for use, eleven hotels were reclassified as held for sale. The impact of these changes was to increase losses from continuing operations by $0.2 million and $0.6 million for the years ended 2010 and 2009, respectively, compared to the previously filed financial statements in the 2010 Form 10-K.

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 13. Stock-Based Compensation

Upon initial issuance of stock options on May 25, 2006, the Company adopted the provisions of FASB ASC 718-10-30 Compensation – Stock Compensation – Overall – Initial Measurement, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values.

Options

The Company has a 2006 Stock Plan (the "Plan") which has been approved by the Company's shareholders. The Plan authorized the grant of stock options, stock appreciation rights, restricted stock and stock bonuses for up to 200,000 shares of common stock. At the annual shareholders meeting on May 28, 2009, the shareholders of Supertel Hospitality, Inc. approved an amendment to the Supertel 2006 Stock Plan. The amendment increases the maximum number of shares reserved for issuance under the plan from 200,000 to 300,000 and changes the definition of fair market value to mean the closing price of Supertel common stock with respect to future awards under the plan.

As of December 31, 2011, 215,500 stock options have been awarded under the Plan. The exercise price is equal to the average of the high and low sales price of the stock as reported on the National Association of Securities Dealers Automated Quotation system (NASDAQ) on the grant date. A total of 215,500 shares of common stock have been reserved for issuance pursuant to the Plan with respect to the granted options. There is no intrinsic value for the vested options as of December 31, 2011. The following table summarizes the options awarded:

	Options Grant Date
	12/05/10		11/17/09
Awarded Options		95,500		90,000
Exercise Price	$	1.42	$	1.54
Date Vested		06/30/11		06/30/10
Expiration Date		12/2/2014		11/17/2013

The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The Company uses historical data among other factors to estimate the expected price volatility, the expected option life, the dividend rate and expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for the estimated life of the option. The following table summarizes the estimates used in the Black-Scholes option-pricing model related to the 2010 and 2009 grants:

	Grant Date
	12/02/10			11/17/09
Volatility		50.00	%		45.00	%
Expected dividend yield		6.33	%		6.33	%
Expected term (in years)		3.79			3.81
Risk free interest rate		1.27	%		1.74	%

The following table summarizes the Company's activities with respect to its stock options for the year ended December 31, 2011 as follows (in thousands, except per share and share data):

	Shares		Weighted- Average Exercise Price		Aggregate Fair Value		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2010		255,143	$	2.87	$	109
Granted		—		—		—
Exercised		—		—		—
Forfeited or expired		39,643		7.55		33
Outstanding at December 31, 2011		215,500	$	2.01	$	76		2.14	$	—
Exercisable at December 31, 2011		215,500	$	2.01	$	76		2.14	$	—

Share-Based Compensation Expense

The expense recognized in the consolidated financial statements for the share-based compensation related to employees and directors for the years ended December 31, 2011, 2010 and 2009 was $29, $30 and $6, respectively. At December 31, 2011, we had no unrecognized compensation expense, net of estimated forfeitures. We recognize compensation expense using the straight-line method over the vesting period. During 2011 the Company did not grant any options. During 2010 and 2009 the Company's options granted were 95,500 and 90,000, respectively, with a weighted average grant date fair value per option of $0.35 and $0.35, respectively. The total intrinsic value of options exercised was $0 for all three fiscal years 2011, 2010 and 2009. The closing market price of our common stock on the last day of 2011 was $0.66 per share.

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Commitments And Contingencies And Other Related Party Transactions

12 Months Ended

Dec. 31, 2011

Commitments And Contingencies And Other Related Party Transactions [Abstract]

Commitments And Contingencies And Other Related Party Transactions

Note 9. Commitments and Contingencies and Other Related Party Transactions

Hospitality Management Advisors, Inc. ("HMA"), Strand Development Company LLC ("Strand"), Kinseth Hotel Corporation ("Kinseth"), and HLC Hotels, Inc. ("HLC"), independent contractors, manage our hotels pursuant to hotel management agreements with TRS Lessee. The management agreements provide that the management companies have control of all operational aspects of the hotels, including employee-related matters. HMA, Strand, Kinseth, and HLC must generally maintain each hotel in good repair and condition and make routine maintenance, repairs and minor alterations. Additionally, the management companies must operate the hotels in accordance with third party franchise agreements that cover the hotels, which includes using franchisor sales and reservation systems as well as abiding by franchisors' marketing standards. HMA, Strand, Kinseth and HLC may not assign their management agreements without our consent. For further information regarding terms of the agreements see note 1.

The management agreements generally require TRS Lessee to fund debt service, working capital needs, capital expenditures and to reimburse the management companies for all budgeted direct operating costs and expenses incurred in the operation of the hotels. TRS Lessee is responsible for obtaining and maintaining insurance policies with respect to the hotels.

The remaining amount due Royco Hotels as financial settlement of the lawsuit and fees owed to Royco Hotels as termination fees for hotels that have been sold is $335.

With the exception of certain events of default as to which no grace period exists, if an event of default occurs and continues beyond the grace period set forth in the management agreement, the non-defaulting party has the option of terminating the agreement.

The management agreements provide that each party, subject to certain exceptions, indemnifies and holds harmless the other party against any liabilities stemming from certain negligent acts or omissions, breach of contract, willful misconduct or tortuous actions by the indemnifying party or any of its affiliates.

In an effort to meet the Company's short-term liquidity needs, and because of the difficulty encountered in obtaining sources of borrowing to meet such needs, on November 10, 2011 the Audit Committee of the Board of Directors, then consisting of Messrs. Jung, Whittemore, and Zwerdling, approved a proposal for the purchase by four of the Company directors, Messrs. Borgmann, Dayton, Latham, and Walters (the "Purchasing Directors"), of the Amended and Restated Master Promissory Note maturing November 30, 2011 from Wells Fargo Bank, National Association (the "Note") for the balance owed of principal and interest in the amount of $2.1 million.

The Purchasing Directors purchased the Note from Wells Fargo on November 21, 2011. The Note was secured by two of the Company's hotels and the Purchasing Directors released one of the hotels from security for the Note so that it could be used as security by the Company to obtain a $5.0 million line of credit with Elkhorn Valley Bank. Each of the Purchasing Directors also separately guaranteed $0.75 million of the line of credit (the "Elkhorn Line of Credit").

The Audit Committee approved an amendment of the Note to extend its maturity to May 31, 2012 and to increase the per annum interest rate of 4.5% to 10% as consideration for the Purchasing Directors releasing the Company's hotel from security for the Note. As consideration for the personal guaranties by the Purchasing Directors of Elkhorn Line of Credit, the Audit Committee approved payment of a fee of 2% per annum of the amount of their personal guaranties.

Proceeds from the sale of the Series C preferred stock were used in February 2012 to repay the Note and the Elkhorn Line of Credit, and the Purchasing Directors were released from their personal guaranties. Each of the Purchasing Directors received $13 in interest payments on the Note and a $4 fee for their personal guarantee of the Elkhorn Line of Credit.

Litigation

Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties. Based upon the information available, the Company believes that the resolution of any of these claims and legal proceedings should not have a material adverse affect on its consolidated financial position, results of operations or cash flows.

Other

The Company assumed land lease agreements in conjunction with the purchase of three hotels. One lease requires monthly payments of the greater of $2 or 5% of room revenue through November 2091. A second lease requires monthly payments of $1 through 2017 with approximately $1 annual increase beginning January 1, 2018, with additional increases in 2033, 2043, 2053 and 2063. A third lease requires annual payments of $34, with approximately $3 increases every five years throughout twelve renewal periods. Land lease expense from continuing operations totaled approximately $112, $111 and $109 in 2011, 2010 and 2009, respectively, and is included in property operating expense.

The Company entered into office lease agreements in May of 2010 and December of 2011. The two office leases mature in 2016 with the option to renew an additional five years. Office lease expense totaled $59 and $14 during 2011 and 2010, respectively. No office lease expense was incurred during 2009.

As of December 31, 2011, the future minimum lease payments applicable to non-cancellable operating leases are as follows:

	Lease rents
2012	$	226
2013		240
2014		241
2015		242
2016		229
Thereafter		4,634
	$	5,812

The land leases reflected in the table above represent continuing operations. In addition, the Company has two land leases associated with properties in discontinued operations. These two properties are expected to be sold in the next 12 months. The annual lease payments of $105 are not included in the table above.

The Company as of December 31, 2011 has agreements with two restaurants and one cell tower operator for leased space at our hotel locations related to continuing operations. The restaurant leases have maturity dates ranging from 2012 to 2020 and the cell tower lease has a maturity date of 2014. The restaurant leases have escalation clauses. The escalations are based on percentages of gross sales. The restaurant and cell tower lease income from continuing operations totaled approximately $289, $285 and $284 in 2011, 2010 and 2009, respectively, and is included in room rentals and other hotel services.

As of December 31, 2011, the future minimum lease receipts from the non-cancellable restaurants and cell tower leases are as follows:

	Lease receipts
2012	$	55
2013		44
2014		44
2015		30
2016		30
Thereafter		120
	$	323

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Long-Term Debt

12 Months Ended

Dec. 31, 2011

Long-Term Debt [Abstract]

Long-Term Debt

Note 7. Long-Term Debt

Long-term debt consisted of the following notes and mortgages payable at December 31:

	2011		2010
Mortgage loan payable to Greenwich Capital Financial Products, Inc. ("Greenwich"), evidenced by a promissory note dated November 26, 2002, in the amount of $40 million. The note bears interest at 7.50% per annum. Monthly principal and interest payments are payable through maturity on December 1, 2012, at which point the remaining principal and accrued interest are due.	$	29,406	$	30,972
Revolving credit facility from Great Western Bank, previously evidenced by a promissory note dated December 3, 2008. The revolving line of credit had a limit of $20 million with interest payable monthly. On December 9, 2011, the facility was refinanced into a $12.5 million revolving credit facility and a $7.5 million mortgage loan (see below). The facility bears interest at 5.95% per annum. On February 21, 2012, the maturity was extended to June 30, 2013.	$	10,443	$	15,793

	2011		2010
Mortgage loan payable to Great Western Bank evidenced by a promissory note dated December 9, 2011, in the amount of $7.5 million. The note bears interest at 6% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On February 21, 2012, the maturity was extended to June 30, 2013.	$	7,500	$	0
Mortgage loan payable to Great Western Bank evidenced by a promissory note dated December 3, 2008, in the amount of $14 million. The note bears interest at 6% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On February 21, 2012, the maturity was extended to June 30, 2013.	$	9,830	$	11,832
Mortgage loan payable to Great Western Bank evidenced by a promissory note dated May 5, 2009, in the amount of $10 million. The note bears interest at 6% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on the maturity date. On February 21, 2012, the maturity was extended to June 30, 2013.	$	9,244	$	9,551
Credit facility from Wells Fargo Bank for up to $12 million, previously evidenced by a promissory note dated September 28, 2007. The note was modified on March 16, 2009 to reduce the amount available for borrowing to $9.5 million and eliminate the revolving feature. The note was sold to Fredericksburg North Investors, LLC on November 21, 2011. The note bears interest at 10% per annum and requires the outstanding principal and interest to be paid in full on May 31, 2012. The note was paid in full on February 16, 2012.	$	2,120	$	5,294
Mortgage loan payable to Citigroup Global Markets Realty Corp. evidenced by a promissory note dated November 7, 2005, in the amount of $14.8 million. The note bears interest at 5.97% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on November 11, 2015.	$	13,030	$	13,373
Mortgage loan payable to General Electric Capital Corporation ("GECC") evidenced by a promissory note dated December 31, 2007, in the amount of $7.9 million. The note bears interest at three-month LIBOR plus 2.00% (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	4,806	$	5,268
Mortgage loan payable to GECC evidenced by a promissory note dated August 18, 2006, in the amount of $17.9 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until September 1, 2016 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	16,343	$	16,718

	2011		2010
Mortgage loan payable to GECC evidenced by a promissory note dated January 5, 2007, in the amount of $15.6 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until February 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	12,674	$	13,061
Mortgage loan payable to GECC evidenced by a promissory note dated February 6, 2007, in the amount of $3.4 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until March 1, 2017 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.17%.	$	3,173	$	3,239
Mortgage loan payable to GECC evidenced by a promissory note dated May 16, 2007, in the amount of $27.8 million. On May 1, 2008, the Company converted the loan to a fixed rate equal to the seven-year weekly U.S. dollar interest rate swap plus 1.98%. Monthly installments of principal and interest are due until June 1, 2017, when the remaining principal balance is due. The principal amount owing on this loan includes $1.09 million of prepayment fees related to principal prepayments required in connection with hotel sales. GECC has agreed to forbear from requiring payment of such prepayment fees until December 31, 2012. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 7.69%.	$	13,562	$	20,994
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.5 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	1,481	$	1,597
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $2.8 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $2.2 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	1,629	$	1,756
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $4.2 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $3.3 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	2,478	$	2,671

	2011		2010
Mortgage loan payable to Wachovia Bank evidenced by a promissory note dated February 4, 1998, in the amount of $5.1 million, assumed by the Company on April 4, 2007 with a remaining principal balance of $4.0 million. The note bears interest at 7.375% per annum. Principal and interest payments are due in monthly installments with the outstanding principal and interest payable in full on March 1, 2020.	$	3,024	$	3,260
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $6.8 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	6,460	$	6,709
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $3.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	3,228	$	3,352
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008, in the amount of $1.1 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	1,050	$	1,091
Mortgage Loan payable to GECC evidenced by a promissory note dated January 2, 2008 in the amount of $4.4 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 200 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.03%.	$	4,159	$	4,319
Mortgage Loan payable to GECC evidenced by a promissory note dated January 31, 2008 in the amount of $2.5 million. The note bears interest at the 90-day London Interbank Offered Rate plus a margin of 256 basis points (reset monthly). Monthly installments of principal and interest are due until February 1, 2018 when the remaining principal balance is due. On March 16, 2009, the note was amended to increase the interest rate by 100 basis points. It was further amended on November 9, 2009, to increase the interest rate by an additional 0.5%. The rate as of December 31, 2011 was 4.59%.	$	2,363	$	2,449

	2011		2010
Mortgage Loan payable to Elkhorn Valley Bank evidenced by a promissory note, dated March 19, 2009, in the amount of $1.0 million. The note bears interest at 6.5%. Monthly principal and interest payments are due through March 2014, with the balance of the loan payable on April 1, 2014. On September 30, 2011, the balance of the loan was paid in full with proceeds from the sale of the corporate office building.	$	0	$	871
Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated September 20, 2011, in the amount of $0.96 million. The note bears interest at 5.75%. Monthly principal and interest payments are due through September 2013, with the balance of the loan payable on September 15, 2013.	$	943	$	0
Mortgage Loan payable to First National Bank of Omaha evidenced by a promissory note dated January 26, 2010, in the amount of $0.8 million. The note bears interest at the one month London Interbank Offered Rate plus 4.0 percentage points with a 5.0% floor. The rate as of December 31, 2011 was 5.0%. Monthly interest payments are due through maturity, with the balance of the loan due on the maturity date. On March 1, 2012, the maturity of the note was extended to May 1, 2012.	$	840	$	840
Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated June 7, 2011, in the amount of $3.1 million. The note bears interest at 6.25%. Monthly principal and interest payments are due through June 2016, with the balance of the loan payable on June 15, 2016.	$	3,059	$	0
Mortgage loan payable to Elkhorn Valley Bank evidenced by a promissory note dated November 9, 2011, in the amount of $5.0 million. The note bears interest at 5.75%. Monthly interest payments are due through June 2012, with the balance of the loan payable on June 1, 2012. The loan was paid in full on February 3, 2012.	$	3,000	$	0
Total Debt	$	165,845	$	175,010

The long-term debt is secured by 100 and 106 of the Company's hotel properties, as of December 31, 2011 and 2010, respectively. The Company's debt agreements contain requirements as to the maintenance of minimum EBITDA levels, minimum levels of debt service and fixed charge coverage and required loan-to-value ratios and net worth, and place certain restrictions on distributions.

The key financial covenants for certain of our loan agreements and compliance calculations as of December 31, 2011 are discussed below (each such covenant is calculated pursuant to the applicable loan agreement). As of December 31, 2011, we were either in compliance with the financial covenants or obtained waivers for non-compliance (as discussed below). As a result, we are not in default of any of our loans.

Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				37,433
Adjusted NOI per loan agreement (A)			$	19,956
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				6,215
Debt service per loan agreement (B)			$	18,617
Consolidated debt service coverage ratio				1.07:1

* Calculations based on prior four quarters

Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific debt service coverage ratio calculated as follows: *		³0.9:1
Adjusted NOI (A) / Debt service (B)
Net loss per financial statements			$	(17,477	)
Net adjustments per loan agreement				21,105
Adjusted NOI per loan agreement (A)			$	3,628
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				(8,885	)
Debt service per loan agreement (B)			$	3,517
Loan-specific debt service coverage ratio				1.03:1

* Calculations based on prior four quarters

Great Western Bank Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated leverage ratio calculated as follows:		£4.25
Total liabilities (A) / Tangible net worth (B)
Total liabilities per financial statements and loan agreement (A)			$	176,549
Total assets per financial statements				221,172
Total liabilities per financial statements				176,549
Tangible net worth per loan agreement (B)			$	44,623
Consolidated Leverage Ratio:				3.96

The Great Western Bank credit facilities also require maintenance of consolidated and loan-specific loan to value ratios that do not exceed 70% tested annually commencing on December 31, 2012, and that we not pay dividends in excess of 75% of our funds from operations per year. The consolidated and loan-specific debt service coverage ratios for the credit facilities remain at 0.9 to 1, tested quarterly, through June 29, 2012. The consolidated debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through the maturity of the credit facilities. The loan-specific debt service coverage ratio increases to 1.05 to 1, tested quarterly, from June 30, 2012 through December 30, 2012 and 1.20 to 1, tested quarterly, from December 31, 2012 through the maturity of the credit facilities.

The credit facilities with Great Western Bank currently consist of a $12.5 million revolving credit facility and term loans of $14 million, $10 million and $7.5 million. All loans under the credit facilities mature on June 30, 2013. The interest rate on the revolving credit portion of the credit facilities is 5.95% and the interest rate on the term loan portion of the credit facilities is 6.00%.

The credit facilities provide for $12.5 million of availability under the revolving credit facility through June 30, 2012, after which the loans available to us through the revolving credit facility and term loans may not exceed the lesser of (a) an amount equal to 70% of the total appraised value of the hotels securing the credit facilities and (b) an amount that would result in a loan-specific debt service coverage ratio of less than 1.05 to 1 from July 1, 2012 through December 30, 2012 and 1.20 to 1 from December 31, 2012 through the maturity of the credit facilities. The credit facilities require a $500 reduction in the availability of the revolving credit facility by September 30, 2012 and an additional $500 reduction by December 31, 2012.

GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Consolidated debt service coverage ratio calculated as follows: *		³1.05:1
Adjusted EBITDA (A) / Debt service (B)
Net loss per financial statements				(17,477	)
Net adjustments per loan agreement				35,832
Adjusted EBITDA per loan agreement (A)			$	18,355
Interest expense per financial statements - continuing operations				8,685
Interest expense per financial statements - discontinued operations				3,717
Total interest expense per financial statements			$	12,402
Net adjustments per loan agreement				5,063
Debt service per loan agreement (B)				17,465
Consolidated debt service coverage ratio				1.05:1

* Calculations based on prior four quarters

GE Covenants	December 31, 2011 Requirement		December 31, 2011 Calculation
Loan-specific total adjusted EBITDA calculated as follows: *		³$3.9 million
Net loss per financial statements				(17,477	)
Net adjustments per loan agreement				22,273
Loan-specific total adjusted EBITDA			$	4,796

* Calculations based on prior four quarters

On March 29, 2012, our credit facilities with General Electric Capital Corporation (GE) were amended to replace existing financial covenant requirements with new financial covenant requirements. The new financial covenants require that, through the term of the loans, we maintain: (a) a minimum before dividend fixed charge coverage ratio (FCCR) with respect to our GE-encumbered properties (based on a rolling 12-month period) of 0.85:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2015; (b) a maximum loan to value ratio with respect to our GE-encumbered properties of 100% as of March 31, 2012, which requirement decreases quarterly thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.95:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.00:1 as of December 31, 2013.

The GE amendment, among other things, also: (a) shortens the maturity date of the loans secured by the Masters Inn hotels and Savannah Suites hotels to December 31, 2014; (b) requires a principal prepayment of $7 million on or before December 31, 2012; (c) provides that the previous increases to the interest rates on the loans will remain in effect and will not be reduced in the future if we achieve a particular FCCR; (d) adds cross-default provisions with our other material debt and most favored lender provisions; and (e) implements restrictions on the prepayment of other debt.

In May 2008, we converted the interest rates on certain of our GE loans to fixed rates. Because interest rates have since decreased, there are yield maintenance costs associated with prepayments of those loans. The yield maintenance cost associated with the most recent Masters Inn sale was 16.5% of the amount prepaid. The GE amendment implements fixed prepayment fees on the loans secured by the Masters Inn hotels and Savannah Suites hotels (in lieu of the yield maintenance costs) which start at 2.5% of the amount prepaid in 2012 and increase over time up to 10% of the amount prepaid.

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 and GE credit facilities contain cross-default provisions which would allow Great Western Bank and GE to declare a default and accelerate our indebtedness to them if we default on our other loans, and such default would permit that lender to accelerate our indebtedness under any such loan. We are not in default of any of our loans.

At December 31, 2011, we had long-term debt of $131.3 million associated with assets held for use, consisting of notes and mortgages payable, with a weighted average term to maturity of 3.5 years and a weighted average interest rate of 6.37%. The weighted average fixed rate was 6.9%, and the weighted average variable rate was 4.7%. Debt held on properties in continuing operations is classified as held for use. Debt is classified as held for sale if the properties collateralizing it are included in discontinued operations. Debt associated with assets held for sale is classified as a short-term liability due within the next year irrespective of whether the notes and mortgages evidencing such debt mature within the next year. Aggregate annual principal payments on debt associated with assets held for use for the next five years and thereafter, and debt associated with assets held for sale, are as follows:

	Held For Sale		Held For Use		TOTAL
2012	$	34,500	$	57,330	$	91,830
2013		—		3,537		3,537
2014		—		3,763		3,763
2015		—		15,434		15,434
2016		—		18,656		18,656
Thereafter		—		32,625		32,625
	$	34,500	$	131,345	$	165,845

At December 31, 2011, the Company had $91.8 million of principal due in 2012. Of this amount, $76.7 million of the principal due is associated with either assets held for use or assets held for sale, and matures in 2012 pursuant to the notes and mortgages evidencing such debt. The remaining $15.1 million is associated with assets held for sale and is not contractually due in 2012 unless the related assets are sold. The maturities comprising the $76.7 million consist of:

• a $7.5 million balance on a term loan with Great Western Bank;

• a $9.8 million balance on a term loan with Great Western Bank;

• a $9.2 million balance on a term loan with Great Western Bank;

• a $10.5 million balance on a revolving line of credit with Great Western Bank;

• a $29.4 million balance on the loan with Greenwich Capital;

• a $0.8 million note payable to First National Bank of Omaha;

• a $3.0 million balance on a revolving credit facility with Elkhorn Valley Bank;

• a $2.1 million note payable to Fredericksburg North Investors, LLC;

• a $1.1 million balance on a note payable to General Electric Capital Corporation; and

• approximately $3.3 million of principal amortization on mortgage loans.

The carrying value and estimated fair value of the Company's debt, as of December 31, 2011, are presented in the table below:

	Carrying Value				Estimated Fair Value
	December 31,				December 31,
	2011		2010		2011		2010
Continuing operations	$	131,345	$	132,271	$	133,172	$	136,444
Discontinued operations		34,500		42,739		35,274		44,417
Total	$	165,845	$	175,010	$	168,446	$	180,861

The fair values were estimated by discounting future cash payments to be made at rates that approximate rates currently offered for loans with similar maturities.

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 8. Income Taxes

The RMA was included in the Tax Relief Extension Act of 1999, which was enacted into law on December 17, 1999. The RMA includes numerous amendments to the provisions governing the qualification and taxation of REITs, and these amendments were effective January 1, 2001. One of the principal provisions included in the Act provides for the creation of TRS. TRS's are corporations that are permitted to engage in nonqualifying REIT activities. A REIT is permitted to own up to 100% of the voting stock in a TRS. Previously, a REIT could not own more than 10% of the voting stock of a corporation conducting nonqualifying activities. Relying on this legislation, in November 2001, the Company formed the TRS Lessee.

As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income of a TRS is subject to federal, state and local income taxes.

In connection with the Company's election to be taxed as a REIT, it has also elected to be subject to the "built-in gain" rules on the assets formerly held by the old Supertel. Under these rules, taxes will be payable at the time and to the extent that the net unrealized gains on assets at the date of conversion to REIT status are recognized in taxable dispositions of such assets in the ten-year period following conversion. The ten-year period ended November 1, 2011.

At December 31, 2011, the income tax bases of the Company's assets and liabilities excluding those of TRS were approximately $237,775 and $150,572, respectively; at December 31, 2010, they were approximately $263,706 and $166,997, respectively.

The TRS net operating loss carryforward from December 31, 2011 as determined for federal income tax purposes was approximately $14.6 million. The availability of such loss carryforward will begin to expire in 2022.

Income tax benefit from continuing operations for the years ended December 31, 2011, 2010 and 2009 consists of the following:

	2011									2010									2009
	Federal			State			Total			Federal			State			Total			Federal			State			Total
Deferred tax benefit		(536	)		(102	)		(638	)		(396	)		(76	)		(472	)		(242	)		(53	)		(295	)
Total income tax benefit	$	(536	)	$	(102	)	$	(638	)	$	(396	)	$	(76	)	$	(472	)	$	(242	)	$	(53	)	$	(295	)

The actual income tax benefit from continuing operations of the TRS for the years ended December 31, 2011, 2010 and 2009 differs from the "expected" income tax benefit (computed by applying the appropriate U.S. federal income tax rate of 34% to earnings before income taxes) as a result of the following:

	2011			2010			2009
Computed "expected" income tax benefit	$	(571	)	$	(465	)	$	(254	)
State income taxes, net Federal income tax benefit		(67	)		(55	)		(35	)
Other		—			48			(6	)
Total income tax benefit	$	(638	)	$	(472	)	$	(295	)

The continuing and discontinued combined tax effects of temporary differences that give rise to significant portions of the deferred tax assets and the deferred tax liability at December 31, 2011, 2010 and 2009 are as follows:

	2011		2010		2009
Deferred Tax Assets:
Expenses accrued for consolidated financial statement purposes, nondeductible for tax return purposes	$	326	$	297	$	281
Net operating losses carried forward for federal income tax purposes		5,524		3,827		2,511
Total deferred tax assets		5,850		4,124		2,792
Deferred Liabilities:
Tax depreciation in excess of book depreciation		240		418		843
Total deferred tax liabilities		240		418		843
Net deferred tax assets	$	5,610	$	3,706	$	1,949

The TRS has estimated its income tax benefit using a combined federal and state rate of approximately 38%. As of the year ended 2011, 2010 and 2009 the TRS had deferred tax assets of $5.9 million, $4.1 million and $2.8 million, respectively, primarily due to current and past years' tax net operating losses. These loss carryforwards will begin to expire in 2022 through 2031. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers projected scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. These estimates of future taxable income inherently require significant judgment. Management uses historical experience and short and long-range business forecasts to develop such estimates. Further, we employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent management does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material impact on our financial condition and results of operations. Based on consideration of these items, management has determined that no valuation allowance is required.

Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate based on the facts and circumstances at the time while the actual effective rate is calculated at year end. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. There is no valuation allowance at December 31, 2011, 2010 or 2009. As of December 31, 2011, the tax years that remain subject to examination by major tax jurisdictions generally include 2007 through 2011.

Dividends Paid

There were no dividends paid during the years ended December 31, 2011 and 2010. Dividends paid were $0.08 per share during the year ended December 31, 2009; of which $0.053 represented capital gain distribution and $0.027 represented a nondividend distribution to shareholders.

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Redeemable Preferred Stock

12 Months Ended

Dec. 31, 2011

Redeemable Preferred Stock [Abstract]

Redeemable Preferred Stock

Note 10. Redeemable Preferred Stock

On June 3, 2008 the Company offered and sold 332,500 shares of 10.0% Series B Cumulative Preferred Stock. The shares were sold for $25.00 per share and bear a liquidation preference of $25.00 per share. Underwriting and other costs of the offering totaled approximately $0.6 million to the Company. The net proceeds plus additional cash were used by the Company to pay an $8.5 million bridge loan with General Electric Capital Corporation. At December 31, 2011, 332,500 shares of 10.0% Series B preferred stock remained outstanding.

Dividends on the Series B preferred stock are cumulative and are payable quarterly in arrears on each March 31, June 30, September 30 and December 31, or, if not a business day, the next succeeding business day, at the annual rate of 10.0% of the $25.00 liquidation preference per share, equivalent to a fixed annual amount of $2.50 per share. Dividends on the Series B preferred stock accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series B preferred stock will not bear interest.

The Series B preferred stock will, with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, rank senior to the Company's common stock, senior to all classes or series of preferred stock issued by the Company and ranking junior to the Series B preferred stock with respect to dividend rights or rights upon the Company's liquidation, dissolution or winding up, on a parity with the Company's Series A preferred stock and with all classes or series of preferred stock issued by the Company and ranking on a parity with the Series B preferred stock with respect to dividend rights or rights upon the Company's liquidation, dissolution or winding up and junior to all of the Company's existing and future indebtedness.

The Company will not pay any distributions, or set aside any funds for the payment of distributions, on its common shares, unless it has also paid (or set aside for payment) the full cumulative distributions on the preferred shares for the current and all past dividend periods. The Series B preferred stock has no stated maturity and is not subject to any sinking fund or mandatory redemption.

The Series B preferred stock is not redeemable prior to June 3, 2013, except in certain limited circumstances relating to the maintenance of the Company's ability to qualify as a REIT as provided in the Company's articles of incorporation or a change of control (as defined in the Company's amendment to its articles of incorporation establishing the Series B preferred stock). The Company may redeem the Series B preferred stock, in whole or in part, at any time or from time to time on or after June 3, 2013 for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends. Also, upon a change of control, each outstanding share of the Company's Series B preferred stock will be redeemed for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends. At December 31, 2011, no events have occurred that would lead the Company to believe redemption of the preferred stock, due to a change of control or failure to maintain its REIT qualification, is probable.

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Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

Note 15. Subsequent Events

On January 20, 2012, the Company sold a Super 8 in Fayetteville, AR (83 rooms) for approximately $1.56 million with a $0.4 million gain. The proceeds were used primarily to reduce a term loan with Great Western Bank.

On February 21, 2012, the Company amended its credit facilities with Great Western Bank to extend the maturity date of all loans to June 30, 2013.

On September 21, 2011, the Company received a notice from The NASDAQ Stock Market stating that the minimum bid price of its common stock was below $1.00 per share for 30 consecutive business days and that the Company was therefore not in compliance with Marketplace Rule 5450(a)(1). The notification letter had no effect at that time on the listing of the Company's common stock on The NASDAQ Global Market. The Company's common stock continued to trade on The NASDAQ Global Market under the symbol SPPR.

On February 16, 2012, the Company received a notice from The NASDAQ Listing Qualifications that the staff had determined that for the last 10 consecutive business days, from February 2, 2012 to February 15, 2012, the closing bid price of the Company's common stock has been at $1.00 per share or greater. The staff advised that the Company has regained compliance with Listing Rule 5450(a)(1) and this matter is now closed.

The Company entered into a Purchase Agreement dated November 16, 2011 for the issuance and sale of Supertel's Series C Cumulative Convertible Preferred Stock (the "Series C preferred stock") and warrants under a private transaction to Real Estate Strategies, L.P. ("RES"). On January 31, 2012 at a special meeting, the shareholders of Supertel, by the requisite vote, approved the issuance and sale of up to 3,000,000 shares of the Series C preferred stock of Supertel, up to 30,000,000 shares of common stock of Supertel which may be issued upon conversion of the Series C preferred stock, and warrants to purchase up to an additional 30,000,000 shares of common stock, to RES pursuant to the Purchase Agreement. In two closings on February 1, 2012 and February 15, 2012, the Company completed the sale to RES of 3,000,000 shares of Series C preferred stock and warrants to purchase 30,000,000 shares of common stock at an exercise price of $1.20 per common share.

Each share of Series C preferred stock is entitled to a dividend of $0.625 per year payable in equal quarterly dividends. Each share of Series C preferred stock has a liquidation preference of $10.00 per share, in cash, plus an amount equal to any accrued and unpaid dividends.

The Series C preferred stock is convertible, at the option of the holder, at any time into common stock at a conversion price of $1.00 for each share of common stock, which is equal to the rate of ten shares of common stock for each share of Series C preferred stock. A holder of Series C preferred stock will not have conversion rights to the extent the conversion would cause the holder and its affiliates to beneficially own more than 34% of voting stock (the "Beneficial Ownership Limitation"). "Voting stock" means capital stock having the power to vote generally for the election of directors of the Company.

The Series C preferred stock will vote with the common stock as one class, subject to certain voting limitations. For any vote, the voting power of the Series C preferred stock will be equal to the lesser of: (a) 6.29 votes per share, or (b) an amount of votes per share such that the vote of all shares of Series C preferred stock in the aggregate equal 34% of the combined voting power of all the Company voting stock, minus an amount equal to the number of votes represented by the other shares of voting stock beneficially owned by RES and its affiliates (the "Voting Limitation").

As long as RES has the right to designate two or more directors to the Company Board of Directors pursuant to the Directors Designation Agreement (described below), the following requires the approval of RES and IRSA:

• the merger, consolidation, liquidation or sale of substantially all of the assets of the Company;

• the sale by the Company of common stock or securities convertible into common stock equal to 20% or more of the outstanding common stock or voting stock; or

• any Company transaction of more than $120,000 in which any of its directors or executive officers or any member of their immediate family will have a material interest, exclusive of employment compensation and interests arising solely from the ownership of the Company equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis.

On February 1, 2012 and February 15, 2012, in connection with the purchase of the Series C preferred stock, the Company issued and RES received warrants ("Warrants") to purchase 30,000,000 shares of the Company's common stock. Subject to the Beneficial Ownership Limitation, the Warrants are exercisable at any time on or before January 31, 2017 at an exercise price of $1.20 per share of common stock. The exercise price may be paid in cash, or the holder may also elect to pay the exercise price by having the Company withhold a sufficient number of shares from the exercise with a market value equal to the exercise price.

The Company, with the unanimous approval of the Board of Directors, entered into an Investor Rights and Conversion Agreement (the "Investor Rights and Conversion Agreement") dated February 1, 2012 with RES and IRSA pursuant to which the Company granted RES and its affiliates and their respective subsidiaries, among other rights, the right to purchase equity shares or securities convertible into equity shares in future Company offerings on a pro rata basis based on their combined ownership of common stock and Series C preferred stock, provided that such purchase would not cause RES and its affiliates to exceed the Beneficial Ownership Limitation. In the agreement, RES agreed to certain standstill provisions including that neither RES nor its affiliates will acquire any securities that would result in RES and its affiliates owning more than 34% of the voting stock of the Company.

The Company, with the unanimous approval of the Board of Directors, entered into a registration rights agreement (the "Registration Rights Agreement") dated February 1, 2012 with RES and IRSA. The Registration Rights Agreement requires the Company to register for resale by the holders the common stock issued upon conversion of the Series C preferred stock and upon exercise of the Warrants, and the Warrants and the Series C preferred stock. The Registration Rights Agreement also grants RES the right to participate in certain future underwritten offerings of securities by the Company.

The Company, with the unanimous approval of the Board of Directors, entered into a directors designation agreement (the "Directors Designation Agreement") dated February 1, 2012 with RES and IRSA pursuant to which the Company will appoint up to four directors designated by RES and IRSA to the Company Board of Directors and to maintain the Company Board of Directors at no more than nine members. Messrs. Elsztain, Friend, Landry, and Sabin have been appointed to the Board of Directors pursuant to the agreement.

Pursuant to the agreement, RES agreed to vote for the election of the current Board of Directors who remain on the Board of Directors and their successors as nominated by the nominating committee of the Board of Directors. One of the directors designated by RES will be appointed to the nominating committee. As long as RES beneficially owns 7% or more of the voting power of the capital stock of the Company, the RES designees will be nominated and recommended for election at each annual meeting of the Company shareholders.

On February 3, 2012, the Company paid in full the $5.0 million balance on the revolving credit facility with Elkhorn Valley Bank, with a portion of the net proceeds from the sale of the Series C preferred stock.

On February 16, 2012, the Company paid in full the $2.1 million note payable to Fredericksburg North Investors, LLC, with a portion of the net proceeds from the sale of the Series C preferred stock.

On March 1, 2012 the Company amended its credit facility with First National Bank of Omaha to extend the maturity date to May 1, 2012.

On March 29, 2012, the Company amended its credit facilities with General Electric Capital Corporation to replace existing financial covenant requirements with new financial covenant requirements. The new financial covenants require that, through the term of the loans, the Company maintain: (a) a minimum before dividend fixed charge coverage ratio (FCCR) with respect to its GE-encumbered properties (based on a rolling 12-month period) of 0.85:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2015; (b) a maximum loan to value ratio with respect to its GE-encumbered properties of 100% as of March 31, 2012, which requirement decreases quarterly thereafter to 60% as of December 31, 2015; (c) a minimum before dividend consolidated FCCR (based on a rolling 12-month period) of 0.95:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.30:1 as of December 31, 2014; and (d) a minimum after dividend consolidated FCCR (based on a rolling 12-month period) of 0.75:1 as of March 31, 2012, which requirement increases quarterly thereafter to 1.00:1 as of December 31, 2013.

The GE amendment, among other things, also: (a) shortens the maturity date of the loans secured by the Masters Inn hotels and Savannah Suites hotels to December 31, 2014; (b) requires a principal prepayment of $7 million on or before December 31, 2012; (c) provides that the previous increases to the interest rates on the loans will remain in effect and will not be reduced in the future if the Company achieves a particular FCCR; (d) adds cross-default provisions with the Company's other material debt and most favored lender provisions; and (e) implements restrictions on the prepayment of other debt.

In May 2008, the Company converted the interest rates on certain of its GE loans to fixed rates. Because interest rates have since decreased, there are yield maintenance costs associated with prepayments of those loans. The yield maintenance cost associated with the most recent Masters Inn sale was 16.5% of the amount prepaid. The GE amendment implements fixed prepayment fees on the loans secured by the Masters Inn hotels and Savannah Suites hotels (in lieu of the yield maintenance costs) which start at 2.5% of the amount prepaid in 2012 and increase over time up to 10% of the amount prepaid.

On March 27, 2012, the Company sold a Super 8 in Muscatine, LA (63 rooms) for approximately $1.3 million. The proceeds were used primarily to reduce a term loan with Great Western Bank, with the remaining amount used to reduce the revolving line of credit with Great Western Bank.

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Consolidated Statements Of Equity (USD $) In Thousands	Preferred Stock [Member]	Common Stock Warrants [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Distributions In Excess Of Retained Earnings [Member]	Total Shareholder Equity [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2008	$ 8		$ 209	$ 112,804	$ (25,551)	$ 87,470	$ 8,064	$ 95,534
Deferred compensation				6		6		6
Conversion of OP Units			11	7,343		7,354	(7,354)
Preferred dividends					(1,474)	(1,474)		(1,474)
Net loss					(27,395)	(27,395)	(302)	(27,697)
Balance at Dec. 31, 2009	8		220	120,153	(54,420)	65,961	408	66,369
Deferred compensation				30		30		30
Common stock offerings		252	9	1,201		1,462		1,462
Preferred dividends					(1,474)	(1,474)		(1,474)
Net loss					(10,585)	(10,585)	(73)	(10,658)
Balance at Dec. 31, 2010	8	252	229	121,384	(66,479)	55,394	335	55,729
Deferred compensation				29		29		29
Common stock offerings			1	88		89		89
Conversion of OP Units			1	118		119	(119)
Preferred dividends					(1,474)	(1,474)		(1,474)
Net loss					(17,445)	(17,445)	(81)	(17,526)
Balance at Dec. 31, 2011	$ 8	$ 252	$ 231	$ 121,619	$ (85,398)	$ 36,712	$ 135	$ 36,847

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Investments In Hotel Properties

12 Months Ended

Dec. 31, 2011

Investments In Hotel Properties [Abstract]

Investments In Hotel Properties

Note 4. Investments in Hotel Properties

Investments in hotel properties consisted of the following at December 31:

	2011						2010
	Held For Sale		Held For Use		TOTAL		Held For Sale		Held For Use		TOTAL
Land	$	6,367	$	31,624	$	37,991	$	9,390	$	33,585	$	42,975
Acquired below market lease intangibles		69		883		952		69		883		952
Buildings, improvements, vehicle		34,277		180,546		214,823		48,246		192,157		240,403
Furniture and equipment		10,917		42,051		52,968		12,449		41,269		53,718
Construction-in-progress		52		367		419		119		213		332
		51,682		255,471		307,153		70,273		268,107		338,380
Less accumulated depreciation		18,682		79,236		97,918		20,427		77,719		98,146
	$	33,000	$	176,235	$	209,235	$	49,846	$	190,388	$	240,234

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Supplementary Data

12 Months Ended

Dec. 31, 2011

Supplementary Data [Abstract]

Supplementary Data

Note 14. Supplementary Data

The following tables present our unaudited quarterly results of operations for 2011 and 2010:

	Quarters Ended (unaudited)
	March 31,			June 30,			September 30,			December 31,			YTD
	2011			2011			2011			2011			2011
2011
Revenues	$	16,159		$	20,460		$	21,678		$	17,530		$	75,827
Expenses		16,823			18,182			18,902			16,965			70,872
Earnings (loss) before net gains (losses) on disposition of assets, other income, interest expense and income taxes		(664	)		2,278			2,776			565			4,955
Net gain (losses) on dispositions of assets		(5	)		(8	)		1,143			(1	)		1,129
Other income		85			20			2			—			107
Interest		(2,326	)		(2,143	)		(2,039	)		(2,177	)		(8,685	)
Impairment		—			(4,105	)		(2,044	)		(2,396	)		(8,545	)
Termination cost		(540	)		—			—			—			(540	)
Loss from continuing operations before income taxes		(3,450	)		(3,958	)		(162	)		(4,009	)		(11,579	)
Income tax expense (benefit)		(626	)		119			157			(288	)		(638	)
Loss from continuing operations		(2,824	)		(4,077	)		(319	)		(3,721	)		(10,941	)
Loss from discontinued operations, net of tax		(887	)		(35	)		(1,085	)		(4,529	)		(6,536	)
Net loss		(3,711	)		(4,112	)		(1,404	)		(8,250	)		(17,477	)
Noncontrolling interest		11			3			(8	)		26			32
Net loss attributable to controlling interests		(3,700	)		(4,109	)		(1,412	)		(8,224	)		(17,445	)
Preferred stock dividend		(368	)		(369	)		(369	)		(368	)		(1,474	)
Net loss attributable to common shareholders	$	(4,068	)	$	(4,478	)	$	(1,781	)	$	(8,592	)	$	(18,919	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
EPS from continuing operations	$	(0.14	)	$	(0.20	)	$	(0.03	)	$	(0.17	)	$	(0.54	)
EPS from discontinued operations*	$	(0.04	)	$	(0.00	)	$	(0.05	)	$	(0.20	)	$	(0.28	)
EPS Basic and Diluted*	$	(0.18	)	$	(0.20	)	$	(0.08	)	$	(0.37	)	$	(0.82	)

* Quarterly EPS data does not add to total year, due to rounding

	Quarters Ended (unaudited)
	March 31,			June 30,			September 30,			December 31,			YTD
	2010			2010			2010			2010			2010
2010
Revenues	$	15,647		$	20,544		$	21,847		$	17,262		$	75,300
Expenses		16,407			18,185			18,984			16,842			70,418
Earnings before net gains (losses) on disposition of assets, other income, interest expense, and income taxes		(760	)		2,359			2,863			420			4,882
Net losses on dispositions of assets		(16	)		(23	)		(16	)		(11	)		(66	)
Other income		27			34			31			30			122
Interest		(2,203	)		(2,198	)		(2,192	)		(2,301	)		(8,894	)
Impairment		—			(2,147	)		—			—			(2,147	)
Earnings (loss) from continuing operations before income taxes		(2,952	)		(1,975	)		686			(1,862	)		(6,103	)
Income tax expense (benefit)		(521	)		146			223			(320	)		(472	)
Earnings (loss) from continuing operations		(2,431	)		(2,121	)		463			(1,542	)		(5,631	)
Loss from discontinued operations, net of tax		(586	)		(1,554	)		(554	)		(2,277	)		(4,971	)
Net loss		(3,017	)		(3,675	)		(91	)		(3,819	)		(10,602	)
Noncontrolling interest		7			11			(13	)		12			17
Net loss attributable to controlling interests		(3,010	)		(3,664	)		(104	)		(3,807	)		(10,585	)
Preferred stock dividend		(368	)		(369	)		(368	)		(369	)		(1,474	)
Net loss attributable to common shareholders	$	(3,378	)	$	(4,033	)	$	(472	)	$	(4,176	)	$	(12,059	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
EPS from continuing operations *	$	(0.13	)	$	(0.11	)	$	0.00		$	(0.08	)	$	(0.31	)
EPS from discontinued operations *	$	(0.02	)	$	(0.07	)	$	(0.02	)	$	(0.10	)	$	(0.22	)
EPS Basic and Diluted	$	(0.15	)	$	(0.18	)	$	(0.02	)	$	(0.18	)	$	(0.53	)

* Quarterly EPS data does not add to total year, due to rounding