929545--3/22/2007--SUPERTEL_HOSPITALITY

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{acquisition, growth, future}

{tax, income, asset}

{loan, real, estate}

{provision, law, control}

{condition, economic, financial}

{cost, contract, operation}

{debt, indebtedness, cash}

{stock, price, share}

{operation, natural, condition}

{personnel, key, retain}

{control, financial, internal}

{cost, regulation, environmental}

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Risks Related to Our Business We cannot assure you that we will qualify, or Our returns depend on management of our hotels by third parties. Failure of the hotel industry to continue to improve may adversely affect our ability to execute our business strategies, which, in turn, would adversely affect our ability to make distributions to our stockholders. 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. Our TRS lessee structure subjects us to the risk of increased operating expenses. 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. Our ability to make distributions to our stockholders is subject to fluctuations in our financial performance, operating results and capital improvement requirements. We have restrictive debt covenants that could adversely affect our ability to run our business. Our restrictive debt covenants may jeopardize our tax status as a REIT. Our failure to have distributed the former Supertel s earnings and profits may compromise our tax status. Because we have elected to be subject to the built-in gain rules associated with our REIT election, our sale of assets acquired in our 1999 merger with the former Supertel will be taxable if sold within ten years of the merger. Operating our hotels under franchise agreements could adversely affect distributions to our shareholders. Our inability to obtain financing could limit our growth. We may not be able to complete development of new hotels on time or within budget. 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. 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. Our business could be disrupted if we need to find a new manager upon termination of an existing management agreement. If we decide to sell hotels, we may not be able to sell those hotels on favorable terms. Geographic concentration of our hotels will make our business vulnerable to economic downturns in the Midwestern and Eastern United States. 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. An economic recession and industry downturn could adversely affect our results of operations. Our borrowing costs are sensitive to fluctuations in interest rates. Future acquisitions may not yield the returns expected, may result in disruptions to our business, may strain management resources and may result in stockholder dilution. We depend on key personnel. Beginning with our fiscal year ending December 31, 2007, we will be subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We could incur significant costs relating to our compliance with Section 404. 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. 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. Uninsured and underinsured losses could adversely affect our operating results and our ability to make distributions to our stockholders. The hotel business is capital intensive, and our inability to obtain financing could limit our growth. Noncompliance with governmental regulations could adversely affect our operating results. 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. Our hotels may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem. 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. 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. Complying with REIT requirements may force us to liquidate otherwise attractive investments, which could result in an overall loss on our investments. Taxation of dividend income could make our common stock less attractive to investors and reduce the market price of our common stock. Provisions of our charter may limit the ability of a third party to acquire control of our company. Our ownership limitation may prevent you from engaging in certain transfers of our capital stock. We may be subject to the 100% prohibited transaction tax on the gain recognized on the hotels we sold between 2001 and 2004. The ability of our board of directors to change our major corporate policies may not be in your interest.

Full 10-K form ▸

929545--3/22/2007--SUPERTEL_HOSPITALITY_INC