Interview With Supertel Hospitality CFO Donavon Heimes

| About: Condor Hospitality (CDOR)

On July 14, The Wall Street Transcript interviewed Donavon A. Heimes, Chief Financial Officer and Secretary of Supertel Hospitality, Inc. (SPPR). Key excerpts follow:

TWST: May we start with a short overview of your company and a brief history?

Mr. Heimes: Supertel Hospitality, Inc., is a real estate investment trust. We specialize in and focus on owning mid-scale limited-service hotels, economy hotels and economy extended stay. The company had its beginning in the late 1970s by developing, owning and managing Super 8 hotels, primarily in the central and upper Midwest. In 1999, Supertel attained real estate investment trust [REIT] status by merging into Humphrey Hospitality, which owned hotels along the eastern and southern seaboards. We focus on the limited-service and economy segments, the limited-service sectors without food and beverage. We are the only publicly traded REIT that focuses exclusively on these spaces.

TWST: What impact has the economy had thus far in the performance of these hotels, particularly in terms of occupancy patterns, room rates and RevPAR?

Mr. Heimes: Over the last several years, the industry, and certainly our portfolio, as well, has experienced solid growth — growth in occupancy as well as some fairly aggressive growth in room rate, which has translated into healthy annual increases in RevPAR. Beginning in the latter part of 2007, the industry, and our portfolio as well, began to see some softening in occupancy and some less aggressive increases in room rate, which has resulted in more modest increases in RevPAR. As we go into 2008, we are seeing a continuation of that softness, although our economy properties have performed quite well compared to the industry. Some of our strength in the first quarter is due to the location of a fair number of our economy properties in the Midwest, a region that benefited somewhat from the better performing agricultural community.

How are you continuing your exposure to operating costs because of higher energy prices?

Mr. Heimes:
Higher energy prices certainly are a concern in all sectors, all industries, not only hospitality, and we certainly are aware of those costs. Our properties, our General Managers, our management companies are all very focused on conserving energy and controlling those costs where at all possible without affecting the comfort of our guests. There also are other programs that can help reduce the overall cost of energy, such as sensors in rooms to reduce energy output when the room is not in use, and we are taking a look at all of the available options to control that particular cost line item.

TWST: Looking ahead, what is the strategy for growth?

Mr. Heimes: We will continue to be opportunistic acquirers of properties that fit our sectors. We acquired 10 properties in the first quarter of 2008. We continue to see opportunities that are available, and we anticipate that they will continue to be available in the future, particularly as more buyers move to the sidelines. We do not have any set target as far as the number of properties to acquire, but we will remain opportunistic and act when the economics are compelling.

TWST: How would you characterize your balance sheet and access to capital and credit?

Mr. Heimes: We consider our balance sheet to be strong. We just completed a financing transaction where we took $64 million of our floating rate debt and fixed it at 5.9% average for about a seven-year period. We recently issued $7.5 million of preferred equity, and about 15 months ago we issued approximately $50 million of common stock. We've continued to have very good relationships with several different lenders and believe that we will have ready access to the debt markets for appropriate opportunities. However, it will likely be more costly than in the recent past. By the same token, the basis or structuring of our current debt financing is relatively low, so it still can be attractive using debt prudently as a source to fund growth opportunities.

TWST: What is Supertel's dividend policy? I notice you have a very high yield of around 10%, given your current stock price.

Mr. Heimes: That is correct. Our current dividend yield is approximately 10%. Our Board reviews the dividend policy on a quarterly basis. We have increased our dividend from $0.03 a quarter in 2003 to its current level of $0.1275 per quarter. That's a significant increase in dollars and more than 30% on an annual compounded growth basis. Our dividend growth policy has been reflective of our ability to acquire good properties and grow the portfolio at a rather aggressive pace.

TWST: What are some of the most compelling reasons for investors to own shares of your company?

Mr. Heimes: I think that we have demonstrated that we've got a management team that understands the sectors that we are operating in. We've proven that we can grow the company and grow the company rather significantly. In 2007 alone, our revenues were up 44% above those of 2006, our EBITDA was up 40%, our FFO dollars were up 37%, and all those increases are largely due to the acquisitions that we were able to complete and incorporate into our operations in our portfolio. We've had a consistent dividend policy and the dividend is well covered. Based on the current price of our stock, the dividend yield, as we've mentioned earlier, is 10%, and we think that's a compelling reason for investors to look at opportunities to invest in our stock.