Choice Hotels Reports 2nd Quarter Recurring Diluted EPS Increases 19%

SILVER SPRING, Md. (July 23, 2001) - Choice Hotels International, Inc. (NYSE: CHH), the world`s second largest hotel franchisor, today reported second quarter 2001 recurring net income of $14.4 million, or $0.32 recurring diluted earnings per share (EPS), compared to the $14.3 million in recurring net income and $0.27 recurring diluted EPS reported for second quarter 2000.


“We are pleased that our second quarter results exceeded analysts` expectations, particularly in an economic environment that has challenged us and our strongest competitors,” said Charles A. Ledsinger, Jr., president and chief executive officer. “Our franchising business continues to generate strong cash flow and the predictability of our long-term contracts makes Choice much less susceptible to economic cycles than owner-operator competitors.”


He continued, “Total revenues grew 10% in the second quarter and have grown 8% so far this year, despite slow industry growth. Our continued emphasis on technology, brand improvement and operational efficiencies has translated into solid financial performance.”


The company also announced that it is comfortable with the consensus estimate for 2001 diluted recurring EPS of $1.28, excluding potential equity or impairment losses on its investment in Friendly Hotels plc. Choice also anticipates that third quarter 2001 diluted EPS should reach the consensus estimate of $0.43.


In addition, the company expressed its comfort with the consensus of diluted recurring EPS of $1.44 for 2002, given the current number of shares outstanding.

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Ledsinger concluded, “As a service business providing value to our franchisees, we continue to use our size and scale to improve business performance while evaluating other opportunities. We remain keenly focused on generating system growth and driving shareholder value with the goal of leveraging our position as a services company with well-known consumer brands.”


Second Quarter Results:
Recurring earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $29.4 million for the second quarter and $49.7 million for the first six months of 2001, respective increases of 8.5% and 6.9% over the $27.1 million for second quarter 2001 and $46.5 million for the first half of 2000. EBITDA margins remain consistent at 65% for the second quarter and 63% for the year-to-date through June 30.


The company reported royalty revenues of $36.0 million for second quarter 2001, compared to $34.3 million for second quarter 2000, an increase of 5.0%. The system-wide domestic effective royalty rate increased from 3.79% in second quarter 2000 to 3.94% for the second quarter of 2001. Domestic revenue per available room (RevPAR) was $37.10 for the second quarter of 2001, compared to $37.28 for the same period a year ago.


For the first six months of 2001, Choice reported recurring net income of $23.2 million or $0.51 recurring diluted EPS versus recurring net income of $24.2 million and $0.45 recurring diluted EPS for the first six months of 2000.


Royalty revenues for the first half of 2001 increased 6.4% to $63.0 million from the $59.2 million for the same period of a year ago. The system-wide domestic effective royalty rate increased 10 basis points for the first six months of 2001 to 3.91% from 3.81% for the same period a year ago. Domestic RevPAR also was up 2.0% from $32.17 for the first half of 2000 to $32.82 for the first six months of 2001.


During the three months ended June 30, 2001, the company recorded an equity loss of $0.8 million related to changes in its equity investment in Friendly Hotels plc. The equity loss is excluded from the company`s recurring net income and recurring diluted EPS. In the event that Friendly has future liquidity issues, the company does not intend to fund future losses.


Notable Events:
* The company announced on July 17 that it has been authorized by its Board of Directors to repurchase up to an additional five million shares of common stock. Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 19.7 million shares of common stock at an average price of $14.50 and a total cost of $285.9 million, asof July 20, 2001. Since January 1, 2001, the company has purchased 10.6 million shares of common stock. Total shares outstanding as of July 20, 2001 are 43.0 million.
* Moody`s Investor Service confirmed its investment grade debt ratings for Choice and upgraded its rating outlook from negative to stable.
* The company completed refinancing of its credit facility in the amount of $260 million, with a feature allowing Choice to obtain additional commitments up to $325 million.
* The company has launched a re-imaging campaign for three of its brands: Quality, Comfort Suites and Sleep Inn. Under the program, almost 1,400 existing hotels worldwide will adopt new logos and signage for these brands.
* Choice`s Board of Directors was honored by HVS Executive Search as the industry`s top performing board at the 23rd Annual New York University International Hospitality Industry Investment Conference in June.

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