Choice Hotels Reports Second Quarter

SILVER SPRING, Md. (July 23, 2003) - Choice Hotels International, Inc. (NYSE:CHH) today reported second quarter 2003 net income of $17.1 million, or $0.47 diluted earnings per share (EPS), an approximately 24% increase in EPS over the same period of a year ago. These results exceeded consensus estimates by $0.06 per share. At the end of second quarter 2002, the company reported net income of $15.3 million, or $0.38 diluted EPS.

The company also announced that its operating income increased to $28.7 million for second quarter 2003, a 4.7% gain over the $27.4 million reported at the end of second quarter 2002. Operating cash flow for the six months ended June 30, 2003, increased to $40.2 million, up $14.6 million from the same period a year ago.

“We continue to generate robust unit growth, which due to our franchising model is the key driver of financial performance,” said Charles A. Ledsinger, Jr., president and chief executive officer. “Evidenced by a 44% increase in new domestic contracts year-to-date, hotel owners and developers continue to seek out our brands for both conversion and new build projects”.

He added, “The strength of our initial and relicensing fees from this development activity, as well as consistency in our royalties in a declining RevPAR environment, helped produce excellent second quarter results. We believe that the ongoing demand for our brands and the fundamental strength of our franchising model keep Choice Hotels well-positioned for growth under a wide range of economic scenarios.”

The company reported royalty revenues of $37.6 million for second quarter 2003, compared to $36.2 million for the same period in 2002, an increase of 3.9%. Royalty revenues in the second quarter of 2003 include $1.2 million attributable to Flag Choice Hotels, which the company began consolidating in July of 2002.

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System-wide domestic revenue per available room (RevPAR) was $33.81 in second quarter 2003, compared to $35.23 for the second quarter of 2002.

For the first six months of 2003, Choice reported net income of $26.8 million or $0.72 diluted EPS, increases of 12.1% and 24.1% respectively over the $23.9 million and $0.58 diluted EPS reported for the first six months of 2002. Operating income through June 30, 2003 increased to $45.9 million, compared to $43.6 million for the same period a year ago.

Royalty revenues for the first six months of 2003 were $64.9 million, compared to $62.1 million for the same period a year ago. Domestic RevPAR was $29.89 for the first half of 2003, compared to $30.77 for the first six months of 2002.

The company adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” and began expensing the cost of stock options based on their estimated fair value for all awards granted after January 1, 2003. During the second quarter 2003, the company`s net income includes approximately $0.2 million of expense related to stock options. For all of 2003, the expense associated with stock options is expected to be $0.7 million.

The total number of domestic Choice hotels on-line grew by 4.9% to 3,562 (289,701 rooms on-line) as of June 30, 2003 from 3,394 (276,380 rooms on-line) as of the same period a year ago. Net domestic property additions in the second quarter of 2003 were 46, compared to 50 net domestic additions in the same period of 2002. For the first six months of this year, net domestic property additions were 80, compared to 67 for the same period of a year ago.

Choice executed 115 new domestic hotel franchise contracts representing 10,125 rooms in second quarter 2003, compared to 70 new contracts representing 5,675 rooms for the same period a year ago. For the year 2003 through June 30, Choice has executed 186 new domestic hotel franchise contracts, representing 17,695 rooms, compared to 129 contracts, representing 10,883 rooms, for the same period in 2002. This increase in executed contracts resulted in a 29.4% and 26.5% increase in initial franchise and relicensing fees respectively for the three and six months ended June 30, 2003, compared to the same period in 2002.

As of June 30, 2003, the total number of Choice hotels worldwide grew 7.2% to 4,743 from 4,426 as of the same date a year ago. This growth represents an increase of 6.4% in the number of rooms open to 383,592 from 360,674. At the end of second quarter 2003, Choice had 396 hotels under development worldwide, representing 33,906 rooms.

The company`s third quarter 2003 earnings are expected to be in the range of $0.61 to $0.63. Full year 2003 diluted EPS are expected to be between $1.74 and $1.77, up from the previous $1.65 to $1.68 provided in April 2003.

Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 28.3 million shares of common stock at an average price of $16.90 per share and a total cost of $478.4 million, as of July 22, 2003. During the second quarter of this year, the company purchased 0.5 million shares of common stock. The Company has remaining authorization to purchase up to 3.1 million shares. Total shares outstanding as of June 30, 2003, are 35.6 million.

As part of the company`s ongoing analysis of the best means to optimize the return of value to shareholders, Choice`s management will examine the feasibility of a cash dividend on its common stock to augment its existing share repurchase program. Management will outline its findings for the board of directors at the board`s next regularly scheduled meeting in late September.

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