Chuck Ledsinger - Vice Chairman and CEO Dave White - CFO

Steve Kent - Goldman Sachs David Katz - Oppenheimer Michelle Ko - UBS Felicia Hendrix - Lehman Brothers Joe Greff - Bear Stearns Jeff Donnelly - Wachovia Michael Millman - Soleil Securities

Good morning and welcome to the Choice Hotels International first quarter 2008 Earnings Call. (Operator instructions). During the course of this conference call certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Such statements are subject to risks and uncertainties that could cause actual results that differ materially from those expressed or implied by such statements. The Company's Form 10-K for the year ended December 31, 2007. The details of which some of the important risk factors should be revealed. We believe that the expectations reflected in the forward-looking statements are reasonable, but cannot guarantee future results or levels of activity for performance or achievement. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of today’s date. We undertake no obligation to publicly update the forward looking statements to reflect frequent events under circumstances. Now with that being said, I’d like to now introduce Chuck Ledsinger, Vice Chairman and Chief Executive Officer of Choice Hotels. Please go ahead, sir.

Thank you. Good morning everyone and welcome to our first quarter 2008 earnings conference call. And there with me this morning is Dave White, our Chief Financial Officer. Yesterday after the market closed, we reported first quarter 2008 results. And after I share some brief highlights from the yesterday's announcements, I'll open up the call for any questions that you might have. Domestic Unit growth was strong for the first quarter in 2008, where the number of units online increasing 6% compared to last year. And Domestic RevPAR increased 2.7% and the domestic system light effective royalty rate increased by four basis points being driven in this key driver was the primary catalyst for royalty fee growth of 10% from the first quarter of 2008. Our franchise sales results for the first quarter were also strong. We executed 133 new domestic hotel franchise contracts in the first quarter of 2008, an increase of 20% compared to last year. Our first quarter 2008 operating income was $34.1 million compared to $27.4 million last year and our diluted earnings per share were $0.30 for the first quarter. This was a 25% increase compared to $0.24 reported for the first quarter of ’07. Our operating income and diluted earnings per share results for the first quarter of 20007 included approximately $3.7 million or $0.03 per share of severance cost related to the separation from service of certain executives during last years first quarter. Looking forward we expect second quarter 2008 diluted earnings per share of $0.47 and full year 2008 diluted earnings per share of $1.87. Earnings before interest taxes and depreciation expense for full year 2008 expected to be approximately $205.5 million. These estimates assume domestic unit growth of approximately 5% for full year 2008, 1.5% increase in RevPAR for the second quarter, and 2% for the full year of 2008. They also assume a 4 basis point increase in the effective royalty rate for full year 2008 and an effective tax rate of 37% for the second quarter and 36.7% for the full year. In closing, we are pleased with our first quarter results. We believe they demonstrate the fundamental strength of our business model through another quarter of increased revenue and profitability and now I’d be happy to answer any questions.

(Operator Instructions) We will go to Steve Kent with Goldman Sachs. Please go ahead. Steve Kent - Goldman Sachs: Yeah. Could you talk about the low RevPAR forecast for the balance of the year? What makes you do that today versus four months ago? I think the obvious answer is the economy, but is there anything specific that’s happening out there? And then, can you just as we have talked about credit market issues? How that’s affecting your pipeline of the development?

Yeah, sure Steve. Let me have Dave take the RevPAR question because we are basing that on some of the forecast that were out there. We don’t have, as you know, a whole lot of visibility very far out, as far as the forward book of business. I think we are being more reactive to what some of the prognosticators are saying in looking at the year. And then I’ll talk about the credit markets. So, Dave, you want to…?

Yeah, sure Chuck. Thank you. Back in February when we provided our previous guidance, the industry RevPAR forecast that we were looking at were for full year RevPAR growth of around 4.5%. This was industry wide and I think the growth rate for the segments were weak. PE was pretty comparable to that. We haven’t seen an updated forecast from that source but we know that the original forecast assumed Q1 industry have RevPAR growth around 3.5%. Since the first quarter industry wide RevPAR growth was close to 2%, we think there is a good chance that updated forecast for full year '08 will be a little bit lower. We adjusted our outlook accordingly, but as Chuck said, we don’t have tremendous visibility into kind of forward bookings. This is because the nature of our consumers is skewing more towards transient and leisure business. This is from a mix perspective relative to the some of the other changes that have a higher percentage of kind of forward group-booking business. For the balance of the year we kind of take our RevPAR guidance about 2% down from 3% than our previous guidance. Steve Kent - Goldman Sachs: And are your franchises starting to talk to you about any marketing programs that focus on may be giving back gas rebate and checks or discounts and many of that. Is there a sort of a push from given the franchise base for the end customer about those kinds of issues?

We got a promotion we’re going to do that focuses on gas. That’s what we’ve done. I think that having the value brand helps, Steve, and frankly we’ve seen in some of our RFP’s for corporate business. We have seen some new customers that we haven’t seen before. So there may be some switching going on out there with business travel. So, I can’t tell you. I can’t quantify that. I know we have more accounts than we’ve originally had where we have some companies that were including us some of their recommended list of hotels for their employees to stay. We don’t have the numbers yet or haven’t translated that into actual book of business, but we are out there in more places than we’ve been. Steve Kent - Goldman Sachs: And in the credit market?

Yeah, the credit markets, we had a really strong development quarter. I think it's the mix of new properties to conversions. It's just a little bit lower. Close to 33% versus 37% last year in that first quarter percent or new bills versus conversions and most of our relicensing which implies that there was a change of ownership. Properties is up pretty substantial in the first quarter. We haven’t seen up there. We had a little bit longer amount of time to get the hotels. Development cycles lengthened a little bit so it’s taking a little bit longer to get done. Where we have seen it is and that’s in our core brand so that core meaning. In the new build core brands Comfort Suites, Sleep we have seen a little bit more of it is in Cambria where we got owner operators in our core brands. These are plus or smaller properties and they are working on existing blending a relationships with existing banks or credit loans. They have usually established long-term relations as part of vendors. We haven’t seen that trickle down yet into those smaller type banks or smaller type developers. We’ve seen a little bit more of it Cambria where that’s more type of developers a little different. They tend to be a little bit more may be institutional type developers or do multiple properties and are looking to different types of financing, maybe more money center banks or so forth. Plus, it’s a new product and so I think its natural to assume that a new product is going to, its going to take a little bit longer sometimes on the softer credit market to get finance. But, once we have opened Cambria doing great, we have six open and so the story is still really good, I just saw the credit market, we are going probably see again, a little bit of an extension of the time it takes to get some of these open. Steve Kent - Goldman Sachs: Okay. Thanks.

And we will now go to David Katz with Oppenheimer. Please go ahead. David Katz - Oppenheimer: Hi. Good morning.

Hi Dave. David Katz - Oppenheimer: Hi. Can you give us your updated thought on sort of the capital decisions. There has been obviously one of the issues we always focus on a share repurchase, it does appear that there hasn’t been any so far this year and just give it your updated strategy there, thanks?

Yeah, I’ll let Dave answer that one.

We didn’t buyback any stock in the first quarter of this year through the share repurchase program. Due to the volatile economic back job, we’ve had some kind of crazy equity markets, credit market jitters and recessionary fears. We just decided to keep our porter drive. Going forward I think we expect to continue to use free cash flows that we generate in the business in our balance sheet leverage potential in share holder friendly ways every time. This would include sensible investments, acquisitions, and dividends. With respect to the share repurchase program, we think overtime we could continue to use the excess cash flow. The dollar amount entirely is going to depend upon the number of somewhat unpredictable factors. David Katz - Oppenheimer: Okay. Thank you very much.

We’ll go to William Truelove with UBS. Please go ahead. Michelle Ko - UBS: Hi, good morning. This is actually Michelle Ko for UBS.

Hi. Michelle Ko - UBS: Hi, two questions. Can you give us more details around the change in the receivables on the cash flow? It seems to be much lower compared to prior years for the first quarter. Secondly, how much of the fees from international? Can you give us a proportion between the international and domestic?

Sure. On the cash flow what you are seeing there on just the trade receivables is really a tiny issue. We had a really solid fourth quarter in terms of collections on trade receivables that kind of a primary driver of that slip on the cash flow statement for receivables. On the international side of things we are going to publish our 10-Q here over the next week or so. I think that international royalty figure was $5.3 million for the first quarter of ’08 and I think last year it was around $4.2 million. If you look at that year-over-year increase, you apply two thirds of that driven by exchange rates and the other thirds driven by the operational side of the business. Michelle Ko - UBS: Okay, great thank you.

And we’ll go to Felicia Hendrix with Lehman Brothers. Please go ahead. Felicia Hendrix - Lehman Brothers: Hi, good morning guys.

Hi Felicia. Felicia Hendrix - Lehman Brothers: Hi. A few quick questions for you. Let's get back to the quarter results. You guys did a lot better than we thought you would give what we were looking at some business travel data. I am wondering what was driving that. Second, if you could give us some color on what you are seeing in your leisure customer route? Did you see anything that was surprising in the quarter? I am asking because of your more muted forecast going out for the rest of the year.

Yeah, well, you know one thing to remember of course is that our quarter is a month lag. We are talking about December, January, and February, and so you know for the industry March was soft. I think Easter is in the month so you really have to look in March and April together. I think going forward is going to be softer. The industry is seeing the same thing domestically. That’s part of it. We are not really seeing anything different. I think the overall sort of the industry trends in our leisure mix. We are being cautious about what the outlook is based on. Those earlier days were just what the prognosticators and the economic forecast will be for the rest of year. We don’t know what the impact of all the stuffs that we are hearing and all the consumers are kind of bombarded with gas prices and everything else. We did know that there was what Roger Dow at the TIA was talking about. This whole as a math, on increases in gas prices where an average trip was 600 miles each way. If gas goes up a buck, it adds about $80 to the trip if your car gives 15 miles a gallon. That changes behavior, but probably not for a free one trip, we just don't know and we're been. If gas starts to go up over that $0.04, which is not too far away, what impact will that going to have is a psychological barrier. We really haven't seen a big shift yet. Maybe things will turn around and people's outlook will start to change a little bit. We not under recession, but we always factor that in, if we are in a recession, then second half of the year could be stronger. What we see right now and what we think is out there requires a more prudent approach. Felicia Hendrix - Lehman Brothers: Okay, good. And then in line of that outlook it does look like you are assuming that margins are going to improve further remainder of the year than we would have expected. I was wondering if you could just walk us through your thoughts on that?

We did a little bit better on the costs side of the business in the first quarter than we had guided to through the balance of the year. In the last three quarters, we expect some of that to reverse. Some of that is timing, but not all of it. I think for full year from a margin perspective, our expectation is not that different than it was when we previously guided. It is still somewhat in the low to mid 60% range. Felicia Hendrix - Lehman Brothers: Okay, great.

For full year. Felicia Hendrix - Lehman Brothers: Okay. And then just finally, Dave you touched on this a little bit before, because you said you saw in the quarter a decrease slightly in conversions, and I am wondering if you are expecting a change in your typical conversion patterns in this cycle?

: Felicia Hendrix - Lehman Brothers: Okay. Sorry.

In first quarter of ’08 versus. Felicia Hendrix - Lehman Brothers: I misheard.

Yeah. So, and that’s kind of what you would expect. I think we are seeing is a nice increase in the number of executed contracts. We had a, last year’s first quarter a little bit softer with comfort in and we’ve made that up nicely this year. I think that we are not seeing anything on that development front on the conversion or new build frankly, even though albeit at little bit lower ratio. They would have us change that full year forecast. Trades are being made and that seems to slowly going on. Felicia Hendrix - Lehman Brothers: Great. Thanks guys.

Sure.

We will go to Joe Greff with Bear Stearns. Please go ahead. Joe Greff - Bear Stearns: Good morning guys.

Hi, Joe. Joe Greff - Bear Stearns: Dave, I just want to clarify your comment on full year ’08 EBITDA margins, what you are saying as you would expect them be flat to down for the year relative to last year which obviously implies the rest of the year to be down, can you help explain that what’s driving that if my premise is correct?

Well, actually it was expecting full year EBITDA margin to franchise margin to be consistent with our previous guidance basically, which is around 64, 53% I think was kind of the number, [64]. Joe Greff - Bear Stearns: Okay.

So, compared to last year I think that’s priced about essentially flat to flattish. Joe Greff - Bear Stearns: So relative to quarter ago, when you provided guidance the margins for the back part of the year are the same.

For the back part of the year there are, yeah, really the margins are about the same in the back part of the year, because we are loosing some revenues because of the RevPAR, take down but then some of the timings stuff in Q1 on the cost side reverses in the balance of the year. Joe Greff - Bear Stearns: Got you. And then a question regarding development pipeline, if at the end of the first quarter kind of going forward nothing gets added to the development pipeline flip that or falls out and you kind of look at 2009 domestic unit growth and did you feel comfortable that looking at your pipeline now -- I’m not asking you specific guidance question for ’09, but looking at your pipeline now, I mean do you think 4% to 5% domestic unit growth is sustainable through next year?

I don’t know if we know specifics percentage, and I think we feel good about our portfolio of brands and our ability to continue to grow them over time. I mean if you look at the mix and we have got to know great collection of conversion brands there are still lot of independent hotels out there and the segments where those brands compete as well as other brands that we think are not performing as well as those hotels within our system on the new construction side of things, we just kind of depend upon the credit market and the new hotel development cycle, but yeah I think we still have room to continue to grow our portfolio, grow our brands. As Chuck mentioned, the current trends we are seeing on the conversion side of things are positive around applications that were received in applications in house and we haven’t seen a lot of impact on the new construction side of things for our core brands there either. So, you know, we don’t pin it down to a specific percentage. We think we still do have good opportunities to continue to grow the scale of the system. Joe Greff - Bear Stearns: Great, and then one final question David. When you look at full year ’08, what sort of your run rate CapEx or maintenance CapEx or what you would make analogous to your investment in property and equipment in your cash flow statements of $2.6? What’s a good run rate to use?

I’d say somewhere between $8 million and $11 million is probably a reasonable estimate. Joe Greff - Bear Stearns: Great. Thank you so much.

Sure.

We’ll go to Jeff Donnelly with Wachovia. Please go ahead. Jeff Donnelly - Wachovia: Hey guys. Chuck, actually just two questions. One, I was just trying to get my arms around the relicensing fees and as you pointed out the growth was fairly strong in Q1. Do you think that the statement around the health of investor appetite in credit market liquidity at that deal size? Is this the deal that was planned for late 2007 and delayed into Q1 ’08 and we shouldn’t expect such strong growth in subsequent quarters for your relicensing fees?

Dave just talked to our relicensing guys, so I’m going to let him answer that one.

Yeah, you know, our relicensing guys don’t have a lot of visibility into the balance of the year. It is a pretty short window from the time we find out about the sale of a property to the time it actually relicenses. We recognize the relicensing and the fee, but relicensing was certainly strong in the first quarter in terms of the number of relicensing transactions. It was up pretty substantially from last year, although from a fee perspective, it was a little bit lower growth rate just because of mix issues and some other kind of unique issues for the quarter. So, looking forward, it’s really -- and it’s really hard to kind of say whether it is being driven by stuff shifting from Q4 of last year to Q1 of this year. I would say last year’s relicensing number was pretty strong. So, I’m not sure we are really seeing that. So, it’s kind of hard to say -- but going forward we are not seeing anything I guess in the trends currently, although our visibility is pretty limited in terms of how far we can look forward on relicensings. We are not currently seeing anything alarming there. Michael Millman - Soleil Securities: I don’t know if you have it at the top of your head have the information going back a few years. There was a lag or slowdown if you will in relicensing data after what I will call looked like another credit crunch, maybe like we saw in 2000-2001 timeframe?

Yeah, well I'm not sure if it bears a relation to credit crunch like this one but looking back over past kind of I guess seven or eight years, the number of relicensings have varied from call it 5% of the previous year’s fiscal side to 8%. It’s been at the high end of that range in the past two or three years. You know, it was somewhere between 6 and 5, so back in '04 and '03 and priors you know kind of in that 5% to 6% of previous year's systems size so, it has ranged across that timeframe kind of in that manner. Michael Millman - Soleil Securities: :

We took down RevPAR about 100 basis points around $2.5 million of royalty reduction and then some of the first quarter's spend that, I mentioned we outperformed our spend as just in Q1 and some that's going to reverse for the balance of the year. So that's a piece of it but it's not the majority of it by any stretch. Jeff Donnelly - Wachovia: Should we anticipate I guess any impact from those hires in subsequent quarters that deferred compensation or just for those benefits that might be deferred?

No, I don't think so. Jeff Donnelly - Wachovia: Okay. Thanks guys.

Okay.

(Operator Instructions) We'll go to Michael Millman with Soleil Securities. Please go ahead. Michael Millman - Soleil Securities: Thank you. Could you talk about the international room, it looks like international rooms were down in the quarter?

Sure. Yeah. You know, year-over-year if you looked international the number of years online declined by, I think it was 41 units. The room decline was much more modest than that and if you're looking what's driving that decline obviously you got gross openings in the international system that have terminations. On the termination side of things, we have terminated some properties in Europe, which represents about half of that reduction and those terminations stemmed kind of from our acquisitions that we've made over the last year. So the franchising rights back from prior master partners. So we've kind of focused on cleaning up that system a little bit and position it for growth down the road. And the second reason is kind of in Australia we decided not to renew close to 30 properties there. They were kind of smallish properties. They weren’t really particularly well suited for our brand. We saw higher terminations than we saw last year. Now we are offsetting terminations and explaining why the change in international rooms online is little more modest relative to the reduction in units online. We added a couple of large properties for the last 12 months including two Clarion hotels. It was the largest hotel in Stockholm as I understand it 558 rooms and then a 560 room Clarion hotel Prague. So kind of that’s what’s you are seeing going on with the international unit in the room supply. Michael Millman - Soleil Securities: I guess, following that looks like office have generally, hotels were up 6% I think in the units in the first quarter, but the rooms were up only 4.5%.

Right. Michael Millman - Soleil Securities: And that would seem to suggest going smaller or is that a trend or is it kind of a one time thing?

Well, I think it's been a bit of trend over the last I guess, I don’t know. It was four to five years maybe. The average property size for the industry is been smaller. I think we’re sort of seeing the same thing. Sometimes mix has something to do with that, but international because of those few larger hotels. There are really two totally different reasons for that. And I would expect that if we cleaned out that some of those international properties in Europe as Dave said, the position is better for longer-term growth, there are in some of those hotels needed to go. So I think that’s a real positive, we’ll get reset. I think as we move forward we take on the direct franchising in Europe and so any way. But domestically, yeah, I we have seen that for the last few years. Michael Millman - Soleil Securities: And so just on the internationals, is that done now the cleaning up?

Well, I wouldn’t say that I mean I don’t know how to -- you know, totally handicapped that I am not sure there may be few more to come but I don’t think it will be substantial. Michael Millman - Soleil Securities: On the cash, it looked like the biggest use of cash was reduction in payables. I guess we are talking about timing differences or maybe you can put that into some context?

Yeah, there were some timing issues there Mike. Last year in the fourth quarter we ran some pretty heavy media campaigns, fourth quarter of '07. That played out in terms of what we paid off those vendors. It just played out in the cash flow statement the way you are seeing here. It’s really kind of timing related to advertising and media type campaigns and a couple of other timing type issues. Michael Millman - Soleil Securities: And SG&A which I think you said was some timing benefits it looked when you correct for last year’s cost that they were up about 16%. You can put that into context also as what we should expect from SG&A going forward?

Yeah for the full year, from an SG&A perspective, I think we are thinking our current guidance implies probably 5% to 6% SG&A growth on a full GAAP basis. If you adjust the impact of last year’s severance cost year-over-year increase would be a bit higher than that. The SG&A growth rate reflects is kind of our plans to make investments in activities that we believe will generate nice royalty in cash flow streams for us in the future. Things like Cambria Suites, Extended Stay some of our other brand initiatives. Michael Millman - Soleil Securities: Okay, thank you.

Sure.

And we have no further questions in the queue.

Okay. We thank you very much for your attention and good questions. And we'll talk to you soon. Have a good day.

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