Separately, Choice announced that CFO Donald H. Dempsey has informed the Company of his decision to join Equity Inns, Inc. as chief financial officer and return to Memphis where his family lives. Joseph M. Squeri, vice president, treasurer and controller will become acting CFO of the Company. 

Choice also said that Stewart Bainum, Sr., 79 has retired from the company's board of directors. 

Choice, the world's second largest franchisor, said net income was up 25.7 percent to $12.9 million, or $0.22 per diluted share, for the second quarter ended June 30, 1998, from $10.3 million, or $0.17 per share in the year-ago period. Royalty revenues grew 8.6 percent to $29.2 million from $26.9, and operating income increased by 18.1 percent to $23.5 million from $19.9 million in the same 1997 period. 

Royalty revenues for the first half of 1998 increased 10.6 percent to $50.0 million from $45.2 million in the comparable 1997 period. Net income for the first half of 1998 was $21.1 million, or $0.35 per diluted share, compared with net income of $16.0 million, or $0.26 per diluted share, in the comparable 1997 period. 

For the period ending June 30, 1998, the total number of domestic Choice hotels on-line grew 4.9 percent from 2,814 in the second quarter of 1997 to 2,951 in the quarter just ended. Total room growth increased 3.3 percent from 238,136 in the year-ago quarter to 245,948 in the quarter just ended. The company added 85 opened hotels to its system in the second quarter of this year and terminated 90 properties that did not meet Choice's strict quality standards. These terminations represent a 25 percent increase over the same period in 1997. The increase in terminations reflects the Company's continued initiative to purge the franchise system of hotels not meeting Choice's strict quality standards. 

Commenting on the company's performance for the quarter and first half, Stewart Bainum, Jr., chairman of Choice's board of directors as well as one of the company's largest shareholders, said: "The company's strong financial results are testimony to our sole focus on franchising. Choice's variety of brands enables us to capitalize on every stage of the highly cyclical lodging industry. Based on the combination of our strong financial performance and our solid progress on building key operations, Choice is better positioned than ever to serve its franchisees and increase returns to investors." 

Bainum, Jr. added: "My father, who founded the predecessor of Choice Hotels, has resigned from the Choice board after long and distinguished service to devote more time to other business interests. He will serve as chairman of the board of directors of Sunburst Hospitality Corp., the hotel real estate company from which Choice separated last October, to capitalize on his years of expertise in real estate. We appreciate the guidance my father has provided this company and wish him well." 

Bainum, Jr. continued: "At the same time, I should note that I have resigned my chairmanship of Sunburst's board to avoid any potential conflict of interests that could arise as a result of my chairmanship of Choice's board. Sunburst Hospitality is Choice's largest franchisee. I look forward to continue serving as chairman of the board as Choice enters a new era of growth." 

"On another note," Bainum, Jr. continued, "I am pleased to report that we are making considerable progress in our search for a new CEO and expect to make an announcement in the near future." 

About Dempsey's resignation, Bainum, Jr. said: "We regret Don's departure but understand his desire to work in the city where his family wants to remain. We appreciate Don's contributions to the company and we wish him well in his new position in Memphis." 

Dempsey said: "I look forward to joining Equity Inns and rejoining my family, however, I am sorry to leave my colleagues and friends at Choice. My time at the company has been very rewarding - both personally and professionally. Choice's dynamic environment fosters a high level of creativity and teamwork, and sets high standards of performance, evidenced by the company's continued success." 

Choice Hotels International is the second-largest hotel franchisor in the world with 4,268 hotels open and under development in 33 countries. Its Comfort, Quality, Clarion and Sleep Inn brand hotels are franchised worldwide. Its Econo Lodge, Rodeway Inn and MainStay Suites brand hotels are franchised in the U.S. only. 

The forward-looking statements contained in this release are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. Readers of this press release are referred to the company's filings with the Securities and Exchange Commission, including the company's form 10 Registration Statement for further discussions of factors which could affect future results.