LETTERTO SHAREHOLDERS	CHARLES A. LEDSINGER, JR. President and Chief Executive Officer

Dear Shareholders:

At the outset of last year, our main goals were to sustain our record-setting momentum in unit growth, to improve product quality, to enhance brand reputation and to build greater guest loyalty. I am very pleased to report that we made significant progress in each of these key areas in 2004.

     New domestic hotel franchise contracts were up 17% in 2004 to a record 552, while we also exceeded the 400,000 rooms open worldwide mark. For the year, Choice Hotels earned diluted earnings per share of $2.15, a 10% increase over the previous year. Net income increased to $74.3 million, up from $71.9 million in 2003, and total revenues increased 11% to $428.8 million as the company’s 3,800 domestic franchisees generated system-wide revenues of $3.9 billion.

     By any measure, 2004 was a great year. At the heart of that success was another record-setting performance in franchise development, with our 552 new hotel franchise contracts representing 47,277 rooms to be added to our development pipeline. In 2003, we broke the 40,000 room mark for the first time ever, and this past year put us that much closer to the 50,000 room mark.

     Each of these new franchise agreements contributes to a predictable stream of royalty revenues and adds more muscle to build brand awareness and drive occupancy through more marketing and reservations fees. In short, Choice has become a franchising powerhouse because the development community views us as a strong partner that can deliver success.

     We reinforce our ability to help franchisees generate returns through our daily interaction with franchisees at the hotel level through our franchise services staff, through events like our annual convention and fall regional meetings, through the support provided by our central reservations and marketing staffs, and through our Choice Central intranet site that is available for franchisees 24 hours a day, seven days a week.

     As I have noted in the past, brand growth is the engine that drives our business model. We now have enjoyed two consecutive years of record growth, which provides us with a very robust pipeline of 569 hotels under development as of the end of 2004. This 16% growth in our pipeline offers us great optimism for the near term, and the strength of our overall system positions Choice well to remain a strong franchisor for the longer term.

     Choice’s strong performance in the past few years has put the company in a favorable position to take advantage of the steadily improving economy. Industry forecasters are predicting that 2005 will be the best year for the hotel industry since 2000, when the industry earned record profits.