Choice Hotels International Enters Strategic Alliance With Australia's Largest Lodging Chain -- Flag International.

SILVER SPRING, Md. and MELBOURNE, Australia--(BUSINESS WIRE)-- June 16, 1998--Choice Hotels International (NYSE: CHH), Tuesday announced the formation of a new strategic alliance creating the largest hotel franchising company in Australia with nearly 500 properties.

The alliance adds the Flag brand to Choice's portfolio of seven brands including Clarion(R), Quality(R), Comfort(R), Sleep Inn(R), Econo Lodge(R), Rodeway Inn(R) and MainStay Suites(R).

Choice Hotels International, the world's second largest hotel franchisor, and Flag International Limited, Australia's largest lodging chain, have agreed to form Flag Choice Hotels Limited.

Effective July 1, 1998, Flag Choice Hotels will franchise approximately 500 properties (after combining the current 481 Flag properties and the 17 Choice properties in Australia) representing 26,000 rooms across Australia, New Zealand, Fiji and Papua New Guinea.

The properties serviced by Flag Choice Hotels will generate annual gross room revenue in excess of $600 million (Australian dollars).

The agreement also provides Choice with the opportunity to acquire, within the first four years of the agreement, up to 30 percent of the equity of the new company with proportionate board representation.

Flag Choice Hotels, a wholly-owned subsidiary of Flag International Limited, will acquire a 20-year Australian master franchise from Choice Hotels International to use the Choice brands of Clarion(R), Quality(R) and Comfort(R) with an option for another 10-year term.

In addition, Flag Choice Hotels will manage the Choice 2001 Reservations System and marketing operations of the current Flag chain throughout Australia, New Zealand, Fiji and Papua New Guinea.

Under terms of the new agreement, a number of Flag properties will be re-branded with one of the Choice Hotel brands which best serve their market segment.

The new alliance will change the face of the existing Australian accommodation industry, by placing the internationally known brand names of Clarion(R), Quality(R) and Comfort(R) beside Flag, a brand that has been a household name in Australia and New Zealand for nearly 40 years.

This effective market segmentation of the Australian properties between the four brands will provide a clear definition of the target markets of the different properties:

-- the Clarion(R) brand at the luxury end of the market;

-- the Quality(R) brand in the upper middle market;

-- the Flag brand in its historical place in the middle market;

and

-- the Comfort(R) brand in the mid-scale, limited service segment of

the market.

This clear market segmentation will also result in Flag Choice Hotels being able to considerably expand its portfolio of properties prior to the Sydney Olympics Games in the year 2000.

Bruno Geny, Senior Vice President, International, of Choice Hotels said, "Choice is providing to Flag Choice Hotels an established international franchising and marketing system and the advanced Choice 2001 Reservation System worldwide which, together with Flag's domestic market knowledge, provides a platform for expansion in all segments of the market."

Geny said the new strategic alliance with Flag provides Choice with "true Australian presence and fits perfectly into the company's global strategic growth plan to partner with well established local hotel operators, leveraging Choice's international franchising and technological expertise."

The alliance between Choice and Flag follows last year's agreement in which Friendly Hotels, based in the U.K., assumed the master franchise rights for Choice's Comfort(R), Quality(R) and Clarion(R) brands throughout Europe, with the exception of Scandinavia.

Geny said all Flag Choice Hotels properties in Australia and New Zealand will be included within Choice's advanced international reservation system providing Australasian properties with connection to the airline distribution system, and a worldwide network of travel agents.

Flag's Australian properties will bolster the Choice network by providing increased product to sell in this part of the world.

David Bailey, Chairman of Flag Choice Hotels, said that "Choice's international success in establishing an advanced reservation system and strong international franchising network was a key factor in Flag's decision to partner in this strategic alliance to enhance the enormous strength of the Flag name in the Australian and New Zealand marketplaces."

Rayden Crawley, newly appointed Chief Executive Officer of Flag Choice Hotels (formerly Executive Managing Director of Flag), said the new company would "implement comprehensive and consistent practices to ensure that all properties attain high standards of quality and service.

"Flag Choice Hotels will enforce those standards so that the consumer will know what to expect at a Flag Choice Hotel property."

Crawley added that "with this agreement, Flag Choice Hotels will provide consumers with a clear branded definition of its properties."

Other highlights of the agreement include:

-- A number of existing Flag properties will be co-branded with

the appropriate Choice brand for their market segment.

-- Flag Heritage Hotels will continue to be operated as a sub-

brand of Flag Choice Hotels.

-- All Flag Choice Hotels properties will be included in the Flag

domestic directory as well as in Choice Hotels directories

with over six million copies distributed each year.

Choice Hotels International is the second-largest hotel franchisor in the world with 4,412 hotels open and under development representing 372,839 rooms in 33 countries under the brand names Quality(R), Comfort(R), Clarion(R), Sleep Inn(R), Rodeway Inn(R), EconoLodge(R) and Mainstay Suites(R).

Choice Hotels International and Flag Choice Hotels will combine corporate offices and be based in Melbourne and will be the largest hotel chain in Australasia, the Asia/Pacific region, with about 600 hotels open and under development.

The existing Choice Hotels sales office will be maintained in Sydney. Choice Hotels International will now have over 150 sales persons worldwide, exclusive of property-based sales personnel.

CONTACT: Choice Hotels

A.B. Albritton, VP Corporate Relations

301/979-5032