Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Choice Hotels International Second Quarter 2012 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and further instructions will be given at that time. As a reminder, today’s call is being recorded. 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, which constitute forward-looking statements under the Safe-Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases, such as choice or as management believes, expects, anticipate, foresee, forecast, estimate or other words or phrases of similar import. Such statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Please refer to the company’s Form 10-K for the year ended December 31, 2011 and other SEC filings or information about important risk factors affecting the company that you should consider. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. We caution you, do not 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 our forward-looking statements to reflect subsequent events or circumstances. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our second quarter 2012 earnings press release, which is posted on our website at choicehotels.com under the Investor Information section. With that being said, I would now like to introduce Steve Joyce, President and Chief Executive Officer of Choice Hotels International Incorporated. Please go ahead, sir.

Thank you very much. Good morning. Welcome to Choice Hotels’ second quarter 2012 earnings call. With me this morning, as always, is Dave White, our Chief Financial Officer. As you know, we put out our press release last night. We are very pleased with the second quarter results. Consumers are traveling. We are driving record traffic to our hotels. We’re seeing both strong RevPAR and global system growth. And we are very excited about accelerating momentum in franchise development world. In fact, this past quarter has been the best travel season we have seen in several years and our franchise development results are very strong with the number of domestic franchise contracts up 54% compared to last year and meaningful gains in both new construction and conversion hotel franchises. All of these factors contributed to a very good quarter. As reflected in the key indicators, we used to measure our performance. RevPAR is up nearly 8%, which is better than the industry average for the comparable time period and ahead of our own expectations. These results reflect to the mix of occupancy that was up over 250 basis points and an average daily rate increase of 2.8%. Both domestic and global net unit growth increased 1.3% ahead of our target. And these two drivers resulted in strong domestic royalty fee growth of approximately 8% for the quarter. Our EBITDA and diluted earnings per share for the quarter increased 14% and 20% respectively. We also continue to execute our long-term capital allocation strategy. And last night, we were pleased to announce that our Board of Directors declared a special cash dividend of $10.41 per common share or roughly $600 million in the aggregate. The special cash dividend will be paid on August 23. In this unprecedented and prolonged period of historically…

Thanks a lot, Steve. As you read in last night’s press release, we reported diluted earnings per share for the second quarter of $0.55, which represents a 20% increase over the diluted earnings per share of $0.46 reported for the same period of the prior year. The increase in diluted earnings per share over the prior year results reflects continued improvement in our EBITDA performance driven by both top-line revenue performance and disciplined cost management. EBITDA increased 14% to $53.6 million for the three months ended June 30, 2012, compared to $47 million for the same period of the prior year. Our second quarter franchising revenues increased by approximately 6% compared to the prior year primarily due to improvements in our domestic royalty revenues, which increased by approximately 8% and an improvement in our initial and re-licensing fees revenues. The increase in domestic royalty revenues was primarily driven by 7.7% increase in RevPAR, reflecting a combination of occupancy and average daily rate increases of approximately 250 basis points and 2.8% respectively. Our RevPAR performance also compared favorably to our forecasted RevPAR increase, which was 7% for the second quarter. Similarly to our first quarter, we saw strong gains in RevPAR performance across all of our domestic brands. Furthermore, the RevPAR gains reflect continued improvement in the occupancy rate, which suggests that our franchises still have opportunities going forward to increase the room rates beyond the 2.8% increase experienced in the second quarter and as a remainder, our RevPAR results for the second quarter reflect our franchisees gross room revenue performance for the months of March, April, and May. On the supply front, we were able to grow the number of hotels operating in our global franchise system by approximately 1.3% comprised of domestic unit growth of 1.3%, and international growth…

Thanks, David. Well obviously, we’re pleased with the results from this quarter and the continued strength of the recovery in the travel industry. We had a very good year so far. We’re closing on earning levels measured in EBITDA that are comparable to peak levels achieved in the last cycle. And I am excited and optimistic about our continued long-term growth prospects and our ability to continue to drive excellent results for our company and shareholders. I have said before, because of the supply demand balance going forward, we believe the hotel industry and particularly for Choice because the value orientation of consumers that we are in for a very good run and the question will be if we get any cooperation from the economy, we are in for a really, really good run. So, we remain optimistic about the future about our options. And now, I’d like to open up the call to answer any of your questions.

(Operator Instructions) And your first question comes from the line of Jeffrey Donnelly of Wells Fargo. Jeffrey Donnelly – Wells Fargo: Good morning, guys.

Good morning. Jeffrey Donnelly – Wells Fargo: Dave, I guess Steve told me that you are the responsible one, so I want to pass along kudos for the special dividend. I think it’s…

Or if you like it, I think I’ll take some of the credit. Jeffrey Donnelly – Wells Fargo: Yeah. I am curious after its payment, as we look down the road is it your plan to use future cash flow to wet all leverage back down new current levels or do you expect to run at this sort of new level of leverage going forward?

Yeah, our expectation while we’ve said – said all along is we have a long-term kind of leverage level where we feel comfortable and we’ve historically talked about that as kind of 3 to 3.5 times debt-to-EBITDA. So, I think the way you should think about it is that in the near term, we’re going to be focused on managing back towards those levels. And when you look at kind of the credit facility that we put out there last night, we can see how the leverage covenants kind of ratchet down over the –over the four years. So, that’s kind of our – that’s kind of our thinking on that. Over the near-term, we’ll focus on de-leveraging. And again, just to emphasize what Steve kind of highlighted, which is – this really reflects the confidence of our Board and our management team and the substantial ability of our brands to generate significant cash flows. So, we feel pretty good about our ability to de-lever fairly quickly, but that’s how I think you should think about the leverage levels going forward.

Well, to de-lever quickly and also to invest in all the opportunities we think we are going to, so… Jeffrey Donnelly – Wells Fargo: Okay. And maybe you can clarify something in one of the releases this morning, it maybe just misreading it, but it stated that the dividend will be paid on the 23rd, but it also states the dividend, the ex-dividend date is the 24, I think it’s just a typo, but I could be mistaken, but I think the…

No. It gets a little technical, but Dave wants to explain it.

Yeah, there is some rules for a large dividend like this. It’s more than 20% of the stock price that New York Stock Exchange has, that’s just how it works for kind of a large special dividend. It’s a little bit different than kind of a more ordinary dividend. So, those are actually the right – right dates. So, basically holders of the stock, basically at close of business on August 23 are the ones who will be receiving the cash payment. Jeffrey Donnelly – Wells Fargo: Okay, okay. I just wanted to clarify that because you’ve had a lot of questions on that. And Steve, I am curious what gives you the confidence in the development environment? Does that – is that the result of either you guys partnering with folks or you are seeing an inflection in banks willing to provide capital out there?

Yeah, a little bit of both. So, we just – I just was with a bunch for our franchisees a day ago. So, they are seeing for existing hotels a much better lending environment, where the leverage levels are coming up, and the requirements in terms of the tenants of the agreement, the guarantees are starting to ease somewhat. So, they are pretty positive about that. And in fact the ones that we’ve got that have really strong relationships with their banks are the ones that we’re seeing there actually looking at the new construction activity as well. So, I wouldn’t call it, it’s not like the lending environment it is completely back, but it is – it has steadily improved. As we talked earlier in the year in the success of Cambria in the units we are getting done there. That is – that was in large part due to the lending environment that they come back in the urban environments. But now we are starting to see its spread out more to our typical markets that we are operating in, and we think that plus the transaction environments, which is why we watch the (indiscernible) so carefully that – it looks like that transaction market is finally coming around. And when people are selling hotels; that’s typically when we get a shot at the conversion opportunity. And so, we just – we are viewing all of – we’ve been waiting for this for three-and-a-half years and it looks like we are finally getting into a more normal look at the upswing in the cycle, where development will begin to come back where we’ll see a lot of conversion opportunities first. But then new construction will follow and barring something unforeseen, it looks like that momentum is building. Jeffrey Donnelly – Wells Fargo: And just one last housekeeping question is did you give us royalty fees from international hotels?

Yeah, let me – I’ll come back to that in just a minute here Jeff. I don’t have that right here in front of me. Jeffrey Donnelly – Wells Fargo: Okay, thanks.

Your next question comes from the line of Felicia Hendrix of Barclays. Felicia Hendrix – Barclays: Hi good morning.

Good morning, Felicia. Felicia Hendrix – Barclays: I was just wondering, Steve, you just kind of alluded to this just that some other lending is loosening up a bit– I’m wondering can you talk about the competitive environment, of the franchise are seeking out and if there is a little more access to capital, we are just hearing that some of that lenders are willing to lend to franchises who are only willing to line themselves a certain brands?

Well that’s, you’ve got, you’ve always had a certain number of the lending communities that don’t – it’s not so much the brands, it’s the segments they like to lend into. And so, the number of banks that lend into the moderate tier and below where we are substantially, there are banks that avoid that space, because they like to stay in the upper moderate top scale. And then, I think what you are seeing now, which we are actually benefiting from is banks are beginning to ask what the contribution of brands is. And so, when they are looking at a brand for a hotel in an underwriting scenario, they are looking to what the contribution levels are for those brands. And so that puts us in a very good position, particularly in the conversion market, because of the folks that do a lot of conversions, we drive more business into the hotels than anybody else on average about 37%. And so that puts us sort of on the top of the list with most lenders, who are lending in our environment. Felicia Hendrix – Barclays: That’s really helpful. Thanks. And unfortunately Steve, I had missed some of your pre-prepared remarks, hopefully you didn’t touch up on this, but with your pipeline, can you just tell us, I mean, obviously we see the guidance and all that kind of stuff, but you had nice rate of growth this quarter in terms of new units and conversions and can you just tell us what you might be seeing for further quarters?

Yeah. I think, we have had two straight quarters now, Felicia, where the development results have been accelerating, culminating with the second quarter being particularly strong. So, we are feeling really good about the development environment. I think when you break it down new construction, I mean, obviously we have seen actually some positive things going on in new construction. Some of that, I think has been driven by energy market type supply growth, which is fine. That’s good growth for us, but on the conversion side, which as you know has normally represented a fairly significant part of our gross openings, that’s been really encouraging with kind of the growth of quality in really leading the way. And I would highlight just, if you think about it sequentially at the end of the year, at the end of ‘11, we had 131 conversion contracts in our pipeline executed, but not yet of the hotels and that’s increased by a little more than 10% to where we are here at the end of June. And obviously, during the six months some of the – something was in the pipeline at the end of the year has come online. So, we’ve been able to start to replenish our conversion pipeline at a faster rate than the openings coming out of it, which is very encouraging to us. And as we look forward in the second half of the year, I think we are feeling pretty good about how our brands are positioned to continue to do well on the development front. Felicia Hendrix – Barclays: Great, thank you so much.

Sure.

Your next question comes from the line of Robin Farley of UBS. Robin Farley – UBS: Thanks. Yeah, I wondered if you could talk a little bit about the decision with the special dividend and how you weigh that against using the capital, returning the capital, share buyback versus the special dividend?

Sure. Well, the biggest thing is we have not abandoned share buyback. It will continue to be a tool to return capital to shareholders. The amount that we were able to do, clearly would have taken us several years to accomplish in the share buyback scenario. And then, the – quite frankly, when we look to the decision, we have been – we have been evaluating this for several years. We are looking for the right set of circumstances and we view this as the relatively perfect storm of – you’ve got capital markets, where the lending environment is incredibly attractive both from a rate perspective and from a tenant requirements perspective underneath in those loan documents. So, we’ve never seen a more positive environment to do that. And that’s indicative of the rates that we are able to achieve and the fact that we gave up almost no flexibility whatsoever. So, we view those capital markets as sort of in a relatively unique scenario. It’s driven by the high-yield markets and so that’s – but that’s affecting all of the markets. So, we view that as – that maybe around for another couple of months, but it’s not going to be around forever. Secondly, tax rates on dividends are never going to be better. I don’t know how much worse they are going to get, but they are going to get worse. And so we viewed this as an opportunity to take advantage of what will probably be the lowest tax environment for dividends for the next 10 or 15 years. And then lastly, when we have talked about this extensively, we had an under-optimized balance sheet. Our cost of capital wasn’t what it should have been, because we hadn’t used the capital that this company should have used…

Yeah. I mean each contract that we do is obviously negotiated based upon kind of the facts and circumstances for that particular hotel, in that particular market and who we’re competing against for that franchise line. So, there’s not one answer for every contract, but on balance the way to think about it is the first three to four years, it’s going to take three to four years for those rate discounts in the early year to burn off. And that’s kind of what you should start to see is as we open those hotels, you’re starting – what you’re starting to see in the second half of this year is hotels that we sold a year, a year and a half ago that had even steeper royalty rate discounts will start to weight favorably on the effective royalty rate. But, you’ll still see, as we continue this incentive to kind of gain share, some holdback on the effective royalty rate over the next couple of years, in terms of the pace of growth, I’d say.

Yeah and I think the important thing to note about these incentives is, they really aren’t a dramatic change from the types of ramping of fees that we’re doing previously. What we’ve done is accelerate that ramp into a more concentrated period. So, you’re getting the same relative markdown from full price contract, you’re just getting it more in the first year or 18 months. As a result that affects that first year or first 18 months, but then what you do is spring back to a full priced contract. So, that when we talk about that it’s a steep return to that. That’s why we’re saying that, because the contracts long-term or at the full rate, and what we’re expecting to do. So, but we are moving that discounting up into the early years to incent people to move now. It’s been very effective. It does cost us a little bit in the near term, but very quickly it springs back to full pricing.

And the other thing we get, normally is most of our contracts normally have a window, every fifth year where the franchisee or the company can take a penalty free out. And when we do these incentives, we typically push that window out a couple of years. So, essentially kind of locking it in a extra couple years of cash flow, and that’s something that we think is valuable. Robin Farley – UBS: Okay, great. Thank you.

Your next question comes from the line of Joshua Attie of Citi. Joshua Attie – Citi: Thanks. Good morning. Can you tell us how June and July is pacing relative to the 5% RevPar guidance for the third quarter?

Well, let me give – Dave can give you some color. So, June is not in our numbers that’s in our third quarter. And June was an incredibly strong month we pushed close to 9% in RevPar. July has softened. And we don’t have final members yet, but it appears that July may come off from that 9% high 400-500 basis points. We’re not sure – we have a very short window in the bookings, so we don’t really know what August is going to give us, because our booking pattern is literally seven, eight days out. So, we’re assuming that may stabilize at a little higher level, but what we’ve baked in is the assumption that we’re going to continue to strive relatively strong RevPars. But as you recall we made all of our RevPar gains in the third and fourth quarter of last year. This summer wasn’t all that strong in the second quarter, it was in the third and fourth quarters where we’ve really drove some really significant increases. So, as we move into those comps that’s why you’re seeing us, we think that the relative strength of the demand is holding up, but you are just getting topper comparisons in the back-end, Dave?

Yeah, now I think that pretty well hit it. Joshua Attie – Citi: But your third quarter will include June, July, and August, correct?

That’s right.

That’s right. Joshua Attie – Citi: It includes up 9% for June, maybe up 5% for July, and then whatever August is.

That’s right. Joshua Attie – Citi: Okay. And can I just ask a question on the increased development activity, I know you talked a little bit about this earlier. How much of the increased activity is conversions versus new builds – roughly is at 85% conversions or you can give us some idea.

Yeah, so for the quarter, conversion franchise sales were up about 40%. So, they were about 75% of our total franchise contract number for the quarter. And the new construction was up 163% off of a fairly small phase last year in the in the second quarter. So, we went from 8 to 21 deals on the new construction side, we went from 61 to 85 deals on the conversion side. Joshua Attie – Citi: And on the construction side, are you putting capital?

For the deals that we did in the third – in the second quarter most of those are comfort and sleep. So, I would think about this is more of our normal development type incentives we had in the past, I mean there is some to get a prominent type things and some fairly limited situations where we might do something beyond that so for the most part, these are kind of the core mid-tier brands are already at scale. So, the capital commitment really into those new construction contracts is fairly – fairly limited and fairly consistent with what we have done in the past.

Yeah. Where the capital is going is into the Camburi bill from what we have discussed? Joshua Attie – Citi: Do you expect to hit $30 million year investment target over the next year or so or come close to it?

I hope so, we’ve got, I think where we to-date 17 committed.

Yeah, something like that.

So more like on that $17 million committed, we will see whether or not those go through and so, it’s building. So, we are encouraged by that and we are hoping that as we get into ’13. If you look at the number of deals we are hoping to do that would put us sort of in that range, but we are not at that level of making commitment at this point.

That’s still what we are targeting and I think that’s the right thing to do to support the development of that brand. Joshua Attie – Citi: Okay, thanks very much.

You’re welcome. And I – answer on a previous question that I have in for international royalty fees. So for the second quarter of this year, international royalty fees were $6.3 million and for the first quarter of this year, there were $5.5 million.

Your next question comes from the line of Nikhil Bhalla of FBR. Nikhil Bhalla – FBR: Hi, thank you. Just – if you could remind us about G&A expense heading back into the – towards the back of the year. You may – made some comments earlier, I’m sorry, I missed that.

Yeah. So in the – so, basically kind of going back, your last year, we have talked about a $15 million cost reduction compared to the last years, full-year gap SG&A expense. For this year, when you think about it for the full year, we will probably coming in at not quite that level and there is really a couple of reasons for that. I would think about it as somewhere around half of that level, but there is really a couple of primary reasons for that I think are important. So, probably half of that variance is really driven by things that are kind of variable cost. For example, franchise sales commissions since franchise sales have exceeded or we expect to exceed what we are thinking they would be – when we gave that outlook. We are going to have a higher commission’s expense, which will take SG&A higher, but obviously there will be revenues tied to that. Some of the items related to the mark-to-market accounting for our non-qualified benefit plans is also factored in that and then there was a litigation settlement in the first quarter that is impacting that. So, we look at that gap – that explains a big piece of it and then the other piece of it is transaction cost, obviously, then we weren’t contemplating related to the special dividend as well as with our range, we thought about some additional cost. We are expecting them to correlate to these business development opportunities so that’s kind of how we are thinking about and how we modeled in our guidance. Nikhil Bhalla – FBR: So, half of the $15 million that you guided to before basically that’s how you should think about it, right?

Yes, we are thinking about in our guidance. Nikhil Bhalla – FBR: Okay. And is there just if we try to weight it, is it more towards the fourth quarter or the third quarter or is it more even across both.

I would say it’s fairly, fairly even. Nikhil Bhalla – FBR: Okay, alright. Thank you.

Okay.

(Operator Instructions) And your next question comes from the line of Patrick Scholes of SunTrust Robinson Humphrey.

Good morning, Patrick. Patrick Scholes – SunTrust Robinson Humphrey: Hi good morning.

Good morning. Patrick Scholes – SunTrust Robinson Humphrey: I just need a follow up on Josh Attie’s question concerning the RevPAR, basically implies in your guidance for August that it's looking to be zero or no RevPAR growth. I know you don’t have the greatest visibility with your bookings, but we are practically in August, is there anything on your books that would indicate that’s it's anywhere close to being zero at this point?

Yeah, I mean like Steve said, I mean, our booking window is really short and for the first couple of months of the quarter, say for June and July I mean we’ve been on average roughly in line with what we guided to, that 5% for the third quarter. But I don’t think there is anything right now that we are seeing to August tells it’s going to be close to.

But we don’t have August at Zero.

Exactly.

So, you mean you should think July we are not sure where we are ending, but we think July will be somewhere between three and five. So, if you think about that then you would look at similar numbers for August. Patrick Scholes – SunTrust Robinson Humphrey: Okay. Thank you.

And this ends today’s Q&A session. I would like to hand the call back over to Mr. Steve Joyce, President and Chief Executive Officer for any closing remarks.

So, thank you. Thank you for joining us on the call. Obviously we’re pleased with the results and we will look forward to reporting more to you in our next earnings call.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a wonderful day.