Ladies and gentlemen, welcome to the IHG third quarter trading update call. My name is Ruby, and I will be your moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to your host, Stuart Ford, Head of Investor Relations to begin. Stuart, please go ahead.
Thanks, Ruby. Good morning, everyone. Welcome to IHG's 2020 third quarter trading update conference call. I'm Stuart Ford, Head of Investor Relations at IHG. I'm joined this morning by Paul Edgecliffe-Johnson, our Chief Financial Officer. As in previous quarters, we won't be holding a separate call for U.S. investors. We will be making the replay of this call available on our website. I need to remind you that in discussions today, the company may make certain forward-looking statements as defined under U.S. law. Please refer to this morning's announcement and the company's SEC filings for factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. With that, I will now hand over to Paul.
Thanks, Stuart. Good morning, everyone. I'll begin with a review of our trading performance before providing you with an update on our cost actions, liquidity, and financing. Starting with our comparable RevPAR, which as a reminder, includes the adverse impact from hotels that are temporarily closed. Global RevPAR fell by 53%, a sequential improvement from the 75% decline we reported in quarter two. July and August continued the pattern of monthly improvements seen since the April low. The RevPAR decline in September was broadly the same as August, as the benefit of the summer leisure demand dissipated, and a number of markets saw the impact of the reintroduction of social distancing measures and travel restrictions. Occupancy was down 30 percentage points, but rates were held at around 80% of last year's levels. Absolute occupancy levels of our hotels improved to 44%, up from 25% in the prior quarter.
Our net system size grew 2.9% year-on-year, with 11,000 rooms opened. As we continue to focus on the long-term health and quality of our estate, we removed 5,000 rooms. Development activity continued with 43 ground breaks and 82 signings, 27% of which were conversions versus 20% last year. Turning now to our regional performance. RevPAR fell 50% in the Americas. In the U.S., RevPAR fell by 47% since September, improving to a 44% decline. There was a sequential improvement in each month, although the pace slowed. We have continued to outperform the overall industry driven by our weighting and market-leading position in the mainstream segments by our distribution predominantly in non-urban drive-to locations, and by our skew towards transient business and leisure demand as opposed to group business. We continued to see a divergence in performance between our franchise and managed estate.
Our franchise hotels, which are largely in the mainstream segments and in non-urban locations, saw RevPAR fall 43%. This contrasts with our managed estate, which is weighted towards luxury and upper upscale hotels in urban markets where demand is weaker and a higher proportion of hotels still remain closed. RevPAR at managed hotels fell 71%. Occupancy across the region improved to 46% in the third quarter and reached nearly 70% on the Saturday of Labor Day weekend. We opened 6,000 rooms, over 80% of which were for our mainstream brands, taking our net rooms growth to 1.7%. We signed a further 2,500 rooms, taking our Americas pipeline to 109,000 rooms or over 1,000 hotels. This included nine hotels signed across our Holiday Inn brand family.
Momentum continues to build for voco since the brand launched in the region earlier this year with a third conversion signed in recent months and multiple other deals under discussion. Good progress continues with our other new brands. Avid is now open in Mexico and had the first ground break in Canada. There were two further signings for Atwell Suites. Moving now to our Europe, Middle East, Asia, and Africa, where RevPAR was down 70%. There was some good progress made in July and August, but the reintroduction of travel restrictions led to RevPAR weakening back to a 70% decline in September. In the U.K., RevPAR was down 68%. London saw RevPAR continue to be down by over 80%, while the rest of the U.K. was down 58% as a result of some better leisure demand in the summer months.
Germany saw RevPAR down 67% as the region continued to be impacted by trade fair cancellations and travel restrictions. As a reminder, the U.K. and continental Europe business represents less than 15% of our global estate. The Middle East saw a decline of 65%, whilst low levels of both international and domestic travel across Southeast Asia and North Asia led to RevPAR declines in Japan and Australia of 70% and 66% respectively. Performance in the managed estate continued to be challenging as it was in our own leased and managed estate, where six hotels or one-third of this portfolio remains closed. In total, at the end of September, 105 hotels or 9% of the region's estate remained temporarily closed.
We opened 2,700 rooms, including two voco properties, an InterContinental, and a Six Senses Hotel, and removed 1,400 rooms. We signed a further 3,000 rooms into our pipeline, including a Six Senses property in AlUla, Saudi Arabia. Conversions increased to represent a third of the signings in the period. Turning to Greater China, where the trend of improvement each month since February continued, with RevPAR down 23% in the third quarter overall. The decline was 36% in July, 20% in August, and just 11% in September. Across mainland China, tier 1 cities continued to see a greater level of RevPAR decline, around 32%, given their weighting to international inbound travel. By contrast, RevPAR in tiers 2 to 4, which are more weighted to domestic and leisure demand, declined 12%.
Over 20% of our China hotels achieved positive RevPAR growth through the third quarter, which included the resort destinations benefiting from staycation demand and family travel over the summer months. This included locations such as Shanghai Wonderland and in particular beach resorts such as Sanya, where occupancy was up versus last year, and average daily rates up even more so. Net system size in the region increased by 8.1% year-on-year, with 2,200 rooms added, including the opening of the first voco property in the region. We signed over 8,000 rooms in the quarter, which was an increase on the level of signings in 2019. This included 24 franchise hotels across the Holiday Inn Express, Holiday Inn, and Crowne Plaza brands, and 13 management contracts. Moving now to a brief update on our cost actions, liquidity, and financing.
We remain on track to achieve our target of GBP 150 million of fee business cost savings this year. As previously described, we have plans in place which will result in around GBP 75 million of savings being sustainable into next year and beyond. As also mentioned previously, we expect our gross CapEx to be around GBP 100 million lower than last year, with reductions across all of our main bucket systems. Turning now to cash flow. Improved occupancy levels for our owners has meant we are now collecting around 90% of our Americas billings within 90 days of being achieved, which is up from around 80% when I last updated you in August.
Our continued focus on working capital, discipline, cost control, and cash preservation resulted in positive free cash flow in the third quarter, which adds to our total available liquidity position increasing to GBP 2.1 billion, having been broadly unchanged at GBP 2 billion between April and July. Taking into account the bonds that we've issued and repaid in October, on a pro forma basis, our total available liquidity increases further to GBP 2.9 billion. The bond issuance we undertook was very well received and has enabled us to optimize our bond maturity profile. We issued a EUR 500 million bond and a GBP 400 million bond maturing in 2024 and 2028 respectively, at a blended debt cost of 3.0%. This lowers the overall blended cost of our bonds to 3.13%.
At the same time, we undertook a tender offer, which was also very successful, resulting in us being able to repay early GBP 227 million of our GBP 400 million sterling November 2022 bond. This means we now have only GBP 173 million left to be repaid in November 2022, and then a staggered bond maturity profile each year from October 2024 onwards. To conclude, first and foremost, I just want to recognize once again the efforts of our colleagues across the whole company for working so hard to support one another, our guests, owners and our communities on so many different levels. In particular, the dedication and commitment being shown to ensure every single IHG hotel offers a clean and safe stay is so incredibly important right now and clearly key to building confidence in travel.
In terms of our third quarter performance, as I said, as our weighting to domestic demand and mainstream distribution saw us continue our industry outperformance across key markets. We've seen monthly improvements in group RevPAR since its trough in April, though uncertainty remains regarding the potential for further improvements in the short term. While it will take time for our industry to fully recover, we remain confident that IHG will emerge strongly, and we are focused on leveraging our brand, scale, and market positioning and delivering on the relative resilience of our fee-based model. With that, Ruby, I think we can open up the call for questions. Thanks.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure you are unmuted locally. Our first question is from Vicki Stern of Barclays. Your line is now open. Please go ahead.
Hi. Morning. I've got three questions, please. Just firstly, on RevPAR, you talked about the regional performance. Could you flesh out a little bit what trends you're seeing within the headline RevPAR coming from business versus leisure? To what extent at this stage do you think it's fair to assume Q4 trends somewhat resemble Q3, to the extent that you can predict anything right now? Around pricing, just are the price drops that you're seeing still mostly about that mix shift to leisure, or are you actually seeing now any price discounting coming through in the market and any sense on where that's headed?
Just finally on the drop-through, if you can sort of flesh out whether the GBP 15 million guidance for a 1% change in RevPAR is still relevant in light of some softer U.K. performance, given you've obviously got higher operating leverage in that market, and both whether that's relevant for this year and then into next year as well. Thanks.
Thanks, Vicki. In terms of the mix of business between business and leisure, so we've actually seen that stay pretty constant through the year in terms of the balance between the two. It does, in the summer months, get a little bit more weighted towards leisure and then tends to revert back to our normal mix in the fourth quarter. We did see that, as you would expect. Nothing really significant to pull out there. In terms of the Q4 versus Q3, I think the commentary that we've made is that uncertainty remains regarding the potential further improvement in the short term. A few aspects of that I'd pull out is that if we look at the sequential improvements, there have been improvements by month, really since the April low.
If you look across each of the markets, that's been the case until September, where we saw some quite significant improvements, we saw some declines as well. I'll just go through those. If we think about China, well, China's been progressing very nicely. We saw August in 20% negative after July being 36% negative, in June, 49%, September coming in at -11%. I would point out, though, that although it's difficult to be precise in our analytics, when we look at September 2019 for the China industry as a whole, in that month, there was the 70th anniversary of the founding of the PRC, that did depress hotel business in the month. It's very weak comparable.
I think if you look through that, then I think that the underlying performance in China for September is probably closer to August's performance. Then as you look out into the fourth quarter, I'm not sure I see a stimulus or a continued significant improvement from that. If you look at the EMEA business, which improved through the summer months, in August was at -66%. September went to -70%. I think it's getting quite tough in EMEA with the restrictions that we're obviously all seeing. In the Americas, the August performance was -48.6%, in September, -46.4%, and the U.S. performance is in that, a little stronger again. In September, of course, you do have Labor Day, and that was a stimulus to demand.
Again, we may see some further strengthening as we go through the fourth quarter in the U.S., but I don't think it's going to be the same level that we saw it strengthen in the period from April through to September. Whilst I'm not necessarily expecting a deterioration, I think the pace of any further increase for the next few months is likely to be a little bit more muted. In terms of the second question around the mix versus price falls on the ADR, well, we're actually about pleased with ADR. ADR is 80% of last year, and most of the change that you're seeing there is mix. I think that it's pretty evident to hoteliers that just dropping price won't necessarily stimulate demand. I think that the revenue management discipline has been pretty good.
In terms of the sensitivity to a 1% fall in RevPAR, pretty much what we talked about before with the normal RevPAR sensitivity, and then the additional is because of the discount that we offered to owners earlier in the year, which has now come to its term and were very well received. The additional sensitivity because of the operating leverage in the owned and leased hotels. It's very similar to what we saw before. We might see a slight notch up in the owned and leased in the fourth quarter, depending on how the U.K. trades. We have a portfolio of leased hotels in the U.K. I don't think we're going to see anything material, perhaps a few million dollars, not pertaining to RevPAR, but a few million dollars of additional loss there in aggregate. I hope that covers that, Vicki.
Yeah, very helpful. Thank you.
Thank you, Vicki. Our next question is from Jamie Rollo of Morgan Stanley. Your line is now open. Please go ahead.
Thanks. Morning, everyone. First question was just on the outlook for unit growth. I mean, the old target, I guess is 5% - 6% gone. I mean, in the new world, if you could maybe update us on that because the signings were down quite sharply in Q3. You've got the SVC loss in Q4. Appreciate minimal revenue impact there. Maybe sort of looking forwards, where do you see the sort of boundaries of net unit growth in the new world, please? Secondly, I think we're still expecting a little bit of cash burn for the full year, which will sit in Q4. I'm just wondering what caused that. Is that System Fund? Is that working capital? You seemed a little bit conservative.
Finally, just a minor one, but just on credit card fees, I know those go to your owners, not to IHG, but could you maybe quantify that? Is that something you could push more to help clear the doubt? Thank you.
Thanks, Jamie, and good morning. In terms of unit growth, we're pleased with the continued signings that we're seeing. That stepped up a little in the third quarter, and with the ground breaks and the openings. We have a lot of our hotels that are already under construction, and that does underpin the growth that we're going to see over the next few years. Obviously it's a very large pipeline. Those that are under construction, they will get open. Those that are financed, then owners are pushing ahead. The unknown is the availability of bank financing for, say, for owners who've signed contracts or are on the verge of signing contracts and are not able to get bank financing, then that may have some sort of an implication. It's very hard to assess that right now, frankly.
What we know is that our brands are preferred and lenders like to lend to the strongest brands and the brands with the strongest cash-on-cash returns. Certainly what we're seeing is continued strong outperformance from our brands in the mainstream, which does tend then to garner the greatest proportion of the lending that is available in the market. I think what we've said historically is that our aim is to have market-leading system fees growth. Yes, back in the days of 2018, 2019, that was around the 5%-6% level. If it does diminish somewhat in the coming years, we'll be challenging that performance. If it goes back up again, it doesn't affect it. Of course, we'll be challenging that performance.
It's not an absolute, it's more a relative measure that we want to be evaluated against and that we evaluate ourselves against. In terms of SVC, yes, I think SVC will go up in the fourth quarter, which will have a one-time impact. We'll manage through that and as you say, very low profit impact. In terms of cash burn, we're pleased with the cash performance year-to-date. I put a lot of focus on that, and in the third quarter, we did generate more than $100 million of free cash flow. The full year as a whole, I think what we'll end up with is the operating business ending up broadly cash flow neutral and the System Fund, I think we effectively inject about $100 million into the System Fund.
This will get back over time, so that's only temporary, effectively a loan from us to the System Fund. That would take the business overall to around GBP 100 million cash flow negative. Some of that went out in the first quarter. Some of that will go out in the fourth quarter. Fourth quarter always sees a little bit more fee money go out, depending on tax, certain interest charges, et cetera. Those sorts of factors all combining will take us to that year-end end point. In terms of credit card fees, we have a very successful credit card program in place, and the company will continue to monitor and, of course, got the right approach with that.
Could you please quantify the credit card revenues and quantify the percent of the pipeline that's both under construction and funded?
Yeah. In terms of the credit card fees, it's a complicated area, I guess I'd say, in that we have a very large program. We don't take, at the moment, any income from the credit card onto our P&L, which is a different approach to Hilton and Marriott, et cetera. In terms of revenues for us, there aren't any. In terms of the pipeline under construction, there's 40% under construction, which really haven't changed since we last talked about that.
I appreciate the company doesn't take the credit card revenues, but just to quantify the revenues to the System Fund, that would be helpful if you're able to.
Okay. The System Fund, something around GBP 100 million.
Okay. Thanks a lot.
Thank you.
Thank you, Jamie. We have a question from Jarrod Castle of UBS. Your line is now open. Please go ahead.
Thank you and good morning, Paul. Three as well. Can you give a little bit more color for some of the exits? Is this just normal course of business or are there any things which are specific to the crisis? I guess you've got pretty much most of your estates open. I think you said 3% at the moment is not open. Is that by choice by the owners or is it due to government restrictions? If you could give any color on that. There's been some comments from OTAs and the likes in terms of distribution and downsizing, et cetera. Can you just give any color in terms of how your distribution channels are working and where the customer is getting to you from? Thanks.
Hi, Jarrod. Good morning. Thanks for the questions. In terms of the exits, there's actually nothing as we interrogate the numbers, that's unusual compared to prior years. We took out 4,600 rooms in the third quarter, which compares to 4,000 in third quarter of 2019. The 10-year run rate is around 2%, which is in line with what we've done for recent years. That obviously excludes SVC, which is out in the fourth quarter, which will not sped up. That's a rather unusual situation, and we have no other portfolios that are anywhere near that size. The next biggest owner has about 10 hotels. There's nothing else that we would expect that can have that sort of an implication on us. In terms of the estates, yes, as you say, it's 97% open.
Where hotels are closed, they tend to be the big urban hotels, urban possibly unionized hotels, where at the moment the level of demand doesn't make it sensible for the owner to open it. We remain in close communication with all of our owners as to how we help them run their business most effectively, and that would include looking at the business that's available in the market to helping them understand if it makes sense for them to open or not. There are some where there are still restrictions in various markets, although restrictions on the inbound business. In parts of EMEA, maybe some hotels which are more reliant on international inbounds, also it doesn't make sense to open a hotel right now. That's very much in the minority.
In terms of OTAs, well, we saw OTA contribution fall earlier in the year, but it's climbed back towards its normal level. We have seen a lot of people who will book direct with the hotel. The booking window is very short at the moment. We're seeing the vast majority of bookings coming in within two days of the stay. We'll have more walk-ins than we would normally because people on a road trip or for business or leisure, just coming into the hotel, expecting that they will be able to find a room. In busier times, people would always want pre-book. You tend to see more OTA business that's coming through on the leisure side than the business side, and so I'm sure that will continue. Nothing that really changes on the underlying trend there.
Okay. Thanks very much, Paul.
Thanks, Jarrod.
Our next question is from Monique Pollard of Citi. Your line is now open. Please go ahead.
Morning, Paul. Three questions from me as well, if I can. The first one was just specifically on the working capital benefit. Obviously, you saw it, like you said, over GBP 100 million cash inflow in the third quarter. Just wondering, specifically how much working capital benefit you saw, given you went from 80%-90% of Americas owners paying within 90 days, and what we should expect basically for the working capital for the full year. The second question was just on signings in particular in the Americas. If I look at the pace of the pipeline signings in the third quarter, it's the lowest level we've seen in quite a few years. Finally, a question just on Greater China performance.
Obviously, as you say, September had a bit of a benefit from a weaker comp, but when I think about October, there probably was some benefit from the Golden Week. Just wondering if you can give us any update on the trading you saw there, particularly given you mentioned in your comments that the resort locations had seen a boost to RevPAR because of staycations over the summer?
Thanks, Monique. Yeah, absolutely. In terms of working capital, we saw working capital outflow in the first half of the year. We have been managing the working capital very carefully. As you'll remember, earlier in the year, we put in some discounts for owners, and we tried to help them as much as possible with their cash flows. I think that the approach that we've taken has resonated with them. They've appreciated that we've treated them as well as we possibly can, and that I think is why we are being paid the vast majority of the fees pretty much on time. This is, as you say, it's stepped up from us receiving 80% of the fees that we billed within 90 days to now 90%, which we're pleased with.
If you think of the third quarter, the amount that we billed to our owners and that we were paid by our owners was basically in line. We're pleased with the working capital. There'll probably be still an outflow for the year, but it's under tight control. In terms of signings in the Americas, I think that a lot of the owners who would normally perhaps have signed a deal with us so far this year, have been working on their existing hotels and optimizing the cash flow there, and they have to pay a little bit more attention onto their existing business and others who are just waiting to see what the lending environment is going to be. There's a lot of interest. Our hotel owners and members of that community want to build hotels, but obviously building a hotel does require financing.
They want to understand whether they're going to be able to get that financing. I think once we've got clarity on that, then we'll see more of the signings coming through. In terms of Greater China, yes, as you say, a strong performance. If you look at the sequence of improvements that we've seen, it's been really strong and our China business is outperforming. September, as we said, we had the weak comp. October, you have Golden Week, which was a big stimulus for demand. I think if you look at the September business apart the weak comp, it's hard to be precise, as I said, my guess is the underlying there is closer to the August performance.
As we look forward over the next few months, my guess is it's probably somewhere in line with that August performance, which resonates back to the point I made earlier as to I think there's uncertainty as to how much short-term further improvement there is from what was the exit rate, I guess you could say, for the third quarter result.
Understood. Very helpful. Thank you.
Thanks, Monique.
Our next question is from Jaafar Mestari of Exane BNP. Your line is now open. Please go ahead.
Hi. Good morning. Three quick questions for me, please. Firstly, just on the regions you've talked in detail about, what the September underlying trends could be for China and Americas. EMEA, on the other hand, has deteriorated in September. Is there anything to call out there, or is this the underlying? Second question, just on the cost savings, the 75 million that are becoming more permanent, how should we look at it? Is this going to improve on, or is this simply going to back the existing EBIT sensitivity? Lastly, just on cash burn, you've given some overall guidance. Could you maybe just break down what you call the operating business between, I guess, operations themselves, are they generating cash? Separately, have you quantified things like cash tax payment, interest payments that fall into Q4? I'm going to take you back in cash burn territory in Q4, please.
Okay. Thanks, Jaafar. Yes, you're actually correct in pointing out that for September, the RevPAR was at -69.9% compared with the 66.3% that we saw in July. Note that July performance was quite a significant step up from that August performance versus the July performance, which was -74.7%. I think you'll appreciate there was a lot of leisure demand in August, so everyone wanted to get away, right? I think we all needed a holiday after a tough few months. That did stimulate the demand. I think you're then seeing it coming back onto more of a normal run rate in front of us. I think that's the explanation of that rather than anything else that I can call out. In the collection of quite a few markets, so it's always harder to get into the precise timelines.
Sure.
In terms of the cost savings, well, I guess there's a few things to point out. One is that a few years ago, we did go through quite a big reorganization. We took a lot of cost out of the business then, and the restructure that we had, which has been quite different for us. We moved to a market model, so we put a lot more resources in the business close to market, and that's really helped our teams be very responsive for our owners. We also put some investment behind new brand initiatives and ensuring that we have that market-leading systems I said that we've talked about. Having got the organization fit for the future, I think has always helped and continuing to help. It helped before, it's helping now.
We say of the GBP 150 savings we've made this year, we will keep GBP 75 of that next year. We're trying to get the balance between the cost savings and continuing to invest in the business. The investment that we've put behind the new brands will continue in 2021 because they are a big part of our future growth. We're not stripping the business back to the bone, but we have been able to take out some cost, which we've seen. In terms of the cash, yes, in the fourth quarter, we will have interest payments, we'll have some tax payments, we'll have some other payments. The operating business, I guess is referred to that. I think of that as opposed to our System Fund. System Fund will consume something in the order of GBP 100 million of cash.
We'll get back into free cash flow as effectively as known. That's really the result of, by the time the pandemic hit, there were quite a lot of commitments made in the existing System Fund world. You have to agree to sponsor the U.S. open, for example, which we're a sponsor of, and you have to buy media, et cetera. It was impossible to pull back the cash deployment fast enough in 2020. 2021, as I've mentioned before, I'd expect the System Fund to be broadly cash flow neutral. Strong control there.
Thanks, Paul.
Thank you, Jaafar. Our next question is from Leo Carrington of Credit Suisse. Your line is now open. Please go ahead.
Thank you. Thank you. Morning, all. Just very quickly, a follow-up on the cash flow question. I guess reading between the lines, it looks like you broke even on a cash basis in July and then generated cash in August and September. Can you break out whether that was primarily due to the stronger RevPAR, 7 percentage point stronger RevPAR in August, September, or more of the operational improvements, working capital that you've mentioned already?
Hi, Leo. A combination, actually. Yes, as you say, some stronger trading, which did help a little bit. We got a small tax refund in the course of that came through, and then it tied the timing of payments of interest on our bonds and tight working capital controls. Our owners continuing to pay us, as I talked about. A number of factors all contributed to the strong cash flow performance that we saw.
Okay, thank you. Just last question from me. A follow-up question on the closures in your system. Do you have a sense of owner health and ability to hold out until demand returns, and whether this is sort of, whether this differs significantly by region, do you think? To what extent is there continuity of specific owners that, in this kind of worst case foreclosure situation, do you have a kind of preferred ability to be the franchise brand for a new owner?
Thanks, Leo. I guess the first thing on that is that we are in partnership with our owners. It's hugely important to us that our owners succeed. Many of them we've been in partnership with for decades. We do everything we can to bring business into our hotels. That's the most important thing that we can do right now. We can help them think about their manning models and how they reduce costs. We can help them with any information they might need for refinancing, et cetera. The greatest benefit we can do is deploy our systems and our out-performance to drive the greatest possible level of revenue to their hotels. That said, as you note, if very unfortunately, an owner does run into financial difficulties, then our contract will normally continue.
The lender will want to keep the franchise contract on it while we find a new owner for the hotel. We're not seeing an elevated level of exits from the system. It's in line with what we've seen. You always see some hotels that leave the system, and generally, it is that we've asked the hotel to leave for quality reasons. They've come to the end of their contract, and they just don't have the hotel that is right. We call it, and often we work with the owner on a new hotel. We do everything we can with the owners to help them reduce their costs, and also, many of these owners are SMEs, and we've been working with governments all around the world to get as much support as we can.
In the U.S., in the last PPP program, a very large proportion of our owners in the U.S. were able to take advantage of that, and if there's a new stimulus package agreed, then our owners will be able to take advantage of that. We lobby on their behalf to get as much support for an industry that is critical for the world's economy, provides huge employment. I think governments recognize the importance that there is and the number of jobs that are affected, and they're listening to the lobbying and still a way to go in some cases, but some positive responses so far.
Thank you.
Thank you.
Our next question is from Tim Barrett of Numis. Your line is now open, please go ahead.
Hi, Paul. It's Tim. I have two areas that were covered through other people that already asked on. One is a very picture question. I think if I understand you right, that you [inaudible] , that demand to recover gently in the U.S. next couple of quarters. Just looking at how flat occupancy is through the weekly travel data, I just wonder what was backing that up and whether you think it will be transient demand on the business and leisure side. Second question, looking at the pipeline, about 5,000 rooms are still exiting quarterly, which seems remarkably consistent. Does that tell us that the pipeline is still fresh? Or is there a period where you'll review it and look to take out some of the rooms that might not open in fullness of time? Thanks very much.
Thanks, Tim. Good morning. Yeah, I think the sentiment that I'm trying to convey is that there is uncertainty. I think if you look at the exit rate from the third quarter, there is a possibility that we do continue to see the same sequential improvement, and the U.S. has improved month by month, and September was pretty strong. September, of course, had that Labor Day business. In the U.S., people are continuing to travel, so yes, we're seeing good levels of transient leisure. We're seeing good levels of business transient. What we're not seeing is group business coming back. That's a small part of our business, but many of the other guests are still there and are still traveling. There's just an element of uncertainty. I can't be certain as to exactly how the fourth quarter is going to look.
I have to guess now I'd see probably a small sequential improvement to flat to what we saw at the end of that third quarter. In terms of the pipeline, we do, as you note, we're always trying to keep it fresh, trying to take some hotel concept out when we decide that it's just not going to get built, because then that frees up that location for us to sign with another owner. It's not to our advantage to keep hotels in that are not actually going to get built. We're in, what is it. Six or seven months into this new situation. If they only turn around and say, because they're either focused on their existing business or they can't get the financing, we'll take appropriate action. It's certainly not something for now, but it's certainly something we will keep under review in the future.
Okay, got it. Thank you very much.
Thanks, Tim.
Our next question is from Alex Brignall of Redburn. Your line is now open. Please go ahead.
Yeah, good morning. Thanks for taking the questions. I've got a couple. On signings, you've given some good color on how your own signings are progressing. In the STR data, there's been a very material increase in deferrals and cancellations of hotel projects in August and September. I appreciate that's market data. It seems like after sort of sitting on their hands for a while, some people are getting out of projects. Could you just talk about, obviously, what you're seeing in terms of most recent months, but also whether you're seeing that amongst competitors or kind of some of the other participants?
Secondly, it sounds like for 2021, you're guiding to sort of materially lower profitability than what consensus currently is, like somewhere sort of low GBP 400 or something around that level, which kind of implies 12% or so revenue RevPAR less than consensus were expecting and is broadly consistent with a sort of flattening in the RevPAR trajectory. Could you just help to explain what might get us to that level kind of from a starting point of GBP 200 in 2020? Thank you very much.
Thanks, Alex. In terms of the STR data, I think what you'll see is owners want to have the most preferred brands. The most preferred brands are in the midscale, certainly are. Holiday Inn Express is the number one brand in that segment. Obviously, Holiday Inn Express is the largest brand in the world, largest hotel brand in the world. It's performing very strongly. If you look at some of our other brands, Candlewood Suites is one of the best-performing brands in the industry this year. That's a very low level of the RevPAR. A number of our brands are really performing very strongly, and owners are very anxious to build new versions of those when they can. It does, as I referenced before, come down to being able to get financing. Members do want to lend to those higher-quality brands.
We're doing better than the industry there. I think you will see a bit of a shakeout. The weaker brands will struggle. This is what we saw in each of the prior downturns. The strongest brands came through this, increasing their market share. I have very little doubt that will be the same this time around. I think you'll also see more conversions coming through, so more of our growth will come through than historically indicated from hotels converting from weaker brands into our brands when the quality's good enough. In terms of the outlook, I think I've really only guided to fourth quarter and said that there's an element of uncertainty. I think that as we look forwards, we say the full industry recovery will take time, but we feel confidence from the steps we're taking to protect and support our owners.
I think it's very much dependent on the macro. It's not possible for me to precisely guide you on the fourth quarter, so I certainly can't do that for 2021. There's a very wide range of expectations out there. It'll depend on the therapeutics, it'll depend on the availability of a vaccine, and it'll depend on when people just decide to start traveling again, because it reflects it. We continue to monitor all of those. If my comments have been taken by you as an indication of 2021 EBITDA growth, they weren't intended to be.
Okay, thank you very much.
Thanks, Alex.
Our next question is from Richard Clarke of AB Bernstein.
Hi, good morning. Three questions if I may. The first one, I know you made a few comments about the System Fund, wanted to dig into it. Are you getting closer to breakeven on the System Fund? Are you still happy to keep the losses you're making from the System Fund outside of the underlying earnings? Are you still describing those as a timing difference? Second question, when I look in your pipeline, the three voco you've got in the U.S. and the three Six Senses you've got in China are all very small. They're about 50 rooms. Normally, you kind of describe your minimum room size as around 75. Is there some sort of widening of the opportunity you're looking at there? Does that affect the contribution margin you get from those hotels? Maybe you can put anything on that.
Third question, apologies if it's a bit boring, but just tax. Obviously, we've got the U.S. election coming up next week. Biden wants to put the U.S. corporation tax rate up. Anything you could do to offset that if that does happen? It's been put to me that there could be some advantage of you restructuring to not have other countries being consolidated into the U.S., given the fact that he wants to put up foreign earnings income. Anything you would look at in terms of restructuring the Americas portfolio to maybe consolidate non-U.S. income into the U.K.?
Thanks, Richard. In terms of System Fund, the balance there is always making sure that we're investing to make our owners' hotels absolutely as successful as they can to drive revenue for them, but it's also being mindful of cash cost. At a time when the owners are rightly seeing us focus on our strategy revenues for them, we want to do the right thing. We have allowed that to run to a cash deficit for 2020. For 2021, my expectation is that we'll bring that back and manage that to neutral. Over time, the cash that we've deployed there will come back. Realistically, we wouldn't be trying to do that until the industry was sort of back in full swing, so that we can continue to support our owners as well as possible.
In terms of pipeline and the voco and Six Senses, the size of hotels, it really comes down to revenues. What we don't want is a very small hotel with a low room rate, because then the cost of support it and the revenues out of it just don't justify it. Six Senses, the average room rates can be very, very high. These are very high luxury, very sought-after properties, even with room rates above $1,000. A 30-room Six Senses can work, and certainly a 50-room Six Senses can work and generate very good fees. The voco and Six Senses in the Americas have been in fantastic locations and actually they're first-class assets with high ADRs, and they'll generate good fees for us. Where that is the case, yes, you can have them with a smaller key count than would normally be the case.
No real difference to what the average rate would be, though. Just happen to have managed to secure some real marquee locations to begin with. Tax, always a complex area. The tax reform brought in a few years ago did reduce the corporate tax rates. Quite complicated because there's some reductions in the headline rate, but also some restrictions with what you can take in terms of interest deductions, et cetera. We have to wait and see what might happen in the election, whoever the new administration, what their fiscal policy is and how that manifests. I think it's probably too early to talk about any sort of restructuring that might occur. It's one that certainly we keep under review.
Great. Wonderful. Thanks very much.
Thanks, Richard.
We do have one question remaining, but I will take this opportunity to reiterate that ladies and gentlemen, should you like to ask a question, it is star followed by one on your telephone keypad. Our question is from Ivor Jones of Peel Hunt. Your line is now open. Please go ahead.
Good morning. I was thinking about the improved state of the balance sheet since the half. Could you talk about the factors that will feed into the board's discussion about paying a final dividend? Along with the CCFF in the U.K., what else is there that sort of government support or quasi-government support through COVID that you might choose to repay? The second thing was, should we expect more material impairments at the year-end? More importantly, would they be enough such that depreciation charges or amortization charges would fall in 2021 to optically improve the reported level of profit, or will they be trivial in total? Thank you.
Thanks, Ivor. In terms of balance sheet, yes, I guess you could say the balance sheet’s improved, given the cash generation. I think by the end of the year, we will go back to the non-System Fund side of the business being about cash neutral, and the System Fund having about GBP 120 million. I think that the board would consider the net debt service of the business when considering the cash generation. Actually, these would be the factors that, as always, are taken into account when considering such matters as a dividend. In terms of government support, we have not taken advantage of the furlough payments in our operating business. Some of our owners have rightly been able to access it out in the U.K., but we didn't take that money in the U.K.
We did access the CCFF, as we've previously talked about. That will run through till next March. Then we'll have to make a decision as to whether we want to do that again. In terms of the possible impairments, we looked very closely at all our assets at the half-year. We did have pretty good visibility on trading, et cetera. We've marked them down appropriately. I wouldn't necessarily expect any further impairments at the full-year. Never say never, I think we were pretty conservative at the half-year in terms of the markdowns we took then.
Great. Thank you very much.
Thanks, Ivor.
We have no further questions, I will hand back to your host.
Very good. Well, thank you, everybody. Thank you for listening. Thank you for your continued support, and it's very good to talk to everybody. For those of you that we don't speak to in the meantime, full year results will be in February, so we look forward to talking with you all then. Thanks, everybody. Have a great day. Bye for now.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your line.