Safestay, the owner and operator of an international brand of contemporary hostels, has announced it will sell its Edinburgh Hostel to a&o Hotels and Hostels for £16m payable at completion, representing a 22% premium to the £13.4m book value.
The 2019 annual EBITDA of the hostel pre-Covid 19 was £1.7m, but the group said it has responded to the pandemic by reducing its monthly cash burn to £0.35m, which has “significantly” mitigated the impact of having to close the hostels.
Despite these measures, however, the extensions of the lockdowns, which have lasted “significantly longer than first expected”, means the company “needs additional short-term capital”.
In light of this, its board noted an asset disposal is the “optimal approach” for the group to raise new capital in the current market environment, calling the £16 m offer for the Edinburgh hostel an “attractive solution”.
Part of the proceeds of the disposal will be used to reduce debt by 35% whilst providing the group with sufficient cash reserves for the next months. The board said this is the best option to protect shareholders’ interests and place the company in a strong position for when the market recovers and the company can again be cash generative.
The transaction is conditional upon shareholder approval, which will be sought at a general meeting in London on 30 April 2021.
Larry Lipman, chairman of Safestay, said: “We are very pleased with this transaction as it will facilitate a 35% reduction in Group borrowings as well as give us the cash balance to re-engage as restrictions lift. It is a very positive solution which provides a solid foundation to not only restart but also to have the option to invest at a time when many of our competitors will not.”