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Safestay to offload Edinburgh site

Its board said the 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’

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. 

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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.”

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