Safestay accepts £16m offer for Edinburgh hostel

Hostel operator Safestay has completed the sale of its Edinburgh hostel to a&o Hotels and Hostels, it announced on Thursday, for a cash consideration of £16m.

The AIM-traded firm said that represented a 22% premium to the £13.4m, adding that the 2019 annual EBITDA of the hostel, pre-pandemic, was £1.7m.

Safestay explained that it had responded to the pandemic and associated lockdowns across Europe by reducing the monthly cash burn of the business to £0.35m, which had “significantly mitigated” the impact of having to close its hostels.

However, despite those measures, following the prolonged extension of lockdownsit had decided to seek greater balance sheet security and flexibility by securing additional capital in approving the £16m offer for the Edinburgh asset.

The board said it believed the sale was the best option to protect shareholder interests, and place the company in a strong position for when the market recovered, being able to take advantage of new opportunities that were expected to arise.

Part of the proceeds of the disposal would be used to reduce debt by 35%, while providing the group with sufficient cash reserves as the business moved back out of lockdown towards positive cash generation over the coming months.

“This transaction has facilitated a 35% reduction in group borrowings as well as providing us with the cash to reset our hostels and re-engage as restrictions lift,” said chairman Larry Lipman.

“It is a very positive solution both for the restart, which is underway, but also to have the option to invest at a time when many of our competitors will not.”

At 0918 BST, shares in Safestay were up 2.14% at 21.45p.