Safestay consolidates borrowings into one facility

Shares surged in Safestay on Friday after the hostel operator announced it has consolidated its borrowings into one new facility and that the sale on two hostels has been completed.

The AIM-listed company agreed to an £18.4m debt restructuring and refinancing, to replace existing convertible and bank debt, with a single facility with HSBC.

At the end of last year, the company had unaudited total borrowings of £17.6m, made up of a £13.8m bank facility and convertible loans of £3.8m with an average cost of debt of 3.7%.

A new £18.4m, five-year bank facility has now been agreed with HSBC, subject to conditions, to replace the old arrangements in order to reduce the cost of debt of its and repay all outstanding convertible loans.

Chairman Larry Lipman said that consolidating the company’s borrowings into one new facility at a lower cost with a lender capable of supporting its European ambitions was “logical” step and has increased the trading strength of the business.

Separately, Safestay announced that it had completed the sale and leaseback on its hostels in Edinburgh and Elephant & Castle in south London for £12.6m, against yearly combined ground rents starting at £300,000 rising to £330,000 on completion of an extension, representing a net initial yield of 2.46%.

The sale has been agreed with an institutional buyer in exchange for 150 year geared ground rent leases, so the company can continue to operate both hostels while releasing the cash from the two properties.

Safestay will receive £5.32m for the Edinburgh property and £6.1m for Elephant & Castle as well as a further £1.18m on completion of an extension on the London hostel in 2018.

In 2016, the two hostels generated unaudited revenue of £5.5m and a pre-tax profit of £1.5m.

Lipman said the sales of the hostels means the company can re-cycle capital into new growth opportunities to achieve higher and more attractive returns.

Shares in Safestay were up 8.66% to 52.70p at 1225 BST.