Safestay, Edinburgh’s Largest Hostel Sold for £16 Million to A&O

Main Photo: The Safestay hostel Edinburgh

Date: April 2021

Location: Just off the Royal Mile, Edinburgh, Scotland, UK

Name: Safestay Edinburgh

No. of Keys: 600 beds

Seller: Safestay hostels

Buyer: Hostel owner Safestay has agreed to sell its Edinburgh city centre hostel to A&O Hotels and Hostels for £16m, representing a 22% premium to the £13.4m book value.

The 600-bed hostel, located just off the Royal Mile on Blackfriars Street, is the capital’s largest. The 2019 annual earnings before tax of the hostel, pre-coronavirus, was £1.7m

In a statement, Safestay said it has responded to the pandemic and associated lock-downs across Europe by reducing the monthly cash burn of the business to £350,000 – which has significantly mitigated the impact of having to close its hostels.

“However, despite these measures, the extensions of the lock-downs, which have lasted significantly longer than first expected, means the company needs additional short-term capital.”

The board believes that an asset disposal is “the optimal approach” for the group to raise new capital in the current market environment. Part of the proceeds of the Edinburgh hostel sale will be used to reduce debt by 35%, while providing the group with sufficient cash reserves for the next months.

The board said it believes this is the best option to place the company in a strong position for when the market recovers and it can again be cash generative again. The transaction is conditional upon shareholder approval, set to be sought at a general meeting on 30 April.

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.” The company still owns a hostel in Glasgow – the former Best Western Glasgow City Hotel, bought for £3.15m in 2019.

A&O are no strangers to the hostel business, founded in 2000, they have hotels and hostels in Berlin, Dortmund, Dresden, Dusseldorf, Frankfurt, Graz, Hamburg, Cologne, Leipzig, Nuremberg, Prague, Vienna, Aachen, Weimar, Amsterdam, Salzburg, Stuttgart and Munich. We believe this is their first entry into the UK market.

Price: £16m

Price per Bed: £26,666 per bed

THPT Comment: Better safe than sorry…sensible move…we guess staycation and student/youth travel will restart first once hotel life resumes….This leaves Safestay with 20 locations across Europe, albeit not so much owned, more leased. Not bad for Larry Lipman and his team, who started into hospitality in just 2011, with an AIM listing in 2014, after a background in property and self-storage.

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