AIM-listed hostel operator Safestay has struck a deal that will allow it to cut its debt burden by more than a third, agreeing to sell a hostel in Edinburgh for £16m to A&O Hotels and Hostels.
The deal for the Edinburgh Royal Mile Hostel priced at a 22% premium to its £13.4m book value.
Safestay said in a stock exchange statement that it has been left with little choice but to offload assets in the face of financial pressures caused by the Covid-19 pandemic. The company has reduced its monthly cash burn to £350,000, it said, but still needs additional sort-term capital.
It will use the proceeds to cut debt, as well as boosting cash reserves for the coming months.
“The board believes that an asset disposal is the optimal approach for the group to raise new capital in the current market environment,” its statement read. “The £16m offer for the Edinburgh hostel is an attractive solution.”
Safestay chairman Larry Lipman 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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