22nd Jul 2015 14:48
LONDON (Alliance News) - Shares in Safestay PLC were suspended Wednesday afternoon, after the hostel operator said it is working on deals to acquire properties in the UK and Italy, one of which agreement would constitute a reverse takeover of Safestay under AIM market rules.
Safestay said it has executed a binding commitment letter to acquire special purpose corporate vehicle Milan SPV for GBP6.3 million on a cash and debt free basis. It said Milan SPV has agreed to acquire a property in Milan which it intends to operate as a hostel with approximately 279 beds.
Safestay also said it is also in the advanced stages of negotiating a contract for the acquisition of a larger hostel and accommodation scheme in the UK for GBP14.9 million, which would be a reverse takeover. Safestay's own market capitalisation is GBP13.3 million.
The company said that it will raise GBP15 million by issuing new equity and intends to secure a new GBP8.5 million debt facility to fund the acquisitions.
Shares in Safestay have temporarily been suspended from trading on AIM from 1500 BST on Wednesday, last quoted at 69.59p. A further announcement will be made in due course, it said.
"These potential acquisitions represent an excellent opportunity for expansion of the Safestay brand into cities that are core strategically for our business. We hope that the UK hostel will bring in revenue and therefore enhance profits, while the Milan property is an opportunity to acquire a property in a key location within a city that enjoys strong tourist numbers but we believe is low on budget accommodation. We are very pleased to be making our first move into mainland Europe, and look forward to the future with great confidence," Chairman Larry Lipman said in a statement.
Safestay added that trading in the first five months of 2015 has been "satisfactory", with the hostel at Elephant & Castle experiencing revenue growth of 5.5% and earnings before interest, tax, depreciation and amortisation growth of 20% compared with the same period the year before.
The hostel in York, which launched under the Safestay brand in January, is seeing revenue and profitability growth but at a rate behind management's pre-opening expectations, it said, although it expects it to reach anticipated mature trading levels after the appointment of a new general manager and the employment of a new dedicated sales and marketing resource.
The introduction of charging for breakfasts at both hostels also commenced in June, and is anticipated to increase both revenue and profit.
Meanwhile at the Holland Park property, refurbishment works are nearly complete following minor delays and trading is scheduled to commence on August 1. Safestay said that the level of interest in the property and bookings taken to date give the board encouragement that it will mature to anticipated trading levels.
Safestay did warn, however, that recent investment into head office infrastructure is having a short-term impact on profitability. It said that further investment is required in the second half of 2015 to meet the requirements of the growing hostel portfolio and to absorb future acquisitions.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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