Luxury hostel brand Safestay has announced an £18.4m debt restructuring and refinancing, and sale and leaseback transactions on its Edinburgh and Elephant & Castle hostels.
On 31 December 2016, Safestay 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 been agreed with HSBC, subject to satisfaction of customary conditions, to replace prior arrangements.
The company announced today that the move will result in significantly reduced cost of debt and repay all outstanding convertible loans when they become due.
It has also completed sale and leaseback transactions on its hostels in Edinburgh and Elephant & Castle, raising gross cash proceeds of £12.6m. The sale has been agreed with an institutional buyer in exchange for 150-year geared ground rent leases.
The group said it "provides the opportunity for Safestay to continue to operate both hostels under long term ownership whilst releasing the cash from the two properties, providing a materially positive impact for the group, without the liability of open market rents".
Safestay will receive £5.3m for its 615-bedroom Edinburgh hostel, and £6.1m for its 410-bedroom Elephant & Castle property, as well as a further £1.2m on completion of the proposed extension of the Elephant & Castle hostel, expected in 2018.
Total gross proceeds from the sale and leaseback are £12.6m against annual combined ground rents commencing at £300,000 rising to £330,000 on completion of the extension, representing a net initial yield of 2.5%.
In the year to 31 December 2016, the two hostels generated unaudited revenues of £5.5m and profit before tax of £1.5m. The newly created leaseholds for both properties were independently valued on 14 March 2017 at £30.3m, which compares favourably with the freehold valuation of £30.8m on 31 December 2016.
Larry Lipman, group chairman, said: "Consolidating our borrowings into one new facility at a lower cost with an international lender capable of supporting our European ambitions is a logical and very positive step and has been made possible by the increasing trading strength of the business.
"The underlying uplift in value for the Edinburgh and Elephant & Castle sites is excellent for the business and the transactions this has enabled reflect well on the strength of our business, our brand and the quality of our properties and means we can re-cycle capital into new growth opportunities where we can continue to achieve higher and therefore more attractive returns."
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