TIDMSSTY
RNS Number : 8944W
Safestay PLC
24 August 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.
24 August 2020
Safestay Plc
("Safestay" or the "Company")
Trading Update and Financing Arrangements
Safestay (AIM: SSTY), the owner and operator of an international
brand of contemporary hostels, is pleased to provide the following
update on trading and its latest financing arrangements.
Trading update
On 29 May 2020, in conjunction with the announcement of the
Company's final results for the year ended 31 December 2019, the
Company updated the market on its financial position and outlook.
That announcement explained the material uncertainty which has
resulted from the impact of the COVID-19 virus on the economy and
the hospitality industry and the company now sets out its revised
plan as it adapts to the prolongation of the pandemic beyond June
and the current travel restrictions in parts of Europe and across
the globe. The perceived likelihood of a second wave, impacting
further the tourism sector after the summer of 2020 is increasing,
and this has persuaded the Company to take further actions to
safeguard the Group's financial position. Additional cost saving
measures have recently been implemented, including further
negotiations with landlords to obtain additional rent reduction
following the GBP0.4m rent relief granted in the period between
April to July 2020, and all costs will continue to be reviewed on
an ongoing basis.
The Directors believe that Safestay has the infrastructure in
place to manage the re-opening of hostels and re-engagement with
its customers and that ultimately, Safestay will find the route to
returning its portfolio of hostels to pre-COVID-19 occupancy
levels. Safestay has been at the forefront of the modernisation of
the hostel market over the last five years. The Group generated
significant cash from its operations in 2019 and its strategy to
develop and expand the premium hostel offering within the UK and
through its European acquisitions was proving a successful formula
pre-crisis, and the Directors believe that it will continue to
appeal to the Group's customer base again once the world has moved
past the current crisis.
T he Company has built a forecast under two alternative
indicative scenarios:
A base case which applies the following assumptions:
-- All hostels re-open by October 2020
-- 25 per cent. occupancy (versus 90 per cent. in 2019) for the
months of August and September 2020 (based on open units rather
than total units), rising to 30 per cent. occupancy in the last
quarter of 2020, and 40 per cent. occupancy (versus 65 per cent. in
2020) for the months of January and February 2021; and
-- An average occupancy 5 per cent. lower than in 2019 for the rest of 2021.
A low case which applies the following assumptions:
-- All hostels re-open by October 2020 except for London
Kensington Holland Park and Barcelona Gothic which would open in
2021;
-- 20 per cent. occupancy (versus 90 per cent. in 2019) for the
months of August and September 2020 (based on open units rather
than total units), reducing to 15 per cent. occupancy in the last
quarter of 2020 assuming a second wave of infection, and 25 per
cent. occupancy (versus 65 per cent. in 2020) for the months of
January and February 2021; and
-- An average occupancy 15 per cent. lower than in 2019 for the rest of 2021.
The Group's hostels break even when the average occupancy
reaches approximately 57%. Under both indicative scenarios, the
hostels reach this occupancy level from March 2021.
The contribution of the six hostels acquired in 2019 and 2020
will help the total revenue to return to 2019 levels in 2021 in the
base case scenario despite a lower occupancy. The following is an
update of the Group's material capital expenditure
requirements:
-- The conversions of the Group's properties in Glasgow, Vienna
and Brussels from hotels to hostels were completed and paid for by
March 2020. The Brussels and Glasgow properties were also fully
renovated as part of the conversion works to position the hostels
strongly in their market upon re-opening of the properties.
-- The Group completed renovation works in Lisbon, Barcelona
Gothic, York and Edinburgh, and to the restaurant in Barcelona
Passeig de Gracia by March 2020.
The conversion and renovation costing upwards of GBP0.2 million
of the Berlin hotel into a 180 bed hostel has been postponed. The
Group's planned 2020 renovation program also included some
renovation works in Barcelona Sea, Barcelona Passeig de Gracia and
Elephant and Castle, which have been postponed. All these projects
will resume when the requisite funds are available and if the
investment is still financially sensible in the post COVID
environment.
Current Trading
During the lock down period, management organised 24/7 security
in all hostels and all properties have been serviced, maintained,
and cleaned. The job retention schemes have allowed the Company to
keep essential staff employed, and therefore the Group has the
ability to resume activity in all hostels as soon as authorised by
relevant jurisdictions and provided that resuming activity makes
financial sense. Moreover, following the acquisition of 14 hostels
in the last three years, the Group's teams have gained experience
in opening hostels in a very short timeframe and limited resource,
as demanded by the current situation.
The re-opening of hostels is subject to the restrictions in each
market, and the Group's sales team is initially focused on just
domestic customers while international travel remains limited.
Under the slogan, 'Stay Safe at Safestay' the priority is to inform
guests of the safety measures that are in place. A detailed
description of the safety protocols and the operational measures in
place is made available to the Group's guests via the Company's
website. Rooms are only being sold to individuals or groups who are
known to each other.
The Group re-opened its Berlin hotel on 26 May 2020, the Vienna
hostel on 10 June 2020, and all other hostels will have re-open by
28 August, except for London Kensington Holland Park and Barcelona
Gothic hostels which will only re-open when there is considered to
be sufficient demand to profitably operate more than one hostel in
London, and two in Barcelona.
On average, in July 2020, 30 per cent. of the Group's bed stock
was available and 16 per cent. of such bed stock was occupied. The
average occupancy for the Group's bed stock rose to 24 per cent.
and 27 per cent. of available bed stock respectively in the first
and second weeks of August The Directors are encouraged that the
data up to 16 August 2020 shows that occupancy levels are gradually
increasing week after week after hostels have re-opened. The five
hostels (Pisa, Berlin, Vienna, Warsaw, Brussels) which have been
re-open for more than five weeks have achieved 31 per cent.
occupancy on average in their third week since re-opening, and 39
per cent. occupancy on average in their fourth week since
re-opening.
Whereas under normal circumstances, 28 per cent. of the Group's
business is from group bookings made months in advance, and 72 per
cent. from individual guest bookings made two months in advance on
average, the current business is made essentially of last minute
bookings, which makes future bookings more difficult to
predict.
Financing Arrangements
It was announced on 14 April 2020 that the Company had agreed a
new GBP5 million overdraft facility from HSBC, which together with
the Company's cash reserves, would satisfy the Company's working
capital cash requirements during and after the lock down period. As
announced on by the Company on 29 May 2020, the covenants in the
Company's existing GBP22.9 million debt facility, also with HSBC,
have been waived until 31 December 2020. The Group is expected to
breach the historic debt service cover covenant and the historic
interest cover covenant at the next test date of 31 December 2020,
and the Group is currently discussing with HSBC the possibility of
HSBC waiving such covenants as at the test date of 31 December 2020
and for a longer period thereafter. There is no guarantee that HSBC
will agree to waive such covenants as at 31 December 2020 or agree
to extend the waiver of such covenants beyond 31 December 2020. The
Group is pursuing a government backed loan pursuant to the
Coronavirus Business Interruption Loan Scheme (CBILS) to replace
the HSBC facility.
Cash in bank as at 18 August 2020 was approximately -GBP0.9
million, with GBP4.1 million of the GBP5.0 million HSBC overdraft
still available to be drawn. Under the base case scenario above,
the Company models its cash low position of approximately GBP(4.6)
million in February 2021, falling within the available GBP5.0
million overdraft facility. If the assumptions contained in the low
case scenario described above were to apply, the Group would have a
funding shortfall by 31 January 2021.
To strengthen the Company's finances the board is investigating
alternative options to maintain its cash requirements within the
GBP5 million limit pursuant to the overdraft with HSBC. The Group
owns the freeholds of the hostels in Glasgow, Pisa and York, which
could therefore be disposed of, either in the form of a sale and
lease back transaction or a straight disposal. The Group might also
contemplate the early termination of the leases which are
anticipated to generate losses in the next months, subject to an
agreement being reached with the relevant landlords. The Board is
considering a range of options in relation to the business,
including raising equity, but the Board is mindful of giving all
shareholders the opportunity to participate in any such equity
raise.
The directors remain confident of securing additional funding to
continue to support the business and emerge as one of the winners
post the pandemic.
Larry Lipman, Chairman of Safetsay, "This is a challenging
period but I am confident that in time we will get back to normal.
We are working closely on a range of options to strengthen our
financial position, which may not be required but will be an
additional comfort to have. We know we have a good cash generative
business and while the current market is challenging we have a
clear strategy for addressing it and as importantly for moving back
to being fully operational."
The Company will provide a more detailed trading update with its
interim results, which will be published on 24 September 2020.
Enquiries:
Safestay plc Tel: +44 (0) 20 8815 1600
Larry Lipman
Liberum (Nomad & Joint Broker) Tel: +44 (0) 20 3100 2000
Andrew Godber / Edward Thomas / Miquela Bezuidenhoudt
Novella Tel: +44 (0) 20 3151 7008
Tim Robertson / Fergus Young
About Safestay
Safestay (AIM: SSTY) is the owner and operator of an
international brand of contemporary hostels.
For more information visit our:
Website: www.safestay.com
Vox Markets page:
https://www.voxmarkets.co.uk/company/SSTY/news/
Instagram page: www.instagram.com/safestayhostels/
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