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Safestay potential acquisitions

22 July 2015 15:29

Safestay has revealed two potential acquisitions - one of which would be treated as a 'reverse' transaction under AIM rules.

Safestay, the owner and operator of a new brand of contemporary hostel, has executed a binding commitment letter to acquire, subject to certain conditions including the exchange of a final sale and purchase agreement, the entire issued share capital of a special purpose corporate vehicle (Milan SPV) for £9m on a cash and debt free basis.

The Milan SPV has agreed to acquire a property in Milan, Italy, and it is a condition of the acquisition that the Milan SPV has completed the acquisition of the Milan property on or before 31 January 2016 and that the debt and equity fundraise completes. The Milan property is currently being operated as an apart-hotel, which, if acquired and refurbished and converted, Safestay intends to operate as a hostel with approximately 279 beds.

The company is also in the advanced stages of negotiating a contract for the acquisition of a larger hostel and accommodation scheme in the UK for approximately £14.9m. Due to its size in relation to the Company, the UK Acquisition will be treated as a 'reverse' transaction under AIM Rules. The aggregate consideration for the acquisitions is approximately £21.2m and accordingly both acquisitions will be conditional on the successful completion of an equity fundraising of approximately £15n (net) by way of the issue of new equity and the securing of a new debt facility of £8.5m.

Subject to completion, it would be the company's intention to operate the UK hostel and the Milan property, once refurbished and converted, as hostels under the 'Safestay' brand. At the request of the company trading on AIM for Safestay ordinary shares of 1p each have been temporarily suspended pending an announcement and publication of an admission document.

Chairman Larry Lipman 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."

The company says trading of the operating hostels in the first 5 months of 2015 has been satisfactory. The hostel at Elephant & Castle has experienced revenue growth of 5.5% and EBITDA growth of 20% compared with the same period in 2014.

Refurbishment works at the Holland Park Property are nearly complete following minor delays and trading is scheduled to commence on 1 August 2015. The level of interest in the property and bookings taken to date give the Board encouragement that this hostel will mature to trading levels that management expect.

At 3:29pm: (LON:IVI) Invesco Income Growth Trust Plc share price was -1.62p at 293.38p

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