The Safestay hostel, which lies just off the capital’s historic Royal Mile, on Blackfriars Street, is being sold to A&O Hotels and Hostels for £16 million.
Stock market listed Safestay, which has a second Scottish hostel, in Glasgow, said it was responding to the pandemic and associated lockdowns across Europe by reducing its monthly cash burn.
It noted that lockdown extensions have lasted “significantly longer than first expected”, leading to the need for additional short-term capital.
“The board believes that an asset disposal is the optimal approach for the group to raise new capital in the current market environment. The £16m offer for the Edinburgh hostel is an attractive solution,” the firm added.
Safestay snapped up the hostel in 2015 for £14.9m. The firm, which specialises in “contemporary” accommodation, swooped for the 615-bed Smart City Hostel, which provides a mixture of hostel and student accommodation.
The site, in the heart of the city’s Old Town, generated revenues of about £2.7m in 2014 and made an adjusted underlying pre-tax profit of £1m. It had a 12-year contract with the University of Edinburgh to provide student accommodation during the academic year.
Announcing the sale to A&O, Safestay noted that the hostel had a current book value of £13.4m. The 2019 annual earnings of the hostel, pre-Covid, was £1.7m. It was the largest site in the company’s Europe-wide portfolio.
Chairman Larry Lipman said: “We are very pleased with this transaction as it will facilitate a 35 per cent reduction in group borrowings.”