Edinburgh's largest backpacker and student hostel off Royal Mile sold for £16m as lockdown bites

Edinburgh’s largest hostel, with more than 600 beds, has changed hands in a multi-million-pound deal.

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.

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It noted that lockdown extensions have lasted “significantly longer than first expected”, leading to the need for additional short-term capital.

The vast hostel sits just off the Royal Mile in Edinburgh's Old Town and offers more than 600 beds and a range of facilities.

“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.”

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