Safestay (SSTY) , a major European hostel group, announced the acquisition of a leasehold site in Budapest by its wholly-owned subsidiary Safestay Hungary.
The site is in the city centre of Budapest and is expected to add approx. 150 beds to Safestay's existing portfolio of 3580 beds across 18 sites, excluding the group's recently announced locations in Brighton and Calpe Costa Blanca.
Safestay Hungary has signed a 5-year lease for the property from Curzon Capital, with the option to extend over two additional 5-year terms. The first 8 months of the property's €150k annual rent will be waived while Safestay obtains the licence to operate it as a hostel and subsequently refurbishes it at an estimated cost of €600k.
Larry Lipman, Chairman of Safestay, commenting: "We are very pleased to announce the acquisition of a leasehold property in the heart of Budapest, a vibrant European tourist destination. This site has excellent potential and, following refurbishment, will be a fantastic addition to Safestay's portfolio of premium, well-located hostels.
This agreement builds on the Group's exciting expansion over the past few months and reflects continued progress against our growth strategy."
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Safestay (mktcap £13.85m) acquires another valuable property in Central Europe, expected to contribute an est. €350k to group revenues and €50k to EBITDA after rent during its first year of operation. After the initial refurbishment cost, annual EBITDA is expected to increase over the next few years as the site matures. The 5-storey property is located in the city centre of Budapest, close to the shopping district and within a 15-minute walk to the Danube river.
The group's entry into the Budapest hostel market aligns with SSTY's strategy to expand its presence across Central and Eastern Europe, building on recent acquisitions in the Czech Republic, Slovakia, and Poland. SSTY shares gained 3.6% on the announcement.
Safestay's expansion strategy has proven successful so far as evidenced by the group's recently announced FY23 results. Total revenues increased by 18% to £22.5m and adjusted EBITDA jumped 15% to £6.8m. Operationally, occupancy increased to 71.4% from 63%, leaving room for significant growth, and the average bed rate increased to £23.74 despite a challenging year for the hospitality industry. Cash at year-end decreased to £2.0m from £5.2m the prior year after a major £4.3m acquisition in Edinburgh.
Safestay's pipeline is very promising, with forward sales at the beginning of FY24 significantly ahead of last year at £3.7m. Aggressive expansion is driving revenue growth and visibility, particularly the Edinburgh acquisition, which will make its first revenue contribution in FY24. A recent debt restructuring has given the group additional flexibility to pursue further M&A opportunities.
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