Safestay has reported Final Results for the Period to 31 December 2014. Having successful listed on AIM on 2 May 2014, raising £4.8m and simultaneously acquiring its Elephant & Castle hostel.
Fiona Cincotta, senior market analyst at finspreads.com, commented on the positive results and the promising future for the company:
“Safestay, the boutique hostel group, reported a pretax profit of £137,000 for 2014 on the back of strong revenues, as it saw higher bed occupancy and a large increase in revenue per bed. Revenue increased to £2.3 million from £1.9 million as bed occupancy increased 9.9% and revenue per available bed increased 21.6%, whilst still managing to keep prices under £25 a night.
“Safestay has made some strategic acquisitions in 2014, in York and Holland Park, which should only add to the success of the company in the current year and going forward. Growth so far in 2015 has also been solid and should the company continue with its planned expansion into other European cities at an appropriate pace then the future for this stock is promising. Investors were also quick to pick up on the news pushing the stock 1.4% higher in early trading.”
Trading highlights
- Safestay Elephant & Castle results
- Revenues increased by 19.8% to £2.315m (2013: £1.933m) reflecting the growing awareness of the Safestay brand and an increase in repeat custom from schools and colleges
- Bed occupancy increased by 9.9%
- Revenue per available bed (RevPAB) increased by 21.6%
- Average bed rate (ABR) increased by 10.7%
- 62.0% increase in earnings before interest & tax to £0.972m (2013: £0.600m)
- Acquired an additional hostel in York and signed heads of terms for a 50-year lease on a hostel in Holland Park, London which completed on 12 January 2015 and is scheduled to commence trading in Q2 2015
- Raised £3.3m in a placing in December 2014 to fund the refurbishment of the Holland Park hostel, repay debt and provide further working capital
- Completed the refurbishment of Safestay York in December 2014
- Further operational progress expected in 2015 under Safestay’s newly appointed CEO, Philip Houghton
- Recommended final dividend of 0.3p per share
Commenting on the results, Chairman of Safestay, Larry Lipman, said:
“Hostels have sometimes had a poor reputation in the past but this is now changing with new entrants such as us introducing a new brand of luxury hostel, offering safe, stylish and fun accommodation but still for less than £25 per night. Demand is high not just from traditional hostel customers such as young adults, schools and colleges but increasingly also from cost conscious families and business travellers too.
“We are aiming to build a premium pan European hostel brand and we have made good progress towards this aim in 2014 through the expansion of the portfolio, the increase in occupancy and the listing on AIM. Looking ahead, we expect to open in Holland Park and add further hostels in other principal European cities.”
Chairman’s Statement
Overview
The hostel sector is a large, fragmented and severely under-invested market and largely ignored by mainstream hotel operators. This was identified as an opportunity a number of years ago, in the belief that a new entrant could establish a premium brand while maintaining the key concept of a hostel, but offering it within a safe and stylish environment.
A core part of Safestay’s success is our property expertise. The ability to source the right properties on competitive terms is critical, giving us a significant commercial advantage as well as underpinning the value of the Company.
Luxury hostels rapidly gaining momentum
We understand the processes and structures required to build a scalable business and we have put these in place to support what we believe is a very exciting opportunity. Crucially, we are continuing the process of educating the external market as to the advantages of staying at a luxury hostel and thanks to our efforts to date, luxury hostels are rapidly gaining momentum across the market.
The results we are reporting are for the 11-month period from the Company’s incorporation on 29 January 2014 to 31 December 2014, although the Company’s trading activities did not commence until its admission to AIM on 2 May 2014. As a result, the audited financial statements reflect the eight months’ trading from that date and only offer a partial view of the Company’s trading performance in 2014. To provide a more realistic picture of the trading business acquired in the period, Safestay Elephant & Castle, we have produced key figures, where possible, on a proforma basis for the full 12 months of 2014 in order to better reflect the business’ progress.
Financial results
For the period 29 January 2014 to 31 December 2014, the Company generated revenues of £1.938m, leading to an operating profit of £0.580m and a profit before tax of £137k. As a consequence, earnings per share were 1.29p.
As at 31 December 2014, the Company had gross bank and loan note borrowings of £9.284m secured against its properties with an average weighted interest cost of 5.26%.
The Company has two freeholds and one leasehold property. As at 31 December 2014, its freehold property portfolio was valued at £15.0m.
The Directors are pleased to have recommended the payment of a final dividend of 0.3p per share on 26 June 2015 to shareholders on the register on 15 May 2015 for approval at the Company’s AGM to be held on 2 June 2015.
Key achievements in 2014
Significant progress has been made to expand the Safestay portfolio and strengthen the brand with the addition of two new hostels following the Company’s initial public offering (IPO) on AIM on 2 May 2014. The hostel sector continues to excite both consumers and investors and we are confident that Safestay’s market position and leadership team provide the necessary ingredients to expand the brand into key cities in the UK and Europe.
Since Safestay’s listing, the trading performance at Elephant & Castle continues to improve, delivering growth in both RevPAB (revenue per available bed) and EBITDA (earnings before interest, taxes, depreciation and amortisation).
The acquisition of Safestay York followed soon after the IPO in May 2014 and the refurbishment works were completed in December 2014. We are delighted with the results of the refurbishment and the first year of trading as Safestay York is comfortably on track to meet management’s expectations.
One of our major successes in 2014 was securing the heads of terms on our third property in Holland Park, London, in the face of intense competition. The lease was signed on 12 January 2015. This has enabled the business to be in a position to extend our brand footprint in the capital to almost 800 beds by summer 2015 when Safestay Holland Park is scheduled to commence trading. There is significant interest in this property and we are confident that the hostel has excellent trading potential given the building’s aesthetic appeal and its highly convenient location in a very desirable central area. It also provides a platform for both synergies between the hostels and traction to further strengthen the Safestay brand in the consumer and investor markets.
In January 2015, we announced the appointment of Philip Houghton as Chief Executive who brings with him extensive multi-site hotel and leisure sector experience.
Safestay’s head office function will continue to be strengthened during 2015 providing expert revenue and group sales management. Building a strong team and working closely with the business’ strategic partners provides a scalable platform to support the trading performance of the current portfolio and our expansion plans.
A large proportion of our business is booked via the internet; either directly with Safestay through our own website and the group booking function or through third party agents and online travel agents (OTAs) such as Hostelworld, HostelBookers and Booking.com. There are encouraging signs that more customers are booking directly with us as this channel has more than doubled as a percentage of total revenues year-on-year. Investment is being directed into online activity to further enhance the Safestay brand and encourage continued growth in direct, non-commissionable business.
Outlook
Safestay is growing rapidly and we expect to add further hostels to the portfolio in 2015. We are currently sourcing new sites in cities across Europe that would be popular with our target market.
At the same time, we are putting in place the necessary processes and structures to facilitate our growth. As a management team, it is important for us to remain focused on perfecting the Safestay offer to ensure that we can replicate the same premium experience at each new site as they open.
Early trading in Q1 of 2015, traditionally the weakest trading quarter of the year, has seen year-on-year growth which supports our confidence that 2015 will be another successful year.
We look forward to an exciting and profitable journey ahead.
Larry Lipman, Chairman
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