Safestay (AIM:SSTY) has taken further actions to safeguard its financial position due to the increasing likelihood of a second wave of COVID-19 that would impact the tourism sector, it told investors this morning.
The hostel group recently implemented further cost measures including negotiations with landlords to obtain additional rent reduction following the £0.4m rent relief granted between April to July 2020. It said all costs will be reviewed on an ongoing basis.
The company also unveiled in a trading update that it owns freeholds for its hostels in Glasgow, Pisa and York and said these assets could be sold in either lease-back or straight disposals.
Cash in the bank as at 18 August 2020 was around -£0.9m, with £4.1m of the £5m HSBC overdraft still available to be drawn which the company agreed to back in April 2020.
Safestay said it remains confident of securing additional funding to continue to support the business and emerge as one of the winners post the pandemic.
Job retention schemes have allowed the firm to keep essential staff employed during the pandemic, granting it the ability to resume activity in all hostels ‘as soon as authorised by relevant jurisdictions and provided that resuming activity makes financial sense.’
Shares in Safestay have improved from lows of 9.10p in March. The Company was trading 7.41% lower this morning following the news.
The Directors added that they believe the group has the infrastructure to reopen hostels, re-engage with customers and eventually return its portfolio to pre-COVID-19 levels.
The group has built a forecast under two alternative indicative scenarios. The first - a base case scenario - will see all hostels reopen by October reaching 40% occupancy (65% in 2020) by January 2021. Average occupancy would be 5% lower than in 2019 for the rest of 2021.
The low case scenario will see hostels reopen by October - except for London Kensington Holland Park and Barcelona Gothic which would open in 2021 - with occupancy reaching 15% in Q4 of 2020 assuming a second wave of infection and 25% by the new year.
Average occupancy for the low case would be 15% lower than in 2019 for the rest of 2021.
The Group's hostels break even when the average occupancy reaches approximately 57%. Under both indicative scenarios, the hostels reach this occupancy level from March 2021.
Safestay said the contribution of six hostels acquired in 2019 and 2020 will help total revenue return to 2019 levels in 2021 in the base case scenario despite a lower occupancy.
Hostels reopening is subject to the restrictions in each market, and the Group's sales team is initially focused on just domestic customers while international travel remains limited.
On average, in July 2020, 30% of the Group's bed stock was available and 16% of such bed stock was occupied, it highlighted, while average occupancy for the Group's bed stock rose to 24% and 27% of available bed stock respectively in the first and second weeks of August.
Five hostels which have been reopened for more than five weeks achieved 31% occupancy on average in their third week since reopening, and 39% occupancy in their fourth week.
"This is a challenging period, but I am confident that in time we will get back to normal. We are working closely on a range of options to strengthen our financial position, which may not be required but will be an additional comfort to have,” said Chairman, Larry Lipman.
He added, “We know we have a good cash generative business and while the current market is challenging, we have a clear strategy for addressing it and as importantly for moving back to being fully operational."
The Company will publish its half-year results on 24 September 2020.
Follow News & Updates from Safestay here: