Very interesting proposition7 May 2014 14:58
A very interesting proposition here.
I have viewed the property and I have subsequently invested. Believe the press coverage, it is undoubtedly welcoming and very well operated (front and back of house).
All the essential detail is in the admission document, but for me there are a number of very attractive key investment points here:
Firstly the investment is completely asset backed by the property itself Grade 11 Listed Building (former labour party headquarters) , bought for £3.8m in 2011 4.5 million spent on conversion to a 74 rooms/413 beds hostel (which range from 2 bed private rooms to 8 bed dormitories). Post conversion and 2nd year operating as a hostel the independent market valuation is 12 is £12,200,000.
See admissions document page 23:
http://www.safestay.co.uk/files/4213/9885/6384/safestayplc-admission-document.pdf
This, on its own, makes a very compelling proposition vs the current market cap (calculation below):
Current in issue:
Shares issued from 4.8 million placing 9,600,000
Number of shares to be issued to Safeland shareholders 3,617,246
Total shares in issue 13,217,246
Market cap 13217246 x 0.61 (mid price today) 8,062,520 GBP
Prior to looking at this investment, I had not realised the key definition of a hostel vs a hotel- which essentially involves the sale of beds vs rooms. A few quick calculations would reveal that the income generated from 413 beds at low hostel rates is higher than a typical budget hotel selling 74 rooms.The positioning is dormitory style accommodation of better quality than that of traditional hostels and at more attractive rates than budget hotels.
In addition to traditional hotel clients, in recession recovery , travel budgets, even business ones, are likely to remain under pressure and the budget hotel space remains the highest projected growth sector for the near future.
The independent valuation also notes that the most likely aquirer would be another owner/operator. However, as I understand it, Safestay are ambitious and looking to roll out the brand to further locations in London and possibly key destinations overseas.
Year end to 31/12/2013
Turnover 1,933,813
Hostel Operating Profit 549,912
28.4%
A dividend would be possible from this kind of return, however, I understand the main objective is seeking to achieve capital growth for Shareholders.
There is very strong list of shareholders institutional and otherwise at IPO , so these are likely to be very tightly held. Future funding secured.
I am taking great interest here, value catalysts are multiple – most significantly roll out of a proven, market friendly, successful product (a quick google will show the press has been fabulous ), property appreciation, dividend potential...
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