LONDON (ShareCast) - (Sharecast News) - Hostel operator Safestay announced it was temporarily closing eight hostels on Tuesday, reducing its available bed stock to 45%, trading from eight hostels.
The AIM-traded firm said that at the same time, all directors, head office employees and senior management would either take a 25% pay reduction, or choose to reduce salaries by 40% and receive share options in lieu.

It said that, together with other associated cost reductions, the moves meant that there was no change to its forecast cash position.

Safestay explained that localised lockdowns due to Covid-19, combined with entering the low season for the hostel market, had led to its decision to temporarily close eight hostels.

With the Holland Park and Barcelona Gothic hostels closed since April due to having other Safestay hostels in London and Barcelona, that meant 10 hostels were now, or would soon, temporarily close, with eight remaining open.

It said its hostels in Madrid, Barcelona PDG, Barcelona Sea, Lisbon, Prague and Bratislava were now closed, and the Athens and Pisa hostels would close from November.

The closures reflected the fact that the income they were currently expected to generate would not cover the variable costs of keeping them open.

However, the board said the company's experiences earlier in the year meant it was now "adept" at reopening hostels, and would do so as soon as localised restrictions were lifted and viable demand for the individual sites returned.

It added that, following the end a number of government support schemes, directors, head office and senior employees were being offered a share option scheme in lieu of lost salary, if they opted for a 40% reduction in salary.

The alternative was for them to accept a 25% reduction in salary.

Safestay said early indications from its workforce was that the majority were choosing the new share option scheme.

In light of the ongoing challenging trading conditions, further discussions with landlords, together with existing rent reductions and deferments, had resulted in a 50% reduction in rental payments between 1 August and 31 December.

The general reduction of costs and the closure of 55% of the company's bed stock together meant that the firm's forecast cash position remained unchanged.

It said its focus would be to continue to maximise cost efficiencies across the business, working closely with landlords and suppliers.

"Taking our bed stock down to 45% is the right decision for the business in this extraordinary market, underlined by the fact that despite closing these sites we are not changing our forecasts," said chairman Larry Lipman.

"I am hopeful that the coupling of salary reductions with share options will prove to be a beneficial structure, and when the current crisis passes we can get back focussing on the growth of Safestay."

At 0809 BST, shares in Safestay were down 0.33% at 11.96p.

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