Safestay : SSTY – Circular and Notice of General Meeting 30 April 2021

1	SAFESTAY PLC	PROPOSED SALE OF SAFESTAY EDINBURGH HOSTEL AND NOTICE OF GENERAL MEETING

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom, or from another appropriately authorised independent financial adviser if you are resident in a territory outside the United Kingdom.

If you have sold or otherwise transferred all of your shares in Safestay PLC, you should pass this document without delay to the purchaser or transferee, or to the stockbroker, bank or other person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares.

This document does not constitute an offer to buy, sell, issue, or subscribe for, or the solicitation of an offer to buy, sell, issue, or subscribe for any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

SAFESTAY PLC

(Incorporated in England and Wales under the Companies Act 2006 with registered number 8866498)

PROPOSED SALE OF SAFESTAY EDINBURGH HOSTEL

AND

NOTICE OF GENERAL MEETING

Notice of a General Meeting of the Company to be held at 1a Kingsley Way, London N2 0FW at 10.00 a.m. on Friday 30 April 2021 is set out at the end of this document.

In light of the COVID-19 pandemic and the UK legislation and government guidance currently in force as a consequence, there are significant restrictions on public gatherings and non-essential travel that are expected to affect the arrangements for, and attendance at, the General Meeting. In light of these restrictions, together with the uncertainty as to any additional and/ or alternative restrictions or measures that may be introduced by the UK government, and in order to protect the health and wellbeing of our Shareholders, employees and advisers and of the general public, we are proposing to hold the General Meeting with the minimum attendance required to form a quorum.

Assuming there is no material change in circumstances between the date of this document and the date of the General Meeting, this means that Shareholders will not be permitted entry to the General Meeting but can be represented by the chair of the General Meeting acting as their proxy. In the unlikely event that there is a material change in circumstances before the date of the General Meeting, it may be possible to permit Shareholders to attend the General Meeting in person. We will notify Shareholders of any such change to the arrangements for the General Meeting. Further information on this is set out in paragraph 6 (General Meeting) of the letter from the Chairman set out in Part I of this document.

Your vote is important to the Company and the Board wishes to ensure that it is counted at the General Meeting despite the restrictions on physical attendance at the meeting. All Shareholders are strongly encouraged to vote by proxy appointing the chair of the General Meeting as their proxy. Details of how to do this are contained in this document. Voting at the General Meeting will be carried out by way of a poll so that the votes cast in advance and the votes of all Shareholders appointing the chair of the General Meeting as their proxy can be taken into account. The result of voting on the Resolution will be announced by the Company shortly after the General Meeting has taken place.

2	SAFESTAY PLC	PROPOSED SALE OF SAFESTAY EDINBURGH HOSTEL AND NOTICE OF GENERAL MEETING

You will not receive a form of proxy for the General Meeting in the post. Instead, you will be able to vote by proxy electronically by logging on to www.signalshares.com and following the instructions given. If you have not previously registered for electronic communications you will first be asked to register as a new user, for which you will require your investor code (which can be found on your share certificate).

If you need help with voting by proxy online or require a paper proxy form to be sent to you, please contact the Company's registrars, Link Group, on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The registrars are open between 09:00 and 17:30 Monday to Friday excluding public holidays in England and Wales.

Forward-Looking Statements

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "forecasts", "plans", "prepares", "anticipates", "projects", "expects", "intends", "may", "will", "seeks", "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the Company's and the Directors' intentions, beliefs or current expectations concerning, amongst other things, the Company's prospects, growth and strategy. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual performance, achievements and financial condition may differ materially from those expressed or implied by the forward-looking statements in this document. In addition, even if

the Company's results of operations, performance, achievements and financial condition are consistent with the forward-looking statements in this document, those results or development may not be indicative of results or developments in subsequent periods. Any forward-looking statements that the Company makes in this document speak only as of the date of such statement and (other than in accordance with their legal or regulatory obligations) neither the Company nor any of its associates, directors, officers or advisers undertakes any obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

		Contents
Expected timetable of principal events	3
Part I	Letter from the Chairman	4
Part II	Principal Terms of the Edinburgh Sale Agreements	9
Part III	Risk Factors	15
Part IV	Definitions	17
Notice of General Meeting	20

3	SAFESTAY PLC	PROPOSED SALE OF SAFESTAY EDINBURGH HOSTEL AND NOTICE OF GENERAL MEETING

Expected Timetable of Principal Events

Latest time and date for receipt of forms of proxy	10.00 a.m. on 28	April 2021
General Meeting	10.00 a.m. on 30	April 2021
Results of the General Meeting announced through RNS	30	April 2021
Completion under the Edinburgh Sale Agreements	30 June 2021(1)
Longstop Date for satisfaction of the condition to Completion
under the Edinburgh Sale Agreements	30 September 2021(2)

References to time in this document are to London time unless otherwise stated.

Notes:

1. Completion under the Edinburgh Sale Agreements will, in terms of those agreements, occur on the later of (a) 30 June 2021 and
   (b) ten Business Days after the satisfaction of the Shareholder Approval Condition. The date of Completion stated in the timetable assumes that the Resolution is passed on 30 April 2021, the date for which the General Meeting has been convened.
2. This date may be extended by agreement between the parties to the Edinburgh Sale Agreements.

4	SAFESTAY PLC	PROPOSED SALE OF SAFESTAY EDINBURGH HOSTEL AND NOTICE OF GENERAL MEETING

Part I

Letter from the Chairman

Safestay plc

(Incorporated in England and Wales under the Companies Act 2006 with registered number 8866498)

Directors:	Registered Office:
Larry Lipman (Chairman)	1a Kingsley Way
Nuno Sacramento (Chief Operating Officer)	London
Hervé Deligny (Chief Financial Officer)	N2 0FW
Stephen Moss (Non-Executive Director)
Anson Chan (Non-Executive Director)
Michael Hirst (Non-Executive Director)	31 March 2021

To Shareholders and, for information only, to the holders of options over Ordinary Shares and holders of existing intercompany loan agreements

Dear Shareholder

Proposed Sale of Safestay Edinburgh Hostel

and

Notice of General Meeting

1. Introduction

On 26 March 2021, the Company announced that the Group had entered into two conditional sale and purchase agreements in connection with the sale of its Edinburgh Hostel to a&o Hostels and Hotels for an initial aggregate cash consideration of £16,000,000 (subject to final adjustment):

• a conditional sale and purchase agreement (also referred to in this document as the Edinburgh BTA) dated 25 March 2021, under which the Edinburgh Hostel business and assets are to be acquired from Safestay (Edinburgh) Hostel Limited by A&O Hostel and Hotel Edinburgh Limited; and
• a conditional sale and purchase agreement (also referred to in this document as the Edinburgh SPA) dated 25 March 2021, under which the entire issued share capital of Safestay (Edinburgh) Holdings Limited is to be acquired from Safestay (Edinburgh) Limited by Alpha New Projects HoldCo S.à r.l.

(and in this document the Edinburgh BTA and the Edinburgh SPA are also referred to as the Edinburgh Sale Agreements).

Given the amount of the initial consideration to be paid under the Edinburgh Sale Agreements relative to the market capitalisation of the Company, the Transaction is deemed by the AIM Rules to be a disposal resulting in a fundamental change in business. The Transaction is accordingly conditional upon Shareholder approval. That approval will be sought at a general meeting of the Company to be held at 1a Kingsley Way, London N2 0FW at 10.00 a.m. on 30 April 2021. The notice of that meeting is set out at the end of this document.

The action you should take to vote on the resolution contained in the notice of the General Meeting and the recommendation of the Board in connection with the Resolution, are set out in paragraphs 7 (Action to be taken) and 8 (Recommendation) of this letter. Please note that, as a result of the current COVID-19 pandemic and the legislative measures and associated guidance introduced by the UK government in response, for the safety of Shareholders, our employees, our advisers and the general public, the General Meeting will be held as a closed meeting. Further information on this is contained in paragraph 6 (General Meeting) of this letter.

The purpose of this letter is to provide you with the background to, reasons for and details of the Transaction, to explain why the Directors unanimously consider the Transaction to be in the best interests of the Company and its Shareholders as a whole and to recommend that Shareholders vote in favour of the Resolution at the General Meeting.

5	SAFESTAY PLC	PROPOSED SALE OF SAFESTAY EDINBURGH HOSTEL AND NOTICE OF GENERAL MEETING

2. Background to, reasons for and effect of the Transaction

2.1 Background and corporate rationale

In line with the hospitality industry globally, the Group's hostels have been impacted significantly by the COVID-19 pandemic. In the early stages of the pandemic in Europe, Safestay released a trading update on 10 March 2020 announcing a reduction in the booking levels for the future months. As events unfolded and it became clear to the Board that the Group's industry was confronted with a major crisis, the Company took steps to protect the business and support its financial ability to manage the crisis. By 1 April 2020, all of the Group's hostels were closed. The trading update released on 10 March 2020, and the Group's 2019 annual results released on 29 May 2020, both set out in more detail the financial measures taken to protect the Group, and the operational measures introduced to protect the Group's employees and guests. These measures are summarised below:

• The majority of the Group's hostel staff were furloughed, receiving financial support from the governments in their respective countries and the Company took advantage of government reliefs where available.
• Operational costs associated with the running of the individual sites and our head office were greatly reduced, and the Company also benefited from business rates reliefs for the 5 hostels operated in the UK since April 2020.
• Individual agreements were reached with landlords involving a mix of suspension of rents or rent reductions.
• A £5 million overdraft was agreed with HSBC which, together with the cash reserves in April 2020, was intended to fund liquidity requirements during the lockdown period.
• The covenants of the £23 million debt facility, also with HSBC, were waived until the end of 2020.

At the time of publication of the Group's 2019 annual results, the Board believed that the majority of the Group's hostels could re-open during the summer period. However, as the pandemic intensified and further lockdowns and travel restrictions were implemented throughout Europe, the Company announced on 13 October 2020 that the Group's hostels would have to close again whilst the Company would take additional steps to further reduce its cash burn, including a 40% reduction in management salaries, additional rent reductions obtained from landlords and grants from the governments. In addition, the Company replaced the £5 million overdraft with HSBC with a £5 million CBILS loan, also via HSBC, to provide a longer-term financing option to the Company.

As a result of the various financial measures, the monthly cost base of the Group has been lowered to approximately £0.35 million since November 2020, a step that the Board believes has significantly mitigated the impact of having to close the Group's hostels.

More recently on 2 March 2021, the Company announced the disposal of the Barcelona Sea hostel for €0.9 million to repay the debt resulting from a deferred payment due in 2021 and 2022 in relation to the acquisition of the Barcelona PDG hostel in 2018.

The cash flow projections for the next 12 months show that, despite the significant reduction of the monthly cash burn, the Group's cash reserves (£1.4 million as at 22 March 2021) is not sufficient to satisfy the cash requirements until the market recovers and the Company can be cash generative again. The Board believes that an asset disposal is the optimal approach for the Group to raise new capital

in the current market environment, rather than seeking further external debt. The Board believes that the terms of the Transaction, including the proposed cash consideration of £16,000,000 payable by the Buyers on completion, represents an attractive option in the current environment. The Edinburgh Hostel was externally valued at £14.9 million in March 2020 and the book value of the Edinburgh Hostel as at 31 December 2020 was £13.4 million.

Part of the proceeds from the Transaction will be used to reduce debt by 35%, whilst providing the Group with sufficient cash reserves for the next months. For further information, please see paragraph 2.4 (Use of Proceeds) below. The Board believes the Transaction is the best option to protect Shareholders' interests and place the Company in a strong position for when the market recovers, new opportunities arise, and the Company can again be cash generative.

The recent announcements from various European governments, including the UK government, and the roll-out of effective COVID-19 vaccines across the continent, give the Board reason to be optimistic for the future of the travel industry. Safestay has been at the forefront of the modernisation of the hostel market over the last 5 years. The Group's strategy is to offer a comfortable and safe stay in beautiful, often iconic buildings that are centrally located, in well-known and popular cities but still with an expected bed rate of £20. Before the COVID-19 pandemic this had proven to be a successful formula and one that the Board believes will continue to appeal to our customer base when the world and the global economy begins to recover from the current crisis.

2.2 Information regarding the Edinburgh Hostel The Edinburgh Hostel

The Edinburgh Hostel, which was converted in 2001, and extended in 2007, is a hostel and student accommodation scheme in a prime location in the heart of the Old Town of Edinburgh, close to the Royal Mile. The Edinburgh Hostel opened in 2007, originally trading as Smart City Hostels Edinburgh, before its acquisition by the Group in 2015. The Property comprises a converted Grade B listed building with frontage to Blackfriars Street with 8 floors, with a significant purpose-built extension to the rear providing accommodation across lower