Regus update sparks fears rental recovery will be slower than hoped

OFFICE rental company Regus reported a 16 per cent increase in revenues for the first four months of the year yesterday, but it admitted pressure on occupancy levels and falling prices impacted net income.

The company, run by chief executive and founder Mark Dixon, said revenues rose to £387m compared to £334.5m in the same period last year. It opened 16 new sites in the period, including one in Manhattan.

The group’s net cash balance increased to £227.6m at the end of April as a one-off receipt of £18.5m helped offset the impact of a strengthening British pound.

But shares of the company, which operates over 1,000 business centres in about 450 cities around the world, fell over 10 per cent to a close of 75p on the update.

Alex Magni, head of research at Noble, said 2009 promises to be a tough year for the group with profits likely to suffer as unemployment rises.

He said the shares fell on the update as it indicated the the rate of deterioration will be slightly sharper than he had anticipated.

“Given that the company is highly operationally geared, ongoing price declines will impact its profitability significantly,” he said.

Magni said he is likely to cut his above-consensus 2009 and 2010 earnings estimates by 15 to 20 per cent respectively as a result. Regus shares have rallied in recent months, gaining more than 50 per cent since mid March on hopes of a strong property recovery.