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.<br /><br />The company, run by chief executive and founder Mark Dixon, said revenues rose to &pound;387m compared to &pound;334.5m in the same period last year. It opened 16 new sites in the period, including one in Manhattan.<br /><br />The group&rsquo;s net cash balance increased to &pound;227.6m at the end of April as a one-off receipt of &pound;18.5m helped offset the impact of a strengthening British pound.<br /><br />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.<br /><br />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.<br /><br />He said the shares fell on the update as it indicated the the rate of deterioration will be slightly sharper than he had anticipated.<br /><br />&ldquo;Given that the company is highly operationally geared, ongoing price declines will impact its profitability significantly,&rdquo; he said.<br /><br />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.<br />