One of the largest detractors for the quarter was another U.K.-based company, Regus (LSE:RGU), a global flexible workplace provider that serves more than two million customers in 2,800 locations across 900 cities in 106 countries. During the past quarter, the company released its results for the first half of 2016, which were ahead of estimates mainly due to better-than-expected benefits from reorganization. However, the company may be facing a couple of risk factors, including a recession in the U.K. that could reduce demand for office space, a correction in the U.K. real estate market and a weakening economic environment in Europe. On the positive side, the uncertainty in the marketplace could be a tailwind to flexible space providers and could help in rent negotiations, as well as in forming additional capital-light partnerships. The main reason for the decline in share price during the quarter was that Mark Dixon, the CEO and the largest shareholder of Regus, sold shares representing 4% of the company’s total issued ordinary shares. Our discussions with the company indicate that Dixon wanted to increase the diversity of his assets. He will still own 27.7% of the shares of Regus, and his economic interests remain strongly aligned with shareholders. Due to its strong fundamentals and positive first half 2016 results, we continue to believe that Regus offers an attractive opportunity.
From David Herro (Trades, Portfolio)'s third quarter 2016 International Small Cap Fund commentary.
