Interview Synopsis

WeWork – Pressured Cash Flows & Restructuring Projections

  • Public Equity
  • Industrials
  • North America

WeWork’s Q2 2023 earnings revealed “substantial doubt” over the future of the company, suggesting its outlook depended on a series of plans, including further restructuring and a search for additional capital over the next 12 months.

A former VP at WeWork believes the company could run out of money within six months, with bankruptcy its only way out of some 100 leases that are “impossible to ever become profitable”. The company’s debt is “as restructured as it is going to be”, and with its G&A base now at USD 600m, “I don’t think you can get much lower than that without really impeding the operation of the company”, the specialist told Third Bridge Forum.

The Covid-19 pandemic has been a major headwind for WeWork in recent years, with occupancy levels returning to 63% at the end of 2021 and rising to 75% at the end of 2022 but now plateauing at 72%. However, levels are still 100% in some markets, including spaces in Ireland, London and Paris.

What else went wrong? “The outflows to build these spaces, all the risk with WeWork, tenants come in lacking any kind of credit and they move in on day one to a fully built out office that they didn’t have to spend a penny on. It’s a great proposition for a tenant. It’s just a very difficult proposition for WeWork to continue being profitable or to ever become profitable,” the expert said. We also heard that WeWork’s lacking presence in smaller suburban locations has hurt the business amid the remote working shift.

The expert warned that WeWork’s departure in large cities like New York could be a “disaster” given the already high level of vacancies – driven by remote working and high interest rates. “There’s going to be a reckoning in commercial real estate in the next 18 months,” they said. A bankruptcy proceeding that allows WeWork to walk away from current leases could raise the city’s office vacancy rates by another 8-9%, we were told.

Thinking about a potential buyer, the specialist is sceptical that any party other than SoftBank, which has an USD 18bn stake in WeWork, would be a logical candidate. “Even a company like Industrious are not going to come and buy WeWork because the sites that WeWork have are not the kind of sites that could become profitable like Industrious is or like Regus is. I don’t know who their buyer would be.”

The specialist anticipates that a bankruptcy filing could be on the cards by the year-end. 

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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