WeWork rapidly opens new locations amid cash-burn issues
In the last 3-1/2 months, WeWork has opened nearly as many new sites as it did in the entire first half of this year, potentially speeding up the pace with which the office-sharing firm is burning through cash while increasingly hard-nosed investors are scrutinising their opportunities for public access.
WeWork has 622 locations open on Oct. 10 in 123 cities, according to a Reuters review of data on the company’s website. This compares with its footprint on June 30 of 528 locations in 111 cities outlined in the prospectus for its abandoned IPO.
Additionally, the website lists 89 sites as “coming soon” and 117 sites as “just confirmed”-all-new sites still to be launched.
All in all, WeWork promises it will eventually have 845 locations in 125 cities on the website, but it’s uncertain if all of them will still be available. A spokesperson for WeWork refused to comment on his plans.
The rapid pace of new office openings adds to the risks for WeWork, a company that created a global brand for its shared workspace concept but was forced to halt plans on Sept. 30 due to investor concerns about how it was valued and whether it’s business model is sustainable.
The organisation is now cutting back, including laying off some staff and closing or selling non-essential companies for its core operations as it seeks to avoid running out of cash. WeWork said on Friday that it would shut down its New York City WeGrow private school as it pares peripheral operations.
The 97 new WeWork sites contributed US$ 2.63 million each in design and construction costs in the first half of this year on average, up 38 per cent from the average US$ 1.91 million that 82 openings each cost in the first half of 2018, according to the IPO report. According to its website, it added 94 new locations between the beginning of July and October 10.
It is unknown whether the average size of a new location is comparable to those in the first half of this year in the current openings burst. A spokesperson for WeWork refused to comment.
“Investors don’t want to invest in a company with such a high cash-burn rate,” said Gina Szymanski, a real estate-focused portfolio manager at AEW Capital Management LP in Boston. “They have got to slow their growth down and focus a little bit more on productivity.”
According to the prospectus released in August, WeWork has only about US$ 2.5 billion in cash on hand as of June 30.
According to AllianceBernstein research, it will run out of money in the second quarter of next year if the current trajectory of the company does not change. Several media reports in recent days said that without a new lifeline it could run out of cash before the end of the year.
WeWork’s current operations are also still significant loss-makers, as well as substantial expenses of opening new locations. His expenditures were US$ 2.9 billion in the year to June 30, and income was only US$ 1.54 billion.
Since last week, WeWork has been in talks with its largest shareholder, Softbank Group Corp, over a potential $1 billion investment to help the company undergo major restructuring, according to sources familiar with the discussions.
SoftBank has planned a funding package that would give it leverage over WeWork and dilute co-founder Adam Neumann’s influence, said a person familiar with the issue who refused to identify.
IFR confirmed that on Friday, bank sources said that WeWork is in talks with JPMorgan Chase to pursue US$ 1.75 billion in bank financing to provide it with enough capital to see it through by the end of the year. Chase is in negotiations to syndicate the letter of credit with other banks, she said.
Also, WeWork is in talks with banks to issue $3.25 billion in secured and unsecured warrant bonds, IFR added.
In response to investor feedback, WeWork has undoubtedly slowed new leasing, Szymanski said, citing AEW’s analysis of WeWork’s market presence.
The leases would probably have been signed before August for many of the recently opened sites when the company first became a punching bag for investors and analysts critical of how it was valued and run.
In the IPO report, WeWork operator The We Group said it had mitigated costs by improving the design and construction procedures, including developments in innovative technology to help WeWork build a workspace quickly and efficiently. There was no definition of the new technology, and the company refused to comment.