WeWork Declares Doubts on Ability to Continue as Going Concern

WeWork, the versatile workplace operator which as soon as promised to “elevate the world’s consciousness,  in its second quarter earnings report on Tuesday declared “substantial doubt” concerning the corporate’s skill to proceed working amid ongoing losses and declining membership.

While WeWork trimmed its web loss to $397 million within the second quarter from $635 million in the identical interval a yr earlier, the corporate nonetheless ended the primary half of 2023 with $696 million in losses and simply $239 million in money on hand.

“The company’s ability to continue as a going concern is contingent upon [the] successful execution of management’s plan to improve liquidity and profitability over the next 12 months,” WeWork mentioned.

The Softbank-backed firm mentioned it plans to bail itself out through decreasing lease and occupancy prices by in search of extra beneficial leasing phrases, decreasing member churn and boosting new gross sales, controlling prices and in search of contemporary money through debt, fairness or asset gross sales.

Cash Needed Quick

“The company’s transformation continues at pace, with a laser focus on member retention and growth, doubling down on our real estate portfolio optimization efforts, and maintaining a disciplined approach to reducing operating costs,” interim chief govt David Tolley mentioned in a press release.

WeWork’s newest indicators of economic misery come three months after the departure of chief govt Sandeep Mathrani, who had been introduced on board to flip across the loss-making firm after its failed 2019 try at what had been touted as a virtually $50 billion IPO.

Mathrani’s May exit was adopted inside one week by the departure of CFO Andre Fernandez. A former Blackstone associate, Tolley was named to WeWork’s board by Softbank in February earlier than entering into the short-term CEO job three months later.

The management departures got here simply two months after WeWork had reached an settlement with bondholders and its largest shareholder, Softbank to cancel or convert to fairness round $1.5 billion in debt. That March deal additionally included extending the maturity on one other $1.9 billion in debt.

Shares Drop

While WeWork’s administration pointed to a 4 p.c yr on yr improve in income to $844 million within the second quarter, traders reacted to the corporate’s announcement by driving its inventory down 5.5 p.c on Tuesday following the information. Shares fell by greater than one other 25 p.c earlier than the NYSE opened on Wednesday.

Having been denied its IPO payday, the corporate had gone public in 2021 through a SPAC scheme, with its inventory having since shed practically 98 p.c of its worth.

As of end-June, the corporate’s actual property portfolio consisted of 610 areas in 33 nations. This leased house accommodates round 715,000 workstations for its 512,000 bodily members. That membership headcount is down 3 p.c from a yr earlier, with the corporate reaching a bodily occupancy charge of 72 p.c.

With WeWork providing no particulars on potential fundraising, and given the corporate’s warning of potential monetary collapse, its skill to proceed hinges on Softbank, which is each the corporate’s largest shareholder and its chief creditor.

The Japanese enterprise capital agency headed by Masayoshi Son had engineered WeWork’s much-hyped pre-IPO valuation via a mixture of hype and monetary gymnastics, and is estimated to have invested greater than $18 billion into the corporate.

With WeWork’s market cap standing at simply over $450 million on the shut of the market on Tuesday and with out everlasting administration in place, the corporate’s future might rely on Softbank’s willingness to pour extra cash into its shared workplace dream.