New hope or last gasp for WeWork? (Or all CoWorking)

[David Goldsmith]

WeWork Loses Another $629M, Cuts 40 Locations

Coworking firm WeWork reported a $629 million loss in the third quarter and doesn’t expect to be profitable until the end of next year.

therealdeal.com

WeWork’s bleeding continues as firm cuts 40 locations​

Coworking company lost $629M in Q3, a slight improvement from Q2​

After another brutal quarter, WeWork no longer expects to become profitable this year.
The once-high-flying coworking firm lost $629 million in the third quarter, or about $0.66 a share — a slight improvement from the $635 million it lost in the second quarter.

WeWork reported revenues of $817 million for the third quarter — up $2 million from the prior quarter, but its performance came in below consensus estimates of $865 million in revenue and a loss of $0.44 per share.

The company no longer expects to get into the black this year, CEO Sandeep Mathrani said, a reversal from last year’s prediction that the company would “for sure” turn a profit by the end of 2022.
“It will be in the tail-end of 2023,” Mathrani said on a conference call with analysts Thursday.
To keep cutting costs, WeWork will close another 40 locations, or about 41,000 desks, which it said will save it about $140 million annually. Some 71 percent of WeWork’s locations are occupied — up slightly from the second quarter.

“We decided that to be profitable and sustainably profitable, we should close locations that are obsolete,” Mathrani said on the call, adding in a statement the firm was “leveraging all the tools at our disposal.”
Those tools include extending debt maturities to stave off defaults and give the company more time to get out of the red.
Though the firm cut a deal to extend the deadline on paying off $500 million worth of bonds, WeWork still has about $2.1 billion in short-term debt.

WeWork’s stock rose on the earnings news, despite the earnings miss. As of Thursday afternoon Eastern Time, the company’s stock sat around $2.60 a share — up 7 percent on the day but still down about 78 percent from its debut last year.

 

[David Goldsmith]

Sapir Org Alleges WeWork is Playing Shell Game to Break Lease

The landlord’s lawsuit at Midtown office building 261 Madison Avenue challenges WeWork’s use of affiliates in breaking leases.

therealdeal.com

Sapir: WeWork hiding behind shell companies in lease dispute​

Midtown lawsuit challenges WeWork’s lease-breaking strategy​

It’s been rough going for WeWork. The co-working company’s bonds are at junk status, its losses are eye-popping and its cash reserves are alarmingly low.
WeWork has tried to reassure investors by saying it continues to cut costs by shedding leases. But getting out of deals can be difficult.

Witness the battle it has had to wage with an affiliate of the Sapir Organization, its former landlord in New York, for breaking a lease at a Midtown office building.
For over a year, the Sapir entity has been suing a WeWork affiliate and co-founder Adam Neumann after WeWork bolted from 261 Madison Avenue. Sapir is alleging breach of contract and seeking about $17 million.

Things got hairier recently when Sapir’s company proposed adding WeWork, the parent company, as a defendant. The move would allow Sapir to pierce WeWork’s corporate veil to go after the firm itself, not just the affiliate that signed the lease.
Sapir’s legal team argued that the parent company deliberately undercapitalized its tenant company, leaving it unable to pay its bills, and that WeWork entities commingle funds and are not independent, but are instead controlled by WeWork.

Sapir’s attorneys essentially claimed that WeWork was playing a shell game.

WeWork “deployed a strategy of directing corporate shell entities to default on contractual obligations to landlords,” Sapir’s lawyers alleged.

WeWork’s attorneys fought back, saying WeWork isn’t liable because Sapir signed a lease with a special purpose entity. The attorneys denied WeWork undercapitalized its tenant entity, claiming it is common in real estate to use special purpose entities, or SPE.
“Landlord’s feigned surprise that tenant was a thinly capitalized SPE completely lacks credibility,” wrote attorneys for WeWork 261 Madison LLC (the tenant) and Neumann in a heavily redacted filing.

A judge this week allowed Sapir to proceed with its amended complaint, meaning it can go after WeWork directly, which has more resources than the tenant entity.
“The court’s decision sends a message to WeWork that it cannot hide behind shell entities to avoid its contractual obligations,” said Sapir’s legal team of Terrence Oved, Darren Oved and Andrew Urgenson.

Darren Oved and Terrence Oved
Sapir’s company filed the suit in August 2021, claiming it only learned from an article in The Real Deal that WeWork surrendered the seven years remaining on its 44,000-square-foot lease. It further alleged that WeWork failed to remove its property and repeatedly returned to the premises after giving it up.

Neumann was named as a defendant because he signed a “good guy guarantee” on the lease.
In October 2021, WeWork filed a response denying the allegations. It also accused Sapir and its CEO, Alex Sapir, of having a “long history of underhanded conduct and mismanagement of their real estate holdings.”

WeWork argued the Sapir Org was struggling financially and “resorted to questionable practices in order to extort WeWork and Neumann.” Sapir’s attorneys denied the allegations.
Neumann, for his part, acknowledged that he guaranteed the lease, but alleged WeWork properly vacated it, thereby voiding the guarantee. The co-founder, who was pushed out as CEO in 2019, noted Sapir reached a deal to lease the space to rival co-working firm Industrious, mitigating damages from WeWork’s departure.

The lawsuit remains pending.
The Sapir Organization bought 260 and 261 Madison Avenue in 1997 and, facing a deadline this year to refinance them, put them on the market in March, seeking $600 million. But this month it was able to refinance them with a $326 million loan.
The company was founded by Alex Sapir’s father, the late Tamir Sapir, a billionaire who partnered with Donald Trump on the former president’s Trump Soho hotel.

WeWork declined to comment. Neumann’s representatives did not return a request for comment.

 

[David Goldsmith]

Short Sellers Bet Against WeWork

Short sellers piled onto WeWork last year as the coworking company missed on promises to turn a profit.

therealdeal.com

Short sellers make their move on WeWork​

Short sellers have piled onto WeWork as the coworking firm failed to deliver on promises of turning a profit in its first full year as a publicly traded company.

Investors held short positions on more than 27 percent of WeWork’s publicly tradable shares as of Dec. 15, according to MarketWatch. Shorts totaling more than 10 percent of a company’s float are generally a sign that the market is pessimistic on its future; more than 20 percent is a highly shorted stock.

Since it went public about 15 months ago, WeWork has continued to burn through cash and has several times pushed out its timeline to turn a profit, now eyeing later this year.

“Right now all [investors] see is WeWork promised three times to hit its break-even goal and push that out,” said Mizuho analyst Vikram Malhotra, who rates the flex-office company a buy.

WeWork has been able to stem losses but is still burning through cash. The company had $460 million of cash on hand at the end of September, down from $924 million at the start of the year, according to its most recent financials.

The company is trying to get a grip on costs and recently cut 40 locations. CEO Sandeep Mathrani said he now expects WeWork to be in the black at the end of this year.

“It will be in the tail-end of 2023,” Mathrani said on a conference call with analysts in October. The CEO gave the company a vote of confidence in August when he bought about $250,000 worth of stock at $5 a share.

On the balance sheet, the company has $3.2 billion worth of debt maturing in 2025. And it has a $1.25 billion letter of credit due the same year.

With the tech industry cutting jobs and the prospect of a recession looming, investors are concerned about how WeWork will address those maturities.

“The question is, if fundamentals deteriorate: How do you service the debt?” Malhotra said.

A spokesperson for WeWork declined to comment. Analysts said there’s also a concern that WeWork will have to repay debt by issuing new shares while its stock is down.

WeWork was trading below $1.40 per share on Tuesday, down from its IPO price of nearly $10.

Still, there are optimists. Analysts at BTIG believe that three years’ worth of cost cutting and higher occupancy have set WeWork on the path to profitability.

“The key here is that we believe this will occur without the need for additional equity,” the analysts wrote in November.

WeWork went public in October 2021, and it’s been a bumpy ride since. Short investors piled in almost from the beginning, with short positions peaking at about 38 percent of the float in July. Short interests have since come down, but remain elevated.

Cantor Fitzgerald analyst Brett Knoblauch, who also has a buy rating, said short interest really started picking up around the time that WeWork’s corporate bonds were trading at yields down around 10 percent. Yields have since climbed to about 60 percent.

Short interests may be trending down because the company’s position has improved, he said. Or it could be that the stock has fallen enough for the shorts to cover their positions.

“Given how much shares are off from SPAC price, and even this month, would expect short interest to come down as would assume some would have covered,” he wrote in an email last week.

 

[David Goldsmith]

Bond Collective Locked Out of Flatiron Location

Bond Collective was locked out of its Flatiron location after its landlord claims it owes nearly $3 million in back rent.

therealdeal.com

Bond Collective locked out of Flatiron location by city marshal​

Landlord claims coworking firm owes nearly $3M in rent

Members at coworking firm Bond Collective’s Flatiron District location showed up to work Thursday to find themselves locked out by a city marshal.
A notice posted by the marshal’s office stated that the landlord at 115 East 23rd Street had retaken possession of the space, and members scrambled to try and get their belongings.

Court records show that a state judge ordered the lockout after the landlord, First Pioneer Realty, sued Bond Collective last February, claiming the coworking firm had not paid its rent. Bond Collective owed $2.8 million on the space as of November, according to court documents.
Bond Collective co-founder Shlomo Silber told The Real Deal that the location, where space rented for upwards of $300 a month, failed to recover from the financial hit it took during the pandemic.

“There wasn’t a lot of revenue coming in from people not coming into work,” he said, adding that some locations were still struggling while others have bounced back. “Nobody in this industry is without challenges.”
Court records show that Bond Collective had asked its landlord for more time to help its members get out in an orderly fashion, but Silber said the two sides weren’t able to come to an agreement. A representative for First Pioneer did not respond to a request for comment.
“I feel really bad about the process,” he said. “The actual closure of the space didn’t happen as planned.”
Silber said he was working with members to move them to other Bond Collective locations in the city, and in some instances tried to help them cut deals with some of his competitors.
Bond Collective signed the lease on the 23rd Street location in 2013 and it was set to run through 2025. It’s not the only location the company has struggled with.

In Gowanus, landlord Samson Management sued Bond Collective last March, claiming the company owed $4 million in back rent on its space at 68-80 Third Street. In May, the judge in that case issued Bond Collective an order to vacate the space.
In the Financial District, Harbor Group International also sued Bond Collective in March, saying it owed $3.6 million. The two sides settled in December.
Bond Collective has other spaces in Greenpoint, Gowanus, Buwshick and a new location coming in Vinegar Hill, according to its website.
Silber co-founded Bond Collective in 2013 with company president Elie Deitsch. The two secured a $50 million investment from an unidentified New York real estate family to fund an expansion to other cities in 2017, a time when coworking firms were expanding rapidly.

But the industry has since experienced turmoil — most notably with WeWork’s failed IPO fiasco in 2019 — and a number of firms have shut down.
The all-female startup The Wing shuttered its six U.S. locations in August, citing an inability to recover from the pandemic and “increasing global economic challenges.” Amol Sarva’s Knotel went bankrupt in 2021 and was acquired by Newmark — one of several coworking firms that were either acquired by or partnered with large commercial real estate service firms.
WeWork in November reported a loss of nearly $630 million and announced plans to close 40 locations as the company once again pushed back its timeline for achieving profitability.

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[David Goldsmith]

WeWork Seeks Fresh Cash, Debt Restructuring

Co-working company WeWork is looking to restructure debt and raise more cash, with Yardi among those considering investments.

therealdeal.com

WeWork seeks fresh cash, $3B debt restructure​

WeWork, the struggling co-working giant that spent last year in a valuation nosedive and burning through cash, is looking to put out the fire by restructuring its debt and raising new investment.
The company is close to a deal to restructure more than $3 billion in outstanding debt and raise additional cash, people with knowledge of the talks told the New York Times. The cash boost would be in the hundreds of millions, enough to keep the company afloat for another few years.

Real estate software provider Yardi is among those considering a new investment in WeWork.
SoftBank, the company’s largest investor and creditor, is part of negotiations but not expected to put more money into a company it has already dumped $10 billion into since 2017. In January, it lent WeWork $250 million, while in February, it increased the size of a debt facility and postponed a repayment deadline.

A potential deal is still likely weeks away, at least. The possibility of restructuring debt has been in the works for longer, however, as CEO Sandeep Mathrani raised the possibility last month during a call with Wall Street investors.
While the company’s performance is improving under Mathrani’s leadership following the catastrophic end to Adam Neumann’s time, WeWork is still struggling to right the financial ship. The company burned through $700 million in cash in 2022, closing the year with $287 million in its coffers; at the end of 2021, it had $924 million in cash.

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The company lost $568 million in the fourth quarter. Heading into this year, WeWork had $15.6 billion of lease obligations on the books.

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[David Goldsmith]

WeWork Faces NYSE Delisting

Co-working giant WeWork received a non-compliance notice from the New York Stock Exchange after a dim 30-day trading period.

therealdeal.com

WeWork faces delisting from New York Stock Exchange​

Co-working giant says it has six months to improve

WeWork’s stock is on the clock.
The co-working giant received a non-compliance notice from the New York Stock Exchange, Reuters reported, after its stock closed below $1 on average over a 30-day trading period.

The notice doesn’t mean immediate consequences, as the beleaguered company said it should have six months to regain compliance before being delisted from the exchange.
It won’t be easy for WeWork to recover, though. In aftermarket trading following WeWork’s disclosure on Tuesday, company stock dropped another 2 percent to a meager 48 cents. Shares have dropped 65 percent year-to-date and its market capitalization as of late Tuesday was $361 million, a far cry from its $47 billion valuation in 2019.

Short sellers piled onto the co-working firm last year after it failed to turn a profit in its first full year as a publicly traded company. As of Dec. 15, investors held short positions on more than 27 percent of WeWork’s publicly tradable shares.
The company has been burning through cash and looking for solutions. Last month, it closed in on a deal to restructure more than $3 billion in outstanding debt and raise additional cash, perhaps enough to keep the company afloat for several years.

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In January, SoftBank — WeWork’s largest investor and creditor — lent the company $250 million; a month later, it increased the size of a debt facility and postponed a repayment deadline. SoftBank has poured $10 billion into WeWork since 2017.

WeWork burned through $700 million in cash last year, closing 2022 with $287 million in pocket. At the end of 2021, the company had $924 million at its disposal. The company cut 300 positions at the start of the year.

In a letter sent to shareholders last month, CEO Sandeep Mathrani said this was “WeWork’s moment,” buoyed by increased membership and occupancy. The company had 682,000 memberships at the end of last year, the most in its history.

 

[David Goldsmith]

WeWork stock tumbles to record low after news of CEO departure

WeWork stock falls over 14% after the office-sharing company announces the imminent departure of its chief executive, garnering a downgrade from Mizuho.

www.marketwatch.com

WeWork stock tumbles to record low after news of CEO departure
Published: May 17, 2023 at 1:07 p.m. ET
By Ciara Linnane
‘We…. got it wrong,’ Mizuho analyst says, downgrading stock to neutral from buy

WeWork Inc.’s stock fell 14.6% to a record low on Wednesday, after the office-sharing company announced the imminent departure of its chief executive, garnering a downgrade from Mizuho.

The stock WE was last quoted at 30 cents. On its first day of trading after going public via a merger with a special-purpose acquisition vehicle, or SPAC, on Oct. 21, 2021, it closed at $11.78.

Mizuho analyst Vikram Malhotra cut his rating to neutral from buy and slashed his price target to 30 cents from $1.75.


“We … got it wrong,” the analyst wrote in his note to clients.

WeWork said Sandeep Mathrani, CEO since February of 2020, is stepping down effective May 26. It named David Tolley, a board member, as interim CEO while it conducts a search for a permanent one.

“The abruptness of the decision/announcement leads us to believe this change may not be entirely voluntary,” the analyst wrote, adding that he expects the move to be “disruptive,” especially given current macro headwinds.

“We now see our base case business assumptions, specifically occupancy targets, as unachievable, leading to higher cash burn and eventually driving the need for outside capital. We do not see free cash flow [becoming] positive until year-end 2025.”

The news is the latest blow to WeWork, the infamous startup created by Israeli entrepreneur Adam Neumann, that at its peak was valued at $47 billion.

The company began life renting office space to gig-economy freelancers in Manhattan in 2010, before expanding rapidly to 425 locations in 27 countries using money raised from private investors, notably Japanese conglomerate SoftBank.

Neumann was ousted in 2019 after botching the company’s then planned IPO, wangling a billion-dollar package on his way out the door. The company and its founder’s colorful history was captured in the Apple TV series, “WeCrashed,” starring Oscar winner Jared Leto as Neumann, as well as in a Hulu documentary called “WeWork: or The Making and Breaking of a $47 Billion Unicorn.”

By the time it merged into SPAC BowX Acquistion Corp., its valuation had shrunk to $9 billion.

Under Mathrani’s leadership, the company has made substantial progress in right-sizing the cost structure and eliminating more than $2.3 billion of recurring costs, according to Mizuho’s Malhotra.

It has improved its occupancy rate to 75% from the low in the mid-40s seen during the COVID pandemic, and restructured its balance sheet to wipe out $1.2 billion in debt.

“We see the CEO change as disruptive in terms of strategy and likely employee turnover,” he wrote.

Still, Mizuho has some faith in the flexible model for the office space, under which it viewed WeWork as a quasi “call option” — assuming the office sector partially recovers.

“Our Bull Case incorporates the company being able to drive occupancy to over 80% the next 12 months and our Bear Case assumes corporate restructuring,” the analyst said.

In its most recent earnings, WeWork had narrowed its first-quarter net loss to $264 million, or 34 cents a share, from $435 million, or 57 cents a share, in the year-ago period. The FactSet consensus for per-share losses was 35 cents.

Revenue grew 11% to $849 million, compared with the FactSet consensus of $849.3 million.