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WeWork, Now Trading Below $1, On Verge Of Financial Restructuring

A WeWork location in Downtown San Francisco

WeWork is on the the verge of a financial restructuring with the assistance of its largest investor.

SoftBank Group is in talks to convert about $1B of debt it has provided WeWork into equity, Bloomberg reported Thursday, citing anonymous sources. SoftBank already owns about 55% of WeWork.

Shares of the coworking giant rose over 13% in trading Thursday on the news, although it still has less than one-tenth of the value it had when it went public. WeWork is also working on otherwise obtaining funds and capital commitments of more than $1B.

Such a swap would benefit both SoftBank and WeWork, Piper Sandler analyst Alexander Goldfarb said in an interview Thursday.

“It would accelerate the path to profitability by reducing interest expense, so existing common equity owners should like that,” Goldfarb told Bisnow. “SoftBank is the biggest debt and biggest equity holder. The advantage for WeWork is that the company can restructure without having to go hire advisers or go through bankruptcy.”

Even considering the softness of the office market, WeWork is doing well, Goldfarb said, with occupancy rates higher than the average building.

“They've been handily outperforming the market, and I don't see that changing, barring something really extraordinary,” he said. “They're in a good spot.”

Though it has had a rocky few years since its heyday in the late 2010s, before its botched IPO and the ouster of former CEO Adam Neumann, there is cause for optimism going forward. CEO Sandeep Mathrani is “methodically executing his plan to achieve profitability,” Goldfarb and fellow analyst Connor Mitchell wrote in a Piper Sandler research report published earlier this month.

Moreover, WeWork remains on track for its first-ever period of profitability by the first quarter of 2024, they wrote.

“We continue to believe bankruptcy is not in the cards because of the cost (estimate >$100M in fees) and it doesn't solve anything that can't be solved directly with its largest debt and equity holder, SoftBank,” the analysts wrote.

The analysts called WeWork's association with SoftBank its “secret weapon,” since it is in the Tokyo-based investment firm's interest to nurse WeWork to full profitable health, so it can maximize value for an eventual exit.

Raising more common equity probably won't happen either, according to the report, since WeWork already has the liquidity it needs — about $1.4B. The report predicts that it will burn through about $210M of that in 2023.

Though its revenues are up and losses down, WeWork continued to struggle into 2023. In February, the company said that it expected revenue in the first quarter to be in the range of $830M to $855M, less than the average analyst estimate of more than $918M.

Early in March, WeWork was reportedly in talks to restructure its $3B in debt and obtain more cash, with real estate software specialist Yardi as a possible investor.

“We'll start working towards the extension of the debt maturities,” Mathrani said during the company's earnings call last month, though he didn't specify a timeline.

In the fourth quarter of 2022, WeWork reported revenue of $848M, an increase of 18% compared with the same quarter in 2021, though it also recorded a loss of $527M. A year earlier, the company lost $803M.

Investors seemed pleased with the most recent news, though technically it remains a penny stock, still trading just under $1 a share. It has a long way to go to return to its value when it became a public company in a special-purpose acquisition company deal, with shares down about 90% since then.

Stocks that linger too long under $1 a share (typically 30 days) are at risk of delisting, and WeWork has been below that threshold since Friday.

“That is an issue, and obviously, the [New York Stock Exchange] has rules,” Goldfarb said. “They've only been under $1 for a few days now, but the point is valid.”

He expects that SoftBank will take action to rectify the situation, possibly via a reverse split.

“You have potential pressure from the NYSE and from investors who can't buy stocks that are under $5,” Goldfarb said. “But right now, as an outside investor, whether you're on the debt or equity side, you know that SoftBank makes the decisions, right? Meaning that if there's going to be some sort of a restructure, you're going to wait and see what SoftBank is going to do.”