WeWork Done Cutting Locations, Projects $1.5B Loss In 2021
WeWork has been systematically culling its portfolio for the better part of a year, exiting and adjusting leases around the world, but the company said that process is now mostly finished.
The flexible office firm reported growing revenue for the third quarter and renewed losses as part of a financial performance update ahead of becoming a public company later this month. Since the start of 2020, WeWork has exited 150 leases and undertaken 350 lease amendments, it reported, as it tries to focus on profitability after a period of rapid expansion that finished with its failed September 2019 initial public offering.
“The large-scale rationalization of the portfolio is now complete, but of course we’ll continue to evaluate the portfolio on a location-by-location basis,” WeWork CEO Sandeep Mathrani said in a recorded presentation.
He said that the company had shrunk from 916,000 desks before the start of the coronavirus pandemic to 730,000 today, and that figure was likely to start growing again as buildings where leases have been signed start to open. By the end of 2022, the figure would be 810,000, he said. It currently has 629 locations and 461,000 members.
The company said that it expected revenue for the third quarter of 2021 to be $658M, compared to $593M for the second quarter. September was its best month for revenue in 2021 and the company said it had recorded six consecutive months of revenue growth.
It said it expected to make a $568M loss in the second half of 2021 and a $1.46B loss for all 2021, less than the $1.75B it lost in 2020 and the $1.94B it lost in 2019.
Mathrani and WeWork Chairman Marcelo Claure had predicted on multiple previous occasions that WeWork would be profitable by the end of 2021, but that milestone has been pushed back. Mathrani said during the presentation that market conditions pushed the timeline back by a quarter.
WeWork now predicts it will make a $243M profit in 2022, which would be its first profitable year since it started its accelerated growth in the middle of the past decade. That prediction is based on those lower costs and increased revenue as occupancy improves.
Its current occupancy is 60%, compared to 75% before the pandemic, according to its financial disclosure. It predicted occupancy would hit 74% by the end of this year and 86% by the end of next year.
Overall, the company has cut its rent bill by $400M, operating costs from its locations by $400M and central costs by $1.1B in the past 18 months, Mathrani said. Aside from excising underperforming or out-of-date locations, WeWork laid off over 2,000 staffers.
After the 2019 attempt to go public, which was derailed because of concerns about the governance structures in place to keep founder Adam Neumann in check and the potential for profit as the company sought growth at all costs, WeWork is set to go public Oct. 21.
The company will merge with a special purpose acquisition company managed by BowX Acquisition Corp. (led by Sacramento Kings owner Vivek Ranadivé) in a deal expected to value WeWork at $9.2B including debt. When it lists, existing WeWork shareholders, including majority owner SoftBank and Benchmark Capital, will own 80% of the company, investors in the SPAC will own about 8%, and the rest will be owned by a group of new investors that paid $900M for a stake in the company, including Starwood Capital.