Wework opens new sites at breakneck speed despite cash-burn concerns

NEW YORK: Wework has opened almost as many new locations in the last 3½ months as it did in the whole first half of this year, likely accelerating the speed with which the office-sharing company is burning through cash as increasingly hard-nosed investors scrutinize its prospects for going public.

According to a Reuters analysis of information on the company’s website, Wework had 622 sites open in 123 cities on Oct 10. That compares with its footprint of 528 locations in 111 cities on June 30 that was outlined in the prospectus for its abandoned IPO.

The website also identifies 89 sites as “coming soon” and 117 sites as “just announced” all new locations that are yet to open.

Altogether, Wework says on the website that it will soon have 845 locations in 125 cities, but it is unclear whether all those will still open. A Wework spokesman declined to comment on its plans.

The quickening pace of new office openings adds to the risks for Wework, a company that has created a global brand for its shared workspace concept but was forced to halt plans to go public on Sept 30 because of investor concerns about how it was valued and whether its business model is sustainable.

The company is now cutting back, including laying off some employees and closing or selling entities that are not essential to its core operations as it seeks to avoid running out of cash. On Friday, Wework said it will shut down its Wegrow private school in New York City as it pares peripheral operations.

The 97 new locations Wework added in the first half of this year on average cost Us$2.63mil each in design and construction costs, up 38% from the Us$1.91mil that 82 openings each cost in the first half of 2018, according to the IPO document. It added 94 new locations between the start of July and Oct 10, according to its website.

Whether the average size of a new location in the latest burst of openings is similar to those in the first half of this year is unclear. A Wework spokesman declined to comment.

“Investors don’t want to invest in a company with such a high cash-burn rate,” said Gina Szymanski, a portfolio manager at real estate-focused AEW Capital Management LP in Boston. “They have got to slow their growth down and focus a little bit more on profitability.”

Wework has only about Us$2.5bil of cash on hand as of June 30, according to the prospectus that was issued in August.

It will run out of money in the second quarter of next year if the company’s current trajectory doesn’t change, according to research by Alliancebernstein. Some media reports in recent days said it may run out of cash before the end of the year without a new lifeline.

As well as substantial costs for opening new sites, Wework’s current operations are also still big loss makers. In the year to June 30, its expenses were Us$2.9bil and revenue just Us$1.54bil.

IFR reported banking sources as saying on Friday that Wework is in talks with Jpmorgan Chase to seek Us$1.75bil in bank financing that would provide it with enough liquidity to see it through to the end of the year.

Chase is in talks with other banks to syndicate the letter of credit, it said.

In addition, Wework is in discussions with banks to issue Us$3.25bil in secured and unsecured bonds with warrants, IFR added.

Wework was locked in negotiations this week with its largest shareholder, Softbank Group Corp, over a new Us$1bil investment to help the company go through a major restructuring, according to sources familiar with discussions.

Wework has certainly slowed new leasing in response to investor feedback, said Szymanski, citing AEW’S analysis of Wework’s market presence.