WeWork on track for profits in 2021, chairman says
WeWork is on track to have positive cash flow in 2021, a year ahead of schedule, after it cut its workforce by more than 8,000 people, renegotiated leases and sold off assets, its executive chairman said.
Marcelo Claure said in an interview that the SoftBank-backed provider of office space had seen strong demand for its flexible workspaces since the start of the COVID-19 pandemic.
In February, Claure set a target of reaching operating profitability by the end of next year. He said WeWork remains on track to meet it.
The New York-based company, which last year aborted its hotly anticipated initial public offering, has moved aggressively to reduce its cash burn and shed costs. It has slashed its workforce from a high of 14,000 people last year to 5,600, a figure that has not been previously disclosed.
“Everybody thought WeWork was mission impossible — [that we had] zero chance. And now, a year from now, you are going to see WeWork basically be a profitable venture with an incredible diversity of assets,” said Claure.
While the shift to working from home has seen a reduction in demand for office space, some companies have turned to WeWork to provide satellite offices closer to where employees live and to spread out their staff beyond their main offices, said Claure.
Mastercard, TikTok owner ByteDance, Microsoft and Citigroup are among the companies that have signed new lease agreements with WeWork in the past month.
“We have companies like Facebook, Google and Amazon who have told their employees that they can work from wherever they are. We have a lot of those employees who basically now come to a WeWork facility to use it one day a week, two days a week, three days a week,” Claure added.
However, other tenants refused to pay rent or asked to terminate their leases during the pandemic. WeWork burned through $482 million of cash in the first three months of the year, cutting its cash on hand to less than $4 billion.
The company has not yet reported second-quarter sales figures to its creditors, but Claure said revenue was flat during the crisis. WeWork drastically slowed its expansion last year after churning through capital.
The company’s outstanding $669-million debt has rebounded over the past two months, trading at 49 cents on the dollar last week. While that is down from the 89 cents at which it traded in February and remains deep in distress territory, it is up 42% from a March low, data from Finra showed.
Claure’s upbeat assessment comes just nine months after SoftBank, where Claure serves as executive vice president and chief operating officer, stepped in with a multibillion-dollar rescue package to prevent WeWork from running out of cash. SoftBank and WeWork remain in litigation over the bailout, which included a $3-billion share buyout that was never consummated.
The near collapse of the office group ultimately prompted an acknowledgment from Masayoshi Son, SoftBank’s founder, that its initial investment in WeWork had been a mistake. The Japanese technology and telecommunications group has poured more than $10 billion into the office company, whose valuation tumbled from $47 billion at the start of 2019 to $2.9 billion this March.
Claure, who is credited with turning around U.S. wireless carrier Sprint and negotiating its merger with rival T-Mobile, was installed as chairman in October after WeWork co-founder Adam Neumann stepped down as chief executive. The company hired property veteran Sandeep Mathrani this year and charged him with cutting costs and putting the company on a path to profitability.
WeWork has sold off non-core businesses such as coding academy Flatiron School, software company Teem and a stake in co-working start-up the Wing. It has also terminated lease agreements on properties in Baltimore and New York. Mathrani told staff last week that the restructuring upon which he had embarked in February, which included thousands of job cuts, had been completed, according to a memo seen by the FT.
In June, the company recorded its strongest sales month since February, the memo from Mathrani showed, and WeWork has spent more than $20 million to renovate spaces to allow for social distancing.
“Our demand for private spaces is through the roof,” Claure said. “Maybe the buildings are not going to be as dense as they were before for the community side of the business. But the demand for high-quality workspaces that are sanitized, that [make] people feel comfortable, will be at an all-time high.”
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