SoftBank to slash planned WeWork investment(ft.com)
ft.com
SoftBank to slash planned WeWork investment
https://www.ft.com/content/282bd084-12a0-11e9-a581-4ff78404524e
2 comments
At it's core, WeWork's business model seems solid and every time I've been in one, it's been at least close to full. If the main driver of the losses is the initial investment in acquiring and remodeling the real estate, then they're in fine shape - they could always pull an Amazon and stop expanding for a quarter to show just how profitable they could be. I'd think that's the most likely scenario but, if not, I can't imagine why anyone would throw good money after bad.
WeWork has a major problem in that they signed a vast number of real estate contracts during the financial crisis 10 years ago at fire sale prices that are now expiring and will require renegotiation. Unfortunately for WeWork they are a gentrification agent which means those leases are going to be negotiated at rates which would be a multiple of what they were originally at.
If the economy slows at all, I assure you all of those WeWork memberships are going to get cancelled and they’re going to get squeezed.
Paywalled. :(
Use the HN "web" link, or here's an article about the article.
https://www.reuters.com/article/us-wework-m-a-softbank/softb...
https://www.reuters.com/article/us-wework-m-a-softbank/softb...
"The funding could be announced as soon as this week, according to one of the people, who added that the deal had not yet been agreed and could still fall apart."
It's also yet to be seen if SoftBank will exercise their $3B in warrants (one due this month and the next in April).
I believe there's a high chance the $3B in warrants get exercised and the $2B mentioned in the article closes, but it's still a risk.
"[WeWork] has more than $6bn of cash and cash commitments on hand."
This is a bit misleading because according to WeWork's Q3 deck they had $2.5B in cash and are at a quarterly burn rate of $500M, giving them until the end of 2019 to survive assuming costs don't go up dramatically because of free rent periods on their properties expiring or the increased costs they will bare from their massive expansion.