NEW YORK (Reuters) – WeWork has opened nearly as many new locations over the past 3-1 / 2 months as it did throughout the first half of this year, and is likely to accelerate the rate at which the office-sharing company has been burning through cash as ever hard-nosed investors are exploring the prospect of going public.
FILE PHOTO: The WeWork logo appears outside a New York area of New York, January 8, 2019. REUTERS / Brendan McDermid / File Photo
According to a Reuters analysis of information on the company's website, WeWork had 622 websites that was open in 123 cities on October 10. This compares with the footprint of 528 locations in 111 cities on June 30, which was described in the prospectus for the abandoned stock exchange listing.
The site also identifies 89 sites as "coming soon" and 117 sites as "just announced" – all new locations that are yet to be opened.
In total, WeWork says on the site that it will soon have 845 locations in 125 cities, but it is unclear whether all of these will still open. A spokeswoman for WeWork declined to comment on their plans.
The faster pace of new office openings increases the risk of WeWork, a company that has created a global brand for its shared workspace concept, but was forced to stop plans to go public on September 30 due to investor concerns about how it was valued and whether the business model is sustainable.
The company is now cutting back, including laying off some employees and closing or selling units that are not essential to the core business as it seeks to avoid running out of cash. On Friday, WeWork said it will shut down WeGrow Private School in New York City as it parades peripheral operations.
The 97 new locations WeWork added in the first half of this year cost an average of $ 2.63 million each in design and construction costs, up 38% from $ 1.91 million as 82 openings each cost in the first half of 2018, according to IPO document. It added 94 new locations between early July and October 10, according to the site.
Whether the average size of a new location in the most recent opening is equal to that in the first half of this year is unclear. A spokesperson for WeWork declined to comment.
"Investors do not want to invest in a company with such a high cash burn rate," said Gina Szymanski, portfolio manager at Boston-based AEW Capital Management LP. "They need to slow growth and focus a little more on profitability."
WeWork has only about $ 2.5 billion cash available as of June 30, according to the prospectus released in August.
Money will run out in the second quarter of next year if the company's current trajectory does not change, according to research from Alliance Bernstein. Some media reports in recent days said it could run out of cash before the end of the year without a new lifeline.
In addition to significant costs for opening new websites, WeWork's current business is still a big loser. In the year ended June 30, expenses were $ 2.9 billion and revenues were just $ 1.54 billion.
IFR reported that bank sources said on Friday that WeWork is in talks with JPMorgan Chase to seek $ 1.75 billion in bank funding that would give it enough liquidity to complete it by the end of the year. Chase is in talks with other banks to syndicate the credit letter, it says.
In addition, WeWork is in discussions with banks to issue $ 3.25 billion in covered and unsecured bonds with warrants, IFR added.
WeWork was locked in talks with its largest shareholder, Softbank Group Corp., on a new $ 1 billion investment to help the company undergo a major restructuring, according to sources known for discussions.
WeWork has certainly slowed down new leasing in response to investor feedback, Szymanski said, citing AEW's analysis of WeWork's market presence.
The leases for many of the recently opened sites would probably have been signed before August, which was when the company first became a punching bag for investors and analysts critical of how it was valued and operated.
WeWork owner, The We Company, said in the IPO document that it has reduced spending by refining the design and construction processes, which include investments in new technology to help WeWork quickly and efficiently develop a workspace. The new technology was not defined and the company declined to comment.
Reporting by Herbert Lash; Further reporting by Carrie Monahan in New York; Editing by Martin Howell and Daniel Wallis