WeWork doubles its losses as expansion accelerates

WeWork, the nine-year old US flexible workspace provider which opened its 50th location in London this week, saw its losses double to $1.9 bn (€ 1.7 bn) in 2018, despite revenues also doubling to $1.8 bn. 

Included in the 2018 negative figures, according to Irish analyst Goodbody, was $372 mln for sales and marketing (+162% from 2017) and $237 mln of interest related to 2018 bond issues. The company's losses at the end of 2017 were $933 mln, in comparison. 

WeWork bonds (S&P rates these as B+) reacted poorly to the update, Goodbody said, with yields for one of its most traded bonds now at 9.8%, 200bps above the yield at issuance in April 2018.

Aggressive global expansion plans - bringing its office locations to 425 spread across 100 cities in 27 countries by the end of 2018 - have had an impact. WeWork's memberships (people based in its office spaces) have surged to 400,000 from 186,000 12 months earlier, although figures suggest that take-up has slowed.

Occupancy levels dropped between Q3 and Q4 2018, from 84% to 80%, meaning that WeWork expanded its office footprint faster than it could fill it.

Goodbody said that WeWork has become a significant tenant in the London and Dublin office markets over the last three years and is now the largest corporate occupier in London, ahead of Google, with an estimated 3.3 mln ft2 (300,000 m2) of office space (and leasing commitments of over £3 bn or €3.5 bn).

The WeWork corporate update comes only weeks after a Manchester landlord pulled a letting to WeWork of a new prime office building, citing the negative impact that having such a tenant would have on the valuation. This followed a change of outlook in January where SoftBank’s $100 bn (£77.7bn) Vision Fund revised its plans to invest $16 bn in WeWork, after opposition from the two main investors: sovereign wealth funds connected to the governments of Saudi Arabia and Abu Dhabi, according to Goodbody.

'WeWork is spending heavily to rapidly expand its flexible office space model across the world and is now a major feature of the lettings landscape,' a note from Goodbody said. 'It is often one of the most aggressive bidders, paying keen headline rents across several notable lettings in London and Dublin over the last year. Nonetheless, the flexible space segment continues to grow with a transformative impact on the office market ensuring it has secured its position for the long term.'

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