Spent its entire life burning $13.8 billion of investor cash. Landlords got free manna from heaven and can’t complain. A good scheme while it lasted for everyone but investors.
By Wolf Richter for WOLF STREET.
WeWork has finally filed for Chapter 11 bankruptcy in New Jersey Federal court after it had spent its entire life burning huge amounts of cash raised from investors – a total of $13.8 billion raised in 22 rounds, much of it from SoftBank and SoftBank’s Vision fund, and after more recently stiffing office landlords left and right.
The title of its press release about the bankruptcy filing is a typical WeWork hoot; even in bankruptcy, it could not let go of the ridiculous hype-and-hoopla show:
“WeWork Takes Strategic Action to Significantly Strengthen Balance Sheet and Further Streamline Real Estate Footprint.”
The title was also an indication of what’s in for office landlords and holders of Commercial Mortgage-Backed Securities (CMBS). During the bygone era when companies were hogging office space that they thought they might grow into, WeWork created huge demand for office space, contributing to the notion of the office shortage that caused more hogging of office space.
Reality has now set in, leaving cities with the greatest glut of vacant offices ever, and WeWork is adding to that glut by using the bankruptcy process to get out from its unwanted office leases – that’s what “further streamline real estate footprint” translates into. Office Landlords and CMBS holders are in a world of hurt.
Lease obligations out the wazoo. According to its last quarterly 10-Q filing with the SEC in August, WeWork has $18.6 billion in liabilities, including:
- $14.1 billion in current and long-term lease obligations
- $2.9 billion in long-term debt.
In the press release about the bankruptcy filing, WeWork said that it “has a deliberate and value maximizing lease rejection plan that is expected to position the company for operational and financial success. As part of today’s filing, WeWork is requesting the ability to reject the leases of certain locations, which are largely non-operational and all affected members have received advanced notice.”
As the WeWork jitters were already raging in CMBS land in 2019, CMBS analytics company Trepp noted that WeWork was “a top-five tenant at 36 office facilities behind more than $3.3 billion in CMBS debt across 50 deals.” WeWork loans account for about 4% of all office-backed loans in CMBS.
WeWork is one of the most brilliant heroes in my pantheon of Imploded Stocks if you count down from the fake $47 billion “valuation” that SoftBank was able to stick on it behind closed doors in 2019.
WeWork’s early investors and public shareholders have already gotten wiped out. Its IPO in October 2019 was scuttled due to “market conditions,” meaning scandals and losses all over the place. At the time, WeWork still had a “valuation” of $47 billion, in a masterpiece of SoftBank engineering that then vanished.
Two years later, in October 2021, as SPAC mania was already fizzling, and as my pantheon of Imploded Stocks was already densely populated, WeWork, after disclosing it had lost $3.2 billion in 2020, went public via merger with SPAC. I have no idea why anyone went for it. But people did.
Before the merger with the SPAC closed in October 2021, shares were trading at around $10 a share – or at $400 in today’s terms after the 1-to-40 reverse stock split. Shares then spiked, and then kathoomphed. In August 2023, WeWork announced a 1-for-40 reverse stock split to kick the delisting-can of its shares down the road. And then shares kathoomphed further.
On Friday, shares closed at $0.84. Without the 1-to-40 reverse split, that amounts to 2.1 cents. On Monday, shares were halted. Monday evening WeWork filed for bankruptcy. So at $0.84, shares have lost 99.9% of their value. There will be nothing left for shareholders when the bankruptcy process is done.
In terms of the holders of the secured notes – they’re the one that have the upper hand in bankruptcy court – WeWork said that it has entered into a Restructuring Support Agreement with about 92% of them “to drastically reduce the Company’s existing funded debt and expedite the restructuring process.”
The US bankruptcy filing pertains to the company’s operations in the US. The Company said that in terms of its operations in Canada, it will file recognition proceedings under Part IV of the Companies’ Creditors Arrangement Act. Its operations in China are already independent and are not affected by the bankruptcy: In September 2020, WeWork had sold a majority stake of its operations in China to existing shareholder Trustbridge Partners for $200 million.
But landlords got the free manna from heaven and cannot complain. They and their lenders – mostly CMBS holders – will get shafted; many of them have already gotten shafted after WeWork stopped paying rent. A number of landlords have sued WeWork for unpaid rents. And that $14.1 billion in lease liabilities that was due landlords will get slashed in bankruptcy court. WeWork will keep the leases it wants to keep and shed the rest.
But they cannot complain because they had it so good for so long. WeWork came along and threw billions of dollars of other people’s money at them, paying ridiculously high rents, thereby driving up rents for other companies, and landlords were all too happy to take this money and run with it.
The scheme didn’t work out, and many of the landlords probably figured as much when they entered into the leases with WeWork. The whole thing was big obvious scheme from get-go. But what the heck, at the time, money was free, and there was a shortage of office space, and they could always find someone to pay even more for the office space. A big portion of that $13.8 billion that WeWork raised from investors ended up in the pockets of landlords. So they should count their blessings that they got this manna from heaven for as long as they did.
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