WeWork Rejects 69 Leases In Bankruptcy Filing, Could Exit Nearly 100 More

Coworking giant WeWork could exit as many as 163 leases as part of its bankruptcy restructuring process, about a third of its global portfolio. 

In a motion tied to its Monday night Chapter 11 filing, WeWork asked the U.S. Bankruptcy Court for the District of New Jersey to immediately reject 69 of its U.S. and Canada leases, the majority of which are in New York City. Most of those WeWork locations were entirely empty, with members already having been informed of the building closures, according to court filings.

But those rejected locations, which span millions of square feet, are only the beginning.

At the bottom of WeWork’s 113-page restructuring plan filed with the Securities and Exchange Commission is a business plan dubbed Cleansing Materials that lays out the extent to which it could hack back its portfolio and cut leases further to try and make a profit and become a viable business. 

The materials showed that the company had 509 locations globally as of Oct. 12, a figure that doesn't include its joint ventures in Latin America or Japan. Of those locations, 292 are in the U.S. and Canada, and 217 are in the rest of the world. 

The business plan outlines a scenario in which WeWork exits 163 locations in total, 120 of which are in the U.S. and Canada, leaving it with 172 North American locations and 174 in the rest of the world. 

"Out of the 163 locations to be exited, 105 have been identified as Never Keeps and an additional 58 locations are being considered for exits due to not meeting margin thresholds," the filing says. 

A WeWork spokesperson told Bisnow the filings aren't an up-to-date picture and don't reflect the current state of its negotiations with landlords.

"We continue to proactively engage with our real estate partners to better align our long-term financial interests and find mutually beneficial lease agreements," the spokesperson said in an emailed statement.

"The majority of this work in the U.S. is done, and we plan to stay in the vast majority of markets as we move into the future and we always work to minimize member impact. Chapter 11 will help us further rationalize our real estate portfolio and meaningfully address our high cost and inflexible lease liabilities so we can focus on enhancing our member experience."

WeWork tapped Hilco Real Estate as its restructuring adviser and said in filings Hilco is in negotiations with more than 400 landlords to amend the company's leases. How these negotiations play out will influence how many locations WeWork exits entirely. The more it can cut in rent, the fewer locations it will exit.

The company said that exiting these leases would save it $536M a year in rent and $184M in other costs. It added that the locations produced revenue of about $537M, and it expected to be able to keep 29% of the revenue from those locations by moving its members to other buildings.

It said its business plan assumed that it would be able to keep hold of this revenue and that it would be able to renegotiate rental payments down as well as cutting rent by exiting a third of its portfolio, outlining the financial impact this could have. 

WeWork said it paid nearly $1.7B in cash rent in 2022 and estimates it will pay roughly the same amount this year. If it is able to exit and renegotiate leases in accordance with its restructuring plan, it forecasts it will pay cash rent of just over $1B in fiscal year 2024.

The business plan says that this year, the company expects to turn a loss of $346M before interest, taxes, depreciation and amortization. Revenue of less than $2.8B would be wiped out by rent and occupancy costs of nearly $2.1B and other costs of just over $1B.

In 2024, if its restructuring proceeds as planned, it projects that its revenue would be $2.3B, total occupancy costs would drop to $1.3B, and other costs would be around $877M, leaving EBITDA of $175M. It didn't provide an estimate for net profit. 

It forecast that its EBITDA would be $227M in 2025 and grow to $352M by 2027. It said that the figures were subject to change as its restructuring plan progresses. 

WeWork's restructuring agreement involves about $3B of debt converted to equity, meaning its lenders now own the business, and existing shareholders are likely to be wiped out. 

In some senses, that doesn't change much for WeWork. Japanese investor SoftBank was the largest equity holder in the company before, and as the largest lender, it is now the majority owner of the company.

But it means investors like Cushman & Wakefield and Starwood, which backed the company's 2021 initial public offering, are likely to be left with nothing. Cushman & Wakefield is also listed as one of WeWork's unsecured creditors, with the brokerage being owed more than $2.5M on a payable trade.