'Demand Didn't Come Back As Swiftly As We Thought': WeWork Closing 40 Locations
WeWork will close 40 locations across the U.S. in search of cost savings after another tough quarter.
The locations were singled out for closure because they didn't meet the company's design criteria, were obsolete or were in a market with "oversupply," WeWork CEO Sandeep Mathrani said Thursday on the company's third-quarter earnings call.
WeWork estimates it will pay about $200M over the next 15 months to exit these leases, with cost savings down the road contributing an estimated $140M to the company's EBITDA.
WeWork's continued struggles come at what is supposed to be a great time for coworking companies. With more large companies adjusting their real estate needs with flexibility in mind, there were expectations that coworking companies would see a windfall.
“Demand didn't come back as swiftly as we thought," Mathrani said. "And so we decided that to be profitable and sustainably profitable, we should close locations that are obsolete."
As for the closures, most will happen in November, though the last few might occur in January. The average term remaining on the leases was 10 years, with average occupancy in those locations at about 42%, Mathrani said.
Membership numbers rose in the third quarter, but WeWork’s consolidated physical occupancy rate in the third quarter was 71%, barely up from 70% in Q2. While that is certainly above average office occupancy in major cities across the country, it is clearly not as high as WeWork hoped.
WeWork’s net loss in the third quarter of this year was $629M, an improvement from $844M in Q3 2021. Revenue was up 24% in Q3 to $817M from $661M in Q3 2021.
WeWork’s losses totaled approximately $1.8B in the first three quarters of this year, down from $3.8B in the same period of 2021. Year-to-date revenue is roughly $2.4B, up from $1.85B in the first three quarters of 2021.
The company’s losses in all of 2019, when Adam Neumann was still running the show, were $3.9B. WeWork has lost more than $12B since the end of 2018, according to the New York Times.
The company said it is projecting revenue of $3.35B to $3.37B for the year. But even the top of that forecast is lower than its projections of $3.5B in Q2, according to the New York Times.
“The headwinds in the office sector are really benefiting [the] flex model," Mathrani said on the call. "We see rollover of rents coming of the larger tenants; they're shifting to consolidate into tighter spaces and moving to flex. So, we're actually seeing an advantage."
UPDATE, NOV. 10, 4:05 P.M. ET: This story has been updated to include specifics about the cost-savings anticipated from lease terminations.
