Global workspace provider WeWork, still losing money and saddled with debt, achieved its first profitable month in the company's history in December as demand grows from businesses pondering the amount and type of offices they need in the face of evolving remote and hybrid work patterns.
Physical occupancy at WeWork's consolidated locations worldwide rose to 75% in the fourth quarter — its highest level in at least two years — compared to 63% a year earlier and 45% in 2020, the New York-based company said in its fourth-quarter earnings release Thursday.
WeWork posted a loss for the quarter but said that when just looking at its figures for the month of December, adjusted earnings before interest, tax, depreciation and amortization turned positive for the first time since WeWork was founded in 2010. It comes as some businesses are occupying more short-term and on-demand coworking space because of fewer fixed office needs with less staff in the workplace five days a week, while others are assessing space options as work patterns have shifted amid the pandemic.
“We consider occupancy growth as the key leading indicator of WeWork's improving business conditions,” BTIG analyst Thomas Catherwood said in a report to investors Thursday. WeWork’s average occupancy topped expectations and signals the company's "path to profitability," Catherwood said.
A WeWork spokesperson declined to provide the specifics of its December profit to CoStar News.
WeWork became a publicly traded company in 2021. That followed a failed attempt at an initial public offering in 2019 amid corporate governance concerns that led to the ouster of its co-founder and former CEO Adam Neumann.
Increased Market Share
Occupancy for the company in the United States and Canada rose to 70% in the quarter from 62% a year earlier, WeWork CEO Sandeep Mathrani said on a conference call Thursday. Mathrani said WeWork has continued to gain market share in various markets, including some of its largest markets such as New York, where occupancy reached 72%.
For instance, WeWork said sales in New York in the fourth quarter equated to 23% of total leasing activity in the market's traditional office space even though WeWork's portfolio only represents about 1% of the total office inventory, according to an investor presentation.
WeWork also posted higher all-access memberships that give people access to different locations worldwide. WeWork ended 2022 with a real estate portfolio comprising 779 locations across 39 countries. All-access and on-demand consolidated memberships rose 56% to about 70,000 in the fourth quarter from a year earlier. In a sign of increased demand on that front, WeWork plans to introduce all-access-only lounges in New York and London this month, Mathrani said.
Meanwhile, its workplace software product that allows employees to book desks and meeting space and employers to study office use patterns has attracted over 220 companies since its introduction last year, WeWork said in the presentation.
WeWork’s not the only company eyeing expected growth in the flexible office market. Rivals including Industrious and Spaces and Regus parent IWG are also expanding their offerings, as well as landlords such as Tishman Speyer that have their own flexible workspaces.
Cutting Costs
Mathrani has been cutting costs, including WeWork’s November announcement that it was closing 40 additional underperforming U.S. locations. He said his goal for WeWork to be free cash flow positive by the end of this year remains intact.
“We have significant work to get there,” Mathrani said on the call. “Somewhat out of our control is the pace of the recovery in the U.S., our largest market by revenue."
WeWork said it has exited over 250 full leases and amended 500 leases across the globe between the beginning of 2020 and the fourth quarter of 2022.
“Mathrani's game plan continues to play out,” Piper Sandler analyst Alexander Goldfarb said in an investment report. The most telling of WeWork’s “attractiveness” can be seen in San Francisco where occupancy at its locations reached 83% versus only about a 35% utilization for direct space in the market, Goldfarb said.
While the tech-sector layoffs have hurt some of its locations, Mathrani said it has a “pipeline to replace them,” adding WeWork has already backfilled a 400,000-square-foot space in Mountain View, California.
The company has extended its debt maturities to 2025 that Chief Financial Officer Andre Fernandez said would give the company additional runway. WeWork had total outstanding debt of $3.24 billion as of Dec. 31, including both letters of credit and senior unsecured notes that are all due at different times in 2025, according to the investor presentation. Softbank, the majority shareholder of WeWork, also is the company's biggest creditor.
WeWork said it ended the quarter with about $1.3 billion in liquidity.
WeWork’s fourth-quarter net loss narrowed to $527 million from $803 million a year earlier. Adjusted EBITDA for the quarter came out to a loss of $26 million, a $257 million improvement year over year, WeWork said.
Fourth-quarter revenue rose 18% to $848 million and would have risen 26% to $905 million, excluding the impact of foreign currency translations, WeWork said, adding constant-currency revenue topped its previous guidance.
WeWork expects its first quarter adjusted EBITDA to be a loss of $25 million to break even.