SAN FRANCISCO - Embattled office-sharing firm WeWork on Tuesday warned US regulators that it is worried about its survival.

Citing financial losses, cash needs, and a drop in memberships, WeWork said in a filing with the US Securities and Exchange Commission (SEC) that “substantial doubt exists about the company’s ability to continue as a going concern”.

The fate of the New York-based company depends on the “successful execution of management’s plan to improve the company’s liquidity and profitability”, it said in the filing.

WeWork’s plan for the year ahead includes restructuring, negotiating more favourable terms on leases, beefing up membership and possibly even issuing debt or selling off assets, the SEC filing said.

WeWork has lost billions of dollars during the first six months of 2023, with macroeconomic conditions weakening demand for its shared office spaces, the company told regulators.

For the past four years, WeWork has been trying to deliver a turnaround story – one in which the rowdy co-working start-up transforms into a stable, profitable public company. It sloughed off Mr Adam Neumann, its rambunctious co-founder and former chief executive officer, and replaced him with an industry veteran boasting a reputation of saving troubled real estate companies.

But WeWork was not saved. The company is bleeding cash, and customers of its office rentals are cancelling their memberships in droves, WeWork said in a statement on Tuesday. Its stock fell about 24 per cent in extended trading.

WeWork’s stock is down 85 per cent this year, trading at 19 US cents. Its bonds are at deeply distressed levels. The company’s 7.875 per cent unsecured notes due in 2025 last changed hands for 33.5 cents on the dollar.

The WeWork story

Few companies have risen to such towering heights only to crash so badly. WeWork was built on the idealism and charisma of Mr Neumann, who started the business in 2010 with the designer Miguel McKelvey. Their vision was to lease office space and then rent smaller parcels of it to customers.

The start-up expanded slowly, then quickly, then at blinding speeds, fuelled by a zero-interest-rate financial environment in which venture capitalists dumped truckloads of money into start-ups that showed impressive growth rather than profits. By 2019, WeWork was the biggest private occupier of office space in Manhattan, operated millions of square feet in dozens of countries and was valued at US$47 billion (S$63 billion), which made it one of the most prized start-ups in America.

Flush with money and momentum, Mr Neumann tried to take the company public in 2019, but the attempt at an initial public offering crashed when investors collectively woke up to the company’s extravagant spending and Mr Neumann’s power-hungry eccentricities. Disclosures in the prospectus set off alarms. He was leasing space to the company in buildings he owned, and charged his own business US$5.9 million for a trademark on the name “We” that he owned.

Mr Neumann was ousted in late 2019, and after thousands of layoffs and a bailout from WeWork’s biggest investor Japan’s SoftBank Group, the company named Mr Sandeep Mathrani as CEO in the hope of a turnaround. Mr Mathrani took over in February 2020, promising to staunch the financial bleeding and restore order.

But he was dealt an unenviable hand. Almost immediately upon his arrival, offices worldwide shut down, as the Covid-19 virus sent people into sustained lockdown. Overnight, the idea of setting foot in a WeWork became outlandish, even terrifying, and occupancy dropped to 46 per cent at its nadir.

The recovery was slow, and it took more than two years until WeWork’s offices were as full as they had been in late 2019. During that time, Mr Mathrani tried other ways to keep the business going. In 2021, he orchestrated a blank-cheque merger to take WeWork public, at the height of the frenzy for special purpose acquisition companies, or Spacs. He oversaw the creation of a tech tool that landlords could buy to use WeWork software in their own buildings and the development of more spontaneous, on-demand ways for customers to access WeWork offices.

WeWork seemed to achieve a milestone in March when it struck a deal with some of its biggest creditors and SoftBank to cut its debt load by around US$1.5 billion and extend other maturities. But then in May, after three years on the job, Mr Mathrani suddenly stepped down for a job at Sycamore Partners, leaving WeWork without a permanent replacement.

As the pandemic dragged on, WeWork insisted that the shift towards remote and hybrid work would actually favour the company rather than weaken its business. Employers would be more wary of signing long-term leases and would turn to WeWork’s flexible models instead, the company argued.

Though that could still pan out, it has not been happening quickly enough for WeWork. In Tuesday’s statement, the company said more customers were leaving and fewer new members were signing up than it had anticipated. That churn was cutting into its occupancy rate, which dropped in the second quarter compared to the previous one.

To avert disaster, WeWork said it will focus over the next 12 months on reducing rental costs, negotiating more favourable leases, increasing revenue and raising capital. On Tuesday, WeWork said three of its independent board members are being replaced by four new board members. It is continuing to search for a permanent CEO. BLOOMBERG, AFP