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Sharing Economy

WeWork secures $1bn SoftBank investment

Office provider net losses widened fourfold in first half of 2018 while revenues more than double

WeWork plans to use the Softbank investment for overseas expansion   © Reuters

NEW YORK (Financial Times) -- WeWork has clinched a $1bn investment from Japan's SoftBank, the latest capital injection into the provider of shared office space as its losses in the first half of 2018 ballooned.

The US company said the investment would lift its existing cash pile and cash commitments to $4bn, money it plans to use for overseas expansion, build office space and acquire new properties and leaseholds, according to an investor presentation seen by the Financial Times.

The news of its latest capital raising accompanied second-quarter results that showed its revenues continued to accelerate, rising 113 per cent from a year earlier to $421.6m in the three months to the end of June.

WeWork said its net loss in the first half of the year rose more than fourfold from 2017 to $723m.

Artie Minson, WeWork's chief financial officer, said that the widening losses were, in part, due to the mismatch in timing between when the company spends to renovate a location and when the property opens for business. Occupancy rates rose to 84 per cent at the end of the second quarter from 74 per cent at the beginning of 2017.

"We are seeing accelerated performance in our key operating and financial metrics," Mr Minson said on a call with investors, the first for the company since it borrowed $702m through debt markets in April. "At the same time, we have raised additional capital that has significantly improved what was already a very strong liquidity position."

The SoftBank deal deepens the relationship between the office space provider and the Japanese telecoms and technology giant, which less than a month ago agreed to invest in a WeWork subsidiary in China as the company expands outside of the US. That funding round raised $500m and also drew the backing of private equity firms Trustbridge Partners and Hony Capital.

WeWork said it structured the $1bn investment as a convertible bond, which is subordinated to the $702m bond issued earlier this year. It will pay 2.8 per cent interest beginning in September 2019. The deal allows SoftBank to convert the bond to WeWork stock when the office provider completes its next equity fundraising round.

If SoftBank leads that next investment round, the Japanese group would ultimately decide WeWork's valuation, which currently stands at $20bn. However, if another investor leads the fundraising round, a floor in the valuation would be set at $42bn. WeWork was last looking to clinch a valuation of at least $35bn, the chief executive of one large investor in the company said in June.

"At this level of operating performance, there is strong interest in WeWork equity from a number of large institutions," Mr Minson said on the call. He added that he also believed the company would rely on debt funding in the future.

WeWork's bonds rallied on the news, rising above par, according to trades reported to Finra's TRACE. It is something of a milestone for the office provider, which saw the notes tumble after their sale as investors questioned its business model.

Executives received questions from only a handful of investors and analysts on the call. These included whether occupancy rates were hitting a plateau, how its expansion outside of the US was faring and if the management team had any sense of timing for an eventual initial public offering.

Mr Minson noted that occupancy rates could dip in some older locations as more desks were added to the sites. He declined to specify a timeframe for a flotation.

"We are hitting membership thresholds in those markets after 12-18 months that took us a number of years to hit in the United States," he said of WeWork's efforts outside of the US.

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