WeWork considers freezing China expansion plans

The region was a massive growth area for the company, where it opened close to 60 locations

National /
Oct.October 01, 2019 05:18 PM
General view of WeWork Weihai Road in Shanghai (Credit: Getty Images)

General view of WeWork Weihai Road in Shanghai (Credit: Getty Images)

WeWork is discussing a freeze of expansion plans in China, where it has 60 locations, sources familiar with the matter told The Real Deal.

Executives are also considering stalling expansion plans in Hong Kong and South Korea, according to a source. However, the discussions are ongoing, and no final decisions have been made.

WeWork did not immediately provide comment. A spokesperson for SoftBank, which is the majority investor in WeWork’s Asia operations, declined to comment.

The consideration comes just after WeWork formally shelved plans for its IPO, and CEO Adam Neumann stepped down after facing pressure from SoftBank. Now, WeWork executives are trying to shore up a reported $3 billion debt deal provided by a group of banks led by JPMorgan Chase — financing that is contingent on new equity.

In addition, the company is weighing drastic cost-cutting measures that include selling off non-core businesses and potentially laying off thousands of employees.

The company’s Asia expansion plans were largely driven by SoftBank, WeWork’s largest investor. It valued the Asia business at $1.6 billion, which included joint ventures in China, Japan and the Pacific region, according to its S-1 filing to the U.S. Securities and Exchange Commission.

However, WeWork’s investments in China have driven down the company’s likelihood of profitability. According to its prospectus, a WeWork profit margin known as the contribution margin, declined by 3 percentage points due to the China business. And as the company has expanded into international markets, its revenue per customer has declined in lower-priced markets. Other countries with locations included in those joint ventures include Singapore, Korea, the Philippines, Malaysia, Thailand, Vietnam and Indonesia.

SoftBank holds a 50 percent stake in the Japan entity, a 40 percent stake in the Pacific entity and a minority stake in the China entity, alongside investors Hony Capital and Trustbridge Partners. It has a strong grip on the Japan and Pacific ventures, where WeWork is barred from issuing dividends without SoftBank’s consent.

WeWork previously disclosed the joint ventures as a risk factor.

“A significant part of our international growth strategy and international operations will be conducted through joint ventures,” WeWork stated in its S-1, “and disputes with our partners may adversely affect our interest in these joint ventures.”

It also faces an uphill battle against competition in China. Local firm UCommune has twice as many locations in the country than WeWork, and has raised $650 million from investors including Sequoia Capital, ZhenFund, Matrix Partners and Sinovation Ventures, according to Forbes.

Amid WeWork’s failed IPO and restructuring, other negotiations to secure overseas locations have stalled or fallen apart. In Dublin, WeWork reportedly walked from a lease deal to take space in an office tower there, according to Bloomberg.

Return to this page for updates.


Related Articles

arrow_forward_ios
Warburg Realty's Clelia Warburg, Breather's Brian Murphy and InstaClosing's Peter Zinkovetsky (iStock)

Proptech’s winners and losers in 2020

Proptech’s winners and losers in 2020
Katerra CEO; SoftBank CEO Masayoshi Son and Katerra CEO Paal Kibsgaard (Photos via Katerra; Getty; iStock)

SoftBank bails out Katerra with $200M cash injection

SoftBank bails out Katerra with $200M cash injection
The Covid-19 vaccine is being distributed across the country, but it won’t provide an immediate cure for office landlords. (iStock)

Covid-19 vaccine won’t be immediate cure for office market

Covid-19 vaccine won’t be immediate cure for office market
WeWork CEO Sandeep Mathrani (Getty)

WeWork losses continue but firm sees glimmer of hope

WeWork losses continue but firm sees glimmer of hope
Kimberly Ross (Credit: Chubb)

WeWork taps oil exec as new CFO

WeWork taps oil exec as new CFO
Former WeWork CEO Adam Neumann (Credit: Getty Images, iStock)

WeWork founder scrambled for $100M loan before $1.7B bailout

WeWork founder scrambled for $100M loan before $1.7B bailout
SoftBank to take control of WeWork at less than $8B valuation

SoftBank to take control of WeWork at less than $8B valuation

SoftBank to take control of WeWork at less than $8B valuation
Compass CEO Robert Reffkin and WeWork's Adam Neumann 

Like WeWork, Compass touts tech and culture. Are the companies different enough?

Like WeWork, Compass touts tech and culture. Are the companies different enough?
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...