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WeWork released an investor deck outlining ambitious occupancy projections ahead of a proposed SPAC deal. Here are 4 big takeaways.

Alex Nicoll,Daniel Geiger   

WeWork released an investor deck outlining ambitious occupancy projections ahead of a proposed SPAC deal. Here are 4 big takeaways.
  • WeWork is looking to go public via a SPAC that values the company at $9 billion.
  • The company released an investor presentation that projects a profitable final quarter of 2021.
  • The company's occupancy rate is less than 50%, but it expects a dramatic upswing this year.

WeWork is projecting a rapid turnaround of its business ahead of a merger announced on Friday with a special purpose acquisition company, or SPAC, that would allow the flexible workspace company to go public at a valuation of around $9 billion.

The deal with BowX Acquisition Corp., if successful, would take WeWork public less than two years after the company's infamous attempted IPO, which had sought to value it at nearly $50 billion. The previous effort to go public collapsed as investors scrutinized the company's unprofitability and the leadership of its cofounder and former CEO Adam Neumann.

In a package of financial information released by WeWork as part of the proposed deal with BowX, it revealed that it continues to operate unprofitably and that, after a yearlong pandemic that has forced many office workers to do their jobs from home, over half of its spaces are empty.

WeWork is pitching investors that it will see a dramatic upswing to both its earnings and occupancy levels, however, as the virus fades and as workers return to the office and tenants seek out flexible workspaces while they recalibrate their office needs.

Here are 4 takeaways from the investor presentation:

It has slashed costs since it last tried to go public

Some observers lauded WeWork's cost-cutting efforts under CEO Sandeep Mathrani, who was installed to lead the company in the wake of an unsuccessful IPO in 2019 that nearly led to a financial collapse of the firm. The company stated that it had trimmed $1.1 billion of expenses in 2020.

"There was a lot of right-sizing and optimization that took place," said Daniel Ismail, a senior analyst at Green Street, a commercial real estate analytics company. "A lot of the other things, the tangential non-core businesses that WeWork had been involved in have been sold or exited."

The company has exited eight different non-core businesses, including restaurant coworking firm Spacious, office management company Managed by Q, and programming instructor Flatiron School.

The company also made major cuts in personnel, cutting two-thirds of total headcount from its September 2019 high.

Cuts to operating expenses added up to $400 million in savings across 2020, while the company saved an additional $200 million by exiting over 100 leases and amending lease terms for roughly 100 more.

WeWork has ambitious goals for occupancy in 2021 and 2022

The company, which has a current occupancy rate of 49%, projects that it will EBITDA-profitable in the fourth quarter of 2021 as its occupancy soars to 75%.

It projected $3.2 billion in total revenue for 2021, roughly the same as in 2019 and 2020, and an anticipated loss of over $900 million in 2021. It projects earnings jumping to nearly half a billion dollars before interest, taxes, depreciation, and amortization, known as EBITDA, in 2022.

By 2024, WeWork is projecting 95% occupancy and soaring revenues of $7 billion, double what it has reaped in recent years, and $2 billion of earnings.

"The pandemic has fundamentally changed the way we work, and WeWork is incredibly well positioned to springboard into a future propelled by digital technology and a new appreciation of the value of flexible workspace," Marcelo Claure, WeWork's executive chairman and the CEO of SoftBank Group International, WeWork's largest financial backer, said in a statement released as part of the proposed SPAC merger.

It plans to build a cash pile in case occupancy doesn't rebound

Even one of the deal's backers suggested some of WeWork's projections were optimistic at a moment when the demand for office space remains uncertain. Several large WeWork tenants, including technology companies such as Twitter, Spotify, Facebook and Microsoft, have said they will allow employees to work remotely on a permanent basis post-pandemic. If office tenants across industries adopt flexible work policies, it could reduce demand for office space.

Barry Sternlicht, the chairman and CEO of Starwood Capital Group, which is part of a group of investment firms that plans to buy into WeWork in the deal, said he agreed to partake only after WeWork secured $800 million in private placement investment for the transaction and additional credit from SoftBank. SoftBank said it would extend WeWork $550 million to provide the company with additional cash on hand for its business.

"We wanted them to raise a larger PIPE and have SoftBank provide other facilities in case the ramp up for their business was slower," Sternlicht told Insider. "If WeWork is right great, if not, we'll be okay too."

Starwood plans to invest in the deal alongside Fidelity Management, Centaurus Capital, and BlackRock-managed investment funds. The company said it projects having $1.8 billion in cash and credit on hand in the second quarter.

WeWork says flexible workspace could end up representing 22% of the US office space market

Already, record amounts of sublease space have been cast on the market in major office hubs like New York City and San Francisco, space that is generally offered at substantial discounts and with flexible leasing terms that could make it competitive to offerings from providers like WeWork. WeWork itself has hundreds of thousands of square feet of vacancies in its multi-million square foot office portfolio in New York City, according to a recent list of its available inventory.

And the flex office industry has had a rocky year. One of WeWork's largest competitors, Knotel, recently filed for bankruptcy and was acquired by one of its investors, the commercial real estate brokerage Newmark. IWG, which operates the workspace brand Regus, closed several US entities by placing them in bankruptcy.

But WeWork is betting that flex office will become one of the main tools that large enterprises use to return to work, allowing companies to bring office space closer to employees' homes, and meet them in whatever locales they may have relocated to.

The company has launched a new product, All-Access, which grants members the opportunity to access any WeWork location across the world. This could be a tool to attract more large global enterprise clients looking to offer their employees somewhere other than home to work. The company's business is 50% enterprise right now, and the company eventually hopes to grow it to 65%.

The company expects All-Access to make up 5% of all of its occupancy by the end of this year, and 10% by the end of 2024, netting the company almost $500 million in revenue that year. They expect about $90 million by the end of this year.

According to the presentation, WeWork pre-pandemic made up about 25% of the total flexible workspace market. The company expects flex office to grow rapidly over the next ten years, eventually making up somewhere between 13.3% and 22.2% of the US office space market.

For comparison, Ismail said that Green Street projected before the pandemic that flexible workspaces would grow from about 2% of the office market nationally to 10% by 2030 and that the firm still holds to that level of growth for the industry.

"We still believe that that's a reasonable expectation post-Covid," Ismail said.