[Asia Economy Reporter Jeong Hyunjin] Office sharing company WeWork is experiencing a sharp deterioration in cash flow due to poor performance caused by the expansion of remote work after COVID-19, the Wall Street Journal (WSJ) reported on the 13th (local time).
According to the report, WeWork's funds disappeared by $4.3 billion (about 5.6 trillion KRW) between July 2020 and September this year. WeWork expects its cash holdings at the end of this year to be around $300 million, less than one-third of the cash it held at the end of last year.
The reason for the rapid decrease in cash is that WeWork has failed to prevent poor performance. WeWork leases office buildings or spaces at fixed prices for long terms and rents them out to consumers who need office space to generate revenue.
The problem is that most of WeWork's contracts with building owners were made before the COVID-19 pandemic, when the commercial real estate market was booming. As a result, the rent at the time of the contract was relatively high, but with the spread of remote work due to COVID-19, demand for WeWork's leased office spaces has decreased.
In the third quarter of this year, WeWork's office space occupancy rate was 72%, failing to recover to the 2018 level (84%) before the COVID-19 pandemic. Sandeep Matrani, CEO of WeWork, stated that even if the occupancy rate falls by more than 10%, they have enough funds to avoid problems until next year.
However, market skepticism remains. WSJ mentioned that such rapid cash burn could increase the risk of default. Credit rating agency Fitch downgraded WeWork's corporate bonds, which were already at junk bond level, to an even lower rating earlier this month. WeWork's stock price has fallen more than 70% since the beginning of this year.
Vikram Malhotra, co-head of real estate investment research at Mizuho Financial Group, pointed out, "If the occupancy rate falls, they have no choice but to cover it with cash on hand."
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