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>It isn't anything like that - they have leases over the next 10-15 years with a contract value of $18b.

Precisely. They have liabilities of $18b with no profits. In the event of revenue drying up, they are still on the hook for those leases. There is no real difference financially between a lease and a loan in that sense. If I lose my job and can't pay the rent, I don't get to just say to my landlord "Sorry, lease is up!", and move out. I can be sued for that entire value.




You can't frame it as a loan because it's nothing like that. In fact they can only get $18B because landlords know if WeWork goes under they aren't getting paid the rest of the lease (lucky to get much at all). The point is, they don't mind. It's not lost money it's lost contractual revenue on a building that can be turned around immediately. The risk profile is not even close to the same.

If I was an investor in WeWork I'd care 0 about the total amount and almost entirely on what their trajectories look like, and the terms of those leases, etc. The $18B number is a red herring.


If they operate like most real estate companies, each lease is entered into by a different corporate entity. Any one of them could be sued for breaking a lease without touching WeWork.

But nobody sues when they can just rent to another party.


As a WeWork member, I can confirm that the lease of my local WeWork (and the fee I pay) go to a subsidiary specific to the location.


>It's not lost money it's lost contractual revenue on a building that can be turned around immediately.

That's the whole point though.It is lost revenue because in an economic downturn, when no one is trying to rent office space, the landlords will be left with no recourse but sue if the leases aren't paid. There are underlying construction and mortgage loans on the buildings being leased that must be paid regardless of whether the lessees bail out. At a certain point someone is left holding the bag.


Its still a short/long term liability on their balance sheet... until they have substantial enough assets (eg 5-18B worth of future revenue) they are working out of a massive negative equity hole.


Leases haven't been on the balance sheet historically, although a 2016 change (which comes into effect next year) will see them move onto the balance sheet, however offset by a corresponding right to use asset.

The right to use asset is depreciated over the course of the lease whilst the liability is decreased as payments are made.

So it isn't a huge negative equity hole (particularly at present since lease obligations are off balance sheet), but with these changes gross debt will increase substantially, which may trigger covenants with regards to debt ratios (equity will be offset by right to use asset however, so no bit equity hole even with new accounting rules).


There is a huge difference - the duty to mitigate losses.

A landlord can re-let the space to another tenant, and start earning revenue again.

The money loaned however is gone until it is repaid. The total loss of a loan is the principal remaining unpaid at time of default, since you have permanently parted ways with the money once you transfer the funds to the borrower.

A lease on the other-hand hasn't deprived you of anything. You've still got the asset that can be released.

The losses in this instance are limited to the period of time the premised was vacant and unpaid for, as well as associated other costs such as an amount of any incentives provided as a proportionate to the length of the lease term remaining, legal costs, reletting costs, advertising and renovation costs etc.

You can't simply sue them for the entire value of the lease - especially if someone else moves into it and starts paying rent, you'd be double dipping.


You can be sued for the entire value, but in all likelihood the lessor would expect you to pay until you or they find another lessee.




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