Back in the fall of 2022, I interviewed Sandeep Mathrani, the CEO who took over WeWork (WE) after the scandal-filled departure of co-founder and former CEO Adam Neumann.

Recently the company is back in the headlines as the stock price sunk below 50 cents a share last week.

Clearly, WeWork is not immune from the office sector selloff I talked about on Wednesday.

The question is, which part of the growing divide in the office sector space is WeWork on? The side that will come out on top or the side that may never recover?

Here at Intelligent Income Daily, we examine every angle, regardless of the news headlines. Our goal is to bring you the safest income-generating ideas to help you consistently and reliably boost your bottom line, regardless of market conditions.

Today, I will share with you my thoughts on where WeWork will fall in the great divide of the office sector as well as share a story about its current CEO that will give you some insight into how I think this will play out.

The Current State of WE

As it relates to the office sector, structural headwinds have been increasing since the pandemic-induced shift to work-from-home and hybrid work. This recent shift accelerated the rationalization of office space into new, high-quality, well-located assets.

But WeWork seemed to be designed to succeed in such an environment.

If you’re not familiar with WeWork, it’s a global flexible workspace provider that was founded in 2010. Its goal was to provide modern, amenity-filled workspaces to individuals or team members “where companies could come together to do their best work.”

However, WeWork is currently trying to avoid delisting on the New York Stock Exchange (NYSE).

I spoke with Kevin Berry, head of Investor Relations at WeWork, this week to get a first-hand account of management’s insight into how they plan to restructure WeWork’s balance sheet.

Shares in the beaten-down office platform are now trading below $0.44 as of writing this. The company hopes to cure compliance issues with the NYSE by conducting a reverse stock split. (A reverse stock split is when a company decreases the number of its shares by a certain ratio.)

For example, if you owned 100 shares of WeWork and the company decided to conduct a 1-for-10 reverse split, you would now own 10 shares for the same amount. This would increase the price of an individual share, although you would still have the same total amount invested. 

If WeWork’s stock stays below $1.00 for too long, the NYSE can and will delist it.

Also WeWork is in the midst of restructuring $3 billion of debt and plans to convert the unsecured bondholders by issuing new shares.

The largest investor, SoftBank (SFTBY), has poured $10 billion into the company since 2017 and it plans to roll $1.65 billion of debt into additional equity.

Kevin shared that after the restructuring “the company will not be constrained with debt, and it will no longer have a looming debt overhang. That fear will be mitigated.”

But WeWork is not out of the woods just yet.

The last time I covered WeWork back in October of 2022, the share price was around $2.80. That’s an 84% decrease in value in a matter of months.

So applying what we talked about on Wednesday, where does that leave WeWork as far as future outlook goes?

Will WeWork Survive and Someday Thrive?

As I mentioned earlier this week, “there is clearly a growing divide and a flight for quality as tenants reduce their real estate needs and seek out more modern spaces for the smaller number of workers who need to be in the office.”

Kevin confirmed my assessment when he told me that “there’s a global trend for office space with more flexible options.”

Based on my own research, this does seem to be the case for many other New York City office real estate investment trust (REIT) landlords like S.L. Green (SLG), Vornado Realty (VNO), and Empire Start Realty Trust (ESRT) as well.

But when is this going to show in the company’s market valuation?

WeWork has the qualities necessary to survive the office sector selloff. 

• Quality real estate (It’s all about location, location, location.)

• More modern spaces

• Spaces available for a smaller number of workers

But I believe that until the restructuring of the balance sheet takes place, and the debt is formally converted utilizing unsecured bondholders by issuing new shares, WeWork will not show signs of recovery.

The Road to Recovery

It’s one thing to tell your investors how you plan to deal with a crisis, it’s another thing to execute this plan.

That being said, my prediction is that WeWork will make a full recovery and come out on top… quickly.

And here’s why.

Although they’re in crisis mode at the moment, the management team is facing their problems head on and not shying away from reality.

I also knew Sandeep Mathrani when he became the CEO of GGP Inc. in 2010.

GGP Inc. was the second largest shopping mall operator in the U.S. and had watched its stock price go down 98% in 12 months in 2009 before Sandeep took over.

After previously filing for one of the largest real estate bankruptcies, Sandeep spent 8 years restructuring and bringing the company from the bottom of the food chain to later be purchased for $9 billion in cash to Brookfield Property Partners in 2018.

He was hired to be the CEO of WeWork for this reason.

And I am optimistically confident that WeWork will survive and thrive in the near future, but I am waiting for the data to verify my gut.

At Wide Moat Research we rely on battle-tested data and need to receive a clear indication that our recommendations are safe, sleep well at night (SWAN), income-generating buys before we formally recommend anything to you.

If you want to know more about this play and what data I am waiting for, contact us here.

Things are just getting interesting.

Happy SWAN (sleep well at night) investing,

Brad Thomas
Editor, Intelligent Income Daily