Fresh backing could decide if WeWork Singapore will be 'WeLive' or 'WeDead'

Singapore

WEWORK Singapore, the most dominant co-working operator in the Republic, is now left with a rudderless parent company after SoftBank's decision to abandon ship.

With Covid-19 presenting an existential threat to co-working, WeWork Singapore may need strong shareholders to supply the much-needed funds for its survival. In other words, the unit, or possibly WeWork's entire South-east Asian business, may need new investors or even a buyer. But will anyone bite?

Earlier this month, SoftBank terminated its US$3 billion offer for WeWork shares, leaving the once-centrepiece of the Vision Fund without a benefactor. No other white knight has stepped forward thus far, and columnist William Pesek has dubbed the firm a "zombie unicorn" or "WeDead".

WeWork Singapore is said to have been performing well, and was still in expansion mode for much of the year. A July report said it will be leasing the entire 21 Collyer Quay, the 21-storey office building thus far occupied by HSBC.

Scheduled to happen in 2Q 2021, the deal would mark WeWork's biggest local play yet (see table). According to a Colliers International report in September 2019, WeWork controls 22 per cent of the Singapore co-working market, with an estimated portfolio size of 850,000 sq ft, inclusive of known future supply.

But with Covid-19, WeWork's plans for Singapore could now be up in the air.

"We've heard that the bulk of WeWork's current troubles are in China and the US, and that their Singaporean properties were, until Covid-19, profitable. But the pandemic has changed everything," said Jennifer Chia, head of corporate real estate at law firm TSMP.

"Certainly, even if it is not looking for a buyer, it may have no choice but to re-think the timing and scale of its expansion projects in Singapore. For example, will its master lease of the HSBC building proceed as planned?"

The financial health of WeWork Singapore is also uncertain. In an interview with The Straits Times in January, the firm's South-east Asia managing director Turochas Fuad said that the Singapore market is "very profitable".

But the regulatory filings of WeWork Singapore Pte Ltd paint a grim picture. The entity holds stakes in WeWork units in Singapore, Malaysia, Thailand, Vietnam and The Philippines, although it is unclear if it fully represents all of WeWork's South-east Asian business.

WeWork Singapore Pte Ltd recorded a steep S$42.4 million loss in 2018, on the back of S$17.2 million in revenue. Its rent expenses for the year were S$20.4 million, while it spent S$13.7 million on employee compensation.

Its balance sheet shows S$15.6 million in cash as of end-2018, and about S$42.3 million in current liabilities, and another S$67.7 million in long-term liabilities. WeWork declined to comment on its financials.

It would appear WeWork Singapore now has two paths forward. It could choose to shelve growth plans and remain part of its parent, while enduring a painful, potentially fruitless search for a bailout. Or it could try to keep growing, even if more slowly, by getting some external financing - whether from a new minority shareholder or a new buyer.

The big question of course, is whether WeWork would be willing to give up some or all control of its Singapore or South-east Asian unit. Looking at China, it may seem so, one venture investor told BT.

In January, it was reported that Temasek and Trustbridge are eyeing majority control of WeWork China at a US$1 billion valuation. This suggests that WeWork is open to being diluted if it means that its units can survive, the venture investor said.

The other big question is the valuation at which new investors would be willing to come onboard. Some WeWork spin-offs have succeeded, albeit at deep discounts. In March, social media platform Meetup, was sold to a consortium led by New York investor AlleyCorp, at a price tag reportedly much lower than the US$156 million that WeWork paid in 2017.

Similarly, WeWork's office management unit, Managed by Q, was sold to a rival at just 11 per cent of what the parent company had paid.

Like those units, WeWork Singapore was also a startup acquired by WeWork. The company was previously Spacemob, a local startup founded by Mr Fuad that WeWork bought for an undisclosed sum in 2017.

If it seeks fresh financing, WeWork Singapore may similarly have to accept a depressed valuation. But the short-term pain may be worthwhile if it gives the firm at least a fighting chance amid the dire Covid-19 situation.

Who could be the likely saviours? Ms Chia of TSMP reckons that they could be private equity funds from markets such as Hong Kong, China and the US.

Alan Cheong, Savills' executive director for research and consultancy, reckons that it could be a peer, a fund or a financial heavyweight in Asia."It is still too early to determine what the price tag is because the company will have to resolve its internal financial issues first," he said.

The master leases that WeWork possesses in itself may not be valuable assets; after all, a competitor could easily negotiate favourable terms with office landlords in the downturn.

Rather, the core sales pitch would be the quick and cheap access to a co-working portfolio in Singapore. By that logic, a foreign co-working operator could also be a candidate.

Of course, there are still many unknowns, such as the outlook for co-working past the pandemic. If it does manage to get a new backer, WeWork Singapore could chart a new path forward for the local co-working industry. If not, it could end up as Mr Pesek's tongue-in-cheek "WeDead".