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WeWork, Sun Hung Kai sign lease deal as struggling US start-up prepares to open co-working space in Nanjing

South China Morning Post

發布於 2019年10月19日04:10 • Pearl Liu pearl.liu@scmp.com
  • WeWork signs traditional lease agreement with Sun Hung Kai Properties for four floors in the recently completed Nanjing International Finance Center Tower One
WeWork is set to open three co-working hubs in Nanjing by the end of this year. Photo: EPA-EFE
WeWork is set to open three co-working hubs in Nanjing by the end of this year. Photo: EPA-EFE

Struggling co-working firm WeWork has opted for a traditional long-term lease agreement with Sun Hung Kai Properties to open its first hub in Nanjing.

The world's largest flexible office space provider said on Friday that it has leased four floors in SHKP's Nanjing International Finance Center Tower One. Although it did not say when it plans to open the space, WeWork said it aims to have three hubs in the capital of China's southern Jiangsu province up and running by the end of the year.

Under the traditional tenancy lease agreement, a company usually pays a large upfront deposit for a lease that could be for as long as 10 years. In Hong Kong, WeWork has signed a few long-term leases with Hysan Development. Co-working operators usually opt for an asset-light model where they share revenues with the landlords.

Although the US firm did not say how much it had paid to secure space in SHKP's newly completed complex, comprising two office towers, retail space and hotel in Nanjing's central business district, the average daily rent in the area was 4.7 yuan per square metre, according to Savills.

The interiors of WeWork's co-working office space in Nanjing IFC. Photo: Handout
The interiors of WeWork's co-working office space in Nanjing IFC. Photo: Handout

Each floor of Nanjing IFC is roughly around 1,400 square metres, which means that WeWork could pay around 820,000 yuan (US$116,000) a month in rent, excluding management fees.

However, the continuing expansion frenzy is likely to add to WeWork's high debt load. As of June, the company's minimum lease obligations stood at US$47.2 billion, according to its filing with the Securities and Exchange Commission in August.

WeWork aims to cut rental costs through revenue-sharing leases … but can it persuade Hong Kong's landlords?

In January, WeWork was valued at US$47 billion. Estimates of WeWork's value fell to as low as US$10 billion to US$12 billion around the time that it decided to abandon its IPO last month following investor concerns about mounting losses, its business model and the way the company was being run, according to a Reuters report.

These developments also resulted in co-founder Adam Neumann resigning as CEO at the end of September.

"In the absence of an IPO and associated senior secured debt raise, WeWork does not have sufficient funding to meet its growth plan," Fitch Ratings wrote in a recent note, in which it announced the downgrade of the company's credit rating by two notches to "CCC+" or junk grade.

Adam Neumann was forced to resign as WeWork's CEO last month. Photo: Reuters
Adam Neumann was forced to resign as WeWork's CEO last month. Photo: Reuters

It has also been reported that the company is likely to run out of cash by mid-November unless investors such as Japan's SoftBank Group, which owns a 29 per cent stake, agrees to invest in WeWork or the company can find other financing sources.

The US company's losses have been mounting over the years. In 2016, WeWork made a loss of US$429 million on revenues of US$436 million. Last year, losses jumped to US$1.6 billion on revenues of US$1.8 billion.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.

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