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WeWork exits 40 U.S. locations after tepid forecast
© Reuters. FILE PHOTO: The WeWork logo is displayed on a screen during the company's IPO on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 21, 2021. REUTERS/Brendan McDermid/File photo
By Kannaki Deka
(Reuters) -WeWork Inc forecast fourth-quarter revenue below estimates and said it will exit about 40 underperforming U.S. locations, as the workspace provider deals with high expenses and a strong U.S. dollar.
Shares of the company reversed course, jumping 7.6% to $2.61 in afternoon trade.
The New York-based company, which offers workstations, private offices and customized floors, had enjoyed a pandemic-driven shift to flexible work outside traditional offices, but this year's surge in inflation is starting to weigh on business spending.
"A recession is going to materially impact WeWork's operations because SMEs (small and medium-sized enterprises) are going to cut costs. This may lead to an increase in WFH (work-from-home) set-up," Third Bridge analyst Max Georgiou said.
WeWork expects fourth-quarter revenue of between $870 million and $890 million, below Wall Street targets of $923.8 million.
It did not disclose which U.S. locations it would exit.
The closures are expected to cost about $200 million in remaining rent payments on the leases, while contributing roughly $140 million to annual adjusted core earnings, WeWork Chief Executive Sandeep Mathrani said.
"These locations are those that don't meet our design criteria, have obsolescence or there's an oversupply in the market."
The company has been working to curb its real estate footprint and reduce headcount in the face of long-term lease obligations that stood at $15.57 billion at September-end. Some of its tenants, in contrast, are only on short-term leases.
WeWork went public in 2021 after a two-year struggle and currently has a market cap of around $1.77 billion. Its pre-IPO valuation was once pegged at nearly $50 billion.
It reported third-quarter revenue of $817 million, below market expectations of $865 million, according to a Refinitiv poll of five analysts.
It has also extended the maturity date of $500 million senior secured notes from February 2024 to March 2025. The notes remained undrawn at quarter-end.
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