WeWork is renegotiating nearly all of its leases and leaving underperforming locations but is "here to stay," the company's chief executive said Wednesday.
"We will seek to negotiate terms with our landlords that allow WeWork to maintain our unmatched quality of service and global network, in a financially sustainable manner," interim CEO David Tolley said in a Wednesday letter.
The New York City-based company's current lease liabilities "remain too high and are dramatically out of step with current market conditions," according to Tolley, who took over in May after the resignation of Sandeep Mathrani.
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These high-priced leases accounted for more than two-thirds of the company's total operating expenses during the second fiscal quarter that ended June 30, according to Tolley.
"We are taking immediate action to permanently fix our inflexible and high-cost lease portfolio to achieve the sustainable operating model that we need to serve our members for many years to come," he added.
The letter from WeWork's top boss comes just after the company disclosed in its recent quarterly earnings report that there is "substantial doubt" regarding its ability to continue operating. WeWork further noted that its ability to keep operating is contingent upon boosting liquidity and profitability over the next year.
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In the earnings report, Tolley noted that there had been a slight decline in memberships given the "excess supply in commercial real estate, increasing competition in flexible space and macroeconomic volatility drove higher member churn and softer demand" than originally anticipated.
However, in Wednesday's letter, Tolley said "WeWork is here to stay."
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"By addressing this reality now, we will be able to continue investing in and innovating our business on behalf of our members," he said.
By the end of June, WeWork's systemwide real estate portfolio consisted of 777 locations globally. These locations supported more than 900,000 workstations and 653,000 physical memberships, which equated to physical occupancy of 72%, and a decrease in physical memberships of 1% annually, according to WeWork.
