WeWork CEO Adam Neumann ousted as company runs low on cash

WeWork, the office space sharing company that has become the biggest tenant in New York City and a major force in driving commercial real estate prices around the U.S., is replacing its founding CEO as it struggles to go public and raise enough cash to keep it going past Valentine's Day.

Facing pressure from major investors and the company's board, WeWork on Tuesday announced that founder Adam Neumann would step down as chief executive. He is being replaced by Artie Minson and Sebastian Gunningham, WeWork's chief financial officer and vice chairman, respectively, who will now operate as co-CEOs. Neumann will stay on as chairman of the board.

The company will likely try to restart a planned initial public offering — put on hold last week — without Neumann at the helm. The entrepreneur has been the creative force behind WeWork's fast growth, but was seen as an erratic and controversial chief executive whose leadership seemed to spook potential investors in the IPO.

But even without Neumann, WeWork faces a bigger problem that a new CEO alone won't fix: a significant cash crunch that could jeopardize WeWork's future in a matter of months. 

According to CBS MoneyWatch's calculations, based on WeWork's latest financials that were released as part of the documents filed for its stalled IPO, WeWork has about five months' cash on hand — or almost $1.5 billion — before it will either have to raise more money or face questions about its prospects. 

WeWork declined to comment for this article.

Burning through cash

Many have dismissed the idea that WeWork faces a cash crunch. The company reported $2.5 billion in cash as of the end of June (its latest financial release) and growing revenue.

But based on WeWork's current rate of losses, as well as existing commitments to its lenders, that money may not last long. WeWork's operations burned though nearly $200 million in cash in the first six months of the year. The company also had nearly $18 million in interest payments. 

The company's biggest expense is the cost of acquiring and renovating the office space it then converts into WeWork's trademark millennial-friendly co-working locations. It has also increasingly bought up buildings instead of just re-renting space from other building owners.

WeWork spent $1.3 billion on building purchases, renovations and other capital expenditures in the first half of the year. Put those things together, and WeWork is burning through about $250 million a month this year. 

Next year, as WeWork's lease expenses rise, it will be closer to $300 million a month.

Dwindling financing options

A bigger problem is that WeWork can't spend all of the money in its bank account without running afoul of its lenders. Of its $2.5 billion cash trove, the business has pledged $535 million to a number of investment entities that have purchased office properties for WeWork. Translation: WeWork can't tap that cash unless it is willing to sell off some properties.

In addition, WeWork raised just over $700 million in the junk-bond market in mid-2018. As one of the terms of that deal, the company agreed to maintain, as of 2020, a minimum of $1.1 billion in unrestricted cash at all times. If it dips below that level, the company's options would be limited to defaulting on the debt, selling stock or agreeing not to raise more money.

The problem for WeWork: It's losing nearly $250 million a month, so any restrictions on raising additional capital could be crippling. 

WeWork could still find a way out of its predicament. Even if it blows through the $1.1 billion threshold, which could happen as early as mid-October, WeWork would still have four months to complete an IPO or some other deal to raise funds.

WeWork is also reportedly thinking of significantly reducing its workforce, and perhaps selling off some of its non-office space ventures in order to cut costs.