Gravity Works As WeWork Doesn’t An In-Depth Look into The We Company’s Fall from Grace Research Reinvented At Smartkarma, We Do Things Differently We leverage the online economy, applying this innovative mindset to capital markets. For a single subscription, Smartkarma users can consume all the research they need, just like Netflix enables viewers to watch unlimited hours of content on its platform. At the same time, we address a growing need for a modern approach to corporate access. In 2019, we launched Corporate Solutions, which allows company executives and investor relations personnel to connect seamlessly to investors and analysts, all within a single network. In this effort, we work closely with global exchanges such as Singapore Exchange, which became our investor, to provide such services to listed companies worldwide. Our model ensures that the research on our platform is objective and unbiased, independent and free from conflicts of interest. 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In the meantime, we will be busy bringing you more exciting Smartkarma is a global developments over the course of the year! investment research network that brings together independent Insight Providers, institutional investors, and corporate investor relations professionals and management. 2 Table of Contents 1. Gravity Works As WeWork Doesn't; Now Plan B.................................................................................................. 4 2. WeWork Board and Softbank Battle CEO For Control.......................................................................................19 3. WeWork Board to CEO: YouOUT.........................................................................................................................27 4. The Tide Is Out and WeWork Bondholders Are Naked .....................................................................................35 5. Softbank May Blink First (WeWork Bondholders Hope) ...................................................................................46 6. Softbank Who? WeWork Picks Bank Bailout; Bondholders Beware ................................................................53 7. WeWork Bondholders Brace for Softbank's Rescue Plan--In Silence ..............................................................61 8. WeWork Is Foundering While Softbank Struggles With Its Bailout ..................................................................71 9. WeWork Still Failing Expensively; Softbank Struggling to Foot the Bill ...........................................................78 10. WeWork's Mounting Losses Send Softbank Scrambling For Alternative Financing.......................................87 3 Gravity Works As WeWork Doesn't; Now Plan B The We Company (WeWork) | Credit Gravity Works As WeWork Doesn't; Now Plan B Vicki Bryan By Vicki Bryan | 17 Sep 2019 Founder & CEO Bond Angle, LLC EXECUTIVE SUMMARY It's official: The We Company (WeWork) (WE US) has decided to pull its IPO for now, but still expects to complete it by yearend. Don't hold your breath. This comes just days after WeWork filed an amended S-1 announcing plans to list its new shares on the Nasdaq index even as its IPO valuation continues to dissolve. Reuters had reported on Friday that deal insiders were considering an implied equity valuation of just $10-12 billion, a stunning 78% drop versus the extravagant $47 billion floated since January. My analysis shows even $10 billion is too high. So it's not surprising that long-term backer and top investor Softbank Corp (9434 JP), arguably the most responsible for WeWork's incredible equity valuations, had urged the company to scuttle the IPO given the "cool reception" it's been getting. Yet WeWork is compelled to push on regardless, seemingly ready to concede to any termsto get a deal done, because its financial condition is much more fragile than it has been trying to project. It has little time to waste and few alternatives. That means Plan B must already be in the works. Either way, risk has intensified forW eWork's overpriced bonds. Read on for Bond Angle analysis: How did WeWork get so expensive and What's next? Plus a new WeWork model, equity valuation and forecast, and more. Vicki Bryan 4 Gravity Works As WeWork Doesn't; Now Plan B DETAIL How to Create a Capital Evaporation Community WeWork isn't the first "ultimate unicorn" to come to market with ridiculous valuation expectations. But it is surprising how quickly this high flyer has fizzled in the cold light of day since most of its foibles have been chewed over for years. Critics, myself included, have dressed down WeWork for most of its nine- year existence because it's actually not a new wave technology company as advertised nor even much of a disruptor.IWG PLC (IWG LN), a much larger, more seasoned rival, has been running the same kind of business since the late 1990s when it was the "WeWork" of the dotcom bubble with similarly overheated valuations. It also has battle stripes to show for it after plunging into bankruptcy with its US-based business when the bubble burst and then rising from the ashes to the profitable and well- capitalized operation it is today. By comparison, WeWork is just another glammed up real estate company with slick marketing and lots of shiny objects to help it sell its overpriced office "space as a service," a deliberate play on "software as a service" to make it sound high-techy. WeWork also is structurally compromised with an "asset-light" business model which has it committed to decades of leased space in expensive markets as it spends billions of dollars outfitting its office "communities" while relying on short term revenue typically coming in increments of months to a year at a time. This makes WeWork vulnerable to adversity since its targeted market groups of capricious freelancers and small businesses can easily melt back into their ether worlds should stalling economic conditions settle into protracted decline, which now seems increasingly likely. The co-sharing office concept is driven, after all, by the Vicki Bryan 5 Gravity Works As WeWork Doesn't; Now Plan B idea that people are free to work anywhere these days. So when times get tough they will take the cheapest path they can to survive--like back to Starbucks or their home offices. Co-sharing office space really took hold as millions found themselves out of work and scrambling during the last recession, which was the worst in 80 years. WeWork was born in the trough of that cycle in 2010 and so has known only recovering economic and business conditions. Yet during its existence evolving during the longest economic recovery in US history, WeWork has not only failed to turn a profit, its losses have grown faster than its rapidly escalating revenue. WeWork reported a net loss of $1.93 billion on $1.82 billion in revenue generated in 2018, with continued losses tracking a similar range through the first half of 2019. WeWork has attempted to offset this risk in the service of selling how durable is its model by featuring "enterprise" clients which are larger companies that can rent floors of space and contribute now roughly 40% of its revenue. The trouble is such space also can and likely will disappear in a business downturn as easily as it was added by companies that logically viewed this flexibility as a key advantage to help preserve their own resiliency. All this challenges WeWork's assurances that it can survive a business downturn simply by shutting down its growth engine sufficiently to idle its way to breakeven and even profitability. This response could indeed slash some of the company's operating and development costs, but not its own prohibitively high lease expenses which comprise the bulk of its overall costs and claimed more than 2/3 of its $1.8 billion in annual revenue in 2018. That bill has climbed to $47 billion in long term lease commitments for the next fifteen years even if revenue dries up tomorrow. Don't look now, but economic conditions have begun to sputter in most of WeWork's markets, and it's years away from being capable of generating sustainable profit, much less free cash flow. Worse, WeWork already has demonstrated spectacularly poor visibility and execution for years even with windfall support of solid economic strength and remarkably unending backstop investment capital. There's no reason to believe it can predict its performance during challenging economic conditions, especially if it has to stand on its own. Vicki Bryan 6 Gravity Works As WeWork Doesn't; Now Plan B Financial Times: A WeWork office in Manhattan. For every dollar the company generates in revenue, it consistently spends nearly two © Bloomberg WeWork is a Money Losing Expert: It Is Known. People who should know better have thrown hundreds of millions and then billions of dollars at WeWork for years, including its largest investor Softbank