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WeWork is hitting the brakes after its IPO went up in smoke — and landlords could pay the price

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Jackal Pan/Getty Images; Jacqueline Larma/AP Images; Samantha Lee/Business Insider

  • WeWork is hitting the brakes on growth after its IPO went up in smoke last month, and landlords are worried they could pay the price.
  • Two landlords of WeWork locations in London are holding off on signing new leases with the shared-workspace group, and preparing backup plans for their existing WeWork offices in case the company restructures, according to the Financial Times.
  • WeWork could slash its costs by shutting down the companies holding its leases, stiffing its landlords and leaving them with vacant offices.
  • Less demand from WeWork could hit rents in Manhattan, London, and other cities.
  • Read all of Business Insider’s WeWork coverage here.

WeWork is hitting the brakes after its IPO went up in smoke last month, and landlords are worried they could pay the price.

Two landlords of WeWork locations in London are holding off on signing new leases with the shared-workspace group, and are preparing backup plans for their existing WeWork offices in case the company restructures, according to the Financial Times.

“It would not be prudent for us to do anything [new] with them until we see how the new management will operate,” one of the landlords told the newspaper.

The company could leave landlords out in the cold

The crux of WeWork’s business model is signing long-term leases for properties then dividing them into smaller units, renovating them, and renting them out on a short-term, flexible basis. The strategy has helped it become the largest private tenant in both New York City and London, with 7.7 million square feet of office space in the former and 4.1 million in the latter, the Financial Times reported, citing CoStar data.

WeWork’s aggressive expansion has meant taking on $47 billion in lease obligations, including about $2.3 billion in payments due next year, according to Harvard Business School. However, Fitch lowered the group’s credit rating further into junk territory, to CCC+, last week, warning “default is a real possibility” and flagging a heightened risk of the company failing to restructure.

WeWork’s scale and clout have allowed it to secure favorable terms with landlords where they cover its upfront costs. For example, it wanted 15 months rent-free on an eight-year lease and £100 ($123) a square foot to pay for fitting out offices, a landlord who negotiated with WeWork this summer told the Guardian. The company received nearly $455 million in upfront payments in the first half of this year, its IPO filing shows.

At its current cash-burn rate, WeWork could run out of money next year. The group could opt to slash its expenses by shuttering some of the companies that hold its leases, stiffing its landlords and lumping them with empty offices.

“WeWork has structured many of its leases so that they can simply collapse the special purpose entity it’s trapped in and walk away,” Alex Snyder, an assistant portfolio manager at CenterSquare Investment Management, told the Financial Times. “This vacancy pressure on the market [would] be painful.”

“With so many WeWorks in close proximity to each other, it could easily consolidate tenants in one building, leaving a landlord with an empty space,” an industry veteran told the Guardian.

However, if WeWork skips out on its bills, it would face fresh scrutiny over its business model and find it harder to raise money, Matt Oakley, a commercial property research boss at Savills, told the Guardian. It could also tarnish the reputation of ther serviced office industry, he said.

If WeWork moderates its growth, city rents could suffer

If WeWork slows its roll, rents in cities such as Washington D.C. and Manhattan could suffer, hurting landlords.

“Now that the Goliath of the industry has paused leasing, I think it will make it that much harder for these markets to muster up any kind of meaningful growth,” Snyder told the Financial Times.

“This is the capital market trigger for a de-rating of London office values,” Mike Prew, an analyst at Jefferies, told the newspaper.

However, if WeWork eases off, rivals could pick up the slack.

“We are always in discussions with landlords and those discussions have picked up,” Mark Dixon, CEO of UK competitor IWG, told the Financial Times. “It’s the flight to quality.”

“WeWork’s core business is strong and we continue to evaluate opportunities with our landlord partners. We are committed to the London market,” a WeWork spokesperson told Markets Insider. ”The company intends to fully honor its lease commitments.”

WeWork is reassessing its business after scrapping its IPO

WeWork shelved its IPO last month in the face of scathing criticism of its business model, mounting losses, complex structure, and controversial cofounder and CEO Adam Neumann. Days before its planned flotation, the company was looking at a public valuation below $20 billion — a fraction of the private valuation of $47 billion it secured in January. The risk of raising less than $3 billion, the minimum amount needed to unlock $6 billion in bank financing, spurred WeWork to scrap its plans.

Company executives have scrambled to limit the fallout. They have overhauled WeWork’s corporate governance, revamped its share structure, and replaced Neumann with two co-CEOs. Artie Minson and Sebastian Gunningham plan to lay off between 10% and 25% of the group’s employees as they seek to cut costs and refocus on the core business, Business Insider reported, citing a source familiar with the situation.

Read more: ‘The emperor has no clothes’: Billionaire debt investor Howard Marks slammed WeWork’s business model and valuation

Read more: A New York real estate group sounded the alarm on WeWork years before it plunged into chaos

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Navy Advanced Arresting Gear for new carriers survives demanding test

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  • The US Navy recently achieved a milestone in the development of the Advanced Arresting Gear for its new Ford-class aircraft carriers.
  • During a test at the Runway Arrested Landing Site in Lakehurst, New Jersey, a test team was able to recover aircraft 22 times in just over 26 minutes.
  • One of the Navy’s ambitions for Ford-class carriers is increasing lethality by achieving a higher sortie rate than Nimitz-class carriers by using electromagnetic catapults, advanced weapons elevators, and new arresting gear.
  • Visit Business Insider’s homepage for more stories.

The US Navy recently achieved a milestone in the development of its advanced aircraft recovery capabilities for its new supercarriers, Naval Air Systems Command announced this week.

During a challenging test of the Advanced Arresting Gear (AAG) for the Navy’s new Ford-class aircraft carriers at the Runway Arrested Landing Site in Lakehurst, New Jersey, in late October, the Navy was able to pull off 22 aircraft recoveries in roughly 26 minutes.

The AAG, a General Atomics turbo-electric aircraft recovery system built as a more advanced alternative to the MK 7 hydraulic arresting gear used on the Navy’s Nimitz-class carriers, is part of a suite of new technology incorporated into the Ford-class carriers.

Like the Electromagnetic Aircraft Launch System (EMALS) and the Advanced Weapons Elevators (AWEs), the arresting gear has also had its share of problems during the development process.

Navy Gerald Ford aircraft carrier FA-18 Super Hornet landing

An F/A-18F Super Hornet performs an arrested landing aboard USS Gerald R. Ford, July 28, 2017.
US Navy/Mass Comm. Specialist 3rd Class Elizabeth A. Thompson


In August, the AAG was given a green light to recover all “props and jets,” according to the Aircraft Recovery Bulletin released that month. But now the Navy wants to make sure it can meet sortie-generation requirements.

During the recent two-day aircraft AAG tests, the Navy team evaluated ability of the AAG’s thermal management system to handle the heat produced by fast-paced flight operations, NAVAIR explained.

“This never-before accomplished test event was effectively executed with herculean efforts by a collaborative program office-fleet team,” Capt. Ken Sterbenz, Aircraft Launch and Recovery Equipment (PMA-251) program manager, said in a statement.

“This achievement represents a significant datapoint for AAG performance as experienced at our single engine land-based site. I’m highly confident with AAG going into CVN 78 Aircraft Compatibility Testing early next year where the full, three-engine recovery system configuration will be utilized.”

The recent testing involved five F/A-18E/F Super Hornets, 25 maintainers from Carrier Air Wing 8 (CVW 8), six pilots from Air Test and Evaluation Squadron 23 (VX 23), and two sailors from the USS Gerald R. Ford (CVN 78), which is the first of a new class of carriers and the most advanced flat top in the Navy’s arsenal.

As of September, the AAG test program had completed more than 2,600 dead-load arrestments at the Jet Car Track Site and over 1,570 arrestments at the Runway Arrested Landing Site, NAVAIR revealed. The Ford has executed 747 sorties so far. Flight operations are expected to begin early next year.



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Pax, Eaze, Weedmaps, Hexo, CannTrust: layoffs, job cuts in cannabis

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The once red-hot cannabis industry is coming back down to earth. 

Over the past few weeks, cannabis companies — including venture-backed startups like Pax and giants like CannTrust — have announced a series of job cuts, amounting to over 900 laid-off workers in the sector as a whole.

There are unique reasons for the job cuts at each company, but industry analysts and experts say the operating environment for cannabis companies has entered a uniquely challenging phase. Headwinds include illnesses linked to vaping, lower-than-expected retail revenues in Canada and states like California, and legislative and regulatory hurdles that make accessing capital much more expensive than in other industries.

It has also become much more difficult for companies to raise money, thanks to cratering share prices for public companies and a shortage of investors for private firms.

The Marijuana Index, a composite of cannabis and cannabis-related stocks in the US and Canada, has lost over 50% of its value since its high in January 2018. CannTrust has seen its value crater close to 90% since its high in March after the company was found to be illegally growing cannabis following an investigation by Health Canada, the regulatory agency responsible for overseeing legal cannabis.

The decline in valuations has also made big cannabis megamergers harder to close, with companies like the dispensary operator MedMen pulling out of deals altogether. MedMen laid off 190 employees in November and divested stakes in a number of brands it invested in as part of its push to become cash-flow positive. 

An analyst at the investment bank Stifel summed it all up as a “toxic” operating environment. 

“It’s put a cloud over the industry,” Peter Horvath, the CEO of cannabis company Green Growth Brands, told Business Insider in an interview on Thursday. “The market has corrected — but has it corrected far enough? I don’t know.” 

Business Insider is tracking these job cuts here and will keep updating as we learn more:

Got a tip? Contact this reporter via email jberke@businessinsider.com, or Twitter DM @jfberke. Encrypted messaging app Signal number available upon request. 

This article was published on October 25 and has been updated with new information.



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A secretive $120 billion hedge fund has bested Warren Buffett again and again. These are its 10 biggest holdings.

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Chip Somodevilla / Getty

  • A secretive $120 billion hedge fund founded by a Cold War codebreaker has vastly outperformed Warren Buffett over the past three decades.
  • A dollar invested in Renaissance Technologies’ flagship Medallion fund in 1988 would reportedly be worth $27,000 net of fees in 2018, dwarfing a $107 return from Buffett’s Berkshire Hathaway over the same period.
  • Scroll down to see Renaissance’s 10 biggest holdings.
  • View Business Insider’s homepage for more stories.

A secretive $120 billion hedge fund, founded by a Cold War codebreaker and math professor, vastly outperformed Warren Buffett over the past 30 years.

Renaissance Technologies, which was created by Jim Simons, counts Chipotle and Facebook among its largest investments. It recorded an annualized, post-fee return of 39% at its flagship Medallion fund between 1988 and 2018, according to “The Man Who Solved The Market: How Jim Simons launched the Quant Revolution,” a new book by Greg Zuckerman.

The 39% gain – 66% before fees – trumps annual returns of about 16% at Buffett’s Berkshire Hathaway and 10% from the S&P 500 over the same period.

Medallion’s remarkable performance means a dollar invested in the fund in 1988 would have grown to about $27,000 net of fees by the end of 2018, dwarfing a $107 return from Berkshire Hathaway and a $20 total return from the benchmark index.

While the Medallion fund is restricted to Renaissance employees, the hedge fund’s remarkable track record means its trading patterns are worth noting. Its 10 biggest investments, based on a SEC filing for the quarter ended 30 September, are listed below.



2. Chipotle Mexican Grill

Reuters

Renaissance has a $1.61 billion stake in Chipotle Mexican Grill. The fast-casual Mexican restaurant chain, which has more than 2,500 outlets, has largely recovered from a series of health scares a few years ago.



3. Verisign

Richard Drew/AP

Simons and his team have a $1.56 billion stake in Verisign, a network infrastructure group that operates the registry for domains including .com and .net.



4. Celgene

Courtesy of Celgene

Renaissance has amassed a $1.54 billion stake in Celgene, a biotech firm that develops medicines to treat cancers and inflammatory disorders. Celgene is set to be acquired by Bristol Myers-Squibb, the hedge fund’s largest holding.



5. Novo Nordisk

Reuters

Novo Nordisk is a Danish pharmaceutical company that makes medicines for diabetes, hemophilia, growth disorders, obesity, and other chronic conditions.

Renaissance holds a $1.28 billion stake in the company.



6. Palo Alto Networks

Smith Collection/Gado/Getty Images

Renaissance holds a $1.19 billion stake in Palo Alto Networks, a cybersecurity group offering firewalls, network security, cloud-based threat analysis, and other software tools to businesses.



7. Biogen

Reuters

Biogen develops treatments for Parkinson’s, Alzheimer’s, multiple sclerosis, and other neurological diseases. Renaissance has $983 million worth of Biogen shares.



8. Vertex Pharmaceuticals

Vertex Pharmaceuticals

Renaissance has a $982 million stake in Vertex Pharmaceuticals, a biotech firm that makes drugs to treat cystic fibrosis, HIV, hepatitis C, cancer, and other ailments.



9. Gilead Sciences

AP Photo/Paul Sakuma

Gilead Sciences makes antivirus drugs to treat HIV, hepatitis, influenza, and other maladies. Renaissance has a $934 million stake in the biopharmaceuticals group.



10. Facebook

Reuters

Renaissance has amassed $880 million worth of Facebook stock. The social-media titan owns WhatsApp and Instagram as well as Oculus, which makes virtual-reality headsets.


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