Japanese technology company SoftBank Group Corp. tumbled into losses in the last quarter as its earnings were hammered by money-losing investments, including a bailout for office-space sharing startup WeWork.
SoftBank’s founder, Masayoshi Son, said he was regretting “mistaken investment moves.” He said the situation at WeWork was under control, and he expects to turn it around.
WeWork is the dominant coworking player in Boston, comprising 3.2 percent of tenancy across the 72 million-square-foot office market, and it maintained its aggressive growth strategy during the third quarter. It inked an 87,000-square-foot lease at Manulife’s 200 Berkeley St. in Back Bay, another 106,000 square feet at 75 Arlington St. and 117,000 square feet at 100 Summer St, a tower which was acquired recently by Rockpoint Group for $806 million.
Local real estate researchers predict a WeWork departure coupled with a broader economic downturn could have a dramatic, negative effect on the downtown office market, as Banker & Tradesman reported last month.
Tokyo-based Softbank’s 700 billion yen ($6.4 billion) loss in the July-September quarter compares with a 526 billion yen profit the same period a year ago.
The company said Wednesday that it expects a special loss on the value of its shares of subsidiaries and associates of nearly 498 billion yen ($4.6 billion) for its non-consolidated financial statement for the fiscal year ending in March 2020.
Last month, SoftBank announced a bailout for WeWork, including $5 billion in new financing, a tender offer of up to $3 billion for existing WeWork shareholders and an acceleration of an earlier promise of $1.5 billion in funding.
Questionable corporate governance practices at WeWork have landed SoftBank in a crisis, Son acknowledged at its earnings news conference.
Various negative media reports about WeWork were “true in some sense,” he said.
“The perception is that SoftBank is being dragged down into the quagmire of WeWork,” Son said. “I am looking back with true regret about the mistaken investment moves that I have made.”
SoftBank’s investment fund called Vision Fund sank into losses, but Son said that overall, its investors are still reaping profits from their total investments and the Vision Fund’s value for shareholders has not fallen despite the latest losses thanks to stock price gains of other holdings.
Apart from WeWork, SoftBank invests in a wide array of companies, including Chinese e-commerce conglomerate Alibaba; car-sharing companies Uber, Didi and Grab; internet company Yahoo and British internet of things company Arm.
Son pointed out that while Uber’s share price has fallen recently, it has risen since SoftBank invested in it.
Son promised a turnaround at WeWork, saying it’s “not a sinking ship.” He said he has sent in SoftBank Chief Operating Office Marcelo Claure, who oversaw the merger at Sprint, to lead WeWork and beef up its corporate governance.
Adam Neumann, a co-founder of WeWork, stepped down as chief executive in September and was paid nearly $2 billion to relinquish his controlling interest in the company.
In a presentation, Son said WeWork was losing money from initial construction and design costs but, with time, its properties will become profitable.
Asked why WeWork was viewed as a technology investment when it’s actually a real estate company, Son pointed to internet technology used by the company, which focuses on offering office space to startups.
It’s common for new companies to start out with losses, including those considered successes such as Amazon and Facebook, he said.
SoftBank says it has ample cash to handle WeWork’s woes.
“There is no storm, and things are under control,” he said.
SoftBank stock, which has dropped in value in recent months, finished 0.7 percent higher on Wednesday, at 4,322 yen ($40).
