WeWork IPO filing hypes transformative workplace potential to rationalize massive losses

In the wake of co-working startup WeWork making its IPO filing public today, the company now faces the burden of convincing investors to look past its gaping losses to see its revolutionary workplace potential.

“Our space-as-a-service offering significantly reduces the complexity of leasing real estate to a simplified membership model, while delivering a premium experience to our members at a lower price relative to traditional alternatives and moving fixed lease costs to variable costs for our members,” the company says in its S-1 that it made public today. “Our membership model is transforming the way individuals and organizations consume commercial real estate.”

The company had secretly filed its prospectus with the U.S. Securities and Exchange Commission months ago. But it just made the filing public today in anticipation of what is expected to be a public offering in September.

The company did not reveal how many shares it plans to sell, and included a placeholder figure saying it would raise $1 billion in the offering. But the actual number is expected to be higher, and the company also indicated it planned separately to raise $6 billion in debt.

But first it will have to overcome the skepticism it will likely face in light of reporting a $904 million net loss for the first six months of 2019 with revenue of $1.5 billion in revenue.

Given the growing backlash over the massive losses posted by such recent IPO participants such as Uber, WeWork is opting to make its public debut at a tricky time. But in the filing, the company insists these big losses are different because they represent investments infrastructure that will pay big returns over the long term.

As long as it properly manages its debt, the business has a robust future, the company says.

In part, that’s because its real estate management technology, its membership model, and its ability to create community enable it to lease space to members at costs up to 66% less than if they just leased their own office space directly. That technology has included a rash of acquisitions to extend the services WeWork offers clients.

Whether investors swallow this story, the company has clearly made a huge cultural impact in terms of the conversation around the future of work. Founded in 2010, the company has raised $8 billion in venture capital, led by SoftBank Ventures and Benchmark. The filing says it now has 528 locations in 111 cities across 29 countries with 527,000 memberships.

The filing also speaks of its co-founder and CEO Adam Neumann in very reverant tones: “From the day he co-founded WeWork, Adam has set the Company’s vision, strategic direction and execution priorities. Adam is a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator, while thriving as a community and culture creator.”

That intertwined nature of Neumann’s role and the company’s finances will also likely raise some eyebrows among investors. The filing discloses, for instance, that he:

  • controls a majority of the Company’s voting power, principally as a result of his beneficial ownership of the company’s high-vote stock which gives him 20 votes per share. “As a founder-led company, we believe that this voting structure aligns our interests in creating shareholder value,” the filing says.
  • had personally purchased several buildings in WeWork’s early days which he then leased back to the company at a time when landlord’s were skeptical about its business model. the company says it is working on a plan to sell those buildings.
  • has a line of credit of up to $500 million with UBS AG, Stamford Branch, JPMorgan Chase Bank, N.A. and Credit Suisse AG, New York Branch, of which approximately $380 million principal amount was outstanding as of July 31, 2019. Neumman apparently pledge an unknown amount of his stock as collateral. Also: JPMorgan Chase Bank as given him a total of $97.5 million in loans and credit, a figure that includes mortgages secured by personal property.

Source

Devi Prasad

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