Co-working empire a giant
The speed of WeWork’s expansion is jaw-dropping. But its rent bill is enormous and revenue per member is declining.
WeWork is tapping the bond market for the first time and in doing so, has provided a rare glimpse into the startling numbers behind its breakneck expansion.
The co-working company, which is seeking US$500 million (NZ$710m) to finance yet more growth, has amassed a global portfolio of more than 1.3 million square metres, approaching the size of the entire office and retail space in London’s Canary Wharf district, according to Bloomberg.
In all, the New York company has committed to pay at least US$18 billion in rent for that space, the documents show. WeWork declined to comment. The figures are jawdropping.
WeWork boasted 220,000 members as of March 1, up from 7000 four years ago. Those members have access to 251,000 desks in 234 locations spanning almost two dozen countries.
While the company is best known for luring tech startup freelancers, the bond documents reveal an increasingly diverse customer base.
The massive jump in locations and memberships has driven revenue growth in excess of 100 per cent. But costs are rising faster, resulting in a total net loss of US$934m last year.
The company’s growing use of discounts to attract new members has also pushed down the revenue it generates from each of them by 6.2 per cent to US$6928, the documents show.
WeWork’s general and administrative costs rose almost threefold in 2017, mostly because it bought back stock from employees in October, according to the document.
Last year, WeWork had raised US$4.4b from SoftBank Group Corp, some of which had been used to buy shares from employees and early investors.
WeWork chief executive Officer Adam Neumann holds more than 75 per cent of outstanding shares of Class B common stock, the document said.
They give him more than 65 per cent of the voting power, the ability to dictate who sits on the board and control of key decisions such as acquisitions.
A drive to lure more blue-chip companies into short-term spaces has helped boost WeWork’s occupancy levels. The company said it needs at least 60 per cent occupancy to cover each location’s costs.
Last year, it managed to fill 81 per cent of desks, up 5 percentage points from a year earlier. WeWork now boasts members from about 22 per cent of the Fortune 500, including HSBC, General Motors and Microsoft, the documents show.
WeWork’s rapid expansion has resulted in an eye-watering rent bill that it’s now seeking to manage by diversifying into owning or managing buildings instead of just renting them.
The company has committed to pay at least US$5b in rent by 2022, with a further US$13.2b due from 2023 onwards.
Investors can also take comfort from the fact that each of WeWork’s locations is housed within a separate subsidiary and isn’t directly leased by the parent company.
While landlords are given guarantees or credit letters from the parent, these usually last for just six to 12 months on an average 15-year lease, according to the bond documents.
That should give WeWork more flexibility to close locations if times get tough.