BY ROBERT CYRAN

WeWork’s constant labor is to keep itself looking different. The shared-office provider’s latest purchase is Meetup. The social network’s real-world get-togethers might fill WeWork’s hip office space at slow times. But like investing in a wave-pool firm, starting a school and opening a gym, the consistent theme is doing pretty much anything to avoid looking like a real-estate firm.

Meetup helps hobbyists and other groups organize online and then get together in real life. Since meetings usually happen outside business hours, establishing WeWork as a default location is a potentially clever way to use space more intensively, increasing profit. Yet a joint venture – or several – might have offered similar benefits for less money.

This points to the broader motive. WeWork said earlier this year it is running at about breakeven in EBITDA terms and hopes monthly sales will reach an annualized rate of $1 billion by the end of 2017. That’s admirable for a fast-growing firm, but rival IWG, which runs Regus, is valued at about five times estimated EBITDA. WeWork’s valuation – roughly $20 billion after its latest funding round – depends on being something more than a traditional real-estate player.

To that end, WeWork heavily promotes its image as a purveyor of an ambitious, hip and tech-savvy lifestyle. Stylish décor and microbrew beer on tap are just the start. The firm has also established flexible apartment-rental buildings (WeLive), a gym with a spiritual bent (Rise by We), an apps and services store (WeWork Services), and even a school for budding entrepreneurs aged three to nine (WeGrow).

An investment in a wave-generating equipment maker and a recent deal to buy the classic Lord & Taylor building in Manhattan for $850 million are in the same vein, although perhaps more perplexing business decisions. Perhaps some of these, like Meetup, can bring to WeWork’s offices both services and a quality that’s hard to measure with mere financial calculations. That’s the trick the company has to pull off if it wants to be a New York tech upstart, not just another Big Apple-headquartered property play.

First published Nov. 28, 2017

BY ROBERT CYRAN

WeWork seems to be on a path to enlightenment, when what it needs is one toward profit. The cash-burning office-share outfit – dubbed “The We Company” as of Tuesday – wants to “elevate the world’s consciousness.” SoftBank is investing $2 billion more in the company, some at an eye-watering valuation. But that’s far less than an injection of up to $16 billion, on the table last year according to the Financial Times. WeWork broadening its ambitions as its backers shrink theirs is risky.

It’s one thing for Alphabet to pursue quixotic goals such as providing broadband via balloon or fighting biological aging. Shareholders can forgive a $727 million loss on the company’s many wacky bets in the third quarter of 2018 because the Google advertising juggernaut provided about $9.5 billion of profit in the period. WeWork doesn’t have this luxury. It lost $1.2 billion on $1.5 billion of revenue over the first nine months of 2018.

Most of the revenue and losses come from renting out office space. While the company could stanch much of its bleeding by stopping expansion – it pegs operating margins at about 30 percent in established buildings – that would make it very hard to justify the $47 billion valuation attached to part of SoftBank’s new investment. Hence WeWork’s breakneck expansion in new offices, and into new fields.

The We Company’s separation of offices (WeWork) and residential units (WeLive) is sensible enough. A third bucket, called WeGrow, is a convenient place to put everything else, including a lifestyle business, an elementary school, a coding academy and an online meetup service. It does introduce greater clarity, perhaps allowing potential partners to pick and choose more easily.

But that advantage is undone by the goals laid out by co-founder Adam Neumann. “WeWork’s mission is to create a world where people work to make a life, not just a living; WeLive’s mission is to build a world where no one feels alone; and WeGrow’s mission is to unleash every human’s superpowers.” Skeptics can be forgiven for interpreting this as throwing pretty much any spaghetti at the wall to see what sticks – when WeWork could instead be planning for when there are no more SoftBank dollars to burn.

First published Jan. 8, 2019

BY RICHARD BEALES

WeWork’s financial arrangements are becoming like one of its crowded shared-office spaces. The provider of hot desks and the like may borrow up to $4 billion before its planned initial public offering. Maybe adding to its pot of cash will make the money-losing firm’s path to profitability more credible, and so attract yet more cash. But that logic has big flaws.

The company, backed by Japan’s SoftBank and valued at $47 billion in its last private funding round, is working with Goldman Sachs, JPMorgan and others on a potential debt facility, according to news reports. The structure would be funded with payments from buildings that make money, effectively securitizing future cash flows – and it could increase to $10 billion over time as more sites are added.

The interest rate would probably be less than the 7.9% WeWork pays on the roughly $700 million of traditional junk bonds it sold last year. The idea behind the new facility is that the company, which lost $1.9 billion last year, will have extra cash to fund its rapid growth. Some potential IPO investors may take comfort in a higher level of available and committed cash, a tally that stood at just under $6 billion at the end of March.

Yet sharp, broad-based real-estate downturns do happen even if WeWork, founded in 2010, hasn’t lived through one yet. Any potential investor in the company’s stock should worry that the best of its assets might already be in hock to lenders like Goldman Sachs and JPMorgan.

Moreover, there’s a Panglossian circularity to the funding argument: WeWork loses money because it’s investing in growth; that requires cash; so the company borrows money to boost its pile of greenbacks; as a consequence, investors should be happier giving it still more. The disconnect is that profitability may only come – if at all – when growth slows dramatically. And providing extra funding to expand is at least as likely to defer breaking even as to achieve it.

A big, expandable debt facility gives WeWork breathing room to delay its IPO until the market timing seems right. That flexibility is valuable to the company. The benefit for potential new shareholders is less obvious.

First published July 8, 2019

BY ROBERT CYRAN

WeWork is getting more complex as it readies for an initial public offering, but its central problem remains simple. The shared-office firm has set up a unit to buy buildings it can then let out to its customers. It’s a way to hedge against rising lease costs and cash in on WeWork’s supposed halo effect. If tenants prove fickle or demand subsidies, though, the benefit of owning property only goes so far.

Right now WeWork is in a state of high growth, and high cash-burn. Its revenue rose 106% last year to $1.8 billion, as its net loss more than doubled to $1.9 billion. The idea is that while it’s costly to renovate space and find tenants to start with, buildings then generate substantial operating profit – with a margin of perhaps up to 30%.

Its new unit, called ARK, will roll up existing investments in real estate, including those by private-equity firm Rhone and WeWork co-founder Adam Neumann, and add an injection of $1 billion from a unit of Canadian investment firm Caisse de depot et placement du Quebec. The structure is intricate, with separate funds and special purpose vehicles, according to a person familiar with the situation. There’s obvious room for conflict: If real estate rates fall in a city, WeWork will want to reduce leases, but ARK may have other ideas.

There are advantages too. WeWork can buy buildings it likes rather than offering only spaces that were available for long-term leases. If its hip offices lure other tenants into the building then it can reap the benefit of higher rents paid by occupiers who aren’t direct customers. And the ability to sell a building may be useful if WeWork needs money.

Would-be investors also have a new form of spin to watch out for in the IPO. Previously the company’s “total addressable market” was office rental. Now it includes owning and managing buildings. The risk of being distracted by unhelpfully large numbers just increased.

The main challenge for WeWork hasn’t changed, though. Many of its expenses are locked in for the long term, but much of its revenue isn’t. And tenants benefit from goodies like rent discounts, which could get used more liberally if the market becomes more competitive. If renters demand better terms, decamp or go broke, then WeWork will face problems, whether it part-owns its properties or not.

First published May 15, 2019