The $18 Billion Rent Bill: Inside WeWork’s Sprawling Empire
(Bloomberg) -- WeWork Cos. 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 $500 million to finance yet more growth, has amassed a global portfolio of more than 14 million square feet, approaching the size of the entire office and retail space in London’s Canary Wharf district, according to bond documents reviewed by Bloomberg. In all, the New York company has committed to pay at least $18 billion in rent for that space, the documents show. WeWork declined to comment.
These are the highlights:
WeWork boasted 220,000 members as of March 1, up from 7,000 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 percent. But costs are rising faster, resulting in a total net loss of $934 million 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 percent to $6,928, 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 summer, WeWork had raised $4.4 billion 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 percent of outstanding shares of Class B common stock, the document said. They give him more than 65 percent 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 percent occupancy to cover each location’s costs. Last year, it managed to fill 81 percent of desks, up 5 percentage points from a year earlier. WeWork now boasts members from about 22 percent of the Fortune 500, including HSBC Holdings Plc, General Motors Co. and Microsoft Corp., the documents show.
Buying Long and Selling Short
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 $5 billion in rent by 2022, with a further $13.2 billion 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, mitigating the risk of signing long-term leases while renting space to members on short term contracts.
Since 2015, WeWork has also leased space in some buildings in which CEO “Adam Neumann and certain of his immediate family members hold ownership interests,” according to the document. During the past two years, the company paid a total of $9.8 million for operating leases in buildings partially owned by officers and affiliates of the company. Future payments under the leases will be at least $90 million, as of the end of last year, it said. A further $3.5 million was paid during 2016 and 2017 for a capital lease in a building owned by a related party, with future obligations totaling $20.8 million.
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