WeWork takes key step towards IPO

The listing plans of loss-making real estate firm WeWork (left) show that chief executive Adam Neumann (above) has been awarded privileges beyond what most stock market investors are used to, corporate governance experts say. PHOTOS: AGENCE FRANCE-PR
The listing plans of loss-making real estate firm WeWork show that chief executive Adam Neumann (above) has been awarded privileges beyond what most stock market investors are used to, corporate governance experts say. PHOTO: REUTERS
The listing plans of loss-making real estate firm WeWork (left) show that chief executive Adam Neumann (above) has been awarded privileges beyond what most stock market investors are used to, corporate governance experts say. PHOTOS: AGENCE FRANCE-PR
The listing plans of loss-making real estate firm WeWork (above) show that chief executive Adam Neumann has been awarded privileges beyond what most stock market investors are used to, corporate governance experts say. PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • WeWork, a real estate firm that leases shared office space, officially set in motion the process of becoming a publicly traded company. Its parent, The We Company, filed a financial prospectus with regulators on Wednesday.

The prospectus included a lofty Silicon Valley-style mission statement and was dedicated to "the energy of we".

The offering by WeWork, which is led by a brash Israeli entrepreneur and backed by money from Saudi Arabia, will be a major test of investors' appetite for fast-growing but unprofitable start-ups.

Similar moves this year by ride-hailing rivals Uber and Lyft proved to be disappointments.

WeWork, which is valued at nearly US$50 billion (S$69 billion) as a private company, faces sharp questions about its business model.

It lost more than US$1.6 billion last year on US$1.8 billion in revenue, the prospectus shows. In comparison, Uber lost US$1.8 billion last year on revenue of US$11.3 billion.

WeWork's losses accelerated in the first half of this year, though its revenue more than doubled, the filing shows.

The company's core business is simple. It takes out long-term leases on commercial real estate, spiffs up the spaces with amenities such as fashionable furniture and free beer, and then rents out individual offices and larger suites to other companies.

WeWork said in its filing that it had more than 604,000 workstations, or desks, globally and more than 527,000 "members", its term for people with access to those desks. Both figures were roughly double what they were a year ago.

It also said that sales were growing quickly and were expected to total US$3.3 billion this year.

But the company's capital-intensive business and breakneck growth have made profitability elusive.

WeWork lost almost US$900 million in 2017 and more than US$400 million in 2016, the filing shows.

To justify its valuation, WeWork has tried to position itself as a tech company, promoting the efficiencies it can achieve as it grows, as well as the value of its "community".

WeWork, founded in 2010 and officially known as the We Company, would be the second largest "unicorn" - a privately held start-up valued at US$1 billion or more - to go public this year after Uber.

But securities law experts said that investors in the upcoming initial public offering (IPO) are being asked to lower their standards for corporate governance beyond what other technology start-ups have demanded.

WeWork's chief executive and co-founder Adam Neumann will control the firm through his ownership of shares with high voting power.

But WeWork has awarded him unusual privileges that go beyond what most stock market investors are accustomed to, corporate governance experts said.

These include giving his estate a major say in his replacement as chief executive, and tying the voting power of shares to how much he donates to charitable causes, the IPO filing shows.

"WeWork is pushing the outer bounds of what's acceptable for a public company," said Mr Glenn Davis, research director at the Council of Institutional Investors. "The IPO filing indicates that the objective is to preserve incumbent control indefinitely."

WeWork also plans to go public with an all-male, seven-member board of directors, a practice frowned upon by major investors such as BlackRock.

"Given the fact that this is the first time in history that boards of directors of S&P 500 companies have at least one woman on the board, it would be very unusual for a company to go public today without having diversity of gender on the board," said Mr Steve Balet, managing director of corporate advisory firm Strategic Governance Advisors.

NYTIMES, REUTERS

A version of this article appeared in the print edition of The Straits Times on August 16, 2019, with the headline 'WeWork takes key step towards IPO'. Print Edition | Subscribe