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Coworking company WeWork recently announced it plans to go public through an SPAC (special purpose acquisition company) BowX. While it’s good news for WeWork, regulators are concerned the deal could be a repeat of the company’s botched IPO (initial public offering) attempt in 2019, according to The Wall Street Journal.
One might wonder if the skepticism surrounding WeWork’s plan to become a publically traded company is warranted. After all, WeWork will be doing an SPAC deal rather than an IPO this time around. Typically, SPAC rules are not as stringent as IPO’s are, which should make WeWork’s path to going public a lot easier.
The problem is BowX’s chairman projected WeWork as a $5 billion revenue company rather than provide an actual value. Meanwhile, WeWork counted units it doesn’t directly own when describing its size. WeWork is also predicting a fast recovery following the COVID-19 pandemic and using a new profit measure that shows better margins than it did in 2019.
The coworking company offered a lot of similar positive projections when it was working towards an IPO two years ago. The Securities and Exchange Commission (SEC) requested that WeWork change certain profit and growth measures it was using, The Wall Street Journal reports. The concern now is that history could be repeating itself.
“(BowX’s recent investor presentation) has echoes of the company’s approach in 2019,” Minor Myers, a law professor at the University of Connecticut who specializes in corporate finance, told The Wall Street Journal. “The SEC could push back hard again unless WeWork tones down these claims in its official filings with regulators.”
BowX is expected to vote on WeWork’s proposed deal, which is valued $9 billion including debt, later this year. During WeWork’s investor call, the coworking company’s leadership said it was a “massive growth opportunity” with “more than 850 locations” and more than 1 million workstations and 450,000 memberships. Those counts included the company’s China and India operations, which aren’t technically part of WeWork that’s being merged. The operations also are not part of the company’s financial statements, according to the small print on the presentation slides. Including India and China locations was meant to give an idea of WeWork’s reach however, a person familiar with the company told The Wall Street Journal.
Currently, WeWork CEO Sandeep Mathrani believes the company’s building occupancy could exceed the projected doubling from 47% at the end if 2020 to 95% in 2024. He even went as far to say that occupancy could be more than 100% because WeWork’s membership model allows space to be sold more than once. The SEC questioned that view in 2019 and WeWork cut the projection.
Is WeWork playing the same games as in their S-1 filing?
WeWork’s reputation for showing numbers in a way that makes the company look profitable now has people wondering if it’s doing the same thing again today. The company refuted the claims, however.
“With a new management team in place, WeWork spent the last year working diligently to improve the fundamentals of the business with a renewed commitment to ensuring our financial disclosures — whether quarterly earnings or our merger announcement with BowX — continue to meet SEC standards,” A WeWork spokesperson said. “As we move forward in the SPAC process, we have a fully subscribed $800m PIPE which includes investors like Starwood Capital Group, Fidelity, Insight Partners, and BlackRock. We will always work with the SEC to ensure our disclosures comply with their requirements.”
Landlord sues WeWork for $37M
WeWork’s recent joy of potentially going public might be offset by news that a Chelsea landlord hit the coworking company with a $37 million lawsuit, The Real Deal reports. The suit alleges WeWork is attempting to move its tenants to another location after defaulting on its lease on its current one at 214 West 29th Street. The landlord, Walter & Samuels, filed the lawsuit with the New York State Court on April 23.
According to the lawsuit, WeWork defaulted on its lease to pay a $585,500 security deposit for the building’s fourth floor. The complaint also alleged that WeWork hasn’t refilled a deposit account after the landlord withdrew the coworking company’s past due rent for January and February of this year, The Real Deal reports. A WeWork spokesperson called the suit, “meritless” and said the company has met all of its rent and other obligations.
Meanwhile, Walter & Samuel allege that it’s permitted to assume WeWork’s subtenants if the company defaulted on its lease. The measure was added to the lease agreement because the landlord was investing “tens of millions of dollars” to address WeWork’s needs. The company signed the 15-year lease in 2018 for 100,000 square feet across the second and eighth floors of the 16-story building. WeWork was looking for large enterprise clients that needed open floors and top-notch electrical and HVAC systems. The landlord alleged that WeWork tried to move those tenants elsewhere and remove its property from the company’s locations list.
Joe Dyton can be reached at [email protected].
The post WeWork takes new route to go public, but is it using the same tricks? appeared first on Connected Real Estate Magazine.