WeWork revealed the extremely complicated way it's set up in its IPO

Yesterday The We Company filed its S-1 form with the US Securities and Exchange Commission and it details the unnecessarily complicated way that the company is organised.

In brief, the company is invested in co-working spaces, private schools and housing through its WeWork, WeGrow and WeLive subsidiaries. The We Company owns and leases numerous properties that it then opens up to people who purchase a membership — in total, the company has more than 790 offices located in over 35 countries, according to its own website. It’s not shy with splurging on spaces, having spent $850 million in 2017 to buy the Lord & Taylor Building on Fifth Avenue in NYC from Hudson’s Bay.

There’s something interesting about We’s S-1, however. The We Company is a real-estate company — no matter how much it tries to pass as a technology startup, it’s in the business of renting office space. But We boasts about its “extensive technology infrastructure” in the filing, without actually detailing what it means by this.

📸:  Flickr

📸: Flickr

WeWork provides coworking spaces for a monthly fee, including simple desks and dedicated offices:

  • 40 percent of WeWork members are employed at companies with 500+ employees, including Microsoft, Facebook, IBM and UBS

  • It set up an $2.9 billion investment fund, dubbed ARK, that will be used to purchase commercial buildings and then lease them to WeWork — currently WeWork leases properties from traditional landlords

  • More than 45 million square feet of office space is used by WeWork, according to Bloomberg

Then there’s WeLive, which operates co-living spaces that range from studios to four-bedroom apartments in New York and Washington, DC:

  • Units have perks and common areas, including lounges, game rooms and morning yoga

  • They’re fully-furnished and range from $229 to $269 USD per night (NY) or $1,800 to $4,440+ per month (DC)

  • WeLive is primarily targeting these residences at entrepreneurs and startup founders

Through WeGrow, the company is also involved in the for-profit school sector:

  • There’s only one location currently, located at a WeWork office in the Chelsea neighbourhood of New York

  • Curriculum includes an indoor classroom with a treehouse and vertical farm, a once-a-week trip to an upstate farm to harvest crops and masterclasses from WeWork members

  • Prices range from $22,000 for two-year-olds to $42,000 for children aged five to 11

Finally there’s Rise by We, which is basically a luxury gym:

  • It’s boasted as a “complete wellness experience” that goes above and beyond a traditional gym

  • A membership is surprisingly affordable at $199 USD per month

  • There’s a “superspa” that is a communal experience for members to lounge in a spa, steam room or mineral pool

Beside these four main ventures, We also owns the Flatiron School and Meetup.

How The We Company is set up

The company is planning on going public using a method called “Up-C”, turning The We Company into a LLC. Investors will then purchase shares in a separate holding company that owns a stake in The We Company — essentially acting as a mirror company.

201020122014201620182019 Q2

This also means there could be big tax breaks for the business and its investors, who have to pay tax on profits at individual income tax rates. Plus according to a document from legal firm Simpson Thacher, insiders will see taxes lowered by 7 percent.

Where the controversy is

The IPO comes amid a large amount of uncertainty for the company:

  • WeWork co-founder Adam Neumann cashed out more than $700 million through stock sales and borrowing against his remaining shares, according to The Wall Street Journal

  • Neumann also regularly purchased and then leased buildings to WeWork, making millions on the deals

  • He gave Business Insider and Axios interviews that violated the SEC’s IPO quiet period — The We Company filed for its IPO in December and the quiet period begins when a company files for registration and ends when the statement is “effective”

Like other unicorns — take Uber and Slack as examples — The We Company is burning through cash at a rapid pace. In fact, it burned through $900 million USD in the first six months of 2019, but we’ll have to wait until the end of the year to see whether it will top the $1.9 billion in losses the company had in 2018.

But the good news is that the company faces higher upfront cost when purchasing real estate, then has lower recurring costs, like staff, electricity and perks for members. Time will tell whether the company is able to generate enough recurring revenue to offset the high upfront purchases.