WeWork’s IPO filing sheds light on a startup posting massive losses, while issuing huge loans to execs

The We Company, whose imminent IPO stands to be one of the most hyped of the year, has laid bare its innerworkings.

The WeWork parent company’s S-1 filing — filed Wednesday with the U.S. Securities and Exchange Commission — tells the story of a company experiencing massive growth while also sustaining massive losses. It’s also lent millions to members of its executive team at remarkably low interest rates.

From the prospectus, The Real Deal compiled 11 takeaways that paint a clear image of the company’s financial position and corporate practices as it heads toward an IPO.

Adam Neumann has taken almost $1 billion in personal loans and credit from WeWork and its lenders. In April 2019, the company issued a $362.1 million loan to its co-founder and CEO at an interest rate of 2.89 percent. The loan was listed as an “early exercise of a stock option” and will mature 2029. In addition, Neumann was also granted a $500 million credit line from WeWork’s major lenders — including JPMorgan, UBS and Credit Suisse — of which $389 million remains outstanding. JPMorgan has also doled out $97 million in loans backed by Neumann’s real estate holdings.

WeWork granted Neumann another loan with almost no interest. In June 2016, the startup extended a $7 million loan its chief executive at 0.64 percent interest. It was repaid in cash in November 2017, with just $100,000 interest.

Other executives and board members have taken loans from the company, too. Board member Lew Frankfort, COO Jen Berrent and CFO Artie Minson received $6.3 million, $5.2 million, $4.6 million and $3.0 million, respectively, in loans. Minson ultimately repaid his debts — $600,000 of which was written off — as did Berrent.

Neumann still owns four properties that are leased to WeWork. This is in contrast to comments made by Neumann to Bloomberg in May that he would sell the properties “at cost” to ARK Capital Advisors. Instead ARK, WeWork’s real estate investment vehicle, has entered a “management agreement” with Neumann. In New York, a partnership between Neumann and designer Elie Tahari is marketing a WeWork building for sale.

WeWork may not comply with corporate governance guidelines. Because Neumann controls the We Company’s majority vote and it is considered a “controlled company,” the firm said it will take advantage of an exemption that would drop the requirement for independent compensation and corporate governance committees.

Neumann and Minson potentially violated SEC rules. After WeWork announced in April it had privately filed for an IPO, the company’s CEO and CFO gave interviews to Axios and Business Insider, in potential violation of the SEC’s “quiet period” rules. The company acknowledges that if it was found in violation by a court, it would have to repurchase stock from investors. But it claims it is not in violation and will defend itself “vigorously” against allegations that it did.

The startup is still unprofitable and hemorrhaging money. For the first half of 2019, it generated $1.5 billion in revenue, but posted net losses of $689 million. In its risk factors, it acknowledged “We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level… for the foreseeable future.”

The company is still creating its own metrics to measure profits. Following WeWork’s introduction of “community-adjusted EBITDA,” the startup now employs a new phrase: “contribution margin excluding non-cash GAAP straight-line lease cost.” In other words, the We Company says, the metric allows it to circumvent accounting rules that require companies to report lease costs across an extended period of time, and instead can defer future costs by booking short-term agreements like free rent periods.

WeWork has surpassed IWG as the largest provider of workstations. The company now has 604,000 individual workstations as of June 30, 2019 — double that of the same time last year. IWG, which launched a franchise model in 2016 to scale desks, has a total 602,535 workstations, according to company filings.

Neumann has no employment agreement with WeWork. Despite stating that WeWork’s “future success depends in large part on the continued service of Adam Neumann,” the company does not have an employment agreement in place with him. While he hasn’t taken a salary in recent years, he is the chairman of the board and the majority shareholder. Other startups, including Slack and Salesforce, had employment agreements with their CEOs months ahead of their IPOs.

Rebekah Neumann holds the reins of the company’s succession plan. If Adam Neumann dies or becomes permanently disabled within the next decade, his wife and chief brand and impact officer — alongwith current committee members Bruce Dunlevie and Steven Langman — will be responsible for appointing his successor. If Dunlevie and Langman no longer occupy their current positions, Rebekah will choose one or two additional board members to serve on the selection committee.