By Darren Atwater | Sunday 22 September 2019
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
In yesterday's Bearcast, Tom talked about some of the outlandish claims in this article covering my favourite company, We Work. WeWork (actually known as the We Company) is attempting to IPO in the US. Let me highllight some of choice bits of the article that Tom didn't get into.
They treat discounts on rent as revenue:
WeWork post full year invoices for the year ahead this year to inflate their revenues. They then heavily discount those invoices they’ve already raised and treat them as expenses. They then pay whichever broker secured that lead 100%, yes 100% of the contract value. Note the industry standard commission is 10%. Neither the discounts nor the 100% in commission payments appear in their Financials as they are ‘community adjusted’. They also do the opposite, they turn expenses into revenues so imagine a landlord agrees to discount their rent by £250k to offset a portion of their build costs, standard practice, WeWork treats that £250k as revenue. They also charge members even after they’ve vacated, then credit them later. It’s not difficult to boost revenues on a blank cheque. Revenues are not what you’ve actually cleared through your bank, it’s the total tally of invoices raised in a given period, a big difference.
They have made up their own EBITA’ called a 'community-adjusted EBITA'.
To hide two crippling cost groups; fit-outs & marketing, they invented a brand new accounting principle which they called ‘community-adjusted EBITA’S’. If they hadn’t they would have had to post actual accumulated losses in the region of $6 billion instead of the $4 billion reported. Why don’t we all do this. This is another strong indicator, they are hiding actual losses to mislead, knowingly. For somebody that can’t go a sentence without throwing in ‘community’ twice it’s interesting he’s never tweeted, his instagram features four landscape google images and he’s non-existent on LinkedIn.
Serviced offices are not the exclusive club it once was:
Serviced Offices as anybody in the industry will tell you generates almost as much yield as your traditional commercial landlord, typically 2/3%. Serviced Offices used to be very profitable when there were few half decent ones around but today they’re everywhere and desk prices have collapsed whilst conventional leasing rates have held steady. It’s not just been around since the 1980’s but now everybody’s getting into it, even developers British Land & Boston Properties are beginning to include it as part of their offerings. Now its purely a landlord play. Cafe’s and Hotels are jumping in too, even brokers are building their own platforms where they act as operator, Knotel, Instant Managed, CBRE to name a few. Even Google have a platform, ‘Campus’, very cool place. Adam though doesn’t think they’re come close to being a threat, ‘Our biggest competitor is work itself’.
We Work has figured out how to game the rates:
WeWork doesn’t pay the appropriate property taxes due on their UK based centre’s. If you look at their Business Rates schedules of the respective boroughs in which they operate in (available online) you’ll notice that split their entire space into tiny cubicles. By doing so WeWork avoids paying property taxes and earns tax rebates originally intended for small businesses, $2.4 million to date. So they’re effectively being financed by Her Majesty’s Government & the UK taxpayer too.
I'd like to say that WeWork is going to be a laugh for me for years to come but their reckoning may cut my fun short early. * *
Our top 10 most-read stories this week were:
The most-listened to Bearcasts this week were:
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