In the News: WeWork Hosts Analysts Before IPO; Debt, Lease Obligations in Focus

In less than a decade WeWork has created a brand with global recognition that investors valued at $47 billion in its latest fundraising. That valuation is 10 times the market cap of its larger rival, Zug, Switzerland-based IWG Plc.

“There’s a lot of desire to handle this IPO in an intelligent way and present a viable business model to the Street and to the analysts because nobody wants WeWork to fail,” said Michael Cohen, president of greater New York City at brokerage Colliers International Group Inc.

Property owners have embraced flexible workspaces that allow a variety of tenants to house temporary operations at the same site without signing long-term leases. But short-term contracts pose an investment risk if tenants vacate and revenue dries up during a downturn.


It is unclear how creditors will use the new FASB standard, which may have a disproportionate impact on WeWork because of its far greater percentage of leased than owned properties, said Mark Berry, a managing director at Kroll Bond Rating Agency. If treated as debt, it could factor into leverage ratios lenders use to determine a borrower’s ability to meet obligations.

Ane Ohm, co-founder and chief executive of LeaseCrunch, a provider of lease accounting software in Milwaukee, said commercial loans often are written so a lease liability would be considered debt.

WeWork’s leading rivals have adopted revenue-sharing agreements with landlords to lighten their liability burden. For instance, almost one-quarter of the new locations at IWG were franchise or management agreements last year, the company said.

 

You can read the full article from Financial Post, here.