By Lindsay Gellman and Eliot Brown
WeWork Companies Inc., a provider of shared office space,
believes it can be as transformational to its industry as upstarts
like Airbnb Inc. and Uber Technologies Inc. are in travel and
transportation.
The four-year-old company, which divvies up rented office space
and sublets largely to startups, said on Monday it closed a $355
million funding round. The deal values the company at about $5
billion, said people close to the matter.
The valuation puts the small New York-based company in the same
league as social bookmarking site operator Pinterest Inc. and media
and Internet company IAC/InterActiveCorp.
Adam Neumann, WeWork's 35-year-old co-founder, hopes to make the
company a hothouse for new business formation--by bringing together
entrepreneurs who share space, office services and, potentially,
ideas.
"We happen to need buildings just like Uber happens to need
cars, just like Airbnb happens to need apartments," Mr. Neumann
said in an interview.
The latest financing was co-led by funds and accounts managed by
T. Rowe Price Associates Inc., clients of Wellington Management,
and Goldman Sachs Group, according to WeWork. Investors from prior
rounds including J.P. Morgan Chase & Co., Harvard Management
Co. and Benchmark also participated, according to WeWork.
"If I showed you their cash-flow statement, you would not
compare it to a real-estate company," said Henry Ellenbogen, a
portfolio manager at T. Rowe Price. "You'd compare it to a brand or
tech company--maybe Chipotle or Uber."
Unlike its closest competitors, WeWork has a new-era sheen, its
own mobile app, and deliberately chose to place properties in hot
areas like Washington, D.C.'s Shaw neighborhood.
Viewed as a traditional real estate venture, WeWork's valuation
wouldn't be nearly as rich, Mr. Neumann acknowledges.
Still, WeWork's investors are "really not looking at the real
estate," he said. They see it as a force for upending
small-business office rentals with a new model providing sleek
furnishings and plenty of collaboration.
Mr. Neumann said the company's app, which serves as an internal
directory and allows WeWork customers to communicate idea and
applicants, also provides information on events like regular happy
hours--touchstones of the work community it aims to foster.
WeWork said its December revenue puts it on an about $150
million annual revenue run rate. It also said the month's
annualized operating income puts its valuation at roughly 100 times
income. It expects to grow significantly in years ahead, which
would lower that ratio. Landlords typically trade between 18 times
and 20 times earnings, according to Jed Reagan, an analyst at real
estate consultants Green Street Advisors.
Regus PLC, the shared office space company that offers more
traditional office space than WeWork, has a market capitalization
of about $2.8 billion and 2013 operating profit of about $150
million. Regus went public in 2000, and its market value today is
about half its dotcom-era peak at more than 360 pence a share.
WeWork said it has leased about 1.6 million square feet in New
York, making it the fastest expanding company by footprint in the
city since 2010. In all, it expects to have about 3.5 million
square-feet globally by the end of 2015, total space larger than
the Empire State Building. Also in the works is living space, akin
to a high-end dorm for 20-something workers, people briefed on the
company's plans said.
Dozens of firms offer space to those willing to pay a premium
for a desk or office nestled among startups and some mature
companies.
Price depends on location. In the company's Financial District
headquarters, it charges $400 a month for a desk and $1,400 a month
for a small two-person office, well above the area's rate for such
space.
News Corp, which owns The Wall Street Journal, is a
customer.
Israeli-born Mr. Neumann looks more like one of his startup
tenants than a traditional landlord. He has shoulder-length wavy
hair, shuns a tie and keeps the top two buttons of his shirt
undone.
His office, in a WeWork hub in New York City's financial
district, stocks an array of liquor, and he sometimes implores
guests to do tequila shots, visitors to his office say.Unlike
Airbnb and Uber, WeWork has a large fixed expense-- rent paid to
building owners-- and the company may be as vulnerable in a
downturn as any other co-working firm, said skeptics.
The business is a risky one in which its costs, fees paid to
landlords, are fixed, but its revenues from startups and
established businesses can fall quickly when the economy slows.
"The small-to-medium-size businesses, they get particularly
impacted in a recession," said Jon Halpern, who ran shared office
space firm HQ Global Workplaces in the early 2000s.
HQ grew rapidly in the run-up to the dot-com bust. But in the
recession that followed, its value plummeted. It ultimately sold
itself to Regus.
As for his company's next steps, Mr. Neumann said he is focused
on growing the business. He plans to expand WeWork from its current
23 locations to 60 in the next year.
Landlords who have discussed the matter with WeWork executives
say they have said it is planning an initial public offering
sometime in the next two or three years.
Write to Lindsay Gellman at lindsay.gellman@wsj.com and Eliot
Brown at eliot.brown@wsj.com
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