Adam Neumann, co-founder and CEO of WeWork
NEW YORK CITY—Adam Neumann, WeWork's founder and CEO, reportedly cashed out stock from the co-working, shared office space company and took on debt, which together totaled more than $700 million, as first reported in The Wall Street Journal.
A source with knowledge of the transaction tells GlobeSt.com that Neumann cashed out stock and took out a loan secured by other equity in the company to cover the cost of exercising stock options in the company in the future. The source says that the total bucket of equity sold and debt amounted to approximately $700 million. The person notes that some of the loans would also cover the loan costs of assets purchased which Neumann has been leasing to WeWork.
However, the breakdown of the amount of cash received and loans taken out was not provided. But the contact who spoke on the condition of not being identified states Neumann is still the largest single shareholder and heavily invested in the company. The individual stated Neumann does not draw a salary, so characterized the news such that even with a payout, Neumann was doubling down in his belief in the company.
WeWork declined to speak about when the company's initial public offering will go forward.
Both The New York Times and The Wall Street Journal wrote that cashing out large blocks of shares before an IPO is frowned upon as it can signify a lack of confidence in the company. But the source speaking to GlobeSt.com asserts the debt Neumann has taken on supports his belief in WeWork.
WeWork has faced scrutiny for its continued operations that are losing money while pursuing its global expansion. In May, The New York Times reported it lost $264 million in Q1 2019. But its revenue for the same quarter hit $728.3 million that was more than twice the figure from last year. Some analysts caution against companies ringing up bloated debt, where others note several successful companies particularly in the tech industry, such as DropBox, Uber and Spotify were in the red prior to their IPOs.
The Wall Street Journal reported that WeWork paid rent of more than $37 million to an unnamed “principal stockholder.” This drew heavy criticism of a conflict of interests with the CEO owning properties that house WeWork tenants. The WSJ had reported on the issue in January, and a WeWork spokesperson informed GlobeSt.com that all of the properties in question which Neumann owned had been approved by the board. In May, WeWork announced it was creating a $2.9 billion fund called ARK to buy stakes in the buildings it leases.
Last month in an article “The I in We,” New York Magazine reported that Neumann had said he would sell the properties generating controversy to ARK at cost.
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Betsy Kim
Betsy Kim was the bureau chief, East Coast, and New York City reporter for Real Estate Forum and GlobeSt.com. As a lawyer and journalist, Betsy has worked as the director of editorial and content for LexisNexis Lawyers.com, a TV/multi-media journalist for NBC and CBS affiliated TV stations in the Midwest, and an associate producer at Court TV.
