Ticker: WE
Headline: Adding WE to Long Bench
- This morning controversial WeWork (WE) reported its first quarter as a public company since de-SPAC'ing two weeks ago. We are adding it to our Long Bench ahead of our Black Book presentation next week.
- We will have more in-depth thoughts next week, but some early takeaways:
- WE showed sequential acceleration in the quarter in the following key areas: number of memberships (both physical and All Access/Other), occupancy rate and Adjusted EBITDA (still a loss). For context WE generated negative free cash flow (defined as operating cash flow less capex for PP&E) of ~$1.7 billion for the trailing 9 months with just under $500 million of cash on the balance sheet at quarter end, or ~$1.3 billion of cash post-close.
- The stock is pretty much an ideal candidate for Quad 2/Quad 1 environments consistent with the firm's macro calls through early next year: recent de-SPAC, "junk," likely a high short interest, VERY high leverage when adjusted for lease obligations with relatively little hard asset coverage vs. the REITs, cyclical recovery vs. secular growth, etc. While our thoughts are still coming together, we think it at least deserves a place on the lower-conviction long side until we reach a Quad 4 environment when all bets change.
- To be clear, we still seriously question the business model over a TAIL duration despite the recent rationalization of the business and separation from an eccentric and arguably destructive founder. There is a wide and deep graveyard of flexible office models that effectively "borrow short an lend long" by signing longer-term lease obligations for space (expense side) and pursuing a shorter-term or even month-to-month customer agreement model (revenue side). With that said, several aspects of that model are changing, or at the very least becoming "less bad." Additionally there is definitely a newly found place for more flexible office settings post-COVID. More to come...
Figure 1: Hedgeye REITs Position Monitor
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Prior Notes:
11.14.21 - SUNDAY NIGHT REIT READ | 11.14.21 | (CUBE, EXR, LSI, NSA)
11.11.21 - REITS DAILY BRIEF | 11.11.21 | (LSI, NYC CBD OFFICE)
11.10.21 - REITS DAILY BRIEF | 11.10.21 | (UHAL, CONE, COR, NSA, PSA)
11.9.21 - REITS DAILY BRIEF | 11.9.21 | (U.S. OFFICE UTILIZATION, SFR)
11.7.21 - SUNDAY NIGHT REIT READ | 11.7.21 | (APARTMENT RENTAL RATE TRACKER, POSITION MONITOR UPDATE)
11.4.21 - REIT RECAP | 11.4.21 | AMH 3Q21 RESULTS
11.4.21 - REIT RECAP | 11.4.21 | CUBE 3Q21 RESULTS
11.4.21 - REITS DAILY BRIEF | 11.4.21 | (COLD, IRM, EARNINGS SURPRISE MONITOR)
11.3.21 - REITS DAILY BRIEF | 11.2.21 | (LSI, POSITION MONITOR UPDATE)
11.2.21 - REITS DAILY BRIEF | 11.2.21 | (PSA, U.S. OFFICE UTILIZATION)
11.1.21 - REIT RECAP | 11.1.21 | PSA 3Q21 RESULTS
10.31.21 - SUNDAY NIGHT REIT READ | 10.31.21 | (3Q21 EARNINGS SURPRISES, POSITION MONITOR)
10.28.21 - REIT RECAP | 10.28.21 | CPT 3Q21 RESULTS
10.28.21 - REITS DAILY BRIEF | 10.28.21 | (EXR)
10.28.21 - REIT RECAP | 10/28/21 | INVH 3Q21 RESULTS
10.28.21 - REIT RECAP | 10/27/21 | AVB 3Q21 RESULTS
10.27.21 - REITS DAILY BRIEF | 10.27.21 | (3Q21 Earnings, AVB, EXR, Office)
10.26.21 - REIT RECAP | 10/26/21 | EXR 3Q21 RESULTS
10.26.21 - REITS DAILY BRIEF | 10.26.21 | (EQR, REXR)
10.25.21 - SUNDAY NIGHT REIT READ | 10.24.21 | (POSITION MONITOR)
10.21.21. - REIT RECAP | 10/21/21 | REXR 3Q21 RESULTS
10.20.21 - REITS DAILY BRIEF | 10.20.21 | (EGP, PLYM, REXR, ILPT)
10.19.21 - VIDEO | American Homes 4 Rent (AMH) Thesis
10.19.21 - REITS DAILY BRIEF | 10.19.21 | (COLD, SLG, VNO, AMH, U.S. Office Utilization)
10.18.21 - REITS DAILY BRIEF | 10.18.21 | (PLD)
10.17.21 - SUNDAY NIGHT REIT READ | 10.17.21 | (PLD, POSITION MONITOR)
10.15.21 - REIT RECAP | 10/15/21 | PLD 3Q21 RESULTS
10.13.21 - REITS DAILY BRIEF | 10.13.21 | (PLD)
10.10.21 - SUNDAY NIGHT REIT READ | 10.10.21 | (POSITION MONITOR UPDATE)
10.8.21 - BLACK BOOK ROUND-UP | AMERCO (UHAL)
10.7.21 - BEST IDEA ROUND-UP | AMERICOLD REALTY TRUST (COLD)
Please e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
