Three of controversial office startup WeWork’s biggest buildings in the UK paid no tax last year, despite collective profits of over £10m ($12.47m).
Filings made with the UK’s Companies House this week show that WeWork’s buildings in London’s Moorgate, Paddington, and Farringdon had combined revenues of £59.2m in 2018 and made a combined profit of £10.4m. Profits and revenues grew strongly year-on-year at all three locations.
Despite the profits, the three buildings paid no UK tax. The bill was largely wiped out by relief on losses made elsewhere in the group.
A spokesperson for WeWork said: “Companies are eligible for group relief on profitable entities, so tax losses incurred by one entity may be used to offset profits of another entity, in accordance with UK tax law.”
The spokesperson added that the filings showed “our commitment to the UK and focus on a great member experience.
“Last year, we continued to see strong demand and increased the number of buildings and members, which drove solid financial performance. As these filings show, our core business continues to perform well and we are excited about the opportunities we see in London and other cities across the UK.”
The figures on the specific London offices comes just weeks after WeWork was forced to pull a planned US stock market listing, slash its valuation by over $30bn, and axe controversial chief executive Adam Neumann.
Investors looking at WeWork’s IPO were turned off by the company’s huge losses and some questioned whether it could ever make money. The We Company, WeWork’s parent, lost $900m on revenues of $1.5bn in the first six months of the year.
Founded in 2010 in New York, WeWork is a short-term office rental company. The fast-growing company has raised billions from investors and has over 500 locations globally. It claims to be the future of office rental due to changing working habits and says its lofty valuation is justified by value-added tech it offers to companies it rents to. (WeWork initially sought to be valued at $47bn in a potential stock market float).
Critics claim the company is nothing more than a trendy, loss-making rebrand of Regus and say its model of taking on long leases and then renting space short-term makes the business exceptionally vulnerable to a downturn.
The UK is WeWork’s largest market outside of the US and the startup is the biggest private renters in London. Moorgate, Paddington, and Farringdon are three of its biggest locations. WeWork rents out over 7,000 desks to businesses across the three buildings.
The disclosures on revenues and profitability shine a partial light on the company’s performance in the UK. However, judging its overall performance has become more difficult due to an internal restructure.
WeWork’s UK operations used to be controlled by a single operating company and its accounts gave a clear indication of revenues and profitability in the market. However, the company has not filed full UK accounts this year, instead treating its main UK company as a holding company.
“We are no longer required to file consolidated accounts for WeWork International Limited because we have filed the parent company accounts,” a spokesperson said.
WeWork’s IPO filing said the company had revenues of $275.6m in the UK last year, but did not disclose a profit or loss figure. Prior to its restructure, WeWork made a loss of £32.2m in the UK on revenues of £118.2m in the UK in 2017. The tax relief suggests the overall group remains unprofitable in the UK.
WeWork said the holding company’s 2018 accounts were “not a representation of the health and profitability of the overall UK business” as it “receives revenues only as a small percentage of building profits, collected as a management fee.”
The holding company employs all WeWork’s UK staff. WeWork employed around 440 people at the end of 2018 and spent £39.8m on staffing costs.
The building-level accounts show the profitability of WeWork’s buildings as they mature, which is a key indicator of the viability of the overall business model.
The filings for WeWork’s three London offices also shine a light on the huge cashflow needs of the business. The three locations alone were on the hook for over £250m in future lease payments and the Moorgate site alone has committed to a longterm leases worth £190m, although the bulk fall due in more than 5 years time. The company’s 2017 accounts showed lease commitments worth £3.2bn in the UK alone.
The Financial Times reported on Friday that WeWork is seeking a debt restructuring package to prevent a looming cash crunch after the company’s aborted IPO. Ratings agency Fitch said last week the company’s cash position is “precarious.”
Update: An earlier version of the article suggested the change in WeWork’s UK account filings was due to an internal reorganisation. We have clarified that it is in fact due to consolidated accounts for the parent company being filed elsewhere. The piece also said that individual buildings did not incur staffing costs, which is not the case.
Oscar Williams-Grut is Yahoo Finance UK’s City correspondent. He covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.