Profits before IPO, says founder of co-working unicorn JustCo

ASIAN co-working operator JustCo explored going public in the United States last year through merging with a blank-cheque company. But with markets now plunged into turmoil, perhaps it was just as well that a deal did not happen.

“Luckily, we didn’t do it. If we did it, today, I don’t know what our share price will be. And then I wouldn’t make Singapore proud,” said JustCo chief executive officer Kong Wan Sing, with a little laugh.

“The market is super bad right now, so my number one focus is profitability. You don’t want to go to the market and be another company that’s not profitable. Nobody will buy it, that’s for sure.”

Singapore-based JustCo is aiming to turn Ebitda (earnings before interest, tax, depreciation and amortisation) positive by year-end before relooking its listing options in 2023. It judges its business on the Ebitda metric, instead of net profit, to avoid being weighed down by depreciation as a result of rapid business expansion, as Kong puts it.

“But there are no funny things like community-adjusted Ebitda,” he quipped. JustCo’s US-based peer WeWork famously invented the metric, which excluded costs such as marketing and new-market expenses, to argue it was technically profitable.

Several tech companies bound for the public market have put listing plans on hold due to volatility and valuation concerns. Loss-making companies, in particular, have been shunned by investors amid an uncertain macroeconomic environment.

It’s putting pressure on venture-backed startups like JustCo to prove a sustainable business before placing their fates in the hands of retail investors.

As an operator of flexible working spaces, JustCo was hardly a pandemic winner. Yet the company has managed to tide through the crisis relatively unscathed, Kong told The Business Times over a call from Tokyo on Thursday (May 26), a day before he was due to host Singapore Prime Minister Lee Hsien Loong at JustCo’s new centre. Lee was on a 4-day working visit to Japan.

JustCo’s co-working portfolio has grown from 1.3 million square feet (sq ft) as at end-2019 to about 2 million sq ft now. This includes 4 newly-signed centres in Singapore, Thailand and Japan announced last month.

Of the 15 new projects signed during Covid-19 times, a third were under management contracts and the rest were long-term leases – part of the company’s push to be asset-light. JustCo has 49 centres across 10 cities.

Average occupancy across markets is now nearly 80 per cent. The centres in Bangkok, Taipei and Seoul are nearing full occupancy. In Singapore, where it operates about 600,000 sq ft of space, JustCo said occupancy is in the “high 70s”. *see Amendment note

According to regulatory filings of JustCo Holdings Pte Ltd, the group’s revenue rose 62 per cent to US$64.8 million for the year ended Dec 31, 2020. Net loss widened to US$38.2 million from US$30.8 million, driven by heavier depreciation and amortisation expenses.

However, the group generated cash of US$47.7 million from its operations, compared with an outflow of US$8.6 million the year before. It had cash and bank balances of US$138 million and zero debt as at end-2020.

Kong attributed the company’s growth to financial prudence and government support. JustCo initially had big plans to expand in Australia, one of its key markets, but the country ended up experiencing one of the most prolonged pandemic lockdowns. So the company cut back on that market in favour of places like Thailand and Taiwan.

“We actually had a lot of committed projects we wanted to launch… Instead of the 15 locations we opened in the last 2 years, the original plan was 30 to 40 locations,” said Kong.

Now that restrictions are lifting, JustCo is riding on the surge in corporate demand for flexible office options.

Over the past 2 years, the company has also experimented with new models for the market. It introduced on-demand app Switch in December 2020, so users can spontaneously access over 10,000 desks across 250 JustCo and third-party locations.

In Japan, it launched JustCo Zones – unmanned, pay-per-minute workspaces – at busy terminal stations to cater to the Japanese workforce living at the city fringe.

Soon, it’ll roll out software developed for building owners to manage core and flexible leasing, help with booking of workspaces, and digitise services for tenants.

While its growth has been driven by organic expansion, JustCo has its eye on merger and acquisition (M&A) deals to speed up areas such as product or talent development.

Kong said the company, which counts sovereign wealth fund GIC and real estate group Frasers Property as backers, is talking to strategic investors to raise more funding for such deals.

He added that valuations have become saner, making it a better time for M&As. “I’m very conscious – I don’t buy companies that are burning a lot of money and then I’ll have to pay for their burn. It’s very important that they are running a good business and are very disciplined,” he said.

*Amendment note: Due to a source error, an earlier version of the article said JustCo operates 1.4 million sq ft of space in Singapore. This has been corrected.