International Workplace Group: "Potential 5-10x Multibagger"

International Workplace Group (IWG) is the biggest provider of co-working space in the world, even bigger than WeWork. It owns and operates many brands such as Spaces, Regus, HQ, Commons, and others.

I have used their co-working locations for years, and just recently, we initiated a position in the company for our Core Portfolio.

We recommend that you read our full investment thesis before going into today's update. You can click here to read it.

In today's update, I want to highlight a recent podcast featuring Yaron Naymark from 1 Main Capital. Yaron has an amazing track record, significantly outperforming the markets, and his single largest holding is IWG today.

Below, I share the main takeaways from the podcast:

• He believes that IWG offers the potential for a 5-10x in the next 4 years as a result of significant cash flow growth and a rerating at a higher valuation multiple.

• He believes that IWG is today trading at just 7x his estimate of 2025 free cash flow. Put differently, the stock is currently offering a 14.2% free cash flow yield. The company today retains most of its cash flow to deleverage its balance sheet.

• Later this year, once they reach 1x Debt-to-EBITDA, they expect to start buying back shares and this should be highly accretive given how cheap their shares have gotten.

• Typically, companies that trade at such low valuations have relatively poor growth prospects, but that's not the case of IWG. He sees a path for them to roughly double their EBITDA in the next four years.

• Historically, IWG has mostly owned and operated its own locations. But it has switched to a capital-light model offering management agreements to landlords in recent years and this business has really taken off. They signed about 400 such deals in 2022, another 839 in 2023, and nearly 1,000 in 2024. That's huge considering that they have less than 4,000 total locations today.

• These new locations have not yet resulted in any significant cash flow growth because it takes 1-2 years for new signings to start producing cash flow. But we are now getting near that inflection point and this new business should start to generate significant cash flow in 2025.

• The fee income from this new model should be worth a high multiple given that it is capital-light, high margin, highly predictable, and scalable. He makes an interesting comparison to how KKR (KKR)'s fee income was underappreciated in 2023, but it then tripled in value in the next year or so as it regained a higher valuation multiple.

• CBRE recently acquired Industrious, which is one of IWG's smaller competitors, at an $800 million valuation. The value implied per location is about 6x higher than what the market is giving IWG, despite IWG having a near 20x greater coverage, which warrants a premium. It is also a strong validation of the sector given that CBRE is the world's biggest real estate service company and they want to be in this business.

• Barclays just came out with a big upgrade. They said that "we see the FY25 FCF/share multiple of 8.3% and FCF CAGR (FY24E-FY28E) of 18% as attractive".

• The company appears to be preparing to list in the US. They have already changed their reporting currency from the British Pound to the US Dollar. They recently also changed their accounting reporting from IFRS to US GAAP. And the US market is far bigger for them than the UK market anyway. Therefore, moving their listing from the UK to US makes sense and this should help increase the demand for their stock.

You can watch the full podcast here:

We are happy to have a large position. In fact, after its recent upside, IWG has now become our largest holding, representing 11% of our Core Portfolio.

You can read our full investment thesis by clicking here.

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Sincerely,

Jussi Askola

Analyst's Disclosure: I/we have a beneficial long position in the shares of all companies held in the CORE PORTFOLIO, RETIREMENT PORTFOLIO, and INTERNATIONAL PORTFOLIO either through stock ownership, options, or other derivatives. High Yield Landlord® ('HYL') is managed by Leonberg Research, a subsidiary of Leonberg Capital. All rights are reserved. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The newsletter is impersonal and subscribers/readers should not make any investment decision without conducting their own due diligence, and consulting their financial advisor about their specific situation. The information is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed are those of the publisher and are subject to change without notice. We are a team of five analysts, each contributing distinct perspectives. Nonetheless, Jussi Askola, the leader of the service, is responsible for making the final investment decisions and overseeing the portfolio. We do not always agree with each other and an investment by Jussi should not be taken as an endorsement by other authors. Past performance is no guarantee of future results. Our portfolio performance data is provided by Interactive Brokers and believed to be accurate but its accuracy has not been audited and cannot be guaranteed. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated and may at times use margin and/or invest in companies that are not typically included in REIT indexes. Finally, High Yield Landlord is not a licensed securities dealer, broker, US investment adviser, or investment bank. We simply share research on the REIT sector.