Building the WeWork of workouts will be a stretch

 (Reuters Breakingviews) - Life Time (LTH.N)

, opens new tab wants to be more than just another gym. The luxe chain is trying to defy the fitness industry’s patchy financial track record by becoming a brand on par with Walt Disney (DIS.N), opens new tab. A business model that’s skewing toward WeWork’s, however, makes the ambition a heavy lift.
Boss Bahram Akradi is expanding the $4 billion company, which aims to blend a country-club atmosphere with some theme-park pixie dust. Life Time, he explained recently, is the Four Seasons of athletics. Its growth by one measure has modestly outpaced inflation since 2019, with about $2,800 of annual revenue per membership last year, charging 20 times more to join than the traditional Planet Fitness (PLNT.N), opens new tab franchise.
At Life Time’s 172 facilities, which average 100,000 square feet apiece, there are pools, basketball courts and specialized classes. Personal trainers, spas and cafes cost extra. It’s also catering to the hottest game in town, as the country’s biggest pickleball-court operator.
The next step is to fill fallow shopping malls and office towers, an idea that would take Life Time from the suburbs to more urban areas. Its center adjacent New York’s bustling Penn Station previously housed a now-bygone Kmart store.
Started more than 30 years ago, Life Time made its stock market debut in 2004. A depressed share price led to a $4 billion buyout in 2015 by private equity firms Leonard Green & Partners and TPG (TPG.O), opens new tab. The duo took the company public again six years later, and it’s still sweating off debt of more than 3 times this year’s estimated EBITDA, according to LSEG data.
Slimming down the real estate portfolio means more rental commitments, however. Since 2019, Life Time’s lease expenses have jumped more than 50%, to more than $2 billion, while the top line increased less than 20% over the same period. Moreover, these long-term liabilities are being funded by membership fees that can be easily canceled, a similar mismatch that helped crater shared-office manager WeWork.
Persistent inflation or a recession could send customers back to their home yoga mats. Fitness also churns through fads. Peloton Interactive (PTON.O), opens new tab and group-workout chain F45 are just two recent examples.
Akradi’s flex hasn’t impressed many investors yet. The Life Time enterprise trades at 9 times expected EBITDA for the next 12 months, lower than those ascribed to $6 billion Planet Fitness and $7 billion ski facility operator Vail Resorts (MTN.N), opens new tab, per LSEG data. There’s plenty more to work out.
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