S&P Global Ratings upgraded Life Time Inc., citing the fitness club operator’s strong performance with healthy underlying demand and membership trends driving EBITDA growth and leverage reduction.
S&P said it expects the company will increase revenue 12 percent-15 percent, in line with management’s guidance for 2025.
The rating agency noted that financial sponsors Leonard Green Partners (LGP) and TPG Inc. recently reduced their equity stake in Life Time, reducing the Voting Group’s (which includes LGP, TPG, other financial sponsors, and CEO Bahram Akradi) control to 43.1 percent. S&P said, “While the group of financial sponsors are still in control of the board, we expect we will no longer view Life Time as a financial sponsor-controlled company after its one-year transition to comply with the corporate governance requirements of the New York Stock Exchange (NYSE) to establish a majority independent board.”
As a result, S&P raised its long-term issuer credit rating on Life Time to ‘BB-‘ from ‘B+’. At the same time, it raised its rating on its senior secured debt to ‘BB+’ from ‘BB’. The positive outlook incorporates expectations for increases in Life Time’s revenue, EBITDA, and cash flow to reduce S&P Global Ratings-lease-adjusted leverage to the high-3x area this year.
S&P said in its analysis, “The upgrade and positive outlook reflect continued anticipated strong operating performance and reduced leverage over the next 12 months. Life Time outperformed our operating expectations in the first quarter of 2025 due to solid growth in its center memberships and dues, strong member engagement, and good demand for in-center offerings. In addition, Life Time recently lowered its financial policy target to net leverage of 2x or below from 2.25x. Life Time’s net debt to EBITDA measure does not include a lease adjustment and is typically about 2x lower than our lease-adjusted measure. Supported by the 18 percent expansion in revenue and 31 percent increase in adjusted EBITDA over the prior quarter, the company raised its full year guidance for 2025, citing strong member engagement with visits and revenue per membership at new highs coupled with strong performance at ramping-up clubs. We believe Life Time’s offering of high-end health clubs full of amenities will continue to resonate with high-end fitness consumers and fitness enthusiasts.
“Under our base-case forecast, we assume Life Time will continue to increase its memberships by the mid-single-digit percent area in 2025 and in 2026 as it opens additional locations. We also expect the company will increase its average monthly per member spending this year while improving revenue from personal training and other amenities by the low teens-digit percent area, leading to a 12 percent-15 percent expansion in total revenue in 2025. The high flow-through of incremental revenue to Life Time’s EBITDA–due to its good coverage of its fixed-charge base and efficient cost structure–supports a forecast S&P Global Ratings-adjusted EBITDA margin in the mid-30 percent area. We expect the company to reduce leverage in 2025 to the high-3x area and potentially to the low-3x area by 2026 depending upon management’s capital allocation decisions.
“The upgrade also reflects our assumption financial sponsors LGP and TPG will continue to reduce their stakes over time and Life Time’s stated target to reduce its measure of net leverage to 2x or below. Life Time’s financial sponsors, LGP and TPG, reduced their ownership through a secondary offering in June 2025. As a result, the Voting Group, which consists of financial sponsors and the company’s CEO Bahram Akradi was diminished to 43.1 percent from its previous controlling share of 52.3 percent. While they still control the board, we expect the company will make the majority of its board and committee members independent after a one-year transition as required under NYSE corporate governance rules to establish a majority independent board.
“The company’s measure of leverage does not include leases, and we currently do not net cash, which results in just under a 2x difference between management’s calculation and our gross lease-adjusted figure. We expect Life Time will further reduce its policy measure of leverage below 2x in 2025, which would translate to our calculation well below our 4.5x upgrade threshold at the previous ‘B+’ rating. Once we no longer assess Life Time as being sufficiently influenced by financial sponsors, which we are currently assuming in our base case will occur over the next 12 months once Life Time complies with the NYSE corporate governance rules establishing a majority independent board, we will begin to net cash against gross debt. This would modestly decrease our leverage measure. In the interim, we believe the sponsors will remain motivated to support the company’s current growth and deleveraging strategy because it plausibly increases equity returns over time more than a leveraging transaction, at least as long as Life Time continues to deliver gains in revenue, EBITDA, and cash flow that we currently forecast in our base case.
“While we expect minimal free operating cash flow, we anticipate a strong return on investment from Life Time’s new locations. We assume $650 million-$700 million annual capital expenditure (capex) in 2025 to develop 10-12 clubs and that the company will continue to open new clubs at this pace as part of its high growth strategy. Our base case assumes that Life Time can finance this capex with internally generated cash flow, which will enable it to maintain its rapid growth strategy by taking advantage of the significant white space across the U.S., strong demand stemming from consumers’ continued focus on health and wellness, and its luxury product. While the company has significantly diminished its reliance on sale-leaseback transactions to expand over the past few years, it still entails some incremental financing risk to the extent the timing of new builds depends on external financing sources. Still, we believe its high return on investment from its growth strategy is due to new locations ramping up quickly and strong underlying demand for its fitness club concept.
“A worse-than-anticipated macroeconomic environment in the U.S. and elevated competitive pressure could lead to weaker-than-expected revenue and margins. While our base-case forecast assumes good revenue and EBITDA growth in 2025 and 2026, we believe a currently unanticipated recession could cause the company to underperform our revenue and EBITDA forecast. In addition, inflationary pressure could weaken EBITDA margin and reduce cash flow if Life Time cannot offset cost increases by expanding its membership base or raising membership prices. Competition from mid-tier and low-cost fitness operators could also exacerbate these pressures.
“However, there has been an ongoing shift in consumer spending toward experiences and in-person fitness options, which may mitigate macroeconomic pressures. Life Time is continuously enhancing its clubs across its wide geographic footprint to provide additional value to its members through ancillary offerings such as Dynamic Stretch and MIORA. The company implemented these changes in response to its members’ growing desire to holistically integrate health and wellness into their fitness experience. These factors could help mitigate the risk that consumers will trade down to lower-cost fitness operations amid a potentially challenging economic environment.
“The positive outlook on Life Time incorporates our expectations for revenue and EBITDA growth, and for S&P Global Ratings-lease-adjusted leverage to decrease to the high-3x area in 2025 and potentially to the mid- to low-3x-area in 2026 depending upon capital allocation decisions.”
Image courtesy Life Time
