Life Time’s credit rating upgraded by Moody’s to B1 from B2

Investing.com -- Moody’s Ratings has upgraded Life Time, Inc.’s Corporate Family Rating to B1 from B2, while changing the outlook to stable from positive.

The upgrade reflects Life Time’s improved free cash flow generation, better operating performance, and steady deleveraging. The fitness company has expanded by adding more than 20 new centers over the past two years and achieved strong low double-digit same-store-center revenue growth, driving earnings growth and reducing leverage.

Life Time has enhanced profits through value-added offerings, operating efficiencies, and pricing actions, resulting in margin expansion and higher profitability. In-center revenue grew at a high double-digit rate, benefiting from strong demand for personal training and expanded offerings like pickleball and kids programming.

Member engagement has improved, with a 5.9% year-over-year increase to 143 average annual visits (12 per month), with many clubs operating near optimal capacity. Higher visit frequency and increased in-center spending have contributed to elevated retention rates.

Moody’s expects Life Time’s debt-to-EBITDA leverage to remain around 4.2x in 2025, reflecting spending on new facilities, earnings growth, and incremental operating leases to support expansion. The company plans to open 10 to 14 new locations annually and expand luxury amenities across existing venues.

New locations typically require $65 to $75 million each, and combined with upgrades to existing facilities and digital offerings, result in high recurring investments. While this expansion may cause negative free cash flow in certain periods, the company uses sale-leaseback transactions to provide additional capital.

Life Time maintains good liquidity, with $59 million in cash as of March 31, 2025, and $619 million available under its $650 million revolving credit facility. Moody’s expects negative free cash flow of $170 to $190 million in 2025 due to substantial capital investments.

The company benefits from a strong competitive position due to its premium athletic club locations and affluent membership base. However, it faces challenges including industry cyclicality, competition from boutique studios and digital fitness platforms, and refinancing risks related to its expansion strategy.

The stable outlook reflects expectations of continued revenue and earnings growth while maintaining leverage in the low 4x range over the next 12 to 18 months.

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