Fitch Upgrades Life Time's IDR to 'BB'; Outlook Stable

Published: 2026-04-21 06:45:17 ET LTH

Published on 04/21/2026 at 06:45 am EDT

Fitch Ratings has upgraded Life Time Group Holdings, Inc.'s and Life Time, Inc.'s (collectively, LTH or Life Time) Long-Term Issuer Default Ratings (IDR) to 'BB' from 'BB-'.

Fitch has also upgraded Life Time, Inc.'s long-term senior secured ratings to 'BBB-' with a Recovery Rating of 'RR1' from 'BB+'/'RR1'. The Rating Outlook is Stable.

The upgrade reflects continued strong center operations and LTH's successful deleveraging toward the 3.5x to 4.0x EBITDAR leverage band, which is in line with its below 2.0x net leverage target. The 'BB' IDR reflects Life Time Group Holdings, Inc.'s attractive center economics, profitability, strong cash generation, and conservative financial policy offset by its aggressive growth strategy, high fixed costs, low customer switching costs and sector cyclicality. LTH's exposure to affluent markets and unique services offer some protection from macroeconomic headwinds compared to other fitness center operators.

Key Rating Drivers

Leverage to Moderate: After sustained deleveraging post-pandemic, Fitch forecasts EBITDAR leverage to be maintained between 3.5x and 4.0x. Management targets net EBITDA leverage of 2.0x, commensurate with Fitch EBITDAR leverage of about 3.8x to 4.0x, while continuing to fund growth capital expenditures (capex) and executing the board-authorized $500 million share repurchase program opportunistically.

Sale-Leasebacks Support Growth: LTH's asset-light real estate strategy, utilizing sale-leasebacks (SLBs), supports accelerated growth and expansion of its center footprint. Under Fitch's base case, the issuer is expected to complete approximately seven SLBs annually, generating between $300 million and $400 million in proceeds per annum, while opening 12-14 new centers per year. With growth capital expenditures rising above $900 million in 2026 and increasing thereafter, Fitch expects the company to remain approximately free cash flow neutral after SLB proceeds, with funding gaps between growth capex and SLB proceeds supported by strong operating cash flow.

SLBs reduced financial flexibility at the center level by adding significant rent expense and potentially increasing profit volatility during downturns. However, Fitch expects center economics to remain strong as LTH improves profitability and drives revenue growth. Fitch capitalizes lease expenses using LTH's balance sheet lease liability and applies an 8x multiple to forecast future liabilities. In 2025, LTH's implied lease multiple was 7.8x.

Strong Center Economics: LTH attracts a high-spending, affluent customer base with high household incomes and home ownership, resulting in low price sensitivity. High engagement and premium positioning support strong financial performance. Members use premium services, driving additional revenue from offerings such as personal training, cafes, and spas. Despite recent price increases, demand remains resilient. LTH can further boost revenues by capitalizing on member churn, as new member rates are significantly higher than average dues. This gap creates a large monthly revenue opportunity and supports continued same-center growth.

Favorable Tenant Profile: Life Time is viewed as a highly desirable tenant, supported by strong center economics, its corporate credit profile, and a track record of reliability. The company did not miss a rent payment during the coronavirus pandemic, when many fitness operators were under financial distress. Its premium positioning, high member engagement, and resilient cash flow support strong rent coverage. As a result, Life Time benefits from favorable lease economics, including lower implied cap rates than other leisure brands, while its strong reputation with landlords supports additional asset-light opportunities, including serving as an anchor tenant in malls.

Adaptable Offerings: LTH's ability to stay ahead of the fitness industry's inherently faddish nature is supported by sustained investment in modernizing its centers. Capital is allocated to reconfiguring space to meet evolving member preferences including conversions to pickleball courts, adding recovery amenities such as cold plunge pools, expanding higher-demand offerings like Pilates, and reducing lower-interest classes. With an average center size of nearly 100,000 square feet, LTH maintains meaningful flexibility to adapt layouts efficiently, supporting member engagement and long-term revenue durability.

Strong Profitability: EBITDA margins improved from 24% in 2023 to above 27% in 2025. Center operation margins have improved due to increased membership spend at existing facilities with fixed costs and reduced labor pressures. LTH has made substantial labor cuts in sales and other middle-management roles within general and administrative (G&A). Management reports that these sales now use a lower-cost concierge model, as most new memberships occur online. Fitch expects margins to remain at this level throughout the forecast with operating leverage expansion offset by increased rental expense.

Cyclical Industry: The gym, health and fitness clubs industry is highly cyclical. Fitch believes LTH's affluent member pool and high membership utilization provide some protection from cyclical factors. However, membership levels may still fluctuate during a recession. LTH's month-to-month membership plans are attractive for new and seasonal joiners but also leave the company exposed to sharp membership declines during economic shocks.

Peer Analysis

The gym and fitness sector generally exhibits a low speculative grade credit profile, with most operators rated in the 'B' to 'CCC' range. Fitch highlights high operating leverage, membership attrition risk, discretionary consumer exposure, and capital-intensive expansion as structural constraints. Aggressive growth strategies often result in elevated EBITDAR leverage (frequently above 6.0x) and persistently negative FCF, limiting rating upside despite improving profitability at mature sites.

Premium operators can achieve stronger business profiles, though ratings remain constrained without disciplined financial policies. Life Time Group Holdings is an outlier, rated 'BB', reflecting its scale, strong center economics, affluent and price-resilient membership base, and low EBITDAR leverage. While growth capex is supported by SLB financing, Fitch views LTH's conservative balance sheet management and stable cash generation as supportive of its higher rating.

David Lloyd Leisure (DLL; B/Stable) demonstrates both the strengths and limitations of the premium lifestyle model. Robust membership growth, rising yields, and expanding EBITDA margins (approaching 30%) are offset by high leverage (peaking around 6.3x in 2025) and negative FCF driven by elevated investment and an aggressive refinancing. Fitch views DLL's underlying business as cash generative, with capex flexibility a partial mitigant.

Budget gym operators, such as Pure Gym (B/Positive), pursue rapid expansion supported by lean cost structures and high EBITDAR margins (in the low 40% range). However, execution risk, fixed charge pressure, and expansion-driven negative FCF typically anchor ratings in the 'B' to 'CCC' range, despite improving deleveraging trends.

Fitch's Key Rating-Case Assumptions

Revenue growth is forecast at approximately 10% in 2026 and 2027, easing to high single-digit growth in the outer years, driven primarily by annual net new center openings and low single-digit same-store growth;

Fitch assumes 12 to 14 total center openings annually beginning in 2026, reflecting a mix of approximately 10 to 12 full-build centers and two asset-light openings per year, with expansion increasingly weighted toward ground-up builds in the outer forecast. Fitch assumes approximately seven SLB transactions per year, generating roughly $300 million to $400 million of annual proceeds, at a cap rate of approximately 7%, with the remaining builds funded through operating cash flow and modest incremental debt. Fitch continues to assume fewer SLBs than new builds as management remains selective and prudent on monetization opportunities;

Adjusted EBITDA margins are expected to remain broadly stable at approximately 27% to 27.5% throughout the forecast period, while higher lease expense associated with the asset-light strategy continues to offset some operating leverage benefits;

Cash flow from operations margins are expected to remain in the mid-20% range, below the stronger 2025 level, as Fitch forecasts elevated interest and tax expense, while FCF before growth capex remains approximately 15% to 16% of revenue;

Capital intensity is expected to remain elevated at approximately 29% to 32% of revenue over the forecast period, reflecting continued aggressive investment in new center development;

Fitch expects negative free cash flow prior to SLBs throughout the forecast, as the issuer remains in an expansionary phase, while free cash flow after SLBs is expected to be broadly neutral to slightly positive;

Fitch assumes the issuer buys back $500 million in shares through the forecast with an assumed cadence of $125 million a year. The actual cadence will likely be less predictable as the issuer will be opportunistic in allocating cash to share repurchases;

EBITDAR leverage declines to approximately 3.7x in 2026 and trends modestly lower toward the mid-3.6x range by the end of the forecast, supported by consistent EBITDA growth and disciplined use of SLBs, while EBITDA net leverage remains around 1.8x in 2026 and declines toward approximately 1.6x in the outer years, remaining below management's stated leverage targets. This forecast assumes additional debt incurrence to finance growth and repurchases while adhering to the issuer's sub-2.0x net leverage policy;

Base interest rates applicable to the issuer's variable rate debt reflect existing hedging arrangements and the SOFR forward curve embedded in the model.

Corporate Rating Tool Inputs and Scores

Fitch scored the issuer as follows, using our Corporate Rating Tool (CRT) to produce the Standalone Credit Profile (SCP):

Business and financial profile factors (assessment, relative importance): Management (bb+, Lower), Sector Characteristics (bb, Higher), Market and Competitive Positioning (bbb-, Lower), Diversification and Asset Quality (bbb-, Moderate), Company Operational Characteristics (bbb-, Moderate), Profitability (bbb-, Moderate), Financial Structure (bb-, Higher), and Financial Flexibility (bb+, Moderate).

The quantitative financial subfactors are based on standard CRT financial period parameters: 20% weight for the latest historical year 2025, 40% for the forecast year 2026 and 40% for the forecast year 2027.

The Governance assessment of 'Good' results in no adjustment.

The Operating Environment assessment of 'aa-' results in no adjustment.

The SCP is 'bb'.

To derive the IDR:

No changes were made to the SCP, resulting in an IDR of 'BB'.

Recovery Analysis

Fitch does not employ a bespoke analysis in recovery ratings at the 'BB-' to 'BB+' IDR level. LTH's senior secured bank facility and senior secured notes are considered category 1 first lien debt. As such, the senior secured debt is rated 'BBB-'/'RR1', two notches above the IDR.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

EBITDAR leverage sustaining above 4.0x;

EBITDAR fixed charge coverage declining below 2.5x;

Asset quality decline, evidenced by same-center volume or margin deterioration.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Given the volatility of the fitness industry, the issuer's high fixed-cost structure and its aggressive growth strategy dependent on SLB financing, Fitch does not anticipate any near-term positive rating actions. However, the following factors, combined with a change in the above limitations, could lead to an upgrade in the long term:

EBITDAR leverage sustaining below 3.5x;

Sustained positive FCF before SLBs;

Successful execution of growth strategy resulting in increased scale and revenue diversification.

Liquidity and Debt Structure

As of Dec. 31, 2025, LTH had $204 million in cash and $618.2 million available under its revolving credit facility. The company's cash flow from operations margin was about 29%, reflecting strong cash generation. Although most of this cash generation is allocated to growth capex, the issuer has the flexibility to pay down debt if needed to meet its current net leverage target of 2.0x. FCF before growth capex remains consistently positive, except in the pandemic-affected years. In addition, LTH has a substantial real estate portfolio which offers additional financial flexibility.

LTH's debt maturities are concentrated, with its $1 billion senior secured term loan and $500 million senior secured notes both due in 2031. These maturities are distant, and Fitch sees minimal refinancing risk currently. LTH recently demonstrated capital markets access by successfully refinancing its prior 2026 maturity wall.

Issuer Profile

Life Time Group Holdings, Inc. is a leading lifestyle brand and fitness center operator. As of Dec. 31, 2025, Life Time operated more than 185 fitness centers across 31 states and one Canadian province, serving nearly 1.6 million individual members.

Summary of Financial Adjustments

In line with Fitch's 'Corporate Rating Criteria,' Fitch uses the issuer's lease liability on the balance sheet to derive its lease obligation in computing lease-equivalent debt.

Fitch does not include variable lease expense in its EBITDAR calculation that is not included in the issuer's rent expense. The variable lease not included in Fitch's lease expense calculation is also not included in the issuer's rent expense line and is related to equipment leases in the fitness centers and other items. In the issuer's 10-K, it is disclosed that 'variable lease payments not recognized in the measurement of operating and finance lease liabilities are expensed as incurred.'

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The results of our Climate.VS screener did not indicate an elevated risk for Life Time Group Holdings, Inc.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.