Life Time Fitness May Spin Off Into Two Publicly Traded Cos.
After seeing its stock price plunge on worse-than-expected earnings news last month, Chanhassen-based Life Time Fitness on Monday pleased at least some investors when it revealed it is exploring forming a real estate investment trust.
In a statement, the company said its board of directors believes such a move could provide substantial benefits given its significant real estate holdings. Life Time Fitness operates 112 fitness centers in the United States and Canada and plans to open six new centers in 2015.
Its board is contemplating splitting the company into two pieces, one that would continue to operate Life Time’s fitness centers and related services, and a second that would serve as a REIT, owning, acquiring and leasing Life Time’s real estate. Life Time’s board also adopted a shareholder rights plan prohibiting ownership of more than 9.8 percent of its stock. Both moves are characteristic of how companies sometimes shift assets and set up provisions on fear of potential takeover attempts. Life Time officials, however, said the announcement was not a result of such fears and instead represented a strategy board members and management felt most strongly about.
Jason Thunstrom, vice president of corporate communications, added that it would take a while to determine how much of a stake in the REIT Life Time will own, saying it would take a lot of time to reach that phase of the decision-making process.
Monday’s announcement triggered the company’s largest intraday gain since April 2010, according to Bloomberg.com. Life Time’s share prices closed up 16.25 percent to $48.36 Monday afternoon—and up 26 percent from Aug. 7, when Life Time share prices hit a 2014 low of $38.36. Before Monday, Life Time’s shares had dropped 11 percent since the start of the year.
Last month, Life Time posted second quarter net income results down 10 percent from a year ago. Net income for the first six months of 2014 was also down 5 percent from that of 2013. Revenue at Life Time centers open at least 13 months meanwhile dipped 0.6 percent. Bahram Akradi—Life Time’s CEO, chairman and president—said the company faced unexpected erosion of membership levels at some centers in the second quarter.
Earlier this year, Life Time boosted its portfolio of for-profit racing events by acquiring 15 races from a Texas-based company for an undisclosed sum, adding to its existing roster of 60 events across the country. Vice President of Athletic Events Kimo Seymour told TCB in March that Life Time’s ancillary businesses generated about $50 million, or 4 percent of total revenue for 2013, with a year-over-year growth rate between 20 to 30 percent.