Life Time, the U.S. gym operator known for its sprawling athletic clubs, may be approaching a financial milestone that could change how investors value the company. According to analysts at UBS, the cash generated from running its existing gyms could soon be enough to pay for the construction of new locations, reducing the company's dependence on a financing tactic called sale-leasebacks.
If that happens, UBS estimates that $300 million to $400 million a year currently used to support expansion through property sales could instead be directed toward shareholder returns, such as dividends or share buybacks. The shift could also lead the market to treat Life Time less like a growth story funded by real estate deals and more like a steady, cash-generating business.
How Life Time has been funding its growth
Life Time has been opening new clubs at a rapid pace, which requires significant upfront capital. Building a large athletic resort—complete with pools, courts, and fitness studios—doesn't come cheap. To help pay for that expansion, the company has frequently used sale-leasebacks. In a sale-leaseback, a company sells a property it owns to an investor, receives cash immediately, and then leases the property back for long-term use. This frees up capital for growth but adds a recurring rent expense that behaves like a fixed cost.
Sale-leasebacks can be useful, but they come with trade-offs. The company gives up ownership and takes on a long-term lease obligation, which can weigh on profitability, especially if the economy slows and revenue dips. Investors sometimes view heavy reliance on sale-leasebacks as a sign that a company can't fund its own growth from operations.
UBS believes Life Time is nearing a point where its operating cash flow—money generated from everyday business activities like membership fees and personal training—will reach "equilibrium" with its capital spending. That means the company could fund new club construction from its own cash flow rather than by selling off real estate.
What UBS expects for Life Time's finances
The bank projects that Life Time could generate roughly $1.35 billion in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2029, with a run rate near $1.4 billion. EBITDA is a common measure of a company's operating profitability, stripping out the effects of financing and accounting decisions.
As older clubs mature and newer ones ramp up their membership, profits should improve, UBS argues. Mature clubs tend to have higher margins because they've already absorbed the heavy costs of opening and marketing a new location. Newer clubs, once they fill up, can quickly become profitable contributors.
If operating cash flow covers growth spending, the need for sale-leasebacks would diminish. That would free up hundreds of millions of dollars annually that could be returned to shareholders. UBS's estimate of $300-400 million a year represents the amount that might have been raised through sale-leasebacks but could instead go toward buybacks or dividends.
Why this matters for investors
For everyday investors, the key takeaway is how a company's funding method affects its risk profile and valuation. A business that can fund its own expansion from operating cash flow is generally seen as healthier than one that must constantly sell assets or take on debt to grow. Less reliance on sale-leasebacks means lower lease obligations, which can make the company more resilient during economic downturns.
It also changes how investors might price the stock. Companies that generate repeatable free cash flow—money left over after operating and capital expenses—often command higher valuation multiples than those that need to monetize assets to keep growing. If Life Time can demonstrate that its cash flow is "cleaner" and less dependent on one-off property sales, the market may reward it with a higher price-to-earnings ratio.
That said, UBS's outlook is a projection, not a guarantee. The timing of when operating cash flow reaches equilibrium with capital spending depends on how quickly new clubs ramp up and how much the company continues to invest in expansion. If growth plans accelerate or if existing clubs underperform, the timeline could slip.
Investors should also note that Life Time's business is tied to consumer discretionary spending. Gym memberships are often among the first expenses households cut when budgets tighten. In a recession, membership churn could rise, putting pressure on the very cash flows UBS expects to fund growth.
Still, the analyst view highlights a potential turning point for a company that has been in a heavy investment phase. For those watching Life Time, the next few quarters will show whether the cash flow inflection arrives as UBS predicts—and whether the company starts returning more money to shareholders.
For broader context, investors have been paying close attention to how companies fund growth and return cash. Walmart's upcoming earnings, for instance, could hinge on similar dynamics of operational efficiency and shareholder returns. And Magna's long-term growth plan also focuses on generating consistent earnings growth. Meanwhile, UBS has also flagged concerns about Aramark's growth guidance, showing that analysts are closely scrutinizing companies' ability to deliver on their financial promises.
