Life Time Group Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Leases

Leases

12 Months Ended

Dec. 31, 2021

Lease Cost

Lease cost included in our consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 consisted of the following:


	Year Ended December 31,
	2021		2020		2019		Classification in Consolidated Statement of Operations
Lease cost:
Operating lease cost	$	204,165	$	183,908	$	164,876	Rent
Short-term lease cost	1,049		1,007		1,028		Rent
Variable lease cost	4,609		1,342		61		Rent
Finance lease cost:
Amortization of right-of-use assets	1,493		2,228		2,312		Depreciation and amortization
Interest on lease liabilities	177		65		188		Interest expense, net of interest income
Total lease cost	$	211,493	$	188,550	$	168,465

Operating and Finance Lease Right-of-Use Assets and Liabilities

Operating and finance lease right-of-use assets and lease liabilities were as follows:


	December 31,				Classification on Consolidated Balance Sheet
	2021		2020
Lease right-of-use assets:
Operating leases	$	1,864,528	$	1,708,597	Operating lease right-of-use assets
Finance leases (1)	2,073		2,295		Other assets
Total lease right-of-use assets	$	1,866,601	$	1,710,892

Lease liabilities:
Current
Operating leases	$	46,315	$	49,877	Current maturities of operating lease liabilities
Finance leases	1,374		1,171		Accrued expenses and other current liabilities
Noncurrent
Operating leases	1,909,883		1,738,393		Operating lease liabilities, net of current portion
Finance leases	757		1,202		Other liabilities
Total lease liabilities	$	1,958,329	$	1,790,643

(1)Finance lease right-of-use assets were reported net of accumulated amortization of $2.4 million and $1.2 million at December 31, 2021 and 2020, respectively.

Operating Lease Right-of-Use Assets and Liabilities Associated with Unrelated Third-Party Leases

New Leases and Modifications of Existing Leases

In connection with leases with unrelated third parties that commenced during the year ended December 31, 2021, we recognized operating lease right-of-use assets and lease liabilities of $220.2 million and $210.5 million, respectively, on our consolidated balance sheet. In connection with modified leases that were remeasured during the year ended December 31, 2021, we recognized a net decrease in both operating lease right-of-use assets and lease liabilities of $6.3 million on our consolidated balance sheet.

In connection with leases with unrelated third parties that commenced during the year ended December 31, 2020, we recognized operating lease right-of-use assets and lease liabilities of $241.3 million and $196.8 million, respectively, on our consolidated balance sheet. In connection with modified leases that were remeasured during the year ended December 31, 2020, we recognized a net increase in operating lease right-of-use assets and lease liabilities of $32.1 million and $33.0 million, respectively, on our consolidated balance sheet.

Impairment of Right-of-Use Assets

During the year ended December 31, 2020, we determined that the operating lease right-of-use assets associated with some of our leased centers and some of our ancillary businesses were impaired. Accordingly, we recognized $2.0 million of impairment charges associated with these right-of-use assets, which are included in Other operating in our consolidated statement of operations for the year ended December 31, 2020. During the year ended December 31, 2019, we determined that the operating lease right-of-use assets associated with the business operations of MR&S were impaired. Accordingly, we recognized $1.3 million of impairment charges associated with these right-of-use assets, which are included in Other operating in our consolidated statement of operations for the year ended December 31, 2019.

For more information regarding impairment charges associated with our long-lived assets, see Note 2, Summary of Significant Accounting Policies.

Finance Lease Right-of-Use Assets and Liabilities Associated with Unrelated Third-Party Leases

In connection with leases with unrelated third parties that commenced during the year ended December 31, 2021 and 2020, we recognized finance lease right-of-use assets and lease liabilities, each of which totaled $1.3 million and $2.6 million, respectively, on our consolidated balance sheets.

Operating and Finance Lease Right-of-Use Assets and Liabilities Associated with Related Party Leases

For information on related party leases, see Note 13, Related Party Transactions.

Remaining Lease Terms and Discount Rates

The weighted-average remaining lease terms and discount rates associated with our operating and finance lease liabilities at December 31, 2021 were as follows:


	December 31, 2021
Weighted-average remaining lease term (1)
Operating leases	17.7 years
Finance leases	2.0 years
Weighted-average discount rate
Operating leases	7.97	%
Finance leases	6.32	%

(1) The weighted-average remaining lease term associated with our operating and finance lease liabilities does not include all of the optional renewal periods available to us under our current lease arrangements. Rather, the weighted-average remaining lease term only includes periods covered by an option to extend a lease if we are reasonably certain to exercise that option.

Sale-Leaseback Transactions

Sale-Leaseback Transactions with Unrelated Third Parties

During the year ended December 31, 2021, we closed on two sale-leaseback transactions involving two properties with unrelated third parties, one of which was associated with an agreement we entered into on December 16, 2020. Under these transactions, we sold assets with a combined net book value of $85.8 million for $76.0 million, which was reduced by transaction costs of $2.0 million, for net cash proceeds of $74.0 million. The estimated fair value of the properties sold was $85.5 million. Accordingly, the aggregate sales price associated with these arrangements was increased by a total of $9.5 million, which resulted in the recognition of an aggregate loss of $2.3 million on these transactions, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2021.

During the year ended December 31, 2020, we entered into sale-leaseback transactions involving five properties with unrelated third parties. Under these agreements, we sold assets with a combined net book value of $237.7 million for $199.2 million, which was reduced by transaction costs of $0.5 million, for net cash proceeds of $198.7 million. The estimated fair value of the five properties sold totaled $243.1 million. Accordingly, the aggregate sales price associated with these arrangements was increased by a total of $43.9 million, which resulted in the recognition of a net gain of $4.9 million on these transactions, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2020.

During the year ended December 31, 2019, we entered into sale-leaseback transactions involving four properties with unrelated third parties. Under these agreements, we sold assets with a combined net book value of $178.5 million for $164.0 million, which was reduced by transaction costs of $1.0 million, for net cash proceeds of $163.0 million. The estimated fair value of the four properties sold totaled $185.3 million. The aggregate sales price associated with these arrangements was increased by a total of $21.3 million, which resulted in the recognition of a net gain of $5.8 million on these transactions, which is included in Other operating in our consolidated statement of operations for the year ended December 31, 2019.

Related Party Sale-Leaseback Transactions

For information on sale-leaseback transactions with related parties, see Note 13, Related Party Transactions.

Supplemental Cash Flow Information

Supplemental cash flow information associated with our operating and finance leases is as follows:


	Year Ended December 31,
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	182,644	$	131,617	$	144,744
Operating cash flows from finance leases	177		208		288
Financing cash flows from finance leases	1,514		1,343		1,621
Non-cash information:
Right-of-use assets obtained in exchange for initial lease liabilities
Operating leases	210,541		241,810		237,258
Finance leases	1,272		2,576		751
Right-of-use asset adjustments recognized as a result of the remeasurement of existing lease liabilities
Operating leases	(6,345)		33,028		2,086
Non-cash increase in operating lease right-of-use assets associated with below-market sale-leaseback transactions	9,500		43,910		21,250
Impairment charges associated with operating lease right-of-use assets	—		(1,962)		(1,343)

Maturities of Operating and Finance Lease Liabilities

The maturities associated with our operating and finance lease liabilities at December 31, 2021 are as follows:


	Operating Leases		Finance Leases		Total
2022	$	187,000	$	1,466	$	188,466
2023	198,866		698		199,564
2024	205,276		84		205,360
2025	208,300		—		208,300
2026	210,163		—		210,163
Thereafter	2,774,640		—		2,774,640
Total lease payments	3,784,245		2,248		3,786,493
Less: Imputed interest	1,828,047		117		1,828,164
Present value of lease liabilities	$	1,956,198	$	2,131	$	1,958,329