G-RAM ERCY
PROPERTY TRUST

Life Time Fitness Sale Leaseback

June 2015

 

Transaction Overview & Merits
Transaction Overview




On June 10, 2015 Gramercy executed a $300.5 million 20-year sale leaseback transaction with Life Time Fitness, purchasing a
portfolio of ten, large-format, high-end fitness centers in major markets across the United States.


Life Time, with 115 properties and revenue of approximately $1.3 billion, is a best-in-class operator of suburban fitness centers
with a long, profitable operating history.



The facilities are leased on multiple 20-year net leases with four, five-year renewal options and 10% escalations every 5 years.

Gramercy’s portfolio is one of three pools of real estate totaling approximately $900 million that Life Time sold and leased back as part
of a leveraged buyout of the Company by Leonard Green, TPG and Life Time’s CEO Bahram Akradi.


In conjunction with the LBO, Life Time issued a $1.5 billion credit facility and $450 million of senior unsecured notes. Life Time
received a Corporate Family Rating of B2 from Moody’s and a Corporate Credit Rating of B from S&P.



GPT management has extensive experience (25+ years) acquiring, re-tenanting and refinancing fitness centers.



Through December 31, 2015, Gramercy expects to sell approximately $150MM in assets including up to four Life Time facilities.

Transaction Merits


The purchase price is a ~20% discount to estimated
replacement cost ($385MM).



Straight-line cap rate of 7.5% (initial cap rate 6.5%).



Increases Gramercy’s weighted average lease term by
approximately 1.5 years to 10 years.



NNN lease with no landlord capex responsibilities is very
scalable – increases asset base with no corresponding
G&A required.



Strong site level rent coverage creates high likelihood of renewals
at lease end and/or affirmations in a downside scenario where the
tenant has to restructure in bankruptcy. 4-Wall EBITDAR
coverage is greater than 3x across GPT’s 10-property portfolio.



Facilities are well located in affluent, growing suburban locations,
typically adjacent to office parks or in retail locations. 9 of the 10
assets are high quality, modern facilities for preconceived
conversion to suburban office, if re-tenanting were ever required.



U.S. health & wellness industry has exhibited consistent growth
during periods of economic expansion and resiliency during
recessionary times.
2

 Life Time Fitness Overview
Founded in 1992 by Chairman and CEO Bahram Akradi, Life Time Fitness,
Inc. is “The Healthy Way of Life Company”
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As of June 1, 2015, the company operated 115 centers under the LIFE TIME
FITNESS® and LIFE TIME ATHLETIC® brands primarily in suburban
locations in 32 major markets in the United States and Canada.
Life Time centers are ultra high-end, large-format suburban fitness and
athletic facilities, the majority of which operate 24 hours a day, seven days a
week.
Life Time offers a variety of services including group fitness, yoga, swimming,
running, racquetball, squash, tennis, Pilates, martial arts, kids activities and
camps, adult activities and leagues, rock climbing, cycling, basketball,
personal training, weight loss and nutrition initiatives, spa, medi-spa and
chiropractic services.

Summary Income Statement ($ mm)

KEY FACTS
First Center Opened: 1992
Headquarters:

Chanhassen, Minnesota

Ratings:

B2 / B

Revenues:

$1.31 billion (as of TTM 3/31/2015)

Employees:

24,600 (as of February 19, 2015)

Number of Centers:

115 (as of June 1, 2015)

Pro Forma Summary Balance Sheet ($ mm)

2010

2011

2012

2013

2014

Revenue

$913

$1,014

$1,127

$1,206

$1,291

EBITDA

$261

$280

$332

$352

$374

Net Income

$80

$92

$111

$121

$114

PF 3/31/15
Assets
Cash & Cash Equivalents
Liabilities

89

101

105

108

113

$7
$2,387

New $250MM Revolver

$0

New Term Loan Facility

$1,250

New Senior Notes
# of Centers

$3,597

Equity

$450
$1,210

3

 Broad National Footprint (115 Fitness Centers)

Washington
Vermont
Montana

Maine

North Dakota
Minnesota
Michigan

Oregon

New Hampshire
Wisconsin

Massachusetts
Rhode Island

South Dakota

Idaho

New York
Wyoming

Michigan

Connecticut

Iowa

Pennsylvania

New Jersey

Ohio

Nebraska

Nevada

Washington D.C.

Indiana

Delaware
Maryland

Illinois

Utah

West
Virginia

Colorado

California

Kansas

Virginia

Missouri
Kentucky

Arizona

North
Carolina

Tennessee
Oklahoma

South
Carolina

Arkansas

New Mexico

Mississippi

Alabama

14 West

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Phoenix (5)
Denver / CO
Springs (4)
Las Vegas (2)
Salt Lake City (1)
California (2)

Texas

Florida

Louisiana

19 South

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Dallas (8)
Houston (6)
Austin (2)
San Antonio (2)
Tulsa (1)

Note: Not pictured is one international property located in Toronto, Canada.
= Markets with a GPT Subject Property.

Memphis (1)
Omaha (1)
St. Louis (1)
Des Moines (1)
Kansas City (2)

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Northern VA (4)
NJ / NYC (5)
Columbus (4)
Baltimore (2)
Cincinnati (1)
Cleveland (1)

16 Southeast

49 Midwest
 Minneapolis / St. 
Paul (24)

 Chicago (9)

 Detroit (7)

 Indianapolis (3) 

17 Northeast

Georgia

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
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Atlanta (6)
Raleigh (5)
Charlotte (2)
Birmingham (1)
Boca Raton (1)
Tampa (1)

4

 U.S. Health & Wellness Industry Highlights
According to the International Health, Racquet and Sportsclub Association (IHRSA), gym membership increased at an
annualized rate of 1.3% to 52.9 million memberships from 2010 to 2014.


Gym, health and fitness clubs have grown over the past 5 years, bolstered by public health initiatives that have shed light on the role of exercise in
fighting diabetes, obesity and other ailments.



Population growth, particularly among ages 20 to 64, which comprises the largest gym-going demographic, has spurred demand for club
memberships.



Over the five years to year-end 2015, revenue is expected to grow at an annualized rate of 2.2% to $32.9 billion, including 4.3% growth in 2015
alone, driven by rising gym membership among the increasingly active baby boomer population.



In the five years to 2020, revenue is forecast to grow at an annualized rate of 3.6% to $39.3 billion as more consumers purchase high-cost industry
services such as cohesive, individualized health plans that include trainers and nutritional guidance.



Resiliency during U.S. recession with 1.7% annual growth from 2007 to 2011.



Profit is also expected to slightly rise from 8.9% of industry revenue in 2015 to 9.0% by 2020, as many gyms offer more high margin services, such
as group personal training sessions, to strengthen their product portfolio and bolster member retention rates.



Due to the fragmented nature of this industry, no player holds a market share greater than 5.0%. Moreover, there is limited financial information
available for players in this industry because many are private organizations with franchised operations.

U.S. Health & Wellness Revenue ($ in bn)

$35.0
$30.2

$30.8

2008

2009

$28.3

2007

$29.2

2010

$30.3

$31.0

$31.5

$31.6

2011

2012

2013

2014

$36.6

$37.8

$38.7

$39.3

2019E

2020E

$32.9

2015E

2016E

2017E

2018E

5

 Strong, Consistent Financial Performance
Life Time has demonstrated consistent financial performance and steady growth


Life Time’s store-level business model is a proven cash generator and, in its history, Life Time has never closed a large-format club.



In the 42 quarters since going public, LTM has grown revenue and EBITDAR year-over-year in 40 of those quarters.



Life Time’s broad range of services and membership offerings encourage member loyalty. Annual revenue per membership has
increased by 30% since 2007. From 2010-2014, Life Time increased their membership base from 682,858 with 89 fitness centers to
809,445 with 113 fitness centers.



Mature same-center average growth of 2.6% per year from 2010 – 20141

Life Time– Key Financial & Operating Metrics2
10.2%
Revenue
CAGR

9.4%
EBITDAR
CAGR
0.5% Avg.
Mature
SameCenter
Revenue
Growth (1)

Total Revenue
EBITDAR

$1,291

$1,206

$1,127
$1,014
$913

$837

$770
$656

2007

$297

$281

$249

$217

$316

$363

$385

$408

2008

2009

2010

2011

2012

2013

2014

# of Centers

70

81

84

89

101

105

108

113

Annual Revenue per
Membership

$1,360

$1,427

$1,414

$1,462

$1,527

$1,568

$1,656

$1,767

Mature Same-Center
Revenue Growth 1

0.8%

(2.8%)

(7.5%)

2.3%

4.3%

3.7%

3.2%

(0.3%)

1.
2.

Open 37 months or longer.
$ in millions except per membership data.

6

 Life Time Fitness Portfolio Overview & Analysis
Overview and Statistics


10 properties comprising 1,330,544 sq. ft. in Las Vegas;
Colorado Springs; Denver; Washington, DC; Detroit,
Cincinnati; Minneapolis; Memphis; Tulsa; and Dallas (71%
Target Markets)



$300.5MM purchase price ($226 psf); estimated replacement
cost of $385MM ($290 psf) – ~20% discount to estimated
replacement cost



7.5% straight-line cap rate (6.5% initial cap rate)




Portfolio average rent of $14.68 per sq. ft.

Fitness Centers

Summerlin, NV (Las Vegas)

Colorado Springs, CO

Centennial, CO (Denver)

Reston, VA (Baltimore/DC)

Canton, MI (Detroit)

Deerfield Township, OH (Cincinnati)

Eden Prairie, MN (Minneapolis)

Collierville, TN (Memphis)

Bixby, OK (Tulsa)

Mansfield, TX (Dallas)

Average facility age of 7 years

Investment Analysis


Gramercy’s portfolio consists of predominantly modern, large
format buildings with good diversity of income stream –
highest allocation to Las Vegas at 15% of NOI


Includes top locations of Denver and Reston (22% of NOI)



Good secondary locations of Summerlin (Las Vegas),
Deerfield Township (Cincinnati), Collierville (Memphis),
Mansfield (Dallas) and Colorado Springs – 54% of NOI

7

 Facilities Located in Affluent Neighborhoods of Major Markets
Summerlin, NV (Las Vegas)
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Submarket: Summerlin
Location: 10 miles west of downtown
Las Vegas and 20 minutes driving
distance from McCarran International
Airport
Med HH Income: $91,579 (+73%
MSA)
Med Home Price: $341,200 (+207%
MSA)



MSA: Las Vegas-Henderson-Paradise
MSA Population: 2,069,681
MSA Med HH Income: $52,873
MSA Med Home Price: $165,000



Centennial, CO (Denver)
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Colorado Springs, CO
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Submarket:
Location: Located 12 miles northeast
of downtown Colorado Springs at the
intersection of Briargate Parkway and
Powers Blvd.
Med HH Income: $90,625 (+58%
MSA)
Med Home Price: $276,400 (+29%
MSA)
MSA: Colorado Springs
MSA Population: 686,908
MSA Med HH Income: $57,229
MSA Med Home Price: $214,200

Reston, VA

Submarket: Centennial
Location: 18 miles south of downtown
Denver in the Littleton/Greenwood
Village/Centennial submarket
Med HH Income: $78,722 (+25%
MSA)
Med Home Price: $276,500 (+12%
MSA)



MSA: Denver-Aurora-Lakewood
MSA Population: 2,754,258
MSA Med HH Income: $62,742
MSA Med Home Price: $247,800

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Submarket: Reston
Location: Located 1 mile from the
intersection of 267 and Wiehle Ave
approximately 20 miles west of
downtown Washington, DC in the Dulles
Corridor Office submarket
Med HH Income: $94,806 (+5% MSA)
Med Home Price: $408,000 (+9% MSA)
MSA: Washington-Arlington-Alexandria,
DC-VA-MD-WV
MSA Population: 6,033,737
MSA Med HH Income: $90,540
MSA Med Home Price: $373,100

Source: U.S. Census Bureau.
Note: Submarket median household income and home price represents data from zip code where Life Time facility is located.

8

 Facilities Located in Affluent Neighborhoods of Major Markets
Deerfield Township, OH
(Cincinnati)

Canton, MI (Detroit)
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Submarket: Canton
Location: Adjacent to I-275
approximately 28 miles west of
downtown Detroit and 13 miles
northwest of DTW airport in a dense
retail corridor in Canton
Med HH Income: $76,430 (+47% MSA)
Med Home Price: $186,700 (+50%
MSA)



MSA: Detroit-Warren-Dearborn
MSA Population: 4,296,611
MSA Med HH Income: $51,844
MSA Med Home Price: $124,400

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Eden Prairie, MN (Minneapolis)


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Submarket:
Location: 22 miles northeast of
downtown Cincinnati near Proctor &
Gamble’s 240-acre Mason campus and
recently announced beauty innovation
center
Med HH Income: $88,395 (+62% MSA)
Med Home Price: $227,800 (+49%
MSA)
MSA: Cincinnati
MSA Population: 2,149,449
MSA Med HH Income: $54,692
MSA Med Home Price: $153,400

Collierville, TN (Memphis)

Submarket: Eden Prairie
Location: 16 miles southwest of
downtown Minneapolis in the Eden
Prairie submarket
Med HH Income: $64,285 (-4%
MSA)
Med Home Price: $215,000 (-1%
MSA)

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MSA: Minneapolis- St. PaulBloomington
MSA Population: 3,495,176
MSA Med HH Income:$66,940
MSA Med Home Price: $216,500

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Submarket: Memphis
Location: Located 28 miles SE of
downtown Memphis in a modern retail
corridor with close proximity to several
golf clubs, residential neighborhoods,
and office HW locations, including
International Paper and FedEx
Med HH Income: $131,948 (+278%
MSA)
Med Home Price: $355,100 (+264%
MSA)
MSA: Memphis
MSA Population: 1,343,230
MSA Med HH Income: $47,497
MSA Med Home Price: $134,300

Source: U.S. Census Bureau.
Note: Submarket median household income and home price data from zip code where Life Time facility is located.

9

 Facilities Located in Affluent Neighborhoods of Major Markets
Bixby, OK (Tulsa)
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Mansfield, TX (Dallas)

Submarket: Bixby
Location: Located 17 miles
southeast of downtown Tulsa in
Bixby
Med HH Income: $56,189 (+16%
MSA)
Med Home Price: $175,200 (+37%
MSA)
MSA: Tulsa
MSA Population: 969,224
MSA Med HH Income: $48,573
MSA Med Home Price: $127,800

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Submarket: Mansfield
Location: 19 miles southeast of
downtown Fort Worth and 29 miles
southwest of downtown Dallas in
residential community of Mansfield
Med HH Income: $92,052 (+58%
MSA)
Med Home Price:$179,600 (+20%
MSA)
MSA: Dallas-Fort Worth-Arlington
MSA Population: 6,954,330
MSA Med Income:$58,356
MSA Med Home Price: $150,000

Source: U.S. Census Bureau.
Note: Submarket median household income and home price data from zip code where Life Time facility is located.

10

 Strong Site Level Coverage
Facility EBITDAR to Rent Coverage
3.0x
33% illustrative
decline in
EBITDAR

2.0x
GPT
Life Time
Portfolio

50% illustrative
decline in
EBITDAR

1.5x

Health Care Facility EBITDARM to Rent Coverage 1
REIT

Ticker

Senior Housing Coverage

Skilled Nursing / Post-Acute Care Coverage

Sabra Health Care REIT

SBRA

1.5x

1.5x

Health Care REIT

HCN

1.3x

1.8x

Ventas REIT

VTR

1.3x

1.8x

Healthcare Property Investors

HCP

1.3x

2.0x

1.3x

1.8x

Sector Averages

Compared to leading Health Care REITs, GPT’s Life Time portfolio
provides significantly more cushion for covering contractual rent obligations
1.

EBITDARM is defined as facility EBITDA before rent and management fee obligations. Coverage numbers for health care REITs are as of the TTM period ended 3/31/15 for Sabra and Ventas,
and 12/31/14 for Health Care REIT and Healthcare Property Investors.

11

 Benefits of Site Level Operating Performance
High facility level rent coverage provides GPT with significant security relative to
unsecured credit investments at the corporate level





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Accessing site level profitability
requires satisfying rental
obligation in full, even in a
restructuring scenario
~20% discount to estimated
replacement cost makes facility
difficult to replicate in a given
location

3x EBITDAR / Rent
Coverage
Excess
CF
~2x Coverage

Rent to GPT

Life Time
Corporate

Established, high quality locations
with proven operating histories

Senior Debt Service
Subordinated Debt Service

Equity
12

 Alternative Uses


In the event of tenant default and the leases not affirmed, it is likely that the properties will be repurposed for
another fitness operator given the strong site level coverage of Gramercy’s portfolio.



Converting to office today does not necessarily pencil out at current rent levels, but could over time and offers a
viable secondary re-tenanting option to help manage residual value risk in a downside scenario.


Preconceived building attributes for office conversion:
 Precast concrete structure simplifying fire code modifications required for use conversion.
 14’ floor-to-floor spacing to allow for up to 10’ finished office ceiling heights.
 Structural grids / column spacing for flexibility with regard to office & workstation layouts.
 Re-usable double-height entrance lobby.

Suburban Office Conversion (Price per sq. ft.)
Low
Initial Basis (GPT Portfolio Initial Cost of $226)

Estimated Budget (Price per sq. ft.)

High

Low

High

$200

$275

Façade Modifications

$15

$20

Estimated Cost to Convert to Office

$75

$100

Specialized Space Modifications (pool fill-in, 2nd
floor construction in courts)

$16

$21

Estimated TI / LC Package

$25

$50

Core & Common Area Modifications (elevators,
stairs, restrooms, etc.)

$27

$36

$300

$425

Site / Landscaping Modifications

$8

$12

General Conditions & Fees

$5

$6

$4

$5

$75

$100

Total Basis at Redevelopment

Implied Office NNN Rent @ 6.5% Cap Rate

$20

$28

Contingency

Market NNN Office Rents Today

$12

$20

Total

13

 High Quality Net Leased Portfolio1
with Long Dated Lease Expiration

As of May 31, 2015

Gramercy Property Trust Owned Portfolio1

Properties

% of Contractual
Base Rent

Occupancy

Total
Square Feet

Annualized
Straight-Line NOI

Industrial

65

41%

100.0%

13.3 million

$71.1 million

Office/Banking Centers

84

36%

98.5%

5.0 million

$60.9 million

Specialty Industrial

14

8%

100.0%

0.7 million

$13.2 million

Specialty Retail

10

12%

100.0%

1.3 million

$22.7 million

2

3%

100.0%

0.2 million

$5.2 million

175

100%

99.6%

20.6 million

$173.1 million

Data Centers
Total

Key Portfolio Statistics1

Lease Expiration Schedule1
100.0%



175 assets
 21 million square feet

Size

80.0%
60.0%

Tenants



33% Investment Grade

40.0%

Lease Term



9.9 Years

20.0%

Occupancy




99.6%

83% of assets in Target Markets
 Largest market: Los Angeles

Geographic

1.

0.0%

0.2%

1.5%

3.4%

0.7%

2015

2016

2017

2018



5.8% of Contractual Base Rent has an initial
expiration date through December 31, 2018
 Near-Term Maturities: 2017 – Ceva Freight (2.8%)

GPT owned portfolio as of May 31, 2015. Pro Forma for contracted pipeline transactions expected to close by June 30, 2015.

14

 Strong Credit Tenant Roster with
83% of Assets in Major Markets

As of May 31, 2015

Top 10 Tenant List1

Portfolio Breakdown by Geography1

% of Total

Rating
(Moody’s / S&P)

1

18.4%

2
3

Rank

Tenants

Rank

Markets

A2 / A

1

Los Angeles

12.3%

B2 / B

2

Dallas

9%

3.2%

Ba2 / BB+

3

Jacksonville

7%

3.1%

B1 / B+

4

Chicago

6%

5

2.8%

Caa1 / B-

5

South Florida

6%

6

New York / New Jersey

6

NR / NR

5%

2.5%

7

Philadelphia

4%

7

2.4%

Ba3 / BB

8

Phoenix

3%

9

Indianapolis

3%

10

Houston

3%

*

/

4

8

2.3%

Baa3 / BBB-

9

2.3%

Baa2 / BBB

10

2.2%

Ba3 / BB-

Subtotal

51.6%

% of Total
12%

Other Target Markets2

25%

Other3

17%

* Denotes lease guarantor.

GPT may elect to sell four Life Time facilities as part of a plan to
reduce tenant exposure to less than 5% within 12 months.

1.
2.
3.

83% of assets are located in
Gramercy target markets.

Based on contractual base rent for each property in our portfolio at May 31, 2015. Pro forma for under contract pipeline deals expected to close by June 30,
2015.
Includes properties located in Gramercy Target Market MSAs of San Francisco, Atlanta, Baltimore, Washington DC, Memphis, Central Pennsylvania, Tampa,
Orlando, Las Vegas, Denver, Seattle, Cincinnati, Savannah, Minneapolis, Columbus, Nashville, Charlotte, Austin, Inland Empire and Kansas City.
Includes properties located in Tulsa, OK; Detroit, MI; Colorado Springs, CO; Waco, TX; Ames, IA; Cleveland, OH; Yuma, AZ; St. Louis, MO; Northern California;
Central Florida; Central Illinois and other markets.

15

 Pro Forma for 4 LTF Asset Sales

As of May 31, 2015

Gramercy Property Trust Owned Portfolio1

Properties

% of Contractual
Base Rent

Occupancy

Total
Square Feet

Annualized
Straight-Line NOI

Industrial

65

43%

100.0%

13.3 million

$71.1 million

Office/Banking Centers

84

38%

98.5%

5.0 million

$60.9 million

Specialty Industrial

14

8%

100.0%

0.7 million

$13.2 million

Specialty Retail

6

7%

100.0%

0.8 million

$12.0 million

Data Centers

2

3%

100.0%

0.2 million

$5.2 million

171

100%

99.6%

19.9 million

$162.4 million

Total

Key Portfolio Statistics1

Lease Expiration Schedule1
100.0%



$171 assets
 20 million square feet

Size

80.0%
60.0%

Tenants



35% Investment Grade

40.0%

Lease Term



9.3 Years

20.0%

Occupancy




99.6%

84% of assets in Target Markets
 Largest market: Los Angeles

Geographic
1.

0.0%

0.2%

1.6%

3.6%

0.7%

2015

2016

2017

2018



6.2% of Contractual Base Rent has an initial
expiration date through December 31, 2018
 Near-Term Maturities: 2017 – Ceva Freight (3.0%)

GPT owned portfolio as of May 31, 2015. Pro Forma for contracted pipeline transactions expected to close by June 30, 2015 and the sale of 4 Life
Time Assets to be sold promptly thereafter.

16

 Pro Forma for 4 LTF Asset Sales

As of May 31, 2015

Top 10 Tenant List1

Portfolio Breakdown by Geography1

% of Total

Rating
(Moody’s / S&P)

1

19.6%

2
3

Rank

Tenants

Rank

Markets

A2 / A

1

Los Angeles

6.9%

B2 / B

2

Dallas

8%

3.4%

Ba2 / BB+

3

Jacksonville

7%

3.3%

B1 / B+

4

Chicago

7%

5

3.0%

Caa1 / B-

5

South Florida

6%

6

New York / New Jersey

6

NR / NR

5%

2.6%

7

Philadelphia

4%

7

2.5%

Ba3 / BB

8

Phoenix

4%

9

Indianapolis

3%

10

Houston

3%

4

*

/

8

2.5%

Baa3 / BBB-

9

2.5%

Baa2 / BBB

10

2.3%

Ba3 / BB-

Subtotal

48.6%

% of Total
13%

Other Target Markets2

24%

Other3

16%

* Denotes lease guarantor.

84% of assets are located in
Gramercy target markets.

1.
2.
3.

Based on contractual base rent for each property in our portfolio at May 31, 2015. Pro forma for under contract pipeline deals expected to close by June 30,
2015 and the sale of 4 Life Time Assets to be sold promptly thereafter.
Includes properties located in Gramercy Target Market MSAs of San Francisco, Atlanta, Baltimore, Washington DC, Memphis, Central Pennsylvania, Tampa,
Orlando, Las Vegas, Denver, Seattle, Cincinnati, Savannah, Minneapolis, Columbus, Nashville, Charlotte, Austin, Inland Empire and Kansas City.
Includes properties located in Tulsa, OK; Detroit, MI; Colorado Springs, CO; Waco, TX; Ames, IA; Cleveland, OH; Yuma, AZ; St. Louis, MO; Northern California;
Central Florida; Central Illinois and other markets.

17