Bahram Akradi : The long-term leverage, I want to have it below — so we’re going to continue working on per se on improving the balance sheet until the leverage gets under three. Since everybody is on the call, that is not a leverage I would like 3 times debt-to-EBITDA for a company that would not have all the real estate assets we still own. The change in that I think under three is a very healthy number is that at all times, we are carrying roughly about $3 billion worth of owned real estate even with the sale leasebacks that we continually do that just doesn’t allow that $3 billion to grow, right? But we recycled stuff coming in. So my target is to keep the debt to EBITDA under three, we’re happy with the progress we’re making.
Obviously, the most improvement in that just keep growing the revenue and EBITDA to grow the margins, and that will help that number rapidly come down. And then I think Bob will get you that by the time you just — you can run the math, go ahead.
Bob Houghton : Yeah. So Dan, on the rent piece, we’ve guided to $270 million to $280 million for the full year. Obviously, we’d exit the fourth quarter at slightly higher than that run-rate since that’s the guide for the full year. So something just north of that $70 million —
Bahram Akradi : You just take a rent because we only did $33 million that we just closed in end of February. One more is scheduled to close here in the next couple of months, another one in June, July, and then we are working on the other deals that we would announce in the future. But if you assume $300 million of sale leaseback in the mid-6s range for the cap rate for the year and add that to where we exited. So that will give you the exit coming out of — the timing of these will be — depends on Life Time’s the ability to deliver the product and/or the landlord’s ability with the time they want that to go on their deals. So that’s going to take sort of little moving target. But you’re looking at about $20 million some of, call it, $20 million of incremental rent annually added to our exiting rents on the fourth quarter 2022.
Dan Politzer : Thanks so much. Really helpful.
Bahram Akradi : You’re welcome.
Operator: Thank you. Our next question comes from the line of Brian Harbour from Morgan Stanley. Please go ahead.
Matt Morris: Hey, guys. This is Matt Morris on for Brian. Just a follow-up on that conversation around membership dues versus 2019 levels. A couple of months back, you gave it broken down by state. You’re obviously performing very well in quite a few of those states, but a couple of other core markets in the Midwest, like Minnesota, Illinois are still running kind of those levels or at least were when you last disclosed. Has that app kind of closed? And is that mostly just due to kind of the timing of restrictions rolling off a bit later in those states? Or is there anything else to call out there? Thanks.
Bob Houghton : Yeah, majority of — they’re like the anomalies, but majority of those the ones that can be mapped out, like in Orange, that hasn’t fully recovered, was really timing. But if you go back right now, and we will — as we meet with investors. We filed those before we go through an investor conference. And then you look at every single month, more states are turning green from orange and the other ones are keep coming up. Our expectation is every single state will recover to full numbers and go beyond. So it’s just timing. And really, there hasn’t been a situation saying, the world is going to be different in Michigan or Minnesota, it is not. So the only other thing in Minnesota has always been a little bit off is that we have one large, large, super, mega club that opened in town and that depending on where you draw the line, that club takes a lot of members from the other ones, so dilutes the message.
It’s very close. And I think by this summer, I think we will hardly have any state that is left behind.
Bob Houghton : Yeah. So Matt, just to give context of what happened in the fourth quarter from November to December, two states, two additional states coverage and 6 additional clubs. We’re seeing similar, if not accelerated progress as we’ve rolled into 2023.
Bahram Akradi : Yeah, every month, you’ll see that progress happening.
Matt Morris: Okay. Thanks. And then just 1 more. Curious on how Net Promoter Scores have evolved recently? Have you seen any noticeable shift given gyms are likely less crowded versus pre-COVID, but you also have some additional programming around whatever may be pickleball, small group chaining or revamped personal training, et cetera? Thanks.
Bahram Akradi : Yeah. No significant change to our NPS. What’s happening is we’re getting a little better, obviously, results because of expanded programing and then the two things will reduce NPS. The most potent one is when the members get a letter saying their use is going to go up $10 or $15. So the legacy those increases usually is an impact. It’s just a one-month impact. And finally, yes, the January traffic in the clubs basically can make the experience a little pinched and so those are just seasonal, but apples and apples, our NPS is as good as it’s ever been.
Matt Morris: Thank you.
Bahram Akradi : Thank you.
Operator: Thank you. Our next question comes from the line of Chris Woronka from Deutsche Bank. Please go ahead.
Chris Woronka : Yeah. Hey, good morning, guys. Thanks for all the color so far. Just a follow-up on the kind of the leasebacks. The big question we get a lot from investors is how do we get comfortable that the given the interest rate environment and such that the buyers, which I know includes some REITs that the economics still don’t change materially. Any thoughts you can provide around that?
Bahram Akradi : So — go ahead.
Bob Houghton : Yeaj. So on sale leaseback, so yes, we — from a cap rate perspective, Chris, we’re seeing cap rates consistent a little mid-6s — Yeah, consistent with what we’ve done historically, we still see strong demand from the REITs to participate in our properties. As you know, we paid every nickel of rent during the pandemic. Our clubs are cash flow positive. So we’re a really attractive tenant for landlords. So we’re seeing continued strong demand at rates consistent with what we had there.
Bahram Akradi : One thing I would mention to you guys is that our leases are 20-plus year leases initially and then they have — we have multiple options, five-year options after that. There’s a very, very long term. And if you think of it, it should be more like the 30-year mortgage rather than the — so our partners who are doing these deals with us, obviously, they’re under pressure for their investors tying it into current rates. But we all know the current rates will change if they don’t change this year or they’ll change soon enough relative to a 2030 year. So while the rates are volatile a two-year or five-year, even 10 years, they don’t really have as big of a pull. It’s not percent for percent on a 20-plus 25-year lease. So there is virtually no concern that we can’t get them done. The difference is just a quarter percentage point one way or the other on the cap rate.
Chris Woronka : Okay. Very helpful. Appreciate that. And then, Bahram, you’ve talked in the past about the potential M&A in the space and being an active participant in that. Has anything changed versus a year ago, six months ago in terms of what you’re seeing relative to, again, debt markets being tough for some of the maybe weaker capitalized players. Is there anything that changes your view on what might happen over the next year or so?
Bahram Akradi : Yeah. I think strategically, at some point, those opportunities will become very attractive for Life Time. For the last 12 months, the current six months, the first six months of the year, our heads down focusing on fundamentals. We needed to make the adaptations that I have talked about to make sure our business model has overcome all the inflationary issues that everybody has dealt with and recovered from the pandemic — ups and downs and overcome all the inflationary stuff is construction, supplies, payroll. And I am so excited because we have accomplished that, I think as we look into the breakdown of the business unit, I tried to do it and give you guys some examples on this call, unfortunately, it gets convoluted, because we have to — we can talk about the EBITDA when you exclude the impact of rents.
So I just took it out so I can do it in a much more detailed approach. But we have the healthiest business model since the in such a company today. And I’m proud of our company. I’m proud of our team, I’m proud of my partners for digging deep and making all the necessary adaptations to end up with a business that is better. Now once we get that done and then we are kind of building our normal course of clubs, and we can also look at opportunities hopefully, by the next call or two or three, we can start sharing with you guys the opportunities are popping up and how we’re dealing with them.
Chris Woronka : Okay, very good. Thanks, guys.
Bahram Akradi : Thanks.
Ken Cooper : And we have time for one. Go ahead guys.
