Wall Street bets on fitness from gym chains
Gym chains are back in favor on Wall Street for the same reason Peloton Interactive Inc.
is down: Americans are tired of working out at home.
Budget Operator Planet Fitness Inc.
and its franchises have attracted hundreds of millions of dollars from private money managers in recent months, according to people familiar with the deals. High end clubs like Life Time Group Holdings LTH 0.65%
and Bay Club Co. also saw renewed investor interest in their stocks and debt, respectively.
Oaktree Capital Management LP, MidOcean Partners and Soroban Capital Partners LP are among investors buying debt and equity from gyms that have weathered the worst of the pandemic. They are betting the survivors, many of which lagged broader markets last year, are poised to grow. Stock and loan prices across multiple chains have rebounded over the past nine months.
“Smart money is looking to capitalize on dislocation,” said Milwood Hobbs, Oaktree’s head of North American sourcing and origination. “The high-end urban gym is still struggling, but the…mainstream chains are doing pretty well.”
In December, Oaktree loaned about $120 million to a large Planet Fitness franchisee with 70 locations mostly in New York and California, Oaktree executives said on a conference call with Wall Street analysts. The Carlyle Group
with Goldman Sachs Asset Management made a similar loan in November, supporting private equity firm HGGC LLC’s purchase of another Planet Fitness franchisee with 42 locations.
Oaktree’s loan will help the franchisee pay for its recovery and growth, Oaktree executives said. Oaktree negotiated an interest rate of around 7.5% on the financing, well above the 6% average for most midsize business loans at the time, according to data from LevFin Insights. .
The coronavirus pandemic has caused companies like 24 Hour Fitness Worldwide Inc., Gold’s Gym International Inc. and Town Sports International Holdings Inc. to seek bankruptcy court protection. Consumers have flocked to home-training companies like Peloton, with investors sending the stationary bike company’s stock soaring more than 500% at its peak.
Last year, as home workouts became tedious and the release of Covid-19 vaccines reduced the risk of infection, more consumers started signing up at gyms again. Planet Fitness customers joined at a rate of 30% in 2021 compared to 20% before the pandemic, chief executive Christopher Rondeau told analysts on a conference call in February.
SHARE YOUR THOUGHTS
Do you prefer to train at home or in a gym? Join the conversation below.
Sam Rimland, a 30-year-old TV business executive in Brooklyn, NY, left Planet Fitness in March 2020. He returned about seven months ago after receiving a second dose of the vaccine.
“I was doing exercises in my living room just to make sure I kept some kind of muscle tone and mass, but I didn’t particularly feel the satisfaction that you get in the gym,” Rimland said. “It was nice to get back to that routine.”
Planet Fitness Inc., the public holding company of about 2,200 gyms under its brand, has weathered the pandemic in part because most of its locations are franchises, which keeps costs low. Membership has also rebounded quickly thanks to low fees starting at $10 per month. The company added more than 100 new sites and upgraded its earnings forecast last year.
Hedge fund managers like Soroban and Artemis Investment Management began buying more Planet Fitness shares last summer, according to data from S&P Global Market Intelligence. Shares have gained about 12% since the start of July. Peloton’s stock fell about 76% over the same period; earlier this year, the company replaced its chief executive and cut 2,800 jobs. Soroban and Artemis declined to comment.
Some fund managers are betting on luxury chains that operate primarily in the suburbs and target affluent families with country club-style amenities like golf courses, tennis courts, swimming pools and restaurants. Outdoor options and customer buying power have helped these businesses to cope.
Last summer, alternative asset manager MidOcean began buying debt from Bay Club, a West Coast company that caters to the media and tech elite living around Los Angeles and San Francisco. Francis. Some of Bay Club’s roughly $700 million loans were trading at 90 cents to the dollar at the time, while MidOcean estimates the value of the company’s real estate alone to be over $800 million, said said Dana Carey, chief investment officer of MidOcean’s $7 billion credit arm. . Loans now trade sporadically around 95 cents on the dollar, he said.
Some luxury gym owners have taken advantage of investor appetite to take money off the table. Private equity firms Leonard Green & Partners and TPG bought Life Time Fitness Inc. in 2015 for more than $2.8 billion and listed it on the New York Stock Exchange last October. The partial stock offering raised approximately $700 million. Shares of the company have since lost around 25%.
Write to Matt Wirz at firstname.lastname@example.org
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8