Lifetime Fitness 2008 Annual Report Download - page 44

38
connection with the letter of credit, which expires June 1, 2023, the borrower subsidiary entered into a
reimbursement agreement with GECC. Under the terms of the reimbursement agreement if the notes are purchased
with proceeds of a drawing under the letter of credit, and cannot thereafter be remarketed, GECC is obligated to hold
the notes and the indebtedness evidenced by those notes will be amortized over a period ending June 1, 2023. The
subsidiary’s obligations under the reimbursement agreement are secured by mortgages against the two
aforementioned properties. We guaranteed the subsidiary’s obligations under the leases that will fund any
reimbursement obligations.
Sale Leaseback Transactions
On August 21, 2008, we, along with a wholly owned subsidiary, entered into a Purchase and Sale Agreement (the
“Purchase Agreement”) with Senior Housing Properties Trust (“Senior Housing”) providing for the sale of certain
properties to Senior Housing in a sale leaseback transaction. The properties are located in Alpharetta, Georgia,
Allen, Texas, Omaha, Nebraska and Romeoville, Illinois (the “Properties”), and were sold to Senior Housing for
$100.0 million. Pursuant to the terms of a Lease Agreement (the “Lease”) between our subsidiary and SNH LTF
Properties LLC (“SNH”), the subsidiary will lease the Properties from SNH. The lease has a total term of 50 years,
including an initial term of 20 years and six consecutive renewal terms of five years each. Renewal options may
only be exercised for all the Properties combined, and must be exercised no less than 12 months before the lease
term ends. The initial rent will be approximately $9.1 million per year, increased after every fifth year during the
initial term and the first two renewal options, if exercised, by an amount equal to 10% of the rent paid in the
calendar year immediately before the effective date of the rent increase. During the last four renewal terms, rent will
be the greater of (i) 110% of the rent paid in the calendar month immediately before the renewal term commences or
(ii) fair market rent, as mutually agreed by the parties or determined by a mutually agreed upon independent third
party appraiser. The lease is a “triple net” lease requiring our subsidiary to maintain the Properties and to pay all
operating expenses including real estate taxes and insurance for the benefit of Senior Housing. Pursuant to the terms
of a Guaranty Agreement, we have guaranteed our subsidiary’s obligations under the Lease. We, or a substitute
guarantor, must maintain a tangible net worth of at least $200.0 million.
On September 26, 2008, a wholly owned subsidiary sold certain properties to LT FIT (AZ-MD) LLC, an affiliate of
W.P. Carey & Co., LLC (“W.P. Carey”). The properties are located in Scottsdale, Arizona and Columbia, Maryland
(the “Properties”), and were sold to W.P.Carey for approximately $60.5 million. Pursuant to the terms of a Lease
Agreement (the “Lease”) between our subsidiary and W.P.Carey, our subsidiary will Lease the Properties from
W.P.Carey. The Lease has a total term of 40 years, including an initial term of 20 years and four consecutive
automatic renewal terms of five years each. Renewal options may only be exercised for all the Properties combined,
and are automatically exercised if notice is not provided to W.P.Carey 18 months before the lease term ends. The
initial rent will be approximately $5.7 million per year, increased after every year during the initial term and each
year of any renewal option, if exercised, by an amount equal to 2% of the rent paid in the calendar year immediately
before the effective date of the rent increase. The Lease is an “absolute net” lease requiring our subsidiary to
maintain the Properties and to pay all operating expenses including real estate taxes and insurance for the benefit of
W.P.Carey. Pursuant to the terms of a Guaranty and Suretyship Agreement, we have guaranteed the subsidiary’s
obligations under the Lease.
We account for the sale leaseback transactions as operating leases in accordance with SFAS No. 13, Accounting for
Leases. The gains we recognized upon completion of the sale leaseback transactions have been deferred and are
being recognized over the lease term, in accordance with SFAS No. 98, Accounting for Leases: Sale-Leaseback
Transactions Involving Real Estate.
Capital Leases
In May 2001, we financed one of our Minnesota centers pursuant to the terms of a sale leaseback transaction that
qualified as a capital lease. Pursuant to the terms of the lease, we agreed to lease the center for a period of 20 years.
At December 31, 2008, the present value of the future minimum lease payments due under the lease amounted to
$6.4 million.
We have financed our purchase of some of our equipment through capital lease agreements with an agent and
lender, on behalf of itself and other lenders. The terms of such leases are typically 60 months and our interest rates
range from 5.5% to 10.0%. As security for the obligations owing under the capital lease agreements, we have
granted a security interest in the leased equipment to the lender or its assigns. At December 31, 2008, $13.2 million
was outstanding under these leases.