Lifetime Fitness 2010 Annual Report Download - page 74

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands, except share and per share data)
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8. Commitments and Contingencies
Lease Commitments — We lease certain property under operating leases, which require us to pay maintenance,
insurance and other expenses in addition to annual rentals. The minimum annual payments under all noncancelable
operating leases at December 31, 2010 are as follows:
2011 .................................................................................................................................................. $ 40,421
2012 .................................................................................................................................................. 40,367
2013 .................................................................................................................................................. 39,762
2014 .................................................................................................................................................. 40,623
2015 .................................................................................................................................................. 40,678
Thereafter ......................................................................................................................................... 544,412
Total minimum annual payments under all noncancelable operating leases .................................... $746,263
Rent expense under operating leases was $42.5 million, $40.2 million and $27.4 million for the years ended
December 31, 2010, 2009 and 2008, respectively. Certain lease agreements call for escalating lease payments over
the term of the lease, which result in a deferred rent liability due to recognizing the expense on the straight-line basis
over the life of the lease.
Sale-Leaseback Transactions -- In 2003, we financed two of our Michigan centers pursuant to the terms of a sale-
leaseback transaction that qualified as an operating lease. Pursuant to the terms of the lease, we agreed to lease the
centers for a period of 20 years. At December 31, 2010, the future minimum lease payments due under the lease
amounted to $67.2 million.
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. At December 31, 2010, the future minimum
lease payments due under the lease amounted to $189.9 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