EBITDAR

Full Definition

EBITDAR adds rent (or lease) expense back to EBITDA, producing a metric that eliminates the impact of real estate ownership structure on reported profitability. It is primarily used in industries where the own-versus-lease decision creates significant comparability distortions: airlines (own vs. operating lease of aircraft), retail (own vs. lease of store locations), restaurant chains (own vs. lease of restaurant buildings), and healthcare facilities. Two restaurant chains with identical unit economics may show dramatically different EBITDA if one owns its real estate and one leases, making EBITDAR the more appropriate operational comparison. The practical application is most common in sale-leaseback analyses and real estate-intensive industry M&A. When a company sells its owned real estate to a REIT or other investor and leases it back, EBITDA drops because it now incurs rent expense it previously did not have—but EBITDAR remains constant, correctly reflecting that the core operating business has not changed. Buyers of retail and restaurant businesses frequently value on an EBITDAR multiple and then separately value the real estate, combining both components to arrive at total enterprise value. ASC 842 (the 2019 lease accounting standard) significantly affected this analysis by bringing most operating leases onto the balance sheet as right-of-use assets and lease liabilities. Under ASC 842, many leases that previously ran through rent expense now generate interest expense and amortization expense components. This changes how EBITDAR is calculated and requires careful attention to whether pre- and post-ASC 842 figures are being compared on an apples-to-apples basis. Analysts working with companies that adopted ASC 842 must reconstruct the old rent-expense framework to make historical comparisons meaningful.

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