EBITDAR is EBITDA plus rent expense

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent. It takes the EBITDA number you already know and adds back the rent a company pays for its facilities — usually office space, retail locations, or warehouses.

The reason analysts use EBITDAR instead of EBITDA is that rent can hide real differences between companies. Two retailers might have identical EBITDA, but one owns its building and one rents. The renting company's rent expense shows up on the income statement and reduces profit. EBITDAR strips that out so you can compare the two on equal footing.

Think of it this way: EBITDA removes the cost of equipment you bought in the past (depreciation and amortization). EBITDAR removes both that and the cost of space you rent today. It shows what the business earns before any of those occupancy decisions matter.

Key Takeaways

  • EBITDAR adds rent expense back to EBITDA, creating a number that ignores both past capital purchases and current lease payments.
  • Companies that rent facilities instead of owning them will have lower EBITDA but higher EBITDAR, making EBITDAR more useful for comparing them to owner-occupied competitors.
  • Rent in EBITDAR typically means operating leases — the regular monthly payments for space — not capital leases that function like purchases.
  • EBITDAR is most common in retail, restaurants, and real estate-heavy industries where lease costs vary widely between competitors.
  • A company's EBITDAR will always be higher than its EBITDA because you are adding rent back instead of subtracting it.

When rent matters enough to use EBITDAR

EBITDAR appears most often in industries where the choice between renting and owning is a real business decision, not a minor detail. Retail chains, restaurant groups, and hotel operators all use it because their rent can be 10 to 20 percent of revenue or higher.

If you are comparing two grocery stores and one owns its building while the other rents, EBITDA will make the renting store look worse even if both run equally efficient operations. EBITDAR removes that distortion. It lets you see which store actually makes more money from selling groceries, separate from the real estate question.

In industries where rent is small — software companies, manufacturers with owned facilities, or professional services — EBITDAR is rarely used. The rent expense is too minor to change the picture, so EBITDA alone tells you what you need to know.

How EBITDAR is calculated

Start with net income (the bottom line on an income statement). Add back interest expense, taxes, depreciation, and amortization — that gives you EBITDA. Then add back the rent expense for the period, and you have EBITDAR.

The formula looks like this:

Net Income + Interest + Taxes + Depreciation + Amortization + Rent = EBITDAR

The rent figure comes from the company's income statement or footnotes. It should be operating lease rent — the monthly payments for space the company uses but does not own. It does not include capital leases, which are treated more like purchases and already flow through depreciation.

Some companies break out rent separately on their financial statements. Others bury it in operating expenses, so you may need to read the footnotes or the cash flow statement to find the exact number.

EBITDAR versus EBITDA in practice

Imagine two coffee shop chains, each earning $10 million in net income. Chain A owns most of its locations and pays $2 million in rent for a few leased spaces. Chain B rents all its locations and pays $8 million in rent.

If both have $3 million in interest, taxes, depreciation, and amortization, their EBITDA would be $16 million and $12 million respectively. Chain A looks more profitable. But their EBITDAR would be $18 million and $20 million — Chain B actually generates more earnings before you account for the real estate model.

The difference shows that Chain B's lower EBITDA is not a sign of weak operations; it is a result of choosing to rent rather than own. EBITDAR reveals that Chain B's business is actually stronger, even though it pays more for space.

Who uses EBITDAR and why

Investors and analysts use EBITDAR to compare companies in rent-heavy industries on a level playing field. Lenders sometimes use it when evaluating whether a company can service debt, because rent is a fixed obligation just like interest payments.

Private equity firms often focus on EBITDAR when they buy retail or restaurant companies, because they plan to renegotiate leases or consolidate locations. They want to see the underlying earning power without the current lease structure clouding the picture.

Company management uses EBITDAR in earnings calls and investor presentations to show operational performance separate from real estate strategy. It is a way of saying, "Here is what we earn from running the business, regardless of whether we own or rent our space."

Limitations of EBITDAR

EBITDAR can make a company look better than it really is. By adding rent back, you are ignoring a real cash expense that the company must pay every month. If rent is very high, EBITDAR might suggest the business is stronger than it actually is.

EBITDAR also assumes all rent is the same type of expense. In reality, some leases are short-term and flexible, while others lock the company in for decades. A company with a long-term lease at a high rate is in a different position than one with a short-term lease it can exit, but EBITDAR treats both the same way.

Because EBITDAR is less standardized than EBITDA, different companies may calculate it differently. One might include parking lot rent and another might not. Always check the footnotes to see exactly what rent the company included.

EBITDAR and debt covenants

Some loan agreements use EBITDAR as a test of whether a company is healthy enough to keep borrowing. A lender might require that EBITDAR stay above a certain level or that the ratio of debt to EBITDAR stay below a certain number.

The reason lenders like EBITDAR is that rent, like interest, is a fixed obligation the company must pay. By including rent in the earnings measure, the covenant reflects the company's true ability to service debt while also paying its leases.

If you are reading a loan agreement or bond prospectus, check whether it defines EBITDAR and what rent it includes. The definition can vary, and a company might meet one lender's EBITDAR covenant while failing another's.

Frequently Asked Questions

Is EBITDAR always higher than EBITDA?

Yes. EBITDAR adds rent back to EBITDA, so it will always be equal to or higher than EBITDA. The only time they are equal is if the company pays zero rent, which is rare for operating businesses.

What counts as rent in EBITDAR?

Operating lease rent — the regular monthly or annual payments for space the company uses but does not own. Capital leases, which function like purchases, are usually not included because they already flow through depreciation. Check the company's footnotes to see exactly what they included.

Should I use EBITDAR or EBITDA to compare two companies?

If both companies have similar rent-to-revenue ratios, EBITDA is fine. If one rents heavily and the other owns its facilities, EBITDAR gives a clearer picture of which business actually performs better. Look at both numbers and the rent expense to understand the full story.

Can a company have negative EBITDAR?

Yes. If a company loses money and its rent expense is large, adding rent back might not be enough to make EBITDAR positive. A negative EBITDAR means the business is not generating enough earnings to cover its operating costs and rent, which is a serious warning sign.

Why do some companies report EBITDAR and others do not?

Companies in rent-heavy industries like retail and restaurants use EBITDAR because it matters to investors and lenders. Companies with low rent relative to revenue often skip it because EBITDAR would not tell a different story than EBITDA. It is a choice based on what is relevant to the business model.