EBITDAR

EBITDAR adds rent back to EBITDA so that the property or fleet cost is stripped out of the earnings figure entirely. It became standard in retail, hospitality and airlines, where two operators can run identical assets while one leases and one owns, and where the resulting EBITDA figures are therefore not describing the same thing.

Under IFRS 16 the adjustment is largely redundant between two IFRS reporters, because rent has already left EBITDA: it now appears as depreciation of the right of use asset and interest on the lease liability, both below the line. Adding rent back a second time would double count it.

Where it still earns its place is against a peer that has not made that move. A US retailer applying ASC 842 to an operating lease keeps a single lease cost inside operating expenses, so its rent is still above EBITDA. Bringing both companies to EBITDAR puts them on one basis, provided the lease liability is then treated the same way in enterprise value for both.

The discipline that makes it work is consistency rather than theory. Either everything is measured before rent with lease debt inside enterprise value, or everything is measured after rent with lease debt outside it. Applying one convention to some names in a comp set and the other convention to the rest is the error EBITDAR is supposed to prevent.