EBITDAR: The Hotel Industry’s Secret to Measuring True Profitability

In the competitive hotel industry, where lease agreements and operational costs vary widely, evaluating true profitability is often challenging.

Imagine two hotels generating identical revenue, yet one appears less profitable due to high lease expenses.

At Revitup.Direct we believe that all this discrepancy highlights the need for EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent costs), a metric that isolates operational performance to provide clearer insights for hoteliers.

What Makes EBITDAR Different?

In hospitality, where rental and lease agreements differ greatly, EBITDAR stands out for its ability to exclude rent and restructuring costs.

This allows hoteliers to focus solely on operational performance, free from external cost influences. Key advantages include:

• Eliminating Variability: Enables fair comparisons across properties with diverse lease agreements.
• Highlighting Efficiency: Emphasizes core operational results without external distortions.
• Simplifying Benchmarking: Supports hotel chains in analyzing properties with varying cost structures.

EBITDAR builds on EBITDA by excluding rent costs in addition to interest, taxes, depreciation, and amortization.

This makes it very useful for industries with significant leasing expenses.

Why EBITDAR matters for Hotels?

According to Revitup’s team, EBITDAR is a great tool for hoteliers with high rental or lease costs.

These costs can hide the true profitability of a hotel, making comparisons with competitors harder.

EBITDAR removes these costs to give a more accurate view of operations.

For example, two hotels with similar revenue might appear vastly different in profitability if one has higher lease expenses.

By excluding rent, EBITDAR allows for an apples-to-apples comparison.

Benefits of Using EBITDAR:

• Clarity in Financial Health: Provides an accurate measure of operational performance.
• Operational Insights: Identifies inefficiencies and cost-saving opportunities.
• Improved Transparency for Investors: Removes lease variability distortions, giving a clearer picture of performance.

Calculating EBITDAR

The calculation of EBITDAR is quite simple:

EBITDAR = EBITDA + Rent/Restructuring Costs

To explain the steps:

• Begin with EBITDA, which is obtained by subtracting operating expenses from revenue and adding depreciation and amortization.
• Add the total restructuring and rent expenses to the EBITDA figure to get EBITDAR.

For example, if a hotel has an EBITDA of $1 million and rent costs of $70,000, the final EBITDAR would be $1.07 million.

When Should Hoteliers Use EBITDAR?

EBITDAR is especially useful when rental or lease costs are significant, or properties are going through changes.

Hotel chains use it to measure the performance of individual properties, particularly when lease agreements vary widely.

Revitup’s experts recommend adding EBITDAR to regular financial reviews for the following scenarios:

Performance Benchmarking: To compare properties with different lease structures.

Operational Assessments: To highlight inefficiencies and improve management strategies.

Asset Valuation: To determine a hotel’s value during sales, acquisitions, or mergers.

Risk Management: EBITDAR aids in identifying potential financial risks, helping hoteliers make more informed decisions about future investments and operational strategies.

The Strategic Impact of EBITDAR

According to Revitup’s team, EBITDAR has transformed how hotels approach financial analysis.

It extends beyond profitability measurement to focus on operational efficiency, uncovering hidden weaknesses.

For hoteliers, it’s more than a metric, it’s a strategic tool for maximizing value and maintaining competitiveness in a demanding market.

Final Thoughts

Financial experts agree that EBITDAR is essential for hoteliers aiming to gain a clear understanding of their property’s profitability.

Excluding variable costs like rent and restructuring delivers a reliable measure of operational performance, enabling better decision-making and fair comparisons across properties.

By incorporating EBITDAR into routine financial analysis, hoteliers can uncover untapped potential, make informed strategic decisions, and maintain a competitive edge in the evolving hospitality market.

Start leveraging EBITDAR today to redefine your approach to profitability.