EBITDAR explained: A key metric for hotel owners and operators

For hotel owners and operators, getting a true understanding of financial health isn’t always easy.

Fluctuating lease agreements, one-off restructuring costs and inconsistent reporting metrics can make comparisons between properties – or even across seasons – feel like comparing apples and oranges, and lead to shaky financial statements and unreliable valuations.

This is where EBITDAR comes to the rescue.

Not to be confused with better-known metrics like EBIT or EBITDA, EBITDAR strips away the noise of rent and restructuring costs to reveal how well a hotel is really performing at its core operational level.

In this blog post, we’ll unpack what EBITDAR means, how it differs from EBITDA and why it’s particularly important for hotels with varied ownership and lease structures.

We’ll also show you how to tackle EBITDAR calculations, highlight the metric’s role in benchmarking performance, explore common pitfalls and share how smarter benchmarking tools can turn EBITDAR into actionable business insight.For hotel owners and operators, getting a true understanding of financial health isn’t always easy.

Fluctuating lease agreements, one-off restructuring costs and inconsistent reporting metrics can make comparisons between properties – or even across seasons – feel like comparing apples and oranges, and lead to shaky financial statements and unreliable valuations.

This is where EBITDAR comes to the rescue.

Not to be confused with better-known metrics like EBIT or EBITDA, EBITDAR strips away the noise of rent and restructuring costs to reveal how well a hotel is really performing at its core operational level.

In this blog post, we’ll unpack what EBITDAR means, how it differs from EBITDA and why it’s particularly important for hotels with varied ownership and lease structures.

We’ll also show you how to tackle EBITDAR calculations, highlight the metric’s role in benchmarking performance, explore common pitfalls and share how smarter benchmarking tools can turn EBITDAR into actionable business insight.

What is EBITDAR?

EBITDAR stands for earnings before interest, taxes, depreciation, amortization and restructuring or rent costs.

As a financial performance metric, it strips away not only non-operational items like financing and taxes but also the impact of rent or lease expenses (and, in some cases, restructuring costs).

By doing so, it provides a clearer picture of your hotel’s underlying operating performance.

This makes EBITDAR very different from net income or even operating profit.

Net income shows the bottom line after all operating expenses, including financing and rent, while operating profit still factors in lease or rental costs. EBITDAR, on the other hand, neutralizes those fixed costs so owners and operators can see how effectively their hotel is generating cash from its core operations before those obligations are paid.

For hotel revenue managers, EBITDAR is particularly useful because lease structures, management agreements and franchise fees can vary widely from property to property. A leased city-centre hotel, for example, will have very different fixed costs compared to an owned suburban property, even if both are equally busy.

By focusing on EBITDAR, hoteliers, investors and asset managers can compare performance across leased, franchise and managed properties on a level playing field.

EBITDAR vs EBITDA: What’s the difference?

EBITDA – note the lack of the ‘R’ – is a widely used metric for assessing a company’s operating performance, one that removes non-cash items like depreciation and amortization, as well as financing and tax effects, to focus on the cash generated by core operations.

Another ‘generally accepted accounting principle’ (GaaP), EBITDAR takes this a step further by also excluding rent and, in some cases, restructuring costs.

This extra step is particularly relevant for hotels, where lease obligations can vary dramatically depending on location, property type or ownership structure. By removing rent, EBITDAR allows owners, investors and operators to compare operational performance across properties more fairly, without distortions caused by differing fixed costs.

As an example, imagine two city hotels, both generating $500,000 in operating profit.

Hotel A owns its building outright, while Hotel B leases its property at $150,000 per year.

EBITDA for Hotel B would be $350,000 after accounting for the lease, making it appear less profitable than Hotel A. But EBITDAR adds back that $150,000 lease cost, showing both hotels generate $500,000 from operations, offering a much cleaner comparison of underlying performance.

In short, while EBITDA is valuable for understanding operational cash flow, EBITDAR provides a more level playing field for hotels with different lease or franchise arrangements, making it a critical metric for benchmarking performance across diverse portfolios.

How to calculate EBITDAR

Basically a long list, the EBITDAR formula is very straightforward:

EBITDAR = net income + interest + taxes + depreciation + amortization + rent (or lease) + restructuring costs

Each component helps isolate a hotel’s core operational performance:

• Net income: the bottom line profit after all expenses

• Interest and taxes: removed to focus on operational earnings, not financing or government obligations

• Depreciation and amortization: non-cash accounting adjustments related to property, plant and equipment

• Rent or lease costs: added back to remove variability caused by different lease agreements

• Restructuring costs: optional, included when properties undergo major operational changes

By way of example, let’s consider a very small city hotel with the following annual figures:

• Net income: $200,000

• Interest: $20,000

• Taxes: $50,000

• Depreciation and amortization: $80,000

• Rent: $100,000

• Restructuring costs: $10,000

EBITDAR = $200,000 + $20,000 + $50,000 + $80,000 + $100,000 + $10,000 = $460,000

This number shows the hotel’s earnings from operations before the impact of financing, taxes, non-cash charges or fixed rental obligations.

Tip for benchmarking

When comparing multiple properties, ensure consistent inputs, so use the same approach for lease costs, include or exclude restructuring costs uniformly, and verify depreciation policies.

This consistency will prevent distorted comparisons and ensure your EBITDAR analysis accurately reflects operational performance.

Why EBITDAR matters in the hospitality industry

Profitability can look very different on paper depending on your hotel’s lease obligations or restructuring efforts.

Two hotels with similar operational performance might have very different net income statements simply because one pays high rent while the other owns its property outright. 

Similarly, restructuring costs such as renovations, brand conversions or operational overhauls can temporarily depress profits, making it harder to judge the hotel’s true earning power.

EBITDAR solves this problem by removing the effects of rent expenses and restructuring costs, allowing for fair comparisons across properties, regions and operators.

So a leased city-centre hotel can be directly compared to an owned suburban property or a hotel in a high-cost market can be evaluated alongside one in a lower-cost region, without the distortion of fixed cost differences.

This clarity makes EBITDAR a valuable metric for a wide range of stakeholders.

Lenders and investors can assess the cash-generating potential of a property or portfolio, independent of ownership structure. Asset managers can benchmark performance across a multi-property portfolio. And operators can identify strengths and weaknesses in operational efficiency.

Even for independent property owners, EBITDAR provides insight into the hotel business’s underlying health, helping guide decisions on expansion, investment or cost management.

In short, EBITDAR offers a clearer, more comparable view of performance, making it essential for evaluating profitability and strategic opportunities in the hospitality sector.

Using EBITDAR to benchmark hotel performance

EBITDAR is a powerful tool for both internal and external benchmarking in the hospitality industry.

Internally, it allows owners and operators to compare performance across multiple properties without the distortions of varying lease agreements. 

For example, a portfolio with city-centre leased hotels and suburban owned properties can be evaluated on a level playing field, helping identify which locations or operational strategies drive the best returns.

Externally, EBITDAR supports comparison with industry benchmarks, peer sets or regional averages.

By removing the influence of rent and restructuring, hotels can see how their operational performance stacks up against competitors in similar markets, regardless of ownership or franchise arrangements. This insight is valuable for investors, lenders and operators seeking to make informed decisions about expansion, acquisitions or strategic adjustments.

Practical tips for benchmarking with EBITDAR

These tips will set you on the right path for effective and actionable benchmarking using this metric:

• Normalize operating costs and reporting periods across properties to ensure consistency.

• Consider using rolling averages to smooth seasonal fluctuations.

• Pair EBITDAR with metrics like revenue per available room (RevPAR) and gross operating profit per available room (GOPPAR) to get a more granular view of total revenue efficiency and operational profitability.

• Track trends over time rather than focusing on single-period snapshots.

By benchmarking performance both internally and externally, hoteliers can identify opportunities to improve efficiency, optimize resource allocation and drive sustainable profitability across their portfolio.

Common pitfalls to avoid when using EBITDAR

While EBITDAR is a valuable metric, it can be misleading if used incorrectly.

One common pitfall is comparing properties without normalizing rent terms or restructuring events. Two hotels may report similar EBITDAR but if one has an unusually low lease rate or has recently completed costly renovations, the numbers won’t reflect truly comparable operational performance. So always ensure adjustments are made consistently across properties before drawing conclusions.

Another limitation is that EBITDAR doesn’t account for capital intensity or actual cash flow. High EBITDAR doesn’t necessarily mean a hotel is generating strong net cash flow; heavy debt service, capex requirements or other fixed costs can erode real profitability. Relying solely on EBITDAR can therefore give a distorted view of financial health.

To mitigate these risks, cross-check EBITDAR with other financial metrics.

Net cash flow, EBITDA and GOPPAR can provide complementary perspectives on liquidity, operational efficiency and profitability. Additionally, consider reviewing capital expenditure needs and debt obligations alongside EBITDAR to ensure a more complete picture of the company’s financial performance.

In short, EBITDAR is a powerful benchmarking and analysis tool – but only when used in context and alongside other metrics, with careful attention to lease structures, extraordinary costs and the broader financial picture.

Learn how to benchmark smarter

EBITDAR remains one of the most effective metrics for benchmarking hotel performance, offering a clear view of operational earnings free from the distortions of rent and restructuring costs.

However, it’s important to remember that no single metric tells the whole story. Pairing EBITDAR with RevPAR, GOPPAR and cash flow metrics provides a more complete picture of a hotel’s health and efficiency.

Reducing your reliance on the likes of Excel spreadsheets and their associated inefficiencies, modern benchmarking and automation tools make this process much easier.

They help hoteliers turn raw financial data into actionable insights, highlight underperforming areas and track trends over time across multiple properties. By normalizing costs, standardizing reporting periods, and providing peer and market comparisons, these tools address many of the common challenges in benchmarking.

Lighthouse is a leading example of such a platform, enabling hotel owners, operators and investors to benchmark smarter, make data-driven decisions, and optimize commercial performance across portfolios.