Understanding EBITDAR: What Australian Businesses Need to Know in 2026

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortisation, and Rent (or Restructuring) costs. It is a financial metric that builds on the more familiar EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) by also excluding rent or restructuring expenses.

The formula is:

EBITDAR = EBITDA + Rent (or Restructuring costs)

By removing rent, EBITDAR aims to show a company’s underlying operating performance, unaffected by differences in leasing or rental arrangements. This can be especially useful for comparing businesses within industries where rent is a major and sometimes volatile expense.

In 2026, several trends are making EBITDAR more relevant for Australian businesses:

• Changes in Lease Accounting: The adoption of AASB 16 (the Australian equivalent of IFRS 16) has changed how leases are reported on balance sheets. This can make traditional metrics like EBITDA less comparable across businesses with different leasing strategies.

• Rising Rental Costs: Many businesses, especially in major cities, are facing higher commercial rents. This can have a significant impact on reported profits and make it harder to assess true operational performance.

• Focus from Lenders and Investors: As credit conditions remain tight, lenders and investors are looking for ways to assess a business’s ability to generate cash flow and service debt, independent of financing and lease arrangements. EBITDAR can provide a more consistent basis for these assessments.

EBITDAR is most useful in industries where rent or lease costs are a significant part of the expense structure. Here’s how it’s commonly applied:

Hospitality

Hotels and restaurants often lease their premises, leading to substantial rental expenses. EBITDAR allows these businesses to present their core operating results without the impact of rent, making it easier to compare performance across different locations or business models.

Retail

Retailers with multiple outlets may have varying lease terms and rental costs. By using EBITDAR, they can benchmark performance across stores and identify trends in operational efficiency, regardless of differences in rent.

Aviation

Airlines frequently lease aircraft, which can result in large rental expenses. EBITDAR helps normalise results for comparison with airlines that own their fleets, providing a clearer picture of operational performance.

Financial Assessments

Banks and private equity investors often request EBITDAR figures when assessing loan applications or considering mergers and acquisitions. This helps them evaluate a business’s underlying earnings potential before the effects of financing, tax, non-cash charges, and lease arrangements.

The introduction of AASB 16 has brought most leases onto company balance sheets, changing how lease expenses are reported. Under previous standards, operating leases were often kept off the balance sheet and treated as simple rental expenses. Now, lease liabilities and right-of-use assets are recognised, and lease payments are split between interest and principal components.

This shift can make EBITDA figures less comparable, especially between businesses that lease versus those that own their assets. EBITDAR addresses this by removing rent from the calculation, allowing for more meaningful comparisons.

While EBITDAR can be a valuable tool, it’s important to understand its strengths and limitations:

When EBITDAR Is Most Useful

• Comparing Similar Businesses: EBITDAR is best used to compare businesses within the same industry, particularly those with significant rental or leasing costs.
• Assessing Operational Performance: By excluding rent, EBITDAR highlights the core earnings generated by business operations.

Points to Consider

• Rent Is a Real Cost: While EBITDAR removes rent for analytical purposes, rent remains a genuine, recurring expense. Decisions should not ignore a business’s ability to manage these costs.
• Not a Standalone Metric: EBITDAR should be used alongside other financial measures, such as EBITDA, net profit, and cash flow, to get a complete picture of business health.
• Potential for Misuse: Some companies may use EBITDAR to present a more favourable view of performance. It’s important to review financial statements carefully and consider the context of any adjustments.

Consider a retail group with stores across Australia. Some locations have long-term leases with fixed rents, while others face higher, variable rents. By focusing on EBITDAR, the group can compare the operational performance of each store without the distortion of differing rental costs. This helps management identify which stores are truly performing well and where operational improvements may be needed.

To calculate EBITDAR, start with net profit and add back the following items:

1. Interest
2. Taxes
3. Depreciation
4. Amortisation
5. Rent (or restructuring costs, if applicable)

The result is a measure of earnings that reflects the business’s core operations, before the impact of financing, tax, non-cash charges, and rent.

EBITDAR is most relevant when:

• Comparing businesses with different lease or rental arrangements
• Assessing the underlying performance of companies in sectors with high rental costs
• Preparing for discussions with lenders or investors who want to understand operational earnings

It is less useful for businesses where rent is a minor expense or where comparisons across very different industries are being made.

• EBITDAR provides a clearer view of operational performance for businesses with significant rental or leasing expenses.
• It is especially relevant in 2026 due to changes in lease accounting standards and ongoing shifts in the commercial property market.
• While useful, EBITDAR should be considered alongside other financial metrics and not used in isolation.
• Understanding EBITDAR can help business owners, investors, and lenders make more informed decisions in a changing economic environment.

What does EBITDAR stand for?

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortisation, and Rent (or Restructuring) costs.

Why is EBITDAR important for Australian businesses in 2026?

EBITDAR is important because it helps businesses and investors assess core operating performance, especially in industries with high rental or leasing costs, and in light of recent changes to lease accounting standards.

How is EBITDAR different from EBITDA?

EBITDAR excludes rent (or restructuring costs) in addition to the items excluded by EBITDA, providing a clearer picture of operational earnings for businesses with significant rental expenses.

Should EBITDAR be the only metric used to assess business performance?

No, EBITDAR should be used alongside other financial metrics to get a complete understanding of a business’s financial health.