What is EBITDAR, and why SNFs use it instead of EBITDA
EBITDAR is EBITDA with rent added back. Why lease-heavy post-acute operators are measured on it, a worked example from the median SNF, and how to use it in a benchmark.
Definition
EBITDAR is EBITDA with rent added back: earnings before interest, taxes, depreciation, amortization, and rent.
- E — Earnings
- I — Interest
- T — Taxes
- D — Depreciation
- A — Amortization
- R — Rent
The R is rent, the real estate lease, and adding it back measures the operations independent of real estate ownership.
EBITDAR defined
Start with EBITDA, a proxy for operating cash flow that strips out financing and accounting choices, so interest, taxes, depreciation, and amortization, to show what a business earns from operations. EBITDAR takes one more line out: rent. What is left is the earnings a facility generates before it pays for the building, whether it owns that building or leases it.
The adjustment matters only where rent is large and structural. That is exactly the case in skilled nursing, but not so much hospice or home health.
Why leased real estate makes EBITDAR the right lens for SNFs
Many SNF operators do not own their facility real estate, instead leasing it, often from a REIT or a related property company. Two facilities that run identically can post very different EBITDA if one owns its building and the other pays rent to a landlord.
EBITDAR removes that distortion. Adding rent back puts an owned building and a leased one on the same footing, so a comp set reflects how well each facility is run, not who holds the deed. That is why lenders and buyers in the sector underwrite on EBITDAR and treat rent as a separate coverage question.
EBITDAR vs. EBITDA: a worked example
Take the median skilled-nursing facility in the cost-report data. It books about $10.7 million in revenue and runs a 9.2% EBITDAR margin, which is roughly $980,000 of earnings before rent. Capital and rent then take about 8.2% of revenue, close to $880,000. What reaches the operating line is about $31,000, a 0.3% margin.
Read on EBITDA, after rent, that facility looks like a breakeven business. Read on EBITDAR, before rent, it looks like it earns a 9% margin. The 9% is real earnings, but almost all of it is committed to rent. That is the reason the sector measures and compares based on EBITDAR: it isolates the operating result so rent coverage can be underwritten on its own.
How to use it in a benchmark
EBITDAR is a coverage number, not take-home profit. The question it answers is how many times a facility's pre-rent earnings cover its rent and debt service, because the line underneath has little cushion. A building at a 9% EBITDAR margin with rent near 8% of revenue is barely covering. One at 16% with the same rent has real room.
Two cautions.
- Compare like with like — Compare margins rather than dollars, and definitely compare within a sector.
- Watch related-party rent — When a facility leases from an affiliated property company, the rent line can be set to move profit, often for income tax purposes, rather than to reflect a market rate, so a clean-looking EBITDAR can sit on top of an above-market rent.
A related measure, EBITDARM, adds management fees back too, for the same reason. For how EBITDAR feeds a valuation, see what a skilled-nursing facility is worth.
Source — CMS HCRIS provider cost reports, FY2024 and FY2025 filings
Disclaimer
This article is a market-data benchmarking resource derived from publicly available Medicare cost reports. It does not provide, and must not be relied upon as, a fair market value determination, valuation opinion, appraisal, or legal, tax, or compliance advice. Cost-report figures are self-reported, unaudited, and subject to revision. The opinion of value for any specific arrangement remains the professional judgment of a qualified appraiser.