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Bally’s Excludes $100 Million In Recurring Costs From Preferred Profit Metric
Hospitality firm inflates performance by adding back rent expense.
November 5, 2023
Like many other firms Bally's Corporation (BALY), a gaming, hospitality, and entertainment company, has long argued investors should judge its performance, in part, on Adjusted EBITDA because it’s “representative of its ongoing business operations.”
Beginning in the third quarter of 2023, Bally’s has replaced Adjusted EBITDA with a new key metric increasingly popular among heavily indebted companies— Adjusted EBITDAR. In addition to the traditional add-backs that inflate Adjusted EBITDA, Adjusted EBITDAR also adds back rent expense associated with triple net operating leases.
In return for lower base rent, Triple net leases saddle commercial real estate entities with higher total monthly rent costs as they include tax, insurance, and building maintenance expenses.
Though recurring in nature, Bally’s apparently wants investors to view rent as a one-off non-operating expense. Excluding rent costs via Adjusted EBITDAR , Bally’s now says, is “representative of its ongoing business operations.”
Not surprisingly, excluding a significant recurring expense inflates the new profit metric.
Rent expense associated with triple net leases:
—Inflated Adjusted EBITDAR $31.5 million, and accounted for 18.2% of Adjusted EBITDAR in the quarter ended September 30. 2023
—Inflated Adjusted EBITDAR $94.1 million, and accounted for 19.1% of Adjusted EBITDAR in the nine months ended September 30. 2023
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