EBITDARM is built from beds, occupancy, fee and the rota, and the two lines it leaves out, rent and the management charge, are exactly where rent cover goes wrong.
EBITDARM is a care home's revenue less its staff and running costs, struck before rent and before the management fee charged by the operator's head office. An illustrative 64-bed home at 90 per cent occupancy and an average fee of £1,150 a week has revenue of £3,453,943 and EBITDARM of £1,043,737, a 30.2 per cent margin. Against a rent of £620,000 that is cover of 1.68x; after a 5 per cent management fee it is 1.40x.
Worked in full in Senior Living and Healthcare Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Care homes are valued, leased and lent against on EBITDARM because it isolates what the building and its staff earn, whoever owns the property and whichever group runs it. That neutrality is also its weakness: the two costs it leaves out are real, and the seller's version usually leaves out a few more.
| Input | Value |
|---|---|
| Registered beds | 64 |
| Average occupancy | 90% |
| Average weekly fee across all payors | £1,150 |
| Staff costs, including £120,000 of agency | £1,850,000 |
| Fixed non-staff costs: utilities, maintenance, insurance, fees | £380,000 |
| Variable costs: food and consumables per occupied bed per week | £60 |
| Management fee, share of revenue | 5% |
| Rent | £620,000 |
The average fee is a blend of self-funded and publicly funded residents; how the mix sets it is worked in how payor mix changes a care home's average fee. Staffing is held at one rota across the occupancy range shown, which is roughly how a home runs within a band of a few beds.
Revenue = beds × occupancy × weekly fee × 365 ÷ 7
EBITDARM = revenue − staff costs − non-staff operating costs
EBITDAR = EBITDARM − management fee; EBITDA = EBITDAR − rent
In Excel: =Beds*Occ*Fee*365/7 for revenue and =Revenue-Staff-(Fixed+Var*Beds*Occ*365/7) for EBITDARM. Rent cover is =EBITDARM/Rent.
Occupied beds average 57.6, each paying £1,150 for 52.14 weeks.
| Line | £ | % of revenue |
|---|---|---|
| Revenue | 3,453,943 | 100.0% |
| Staff costs | −1,850,000 | 53.6% |
| Non-staff costs (380,000 fixed + 180,206 variable) | −560,206 | |
| EBITDARM | 1,043,737 | 30.2% |
| Management fee at 5% | −172,697 | |
| EBITDAR | 871,040 | 25.2% |
| Rent | −620,000 | 18.0% |
| EBITDA | 251,040 | 7.3% |
EBITDARM is £1,043,737: £16,308 per registered bed, £18,120 per occupied bed, or about £348 of every £1,150 weekly fee. Rent cover is 1.68x on EBITDARM and 1.40x on EBITDAR. The 0.28x between them is the management fee, and it is decided by which line the lease or the loan names, not by anything that happens in the home. Why the cover, the investor's yield and the trading multiple are locked together is shown in what multiple an investor is really paying.
Per occupied or per registered bed? Quote EBITDARM per registered bed when comparing homes as real estate, because empty rooms still have to be paid for. Per occupied bed flatters a half-empty home.
A trading pack rarely shows EBITDARM built this way. It shows a figure, a margin and a list of adjustments, and the work is to rebuild the figure from the operating drivers and see whether the two agree. Four checks catch most of the difference. First, multiply occupied beds by the weekly fee and by 365 divided by 7, and compare the result with reported revenue: a gap usually means top-ups, third-party contributions or one-off income counted as fees. Second, divide staff costs by revenue and compare with the rota: a home at 53.6 per cent with an agency line that the pack calls non-recurring is really a home at the same ratio with a recurring cost relabelled. Third, look for costs paid centrally and never charged to the home, such as training, maintenance staff or the regional manager. Fourth, check that the management fee is either charged or imputed, because a buyer's lender will test cover on the line after it.
| Occupancy | Revenue | EBITDARM | Margin | Rent cover |
|---|---|---|---|---|
| 85% | 3,262,057 | 861,863 | 26.4% | 1.39x |
| 90% | 3,453,943 | 1,043,737 | 30.2% | 1.68x |
| 95% | 3,645,829 | 1,225,611 | 33.6% | 1.98x |
Five points of occupancy move EBITDARM by £181,874, a flow-through of 95 per cent of the extra revenue, because a bed filled within the same rota adds only its food and consumables. The same leverage works downwards: five empty points take cover from 1.68x to 1.39x without any change in costs. The occupancy at which the home stops covering its rent is solved in what occupancy a care home needs to cover its rent.
| Weekly fee | EBITDARM | Rent cover |
|---|---|---|
| £1,100 | 893,566 | 1.44x |
| £1,150 | 1,043,737 | 1.68x |
| £1,200 | 1,193,909 | 1.93x |
Build EBITDARM from beds, occupancy, fee, the rota and the running costs, not from a seller's summary: here £1,043,737, or 30.2 per cent of revenue. Then state which line any cover is tested on, because the management fee alone moves it from 1.68x to 1.40x. The free workbook for this book builds EBITDARM from the resident flow, the payor mix and the rota, and carries it through to the rent and the value.
The management fee. EBITDARM is struck before the charge an operator group levies on each home for central services; EBITDAR is after it. On the illustrative home a 5 per cent fee of £172,697 takes EBITDARM of £1,043,737 to EBITDAR of £871,040, and rent cover from 1.68x to 1.40x. Always ask which line a quoted cover is tested on.
It depends on fee levels, acuity and occupancy, so a single benchmark misleads. The illustrative home earns 30.2 per cent at 90 per cent occupancy, 26.4 per cent at 85 and 33.6 per cent at 95, because most staff costs do not fall when a bed empties. Compare margins only at the same occupancy and after normalising agency and the manager's salary.
Only the part that will genuinely not recur, which is rarely all of it. Sellers often present agency spend as temporary. On the illustrative home removing £120,000 of agency lifts EBITDARM by 11.5 per cent; together with an unpaid owner-manager worth £60,000, cover appears to be 1.97x instead of 1.68x, and at an illustrative 9.0x EBITDARM the two adjustments add £1,620,000 to value.
This article is one calculation from Senior Living and Healthcare Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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