Trace the lease through the financial statements
For many leases, a lessee records a right-of-use asset and a lease liability. Depreciation of the asset and interest on the liability are outside EBITDA, whereas rent charged as an operating expense reduces EBITDA. Some expenses, such as those for certain exempt short-term leases or some variable payments, can remain above EBITDA. Before rebuilding a multiple, check which payments have already reduced the denominator and whether the published enterprise value includes the lease liability.
Recalculate both versions
In a simplified comparison, assume €500 million of enterprise value excluding leases, €100 million of lease liabilities and €80 million of EBITDA before the corresponding lease expense. A lease-inclusive calculation gives 600 divided by 80, or 7.5 times. If comparable annual rent is €15 million, a rent-expensed view gives 500 divided by 65, about 7.7 times. Mixing the lease-exclusive €500 million numerator with the €80 million denominator produces 6.25 times and makes the business look cheaper without any change in its operations.
Read the contract behind the adjustment
A lease expiring next year is not economically identical to a ten-year commitment. Review renewal options, index-linked rent, residual guarantees and the alternative cost of replacing the site. Reconstructing annual rent from one year’s lease principal is unreliable when the portfolio is growing or changing term. The comparison is strongest when every peer uses one documented convention, supplemented by cash payments and the maturity schedule.
Practical check
Write “leases included” or “leases excluded” beside enterprise value and specify which corresponding rental cost, if any, has reduced EBITDA.