Rent Coverage

Rent coverage = EBITDAR ÷ annual rent — how many times over the tenant's pre-rent operating cash flow covers the rent it owes. On a single-tenant net lease, where the tenant's ability to pay is the deal, it is the core credit metric.

• ~1.5–2.0× or higher — the institutional comfort zone; the tenant out-earns its rent with a cushion.
• 1.0–1.5× — covers the rent, but thin; a weak year could break the lease.
• Below 1.0× — the rent consumes all of the tenant's pre-rent cash flow — fragile income.

Because rent usually escalates over the lease term against a roughly flat level of tenant earnings, rent coverage declines year over year — a long lease with steep bumps can quietly erode the cushion, so it's worth checking coverage in the final year as well as the first.

Rent coverage is a tenant-credit screen, distinct from DSCR, which measures the property's NOI against your loan payment. Check a lease — and watch coverage decline over the term — in the NNN lease analyzer.