Net lease glossary
DSCR (Debt Service Coverage Ratio)
Net operating income divided by annual debt service; lenders use it to measure whether property income comfortably covers loan payments.
The debt service coverage ratio divides net operating income by annual principal and interest payments. A DSCR of 1.25x means NOI is 25% greater than debt service. Lenders set minimum DSCR requirements, and in a higher-rate environment DSCR often limits loan size on low-cap-rate net lease assets more than LTV does. Investors should test DSCR against both the current rate and the rate at any expected refinancing.