Net lease glossary
Rent Coverage (EBITDAR Coverage)
A tenant's store-level earnings before interest, taxes, depreciation, amortization, and rent, divided by rent; it shows how comfortably the location pays its rent.
Rent coverage measures how many times a location's operating cash flow covers its rent. The usual formula is store-level EBITDAR divided by annual rent. A ratio of 2.0x means the store earns twice its rent before paying rent. Higher coverage suggests the tenant is more likely to stay and renew, even if the corporate credit is weak. Investors get coverage data through lease reporting requirements, especially in sale-leasebacks and franchisee deals.