Rent cover
What is rent cover, and why do landlords and their lenders read it?
ONE OF 416 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Rent cover is a tenant's earnings before rent, usually EBITDAR, divided by the rent it pays, measured for one site or for the tenant's whole business: how many times over the occupier earns its rent. A care home earning US$3m before rent on a lease of US$1m has rent cover of 3.0 times. It is read most closely where a building is let to one operator whose trade depends on the property, such as a hotel, care home, pub or childcare centre, because the landlord's income, and the loan secured on it, is only as safe as that operator's earnings at the site.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// THE FULL PAGE
Rent Cover: a Worked Example →
The landlord's rent is the operator's last line before profit.
// WHAT IT IS NOT
Fixed charge cover divides earnings before rent by rent plus debt service and is usually the tenant's own lender's test; rent cover divides by rent alone and is read mostly by the landlord and the landlord's lender.
// WORKED IN
// NEXT TO IT
- Loan to cost (LTC)
- Presales
- Interest reserve
- Quantity surveyor (QS)
- Retention (construction)
- Peak debt
- Cost to complete
- Sunset clause (off-the-plan sale)
- Practical completion
- Capitalisation rate (cap rate)
- Development feasibility
- Release price
- Contingency (construction budget)
- On-completion value
- Capitalised interest (funded interest)
- Residual stock loan
- Stretch senior
- Pre-let (agreement for lease)
- Cost overrun guarantee
- Completion guarantee
- Residual land value
- Profit on cost
- Equity first (development loan)
- Loan to gross development value (LTGDV)
- Weighted average lease expiry (WALE)
- Debt yield
- Rent roll (tenancy schedule)
- Net operating income (NOI)
- Vacancy allowance
- Over-rented property (reversionary yield)
- Effective rent (lease incentives)
- Occupancy cost ratio
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