What is rent coverage and why is it important?
Rent coverage is generally the ratio equal to the EBITDAR (earnings before interest, taxes, depreciation and amortization, and rents) at a tenant’s leased facilities divided by its rent at those facilities. The rent coverage ratio is an important tool to evaluate whether the leased facilities’ operations are performing at expected levels. Higher EBITDAR:rent ratios mean that the facilities are profitable to the tenant/operator and that the tenant/operator should be incentivized and able to continue paying rents. In addition, rent coverages are also used as a tool to renegotiate rents during reset and/or certain renewal periods.
