Explainer · occupancy cost
Rent coverage is how you size the sale-leaseback
Coverage is unit-level earnings against the rent you would actually pay. It is the honest test of how much rent a store can carry — and therefore how much proceeds a buyer will pay for that rent. A cap rate without coverage is a brochure.
Written by Dwaine Clarke , Founder & Principal Broker, American Net Lease, LLC Reviewed
On this page: The test · How it sizes the deal · What it is not · Example · FAQ
The test
Earnings against rent. Not last year's peak week against a brochure cap.
Rent coverage is unit-level earnings against occupancy cost. On a sale-leaseback, occupancy cost is the rent you author — plus the net-lease expenses you already pay as owner-operator and will keep paying as tenant. The buyer capitalizes that rent. If the store cannot earn it after a normal sales dip, the cap rate was never the problem.
How coverage sizes proceeds
Proceeds follow rent divided by cap, after debt. Rent follows coverage, not the other way around. That is why lease engineering sits before marketing on the process page: Model the earnings, then Structure the rent, then Market.
The sale-leaseback calculator will divide site EBITDA by proposed rent when you enter both. Use it as a first pass. Do not treat the output as a bid. The Portfolio Capital Analysis ranks locations against coverage, remaining debt, and the use of proceeds — expansion, a remodel, or a maturing loan.
What coverage is not
It is not a published ratio we will invent for this page. It is not last year’s peak week. It is not the parent’s credit on a franchisee guarantee. Restaurants, auto service, and childcare all fail the same way when rent is set from a brochure instead of the unit.
If coverage is thin, you do not “stretch the cap.” You cut rent, hold the roof, or you keep the deed. The lease-terms brief is the rest of the product: primary term, escalations, and master versus individual leases. The commercial sale-leaseback guide and the operator hub sit next to this sizing page.
Size a first pass in the sale-leaseback calculator, read the commercial sale-leaseback guide and the operator hub, then the Restaurants & QSR franchisees , Auto service & collision , and Childcare . When you want a confidential read on your own roofs, request a Portfolio Capital Analysis.
Worked example
Two stores, same fascia, different coverage
Illustrative — not a closed transactionQuestions
Rent-coverage FAQ
What is rent coverage?
Unit-level earnings against occupancy cost — usually proposed rent on a net lease. It is the test of whether the store can pay the rent a buyer is being asked to capitalize.
Is there a published coverage ratio I should hit?
No. American Net Lease will not paste a universal coverage number onto every vertical. The analysis uses your unit-level earnings. A brochure ratio is how operators sign a rent they later regret.
Does the calculator compute coverage?
Yes. The sale-leaseback calculator divides site EBITDA by proposed rent when you enter both. That is a first pass, not a Portfolio Capital Analysis.
What happens if coverage is thin?
You lower rent, hold the roof out of the first tranche, or you do not sell. Thin coverage is a reason to pause, not a reason to invent a higher price.
Get a confidential read on what the stores can carry.
Unit-level earnings and the rent you would actually sign are enough to start.