A Practitioner's Guide to Rent Cover, Over-Rent, Covenant Risk and the Part of the Price That Is Not Property
Julian R. Sterling
These are the companion files of Sale and Leaseback by Julian R. Sterling.The book on Amazon →
Nine industrial buildings, 169 000 m², one twenty-year lease from a European food group,
offered at €179.5 million. In a sale and leaseback the rent is not discovered — it is chosen by the
seller, and the price follows. Run this portfolio building by building and 36.7 per cent of that price is
exposure to one company rather than to property.
These are the workbooks the book was written from, corrected where they were wrong. Every figure the book
prints is now reproduced by a live formula, and every workbook ends with a sheet that compares the two line by line.
Around them: the same four with the inputs emptied, thirteen working documents to print, forty questions that mark
themselves, and three cases the book names and never takes to a number.
Eleven workbooks, the printable documents and the read-me. Each group below can also be
downloaded on its own. Last revised 23 September 2026.
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These carry the book’s own figures, so that every number it prints can be traced to a live
formula. Each now closes on a checks sheet.
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The whole book
The Sale and Leaseback Model
The model every figure in the book is computed from: nine buildings, two rent lines, the five-way decomposition of the price, rent cover on both perimeters, the hazard-rate cash flow with its two discount rates, and the ladder of risk premia from Chapter 9. On the portfolio in the book it finds 36.7 per cent of the price — €65.8 million — that is exposure to one company rather than to property. Revised: the recovery column, the residual and the ladder were pasted numbers, so overwriting the tape moved the rent and nothing else; they are formulas now, the break-evens and premia are solved in the sheet, and the sensitivities of Chapter 20, the inversions of Chapter 21, the master lease and the lender, seller and IFRS 16 arithmetic are added. 153.0 million at the bond-implied default rate, 36 basis points left against 241 required. 191 checks.
Rent cover at group and at the entity that actually signs the lease — 4.79x against 1.61x on this transaction — plus the year-by-year decay as indexation raises the rent against a profit that may not follow, each cover level read back as a price against the asking price, headroom to three covenant levels, and the six things to watch quarterly.
One row per building: firm term, break, indexation cap and floor, reinstatement, assignment, cross-default, deposit. Then the clause-by-clause value note, ranked by what each provision is worth rather than by custom. Two entries deliberately carry no euro figure, and say why. Revised: the value note computes from its inputs, and the cap is worth 23.7 million at 4.5 per cent inflation, not 31.8 (see below).
The bridge from asking price to bid, the four inversions of Chapter 21 — one with no solution at any value, and inflation reached only by twenty years of deflation at 2.62 per cent a year — and the eight-line omissions table to put on the facing page. One sheet per section of the committee paper.
The four workbooks with every input emptied. The checks sheets count what is still missing and test what holds for any inputs.
The whole book · Chapters 4, 11, 12, 20 and 21
Your tape, your covenant, your bid
The model, the covenant monitor, the lease abstract and the bid sheet, with the same formulas and every blue cell emptied. The ladder rungs, the cover levels, the inflation steps and the starting points of the searches are steps, not data, and stay.
The book’s inputs are listed in a text file inside the archive. Type them back in and the book’s figures come back with them: 153.0 million at the bond-implied default rate, a break-even of 3.23 per cent, 36 basis points left.
Thirteen pages to print and use. A4, with margins wide enough for US Letter.
Chapters 1 to 24 · Appendices A, B and D
Thirteen working documents
The ten-minute rent check, with the four substitutes when nobody gives you a market rent. Reading the covenant and the perimeter. Vacant possession value underwritten, with the site-value floor. The five-way decomposition and its two questions. Criticality against recovery, with the hand-back test. The credit slice and the ladder. Indexation and the residual. The cash flow in eight lines. The lender, the seller and IFRS 16. The restructuring sequence and the three prices. Sizing the bid and the inversions. The levers and the quarterly monitoring plan. The committee paper and the one-page checklist.
A workbook that marks itself. Answer in the yellow cells; the marking fills in as you go.
All parts of the book
Forty questions on the book
Seven on the rent and the price, seven on cover, vacant value and the decomposition, seven on credit, default and recovery, seven on indexation, the residual, the cash flow and the lender, six on the seller, the restructuring and the bid, and six on the three cases below. Numbers are marked to a tolerance, multiple choice to the letter, and the score sheet counts your errors part by part.
New material, not a restatement. Three situations the chapters name and never take to a number. Each case is one workbook: the note is the first sheet, the model is the rest, and a checks sheet closes it. Type your own figures in and every finding recomputes.
Chapters 12 and 22 · Case one
The review at year ten
The open market review the book declines to price because it "would require a view on market rents a decade out". The book’s own model already holds that view: on its letting-value path the market rent in year ten is 9.56 million against 15.06 of indexed passing rent. Accepted at the asking price, the review costs the buyer 12.5 million of value; refused, it tells you why: ten years of over-rent repay 21.1 million of the 36.8 million advance, so agreeing it would cost the seller 15.7 million of price. Nothing ADDED at the base case.
Chapter 5 · Case two
The floor beneath the floor
Site value only for the four specialised buildings, "a week’s work" the book asks for and never does. On land values and demolition costs that are ADDED, the bricks fall from 83.2 to 63.1 million, the value at the bond-implied rate by 6.7 million, and the default rate the price requires from 3.23 to 2.87 per cent. The land value at which each site is worth its building is on the sheet.
Chapters 14, 19 and 21 · Case three
The keys arrive late
Two of the omissions the book says push value down, priced: three quarters between failure and the keys, and two half-paid quarters before it (both ADDED). Together 4.53 million. A month of rent deposit is 1.01 million of cash on the day but 0.63 million of value, because it pays only if the tenant fails: 7.1 months pay for both.
Blue on pale blue is an input you may edit. A yellow fill is the carrying assumption of
the sheet — the one to argue about first. Black is a formula. Nothing is locked,
protected or watermarked. There are no macros and no external links.
Every workbook ends with a Checks sheet: the figure as the book prints it, the figure the
workbook computes, and a status. Rows without a book figure hold for any inputs. The file ends
“ALL OK”; if a row reads “CHECK” after you have changed an input, the book’s figure no
longer applies to your transaction. In the cases, a figure the book does not give is marked
ADDED wherever it appears. The PDF prints on A4 or US Letter.
Three numbers to compute on your own transaction
The market rent of every building, from an agent with no role in the deal. It
is the only external anchor in a sale and leaseback, and it takes a week. Everything else in the
book is downstream of it.
The split between property and exposure to one company. Here, 62.3 per cent against 36.7 per cent.
A yield discloses neither.
The risk premium the price leaves once the tenant's credit is paid for at the rate its
own bonds command. Here, 36 basis points — against the 241 basis points the arithmetic needs for illiquidity,
management and recovery uncertainty.
One warning, because it decides the answer
A default rate backed out of a bond spread is risk-neutral: it is the rate that
reproduces the bond’s price when the cash flows are discounted at the risk-free rate. Apply
it to a lease and then discount at a property target return, and you have charged for the same
credit risk twice. Sheet 6 of the model is the ladder that avoids it — set both premia to
zero and you are on the only rung strictly comparable with the bond.
What changed, and when
23 Sep 2026
The four workbooks corrected and given checks sheets (191 on the model). The model’s recovery, residual, ladder and premia were pasted numbers and are now formulas. Chapter 12’s cost of the cap discounted at 3.85 per cent whatever the inflation: with the rate moving with inflation it is 23.7 million at 4.5 per cent, not 31.8, and 10.5 million weighted by survival; the floor at minus 1 per cent is 19.7, not 13.1. Chapter 21’s inflation inversion has a solution after all, at 2.62 per cent of deflation a year. Added: a blank set, thirteen working documents, forty questions that mark themselves, and three cases.
Is a sale and leaseback cheaper than a mortgage?Rarely, once the residual is counted: a 6 per cent leaseback with 2 per cent indexation costs 8.13 per cent, against 5.58 for a 60 per cent mortgage.
Does a sale and leaseback reduce net debt to EBITDA?Much less than it seems. Repaying debt with 196.0m of proceeds takes leverage from 4.00x to 2.63x before IFRS 16, but only to 3.71x once the lease is counted.
Does a sale and leaseback improve ROCE?On a 100.0 leaseback at 6.5% of a building booked at 60.0, ROCE rises from 15.00% to 16.01% under IFRS 16, but falls to 13.89% lease-adjusted.
Is a sale and leaseback accretive to EPS?Only if the cash earns more than the lease costs. An 80.0m leaseback at 6.0% funding a buyback at 15x lifts EPS 3.11%; held as cash it dilutes 1.00%.
Also by Julian R. Sterling
The other books with companion files. The full list of titles is on the author page.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 - the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost. The number that mattered appears in no report at all.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Trade FinanceSix routes to payment on one 4,200,000 export order cost between 178,040 and 223,268, a spread worth 14.8 per cent of the margin, and a day of buyer credit costs 1,031.76.
Cost AccountingOne factory costed twice on the same 13,440,000 of overhead, and 4,053,091 moves between four product families.
Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.
Contract ManagementA bid 5.50 a unit cheaper, signed on paper worth 9.81 a unit more — and 94.68 per cent of it was knowable on the day of signature.
Capital MarketsFour defensible readings of one bond, the cost of an issue under each convention, and the placement discount computed at a constant discount.
Financial RegulationThree ratios pass and the fourth is in breach by 1,956.0 million: the output floor, the liquidity buffer after encumbrance, and the loan split.
Bank ManagementFour defensible readings of one balance sheet, the deposit beta measured two ways, and the liquidity that lasts 3.9 days.
The Real Estate WorkoutFour ways out of one broken loan, discounted to today, and the 58.7 cents at which a payoff beats enforcement.
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