The credit rating of a corporation (tenant) is a summary opinion of the financial strength (or, default risk) of the corporation’s debt securities, most commonly, bond issues. Credit Ratings are issued by government-recognized rating agencies such as Standard & Poor’s, Moody’s, Fitch and A.M. Best.  The ratings are typically denoted by letter designations such as A, B, C. These ratings can be upgraded or downgraded. To make life easier for investors, bonds are divided into two easy-to-understand groups: investment grade and non-investment grade.

The higher the long-term rating of a corporation (tenant), the lower the risk associated with the investment and the lower the cap and the higher the price. For example, McDonalds, “Upper medium grade” sells at cap of ~ 5 and Blockbuster, “In default with little prospect for recovery” sold at cap of ~ 10.

Investors should remember that without anything changing in the real world, a corporation’s rating can be changed because the rating agency has decided to change its approach or fundamental view of a sector As the property markets become more transparent and investors and issuers more critical, this credit ratings risk is diminishing.

Credit Ratings

The default probabilities below are a forecast measure of the likelihood of a tenant’s inability to make scheduled repayments on their long-term debt five years into the future. Should the borrower be unable to pay i.e. default, lenders can attempt to obtain repayment. Generally speaking, the higher the probability of default, the higher the interest rate a lender charges the borrower (as compensation for bearing higher default risk.

RatingProbability of Default %
AAA00.52%
AA01.31%
A02.32%
BBB06.64%
BB19.52%
B35.76%
CCC54.38%

Companies with a rating of BBB- and higher (S&P scale) are considered “investment grade”. The higher the rating of a company, the lower the risk associated with the investment and the lower the cap and the higher the price. For example, McDonalds, “Upper medium grade” sells at cap of ~ 5 and Blockbuster, “In default with little prospect for recovery” sells at cap of ~ 10.

TenantsStockS&P
Applebee’sDIN_
Aldi__
7-ElevenSEA-
Ashley Furniture__
Aaron’s, Inc.AAN_
Abercrombie & FitchANFBB-
Advance AutoAAPBBB-
Affordable CareN/AB-
Arby’s__
Aspen DentalB
AT&T;TBBB+
AutoZoneAZOBBB
Avis/Budget GroupCARBB
Bank of AmericaBACA-
Bally Total FitnessBFTH_
Bass Pro Shops__
Banco PopularBPOPBB+
Bank UnitedBKU_
Barnes & NobleBKS_
BB&T; BankBBTA-
Compass BankBBVABBB
BebeBEBE_
Bed, Bath & BeyondBBBYCC
Best BuyBBYBBB+
BJs Wholesale ClubBJBB+
Big 5 Sporting Goods CorpBGFV_
Big Lots Inc.BIG
Bi-Lo LLC
Builders FirstSourceBLDRB+
BMO Harris BankBMOA+
Bob Evans Farms, Inc.BOBE
BojanglesBOJA_
BP AmericaBPA-
Bridgestone/FirestoneBRDCFA
Buffalo Wild WingsBWLD_
Burger King Corp.QSRCCC+
Burlington Coat FactoryBCF_
California Pizza KitchenCPKI_
Capital One Financial CorpCOFBBB
Captain D's__
Carrols Restaurant Group IncTASTCCC+
Carrabba’s Italian Grill LLCBLMNBB-
Chase BankJPMA-
Cheesecake FactoryCAKE_
Chevron CorpCVXAA-
Checkers__
Chili’sEATBB-
ChipotleCMG_
Circle KANCUFBBB
CitibankCBBB+
Citizens Bank (RBS)RBSA-
Church's Chicken__
CKE RestaurantsCKRB-
Coach, Inc.COHBBB-
Compass BankCBSSBBB
Costco Wholesale CorpCOSTA+
Cracker BarrelCBRL_
CVSCVSBBB
Dairy QueenBRK.AAA
Darden RestaurantsDRIBBB
DaVita IncDVABB
Denny’s Corp.DENN_
DelhaizeDEG_
Dollar GeneralDGBBB
Dollar TreeDLTRBBB
Dunkin DonutsDNKN_
Domino’s PizzaDPZ_
Einstein BrothersBAGL_
Exxon MobilXOMAA-
Family DollarDLTRBBB
FedExFDXBBB
Flowers Foods IncDLTRBBB-
Foot LockerFLBB+
Food LionDGE_
Fred’sFRED_
FreseniusFMEBBB-
Fresh & EasyTSCOBB+
Gamestop CorpGME_
Giant Eagle__
GoodyearGTBB-
Guess IncGES_
Hardee's_B-
Hobby Lobby__
H&R; BlockHRBBBB
Hhgregg Inc.HGG_
Home DepotHDA
Imagine School__
IhopDIN_
J.CrewJCG_
Jack in The BoxJACK_
Jiffy Lube__
JC PenneyJCP_
Jos A. BankJOSB_
KFCYUMBB+
Kenneth ColeKCP_
Key BankKEYBBB+
Kindercare__
kmart__
Kohl’s Corp.KSSBB+
KrogerKRBBB
Logan’s Roadhouse Inc__
Lowe’sLOWBBB+
Macy’s Inc.MBB
Mattress Firm Holding CorpSTNHY_
McDonalds Corp.MCDBBB+
Men’s Wearhouse__
Napa Auto PartsGPC_
NordstromJWNBB+
Office Depot__
Olive GardenDRIBBB
O’Reilly Automotive IncORLYBBB
PaneraPNRA
PDQ__
Publix__
Papa John’sPZZA_
Pep BoysIEPBB+
PetcoN/AB+
PetsmartPETMB
Pizza Hut__
Pier 1 ImportsPIR_
Pilot Flying JN/ABB+
P.F. Chang's / Pei WeiN/A_
PNC BankPNCA-
Polo Ralph Lauren CorpRLA
Popeye’s__
RaceTrac__
Radio ShackRSH_
RBC BankRY_
Red Robin Gourmet BurgersRRGB_
Red LobsterN/A_
Regal Entertainment GroupRGCD NM
Rite-AidRADCCC+
Ross StoresROSTBBB+
Royal Farms__
Ruby TuesdayRT_
SafewaySWYBB
Sears HoldingsSHLD_
Shell OilSHOIA+
Sherwin-WilliamsSHWBBB
Sheetz__
Sonic CorporationSONC_
StaplesSPLSB
Steak 'n Shake__
Sprint CorpSBBB-
StarbucksSBUXBBB+
SunTrust BankSTIA-
Taco BellYUMBB+
TargetTGTA
TD Bank N.A.BNKAA-
TscoTSCOBB+
Texas Roadhouse, IncTXRH
The Save Mart Companies.__
The Gap, Inc.GPSBB
Tiffany & Co.TIF_
Tilted Kilt__
TJ. Maxx/Marshalls/Home GoodsTJXA
T-MobileDTEBBB-
Tractor Supply CompanyTSCO
Valero Energy CorpVLOBBB
VerizonVZBBB+
Walgreen CoWBABBB
Wawa__
Wal-MartWMTAA
Wachovia__
WegmansN/ABBB+
Wells FargoWFCBBB+
Wendy’s/Arby’s GroupWENB+
Winn-Dixie__
Whole FoodsWFMIAA
Yum! BrandsYUMBB+