Many real estate investors are discovering the benefit of investing in and owning single tenant net leased (“STNL”) properties that are intended to provide consistent, long-term cash flow with minimal, if any, hands-on management on their part. A large percentage of the leases for these STNL properties are guaranteed by large, corporate entities (e.g., CVS, Walgreens, Dollar General, Advanced Auto, etc.). The creditworthiness of these corporate entities is intended to give comfort to the investor that the long-term lease payments that are due to the investor will be paid in a timely manner consistent with the terms of the lease agreement. Accordingly, it is important to understand how these corporate entities are classified according to credit risk.

There are three credit rating agencies in the United States:

• Moody's
• Standard & Poors
• Fitch Ratings

Each of these rating services divides their credit rating scale into two categories:

• Investment grade
• Non-investment grade

The chart below identifies how the three credit rating agencies identify corporate credit ratings. The red line investment grade ratings from non-investment grade ratings. Non-investment grade credit ratings are often referred to as “Junk” credit. While current corporate credit ratings are important in analyzing potential investments, it is important to recognize that corporate credit ratings can and do migrate over extended periods of time. (That topic is for another Investment Insights article)