Net-Lease Tenant Credit Analysis Checklist

Before any rating matters, pin down the exact legal entity bound to pay rent.

• Read the Tenant defined term on page one and record the exact legal entity"McDonald's USA, LLC" is corporate; "ABC Restaurant Holdings, LLC" is almost certainly a franchisee.
• Classify the tenant: corporate parent, franchisee, or individual operatorCorporate puts the full balance sheet behind the rent; a franchisee puts only its own.
• Distinguish the Tenant (occupies/operates) from any separate Guarantor (liable on default)
• If a franchisee, size the operator — single-unit vs. a 50+ store groupA 50+ store franchisee carries real credit; a single-unit operator carries almost none.
• Confirm whether the corporate parent guarantees the franchise site, or only the franchisee does
• Read the guaranty for caps or burn-down provisionsA guaranty capped at 12 months' rent, or one that burns down over the term, is far weaker than a full-term corporate guaranty.

For rated tenants, the S&P / Moody's / Fitch rating is the fastest read on default risk.

• Look up the current S&P, Moody's, or Fitch rating on the actual lease entityRatings change — verify current, and rate the entity on the lease, not a parent or affiliate the OM name-drops.
• Confirm investment-grade status: BBB- / Baa3 or better is the floorBelow that is speculative grade ("junk") and trades materially wider.
• Note where the tenant sits on the scale, not just IG vs. non-IGAA Amazon, A 7-Eleven, and BBB- Family Dollar are very different risks inside "acceptable."
• Watch for recent downgrades or a negative outlook that signal credit decaySears, JCPenney, Kmart, and Toys R Us were all once investment grade.
• Price the credit cliff into your cap rateIG to non-rated is roughly a 100 bps spread — about a 15-20% price difference on the same income.

Most NNN tenants have no public rating — non-rated is not the same as bad, but you have to do the work.

• Request audited financial statements for the last 3 yearsRefusal to share financials on a non-rated tenant is itself a red flag.
• Pull a Dun & Bradstreet report on the operating entity$50-$200 buys payment history, liens, judgments, and bankruptcies — cheap insurance.
• Search for bankruptcy, litigation, layoffs, or store-closure news
• Assess leverage relative to cash flow, not just revenue
• For private "brand-faith" tenants (Chick-fil-A, Wawa), price the premium against the lack of a public rating

A strong brand at an unprofitable site still pushes back at renewal — check the unit, not just the logo.

• Request unit-level sales reports for this specific location
• Calculate occupancy cost ratio: (rent + tenant-paid expenses) / annual sales
• Compare the ratio to category benchmarkQSR 7-9%, drug stores 3-5%, c-stores 4-6%, auto parts 6-9% — above benchmark means the rent is unsustainable.
• Sanity-check the rent against required salesA $300K drug-store rent needs roughly $7-9M in sales to fit a 3-4% occupancy cost.
• Flag above-market rent on a sale-leasebackSellers inflate SLB rent to juice the price — high occupancy cost today means renewal cuts or vacancy later.
• Evaluate the site itself — visibility, traffic, demographics, years in operation, nearby competition
• Check whether the location is on the tenant's "preferred" list or flagged for closure

A 20-year lease buys the tenant's credit for all 20 years — make sure the brand and category survive.

• Confirm the brand is expanding, not contracting, in your marketAggressive unit growth and recent lease signings are positive credit signals.
• Stress-test category resilience against Amazon, automation, and demographic shiftsEssential services and logistics hold up; apparel, electronics, and casual dining are vulnerable.
• Match the tenant to your hold horizonShort hold = anyone reliable; long hold = essential services (drug, dollar, grocery, auto parts, logistics).
• Assess re-leasability if the tenant goes darkBanks, daycares, and car washes are purpose-built and hard to backfill — demand stronger credit to offset.
• For a portfolio, check whether a master lease lets the tenant cherry-pick or cross-default unitsAlso diversify across tenant, industry, geography, and lease term to cut single-tenant concentration risk.