CREDIT RATING REPORT Semi-Annual Update October 2017

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1 Semi-Annual Update October 2017 CALKAIN Worldgate Drive Suite 150 Herndon, VA (703)

2 Rated Tenants TENANT NAME C-STORES STOCK SYMBOL 1 S&P 2 S&P OUTLOOK MOODY'S MOODY'S OUTLOOK 7-Eleven SE AA- Negative Baa1 Stable Circle K / Kangaroo ANCUF BBB Stable Baa2 Stable Shell Oil SHOI A+ Positive Aa3 Stable Pilot Flying J N/A BB+ Stable Ba1 Stable AUTOMOTIVE Advance Auto Parts AAP BBB- Stable Baa2 Stable AutoZone AZO BBB Stable Baa1 Stable O'Reilly Auto Parts ORLY BBB+ Stable Baa1 Stable Pep Boys IEP BB+ Stable Ba3 Stable CASUAL DINING Carrabba's BLMN BB Stable NR NR Chili's EAT BB+ Stable Ba1 Stable Darden Restaurants DRI BBB Stable Baa3 Under Review (Possible Upgrade) Red Lobster N/A NR NR B3 Stable P.F. Chang's / Pei Wei N/A B- Negative B3 Stable QSR Burger King QSR B+ Stable NR NR Dairy Queen BRK.A AA Stable Aa2 Stable Hardee's N/A B- Stable NR NR McDonald's MCD BBB+ Stable Baa1 Stable Starbucks SBUX A Stable A2 Stable Taco Bell / KFC YUM BB Stable Ba3 Stable Wendy's WEN B Stable B2 Stable BANKS Bank of America BAC A+ Stable A1 Under Review (Possible Upgrade) BankUnited BKU NR NR Ba1 Stable BB&T Bank BBT A- Stable A2 Stable BMO Harris Bank BMO A+ Stable Baa1 Stable Chase Bank JPM A+ Stable Aa3 Stable PNC Bank PNC A Stable A2 Stable SunTrust STI BBB+ Positive Baa1 Stable TD Bank TD AA- Stable A2 Stable BIG BOX TENANT NAME STOCK SYMBOL 1 S&P 2 S&P OUTLOOK MOODY'S MOODY'S OUTLOOK Best Buy BBY BBB- Positive Baa1 Stable Costco COST A+ Stable A1 Positive Kohl's KSS BBB- Negative Baa2 Stable Lowe's LOW A- Stable A3 Stable Walmart WMT AA Stable Aa2 Stable Petco N/A B Negative B2 Stable PHARMACIES CVS CVS BBB+ Stable Baa1 Stable Rite Aid RAD B Positive B2 Stable Walgreens WBA BBB Stable Baa2 Stable MEDICAL Affordable Care N/A B- Stable B3 Stable DaVita Dialysis DVA BB Stable Ba2 Stable Fresenius Medical Care FME BBB- Stable Baa3 Stable DOLLAR STORES Dollar General DG BBB Stable Baa2 Stable Dollar Tree / Family Dollar DLTR BB+ Positive Ba1 GROCERY Delhaize DEG NR NR Baa2 Under Review (Possible Upgrade) Under Review (Possible Upgrade) Kroger KR BBB Stable Baa1 Stable Wegmans N/A BBB+ Stable NR NR Whole Foods WFMI A+ Stable Baa1 Stable GENERAL Builders FirstSource BLDR B+ Positive B2 Stable Burlington BURL BB Stable NR NR FedEx FDX BBB Stable Baa2 Stable Sherwin-Williams SHW BBB Stable Baa3 Stable Verizon VZ BBB+ Stable Baa1 Stable 1 N/A = Private company 2 According to S&P credit conditions: policy uncertainty and rising rates pose risks in North America, but faster growth may help *NR = Not rated by the rating agency KEY: Rating decrease since last report Rating increase since last report As of 10/10/2017 RESEARCH@ 2

3 Unrated Tenants - Listed TENANT STOCK SYMBOL STORE COUNT FOUNDED NET INCOME (MILLIONS) MARKET CAP (BILLIONS) Aaron's AAN 1, $ $3.11 Applebee's / IHOP (owned by DineEquity) DIN 3, $96.61 $0.80 BankUnited BKU $ $3.73 Bojangles' BOJA $37.72 $0.49 Chipotle CMG 2, $22.94 $8.67 Cracker Barrel CBRL $ $3.66 Dunkin' Donuts DNKN 11, $ $4.96 Fred's Pharmacy FRED $66.53 $0.22 Napa Auto Parts (owned by Genuine Auto Parts) GPC 6, $ $13.98 Pier 1 Imports PIR 1, $30.13 $0.35 Mattress Firm (owned by Steinhoff International Holdings) STNHY 3, $64.52 $1.11 Tractor Supply Co. TSCO 1, $ $7.88 NOTES Aaron's is looking to accelerate their omnichannel platform to increase the ways they engage customers. DineEquity has sold nearly all of its company-owned restaurants to franchisees as a way to generate more consistent. BankUnited Small Business Finance announced it has expanded into Washington, Ohio and Wisconsin, while also deepening their footprint in Florida. Ranked on Forbes Magazine's list as one of the "Best Banks in America 2016". Bojangles plans to grow their number of locations by 7% - 8% annually. Chipotle expects to open between 195 and 210 additional restaurants in Cracker Barrel has opened 6 stores in 2017 and plans to open 8 or 9 in new restaurants were added worldwide, including 397 Dunkin' Donuts in the U.S. in Fred s initially agreed to purchase 865 divested Rite Aid stores once the Walgreens-Rite Aid deal was completed. With the termination of the merger, Fed's received a termination fee of $25 million. Napa Auto Parts accounted for 53% of Genuine Auto Parts net sales. Pier 1 expects to close approximately 100 stores over the next 3 years, mostly through lease expirations. Mattress Firm was bought by Steinhoff in August Steinhoff is a furniture conglomerate with a retail presence in over 30 countries. Tractor Supply has increased their store count by 136% over the last 10 years. Interested in Calkain s Research Services? research@calkain.com RESEARCH@ 3

4 Unrated Tenants - Unlisted TENANT NET INCOME STORE COUNT FOUNDED ALDI $10.1B in annual sales 1, Owned by a German company who also owns Trader Joe's. By 2018, ALDI will bring its total number of US store to nearly 2,000. Arby's $3.6B in sales (2016) 3, Owned by private equity firm Roark Capital Group. Ashley Furniture $3.85B in annual Privately owned by a father and son team. Aspen Dental $645M in annual Owned by PE companies, Leonard Green & Partners and Ares Capital. Bass Pro Shops $4.45B in annual NOTES Acquired Cabela's Inc. in October of 2016, uniting the two biggest sellers of outdoor sports gear. Captain D's $1.5B in annual sales Privately owned fast casual seafood chain. Chick-fil-A $7.97B in annual sales (2016) 2, Has the highest sales per location of any QSR restaurant. Church's Chicken $1B in annual sales 1, Private fast food chain with locations in 27 countries. Giant Eagle $9.3B in annual sales Privately owned and largest supermarket chain in Western Pennsylvania. Hobby Lobby $4B in annual One-stop-shop for craft supplies. Imagine School $234M in annual Operates charter schools. PDQ $28M in annual sales Florida based fast-casual chain. Publix Super Markets $34B in annual (2016) 1, Employee owned corporation. RaceTrac $9.1B in annual Gas station and convenience store. 42nd largest privately owned US company. Royal Farms $80M in annual The Save Mart Companies $4.2B in annual (2016) Privately owned gas station and convenience stores. Actively expanding in Maryland, Delaware, Virginia, and Pennsylvania Formerly Save Mart Supermarkets, owns Lucky, Food Maxx, and S-Mart. Sheetz $5.6B in annual Family owned and operated convenience stores open 24/7. Named convenience store of the year in Steak 'n Shake $804M in annual (2016) Steak n Shake Operations, Inc. is a wholly owned subsidiary of Biglari Holdings Inc. Tilted Kilt $250M in annual Privately owned Celtic-themed sports bar and franchise restaurant chain. Wawa $9.02B in annual Privately owned gas station and convenience stores, opening 50+ stores per year. Wegmans $8.3B in annual sales (2016) Privately owned supermarket chain. Zaxby's $1B in annual sales Fast-casual chicken chain. RESEARCH@ 4

5 MOODY S S&P FITCH DBRS LONG-TERM SHORT-TERM LONG-TERM SHORT-TERM LONG-TERM SHORT-TERM LONG-TERM SHORT-TERM Aaa AAA Aa1 AA+ AA+ AA(high) A-1+ F1+ Aa2 AA AA AA P-1 Aa3 AA- AA- AA(low) AAA AAA A1 A+ A+ A(high) A-1 F1 A2 A A A R-1H R-1M A3 A- A- A(low) P-2 A-2 F2 Baa1 BBB+ BBB+ BBB(high) R-2H Baa2 BBB BBB BBB R-2M P-3 A-3 F3 Baa3 BBB- BBB- BBB(low) R-2L, R-3 Ba1 BB+ Ba3 BB- BB- BB(low) B B B1 B+ B+ B(high) Caa3 CCC- CCC(low) Not prime CC(high) CC C CCC C CC BB+ BB(high) Ba2 BB BB BB B2 B B B B3 B- B- B(low) Caa1 CCC+ CCC(high) Caa2 CCC CCC Ca C D / C Chart Rating Tiers DDD DD D CC(low) C(high) C C(low) R-1L TIER GRADE PRIME HIGH GRADE UPPER MEDIUM GRADE LOWER MEDIUM GRADE R-4 NON- INVESTMENT GRADE SPECULATIVE R-5 / D D SUBSTANTIAL RISKS EXTREMELY SPECULATIVE IN DEFAULT RESEARCH@ 5

6 Global Corporate Average Cumulative Default Rates ( ) (%) YEARS S&P MOODY'S AAA Aaa AA+ Aa AA Aa AA- Aa A+ A A A A- A BBB+ Baa BBB Baa BBB- Baa BB+ Ba BB Ba BB- Ba B+ B B B B- B CCC/C Caa1/Ca Investment Grade Speculative Grade All Rated Source: S&P RESEARCH@ 6

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8 Disclaimer: The findings in this report are based solely on the opinions of Calkain and the data and analytics available to Calkain at the time of publication. Neither Calkain, its employees, agents, or successors makes any warranties, express or implied, including warranties of merchantability or fitness for a particular purpose, or assumes any legal liability or responsibility for the accuracy and completeness, or usefulness of any information contained in this report or represents that use of this information would not infringe other third party rights. Further, Calkain shall not be liable for any direct, indirect, consequential, or inconsequential damages to the user, or any third party arising from use of the information contained herein. In providing this information, Calkain does not assume any liability as a result of the use or misuse of the information. By your use of this information, you recognize and agree to hold Calkain harmless from any liability that may arise as a result of your using this information, materials, products, or services. Interested in Calkain s Research Services? research@calkain.com CALKAIN RESEARCH Worldgate Drive, Suite 150 Herndon, VA (703)