RESEARCH

CREDIT RATING REPORTSemi-Annual Update | October 2017

CALKAIN12930 Worldgate Drive | Suite 150

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CREDIT RATING REPORT OCTOBER 2017

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RESEARCH

R E S E A R C H @ C A L K A I N . C O M C A L K A I N . C O M2

Rated TenantsTENANT NAME STOCK

SYMBOL1 S&P 2 S&P OUTLOOK MOODY'S MOODY'S

OUTLOOK

C-STORES7-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

AUTOMOTIVEAdvance 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 DININGCarrabba'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

QSRBurger 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

TENANT NAME STOCK SYMBOL1 S&P 2 S&P

OUTLOOK MOODY'S MOODY'S OUTLOOK

BIG BOXBest 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

PHARMACIESCVS CVS BBB+ Stable Baa1 StableRite Aid RAD B Positive B2 StableWalgreens WBA BBB Stable Baa2 StableMEDICAL

Affordable Care N/A B- Stable B3 Stable

DaVita Dialysis DVA BB Stable Ba2 Stable

Fresenius Medical Care FME BBB- Stable Baa3 Stable

DOLLAR STORESDollar General DG BBB Stable Baa2 Stable

Dollar Tree / Family Dollar DLTR BB+ Positive Ba1 Under Review (Possible Upgrade)

GROCERY

Delhaize DEG NR NR Baa2 Under Review (Possible Upgrade)

Kroger KR BBB Stable Baa1 StableWegmans N/A BBB+ Stable NR NRWhole Foods WFMI A+ Stable Baa1 StableGENERAL

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

CREDIT RATING REPORT OCTOBER 2017

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RESEARCH

R E S E A R C H @ C A L K A I N . C O M C A L K A I N . C O M3

Unrated Tenants - ListedTENANT STOCK

SYMBOLSTORE COUNT FOUNDED

NET INCOME

(MILLIONS)

MARKET CAP

(BILLIONS)NOTES

Aaron's AAN 1,864 1955 $139.28 $3.11 Aaron's is looking to accelerate their omnichannel platform to increase the ways they engage customers.

Applebee's / IHOP (owned by DineEquity) DIN 3,749 2008 $96.61 $0.80 DineEquity has sold nearly all of its company-owned restaurants to

franchisees as a way to generate more consistent revenue.

BankUnited BKU 100 1984 $216.98 $3.73

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' BOJA 716 1977 $37.72 $0.49 Bojangles’ plans to grow their number of locations by 7% - 8% annually.

Chipotle CMG 2,250 1993 $22.94 $8.67 Chipotle expects to open between 195 and 210 additional restaurants in 2017.

Cracker Barrel CBRL 645 1969 $201.90 $3.66 Cracker Barrel has opened 6 stores in 2017 and plans to open 8 or 9 in 2018.

Dunkin' Donuts DNKN 11,366 1950 $195.58 $4.96 723 new restaurants were added worldwide, including 397 Dunkin' Donuts in the U.S. in 2016.

Fred's Pharmacy FRED 601 1947 $66.53 $0.22

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 (owned by Genuine Auto Parts)

GPC 6,000 1925 $687.24 $13.98 Napa Auto Parts accounted for 53% of Genuine Auto Parts net sales.

Pier 1 Imports PIR 1,018 1962 $30.13 $0.35 Pier 1 expects to close approximately 100 stores over the next 3 years, mostly through lease expirations.

Mattress Firm (owned by Steinhoff International Holdings)

STNHY 3,500 1986 $64.52 $1.11 Mattress Firm was bought by Steinhoff in August 2016. Steinhoff is a furniture conglomerate with a retail presence in over 30 countries.

Tractor Supply Co. TSCO 1,738 1938 $437.12 $7.88 Tractor Supply has increased their store count by 136% over the last 10 years.

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CREDIT RATING REPORT OCTOBER 2017

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RESEARCH

R E S E A R C H @ C A L K A I N . C O M C A L K A I N . C O M4

Unrated Tenants - Unlisted TENANT NET INCOME STORE

COUNT FOUNDED NOTES

ALDI $10.1B in annual sales 1,689 1948 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) 3,300 1964 Owned by private equity firm Roark Capital Group.

Ashley Furniture $3.85B in annual revenue 700 1970 Privately owned by a father and son team.

Aspen Dental $645M in annual revenue 550 1964 Owned by PE companies, Leonard Green & Partners and Ares Capital.

Bass Pro Shops $4.45B in annual revenue 177 1971 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 520 1969 Privately owned fast casual seafood chain.

Chick-fil-A $7.97B in annual sales (2016) 2,102 1946 Has the highest sales per location of any QSR restaurant.

Church's Chicken $1B in annual sales 1,600 1952 Private fast food chain with locations in 27 countries.

Giant Eagle $9.3B in annual sales 218 1931 Privately owned and largest supermarket chain in Western Pennsylvania.

Hobby Lobby $4B in annual revenue 750 1972 One-stop-shop for craft supplies.

Imagine School $234M in annual revenue 57 2004 Operates charter schools.

PDQ $28M in annual sales 62 2011 Florida based fast-casual chain.

Publix Super Markets

$34B in annual revenue (2016) 1,154 1930 Employee owned corporation.

RaceTrac $9.1B in annual revenue 670 1934 Gas station and convenience store. 42nd largest privately owned US company.

Royal Farms $80M in annual revenue 178 1959 Privately owned gas station and convenience stores. Actively expanding in Maryland, Delaware, Virginia, and Pennsylvania.

The Save Mart Companies

$4.2B in annual revenue (2016) 207 1952 Formerly Save Mart Supermarkets, owns Lucky, Food Maxx, and S-Mart.

Sheetz $5.6B in annual revenue 550 1952 Family owned and operated convenience stores open 24/7. Named convenience store of the year in 2017.

Steak 'n Shake $804M in annual revenue (2016) 590 1934 Steak ‘n Shake Operations, Inc. is a wholly owned subsidiary of Biglari Holdings Inc.

Tilted Kilt $250M in annual revenue 26 2003 Privately owned Celtic-themed sports bar and franchise restaurant chain.

Wawa $9.02B in annual revenue 750 1964 Privately owned gas station and convenience stores, opening 50+ stores per year.

Wegmans $8.3B in annual sales (2016) 94 1916 Privately owned supermarket chain.

Zaxby's $1B in annual sales 800 1990 Fast-casual chicken chain.

CREDIT RATING REPORT OCTOBER 2017

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RESEARCH

R E S E A R C H @ C A L K A I N . C O M C A L K A I N . C O M5

MOODY’S S&P FITCH DBRSTIER GRADE

LONG-TERM SHORT-TERM LONG-TERM SHORT-TERM LONG-TERM SHORT-TERM LONG-TERM SHORT-TERM

Aaa

P-1

AAA

A-1+

AAA

F1+

AAAR-1H

PRIME

Aa1 AA+ AA+ AA(high)HIGH

GRADEAa2 AA AA AAR-1M

Aa3 AA- AA- AA(low)A1 A+

A-1A+

F1A(high)

R-1L UPPER MEDIUM GRADEA2 A A A

A3P-2

A-A-2

A-F2

A(low)Baa1 BBB+ BBB+ BBB(high) R-2H

LOWER MEDIUM GRADEBaa2

P-3BBB

A-3BBB

F3BBB R-2M

Baa3 BBB- BBB- BBB(low) R-2L, R-3Ba1

Not prime

BB+

B

BB+

B

BB(high)

R-4 NON-INVESTMENT

GRADE SPECULATIVE

Ba2 BB BB BBBa3 BB- BB- BB(low)B1 B+ B+ B(high)B2 B B B

R-5

B3 B- B- B(low)Caa1 CCC+

C CCC C

CCC(high)SUBSTANTIAL

RISKSCaa2 CCC CCCCaa3 CCC- CCC(low)

Ca

CCCC(high)

EXTREMELY SPECULATIVE

CCCC(low)

CC(high)

CC(low)

C D /

DDD

/ D D IN DEFAULTDD

D

Chart Rating Tiers

CREDIT RATING REPORT OCTOBER 2017

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RESEARCH

R E S E A R C H @ C A L K A I N . C O M C A L K A I N . C O M6

YEARSS&P MOODY'S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

AAA Aaa 0.00 0.03 0.13 0.24 0.35 0.46 0.52 0.60 0.66 0.72 0.75 0.78 0.81 0.88 0.94

AA+ Aa1 0.00 0.05 0.05 0.11 0.16 0.22 0.28 0.33 0.40 0.46 0.52 0.59 0.65 0.72 0.79

AA Aa2 0.02 0.03 0.09 0.22 0.37 0.49 0.62 0.73 0.83 0.93 1.01 1.08 1.19 1.26 1.33

AA- Aa3 0.03 0.09 0.18 0.26 0.35 0.47 0.54 0.60 0.66 0.72 0.78 0.85 0.88 0.93 0.98

A+ A1 0.05 0.10 0.21 0.35 0.47 0.57 0.69 0.82 0.97 1.12 1.27 1.43 1.61 1.83 2.02

A A2 0.06 0.16 0.25 0.37 0.51 0.71 0.90 1.08 1.29 1.53 1.73 1.89 2.03 2.13 2.32

A- A3 0.07 0.18 0.29 0.42 0.60 0.78 1.04 1.23 1.38 1.51 1.63 1.79 1.94 2.08 2.19

BBB+ Baa1 0.12 0.32 0.56 0.82 1.08 1.39 1.63 1.88 2.16 2.44 2.72 2.92 3.18 3.51 3.88

BBB Baa2 0.17 0.44 0.69 1.08 1.47 1.87 2.23 2.60 2.99 3.39 3.80 4.17 4.46 4.57 4.79

BBB- Baa3 0.26 0.81 1.48 2.24 3.01 3.70 4.32 4.90 5.39 5.84 6.34 6.76 7.15 7.71 8.13

BB+ Ba1 0.36 1.17 2.12 3.09 4.08 5.02 5.82 6.41 7.10 7.79 8.23 8.75 9.25 9.66 10.27

BB Ba2 0.58 1.79 3.57 5.22 6.87 8.19 9.39 10.38 11.31 12.12 12.94 13.65 14.05 14.36 14.77

BB- Ba3 1.05 3.28 5.60 7.96 10.01 12.02 13.68 15.28 16.55 17.66 18.50 19.18 19.94 20.67 21.27

B+ B1 2.15 5.89 9.51 12.59 14.98 16.83 18.54 20.02 21.41 22.66 23.68 24.41 25.11 25.76 26.41

B B2 3.89 8.85 13.03 16.18 18.57 20.77 22.28 23.34 24.27 25.25 26.04 26.75 27.37 27.93 28.55

B- B3 7.49 14.64 19.91 23.59 26.42 28.53 30.21 31.25 31.95 32.48 33.19 33.73 33.96 34.24 34.55

CCC/C Caa1/Ca 26.78 35.88 40.96 44.06 46.42 47.38 48.56 49.52 50.38 51.03 51.55 52.10 52.81 53.37 53.37

Investment Grade 0.10 0.27 0.46 0.71 0.96 1.21 1.45 1.67 1.89 2.11 2.33 2.51 2.69 2.86 3.05

Speculative Grade 3.83 7.48 10.63 13.20 15.29 17.01 18.45 19.65 20.71 21.67 22.47 23.13 23.73 24.27 24.80

All Rated 1.52 2.99 4.27 5.35 6.25 7.02 7.67 8.22 8.72 9.18 9.58 9.91 10.22 10.50 10.78

Source: S&P

Global Corporate Average Cumulative Default Rates(1981-2016) (%)

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CALKAIN RESEARCH12930 Worldgate Drive, Suite 150

Herndon, VA 20170

(703) 787-4714

CALKAIN.COM

Interested in Calkain’s Research Services?research@calkain.com