In a Recessionary Environment, Tenant Quality Makes a Difference

DBRS Morningstar published a commentary titled “In a Recessionary Environment, Tenant Quality Makes a Difference.” Tenant quality is one of the primary business risk factors that DBRS Morningstar analyzes for each of its real estate entity issuers, and this factor can mitigate vacancy risks. Tenant quality is an indicator of future cash flow stability for issuers, especially in a recessionary environment, and the current rising interest rate environment is leading market participants to wonder if (or when) a recession could be arriving. Based on our analysis of tenant quality and industry sector exposure, the outlook for DBRS Morningstar-rated real estate entities, in aggregate, is stable. DBRS Morningstar-rated issuers generally have high exposure to investment-grade (IG) rated tenants or tenants related to IG parent companies, which should maintain stable cash flows throughout tenants' respective lease terms.