Investment Grade Healtcare: Real Estate vs. Non-Investment-Grade Healthcare NNN Tenants

Contributor: Robert Stec

Investors in triple net lease (NNN) healthcare properties often weigh tenant credit quality heavily. Investment grade healthcare tenants (generally rated BBB-/Baa3 or higher by S&P, Moody’s, or Fitch) are prized for their financial stability and essential services, which can translate to lower cap rates and more predictable income. In contrast, non-investment-grade tenants carry higher risk but often offer higher cap rates (and potentially higher risk-adjusted returns) to compensate. This article provides an in-depth look at U.S.-based healthcare NNN tenants, ranked by their real estate footprint (from smallest to largest), with detailed overviews, strategies, 2024 cap rate trends, and market risk factors. We then examine key non-investment-grade tenant categories, notable operators, and compare cap rate dynamics between the two groups.

Investment-Grade Healthcare NNN Tenants (Ranked Smallest to Largest by Real Estate Value)

Below is a summary table of major U.S. healthcare tenants with investment-grade credit ratings, including their credit ratings, number of locations, and public/private status:

Tenant (Ticker)	Type	Credit Rating (S&P/Moody’s)	Locations (U.S.)	Public/Private
Quest Diagnostics (DGX)	Diagnostic Laboratories	BBB+ / Baa1	~2,000 patient sites	Public (NYSE: DGX)
LabCorp (LH)	Diagnostic Laboratories	BBB / Baa2	~2,200 patient sites	Public (NYSE: LH)
Fresenius Medical Care (FMS)	Dialysis Clinics	BBB– / Baa3	~2,600 clinics (U.S.)	Public (NYSE: FMS)
Pharma Distributors	Drug Distribution	McKesson: BBB+ / A3; AmerisourceBergen: BBB+ / Baa2; Cardinal Health: BBB / Baa2	~30–50 DCs each (large distribution centers)	Public (MCK, COR, CAH)
Kaiser Permanente	Health System (Hospitals/Clinics)	AA– (S&P) / Aa3 (Moody’s)	39 hospitals; ~600 medical offices	Private (Non-profit)
CVS Health (CVS)	Retail Pharmacy + Clinics	BBB / Baa2	~9,100 stores/clinics	Public (NYSE: CVS)
HCA Healthcare (HCA)	Hospitals & Ambulatory Centers	BBB– / Baa3	186 hospitals; ~2,400 outpatient sites	Public (NYSE: HCA)

Ranked approximately by total real estate footprint/value, from smaller networks (labs, dialysis) to largest (national hospital systems and retail chains).

Quest Diagnostics (BBB+/Baa1) – Leading National Lab Services Provider

Business Overview:
Quest Diagnostics is one of the largest clinical laboratory companies in the U.S., providing routine and specialized lab testing. It operates approximately 2,000 patient service centers nationwide where patients give specimens, in addition to numerous regional laboratories. Quest is publicly traded (NYSE: DGX) and has an investment-grade credit profile (S&P BBB+, Moody’s Baa1). The company has grown through acquisitions of hospital labs and smaller labs, achieving a market-leading position.

Corporate Strategy & Footprint:
Quest’s strategy focuses on broad geographic coverage and convenience, forming partnerships with hospitals and health systems, and expanding into retail health sites. It has patient service centers in most states (often in medical office buildings or retail plazas) and major laboratories in key regions. Facility sizes range from small patient service centers – typically a few thousand square feet – to large regional lab hubs (tens of thousands of square feet with complex lab equipment). Quest emphasizes disciplined capital allocation and strategic acquisitions. Recent moves include leveraging digital health (online test ordering) and forming partnerships with major retail operators to extend its reach.

2024 Cap Rate Trends & Data:
Single-tenant properties leased to Quest are somewhat niche but attract investors due to Quest’s strong credit and essential service. Long-term sale-leaseback deals with Quest tend to trade at relatively low cap rates (often in the 5%–6% range), reflecting the investment-grade credit and stable demand for lab services. Cap rates have inched up with rising interest rates, but investor appetite remains solid. For example, in 2023–2024 many lab facility transactions (including those with Quest leases) traded around 6% cap rates or below for long leases. Investors view Quest’s leases as secure, bond-like income given the company’s size and the long-term need for lab testing—even though COVID testing windfalls have subsided, baseline demand for diagnostics remains steady.

Market Trends & Risk Factors:
Demand for lab services is supported by an aging population and the increasing need for preventive care, making Quest’s business recession-resilient. However, reimbursement pressures—such as cuts in Medicare’s pricing—are a risk factor that can squeeze margins. Quest’s investment-grade rating and scale help it weather these challenges. In the net lease market, one risk is the specialized buildout of lab facilities; if Quest were to vacate a location, re-leasing a custom lab space could be more challenging than re-leasing a standard office or retail space. Overall, Quest represents a stable, low-risk tenant in healthcare real estate, and its leases trade accordingly at lower cap rates due to strong credit and the essential nature of its services.

Laboratory Corporation of America (LabCorp) (BBB/Baa2) – Diversified Diagnostics Leader

Business Overview:
LabCorp (NYSE: LH) is Quest’s primary competitor and another top national laboratory services provider. It operates roughly 2,000 patient service centers across the U.S. and numerous laboratories processing diagnostic tests. LabCorp is investment-grade (S&P BBB, Moody’s Baa2) and, like Quest, is a Fortune 500 company. It has a broad diagnostics business and, until 2023, also operated a clinical trials division (later spun off as a separate company). LabCorp is publicly traded and is known for its innovation in lab testing, having been an early pioneer in genomic and oncology tests.

Strategy & Footprint:
LabCorp’s strategy emphasizes comprehensive lab services and strategic partnerships with healthcare providers. It maintains a nationwide footprint similar to Quest, with patient service centers located in retail and medical facilities, as well as large core laboratories (often over 50,000 square feet with advanced automation). LabCorp is increasingly positioning itself as a partner to hospitals—operating some hospital labs—and is expanding into at-home testing logistics. Its facilities range from small collection centers to major laboratory campuses. LabCorp’s real estate portfolio is a mix of leased and owned properties; its sale-leaseback deals have made LabCorp a familiar name among net lease investors.

2024 Cap Rate Trends:
Properties leased to LabCorp trade at cap rates comparable to those for Quest Diagnostics. Investors generally view LabCorp’s credit and industry position as on par with Quest’s. In 2024, cap rates for LabCorp-leased assets were in the mid-5% to low-6% range for long-term leases, though rising interest rates have pushed some deals toward the higher end of that range. Given LabCorp’s solid BBB rating and stable outlook, its leases often price similarly to other high-credit healthcare retail assets—slightly above top-tier pharmacy cap rates due to a more limited buyer pool for lab facilities. Transaction data indicates average cap rates around 6% for LabCorp sites with long lease terms, with some premium locations trading even lower.

Market Trends & Risks:
Like Quest, LabCorp benefits from aging demographics and the essential nature of diagnostic testing. Both major labs experienced a boost from COVID-19 testing in 2020–2021 and have since normalized their revenues. A key risk is the potential for changes in government reimbursement—Medicare and Medicaid payments for lab tests have been under pressure. However, LabCorp’s diversified test menu and scale help mitigate this risk. Additionally, while LabCorp and Quest dominate the independent lab market, hospital systems have increasingly insourced some testing, and new entrants (such as startups and at-home testing companies) are emerging. From a real estate perspective, LabCorp’s long history and investment-grade status make it a reliable tenant, and landlords take comfort in the long-standing nature of lab locations. In summary, LabCorp is viewed as a high-quality healthcare tenant, supporting relatively low cap rates and generating strong investor interest in its NNN-leased properties.

Fresenius Medical Care (BBB–/Baa3) – Global Dialysis Clinic Giant

Business Overview:
Fresenius Medical Care (NYSE: FMS) is the world’s largest provider of dialysis services and products for patients with kidney failure. Headquartered in Germany with a significant U.S. presence, Fresenius operates an extensive network of dialysis clinics—approximately 4,000 clinics globally and roughly 2,600 clinics in the United States—under the Fresenius Kidney Care brand. Fresenius Medical Care holds investment-grade ratings (S&P BBB–, Moody’s Baa3), reflecting its stable outlook and modest leverage. The company is publicly traded and is majority-owned by a larger healthcare conglomerate. Along with competitor DaVita, Fresenius forms a duopoly controlling roughly 70% of the U.S. dialysis market.

Strategy, Footprint & Facilities:
Fresenius’s strategy centers on providing life-sustaining outpatient dialysis treatments three times a week to patients with end-stage renal disease. The company focuses on clinical quality, operational efficiencies through scale, and vertical integration—manufacturing its own dialysis machines and supplies used in its clinics. In the U.S., its clinics are located in all 50 states, often positioned in medical office clusters or as stand-alone single-tenant buildings. Each clinic typically ranges from 7,000 to 10,000 square feet and houses treatment stations, water treatment systems, and storage for supplies. Fresenius typically leases its clinic spaces on long-term NNN agreements, making it a common net lease tenant in the healthcare sector. Recently, the company has been optimizing its portfolio by closing underperforming centers and reallocating resources to higher-demand areas, while still opening new clinics to serve a growing patient population.

2024 Cap Rates & Investment Data:
Dialysis clinic properties leased to Fresenius are highly sought by specialized healthcare real estate investors. In 2024, cap rates for these properties have averaged around the high-6% range. Market reports have shown an average cap rate of approximately 6.9% for Fresenius assets with around 7 years of lease term remaining. Brand-new, 15-year leases can trade at cap rates in the mid-5% to low-6% range in top markets, whereas older or shorter-term leases trend toward 7–8% or higher. Overall, while rising interest rates in 2023–2024 have nudged cap rates upward slightly, Fresenius properties remain attractive relative to similar non-investment-grade dialysis clinics. For instance, even though Fresenius (investment-grade) and DaVita (non-investment-grade) have similar service profiles, Fresenius trades at a slight premium (i.e., a lower cap rate) due to its stronger credit. Investors are drawn to Fresenius’s essential service—dialysis demand is inelastic and growing—and its strong corporate guarantee; as a result, sale prices per clinic remain high (often $3–4 million or more, depending on location and rent), and valuations have remained stable even as overall net lease yields have risen.

Trends & Risk Factors:
The dialysis sector is underpinned by an aging population and the increasing incidence of chronic kidney disease, driven by conditions like diabetes and hypertension. This creates long-term demand for Fresenius’s services. Fresenius clinics are viewed as recession-resistant because dialysis is a life-sustaining service. Key risks include heavy reliance on government payers (with Medicare covering the majority of patients), which can pressure margins if reimbursement rates are reduced. Additionally, trends such as the push toward home dialysis and kidney transplants—encouraged by recent policy initiatives—could gradually reduce the growth of in-center dialysis. However, Fresenius’s investments in home dialysis technology and value-based care programs help mitigate these risks. From a real estate perspective, although dialysis clinics require specialized buildouts (with plumbing and water systems), alternative tenants or medical uses may be available if a default occurs, thanks to an established patient base. Overall, Fresenius Medical Care provides stable, long-term cash flows for NNN investors, and its leases are considered secure investments with cap rates that reflect a modest premium for healthcare-specific risks while benefiting from strong credit quality.

Pharmaceutical Distributors (McKesson, AmerisourceBergen/Cencora, Cardinal Health) – Backbone of Drug Supply (All IG)

The “big three” U.S. pharmaceutical distribution companies—McKesson, AmerisourceBergen (now rebranded as Cencora), and Cardinal Health—are all investment-grade healthcare tenants that play a crucial role in the healthcare supply chain. These firms are not patient-facing providers, but they operate large distribution centers and office facilities that are often part of net lease portfolios.

McKesson Corporation (NYSE: MCK)
Credit Rating: S&P BBB+ (stable), Fitch A- (stable). McKesson is the largest by revenue, distributing pharmaceuticals and medical-surgical supplies from a network of distribution centers across the U.S. It operates dozens of distribution facilities—many ranging from 200,000 to 400,000 square feet—strategically located to enable overnight delivery to pharmacies and hospitals. It also leases office space for its technology and healthcare services divisions. McKesson’s corporate strategy includes divesting non-core assets and focusing on distribution efficiency and specialty drug distribution. Its high credit quality is reflected in the relatively low cap rates for its build-to-suit distribution warehouses, often in the 5.5%–6.5% range, depending on lease length and location.
AmerisourceBergen (NYSE: COR)
Credit Rating: S&P BBB+, Moody’s Baa2, and Fitch A-.
Operating under the new Cencora brand, AmerisourceBergen runs a national network of distribution centers that supply pharmacies, clinics, and hospitals. Its U.S. real estate footprint is slightly smaller than McKesson’s but still comprises several dozen large facilities (often 100,000–300,000 square feet each). AmerisourceBergen also operates specialty distribution hubs (for oncology drugs, etc.) and headquarters offices. Given its strong credit rating, sale-leaseback deals with AmerisourceBergen are viewed as solid, bond-like investments. Cap rates for its leased distribution centers typically fall in the mid-5% to low-6% range, in line with other high-credit industrial assets. Its strategy includes global expansion and a focus on specialty pharmaceuticals, which may drive new build-to-suit real estate opportunities for net lease investors.
Cardinal Health (NYSE: CAH)
Credit Rating: S&P BBB (stable), Moody’s Baa2, Fitch BBB.
Cardinal Health operates manufacturing and distribution facilities for pharmaceuticals and medical products. It manages around 30+ U.S. distribution centers for drugs and a similar number for medical supplies, generally large warehouse properties. Cardinal has been investing in new distribution centers to enhance capacity. Its strategy focuses on optimizing its distribution network and growing its higher-margin medical segment. As an NNN tenant, properties leased to Cardinal Health may trade at slightly higher cap rates than those leased to McKesson—typically in the 6%–6.7% range—reflecting its one-notch lower rating, but investor demand remains strong given its mission-critical role.

2024 Trends & Risk Factors:
Pharmaceutical distributors have faced challenges from opioid litigation settlements, which, while significant, have ultimately clarified uncertainties. Their businesses are considered essential and defensive—drug demand remains steady even in downturns—and they exhibit stable, high-volume, thin-margin cash flows. For net lease investors, one risk is that these distribution centers are large, single-purpose facilities; re-leasing could be challenging if a distributor consolidates or vacates a facility. However, this risk is mitigated by the ongoing need for regional logistics hubs, as these companies typically require more facilities for rapid delivery. Additionally, long-term leases (15–20+ years) with parent guarantees provide stable income. In summary, while not traditional “healthcare providers,” McKesson, AmerisourceBergen, and Cardinal Health represent a vital segment of healthcare real estate, offering exposure to strong corporate credits through NNN distribution facilities.

Kaiser Permanente (AA-/Aa3) – Integrated Health System with Extensive Real Estate

Business Overview:
Kaiser Permanente is America’s largest nonprofit integrated healthcare system, comprising the Kaiser Foundation Health Plan (an insurer), Kaiser Foundation Hospitals, and Permanente medical groups. Although not publicly traded, Kaiser is investment-grade (S&P AA-, Fitch AA-) and is known for its massive scale in patient care. Kaiser operates 39–40 hospitals and over 600 medical office buildings across 8 states and Washington, D.C., serving over 12 million health plan members—primarily in California and other West Coast states. Its unique model means that while Kaiser is often both the tenant and owner of its facilities, it does lease a significant number of medical office and clinic spaces from third-party owners, making it a noteworthy tenant in healthcare real estate.

Strategy & Footprint:
Kaiser’s strategy is built on integrated care—it provides virtually all healthcare services (from primary care to hospitalization) within its network. Geographically, Kaiser is concentrated in California (its largest market, with hundreds of facilities) and also has a presence in Colorado, the Pacific Northwest, the Mid-Atlantic, and other regions. Facility types include large medical centers (hospital campuses often 1–2 million square feet), specialty centers, and numerous ambulatory clinics (primary care offices, outpatient surgery centers, etc.). Many Kaiser medical office buildings are built-to-suit by developers and leased on a NNN basis, typically with a parent guarantee. Recently, Kaiser has been expanding outpatient access and upgrading hospitals, with plans to acquire or affiliate with other systems to further extend its model.

Cap Rates & Investment Data:
Kaiser Permanente’s leased properties are highly coveted by investors due to its extremely strong credit and longevity. Although pure Kaiser sale-leasebacks are rare (since Kaiser often prefers to own strategic assets), when they do occur or when new Kaiser-clinic leases are sold, they trade at very low cap rates. Single-tenant medical office buildings with Kaiser as the tenant have been known to trade at cap rates around 5% or even lower in prime markets, reflecting its AA- credit quality. Even in a higher interest rate environment, long-term Kaiser leases might trade near 5.0%–5.5% cap rate; shorter-term leases or those in secondary locations tend to be slightly higher, but typically still under 6%. Investors view Kaiser-backed leases as having a risk profile comparable to government or quasi-government credits.

Market Trends & Risks:
As a nonprofit health system, Kaiser’s risks differ from those of for-profit retail healthcare tenants. While hospital systems have faced margin pressures due to rising labor costs and pandemic disruptions, Kaiser rebounded in 2023 after some losses in 2022, maintaining its strong credit rating. A key consideration for real estate investors is that Kaiser’s integrated model ties facilities directly to member enrollment—making it unlikely that major facilities will be abandoned. Regulatory or health policy shifts (such as changes in Medicare or employer health coverage) remain a risk, but Kaiser’s massive scale and capital reserves make default risk exceedingly low. Kaiser also typically provides annual rent escalations (modest 2% or CPI-based), which is an attractive feature for investors. Access to Kaiser leases is limited, as they are usually held by large institutional owners, and when available, pricing tends to be aggressive. Overall, Kaiser Permanente is viewed as an elite-caliber tenant in NNN healthcare real estate, with leases that combine the security of an AA- rated health system and the stability of long-term healthcare demand—making them a benchmark for safe healthcare real estate investments.

CVS Health (BBB/Baa2) – Ubiquitous Pharmacy Retailer Evolving into Healthcare Hubs

Business Overview:
CVS Health (NYSE: CVS) is the largest pharmacy chain in the U.S. and an increasingly diversified healthcare company. It operates over 9,000 retail pharmacy stores across the country, including locations inside larger retail chains. Beyond dispensing prescriptions and operating traditional retail outlets, CVS has expanded its services through its MinuteClinic division (with walk-in clinics in roughly 1,100 stores) and through acquisitions of health insurers and medical service providers. CVS is solidly investment-grade (S&P BBB, Moody’s Baa2), though its outlook has been noted as negative by some rating agencies due to acquisition-related debt. It is publicly traded and a component of the S&P 500.

Corporate Strategy & Footprint:
CVS’s recent strategy focuses on transforming from a traditional retailer into a comprehensive healthcare services company. It is converting certain stores into “HealthHUBs” that offer expanded health services, and it has acquired primary care operators to integrate senior-focused care. Despite a plan to close approximately 900 stores (around 10% of its footprint) by the end of 2024 in order to eliminate underperforming locations, CVS continues to be an anchor tenant in prime retail real estate markets. Its stores, typically around 10,000–15,000 square feet, are often freestanding on pad sites or hard corners and usually include drive-thru pharmacies.

2024 Cap Rate Trends & Data:
In the net lease market, CVS is considered an “investment-grade gold standard” tenant, and its cap rates reflect that status. However, due to rising interest rates and broader market shifts, CVS cap rates increased in 2023–2024. In 2023, the average cap rate for CVS Pharmacy transactions was around 6.2%, and by early 2024, it had edged into the mid-6% range. For instance, one brokerage reported an average cap rate of approximately 6.30% for CVS properties in Q1 2024. Newer CVS leases (with 15–20 years remaining) command cap rates in the range of 5.5%–6.5%, while older leases with around 5 years remaining have seen cap rates in the 7–8%+ range. Lease term is a major value driver: a CVS lease with 20 years remaining might trade near 6%, whereas one with a few years remaining could exceed an 8.5% cap rate. Despite these pressures, CVS’s cap rates remained slightly lower than those of Walgreens in 2024, reflecting investor preference for CVS’s stable outlook and diversified healthcare strategy. The high volume of CVS transactions underscores the continued strong demand for its leased properties.

Market Trends & Risk Factors:
CVS’s evolution into a broader healthcare company is a double-edged sword for investors. On one hand, it signals long-term viability, as CVS adapts to emerging healthcare consumer trends by offering services beyond traditional pharmacy functions. On the other hand, the planned closure of 900 stores introduces the risk that some older locations may become vacant if they are deemed underperforming. Investors are cautious about location quality, particularly given the potential for repurposing retail sites in prime areas. Another risk is the growth of e-commerce and mail-order pharmacy services (e.g., from emerging digital players), although CVS’s integration with health insurance and its focus on in-person services such as immunizations and clinics help mitigate this threat. While the company carries significant debt following major acquisitions, it remains committed to maintaining its investment-grade status. The essential nature of pharmacies was underscored during the pandemic when CVS stores remained open and served as vaccination hubs, reinforcing their resilience. Looking ahead, CVS’s push into primary care may create additional net lease opportunities. In summary, CVS Health is viewed as a blue-chip NNN tenant; investors accept slightly lower yields for its properties due to its scale, credit quality, and operational stability—while remaining attentive to store performance and lease term factors.

HCA Healthcare (BBB–/Baa3) – Largest For-Profit Hospital System in the U.S.

Business Overview:
HCA Healthcare (NYSE: HCA) is the nation’s leading for-profit hospital operator, managing a portfolio of acute care hospitals, surgery centers, freestanding emergency rooms, and clinics. As of 2024, HCA operates 186 hospitals and roughly 2,300 other care sites (including surgery centers, urgent care centers, imaging centers, and physician clinics) across 20 states. HCA is publicly traded and has, in recent years, achieved an investment-grade credit rating (with S&P rating it at BBB– and Moody’s at Baa3), though Fitch rates HCA one notch below investment grade at BB+. Its significant revenues (approximately $60 billion) and expansive scale make it one of the most influential entities in healthcare.

Corporate Strategy & Footprint:
HCA’s strategy focuses on market concentration—it tends to dominate urban and suburban markets (such as Nashville, Dallas, Houston, and Miami) by operating multiple hospitals and extensive outpatient networks within each market. The company invests heavily in expanding its hospital services (e.g., cardiovascular, oncology, women’s health) and in acquiring or constructing outpatient centers to feed its hospitals. Geographically, HCA primarily spans the Southeast, Texas, and parts of the West, with a smaller presence in the U.K. In terms of real estate, HCA owns many of its hospital campuses but also leases a considerable number of facilities, including medical office buildings, urgent care centers, and some hospitals. Facility sizes vary widely—from community hospitals around 150,000 square feet to flagship regional hospitals exceeding 500,000 square feet, and smaller clinics ranging from 5,000 to 20,000 square feet. HCA’s ambulatory surgery centers (over 150 centers) are often structured as joint ventures with physician groups and may be in leased buildings. Recent strategies have included deploying capital into building new hospitals in growth markets and buying out joint venture partners.

Cap Rates & Investment Data:
Pure hospital real estate is typically traded in institutional channels, so cap rate data for HCA-leased hospitals is less transparent. However, based on known transactions and comparables, if an HCA hospital were sold via a 15-year sale-leaseback, its investment-grade status might command cap rates in the 6% to 7% range. Historically, when HCA was rated below investment grade, sale-leaseback deals were rumored to trade around 7.5–8% cap rates. Now, with a BBB– rating and stable outlook, HCA could likely command cap rates in the mid-6% range for core assets. In the outpatient arena, leases on clinics or surgery centers often trade at cap rates around 6% or lower for long leases, especially when backed by HCA’s corporate guarantee. Although many HCA hospitals are owned rather than leased, HCA is a tenant in numerous medical office buildings that have been sold, with these multi-tenant buildings trading around a 6% cap rate or lower—similar to other strong-credit health system tenants.

An illustrative example: in 2019, HCA executed a sale-leaseback of 24 urgent care centers across five states, and while the exact cap rate was not disclosed, similar urgent care deals for strong operators were roughly around 6.5%. As of 2024, investor sentiment on HCA as a tenant has improved with its upgrade to investment grade. Compared to retail tenants like CVS or Fresenius, HCA is less common in the net lease market due to the size of its facilities, but when present, its leases are considered high-quality and trade at comparable or tighter cap rates.

Market Trends & Risks:
HCA, like many hospitals, faced challenges during COVID-19—including labor shortages, wage inflation, and lower admissions—but managed these headwinds effectively, posting strong earnings in 2023–2024 and using cash flow to reduce debt, thereby contributing to its investment-grade rating. However, hospitals face industry-wide risks such as staff burnout, unionization pressures, regulatory changes (e.g., hospital price transparency rules, potential shifts in Medicare payments), and competition from outpatient providers siphoning off profitable procedures. HCA mitigates some of these risks by owning many outpatient centers and maintaining market dominance in key areas. For real estate investors, HCA is viewed as a high-quality tenant, though its specialized hospital properties require careful underwriting due to their unique characteristics. Additionally, given that healthcare is highly localized, if HCA were ever to vacate a facility, re-leasing could be challenging in a competitive market. Despite these risks, HCA’s strategy to concentrate in markets where it holds a leading share, along with demographic trends favoring increased hospital utilization, makes its leases attractive. Overall, HCA provides a rare opportunity to have a true healthcare operating company as a tenant in the net lease market, with its leases seen as secure and stable.

Non-Investment-Grade Healthcare NNN Tenants – Categories, Key Players & Cap Rate Insights

Not all strong healthcare operators carry investment-grade ratings. Many prominent healthcare tenants in the NNN space are below investment grade or unrated, often due to higher leverage, smaller size, or private equity ownership. These tenants span a wide range of healthcare sub-sectors. Below, we organize them into major categories, highlight notable national and regional operators, and discuss how their cap rates compare to investment-grade credits.

Pharmacies & Drugstores (Non-IG)

Walgreens Boots Alliance (NASDAQ: WBA) –
Credit: Sub-investment-grade. Walgreens was long an investment-grade tenant, but in 2023 it was downgraded to junk status by Moody’s (to Ba3) and by S&P (to the BB/BB- range) amid declining profits and high debt. (Fitch had previously affirmed Walgreens at BBB- but later withdrew its rating.) Walgreens operates approximately 8,400 U.S. stores as of early 2025, making it the second-largest pharmacy chain after CVS. It remains a major player in NNN real estate—many 15- to 25-year Walgreens leases were sold to investors over past decades.
Recent Developments: Walgreens has struggled with lower pharmacy margins, opioid litigation costs, and strategic missteps in its healthcare diversification. In 2023, it announced plans to close 1,200 stores (about 14% of its footprint) by 2025 to cut costs, which has introduced uncertainty for some locations.
Cap Rates: The credit deterioration led to a notable cap rate expansion. Historically, Walgreens NNN properties traded around 5.5%–6.0% cap rates. By 2023, average cap rates had risen to approximately 6.25%, and by 2024 they spiked further—one report noted an average cap rate of around 7.2% in 2024. Investors began demanding a risk premium for Walgreens compared to CVS. For Q1 2024, transactions averaged a cap rate of 6.84% for Walgreens (versus about 6.2% for CVS), and new 20-year Walgreens leases were around 5.5%–5.7%, while those with five years remaining exceeded 7%. This cap rate gap illustrates how losing investment-grade status and weaker performance increases perceived risk and the required return.
Risk Factors: Despite being an essential pharmacy chain, Walgreens faces headwinds such as increased competition from mail-order services, the need for a successful turnaround under new leadership, and the possibility of further store closures if performance does not improve. However, most Walgreens stores are located in prime retail areas (hard corners, dense neighborhoods) that offer potential for alternate uses. Many investors still purchase Walgreens leases, but at yields reflecting the higher credit and restructuring risk.
Rite Aid (NYSE: RAD) –
Status: Rite Aid, the third-largest drugstore chain, filed for Chapter 11 bankruptcy in 2023 under heavy debt and opioid litigation burdens. Pre-bankruptcy, its credit ratings were in the deep junk (CCC/Caa) range. As a tenant, Rite Aid has been considered very high risk in recent years. Many of its stores were located in weaker markets or older formats, causing investors to largely avoid them or price them at double-digit cap rates. Post-bankruptcy, Rite Aid is closing hundreds of stores, making the viability of remaining locations uncertain.
Cap Rates: In many cases, the market for Rite Aid-leased properties has essentially frozen, with any transactions being opportunistic. Cap rates could exceed 10–12% if a sale occurs, reflecting the bankruptcy and default risk.
Risk Factors: For landlords remaining with Rite Aid, the likely outcome is that leases will need to be re-leased to other retail or medical tenants—sometimes resulting in lease assignments to other chains. This case serves as a cautionary example that not all healthcare retail is safe; company-specific fundamentals are crucial.
Regional and Independent Pharmacies:
Beyond the major chains, there are regional pharmacy operators (such as those found in grocery store departments) and independent drugstores. These are typically part of larger grocery tenants (which might be either investment-grade or non-investment-grade) and are generally not primary targets for NNN investors due to smaller scale and lower credit ratings. One sub-type is compounding or specialty pharmacies that sometimes lease standalone lab/retail spaces; these tenants are typically unrated and local, and their leases often demand cap rates in the 8–10%+ range due to small business risk.

Cap Rate Comparison (IG vs. Non-IG Pharmacy):
Investment-grade pharmacy tenants (such as CVS) generally trade at mid-6% cap rates on average deals, whereas non-investment-grade pharmacies (like Walgreens) trade at higher cap rates—typically in the high-6% to low-7% range, with further increases for shorter-term leases. In distressed cases like Rite Aid, cap rates can be far higher if a stable lease exists. Thus, investors clearly differentiate pricing by credit quality and outlook in the drugstore sub-sector.

Dialysis & Outpatient Clinics (Non-IG Operators)

DaVita Inc. (NYSE: DVA) –
Credit: Sub-investment-grade (BB/Ba2). DaVita, a major competitor to Fresenius in the dialysis space, operates approximately 2,675 U.S. dialysis centers—slightly more than Fresenius in the U.S. Unlike Fresenius, DaVita’s credit is below investment grade, largely due to significant debt and strong shareholder returns. While its business is stable and cash-generative, higher leverage and narrower margins keep it one notch below investment grade.
Real Estate Footprint: DaVita clinics are similar in size and format to those of Fresenius, spread nationwide in medical office parks or retail-like settings. The company has historically engaged in sale-leasebacks, so many DaVita-leased properties are held by investors.
Cap Rates: Interestingly, DaVita’s cap rates tend to be only slightly higher than those for Fresenius—generally in the mid-6% to 7.5% range—reflecting the market’s overall comfort with the dialysis sector despite the non-investment-grade rating. Investors might demand an extra 25–50 basis points for DaVita over Fresenius, but not significantly more, due to the essential nature of its services.
Risk Factors: DaVita carries high Medicare exposure (with over two-thirds of patients covered by Medicare) and has faced controversies such as past legal issues. Additionally, the company is closing several underutilized clinics as part of a capacity review. Nonetheless, its large market share (around 37% of the U.S. market) and the inelastic demand for dialysis help support its viability. Its non-investment-grade status can provide NNN investors an opportunity for a slightly higher yield, with only a modest increase in default risk relative to Fresenius.
Urgent Care Centers:
The urgent care sector has grown rapidly over the past decade and includes both national operators and regional chains. Notable national brands (mostly non-investment-grade) include CityMD, American Family Care, MedExpress, GoHealth Urgent Care, and PM Pediatrics. Regional players such as NextCare and FastMed operate in specific markets.
Real Estate: Urgent care clinics typically lease 3,000–5,000 square feet of inline or freestanding space in retail corridors for visibility.
Cap Rates: Urgent care tenants, generally unrated, trade based on their financial strength and any support from affiliated health systems. Those with strong hospital system affiliations can secure cap rates in the 6–7% range, while pure private urgent care companies might trade at 7%–8%+ cap rates due to shorter operating histories and higher default risk. For example, a national urgent care chain with a long-term lease in a major market might trade near 6% if backed by a strong guarantor, whereas a smaller regional operator could be closer to 8%.
Risk Factors: Urgent care centers saw increased volumes during COVID-19 testing but now face normalized patient volumes and intense competition (including from in-store clinics at major pharmacies). Additionally, ongoing consolidation in the sector may affect lease stability. Investors should evaluate whether a strong guarantor supports the lease; otherwise, local market conditions become critical.
Specialty Clinics & Physician Groups:
This category includes various outpatient formats such as imaging centers (e.g., radiology groups), surgery centers (often structured as joint ventures), dental chains (e.g., Aspen Dental with 1,000+ offices), and vision/optometry chains. Generally, these tenants are either privately held or rated below investment grade. They often sign 5- to 10-year NNN leases, especially for locations in retail centers.
Cap Rates: Because these are often small, private companies, cap rates of 8% or higher are common unless the lease is guaranteed by a larger entity. For instance, a 10-year lease for a dental chain might trade at 7.5%–8.0% in a good location, with less favorable terms pushing cap rates above 9%.
Risk Factors: Many specialty clinics depend on key physicians or specific reimbursement models. While they can be profitable, these practices are also more susceptible to default or consolidation if market pressures arise, so investors demand higher yields to compensate for these uncertainties.

Hospitals & Health Systems (For-Profit and Non-Profit, Mostly Non-IG in NNN Context)

While earlier sections covered HCA (IG) and Kaiser (IG), many hospital operators fall below investment grade.

Tenet Healthcare (NYSE: THC) –
Credit: BB/Ba3 (below investment grade). Tenet, the nation’s second-largest for-profit hospital chain (with around 65 hospitals and a large ambulatory subsidiary), has seen credit improvements but remains non-investment-grade. It has focused on expanding ambulatory sites and often engages in sale-leaseback transactions. Leases might trade at cap rates in the high-6% to 7% range for hospital assets and 7%–8% for surgery center real estate.
Community Health Systems (NYSE: CYH) –
Credit: CCC/Caa (deep junk). CHS is a for-profit rural hospital operator with roughly 79 hospitals that has been distressed for years. It generally does not expand and has sold off many facilities. As a tenant, CHS-leased hospitals might command cap rates above 9–10% due to high bankruptcy risk. In practice, CHS tends to own its real estate or use mortgage financing, as sale-leasebacks are unattractive due to the high yields required by investors.
Prime Healthcare (private) –
Prime operates approximately 45 community hospitals with a strategy focused on turning around distressed facilities. It is unrated but considered high risk, and some of its sale-leaseback deals have required rent deferrals. Reported cap rates for Prime-leased hospitals have been around 9%–10% due to the weaker covenant.
Steward Health Care (private equity-owned) –
Steward, once the largest physician-owned system with about 35 hospitals, sold many hospital real estate assets via sale-leasebacks. In 2022–2023, it encountered severe financial trouble, leading to the restructuring of its master lease. This situation highlights the risk that a non-investment-grade health system can default on rent, necessitating renegotiation. Effective cap rates in such cases can be significantly higher due to interrupted income.
Non-Profit Regional Health Systems:
Many large non-profit hospitals are actually investment-grade (e.g., Ascension Health, Cleveland Clinic, CommonSpirit), but they rarely execute long-term NNN master leases of entire hospitals, often opting to issue bonds instead. They may, however, lease outpatient buildings. Some smaller non-profits have lower ratings, and a regional hospital system rated BBB- might conduct a sale-leaseback for a medical office or hospital at cap rates around 7%, reflecting both credit concerns and the essential nature of the facility. Non-profits, due to their structure, are less likely to be “bought out,” so if they encounter financial trouble, bankruptcy or mergers become the likely recourse.

Cap Rate Dynamics in the Hospital Sector:
Cap rates in the hospital sector vary widely based on credit quality and property type. Investment-grade systems (if they lease at all) might have cap rates around 5–6%, while lower-rated, distressed hospitals can see cap rates in the high single digits to low double digits. For instance, a hospital leased to an AA- rated operator might trade at 5.5%, whereas one leased to a distressed operator might trade at 10% or more. Risk premiums in the hospital sector are significant and must be carefully assessed, as even a 300–500 basis point spread can be observed between high-quality and distressed leases.

Senior Housing & Skilled Nursing (All Generally Non-IG Tenants)

Skilled Nursing Facilities (SNFs):
This sector is almost entirely composed of non-investment-grade tenants. Major operators include The Ensign Group (a public company with decent financials but considered high-yield), Genesis Healthcare (a private, restructured operator with around 290 facilities and effectively junk status), ProMedica Senior Care (formerly HCR ManorCare, affiliated with a non-profit health system but whose SNF unit struggled), and numerous regional operators.
Lease Structure: Many SNF operators lease from healthcare REITs via master leases covering dozens of facilities.
Cap Rates: Skilled nursing cap rates are among the highest in healthcare real estate—often in the 11%–13% range for average deals. Even well-managed operators may secure cap rates around 8%–9% on a single asset, while weaker operators may command yields above 10%. Recent surveys indicate that SNF cap rates remain very high relative to other asset classes.
Risk Factors: SNFs face challenges such as labor shortages, uncertainties in Medicaid reimbursement, and high occupancy sensitivity. Many have had to negotiate rent cuts or deferred rent with landlords. Investors require high yields to offset this volatility.
Assisted Living/Memory Care:
Operators in the senior housing sector, including large chains like Brookdale Senior Living and various regional providers, generally see cap rates ranging from 7% to 9% for high-quality assets, and up to 10%–12% for less stable operators. Although favorable demographics support demand, investor returns must compensate for market-driven risks such as occupancy fluctuations and increased real estate competition.

Trends:
The senior housing and skilled nursing sectors are on the cusp of a demographic wave driven by aging baby boomers, providing long-term growth potential. However, recent years have shown that these operators can be severely impacted by unforeseen events such as COVID outbreaks. Non-investment-grade tenants in this sector often rely on supportive landlords to weather downturns, and consolidation is ongoing. From a risk-adjusted perspective, an investor might earn 200–400 basis points more in cap rate on a senior care facility lease compared to an investment-grade tenant like CVS or Fresenius—though this higher yield comes with increased risk.

Other Specialized Healthcare Tenants

Behavioral Health Centers:
Companies such as Acadia Healthcare (the largest pure behavioral health provider with around 200 facilities and a rating in the BB range), Universal Health Services (which operates a large behavioral division; its acute care side is near investment grade, but its behavioral hospitals are often leased separately), and various regional mental health facility operators generally fall below investment grade.
Cap Rates: Behavioral health hospitals—often in repurposed facilities—tend to trade at cap rates in the 8–10% range. For example, Acadia Healthcare’s facilities might trade around 7.5%–8.5% for long-term leases.
Risk Factors: Although the behavioral health sector is growing due to increased awareness and demand for substance abuse treatment, operators can be volatile, with fluctuations in patient volume and challenging payer mixes.
Life Sciences/Biotech Tenants:
While not traditional healthcare providers, many life science companies lease research and development space. Many of these tenants are pre-revenue or speculative (effectively non-investment-grade), though some larger biotech or pharmaceutical companies are investment grade. Cap rates in this segment depend on tenant strength and market conditions; in core life science markets, cap rates can be low if there is confidence in the ability to re-let the space. This category behaves more like office/lab real estate but is noteworthy in the broader healthcare context.
Veterinary Clinics:
Veterinary clinics, while not part of human healthcare, represent a parallel niche. Major vet hospital chains such as Banfield Pet Hospital (with around 1,000 locations, owned by a large private company) lease many clinic locations, often located within larger retail centers or as standalone facilities. Although the parent company might be investment-grade if rated, Banfield leases are typically treated as non-investment-grade since the leases are with Banfield itself and not explicitly guaranteed by the parent.
Cap Rates: Banfield Pet Hospitals typically trade in the 6.25%–7% range, while other veterinary chains may see cap rates around 7%–8%.
Risk Factors: Demand for veterinary services is generally resilient, but risks include industry consolidation and increased competition. The nature of pet care—being predominantly cash-pay—reduces reimbursement concerns but does not eliminate corporate risks.

Cap Rate Differences & Risk-Adjusted Returns

Across these categories, the general pattern is that non-investment-grade healthcare tenants trade at higher cap rates than their investment-grade counterparts, as investors require extra return for the additional risk. The magnitude of the cap rate premium depends on the severity of the risk and the specific asset:

Mildly Below Investment Grade (BB+ to BB) or Stable Sectors:
For example, DaVita (rated BB) versus Fresenius (rated BBB–) might show a small cap rate spread of 20–50 basis points because the stability of the dialysis sector supports even the non-investment-grade tenant. Investors might receive a modest yield increase for only slightly higher risk if they believe in the tenant’s financial stability.
Significantly Below Investment Grade or Uncertain Outlook:
For instance, Walgreens (downgraded to BB) versus CVS (rated BBB) can exhibit a spread of 50–100+ basis points. Here, investors are pricing in Walgreens’ earnings downturn and risks related to downsizing. The risk-adjusted return becomes a question of whether the extra 0.5%–1.0% yield adequately compensates for the possibility of store closures or lease renegotiations. In such cases, some investors have shifted their preferences to CVS or other investment-grade retail tenants, unless Walgreens is available at a bargain price in prime locations.
Deep Junk or Distressed Situations:
In cases like a rural hospital operated by a CCC-rated entity, or a chain like Rite Aid in bankruptcy, cap rates could be extremely high (10% or more). These deals are typically valued more for their land or potential for repurposing than as ongoing income-producing assets. Although the potential return might be high if the tenant stabilizes, the risk of default is substantial.
Sector-Specific Risk Overlays:
In some sectors, even an investment-grade tenant (e.g., a senior housing REIT) might trade at a higher cap rate if the underlying operators are weak. Conversely, a non-investment-grade tenant operating in a very stable niche might not face as steep a cap rate penalty if the underlying real estate fundamentals are strong.

Simplified Illustration:

Investment-Grade Tenant (e.g., CVS, Fresenius):
Cap Rate ~ 5.5%–6.5% (depending on term and location). These assets offer lower risk and lower yield, similar to bond-like returns.
Good Non-Investment-Grade Tenant (e.g., DaVita, a leading urgent care chain):
Cap Rate ~ 6.5%–7.5%. These provide moderate additional yield for slightly increased risk, often representing a balanced opportunity for yield pickup while maintaining essential service profiles.
Weak Non-Investment-Grade Tenant (e.g., a struggling SNF operator or Walgreens in a weak market):
Cap Rate ~ 8%–10% (or higher). These high yields may offer strong cash flow if the tenant meets lease obligations and potentially benefit from credit improvement, but they require careful underwriting of default, downtime, and re-leasing risks.

Ultimately, risk-adjusted returns in healthcare real estate come down to balancing the security of income against the desired yield. Investment-grade tenants offer reliable, uninterrupted rent but lower yields, while non-investment-grade tenants may offer higher yields if their additional risk is properly priced.

Market Trend: Healthcare NNN Resilience and Caution

Overall, healthcare NNN properties have demonstrated resilience and continue to attract capital, largely due to their essential nature and the aging population. Even non-investment-grade tenants benefit from the inherent demand in their respective sectors—whether in dialysis, urgent care, or senior care—which helps keep cap rates relatively compressed compared to similar-risk assets in non-healthcare sectors. For example, while a chain restaurant with a B+ rating might trade at an 8% cap rate, a dialysis clinic with a B+ rated tenant might trade at around 7%, reflecting the perceived stability of healthcare services.

That said, investors have become more cautious post-pandemic and in a higher interest rate environment. The premium for high-quality assets—both in terms of credit and location—has increased, and the cap rate spread between investment-grade and non-investment-grade tenants has widened in 2023–2024. Within the non-investment-grade category, operators with a clear story of strength (such as well-managed skilled nursing or a regional hospital with market dominance) can still achieve relatively attractive pricing, whereas those with significant uncertainty are heavily discounted.

Conclusion

The U.S. healthcare NNN market offers a diverse spectrum of risk/return profiles:

At one end, investment-grade tenants like CVS, Quest, Fresenius, and Kaiser provide steady, bond-like income and serve as anchor investments. Their lower yields are balanced by the stability and security of their long-term lease structures.
In the middle, strong non-investment-grade tenants such as DaVita or leading urgent care chains offer modest yield enhancements, presenting a balanced mix of income and manageable risk.
At the high end, distressed or weaker credits—such as certain rural hospitals or struggling senior care facilities—command significantly higher yields but also entail higher default risk and the potential need for active asset management (including re-leasing or restructuring).

Healthcare real estate remains buoyed by enduring demographic trends and the fact that essential healthcare services cannot be easily replaced by e-commerce. Diligent underwriting of each tenant’s financial health and local market dynamics allows investors to identify opportunities across the credit spectrum, whether favoring the stability of investment-grade tenants or the yield potential of select non-investment-grade operators. This balance is key to building a portfolio with strong, risk-adjusted returns in the evolving healthcare NNN landscape.