Nick Joseph: That’s helpful. Thanks. And then just going back you mentioned kind of the desirability of sale leasebacks with some of these middle market tenants. Can you talk about those conversations that are going on today, how they’re thinking about doing those deals versus other capital sources that they may be looking at?
Pete Mavoides: Yes, and this has been an evolving and improving theme for us over the last couple of quarters. But the bank market is, one, costly, and two, challenging to access. And so when you think about SOFR plus four, five, six, you’re talking about rates that are wide of we’re getting deals on a 20-year basis today, if you can even get that. And then you look at the unsecured sub-investment grade market that’s even wider. And so these middle market operators are struggling with capital alternatives and largely focused on long-term permanent capital against the real estate with equity from the owners to capitalize new investments and grow their businesses.
Nick Joseph: Thank you very much.
Pete Mavoides: Thank you, Nick. Take care.
Mark Patten: Thanks, Nick.
Operator: And the next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.
Elmer Chang: Hi, good morning. Thanks for the time. This is actually Elmer Chang on with Greg. So you’ve grown exposure to the car wash industry from 10% of ABR to 15% in the last five years, primarily due to, as you’ve talked about, the cash flow stability and growing credit quality they provide with having to be more selective on these types of deals in recent quarters. What other types of businesses do you see growing with – you growing with in the portfolio in the near-term that offer similar attributes. But maybe don’t require you to have to be as selective?
Pete Mavoides: Yes, listen, I would say our investment discipline is designed to be very selective and source an opportunity set that allows us to be selective amongst the mix of transactions that we’re seeing. When you run a business that is focused on prior relationships and relying on those prior relationships such that 80% to 90% of your business is coming from those relationships, your incremental investment activity is going to look a whole lot like your portfolio. And so generally, what we tell people is to expect our portfolio to grow ratably, which means we’ll continue to invest in car washes, and that’ll be in that kind of twelve to 15% range. We’ll continue to invest in early childhood education that’ll be in that 12% to 15% range.
Quick serve restaurants, automotive service, casual dining, all these are industries with inherent real estate characteristics that we like. And as a result, we conduct our sourcing activity and have relationships to generate opportunities out of those industries.
Elmer Chang: Okay, got it. And maybe if I could touch on your watch list of it, it seems it improved incrementally during the quarter or at least was stable. As you look ahead to next year, could you give us a sense of which tenants or industries you believe would be most impacted if there’s a weaker consumer.
Pete Mavoides: Yes. A lot of our – not a lot of our industries are consumer discretionary by design. And what we see is, and we’ve seen this through a number of cycles now, is these industries tend to perform pretty stable through consumer stress. I would say, really the only area and where we usually see it the hardest and fastest is in casual dining, but it’s never really that deep. But we would expect the portfolio to perform stable through a period of consumer distress.
Elmer Chang: Okay, got it. Thank you.
Pete Mavoides: Thank you.
Operator: And the next question comes from the line of Sanket Agrawal with Evercore ISI. Please proceed with your question.
Sanket Agrawal: Hi, good morning. Thanks for taking my question. So we just wanted to understand get some color around early childhood education exposure in the portfolio, like how many different tenants represent that and then what is the average ABR exposure there? And then funding trends you’re seeing from the PE side in that particular sector or any – and also any particular credit issues percolating in that sector?
