Christopher Constant: Yes. I think pricing in general moved across all asset classes last year. And as Mark mentioned, we’re putting out offers across all the sectors that we focus on that are in the ads at this point in time. I really think, again, as we mentioned earlier, the amount that we ultimately deploy this year will depend not only on the cap rates that sellers’ willingness to transact, right? Certainly, there’s the view that there will be rate cuts in 2024. The question is when and by how much. And that’s certainly going to impact what I think market cap rates will be as we progress to 2024 and overall transaction volumes.
Farrell Granath: And this may be a little repetitive in comments you just made about seeing kind of a trend that 2024 transaction volumes are going to be pulling back. Is that something that you can most likely, I don’t know if you even expect going through just depending on your current pipeline and what you’re seeing?
Christopher Constant: Yes. I think the — from our perspective, the beauty of the sale leaseback, the direct nature of our transactions is we think we are and the team that we’ve put in place, we think we or set up to have another year of strong investment volumes. Again, we’re underwriting, we’re staying in front of our existing relationships and building new business relationships, right? It’s just a matter of does it make sense to transact and at what levels. From our perspective, we have a view of value. We have our underwriting model. We’re certainly very bullish on the sectors we invest in, right? Ultimately, the counterparty certainly has to look at what’s best for their balance sheet and what’s best for their growth perspective.
So it will — this year will be about finding opportunities that work for both parties. And again, we think they’ll — they’re out there and that we’ll continue to transact in 2024, but the ultimate volume will depend on a lot of factors this year.
Operator: Our next question comes from the line of Akhil Guntupalli with JPMorgan Chase.
Akhil Guntupalli: First question, can you discuss trends in the car wash business and risk around supply, given the popularity in this category the last few years?
Christopher Constant: Yes. I think again, in the car wash sector, right, you had several years of explosive growth. There was a lot of M&A, a lot of new capital coming in probably 2021 to ’22 in particular. We’ve spoken to a lot of our larger relationships in the sector over the course of 2023. I think the biggest trends we’re seeing, right, our memberships continue to be quite strong. In most cases, I think membership revenue is probably around two-thirds, if not more, of overall top line. With that said, car washes are not immune to what’s going on in the broader economy. I think drive up visits, right, are — where our tenants are seeing some softness at this time. I think what that translates to is instead of maybe focusing on larger M&A transactions, right?
Our tenants are selectively evaluating growth, but they’re really focused on operations and pricing and bringing a lot of those new bills, right, faster along in terms of getting up to maturity, right, to stabilize their business, generate more income for that. So we’re still very excited about the car wash sector. We’re excited about our relationships in that sector and what’s causing a lot of the health of our operators there. But certainly, it’s a consumer-facing business. And they’re working through their operational improvements, and we’re there to support our relationships.
Akhil Guntupalli: One last question. It looked like environmental costs were fairly modest in 4Q. How does this look like in 2024 and has this really wound down to pretty low level that stays there?
Brian Dickman: Sorry, can you repeat that what costs?
Akhil Guntupalli: The environment costs.
Brian Dickman: In short form, right, environmental is included — is comprised of some cash costs that we incur to run the program, right. There’s some insurance premiums in there, legal, professional fees that’s typically been recently around $1 million a year that would be kind of the flow-through to AFFO, broad strokes and kind of round numbers there. And we expect that, that’s probably the right level for at least the foreseeable future. Beyond that, there’s a lot of activity, non-cash, non-recurring estimates changing. That’s typically the noise that’s in our net earnings and FFO number, but that we adjust out for AFFO. So we’d have you focus on kind of those cash costs to manage the program, and it’s been running about $1 million a year.
Operator: [Operator Instructions] Our next question comes from the line of Alex Saigon with Baird.
Alex Saigon: First off, maybe provide some additional color on the increase in tenants who are in that 1x to 2.49x rent coverage?
Brian Dickman: We have — in particularly in that strata as it were, we bring sites into our analysis after they’re open for 12 months. Although I think our operators would tell you most sites are up to three years in terms of the stabilization period. So that is actually the increase in that bucket as it were for this reporting period as we did have some new builds, both in the C-Store space and particularly in the car wash space that just came into our analysis. And so they’re still in their ramp-up phase, but they’re hitting that bucket as it relates to how we distribute the brand coverage.
Alex Saigon: And kind of secondly, has there been any change in the demand for development funding from either existing or new relationships and what kind of investment spreads does get a need to execute on those deals?
