I'm pleased to welcome Welltower CEO, Shankh Mitra, next to me. I'm gonna pass it off to Shankh for some opening remarks, and then I have plenty of Q&A, but feel free, we can make this as dynamic as you want. If you have any, hot topic questions you would like to ask, please jump in. With that, Shankh?
Opening remarks. Is this thing working?
Yeah. It's just picking up for the-
Opening remarks is simple, which is business is fantastic. Cash flow is going straight up. When that happens, usually asset prices are high, right? When fundamentals are strong, asset prices are high. And you can buy assets at a good price when fundamentals are weak. This is the first time in my career, and frankly, in my knowledge of studying history, that we're seeing fundamentals are very strong and asset prices are low. So we are making significant amount of returns from what we are buying. At the same time, we're seeing significant recovery in fundamentals. So I've never seen it. I don't know you guys have seen it, but I think I usually say that business is good. Right now, business is not good, business is fantastic. That's all I have to say.
Appreciate that. Then maybe for the first question, you've talked many times about creating per share value for your existing shareholders and compounding that growth over time. Could you go over your guiding principles in terms of capital allocation and making money for investors?
Yeah. So majority of the people who think about, who invest capital to make money understand the very concept of returns. And we can get into sort of some of the nuance we will have in that, which is, it's easy to fake in real estate a lot of things. Cap rates is one of them, which is a dangerous concept. But there are two things you can't fake in real estate business. One is your basis. Whether it's price per unit, it's price per foot, whatever you're buying, what is the realistic basis of what you're buying on a fully loaded basis? AKA, if you're buying value-add assets, you have to think about not only what you're paying, but also the money that you need to spend to bring it to standard.
So a fully loaded basis is something you just can't fake. And there's another thing you can't fake when you sell an asset, what realized unlevered IRR you achieved. What's the total return you achieved? You bought it for $100, you sold it for $120. It doesn't matter what cap rate you bought, what cap rate you sold. You, you can buy assets at a 6 cap, sell it for 2 cap, but you bought it for $100 and sold it for $80. You lost money for your investors, right? So we're very focused on making money for on a per share basis. I'm gonna get into per share and why we say for existing investors in a second. So that's very important, which is reward. What are you making on, on investment? Everybody, investors understand that.
We have a little bit nuanced view I just talked about. The second thing a lot of investors understand, which is risk. What risk are you taking to get there, right? So, you know, as most people talk about returns without risk, we think that's a problematic concept. You got to understand what your margin of safety is and what kind of risk you are taking to get there. It's very important, and we can have a long conversation about that topic. The third thing, we think good investors think about risk. We also think there's a third element of this equation, where most investors don't focus on, is duration. Longevity or duration is a very, very important factor. So our capital allocation framework is, you know, there are three axes, risk, reward, duration, how we think about it.
For example, today, there's tremendous amount of, you know, distress in the capital markets environment, right? And every kind of debt provider that you know, is sort of evaporating from the market. You know, I talk to a lot of sovereigns and they say, "Why should we buy assets at this price when we can lend at 15%?" Whatever that number is, right? I mean, they completely misunderstand that, yes, you can lend it at 15%, but in the very time when asset prices will be high, you will be refi'd out. AKA, that dollar that you are writing doesn't have duration. It doesn't mean that it's not a good investment, but you cannot think about the world only in terms of current return. You have to think about, well, in terms of risk or duration, right? So within that spectrum, we think about it.
We only invest capital in the space we understand. We're not trying to be everything to everybody. And not just understand the asset classes, understand the product, understand the markets. I recently gave an example, you will not see. I understand senior living, but you will not see, I'm gonna go and invest, buy three buildings in New Mexico. New Mexico might be a really good place, but I don't understand that market. So being within your circle of competence is extraordinarily important, right? Do you understand the space? Do you understand return? Do you understand duration of the return? And then it's simple game of optimization. In our business, right, you make money. This age-old conversation that real estate is about location, location, location, is not true. The way you make money in our business is very simple.
It's an optimization game of four different variables: location, product, price point, and operators. It's not maximizing one thing versus the other. Optimize those four things, you can make a lot of money. I gave you a very long answer, but it's a very, very, topic that's near and dear to my heart. I wrote a letter about this, and it's on our investors' website. It took me months to write it. If you're interested in this topic, please go read it.
Maybe, just kind of thinking about just like, just where, where you can allocate capital today. Like, how are you thinking about, like, senior housing versus MOBs? Like, where, where is giving you the best return, risk, and duration?
Yeah. So, well, as I mentioned in the call, look, the thing is, the Fed has taken out about $1 trillion of cash out of the system in the last 12 months, right? Everybody needs money everywhere, up and down capital structure, all product type. That's just the reality. Where we see the greatest opportunity matching those three things I talked about, risk, reward, duration, is in U.S. seniors housing. That's where the bulk of the opportunity is. And we are seeing, you know, there are really five groups that we competed against, always, that if we lost something, we lost it to. And these are the people we have a tremendous respect for, and all five of them have come to us and said, "We need liquidity. We have massive outflow queue. We need liquidity. Invest liquidity." Right?
So we're sort of never seen, not only this volume of opportunity, but also that these are the core funds, the best quality assets that we know that exist in our space, that we compete against or we have lost to. So I, you know, we were like describing it in our board meeting a couple of weeks ago, this is like a seven-day Indian wedding. You can't, like, finish eating enough, right? But frankly speaking, I've never seen anything like this. Not just the volume of opportunity, but the quality. These are trophy assets. You know, one of those groups that sent us, you know, 93 assets, I think, Nikhil is giving them bids on 14. At least half of those assets are really, really good assets, right?
So we are, we're not opportunity constrained, we're capital constrained, and this quality of assets from core funds, I've never seen. It's not even counter market. They have sent me their entire data tape of everything they own and say, "Give me liquidity." If you look at ODCE Index, which is a core real estate index, ODCE right now has $35 billion outflow queue. That hasn't happened post Lehman. The stress in the system, not just from the debt side, I think everybody understands the stress from the debt side. From the equity side, is unprecedented, and it's due to the denominator effect. We're there to provide two things. To close an asset, you need two things: cash, obvious, and operators, because a lot of these operators are shutting down.
And so you need both, and the sellers are very, very cognizant of the quality and next person, because they're on the hook. The business works, it's you know, until the day I take over, you know, it's on them. Quality, reputation, everything. And these are, you know, very well-known institutions. They can't afford to have a PR risk, right? So you think about it all from that perspective, not only the people we competed in the tent are the ones who are actually selling, but there's no tent. They send their entire data tape to us, and we're like shooting fish in a barrel.
So you've talked about the use of data science and AI to just, to drive decision making. Could you provide some high-level comments on the development of the platform and how it's being utilized? And then love to connect it to just the, like, your past comments, and you even mentioned it before, it isn't about location, location. It's about location, product, price point, and operator through your data analytics tools.
Yeah. So for last 12 months, you probably have noticed that I never used the word AI, because, you know, sort of I'm, I'm really afraid that we have taken something that's an important advancement in the human history and just create a unnecessary hoopla and bubble around it, which is why I stopped talking about it. Last time we did a investor day, about 4 or 5 years ago, I think that was the topic, and some of you who have covered our company for a long time know that we have been on this for 8 years at this point, right? We hire more stats PhDs than MBAs. That's what our platform is. And we have built for something very simple. Our process started something with a very simple idea. We all came from outside this business.
I'm a fundamental believer, these industry standards are too low, so I didn't keep people from this industry. And so we wanted to know, aka, we gave up on sort of the tribal knowledge, because we didn't think that was worth much. That's a good idea, but you need to know what works. So we started this truth-seeking mission. So what works, right? And we realized majority of the sort of rule of thumbs in this business are just blatantly wrong, right? So that's where we started about 8 years ago, and since then, we have built a business, you know, where today, you know, we, we have 10 million micro markets in the United States, 0.25 by 0.25 mile. We can tell you everything about who lives there, where they play golf, where they buy their handbags, where they shop.
Are they a Neiman customer? Are they a Nordstrom customer? Where they buy, you know, what kind of medications they take. Everything you want to know about your customer, for the whole population, we can tell you that. Why is that important? Because in our business, most people don't realize it's a business that the buyer, resident, and the decision maker, aka the buyer, are different. If your resident is an 85-year-old woman, she's not the buyer. Her 55-year-old daughter is the buyer. Sometimes we see big influencers are also grandkids. So you got to understand every aspect of their population, and then, what do they want? Real estate is a business of demographics, so we thought for the last 40 years. Demographics is the ability to pay. That does tell you nothing about willingness to pay. Right? I might have the ability to pay for, buy an expensive car.
I'm really cheap, I'll never buy an expensive car. It doesn't tell you anything about my willingness to pay. Every other business that we know, from retail to private bank, to credit card industries, to insurance, to financial services, technology, all works on psychographics. Have you ever seen two Costcos open next to each other? No. Yet two apartment buildings get bought and sold to each other on each other's rent. That's not how businesses work today, right? So we're very focused on that. Then we brought in, with a major breakthrough, was 3+ years ago when we brought in, cell phone data into it, right? Where's the in-migration, where's the out-migration, where are people leaving, where are people coming, who are these people, where they want to live? Within the context of that block group, 0.25 mile.
Then finally, we brought in mobility data, which is how people drive, right? So all these things are evolving. And now, since John Burkart has come over as COO, you know, these all macro data, investment data, performance data, is now getting married with simple operating data. What is an operating data? You come to - generally speaking, you are buyers of senior housing as a product, you're other buyers of lifestyle, or you're buyer of care. I want to know when you hover on my website, where you hovered more. Where you spend time more. Why am I selling you care when you're looking for your mother, and you are saying, "Okay, can she, you know, live in a place, and she's 72 years old? Can she play golf? Can she date? Can she go to movies?" Blah, blah, blah. And I'm selling you care, right?
It doesn't make any sense. How do I know that? Are you interested in two bedroom, one bedroom? How do I know that? These are the operating data that finally, with all the things I mentioned, is now getting integrated into our system. So we have a very clear view of how we want to price. Our—If you sit down with Kevin Stoller, our Chief Data Scientist, he will tell you, he will sit down in a meeting room like this, and any rental housing units, he will bet his left hand that he can predict you rent within $10. Any place, multifamily, single-family rental, senior housing, no matter what, he will bet you his left hand that he can. He will tell the location, this is the age, this is the number of bedrooms, he will tell you what the rent is. Blind test.
We've gotten that close. So that obviously helps us to think, okay, we see hundreds of assets. We can't underwrite hundreds of assets. So we first go through our data science platform. I'm afraid to say AI, after what happened in the last 12 months. Data science platform, and say, "Okay, these are the things that are interesting." So it's a big, massive filter, and then, obviously, goes, what's the predicted rent? What's the predicted NOI? And then, Nikhil's team takes over, all the deal teams. We have only about 100 people in our deal teams, and then go through, okay, they visit every single asset. We don't buy assets that we don't visit. We do not think this is a finance business. This is a real estate, is a product business. You need to go walk every single buildings you ever buy, right?
So we go through that and eventually we give people offers. And there are two reactions: either you are insulted, and you are so insulted that you walk away, or you are insulted, then sleep on it, you realize that you have to trade, so you trade. Simple. But it always starts with that you're insulted.
Maybe just the capital allocation environment. You talked about assets prices being low, and it feels like just the commentary I've heard, just since the 2Q call, it sounds like that opportunity set continues to expand. Could you provide some color on what you're seeing on deal flow and economics today?
The economics, frankly speaking, hasn't changed much. Okay? So we were targeting, call it, double-digit unlevered IRR in senior housing. It has not changed much. What has changed is the risk to get there. When you are buying assets at 60% occupancy, 50% occupancy, a -2 yield or +2 yield, and you think you can get to an 8, that is one risk proposition, then you are buying the exact same asset at the exact same basis, but now you're buying at 80% occupancy, what the industry occupancy is today, with an in-place of 6, right? So you have the same end results with much lower return. And the other aspect is what I was saying, and these are, you know, 4 funds own these assets, they're brand new assets, 3-year-old assets, 4-year-old assets. So none of that has changed.
What has changed is the trajectory to that IRR curve, because now we're starting with significant amount of cash flow, but you are ending at the same place, right? From a stable yield perspective. So we are comfortably hitting, you know, in our underwriting at 11, 10, 11, 12 IRR, and we assume that John Burkart adds no value. And, you know, if he does add value, then the one or two things happen, we should make more money. If he doesn't, he and I will be gone, so our, our shareholders will make more money. So it's a, it's a natural hedge from that perspective. But that's kind of how we're kind of thinking about that we can do it. In MOBs today, we think the business is, you know, should be priced, given the growth profile, closer to a 7 cap, right?
So it's a very simple idea that, you know, a 7 plus a 2.5, gets you to 9.5, minus 15% CapEx, you're kind of back to like the mid-8s to 9, depending on where you are. That's where the asset class is priced, call it 8.5-9 IRR. Obviously, it depends on what the in-place rent is and what the occupancy is. I'm saying, generally speaking, a 9 feels like a right number. And skilled, where we play in the debt stack, we think that business, you know, sort of a 12-15 unlevered IRR, and, you know, again, that business, we're not-- and we don't play in the equity stack, we mostly play in the debt stack.
There, the duration is shorter, so we're thinking about, okay, can we, you know, how do we increase the duration? Can we go for equity upside, warrants, or on the flip side, can we lower risk? If we don't get an equity upside, can we ask for beyond the assets, massive under personal guarantees on all sorts of things, right? We're happy to do both, but if the target return is, call it a, you know, 12-15 unlevered, either I want significant amount of guarantees that guarantees me, for lack of a better word, that I'll get that beyond the assets, or I'll say I'll take the risk, but I want a warrant that gets me to 17, right? Those are the kind of ways we're thinking about it on both sides of the median.
Turning to senior housing fundamentals, could you provide us, like, an update on, on what you're seeing? You know, this is typically, I think, the strongest period of the year. Just kind of, is it kind of what you're expecting on occupancy rate expense?
I don't really know what to say about these things. My CFO is standing here. He's gonna literally kill me if I say something that I'm supposed to not supposed to say. I'll only say that I'm pleased with what we have seen so far, and some of you know me for a long time to know that I'm not easily pleased. That's all I can say. Anything else you need to ask him?
Maybe on the margin side, senior housing NOI margins have improved over the past couple of years. I guess, how should we think about the trajectory going forward? Can the spread between RevPAR and ExpPAR growth continue to expand from current levels? And then could you also just talk through about the incremental margin as the portfolio hits that 90+ level?
This is probably the most important question if you want to understand our company. What matters, all these too many things, large company, lots of things happening. But if you want to understand where numbers are going and you want to focus on something very simple, the only thing you need to focus on, the difference between RevPAR and ExpPAR, the question you just asked. That's the only thing that matters. And I believe that it can expand even from its current expanded level, if that's proper English. I do think that that number can expand as we go into 2024 and 2025.
Is that, how much, how much of that margin expansion would you attribute to John Burkart and, and the things that he's working on?
A lot, right? This is like, if you think about it, we have favorable beta in the business, right? After a long time, it has been a, you know, wind on our face for, you know, call it 10 years. Low, low, demographic growth, frankly, flat demographic growth for the silent generation, last 2010s, and massive supply growth, and both has flipped, right? So it has, y ou know, the beta of the industry is good, and it's getting better. Not interesting. But you guys don't pay us to, you know, provide you exposure to beta.
You guys provide us to take market share. And first time through ops and asset management, we're taking market share. Our performance relative to the industry is widening, and it will continue to wide. And that's because of all the things that John and his team is doing. First time in our business, we have a real operator who has built a real team, and we're focused on not reading newspapers, AKA when numbers hit the P&L. Understanding, before the newspaper was printed, what is going on, what's the root cause, how we change that, those are the things.
I guess, from an outsider's perspective, I know, like, there's obviously secret sauce going on inside the company. What should we be looking for as far as, like, seeing evidence that the operating platform is like, you know, going as kind of expected and maybe even better than expected, or?
Yeah, I think, I think it's just a question of you, you guys know there's industry data, right? NIC data. There are other industry participants, right? And you can take an average of that and just say, this is what's kind of what the industry is doing. Where is Welltower results? And that's the Welltower, you know, that's coming, that's the alpha we create. And I—historically, that alpha has been strong, but I think that alpha will get stronger, right?
We—And, you know, I would say that a lot of things that John is doing and have accomplished, not John is doing, have accomplished. I am seeing it, but you guys are not seeing it. Why? Because they are at an operator by operator level. It's a very large company, right? It's $1 billion-plus EBITDA, 1,000-plus assets in the SHOP portfolio. But I think starting 2024, really going into 2025, you're gonna see that.
Okay. And then, recently, there are transitions, some properties to Oakmont and Avery. Could you give us an update on how that transition is going? And maybe just the background for context of why that transition happened.
The background of transition lies in the question that you asked before, which is our data science platform. We have said that, you know, as I mentioned, that it's a game of optimization game, and the fourth piece is the operator. We have a view of what building that we own or potential deal, potential investment opportunity should be run by who. And, you know, and these are the algorithmic-driven, you know, sort of, decisions. So we didn't go and do it first time, right? We first moved six assets, right? You have seen two years ago, exactly two years ago. Two years, one month ago. Oakmont, 63% occupancy, $1 million NOI. Two years later, those assets are 90+% , each generating $18 million NOI. 18x we made, and we're not done yet.
By next summer, we'll probably make $24 million-$25 million from those assets, right? So we said, okay, we have a view, and if you go back two years ago when we did it, we did a slide, and we said our data science predicted stabilized margin and rents are 22% higher. You will see that we have disclosed that. Finally achieving those numbers, right? Now we know it was not like a black box. The box works. In fact, it goes. So we did another 28, right? So that's how we are doing. We said, okay, we have a view. Let's see. Let's test it out. It's A/B testing, simple A/B testing. Work, let's double down, right? There is no. This is not a concept of operator A is better than operator B or operator B is better than operator C. That's not the conversation.
The conversation is, who is the best operator for that location, for that product type, AL/IL, memory, whatever is the product type, for that price point and the service level? And, and that optimization gain is how we make money. So this is why those transitions going on, how the transitions are happening, are working for last, call it 2 months, right? It's too early to comment. It's going extraordinarily well. In fact, we mentioned on our earnings call, this is the first time. We--I said 6, 9 months ago, sometimes 2, 3 quarters ago, that John has taught us how to do this right, so we don't lose a lot of money. I did a big transition 4 years ago. You have no idea how much money I've lost, but I learned. When I lose a lot of money, it physically pains me, and I learn.
But I didn't know how to do better. John has taught us how to do better. So last two transitions, not these two that you are asking about, we lose money. We have been able to protect the house that we did in 2022. We, you know, perfected the model, touch wood. These transitions, we hit it out of the park from day one. Actually, performing better than when we gave the assets to, which shouldn't happen. There's a lot of disruption. But are these two anomaly? I don't know. But we sort of have gone through that period of losing a lot of money, losing less money, losing no money, to losing - now making money right out of the gate. But we're not doing it to do that.
I've said it a million times that I will take any amount of short-term pain to get to the right long-term returns. But, you know, that only applies if the short term and the long term diverges, right? In this case, thanks to John and his team and his, and their expertise, it didn't have to diverge. They're actually hitting it out of the park right away.
On the earnings call, you mentioned that you expect a multi-year period of double-digit NOI growth. What gives you the confidence that this level of growth can be generated over an extended period of time?
It's a simple mathematical equation. I forgot to mention one thing you asked before, and that actually applies to this question, which is, you know, we think there is significant occupancy upside. You know, we're sitting at 80% occupancy or whatever we reported, and we think the stabilized occupancy of this business is meaningfully, meaningfully higher. And what that comes with it is a very significant incremental margin. So at 80% occupancy, that's the question you asked, I forgot to answer. At 80% occupancy, your incremental margins, I call it 75%. At mid-80s, it goes above 80%, and above around 90% occupancy, incremental margin is above 90%. So you have a margin hockey stick, right? 80% occupancy is the worst occupancy if you are going down.
It's the best occupancy if you're going up, because that's the occupancy level, your communities are fully staffed. So a lot of the money falls to the bottom line, and that curve, it's sort of a J curve, right? That's why we think that we can make a lot more money from these communities with all the things that John is doing, like operating platform build out, you know, having proper technology packages, CRMs, CRPs, things that you think is common in every other industry, hasn't happened in our industry, right? So there is an element of demand, supply, beta, market share, and all of those things, but there's another element, which I think I'm sort of most excited about, which is changing a business and bringing it to twenty-first century, right?
If you think about it, we're not trying to change the burger and fries that this, you know, sort of Ray Kroc and McDonald brothers sold. What we're trying to do is to change, make these diners get to a business process of McDonald's. That's what we're trying to do, right? So that structural change, along with the beta of the industry, that we all know about, and finally, we talked about for 30 years, I mean, give me a break, finally, we are there. Market share, we talked about, but on top of that, the professionalization of the business, bringing basic business.
All of our communities work as an island. Despite they're run by national platforms or regional platforms, they work as an island. And this happened in all other asset classes. It happened to multifamily 30 years ago, happened to storage 15 years ago, happened to single-family rentals 7-10 years ago, right? We're sort of late in the journey, but that's the structural change that is sort of happening. And you're gonna see that will come through, you know, for a long time to come.
So turning to the balance sheet, your leverage has come down meaningfully over the past 12-18 months through organic growth and just to equitize, equitizing deals. How are you thinking about the company's longer-term debt-to-EBITDA target, and just from a psychological or physiological standpoint, leaning into the balance sheet, if appropriate, since, as you said before, the balance sheet should not be treated as a vintage Aston Martin.
I'm glad you remember that. So we think about balance sheet as a countercyclical tool. I have not much to add to this topic. If you're very interested, Jamie Dimon actually wrote a letter 3-4 years ago, maybe sometimes in the last 5-7 years about this topic, you should read it. Extraordinarily well written. We think about balance sheet as a countercyclical tool, which means we'll lean into balance sheet when we think that's the best time to create value on a partial basis, we will do that. Our, generally speaking, our debt-to-EBITDA that we have, you said goal, right? What's the right word you used? Goal is 5.5-6. And our when COVID hit in 2021, impact flew through. COVID hit in 2020, the impact was 2021.
Our debt-to-EBITDA went 7+. You know, I forgot exactly where it dropped, but let's just call it, you know, low 7s, mid 7s, something like that. I don't remember. And we said that we will bring it down to our target level, call it 5.5-6, and we brought it down, right? It just sort of, you know, we're in the business of track record and reputation. You know, do we, we don't get everything right, but we generally, what we say we're gonna do, we do it.
And that's where the balance sheet is. But it aggressively deleveraging, because obviously our EBITDA is going straight up, right? So, you know, it'll deleverage. I have never thought about balance sheet as a vintage Aston Martin, so I can tell you I have it and you don't. We only think about balance sheet as something we can lean into and create value, and that time will come, and we'll do it again. We have done it, and we'll do it again.
My last question is, you've mentioned that one of your biggest concerns, or what keeps you up at night, is people. Can you provide some perspective on the culture of Welltower, and how do you think about incentivizing the team and also your operating partners?
Yeah, it's the... So look, there are things that you can do in that from a culture standpoint, that no technology platform, no amount of machines can do. And we are more quantitative in the real estate space than any company you'll ever meet, just because of our background, right? Most of us came from quant shops, right? So that's why we're super way focused on. And that thing is culture. And what is our culture? We have a very simple culture. This is a company that doesn't have a mission statement, doesn't have a vision statement, doesn't have a strategy department. I've gotten rid of all, and we maintain something so simple.
And our idea, our motto is very simple: We want to make money on a partial basis for our existing investors, and that comes from long-term compounding, and that is a pursuit of continuous improvement. Every day, we wake up to think, how do we do things differently? How do we make more money for our owners from what we own? And that culture is everything we got. I am happily abundant, blown up things that I've personally done and was so proud of, right? RIDEA 2.0 was structured. First time I wrote 7 years ago, so proud of it, and I killed it. And I personally blew it up, you know, because I thought we could do better.
That culture, that every day, that, you know, I do every three months, I do an all company call, and one of our young associates asked me on an all company call: Why are you never satisfied? Why there's always a push to do better? And I said, "Look, that's just who we are, right? This place is not for everyone. We're not complacent that we can outperform NIC Data or you pick anybody. That's not what we're after." Our goal is very simple. When we are done as this team, we want to be known as a company that created most compounded value, one of the most compounded value in the history of U.S. capital markets. So many of you who know me closely, I said, you want to understand the culture of a company, read a book by Bill Thorndike called Outsiders.
And we said, for whether you are a summer intern or a board member at Welltower, you're... That's required reading. And we said, we want to be the ninth chapter of the book. That's our goal. Can we be delusional if real estate company can get there? We can be. We're shooting for a 150th floor. Maybe we'll end up in 97th, but our goal is not getting to 3rd floor and say how we did better than X, Y, and Z. That's not our goal. And that pursuit, we are not modeling ours, you know, and you, Josh, you know, for a long time, how do we better than X, Y, and Z in our space? So these are the best capital allocators in the history of U.S. capital markets. What have they done right? How can we learn, right?
You think about why do we have a model that says we want to go deep, not go broad? Whose business model is that? That's Walmart's business model, right? Why do we have to come up with new ideas when we can steal ideas from the best companies, and we can study the history of businesses? Where do you think I got this idea, we need to bring John Burkart to this business? That idea came from the railroad industry. Who fixed the railroad industry? It's the short-haul trucking guys, fixed the railroad industry, right? So we are focused constantly on history of businesses. How can we do better? How can we create a compounded partial value for our owners that's not, you know, confined to this view of real estate is a low-return business, so we should be happy with the low plus. That's the culture of the place.
It's not for everybody, and frankly speaking, I don't want to be everything to everybody. But that's sort of, you know, it's, it's a in some place, you might say you have a delusional view, could be right. Some might say, you know, you just have a view, that can play out, but not so much. All of those are fine. What is not fine is mediocrity. These companies that accept location, location, location, will make money by providing a little bit more leverage for a little bit better than everybody else. What happens is that creates a culture of mediocrity. And that culture of mediocrity, you know what happens? A people hire A people, and B people hire C people. You got all your good people leave, right?
So going back to your point, the culture of continuous improvement, the culture that we are, can be and are, the best in this business, and we got to strive farther every day to remain at that very best position, because there's gonna be another company who is hungry, like I was eight years ago, will come from behind and overtake us. Success is the beginning of failure. It's called perpetual seesaw. If you are complacent, that's the beginning of downfall for companies, right? You can see what's the average duration of a company in S&P. It's not a very long time. That culture and bringing the right people to that culture, who sort of have that Lollapalooza Effect, is what we're trying to build and build on every day.
Leave it there. Thank you.
Thank you very much.