"Tracking Bill Ackman’s Pershing Square Portfolio – Q2 2021 Update"
"Bill Ackman’s 13F portfolio value increased from ~$10.46B to ~$10.71B this quarter.Pershing Square decreased Lowes Companies during the quarter.The largest three 13F positions are Lowes Companies, Agilent Technologies, and Chipotle Mexican Grill. They together account for ~50% of the portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square’s 13F portfolio on a quarterly basis. It is based on Ackman’s regulatory  filed on 8/16/2021. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q1 2021.Ackman’s 13F portfolio value increased ~2.4% from ~$10.46B to ~$10.71B this quarter. The number of positions remained steady at 7. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~50% of the total portfolio value: Lowes Companies, Agilent Technologies, and Chipotle Mexican Grill.In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (PSHZF), a public entity that debut in Euronext Amsterdam in October 2014. This was set up primarily to increase the amount of capital invested that is permanent. Pershing Square Holdings had underperformed the S&P 500 since its EOY 2012 inception. This changed in 2019 as they had an outstanding ~58% return. That was followed with a ~85% return in 2020. YTD through July, the return was 8.2%. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~16.7% compared to ~10.4% for the S&P 500 index.Note 1: As a closed end fund, Pershing Square Holdings (PSHZF) has always traded at a discount to NAV. The discount narrowed to 24% from 29% as of mid-May following their inclusion in the FTSE 100 index in early December. It currently trades at ~$36.90 per share compared to NAV of ~$49. The NAV likely went up significantly this week as shares of Universal Music Group went up ~35% following IPO in Europe – Pershing Square Holdings acquired a 10% stake in Universal Music Group prior to the IPO.Note 2: in July 2020, Pershing Square sponsored the largest SPAC IPO to date, Pershing Square Tontine Holdings (PSTH). The offering had several retail-investor friendly attributes that made it stand out from the rest of the SPACs. The stock traded at a vast premium to trust value until the UMG transaction fell through. They have since unveiled a plan to return the capital raised back to shareholders while issuing what are termed SPARC warrants: one $20 strike warrant for each PSTH held and one $23 strike warrant for each PSTH public warrant held. This needs regulatory approval and so the final outcome is uncertain. PSTH currently trades below trust at $19.72.Note 3: Their mid-year update mentioned using an asymmetric macro-economic hedge that should benefit from higher interest rates. Last March, liquidating market hedges set up using credit default swaps netted them ~$2.6B. This was compared to ~$27M in premiums paid. This trade alone accounted for ~37% of the performance of the fund last year.To learn more about Bill Ackman, check-out the book “”.New Stakes:None.Stake Disposals:None.Stake Increases:Domino’s Pizza (DPZ): DPZ is a ~9% of the portfolio stake established last quarter at prices between ~$330 and ~$375 and the stock currently trades well above that range at ~$498. They have a ~5.3% ownership stake in the business. There was a marginal increase this quarter.Stake Decreases:Lowes Companies (LOW): LOW is currently the largest position at ~18% of the portfolio. It was established in Q2 2018 at prices between $81 and $101 and increased by ~9% next quarter at prices between $95 and $117. There was also a ~40% stake increase in Q1 2020 at ~$84 per share. Last four quarters have seen a ~20% selling at prices between ~$136 and ~$211. The stock currently trades at ~$206.Note: Pershing Square's cost-basis on LOW is ~$85 per share.Agilent Technologies (A): Agilent was a small ~4% of the portfolio stake established in Q3 2019 at prices between $66 and $78. Next quarter saw a large stake built at prices between $63 and $90. The stock currently trades at ~$171 and the stake is at ~16% of the portfolio. Last four quarters saw minor trimming.Note: Their mid-year update said that they sold their entire stake in Agilent to fund the purchase of Universal Music Group shares.Hilton Worldwide Holdings (HLT): The large ~14% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock currently trades at ~$128. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. There was minor trimming in the last four quarters.Note 1: Their overall cost-basis is ~$72 per share.Note 2: In Q4 2018, Hilton Worldwide Holdings came back in to the portfolio after a gap of eighteen months. The previous position was purchased in Q3 2016 and disposed a year later. Pershing Square has said that the new position was acquired at a better valuation compared to their previous purchase. Also, the business structure has transformed into a capital-light model because of the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV).Restaurant Brands International (QSR): The QSR stake is a large ~14% of the portfolio stake. Pershing Square’s original cost-basis was ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. That was followed with a ~22% reduction in H1 2018 at prices between $53 and $64. The four quarters thru Q3 2019 had also seen a ~28% selling at prices between $52 and $79. Last June, they increased the position by roughly two-thirds thru forward contracts: $397.50M aggregate purchase price for a $44.20 per share cost-basis. The stock currently trades at $62.37. There was minor trimming over the last three quarters.Kept Steady:Chipotle Mexican Grill (CMG): CMG is a large 15.72% of the portfolio position. The stake was established in Q3 2016 at a cost-basis of ~$405 per share. The position was sold down by ~30% in Q3 2018 in the high-400s price-range and that was followed with a ~17% trimming over the next four quarters. Q1 2020 also saw a one-third selling at ~$860 per share. The stock currently trades at ~$1897. There was a ~7% trimming last quarter at ~$1340 per share.Note: Regulatory filings since the quarter ended show them owning 1.114M shares of CMG. This is compared to 1.086M shares in the 13F report. The increase happened at an average price of ~$1910 per share.Howard Hughes Corp (HHC): HHC is now a 12.26% of the 13F portfolio position. The stake was first established in 2010 as a result of its spin-off from GGP Inc. The vast majority of the current stake is from the addition of ~10M shares in Q1 2020 at ~$50 per share through a private placement. Last quarter saw a ~25% stake increase at prices between ~$78 and ~$102. The stock is currently at $87.53.Note: Regulatory filings since the quarter ended show them owing 13.62M shares. This is compared to 13.47M shares in the 13F report. The increase happened at ~$92 per share. Their beneficial ownership is ~25% of the business.Fannie Mae (FNMA) and Freddie Mac (FMCC) are other long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not , they are not listed in the 13F report. Ackman held just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at a cost-basis of $2.29 and 63.5M shares of FMCC at a cost-basis of $2.14. The combined investment outlay was ~$400M. FNMA & FMCC currently trade at ~$0.90 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of the total investment in the two GSEs. Pershing Square’s mid-year update had the following regarding Fannie/Freddie: “we do not need a favorable outcome in the courts for this to be a highly successful investment, as we believe the re-privatization of the two GSEs is their ultimate path, and existing shareholders will be beneficiaries of this outcome. That said, a win in the courts would greatly accelerate this outcome”.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q2 2021:Source: John Vincent. Data constructed from Pershing Square’s 13F filings for Q1 2021 and Q2 2021.8/24/2021 – Ackman  Agilent potentially to fund future SPAC deal.5/25/2021 Investor Call: LOW – very strong quarter – macro attractive – same store sales growth of 24% mainly due to covid-19 effect – company says trending above most bullish scenario – i.e., above 14% growth, margin expansion - $3B repurchase in quarter – thinks 16x forward earnings is how it is trading compared to 23x for HD – why is it cheap? – revenue-productivity gap between HD & LOW is the reason for the gap: 5-6% of stock-buyback (annual) as well. QSR – BK US and Popeye has recovered but Tim & BK Intl is behind – drive-through modernization – unit growth mid-single digit for Tim & Popeyes – progress being made for return to growth. Talent acquisition problem – it is an issue for all our restaurant companies. HLT – Revpar was down about 80% during covid-peak – latest quarter, it is down about 50% - operating at breakeven level – April is 40% - full recovery in a couple of years – hiring is #1 challenge at the moment – wages will have to increase & technology (digital key, etc.). CMG –acceleration in Q1, Q2 guidance is for ~15%. Digital is half business – order ahead pickup. Quesadilla launch. Margins up 5% yoy and projection is to go higher. Average sales in restaurant at ~$2.5M projected. 6K US restaurants possible which is double today’s level. Canada is starting to open new stores after pausing for 3 years. International still a huge opportunity. $11-$18 per hour wage adjustments. Delivery cost management – 13-17% increase for delivery – order-ahead is being pushed as it is higher margin and better experience. Risks: near-to-medium is staffing, food safety, etc. A – high-quality business. HHC – NAV framework unveiled and accelerating commercial development. Believes significant discount to NAV – 150 is their conservative assumption. 180+ on aggressive assumptions. DPZ – simple, predictive, high-cash-flow generating, durable growth business with pricing power – 37% annual return for 10 years already – flat in the year prior to their investment – crown jewel delivery infrastructure – 75% is digital – own all data and have the largest in-house delivery network – 75% of sales. Doubled market share in 8 years. Still fragmented – Domino’s is biggest at 22%. Unit economics are fantastic – franchises have 2-year payback which is stunning. High single-digit prospective unit growth outlook. Fannie/Freddie – wait for supreme court decision – June projection. Stock price does not reflect anything good will happen. PSTH – working to complete transaction within weeks – couple weeks or so – if not done, we will go to next one – either way, we will make announcement. Hedging – In December purchased interest-rate-swaps – concerns on inflation rising and rates increasing. Options that payoff in an asymmetric way – extend to summer of next year - ~3x return on the hedges today. Archegos comparison – total return swaps are highly leveraged (full recourse mark-to-market instruments and that causes the leverage – collateral needs to be posted/received depending on the price – way to get low-cost leverage without ) while their interest-rate swaps require only a small amount of capital (very asymmetric – large possible returns for ~1% capital risk). SPACs – accounting for SPAC wts questioned – for PSTH, should not have real impact.Regulatory filings from 2/28/2021 to 5/20/2021: 13G – 5/17 – DPZ – 2.04M shares – 5.3% of business.5/2021 WSJ Interview: SPAC – minority holding in  a large business – talking since November – could have a deal in a few weeks – haven’t wavered but no certainty. DPZ acquired from the 330s price-range. Model: Looks for simple, predictable, free-cash-flow generating, dominant, super-durable growth companies – beneficiary of Covid-19 but that tail-wind is gone was the bear case – but their view was that most outdoor entertainment facilities are a huge opportunity – consensus decision although 2 people do most of the work – took them 10-15 days to make decision – did miss the low and the stock went up before building full position. Crypto – should have been there but not comfortable because there is no intrinsic value – so won’t put sizable portion. SBUX – amazing business, but got to a price that made it hard to make similar returns going forward – for a brief moment another one dropped in price and so swapped it for Domino’s – 6% of company – never lost in Restaurant business – pure franchise, makes millionaires out of their own drivers (they become franchisees and then win big) – their own delivery is an edge – extremely well run – international story is a tail-wind.April 2021 Portfolio Update & Weekly Net Asset Value and YTD return as of 5/18/2021 – Info: PSH NAV in USD – 49.06, YTD through April 2021 Net Performance – 11.8%.2/18/2021 – Annual Investor Presentation: $13.56B AUM. Performance: PSHZF returned ~85% for 2020 and the NAV performance was ~70% as the discount to NAV narrowed from 28.9% to 23% as of mid-February. Outsized 36.6% performance contribution ($2.6B profit in less than 3 weeks) from the Index CDS hedging trade. PSTH also contributed 13.1% to the performance this year. 16.9% since inception compared to 9.6% for S&P 500 index. Dividend: 10c quarterly dividend. Buybacks: $286M – 6.6% of public shares retired and that resulted in a 2.4% contribution to 2020 returns. Commentary: Added to FTSE 100. LOW – sees $13 to $15 earnings in a few years, CMG – sees them emerging even stronger post-COVID, Agilent – Sees organic growth of 5% to 7% and margin expansion, HLT – in early stages of a multi-year recovery, QSR – as sales trends improve, should accurately reflect business fundamentals, HHC – on a path to strong recovery in 2021 – strong liquidity as they refinanced near-term debt. SBUX – increased long-term outlook for revenue, margins, and earnings growth. Fannie/Freddie – view it as a valuable perpetual options on their eventual exit from conservatorship. Oral arguments Dec 9th with decision June 2021 – lawfulness of the net worth sweep and the legality of FHFA’s structure."