"Tracking Bill Ackman’s Pershing Square Portfolio – Q3 2020 Update"
"Bill Ackman’s 13F portfolio value increased from $7.75B to $8.82B this quarter.Pershing Square marginally decreased Lowes, Agilent, and Hilton Worldwide during the quarter.The largest three 13F positions are Lowes Companies, Restaurant Brands, and Chipotle Mexican Grill. They together account for ~56% 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 10/23/2020 and their Q3 2020  today. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q2 2020.Ackman’s 13F portfolio value increased ~14% from $7.75B to $8.82B 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 ~56% of the total portfolio value: Lowes Companies, Restaurant Brands, 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 last year as they had an outstanding 58.1% return compared to 31.5% for the S&P 500 index. That was followed with a ~57% return YTD compared to ~11% for the S&P 500 index. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~16.5% compared to ~9.5% 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. That discount has widened over the last few months to ~30% with the stock price at ~$29.90 compared to NAV of ~$42. Their semiannual letter had a note regarding this discount: while many internal measures including buybacks were taken, another factor in the horizon that could narrow the discount is the possible inclusion in FTSE 100 index.Note 2: in July, 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 100+ SPACs that came to market this year. They expect a deal to be announced in the coming months.Note 3: It was disclosed in late March that liquidating market hedges set up using credit default swaps had netted them ~$2.6B. This was compared to ~$27M in premiums paid. The same trade sized at ~30% of the previous bet was put on earlier this month. The reasoning for putting on this new equity hedge is different: they expect the next two months to be very tough but are bullish on next year.To learn more about Bill Ackman, check-out the book “”.Stake Increases:None.Stake Decreases:Lowes Companies (LOW): LOW is currently the largest position at ~23% 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. The stock currently trades at ~$150. Last two quarters have seen only minor adjustments.Note: Pershing Square's cost-basis on LOW is ~$85 per share. In the investor call today, Ackman said they thought LOW was undervalued at ~$175 last month and is especially cheap after the drop following earnings. They are well on their way to narrow the productivity gap with Home Depot.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 ~$109 and the stake is at ~14% of the portfolio. This quarter saw a ~3% trimming.Note: The analytical measurements business has an attractive razor-razorblade business model. The buy thesis is based on margin expansion and leverage opportunity.Hilton Worldwide Holdings (HLT): The large ~13% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock currently trades at ~$103. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. There was a ~3% trimming this quarter.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).Kept Steady:Restaurant Brands International (QSR): The QSR stake is currently at ~16% of the portfolio. 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. In 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 $59.51.Chipotle Mexican Grill (CMG): CMG is a large top-three position at ~16% of the portfolio. 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. The stock currently trades at ~$1310. Q1 2020 also saw a one-third selling at ~$860 per share.Starbucks Corp. (SBUX): The ~10% of the 13F portfolio SBUX stake was established in October 2018 at a cost-basis of ~$51 per share compared to the current price of $97.76. Q4 2019 saw a ~40% selling at ~$86 while next quarter there was a ~85% stake increase at a cost-basis of ~$60 per share.Howard Hughes Corp (HHC): HHC is a ~7% of the 13F portfolio position established in 2010 as a result of its spin-off from GGP Inc. Recent activity follows: Q3 2018 saw a ~3% trimming and that was followed with a ~40% reduction next quarter at prices between $90 and $124. There was a ~85% stake increase in Q4 2019 at a cost-basis of ~$115 per share because of conversion of total-return-swaps they owned. Q1 2020 saw the addition of ~10M shares at ~$50 per share thru a private placement. The stock is currently at $71.94. There was a ~11% trimming last quarter.Note: In May, their beneficial ownership went up from ~20% to ~33% of the business due to the sale of put options with strikes between $75 and $92 and expiry between January & August 2021. For investors attempting to follow, HHC is a good option to consider for further research.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 ~$1.80 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of the total investment in the two GSEs. They said it is a hedge in case the resolution favors pfds more than the common. Pershing Square’s investor call today reaffirmed what they said in their semi-annual report earlier this year: although the share price has not budged, they believe Fannie/Freddie are firmly on a path to exit conservatorship.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q3 2020:From Semiannual  8/26/2020: As of 8/25 with PPS @ ~26.50, Pershing Square trades at ~33% discount to NAV. A number of internal factors such as buybacks along with the possibility of FTSE 100 inclusion could reduce this discount in the short-term.  Commentary: LOW – trades at 19x forward earnings compared to 25x for HD. Believes substantial PPS appreciation ahead. CMG – 52% PPS appreciation this year due to CEO and team’s execution. Digital sales mix increased from ~20% to ~70% at the peak in April. Chance of unit growth acceleration as pandemic has opened up several attractive locations – long-term goal of doubling restaurant count. QSR – undervalued – despite 90% recovery in PPS, it is trading at 28% below the high reached last year. As sales trends improve, valuation should catch up. A – meaningfully lower revenue declines compared to peers thru the pandemic period. Share buyback resumed. HLT – in-person networking will emerge as a requirement even in a work-from-home situation. ~20% PPS decrease YTD. After considering the business impact, the current valuation is attractive. HHC – significantly impacted but they believe it is transitory. Non-core asset disposals should restart once conditions stabilize. SBUX – one of world’s best businesses – reentered at an attractive valuation in March – taking longer to recover as it is a BF shows and so is more impacted by the work-from-home trend. Improving speed of service at drive-thru is a focus. Fannie/Freddie – firmly on a path towards exiting conservatorship and raising substantial first-loss private capital. The capital rule should be finalized by EOY. Improvements in capital rule include reduction in pro-cyclicality – ie, they have to raise more capital as housing values decline and vice-versa – the 4% capital ratio requirement seems high and that will result in less affordability for borrowers – we submitted a public comment regarding these issues. Collins case legality of FHFA’s structure & the lawfulness of net worth sweep at issue – decision should be around June 2020.Regulatory filings thru 9/1/2020: Form 3 – 7/23 – Forward purchase shares & warrants related to Pershing Square Tontine Holdings. Form 4/A – 6/11 – HHC – 10M shares @ 50 – 12.20M shares total, Form 4 – 6/5 – 10.92M shares."