"Tracking Bill Ackman’s Pershing Square Portfolio – Q3 2019 Update"
"Bill Ackman’s 13F portfolio value decreased from $6.71B to $6.49B this quarter.Pershing Square added Agilent and increased Berkshire Hathaway while dropping Automatic Data Processing during the quarter.The largest three 13F positions are Chipotle Mexican Grill, Restaurant Brands International, and Hilton Worldwide Holdings. They together account for ~54% 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 11/14/2019 (amended 12/9/2019). 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 2019.Ackman’s 13F portfolio value decreased ~3% from $6.71B to $6.49B this quarter. The number of positions remained steady at 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~54% of the total portfolio value: Chipotle Mexican Grill, Restaurant Brands International, and Hilton Worldwide Holdings.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 has underperformed the S&P 500 since its EOY 2012 inception, although YTD return as of December 17, 2019 is very strong – up 56.9% almost double the return compared to the S&P 500 index. Their original flagship fund’s (2004 inception) track record is outstanding with annualized returns at 14.4% compared to 8.6% for the S&P 500 index.To learn more about Bill Ackman, check-out the book “”.New Stakes:Agilent Technologies (A): Agilent is a 3.44% of the portfolio stake established this quarter at prices between $66 and $78 and the stock currently trades at $84.51.Note: During Pershing Square’s 3rd quarter conference call, Ackman indicated that they were building a new holding. At the time, he said the stake amounted to about 9% of the firm’s AUM and so that equates to about a ~$650M stake. This is compared to ~$225M reported in the 13F amendment.Stake Disposals:Automatic Data Processing (ADP): ADP was a large ~10% of the 13F portfolio stake established in Q2 2017 at a cost-basis of ~$97 and increased by around four-times in the following quarter at prices between $101 and $119. The stock is now at ~$169. There was a ~10% trimming in Q1 2018 at prices between $108 and $124 and another ~47% selling in the following quarter at prices between $113 and $140. The disposal this quarter was at prices between $158 and $173. Their average entry price was around $105 per share.Note 1: Pershing Square realized a stunning ~40% annualized return on ADP during their holding period. That return was helped by the leveraged long positioning using options.Note 2: In November 2017, Pershing Square lost a proxy battle at ADP – his three board nominations (including him) were rejected.Stake Increases:Berkshire Hathaway Inc. (BRK.A) (BRK.B): BRK.B is a ~13% of the portfolio position purchased last quarter at prices between $197 and $219 and the stock currently trades at ~$225. This quarter saw a ~14% stake increase at prices between $196 and $215. For investors attempting to follow, BRK.B is a good option to consider for further research.Note: Pershing Square's cost-basis on BRK.B is around $205 per share. They see opportunity to reduce the performance gap of BNSF & GEICO to their closest peers and expects earnings to grow at mid-teens over medium term, if Berkshire is able to improve operational performance and deploy cash.Stake Decreases:Chipotle Mexican Grill (CMG): CMG is the largest position at ~22% 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 last four quarters. The stock has doubled and currently trades at ~$834. Ackman harvested gains but still controls ~6% of the business.Note: Pershing Square believes the business transformation is in still in the early stages – it has the potential for upwards of 25% margins and store-count doubling (current store-count is ~2500) in the coming years. Current margins are at 21% compared to 25% margins five years ago (current sales per restaurant average $2.2M compared to $2.5M five years ago).Restaurant Brands International (QSR): QSR is currently the second-largest 13F position at 16.54% of the portfolio. Pershing Square’s cost-basis is ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. H1 2018 had also seen a ~22% reduction at prices between $53 and $64. Last four quarters have seen another ~28% selling at prices between $52 and $79. The stock currently trades at $65.01.Hilton Worldwide Holdings (HLT): The large (top three) ~15% portfolio stake was established last October. It was purchased at prices between $64 and $78 and the stock currently trades well above that range at ~$110. The position has seen only minor adjustments since.Note: 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. This is despite the fact that the business structure has transformed into a capital-light model as a result of the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV). Large unit development pipeline and buybacks should allow mid-teens growth.Lowes Companies (LOW): LOW is a large (top five) ~15% of the portfolio stake established in Q2 2018 at prices between $81 and $101 and increased by ~9% next quarter at prices between $95 and $117. Q4 2018 also saw a ~13% increase at prices between $86 and $114. The stock currently trades at $120. There was a ~10% trimming over the last two quarters.Kept Steady:Starbucks Corp. (SBUX): The ~13% SBUX stake was established last October at a cost-basis of ~$51 per share compared to the current price of $88.52. Last quarter saw a ~7% trimming. Per their 2019 interim report, Pershing Square believes the current valuation of 30x 2020 estimated earnings is appropriate, given the company is firing on all cylinders.Howard Hughes Corp (HHC): HHC is a ~2% of the 13F portfolio position established in 2010 as a result of its spin-off from GGP Inc. (GGP). The stock has returned over 3x since the spinoff. Q3 2017 saw a one-third increase as a result of the conversion of warrants held. There was a ~53% selling (~2.5M shares) in February 2018 at ~$128 per share (underwriting agreement). That transaction was prompted to address FIRPTA issues at PSH. The stock is currently at ~$124. Q3 2018 saw a ~3% trimming and that was followed with a ~40% reduction next quarter at prices between $90 and $124.Note: Regulatory filings from earlier this month indicate their ownership stake is at 6.38M shares (14.8% of business). Also, HHC board granted Pershing Square a waiver to acquire up to 26% of their Common Stock.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 $3.32 and $3.11 per share respectively. 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. As of their Q3 2019 conference call, they still believed the risk-reward for the Common is more attractive than the Preferred in almost every case.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q3 2019:PSH  – released 8/15/2019 – Performance – 45.3% in H1 2019 compared to 18.5% for S&P. $100M buyback program and 10c dividends announced. BRK.B – new stake – cost-basis might be around 205. Sees opportunity to reduce the performance gap of BNSF & GEICO to their closest peers. Expects earnings to grow at mid-teens over medium term, if they are able to improve operational performance and deploy cash. Estimates BRK trades at 14x and 12x x-cash which is cheap if growth materializes. CMG – biggest contributor to performance at ~11%. Still thinks there is opportunity to realized increases in sales & profit growth. Management believes they are in early stages. QSR – same store sales growth and recognition of international opportunities should allow rerating. SBUX – trades at 30x estimated 2020 earnings which is a premium to historical valuation – believes the valuation is appropriate given the company is firing on all cylinders. HLT – asset-light model should allow mid-teens growth rate – large unit development pipeline and buybacks as well. LOW – 4.2% same-store sales growth that outperformed HD. Lower margins – improvement from 9% to HD’s current 14.5% should be possible. As transformation progresses, the valuation should improve, HHC – as MPC’s reach critical mass, the NOI impact should become obvious, Fannie/Freddie – believes the delay is due to certain other priorities for Mnuchin as opposed to a lack of commitment to recapitalize. EXITS – ADP (reaching fair value – 40% annualized return over holding period) and UTX (exit at a slight gain as they decide not to fight against management’s decision to merge).Regulatory Filings thru 8/17/2019: 13D/A, Form 4 – 6/28 – CMG – 1.782M shares – 6.4% of business. 80K shares disposed at $726."