"Tracking Bill Ackman’s Pershing Square Portfolio – Q1 2022 Update"
"Bill Ackman’s 13F portfolio value decreased from $10.78B to $10.39B this quarter.Pershing Square decreased Hilton Worldwide Holdings this quarter.The largest three 13F positions are Lowes Companies, Chipotle Mexican Grill, and Hilton Worldwide. They together account for ~51% 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 5/16/2022. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q4 2021.Ackman’s 13F portfolio value decreased ~4% from ~$10.78B to ~$10.39B this quarter. The number of positions increased from 7 to 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~51% of the total portfolio value: Lowes Companies, Chipotle Mexican Grill, and Hilton Worldwide.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 compounded at ~50% in the three years through 2021. For 2022 through May 17th, they are down 18.5%. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~17% compared to ~10.4% for the S&P 500 index.Pershing Square’s February investor call disclosed a new holding: 3.1M shares of Netflix (NFLX) acquired at $395 cost-basis. On April 20th, they disclosed the sale of that position in the low 220s. The loss reduced their YTD returns by ~4%. Netflix currently trades at $183.Note 1: Pershing Square Holdings (PSHZF) has always traded at a discount to NAV. It currently trades at $30.45 per share compared to NAV of $46.62.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. PSTH currently trades below trust at $19.85. They have till July 23, 2022, to do a deal.Note 3: Earlier this year, they disclosed the following regarding their hedging strategy, principles, and performance: “Principles: asymmetric payoff structures along with monetization that provides liquidity during periods of market dislocation. Strategy: Interest rate hedges from late 2020 to early 2022 as they believed Fed would raise rates earlier than anticipated. Performance: 18.5x return on $64M to $1.2B in 2005-2009 subprime crisis through CDS on MBIA, 96.3x return on $27M to $2.6B in 2020 COVID-19 through Index CDS on Investment Grade & High Yield Bonds, and 7.4x return on $188M to $1.4B in 2020-2022 through Out-of-the-money 2 year & 10 year swaptions.Note 4: Pershing Square has a ~10% stake in UMG Music Group (UMGNF) at a cost-basis of ~€18 per share. It currently trades at ~€20.02.To learn more about Bill Ackman, check-out the book “”.Stake Decreases:Lowes Companies (LOW): LOW is currently the largest position at ~20% 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 four quarters through Q2 2021 had seen a ~20% selling at prices between ~$136 and ~$211. The stock currently trades at ~$188. There was marginal trimming this quarter.Note: Pershing Square's cost-basis on LOW is ~$85 per share.Hilton Worldwide Holdings (HLT): The large ~15% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. This quarter saw a ~20% selling at prices between ~$129 and ~$158. The stock currently trades at ~$132.Note 1: Their overall cost-basis is ~$72 per share.Note 2: In Q4 2018, Hilton Worldwide Holdings came back into 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 following 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 13.41% 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. In June 2020, they increased the position by roughly two-thirds thru forward contracts at $44.20 cost-basis. The stock currently trades at $50.29. There was marginal trimming this quarter.Domino’s Pizza (DPZ): DPZ is a ~8% of the portfolio stake established in Q1 2021 at prices between ~$330 and ~$375 and the stock currently trades near the low end of that range at ~$336. They have a ~5.3% ownership stake in the business. This quarter saw marginal trimming.Stake Decreases:Canadian Pacific Railway (CP): CP is a 2.34% of the portfolio position purchased last quarter at prices between ~$64.50 and ~$78 and the stock currently trades at $68.67. There was a minor ~5% stake increase this quarter.Note: the position was not in their Q4 2021 13F report but was disclosed in an amended filing in March.Kept Steady:Chipotle Mexican Grill (CMG): CMG is a large ~17% 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. There was a ~7% trimming in Q1 2021 at ~$1340 per share. Q3 2021 saw a ~3% increase at ~$1910 per share. The stock currently trades at ~$1273.Note: Regulatory filings since the quarter ended show them owning 1.105M shares of Chipotle. This is compared to 1.114M shares in the 13F report. The reduction happened at $1443.64.Howard Hughes Corp (HHC): HHC is now a 13.58% 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. Q1 2021 saw a ~25% stake increase at prices between ~$78 and ~$102. The stock is currently at $85.58. Q3 2021 also saw a minor ~1% increase at $92 per share.Note: They have a ~26% ownership stake in 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 ~$0.68 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of the total investment in the two GSEs. Their Q4 2021 Annual Investor Presentation had the following regarding Fannie/Freddie: “Remains confident of long-term value – believes re-privatization is an eventuality regardless of court outcomes”.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q1 2022:Source: John Vincent. Data constructed from Pershing Square’s 13F filings for Q4 2021 and Q1 2022.1/26/2022 – 3.1M share position built in NFLX at prices between $355 and $400. Funded it by liquidating $1.2B in inflation hedges which had a cost-basis of ~$170M.2/11/2012 – Pershing Square Holdings (PSHZF) Q4 2021 Annual Investor Presentation – 26.9% NAV growth and 18.6% shareholder return in 2021 – discount-to-NAV widened from 23% to 28.3%. 1.271B in new bonds (laddering strategy – spread 2022-39 maturities) – total debt ~$3B of $13.48B Capital (Firm AUM 16.63 across 4 funds) – long-term debt at low-cost is a competitive advantage. PSH Net of Fees – 26.9% 2021 Return – 50.1% 3-year compounded return – since 2004 17.4% compounding vs 10.6% for S&P. CONTRIBUTIONS: Lowe’s highest at 10.8% followed by UMG, Interest Rate Swaptions, HLT, DPZ, CMG, A, HHC. DETRACTORS: PSTH negative 6.5% followed by Fannie/Freddie, Index CDS, and others. DEVELOPMENTS: UMG purchase, PSTH (still looking & SPARC in process), DPZ (new), A & SBUX (monetized), and Interest Rate Hedge in late 2020 and early 2021. PROFILES: UMG – 10% acquired at 33B Euro (18.27 Euro cost-basis) vs 39B currently (21.38 Euro now)– 2% dividend yield – capital light & dominant pure play – mid-20s EBITDA margin projection – undervaluation thesis. PSTH – economically & reputationally motivated to consummate deal. Targets would find an attractive partner with $7B deployable cash. Simultaneously looking to improve structure thru SPARC (May 8 deadline for SEC to approve or disapprove NYSE’s rule change proposal). 2021 NEW: One undisclosed position, DPZ, & UMG. 2022 New – NFLX (hedging proceeds reinvested) – 3.1M shares acquired at $395 per share – steadily increasing market share of total TV video revenues. EXITS: SBUX - ~$500M gain (81% cumulative) – last sale on Mar 26, 2021, A - ~$920M gain (97% cumulative) – last sale on August 5, 2021. Defensive Hedging commentary – principles: asymmetric payoff structures along with monetization that provides liquidity during periods of market dislocation. Interest rate hedges in late 2020 & early 2021 as they believed Fed would raise rates earlier than anticipated. Overall Hedging Performance - $188M premium, proceeds & market value $1.386B. Only $5M premium remains with market value $134M (27.1x return) – replaced 90% of the hedges with additional long-dated out-of-the-money swaptions. Historical Returns – 18.5x on $64M to $1.2B in 2005-2009 subprime crisis thru CDS on MBIA, 96.3x on $27M to $2.6B in 2020 COVID-19 Index CDS on Investment Grade & High Yield Bonds, and Late 2020 – Early 2022 $188M to $1.4B using Out-of-the-money 2 year & 10 year swaptions. Portfolio Updates: LOW -  relative valuation discount against HD while progressing on a multi-year business transformation – average cost announcement in April 2018 was $86. HLT – COVID-19 validated the quality of its asset-light mode – poised to deliver long-term earnings meaningfully greater than pre-2020 levels. Average cost at announcement in Oct 2018 was $73. CMG – 2015 peak of $2.5M average restaurant sales eclipsed – long-term poised for over $3M. 19% same-store sales growth in 2021. 8-10% annual unit growth, 80% of new stores with digital drive-thrus, international expansion opportunity. Average cost at Aug 2016 announcement $405. QSR – high-quality business with significant long-term growth potential - highly discounted valuation – 18x our estimate of 2022 FCF, began repurchasing in August. As underlying sales trends recover, QSR share price should reflect business fundamentals. BK US under new management poised to make a recovery. Average cost at June 2012 announcement was $16. HHC – executing on value creation opportunity within its core MPCs. $376M from non-core assets and deployed $600M on 37K acre shovel-ready MPC in Phoenix. Concentration in lower tax Texas and Nevada a tail-wind. $250M buyback announced. Average cost at Nov-2010 announcement of $37. DPZ – category leader with crown jewel digital and delivery infrastructure. Optimal capital allocation by near-100% franchised business model. Average cost at Mar 2021 announcement of $359. Fannie/Freddie – supreme court largely sided with government. Despite court rulings, we believe they remain perpetual options. Remain confident of long-term value – believes re-privatization is an eventuality regardless of court outcomes. Average cost at 10/2013 announcement of $2.29 and $2.14.Regulatory filings from 11/23/2021 to 2/26/2022: 13G/A – 2/14 – DPZ – 2.09M shares – 5.7% of business.Long Summary for SA: “Their long-term performance is stellar and it is trading at a ~30% discount to NAV.”NAV as of latest at"