"Tracking Bill Ackman’s Pershing Square Portfolio – Q4 2021 Update"
"Bill Ackman’s 13F portfolio value increased from ~$9.46B to $10.58B this quarter.Pershing Square decreased Hilton Worldwide Holdings marginally this quarter.The largest three 13F positions are Lowes Companies, Hilton Worldwide, and Chipotle Mexican Grill. They together account for ~62% 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 2/14/2022. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q3 2021.Ackman’s 13F portfolio value increased ~12% from ~$9.46B to ~$10.58B this quarter. The number of positions remained steady at 6. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~62% of the total portfolio value: Lowes Companies, Hilton Worldwide, 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 have compounded at ~50% since. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~17.4% compared to ~10.6% for the S&P 500 index.Note 1: Pershing Square Holdings (PSHZF) has always traded at a discount to NAV. It currently trades at $36.10 per share compared to NAV of ~$50.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. PSTH currently trades below trust at $19.81.Note 3: Their investor-call on February 12th disclosed a new holding: 3.1M shares of Netflix (NFLX) at $395 cost-basis. Netflix currently trades at around the same price. Also, they said 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.To learn more about Bill Ackman, check-out the book “”.Stake Decreases:Hilton Worldwide Holdings (HLT): The large ~19% 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. There have only been minor adjustments since. The stock currently trades at ~$149.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 following the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV).Kept Steady:Lowes Companies (LOW): LOW is currently the largest position at ~25% 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 ~$221.Note: Pershing Square's cost-basis on LOW is ~$85 per share.Chipotle Mexican Grill (CMG): CMG is a large ~21% 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. Last quarter saw a ~3% increase at ~$1910 per share. The stock currently trades at ~$1523.Restaurant Brands International (QSR): The QSR stake is a large 13.73% 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: $397.50M aggregate purchase price for a $44.20 per share cost-basis. The stock currently trades at ~$56.Howard Hughes Corp (HHC): HHC is now a 13.10% 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 ~$96. Last quarter also saw a minor ~1% increase at $92 per share.Domino’s Pizza (DPZ): DPZ is a 11.16% of the portfolio stake established in Q1 2021 at prices between ~$330 and ~$375 and the stock currently trades well above that range at ~$432. They have a ~5.3% 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 ~$0.85 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 Q4 2021:Source: John Vincent. Data constructed from Pershing Square’s 13F filings for Q3 2021 and Q4 2021.1/26/2022 – 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.11/18/2021 – Pershing Square Q3 2021 Investor Call – strong quarter against S&P. UMG – worked since November – hopes to own for decades even. Paid in the low-18s euros, now high-25s – still feels undervalued. – high single digit growth projected – believes it is conservative. high-teens and low 20s EBITDA delivered. Our view is that it is a Capital-light high-growth annuity – 1-2% sales is all that is required to maintain growth – financial buyers compete for IP but UMG has an edge as it has value-add as the premium player. PSTH – working on alternatives. LOW – 57% ytd – still continues to be one of the cheaper stocks – 19x vs 25x for HD – double digit earnings growth likely. CMG – same-store up 15%. Recovery in in-restaurant (80% now) sales while retaining online orders. Smoke brisket ran out. New ones coming as well. Pricing – 4% increase in June to back $15 per hour min on labor. High unit growth – 200 this year and step-up next year. HLT – REVPAR is getting close to pre-covid – likely will happen next year. Pricing has recovered. Cut costs during covid and some will be sustained. 6-7% room growth likely. Annuity like growth stream. Inflation – repricing can happen daily. QSR – well-behind McDonalds during Covid – hire from Dominos expected to turn this around. Digital sales growth – 10% at BK and higher at others. Fire House Subs – potential similar to Popeyes acquired in 2017. 18x next-years cashflow is a discount. Strong Management team, great assets, etc. is a great setup. HHC – non-core asset sales this year at ~$400M. Strong balance sheet - $1b cash – buyback should come back. One of the cheapest stocks in our portfolio. Acquiring another MPC in Phoenix. Owns 25% of business and likely will increase with buybacks. DPZ – strongest result ever - 17.5% same-store sales growth. Consistent 2-year 15% same-store sales growth is admirable. Modest premium valuation currently – 50% appreciation to their cost but still views it as cheap, given the execution. Fannie/Freddie & PSTH – disappointments – pursuing another transaction – plaintiffs will backoff, if a transaction materializes. SPARC progression – should know something by 12/9. SPARC attributes – 1) SPAC in reverse – wts distributed for free - $10 minimum strike price – it will be flexible allowing floating base of capital, 2) no underwriting fees as opposed to 5.5% normal leak, 3) 2 SPARC wts for each wt they hold. Best-case – deal shortly + SPARC, Best worst-case – SPARC + return capital. Hedging – built very large notional short position in short-term US treasuries and some longer-term (10-yuear average) rates – out-of-the money basis through options - very cheap - $170M across funds – 6x return currently - $1B. Fed mistake – needs to taper faster.11/2021 - A J Bell Interview with Bill Ackman – 2019 – 58%, 2020 – 70%, and 17-18% this year so far. Bulk of the strategy is long-only durable-high-growth companies. A second portion is risk management. 2008 & 2020 credit-default swaps – to hedge credit risk, they bought credit-default-swaps bank insurers Fannie/Freddie – helped performance by being only down 18% and following it up with 40% in 2009 driven by the cash generated from the hedge as well as buying businesses while they were down using that cash. Same thing in 2020 – large position reversed when the hedge became quickly valuable – 2B cash generated to invest at the low point. 2021 option on interest-rate swap – similar strategy as a hedge against inflation – biggest black-swan concern is inflation – higher rates, lower values in equity market - generally allocated 1-2% with big returns if the event happens. The defining characteristic of these three investments are that capital commitments are small i.e., 1-2%. They can turn into large numbers if the outlier event takes place. Disappointments – None but our smallest in Fannie/Freddie is down – CDS-type 1.5% of portfolio position – dividends to govt. stopped at the end of Trump administration. The expectation is that they will become public without the conservatorship again. That happens when they are recapitalized – will take several years as well as legislative action and regulatory steps – they think the stocks are worth 20x to 30x in that event – the supreme court loss has resulted in the stock going down – lawsuit was that there was violation of law when govt. took it over. Everything else has done very well – HLT, CMG, LOW, HHC. A (doubled and exited), DPZ (sold SBUX which doubled with this) – mid 300s now in high 400s. Biggest disappointment was SPAC – Universal Music deal – back to drawing board because SEC did not allow. Their mark-to-market values are down due to this – still up 17-18% this year.Regulatory filings from 9/21/2021 to 11/23/2021: None.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"