"Tracking Bill Ackman’s Pershing Square Portfolio – Q4 2020 Update"
"Bill Ackman’s 13F portfolio value increased from $8.82B to ~$10B this quarter.Pershing Square marginally decreased most of the stakes this quarter.The largest three 13F positions are Lowes Companies, Chipotle Mexican Grill, and Restaurant Brands. 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 2/16/2021. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q3 2020.Ackman’s 13F portfolio value increased ~13% from $8.82B to ~$10B 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 ~51% of the total portfolio value: Lowes Companies, Chipotle Mexican Grill, and Restaurant Brands.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. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~16.9% compared to ~9.6% 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 23% from 29% as of mid-February following their inclusion in the FTSE 100 index in early December. It currently trades at ~$35 per share.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 400+ SPACs that came to market over the last year. They expect a deal to be announced soon. The stock trades at a large premium to trust value (~$20 trust value compared to the current trading price of $29.35).Note 3: It was disclosed last March that liquidating market hedges set up using credit default swaps had 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 “”.Stake Increases:None.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 stock currently trades at ~$160. Last three quarters have seen only minor adjustments.Note: Pershing Square's cost-basis on LOW is ~$85 per share. In Pershing Square’s annual presentation in mid-February, they said LOW should earn $12 to $13 in earnings over the coming years.Restaurant Brands International (QSR): The QSR stake is currently at ~15% 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. 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 ~$60. There was minor trimming this quarter.Hilton Worldwide Holdings (HLT): The large ~15% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock currently trades at ~$124. Q1 2020 saw a ~30% stake increase at a cost-basis of ~$70. There was minor trimming in the last two 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).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 ~$122 and the stake is at ~14% of the portfolio. Last two quarters saw minor trimming.Note: The analytical measurements business has an attractive razor-razorblade business model. The buy thesis is based on margin expansion and leverage opportunity.Starbucks Corp. (SBUX): The ~11% 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 ~$108. 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.Kept Steady: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. Q1 2020 also saw a one-third selling at ~$860 per share. The stock currently trades at ~$1442.Note: Regulatory filings since the quarter ended show them selling ~75K shares at ~$1340 per share. They still own ~1.09M shares.Howard Hughes Corp (HHC): HHC is a ~15% 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 $94.87.Note: Their beneficial ownership is currently at ~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 ~$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. Pershing Square’s annual presentation in mid-February reaffirmed their view that the position is a valuable perpetual option on their eventual exit from conservatorship.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q4 2020:Regulatory filings thru 11/18/2020: None.11/9/2020 – same equity hedging trade as the March one was put on sized at 30% of the March hedge -11/19 – Pershing Square Q3 call notes – best return on gross return – 44% to 56% depending upon whether private vs public funds. Individual Names – 1) LOW – negative PPS reaction – unique holding – comparables trending up – EPS up 40% despite covid. Share-buyback $3B for Q4 – 10% of market cap. ~$8.50 earnings this year – 50% YoY. This is despite higher spend. Stores – merchandizing resets. Should continue to reduce productivity gap with HD. ~25% YTD PPS change – 18x earnings vs 23x earnings for HD – opportunity at revenue, margin, and growth line. Why PPS down after earnings? – pulled forward some investments resulted in ~$250M cost in Q3 & Q4 which pressured margins – so disappointed with flow throughs. Business trending with strong same-store growth and guidance was 15-20% - this probably left some questions. Extremely cheap – thought was cheap at 175. 2) QSR – sequential improvements in all brands – off-premise model now – resurgence in covid will impact sales temporarily. Ambitious launch of Tim’s rewards – should be a powerful tool going forward (engagement). Drive through – double-digit increase across NA. Modernizing 10K restaurants across NA – better service is the cause. Materially negative impact on competition that has smaller scale. So, likely better competitive environment. Working with franchisees to optimize dislocations due to pandemic. Has better competitive position today compared to pre-pandemic. Mid-single digit growth next year. Digital menu boards – who is paying? – from ad funds but combined effort. Tim Horton’s Canada focus and pandemic focus impact – Tim was slowest to recover – due to workplace shutdowns. As this changes, Tim’s business should come back. 3) CMG – sales trajectory has returned. Same store up 8% on one-year and 20% on 3-year. Margin recovery in focus. Industrial standard differential pricing being adopted. Should emerge stronger – in-store should recover more fully, transformation in digital mix to 50%. Loyalty program doubled during pandemic. Best-in-class customer value proposition is unparalleled. How is it cheap? – unanticipated explosion of digital sales. Retaining in-store while increasing digital. 4) Hilton – why is it good even with 50% down in business travel? – may be slightly less but should largely revert. Why is it good today? – crisis validated franchisee model and they will emerge stronger. Asset-light nature insulates them in current environment. Data point – last Q REVPAR down 60% - Hilton still managed a profit. Bill comment - Business travel will be different but demand will be similar. In order for the culture to hold, they will have bring together people at different points. You don’t want to be the last client to show up at a customer after pandemic. So, expects a huge spike. 5) Agilent – next Monday is earnings – last quarter showed it has a durable model. Organic revenue ~3% decline. Focused on new product innovation – workflow solutions – recently won several contracts. Two new mass spectrometry product line. These should offer tailwind. Expanding margins still. Delivering cost savings without layoffs. Online tools. Bill – pharma investment – how impactful?- increased investment in the area should help their instruments and services offerings. 6) Starbucks – recovering extremely well – headwinds from closed stores. Strong momentum in October. China is only down 3% in September. ~90+% stores open although US is at ~60% on seating. Conservative 2021 guidance. China same-store expected positive from EOY and US by March. Digital ecosystem is the envy of all competitors and it is important going forward. China has no competition. Bill – December investment days are good – Agilent, Starbucks. 7) HHC – encouraging rebounding expectation. Increasingly attracted to walkable communities. 30% new home sales growth. Momentum should help land sales. Collection rates improved to high 90% range. 24 homes presold with digital platform (virtual tours etc.). Victoria Place is 71% presold. Strong liquidity ~850M cash on hand should help recovery. Bill – PPS down more than competition – no direct comparable but REITs – HHC is more diversified. CEO announcement before EOY. 8) FNMA/FMCC – FHFA capital rule finalized – largely consistent but more conservative – 4.27% vs 4%. Procedural hurdle before preferred stock agreement negotiation. 2-month window to amend PSPA – important for conservatorship exit – permanently end net-worth sweep. Jan 21 – new treasury secretary and possible Calabria (without cause termination possible with Collins outcome). December 9th argument. A final decision is June 2021. GSE hold $35B which is progress from zero but only 12% of the new rule requirement. Playing their traditional role now. Bill – 7 year investment. Very attractive risk-reward. Next 60-days interesting opportunity. Even if Calabria replaced, cases negative etc. we believe they are on a trajectory and the question is timeframe. Both common and preferred still very attractive. Pershing Square Tontine – can’t say much – could recruit best investors (13Fs and sovereign wealth funds, Family offices, etc. are in and so you can see how successful we are – good asset for us with finding a target), merger friendly structure would find it attractive. About 6-months – may be in Q1. Still expects that. Hedge – rebuilt hedge on US investment grade credit and Europe. They have come back all the way back to the levels previously. So, different reasons. Standalone investment looks asymmetric with hedging benefit and so is attractive. Bullish on 2021. Next couple of months will be tragic. 200K more could die. Relative short order, we will all be vaccinated. H2 2021 back to normal is our estimate. Very much long, but has a low-cost decent sized hedge is prudent and that is what we did. Q&A: not waiting for correction but has large cash on hand. Focused on PSTH. All male nature of investment team is frustrating – quite pleased with a candidate. Will join in September – investment banking, PE background – two tests given – greatest presentation every given. ESG investment criteria – want to invest in companies like CMG which source products from smaller farms that don’t use antibiotics etc. that are bad for consumers. We avoid industries causing economic harm. Pandemic look back will be that it has helped the well capitalized at the expense of smaller players. Great time to be an entrepreneur. Best time to start restaurants."