"Tracking Bill Ackman’s Pershing Square Portfolio – Q4 2018 Update"
"Bill Ackman’s 13F portfolio value increased ~14% from $5.21B to $5.96B this quarter.Pershing Square added Hilton Worldwide and Starbucks while reducing Howard Hughes.The largest three 13F positions are Restaurant Brands International, Lowes Companies, and Chipotle Mexican Grill. They together they account for ~45% 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 02/14/2019. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q3 2018.Ackman’s 13F portfolio value increased ~14% from $5.21B to $5.96B this quarter. The number of positions increased from 7 to 9. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~45% of the total portfolio value: Restaurant Brands International, Lowes Companies, 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 has underperformed the S&P 500 since its EOY 2012 inception, although YTD return as of February 12, 2019 saw a strong rebound – up 24.7% compared to 9.7% for the S&P 500 index. Their original flagship fund’s (2004 inception) track record is outstanding with cumulative returns at ~500% compared to ~220% for the S&P 500 index.To learn more about Bill Ackman, check-out the book “”.New Stakes:Hilton Worldwide Holdings (HLT) & Starbucks Corp. (SBUX): These two new stakes were established in October 2018. HLT is a 13.19% position purchased at prices between $64 and $78 and the stock currently trades just above that range at $81.75. The 12.71% SBUX stake has a cost-basis of ~$51 per share compared to the current price of $70.71.Note: Hilton Worldwide Holdings is back in 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).Stake Disposals:None.Stake Increases:Lowes Companies (LOW): LOW is a large (top three) 14.79% of the portfolio stake established in Q2 2018 at prices between $81 and $101 and increased by ~9% last quarter at prices between $95 and $117. This quarter also saw a ~13% increase at prices between $86 and $114. The stock currently trades at $104.Note: Pershing Square has stated that Lowes has a credible plan in place to narrow the performance gap with Home Depot. EBIT margin at Lowes is 9.3% compared to 14.5% at Home Depot. The new leadership team at Lowes has several people who previously played key roles in the turnaround at Home Depot (HD) and that should help.United Technologies (UTX): UTX is a ~10% of the 13F portfolio stake established in Q1 2018 at prices between $122 and $138 and increased by ~135% next quarter at prices between $118 and $128. The stock currently trades at ~$128. For investors attempting to follow Ackman, UTX is a good option to consider for further research. Last two quarters have also seen a combined ~25% increase at prices between $102 and $144.Note: Pershing Square believes the upcoming 3-way split should be a catalyst for significant share price appreciation: Otis Elevator, Climate, Controls, & Security (CCS), and Aerospace (UTC Aerospace Systems and Pratt & Whitney).Automatic Data Processing (ADP): ADP is a large ~9% of the 13F portfolio stake established in Q2 2017 at a cost-basis of ~$97 and increased by around four-times the following quarter at prices between $101 and $119. The stock is now at ~$150. 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. Last quarter also saw a ~4% trimming while this quarter there was a marginal increase.Note 1: Regulatory Filings from last year show them owning 21.3M shares (4.9% of business): ~4M shares listed in the 13F report in common stock and the rest in American Style Call Options.Note 2: Per a letter to investors in June 2018, their average entry price on ADP was $105 per share.Note 3: In November 2017, Pershing Square lost a proxy battle at ADP – his three (including him) board nominations were rejected.Stake Decreases:Restaurant Brands International (QSR): QSR is currently the largest 13F position at ~17% 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. The stock currently trades at $64.69. There was a minor ~6% trimming this quarter.Note: The QSR stake came about through the merger of Tim Hortons and Burger King Worldwide. Pershing Square had a huge investment in Burger King and those shares got exchanged for QSR shares. In addition to the 13F stake, they also held around ~4M shares in exchangeable units as of February 2018. That stake has been reduced to ~300K shares, per a regulatory filing this month.Chipotle Mexican Grill (CMG): CMG is a large (top three) ~14% of the portfolio stake established in Q3 2016 at a cost-basis of ~$405 per share. The position was sold down by ~30% last quarter in the high-400s price-range and that was followed with a ~6% trimming this quarter. The stock currently trades at ~$606. Ackman harvested gains.Note: Regulatory filings since the quarter ended show them holding 1.88M shares of Chipotle. This is compared to 1.94M shares in the 13F report – marginal trimming at ~$600 per share.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 ~$115. Last quarter saw a ~3% trimming and that was followed with a ~40% reduction this quarter at prices between $90 and $124.Note: Regulatory filings from November show them having an economic interest of 5.4M shares of HHC (~12.6% of the business) including 4.17M notional common share exposure thru swaps that are not listed in the 13F.Kept Steady:Element Solutions (ESI) previously Platform Specialty Products (PAH): On 01/23/2014, Ackman disclosed a huge new stake in Platform Specialty Products Corporation (PAH) in a 13G filing. Pershing Square was a PAH investor prior to its NYSE IPO. Q4 2014 saw a ~30% stake increase at prices between $21 and $28. Ackman’s cost-basis is around $14. The stock currently trades at $11.16.Note: Regulatory filings since the quarter ended show them no longer holding any shares of Element Solutions. The ~40M share stake was sold at ~$11.75 thru a buyback deal with the company. Prior to this transaction, Ackman’s ownership stake was ~20%.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 $2.71 and $2.57 per share respectively. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of its total investment in the two GSEs. They said it is a hedge in case the resolution favors pfds more than the common.Note: Bill Ackman also had a short book which lost money in the last few years. As of the end of January, their short exposure is zero: 124% long and 0% short. There is no regulatory requirement to disclose short positions and so only ones that Ackman voluntarily discloses are known.The spreadsheet below highlights changes to Pershing Square’s US stock holdings in Q4 2018:10/11/2018 -  – 15.2M shares - cost-basis is $51 per share. Expects a double in three years. Also a similar  (HLT).Regulatory Filings thru 11/15/2018: 13D/A – 11/13 – HHC – 1.23M shares – 2.9% of business (economic exposure including swaps is 5.4M shares – 12.6% of business) – Beneficial ownership percentage dropped below 5% on Sep 21, Form 4 – 11/13 - ~900K sale @ $109.39. Form 4 – 9/27 – minor sales, Form 4 – 9/24 - ~50K shares sold ~$126. Form 4 – 9/19 - ~14K sold @ ~$124. 13D/A – 9/19 – 2.19M shares – 5.1%. Form 4 – 11/7 – CMG - ~120K shares disposed @ ~$472 – 1.94M shares remain. Form 4 – 8/30 - ~825K shares sold @ ~$488. Form 4 – 13D/A – 8/30 – 2.06M shares – 7.4% of business – sold shares in a block transaction. Form 4 – 8/17 – ADP – 21.3M shares – 4.9% of business – 4.03M shares in common stock and the rest of American Style OTP call options. Sold shares and the net impact was the drop of ownership below the 5% threshold."