"Tracking Bill Ackman’s Pershing Square Portfolio – Q1 2018 Update"
"Bill Ackman’s 13F portfolio value decreased ~18% from $5.87B to $4.83B this quarter.Pershing Square dropped Nike while adding United Technologies.The largest three 13F positions are Restaurant Brands International, Chipotle Mexican Grill, and Automatic Data Processing and together they account for around two-thirds 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 05/15/2018. 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 2017.Ackman’s 13F portfolio value decreased ~18% from $5.87B to $4.83B 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 ~67% of the total portfolio value: Restaurant Brands International, Chipotle Mexican Grill, and Automatic Data Processing.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 widely underperformed the S&P 500 since its EOY 2012 inception. 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:United Technologies (UTX): UTX is a ~5% of the 13F portfolio stake established this quarter at prices between $122 and $138 and the stock currently trades at ~$125. For investors attempting to follow Ackman, UTX is a good option to consider for further research.Note: Dan Loeb (Third Point) established a large activist stake in United Technologies this quarter. He is pushing for a 3-way split: Otis Elevator, Climate, Controls, & Security (CCS), and Aerospace (UTC Aerospace Systems and Pratt & Whitney). Bill Ackman has endorsed this view.Stake Disposals:Nike Inc. (NKE): NKE was a 6.22% of the portfolio stake established last quarter at prices between $51 and $65 and disposed this quarter at prices between $62.50 and $70. The stock currently trades at $69.50.Stake Increases:None.Stake Decreases:Restaurant Brands International (QSR): QSR is currently the largest 13F position at ~29% of the portfolio. Pershing Square’s cost-basis is ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. The stock currently trades at $56.31. There was a ~8% trimming this quarter.Note 1: A regulatory filing on 02/14/2018 show them owning 30.45M shares (12.3% of the business) of QSR. This is compared to 24.32M shares in the 13F.  The filing includes ~4M shares of exchangeable units held. There was a ~2M share reduction since that filing.Note 2: 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.Automatic Data Processing (ADP): ADP is a top three ~19% of the 13F portfolio stake established in Q2 2017 at a cost-basis of $97.30 and increased by roughly four-times the following quarter at prices between $101 and $119. The stock is now at $127. There was a ~10% trimming this quarter at prices between $108 and $124.Note 1: A regulatory filing (3/13/2018) show Pershing Square’s beneficial ownership at 31.8M shares (7.2% of the business). The 13F report only lists 7.9M shares that are directly owned. The rest are in American Style OTC Call Options. The filing disclosed that the reduction this quarter was 5M shares including ~3.9M in American Style OTC Call Options.Note 2: In November 2017, Pershing Square lost a proxy battle at ADP – his three (including him) board nominations were rejected.Mondelez International (MDLZ): MDLZ is a large ~14% of the 13F portfolio stake established in Q3 2015 at a cost-basis of ~$39. Q1 2016 saw a ~47% reduction at prices between $36.50 and $45. H1 2017 had seen another ~37% selling at prices between $42.50 and $47. Last quarter saw an about turn: two-thirds increase at prices between $39.30 and $43.50. The stock currently trades at $39.41. There was a ~30% selling this quarter at prices between $40.50 and $46.Note: Pershing Square’s latest regulatory filings on Mondelez (10/2017) show them holding a huge position in American style OTC call options. Including that, the ownership stake was at ~5% of the business (~75M shares).Howard Hughes Corp (HHC): HHC is a ~6% of the US long portfolio position that was 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 at ~$128 per share (underwriting agreement) - the transaction was prompted to address FIRPTA issues at PSH. The stock is currently at ~$130.Note 1: Recent regulatory filings show them having an economic interest of 7.6M shares of HHC (~18% of the business) including 5.4M notional common share exposure thru swaps that are not listed in the 13F.Note 2: Ackman  at the Ira Sohn conference in May 2017 - the thesis was focused around how Master Planned Communities (MPC) when developed patiently over a long period of time could create substantial value to shareholders.Kept Steady:Chipotle Mexican Grill (CMG): CMG is a large (top three) 19.27% of the portfolio stake established in Q3 2016 at a cost-basis of ~$405 per share. The stock currently trades at ~$427. For investors attempting to follow Pershing Square, CMG is a good option to consider for further research.Note: Ackman controls ~10% of CMG.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 $11.02. Ackman controls ~20% of the business.Note: The stock was down ~45% in 2015 and has been flat since.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 $1.36 and $1.40 per share respectively. In March, Pershing Square  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.Bill Ackman also has a short book. Herbalife (HLF) was the only one that was publicly known. It was a huge stake at ~9% of capital as of Q3 2017. The following quarter saw the position converted to in-the-money puts representing ~2% of capital. That  this quarter. Overall, the position realized significant losses over a five-year holding period.Note: 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 Q1 2018:Regulatory Filings thru 2/15/2018: 13G/A – 2/14 – QSR – 30.45M shares – 12.3% of business – includes 3,945,425 Common Shares issuable on exchange of Exchangeable Units beneficially owned by Mr. Ackman, 13D/A & Form 4 – 1/4/2018 – HHC – 2.2M shares – 5.1% of business – 5.4M shares interest under swaps – total economic interest at 7.6M shares – 17.7% of business. Underwriting agreement – sale of 2.5M Common Shares at a price of $127.86 per share,1/29/2018 –  - London: Performance: From 1/1/2004 inception, returns at 493.6% compared to 220.8% for S&P 500. Down 4% for 2017 compared to Up 21.8% for the S&P 500 index. 2017 Winners: Gross Returns - QSR (5.2%) – 4x return since 2012 - still trades at a discount to peers – margin improvement opportunity – free option on value creating acquisitions, ADP (3.5%) – secular growth – tax reform should drive ~13-15% increase in earnings, $24B float balance would increase profits as interest rates rise – ADP along with CMG considered in early stage of value creation, HHC (1.6%) – continuing to create value across core trophy real-estate assets – Ward Village Hawaii, Seaport District, Summerlin MPC in Vegas, etc. – exited common but kept total return swaps to address FIRPTA issues at PSH, NOMD (1.3%), HLT (0.9%), NKE (0.8%), and Accretion – share buyback impact (0.4%). 2017 Losers: HLF (4%), MDLZ (3.5%) – low relative valuation - ~15% discount to peers, 18x 2018 EPS – 25% US, 40% Emerging sales split is nice – Ems macro, FX, etc. have turned from headwinds to tailwinds – re-rating & double-digit EPS growth potential, Fannie/Freddie (3.3%)- will be worth multiples of current price, if housing finance reform is successful, CMG (2.7%) – new CEO search – opportunity for unrealized growth in Digital Experience, Menu Innovation, Delivery & Catering, Domestic & International expansion, AGN litigation reserve (1.3%), VRX (1%). Long/Short Attribution: Plus 1.5% for longs offset by Negative 4.1% in the Shorts/Hedges. AUM: $8.8B. PSH Structure – Restructuring to a smaller investment-centric organization – Bill will no longer spend time on day-to-day IR matters. 2017 New Ideas Related Commentary: ADP (substantial margin improvement opportunity), HLT (franchised model, capital light, growth opportunity of new hotel units), NKE (margin expansion opportunity – new manufacturing processes & rapid growth in distribution channels) – 29% appreciation in 3 months since 10/12/2017, SPGE (high quality annuity-like revenue stream) – exited as a full-position could not be established at attractive prices, & undisclosed (sold due to business developments since acquisition). The ADP stake is a FULL position while others were partial as price ran away – with ADP, $500M+ ADP co-investment vehicle provides additional long-dated incentive economics for the team.  Other Commentary: PAH – 9% organic EBITDA growth - $4b debt refinanced lowering interest expense – trades at 9.5x EBITDA 2018 multiple - $19 PPS if it traded at current peer multiples – performance solutions/Ag separation in H2 2018 to address sum-of-parts discount. HLF Short – converted to in-the-money puts representing ~2% of capital – PPS has increased 60% from average cost at announcement in May 2012. Other EXITS: APD, HLT, NOMD, undisclosed, VRX. PSH Discount Mgmt – a) May 2017 share buyback for up to 5% of PSH. So far, 5.5M shares repurchased at 20.1% NAV-discount at a cost of $77.2M – 6.5M shares could additionally be purchased with remaining capacity, b) Jan 2018 PSH & PSCM tender for up to $300M of PSH."