"Tracking Bill Ackman’s Pershing Square Portfolio – Q1 2020 Update"
"Bill Ackman’s 13F portfolio value increased from $6.55B to $6.57B this quarter.Pershing Square increased Howard Hughes Agilent Technologies, and Starbucks during the quarter.The largest three 13F positions are Lowes Companies, Berkshire Hathaway, and Hilton Worldwide Holdings. They together account for ~46% 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  and their earnings call last month. 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 2019.Ackman’s 13F portfolio value increased marginally from $6.55B to $6.57B this quarter. The number of positions increased from 8 to 10. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~46% of the total portfolio value: Lowes Companies, Berkshire Hathaway, and Hilton Worldwide Holdings.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 last year as they had an outstanding 58.1% return compared to 31.5% for the S&P 500 index. That was followed up with a ~25% return in Q1 2020 compared to negative 19.6% for the S&P 500 index. Their original flagship fund’s (2004 inception) track record was excellent with annualized returns at 14.3% compared to 9.1% for the S&P 500 index.Note: It was disclosed in late March that liquidating market hedges had netted them ~$2.6B. This was compared to ~$27M in premiums paid. Details follow: they built a $70B notional position in credit default swaps between Feb 24 and March 2 and unwound the whole position in two weeks that that ended on March 23rd.To learn more about Bill Ackman, check-out the book “”.New Stakes:Blackstone Group (BX) and Park Hotels (PK): These were two small positions established during the quarter. Last month, it was disclosed that both positions were sold as they could not build substantive stakes before the prices went back up.Stake Disposals:None.Stake Increases:Lowes Companies (LOW): LOW is currently the largest position at ~16% 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. Q4 2018 also saw a ~13% increase at prices between $86 and $114 while Q2 & Q3 2019 saw a ~10% combined trimming. There was a ~40% stake increase this quarter at ~$84 per share. The stock currently trades at ~$132.Note: Pershing Square's cost-basis on LOW is ~$85 per share. Their buy thesis is on the premise that Lowes is laying the groundwork for a multi-year transformation.Berkshire Hathaway Inc. (BRK.A) (BRK.B): BRK.B is a ~15% of the portfolio position purchased in Q2 2019 at prices between $197 and $219 and the stock currently trades at ~$182. Last quarter saw a ~14% stake increase at prices between $196 and $215. This quarter saw a one-third further increase at prices between ~$162 and ~$230.Note: The position was eliminated last month. They sold to free up cash to have liquidity in case of another market crash.Hilton Worldwide Holdings (HLT): The large (top three) ~14% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock currently trades at $78.25. This quarter saw a ~30% stake increase at a cost-basis of ~$70.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. This quarter saw the position built to a ~14% stake at prices between $63 and $90. The stock currently trades at $87.44.Note: The analytical measurements business has an attractive razor-razorblade business model. The buy thesis is based on the margin expansion and leverage opportunity.Starbucks Corp. (SBUX): The ~10% 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 $77.84. Q2 2019 saw a ~7% trimming. Last quarter saw a ~40% selling at ~$86 while this quarter there was a ~85% stake increase at a cost-basis of ~$60 per share.Howard Hughes Corp (HHC): HHC is a 9.37% 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. Last quarter saw a ~85% stake increase at a cost-basis of ~$115 per share because of conversion of total-return-swaps they owned. This quarter saw the addition of ~10M shares at ~$50 per share thru a private placement. The stock is currently at ~$60.Note: Last month, their beneficial ownership went up from ~20% to ~33% of the business due to the sale of put options with strikes between $75 and $92 and expiry between January & August 2021. For investors attempting to follow, HHC is a good option to consider for further research.Stake Decreases:Chipotle Mexican Grill (CMG): CMG is a large stake at ~12% 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. The stock currently trades at ~$1032. This quarter saw a one-third selling at ~$860 per share.Kept Steady:Restaurant Brands International (QSR): The QSR stake is currently at ~9% 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. The stock currently trades at ~$56.Note: Regulatory filings since the quarter ended show them owning 29M shares (9.6% of business). This is compared to ~15M shares in the 13F report. On June 1st, they purchased 9M shares thru forward contracts: $397.50M aggregate purchase price for a $44.2 per share cost-basis.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 ~$2.14 per share. In March 2018, Pershing Square said their Fannie/Freddie pfds now amounts to 21% of the total investment in the two GSEs. They said it is a hedge in case the resolution favors pfds more than the common.The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q1 2020:2/4/2020 Annual Investor  – PSH trading at 26.9% discount to NAV. AUM of ~$8.5B. Performance – 58.1% for 2019 compared to 31.5% for S&P. 14.3% annualized since 2004 inception compared to 9.1% for S&P. New Positions: Agilent – A - , Berkshire – BRK.B - . Activism: Howard Hughes – HHC – Bill is board member since 2010, company executing a transformation plan after a review in Oct 2019. New CEO Paul Layne announced $2B in asset sales and one-third reduction in G&A expenses. Chipotle – CMG – two board members since 12/2016. New CEO Brian Niccol successfully implemented transformation – early stages in executing growth initiatives. ADP – 2017 proxy contest and later engagement resulted in their decision to embrace a business transformation and margin expansion. Portfolio Updates: Agilent – A – new position at $76.58 cost-basis – leading analytical measurements business with attractive razor-razorblade business model – margin expansion and leverage opportunity. BRK – new position at cost-basis $206 - cheap valuation 14x earnings, 1.3x BV – Geico & Burlington Northern margin expansion opportunity – Financial optionality with 20% of market-cap in cash. CMG – strong growth opportunity still ahead – average restaurant sales still 12% below peak and margins ~700 bps below peak. Has rode it from $405 (Aug 2016) to $885 – cost-basis $385. Hilton – HLT – asset-light model – mid-teens growth opportunity. Rode it from $73 (Oct 2018) from $111. Restaurant Brands – QSR – trades at 20x free cashflow which is a 25% discount to peers – capital allocation opportunity with 5% in 2019 – as Tim Horton’s margins normalize, PPS should rerate. $16 cost-basis (2012 onwards). LOW – laying the foundation for multi-year transformation. $86 cost-basis (April 2018 purchase). Analyst Day targets imply more than $10 earnings per share over the next few years. HHC – transformation to a lean, decentralized business focused on the core Master Planned Communities (MPC) business initiated under new leadership – non-core divestitures. Sold their total return swap position and converted to shares at ~$115 cost-basis. Now has 15% beneficial ownership interest.  Has rode it from $37 (Nov 2010). Fannie/Freddie common – expects appreciation as key steps are taken toward ending conservatorship. Has rode them (FNMA/FMCC - $2.29/$2.14) from Oct 2013. EXITS: SBUX & ADP – prospective returns now modest as valuation has caught up (105 to 167 from May 2017 to July 2019) – SBUX 73% return over 19 months of ownership (51 to 85 from July 2018 to Jan 2020). UTX – decided to walk away rather than fight the merger and replace management. (small profit during 2/1018 to 6/2019 holding period – 130 price). PAH - $10 to $12 during holding period from 5/2013 to 2/2019. Also, they changed named to Element Solutions.Regulatory filings thru 2/19/2020: 13G/A – 2/14 – QSR - ~20M shares – 6.6% of business (includes exchangeable units and forward contracts), 13D/A – 2/10 – CMG – 1.51M shares – 5.4% of business – they sold shares on February 6th and 7th , Form 4 – 2/7 – 215K share disposal at ~860.  Form 4 – 12/17 – HHC – minor increase at ~117 – ~2.2M shares total, 12/13 – 13D/A – 6.38M shares – 14.8% of business – waiver received to go up to 26% of ownership."