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Tracking Bill Ackman's Pershing Square Portfolio - Q4 2019 Update

Feb. 20, 2020 11:28 AMPershing Square Holdings, Ltd. (PSHZF)A, BRK.A, BRK.B

Summary

Bill Ackman's 13F portfolio value increased from $6.49B to $6.55B this quarter.

Pershing Square increased Howard Hughes and Agilent Technologies during the quarter.

The largest three 13F positions are Chipotle Mexican Grill, Hilton Worldwide Holdings, and Lowes Companies. They together account for ~56% 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 13F Form filed on 02/14/2020. Please visit our Tracking Bill Ackman's Pershing Square Holdings article for an idea on how his holdings have progressed over the years and our previous update for the fund's moves during Q3 2019.
Ackman's 13F portfolio value increased marginally from $6.49B to $6.55B this quarter. The number of positions remained steady at 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~56% of the total portfolio value: Chipotle Mexican Grill (NYSE:CMG), Hilton Worldwide Holdings (NYSE:HLT), and Lowe's Companies (NYSE:LOW).
In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (OTCPK: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 for 2019, they returned 58.1% compared to 31.5% for the S&P 500 index. Their original flagship fund's (2004 inception) track record is outstanding with annualized returns at 14.3% compared to 9.1% for the S&P 500 index.
To learn more about Bill Ackman, check-out the book "Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff".
New Stakes:
None.
Stake Disposals:
None.
Stake Increases:
Howard Hughes Corp. (HHC): HHC is a 4.25% of the 13F portfolio position established in 2010 as a result of its spin-off from GGP Inc. The stock has returned over 3x since the spinoff. 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. This quarter saw a ~85% stake increase at a cost-basis of ~$115 per share because of the conversion of total-return-swaps they owned. The stock is currently at ~$128.
Note: HHC board granted Pershing Square a waiver in December to acquire up to 26% of their Common Stock. Regulatory filings indicate that their ownership stake is at 6.38M shares (14.8% of the business). This is compared to ~2.2M shares in the 13F report.
Agilent Technologies (A): Agilent is a 4.23% of the portfolio stake established last quarter at prices between $66 and $78 and increased by ~11% this quarter. The stock currently trades at $85.35.
Note: Overall, their cost basis was $76.58. The analytical measurements business has an attractive razor - razor blade business model. The buy thesis is based on the margin expansion and leverage opportunity.

Stake Decreases:
Starbucks Corp. (SBUX): The ~7% 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 $90.14. Q2 2019 saw a ~7% trimming. This quarter saw a ~40% selling at prices between $82 and $89.
Note: Earlier this month, Pershing Square disclosed that they had sold their remaining stake in Starbucks. Overall, they had a 73% return over 19 months of ownership ($51 to $85 from July 2018 to Jan 2020).
Kept Steady:
Chipotle Mexican Grill (CMG): CMG is the largest position at ~22% 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 has doubled and, currently, trades at ~$934.
Note: Regulatory filings from earlier this month indicate that Pershing Square sold ~14% of the stake at ~$860 per share on February 6th and 7th. They still control 5.4% of the business.
Hilton Worldwide Holdings (HLT): The large (top three) ~18% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78 and the stock, currently, trades well above that range at ~$113. The position has seen only minor adjustments since.
Note 1: Ackman is bullish on their asset-light business model and sees a mid-teens growth opportunity. His overall cost basis is $73 per share.
Note 2: In Q4 2018, Hilton Worldwide Holdings came back into 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).
Lowe's Companies (LOW): LOW is a large (top three) ~16% of the portfolio stake 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. The stock currently trades at ~$123.
Note: Pershing Square's cost basis on LOW is $86 per share. Their buy thesis is on the premise that Lowe's is laying the groundwork for a multi-year transformation. Analyst Day targets imply more than $10 earnings per share over the next few years.

Restaurant Brands International (QSR): QSR is, currently, the fourth-largest 13F position at 14.68% of the portfolio. Pershing Square's cost basis is ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. That was followed by a ~22% reduction in H1 2018 at prices between $53 and $64. The four quarters through Q3 2019 had also seen a ~28% selling at prices between $52 and $79. The stock, currently, trades at $65.92.
Note: Pershing Square believes the stock price should rerate as margins at Tim Horton's normalize. QSR is trading at 20x free cash flow which is a 25% discount to peers.
Berkshire Hathaway Inc. (BRK.A) (BRK.B): BRK.B is a ~14% of the portfolio position purchased in Q2 2019 at prices between $197 and $219 and the stock currently trades at ~$229. Last quarter saw a ~14% stake increase at prices between $196 and $215. For investors attempting to follow, BRK.B is a good option to consider for further research.
Note: Pershing Square's cost basis on BRK.B is $206. Their buy thesis is based on margin expansion opportunity (Geico & Burlington Northern), financial optionality with 20% of market cap in cash and a cheap valuation (14x earnings, 1.3x BV).
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are other long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not 13F securities, 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 $3.44 and $3.16 per share respectively. 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 Q4 2019:

https://seekingalpha.com/amp/article/4325674-tracking-bill-ackmans-pershing-square-portfolio-q4-2019-update