Pershing Square Holdings, Ltd.

Hello and welcome to the first quarter 2025 investor call for Pershing Square. Today's call is being recorded. It is now my pleasure to turn the call over to your host, Bill Ackman, CEO and portfolio manager.

Thank you, operator. We always begin the call by reminding you of our legal disclaimer, which has been made available to everyone who's participating on the call. Also, we're not permitted to, for regulatory reasons, to address questions specific to Pershing Square Holdings Limited. Replay of today's call will be available for two weeks until June 5th at 1.30 p.m. To access the webcast, please go to pscmevents.com. So perhaps this is every year, but another very interesting kind of start to the year. And Pershing Square, we're off to a good start. We're anywhere between 800 to 1,000 basis points of outperformance relative to the stock market or kind of benchmark index, the S&P 500, driven by a portfolio that looks very different from the S&P 500. Just to remind you of some of the key criteria we use in selecting businesses, one of the most important criteria is we like businesses where we call sort of extrinsic factors that are outside of our control are ones that we own businesses that are insulated from those factors. One of those extrinsic factors outside of our control, of course, is tariffs. We're fortunate in the substantial majority of the capital is invested in businesses that are relatively immune from the direct impact of tariffs. They're not immune from the sort of economic, overall economic effects, you know, GDP growth or global inflation. economic growth, of course, but what enables us to be a long-only investor and be a long-term investor is owning businesses that are very much insulated from the kind of world around them, that the economic characteristics of the business and the market positions of the companies are such that we have a lot of confidence in the business's ability to continue to grow, to generate cash, and we'll just talk through some of those as we mentioned particular companies in the portfolio. It's been also a very active period for us really since the beginning of the year with a number of new investments. We'll mention a new one on this call that we're kind of excited about. But maybe I'll start with a kind of overall sort of backdrop. Obviously, the big story of the year so far from an economic perspective has really been the tariffs. You know, the Trump administration's objectives here as laid out by the president are, one, to kind of reduce, eliminate unfair trading practices of some of our trading partners, two, to kind of reshore strategically important manufacturing to the United States, and then, you know, improve overall balance of trade with countries like China. And I think China is clearly a big part of the focus where, you know, China's economy has grown enormously over time, and there are a number of unfair practices that otherwise have led to very large balance of trade issues. And the president's approach, as we've seen multiple times in his various negotiations, is a pretty aggressive one, kind of shock and awe. And we experienced some of that shock and awe ourselves, but also a willingness to to modify tactics depending on the impact in the world around them. And I think the decision to kind of pause reciprocal tariffs for 90 days and the same ultimately for China has kind of led to a better path, a glide path, I should call it a glide path, but a path to hopeful tariff deals that are in the best interest of the United States. and that resolves some of the inherent uncertainty. But I think the beginning of the year has been characterized by a high degree of uncertainty created by sort of the unknown about tariff policy mitigated somewhat or meaningfully by the pause and some of the statements made by the administration, the Treasury Secretary, and I would say cautiously optimistic we'll get to a better place on tariffs and that this will be an issue overall that will be behind markets and the economy by certainly hopefully the second half. or certainly by year-end. We remain pretty optimistic about markets and the economy for a few reasons. One, it appears that we're heading toward more calming of geopolitical environments. Russia-Ukraine is still far from a deal being done, but at least conversations are happening for the first time now in three years. and I think it's a reasonable expectation that Russia-Ukraine is also something resolved as we approach the end of the year. I think the Middle East situation, obviously still somewhat challenged, but I think the biggest remaining issue is Iran. Difficult to predict, but if I had my guess, I think a deal is not made and that Israel decides to... eliminate or push off the risk of Iran having nuclear capability. That is obviously still a challenging event for the world, but I think if that were to take place or a deal were to be made, I think, again, I think that's something that we can look to some kind of resolution also by the end of the year. So I think we have the prospect of meaningfully reduced uncertainty as we get closer to the end of the year. The overall inflation backdrop is generally favorable. Services inflations come way down. Wage inflations come way down. The reported measures of CPI, PCE approach the Federal Reserve's 2% target. The only outlier risk to some degree on the good side, of course, would be tariffs. We view that as more of a one-time effect as opposed to something. And also in light of where the tariffs seem to be headed, if we had a 10%, for example, global tariffs, we don't view that as a meaningful, particularly meaningful risk from an inflation perspective. So perhaps prospect for the Fed is still easing toward the end of the year. So sort of an interesting backdrop for an investor kind of in markets generally. Now, we're not generally investor in markets. We're investor in a handful of specific companies and situations. We're going to address those in a little more detail. I just want to cover the Howard Hughes investment. This is a company we've been a shareholder of since it was spun out of general growth, one of the best – really the best equity investment we made as a multiple of capital. The company was really set up to make general growth more valuable. It took years to sort through the various assets, understand the underlying core business, and then focus the company over time to a core, what we call MPC, or small cities, a business of building out and developing small cities, a business we think is actually a superb business on a multi-decade basis, one that has meaningfully transformed over the last 14 years from being really not much of a cash generative business on any kind of recurring basis to today, one approaching 300 million of net operating income from income producing real estate assets, kind of a pretty consistent, significant demand from home builders for lots in light of the pretty dramatic supply demand imbalances in the U.S. housing market, the fact that people want to move to Phoenix and Texas and Las Vegas, and then the company's extremely successful condominium business. But again, a complicated business in multiple states in pretty much every property type development. These are all the characteristics that the typical real estate stock market investor does not like. They prefer single asset, in some cases, single geography or a focused geography income producing assets in a real estate investment trust format that pays a dividend. This is a C Corp in multiple jurisdictions, large land holdings, as well as a lot of development. Our conclusion after being a shareholder for many, many years and a very strong management team being in place, but really not much, if you will, respect for markets, companies traded at a very consistent discount, you know, is that we needed to make a strategic change. Beginning of the effort was, okay, let's take the company private. We went out to the private markets, and we really could not find the capital that we needed to take this business private and keep it private on a very long-term basis. You know, long-term for most long-term investors is a five- or seven-year period. privatization followed by some kind of liquidity event, not something we could create for Howard Hughes. We pivoted to a different structure and we made a deal ultimately with the company for the Pershing Square Management Company to invest 900 million of capital by 9 million additional shares, taking our ownership up to about 47% of the company. We paid $100 a share versus a $66 stock price, obviously a very, very big premium. And we did so in order really to put us in a position to help transform the company into what we're calling a diversified holding company. Part of the thesis is that we think as a standalone pure play real estate development company, the market will continue to sign a very high cost of capital, a cost of capital that probably cannot be exceeded meaningfully by a pure play real estate development company. And by transforming the business into, I would say, unrelated businesses, Business lines not correlated with the property markets or so correlated, for example, with interest rates. Howard Hughes today seems to trade on the basis of where the 30-year or 10-year treasury or where mortgage rates are, even though we really have not seen any change in demand for property at Howard Hughes at meaningfully higher. We had 3% mortgage rate, 30-year rates, or today approaching 7%. 30-year mortgage rates. So we're quite excited about that opportunity, and we think it's a great opportunity for our investors in the Pershing Square funds. This is a meaningful position, call it 8% or 9% of capital. It's very, very inexpensive on a standalone basis, and we think the transformation will attract a much broader investor base. We think there's a very small universe of people who are prepared to own a pure play real estate developer. but a much larger base of investors that can own a diversified holding company. If you look at the Berkshire Hathaway market cap, a trillion or so dollars, only take a tiny, small fraction of those shareholders to take an interest into the early days of Howard Hughes, and we could see a meaningful re-rating in the company. One of the key initiatives to let the world know that this is going to be a different business is we are very focused, perhaps as our first initiative for Howard Hughes, in identifying, recruiting a team to build a insurance operation akin to, with long-term ambitions, what Berkshire Hathaway has accomplished over time. There are many benefits to building an insurance operation within a diversified holding company in terms of incremental credit support that can be provided by a diversified holding company. Here, the entity is owned Howard Hughes is owned in part by an A-rated 32% owner comprised of the Pershing Square Funds and then the Pershing Square Management Company. So it's got a well-capitalized owner. Howard Hughes itself is – the business will generate meaningful cash over time, which will be an interesting source of capital for investment. And we have $900 million of capital we just injected, forms the base for building an interesting insurance operation. We have some discussions underway with a couple of potential CEOs that would be outstanding choices, and we look forward to reporting back as we make progress with the business. And then, of course, we are also open to acquisitions of high-quality businesses that meet our threshold, but we're looking, unlike the Pershing Square Funds, we buy minority interests in public companies. Here, our intent would be to purchase controlling interests in private companies or or controlling interest in public companies or 100% privatization transactions. With that, I'm going to turn it over to Ryan just to talk about some of the interesting trading dynamics that were created. You know, when you own a portfolio of very high-quality businesses that are not materially affected by tariffs, but every stock moves up and down based on overall views of what's happening with tariffs, that does create interesting opportunities. So I want to remind you to get into some of the changes that we made during the quarter.

Sure. So as Bill mentioned, this was a pretty active quarter for us in terms of the underlying positions that we either trimmed, sold, added to, or had new positions in. And I think what's interesting at a very high level is the process that we go through when, for example, in this quarter, we trimmed, or in the first four and a half months, I should say, we trimmed five positions, we sold out of one entirely, we added to two existing positions, and we bought three entirely new positions. That sounds like a lot of activity, but I think what's important is it's the exact same process we go through, the same fundamental mindset, as when we have almost no portfolio activity and it doesn't change at all or very little from quarter to quarter. And the reason for that is we're very much bottoms-up investors, as Bill mentioned, where we look at each individual investment in our portfolio. We try to be very thoughtful at looking at what the prospective returns are on that investment relative to the future business prospects. And we try to think about, based upon the relative risk and reward, what would be the appropriate size for each individual position if we were to start from a blank sheet of paper. A lot of times, the economic environment or the prospective future returns suggest we shouldn't make any decisions that differently than what we already have. This first four and a half months, though, given a lot of the backdrop of the markets and the potential economic outcomes, actually resulted in a significant number of changes which were running the gamut from modest to pretty substantial. So with that, I'll give you a little bit more background and detail of what we did. To start the year in January, There was a lot of market excitement about what would be coming on economically and in terms of potential political outcomes. And as a result, the S&P was trading at all-time highs, and a handful of our companies actually were trading at all-time highs as well. And so we decided in evaluating that risk-reward relative to the sizing of investments to make some reductions. So, for example, we've reduced our position in Chipotle in January by a little over 10%. We reduced our position in Alphabet or Google by a little over 20%. We reduced our position in Hilton by more than 40%, and we actually ended up restructuring, as we've talked about before, our position in Nike from a common stock investment into a deep in the money position where we could effectively replicate the same dollar profits on the upside if the company achieved the potential we thought while extracting a lot of capital from the position. We were able to take the vast majority of those proceeds and invest them in Uber and at a time in which we thought Uber was very uniquely attractively priced. And so we were able to make that swap. Most of the stocks that we have trimmed actually were trading quite below the levels at which we sold them at. And Uber already, although it's still early, is up about 35% from our cost. And Charles will talk about that position in some more detail in just a moment. At the same time, in March, we were able to sell our position, trim the position in Universal Music Group by just under 40%. I think it's important to point out Universal Music Group in our nearly four-year holding period generally averaged about 25% or mid-20s percent of capital, which is much larger than our typical position. And so the reduction of about a high 30% of UMG brought it back down to what would be more of a typical larger-sized position for us. And then in April, we actually sold out entirely of our position in Canadian Pacific, which is a wonderful business, but was also one which had held in incredibly well in terms of its share price. during a lot of the tariff turmoil that happened in April. And we judged actually it was one of the more sensitive businesses economically and to tariffs relative to the rest of the portfolio. And we were able to use the position of the cash that was generated by UMG and CP in order to increase two positions. So we actually were able to buy back all of the shares in Alphabet that we sold in January in the March and April timeframe, actually about 20% cheaper than we had sold them at. We also increased by a little bit more than 10%. I'm sorry, by almost 20% our position in Brookfield at prices that were about 10% or 12% below where they are now. And then perhaps most importantly, we added a new position, which is Amazon. We also were able to increase our Hertz position, which we've previously talked about and you can see on Bill's Twitter account. But perhaps I'll spend a little bit of time talking about what I think is the most substantial move, which is Amazon. Amazon, I think, really is emblematic of a business that Pershing Square thinks is just a fantastic franchise. At the same time, I think it really highlights what's a little bit unique about our approach, which is we follow a collection of hundreds of businesses that we have not really owned or haven't owned in a long period of time that we think are first-rate businesses that we would love to own when we think the price is right and we think the returns meet the threshold that we're looking for. And Amazon has been on that list for many years. But what was unique was our ability, because we knew the business very well, to quickly move to acquire a position in in April when the market was in a lot of turmoil. And so to back up on Amazon, what we thought was kind of interesting was Amazon has two businesses. It has a cloud business called AWS or Amazon Web Services, which is really leading a lot of the technological revolution as AI and increased computer services are moving off of companies' worksites and into what they call the cloud or large data centers where a company like Amazon is able to manage all of that IT infrastructure and processes for people. It's cheaper than what they can do. It's much more reliable. It's much faster. And Amazon is sort of the 800-pound gorilla in that business where there's only three players and they have over a 40% market share. And we think the future is incredibly bright for that business. Less than 20% of all of the IT workloads are actually in the cloud today. We think going forward, maybe as much as 80% or everything but 20% in the future should be in those type of environments. So that part of the business is amazing. There's also the part of the business, even though that is The web services is 60%. The remaining 40% for Amazon is the retail business. That's the business that we all know and probably use almost on a daily basis today. And that's an incredible e-commerce franchise that really has over 100 million unique SKUs that they serve to customers around the world where they've invested enormously in a logistics franchise to be able to get you most products within a day of service. And they've been able to carefully curate the best selection and the best price. And one of the things that makes Amazon really unique is it has these two disparate businesses, which we think individually are very valuable, but they share a very common and core framework, which is Amazon tries to build up massive scale, use the advantages of that scale to drive down price and improve the customer experience. And then that begets even more scale as more people want to do business with them and they keep reinvesting. And so that positive or virtuous cycle of gaining scale and getting a little bit more profit margin and then reinvesting a lot back in the customer is something that unites the businesses and we think has made Amazon very special. So we've admired it for a long time. We think Andy Jassy, the CEO who's been in the seat for several years, is doing an incredible job of really getting more efficient with the business, which we think will allow for more profit margin expansion at a high rate of revenue growth. And so we've been big fans. But we had not yet judged that it would provide us with the returns we were looking for historically because because the business is generally traded at a pretty high multiple, which reflected the great future growth outlook. And that really changed earlier this year. Initially, back in February, when the company was at an all-time high, there were some concerns in the cloud business that because of deep-seeking China or potentially some concerns about the sustainability of AI, that people would not be investing in the business in the same rate that they would and that the web services business or AWS might slow a little bit. And then after the announcement of tariffs, In April, the business took a real dive as people were worried about the tariff impact. And as a result, Amazon's share price came down more than 30% and actually was trading when we started buying our shares at about 24.5 times earnings, which was the lowest multiple that we've seen ever since we followed the company in its history. And so we thought this was a uniquely attractive time as we felt that the company would be able to work through any slowdown in the AWS business. And we did not judge that tariffs would have a material impact on the earnings. in the retail business as well. And so we thought Amazon would be well on its way to continuing its plus 20% earnings per share growth. And so as a result, I think that really highlights how we've looked at things, which is we carefully study a lot of businesses. We wait very patiently until there are opportunities. And given some of the sales that we had, either trimming or an outright sales of other businesses, we had cash on hand to be able to quickly move when we judged that there was a unique opportunity in the market.