Pershing Square Holdings, Ltd.

Hello and welcome to the third quarter 2024 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, and welcome to the call. As usual, we distributed a legal disclaimer, which is also on our website. We receive a lot of questions in advance of the call. We'll do our best to incorporate those questions and the answers to them in our responses, and if we have more time, we'll get to any questions we didn't or were unable to address. If after the call you still have further questions, please contact IR at persq.com. A recording of our call will be available for two weeks until December 5th on 2024. Why don't we start by walking through the portfolio? Actually, maybe we'll start with a kind of more high level. You know, we've had obviously very significant events politically in the last couple of weeks, Trump being elected and a fairly popular vote going to the new president, returning president, as well as control of the Senate and the House, you know, The question obviously is what are the implications for Pershing Square, what are the implications for the economy, the portfolio? So we view the new Trump administration as a very favorable opportunity for the country, the economy, and ultimately our portfolio. We think there's an opportunity here for us to step into a period of accelerating growth. This is the first time in my lifetime that we've actually taken a serious look at efficiency and the bureaucracy that has impeded our business performance. I've always thought of the United States as a bit like a Pershing Square investment, an amazing, great business of enormous scale, great brand, but it's been undermanaged, and I think we have the chance and the potential and hopefully the likelihood of much better business management. Trump is going to be a pro-growth candidate. President, he campaigned on that theme. You know, unusually, first time in my lifetime, we see major business figures, Elon Musk, stepping in, partnering with the President to help accomplish a government efficiency project, what sounds a bit like zero-based budgeting in terms of their approach to setting up each of these various departments, looking at every agency and their contribution or lack thereof to what the country needs to accomplish. and then recruiting the right people and putting them in the right seats to make this be a big success. So I would say I am optimistic. I think as a firm, as an investment team, we're quite optimistic about what the potential for this is. You know, we start with an over-levered or certainly a highly levered relative to where we've been historically, $36 trillion of leverage. You've got to compare that, of course, with the value of the U.S. economy, the best economy in the world right now of scale. and we think the opportunity is for GDP growth to accelerate. And if we can both become much more efficient, GDP growth can accelerate. We think magic can happen in a way that's quite bullish for the country and for businesses in our country, small, medium, large, and, of course, the large, great public companies of which we are a significant investor. And we've, you know, notably, I would say the business community, whether people voted for Kamala Harris or President Trump, I would say to a person, they are excited about the potential for the economy. And that's relevant because business confidence is a key factor in, you know, decisions regarding a new factory, a new investment. With respect to the sort of M&A environment, a lot of transactions were paused. I had lunch with one of the major bankers to the M&A space, CEO of one of the big advisory firms yesterday, and I would say he could not be more bullish. At least he had visibility certainly for the next 18 months of transactions, and I was lucky to grab a few minutes with him for lunch because of how busy he was. they are. And so, you know, I think we have the potential, you know, on a very positive side, lifting all boats with dramatic improvement in the economy. The risk, I would say the risk that people are concerned about, and we have obviously some concern about, is when you see a, you step on the accelerator, you know, that can lead to an increase in inflation and could lead, of course, to a higher interest rate environment, you know, depending on You know, if the growth comes from productivity and efficiency and reduced costs, that will ameliorate the risks, I would say, to inflation. Energy prices, I was driving home yesterday, you know, a couple days ago from New Jersey, and I saw $2.60 gas, which I haven't seen in a while. That, of course, is a big mitigant to inflation. But, you know, there's risk, I would say, there's risk to putting the pedal to the metal, but I think it's absolutely the right, you know, approach. for the country, and we're going to have a very sophisticated economic team. We don't yet know who the Treasury Secretary is, but at least the names that have been surfaced, we think are excellent candidates, and the President's going to have a lot of help from many people who want to see the United States succeed. I also think we've been suffering with two major wars that have been underway now for a material thousand days for Russia, Ukraine, and, you know, year plus in the Middle East. And even from that perspective, we are more bullish about the potential for those wars being resolved. I think the Iranian situation is sort of a yet to be resolved and still remains a very significant risk factor. You know, Putin sending a warning signal by launching an ICBM last night, even one without warheads, obviously without nuclear warheads, you know, it's obviously concerning. but I do think that the world will be a safer place going forward with the perceived strength and reality of more strength in the executive branch of our country. And so I would say we are very constructive on the business setup. With respect to Pershing Square this year, I would say we're certainly an underperformer relative to the stock market. One of the businesses, at least the stocks that's holding us back is Universal Music. So why don't we start there? It's a large position, our largest. It's down year-to-date. 13%, 14%. 13%, 14%. Obviously, that holds back our results. One way to think about, if you own a great business and the business continues to compound in underlying value and the stock price gets cheaper, it's a bit like a rubber band and that gets pulled in a certain direction. At some point, we would expect it to snap back. But go ahead, Brian, why don't you speak to it?

Sure, thank you. And so as Bill mentioned, Universal has declined materially this year and is a large position. It's been a significant headwind to our overall performance figures for the portfolio. I think in putting the results in context and understanding why the stock is down, it's actually helpful to step back and think about Universal in two different phases. I would say phase one would be from when we made our investment in sort of late summer, early fall of 21 until it reported its second quarter. of earnings this year in July, and then what's happened since July.

And in that first period of time... Father, just in terms of backdrop, you paid around 1830 or so for the stock, 1830 euros for Universal today.

And until the second quarter earnings in late July, the share price appreciated about 2850, and we also received dividends about 2% annually through then. So in that first stage, Universal stock, including dividends, was up 65% to 70%. Since its second quarter earnings in late July, the stock is down about 25%, which is why I want to differentiate the phases and looking at the drivers underneath it. In that first phase where we had a very successful appreciation of the share price over roughly just under three years of our holding at that point, Universal's business was doing incredibly well. The key growth metric for the business that people look at is the streaming and subscription growth for the company. That's a very large percentage of the revenue and really the critical driver for how we think about what the business might look like in terms of its growth profile over the next five or 10 years, where they have a very long runway for growth. During that first period of time of almost three years, the business had grown that key metric by about 11% annually and very rarely had a quarter where that metric dropped below 10%. Because of the high margin nature of that cash flow stream and there are not a lot of costs associated with it, except for some that are fixed, the adjusted EBITDA or a profit metric for the business had grown at sort of a low to mid-teens rate over that period of time. That is a very significant rate of growth. It was very steady, and people were very excited that the company would be able to maintain something close to that in the future. And as a result, the business was rewarded in the marketplace with a very attractive multiple in the high 20s of earnings. And that was really just reflective of what people thought the longer-term growth characteristics of the business were. The perception in the marketplace changed significantly when it reported its second quarter results at the end of July. That metric of streaming and subscription, which had previously been sort of a double-digit rate, was only 4% that quarter. That was really the driving force of why the stock was down. And while no quarter's results in and of themselves should really change the long-term fundamental value of a business by 20-plus percent, the question in the marketplace was, is that figure of 4% something closer to what the new growth profile of the business should be over time, or was it more of a short-term aberration? Currently, the stock is trading at about just below 23 times earnings, which suggests that the market really believes that something much lower than the double-digit rate is where Universal is going to settle out over time. We have a perspective that what happened in the second quarter really was temporary and that the long-term future for the business remains very bright. And we believe that Universal, based upon some comments that they've made afterwards, believes the same thing. So let me explain a little bit what we think happened and where... we think things are going over time. So the reason that the company reported a 4% growth rate, which is much lower than sort of the typical growth than what we think the long-term growth was, it's really a combination of temporary factors. For example, they had a well-publicized dispute with TikTok in which they weren't earning revenue for part of that quarter, which hurt the growth rate. At the same time, while Spotify, which is one of their critical partners for providing streaming services, is still growing at a very elevated rate, there are a few other partners that who are not growing as fast due to some temporary slowdowns. We believe that those slowdowns are likely going to pick up over time as those music platforms are making some appropriate changes and investments in their business, and that should help elevate the growth rate. And then lastly, some of the advertising revenue and subscription and streaming is coming from, for example, places like YouTube and Meta or Facebook. And one of the dynamics in the industry is that consumers are increasingly doing shorter form TikTok-like content. And given that longer-form content has more music associated with it, the monetization of the historical streaming on those platforms had been higher than what it is right now. We believe there's a pathway over time to restoring the improved monetization. The combination of those three factors, we believe, are going to help the business get back on track. It may not be perfectly next quarter, but we think it is within a relevant period of time frame, and it wouldn't surprise us if at some point in 2025, we're seeing much stronger figures that we've been used to seeing. Partially the evidence of that, the third quarter results Universal reported just a couple weeks ago, and they improved that metric from 4% in Q2 to 6% this quarter, and we expect that there's going to be more progress in the coming quarters to get back to that double-digit rate. In the fall, Universal had a capital markets day, which is its second capital markets day since it went public over three years ago, and they really highlighted that they still believe the long-term business future is very bright. They put out a target over the next handful of years for subscription and streaming growth to be between 8% and 10%, and they think that their adjusted EBITDA or their key profit metric will be in excess of 10%. And we believe that these are still very achievable, and the company's on a pathway to getting back to that over the near term as well. And if you step back and think about really the drivers of that, what we think is driving that fundamentally is that music is an incredibly important service to people, and it's incredibly inexpensive. The cost of streaming per hour is about 20 cents. The cost of video streaming is about six times that level or $1.20. And the cost of live entertainment could be $40 or $50 an hour on average. So music is very, very cheap relative to other forms of high-value entertainment. We think that expresses itself in the growth rate of Universal in a couple ways over time. One, there's a huge pricing opportunity. Not every single year are all of the music streaming platforms going to take price, but over time we think they will, as Netflix has really established in the video streaming a nice cadence for raising prices just about every year. At the same time, there are other ways besides the retail pricing in order for Universal to have the benefit of increasing prices. There's a concept called wholesale pricing, which isn't talked about much, but actually is another lever, and that's effectively the price that the streaming platforms pay on a per-subscriber basis to the music labels, such as Universal and some of its competitors. For example, Warner Music reported earnings this morning, and they actually talked about how, in addition to the retail pricing, which we think will happen over time, increases in wholesale pricing are something that's within their control that could be additive to pricing growth and revenue over time. And we think this is something that would apply to the entire industry, including Universal. Second aspect of the growth is really subscriber growth. Music is such a high-value and low-cost form of entertainment that we would believe more people every year are going to continue to sign up for the service. And while a lot of people around the world are already listening to music, we think every year more people in more places are going to be signing up for these services because it's just too cheap to pay anywhere between $10 and $20 a month and have the collection of 90 million songs in the palm of your hand if you have an internet service. So we think the future is very bright for Universal, and we think that their quarterly results are already starting in the near term to demonstrate getting back on track. And if this continues over time and the company gets back to what we think is a more appropriate long-term level of growth that's consistent with those historical levels, we think there's significant upside in the share price as the multiple of 23 times is very, very low in light of what we think the future growth prospects of the company are. The one other thing I would add in terms of thinking about sort of universal, both in terms of how it relates to the capital markets, but also kind of its future growth, The company announced on the third quarter earnings that it's going to be transitioning its current CFO to a COO role, and they'll be actively looking for a new CFO. We think that this could be very helpful for the company over time, as some of the things that a great new CFO could highlight would be helping the market better understand how some of the near-term issues in the business, which are causing growth to be below what we would expect over time, really explaining that to the markets and helping better explain the pricing opportunity they have, as well as how the company can think about a transition to getting back to its long-term growth. We also think capital allocation is important. Warner Music, on their conference call this morning, talked about initiating and increasing the size of a buyback program. At the current share prices, clearly Universal also is very attractively priced in our view in light of its future growth prospects. And a CFO who has great credibility with the financial community can both explain the near-term and the long-term results, as well as be very important for capital allocation. So we're very excited for when that process is completed over time.

Great. That's a great summary. Just sort of thinking about an analogy one could make here. But if you think about the music industry, it's a bit like, you know, there was a large buffet that you could join as a member. And for basically a decade, they kept the price the same and it was all you can eat. And despite, you know, significant inflation over the period, there was never a change in price. And over time, there were certain people who would come and, you know, eat all the shrimp and whatever, but they still paid the same price. And I think we're at a stage in the music buffet, if you will, where there's going to be beginnings of, one, we're beginning to see price increases. Two, segmentation of the consumer. You know, the big eaters, you know, should be paying a different price, if you will, than the people who are more casual sort of customers. And perhaps there's a special offering that you can make for them by virtue of their you know, passion for the product. And I think we're really in the early stages of that. And, you know, one way to think about how cheap music is, you know, the sort of combined market cap of the owners of the music content is something in order of $100 billion. And that just is a strikingly, you know, small number compared to the market cap of, you know, any of the, you know, individual owners of video content, for example. And it just gives you some sense. You think of the collective value of video content in terms of how it's valued in the marketplace versus music, and music is a tiny fraction. And I would say people are as passionate and spend more time with music than they do with video content. And there are lots of other opportunities for monetization, and the company's doing an excellent job exploring those. Why don't we go to Alphabet? Alphabet's been a lot of news lately. I think it's without question one of the greatest businesses in the world. but I would say a legal overhang, cloud, et cetera, recent developments. So Bharath, bring us up to date.

Sure. So we invested in Alphabet a little over a year ago, a year and a half ago, on an investment thesis that at the time was principally predicated on the company's underappreciated leadership in AI, as well as its significant margin expansion opportunity. And over the course of our ownership, we've been very pleased with the company's performance on both fronts. So starting with AI, Google's product innovation is best seen through a lot of AI overviews, which is the AI-generated summary responses they've introduced in Google Search. And the early results from AI overviews have been highly encouraging. Users are searching more frequently with more detailed queries and clicking through to their end destination at higher rates. The company has also been able to address two concerns that investors have historically had around introducing AI in the search. One being on the cost to serve, and then two being on the ability to monetize through ads. On the cost side, Google has been able to reduce the machine cost per AI query by over 90% over the last 18 months since they first started testing AI reviews. And that step function level of cost improvement is what uniquely enables them to very quickly and broadly roll out AI reviews to more than a billion users in more than 100 countries. And then on the ad monetization side, they've also started testing ads on AIO reviews and have shared that those ads are monetizing at the same rate as regular search ads. And over time, we actually expect the more context-rich AI responses to generate higher conversion and greater ad efficacy. Outside of search, the company's decade-long focus on AI is also starting to pay off in its non-advertising segments. So, for example, in its self-driving subsidiary, which is the largest venture and its portfolio of other vets, Waymo. The company is now doing more than 1 million fully autonomous miles and more than 150,000 paid rides on a weekly basis. Likewise, AI is helping differentiate Google Cloud from its competition. So for context, Google Cloud is now a $40 billion plus run rate business that's growing at a 35% rate this most recent quarter. And with that increasing scale, profitability in that segment has gone from a break-even level when we first invested to 17% today, with line of sight to 30% plus margins enjoyed by peers. And then more broadly, profitability at the overall company level is also improving at a very rapid clip. Just this quarter, consolidated EBIT margins were up 480 basis points year over year, as a lot of the company's cost control initiatives and headcount discipline is starting to bear fruit. And on the latter point, Google's revenue has increased by nearly 30% over the last two years. Over that same period, headcount's actually down 3%. And management actually recently shared a very interesting data point that more than a quarter of all new code at Google is written by AI and then reviewed and accepted by engineers. So we expect automation efficiencies like that to continue driving margin expansion over the long term. And to that end, we were also very encouraged to hear the new CFO, Anat Ashkenazi, on her very first earnings call commit to building on those efficiency initiatives and also evaluating opportunities where they might accelerate their work. Despite all this tremendous business momentum, the stock's trading at, you know, a little bit under 19 times forward earnings, which we obviously think is a very discounted multiple relative to its business quality and growth prospects. And as you highlighted, a lot of that discounted valuation has been driven by recent anti-growth scrutiny. So most notably, in August, a federal court ruled against Google and the DOJ's antitrust case on their default search contracts with Apple and Android OEMs. And then late last night, the DOJ filed a very sweeping package of remedy proposals that has led to a meaningful decline in the share price this morning. Just something to keep in mind as investors are digesting that document. That document was prepared by... the current Deputy AG, Jonathan Cantor, and his team, who have led the DOJ's efforts. There will be a whole separate trial beginning April next year to litigate the ultimate remedy that the court will rule on. And the current team is not going to be the same team that will be litigating that case. It will be the new administration's team. And I would also point out that the document they filed last night was more extreme and included several out-of-scope remedies both, you know, what we view as out of scope as well as other legal experts we've spoken to than what they'd initially outlined in their initial proposal. So I think in some sense we view the document as more of a symbolic, you know, last stand of the outgoing DOJ team and expect the ultimate scope of remedies that get litigated over during the trial to be much more narrower. The other thing I would add is Google has also made it clear that they're going to appeal the case. and any resolution on the appeals process will likely take at least a year before remedies go into effect. So we'll be monitoring the case very closely, but we do expect that the companies will, even in the case that it loses its appeal, we think the company is well-positioned to navigate a range of potential remedy outcomes. And then stepping back, we're cautiously optimistic that further clarity and resolution on the regulatory fund will lead to continued multiple expansion over time, and in the meantime, the company is generating rapid level of earnings growth as it realizes AI potential and margin opportunities.

Great. Thank you, Bharat, for that summary. Next on the list, actually, I think is on its current market cap, our second largest position, Brookfield. Just to give you a little bit of context on Brookfield, the most successful equity investment we've made at Pershing Square was an investment in a company called General Growth. This was a shopping mall company that went into bankruptcy. We actually bought about 25% of the company several months before they filed for Chapter 11 and worked on a restructuring that led to the company emerging with the shareholders somewhat diluted but with preserving enormous amount of equity value. Stock was up from $0.31 to its peak, I think around $31 a share. But a very important part of the ultimate restructuring of that company was a partnership that we had with Brookfield. And Blackstone ultimately became an investor as well, along with Bruce Berkowitz of Fair Home. But we worked very, very closely. I personally worked very closely with Bruce Flatt and his lieutenant, Cyrus Madden. And there were times where we were, our interests were entirely aligned, and there were times where our interests, I would say, were disparate. but it was one of the most satisfying and successful experiences I've had working with another management team of another investment firm. And so that was really the beginning of, I would say, a relationship and respect for Brookfield. We followed the company over the years, and then recently we took a substantial position in the company. And with that, Charles, why don't you explain why?

Sure. Thank you, Bill. So as Bill mentioned, Brookfield is a new investment for us this year, which we acquired or started acquiring around April of this year. So at a very high level, if you think about Brookfield, they're an owner and operator and manager of critical infrastructure and assets, which they would say power the backbone of the global economy. And then the corporation, which I'll refer to as both Brookfield and or BN, I'll use those phrases kind of interchangeably, It's really the parent entity that sits atop of kind of a broader ecosystem of various publicly traded affiliates. When you think of Brookfield, the parent, BN, it generates cash flows from controlling ownership. It has a handful of these interrelated subsidiaries and various contractual cash flow streams. But starting with the most principal asset that they own, which we believe comprises the vast majority of BM's value. It comes from their 73 percent ownership they maintain in their publicly traded asset manager called Brookfield Asset Management, known as BAM. So, BAM is one of the world's preeminent alternative asset managers, and they derive a significant portion of their value from asset-light recurring management fee streams on $540 billion of long-duration internal and external capital that they manage. And BAM's success stems from deep investment expertise and a best-in-class track record in the areas of infrastructure, power, renewable energy, real estate, and credit. They actually own Oak Tree as well. And taking a step back, when you think about BAM and the megatrends that are both propelling both BAM and BN, the parent, it's an investment focus that they have around three key themes, which include decarbonization, digitization, and deglobalization. And increasingly, Brookfield, they find themselves at the center of accelerating investments in clean energy and transition, critical infrastructure, and most recently, artificial intelligence. Also, Bill mentioned earlier some of the optimism we have around the new administration. I think that many of these verticals are poised to see accelerated investment and growth over the coming years. And again, Brookfield is very well positioned to benefit from that, we believe. Focusing on BAM specifically, They generate fee revenue, which is this very high margin revenue stream and what they call fee earnings, which is the term that all the asset managers use. And we think BAM's fee earnings will nearly double through 2028 as they rapidly scale their fee-paying AUM to approximately $1 trillion, driving higher revenues, which with strong operating leverage will drive significant earnings growth. And notably, when we think of BAM, I'd say it has all the attributes of what we'd say is kind of a classic Pershing Square investment. It's simple, predictable, high-quality, and a rapidly growing capital-light business. And simply put, it's Brookfield's crown jewel. Now, intelligently, Brookfield spun out a 25% minority interest in BAM at the end of 2022, and that's why it's publicly traded today and has its own kind of listed security. And the purpose here was to highlight the value that they saw in that business. Now, the market has agreed with them, and so in recognition of all of the above... the market is currently valuing BAM at 33 times earnings, which is a $66 billion asset at BN's 73% proportionate ownership, worth roughly $41 a share in value to BN. Now, beyond BAM, putting that aside for a second, as I mentioned, they own controlling interest in various affiliated entities and cash flow streams, including one, a preferred claim on BAM's carried interests, which I'll talk about in a minute. Two, they receive dividends from $18 billion of equity ownership BN maintains in a number of their publicly listed affiliate companies. These are tickers like BIP and BEP. They're actually fairly analogous to PSH in that they're externally managed kind of perpetual capital vehicles and provide a very – they're more kind of yielding securities, and so BN gets this dividend stream from them. Three, they have cash flows from $11 billion that BN has invested in BAM's long-term funds, which creates alignment of interest between BN and the limited partners in BAM's funds. Four, they have a $24 billion real estate business, which they own on balance sheet. And then five, they have this rapidly growing wealth and retirement solutions business. So in aggregate, we think these cash flow streams are poised to grow very rapidly over the coming years. with accelerated growth from two in particular, which I'll touch on. So first is the carried interest piece. So BN, when they spun out BAM, retained a disproportionate share of the right to carried interest that BAM has on their long-term funds, including 100% of carried interest from all funds which existed prior to 2023, and one-third claim on carried interest on all BAM funds thereafter. So today, BN the parent is generating minimal carried interest, approximately $450 million. This has poised to grow very rapidly over the next few years as select vintages of BAM's flagship funds enter key monetization windows. So management has guided to $11 billion of cash flows over the next five years and $25 billion of cash flows over the next 10 years. We anticipate Cary will stabilize in the $2.5 billion range within the next couple years, so more than a 5x multiple of the current cash flows. And we think this asset is getting little to no credit at BN's current valuation with most investors taking a wait-and-see approach. Second, Brookfield has assembled a leading retirement and wealth solutions business, which today manages approximately $115 billion of insurance float capital. And this business is focused on issuing long-duration, low-risk annuities, which pair exceptionally well with Brookfield's asset composition, which is focused on these real assets, like infrastructure assets that I mentioned previously. The business is highly synergistic for the Brookfield ecosystem, as BAM is the manager which invests the float on behalf of policyholders, which generates a capital light and high-margin management fee stream for BAM. while BN generates earnings on the realized asset yield above the cost of insurance. This is referred to as spread earnings in the industry. Brookfield Wealth Solutions, this business, is today generating $1.3 billion of earnings, but they have near-term line of sight to $2 billion on a path to more than $3 billion over the coming years. And the business, we note, features very strong parallels to Apollo and KKR's highly successful similar strategies they've employed with Athene and Global Atlantic, respectively. Turning to valuation, so notwithstanding broad market appreciation for BAM as a very high-quality business, which I mentioned earlier, BN the parent is today trading at roughly 15 times our assessment of earnings, which we view as a very low multiple in the context of a recurring cash flow stream that we estimate will more than double through 2028 to $10 billion plus, which is a 20% compounded growth rate. And again, growth will be driven by the scaling of this wealth solutions business, a step function change in the contribution from carried interest, attractive teens plus growth in BAM's fee earnings, and stable mid- to single-digit growth across their other holdings. This rapid growth in earnings will also generate significant excess cash flows, with, we estimate, approximately $25 billion of cash, which Brookfield can use for buybacks or other intelligent capital allocation, which is nearly 30% of BN's current market capitalization. And when we look at the composition of Brookfield's 2028 cash flows, applying a mid-teens multiple, weighted average multiple, sum of the parts multiple, we anticipate shares are poised to more than double over the coming years. Now, I would also say that comparisons, however, to publicly traded peers, such as Blackstone, but more significantly KKR and Apollo, would imply very significant valuation upside relative to what I just mentioned.

And as an observation... Where does Apollo and KKR trade?

So today, KKR and Apollo are trading at 27 and 22 times earnings. And what's interesting is we think that KKR has actually a very similar composition of cash flows as compared to BN if you were to stack them up on what they're going to look like in 2028 between spread earnings, fee earnings, and carried interest. Whereas when you look at Apollo, Apollo actually generates two-thirds of their earnings from the spread insurance-based business, which you could argue is probably the lowest quality fee stream, and yet they're trading at 22 times kind of consolidated earnings. So why do you use a 15 mid-teens multiple design Brookfield? We like to be conservative. Yeah. I think the other interesting kind of observation that we would note, which I think is compelling too, is So to state the obvious, right, like Brookfield is anchored by its look-through value to BAM, which I mentioned is worth more than $41 a share. If you add the $18 billion they own in their other publicly traded affiliates, right, so there's public marks for these entities, it basically covers almost the entire market cap of the parent BN, at which point we think you're getting basically $50 billion of value for free, which includes the carried interest claim, the entire wealth solutions, this insurance business that they have, and a $24 billion real estate portfolio. And we believe there's a value disconnect here, which there's a lack of mindshare amongst U.S. institutional investors in VN. And we note that this is an issue that Brookfield's management team is taking steps to address. And so we're optimistic with Strong's earnings growth, greater visibility, improved sell-side coverage, and investor focus, it should help close this valuation discount over time. So in closing, we think Brookfield's a high-quality, asset-rich, rapidly growing business with an attractive earnings outlook. And while the stock's risen actually more than 40% relative to when we started acquiring our position, we continue to believe BN is very undervalued and anticipate strong future returns from here.

Sure. One thing I would add to what Charles is saying, and I think you could say this certainly about Universal Music, you can say it about Brookfield, you can say it about restaurant brands, is the common theme is these are all companies that are not eligible as of this moment for S&P 500 inclusion. index inclusion has become a critically important driver of valuation, I would say, or achieving sort of the upper band of valuation for U.S.-listed companies. And Brookfield is certainly aware of this issue. They're in the process now of moving the headquarters of BAM to New York from Toronto. and making that business eligible ultimately to be purchased by index funds. But a world in which index funds own 25% plus or minus of almost every business and flows into index funds continue at a rapid pace, I would say you're kind of missing the boat, so to speak, if you're not a U.S.-listed company. and you're not eligible for index inclusion. It does create the opportunity to buy stocks at a discount, Brookfield being, I would say, a pretty extreme example. But I would also say the same thing about restaurant brands, which is a good segue to restaurant brands. And maybe begin, for us here, where does restaurant brands trade relative to kind of similarly structured restaurant franchise companies? Sure, Bill.

That's a great point. Similar to BN and UMG, I would say Restaurant Brands trades at a discount to its peers, unwarranted in our view. So Restaurant Brands today trades at approximately 18 times next 12 months earnings. And for those earnings, what you get is a very consistent midterm algorithm of 8% operating profit growth driven by sort of 5% same-store sales growth, sorry, 5% unit growth and 3% same-store sales growth. And it's interesting to look at it in terms comparison to a couple of peers. So two that come to mind are Yum! Brands and Domino's, which incidentally have very similar business profiles and midterm growth algorithms, both of about 8%. And relative to restaurant brands, they trade at earnings multiples that are 20% to 40% higher. And we believe a big reason for that is the U.S. index inclusion and the U.S. institutional investor following of those stocks Whereas given Restaurant Brands' headquarters location in Canada and a big portion of its business being Tim's in Canada, it's relegated to be a Canadian business where it's very much a U.S. business as well. So let me talk a little bit about their recent trends, some of the debates on the stock and where we think the stock could be longer term. So they've been working over the last years on returning each of their brands to sustainable growth longer term. So their two largest businesses, Tim Hortons and the international business, actually reported pretty incredible results last quarter. Starting with Tim's, same-store sales grew 3% almost, nearly all of which were driven by traffic, showing the true health of the brand. It is particularly impressive given the macro backdrop is a little bit weaker in Canada relative to the U.S., and Tim's actually stands alone amongst large brands showing positive traffic year-to-date. This really means that the brand is resonating with consumers in Canada both in good times, but also more importantly in bad times. And if you look at the underlying drivers of that growth, it's really due to the fact that Tim's has been very successful in expanding its business from its core categories of coffee and baked goods to newer categories like afternoon foods and cold beverage, which not only expands the categories that it serves, but also opens it up to new occasions and new customer types. So just as one example, the flatbread pizza platform is driving guest counts in slower parts of the day and is opening Tim's up to the broader family guest occasion, allowing it to capture a greater part of the market. And in the international business, same-store sales grew nearly 2%, which is driven mostly by the incredible Burger King international business. People often think McDonald's is the winner and Burger King is a challenger brand, but if you look at it internationally, it's actually now outpaced McDonald's on a same-store sales basis, both on a one-year basis, as well as relative to pre-COVID levels. These are impressive results, especially in light of the ongoing negative impact from the boycotts related to the conflict in the Middle East, as well as the weakness in the China business. So the company has now begun lapping the impact of the Middle Eastern conflict. So logically, next quarter's results should accelerate from these levels. And while results at Burger King in the U.S. and Popeyes were somewhat disappointing, The company did highlight that October same-store sales trends have inflected back towards low single digits, which we find encouraging. Most importantly, the company has exceeded its franchisee profitability targets, which is something that Patrick Doyle really instituted in the business. And next year, the franchisees will take on the additional advertising fund investments at Burger King U.S. And so let's talk about one of the debates in the stock, which is under the new administration, there's been a lot of talk about how restaurants prepare food or how clean their ingredients are and how that might come under the microscope under the Trump administration. So on this specific topic, restaurant brands have actually been ahead of the curve in the industry, and I'd mention two points. At Burger King, there's been a multi-year effort of banning hundreds of ingredients that are artificial, have preservatives or colors. And so it's really been a focus on them differentiating for eating this way. And second, there's a large debate about seed oils versus beef tallow. There's many people on both sides. And one of the lesser known fact is actually at Popeye's, all the fried items are actually fried in beef tallow today. And it turns out that's actually why Popeye's chicken tastes so good. And so I'd say restaurant brands amongst its competitors is actually further ahead than And this is clearly something that they can move further along on as consumer preferences change around healthier and cleaner ingredients.

So should RFK have insisted on Burger King Popeyes on the plane when they were flying to UFC? We think that was a mistake, and I think a Whopper tastes a lot better than a Big Mac. I agree. I'm going to make that recommendation to the administration.

Thank you for doing God's work. So going back to restaurant brands, as I mentioned, longer term, they have this 8% operating profit algorithm. Now, they won't reach the system-wide sales portion of that this year, given the ongoing issues, namely in the Middle East, boycott-related issues, as well as in China. But they will still meet the operating profit goals, partly due to cost savings. And that just showcased why we love the franchise business model so much, where you can still get the same profit growth, even if revenue growth isn't the same. Next year, this operating profit growth should be even better as the company lapsed some of these temporary issues. And again, the investment in the Burger King advertising fund goes from the franchisor to the franchisee. And so to wrap it up, despite the stability of these cash flows, QSR still trades at 18 times earnings, which we think is obviously low in the context of peers, but just on an absolute basis as well, given the high quality and certainty of these cash flows. And so as restaurant brands start reporting more consistent results, we think this gap to peers should narrow or even close.

Thank you, Feroz. You know, if you look at our top four holdings, which comprise, you know, more than half of the capital of the firm, each of them are, you know, we think of them as sort of royalty, annuity-like sort of business models. Universal, royalty on music, Alphabet, royalty on Internet advertising, among other things, Brookfield, a asset management, royalty, restaurant brands, and franchise royalty, obviously the business model we like, but a world in which we expect, you know, where growth could be accelerated, you know, these become remarkable, you know, businesses because you don't expect the fixed cost of the business to grow at a meaningful faster rate than whether or not the business, the top line grows fast. So we can see an acceleration in the top line. You will see, we expect a significant increase in value. Howard Hughes, Ben.

Thanks, Bill. So Howard Hughes' story continues to be one of resilience in its core business, despite headwinds in the national real estate market. With the spinoff of Seaport Entertainment Group completed in July, Howard Hughes is focused on what they do best, which is a pure play master plan community development company. However, Howard Hughes differentiates itself from other developers because it has a unique self-funding business model. The recurring income it generates from its operating assets is more than enough to cover G&A and interest expense. And that allows the company to use the free cash flow it generates from land sales and condo profits to reinvest in growth in its communities, pay down debt, or return capital to shareholders. While they expect to generate meaningful cash flows over the next few years, and given the high ongoing interest rate environment, Howard Hughes will focus on strategic higher return development opportunities including condo multifamily projects. In its MPC land sale segment, Harry Hughes reported Q3 MPC EBIT with near record price per acre sold of $1 million. New home sales continue to remain strong as existing home inventory approaches historical lows. With mortgages still in the high 6% range, homeowners are locked into their homes, which has strangled the market of resale inventory. So new home starts are needed to bridge that gap to ease the housing shortage. As a result, home builder demand continues to remain strong, and especially so in Howard Hughes' markets, with new home inventory currently one month or less, which is well below national averages. Looking back over the past three years, Howard Hughes generated $1 billion of MPC EBIT, with an impressive 72% price per acre growth in its communities. The dramatic growth in its land pricing has resulted in the estimated value of Howard Hughes' remaining land being worth more today compared to 2017, despite $2.4 billion of total land sales during that time. In its operating asset segment, Howard Hughes generated 7% NOI growth year-over-year, with particular strength in its multifamily and office portfolio. And despite what you would read about market headwinds in the office space, the company's office portfolio had strong leasing momentum over the past year as a result of its best-in-class office assets, and importantly, it's in desirable, walkable communities where people want to go into the office. And they still have a long runway of growth with the ability to generate over 100 million incremental recurring NOI as they work to stabilize their existing and under-construction assets. In its strategic development segment, Howard Hughes recently completed its seventh condo tower called Victoria Place in Ward Village, Hawaii, which will generate $760 million of revenue in Q4 of this year at a 28% gross margin. The company also has three additional condo towers in construction together, and together with Victoria Place are 88% pre-sold on those condos. They also started pre-sales on their 11th tower and quickly pre-sold 55% of those units with hopes to commence construction on that project sometime next year. And they also showcased another three new towers, two of which are prime waterfront locations.

Ben, just a thought, because I want to be respectful of the amount of time we have, and I do want to cover Nike in some depth because it's a new addition to the portfolio. Maybe just a high-level summary of, I mean, obviously a very strong quarter. Maybe I'll do this one. I'll say the following. Management here has done a superb job. The business has become more focused over time. They continue to deliver great results. but it's a company that really has not just the nature of the business, the fact that it's a real estate company structured as a C-corp, the fact that it is very active in real estate development, the challenges of predicting future earnings, all of these were factors that we had in mind when we filed a 13D in August and we said that we were looking at the potential for taking the company private and that we had hired Jeffries to assist us in raising capital. Obviously, we cannot update you on developments there until we have something specific to report. That's really led to, I would say, this strategic initiative. We don't think that Howard Hughes is going to develop a real franchise today as a public company, and that's why we're looking at alternatives for the business. But anything else you'd add of significance for the quarterback?

Just I think they had their investor day on Monday, so I would encourage anyone who's interested in the story to listen to that investor day presentation.

Okay, great. So, Hilton, maybe high-level summary, Charles?

Yeah, sure. I can – pretty quick summary. They're having a very solid year is kind of the short takeaway. Near-term industry trends are broadly – remain very constructive with good kind of general backdrop of growth. The only wrinkle has been there's some weakness in China, but that's a very small piece of Hilton's overall system, and so they've been managing through that pretty well. Taking a step back, I think this year's a lot like 2019 in some sense for them, which is like the first normal year they've had since, you know, in a post-COVID period, where it's despite kind of lower macroeconomic growth, they're generating very strong earnings growth. So year-to-date earnings are up 18% for them, and that's in a low single-digit kind of rev-par growth environment. And I think that's in part of the reason why the stock's doing very well this year is is there's a lot of appreciation for Hilton's exceptional business quality in the broad kind of attractive but unpredictable kind of long-term earning growth algorithm for the business. So today I'd say the main debate is it's probably trading at the higher end of its historical valuation range, but I think when you have a 5-, 10-year kind of teens-type earnings compounder with incredible predictability and low macroeconomic risk, And again, to the extent you think that there's broad reacceleration and growth, Hilton will benefit from that as well. So I'd say they're having a very solid year and not much to report kind of beyond that.

One other thing I'd add is there are a lot of very, very talented management teams that really know their business as well. And Chris is the best of the best in the hotel space. But where he's also, I would say, an outlier is just a tremendous capital allocator. The way he thinks about creating shareholder value, the way they've directed their capital over time, and that's why they've generated and they're deserving of a high valuation because the shareholders can have enormous confidence that management's always going to do the right thing. And, you know, that's a standard we want to set for every company that we want to invest in. We want to congratulate Chris and the team for that. Manning, Chipotle, maybe, again, sort of high-level summary.

All right. Thanks, Bill. So some quick thoughts on Chipotle. You know, the good news is the business continues to perform very well. From the third quarter, same-store sales grew 6%, which included transaction growth of 3.3%. And, you know, encouragingly, transaction growth has actually accelerated going into the fourth quarter, so closer to 4.5%, as, you know, the fan favorite smoked brisket, limited-time offer, return to venues, and the company moved past some of the kind of portion-related social media controversies from the summer. So I would say, you know, on margins, you know, restaurant-level margins did decline slightly from some investments that the company is making in generous portions. But the good news is that was more than offset by G&A savings. So EBIT and EPS, you know, grew at 17%. And I would say, you know, these results were particularly impressive in light of the CEO transition that happened in the middle of the third quarter. So in August, you know, Brian Nicol announced that he was leaving Chipotle to join Starbucks as the CEO and chairman, which meant that Scott Boatwright, who had been Chipotle's chief operating officer since 2017, was named interim CEO of and was actually officially named as the permanent CEO just last week. You know, we think this is absolutely the right decision by the board. You know, Scott is a world-class restaurant executive. He's been mentored personally by Brian for over six years, and we believe he has actually the perfect skill set to run an operationally intensive business, such as Chipotle. You know, he's beloved by the team internally, and he's very well regarded by analysts and shareholders. And I would say he's, you know, actually supported by a very strong team as well. So if you look at, you know, the folks around him, Jeff Cartong, used to be the CFO and is now the president, Chris Brandt, the chief marketing officer, Kurt Gartner, the chief technology officer. This is the core Chipotle team that has been there since the beginning of the transformation, and they all received retention grants or are highly incentivized to stay with the company. So we actually think, you know, the core team is still intact and that they're going to continue executing Chipotle's winning strategy. So we believe the company still has a really long runway for growth ahead of it.

Great. Thank you, Manny. Okay. Go ahead, Anthony, on Nike.

Sure. Thanks, Bill. So Nike's a new investment that we made this spring. It's a company that we followed for many years, and we actually owned once before for a brief period in late 2017. A brief and very profitable period. Yes, a brief and very profitable period, late 2017 into early 2018. The company at the time was undergoing kind of some competitive challenges, principally from Adidas. You know, we had a view that things would turn around. They actually turned around really fast, and it's a high-class problem where it appreciated and we sold the stock to deploy into other opportunities. But the reasons we love Nike as a company, you know, we think it's one of the great businesses of the world. It has one of the world's most valuable and iconic brands. The brand recognition and brand value of Nike across generations, across countries, across cultures is just tremendous. It has a long-term track record of robust revenue and earnings growth driven by market share gains as well as pricing power and innovation. Its historical average revenue growth has been about 9%, which is incredibly impressive. It has been powered and will continue to be powered by massive secular trends of health and wellness and casualization. It has a dominant market position of 18% market share in total athletic footwear and apparel, 30% market share in footwear. Both of those are double their next largest competitor, and footwear is the crown jewel of the athletic footwear and apparel industry, and it drives close to 70% of Nike's revenue. Nike's barriers to entry include unmatched marketing and research and development spend, unmatched brand loyalty, an athlete roster that's the envy of the industry, and a retro library that blows away kind of any other company. They have patented innovations and manufacturing skill primarily on the footwear side. And they have substantial leverage with suppliers and with retailer customers. You know, they account for, you know, 100% of sales in some factories. And they account for 60% of Foot Locker's sales, for example, which is one of the major retailers in the U.S. And then Foot Locker, in turn, accounts for less than 10% of Nike's sales. So there's favorable dynamics there. Their margins today of around 10% are well below their structural potential, which we think can be mid-teens or higher over time. So there's tremendous upside in profitability. And then taking a step back, we've always believed at Pershing Square that a great time to buy one of the great businesses of the world is when it's in temporary trouble. And we've seen this before in other investments. And we think Nike will prove to be another one of those over the next several years. Given it's such an amazing company, the stock's down more than 50% from its all-time high achieved during 2021, what went wrong? Well, what went wrong can really be distilled. It's really one principal thing that went wrong, which is they picked the wrong person to succeed Mark Parker as CEO in early 2020. So at that time, they announced that John Donahue, who is a board member at Nike, was had a longstanding relationship with Phil Knight, and was at the time running a software company called ServiceNow, was going to step in and succeed Mark Parker as CEO.

I've seen this before. Hiring the new CEO from the board has generally not been a good strategy, in my experience.

Yeah. Yeah, no, it's totally true. I mean, there is kind of a dynamic where the board hires one of their own, and it's not great. And, you know, John did not have any prior experience in Nike's industry or in consumer goods or brands more broadly. And he and his team made several mistakes. So the big mistakes they made were, one, you know, they pulled back severely from wholesale distribution in favor of direct-to-consumer sales. You know, they thought, wow, you could capture all retail profit dollars if you just sell the shoe directly to the consumer. That is true. But that, one, ignored the fact that wholesale is an extremely important channel for authenticating the brand. And two, it allowed their competitors to gain shelf space, which was a big barrier to entry that Nike had historically. They still have it, but it's just reduced from what it was. But we think they can get it back. The second big mistake is they shifted from a category to a gender offense, and what that means is the company used to be structured by sports verticals, so there'd be kind of a head of running, head of basketball, head of sportswear, et cetera. That structure was changed to just be men's, women's, and kids. Why did they do that? It looks like a dumb decision in hindsight, but the rationale at the time was, well, we have basketball shorts, which is a pair of black shorts, running shorts is a pair of black shorts, sportswear is a pair of black shorts. A lot of ski redundancy, can't we simplify this? And there definitely was an opportunity to kind of work collaboratively, I guess, across divisions more. But with that ignored is that having this one like sports is like Nike's reason for being. And second, having product innovation and everything driven by sports verticals actually connects leadership with the needs of the consumer. And if you have a head of running, your mission is very clear. You want to make a great product for runners. If you have a head of men's, I'm not really sure what that means. Third big mistake is they chased the easy sales of iconic lifestyle products. and deprioritized innovation and new products. So the big icon franchises at Nike are shoes like Air Force One, Air Jordan One, and Dunk. And the management team was like, wow, it's really easy to sell these shoes. Consumers want more of them. They traded big premiums in the secondary market. Why don't we just increase supply massively? And they did that. And there's a reason that Hermes, Ferrari, even prestigious but not quite as exclusive like Louis Vuitton or something, why they don't just ramp up supply to juice sales is because you want to actually create a sense of exclusivity and desirability for the brand and for the products. And that's something that Nike was really good at doing for all of its history. The strategy for a long time was they want to sell one less pair of shoes than the market has demand for. And a lot of this was due, frankly, to John's inexperience with the industry. And These key mistakes and uninspiring leadership created some damage to the culture and morale at Nike, and multiple rounds of layoffs also didn't help, which are structuring in response to these challenges. And Nike is a company for which the emotional connection of the employees to the brand at headquarters, campus sentiment, all that's extremely important. And when that's damaged, you find yourself in the situation that we found ourselves, you know, that the company found themselves in leading into this year. So why did we invest when we did? So we kind of bought the stock in the spring, average cost around $90 a share. Clearly, we're down kind of high teens from that level today. The principal event was the first earnings report that occurred after we bought the stock. So we invested when we did because John had acknowledged a lot of these mistakes and started actually moving in the right direction. So he announced kind of earlier this year a pivot back to wholesale. That included reentering chains like Macy's and DSW and also refocusing on channels that authenticate the brand like Specialty Running. He created a hybrid sports gender offense, which is basically like sports general managers reporting up to the gender VPs. He announced lifecycle management of the iconic franchises, so basically pulling back supply of those Air Force Ones, Dunks, et cetera, and pulled forward several innovations. And he also brought back key talent, some Nike lifers, the most notable of which at the time was the chief marketing officer, Nicole Hubbard Graham, who had departed several years prior. And then finally, the FEN trading valuation at about 22 times forward earnings seemed like an attractive entry price. This is a company that's traded kind of in the mid to high 20s over time and has even gotten up to kind of the mid 30s as a multiple earnings when things are going really well. Clearly, the big mistake we made was that we got those near-term forward earnings wrong. We kind of over underestimated the degree of near-term revenue to operating leverage when there's growth. There's also substantial operating deleverage when you have revenue declines. So, you know, consensus and our earnings estimates in the near term came down kind of 20 plus percent after they reported that quarter, which was the primary driver of the stock decline. And why are things getting worse in the near term? It's a combination of the oversupply of those three iconic franchises was a bit more severe than we anticipated. And two, successful lines didn't fill the gap. So Nike's having a lot of success in retro running products like Bomero, V2K, et cetera, and also in kind of some more lifestyle products like the Killshot. Those collectively are like a mid-single-digit percentage of sales. They're not big enough to offset the declines in the big icon franchises. And then some of their innovations like... Recent innovations that they pulled forward were mixed. Some of them did really well, like the Pegasus 41 running shoe. Some of them, like the Air Max DN lifestyle suit, less so. And we had heard mixed things on John during our initial diligence on Nike. But what we were confident in was that if John was not able to figure it out and right the ship, then the controlling shareholder and founder, Phil Knight, would bring in somebody who could. And that is exactly what happened. So on September 19th, Nike announced that Elliot Hill would replace John as CEO, effective October 14th. Elliot is the ideal person for the job. He was like our dream choice when we were doing kind of our diligence and identifying who could potentially run the company if John didn't work out. He started at Nike as an intern in 1988 and worked his way all the way up to effectively kind of a co-president role at the company. His role when he retired in early 2020 was president of consumer and marketplace. And in that capacity, he led all of the commercial and marketing operations for the Nike and Jordan brands, including ownership of the P&L in all of the geographies across the world. He is an absolutely beloved leader at the company. So some of you may have seen the press reports where when his hiring was announced, people at headquarters were popping bottles of Prosecco. There was a poster that was circulated of Elliott's face kind of in the Barack Obama hope poster. It just speaks to like the sentiment. People are just overjoyed both internally and externally, you know, current Nike employees and also alumni. It's interesting, we always ask when a new CEO is hired, we obviously do diligence calls on them, and we ask former executives, you know, would you go back to work for this person if they called you and said they needed you to help out with the job? And every single executive we spoke with said yes, regardless of kind of their life circumstances, some of them moved, et cetera. They're all like, nope, if he calls me, I'm packing up my bags tomorrow, I'm going to Oregon, and we want to be a part of this. The only person who didn't say yes said that, oh, I actually already called him. So Elliot is a people person. He's loved by everybody. But importantly, he is also incredibly, incredibly competitive and wants to win. And that is kind of the energy and the type of leader that Nike needs right now. Um, so what's the path forward from here? Uh, well, we think Elliot's areas of focus are going to be several folds. Uh, there's kind of six, uh, that come to mind. There's probably several more, but, um, one is, uh, first and foremost, making sure he has the right people in the right roles. You know, the sports analogy, you need the right team, you need the right players in the right positions to win. Um, secondly, rebuilding relationships with key wholesale partners. Uh, he built and led those relationships over many years. So perfect person to do that. Third, um, centering the organizational structure and strategy firmly around sport. Fourth is a higher emphasis on consumer connections. One of those could be bringing back teams in key cities. So Nike used to have kind of teams on the ground in key cities around the world, New York, Paris, London, et cetera, that would interact with influencers and kind of assess key trends. You know, prior leadership had kind of gotten rid of those teams in favor of scraping digital data. The results have been kind of obvious. fifth is more powerful storytelling and marketing. We think Nike's Olympics campaign over the summer, winning isn't everything. Manning, what was the exact drawing point right now? Winning isn't for everyone. Excuse me. Sorry. I'm kind of in the zone right now. But that was kind of the winning is everything. But that was the kind of the type of campaign that's a little bit controversial, a little bit edgy, gets people talking about it, reminded us in some ways of kind of the Kaepernick campaign they did in 2018. Maybe not everyone agrees with it, but it's groundbreaking and it gets people talking. And then fifth is a review of the innovation pipeline. I'm sorry, sixth is a review of the innovation pipeline. So out of all the drivers I mentioned, what's interesting right now The market is myopically focused on number six, so the innovation pipeline and the bear case as well. It takes 12 to 18 months to launch a new shoe, and the turnaround can't take hold before that. And we don't think that's true. We think there are many drivers that I just mentioned that Elliott can get started on right now and that he's probably started on already. So we think the turnaround, we could potentially see it start to take shape before the market anticipates, well before the market anticipates. And concluding thought, I would say that Nike has the potential to be one of the great turnarounds in consumer. However, the path ahead will not be linear. We expect some bumps in the road. But looking out several years ahead, I would never, ever, ever bet against Nike.

So, Anthony, just an obvious question. So by stepping away from the wholesale channel, they also created the opportunity for new entrants on being a notable example and also some existing competitors taking share. How do we think about that competitive threat?

Yeah, so look, Nike thrives when it needs to compete. So I think that the competitive environment has certainly gotten more difficult since Elliott was last there and probably more difficult now than you could argue any time before in Nike's history. What I would say is several fold. So one, you have to look at the competitors kind of differently. So Adidas, I would say Nike knows how to compete against Adidas. and they've done it before. Adidas was resurgent in 2016 with different models of shoes, and it was also a little bit of a retro play, and Nike was able to come back very effectively. With regard to Hoka, they have kind of a identity in terms of very high-stack cushioning shoe. I don't think it's that hard to make a similar shoe. They don't have – you know, Ahn is the one I look at in terms of creating – it's the most interesting competitor and the one that I think will be the toughest to respond to. I think Nike can do it. But, you know, Ahn has created a niche in the market, very high-end, premium positioning. They have great partnerships with the likes of Roger Federer and Zendaya. And they have kind of the – the right consumers wearing the shoes, I guess. What I'd say is, you know, they are a brand that is today focused on one category running. There is kind of a distinctive look to the shoes. There is always a risk. And what we've seen through the entire history of the footwear industry, consumer preferences change over time. They eventually get bored with a kind of specific look. And then I think there's shifts between categories. So the big categories in footwear are running, basketball, and lifestyle. Lifestyle is effectively a duopoly between Nike and Adidas. Basketball, Nike has over 90% market share. And then running is the competitive battlefield. So as consumer preferences shift between those categories, and if they were ever to shift back towards something like basketball, Nike's extremely well positioned. And that's kind of how I think about the competitive landscape today. You have competitors like New Balance also doing well right now, primarily a retro running play. But, you know, the competitive environment is intense. Nike, when it's firing on all cylinders, is a very, very tough company and brand to compete with. And, you know, I think the company will thrive with this challenge.

Thank you. Okay, so bearing in mind time, on Canadian Pacific, I would say the following. As business hubs, we know quite well, we were instrumental in putting in place the leadership and including the leadership that's in place now with Keith Creel. Outstanding leadership, unique railroad franchise, and an oligopolistic sort of industry. The big question, of course, is impact of tariffs. Obviously, the stock price is being held back by the risk of Trump tariffs. How do we think about that risk in light of the business?

Sure. I would say, you know, there's obviously a lot of uncertainty around... Oh, this is Manning speaking.

Go ahead, Manning.

Thanks, Bill. You know, there's obviously a lot of uncertainty in the marketplace right now around what tariff policy ultimately looks like. But I think, you know, the good news is, based on CPE and KCS's experiences with tariffs during the first Trump administration, we believe that tariffs are actually unlikely to materially impact earnings, but they will cause near-term volatility in the multiple, which is kind of what you're seeing today in the share price. Um, so let's walk through, you know, for context, what happened during the first Trump administration. Um, so in terms of China tariffs, you know, so Trump did impose anywhere from, you know, a 10 to 25% tariff on a wide range of Chinese imports starting in 2018. Um, but if you look at what actually happened, you know, at CP, they were able to grow earnings per share at over 20%, um, average rate over that time period. And that's because the China to us direct import business is only a mid single digit percentage of total revenue. And the tariffs that the U.S. imposed didn't really impact that business at all. The category that was actually most impacted was U.S. soybean exports to China, which was a category that China targeted in retaliation to the tariffs that the U.S. imposed. And that business was down double digits across all the railroads, not just CP. But the good news is export grain today is less than 2%. of total revenue. So, you know, that won't move the needle either way. I think, you know, in terms of potential tariffs on Mexico and Canada, which would obviously be more material to the CP business, you know, given the kind of North America footprint today, I think, you know, the Trump presidency, his first term is also a relevant precedent here, too. So if you recall back in 2016, during his first campaign, there was a lot of talk about withdrawing the U.S. from NAFTA and kind of breaking up that free trade agreement. But if you look at what actually happened, you know, it was Trump who actually signed in 2020 the USMCA, which is a new, improved, actually larger version of NAFTA. And that agreement was ultimately very, very good for CP and KCS and was actually one of the reasons why CP decided to acquire KCS in the first place. And, you know, that USMCA agreement comes for formal review every six years. So the next review period will be in July 2026. And Trump and no other leader can actually make changes unilaterally to that agreement before then. And I would also say, you know, since the USMCA has been signed, there have been a lot of U.S. companies who have either moved their manufacturing to Mexico or are actively considering kind of nearshoring to Mexico, you know, because of all the benefits from the USMCA. And I think, you know, if there was a blanket tariff imposed on all Mexican imports, that would actually be very harmful to these U.S. businesses. which I think is the opposite intention of Trump's America First policy. And I think the last thing I'll say on that is if the U.S. actually does end up decoupling from China, which is actually currently our number two trade partner in terms of imports, we can't produce everything we consume domestically. It's not possible. So I think we inherently will become actually more reliant on Mexico and Canada, who are currently our number one and our number three trade partners. And if you look at during the first Trump administration, That's actually exactly what happened. So the trade deficit overall actually increased about 20 percent during his presidency. But the trade deficit with China decreased. But that was more than offset by increased trade, increased imports from countries such as Mexico. And I think, you know, stepping back, I think it's also possible that tariffs are used this time as a negotiation tool, just like they were used, you know, in that fashion during his first his first term. So I think the most interesting example here is back in May of 2019, Trump actually tweeted that he wanted to impose a 5% tariff on all Mexican imports. But that was actually quickly, you know, scrapped actually less than two weeks later after Mexico agreed to tighten up border security to kind of stem the flow of migrants. So I think it's very possible that you can see a similar scenario playing out today.

The other thing I would add is that Howard Luttnick was made Secretary of Commerce, and I think He's a sophisticated business person. He's actually articulated, probably best of anyone so far, you know, some insights into how the new administration is going to use tariffs. And I think he will be a good tag team partner with President Trump. You know, the U.S. has had a disadvantageous trade position because of much larger tariffs in countries that we do business with. And I think President Trump does that as well. consistent with America First, and I think he'll be sophisticated in how he uses the negotiating power of tariffs to maximize U.S. interests. But I think the overarching goal here is economic growth for the country. And so owning a railroad in front of accelerating economic growth, particularly a railroad that's in the process of realizing large synergies on the cost side and perhaps even larger potential synergies on the revenue side in light of the unique offering that they can bring by virtue of the only you know, truly North American, you know, Canada to Mexico.

Yeah, completely agree. And I would just add, you know, valuation-wise, CP is trading near, you know, 20 times our estimate of 2025 earnings per share, which is effectively the lowest multiple it's traded at since the case.

Right, that's the lowest multiple and it has the most potential for earnings growth of any of the railroads.

Right, so we think, you know, for a company that will compound earnings in the mid to high teens over the next several years, that's, you know, a very significantly discounted valuation.

Yes. Okay, I'm going to just wrap up, you know, briefly, you know, Fannie Mae and Freddie Mac are up enormously since even beginning a few weeks before the election, probably one of the better indicators of who is going to win the election. These have been long-term holdings of the firm. During the first Trump administration, under Secretary Mnuchin, the companies made significant progress to one setting, frankly, very high capital standards so they could become independent enterprises, and then perhaps most materially the decision to stop sweeping the – earnings from Fannie and Freddie has allowed these entities to recapitalize to a total capital of... They have $147 billion combined today. Right. My guess is $147 billion is more than sufficient to cover the potential risks of loss associated with what is a very safe business, as long as they stay in a safe business. And when you combine that with the duopolistic, monopolistic, practically, nature of their business and the earnings power associated with that, you know, they're already have a fortress balance sheet. All that being said, the capital standards are even higher. You know, there's one comment, you know, some comments made by one of the Treasury Secretary candidates about, well, effectively, the government's going to have to step in and support them if they blow up. Why don't we just, in effect, keep them as wards of the state? Ultimately, I think the same comments could be made about J.P. Morgan, right? The United States government is not going to let the depositors of J.P. Morgan lose their money in the extreme, you know, very, very remote scenario of a major systemically important institution failing. But it still makes sense to have JPMorgan be a privately run institution that raises capital from the private sector. And so there's a very large cushion between the government having to step in. So we wholeheartedly believe that we expect in the Trump administration for Fannie and Freddie, you know, to emerge from conservatorship. and we believe that this is consistent with the goals of the administration. The last thing we want to do is add another $6 trillion of liabilities to the $36 trillion explicit liabilities that we have outstanding today. It wouldn't be good for the United States balance sheet. And, you know, Mr. Trump, President Trump, likes to make deals. This will be the biggest deal of all time, and it's one where you could actually create, you know, the government's 80% ownership of these institutions could turn into, you know, a couple hundred billion dollars, perhaps, of value in a deal. I think President Trump would like to be the one to negotiate that one, and we'll be delighted to be helpful to him if we can be. But I do think the move in the share prices is deserved, and I think there's significant upside. Last but not least, Seaport Entertainment, we backstopped a rights offering. We went from 38% to 40, what?

Around 40, just under 40.

just under 40% of the company, a lot of participation in the rights offering. We brought in an excellent management team led by Anton Nicodemus. Interesting collection of assets at a very low value relative to the asset value, but a lot of work to be done in terms of turning these assets around and making them profitable. Small, but interesting. I put that almost in the mispriced option category by virtue of the size of the position. With that, apologies for the longer-than-normal call, but some important topics to discuss, and we look forward to speaking with you on our next call. Any questions we didn't address, please contact the IR team, ir at persq.com. Thank you so much, and thank you, operator.

Thank you, everyone. This concludes your conference call for today. You may now disconnect, and have a great day.