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.

Just a couple of comments. So one on Canadian Pacific, Kansas City Southern, or CPKC. You know, this is a company that's sort of near and dear to our heart in that we played a very material role years ago in replacing the board and bringing Hunter Harrison and ultimately Hunter recruiting Keith Creel and building really an amazing railroad from a Not even a standing start. It was by far the worst-run railroad in North America, and today I think quite clearly is the best-run railroad. Even though we didn't own the stock, we kept a real interest in the company. Keith Creel got in touch a couple years ago and said, look, if you're interested in acquiring Kansas City Southern, you can be helpful to us. We'd welcome your assistance. We played a small role in helping Keith, just bouncing ideas off him on how to get that transaction done. We didn't own the stock at the time. And once that deal was finally publicly announced, we bought a meaningful stake in the company, which we've held for the last several years. Our view generally is that you have a super talented team. One of the best things you can do is put more assets under them. And that's what this transaction has done for the company. And we do have a very strong belief in the long-term future of the business. Now, events outside of CP's control, I would say, have kind of held back some of the potential that we saw at that time. we know it will ultimately be realized. So this is one of those positions where we sell with regret, but want to be super clear that we think extremely highly of the Canadian Pacific team, Keith as a person and as a leader. And someday when we have billions and millions of dollars of capital pouring in the door, we won't be forced to sell something to buy something else. When you manage a closed box, a closed system that doesn't generate cash in order to buy something new, We generally have to sell something we already own. And so in light of kind of the tariff environment, et cetera, and some a little more economic sensitivity, most of the companies we own are much more in the asset-light category, not as capital-intensive. And sort of the extremely attractive entry price offered by Amazon led us to make that switch. With respect to Hilton, again, I would say incredible team led by Chris Mazzetta. We've been a shareholder for many years now, bought a lot more in March of 2020. I remember the days, $55 a share. We sold some stock recently when it hit $280 a share. The market has really begun to appreciate that company. And at that price offered, you know, there were sort of better opportunities for capital. But I would say if we If we suffered from huge amounts of cash pouring in the door, we wouldn't have sold either one of those investments, really just driven by a unique kind of relative opportunity that appeared. Let me comment briefly on Fannie Freddie before I turn it over to Charles to talk about Uber. So Fannie Freddie, a longstanding position. I think we bought this stake in 2012 for a couple bucks a share. It's been a very volatile situation. But as I tweeted at the end of last year and as we presented in early January, we thought this was the time for finally these businesses to be released from conservatorship and that a huge amount of value could be created for shareholders, but also importantly for U.S. taxpayers and for the government. The Treasury Secretary had an interesting insight when he started talking about the idea of a U.S. sovereign wealth fund. and how Fannie Freddie could be an anchor asset for the sovereign wealth fund. You know, the challenges of trying to reduce leverage and reduce deficit are important ones. But historically, we've only tried to solve that problem or we've not tried to solve the problem, but it was based on just cutting. But, you know, I think some important part of the approach here, which makes a lot of sense to us, is growing, if you will, the asset value of the country. And compounding can solve a lot of problems. And we think Fannie, Freddie are uniquely situated to be great forever assets for the U.S. government to own. It's effectively a royalty in the U.S. housing finance system. I think there are very good reasons why this is a great anchor investment for the U.S. government. We were not aware of those plans when we gave our presentation in January, nor do we understand the plan that the Director Pulte would be implementing as head of FHFA. And very clearly, since he arrived, there was a new sheriff in town, brought everyone back to the office, restructured the boards of the entities, replaced one of the CEOs. And for the first time, I would say, in well more than a decade, it's clear that these businesses are being run or are on the path to being run like private enterprises. All of the assumptions we used in valuing Fannie and Freddie assume basically the status quo, where Fannie and Freddie were effectively wards of the government in terms of how they were managed. And as we've seen with some of the announcements from Doge, unfortunately, government bureaucracies are not the ideal to run private enterprises. And Director Pulte has had various commentary to make clear that his plan is to run these businesses to maximize their profitability, consistent with obviously the core mission of providing low-cost, long-term, fixed-rate financing to people, kind of middle-income Americans. Just last night, President Trump put out a tweet that I think we may have to put up on the wall somewhere in Pershing Square. but basically where he announced that he was looking very seriously about releasing these entities from conservatorship. He's going to have discussions with Director Pulte and the Treasury Secretary and others, but we believe that path is absolutely the right one, and we think that those entities are now ready for emergence, and we think that Tweet is very, very material. Actually surprised the stocks are up meaningfully today, but I was actually quite surprised they weren't up a lot more because the president, we know, is a dealmaker. This is a deal that he is entirely in control of, and it's really just his decision. The details of execution matter, but we think the logical execution path is one, and the legal execution path that respects the – you know, the way conservatorship is supposed to work. I have no reason to believe why the president would operate in a way outside of the kind of legal norms for how conservatorships work, and we ultimately think that's in the best interest of the government as ultimately the major shareholder here. So this is quite a meaningful position for us. I think system-wide we own something like 220-odd million shares collectively of both businesses, and, you know, we would obviously be happy to be helpful and supportive in any way that we can to see this through. but our estimates of kind of low 30s value for the businesses upon immersion from conservatorship over the next year or two could end up being low to the extent that the Director Pulte is able to make them more run like true private enterprises. We were extremely encouraged by the President's announcement last night. With that, let me turn it over to Charles. We're going to cover each of our positions, but in a little less detail than historically. There really have not been a ton of material developments. But why don't you update us on Uber, because it's a new position and it's made some good progress. Thank you. Sure.

Uber, there actually has been some material developments. I'll spend a little bit more time. But just as a reminder for everyone, because it's a new position, so we acquired this earlier this year at what we believed was an extremely dislocated valuation rate. And this was basically made possible due to concerns regarding the perceived long-term threats of autonomous vehicles or AVs, as I'll reference them, on the rideshare business model, which basically was overshadowing excellent operating results and strong earnings growth that the company has generated in recent years. Now, it's our belief from the work that we've done that AV technology will not be a winner-take-all market. And in that context, we believe that there's a partnership structure that is likely to develop with multiple different players, partnering to kind of effectuate this technology over time. And we believe that's the clear value-maximizing strategy for all industry participants. And, of course, in the context of that, we think Uber has a central role to play. And so at its core, partnering with Uber, you know, tapping into their vast operating capabilities and demand aggregation of 170 million monthly active users, it drives the fastest route to market and critically the highest asset utilization, revenue generation, and unit economics for AV owners. And so while it's early days, events in recent months have been supportive of our thesis. So just to kind of provide a highlight, in March, Uber successfully launched commercial operations of their Waymo fleet in Austin with preliminary data showing strong consumer uptake and high AV asset utilization. This is kind of a critical first checkpoint, if you will, and they're going to be expanding that partnership to Atlanta imminently, which will be kind of another data point on their path to commercialization with a partner in Waymo. Now, in April, Waymo and Toyota announced a notable strategic partnership whereby Waymo will license the AV driver to Toyota, which will be included in the next generation of personally owned vehicles. Partnerships like this, they brought in access to AV technology, but also are critical in driving down the production costs as OEMs bring scaled manufacturing to the ecosystem. And we anticipate that there will be further announcements in the coming kind of quarters and years to this effect. And against that backdrop, Uber has announced a flurry of additional AV partnerships in recent weeks, including partnerships with WeRide, Volkswagen, May Mobility, Momenta, and Pony AI. Now, each of these are kind of focused partnerships which contemplate commercial AV pilots with a goal towards broader geographic expansion over time. And notably, this has been made possible in part by advances in artificial intelligence, which appear to be lowering the time capital, and overall barriers to entry for high-quality AV technology. Now, overall, we come away excited by the progress year-to-date and incrementally confident in our underwriting thesis. And on the operating side quickly, Uber had an excellent first quarter. You know, this is a local services business. There's substantial kind of international operations. The product itself is highly habitual. It has minimal to no exposure to tariffs or global trade flows. And in the context of that, organic revenues continue to grow in the high 18s, and the business is generating very substantial operating leverage with EBITDA growing 35% and earnings growing 80%. And so when we look kind of to the future, we see a path for Uber to grow earnings 50-plus percent this year with line of sight for continued 30-plus percent kind of compounded earnings growth as they execute against their financial targets. So I'd say it's early days, but the operating results have been excellent. And I'd say some of the preliminary pieces are coming together, which are very supportive of our big picture thesis.

Let me just briefly touch on Universal Music. I recently stepped off the board of Universal, not because I didn't enjoy being a part of that board, but really just from a time management perspective. I felt the right move was, in light of the time I will be spending as an executive chair role at Howard Hughes, that having another board responsibility was not ideal, and we feel that companies made very material progress. The issue was never with Universal, their abilities, skills, and talents in the music industry, but as a private company or controlled by a public company, a business going to now a fully distributed public company. We thought involvement on the board could be helpful. The company recruited, we think, an excellent CFO. I think it helped the company in terms of interfacing with analysts and more traditional public company IR role, as well as we think the company becoming a listed business in the U.S., something that we will We helped catalyze by seeking to register a portion of the shares that we own that will establish a trading market in the U.S. We think that will provide some more data to shareholders with regular quarterly reporting. That, combined with the new CFO, we think will begin to highlight some of the inherent value in that business. With respect to the business, maybe, Ron, you want to make a couple of comments on that performance?

Yeah, sure. I would just add that I think This environment where we talked about some concerns about the economic outlook and tariffs really has highlighted one of the reasons in our core theses on why we think Universal is such a special business. And it's really allowed the company, I think, to do quite well this year in terms of share price performance up in the low teens, which is this business is a royalty-based business where the company is giving a very valuable product, music entertainment, at an incredibly low cost in a subscription format. to hundreds of millions of people around the world. And we think that that both has a lot of opportunity because of the low price point for many more people over the course of the year, ultimately we think billions, to be able to subscribe to the service. And it also gives them a very large pricing opportunity for their digital service provider partners such as Spotify, Apple Music, Amazon, and others over time to take up prices to better reflect the value they're giving. What's nice about it is the low price point and the recurring nature of it, the high value, we think insulates it from the economy. vicissitudes of the economy. And we think that there's very little tariff exposure to a digital product like this. And so we think that this environment is pretty unique for the market starting to see what we've seen in Universal. And the business results have been strong. You know, the most recent quarter, they had a double-digit 10% organic growth rate, similar levels of profitability growth. And so I think that with the addition of the new CFOs you mentioned, that can really help as the company thinks through its capital allocation policies and continues to further engage with investors.

Yeah, and actually one of the threshold issues here as a Euronext only listed security, many of the most likely owners of the business who are required to invest only as a mandate matter in companies that are listed here, that's a very, very large base of incremental demand for the shares that we think will be quite helpful. Charles, update on Brookfield?

Sure. So Brookfield, the share price has been roughly flat year to date. And the stock today is trading, just in this context, at roughly 14 times earnings. And this is, again, against a backdrop where direct peers like Apollo and KKR are trading at 17 to kind of 23 times earnings, respectively. Now, what's interesting is Brookfield, it's been quite volatile. So in April, it kind of suffered along with the broader market downdraft, but has recovered. In the context of that, direct peers are actually still down 20% year-to-date, roughly speaking. And so I think an interesting question is kind of why is that? and kind of offer a few observations. So first, one, you know, the stock trades at an objectively low multiple, right? At 14 times earnings, I think that lower multiple has kind of acted as a cushion to some extent on the volatility in the marketplace and can provide some floor on valuation, particularly in the context of earnings growth continuing to remain very strong. And so touching on that second kind of point is, overall, when we – assess Brookfield, I note that our view is it actually has much less macroeconomic exposure compared to many of the other alternative asset managers. And there's basically two reasons for that. So overwhelmingly, Brookfield's businesses are focused on essential physical assets. That includes power and renewables, infrastructure, and real estate. They actually have modest exposure to what we kind of consider traditional private equity. Now, when you think of power, infrastructure, etc., These are domestic businesses which deliver critical services and they serve local demand. So infrastructure cash flows, additionally, they're oftentimes, and in Brookfield's case, they're highly contracted and or regulated and can generally pass or increase input costs. So as such, Brookfield businesses are relatively or entirely protected from tariffs in global trade flows, which is different than many of their peers. And then moreover, when you kind of consider the cash flows of BN, the parent company, which we own specifically, they have very modest exposure to the more economically sensitive carried interest. And this is, again, kind of a notable difference for some of their peers. So carried interest today is less than 10% of Brookfield's current cash flows. In fact, one of our theses and why we own this stock is we believe they're materially under-earning today with carried interest in the, call it $500 million annual range, scaling to $2 to $2.5 billion over the next few years. but that means that the current base of earnings you're buying today are more insulated from kind of macroeconomic sensitivity. And so taken together, the business is not particularly exposed to macroeconomic volatility, and our expectations for earnings growth this year have not materially changed. To that end, operating results have been very strong to start the year. Their distributable earnings in Q1 were up 26%, which was in line with our expectations. And we continue to expect attractive growth in 2025 and beyond. And we think the stock is very cheap.

Thank you, Charles. Alphabet, Bharat.

Sure. So despite excellent business performance, which included operating profit growth of 17% last quarter, Google continues to trade at a very discounted valuation relative to its business quality and growth prospects at 18 times forward earnings. And we believe that discounted valuation is primarily driven by concerns over its competitive positioning in AI and as well as exposure to a potential flow down in economic growth, which is obviously not a risk unique to Google, but affects the digital advertising industry sector more broadly. Starting on AI, we continue to believe Google's product innovation and velocity is very underappreciated, and it's probably best seen through the rollout of AI overviews, which are the summary AI responses in search. Despite launching just last year, AI overviews is being served to more than a billion and a half users worldwide, and it's resulting in higher quality engagement with users asking more detailed queries, as well as searching more frequently. Ads have also been introduced on AI overviews, and they're now monetizing at the same rate as regular search ads. And on the back of AI overview success, Google is rolling out AI mode, which more closely resembles a chatbot-like conversational interface, directly onto the search page as well. Over the long term, we think Google has a number of structural advantages in AI, from its vast corpus of data, including two decades of consumer queries and user behavior data, to its technical infrastructure, which includes their proprietary TPU chips, which are designed specifically for AI, to their broad consumer presence, where they have seven different apps with over 2 billion users each. And these strengths were on full display at their recent Google IEO Day conference event, where they previewed a whole bunch of new features that highlight the accelerated product launch cadence. One such notable feature, which will be coming soon on AI Mode, is AI Mode will be able to soon leverage personal contacts from Gmail with the user's consent, obviously, to provide very curated and personalized responses in search. And that's a feature that Google is uniquely well-positioned to deliver and also highlights the strong network effects of this ecosystem. So we're looking forward to more features like that that leverage Google's unique market position. And then on Google's exposure to economic cyclicality, it's just important to highlight that search and YouTube are two of the most resilient and highest return ad formats and occupy the least discretionary part of an advertiser's budget. So typically in an economic slowdown, advertisers tend to pull back from more experimental and broad advertising formats. versus searching YouTube where they have both a very directly measurable and a really high return on their ad spend. And then on the non-advertising side, Google Cloud, very similar to AWS, benefits from that same powerful cyclic trend of IT workloads migrating from on-premise to cloud. And we think that should mitigate a lot of the economic volatility. So stepping back, we're very optimistic that continued progress on AI as well as demonstrated economic resiliency should lead to a multiple re-rating over time. And in the meanwhile, the company is generating rapid earnings growth. And as Ryan mentioned earlier, we've been able to opportunistically take advantage of the share price volatility by trimming a portion of our position beginning of the year and basically repurchasing a similar number of shares last month, 20% cheaper.

Could you just briefly comment? This talk took a dive on some of the commentary, Eddie Q's commentary during the trial.

Yeah.

And maybe touch on how we think about some of the litigation risks.

Yeah, sure. On the Eddie Q commentary, the specific comment he made in the antitrust trial was that on Apple browsers, they were seeing a decline in query volumes. That evening, the same day that Eddie Q made his comments, Google put out their statement emphasizing that they're seeing query growth globally and on Apple devices specifically. So that discrepancy might be due to the fact simply that Safari, which is Apple's browser, might be losing share also to other browsers globally, right? So that could be That's what could have led him to come to that conclusion. On Google's antitrust issues, I would say the most substantive case is around the default search contract. And just as a reminder, a federal court ruled against Google in favor of the DOJ in the legality of their default search contracts with Apple and Android OEMs last August. The remedy trial for that case concluded last week, and a final ruling on remedies is expected by the end of the summer. We continue to think that Google is well-positioned to navigate a wide range of remedy outcomes, and the most likely remedy outcome is a potential choice screen implementation, which there's strong precedent for from EU antitrust enforcement, and Google has been able to manage through that transition extremely well. So we'll continue to monitor the developments in that case.

Okay, great. Froze, restaurant brands.

Sure. So restaurant brands' share price has appreciated by about a high single-digit percentage basis. really due to better-than-expected business performance and also as investors have flocked to high-quality, durable businesses like it. So despite the volatile market environment and really an uncertain economic outlook, the company will still grow its operating profit at more than 8% this year, which is consistent with its long-term growth algorithm. Now, how can it do that? It can achieve that consistency of growth really due to its franchise business model, where neither tariffs nor economic uncertainty will have really a material impact on its profitability. First, due to the fact that restaurant brands generate the majority of its profits from franchise royalties, which are based on sales, it will not be directly impacted by tariffs. For its franchisees, tariffs represent no more than 100 basis points of headwinds to their cost of goods sold, as the vast majority of the input costs in food, beverage, and packaging are localized. Now, obviously, franchisee profitability is paramount, and it really matters to the long-term health of the brands. So the company is also actively working with its franchisees to even lessen that impact. And then second, if economic growth were to slow down, and we've seen some issues of that, and if the economy were to enter a recession, the restaurant branch would actually benefit from consumers trading down. And despite some noise in the first quarter, the company's fundamentals are already improving. with same-store sales performance in the second quarter already much better. And while unit growth will be a little bit lower this year due to some issues abroad, the company's done a really nice job in broadening the sources of unit growth over the last couple years. As just one example, the Canadian coffee market has often been discarded as a mature coffee market, but Tim Hortons will actually grow units there this year, and these units are far more impactful to the company's bottom line than its units abroad because of the higher average unit volumes. And so while the shares have outperformed the broader market year-to-date, they still trade at almost a 30% discount to other franchise restaurants like McDonald's, Yum, and Domino's, all of which actually have very similar 8% operating profit growth algorithms. So we think that leaves ample room for restaurant brands to continue to outperform as it hopefully closes that gap over time.

Okay, great. Let's see. Manning, why don't you update us on Chipotle?

Great. So Chipotle has had quite a challenging start to the year with the share price down about 16% year-to-date. So a combination of severe winter weather at the beginning of the year, Los Angeles forest fires, as well as just a general uncertain consumer spending environment have pressured Chipotle sales. In the first quarter, same sort of sales were down 0.4%. despite what we thought was actually quite an encouraging launch of Chipotle Honey Chicken, which is the company's new limited time offering. You know, while Chipotle is certainly not the only restaurant company, or the only consumer company for that matter, to see a slowdown on this year, management is not making any excuses. So they have a detailed action plan, operations, marketing, and digital to reaccelerate comp growth. We believe these initiatives, which include everything from a new summer marketing campaign, which just started, a new dip that they're launching in June, as well as rolling out more efficient equipment across all restaurants to improve throughput. So we believe these initiatives, along with easier comparables, will help Chipotle return back to that mid-single-digit type same-store sales growth starting in the back half of 2025. And we don't think that improvement actually requires any improvement in the macro. This is just initiatives that are under management's control. And we believe that in times of economic uncertainty, Chipotle's value proposition, which again is a meal delivered with fresh ingredients, highly customized, very convenient, all at a 20% to 30% lower cost than comparable offerings from peers. We think that value proposition just makes Chipotle's competitive advantage even stronger in these times.

And they've been much more aggressive on portion sizings. A family can now share a burrito as opposed to have to – Exactly.

Burritos the size of your face.

And in a maha period, you can share burritos. But why don't we jump to Nike. Anthony.

Thanks, Bill. So Nike also has had a tough start to the year. The stock's down about 19% year-to-date. really reflecting two issues. The first one is that the turnaround that the new CEO is engineering at Nike is resulting in tougher near-term financial results than the market was anticipating at the beginning of the year. The reason for that is simply that it's easier to pull back on what's not working than it is to seed, scale, and ignite new innovations. So one you can do really quickly. The other one, to do it right, takes time. I think that's some of what we're seeing. Uh, what we like here is that, uh, Mr. Elliot Hill is, uh, operating the company as if he were a private owner. He's certainly not managing, uh, the quarter to, you know, quarter to quarter to achieve a certain EPS or anything like that. Uh, he's doing exactly what you would want as an owner of the business to, to get it to the right place. Uh, so we like everything we're seeing from Elliot. Um, the other headwind to Nike, uh, this year has obviously been tariffs. Uh, the, uh, You know, Nike is one of the companies that we own that is far and away most impacted by tariffs. It imports all of its merchandise from primarily Southeast Asia. So, obviously, the company that's impacted by that, but we think it's well positioned to weather the storm there. It has a very conservative capital structure with a $1.4 billion net cash position. and it's important to note that it's not in any way in a disadvantaged position versus peers. How big is their cash position? One and a half billion net.

Okay.

Yeah, yeah, yeah. So they have gross cash is over $10 billion, and the net of the debt that they have is about one and a half billion net cash. The entire athletic footwear and apparel industry manufactures in Southeast Asia, so they're right in line with peers. And if tariffs are not reduced or there's no exemption for the category, this will have to be covered by a variety of actions, including price increases over time. And you saw some press reports to that effect yesterday. So there's two other business developments I'd like to point to in the quarter that we think were quite positive for Nike. The first was announced on May 5th, which is that the – president of consumer product and brand. So kind of one of the two co-presidents of the company, Heidi O'Neill, is leaving. And her role is being split into three areas, consumer and sport, marketing, and product creation. And all three of those areas are helmed by executives who have been with Nike for at least 20 years, and all three report directly to Elliot Hill, the CEO. And we think that this de-layers the organization and upgrades the team, and provides Elliott with better oversight and control over the turnaround. The second positive development is two of Nike's retail partners in the U.S. are merging. So Dix announced its acquisition of Foot Locker on May 15th. The combined company will purchase around 40% of its merchandise from Nike and will account for just over 10% of Nike's global revenues. You know, conventional wisdom would view customer consolidation as a negative because they have more bargaining power, et cetera. But we don't think that's the right way to think about this. Management commentary on the acquisition call was extremely bullish on Nike. And Dick's executive chairman, Ed Stack, implied that the timing of this deal was influenced in part by Nike's re-emphasis on wholesale. So Nike accounts for 60% of Foot Locker sales. It used to be closer to 70%. So this is effectively a big bet, not only on Foot Locker, but a big bet on Nike's turnaround by somebody who's extremely talented with a superb track record. So the executive chairman of Dick's owns about a $4.5 billion stake in the company, which is quite powerful. He served as CEO from 1984 to 2021 and executive chair since. And since Dick's went public in 2002, its shares are up 84-fold versus the market, which is up 10-fold. How come we missed that one? That was a big miss. So it's been a 22% annual return over 23 years, which is just remarkable, and we like somebody with that track record putting a big vote of confidence behind Nike.

Brian, thank you. Quick update on Hilton.

Sure. As I mentioned earlier, we had reduced the size of our Hilton position after the share price. It performed incredibly strongly over the course of the last year, and we judged that the returns had come down significantly. a little bit and that it was better to reduce the size of the position relative to the prospective return. But we remain incredibly confident about the business model of the management team and the company's future growth prospects. When you think about the dual risks that we see out there potentially right now in terms of tariffs and economic growth, Hilton is very well protected and insulated from both of those risks. The royalty-based nature of the business model means there's really no direct tariff impact. There's been a lot of talk about some secondary impacts. For example, a lot of companies that are in the travel industry have seen Inbound travel for international travelers coming to the U.S. has come down pretty substantially, but Hilton is very well protected from that. The vast majority of its business is conducted in the United States, and the vast majority of that portion of its business is really business travel. So you have a primarily business-focused domestic travel company in Hilton, so it's not really seen in the impact of a lot of the potential peer set, which is more of an international leisure focus to see. And then longer term, what's interesting about the business is, Because the concept is so strong with Hilton-branded property, we've seen unit growth or room count growth grow dramatically over time at a 6% to 7% rate on average. And because Hilton isn't the one supplying the capital, it's a very solid way for the company to continue growing in a capital-like manner, even if an economic slowdown might cause Revpar or their same-store sales metric to soften somewhat. So we think the earnings algorithm and growth profile will still be very strong, even if there's a little bit of an economic – which is one of the reasons that we think the business model is unique. And the company has demonstrated during share price declines a very significant capacity to repurchase shares that we think have historically been very attractive prices.

Great. Last but not least is Hertz. Just a brief comment. We had the opportunity to meet with management earlier this week. It was this week, yes. And Very impressive team. You met the senior team, and they clearly have a handle on all the various issues of the company, which begin with operational issues and system issues, and then, of course, capital structure management that they're deeply working on. But, Froze, why don't you give us the details on the business?

Sure. So we really like our Hertz investment, partly because we think it has an asymmetric range of outcomes with a potential for its share price to really increase several fold in the coming years. And as Bill announced last month on X, we now have a 20% stake in the company, and we had an opportunity to purchase these shares at an average cost of just about $3.80, partly because the market had discarded this business as structurally unprofitable and burdened with excess leverage. So for our full thesis, I would direct you to Bill's tweet on X, formerly known as Twitter. But I'd really make two points. One, the business is on the cusp of profitability. And the improvements that the CEO and his team are making can lead to normalized EBITDA of about a billion dollars in the near term. And the potential for much more than that would be help of some of the cost savings that can be taken out of the business. In the meantime, the business has ample liquidity to see through this transformation. It has more than a billion of liquidity now. It was recently able to successfully extend its maturities on its revolvers that a couple of investors were betting they would not be able to do. And it has plans in place and multiple levers, really, to deal with this upcoming 2026 debt maturities, as well as some legal liabilities that might be settled in the near term. When it comes to tariffs, it's really a twofold story. On one hand, the company is uniquely positioned to benefit from the actual tariffs. So as a reminder, Hertz owns about a 500,000 vehicle fleet valued at about $12 billion, which are financed through ABS facilities. And those have already begun to increase in value as used car prices rise. And on the flip side, the company has already taken delivery of about 70% of their model year 2025 purchases from OEMs, and it's not exposed to higher tariffs on the remaining ones as they've basically locked in the economics. On the other hand, however, as Ryan mentioned, the broader travel environment has gotten weaker, and the company is seeing moderating demand for their corporate business, the government business, as well as the inbound U.S. business, although the leisure business and the forward bookings on that remain quite strong. So a weaker demand environment could certainly make the Hertz turnaround more challenging. However, what's interesting about Hertz and the car rental companies is that, unlike other travel-related industries, these companies can really very quickly de-fleet to meet the new realities of the marketplace because they're really buying and selling cars every day in the marketplace. And what's also interesting is that prior periods of economic shocks have historically been followed by periods of constrained car supply. Now, why is that important? That really helps pricing. So the company actually points to two prior crises. If you go back and look at the financial crisis and look at the COVID-19 pandemic, they actually both led to significant RPD, which is revenue per day gains, throughout the industry. And then in terms of upside levers, we also believe that over time, Hertz has the potential of being a very significant partner to companies like Uber that are rolling out autonomous vehicles. If you think about it, Hertz has an expertise in vehicle maintenance, reconditioning, servicing, and the significant scope and scale of their footprint make it an ideal partner for a company like Uber. This could prove to be an entirely new revenue stream for Hertz and further help it leverage its fixed cost base, even if the travel demand is, you know, weaker. And so given the asymmetry of returns and considerable upside, we remain excited about our investment in Hertz, and we've sized it appropriately for that asymmetry as well.

Yeah, actually one of the interesting things that management talked about both on the call and we had the opportunity to get a presentation directly from a company called UBI that has an AI technology that effectively instantaneously can assess a car upon it leaving Hertz premises and returning. That, of course, makes it much easier for them to identify damage to a car where the consumer can – there's a verifiable proof of the outcome. We expect – the company expects that that will enable significant – lead better insurance recoveries and ideally a better customer experience. There's some automation technology in terms of the companies, the cars leaving the lot and returning, you know, that benefit. And management is talking about as much as 700 million of some combination of revenue cost energies from that technology. So a lot of interesting sort of embedded optionality in what is itself an interesting option like structured company with, you know, an in the money option, but one that we expect With the passage of time, hopefully that option goes further into the money. I just want to address a couple of questions that came in. One was, how do you think about potential conflicts of interest managing your current funds in Howard Hughes? Do you have a plan or framework in place to ensure decisions remain in line with the best interests of current fund investors? Excellent question. So a few things there. One, we are receiving – the Pershing Square is basically – so either Ryan or I are going to get compensated for being – executives of the company in cash or salary or equity or other form. But in addition to Ryan and I, effectively the entire Pershing Square team is being made available to Howard Hughes as part of our arrangement with Howard Hughes. We negotiated a $15 million annual fee as well as a – you might think of it like an incentive management fee, a management fee that gets paid to the extent that the stock price goes up over time. And the extent that we receive fees, we're going to rebate – or reduce the fees of the funds by that amount proportional to the amount of the company each of those funds own. So on a net basis to an investor in per square funds, there's no incremental fee load. And I would argue it's not just a neutral benefit, it's a materially positive benefit. We believe we're going to be able to add value to these companies well in excess of the effect. It's almost like a cost reimbursement that we are – And to the extent we can add value, for example, the management fee is effectively 150 basis points per annum above inflation. To the extent we add more than 150 basis points per annum above inflation to the companies in value, you know, we're creating – you know, it will be a materially important positive for shareholders. In terms of conflicts of interest or, you know, one, you know, we own – this investment through the Pershing Square Funds. We're the largest investors in the Pershing Square Funds. And then we now have an even larger position we've taken through the management company that's on 90% by the employees. So one that's about as good as you can get in terms of alignment. And then both companies themselves have different mandates. The mandate of the Pershing Square Funds is defined basically by minority stakes and large cap and mega cap companies of the kind that we've just discussed today. The mandate of Howard Hughes is to build a diversified holding company by growing an insurance operation, by buying controlling or 100% interest in private companies. So there really is no risk of – it's very clear where an opportunity goes. Up until this point in time, one of the interesting things about Howard Hughes, we have seen lots of interesting private opportunities that we have not had a place before. to put them and now we will and we think that will under the benefit of Howard Hughes and ultimately to our investors and as that Howard Hughes investment compounds over time, hopefully we can grow the market cap meaningfully. That means a meaningful reduction in the headline fees paid by the funds that we manage. Last but not least, I want to introduce Sonal Khosla. Sonal, we hire a new member of the investment team every few years, so it's not a pretty often thing, and when we do, and I would say this year more so than ever before, we had a literal outpouring of every analyst at probably pretty much every private equity firm of scale applied for this opportunity, and we did a pretty intensive process, and we had one clear winner, and that was Sonal. So not to raise expectations, but Sonal, maybe you can push the little button on your thing. Why don't you just tell us a little bit about yourself and your background?

Sure. Thanks, Bill. My name is Sonal. I joined the investment team a few weeks ago. I previously spent time at KKR on their industrial private equity team.

How long were you there?

I was there for five years.

And what did you do before that?

So I joined KKR out of college and school at the University of Pennsylvania.

And another Wharton grad?

Yes.

It sounds like we should be paying like almost a franchise fee, but these days my interest in funding universities – I'm holding back until I see some progress. But, look, we're delighted to have Sonal on the team. We've got a lot of interesting things that we're working on. Sonal's already meaningfully engaged. With that, I want to thank you for joining the call, and we look forward to speaking to you soon. Thank you.

Thank you, everyone. This concludes your conference call for today. You may now disconnect.