Pershing Square Holdings, Ltd.
2022 Annual Report
Annual Report 2022
ii
Pershing Square Holdings, Ltd.
Pershing Square Holdings, Ltd.
2022 Annual Report and Accounts
Annual Report
Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Managers Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Principal Risks and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Report of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Directors’ Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Report of Independent Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Audited Financial Statements
Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Supplemental U.S. GAAP Disclosures
Condensed Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Disclosures
Certain Regulatory Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Affirmation of the Commodity Pool Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5
Endnotes and Disclaimers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Annual Report 2022
1
Pershing Square Holdings, Ltd.
Company Overview
The Company
Pershing Square Holdings, Ltd. (“PSH”, or the “Company”) (LN:PSH) (LN:PSHD) (NA:PSH) is an investment holding
company structured as a closed-ended fund principally engaged in the business of acquiring and holding significant
positions in a concentrated number of large capitalization companies. PSH’s objective is to maximize its long-term
compound annual rate of growth in intrinsic value per share.
PSH was incorporated with limited liability under the laws of the Bailiwick of Guernsey on February 2, 2012. It commenced
operations on December 31, 2012 as a registered open-ended investment scheme, and on October 1, 2014 converted into
a registered closed-ended investment scheme. Public Shares of PSH commenced trading on Euronext Amsterdam N.V. on
October 13, 2014. On May 2, 2017, PSH’s Public Shares were admitted to the Ocial List of the UK Listing Authority and
commenced trading on the Premium Segment of the Main Market of the London Stock Exchange (“LSE”).
PSH has appointed Pershing Square Capital Management, L.P. (“PSCM,” the “Investment Manager” or “Pershing
Square”), as its investment manager. PSCM was founded by William A. Ackman on January 1, 2004. The Investment
Manager has responsibility, subject to the overall supervision of the Board of Directors, for the investment of PSH’s
assets and liabilities in accordance with the investment policy of PSH set forth on pages 32-33 of this Annual Report (the
“Investment Policy”).
The substantial majority of the Company’s portfolio is typically allocated to 8 to 12 core holdings usually comprising
liquid, listed large capitalization North American companies. The Investment Manager seeks to invest in high-quality
businesses, which it believes have limited downside and generate predictable, recurring cash flows. The Investment
Manager is an active and engaged investor that works with its portfolio companies to create substantial, enduring and
long-term shareholder value. The Investment Manager aims to manage risks through careful investment selection and
portfolio construction, and may use opportunistic hedging strategies, to mitigate market-related downside risk or to take
advantage of asymmetric profit opportunities. For more than 19 years, the investment strategy pursued by the Investment
Manager has generated a 15.7% annualized net return and cumulative net returns of 1,557.3% for PSLP/PSH (as converted)
compared to a 9.0% annualized net return and cumulative net returns of 426.8% for the S&P 500, PSH’s historical
benchmark index, during the same period.
1,3
Annual Report 2022
2
Pershing Square Holdings, Ltd.
PSLP/PSH Net Return* PSLP Net Return
(1,2)
S&P 500
(3)
2004  %  %  %
2005  %  %  %
2006  %  %  %
2007  %  %  %
2008 ()% ()% ()%
2009  %  %  %
2010  %  %  %
2011 ()% ()%  %
2012  %  %  %
2013  %  %  %
2014  %  %  %
2015 ()% ()%  %
2016 ()% ()%  %
2017 ()% ()%  %
2018 ()% ()% ()%
2019  %  %  %
2020  %  %  %
2021  %  %  %
2022 ()% ()% ()%
Year-to-date through March 21, 2023  %  %  %
January 1, 2004–March 21, 2023
(1,4)
Cumulative (Since Inception)  %  %  %
Compound Annual Return  %  %  %
December 31, 2012–March 21, 2023
(1,4)
Cumulative (Since PSH Inception)  %  %  %
Compound Annual Return  %  %  %
Company Performance
Pershing Square Holdings, Ltd. and Pershing Square, L.P. (“PSLP”) NAV Performance vs. the S&P 500
Pershing Square, L.P.
Pershing Square
Holdings, Ltd.
1,557.3%
1,405.5%
426.8%
IPO of PSH
Oct-01-14
Dec-31-05
Dec-31-06
Dec-31-07
Dec-31-08
Dec-31-09
Dec-31-10
Dec-31-11
Dec-31-16
Dec-31-17
Dec-31-18
Dec-31-19
* NAV return an investor would have earned if it invested in PSLP at its January 1, 2004 inception and converted to PSH at its launch on December 31, 2012. Also see endnote
1 on page 117. Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying endnotes and
important disclaimers on pages 116-119.
800%
600%
400%
200%
0%
PSLP Net (20% Performance Fee)
(1,2)
PSLP/PSH Net (20%/16% Performance Fee)*
S&P 500
(3)
Dec-31-20
1,000%
1,200%
1,400%
1,600%
Jan-31-04
Launch of PSH
Dec-31-12
1,800%
Dec-31-12
Dec-31-14
Dec-31-04
Dec-31-15
Dec-31-13
Dec-31-21
Dec-31-22
Annual Report 2022
3
Pershing Square Holdings, Ltd.
Chairman’s Statement
INTRODUCTION
Since the onset of the global coronavirus pandemic three years ago, the world’s economy has endured one of the most
volatile periods in memory. Uncertainty persisted in 2022 as central banks attempted to navigate a delicate balance between
making changes to monetary policy to tame inflation, while avoiding an overreaction that could have a material negative
impact on the global economy.
Despite these significant headwinds, our portfolio companies continue to perform well at the operating company level, and
to deliver strong results. Nevertheless, market volatility, higher interest rates and multiple compression have led to declines
in valuations, and our portfolio companies have not been immune. The Investment Manager pursues a long-term investment
strategy and does not typically engage in short term trading in the shares of our portfolio companies. In addition, it rarely
uses hedges to protect its mark-to-market performance from short-term downward volatility. However, the Investment
Manager does seek to use asymmetric hedging strategies to protect the portfolio from extraordinary negative macro or
market events that it anticipates may occur.
In an asymmetric hedging strategy, the Investment Manager invests a typically small amount of capital in a position which
will generate a large multiple of the invested capital as the likelihood of the hedged event occurring increases. When
realized, this capital is then available to reinvest into existing portfolio companies or other equities at the appropriate time.
The Investment Manager’s strategy and execution of its hedging program is a significant competitive advantage for PSH.
During the three bear markets since the Investment Manager’s inception, it has substantially outperformed the S&P 500 due
to hedging-related gains and opportunistic investments in high-quality, durable growth companies.
The Investment Manager became concerned about the negative impact of inflation in late 2020 and implemented a hedging
strategy which anticipated the prospect of a rising interest rate environment. The investment thesis was correct, and the
strategy has successfully oset a meaningful percentage of the mark-to-market stock price declines experienced in the
portfolio over the same period. In its report, the Investment Manager discusses its belief that while the stock prices of the
portfolio companies have declined, their intrinsic values have increased, which positions PSH well for the future.
INVESTMENT PERFORMANCE
During the year ended December 31, 2022, PSH’s Net Asset Value (“NAV”) per share, including dividends, decreased
by 8.8%, ending the year at $51.76 per share.
i
PSH’s share price, including dividends, decreased by 14.6% over the
same period as a result of the widening of the discount to NAV at which PSH shares traded from 28.3% to 33.2%.
ii
By
comparison, the S&P 500 declined 18.1% during the year ended December 31, 2022, representing PSH NAV and share price
outperformance of 930bps and 350bps, respectively.
iii
PSH’s compound annual return over the past five years to December 31, 2022 has been strong with a NAV return of
25.1% (PSH share price 21.9%, S&P 500 9.4%) during that period. These returns are measured after the deduction of
management fees and performance fees. The Board is very pleased to highlight the Investment Managers strong and
consistent track record in generating substantial gains in NAV and in the share price, especially amid the recent volatile
macroeconomic environment.
Annual Report 2022
4
Pershing Square Holdings, Ltd.
PSH’s outperformance of the S&P 500 in 2022 was driven by its interest rate hedges. Since the inception of this hedging
program in late 2020, these hedges have generated total proceeds of $2.8 billion from a total cost of $419 million for PSH
and the other two Pershing Square funds (“the Funds”), as of March 21, 2023. Including the 2020 COVID-19 hedges, the
Investment Manager has generated more than $5.3 billion in total hedging proceeds from a cost of $446 million.
iv
Whilst
the scale of the gains reflects the impact of particularly anomalous events disrupting financial markets, the Board views
these figures as truly extraordinary and appreciates the foresight and execution discipline exhibited by the Investment
Manager on behalf of shareholders.
The performance of the entire portfolio along with additional information about the Investment Managers hedging
program is discussed in more detail in the Investment Manager’s Report.
INVESTMENT MANAGER
The Board has delegated the task of managing PSH’s assets to the Investment Manager as set out in the Investment
Management Agreement (the “IMA”) entered into by PSH and PSCM at the inception of PSH (as amended from time
to time). Although the Board does not make individual investment decisions, the Board is ultimately accountable for
oversight of the Investment Manager.
The Investment Manager is a fundamental value investor that utilises a range of engagement strategies to unlock long-
term value for shareholders and, among other things, seeks to invest in excellent businesses with opportunities for
improvement. These businesses tend to be large cap companies domiciled in North America that generate relatively
predictable and growing free-cash-flows, with formidable barriers to entry and a compelling value proposition. The
Investment Manager continues to engage constructively with many of PSH’s portfolio companies through direct board
representation in some situations, and less formal, private engagement in others.
PORTFOLIO CHANGES
As I discussed in my letter to you in August, the Investment Manager established a large position in Netflix in January
2022, and sold the investment in April. The decision to exit the position was taken after the company’s Q1 earnings report
in which information came to light that caused the Investment Manager to lose confidence in its ability to predict the
company’s future prospects with a sucient degree of certainty. Although this led to a loss for PSH, the Board was pleased
to see the Investment Manager act decisively when the facts changed, which ultimately allowed the Investment Manager to
move on and focus on other opportunities.
Also in 2022, the Investment Manager exited its position in Dominos and liquidated Pershing Square Tontine Holdings
(“PSTH”). As I stated in the 2022 Interim Financial Statements, although our commitment to PSTH did not result in an
investment for PSH, we did benefit from the process as it led to our investment in Universal Music Group. The Investment
Manager has filed a public registration statement for Pershing Square SPARC Holdings, Ltd. (“SPARC” or “Special
Purpose Acquisition Rights Company”), which has been designed to be a significantly more ecient and improved
successor to the traditional Special Purpose Acquisition Company (“SPAC”). SPARC is subject to SEC review, and if
approved, will allow the Investment Manager to work on a potential merger transaction without burdening investors
with the opportunity cost of keeping their money in a trust account as is the case with traditional SPACs. The Investment
Manager has provided an update about SPARC in its report.
Annual Report 2022
5
Pershing Square Holdings, Ltd.
CORPORATE ACTIONS
In 2022, the Board announced a number of corporate actions. In May 2022 PSH redeemed the $631 million balance of its
outstanding 5.500% Senior Notes due July 2022. PSH continues to believe that its ability to access low cost, long-term,
investment grade debt is a competitive advantage, and its long-term debt management strategy is to manage leverage over
time by increasing NAV through strong performance and laddering maturities through new issuances. At present, PSH’s
debt profile is comprised of a laddered set of maturities, matching our long-term investment horizon, with a weighted
average maturity of 9 years and a weighted average cost of capital of 3.1%. PSH’s total debt to total capital ratio as of March
21, 2023 is 19.5%.
v
The Board believes that this amount of leverage is conservative, particularly given that PSH’s portfolio
is liquid and easy to value.
The Board also announced a 25% increase to its quarterly dividend and a new methodology for determining future
dividends that ties future increases in dividend payments to NAV growth. In January 2023, the Board increased the
dividend again by 4.6% for 2023, based on that methodology.
Finally, the Board also authorised a total of $300 million in share repurchase programs in 2022 as it believed it to be a good
use of capital in the current environment.
DISCOUNT TO NAV
Despite PSH’s five-year annualized NAV return of 25.1%, representing annual outperformance of 930 bps to the S&P 500 as
of December 31, 2022, PSH’s discount widened from 21.5% to 33.2% over that period.
vi
While shareholders captured over
82% of the value of the five-year increase in NAV as the share price appreciated 170.0%, the Board is not satisfied with the
current discount.
The Board has undertaken a number of corporate actions in recent years to address the discount, and I have set them out below:
Secured a listing on the London Stock Exchange and subsequent elevation to the FTSE 100 index. As of March 21,
2023, PSH is the 73
rd
company in the FTSE 100 and would be the 52
nd
were PSH to trade at NAV.
Returned a total of $1.4 billion of capital to shareholders since inception as of December 31, 2022:
o Repurchased 59.1 million PSH Public Shares for $1,100.6 million in the past six years, which represents 24.6%
of shares outstanding prior to the repurchases.
o Initiated a quarterly dividend in 2019 beginning at $0.10 per share and have since increased the dividend twice,
by 25% and 4.6%, respectively.
Increased marketing eorts in the U.K., specifically to retail investors and the “platforms” they use and remained
focused on reaching a broader array of potential investors.
Obtained a reclassification from The Association of Investment Companies (“AIC”) for PSH from its Hedge Funds
group to U.S. Equity, which more accurately reflects PSH’s investment strategy.
Annual Report 2022
6
Pershing Square Holdings, Ltd.
In addition, PSCM aliates own 49.4 million of PSH shares as of March 21, 2023, representing 26% of shares
outstanding.
vii
This is one of the largest insider ownerships for a FTSE 100 company and demonstrates the alignment of
the long-term interests of the Investment Manager with shareholders.
The Investment Manager devoted a significant portion of its letter to shareholders in the 2022 Interim Report to discussing the
existence of the discount and I encourage shareholders who have not yet read it to do so. The Board continues to believe that
the most powerful driver of long-term shareholder returns will be continued strong absolute and relative NAV performance.
ESG
While PSH is an investment company without employees or physical operations, the Board has encouraged the Investment
Manager to consider ESG best practices within its own organisation and to actively engage on these issues with its portfolio
companies when appropriate. The Investment Manager’s ESG Statement, available on the Company’s website, further
describes its ESG practices and how they are integrated into investment selection, risk management and stewardship. ESG
risks are analysed as part of the Investment Manager’s due diligence process. A business that has not addressed material
ESG risks or that has unsustainable business practices will not meet the Investment Managers investment criteria unless
its investment intent is to use its influence to address these issues. ESG risks may present opportunities to engage with
boards and management to improve practices that pose sustainability risks in order to stimulate long-term value creation.
CORPORATE GOVERNANCE / BOARD
The Board continues to work eectively and diligently on behalf of all shareholders. The Board has welcomed four new
non-executive directors in recent years: Andrew Henton in September 2020, and Tope Lawani, Rupert Morley and Tracy
Palandjian in May 2021. Due to COVID-19 travel restrictions, the first time these Directors were able to attend a Board
meeting in person was in Guernsey in May 2022. Since then, the new directors have also travelled to New York to meet the
Investment Manager’s team, and we met again at the annual investor meeting in London in February 2023. Although the
Investment Manager and the PSH Board have maintained an open and productive dialogue via virtual meetings, you gain
additional knowledge and insights from meeting in person, so we are very pleased that this is now possible again. I would
like to thank my fellow directors for all of their contributions and time commitment throughout the year.
EVENTS / SHAREHOLDER ENGAGEMENT
After two years of holding PSH’s annual investor meeting virtually, it was wonderful to see so many of you in person this
year at the annual investor meeting on February 9, 2023. In addition to our largest in-person audience, we had several
hundred shareholders join via webcast. During the meeting, the Investment Manager presented a portfolio update, and
slides from the presentation are available on PSH’s website: www.pershingsquareholdings.com.
PSH’s 2023 Annual General Meeting will be held in Guernsey on May 3, 2023. Details of the event will be posted on
www.pershingsquareholdings.com. I will report to you on the first half of 2023 in August 2023, and the Investment
Manager will keep you informed of any significant developments in the portfolio before then, when appropriate.
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2023
Annual Report 2022
7
Pershing Square Holdings, Ltd.
Investment Managers Report
LETTER TO SHAREHOLDERS
(5)
To the Shareholders of Pershing Square Holdings, Ltd.:
In 2022, Pershing Square Holdings generated strong relative NAV performance of negative 8.8% versus negative 18.1% for
our principal benchmark, the S&P 500 index.
6
Our total shareholder return was negative 14.6%, as PSH’s discount to NAV
widened by 4.9 percentage points, from 28.3% to 33.2%, during 2022.
7
Investors who invested in Pershing Square, L.P. at its inception on January 1, 2004, and transferred their investment
to PSH at its inception on December 31, 2012 (“Day One Investors”) have grown their equity investment at a 15.7%
compounded annual rate over the last 19 years, compared with a 9.0% return had they invested in the S&P 500 during
the same period. With the magic of compounding, our 15.7% compound annual NAV return translates into a cumulative
total NAV return since inception of 1,557% versus 427% for the S&P 500 over the same period.
8
In other words, Day One
Investors have multiplied their equity investment by 16.6 times versus the 5.3 times multiple they would have achieved had
they invested in a zero-fee S&P 500 index fund.
Using PSH’s stock price return rather than per-share NAV performance, Day One Investors have earned a 13.5%
compounded return, an 11-times multiple of their original investment.
9
This lower return reflects the 34% discount to NAV
at which PSH’s stock currently trades.
10
Our strong preference is for PSH’s shares to trade at or around intrinsic value for
which we believe our NAV per share is a conservative estimate. With continued strong performance, we expect that PSH’s
discount to NAV will narrow over time, and its NAV and market value returns will converge.
The Last Five Years
2022’s performance reflects a continuation of our strong absolute and relative performance over the last five years. Since
the beginning of 2018, our NAV per share (including dividends) has more than tripled, up by 207% compared to 57%
for the S&P 500 over the same period. We attribute this high degree of outperformance to our decision to refocus our
investment strategy on the core principles that have driven our profitability since the inception of Pershing Square.
Beginning in late 2017, we returned to our roots as an investment-centric operation and made the strategic decision to
stop raising capital for our open-ended hedge fund vehicles. Doing so allowed us to reduce the size of our organization
and focus our resources on investing rather than the business of asset management, and the associated resource-intensive
requirements of continually raising capital.
Over the last five years, PSH has generated a compound annual rate of return of 25.1%, even better than the results of our
first nearly 12 years during which time we compounded investor capital at a 21% annual rate until July 2015, the beginning
of a two-year period of substantial underperformance which we have previously described and analyzed in great detail.
11
Over the last five years, we have been an enormous beneficiary of the increased stability of our capital as PSH now
represents 87% of our assets under management, 26% of which is owned by aliates of the investment manager.
12
Our
private funds, which comprise 13% of our assets under management, also have highly stable capital as aliates of the
investment manager comprise 40% of their capital, with the balance held by long-term Pershing Square investors, many of
whom have been partners and shareholders since our earliest days. With more than $3.2 billion of equity capital invested
alongside our shareholders and other investors, we are well-aligned and highly incentivized to generate high long-term
rates of return while carefully managing the risk of a permanent loss of capital.
13
Annual Report 2022
8
Pershing Square Holdings, Ltd.
Stock Market Volatility is the Friend of the Long-term Investor
While our NAV declined by 8.8% in 2022, the volatility markets experienced in 2022 should set the stage for greater long-
term outperformance for PSH. Last year, we made few portfolio changes other than with respect to the acquisition and/
or disposition of hedging instruments and the purchase and sale of Netflix which we have previously described in detail
here. We prefer less rather than more investment-related activity as it is an indication that we have made good decisions
about where to invest our capital for the long term. Constant turnover of the portfolio of a so-called long-term investment
manager is generally an indication of poor investment decisions that had to be reconsidered.
We think of PSH as a vehicle by which one can own an indirect, proportionate interest in our underlying portfolio
companies, cash, and hedges. While most of our portfolio companies share prices declined in 2022, they continued to
generate strong business performance, increased earnings, and greater free cash flow per share. Our companies’ long-
term prospects remain highly attractive, and we accordingly made minimal changes to our core equity holdings in 2022.
About half of our companies (or five of seven if we exclude Fannie and Freddie which are unable to repurchase shares)
repurchased their own shares during the year thereby increasing our ownership without any additional investment from
PSH. As a result of PSH’s and our companies’ share repurchase programs in 2022, our shareholders’ ‘look-through
ownership of PSH’s underlying portfolio increased by 8.2%, half from PSH buybacks and the balance from share
repurchase programs of our portfolio companies.
14
If we are correct in our assessment of our companies’ future prospects,
our increased ‘look-through’ ownership will amplify our returns in future years as our companies continue to increase in
intrinsic value, which over the long term will be reflected in their share prices.
Share Repurchases and Our Discount to NAV
While a corporations persistent discount to its intrinsic value impairs its ability to raise low-cost equity capital and is a
negative for shareholders who seek to sell in the short term, it can be a significant opportunity for long-term owners of
PSH. We have no interest in raising equity capital, but relish the opportunity to buy back shares at 30+% discounts to NAV.
We took advantage of the discount in 2022 by purchasing 8.3 million shares representing 4.1% of shares outstanding at an
average price of $31.94 and a discount to NAV of 33%.
Since we began our share repurchase program on May 1, 2017, we have acquired 59.8 million shares or 25% of our shares
outstanding at an average price of $18.80 and discount of 28%, which has added 1.2% per annum to our annual NAV
returns since the inception of the program.
We intend to continue to opportunistically repurchase shares if it remains a good use of our capital relative to other
opportunities. Our requirements for buying back shares include:
(1) we have substantial free cash available for purchases, and do not believe that we will be able to identify an attractive
new investment in the then-current market environment,
(2) our existing holdings are trading at large discounts to their intrinsic value,
(3) the repurchase will not cause PSH to be overleveraged,
(4) the price paid is a very large discount to NAV, and
(5) we do not believe that further reductions in float will be counterproductive to our goal of causing PSH to trade at or
around intrinsic value.
Annual Report 2022
9
Pershing Square Holdings, Ltd.
We continue to believe, and our experience to date has demonstrated, that even an aggressive share repurchase program
will not cause the discount to narrow. That said, if the above criteria are met, share buybacks can be a useful and value-
creating opportunistic tool for PSH.
We have not given up on addressing the wide discount at which our shares trade. We are continuing to consider potential
transformational transactions that would enable PSH to become part of a U.S. listed company (which would not necessarily
require that we give up our UK and Amsterdam listings and which would greatly increase the universe of investors who
can own PSH). We are unable at this stage to estimate the probability or timing of achieving such a transaction, but we are
considering a number of potential ideas at this time.
2022 In Review
2022 was characterized by a high degree of stock market volatility driven by aggressive global central bank interest rate
increases, the war in Ukraine, and broad-based declines in nearly every asset class. In that the value of financial assets
is based upon the present value of their future cash flows discounted back at an appropriate interest rate, broad based
increases in interest rates combined with greater global risk and uncertainty caused discount rates to increase substantially
and asset values to decline. In other words, higher required investment returns from investors lowered the price that
investors were prepared to pay for financial assets, causing stock prices to decline.
Our equity holdings responded accordingly. Despite significant business progress in 2022 at each of our portfolio
companies, the eect of higher discount rates for all but two of our companies overwhelmed their anticipated business
progress, leading to stock price declines and mark-to-market losses for Pershing Square. Restaurant Brands and Canadian
Pacific generated marginally positive total returns in 2022 as their business progress exceeded market expectations and
overcame the downward impact on valuations from the rise in rates.
15
Overall, our long-term equity portfolio generated a
negative total return (including dividends) of 16.1% in 2022.
16
In addition, PSH’s NAV declined by an additional 5.2% due
to Netflix and losses in connection with the liquidation of Pershing Square Tontine Holdings, Ltd.
17
Our losses on equities were oset somewhat by interest rate hedges, which contributed 14.3 percentage points of positive
performance in 2022.
18
These hedging gains, combined with our COVID-19 CDS hedges in February 2020, have been a
highly material contributor over the last three years as they have generated approximately $5.3 billion in total hedging
proceeds to date versus a cost of $446 million, the substantial majority of which have been redeployed in equities in a
timely manner, which in turn have, in nearly all cases, increased substantially in value, further amplifying the benefits of
our hedging gains.
19
Why Did We Not Sell Equities in Light of Our Views on Interest Rates?
In light of our views on interest rates and their impact on equity values, why, you might ask, did we not sell or reduce
our equity holdings in 2022? The answer is that our strategy is to maximize the growth in our long-term NAV per share
which requires us to endure some amount of short-term, mark-to-market trading losses. We do not typically sell our core
portfolio holdings even if we believe it is highly probable that they will decline in price in the short term, as long as our view
of their long-term potential remains largely unchanged. We limit our short-term trading for this reason as doing otherwise
will likely lead to lower long-term rates of return for Pershing Square due to several factors.
Annual Report 2022
10
Pershing Square Holdings, Ltd.
We are often one of the largest shareholders of our companies. Over time, we have built important, longstanding
relationships with their management teams and boards, which have enabled us to be an influential shareholder. We
believe our influence increases the probability of value-maximizing decisions being made by our portfolio companies while
reducing the risk of value-destroying errors. Were we to constantly trade around our positions, we would have a less
credible voice with management and other shareholders when advocating for strategic initiatives and corporate changes
which have long-term implications.
Furthermore, large frictional costs are often incurred when acquiring and disposing of large holdings. To be successful as
a short-term trader of large ownership stakes, we would have to successfully estimate how much a stock price will decline
based on macro events, and then accurately predict what price we would have pay to repurchase the position. While our
predictions about macro risks have been largely accurate, we cannot expect to always get it right. And even if we are
correct in our macro assessments, it is far less knowable how and for how long the stock market and individual stocks
might react to these events. A short-term trading program might enable us to avoid a small loss at the much larger cost
of missing substantial stock price increases thereafter. As a result, we do not trade around our long-term holdings and
generally only make adjustments in the size of positions to manage concentration risks in the portfolio.
Some have suggested that we should launch a macro fund so that investors who desire exposure to just our macro strategy
would be able to directly participate in what has been a very high-performing strategy. The problem, however, with this
approach is that we have only found macro investments that fit our requirements – namely a high degree of asymmetry
and a high confidence level in the predicted outcome – to be episodically available. While we made large profits hedging
the financial crisis in 2008, we made no material macro-related investments after the crisis until February 2020. While we
have continued to identify interesting asymmetric macro investments over the past three years, there is no certainty that
similar opportunities will present themselves in the future.
For the above reasons, we believe that our strategy of owning simple, predictable, free-cash-flow-generative, highly-
durable and well-capitalized growth companies combined with occasional, opportunistic, asymmetric hedges will generate
the highest, long-term rates of return for Pershing Square with the least amount of risk of a material permanent loss of
capital. Our approach also has the benefit of being a better fit with our temperament, is less stress inducing, and much
more time ecient. We therefore remain committed to this strategy that has served us well for nearly 20 years.
Market and Geopolitical Risks in 2023
We are operating in one of the most uncertain and risky environments in decades. As of the present moment, we are in
the midst of what may be the early stages of a U.S. banking crisis with the potential for it to spread globally with Credit
Suisse’s recent demise. Financial institutions are inextricably linked, and one large banking failure can ignite another and
so on. This remains true even though some of the enormous derivative risks that almost took down the financial system
during the crisis have been mitigated somewhat due to requirements for exchange trading of most derivatives. Banking is
confidence sensitive. A run on deposits at one large bank, most recently Silicon Valley Bank (SVB), the 16th largest U.S.
bank by assets, has the potential to spread to other financial institutions.
Until SVB failed, the vast majority of depositors did not concern themselves with the lack of deposit insurance for accounts
above the FDIC-insured limits of $250,000. In reality, uninsured depositors are unsecured creditors of a bank which are at
risk of loss in the event the bank were to fail. The events of the last few weeks made this manifestly clear as it was only a
last-minute and apparently reluctant decision for the government to step in and guarantee uninsured deposits at SVB.
Annual Report 2022
11
Pershing Square Holdings, Ltd.
Now that uninsured depositors understand that there remains a risk that they will lose access to and/or have their deposits
impaired, many businesses are rethinking their working capital management and investment strategies. This concern
is compounded by the large increase in short-term interest rates. Since the financial crisis, there was little if any return
oered on short-term funds, and depositors were therefore not particularly concerned about the yields, if any, they earned
on deposits. The recent large increase in short-term rates has caused CFOs and corporate treasurers at all companies
to become more disciplined about maximizing the yield they can earn on short-term cash. This will increase the cost of
deposits for most banks, as they will have to be more competitive with money market accounts, putting pressure on bank’s
net interest margins.
The U.S. economy relies on its large network of community and regional banks to provide access to debt capital, particularly
for small and medium-sized companies that do not have access to the public capital markets. These banks also are major
providers of real estate and construction loans as the large so-called systemically important banks have for the most part
exited these lending categories other than for large capitalization, usually investment grade, corporate borrowers.
About 70% of commercial real estate bank loans are made by regional and smaller banks. There is a logic to this approach
as real estate is inherently a local business, and a geographically proximate bank should be in a better position to assess
the risks of local borrowers and the likelihood of their projects’ and business’ success. Increases in the cost of capital for
regional banks will be passed along to their borrowers, and as a result fewer commercial real estate projects will be viable
due to the higher cost of this capital. This will be a drag on the U.S. economy and will make it more dicult for existing
real estate owners to refinance their debts when they come due, which will negatively impact real estate values further
impairing bank balance sheets.
Our Approach to Cash Management
We have always taken a conservative approach to managing our cash as we have always been long-term skeptics of even
highly-rated financial institutions, and on occasion, have profited from this skepticism. We therefore minimize the amount
of cash we keep in banks to only what we need for daily liquidity purposes and sweep the balance into U.S. Treasury money
market funds or into the direct purchase and ownership of short-term U.S. Treasurys. We are also highly selective as to
which banks we do business with, keeping cash only at global systemically-important banks that we trust.
Sharing Our Views
Over the last couple of weeks, I took to Twitter to make the case for the FDIC – which insures deposits at U.S. banks with
the proceeds of fees it charges to banks – to increase its current $250,000 per account limit. I recommended an immediate
but temporary guarantee of all uninsured deposits to give time for the FDIC to update its current deposit guarantee system.
I went public with my concerns and recommendations because I believe that the failure of Silvergate, SVB, and Signature
Bank – the latter two within three days of each other – and the substantial declines in stock prices of the regional banks
are putting our regional and community banking system at risk, which, as explained above, is a very important long-term
driver of our economy.
PSH has obvious reasons to want the U.S. economy to be strong, as nearly every business, including the ones we own,
is impacted by the deterioration of our economy. When we believe a mistake is being made by our government and/or
regulators that will negatively impact our portfolio and the country by greatly damaging our economy and capitalist system,
we believe it can be helpful to share our views.
Annual Report 2022
12
Pershing Square Holdings, Ltd.
While Twitter can be a maelstrom of negativity and criticism, it is a very ecient means to get the message out. Before
Twitter, we would generally use the media, including appearances on business television and public presentations at
conferences, to share our views about policy (Whos Holding the Bag? was one of our most prescient).
We still, on occasion, use these more traditional forms of communication, but we like the ability to control our message
without it being excerpted in a manner which could create a misleading impression, something we have occasionally
experienced when relying on more traditional forms of media.
We have always been puzzled as to why market participants’ views are criticized by observers who claim that investors’ opinions
are inherently conflicted, and therefore should be ignored. When we are seeking to understand the economy and market
developments, we vastly prefer the opinion of thoughtful long-term investors over those of media commentators, academics,
and other so-called disinterested observers. We would rather hear from active market participants who have capital at risk that
coincide with their views, rather than ‘unconflicted’ pundits who suer no economic cost when they get it wrong.
When it comes to our sharing our views about policy, our biggest conflict, if one were to call it one, is that we are large
investors in businesses that benefit when the U.S. and global economies are strong. It is easier to profit as a long-term,
long-only investor when a rising tide is lifting all boats.
The Banking Crisis
Since sharing our views on Twitter during this banking crisis could be perceived as having an impact on the short-term
trading prices of bank securities, we elected to pass on any investment opportunities in banks, long or short, while sharing
our views on what we believed the government should do. In our view, the failure to protect SVB depositors would have
been a catastrophic policy error that would likely have led to massive runs on nearly every non-SIB bank by uninsured
and even some insured depositors, and caused enormous damage to our economy. It would also likely have harmed U.S.
competitiveness and our national defense in light of the tens of thousands of highly innovative technology companies that
held large amounts of uninsured deposits at SVB.
As of this writing, the government has not fully adopted our recommendations as it has left open the question about what
would happen to uninsured depositors at other institutions unless and until the regulators deem each future bank failure a
systemically important one. We continue to believe that this individualized, bank-by-bank deposit guarantee approach is
a policy mistake that will impair, potentially permanently, our network of regional banks by massively increasing their cost
of capital and reducing their access to low-cost deposits.
Banking is a confidence sensitive business. The failure of three regional banks in a few weeks, including SVB with more
than $200 billion of assets and $170 billion of deposits, and our regulators’ conflicting public statements, often from one
day to the next about its support, or lack thereof, for depositors, have reduced investor, business, and consumer confidence
in our banking system.
The uncertainty around how uninsured depositors will be treated is occurring at a time when the earnings power of
regional and community banks is under pressure because of the increasing cost of their liabilities, declines in their share
prices, and impairment in the value of their assets largely driven by the Federal Reserve’s increase in interest rates.
The rise in rates has caused a decline in the value of banks’ fixed-rate securities and fixed-rate loan portfolios, which
has occurred along with deterioration in their commercial real estate loan portfolios due to work-from-home’s and the
pandemic’s impact particularly on oce assets.
Annual Report 2022
13
Pershing Square Holdings, Ltd.
According to GAAP accounting, our banking system is nominally the best capitalized it has been in decades, but this
is in large part due to the fact that banks are permitted to value a large portion of their assets, namely their so-called
held to maturity (HTM) fixed-rate securities and loan portfolios, at amortized cost rather than market value, creating a
misleading perception of banks’ true financial strength. Despite the fact that our accounting and regulatory regimes allow
these assets to be carried at amortized cost, that does not make them more valuable than the price that would be realized if
these assets had to be sold in the market.
There are reportedly ~$620 billion of mark-to-market losses on banks’ security portfolios that are not currently reflected
on bank’s financial statements. If deposits continue to leave our regional banks and go to the larger systemically important
banks and money market funds, regional banks will need to continue to borrow from the Federal Reserve banks through
their “discount windows” and a newly created emergency program allowing banks to borrow against their HTM securities
portfolios valued at amortized cost rather than market value.
While these Federal Reserve lending programs can help address the short-term liquidity needs of banks from deposits
being withdrawn, they do so at a highly burdensome cost versus the near-zero interest rates that banks have been paying
on deposits. They are a stop-gap, temporary solution to address short-term liquidity issues, but they do not solve the
regional banks’ long-term funding needs and their cost of liabilities. We believe that uninsured deposits are likely to
continue to leave regional banks unless and until an updated, systemwide deposit guarantee is introduced, and the sooner
the better. Credit-related concerns of depositors are compounding deposit flight due to the substantially higher yields
oered on money market funds, which will not abate even if all uninsured deposits are guaranteed. It is dicult for banks
to get depositors to return once they have moved elsewhere and found acceptable, and likely higher-yielding, alternatives.
While we understand the concerns that some have raised about moral hazard risk due to government intervention, we
think these concerns are misplaced. The banks’ managements and boards, and the shareholders and bondholders who
mismanaged or failed to oversee the risks that led to their banks’ demise, have suered severe outcomes including the
complete destruction of shareholder and bondholder capital, the firing of management teams, the potential for significant
civil and criminal liability, and enormous reputational damage.
No bank board or management team who has witnessed recent events will be inclined to take on more risk in the future
simply because their depositors have not borne a loss. The opposite is much more likely to be true. Furthermore, a
banking system that requires uninsured depositors to constantly assess their bank’s creditworthiness is not a viable one.
We need a larger deposit guarantee regime, and we need it soon. The experience of the last three weeks of investing in
banks will be seared upon the memories of bank investors for a generation or more. The longer this uncertainty continues,
the higher their cost of capital and the less viable regional and smaller banks will be in the future to the detriment of our
economy over the long term.
Geopolitical Risk and Artificial Intelligence
While the banking crisis is our most recent immediate concern, geopolitical risk remains highly elevated, higher than
at any time perhaps in the last 50 years. North Korea continues to test ICBMs, China is building deeper ties to Russia
including potentially supplying drones and other military assets while remaining intent on taking control of Taiwan, the
war in Ukraine continues unabated without a foreseeable end, the U.S. is responding to attacks from Iran with ‘targeted’
responsive attacks, Israel is in the midst of a political crisis while being engaged in stopping Iran from obtaining nuclear
capabilities, and the U.S. political system remains highly divisive with the threat of a potential default on our Treasury
obligations looming, creating a highly uncertain and risky environment.
Annual Report 2022
14
Pershing Square Holdings, Ltd.
The recent launch of highly powerful Artificial Intelligence (AI) systems also creates considerable uncertainty about the
future. While AI may be an extremely positive force for good, in the wrong hands, it can be a global threat. AI is likely to
disrupt many businesses, including ones that until now seemed to have impenetrable moats. We are working diligently
to understand the impact of AI on our companies, including how AI can be used in our own business, so that we better
comprehend its short - and long-term implications.
While we have sought to hedge the potential economic risks from all of the above risks, there are no particularly good
hedges. Our best protection against geopolitical risk is to own businesses that can survive the test of time, ones that
are largely immune to the events that they or we cannot control. Since the beginning of the U.S. equity capital markets,
certain great businesses have survived world wars, pandemics, periods of high levels of inflation, massive technological
changes, the Great Depression, political divisiveness and civil unrest, and many thousands more have failed due to these
stresses. The key to our strategy is identifying which companies have the widest economic and geopolitical moats,
constantly stress testing these moats, and making sure our portfolio companies have fortress balance sheets that would
enable them to manage through the inevitable risks of the modern world. Investment selection is our most important risk
mitigation strategy in an uncertain world.
Pershing Square SPARC Holdings, Ltd. (SPARC)
On March 24th, we filed another, hopefully near-final, amendment to SPARC’s registration statement that we hope
should address the minimal remaining comments that we have received from the SEC. To review, SPARC is an acquisition
company, but without the drawbacks of conventional SPACs. Among other beneficial features, investors in SPARC do not
need to invest any capital until we have identified a transaction, completed our due diligence, entered into a definitive
agreement, had the transactions registration statement declared eective by the SEC, and obtained other required
regulatory approvals. Once the transaction is ready to close, SPARC rights (SPARs) holders have 20 business days to
decide whether to exercise their rights or sell them in the market.
The SPARs have a minimum exercise price of $10. We have the ability to increase the exercise price to the extent a
transaction requires more capital. This will allow us to raise more capital if needed and greatly expand the universe of
potential targets from ones that require $1.5 billion of capital (the amount raised at the $10 minimum SPAR exercise price
and with the Sponsors minimum committed Forward Purchase Amount, assuming the exercise of all SPARs) to eectively
unlimited amounts of capital. The Pershing Square funds will be investing a minimum of $250 million in SPARC’s
transaction, and potentially substantially more depending upon the nature of the target, the terms of the transaction, and
other factors.
The structure of SPARC eectively eliminates the time pressure on the Sponsor, as the SPARs have a 10-year term. Since
we are not raising upfront capital, but rather are distributing SPARs to former Pershing Square Tontine Holdings, Ltd.
shareholders and warrant holders, SPARC will have no underwriting fees, nor any shareholder warrants. The only dilutive
security in SPARC’s structure is a 20% out-of-the-money warrant on 5.104% (4.95% for the Sponsor and 0.154% for
advisory board members) of the newly merged company’s shares outstanding on a fully diluted basis, with the balance of
the shares comprised entirely of common stock. At the launch of SPARC, these Sponsor Warrants will be purchased by PSH
and the two Pershing Square private funds for their fair market value as determined by us in consultation with a nationally-
recognized valuation firm, capital that will be used to fund the search for a target and to pay SPARC’s operating expenses.
Annual Report 2022
15
Pershing Square Holdings, Ltd.
In today’s extremely challenging equity capital markets environment, where few if any IPOs can be completed, SPARC’s
ability to oer substantial transaction certainty, including a fixed transaction price and a guaranteed minimum amount
of capital (the amount committed by the Sponsor) raised in a public oering, will make SPARC a highly attractive
counterparty for private companies seeking to raise capital and go public. We expect the phone will start ringing shortly
after our registration statement becomes eective and the SPARs are distributed to former Tontine investors.
We believe that a successful initial SPARC transaction will facilitate opportunities for future SPARCs. As such, we are
hopeful that SPARC will play an important role in expanding our investment universe to include the acquisition of stakes in
private companies on favorable terms.
2022 was a challenging year to be an investor in the capital markets. We have managed successfully through challenging
periods like 2022 because Pershing Square was designed and built to be able to navigate the most extreme economic,
investment, and geopolitical environments. This is largely due to the strength of our team. We are incredibly fortunate to
come into work every day (we are not fans of work from home) alongside an extremely high functioning team in a beautiful
and productive work environment. Our human assets represent substantially all of our productive capacity. We are an
asset-light business where the talent walks out the door every day, so our success is largely a function of the culture we
have built over nearly 20 years.
We have had minimal turnover at Pershing Square in the last five years since we made our strategic pivot. Limited
turnover is highly unusual for an investment firm. The long-duration nature of the team is partially due to the fact that
we do not have an “up or out” individualized culture. Pershing Square succeeds on the basis of the strength of the overall
team, not because of one or two standalone superstars. We also value learning as much from our mistakes as from our
successes. We carefully study our mistakes, both errors of commission and omission, and we share them publicly to keep
you informed and to imprint them even deeper in our minds.
We have also learned to choose well when selecting new members of the team. Risk is greatly reduced when you work with
colleagues with whom you have had the opportunity to build mutual trust over many years.
While it is dicult to predict the future in an uncertain world, we believe we are well positioned to generate high rates of
return over the long term. Our confidence in our future prospects is based on the durability of our capital structure, the
strength and well-aligned incentives of the team, our experience in identifying and helping to steward some of the best and
most highly durable growth companies in the world, and our ability to continuously improve and learn from our mistakes.
None of the above would be possible without your support and long-term commitment for which we are extraordinarily
grateful. There are few investment managers in the world that have been oered such an opportunity, and we will continue
to work diligently to deliver the long-term results that such a commitment from our shareholders deserves.
Sincerely,
William A. Ackman
Annual Report 2022
16
Pershing Square Holdings, Ltd.
PORTFOLIO UPDATE
(20)
Performance Attribution
Below are the contributors and detractors to gross performance of the portfolio of the Company for 2022 and year-to-date 2023.
(21)
January 1, 2022 – December 31, 2022
Interest Rate Swaptions  %
Restaurant Brands International Inc.  %
Share Buyback Accretion  %
Energy Options  %
Canadian Pacific Railway Limited  %
Currency Options ()%
Bond Interest Expense ()%
Pershing Square Tontine Holdings, Ltd. ()%
The Howard Hughes Corporation ()%
Hilton Worldwide Holdings Inc. ()%
Universal Music Group N.V. ()%
Domino's Pizza Inc. ()%
Chipotle Mexican Grill, Inc. ()%
Netflix, Inc. ()%
Lowe's Companies Inc. ()%
All Other Positions and Other Income/Expense ()%
Contributors Less Detractors (Gross Return) ()%
January 1, 2023 – March 21, 2023
Chipotle Mexican Grill, Inc.  %
Hilton Worldwide Holdings Inc.  %
Undisclosed Position  %
Share Buyback Accretion  %
Bond Interest Expense ()%
Energy Options ()%
Interest Rate Swaptions ()%
All Other Positions and Other Income/Expense ()%
Contributors Less Detractors (Gross Return)  %
Contributors or detractors to performance of 50 basis points or more are listed above separately, while contributors or detractors to performance of less
than 50 basis points are aggregated, except for bond interest expense and share buyback accretion. Past performance is not a guarantee of future results. All
investments involve risk, including the loss of principal. Please see accompanying endnotes and important disclaimers on pages 116-119.
Portfolio Update:
Universal Music Group (“UMG”)
Universal Music Group is the world’s leading music entertainment company and a high-quality, capital-light business that can
be best thought of as a rapidly growing royalty on greater global consumption and monetization of music.
UMG has a decades-long runway for growth driven by increasing streaming penetration combined with the development of
new services, platforms, and business models. At its inaugural Capital Markets Day in 2021, the company unveiled mid-term
targets of high-single-digit revenue growth and mid-20s% EBITDA margins. Because of the rapid growth of streaming and
the resurgence of vinyl (records) and merchandising, the company has vastly outperformed its own guidance with its revenue
growth averaging 14% since its public oering in 2021. In 2022, UMG’s organic revenues and Adjusted EBITDA grew 12% as
reported margins modestly declined due to lower-margin businesses returning to pre-COVID-19 levels.
Annual Report 2022
17
Pershing Square Holdings, Ltd.
We believe that the long-term outlook for UMG is excellent and that the company will continue to outperform its mid-term
guidance. Music remains one of the lowest-cost, highest-value forms of entertainment. Since the launch of streaming services
more than a decade ago, the monthly cost of a subscription plan had been flat at $10 until last year. In recent months, a
number of the DSPs (digital service providers or streaming platforms) including Apple, Amazon and Deezer increased prices
for their individual subscription plans in developed markets by 10% to $10.99 and by an even higher percentage for family and
student plans. We believe that breaking the $10 barrier is a watershed moment, as other platforms will likely follow suit, and
regular price increases will become the norm in the audio streaming industry as they are in the video streaming industry. At
$10.99/month today (and less for a family plan on a per-person basis), one can listen to virtually any song ever recorded on
any device, anywhere, anytime, at a value price.
While streaming helped revive the industry by convincing consumers to pay for music again, it also has its shortcomings.
Many DSPs have become inundated with more than 100,000 tracks per day, many of which are low-quality, fraudulent, and/or
31-second tracks meant to game the system and divert royalties away from artists and songwriters. While more than 9 million
artists have uploaded songs to Spotify, based on data shared by Spotify, only 2% of these artists have uploaded more than 10
songs and have more than 10,000 monthly users.
UMG is working directly with the DSPs to improve streaming’s economic model towards an “artist-centric” approach that
gives more value to the artists that drive subscriber growth, engagement, and retention. While these changes may take time
to be fully implemented, we believe that UMG will benefit from a greater share of streaming royalties due to its enormous
breadth and depth in its artist roster. Similarly, while streaming led to broad adoption among consumers, a single price
point for all consumers does not allow for customer segmentation. According to the BPI (an industry trade group), 15% of
consumers account for 35% of all music spend, implying a significant opportunity for platforms and labels to better segment
their customers and monetize superfans through targeted oerings.
At its current valuation, UMGs attractive business characteristics and its long-term sustainable and robust earnings
growth remain substantially undervalued. We believe that UMG also has further opportunities to improve its governance,
investor relations and capital allocation as it builds experience as a public company, which should contribute to shareholder
value creation.
Lowes (“LOW”)
Lowe’s is a high-quality business with significant long-term earnings growth potential underpinned by a superb management
team that has been successfully executing a multi-faceted business transformation.
2022 presented a challenging macroeconomic backdrop which required Lowe’s to navigate commodity and retail price
inflation along with the post-COVID-19 normalization of consumer purchase patterns. These challenges were further
complicated by a shift in Lowe’s selling channels, with Do-It-Yourself (“DIY”) categories generating relatively weak results,
oset by continued strength for projects requiring professional installation (the “Pro” business), a critical focus area for the
company. Despite these headwinds, Lowe’s delivered strong financial results including nearly flat same-store-sales growth,
revenue growth of 1%, operating profit growth of 5% (and an improved now 13.0% operating margin), and 15% growth in
earnings-per-share, aided by a large share buyback program.
At present, the macroeconomic picture continues to create uncertainty about the short-term prospects of the home improvement
business. The rapid rise of mortgage rates in 2022 combined with elevated home prices has meaningfully pressured homebuyer
aordability. As a result, existing home sales have declined sharply in recent months. These factors have caused many market
participants to become concerned that the home improvement sector is at risk of revenue and profit deterioration.
Annual Report 2022
18
Pershing Square Holdings, Ltd.
We are more constructive on the sector as its demand drivers tend to more closely correlate with home price appreciation, the
age of the country’s housing stock, and consumers’ disposable income, all of which are predictive of future growth in demand.
In addition, the national housing shortage, a lack of new builder inventory, continued post-COVID-19 hybrid work, high levels
of home equity (vs. pre-COVID-19 levels), and continued strong Pro project backlogs should also continue to underpin home
improvement market growth over the medium term. Furthermore, nearly two-thirds of Lowe’s revenue comes from non-
deferrable repair and maintenance activity, which should be relatively unaected by the macroeconomic environment.
In December, Lowe’s held its semiannual Analyst Day at which the company updated its medium-term targets to $520
sales per square foot (a low-teens percentage uplift from current levels), an operating margin target of 14.5%, with “line of
sight” to 15% thereafter, and a targeted return on invested capital of 45%. If Lowe’s were to achieve these targets over the
next several years, the company’s earnings would increase to more than $20 of earnings-per-share, or approximately 50%
above current levels. In other words, the continued successful execution of Lowe’s business transformation should allow the
company to generate accelerated earnings growth for the foreseeable future.
Notwithstanding our views on Lowes attractive long-term earnings outlook, Lowe’s currently trades at only 13.5 times
forward earnings, a low valuation for a business of this quality, and a substantial discount to its direct competitor, Home
Depot which trades at a price-earnings multiple of 18 times. We believe that Lowes current valuation reflects investors
negative sentiment regarding the US housing market and incorporates the possibility of a greater than expected revenue
decline. We are confident in management’s ability to execute and expect that Lowe’s will continue to generate high rates of
return for shareholders as it continues its successful transformation.
Chipotle (“CMG”)
Chipotle delivered another year of impressive results in 2022, expanding same-store sales and restaurant-level margins
despite facing one of the highest inflationary environments on record.
During 2022, Chipotle grew same-store sales by 8%, or 31% from 2019 levels. While 2022 growth was driven by price increases
to oset cost inflation, trac is still up materially from 2019 levels as the company’s strong value proposition and menu
innovations continue to resonate with customers. Chipotle oers high-quality and aordable food with a chicken entrée priced
below $9 on average. This pricing remains a meaningful discount to alternatives from fast-casual competitors and represents
tremendous value given Chipotles unrivaled use of wholesome ingredients, fresh preparation, customization, and convenience.
Chipotle’s attractive unit economic model remains firmly intact despite the inflationary environment. The company was one
of the few businesses in the restaurant industry to expand margins in 2022, with restaurant-level margins up 130 basis points
(bps) to 23.9%. Management has also highlighted the opportunity to further increase same-store sales and profitability by
improving throughput in the near term.
The company’s growth runway remains robust. In North America, management estimates its potential to more than double
its restaurant count to 7,000 over time by adding small-town locations and focusing on the high-performing Chipotlane
digital drive-thru format, which represents over 80% of new store openings and is currently only 18% of the store base.
In addition to new restaurants in North America, Chipotles many growth opportunities include menu innovation such as
the recently launched chicken al pastor, loyalty program enhancements, and eventually international store growth and a
breakfast oering.
Annual Report 2022
19
Pershing Square Holdings, Ltd.
Restaurant Brands (“QSR”)
QSRs franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty
fees from its four leading concepts: Burger King, Tim Hortons, Popeyes, and Firehouse Subs.
In November, Patrick Doyle, the legendary CEO who led Domino’s Pizzas turnaround, joined as Executive Chairman. Under
his tenure, Dominos became the #1 pizza company by doubling systemwide sales and franchisee profitability driving a 23-
fold increase in its share price over eight years. We believe that Patrick can accelerate growth at QSR and help the company
achieve its full potential. He has purchased $30 million of QSR shares in the open market and has accepted a compensation
arrangement that is entirely tied to QSRs share price. QSR also recently promoted Josh Kobza to CEO, who will help execute
on Patrick’s strategic vision in his new role.
QSR is continuing to make progress in positioning each of its brands for sustainable, long-term growth. To reinvigorate growth
at Burger King in the U.S., the company launched a $400 million program to “reclaim the flame,” which includes $150 million
in advertising and digital investments and $250 million in modernizing its restaurants. While the program was only recently
launched, Burger King U.S.s performance has started to improve, with the most recent quarter’s same-store sales 4% above
pre-COVID-19 levels. Tim Hortons Canada has also improved to 9% same-store sales above pre-COVID-19 levels, despite
Canadas reopening significantly trailing the U.S. Meanwhile, Burger King International, Popeyes and Firehouse continue to
generate strong same-store sales relative to pre-COVID-19 levels, with results that are in-line or above their peers.
We believe that QSRs franchised-based royalty model is particularly attractive in today’s inflationary environment as the
company’s revenues benefit as its franchisees increase prices, while the company’s cost structure is generally not subject to the
same degree of inflationary pressures. QSR can continue to grow its business with minimal capital required as its franchisees
open new units. Despite idiosyncratic issues in certain countries, QSRs unit growth has returned to its historic mid-single-
digit growth rate and is poised for an acceleration this year. As a result of its improving same-store sales coupled with strong
unit growth, QSRs earnings are now greater than prior to COVID-19 and are increasing at an attractive rate.
Despite improved brand performance and continued strong unit growth, QSR still trades at a wide discount to both its
intrinsic value and its peers, which have lower long-term growth potential. As each of its brands return to sustainable growth,
QSRs share price should more accurately reflect our views of its business fundamentals over time. In light of higher interest
rates and to increase its financial flexibility, the company is currently reducing leverage rather than share repurchases. We
expect the company to return to repurchasing shares once it has reached its leverage target.
Hilton (“HLT”)
Hilton is a high-quality, asset-light, high-margin business with significant long-term growth potential. Over the past three
years, management has done a remarkable job of navigating through the COVID-19 pandemic. In the third quarter of 2022,
HLTs revenue per room (“RevPAR”), the industry metric for same-store sales, surpassed 2019 levels for the first time. 2022
benefited from the strength of domestic leisure travel occasions – as consumers’ post-COVID-19 spending shifted from goods
to services – and the continued recovery of business transient and group travel.