Call for Pershing Square Capital Management. At this time, all callers are in listen-only mode. Today's call is being recorded. It is now my pleasure to turn the call over to your host, Mr. William Ackman, CEO and Portfolio Manager. Thank you, Susan. Welcome to our third quarter conference call. As usual, just a reminder that we have a legal disclaimer that all participants received, and it's available online on our website if you have any questions about it. We're gonna attempt to do during the call is answer basically every question that we've received that we're permitted to answer. We do have some restrictions by virtue of you know regulatory restrictions on certain questions we can't answer. If you have follow-on questions, feel free to contact the Pershing Square IR team at ir@persq.com. As usual, replay will be available for the next two weeks until Thursday, available at pershingsquareholdings.com. Third quarter was actually quite a strong quarter. Pretty much caught up, you know, year to date, for most of our funds, quite close or in some cases ahead of the performance of the S&P 500, year to date. Our companies are doing well, and we're gonna walk through, in pretty good detail, the portfolio, kind of incorporating your questions into the presentation. Before I start talking about the portfolio, I just wanna introduce a new member of the team. Not so new. Manning, you've been here how long? About two and a half months now. Manning Feng, she joins us from OrbiMed. I'll let her give a little introduction. Thanks, Bill. Hi, everyone. My name is Manning, and as Bill said, I joined the investment team in September of this year. Prior to Pershing, I worked at OrbiMed in the industrials and business services group in New York. Before that, I started my career in investment banking at Centerview Partners. Excellent. Manning has gotten right to work at the firm. One of the things we're not gonna talk about today is we've been building a position, a new name, that Manning really has done an excellent job doing research on, along with some other members of the team. Right out of the box, she's being productive, so we're earning a very attractive return on investment in Manning. Also on the call, Halit Coussin, who's been with the firm for how many years, Halit? 2007. She's a lifer, practically. Halit is our Chief Legal Officer, and we're gonna also just walk through some information about the Tontine Holdings litigation, which you will address. Let's start with the kind of biggest event of the quarter, which was the acquisition of Universal Music by the Pershing Square funds. About $3 billion of that stake was acquired by the core funds, and then we raised a co-investment vehicle with $1 billion or so of capital. By way of background here, I assume many of you are familiar. We began working on the Universal transaction for Pershing Square Tontine Holdings in November of last year. It was a long road. It was a complicated transaction. There were many issues that we needed to navigate. The counterparty, Vivendi, the control shareholder, was on a path to take the business public through a distribution, and we were gonna help facilitate that distribution. A number of obstacles emerged over time, tax, U.S. tax inversion rules, French tax, capital gains rules, regulatory, legal, and just the desires of the counterparty. We had to kind of bob and weave around these things in order to get a transaction that would fit the New York Stock Exchange SPAC rules. We believed we had achieved that objective with the advice of very good counsel, and also, actually, with the advice of very good counsel to Vivendi, was similarly concerned about our ability with the SPAC's ability to close the transaction. Unfortunately, pretty much at the eleventh hour, in the midst of the redemption tender offer process, you know, we ultimately could not get the transaction through the SEC or certainly in the timeframe we had to close the transaction, at which point PSTH had to abandon the transaction. The company had the ability to assign the acquisition contract to us being Pershing Square, the Pershing Square funds, assuming we were willing to take over that assignment, and we were delighted to do so. The board ultimately elected to assign the contract to us. The Pershing Square core funds assumed the Vivendi indemnity and also assumed about $25 million of transaction costs. We had become quite enamored about the Universal Music business over that seven-month period. got to know the management of the company, kinda fell in love, as they say. This is an asset, this is a business that we hope to own for maybe even decades to come. One of the great businesses of the world, one of the great management teams, and actually an industry going through technological change that we think is very, very favorable to the, you know, kind of top players in the industry, of which Universal is a clear, far and away, number one. That was an important transaction for us, and the benefit of our consummating that deal, even when the SPAC could not, I think it kind of preserves our reputation for doing what we say we're gonna do in completing transactions. PSTH is... I'll give—we'll go into some more detail later, but is actively working on other potential alternative transactions, and we hope to have an alternative to discuss if we're able to do so, or on behalf of a new entity that we're in the process of taking through the SEC registration process called Pershing Square SPARC Holdings. With that, why don't I pass it to Ryan Israel. Ryan, why don't you kind of give us an update. You know, we've talked a little bit about Universal and letters, but you know, what are the key things people should be thinking about in this, you know, what is a very large stake for us? And by the way, we paid in the low 18s EUR per share. The stock today is at something in order of high $20s per share. It's up about 40% from the price paid, and we still think it's a very undervalued asset. Ryan, go ahead. Sure. I think, you know, as we've talked about, we're very excited about the business, and clearly, given the market reaction and the significant share price appreciation since the spin, I think the market is starting to understand some core parts of the story. We actually think there's a lot more to come as investors get more used to the business, get to hear more from the management team, and really as, you know, more research analysts who hadn't really covered the company when it was a subsidiary of Vivendi really get to dig in here. I guess maybe a couple things to highlight. In late August, after we gave our initial presentation on Universal, the company held a capital markets day, and they really made two points to investors in terms of how they thought about their growth over the medium term. On the top line, they talked about a high single-digit revenue growth profile, and on margins, they talked about margins expanding from about a 20% level to about a mid-20s EBITDA level. Now, I think what's interesting is just really about two weeks ago, they reported their third quarter results, which is the first time they've become a public company, and they're already well north of the progression that those targets would imply. For example, revenue in the third quarter this year was up high teens%, and EBITDA was actually up in the low 20s%, which were significantly in excess of what the company's talked about. Our perspective, as we laid out in the presentation, is that while we appreciate the company for giving what we think are very achievable targets to the capital markets, we actually think that this company has the ability to grow top line a lot faster than high single digits% over the medium term. They're already doing that. They've historically done that. We think they'll continue. We actually think the duration of growth, as to how they can grow revenue at a double-digit% rate is likely to be well beyond the medium term. As you talked about owning this business for decades, you know, we think it's because they can continue to produce a very high rate of growth for a very long time. I think the market will probably need to see more quarters of this growth before it understands that the targets that were laid out, in our view, are pretty conservative on the top line. Clearly, the margin progression, you know, we think people are starting to see already, even after just the first quarter of results. The other thing I would point out, though, that I think is maybe somewhat of a debate on the stock as to why people aren't even more excited about it, than they currently seem to be, is really about how capital-intensive is this business. Our thesis on the stock is that this is a very capital-light, high-growth annuity. Capital-light. Capital-light, high-growth annuity. I think there's some confusion as to whether or not the company needs to spend a lot of money in order to replenish its growth or whether any money it spends in order to acquire artists and acquire catalogs is really M&A and something that would be an addition to growth. Our perspective is that the company can achieve, you know, a top-line revenue growth rate of double digits without having to spend any significant amount of capital dollars in order to grow the business. Over the last several years, the company has spent $ several hundred million, kind of on average, and you know, recently, that figure's been even higher. We believe those deals, in order to acquire catalogs, are things that are likely to be additive to the growth targets that they give in the street. The way we sort of think about it is this business really only requires 1%-2% of sales in order to grow at that double-digit rate. Anything they decide to do would be, you know, a company acquiring a much smaller company, if we think about it in other contexts of our portfolio. It's really inorganic, and those are opportunities for them to deploy capital at a high rate, but they're not required to spend that money in order to grow the top line. We think that over time, you know, the company will explain that. On the third quarter earnings call, they got several questions about how much of their earnings convert into free cash flow or how capital-light the business is, and the company decided that at the end of the year, so kind of in a few months from now, they'll be discussing a lot more about that. But based on our analysis of the business, you know, we think that that result people will find very favorable in how capital-light the business is. Another way to think about it is kind of the core business owning music IP and then helping create more music IP for the company by investing in new artists and helping them succeed, and think of that business as akin to kind of an earlier stage investment business. On top of that, they also buy some stabilized assets. Stabilized assets offer lower going-in yields, more certainty, but still attractive returns to the company. A logical question is you can't go a day without a front page article or a mention on a front page, today being a perfect example of an important music asset being up for sale and private equity interest and other companies' interests. The logical question is, okay, is this business becoming more competitive, et cetera? I think one of the important things for people to consider is there are financial buyers of these assets that are very attracted to the nature of the, you know, non-capital intensive royalty-like stream generated by music assets. In a world with growing streaming, you know, those assets can generate, you know, growth, you know, over many, many years, particularly for the iconic artists that I think we all expect will be here forever. That's attracting financial capital. If you're the best operator in the business, if you understand how to maximize the value of publishing assets, publishing assets aren't. You can own them on a static basis, but the way to make them really valuable is you get the content synced, you know, in movies and films, in commercials, in games, and that's where Universal brings a lot to the table. So they are a value-added acquirer of these kinds of assets, which I think helps make transactions that they do more competitive. Now, there's some interesting things we think they can do, that, you know, some ideas we share with the company for how they can be even more competitive when competing with financial buyers who use alternative financial structures in acquiring assets. We think there's lots of opportunity for, you know, that business for Universal, but the core driver of the growth of the company. They don't need to buy Billy Joel or Sting, and they still have a, you know, double-digit, you know, revenue growing, very attractive bottom line growing free cash flow generative business that is, you know, has choices what it can do with its free cash flow. Any further thoughts on Universal, or should we on to the next? On to the next. Okay, Lowe's. Charles, Lowe's announced a quarter last night. Looked pretty good to me. What'd you think? Yeah. Thanks, Bill. It was another great quarter from Lowe's. Kind of featured strong same-store sales growth, rising gross margins, notwithstanding an inflationary environment, a significant SG&A leverage. You know, taken together, that showcased both margin expansion and robust earnings growth. Revenue grew 3%, gross profit grew 4%, SG&A actually declined 8%. In part, they were lapping over one-time COVID and other related costs from the prior year period. Taken together, operating profits grew 27% year-over-year, and earnings grew 38%, aided by an 8% share count reduction. They bought back nearly $3 billion of stock, again this quarter, which is, you know, pretty incredible from a capital return standpoint. What's driving this? Look, as we've discussed in recent quarters, the entire home improvement category, and Lowe's in particular, has and continues to experience very robust demand in response to evolving consumer behaviors following the arrival of COVID-19. The macro backdrop continues to be attractive for Lowe's, which is informed by consumers' enhanced focus and appreciation on the importance of the home, higher home asset utilization, rising home prices, low mortgage rates, an aging housing stock, strong consumer balance sheets, and a general lack of new housing inventory, which you'll hear later from Ross on. Howard Hughes is also experiencing kind of a similar phenomenon. Touching on same-store sales for a moment here. The past quarter, the company reported comparable sales growth of positive 2.6%, or positive 34% on a two-year stack basis. This is being driven by a combination of continued engagement from DIY customers and a strong pipeline of pro-specific projects, which really has accelerated post the removal of lockdowns. There was kind of a pent-up demand for larger scale projects, which, you know, are now kind of coming to fruition. Notably, same-store sales actually accelerated on both a one-year and a two-year stack basis throughout the quarter as DIY trends accelerated post Labor Day and the return of children to school. October same-store sales were up 40% on a two-year stack basis, and management noted on the call that that level of strength has continued November month to date. Just extremely robust kind of demand. This now positioned Lowe's to deliver mid-single digit same-store sales growth for 2021, notwithstanding the incredible strength that they witnessed in 2020. In response to this level of outperformance, the company upped their full year revenue and margin guidance, which now stands at 12.4% relative to 12.2%. They also upped their buyback range to $12 billion of capital return from $9 billion. It's roughly 7.2% of the company's market cap, so just very, very robust capital return. Taken together, they're poised to deliver roughly $12 of earnings, this calendar year. I'm sorry, I should say this fiscal year. The company additionally announced that they're gonna be hosting an analyst update in mid-December, which should be well-received. They intend to discuss the various strategic initiatives they have underway and to provide a financial outlook for 2022. While it's difficult, I think, for 2022 to know how the demand environment is likely to evolve, given the relatively high base of demand that exists today, we believe the company can grow earnings actually at a fairly attractive rate, driven by a combination of market share gains, margin expansion, and continued robust share buyback program. We look forward to hearing the company's commentary on these various topics. Notwithstanding the stock, it's up 57% year to date. Lowe's continues to actually be one of the cheaper stocks we own. It's trading at 19 x roughly NTM earnings today, and this compares to Home Depot, which is trading in excess of 25 x. Still roughly a 25% discount to its closest competitor. Longer term, we continue to see line of sight for accelerated double-digit earnings growth off the current base as the company continues to close the relative revenue productivity and margin gap versus closest competitor. Yeah, we still find the discount to Home Depot to be anomalous in light of the fact that we think Lowe's has a lot more potential to get to where Home Depot is on everything from sales productivity to margins. Management led by Marvin Ellison has really done an outstanding job. I find it kind of remarkable that we increased our stake in this company at about $70 a share, you know, 18, 20 months ago. They've done an incredible job. We do benefit by it being cheap because if they're buying this much stock back, it's better for them to buy the shares at 19 x than 25x. But it is an anomaly in terms of its cheapness. Chipotle, Anthony. I actually just had, I have to admit, two Chipotle burritos in advance of the call just to make sure I had the proper energy to participate, although I didn't have the full. Well, anyway, you don't need to know I'm eating. Go ahead, Anthony. Anthony's eaten nothing, so if you detect a lack of energy, you should go get a burrito from the kitchen. Yeah. Yeah. I'll definitely be having Chipotle after the call. Chipotle's business momentum and solid results have continued, and it's just been remarkable since the current management team has you know assumed the helm of the company in March of 2018. In the latest quarter, same-store sales grew 15% versus 2020 and 25% versus 2019 levels. That was 600 basis points or 6 percentage points faster than what they grew in Q2 versus 2019. Momentum, you know, was accelerating. Management also noted that Q4 was off to a great start. I'll call out several key drivers of current momentum. You know, one is the company continues to recover in-restaurant sales that they lost during the pandemic. They've now recovered 80% of, you know, kind of peak pre-pandemic in-restaurant sales, but they're still retaining most of the digital sales gains that they've made when consumers shifted to online ordering and delivery during the pandemic. They're recovering 80% of in-restaurant while retaining 80% of additional sales gains. That has driven their average unit volumes or average sales per restaurant, you know, up close to $2.6 million per store, which is above, you know, the old milestone before the food safety crisis when we made the investment of $2.5 million. They've kind of checked the box, and now the next milestone is $3 million, so stay tuned. A couple other factors that are contributing. In product innovation continues to be a big hit. You know, Smoked Brisket is the current kind of limited offering at the stores. It's done so well that it's set to actually run out in a couple weeks. If you haven't tried it or you wanna have it again, you should get over there soon. They're currently testing Plant-Based Chorizo and Pollo Asado, a chicken offering. Both of those, you know, I'm kind of optimistic about the potential. Pricing is also a significant contributor. The company took about a 4% price increase in June to fund an investment in labor. They're raising the national average wage to $15 an hour. In fact, you know, they've already done it. They took a price increase to cover some of that cost. Remarkably, they saw, you know, basically no resistance to that price increase. It's funny, they took the 4% price increase in June, and sales growth actually accelerated by 6% in the subsequent quarter. They took a price increase of 4%, and demand actually went up 2%, which is incredible. That just speaks to Chipotle- It's not incredible. It's predictable. You know, it speaks to Chipotle's best-in-class pricing power. You know, this is one of the big reasons that we love the business when we made the investment. You know, what you get for what you pay for at Chipotle in terms of the quality of the food, in terms of how healthy it can be, depending on what you choose, and in terms of how fresh it is versus other offerings at that price point, there's just no competition. You know, their product continues to be an amazing value for money, and that gives them a lot of pricing power, you know, to manage the current inflationary environment that the whole industry is facing. You know, staffing is kind of the key challenge for the company right now, and they've done a good job managing it so far. They've proactively invested in labor, which I just talked about. You know, they've made some operational adjustments within the stores. They'll use pricing power as necessary to kind of manage it going forward. You know, the light at the end of the tunnel is that once the current environment subsides and staffing kind of, and the labor market kind of gets back to a more normal state, you know, retention will be better because the job experience will be better for the people that actually remain in the stores. You know, if you're working at an understaffed store that's really busy, it is not a lot of fun because you're just worked to the bone. The job experience will get better, which will drive higher retention, which will then drive, importantly for shareholders, higher throughput. Higher throughput means more sales during the peak lunch and dinner hours of the day. There's a nice margin benefit that goes along with that and a virtuous cycle whereby customers move through the line faster, they wanna come back more, and you know, it kind of feeds on itself in a nice way. Unit growth is continuing at a high rate, so they're on track to open just at or above 200 units this year. They've, as management talked about on the call, how they expect a step up in the pace of unit growth in 2022. Great. Thank you. Actually, you touched on, I think, a really important point in terms of talking about pricing power. One of the things we look for in a business is pricing power because we try to protect ourselves against things we're not in control of, if you will, and one of them is inflation, which is something people haven't thought about for a very long time. I think now everyone's thinking about it. We haven't touched on this. We didn't touch on this in the Universal case. What's interesting about music is it's been a very deflationary asset, right? It used to be you spend $100 and you buy, you know, 6 or 7 records, you know, 20 years ago. Today, you know, for about the, actually probably less than that, you can get a subscription on Spotify family plan, and you can listen to 60 million songs, with much more convenience from pretty much any device, in your home, in the car, on your way. That price has been pretty sticky. You know, in that the artists and the record labels and the publishing companies all, at the end of the day, are beneficiaries of higher, streaming subscriber fees. You know, if and when the Spotifys of the world, as they add increased price, that flows through to all of the participants in the, in the system. We like businesses that have royalty-like characteristics, and that's a very good reason for it. Charles, you wanna just touch on Lowe's is a retailer, so they sort of pass through inflation ultimately to their, to their customers. What is the impact? How do we think about the impact on inflation for Lowe's? You know, we saw enormous, you know, wood inflation, if you will. Yeah Earlier this year. You know, give us your thoughts. That, I think that was a concern slightly heading into the quarter. Frankly, both Home Depot and Lowe's demonstrated this quarter that they're poised to navigate inflationary conditions, you know, reasonably well. Inflation actually was not, it did not impact Lowe's ticket at all this quarter because inflation in copper and certain commodities was actually offset by deflation from lumber, which saw significant inflation last year, given shortages, you know, in the kind of the midst of COVID. But there's a component of the store which, you know, is commodity products, and they pass through those price increases. I think, you know, two or three years ago, Lowe's would have struggled to be quite as adept at managing through the current environment. I think the systems that Marvin and team have put in place, and the pricing excellence that they've established within the company and kind of the merchandising capabilities, they're much better poised today to be reactive in the current environment. I think you saw that this quarter in that gross margins actually expanded modestly, notwithstanding some of these challenges. You know, I think that it's something to watch, but I think we feel very comfortable that the current team with the tools and systems they have in place are well adept to push through price increases to the consumers. Great. Thank you. Ryan, why don't you update us on Hilton? Sure. Hilton obviously was at the eye of the COVID storm, and it's really very rapidly staging a comeback. Every quarter since, you know, COVID was at its peak, the company's continued to improve its results. While it's not exactly back to the levels that it was pre-COVID in terms of RevPAR, which is the industry's same-store sales metric, it's getting close. We actually think based on the current pacing, next year it will likely be back to where it was pre-COVID, which is very remarkable that it would have recovered so quickly given how damaging COVID was to travel at the time. To your point, Will, I think one thing that's interesting is while the company's not recovered in terms of RevPAR, it actually has effectively in the United States recovered in terms of pricing already, even though occupancy is lower. The way the industry normally works is that occupancy is the first to recover, and then pricing lags as you have fewer availability, you're able to take up price more. I think the company, you know, is showing that it has much more pricing power than what people had historically thought, as well as it's gotten much better at figuring out how to price for certain types of customers in certain markets. I think that's an interesting aspect of the business that we hadn't previously seen before COVID. I think the overall point with Hilton is that this is a business that's going to rebound more quickly than people thought from COVID, and we believe it's gonna be much more valuable because of COVID, interestingly, for three reasons. First, the company was forced to cut a lot of costs by finding ways to be much more efficient during COVID. Last year, they actually reduced their costs by about 30% in terms of their G&A. Some of that will come back as the revenue rebounds, but the company believes that it will maintain a higher margin business because of those efficiencies that it's found coming out of the crisis than going in. Secondly, the technology that they have is really leading the industry, and we think is in line with the way that people are going to want to travel going forward. For example, you know, in the palm of your hand, with your phone, you now have the ability to check in, you can actually choose your room, you can actually open the door, with your app, and then you can control a variety of things in the room, such as the temperature and the lights and things like that, which we think is very much in line with how people wanna live. The TV. I never wanted to touch one of those remote controls. Yes. We think that's something that's gonna really inure to Hilton's benefit because very few hotel competitors have the ability to offer that, and that's in line with what consumers are demanding these days. Thirdly, even though people weren't really traveling for most of the last two years, Hilton was still able to average an increase in its room count by about 5% per quarter, which I think reflects how owners looking longer term beyond COVID thought that the economic proposition for opening up new units was still very attractive. What's interesting is the company likely, we think, in the nearer term to be able to return to its historical level of 6%-7% growth. Coming on the back end of that, we think when Hilton does recover, likely at some point in the next year, they're gonna have a more valuable business in terms of the earnings base being higher. At the same time, I think this has really proved the concept, which has been our thesis, that this is a very high-quality annuity-like growth stream. You know, being able to go through the proverbial hundred-year flood and come out this strongly so soon after, you know, we think really should convince the marketplace that this business is worth a much higher multiple to its earnings than what the market had ascribed to it pre-COVID. We're excited about the future, very, very pleased with the management team, and we think that the future's very bright for the business. Again, on the inflation side, inflation can be your friend in the hotel industry. It's one of the few places in real estate where you reprice your product every day. You know, being the brand royalty company that Hilton is, it participates in those increases in room rate and in, you know, RevPAR and revenues. Okay, Restaurant Brands, Feroz. Sure. Restaurant Brands continues to make progress in returning its brands to growth while also making investments in its futures. When you look at Tim Hortons Canada, that has now improved to a negative mid-single digit decline relative to 2019 levels, which is about a 500 basis points improvement from last quarter. If you look at the stores that are still meaningfully below 2019 levels, that's really stores in super urban locations and stores without drive-throughs. What those have in common is that as mobility returns, as Canadians return back to work and return back to their normal routines, that should come back strong. In terms of Burger King U.S., that has historically performed well in line with its competitors prior to the pandemic. Really since the onset of the pandemic, it has somewhat fallen behind. We believe these issues are much more focused on execution. I wouldn't say somewhat fallen behind. I think it's dramatically fallen behind. Very much fallen behind. Yes. In particular, relative to its primary competitor, McDonald's. We fundamentally believe these are ultimately fixable and are related to execution. Now, the good news is they brought in a new president, Tom Curtis, who was at Domino's for more than 35 years, and he's gonna be focused on revamping operations, transitioning the brand to digital, as well as refocusing the menu towards value as well as core offerings like the Whopper. On the positive side, however, Burger King International and Popeyes are growing quite well, both relative to last year as well as 2019. At the same time, the company is not standing still. They are working on making future investments. In particular, digital sales are growing quite strongly and now represent just about 10% of sales at Burger King, about 17% of Popeyes, and more than 30% at Tim Hortons. The company also reaffirmed that it's gonna return back to its historical unit growth algorithm of 5% this year and actually accelerate next year. This is really driven by new, development agreements they've signed in very large countries like China and India for both Popeyes and Tim Hortons. Another pillar of growth available uniquely to this company is the acquisition of new brands. They recently announced the acquisition of Firehouse Subs for about $1 billion, paying about 20x EBITDA before any improvements. While small today, we think Firehouse Subs has the potential to be a significant driver of growth going forward. We see actually many similarities to Popeyes, which they acquired in 2017 for about $1.8 billion, which will now generate about $230 million of EBITDA this year. Firehouse Subs is a mission-driven, loved organization, and like Restaurant Brands' other brands, it also has a significant unit growth opportunity relative to its largest competitor, which is ceding shares to fast-growing concepts like Firehouse Subs. Restaurant Brands' expertise in digital, their franchisee network, and development capabilities should allow Firehouse Subs to accelerate its unit growth both in the U.S. and Canada, as well as globally. Putting that all together, Restaurant Brands now trades at less than 18 x next year's free cash flow, which is a significant discount to its other franchise restaurant peers. As they return the brand, in particular Tim's in Canada and Burger King U.S. back to growth, we think the share price should appreciate from current levels. Great. The thesis behind this investment is that we've got a strong management team, we've got a portfolio of great brands, and we have a free cash flow, enormously free cash flow generative business. Again, an inflation-protected free cash flow stream by virtue of owning a royalty on sales at all these various stores, which is a great setup for success. I think the challenge has been compared to the monoline operator. You know, think of Chick-fil-A or McDonald's on the hamburger side. Although you have to give credit for Popeyes doing a fantastic job even relative to Chick-fil-A. If there is a problem, you know, it does tend to take management attention away from some of the successes. We've seen kind of, it seems like there's always something to worry about at Restaurant Brands, which we think is one of the reasons why the valuation of the stock has stayed cheap. Fortunately, I think management recognizes it well, and they're starting to get more aggressive about repurchasing shares. You know, it's okay if you've got a cheap stock price, but it's not okay. It's really frustrating if you don't do anything about it. I think using some of that free cash flow to retire shares while they're working out Burger King U.S., I think is a very smart strategy. Howard Hughes, Bharath, why don't you give us an update? Sure. Howard Hughes had a stellar third quarter with extremely strong results in its core MPC business and significant progress on a number of strategic initiatives, including the acquisition of a new MPC development in Phoenix, the sale of a non-core hotel portfolio in The Woodlands, and the initiation of a new share buyback program. Starting with its core MPCs, demand for residential land continues to accelerate, driven by the appeal of Howard Hughes's expansive amenity-rich communities, which are well situated in states like Nevada and Texas, which are low cost of living, tax-advantaged states. The company's tracking towards a record year of land sale profitability this year with year-to-date MPC EBIT of around $200 million, up an impressive 52% from 2020 and up 26% from 2019. Now turning to its income-producing operating assets, they're experiencing a very robust recovery with Q3 NOI of $60 million, nearly back to pre-pandemic quarterly NOI of $64 million. Retail NOI in particular, which was most impacted by the pandemic, is also sequentially improving, and rent collections have steadily increased to 83%. In Ward Village, the company is setting a remarkable pace for condo sales. In their eighth and most recent condo tower, they're already 64% pre-sold, despite having just launched pre-sales in July. At the Seaport, the construction of the Tin Building remains on track, and it's scheduled to have its grand opening in the spring of next year. We expect the Tin Building to have a transformational impact in driving foot traffic to the Seaport and accelerating the stabilization of that asset. In addition to the solid, very solid momentum in its core business, the company closed on the sale of its Woodlands hotel portfolio for around $250 million, which brings the total net proceeds to date from non-core asset sales to around $400 million. In October, they announced the acquisition of the Douglas Ranch MPC, which is a 37,000-acre MPC in the suburbs of Phoenix. That transaction represents a very strategic redeployment of capital from non-core asset sales into a new MPC that can leverage Howard Hughes' core franchise and development expertise. We think Douglas Ranch has a multi-decade growth runway, and land sales could begin as early as the first half of next year. Despite the impact of the pandemic, the company's emerged with an extremely strong balance sheet with $1 billion in cash, which is more than ample liquidity to fund both the Douglas Ranch acquisition and reinitiate their buyback program. Overall, as evidenced by the results this quarter, we're very optimistic about Howard Hughes' long-term growth potential and its ability to compound its net asset value at a highly attractive rate for years to come. It remains a very cheap stock, one of the cheapest stocks in our portfolio. I think a big part of that is the complexity of the story. I think what's happening is the story is becoming a lot simpler, right? We're getting rid of non-core assets. We're turning those assets into cash. We're acquiring another MPC, another leg to the stool in a tax-advantaged Phoenix is, I think the fastest growing city in the country. Huge net migration to Phoenix and the environs. The company is, you know, whether this is a business that is ever loved by Wall Street is not something that we know the answer to, but it's a business that generates enormous amounts of cash over time. The company is also really accelerating development. The addition of Jay Cross from you know Hudson Yards, the re lated company has been a very important addition to the company kind of a master developer that's really helping mentor you know the fantastic in most cases very young talent we have at various MPCs. I think this acceleration of vertical development where we're finding all kinds of potential development opportunities you know we're you know somewhat you know a business of selling lots and redeploying the cash very creatively in building income producing assets monetizing the non-core portfolio having you know I just think that this is a really interesting story. If no one notices, you know, we own today 25% of the company and with enough buybacks, eventually we'll get to 100, I guess, if everyone else doesn't like it. It's really an amazing business and David O'Reilly's doing a fantastic job. Just actually had a board call and, you know, the question always is, with all the progress the company's making, why is the stock so cheap? That's a question for the shareholders. Domino's, for us. Sure. Domino's reported another strong set of results last quarter, and while there were many attention-grabbing headlines that U.S. same store sales were negative for the first time in 41 quarters, they were actually lapping the strongest results ever last year of 17.5% same store sales. On a two-year stack basis, same store sales increased 15.3%, which is a slight deceleration from last quarter, but very much in line with the prior two quarters. That deceleration relative to last quarter was driven by the waning effect of stimulus and the ongoing impact from labor shortages, both of which we believe are obviously temporary. The underlying trends remain very strong. Consistent 15% two-year same store sales trends are actually meaningful because it's fantastic execution by the team. While the ongoing staffing environment has led to shortened hours and a little bit of worse service for some customers, the company is proactively taking action by launching a new applicant tracking system, new onboarding, simplifying employee tasks, and importantly, raising wages. In the international business, the company continued its streak where it has positive same store sales growth for more than 111 quarters in a row. Two-year stacked same store sales were 15.5%. Interestingly, those two-year stacked same store sales have now accelerated for six quarters in a row as well. When we invested back in March of this year, we felt that Domino's had many levers in place for continued growth. While some of these are beginning to play out, there are still many levers at the company's disposal. First of all, carryout's contribution was positive to same-store sales this past quarter, but order counts are still below 2019 levels, suggesting continued opportunity for growth. In particular, the return of group locations as well as the late night business should be a tailwind to growth. The company is also continuing its emphasis on new product innovation and successfully launched a new product of Dips & Twists this past quarter. The company has also yet to run a boost week since Q1 of 2020, and currently has its largest ever war chest of advertising funds. Another lever at its disposal is pricing. With cost of goods and labor increasing, many of Domino's competitors in the restaurant space have increased menu prices. Given Domino's is by far the cheapest way to feed your family of four, we think they have plenty of room to take pricing, which should obviously be a tailwind to same store sales growth. Domino's currently trades at a modest premium to its historical average, which we think is warranted given fantastic execution and its very long runway for growth. The shares have appreciated quite nicely from our initial purchases in March, about 50% from our average cost. We continue to believe it's a fantastic investment for us at these levels. Great. Again, you know, I think I sound like a broken record here, but this is another brand royalty company, right? We're co- you know, every- If they were to go from $7.99 to $8.99, that's I think good for the franchisees, but also good for the parent company of which we're a big shareholder. Okay, the two disappointments for the year, or call it three, are Fannie Mae, Freddie Mac, and Pershing Square Tontine. Actually, the attribution, those investments cost us anywhere between 800 and a little over 1,000 basis points of performance for the year. About 40% of that is Fannie Freddie, and about 60% of that has come from PSTH. Fannie Freddie, there really are no developments since our last report to you. I'm gonna focus our time remaining on the call to talk about PSTH or Pershing Square Tontine. I've already, you know, obviously talked about it. It's been widely covered in the press that our intended transaction was not closable. We've fairly quickly set up the entity to pursue another transaction, basically put it back in the place it was prior to by, in effect, taking over the indemnity, which we think ultimately will have no material cost associated with it, but could have been an overhang to PSTH in terms of its ability to do a transaction. Putting back $25 million of transaction costs that it spent to get the Universal transaction, which capitalizes PSTH with more than sufficient capital to consummate a new transaction. Unfortunately, shortly after we walked away from that transaction, a couple of plaintiffs or a plaintiff, inspired by a couple of law professors, brought a case against Pershing Square Tontine and a couple other SPACs, apparently had a plan to sue the entire universe of SPACs, which I think they backed off from after 68 of the top law firms in the world, put out a letter saying that they believe these lawsuits had no merit. The unfortunate thing in this country, even with lawsuits of no merit, is they do create somewhat of an overhang. That being said, with the right counterparty, the moment we enter into a merger with PSTH with an operating company. All those claims go away, and the plaintiffs have kind of made clear to us they don't want to stand in the way. I think they're afraid of standing in the way of a potential transaction because the liability to them would be significant in that circumstance. We are, you know, working hard to try to consummate a transaction for PSTH. At the same time, we are working to get Pershing Square SPARC Holdings approved by the SEC and to get the rule change that the New York Stock Exchange has proposed that has been published in the Federal Register and that is up for approval or disapproval by the SEC on December 9th. Although the SEC can push that date out if they so choose. Our goal is to be in a position for this entity to be a registered company by hopefully at or around the end of the year. We intend to make a public filing of the prospectus for PSTH, ideally by Wednesday of next week or the following Monday, hopefully by Wednesday. That will provide a lot more details on the structure of Pershing Square SPARC Holdings. We've made some progress in terms of the structure design to make it an even more appealing. Let me just summarize a few of the key attributes. Number one, this is a SPAC in reverse in the sense that instead of putting up your cash day one, a transaction's announced, and then you have the right to redeem once you learn all about it, you opt out. This is an entity where we intend to distribute warrants to the shareholders of PSTH and to the warrant holders of PSTH, and those warrants will be distributed for free. If we're not in the midst of a transaction with PSTH at that time, we intend to seek a shareholder vote to return the PSTH capital. At which point, shareholders will have no investment. They'll own a publicly traded, ideally New York Stock Exchange-listed warrant that entitles them to invest in our next transaction at NAV. Those warrants will have a $10 minimum strike price with the ability for us to adjust the strike price upwards depending on the transaction size. The beauty of that is it will give us flexibility to have a smaller starting base of capital, but effectively an unlimited amount of capital to pursue even a very large acquisition, and to kind of tailor-make the capital for the situation. That actually makes the warrants more valuable, and it makes the entity more likely to find a transaction that makes sense because rather than having a fixed base of capital with a floating base of capital plus backing from us as the sponsor, we believe that entity will be, you know, the best entity in the world in which to come public. Other interesting attributes, no underwriting fees, typical SPAC. There are 5.5% leakage in underwriting fees. We're also We probably should put a press release out just to update on this. Halit, I'm looking at our Chief Compliance Officer. We are going to give the publicly distributable warrant holders two SPARC warrants for each distributable warrant that they hold. The ultimate capital structure will be 200 million warrants with a strike price of $10, with our ability to upsize that strike price to really any number, plus another 44 million, two for each of the 22 million distributable warrants that are outstanding. Which means we'll have 244 million warrants that will become stock if and when we identify a transaction that makes sense and people exercise. You understand the math, at $10, that means we'd raise $2.4 billion from the public. At 20, we'd raise $4.8 billion from the public, assuming everyone exercises their warrants. If the transaction requires a $10 billion equity check or a $15 billion equity check, what's fascinating is, as long as the transaction makes sense and the warrants have positive value, they will very likely get exercised. That means we have total flexibility to pursue transactions of really any size. No underwriting fees, no upfront costs, no opportunity cost of capital, the ability to tailor-make the transaction size. We think this will make for a very interesting entity. There also won't be any shareholder warrants outstanding, so it will be a pure common stock capital structure, which will make the potential upside, you know, in, for a shareholder greater because there's no shareholder warrant dilution. Our sponsor director warrants will be approximately 5% of the entity versus 6% for the existing PSTH. We've designed it to be a super efficient structure, and we're excited about it. You'll read more about it in our upcoming prospectus filing. Apologies for that. Let's just briefly address the litigation and Halit, why don't you just summarize where things stand? We filed a brief in support of our motion to dismiss back on November 4th. Halit, if you could speak a little louder into the microphone, that would be great. As I was saying, we recently filed a brief in support of our motion to dismiss. That was on November 4th. I actually encourage everyone to read that brief. We explained there a variety of reasons why we think this case should be dismissed. The plaintiff has until Monday, November 28th to file their opposition to our motion, and then we will have another two weeks to file our response. By that point, the motion will be fully briefed. Analisa Torres will then most likely schedule a hearing to consider our motion, and then we'll make a decision. In the meantime, there's also a process that commenced for discovery. This is in front of a magistrate judge, and that just started and will, you know, be ongoing. Great. I mean, I think that the key takeaway points here are, you know, we don't think the litigation has any merit. We don't think the litigation will stop the transaction, if, to the extent we have one that we're ready to propose to shareholders. It's a bit of a cloud over PSTH. One of the other nice attributes of Pershing Square SPARC Holdings is we're not holding on to any money of anyone. There's not even an ability just for someone to bring the kind of erroneous claim that was brought against PSTH for, quote-unquote, "being an investment company," 'cause we're holding securities. By the way, securities in this case are U.S. government securities. Short-term U.S. government securities are specifically exempt from the Investment Company Act rule. We're excited about, you know, our launch of SPARC Holdings. We are continuing to work on one thing in particular that we think is interesting, but we're still not in a position to have a view as to its executability. We'd like to deliver, of course, for PSTH shareholders. Hopefully, the worst case is we get SPARC approved relatively soon. We're able to return people's capital, and we have actually a better entity, a more flexible, better entity of enormous scale, scalability, to pursue a transaction. The best case scenario is we get a transaction done and announced in the relatively short term, hopefully. We thereafter launch SPARC Holdings. Well, actually one last point on the interesting details about Pershing Square SPARC Holdings, Ltd. When someone chooses to exercise their warrant to own stock in whatever the company is that SPARC is merging with, they'll own stock in that company, but they'll then receive for each warrant that they exercise, a replacement SPARC warrant with basically the same terms. If the warrant goes unexercised, that pool of 244 million SPARC warrants gets divided among the people who do exercise. They're actually taking SPARC warrants. The benefit of this structure is we'll always have an evergreen entity that we can use to complete a transaction. We won't have a finite timeframe in which to do so, which removes any perception of negotiating leverage on the part of the counterparty. People get the current warrant for free and then a successor warrant in addition to the potential value of the next transaction. We think really interesting structure. Obviously, there's some complexity there, but I think, once you understand the basics, the capital structure will be simpler than any SPAC in the world. Pure common stock capital structure with a sponsor warrant on about 5% of the shares, struck 20% out of the money. Then the flexibility to not have to put up your capital until such time as we've identified a target, negotiated a deal, announced it, filed with the SEC, filed an S-1, and gotten that SEC, those shares of, you know, that S-1 approved, the shares registered, at which point people have a 20-day period in which to exercise their warrants, own the shares, and then receive a warrant for transaction number two. Those are the details there. Last topic, in our last few minutes. We've had a, as you probably know if you've read our letters, or heard my public thoughts on this, beginning in January, we, you know, we always try to think about, in addition to finding the great durable growth companies of the world, what can go wrong? Going into the financial crisis, we were very concerned about the credit markets, and we've built very large notional short positions in, back then, single name and in index CDS, which helped us manage through the crisis very effectively. The beauty of hedges is they become really valuable typically when stocks become cheap and that creates opportunities. We're fortunate in having early concerns about the coronavirus, and we were well-positioned building a large notional short position in investment grade and high yield CDS, which became very valuable. We were able to deploy that capital. We were buying stocks like Hilton at $55 and Lowe's at, you know, in the high $60s, low $70s. Really rebuilt. We basically increased the portfolio by 40%, 50%. It's almost like we had an investor give us 40% more capital, but didn't take. Just said, "You can keep it. It's a gift." That money was reinvested in our stocks, which led to, you know, our best year in the history of the firm. This year, the big risk we were concerned about in January was the sort of compounding effects of extremely forward-leaning and aggressive fiscal policy combined with, you know, the most aggressive monetary policy, combined with the stimulus from the vaccine and the stimulus from people being kinda locked up, not being able to spend their funds, not being able to have fun. All of those things kind of coalescing in a couple of quarters. Our view is that had to lead to huge inflation, and it would also ultimately lead to higher interest rates and, movement on the part of the Federal Reserve to mitigate the inflation that would be the result of those kind of activities. We built a very large notional short position, principally in shorter-dated maturities of, kind of U.S. Treasuries or, you know, risk-free rates, if you will, as well as, some longer term, you know, call it ten-year, rates. We We were able to set up a bet like that, on an out of the money basis very, very cheaply, very much like credit default swaps. But in this case, not swaps, but options. Our total exposure, we invested approximately $170 million, across all three funds. Today, that $170 million is worth about $1 billion. It's about a six-fold return as the world is kind of catching up to our view, and inflation that we predicted is really kind of glaring and starting to have a pretty profound effect, particularly on people on the lower income part of the spectrum. You know, I always find it ironic when you know measures of inflation, you know, so-called core inflation, exclude food and energy, which I would say are probably costs numbers one and two for most Americans, particularly as we're going into the winter. This is gonna be a very challenging period for people. You know, fortunately, people still have some money maybe left from their stimulus checks. Fortunately, there are a lot of jobs available, and people can get a job, but there are a lot of pressures. You know, inflation is the most regressive form of taxation, and the Biden administration has to be very, very concerned about this, particularly, you know, with the president's approval ratings declining. I think a big part of that is when someone pulls up a gas station and sees, you know, $5 gas, which is $4.50 in some places in the country already, or they look at what it costs to buy an avocado in the supermarket. You know, these are- I think, you know, our view has been for some time that the Federal Reserve's extremely accommodative policies really make no sense now, both for on the housing side, where I think you know, if you don't overbid the price and close in a week with waived due diligence, you ain't gonna buy a home today. These things are reminiscent of, you know, other beginnings of housing bubbles earlier in our history. You're seeing it in housing costs and other, you know, costs that's not properly reflected in inflation because it's really a lagged measure owners' equivalent rent. So we think the hedge is an appropriate hedge still remains an appropriate hedge. The best hedges are ones that we think make sense even as a standalone investment. That was the case last year for CDS with credit spreads at all-time tights. That makes sense with interest rates still at. If you take some historical perspective, right, and look at other times in history when unemployment was as low as it is and inflation is as high as it is, you know, never before in history have we had a 0% monetary policy with the effects that are taking place now. I think part of that relates to the fact no one was alive for the perspective that one would have in the last pandemic and the impact it has sort of economically. You know, we saw the 1920s were an outgrowth. I think we're having. You know, one of our predictions here, public predictions, was we're gonna have something similar, and I think we're seeing it in our economy. I don't think low rates at this point is actually helping people get jobs. I think it's only costing people in terms of, you know, the price they pay for goods. We think that will have to get addressed with a much faster tapering than what has been kind of suggested by the Federal Reserve and a much more rapid rise in rates. If it doesn't happen, that's where the real risk comes in, and you start to see Paul Volcker style, you know, very, very aggressive gap moves in interest rates to make up for a very negative inflationary environment. I'm sure these are things that the whoever our next chair of the Federal Reserve is gonna be are gonna be front and center. Be interesting just to watch how this plays out. We do think we're well-positioned in terms of protecting our investors' capital in the bad events. Others here have spent some time on this thesis, I think really the whole investment team, but maybe I'll ask Bharath if I missed something in my stump speech. No, no, that was an excellent summary. Thank you, Bharath. You don't normally give me compliments, but. It was very comprehensive. Maybe just to put a finer point on inflation. If you look over the last several months, nearly every single inflation measure, whether it's CPI, PCE, or the core equivalents of those indices, as well as wage inflation, they've all been running at the high single digit range, mid- to high-single-digit range, which is well in excess of the Fed's long-term target of 2%. If there's a lot of noise around the impact of used cars and some other categories where one could argue that supply chain shortages it could cause it to be more transitory in nature. Even stripping out the impact of those categories, you're still seeing inflation in the mid-single-digit range. I think the most recent October CPI report really highlighted that, where categories like services and shelter were up 50 basis points month-over-month, which is a 6% annualized rate. Both of those categories are generally not volatile and tend to be very internalized by consumers. Against this inflationary backdrop, there's also been substantial progress towards the Fed's maximum employment goals, which is the other critical part of their dual mandate. We've recovered more than 80% of the jobs that were lost during the pandemic. At the current pace of, you know, 500,000 job additions, we should close that remaining gap by the middle of next year. If you look sector by sector, a lot of that employment gap is in pandemic impacted sectors like leisure and hospitality and education. As the impact of the Delta variant subsides and we fully emerge from the pandemic. That the pace of job addition should just continue to accelerate. Both on inflation and employment, we're well on our way to meeting the Fed's targets. Yeah. A lot has been made about this notion that inflation is transitory. I think there have been a number of kind of structural changes that are persistent and secular, and not transitory, that are gonna impact inflation. Among them, one, wages, right? I don't see any scenario in which wages get rolled back. If anything, we're in a world where people are you know, it's a political issue that real wages have not kept pace over time. Even now, with inflation, real wages are, you know, they're going. Wages are going up, but real wages are not going up as much. I think there's a big. You know, every CEO is conscious of the multiple of their compensation to that of their lowest paid worker, and that issue is one that's a sensitive issue for investors, and they wanna see the rewards of capitalism spread more widely. I don't see some scenario in which wages are going lower. If anything, I think they go higher. I look at the housing market. You know, I think for a meaningful period of time, kind of the millennial generation was prepared to kind of rent a relatively small apartment and then spend all their money on experiences. I think the pandemic, I think woke people up to the notion, you know what? I want a place where you know, maybe a lawn and a house that's my own. I think that's what we're seeing in the housing market, and we're just far away from being able to deliver a supply of houses to meet that, what I think is gonna be persistent demand. By the way, Howard Hughes is incredibly well-positioned to benefit from that, which I think is a, call it now a mega trend, and I think it's and that's gonna continue. The other, you know, big kind of structural issue is with these supply chain issues and with regulatory and political and IP issues, I think the notion of offshoring, and being in, kind of regulatory environments far away, you know, where you have to take container ships over thousands of miles to deliver goods, is a less appealing notion. I think nearshoring and sameshoring, you know, manufacturing in America, you know, sourcing stuff here, is also gonna be more expensive. I think as businesses evaluate risks and rewards and time to delivery and the ability to control your IP, I think that's also an important trend, which is inflationary. Another one is just sort of the ESG movement, generally, the move to alternative forms of energy, which again is not a short-term phenomenon. I think it's a persistent phenomenon, and that's also gonna be a long-term driver. I mean, you know, all kinds of negative externalities associated with cheap energy, but it's cheap. That's I think another issue. I think there could be some debate around. You know, technology development has been a kind of a net big and deflationary phenomenon for a very long period of time. I feel like we've gotten to a place where that may no longer be the case. You know, you look at all the various companies that have built very significant market positions giving away their services or products to customers. Now that they've got built their businesses, I think their owners are starting to focus more on profitability. You know, it used to be Uber was actually cheaper than a cab getting around New York. Today, you know, you can get a $43 bill to go from one side of Manhattan to another, not even, you know, a relatively short trip, depending on the day. You're, you know. We're spending more and more money on technology. Pretty much every other company in the portfolio is doing the same, and it's not cheap. You know, the next version of the software isn't half the price of the one before. You know, a lot of disruption has already taken place. Once the disruption has taken place, the disruptor wants to make a profit, right? They're prepared to give away their product to take market share, and then eventually they have to make a profit. I don't know where we are precisely on that fulcrum moment, but this notion of, you know, companies, you know, charging, you know, windfall prices for them getting competed away by disruptors. I think we're getting closer to the point that technology is no longer, technological development change is no longer an inflationary aspect. I think there is some reasonable chance we're gonna see a persistent period of inflation well above the 2% level that we got used to, that the Federal Reserve, you know, attained to achieve. It'll be very interesting to see how this plays out. We don't think of ourselves as a macro fund, but, you know, when we look back over time, there have been a few moments in our history where we've had kind of a differentiated variant view on things macro, and we found an asymmetric way to protect ourselves and to make a profit on the basis of that. You know, it is a core part of how we think about what we do, but it's clearly episodic and not something that we always identify something interesting. Stay tuned. It'll be very interesting to watch how this plays out. We thank you for taking the time to join the call. If you have further questions, please get in touch with the IR team, and they will do their best to answer your questions. Have a good day.