Hello and welcome to the Third Quarter 2022 Investor Call for Pershing Square. At this time, all callers are in a 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, Robin. Welcome to the call. Of course, we report our performance on a regular basis. Year to date, the funds are in a range of mid 8s to low 9% negative return, which is about 600 basis points in excess of the S&P 500 year to date. I think we feel good about our relative performance. Obviously, we care more about absolute performance, always would love to deliver profitable outcomes for our investors, certainly over time. We don't promise, nor can we guarantee that we always generate positive performance. I would say we feel quite good about the year, you know, a very challenging year in the capital markets, you know, lots of extrinsic risks and political risks, geopolitical risks, interest rate risks, economic risks, and the companies we own have just continued to report really remarkable results. We feel very good about the businesses that we've chosen to own, and we feel great about the management teams that are running those companies, and we're a beneficiary. Now, despite that, if you look at our results, you know, year to date, we've actually lost approximately 2,700 basis points on our equity portfolio. 400 basis points of that is a permanent loss. Our Netflix loss. 22 percentage points of that is mark-to-market losses on our current portfolio. Despite our companies reporting excellent results, their stock prices have declined. A lot of that has to do with kind of a rerating in the market generally. We don't really mind mark-to-market losses in our businesses as long as we continue to believe in the long-term performance of the companies we own. In fact, it actually inures to our benefit in companies we own that are aggressive buyers of their shares, i.e., of course, they pay a lower price when they're repurchasing shares. We'll comment on some of those share repurchase programs in our specific company discussion. The offset to the losses on our stock portfolio has been hedging gains that we've earned this year, which are, you know, neighborhood of 1,100-1,300 basis points, depending upon funds. Net-net, our, you know, hedges have been a very meaningful contributor to performance. For that reason, I thought I'd talk a little bit more about our hedging program. First of all, I'd just like to mention that hedging has always been something we've done at Pershing Square. It's been periodically quite material. The 2007, 2008, 2009 context, we made large profits on our, you know, hedges that we purchased to protect against our concerns about the credit markets and what we believe would be a likely deterioration in the credit markets. And what we like about hedging is it does, of course, buffer our mark-to-market losses for the year. But more importantly, it gives us liquidity at a time, uh, where liquidity is particularly valuable when, you know, stock prices are cheap. And so it really is the-- not just so much the hedging benefit, but the available liquidity at a time, uh, when there's a disruption in the markets. That allows us, you know, having a hedging program allows us to be more fully invested in the ordinary course and less sensitive to, uh, you know, mark-to-market losses on the rest of the portfolio. Just to give you an order of magnitude, two-- 2020, we had 2.473 billion of hedging gains. 2021, that number was 688 million. Year to date, that number is just shy of $2 billion in terms of P&L from our hedging program. If you look at the last three years, you know, $5.2 billion of our P&L has come from hedging. If you think about our capital base, our equity capital base today, it's something in order of $11.5 billion. You know, it has been a very meaningful contributor. Just to give you a few thoughts on how we think about hedging. First of all, one of the things we generally do is for companies we own that have currency exposure. For example, Universal, large euro, you know, exposure by virtue of the scale of their business in Europe. We tend to hedge those kinds of currency risks in the ordinary course with forward contracts. Of course, they have bilateral risk. There's no asymmetry to them. Where we have a known exposure, and we don't have a particular view about currency being particularly strong or particularly weak, we tend to use forward contracts. In the case of Restaurant Brands, on, you know, Canadian exposure or Canadian CP, similar. We think of that as not an asymmetric hedge, but just a way for us to at least put aside any concern we have about depreciation in the currency and the effect on a company's profitability. The balance of our hedges are asymmetric, you know, a word that we use often in our letters. What that means, of course, is we're risking a relatively small amount of capital. If we're right, or about the concern being realized, you know, those hedges should become a lot more valuable. That's really where the bulk of our gains have come from. For example, the total P&L this year on a forward contract is $280 million out of a total of, I'm sorry. It's $208 million out of a total of $1 billion, almost $2 billion of hedging gains. The balance of those gains have come from principally interest rate related hedging gains as well as, in one case, commodity related hedging gains. In terms of categories of hedges, we focus on things that we're concerned about. You know, what events in the world, what black swan risks could impact the value of a business that we own? Our focus circa 2020, of course, was coronavirus, and we chose to use credit default swaps to hedge that risk. Our focus beginning late 2020, early 2021, was the very low level of interest rates and our expectation that inflation would arise by virtue of a combination of very aggressive fiscal monetary stimulus, plus the stimulus associated with people being unleashed, if you will, from the virus and being able to participate in ordinary course activities. We hedged that through interest rate swaptions. Those swap options, if you look at the trajectory here of what we've done, it gives you a sense of how we think about asymmetries. We bought interest rate swa ptions for about $180 million that by Q1 of this year were worth $1.05 billion. We sold them. We replaced them with a very similar bet, if you will. We extended the maturity. The strike price was out of the money, whereas the ones we owned, the strike price had gone into the money. Again, once again, it became asymmetric. About six months later, we sold that hedge for about $1.3 billion-odd. We repurchased another interest rate hedge that we own today. We spent a similar amount of money. Looking at my sheets here, we've got about a $240 million investment in interest rate swaptions that are today worth about $446 million. Had we kept on the original investment, we would have made a much larger multiple of our capital. We would have made actually probably more gross dollars if we sold, you know, at the end of the life of that instrument we held it the entire period. We didn't do so because as these investments pay off, they no longer represent asymmetric bets. In fact, the risks are, they become a very large percentage of the portfolio. You know, the opportunity to make multiples of our capital basically disappears. Our approach is to kind of roll them as they become significantly valuable. That has, I think, a meaningful risk reduction effect. It's unlikely that we find ourselves in a place where we have a massive loss because we have a hedge that became enormously valuable and then the next day, you know, lost half its value. We give up some potential for profit, but we mitigate the risk of loss. Because when a hedge becomes very large, we think of it, you know, like a large investment. Oftentimes when a hedge becomes very valuable, it's usually a time where we can find a better use of that capital, perhaps buying more of a stock we own or a new investment. You know, you should expect this to be, you know, part of our thinking going forward, but there's no guarantee that at any one period of time that we'll have any hedge exposure at all. Again, we have to find instruments where we think the risk-reward is compelling. If you look at the period from the financial crisis really until, you know, early 2020, we had a period of, you know, practically a decade where we had no meaningful hedges in place other than forward contracts where we were concerned about, you know, some risk of moves in currencies. Whereas the last several-year period of time, we've been extremely active. I will say, however, that we are dedicating more time and kind of resources internally to this area as I think we develop kind of broader competencies and, you know, in a volatile world, these kinds of opportunities tend to present themselves. It's one like, call that the sort of general overview of, you know, the categories of hedges that we have today. Biggest categories remains in terms of market value. Interest rate swaptions, the difference between our earlier bets, we were betting the Federal Reserve would have to move aggressively. Today are in terms of where the bet is, if you will, that long-term interest rates are meaningfully below where they're gonna go. We think that is, of course, a risk for equities. Part of our thesis here is that we think inflation is gonna be structurally higher going forward than it has been historically. We do not believe that it is likely the Federal Reserve is going to be able to get inflation back to a kind of consistent 2% level. We'll have to ultimately accept a higher level inflation that has to do with, you know, de-globalization. You know, we had the benefit for many years of the sort of outsourcing of production to very low cost labor markets and economies and, you know, sort of geopolitical considerations and actually, you know, the growing middle class in China and just, you know, rising wages sort of globally and the supply chain risks that people have become extremely experienced with in the last particular year or so has made really every U.S. CEO, maybe even global CEO, to rethink outsourced or distant supply chains. We're a big believer in the thesis that a lot more of that business is gonna come closer to home, and it is more expensive to do business here. We're no longer gonna have the same sort of subsidy going forward. Also, the transition to alternative energy is gonna be an expensive transition. We think there are a number of structural reasons why inflation is gonna be more persistent than expected, and that locking in a, you know, 4% fixed rate contract for 30 years is gonna be a difficult thing to do for any kind of instrument, even a U.S. Treasury security. There is some asymmetry available in instruments where you can make that bet. You know, we care more about long-term rates when we're an owner of businesses. You know, when you're discounting the cash flows for a perpetual life asset or a very elongated asset, what's relevant is really the longer-term rates. That's why we think that kind of hedge is appropriate. We have some concern also about energy prices and the impact on businesses we own, so we have some energy-related hedges in place. Currencies, you know, we have exposures. We do have a very U.S. dollar-centric portfolio. Most of our businesses earn the majority, in some cases, substantially all of their profits and even revenues in U.S. dollars. We do have meaningful exposures for some of our businesses, and we do our best to hedge, you know, earnings that are earned in currencies other than the U.S. dollar. Let's call that the overview. With that, why don't we actually update everyone on the portfolio? Why don't we start with Ryan and Universal? Sure. As Bill had mentioned, you know, we spend a lot of time increasingly on hedges, but we've also had a very strong investment in terms of Universal being one of our largest position by far. The company continues to do very well as the company just recently reported earnings. The company had laid out at a Capital Markets Day earlier that they thought over time they could have a high single-digit revenue growth rate organically, and that they would have significant margin expansion over the medium term. The company's results are very consistent with that. In the most recent quarter, they continued to outperform that algorithm and are having double-digit revenue growth. Now, part of that relates to the fact that some areas of their business, such as touring and merchandising, were hit very hard during COVID and have significantly rebounded, and those areas are lower margin. As a result, the margin progression that the company's talked about over the longer term hasn't really shown through this year. In aggregate, the revenue has outperformed and the company's earnings are holding true to that algorithm and doing quite well. I think one of the broader issues about Universal that's really exciting to us is the pricing opportunity. You know, our view with Universal and structurally why we were very excited about the business we first made the investment was we thought this is, you know, a very high quality royalty and stream business, where the growth of music over time would be significant in increasing their volumes as more people around the world had smartphones and used those smartphones to do digital music streaming. At the same time, we thought the service was very undervalued. As effectively a royalty business model, both the volume, the increase in the amount of people subscribing to Spotify and Amazon and Apple Music around the world, combined with the increase in the price of those services, Universal would proportionally benefit from both. We've seen a lot of the volume growth over time, but really just in the last month or two, we're now starting to see kind of the first increases from the digital service providers in terms of price. We've had YouTube increase its price for its music subscription by, in some cases, nearly 20%. You know, we've also had Apple increasing its price, and in a smaller way, Amazon has increased price. Spotify has given some indications that they're very likely to increase their price. We think that this kind of first round of price increases for a service that is incredibly cheap, you know, music is the cheapest form of high value entertainment, could be less than $0.10 per hour of listening. We think it has a long way to go, and Universal will be a very large beneficiary. One of the great aspects of the business model is when Universal obtains more revenue in this format, it will increase the amount it pays to artists, but there are no additional fixed costs that Universal has to incur. Therefore, we think that it'll be not just a strong benefit to revenue, but over time can be a strong benefit to operating profits as well. We think this is a really big positive that is actually something that's happened in the relatively near term, and we think that over time makes a lot of sense to have this music service, which is very high value and incredibly low priced, be something that over time can get the value that it deserves. We think the company is also very attuned to this, as are all the competitors in the industry. We think this could be kind of a tailwind that lifts, you know, the profitability of all the companies who provide this very valuable service. We remain very excited about Universal and are happy with the execution in the near term, and we continue to think that the business has a very strong longer term outlook as well. Thank you, Ryan. Just to emphasize a point, when we speak about Universal or really any company in the portfolio, including in particular companies where we're on the board, we're giving Pershing Square's view of, you know, results or prospects for the business. We should not think of our point of view as representing management or the company's point of view. You know, in the ordinary course, we do receive questions from shareholders. It's just I forgot my initial introduction, which is we did receive many questions this quarter. Each member of the team with respect to particular companies in the portfolio, we're gonna do our best to address the questions in their kind of general commentary. If there's time at the end, I'll get to any questions that we haven't yet covered. With that, let's go to Lowe's. Charles, they just announced results yesterday and had a great quarter. Go ahead, tell us. Sure. Thanks, Bill. Maybe first I'd like to at least provide some context on the current macro environment, which is obviously very tangential to our Lowe's investment and is kind of at the heart of the debate on the stock to some extent. 2022 has obviously been a very volatile year from a macroeconomic standpoint, which Bill has alluded to, with a confluence of challenging variables coming together, including overconsumption or pull forward in certain consumer retail categories, which happened during COVID-19. High and persistent inflation, a hawkish Federal Reserve, which has contributed to a rapid rise in mortgage rates to approximately 7%, pressuring new home affordability. This has kind of created a sharp deceleration in housing turnover and a deceleration in new home construction. These variables have exerted significant share price pressure on everything from REITs to home builders, public brokerages, mortgage originators, et cetera. Yet, as we look at it from an operational standpoint, home improvement industry as a whole has been comparatively insulated despite these negative externalities. In yesterday's earnings call, Lowe's addressed this head-on and kind of detailed what they view as the three most important variables they believe most highly correlate with home improvement engagement, and all of which they believe continue to be supportive of the medium-term outlook. These include strong home price appreciation and high home equity values. Now, even if sequentially cooling month-over-month, which we're beginning to see in the data, home equity values are still very high relative to 2019. Two, you know, a historically old housing stock. The average home in the United States is older than 40 years old, and there's a large cohort of homes that were built in the run-up to the Great Financial Crisis, which are turning 20 in the coming few years. That becomes a notable inflection point for big-ticket repair activity. For instance, you know, a roof has to be replaced roughly every 20 years. This cohort is aging into kind of a prime spending block. three is high disposable income and strong consumer balance sheets. That fiscal and monetary stimulus that Bill alluded to and the forced high savings rate during COVID-19 contributed to a run-up in strong consumer balance sheets of homeowners in particular, who are sitting on both high cash balances and high home equity values. These kind of variables combine to manifest themselves in positive same-store sales growth for the industry. What they're seeing in the data is that DIY, you know, the do-it-yourself consumers, are actually trading up in their purchase behavior right now, which is kind of the opposite of what one would expect if you were about to enter a recession. Strong pro-related project backlogs, which continue to work through projects which maybe were put off or, you know, the desire to start that project originated in COVID-19, and that backlog will persist, you know, for a number of quarters. Based on all the data available to them, Lowe's continues to believe that demand is likely to remain resilient over the medium term. Turning specifically to their Q3 results, which they reported yesterday. They reported positive same-store sales growth of 3%, which was led by 19% growth in their pro customer base. Notably, same-store sales growth accelerated throughout the quarter, rising from 34% on a three-year stack basis to an exit growth rate of 42% on a stack basis as the pro consumer remained strong and the DIY customer accelerated their engagement with the category after Labor Day. Sure. Sure. When we reference, and we'll do this for you know, many of our retail or consumer companies, stack same-store sales, it's looking at the index level of sales on a current basis relative to a historical period that could be a few years ago. Here, our references are generally to 2019 or the pre-COVID period. Particularly when you see companies that are growing at a fast rate, the multiplicative impact becomes pretty compelling over time because it compounds upon itself. Our references are usually to the compounded multi-year stacks. Thank you. No problem. The positive same-store sales growth that I referenced was also met for Lowe's with rising gross profit margins and strong SG&A leverage, which reflected broad-based expense control, but also very significant labor productivity initiative. Taken together, they had 3% same-store sales growth, which contributed to 7% EBIT growth, and earnings per share actually grew 20% this quarter, which was aided by a 10% reduction in their share count. Lowe's once again bought back $4 billion of stock this quarter and is trending towards, you know, in excess of $13 billion of buybacks for the year, which is really quite impressive. For the full year for 2022, the company's poised to achieve roughly 14%-15% earnings per share growth, which is essentially all driven by margin expansion and share buybacks. As we look to 2023, it's our belief that Lowe's will once again achieve strong positive earnings per share growth. As such, you know, as we look at it, the stock is currently trading at 14 times roughly forward earnings, which is a historically low multiple and a discount to its direct competitor. While the stock is down meaningfully this year, 18% to be precise, and again, this relates to some of the variables I described at the start of my remarks. This is entirely due to Lowe's earnings multiple compression, with earnings expectations actually sequentially rising over the course of the year. You know, longer term, the only thing I'd add, too, is we obviously continue to see line of sight for them to grow earnings off the current base as an accelerated rate as they close a revenue productivity and margin gap with their closest competitor. We note that the company is hosting an analyst day in a few weeks and we anticipate they'll describe their many ongoing productivity initiatives and establish new medium-term targets at that event, which more appropriately reflect Lowe's long-term structural potential. Thank you, Charles. Just like to say here, you know, Lowe's is a really incredible example of the difference new leadership and great leadership can bring to a company. I mean, Lowe's was a consistent underperformer relative to Home Depot up until Marvin Ellison became CEO of the company, recruited a new senior team. Vast majority of the employees didn't change, and the business has performed incredibly well through, you know, obviously very challenging, volatile, and difficult times. They've made really dramatic progress in catching up to a competitor that was really far ahead of them. What's interesting is the market hasn't yet given recognition to the progress that he and Lowe's have made, you know, by rewarding it with a meaningfully lower multiple. Now, for us, it's actually beneficial because if you're a long-term holder, one of the most aggressive share purchase programs that we've seen is happening at, you know, a 14 PE instead of a 17 or an 18 PE. That is ultimately quite valuable to us. We're happy to sacrifice short-term mark-to-market performance for long-term intrinsic value performance. With that, let's go to Anthony, Chipotle. We're going obviously in order of size of investments, but go ahead. Great. Thanks, Bill. That's actually a great segue because Chipotle, like Lowe's, had a new CEO arrive in early 2018. Similar to Lowe's, the track record of excellence under the new leadership team here just continues every quarter. It's actually just fairly remarkable. The stock, I remember the day, was $265 a share when he joined. Right. Around 1,500. Yeah. Okay. They just reported earnings, you know, a few weeks ago. They delivered same-store sales of about 7.5%, which represents three-year stacked or three-year cumulative growth since before the pandemic began of 34%. That's the best result that they delivered this year. You know, every quarter this year has been above 30%. The guidance for this quarter, Q4, is similar to Q3 for a mid to high single-digit increase, which implies that the cumulative growth will continue around that 30% level. There's really four drivers of this, you know, amazing top-line momentum that I'd call out. The first is price increases to cover inflation that Chipotle is seeing, especially in commodities this year, but also in labor. There's really been limited customer resistance to that to date. The Q3 comp of 7.6% was driven by 13% price, a 1% transaction decline, and a 4.5% headwind from mix, which is basically a shift from digital group orders back to individual, you know, in-person orders as people resume their work and school routines. You know, Chipotle's management has taken several nationwide price increases this year, but they recently shifted to a more targeted approach. In October, they took a 2%-3% price increase in 700 stores, about, you know, 23% of the store base, to cover outsized wage inflation that those locations were seeing. I believe that, you know, we'll see a little bit more of that going forward and a little bit less of the big price increases, but we will see. I'll come back to the topic of pricing in a bit. The second driver of top line that I'd call out is the return of in-restaurant sales. As I mentioned, you know, people are coming back to the office, back to school. In-restaurant sales were up 22% in Q3. Digital sales, where the company made tremendous inroads during the pandemic, only declined 1%. You see the digital business is really a new layer of business that the company has earned and has largely kept, even as the in-store business comes back. The third lever is successful menu innovation. This quarter, we have Garlic Guajillo Steak, which, if you haven't tried it, I'd encourage you to go out there and try it before it runs out at the end of the year. This will be a comp tailwind in the second half of this quarter since last year's limited time offering, brisket, ran out actually around this time, mid-November. Oh, I'm sorry. On menu innovation, important to note, they have a spicy chicken, Chicken al Pastor, that's currently in test. I'm personally very excited about that one. You know, I think the Millennial and Gen Z preference for spicy foods is quite robust, and you see it across the food industry. You're speaking from the perspective of Millennial, Gen Z. That's right. A Millennial, definitely not Gen Z, unfortunately. Yeah. No, look, I think spicy food innovations have resonated tremendously over recent years, and I expect this one will be no different. That looks like it's on deck for next year. The fourth lever of top line I'll call out is on the new store side. They're on track to deliver net new unit growth of about 8% both this year and next year. Management believes they can get that up to 10%, you know, once current headwinds around permitting and construction and equipment availability delays that are kind of still with us coming out of COVID, you know, once those abate. Chipotle is one of the few businesses that we've seen in any sector that's still delivering robust margin expansion, even in the current environment. Some margins in Q3 were up 2.7 percentage points on an operating profit level, and that allowed operating profits to grow 37%, while revenue growth grew at 14%. That's tremendous operating leverage. For Q4, impressively, management's guiding for restaurant margins and operating profit margins to remain largely consistent with Q3, which is impressive because, you know, Q4 is typically a seasonally slower quarter. The guidance for Q4 implies that both of those margins will expand by 5 percentage points from 2021 levels, which, you know, showcases the tremendous power of Chipotle's economic model. You know, two key focus areas I'd call out going forward. One is consumer resistance to pricing. That's really the biggest debate on the stock right now. We believe that resistance will continue to be limited, as there are many indications that Chipotle's value proposition remains really strong. The most popular menu item, the chicken burrito or bowl, that accounts for about 50% of orders, and that still costs less than $9, you know, on average across the country. We think that's tremendous value when you compare it to other food offerings and kind of note their quality and portion size. Chipotle's pricing is still kind of 10%-30% below their fast-casual competitors. Still a big pricing gap to core competitive set, you know, putting aside QSR. The grocery store inflation this year remains above in-restaurant inflation. The relative value of grocery is not as compelling as it typically is in these times, although clearly, you know, it can be cheaper to cook at home. That's something we're watching. The new unit openings remain really strong, so they're opening at about 80%-85% of the volumes of existing restaurants, so they're not seeing any evidence kind of a slowdown there. Chipotle also gets great data through their loyalty program, and they can look at things for individual customers and to assess trade down. For example, is someone who used to order guac, are they skipping the guac? Are they skipping extra meat? They're not seeing any of that right now, which is quite encouraging. You know, the lower income consumer has pulled back a bit, which accounts for that 1% transaction decline I mentioned earlier. It's important to note that Chipotle's business really skews towards a higher income consumer, and we're talking about on a national basis, that means, you know, $75,000 or more in income annually. They're seeing actually higher frequency amongst those consumers, which is a great thing. Another focus area for management is improving throughput and operational execution. This is something that's a focus across the restaurant industry, given the level of turnover that's happened, you know, during COVID. Restaurants perform much better when general managers in particular are in their position for a long period of time and are able to create a culture of excellence within the restaurant and a culture of stability. Management at Chipotle is really focused on that. A tangible metric they're measuring is, you know, how fast can they process transactions when they're busy. Number of transactions per busiest 15 minutes each day. That metric is currently in the low 20s, and management has line of sight to get that up to the high 20s, which is currently being achieved by the highest volume locations, which have the long tenure managers that I mentioned. They rolled out an updated training program at the end of the quarter called Project Square One. We believe that will start to bear fruit in the coming quarters. Improving staff retention is really kind of the biggest lever to make progress on this operational execution side of things. You know, continues to perform really well, and we have confidence that management will continue to deliver what they've done, you know, over the last close to four years going forward. Maybe you could just comment on where we are in terms of U.S. penetration of stores. They've changed over time, their view, you know, where they can build stores, the results of rural locations, et cetera. Yeah, definitely. We are at around just under 3,100 stores nationally now, and management believes they can grow that number to 7,000. You know, less than 50% penetrated, and that number used to be closer to 5,000, years ago. What they found is with new formats, you know, they're able to expand into trade areas that they didn't think were viable before, you know, small towns, rural locations. There's less competition there, which is interesting. You know, Chipotle's offering is, there's a lot of newness in those locations versus, you know, Manhattan, for example, where that type of cuisine has gotten really competitive. The current management team has invented the Chipotlane drive-thru format, which is a digital drive-thru. You kind of place the order for order-ahead pickup, you go to the drive-thru window, you just pick it up, which is different from a traditional drive-thru where you actually order at the window and wait. It's much faster. That's in 500 stores today, and that has certainly also expanded, you know, the addressable market nationally. You know, Canada, management believe they can have a few hundred stores there, and they only have a few dozen today. That's another growth opportunity for the brand. Finally, internationally, you know, they haven't even started that yet. They have, you know, just a handful of stores in Europe. You know, we think this brand can have tremendous international resonance in the years to come. That's a longer-term growth opportunity that we think is exciting. Thank you, Anthony. You know, one of the reasons why we like restaurant companies, and we've been a big beneficiary of some very successful investments in restaurants over time, is once you get the model right and the economics of the box are attractive and you built a real brand. As long as management maintains focus and consistency and you mitigate, you know, the traditional risks of that business, it's sort of a compounding exercise, the opening of stores, the, you know, progression of sales over time. You know, as long as the economics of store opening is compelling and the returns here are, you know, 50%, 60%, 70% on new store openings, it's really a remarkable business that you can lay out over time. You know, there's a lot of consistency in the kind of food people like, you know, globally, and that presents very large long-term opportunities, which is a good segue to Feroz. If you could speak to Restaurant Brands. We had an interesting announcement yesterday, which I'm sure you'll touch on. Let's go first to how the business is doing and then to yesterday's announcement. Sure. On the business front, the recent results showcase another increasing quarter of momentum. At Tim Hortons in Canada, same-store sales improved to about 500 basis points above pre-COVID levels, driven by really improvement in all day parts and store types. In particular, we're seeing the results of the company's initiatives under its Back to Basics plan, with extensions in its beverage program, as well as extending its afternoon foods program. Despite this, some of the super urban locations, so think downtown Toronto stores, those are still below pre-COVID levels, and so there's plenty of opportunity in terms of a tailwind from reopening. So we believe the company will actually deliver same-store sales for the full year that are actually above the guidance they gave a couple months ago at their Analyst Day. At Burger King in the U.S., the company recently unveiled its Reclaim the Flame program to reinvigorate growth. The plan includes about $400 million, uh, from the company to invest in its advertising, as well as refreshing its store base. And while it's still early days, we believe the franchisees themselves are actually very excited to refresh their stores. And we think there's no reason Burger King can't grow in line with its peers. And the two proof points for that are really Burger King US's performance prior to COVID, uh, and the best-in-class performance really in its international business. Burger King's international business actually represents the majority of their profits today, and they reported same-store sales relative to pre-COVID levels above 20%. That is, again, as I mentioned, best in class when you look at larger restaurant companies. Elsewhere, Popeyes is continuing to grow well, and we are very excited for their long-term prospects. What's really interesting about Restaurant Brands in specific in this particular uncertain macro environment is that we think they're really well positioned both for a sustained inflationary period as well as potentially a recession. As input costs and wages have increased, really all restaurant companies have been increasing menu prices at a fairly robust pace. As a franchisor in this equation, Restaurant Brands benefits from these price increases while its cost structure isn't nearly, you know, subject to the same inflationary pressures. Importantly, as Anthony alluded to, despite these price increases, food away from home inflation is still below food at home inflation, making restaurant meals, in particular in the quick service restaurant category, a better relative deal. In a recession, we think each of the brands would also benefit from consumers trading down. As you alluded to, Bill, we just heard from two of our portfolio companies that Anthony and Charles spoke about, what a single change agent in the leadership team can do. Not to be left behind, Restaurant Brands announced the recent appointment of Patrick Doyle as its Executive Chairman. For those who don't know, Patrick was the legendary CEO of Domino's for about eight years, where under his tenure, the company doubled system-wide sales, doubled franchisee profitability, and really became the number one pizza company. As a result, the share price increased over 23 times under his tenure. We think Patrick can help do some of the same at Restaurant Brands, help it accelerate its digital journey, and also help achieve its full potential. Over the next eight years, we can expect 23-fold? I'd take 10. I'd be okay with that. Anything like that would be very impressive. What's also impressive is that it's a vote of confidence. He's purchasing $30 million worth of shares, and the entirety of his compensation is tied to the performance of Restaurant Brands' share price. Look, this is just another step in the company's efforts over the last few years to bring in experienced restaurant executives from other successful restaurant companies. We're very excited about this development. As is the market, frankly. Given the inflecting performance, some of the excitement about this new recent executive appointment, QSR has actually now become one of our best-performing stocks for the year, while obviously the broader market is down. We're equally excited about the future prospects and shares actually now trade at a high-teens multiple of its earnings power for next year, which, again, we think is very cheap in light of its business model and its future business prospects. Great. Thank you, Feroz. Ryan, why don't you update us on Hilton? Sure. Perhaps even higher energy if possible. Thank you. In your remarks. Hilton. There's a lot of excitement about Hilton. We- -talk too much. We're very excited about Hilton. Reflected in your. As we are with many of our other companies, including Universal. I'll try to make it come through clear for Hilton. Hilton reported results a couple of weeks ago. I think the key takeaway was that they were able to get their RevPAR, which is the industry metric for their same-store sales, back to pre-COVID levels. It's pretty impressive because while it's taken two and a half years during the pandemic for the business that was really kind of in the eye of the storm, people thought it may take four or five years. Some people were questioning whether that would ever happen. They've passed the mark this quarter, I think, which is an important proof point, the importance of business travel. Maybe even more importantly than that, one statistic I think is very impressive is their profits were up about 25% relative to the pre-COVID levels, even though they're just recovering on a same-store sales basis. That's really reflective of a couple factors of the quality of the business model and the strength of the management team. In terms of the revenue growth, one of the reasons why Hilton has been able to grow its revenue substantially, even though it's just recovering in terms of same-store sales, is they have an industry-leading pipeline. Hilton offers a very strong customer value proposition, which in turn is very attractive for its franchisees. Its franchisees are the ones who build the hotels around the world. Their pipeline of new hotels is about 40% of their existing units. Really over the last two and a half, three years, the company has been adding hotel rooms at about a mid-single digit rate, which have added up and allowed the company to grow its revenues at an impressive rate while it's been recovering from COVID. The second point is that its expenses are down at about a low teens rate from where they were prior to COVID. That just really highlights again how in a franchise business model, the overhead cost structure of the business can be somewhat independent of how business grows over time, which is very attractive. The management team here and the quality of the management team really shine through because they've been very focused on using COVID as an opportunity, you know, to make themselves more efficient, as well as making sort of the operating model for the franchisees more efficient. The combination of continued revenue growth due to the pipeline, as well as strong management of the cost structure, has allowed the company to increase its profits significantly while it's just getting to catch up. I think as we sort of step back and think about the business over time, and you put it in context with some of the things people are worried about today, inflation, as well as the economy and whether we're going to have a slowdown or recession. We think Hilton is very well-positioned on both those metrics. For inflation, you know, the royalty business model, they are able to grow without capital. They have a product where they can reprice their rooms on a daily basis to make sure that they're being compensated for kind of the growing value they're providing in an inflationary world. Their cost structure doesn't suffer from some of the same inflationary trends. The inflation, in a way, can actually be beneficial to the business model. It's very well protected from inflation. While an economic slowdown may impact business travel to some degree, like it would impact a lot of areas of the economy, we think that there's a lot of pent-up demand. Hilton is still in the business segment, which is the substantial majority of the business. It's still recovering. A lot of people have not been out visiting their customers or making their sales calls over the last couple of years. We think even if things slow down in the economy, there's still a very large pent-up demand for people to be able to visit customers. Both personal travel from people not traveling as much, as well as business travel, could have a lot more resiliency in this market if things were to slow down. Lastly, there's still, you know, another 40% of rooms that we expect Hilton will add over time. All those things, we think, really buffer the business in the case of inflation or slowdown. We continue to be very impressed with the way that the management team has very deftly navigated a series of challenges over the last several years. They continue to buy back increasing amounts of stock. They actually just last week increased the size of their buyback program. We think that kind of at every level of the business, they're doing a great job. We think the outlook for the business remains very bright. Thank you, Ryan. You can hear a kind of consistent theme here. We love asset-light, royalty-like businesses where there's a very long horizon of embedded growth. We like those businesses to be run by best-in-class management teams, and we like them to have best-in-class capital allocation programs. The nature of businesses like that is it generally frees up a lot of capital that can be used for shareholder return. Restaurant Brands and Hilton are two sort of great examples. Canadian Pacific is not an asset-light business, but it does have economic characteristics that we like. Manning, why don't you tell us why do we like Canadian Pacific kind of high-level, and then update us on the quarter? You know, why do we like this super capital-intensive railroad thing? Why? Sure. Uh, thanks, Bill. Um, so in terms of the business model, you know, we've always been a fan of railroads for several reasons. I think the first one is just extremely high barriers to entry in this industry and the resulting kind of oligopolistic nature of the business. If you really think about the North American, um, railroad industry today, there are only seven, soon to be six, large Class I railroads. And that's because just think about the amount of capital, the amount of time that it took to build, you know, these impressive, really large rail networks. And that's just a network that is practically impossible to replicate today. Um, so you know, when you have a business like the rail-railroading industry where the barriers to entry are super high, um, that gives, you know, these businesses stability. It also gives them a lot of pricing power to price their kind of service product. You know, that's why. Now, when you say it's oligopolistic, obviously still very competitive, you know, trucking, et cetera. You know, what are the factors that we think drive their long-term competitive advantage versus other forms of transportation? Yeah, definitely. I think there are actually certain types of commodities that, you know, are generally heavy and, you know, large quantity that can only be transported by railroads. For the commodities that, you know, compete with trucking, we think rail has, you know, several advantages. The first one is that rail is just purely cheaper than trucking especially over longer distances. There's also a substantial environmental benefit to using rail transportation as well. Rail actually emits, you know, three to four times less emissions compared to trucking. I think especially, you know, as shippers reevaluate their options, as they care more, you know, about their environmental impacts, we think rail, you know, will continue to gain share. Great. What happened during the quarter, and what's the status of the Kansas City Southern? Yeah, definitely. CP has actually been one of the bright spots in our portfolio this year, outperforming both the market and other rail stocks. The company reported another strong set of results in Q3 that really reinforced our conviction in the company's resilient inflation-protected business model, as well as their superb management team. Revenue in the third quarter grew 19%, comprised of 6% volume growth and 13% of price and mix, fuel surcharge, pass-throughs and FX. Growth was really driven by CP's large bulk business, which represents approximately 40% of total revenue and actually helps insulate the company from economic fluctuations. The Russia-Ukraine war and the resulting supply chain disruptions have really increased demand for the Canadian exports that CP carries. You know, think about grain, think about coal, fertilizers, all of which are non-discretionary consumables. We believe demand for these commodities will remain resilient as the war continues. I'd also call out grain as an exciting growth opportunity. After a smaller than typical Canadian grain harvest last year, the current harvest is expected to be one of the top five largest crops of all time. We started seeing grain volumes ramp really quickly at the end of Q3, which we believe sets CP up for strong momentum in the following quarters. In terms of the business model, you know, I touched on a lot of the points that we like about the business. We believe CP is actually especially attractive in inflationary environments. You know, the company provides a mission-critical, low-cost transportation product that does not come with many alternatives, which really gives CP pricing power to offset cost inflation. CP is now renewing their contracts with high single-digit pricing increases, which is much higher than historical levels. Also in addition to pricing, the company's contracts also feature fuel surcharges that pass through increases in fuel expense, which is CP's second largest cost item directly to customers. As a result, revenue growth directly benefits the bottom line. You could really see that in the third quarter where CP managed to increase their operating margin by almost 100 basis points adjusted for transaction costs and line sales. Lastly, you know, we believe Kansas City Southern represents a transformative acquisition for CP that will generate substantial synergies and create value for all stakeholders. As a quick recap, CP currently owns KCS through a voting trust structure, which entitles CP to economic ownership, but not operational control, as we wait for regulatory approval from the Surface Transportation Board. The board actually held a series of public hearings in September about the merger, which we believe was really constructive in highlighting the many public benefits of the transaction. We expect that the combination of CP and KCS to unlock many idiosyncratic growth opportunities regardless of the macroeconomic environment once the transaction receives regulatory approval, which the company expects to happen in Q1 of next year. In summary, we're really pleased with CP's performance this year in the face of high inflation and macro uncertainty. We remain even more excited for the company's growth prospects in 2023, including KCS. Great. That's a great summary, Manning. What's interesting, just looking at our portfolio and looking at the leadership, you know, Keith Creel is clearly the number one executive in the rail industry. Lucian Grainge is clearly the number one executive in the music industry. You know, Marvin, in our view, has just done an absolutely spectacular job. Really, each of these cases, we have the benefit of companies that are run by outstanding leaders. You know, you have a great business run by an outstanding leader, and you add to that appropriate capital allocation policies, you can drive enormous, well above market expectations for shareholders. We're not gonna comment on Howard Hughes this quarter because we have an ongoing tender offer that comes due, if you will, or expires on November 28th. I'm gonna pause. If you would like more information on Howard Hughes, I direct you to the Q3 conference call that took place on November 3rd and the earnings and 10-Q releases. Anthony, you wanna speak to Fannie, Freddie? Sure, you know, no real material updates there. The status of those companies, you know, they remain in conservatorship and the dividend payments to Treasury remain suspended. These entities are just building up more and more capital every quarter, which, you know, we as shareholders welcome and is long overdue development. They currently hold GAAP capital of about $94 billion. Remember a few years ago, they had nothing. This is tremendous progress. About $76 billion of that counts towards regulatory capital because they're not allowed to count their deferred tax assets in that number. You know, they need incremental capital under the new rule of about $225 billion to be fully capitalized, you know, which will take about eight or nine years, you know, depending on how, kind of, earnings evolve, you know, going forward. They remain in a good place, and, you know, building capital and becoming more valuable. Actually, the other interesting thing is, you know, we're not so far away from the next presidential election. You know, if the next leader takes a different view of the importance of this being an independent enterprise, these could become very interesting investments once again. Maybe that's sort of an opportunity to just kind of speak about how we invest versus a typical investor. You know, there are many cases, including examples in our portfolio, where we continue to own a stock even though we think it's highly likely the stock is gonna go down or, quote-unquote, gonna be dead money for some, you know, extended period of time, where a normal hedge fund or a typical investor would sell a stock in that circumstance. Um, and why do we hold it, you know, through, uh, a period that will contribute to negative performance? It's because we have a view that even at the price before the decline, you know, this is gonna be an attractive investment over a long period of time. Number two, uh, we tend to own large percentage interests in companies, and we don't have the same... You know, for us to repurchase the Fannie Freddie investment or, uh, would take a considerable period of time. That's true for other less liquid, uh, investments in the portfolio. You know, when, for example, in a rising interest rate environment with 7% mortgage rates, you know, one of the questions we got was, "Can you address the bear case against Howard Hughes?" You know, the whole list of horribles to be concerned about in real estate. You know, when you're a liquid holder of a company and you're a long-term holder and you're a holder that hedges, you can sort of look through a period with significant headwinds. I can think of numerous examples over time where the three to five-year return has been extremely attractive, but we had to accept a meaningful amount of negative mark-to-market performance in the short term. If you're a small liquid investor, you can take advantage of that liquidity, sell, wait for the, you know, bad news to recover, and hopefully repurchase in time before the market figures out that the stock's going back up. That's a sort of a game we don't play. Another reason for that is, you know, we really partner with companies when we buy a stake. We wanna be a helpful long-term holder. If we're constantly trading in and out of a position, it's hard for us to have credibility. You know, we have to kind of benefit alongside management. We have to suffer the pain, if you will, in the short term. You know, one of the big benefits we have versus other investors is the fact that, you know, 90% of our capital is effectively perpetual. 29% of the capital we manage is employee or affiliate capital. We care enormously about the long-term outcome, and we're prepared to suffer, if you will, some degree of underperformance in a particular position where we would have been economically better off selling it and then repurchasing it in a few months or six months or a year if we can get the timing right. That also is true for, you know, acquiring a stake. You know, the time for us to buy a stake in a business is a time where other investors believe, probably correctly, that short-term performance of that stock is gonna be negative. That's our chance to own a big stake. If we're right on the long-term view, in three or four or five years, we're gonna be very happy with the outcome. The way we mitigate the kind of macro risk is through hedges. That's, you know, this year is kind of a perfect example of where, you know, our hedging profits haven't quite offset the entire mark-to-market losses on our equities. I do think we are very well-positioned over the next several years. We're very happy with our decision to retain ownership and in some cases, increase ownership in businesses we own today, even if, you know, those stocks' prospects over the next, you know, six or 12 months, if we enter a recession or mortgage rates continue to rise, et cetera, we're still willing to, if you will, suffer the short-term pain for the long-term gain. We're privileged to have that opportunity. SPARC. We had a number of questions about Pershing Square SPARC Holdings. Just to review, Pershing Square Tontine Holdings was a SPAC we launched that had a number of very differentiated attributes. Unfortunately, we're not able to close the Universal Music transaction in SPARC because of really technical considerations and issues raised by the SEC. I would call Tontine a SPAC 2.0 addressing a lot of the fairly egregious elements of the typical SPAC, including founder stock and misaligned incentives and enormous transaction costs. Pershing Square SPARC Holdings is kind of 3.0, and we think we've largely addressed perhaps all of the concerns about SPACs, including transaction costs. There are no underwriting fees here. Founder stock. There's no founder stock. It's a pure common stock capital structure. There are no shareholder warrants. One of the big problems with SPACs today is when investors redeem, they get their cash back, the company raises less capital, but the warrants that were issued at the time of the IPO remain outstanding. A company doesn't merge with a conventional SPAC, you know, 90% of the investors redeem, they raise, you know, quote-unquote, 10% of the expected capital. Once you offset transaction costs, they've now issued a ton of warrants, you know, and they've raised very little money, and that really accounts for the negative performance of SPACs. SPARC, we're seeking to get a registration statement declared effective. If you followed our trajectory here, I think we've made, I guess now three or four filings with the SEC. Each time we make a filing, if you were to do a compare function on Word, you can see the changes that are being made, and those changes are being made in response to comments raised by the SEC. If you compare the last draft with the current draft, you'll see very few changes. We're about to make another revised filing, and you will see even fewer changes versus the previous draft. That is suggestive of the fact that we have addressed most of, and hopefully eventually all of the SEC's comments. We can't give precision on when this thing ultimately goes effective. You know, I would say we are getting to the shorter strokes, and we're excited about Pershing Square SPARC Holdings. What's gonna be particularly interesting, assuming we're effective in getting this through the process, and I expect we will. Hopefully by the end of the year, we will have really the only viable acquisition company at a time when the IPO market is effectively shut, the traditional SPAC market is effectively shut. We will have the ability to enter into a transaction with someone, you know, beginning hopefully just around the turn of the year, with the most efficient capital structure for someone to go public. You know, pure common stock capital structure, the only dilutive security is a 20% out of the money, 5% warrant that is held by us as the sponsor. When I say us, I'm referring to the Pershing Square funds and the directors of the entity will be able to commit capital and effectively guarantee that someone goes public, guarantee they'll raise a minimum amount of capital at a negotiated fixed price. You know, we can't guarantee that all of the warrants will be exercised, although there's good reason to believe they will be. We can walk you through it at an appropriate time. If someone doesn't exercise, a warrant goes unexercised, there won't be any dilution associated with that. A bit like an IPO where the underwriter says, Look, I think you'll raise $500 million. I can't guarantee that, but you could raise, you know, $800 million. Turns out they only raised $500 million. They don't have the problem of issuing, you know, $100 million worth of warrants, and we will have that sort of same benefit. In a world where, you know, capital formation has become extremely difficult, the credit markets have gotten difficult, and where there are a large number of private companies where going public would be a meaningful competitive advantage versus their competition, we will be in a really, I think, pretty unique position to facilitate IPOs, and the structure itself offers a lot of flexibility. The minimum sized transaction would be $1 billion and a quarter equity raise, and we can scale up to effectively almost any level if a counterparty wants to raise a large amount of capital. We're excited about SPARC. The owner of SPARC, the warrant holders will be the shareholders of Pershing Square Tontine Holdings that own their shares at the time of the redemption. They have what's called an escrow CUSIP on their brokerage statement as a result, and we will be delivering warrants to those holders. The warrants will not be traded initially. The innovation I think that enabled us to make meaningful progress with the SEC was the fact that warrants will not trade until such time as we've identified a target, negotiated the deal, done our due diligence, signed an agreement. The board has voted in favor of the deal. We, of course, as the 100% shareholder, voted in favor. We've obtained regulatory approvals, and we have an effective registration statement. At that point, the warrants go live for 20 business days. People have really, you know, even more information than you get in a typical IPO and a lot of time to think about it, at which point you get to see where the warrants trade before you decide whether you wanna exercise them or not. We think it's a very innovative and hopefully helpful structure at a time where capital it's very challenging to go public or to raise equity capital. I just wanna quickly take a look at any questions that we haven't answered. Just one quick thing on hedging. One thing I failed to mention is that the existing hedges have about a $740 million market value, about 6.5% of our portfolio in a cost basis around $480 million, about $260 million of unrealized profit. On Universal, Ryan, do you wanna just comment on competitive dynamics versus the likes of a Hipgnosis and whether artists, you know, we've seen some examples of artists re-recording their work? You know, has the competitive advantage of Universal gotten worse in light of, you know, some of the activity we've seen in catalog acquisitions and some of these closed-end funds buying assets? Sure. We think that Universal's competitive position is very strong and is actually getting stronger over time. I would separate out the questions into perhaps two different issues. When it comes to sort of, you know, some of the top artists who have attempted to rerecord their masters, I would say that is a very unique situation. In fact, actually, that is inuring to Universal's benefit right now. I would not expect to see a situation like that happen again, and I think that that situation is only likely to ever have happened if you're one of the top couple of artists on the planet. I think based on the positive relationships that Universal has with its top artists, and that in general, I would say the entire record label industry has with their key artists, I think it's unlikely you would have somebody at the top level who would be rerecording their masters in that way. In terms of the competitive dynamics and relative to Hipgnosis, I think that it's important to step back and really analyze the differences in the business models. You know, Universal is really about trying to find artist talent that will become the next big Taylor Swift, for example, and then helping that artist succeed. There's a real core competency in being able to identify, develop, grow, and market artists all around the world. When you're looking at whether it's Hipgnosis or other labels, what they're primarily trying to do is trying to buy existing assets. I believe a lot of that activity was driven by, you know, potentially what may be in hindsight, record low interest rates that we don't ever see again. That really reduced the cost of capital. It allowed a lot of players with attractive financing terms to come in and really bid up these assets. You know, it's my belief and our belief that a lot of those companies do not have the same level of competency in being able to really help monetize the value and the brand of these artists. A lot of these companies really don't even try. I mean, they've been very upfront that they are financial plays. I think going forward with, you know, a higher level and a more normalized level of interest rates, perhaps, you're gonna see a lot less activity from fringe players. I think the value of the business models of kind of the large labels, and we think UMG is the best, and certainly it's the largest, we think that's gonna show through even more. We're very pleased with their competitive position. Yeah. I think it really just speaks to the embedded underlying value in their catalog. You know, one of the benefits I've had being on the board of directors is I've seen the company pass on a large number of acquisitions and really be selective about the assets that they purchase. If you think from the artist's perspective, and a lot of artists, they're now monetizing their assets, you know, before they die. They actually care, you know. It's a bit like, you know, it's a life's work. Do you want it owned by a closed-end fund that's for financial players, or do you wanna, you know, put those assets where they're gonna be properly cared for and maximized over time for your legacy? I just think, you know, Universal's not gonna buy assets at a massive discount because they offer those benefits, but they'll likely to get clearly the first look. On the margin, it's a bit like, you know, Buffett, I think very successfully, created a world where people were prepared to transact with Berkshire Hathaway in terms that were more favorable than they would private equity because they knew that he was a permanent owner, and the same thing is really true for Universal. On the question of the buyback tax, on the margin, a buyback tax will marginally make it less attractive for companies to buy back shares. You know, at 1%, you know, I think it won't have a huge impact. Of course, people have concern about these kind of taxes because usually they start at a very low level, and they go to higher levels. We do think a company's ability to return capital to shareholders in a fairly friction-free way is good for capitalism generally and for economies so that capital gets allocated to the highest and best resource. I mean, there's a lot of political stuff about buybacks being negative for the world, but if a company doesn't have a good use, return the capital to shareholders, and it will get invested in a company that can deploy the capital more effectively. Let's see. I think we've covered most of the hedging programs. We've covered SPARC. Yeah, I think we've really covered everything. If you have further questions, feel free to contact the IR team, and look forward to seeing you at our upcoming Analyst Day in Q1. Thank you for joining the call. Thank you, everyone. This concludes your conference call for today. You may now disconnect.