Ackman’s Pershing Square Q1: CP, BKC, JUSH, JCP, C and GGP

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Ackman's Pershing Square Q1: CP, BKC, JUSH, JCP, C and GGP

Bill Ackman’s Pershing Square is up 11.8% year to date as of March 31st.  katya Wachtel of Reuters, and Amy Or of DowJones, reported a loss of 7% for the month of May. We have not received the stat sheet for May, but that would bite a chunk out of the returns for the year.

The letter we have received is dated 6/12/2012, but only has data through Q1. Likely, investors at the firm revealed the numbers.

Ackman discusses various positions, such as J.C. Penney Company, Inc. (NYSE:JCP), Canadian Pacific Railway Limited (TSE:CP) (NYSE:CP), General Growth Properties Inc (NYSE:GGP), Citigroup, Inc. (NYSE:Citi) and Justice Holdings Ltd (LON:JUSH) / Burger King Holdings, Inc.(NYSE:BKC). Ackman has large stakes in all of the companies, besides Citi.

Below are some excerpts from the letter:

The significance of our landslide victory at CP has not gone unnoticed in board rooms in Canada and in the United States. In CP, an activist shareholder from the U.S. received overwhelming shareholder support from Canadian and U.S. shareholders in a contest against a high profile board of a large cap iconic Canadian company. Our success at CP demonstrates that no underperforming company can resist needed change when it is proposed by a credible long-term investor.


By the beginning of the company’s next fiscal year in February, we expect the most challenging year of the turnaround will have been completed. Sales should rise from the current low levels as the current JCP consumer comes to better understand the pricing strategy, and as new product is introduced with a new store presentation that attracts both new and traditional JCP customers.

Burger King

By next year, Burger King expects to have refranchised substantially all of its company-operated units around the world. The public company will then become what we have called a Brand Royalty company, which when successfully executed, is one of the best business models in the world. After the refranchising is complete, the company’s revenues will be largely comprised of a franchise royalty stream from a rapidly growing portfolio of franchised restaurants. Because the company’s revenues will grow without the need for capital investment from the parent company, the substantial majority of the cash flows generated by the company over the long term can be returned to shareholders through share repurchases or dividends.


Despite GGP’s stock price’s substantial increase over the last six months, the company remains attractively valued at a 5.3% earnings yield. By comparison, Simon Properties, GGP’s direct competitor, trades at more than a 15% higher multiple. While GGP trades at a lower valuation than its Class A mall peers, we think it has meaningfully more cash-flow growth potential. In a world in which there are few opportunities to earn safe cash yields, we believe that Class A malls at mid 5% and growing yields offer both a relative and absolute value.


Citi remains extremely cheap relative to our estimate of intrinsic value – it trades at less than 60% of tangible book value, about six times last year’s underlying earnings per share and about four times normalized earnings per share after giving credit to its net tax assets and excess capital.

The intrinsic value of Citi has increased meaningfully over the course of our ownership of the bank while the stock price has declined substantially. We believe that the continued generation of profits and increase in growth of tangible book value will ultimately cause investors to revalue the bank at prices approaching its intrinsic value.

Pershing Square Q1 12 Investor Letter

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