Thank you, operator. Welcome to our first quarter conference call.

It's been an interesting year, for sure, for -- I think for all of us. The story here is really not so much about Q1.

Q1 fund was down about, system-wide a little under 2%. Really the excitement, if you will, is the last, the period since the end of the quarter and year-to-date, we are down in the low 20s for our biggest fund and look somewhat less -- high teens in the smaller funds.

And what's driving that is really the mark-to-market performance of our portfolio. So we are spend as usual, a lot of time talking about individual names in our portfolio.

I thought before we did that, it's sort of useful to kind of review what we try to do at Pershing Square and what we don't do. So we are not a trading firm trying to position ourselves so that we are going to perform -- we are going to outperform the market over the next 3 months, 6 months, 9 months, even sort of 12 months.

What we do is, we look to find businesses that we think we can own for years, in some cases, decades or more, businesses that will compound their values at high rates, that are extremely durable and resistant to market -- extrinsic factors, we can't control, things like pandemics, things like higher interest rates, things like commodity price moves, sort of what we call super durable growth companies. And we assemble a portfolio would become an important influential shareholder of these companies and we help guide them to the extent they need our help in becoming even more successful company overtime.

What that means is, we are not constantly shifting the portfolio based on what we think other people are going to do based on short-term events in the marketplace. And that means -- and the result of that is, while most of the companies we own come from the S&P 500, our portfolio composition is very different from the S&P 500.

And that difference is really what has enabled us over an extended period of time, approaching our 19th year to earn well above market returns over the period. But it also means that, there are going to be times where our variant portfolio is going to underperform the market.

And since the end of the quarter energy stocks have done well, and historically we have owned no energy stocks. Again, we don't like businesses, which have exposure to commodity prices that we can't control.

But if we were a trading firm and we anticipated the move in, let's say, commodity prices, we would've sold out of our existing assets and bought energy stocks. So if we thought banks would perform better because of interest rates going up, we'd buy banks.

In fact, there's been very little drama in the portfolio. We own pretty much the same business as we own at the start of the year, the most significant drama, if you will, was a relatively short-term investment in a company called Netflix, which we talked about in our letter.

Unusually, I would say it's about the fastest turnaround and a business we have purchased in a business we have sold about 3 months and that was a real loss. So we did lose approximately 400 basis points of capital, and that is a permanent loss and we do our best to avoid permanent losses, although, occasionally, they do take place.

We actually view the decline in the market value of the rest of the portfolio as not at all a permanent loss, but more a function of kind of short-term or even again, depending on how long this goes on, longer-term market dynamics. But in each case, our businesses in our view are increasing in value and have increased in value over the last three months despite moving rates because of continued progress in their underlying businesses.

So the market's willingness to pay a premium multiple for some of these businesses has declined, but everything we owned at the beginning of the year, we chose to own because we believed at the price the stocks were trading, we thought they would be attractive investments for us over the very long-term. I think also sort of, so what's going on from a general market perspective, what's causing the decline.

I think, most people would point to 3 fairly obvious factors. Perhaps number one in the list is, uncertainty about Federal Reserve policy and the impact of that policy on markets generally.

And our view here, which has been our view for some time is that; One, we would have very significant inflation that the Federal Reserve would have to be very aggressive in raising, the Fed funds rate to counter that inflation and the impact would be a negative impact on markets. And so, part of our job we view is finding the great businesses that will withstand the test of time, compound their intrinsic values overtime.

And part of our strategy is to find what we call asymmetric ways to hedge unexpected market events, things like pandemics, things like financial crisis. And most recently an unanticipated rise in inflation and interest rates.

And we began that effort in late 2020, early 2021 with a large notional, if you will purchase of a bet against or a bet that short-term rates would rise. We monetized a chunk of that investment for about $1.4 billion took a chunk of those proceeds and purchased Netflix and then rebuilt most, I would say majority of that investment as quickly as we could, and extended the maturity of that because our view was, again, the Federal Reserve, despite steps toward raising interest rates and a change in tone that there was a lot more to come.

When you look at our performance year-to-date, down 18 to 22 about 800 to 1000 basis points – it would be 800 to 100 basis points worse if you will, if we did not have that hedge if you will in place. So we’ve actually seen quite dramatic average decline in our portfolio offset somewhat by this hedge interest rates which we have in place today.

We are still strongly with you that Federal Reserve policy is going to have to get a lot more aggressive. We are seeing -- witnessing reading the newspaper and often, a seat on the Board of Directors are closest to understanding of the businesses that we own and following other companies in a market that there is a inflation configuration, if you will, there is a fire raging and unfortunately we think the Federal Reserve has not been aggressive enough in putting out that fire.

In fact, we are right now despite, one way to think about it is, the entire neighborhood is on fire. Flames everywhere and instead of the power department coming out and putting up the flames they are still actually if you will spreading gasoline around and that’s when you have a Fed funds rate that’s under 100 basis points that is a very aggressive monetary policy in terms of subsidizing the economy, and the Federal Reserve is not talking about getting to a neutral rate until something like the end of this calendar year.

So we have, despite the fire, we still have gasoline being poured into fire over the next six months. And that is something that we are surprised by.

And we think, ultimately, the Federal Reserve is going to have to take a much more aggressive posture, otherwise, we're going to find ourselves in a -- something worse, if a holocaust type flyer, and these conditions are really disruptive to businesses, and you're starting to see that effect, when companies like Walmart, who we think of one of the great businesses in terms of managing its cost and supply chain, dramatically, missing a quarter because of inflation, That's affecting their ability to control their costs. So, interestingly, the Federal Reserve and trying to perhaps not impact markets and give a lot of visibility on their plans has now I think the biggest risk, in fact in my view would be Fed Reserve actually got aggressive at eliminating inflation in stocks would stabilize and in fact, they might start to rise, but what's hurting us is a lot of uncertainty about are we going to find ourselves in a -- 1970s, very early 80s environment where we're going to need a type response.

And that is obviously something that market participants worry about. So that's my soapbox on interest rates.

We'll talk a little bit more about that, when we talk about our hedge positions. But when we start, we're going to go largest, the smallest or biggest investment is Universal Music Group.

And as we talk about each of these names, think about the business in the context of the environment, and you'll have a good understanding how we think about the company's durability. The only significant announcement we have, from the firm's perspective on Universal Music is I'm delighted to announce that I was added to the Board of Directors of UMG, have not yet attended my first board meeting.

And I'm looking forward to being a member of this board. And with that, I'll turn it over to Ryan, just to give an update.

Sure. So Universal continues to show very strong results.

In this last quarter, the company increased revenue by 17% and that was against the similar increase of that magnitude in the prior year's quarter. So really, very strong growth over the last two years.

And I think that really just reflects the tremendous execution of the management team, as well as a really strong industry tailwind in terms of the growth of streaming. And we think that growth streaming has a long way to play out really over the next decade.

Aside from the strong growth profile of the business, one of the things that we like about Universal and that we're really, we believe going to see and this environment is how much of a beneficiary the business model is, from inflation and how well protected it is from inflation, downsides as well. So just to kind of frame this overall.

One of the things that is unique about music streaming is our view is it is the lowest cost, high value form of entertainment that you can find. And so as a result, kind of the hourly cost for streaming is very cheap and the overall monthly subscription that you pay to whether to Spotify, Apple Music or Amazon is very low relative to other streaming services, and just a lot of other forms of entertainment overall.

And given that inflation in the broader economy is running in the high single digit rates, these companies have not taken pricing. And we think it's very likely in the future that they may decide to take some pricing.

And because Universal is effectively a royalty over the overall streaming revenues, any pricing that the music providers would take would flow directly as Universal’s revenues and to the artists -- to the artists as well. And to that point, one of the things that we like about the business model structure is that, its largest cost, by far and away are the royalties that it does pay out to the artists.

And that is really just a percentage of the revenues of a formula, if you will. And so when Universal does better, its artists do better.

But at the same time, that's its largest cost. And so when you think about typical businesses, that have these inflationary cost pressures that they're trying to pass along to their customers, Universal’s business is very different.

It's a direct beneficiary of the prices and the growth in streaming, it shares those with the artists. And then the rest of its costs, which may be subject to that inflation are a relatively small part of the business.

And so we think that overall business benefits from inflation on the top-line, and its margins are likely to expand, because it's not dealing with the same inflationary pressures on the bottom-line. So we think the company despite having a negative share price performance in line with the broader markets, year-to-date is doing tremendously well, is growing very quickly and we think we'll likely see, perhaps even better growth in the future if the service providers, the Spotify of the world do take price.

One obvious question, particularly in light of our Netflix experience, Netflix is a streaming company, Netflix is experiencing competitively, negative competitive dynamics people, perhaps turning off Netflix versus other streaming services. Once you just cover that dynamic here, I think it's useful?

Absolutely. So we think that the streaming model is whether it's video or its music that has a long runway for growth.

So both of those companies share that characteristic, and we expect the streaming markets will be significantly greater in the future for both. One of the key differences that I think really highlights why Universal, the much more predictable kind of certain growth businesses competitive position.

So in streaming, one of the main differences is all the streaming players make their own content, which is expensive, and they put it out there on the network. And as a result, if you want to be a streaming customer in the video space, you're very likely going to have not just one, but several different providers.

It's very different than music space, every one of the companies, Spotify, Apple music, Amazon, they all have the same music and those music -- that music only comes from three players and Universal is the largest. And so that creates a fundamentally different competitive profile.

It's very unlikely that consumers will shop around for several services. Even if they did because Universal’s music is on all three of those services and their largest Universal really is indifferent to which service the subscriber listens to.

And that is a much more competitively advantaged business model than Netflix. And at the same time, it is much more capital light business model, and therefore smaller changes in your view about how the market will evolve over time, or the competitive share shifts have much less of an impact on the bottom-line.

So we think that this really does highlight why Universal is also a great streaming growth concept. But has it just a very enviable competitive position and the overall favorable industry dynamics.

When you think about the hierarchy of sort of utilities that people turn off, right, I think they'll turn off -- someone might turn off their rent and move back in with mom and dad, but they're less likely to turn off their music subscription. And I think that makes this one of the great durable growth businesses.

It's also effectively nominally levered company today, particularly when you monetize some of their non-core where they're on balance sheet assets. So basically, an unlevered company growing in the high-teens revenues and high-teens run by a superb management team just becoming public and some of those spin off dynamics I think, over time will play here.

Just in terms of size, this is a low-20s to mid-20s size investment on the absolute high end of our kind of range of typical position sizes, but the business quality, its growth characteristics and the price we paid made this position we wanted to make quite large. Next largest is Lowe's, kind of mid to high-teens depending upon the fund, and Charles obvious place to start a lot of drama in retail earnings announcements Lowe's seem to be above the freight, why and bring us up to date.

Sure. So as it's kind of well documented at this point, the home improvement sectors experienced very robust demand since the start of COVID-19.

The American consumers have really focused on the expanded role and the importance of the home in their everyday lives, and focusing on the macro, I think that's obviously the question with Lowe's and kind of retail broadly. So what we're seeing right now is despite kind of a rapid rise in mortgage rates, which is very clearly weighing on Lowe's and Home Depot and other home builders, the narrative at least coming out of the sector and Lowe's and Home Depot specifically is they see a very supportive medium-term economic outlook actually, which is really informed by consumers, enhanced focus and appreciation on the importance of the home -- higher home asset utilizations, the more time you spend in your home, the more likely things are to break basically, continued strong home equity values, so despite rising mortgage rates, home equity values are still very, very robust and in fact continue to rise.

And aging housing stock, so homes are basically as old as they have ever been in the United States. And you have this kind of decay curve where homes get over kind of 35 years old.

They begin to become much more capital intensive to repair the home and still very strong consumer balance sheets. And then lastly, I'd say, there is a general lack of new housing inventory.

And on that last point, it's actually fairly well documented that, the U.S. has structurally underinvested in housing for the past decade, and we think there's good evidence that the current home improvement demand environment may simply be a reversion to something which more closely resembles a long-term historical average.

So, if a kind of comparing contrasting Lowe's to broader retail, this is a category I think, which perhaps was underinvested for a long period of time, is seeing what I might characterize as a catch-up towards a long-term historical average, and still by all accounts as an extremely supportive macroeconomic backdrop. And look, that could always change, but there is really no indication of present that there is any kind of slowing for this category.

You are seeing some mix shift underneath kind of headline numbers, which we will talk about a little bit more in a second. So, focusing on their quarter, coming back to the results, they reported negative same-store sales growth for 4% this quarter, which saw 20% growth in their pro customers, which was more than offset by declining transactions with do-it-yourself customers.

And that was really because you are growing over these really high comps in 2020 and 2021, during the height of the pandemic, customers were staying at home and engaging in small projects around the house and now you are seeing a shift from these small projects to larger renovations and remodel activity, which requires professional installation. In this quarter specifically too, I'd note, so March they laughed over as many retailers did, very substantial stimulus payments from the prior year period, which impacted March results.

But April was one of the coldest and wettest starts to spring in the last 20, 25 years. And there is some seasonality to this business where depending on the precise arrival of spring for them is kind of their main category, unlike other retailers, which are more heavily weighted towards kind of the holiday season at the end of the year, for them, it's really that spring selling season.

And so, you saw some shift from Q1 into Q2 this year, which kind of pressured Q1 results, but management believes they'll entirely recover those loss sales if you will in Q2. And then now just focusing for the strength of the business model, notwithstanding kind of the headline sales decline, they very definitely manage through inflationary pressures at the gross margin line and drove significant operating leverage of the SG&A which benefited from improving labor productivity.

So unlike perhaps some other retailers to what you're seeing is despite kind of high single digit inflation that consumers basically accepting inflation entirely, and they're basically passing that through. So their gross margins are actually rose substantially this quarter, which is somewhat anomalous to other retailers and taken together, operating profit grew 2% and EPS grew 9%, this quarter, which was aided by 8% reduction in their share count, they bought back $4 billion of stock this quarter.

And is just to remind everyone, there's actually targeting $12 billion of share buybacks this year, which is 10% of the current market cap, which is pretty incredible.

That's what the balance sheet with what kind of leverage --

So, they basically target kind of 2.75 times net debt to adjusted EBITDAR which capitalize is the rent expense. They're slightly below their historical range, and they're kind of they increased their leverage earlier this year to get back to something that more resembles their long-term targets, but I'd say they're very well capitalized, they have a very defensive balance sheet, they also own the vast majority of their real estate.

So, I'd say it's a, strong investment grade credit. And they have basically best-in-class capital return in the form of the buyback program.

So focusing on the demand environment and our view on the outlook here, we think they're likely to see roughly flat sales this year, as the market kind of consolidates. And you see some of these mix shift dynamics that we previously discussed.

And that coupled with margin expansion and share buybacks, we think that another year of accelerated double-digit earnings growth, and so we believe that over the next 12 months are likely to generate roughly $14 in earnings per share. And they're essentially, they are trading at 13 times our view of next 12 months earnings, which is the Lowe's multiple that Lowe's has traded at in the last decade.

And so the stock is down meaningfully this year 29% to be precise, but that's entirely due to multiple compression of roughly 35% and earnings have actually increased or expectations increase since the start of the year. And so we think it's very cheap in the near-term and longer term, we see continued line of sight for them to grow earnings, off the current pace at a double-digit rate as they close the revenue productivity gap and the percentage margin gap with Home Depot.

One thing you mentioned actually, in our investment team meeting earlier last week was just the nature of the demographic of the customer, right, essentially Lowe's customers are homeowners, and they generally have fixed rate mortgages. And so they're very advantaged versus the typical Walmart customer, for example, may not own their home and has to face rising rents, as well.

Yeah, so the Lowe's, as Bill noted, it's a homeowner by and large, who's taking on small projects around the home, they're repairing things or engaging in remodel activity. So it does SKU to a slightly wealthier customer relative to kind of the median in the United States.

You don't really have renters who are doing major renovation projects, obviously. And then to Bill's point on the fix mortgages, both Lowe's and Home Depot got a question about this on their call is the concern is okay, mortgage rates are rising rapidly, and is that going to suddenly pressure now stand and you'll see two things there.

One, both Depot and Lowe's would note that roughly two thirds of the spend in the store closures, 75% is repairing remodel activity. So basically, just fixing things that are broken or taking on remodel projects.

And so they're not quite as sensitive towards like the specific turnover and housing or how many homes start in a given year. They don't actually have that much product going into new builds, which is somewhat irrelevant.

And then there's a dynamic to where if mortgage rates rise rapidly and you have a fixed rate mortgage, you're unlikely perhaps to buy a new home, because you'd be resetting your mortgage at a much higher rate. And so in that scenario, you'd be inclined to stay in your current property and perhaps engage in a remodel activity.

So it kind of remains to be seen, but I think there's a strong counter narrative here that rising mortgage rates may actually benefit this industry over the medium-term.

That we've got to Anthony to talk about Chipotle, and maybe start with how much the stock price is down the badge of honor?

Thanks, Bill. Yes, Chipotle stock, last I checked this morning was down about 27.5% year-to-date, which is right in line with the NASDAQ.

That's I attribute that primarily to kind of the impact of the rising interest rate environment on high multiple stocks at the beginning of the year, Chipotle was trading in the high-40s as multiple foreign earnings today, it's in the low 30s. So that's kind of most of the decline, there was a miss kind of consensus on margins for Q1, which I'll talk about in a bit.

But it's really kind of a rising interest rate story in terms of the stock price declined, because the performance of the business is just excellent. So in the first quarter, same-store, sales grew 9% year-over-year, that implies 32% growth on a three year cumulative basis.

And what that means is basically, since the pandemic began, the average sales per Chipotle store are one-third higher, which is just incredible performance on both an absolute basis and relative to their competitors. The second quarter, which we're currently and is also off to a great start, management is forecasting, same-store sales for the quarter of 10% to 12%, which implies a sequentially consistent three-year stack, and of in the low-30s.

There's three key drivers of the current momentum. First, you have an ongoing recovery of in restaurant sales, as consumers kind of resume their normal routines.

In restaurant sales were up 33% in Q1. And despite that, digital sales only declined by 1%.

And what that shows you is the digital sales gains that Chipotle was able to layer on during the pandemic, a lot of that has proven sticky perhaps new occasions like dinner, and other things. The mix of the business is now 42% digital, 58% in store, up from a 2018 mix pre-pandemic.

The second driver is price increases to cover inflation. So those increases are seeing very little resistance, the Q1 comp of 9% was comprised a 10% price, 5% transaction growth, and a negative 6% impact from mix.

And that mix impact is really driven by the shift of the business back to a little bit more in store a little less digital and at the height of the pandemic. Digital orders tend to more often be group orders versus individual orders that you see in store.

And additional orders also carry higher rates of side attachment like . The third major driver here is a continued cadence of menu innovation.

So the current limited time offering Pollo Asado has been the most popular protein offering to date that's been launched by the company. And the pipeline is just really exciting and robust testing items like garlic gorgeous steak, and then several different dessert offerings.

There they're on track to open between 235 and 250 new restaurants this year, which implies 8% net unit growth, and the 8% unit growth 9%, same-store sales, this is one of the highest unit growth and same-store sales growth stories and the restaurant sector. So, you're talking about a company that's growing revenue in the high-teens, which is incredible.

The current challenge is really inflation as it is for a lot of our other businesses. And we believe that Chipotle is one of the most well positioned companies in the restaurant industry for an inflationary world.

It is a premium offering that's marketed based on food quality and freshness, they don't really advertise price. It's fully aligned and on trend, with how consumers want to eat.

So real ingredients, robust flavors, it's customizable, it's planet positive. Zeroing in a little bit on how cost increases are impacting the business, in the first quarter, restaurant margins were 20.7%, which was down 160 basis points from the prior year.

This did not have the benefit of the price increase that they took to cover the commodity inflation that really drove a lot of that margin decline. So, not surprisingly, with the Ukraine war and other kind of causes of commodity inflation in the first quarter Chipotle's cost of sales inflation was 12% to 13% and they didn't take a cost price increase to cover that inflation until the end of the quarter, when they raised menu prices by about 4%.

So you have kind of a lag, which you see in the guidance that management has issued for Q2, when they are expecting a 25% margin, so up over 400 basis points from Q1, some of that is seasonality. But the majority of it is kind of the impact of flowing through that price increase.

Management also reiterated longer-term that a 27% margin, on a full year, once average restaurant sales reached, the 3 million level is still in play and those average restaurant sales set it just under 2.7 million today. The company's labor situation is actually excellent.

So, other companies in the space are experiencing labor challenges. Chipotle was experiencing some of that kind of last year.

They did a big wage investment in June. And since then, I've kind of gotten to staffing levels that are actually above pre-pandemic levels, which is really incredible, and the current underlying wage inflation that they're seeing is only in the mid-single-digit range, which is quite manageable.

The employees, why do they love working in Chipotle? The wage increases have helped obviously, but what's actually resonated most with employees is the career growth opportunities that are available at the company.

So when you have a store, that's grow of a company, excuse me, that's growing units by 8% per year, promotion opportunities are available broadly and rapidly if you are a top performer and that has really resonated with their people.

Thank you. So just based on your sort of opening comments, just want to describe how we value businesses generally by building a model of the future cash flows we expect the business to generate overtime and we discount those cash flows back into the present.

The discount rate that we use, the discount cash flows is not particularly what I would call it, market sensitive. We generally used, we call it a 10% or so discount rate to discount cash flows, regardless of the interest rate environment.

And we do that because; One, projections are inherently imprecise, so we building a margin of safety, not just in the numbers that we put together for the business, but also in the interest rate, if you will, that we discount the cash flows back. But that means that when rates rise, we are not, the embedded in our assumptions are the fact that, interest rates aren't going to stay low forever.

And so, while the stock market appears to have reassigned a much lower multiple to Chipotle at the multiple at which it was trading at the beginning of the year, based on our model, we still expected to earn very attractive return, high teens, 20s type returns owning this business over time. Obviously, the stock comes down 30%, our IRRs of higher.

And nothing we have seen about the operating performance of the business suggests in any way that, I would say our projections are off about the company. And so, they are doing great and a tremendous credit to the management team.

Ryan, please update us on Hilton.

Sure. So, Hilton continues a really impressive and dramatic recovery, given this business was kind of at the eye of the storm of COVID.

They've really taken the RevPAR which is the industry metric for same-store sales. It's less than 5% below where it was right before the pandemic.

And our expectation is that they will exceed before the end of the year and they'll be higher than where they were in terms of RevPAR right before the start of the pandemic. And that's based upon just the industry data we follow some of the commentary what management is seeing in the business.

And then more broadly, when we look at other travel companies that we pay attention to. A lot of them are predicting that this summer will be the best summer ever for travel.

So we think that not only will Hilton get back to its pre-COVID levels very rapidly, but we actually expect a lot of growth from those levels in the future. So the business has recovered.

And in terms of the business model, I think we've talked a lot about the appreciation we have for its capital like nature and the high growth that it's able to achieve having other people build out units with the brand name that Hilton provides. But I think in an inflationary environment, the business model is all the more powerful.

I mean, when you look at the structure of the hotel business overall, you really can't think of a business that is more kind of inflation protected in the sense that they reprice their product literally every day. So Hilton are the beneficiary of that overall industry structure, but at the same time, but being a franchise business model, when its underlying franchisees take up price, Hilton is getting that benefit on the top line.

But at the same time, it's a capitalized business that does not have the overhead and the high degree of labor costs that the franchisees do. And as a result, its bottom line is able to benefit.

And when you think about what Hilton went through in the pandemic, they significantly reduced their cost structure to allow them to stay cash flow positive for the majority of quarters during the pandemic. And now they found a way to operate more efficiently.

So even their cost structure while there will be some inflation, it's still going to be lower cost than it was before the pandemic. So our expectation is that an inflationary environment, Hilton will be the beneficiary of higher pricing.

At the same time, it should be able to keep its costs below where they were pre-pandemic. So we're very excited about the earnings growth that that should generate.

And then lastly, in terms of long-term characteristics, when we talked a lot about in past calls, how we liked the fact that other people are putting up the capital to benefit Hilton's future growth, which generally units, they have grown at a 6% to 7% rate over time, due to some supply chain issues that couldn't be a little bit lower, they're targeting maybe a 5% rates in the next couple of years. But the benefit of that, again, is the returns for the franchisee who puts down the capital to build these hotels is still very strong.

And Hilton is not being hit when commodity prices go up in order to build those hotels. So we really think it just benefits the business significantly to have this a franchise business model.

Now that is not allowed the company to, well the earnings growth is very strong. Certainly the stock market has declined the result Hilton has declined with it.

It's done about a mid teens percent on the year just slightly outpacing beating the stock market. But the great thing is the company is now buying back shares.

So based upon their expectation outlined in the recent conference call, we think they'll probably buy about 4% to 5% of the company back this year, based upon the current market cap, and our expectation is that as the business trends improve, they'll get back to the historical levels where they've been buying back, anywhere between 5% and 9% of the company over recent years before COVID. So we remain really excited about the earnings growth and we think that the business model will show even better as inflation if it doesn't need to continue at the current levels.

Sure. Just to add to what Ryan saying, not only did Hilton, the parent company figure out how to operate more effectively during COVID but hotels have done the same and a lot of the use of technology no longer having to wait online to go find your room kind of the digital key and check in and even help people think about how often they want the rooms cleaned.

All of these sort of benefits are enabling hotels actually to improve their margins. So a franchise system only works that both the franchisor and the franchisee are doing well.

And that is the case here. You want to add anything about the future of business travel.

And the impact on the company how we think about that?

Sure. So I think at the beginning of the pandemic, that was one of the big questions that people struggled with was in a world in which you can just zoom was there ever really any need to take a lot of those incremental trips, and our view has always been that those trips were very valuable.

And that zoom could allow you to be more efficient. But that you wouldn't just decide to stay at home and zoom with clients or zoom with other colleagues.

But rather, you'd use that as something to supplement existing travel that you wanted to do. And we're actually starting to see that comeback.

Hiltons, actually, its leisure traveler, is actually already back at very strong levels prior to the pandemic, what we haven't seen yet is a full recovery for the business traveler. But when you look at the results of the airlines are reporting and their expectations for summer travel, they think it's very likely that the business travelers coming back.

And our own experience suggests that that's also the case, which is, you really want to increase your high value travel, and you want to save the zoom meetings. And so we think that the productivity from zoom is a great thing and will actually just allow for more high value travel going forward.

And we think that Hilton will be a real key beneficiary of that, but that's still kind of like a loaded spring, if you will, that's kind of waiting to be released. And we think that's kind of starting to happen right now and will be even stronger in the coming months.

Let's go to Restaurant Brands, Feroz.

Sure. Thanks, Bill.

So Restaurant Brands reported another quarter of improving performance in its key home markets, while its international markets continue to have strong streak of performance. So Tim Hortons in Canada is now only about 500 basis points below pre-COVID levels, and management providing guidance that leads you to believe that it should recovered by the end of the year, or at worst by early next year.

The company actually held an investor day focused on at Tim Hortons Canada business, where leaders from across the business showcased and shared some updates from their back to basics plan. And so on top of that, not only has Tim maintained or gained share and hot beverages, breakfast foods and baked goods, the company thinks they have an meaningful opportunity to expand their share and new product lines, specifically in cold beverages and afternoon foods.

The company highlighted several growth initiatives and believe that over the long-term, they can grow same-store sales by 2% to 3%. At Burger King in the U.S., Tom Curtis, the new leader and his team continue to lay the foundation to return the brand to long-term sustainable growth.

So during the quarter, the company actually closed the gap relative to its peers by revamping its menu and actually also launching a simplified late night specific menu, which actually allows franchisees to stay open longer and actually minimize complexity. We believe the company has a meaningful opportunity to also modernize their store base, which a lot of their competitors have done.

And so we look forward to hearing their plans on that later this year. Elsewhere, Burger King International, Popeyes and Firehouse brands, their newest acquisition continue to perform very well with double-digit comparable sales when you compare them to pre-COVID levels.

And then when you look long-term, management's recent investments are also showing results. So on digital sales and each of their brands are now at their highest levels for each of the brands led by over 36% at Tim Hortons.

And the company actually highlighted some interesting stats at their Investor Day, where they said that digital guests spend four times more and visit a Tim Hortons location five times as much as a non-digital guests. So that gives you a sense of the opportunity the company has by converting its guests to digital.

In terms of unit growth, the company is also seeing broad based growth in its international businesses. And they're also very excited about growing some of their smaller brands.

Both Popeyes and Firehouse both in the home markets as well as globally. And then obviously with the rest of our holdings, the impact of inflation is impacting both restaurant brands, as well as franchisees, as they are seeing rising wages, as well as input costs.

So with the help of the franchisor, the franchises are taking pricing actions, they are reworking promotions, reducing item counts and all with that, just very little modest impact on demand so far. And we think with the diversified nature of restaurant brands' portfolio and the many levers they have in place, the company, and these franchises are actually fairly well placed to combat inflation.

Also, you should note that the company's franchise-based royalty business model means that, it's able to actually benefit when it's franchisees take price, but that it's cross structure is obviously not subject to the same inflationary pressures. So, the business model is unique attributes are actually particularly attractive in inflationary environment like this.

With all that being said, restaurant brands now trades that 16x next year's free cash flow per share, and that's amongst the cheapest the shares have ever been since the onset of COVID. Thankfully the company is repurposing and retiring shares at what we think is a pretty compelling valuation.

Thanks, Feroz. And, you are hearing a bit of a theme here.

We like businesses that have royalty, like characteristic Universal top of the list. What's interesting here is the artist is really the franchisee in a way, with the artist is creating the content in which we receive a royalty, Hilton, a royalty on people staying in Hilton, branded hotels, restaurant brands, a royalty on people, eating in our various concepts that are franchised, by restaurant brands.

And what's interesting is we have always owned these businesses because we like their inflation protected nature, but we haven't lived in an inflationary sort of period of time, so we shall see. But we do think these businesses are very powerful economic characteristics and all these stocks are cheap.

I'm meant to give kind of relative sizes of all of our investments on the way down again. The low end of the range are our private funds.

The higher end of the range are public entity because it uses leverage, but called 11.5% to 13.5% for Chipotle, Hilton is between 9% and 13% restaurant brands between 9% and 12% and now our Howard Hughes position size about 9.5% to 11.2% and Ben wanted to update us on that business.

Sure. Howard Hughes actually also just had invested in April where they showcased their 2021 results, which was the strongest year in its history, across all segments of the business and its master plan community segment Howard Hughes produced record land sales in 2021, while recording high single-digit price increases in its communities.

And its operating asset business, its net operating income reached all-time highs in 2021 with roadmap to stabilize the existing portfolio with over $350 million of recurring NOI. And in -- Village, Hawaii Howard Hughes continued its unprecedented sales base generating almost $900 million of sales proceeds.

And you put that all together, management provided an update on its internal NAV analysis, increasing its some of the parts NAV to $170 per share versus today's price in the mid-80's. That strong progress continued in Q1 this year where it saw MPCs grow sequential, new home sales, but a decline in year-over-year levels, given it was lapping a very strong Q1 in 2021.

And it's operating assets they are multi-family and retail assets so significant NOI increases, but was partially offset by modest decline in its office NOI. And despite increasing mortgage rates and inflationary pressures, Howard Hughes reiterated its guidance for full year MPC EBIT and NOI targets.

Howard Hughes also completed the sale of one of its last noncore assets and office tower in Chicago, yielding net proceeds of $169 million on an initial investment of $13 million. Since announcing its transformation plan, Howard Hughes has now raised total proceeds of $570 million from its noncore asset sales.

That extra cash along with cash from operations enabled Howard Hughes to buy back $280 million worth of stock year-to-date, or 5% of its outstanding share account. But we'd also comment on the current environment as potential future impact on Howard Hughes.

And it's important to note that it's MPCs are located in Houston, Las Vegas, Phoenix, Maryland, and Hawaii all in growing and supply constrained markets that have seen continued in migration. Given that these residents are migrating to these communities for mostly higher cost dates, rising mortgage rates and home prices has less of an impact on demand in these communities.

So, I would say, we see no impact on demand?

Yeah, they've done incredibly well. And they're also differentiated from developers and home builders, since they own a huge land bank.

And they're not dependent on outside equity to fund development. Cash flow generation from its operating assets, MPCs and condo sales will serve to self-fund development opportunities on a case by case basis.

As a result, Howard Hughes has never more than half a building ahead of demand, eliminating the potential to get caught in an economic downturn. That ability to be patient and control supply provides further installation throughout economic cycles.

Lastly, Howard Hughes is limited near-term debt maturities with a substantial portion of its debt, maturing in 2026, or later. And with 82% of that fixed or fixed, there are swaps at fixed rates, and $688 million of cash on hand at the end of Q1, its balance sheet is really well positioned.

To put all these factors together, we believe Howard Hughes is constructed to withstand potential downturn and continue to thrive over the long-term.

I mean, if people get rich in real estate, in inflationary periods. And the reason for that is they generally borrow money on a fixed rate basis, they on hard assets.

If you own hard assets, in markets where there's increasing demand, because people are moving to Texas or they're moving to Las Vegas, or they're moving to Hawaii, it's really good business. Now.

This is a perennial, cheap stock. And despite management having a fantastic year, last year.

And what you've seen least in the first quarter of this year, I would say other than Lowe's this, how much, what percentage for companies Lowe's buyback in Q1?

Again 8% share could reduction.

8% in Q1 versus the end of the year or versus year-on-year?

Year-over-year.

Okay. But versus the end of the year.

So in three months, Howard Hughes bought back 5% the company. Right.

So this is, this wins at the most aggressive share repurchase program, at least in the Pershing Square portfolio.

And they still have 124 million left. You can see the buyback.

So I think when you think about this company, I think their business plan at this point, our business plan at this point, as chair of the company is to grow the value of the company, generate a ton of cash, and to cancel the outstanding shares. And our goal is to be to own that last golden share, and we'll see, what it's worth.

With that came Pacific, Manning who has been on a call but not really present in a call. This is their first opportunity to do so.

But Manning actually wins the title for doing first work position she worked on as our best performer for the year. So she deserves a lot of credit for that.

Again we're not trying to generate results over three months. But tell us about Canadian Pacific.

What's going on in the business? What's the status of the Kansas City Southern acquisition?

Sure. Thanks, Bill.

So we recently introduced Canadian Pacific in our latest annual letter. But for the benefit of everyone, I'll give a quick summary of our thesis and wildlife business before touching on recent results.

So beginning in late 2021, we reinitiated an investment and CP, those of you who have been longtime PSH investors may remember, we first invested in CP back in 2011, and recruited industry veteran Hunter Harrison to lead a turnaround of the Company. Uunder Hunter and his successor, Keith Creel's exceptional leadership, CP became the best performing railroad in North America.

More than doubling its operating margins over the last decade, and growing organic revenue and an average rate of 6% over the last five years. Since exiting our original investment in 2016, we've actually continued to closely follow the company.

And we're excited to reestablish a position late last year during a pivotal time in CP assisted. The first stepping back a little bit, we've always liked CP and we believe it's an attractive business, because it operates in a oligopolistic industry, where the barriers to entry are very high due to considerable capital requirements, regulation and network effects.

CP provides a mission critical freight transportation service that is often the cheapest or only viable method of transporting heavy freight over long distances, which gives the company significant pricing power. We also believe that several secular trends will lead to accelerated freight volume growth in the future, including the share shift from trucking to rails, as well as the increased probability of significant investment in North American onshoring and energy production due to the current geopolitical environment and the resulting unwind of globalization.

In addition to these attractive industry dynamics, what makes us even more excited about CP is its transformational acquisition of Kansas City Southern, which closed in December of last year. This combination actually creates the only transcontinental railroad with a direct connection from Canada through the U.S., all the way to Mexico, connecting six of the seven largest metro regions in North America and one direct route.

This will obviously provide unparalleled service to shippers and also lead to significant revenue and cost synergies. Given the CP management teams track record of best-in-class execution, we also believe that they will make significant operational improvements at KCS.

So as a technical matter CP currently owns KCS through a voting trust, which entitles CP to full economic ownership, but does not permit full operational consolidation until the merger received regulatory approval which management expects to happen in early 2023. So despite our belief, in CP's high quality business model, and our belief that CP's already industry leading growth class growth profile will be greatly enhanced by the revenue and cost synergies from the KCS acquisition.

CP's shares have recently traded at a discounted valuation to both historical and pure levels. Some short-term investors are likely standing on the sidelines, waiting for the KCS transaction to receive regulatory approval before investing.

But this actually created an attractive entry points were our investment, which we took advantage of given our long-term investment horizon. So moving on to recent results, Q1 was very challenging for CP was revenue down 6% year-over-year, due to a perfect storm of extremely cold weather in Canada, Omicron does staffing shortages and a labor strike at the end of the quarter.

However, we were actually encouraged by many data points in the results that continue to reinforce our thesis. The firstly, pricing remains robust at CP with the company renewing contracts at an average rate of over 6%.

Rails are actually good assets to own during inflationary environments. Because in addition to the strong pricing power, rails are able to pass on increases in fuel and other expenses directly to customers via fuel surcharges and CPI escalators built directly into contracts.

High fuel prices also disproportionately increased the cost of trucking, which is the main competitor to rails. As trucks are 3x less fuel efficient than rails and should help rails gain share.

Secondly, the geopolitical environment has actually created new business opportunities for CP, and should help the railroad return to positive volume growth this year. For example, Canada is the world's largest producer of Potash, which is a key component of fertilizers and produces nearly 40% of the world's supply, while Russia and Belarus combined to produce another 40%.

Both supplies from Russia and Belarus disrupted. Canada is stepping up to fill the supply gap and CP is the Canadian potash industry's most important transportation method.

And lastly, the KCS acquisition remains on-track to receive regulatory approval by early 2023, and management is actually proactively planning for synergies, by running proof-of-concept trains and actively engaging with potential customers. So in summary, we are excited to reintroduce CP as a core position and see line of site to double-digit free cash flow growth and share price appreciation closer to our estimate of fair value, as the company integrates and realizes synergies from the KCS acquisition.

Great. That was great presentation.

Just to update you on position size, it's from 6% in the private funds to 10% for our public entity. In our 13-F this position is reflected, as a smaller position because we still own the stock bulk of our position through a forward contract, which we intend to exercise.

With that, I'm going to turn it over to -- Domino's pizza looked great. One point up 50%, 60% from our purchase price and now we are right back to, made a round trip what's going on.

Round trip is unfortunately and painfully a good way to put it. So Domino's share price is actually now --

We should become a short-term trader.

For this one, we probably should have, but for dominoes is actually down 40% for the year. And the company actually now trades that, just about where we actually began accumulating our position and obviously the business has grown in value since, so we find it quite compelling here, but why is the stock down?

So the decline year to today is driven by; One, both the market wide sell-off in high growth and high multiple stocks like Domino's and issue specifics to dominoes as well, specifically a slowdown in same-store sales due to driver shortages and lapping stimulus payments that we have all been speaking about. And then two, a hit to the company's profit margins due to inflation and rising costs and its commissary business.

The good news Bill is that, Domino's is a very long history of defying skeptics and outperforming following very brief periods of weakness, and we think this time's gonna be no different. So on driver shortages, the company is conducting a full assessment of the driver labor market and looking for ways to change the job, to make it more appealing and flexible to get that labor back.

The company actually saw sequential improvement in its delivery service metrics each month this year, and nearly half of the store base actually have better metrics now than it did at the same point last year. And management feels confident enough in their ability to return to acceptable staffing levels that they are actually going to run their famous boost week campaign this summer, which the company actually hasn't run since Q1 of 2020.

So it's important to note that, Domino's has a supply problem, and it's not a demand problem. The latter of which is much, much more difficult to solve.

Carry-outs, same-store sales are still up 24% prior to pre-COVID levels while delivery sales are only up 6%, which highlights where the issue is, and that's really due to driver shortages. Elsewhere, they are also working on increasing sales and franchisee profits by optimizing their pricing structure.

So the company recently refreshed its core national mix and match offering and took the delivery offer price from 599 to 699. And also added a couple new products to that offer.

This should be a several percentage point, tailwind to same store sales for the rest of the year. And given other fast-food peers have taken substantially even more pricing, we believe there's ample room for Domino's to increase prices across the menu.

The company is also working with third-party call center providers to facilitate outsource phone ordering, and lower the burden on in source app. And lastly now that Omicron is slightly behind us the company is mandating a return to core operating hours for always franchisees.

And so like Restaurant Brands, the vast majority of Domino's profits are from franchisees. And so while it's feeling some impact of inflation isn't in its commissary business, most of its P&L is actually relatively protected, and in fact benefits from inflation as the company's franchisees raise prices.

But at the same time, as a franchisor, you need to ensure profitable growth for your franchisees or the business arrangement doesn't make sense, which is exactly what the company is doing. Franchisee health among Domino's franchises in the U.S.

is still excellent. With average EBITDA per store of $174,000 last year, which is up 22% from pre-COVID levels.

So we think they're much, much better positioned than other systems to handle this cost inflation. On the Madison side, Russell Wiener took over a CEO officially at the beginning of the month.

And we are very optimistic about his abilities to reinvigorate growth, given that he was actually one of the chief architects of the pizza turnaround campaign back in 2008. And it's a big part of the reason the company has been able to average basically 7% same-store sales for the subsequent 12 years.

With all that being said, Domino's now trades that just under 24 times our estimate of forward earnings, which is a significant discount to its historical multiple, and actually pretty compelling given its historical strong track record of execution. In the meantime, the company continues to repurchase shares, consistent with its very long standing policy of returning all the excess cash flow to shareholders.

Great. Thanks so much, Feroz.

Why don't I just briefly cover Fannie Freddie? I think the important thing I think about with Fannie Freddie is that the princely common stockholders of the company, we are the residual claimants.

Well, nothing of note is taking place in the last few months in terms of the prospects of Fannie and Freddie reemerging as true public companies, the residual claimants, the stockholders. These are two of the most profitable businesses in the world.

I mean, combined, they're one of the most profitable businesses in the world. And as a result, they're rebuilding capital very, very rapidly at last end of quarter, we're up to $85 billion, Anthony?

Yes, $83.5 billion combined. So $83.5 billion of capital on a path to get to the minimum capital thresholds that were set, in the, during the Trump administration.

So we patiently think of this as the it's a lottery ticket in the drawer, but it's one that's enormously profitable. And just with the pass few of time will get to a level where they can won't be a lot of controversy on distributing them back to shareholders.

Pershing Square Tontine Holdings, so we are now about 60 or so days away from the two-year clock on Pershing Square Tontine Holdings. And when we look at what we set out to accomplish when we launched Pershing Square Tontine.

We took this entity public in July of 2020 that was as a result of a process we started in April of 2020 to take this business public and our thesis at the time was COVID is going to disrupt the capital markets. The SPAC idea is a good idea.

The structure is fairly horrendous and creates all kinds of negative costs and consequences for their owners. We can design a better mousetrap and we'll have a uniquely attractive entity.

We're going to use it to find a business that meets our very high standards, and will be if you will, the only game in town. By virtue of the scale of the entity if someone wants to go public by merging with an acquisition company.

We worked hard to identify a target. We came on to the Universal Music situation, which was controlled by the Vivendi.

And we spent eight months working on a transaction that had lots of twists and turns principally driven. We started out with the goal of doing a merger of more conventional U.S.

backed transactions, but a series of tax and other legal complexities that the Vivendi caused us to have to restructure the transaction in a less traditional, but we believe, completely permissible fashion. We went down the process to get the transaction approved both by our shareholders, which I'm quite confident we would have gotten nearly 100% vote.

And also, by of course, our principal regulator, the SEC. Unfortunately, the SEC, if you will held us up, they did not like the structure of the transaction not being a conventional merger, they had concerns about the Investment Company Act and other issues, which we felt we had adequately addressed.

But in light of the requirement that we closed the transaction in a relatively short period of time. And the fact that it was basically a certainty we're not going to get through the SEC process during that period of time the board of 2018 elected to abandon the transaction, we'll Pershing Square agree to assume the transaction costs and anonymity, diversification liability to Vivendi.

And we were happy for Pershing Square to acquire a stake in Universal for all the reasons we talked about today. Obviously quite disappointed on behalf of the shareholders of Tontine.

And we wait we structured the assumption of the contract, we did it in a way to put Tontine in a position to do a transaction as promptly as practicable. We've had some hurdles along the way, since that the failure if you will the Universal transaction among them, kind of litigation brought by a group of, I would say opportunistic plaintiffs, which is not great for our ability to do a transaction.

And then really, I would say the demise of the spec industry, sort of generally where the words SPAC became if you will, a dirty word. And the performance of every SPAC that did a transit are nearly every SPAC that did transaction actually, I had furrows do some analysis once you tell us what the results have been.

Sure. Not great to be short.

But if you look at all the SPAC mergers that have closed since the beginning of 2021, over $100 million SPACs, there's about just over 200 and more than 95% of them trade below their SPAC IPO price. And you can count on two hands and ones that actually trade above 10, so created value for shareholders.

And by below it's not just 10%.

The median is destroyed 50% of value.

Right. So the, I would say the typical, in a way as we predicted the nature of a structure with bad incentives and high frictional costs, lead to bad outcomes for investors.

And what we committed to our investors in Tontine was we would only do a great deal. And we continue to want to only do a great deal.

We've seen lots of mediocre transactions. We've seen transactions of good companies at the wrong price.

And we've seen some really interesting situations, but where there isn't a sufficient amount of time to consummate a transaction by the time for our date, and we are still working until we run out of time to see if we can complete a transaction, but what I can assure you is, if we do a transaction, it will be a great one. If we don't do a transaction, where simply going to send people's money back.

We have been received a number of questions from shareholders, do you tend to extend the clock or seek shareholder approval to do so? The answer is, only if we are able to close a high-quality transaction within that timeframe, as evidenced by our signing a transaction sometime over the next 60 days.

So any investment banks are listening, what I would say has happened in a fairly dramatic fashion in the last few months versus when we started, what we didn't anticipate when we launched -- is how strong the capital markets, the equity capital markets would be, and our competition for a back of our size, for Airbnb and all various companies that we sort of engaged with was the traditional IPO market and in a hot IPO market, we were not going to be competitive on price. What I would say right now is, we have the opposite of a hot IPO market.

It's an ideal environment for us to have an entity like this one with the amount of capital it has. But again, we are still looking for a very, very high quality, super durable long-term growth company, and most of those companies have the flexibility to pick their moment, when they want to go public.

And this environment is one where many of those businesses and perhaps most would say, we'd rather wait for sort of a better market environment. So the kind of, if we do a transaction, we make some progress over the next 60 days, it's going to be a company in a special situation where it's important for them to get a transaction done with certainty in a short period of time.

And the one thing I can just to clarify, well, really no other spec give certainty, we can. We can give certainty on going public, and if every other shareholder redeems, you have Pershing Squares, minimum commitment of $1 billion and flexibility to go larger.

And that's still even at $1 billion a pretty decent size IPO, certainly in this environment. So now beyond that, as most of you know, we developed a sort of better mousetrap if you will, for a spec with -- but there were still some negative elements.

One of them which we are experiencing today is the fact that we have a two year clock in which to identify a transaction. And so, we came up with -- and the other problem is we're holding onto people's money and this is certainly the opportunity cost of people's capital has gone up significantly.

So obviously we can't get a deal done. We are going to send people their money back.

And for a number of investors not having that capital invested up until now that money can be put to work on very attractive terms. But our spark entity, which we are pushing forward with gives us, basically we are going to distribute subscription warrants, so called spars to our existing Pershing Square Tontine holding shareholders.

So if we wind up Pershing Square Tontine, we will take that shareholder list and we'll distribute once this entity, gets its registration statement approved, we will distribute spars to those shareholders. They will have a 10 year term.

They'll have flexibility in the strike price. They won't have underwriting costs.

There won't be any shareholder warrants. Each of these are things that make the entity less, even our current entity, less attractive.

We did as you know, our first approach was to get the Spark listed on the New York Stock Exchange. Unfortunately, the SEC was -- we needed an approval of a modification of a new rule for subscription warrants to be listed.

The New York Stock Exchange loved the structure, came up with a rule to satisfy the SEC's concerns. But in the midst of that process, the SEC launched its own revision of the spec rules and several 100-page rule modifications.

And our senses they're in that environment of working on fixing spec rules they didn't want to create a new rule for a new form of acquisition company. Our alternative approach is to go to the OTC markets, where Fannie and Freddie trade to list our subscription warrants.

And we are in the process of revising the registration statement to reflect that much change plus some other improvements. And we're going to expect to refile that prospectus with the SEC, hopefully in the next couple of weeks.

That's really speaks to the equity portion of portfolio. Now, in light of the fact that our interest rate swaps in some become more material, I thought it'd be useful for us to go in a little more depth on a mark-to-market basis.

Now that our equities have declined in value and our best performer of the year are swaps and contracts, they now represent between 8.4% and 11% of the funds. With that I'm going to turn it over to Bharath just to give an update.

Go ahead, Bharath.

So as Bill had previously mentioned, we have a large notional short position on primarily shorter term treasuries in the form of peer swaption. Taking a step back and echoing what everyone on our team has already addressed.

We believe current economic conditions are an unprecedented territory with regards to both inflation and the tightness of the labor market. Starting with inflation, overall CPI is up 8% year-over-year, and on a core basis, excluding the impact of Kubernetes up 6% year-over-year.

Both of those figures are running at four-year highs and are continuing to run rate of mid to high single digit rate on a month over month basis. If you look under the surface for those headline figures.

There are a number of noteworthy trends that suggest to us that inflation will continue to remain elevated. So one, inflation is increasingly being driven by services consumption, which accounts for 70% of the foreign debt.

This is in contrast to what we saw in the middle of last year, when we first started seeing elevated signs of inflation. Back then the most significant contributor was in the goods category and was much more concentrated in items like used car prices, where you could argue they were impacted by you know, idiosyncratic supply chain issues.

Fast forward to today, inflation is much more broad based. And you're seeing it play out across a broad swath of services consumption categories, where price increases tend to be more persistent, less volatile.

And then, secondly, we believe one of the largest components of the CPI shelter inflation, which accounts for 30 index, raw index is significantly understated. The CPI report registered shelter costs increasing 5% year-over-year.

Compare that to most market-based measures of home values and rental prices that are published by Zillow and Redfin, which show a high teens point percent increase year-over-year. Because of these lag nature of how rising housing costs get reflected in official inflation measures.

We believe shelter inflation will continue to be a key contributor to overall inflation in the coming months. And then finally, and perhaps most importantly, we're starting to see the widespread nature of price increases start to take root in the form of consumers like inflation expectations increasing.

So two of the most widely followed studies on future inflation expectations, which was the University of Michigan Consumer Sentiment Survey and the Philadelphia Fed survey of Professional Forecasters. Both of those studies have consumers outlook for the next five years inflation rising to over 3% and that's risen dramatically over the last few months.

All these data points suggest to us that inflation is unlikely to moderate in the near-term, at least not a lot of significant small monetary policy response. And then you turn to the employment picture and we believe we're an extremely tight labor market today.

So our unemployment rate is at 3.6%, which is only 10 basis points over a two year low of around 3.5%. There are twice the number of job openings as are the level one flickers in which the highest ratio has ever been.

Since the data on job openings the source collected. That significant supply demand imbalance in the labor market has effectively translated into mid-single-digit plus wage inflation across almost every single sector of the economy.

So despite this economic backdrop on both inflation and the labor market, the current Fed funds rate is still at 83 basis points today, which is well below what the neutral rate is. And the neutral rate is effectively the theoretical Fed funds rate where monetary policy is neither accommodative or restrictive, in which the Fed currently estimates to be around 2.5%.

Interestingly…

Which could be low.

Exactly. It's a theoretical estimate.

Which is likely low, I would say.

Yes. And what's interesting is when you compare the current economic context of prior tightening cycles, since the end of people and since the 70s, we've, inflation has never been discipled on an absolute and on a core basis.

The unemployment rate has never been this low, and the starting point of the side funds rate and monetary policy has never been accommodated. In his recent commentary, Chairman Powell has fully acknowledged the sense of urgency of doing whatever it takes to control inflation, which he views as getting to the neutral rate as expeditiously as possible.

Beginning quantitative tightening, and then considering going well beyond the neutral rate until inflation moderates in a convincing manner over a several month period. The market has priced in some of that Fed, but some of the Feds forward guidance.

But we don't believe that current forward rates fully reflect the extent of tightening that will be required to moderate inflation over the long-term. And as the market continues to reprice, its expectations.

We believe our slots in position to continually increase in value.

Great, great. explanation, a good summary of economics.

Just briefly, obviously, we sold Netflix during the quarter, and wrote your letter about that we, I think the most important points that emphasize here are, we're not perfect, we make mistakes. And the key in our business, when you make a mistake is to recognize it as early as possible.

We did, I think, save a fair bit of money for Pershing Square by exiting Netflix early. And I think we've summarized in one more depth, actually kind of running out of time in the call.

But the high level here is after our investment, we learned new information that was, I would say inconsistent with the original thesis that led to the band of outcomes for Netflix being much wider than we kind of had originally under underwritten. And that made it something not appropriate for a Pershing Square core investment.

And that led to the sale, which the company well, we hope and expect ultimately that we successful. But we'd like to own things we're going to have very high certainty factor.

And hopefully you've heard today about those businesses. Let me just go to the questions.

And then we're past our normal time, obviously, feel free to hang up. We won't be offended, but we in light of last few months, it's certainly we want to get to the questions.

On Netflix. I'm just going to turn the question a couple questions on Netflix.

I really make reference to the letter that we sent about the company. Chipotle at the $1,800 price range, why are you still hanging on to Chipotle?

Why you sold at clips at $800 in other levels before so. The case with Chipotle we sold piece of the investment over time, not because we didn't have confidence in the business success but rather really for portfolio management reasons, which means it became business stocked so well, became a disproportionate part of the portfolio.

And we sold when it got to be excessively large, which is why we took -- it wasn't so much taking profits as really just reducing the relative size of that investment to others. We didn't sell it $1,800 because the position size at that time we thought was appropriate and at $1,800 a share, let alone at today's price, we have envisioned over a long-term basis earning a high rate of return.

How do you see the inflationary environment impacted profitability of the portfolio? I think we covered that.

Can you explain the investment thesis for CP? I think management did an excellent job with that.

Fannie Freddie on the takings claim, I think we are not going to speculate on, but I would say in my view, I don't know if it's firm view, but it's certainly my view. What happened at Fannie and Freddie, if that's not a taking, then every business in America should be afraid, right?

What happened here was the government after the fact, outside the original contract stepped in and changed the terms of their preferred stock in a matter, which appropriate a 100% of the profits of the business going forward. That to me is a regulatory taking, if they get off on a technical -- the government gets off on a technicality.

It's unfortunate. But we are not betting on that in our investment here.

Again, we think the passenger time ultimately will yield the right outcome. Interestingly, however, when the administrative procedures that case was in front of the Supreme Court, a number of the justices said, why isn't this not a takings claim?

Why is this not a takings claim? And I agree.

So, we will see what happens there. How are you thinking about holding your interest rate hedges?

Because they have appreciated substantially, you could lose significant amounts to the market. I think the Fed may reverse course on interest rates.

So, we do not see a scenario in which the Federal Reserve reverses. I starts lowering rates from where they are now.

We think that the -- I think it's highly, highly, the near certainty probability of the federal reserve is going to raise rates at a pretty aggressive clip over the next, between now and the end of the year. If interest rates are raised less than we expect, we could lose some money in the hedge, not a ton.

If they are raised more, which is what we think the most likely outcome is, we can make an attractive return and we still think the investment is sufficiently, the risk of the downside case versus the reward, if you will, of the upside case is sufficiently tilt in our favor that we maintained the investment. And also, we think there is a meaningful chance, the Federal Reserve has gotten it wrong, is not as aggressive as they should be and we find ourselves in a frightening inflation scenario, where they need to raise rates much, much higher than people expect.

And that we think has a pretty negative impact on markets. So, you should think about this in some form, it's an investment.

But in some form it's really a hedge. And so, the benefit of protecting ourselves from that really adverse outcome, plus the inherent investment elements make it a hold here.

Despite the legal problems with Tontine Holdings, given the asset values declined substantially, theoretically of cash of Pershing must be extremely attractive here. The answer is yes, but it has to be a great business at a price that makes sense, and they have to be willing to do a transaction, in this environment.

Are you concerned at all that you may have a very exposed flank in the case of U.S. recession given you would likely take a hit in your swap position; the Fed rose back on rate hos in addition to your heavy consumer exposure or equities?

Again, I think we spent a fair bit of time talking about why, we feel very comfortable with the inherent consumer exposure and our equities and just a couple thoughts on that. The value of a business, the present value of the cash the business generates over its life and over the next 25, 30, 40, 50 years of Chipotle, for example, they are going to be a number probably a recession every 7, 8, 9, 10 years, maybe more often.

But -- and that affects the cash flow for the next year. And that affects the, I guess, the multiple that you're paying for that cash flow one year before.

And that's sort of a simple rule of thumb for people thinking about business. But absent a highly levered company, is at risk of going bankrupt.

If you've got a well-financed business that can endure a period of lesser profitability. A recession, if it were to happen, at the end of this year, sometime next year is not actually going to materially affect the value of the companies that we own.

So it's not we're not trying to trade around, when people think there's going to be a recession. We are very thoughtful about and spent a lot of time thinking about the interest rate hedge.

Our goal here is not to maximize the value of the interest rate hedge, it's to maximize the value portfolio. So if we thought it made sense to sell the hedge, because we found a better place to put that capital probably in an equity, we would do so.

But we think the risk reward really tilts strongly the direction of the fed having to raise rates much more aggressively than the market anticipates. And we think that will be very good for that hedge.

What risk? Do you see if stagflation?

How would it impact your portfolio? I think there's real risk of stagflation.

I think the and maybe the more likely case, where the Federal Reserve has to raise rates aggressively, even as the economy is weakening. And that's the sort of stagflation type environment.

And that's why you want to own great businesses, we still think we've listened to a lot of music. And again, the value that if, it's sort of like people expect the market to trade on the basis of your prediction of next year, and if you get production next year, right, you make money again, next year, wrong, lose money.

Think of about us, as the model we use, like an investment holding company. We're going to own these businesses, as long as if we continue to believe that over their life, presentation those cash flows, is a lot more than where the stocks are trading.

And we haven't found a better place to put the money. And stocks going to go up and down based on people's fears and concerns about inflation, wars, pandemics.

But and we're not going to be the best performing fund in every 3, 6, 9-month, year-to-year, three-year period, but we think you'll do pretty damn well over a longer-term period. And we have the privilege of being able to think that way, which is a huge advantage.

Some comments on short exposure, how's that performed? The only real short exposure is where short fixed income instruments has performed really, really well.

Restaurant portfolios declined substantially. I think the inflation -- I think we really covered that well.

Can you please outline exactly what the impediments of I have to pass on that question, because it's a -- that particular question we can't answer on this call -- for reasons that we can respond to that shareholder directly. So with that, we probably 20 minutes past our normal schedule, but it's certainly a time to make sure we answer all your questions, and we appreciate that your loyalty and persistence as we continue the battle.

Talk to you soon. Thank you.