Pershing Square Holdings, Ltd. (PSH.L) Earnings Call Transcript & Summary

Sure. So I think it's absolutely right. Hilton's earnings, in particular, are going to be impacted in near term, very substantially, by coronavirus because people aren't traveling, whether it's for leisure business. And so we actually think that RevPAR, which is their metric for same-store sales growth could even be down more than 50% this year. So that obviously had an impact. And one of the reasons why we were able to increase our position significantly. Interestingly, even though, certainly, there is a fair amount of near-term pain, we actually think this may inure to Hilton's long-term benefit over time. For one, it shows and highlights the resilience of the company's business model. And then secondly, we think it does present them with an opportunity to take a fair amount of market share over time for independent hotels and some competitors who are -- can be much weaker coming out of this crisis in Hilton. In terms of its resilient business model, even though we think it's possible, revenue may be down by about 50% this year, we expect earnings actually to still be positive, which I think just highlights how flexible this asset-light model cost structure is. And then also management noted on the call, earlier this month, that even in spite of everything that's going on with coronavirus, they still think that they'll be able to grow their room count by about 3% this year. That's about half the level they expected at the beginning of the year, but they think that they have not lost any of that remainder of the 3%. They think they'll get that back next year in addition to the typical pace. So you've got a business that has revenues down 50%, is still going to be profitable in our view and where we believe that there's still a long runway, both in the near term and long term for units to grow. In terms of taking market share over time, though, we think that Hilton was already doing the right things before coronavirus and has really stepped up its game in areas like cleanliness standards, since the crisis occurred. And that will be very important in helping consumers choose to come to Hilton's property. So to give an example of some of the technology they're investing in. Hilton has been investing in digital check-in, keyless room entry and in-room controls. All of these things can be controlled on your smartphone, which gives their guests a lot more control over their own environment, on their own devices. And they recently launched, what they call a CleanStay partnership with Lysol and the Mayo Clinic, and that's going to make sure that the rooms are set up to the best cleanliness standards that are there to give the guests confidence they can come back to Hilton. I think both of these things are going to be a big advantage for the company, relative to some of its smaller competitors and the independent hotels who don't have the scale to be able to do this. And we think it's just going to further improve the value proposition to be a Hilton franchisee. So over time, we do expect that Hilton will recover to the level of where its revenues and RevPAR were before the crisis. And we think, they'll likely even perhaps be at a slightly more accelerated growth. The question is really just how long does it take? Our view is that it's going to likely take several years. But we think, even if it takes longer than that, when we kind of do our math to figure out what Hilton is worth on a discounted cash flow basis, even if the recovery were to take 3 or 5 years, we still think that the company is very undervalued at the current share price and is likely to generate very strong returns from here.

And I think Christopher said, who runs the company, has had the benefit of managing through a crisis. It was a different kind of crisis, but the financial crisis, combined with, at the time, a much, much more leveraged balance sheet because the company have been taken private, I think, just the year before. And so the discipline and experience you've had from that, while this is obviously a different situation. We've been incredibly impressed with how the company has managed through this period. And so again, initially, very dramatic stock price reaction to stock cut in half and has recovered quite meaningfully. But we do believe the COVID crisis, if you will, has reduced the intrinsic value of the company, but the lower share price has more than compensated for that reduction in intrinsic value. Okay. Agilent. Bharath, why don't you bring us up to date?

Sure. Thanks, Bill. We discussed our investment in Agilent at some length at our annual investor presentation. But as a quick reminder, our thesis on the company is that it's a high-quality business with a high degree of recurring revenue and a significant margin expansion opportunity. When you look at this quarter's earnings, which our company reported last week, both top line and operating profit results really confirmatory of our thesis. For fiscal Q2, which includes the month of April, organic revenue only declined 2%, despite the impact of COVID-19. The stable performance was really supported by the company's highly resilient service and consumables business, which accounts for 60% of total revenue and actually grew 2% in the quarter. On a more granular basis, even in the month of April, which is the most impacted by the pandemic, organic revenue only declined 6.5%. The company has noted that many results today are trending in line with April and guided to performance likely improving, thereafter. In China, which accounts for 20% of total revenue, the company has seen a strong rebound, growing 4% in the quarter and 20% in April. And there are other geographies, revenue declines have stabilized and are starting to see early signs of recovery in certain pockets. Despite the meaningful business disruption from COVID-19, the Agilent team has done an excellent job of maintaining a high level of connectivity with customers. So for example, they're leveraging same investments in digital channels to enable field service reps to remotely assist customers, where they can't access the lab due to government restrictions. In the near term, Agilent is directly contributing to COVID-19 research and testing efforts through offerings like it's PCR and automated liquid handling instruments and the consumables that go along with them. Over time, we expect the pandemic will materially accelerate investments in testing and quality control, across all end markets from pharma to food safety. And we believe Agilent is very well positioned to capture this increase in demand for its products and offerings. The other notable result we were impressed with this quarter was the company's improvement in its operating profitability. EBIT margins increased 50 basis points year-over-year, despite a modest decline in organic revenue. We believe Agilent's ability to increase margins in this challenging environment really just goes to highlight the magnitude of its future margin potential. In fact, we think that COVID-19 has provided the company with a timely opportunity to take a closer look at its cost structure and accelerate operational improvements that will lead to more efficient and profitable growth in the future. So we still believe Agilent's current valuation does not fully reflect the company's high-quality business model. It's increasing mix of recurring revenue and robust earnings growth potential. We expect the combination of strong revenue growth and significant margin expansion is going to allow the company to grow earnings per share at a mid-teens annual rate for the foreseeable future, driving long-term shareholder value.

Great. Thanks for the update, Bharath. Anthony, why don't you take us through Starbucks. Not often we buy something, sell it completely and then have the opportunity to repurchase it again, 60 days later. So interesting from a trading point of view. Go ahead.

Yes, very much so. Thanks, Bill. So the market dislocation in March enabled us to acquire a new investment in Starbucks, at an average price of about $60 per share. This is more than 30% below the average stock price at which we sold our prior investment in the company, only 2 to 3 months earlier. At $60 per share, we estimate we were paying a valuation of approximately 19x forward earnings before the impact of coronavirus. Incidentally, this is the same multiple at which we purchased our first investment in Starbucks, which ultimately generated a 73% over our 19-month holding period. As expected, Starbucks has had more severe near-term sales pressure than our other restaurant holdings. This is really due to 3 factors: one, broad-based temporary store closures in both the U.S. and China, which the company did proactively; two, the breakfast daypart, which represents about half of sales in the U.S. is more routine driven than is often purchased on the way to work in school and is suffering a bit in the work from home environment; and three, the company's products are somewhat of a more discretionary purchase, although, coffee consumption itself is very habitual, which provides a nice offset to that. Despite a somewhat longer path to recovery, we believe that like Chipotle and QSR, Starbucks will weather the current storm and emerge even stronger than it was before. When the company reported earnings on April 28, CEO, Kevin Johnson, stated that both in the U.S. and China, were in the strongest competitive position that we've been in, in the history of the company. We believe that this flex in the U.S., the company's leading digital ecosystem, which many competitors lack and is now more important than ever before. And in China, we're currently witnessing the ongoing demise of key competitor luck and coffee, following the discovery of financial fraud at that company. Turning back to the U.S., Starbucks brand momentum was excellent, pre-crisis, with same-store sales growth between 6% and 7% from January 1 through March 11, excluding leap year benefit. The company transitioned to a drive-through only model in the second half of March, which resulted in peak store closures of 56% of the store base. As the virus has slowed, Starbucks has moved from 50% of stores opened in late April to over 85% of stores opened today. Cafe seating is still largely closed across the country, and the company is focused on serving customers through a limited contact channels, including drive-through, mobile order and pay with contactless pickup and delivery. This model works well in the U.S. as approximately 80% of customer occasions pre-COVID were to go orders. Same-store sales for stores that are open have been trending around the 25% decline in both April and May. We expect this will accelerate over the coming months as consumers start to resume their routines, awareness that stores are actually open grows and the company's marketing program, which was largely put on hold during the depth of the crisis is now reactivated. The company's other home market, China, provides a useful road map for what the recovery could look like in the U.S. Given that the virus happened earlier in China, virtually all stores in that country were open as of late March. Seating with social distancing is offered in over 80% of stores there, which reflects the fact that 80% of China sales, pre-COVID were consumed on-premise. So it's the inverse business mix of the U.S. from an off and on-premise perspective. Same-store sales in China for stores that are open have improved materially from down 35% in April to down 20% as of May 21. We believe the reopening of schools in early May in China was likely a key driver of this improvement, as it allowed both parents and students to resume their routines. Starbucks management expects a substantial recovery in China, which they define as a return to positive same-store sales growth by the end of this fiscal year on September 30, with the U.S. to follow in fiscal 2021.

Okay, great. Again, another management team. I think, the consistent theme here is that each of the companies we own is well-capitalized, dominant business with dominant brands, best-in-class technology and the competitive environment in which they're operating, unfortunately, for sort of smaller, less well-capitalized competitors has become more favorable for Starbucks and the same is true for Lowe's, restaurant brands, Chipotle, Hilton, it's the benefit of owning sort of best-in-class dominant companies. But with that, let's talk about Howard Hughes. Ben, why don't you just update on sort of the quarter pre the events of the crisis sort of taking hold, and then I'll cover from there.

Great. So Howard Hughes had experienced excellent business progress through the end of last year and was on its way to its strongest performance ever in the first quarter of 2020, until the onset of the pandemic in early March. Land sell revenue across Howard Hughes' master plan communities in Houston and Las Vegas were among the strongest in its history, with price per residential acre sold, posting growth of nearly 6% in the first quarter across the portfolio. And new home sales increased 24% in the first quarter, led by a 41% increase in Bridgeland and 27% increase at Summerlin. In Hawaii, Ward Village continued to experience strong sales momentum. Its latest the luxury tower of Victoria Place, which recently launched sales in December 2019 was already approximately 65% presold, as of the end of March, which makes it the fastest-selling tower at Ward Village. Howard Hughes is also nearly fully sold at its other condo towers and has no building deliveries until late 2021 or 2022, which positions them well for the current pandemic. Operating asset NOI grew by 24% in the first quarter, which was driven primarily by Howard Hughes' acquisition of the Woodland Towers and portfolio in Houston. And despite the pandemic and oil price volatility, Howard Hughes was able to execute a 134,000 square foot office lease, with the Western Midstream in the recently acquired Woodlands Towers. The company also made significant progress on its strategic transformation plan, announced last October. Importantly, the management team made significant progress on its goal to reduce overhead expenses by $50 million. They expect to see those reductions materialize over the coming quarters, as they complete the corporate office relocation to the Woodlands from Dallas, later this year. And in line with its commitment to dispose noncore assets, Howard Hughes closed on the sale of a built-to-suit cancer facility, which was sold for $115 million in the quarter. And lastly, the move to a decentralized operating model focused around its core MPCs enabled Howard Hughes to react more nimbly and efficiently to navigate the current environment. Of course, the COVID pandemic began to have a significant impact on Howard Hughes, starting in late March. So Bill, I'll turn it back to you to provide an update on the company's actions since the start of the pandemic.

Sure. So the most significant impact of the crisis in the short term with the Howard Hughes was in the middle of an asset disposal problem -- process, excuse me, to -- again, became a problem, but process to kind of focus its capital and its sort of team on sort of the core MPC business. And we actually were in contract negotiations to sell the hotel assets, the 3 hotels that are in the Woodlands at a very attractive valuation and the contract, indeed, the buyer basically, the buyers in that case, walked away from those deals. And then we had a number of other transactions at various stages of completion that we thought were likely on terms that were favorable to the company. And in light of the crisis, those buyers walked away. So one, the prospect of new near-term significant asset sales has certainly been pushed out for a number of the company's assets. And some of those assets, hotel assets today are certainly not marketable any anywhere near what we think the real valuations are for those assets. So that was a negative from a focus perspective and from a capital-raising perspective. The other negative, of course, is that the company closed its hotels, and its retail assets were basically shut down and retail tenants, although, the collections were actually relatively good compared to others, I think, approaching 40%, these are assets go from being cash flow positive to fairly quickly cash flow negative assets. Howard Hughes owns property. The other significant asset to be affected was the South Street Seaport, which is basically an entertainment asset with an outdoor concert venue, various restaurants. It's also under construction. Construction was halted as a result of crisis. So that asset is in -- certainly in a more difficult stage. And then, of course, the crisis itself raised questions about are people going to still buy lots to build -- or homebuilder are going to build -- going to buy lots or more importantly, are the home buyers are going to buy homes. And without that, the company's cash that it generates from float sale business could come to a halt. The company also owns -- a big percentage of its assets are in Las Vegas, with Las Vegas and Casino shutdown, an entertainment-driven economy. That, of course, was a concern. And faced with -- and then, I guess, the last point I would make, is that the company took on a decent amount of debt in a bridge loan format to acquire the 2 remaining sort of the Anadarko Towers in the Woodlands, which gave the company kind of strategic control of really all of the best assets and best real estate for building new buildings. But unfortunately, before the securitized financing for that asset closed, the crisis hit and the company had a bridge loan outstanding. And as a result of all of that, the Board took a very hard look at risk and reward and the probability of the virus continuing to have a negative effect on the company. And the company decided to raise capital. And the only form of capital that was available to the company and really the only prudent form of capital, in light of everything that's going on was equity capital. And once the Board decided it was going to raise equity, we expressed an interest in participating, at which point, the company launched an offering, where we purchased $500 million of stock and other investors, other shareholders purchased $100 million of stock, and the offering was structured almost like a rights offering in that the bankers endeavor to contact as many of the shareholders as possible to give them an opportunity to participate in that transaction. So it was a successful equity raise, it positions the company in a very strong place, with $1 billion of cash on the balance sheet and really sort of almost no matter what happens over the next couple of years, the company is in a very -- is in a strong position to continue its business. And I think on the positive side, it appears that people are valuing, owning a home, perhaps, even more than they did pre-crisis. And without giving away too many details, you can just look at the national statistics, but people are buying homes. The combination of low rates, and perhaps being stuck in an apartment or people saying, you know what, I'm not going to travel as much, the same reason why people are investing in their home and doing a new kitchen, new bathroom, people are actually going out and buying homes. And we're seeing that actually, very recently. We're seeing a nice rebound at Howard Hughes, and we hope it continues. So we continue to like this company. We think they're doing an excellent job. The most impacted of every business -- of each of the businesses we own in the portfolio. But with this improvement in the balance sheet, the company is now very strong. And we expect, if the country reopens successfully, Las Vegas will come back. Houston had sort of a double or black swan event correlated black swan event, the combination of the global shutdown, a price war, kind of the fracturing of OPEC, rush of participants led to negative prices briefly for oil. That was kind of a fascinating moment in the oil market, some stabilization that we've seen, but oil prices are still down by almost half. Since the beginning of the year, this puts into question a lot of the shale producers are relatively highly levered. The whole energy space is under a huge amount of stress. And of course, Houston, it's really the energy capital of country. And so that obviously raises some questions. We got a question from a shareholder, how do you think about the impact of Howard Hughes in the oil market slump, upon acknowledging and cyclical nature of the oil market. To what extent do you think this may be a secular permanent bear market for U.S. shale? The answer to that is, I'd rather not predict U.S. shale, but from the Howard Hughes perspective, I'll give you a couple of data points. One is, in the 2016 kind of oil crisis, where prices dropped to $20 a barrel, you did see a fair amount of vacancy emerge in the office market in Houston, but then interestingly, rents -- both rents and occupancy remains stable in the Woodlands. And then Houston, I think, has come a long way from the Houston of 20 or 30 years ago. It's a much more diversified economy. Texas itself has become a highly desirable place for people to move to, combination of sort of low taxes or 0 state taxes and a warmer climate. Houston also has the benefit of being one of the larger ports in the country, it's notable that Tesla has announced that they're considering, both a factory and even a headquarter move in the 2 states they're considering are Las Vegas and Texas, where Howard Hughes has the bulk of its assets. And I think, if people lose their job in the energy sector, these will be engineers, many engineers freed up to work in other sectors, which is why you're seeing an influx of companies to Houston. So we're bullish on Texas, continuing to see an influx of population growth, companies Moving there. And the Woodlands and Bridgeland, in particular, the 2 assets we own are really the kind of communities that people like to live in. In this environment, a master-planned community with where you can walk to work, and you can walk to retail, you can go to your place of worship, your kids can ride a bicycle. It's safe. Those are, I think, going to be environments that benefit over the long term. So yes, Howard Hughes was definitely impaired in terms of its value, as a result of the crisis, but the stock price moved from $1.25 to $0.50, we thought much more than compensated for the events of the crisis. Not note, Fannie Freddie, been some significant developments in the last just a week Anthony, if you can do a quick summary there because we're running out of time, and I want to get to some of these other questions, if I can.

Sure. So the most significant development from the GSEs, since our April 6 letter was really the reproposal of Fannie Freddie's capital rule last week. There's a lot like in the new rule, including lower procyclicality and a stated focus on ending the conservatorships. The biggest negative is that the required capital ratio has been increased to about 4% of assets and guarantees, up from 2.5% previously. We think a 4% level is excessive in light of the business models of Fannie and Freddie, which are substantially lower risk now than they were pre-global financial crisis. It's important to understand that a higher capital ratio is not free. The 4% capital ratio will require a significant increase in guarantee fees to ensure a new business is written at an adequate return, which would mean higher mortgage costs for middle-class homeowners. This is a 60-day comment period on the rule, which opens in the next few weeks, and then we expect the rule will be finalized by year-end. Another important development this month was the hiring of financial advisers or the announcement of requests for proposals to hire financial advisers for both Fannie and Freddie. This follows the appointment of Houlihan Lokey as financial adviser to Fannie and Freddie's regulator, FHFA, which was announced in February. Having all the advisers in place is a good further step towards ending the conservatorship and eventually, recapitalizing both companies. And then finally, we think the COVID-19 crisis has served as a powerful reminder of the importance of raising private capital at Fannie and Freddie. Earnings at both companies declined significantly in Q1 due to pandemic-related loan loss provisions, highlighting the need for private capital to absorb potential quarterly losses should they occur in the future. The credit risk transfer market, which the companies have relied on quite a bit, since the financial crisis is now essentially frozen. The new capital rule appropriately recognizes the superiority of on-balance sheet equity capital to these untested instruments, which are typically only written when times are good. And finally, Fannie and Freddie continue to play their countercyclical role today in the housing finance market, as they have done successfully for decades, including through advancing mortgage-backed security payments, on 2/3 of the 12-month forbearance period, which is being offered to borrowers, who have been impacted by the crisis as well as stepping up to guarantee new mortgages as non-agency players have stepped back from the market.

Thank you, Anthony. Why don't I just get to some questions. We're approaching 12 o'clock, maybe give us a few more minutes, just so, if we can cover some of them. With the inability of a strategic review to get a buyer involved, it's a question about Howard Hughes. How do you think about the IRR on your Howard Hughes investment, especially in light of the time needed to monetize this development? So we do not think that Howard Hughes will be sold or monetized in the future. We think it will remain a public company, a going concern. We now own about 30% of the company. We do this as an investment that we can earn an attractive IRR for a very long-term holding period, particularly from this share price. And then I have a question. Can you explain in greater details the cost of maintaining total return swaps versus FERC to taxes, if the IRR of the investment is going to be high over time, surely financing costs do not outweigh the possible capital gains you have to pay. So for 2 of our funds are offshore and their real estate-related companies do have to pay FRP to related taxes. We held this position initially in the offshore funds in a total return format, which cost is effectively a financing cost, where the notional amount of the cost is the market -- approximately the market value of the position, you're paying a financing cost for the entire position. And FRP to tax is basically equal to the corporate tax on the capital gain we earn, when we sell the investment. And if you think about this as a very long-dated investment or one you perhaps hold theoretically forever, you never pay the FRP to tax. And FRP to tax also, I think, there's a decent chance that over time will get waved. The U.S. does not want to discourage investment in real estate, particularly, if we're going to go through a difficult real estate period. So with the -- and you paid the tax on a gain versus you pay a financing cost on the market value of the entire position. And you can build your own model and with your own assumptions, but we just felt beyond just the financing, the cost difference, owning stock, where you take no credit risk, no counterparty risk, and you have votes, which give you influence, we found superior to owning this in a total return swap format. Hilton. To what extent do you think the crisis may in general changes in consumer and corporate behavior that may affect the portfolio companies, for example, Hilton's exposure to business travel in a world, where businesses may end up materially reducing the amount of travel and face-to-face meetings? So we spent a lot of time thinking about this question vis-à-vis every portfolio company. We addressed it somewhat in our annual letter. I apologize, you may hear the [ loan being on hotel side ]. But -- and we do think that there will be an impact on business travel, certainly on the margin. And how much is at this point, unknown. At the same time, I think the experience of all of us working from home, working on Zoom is that, there are real benefits to in-person meetings that cannot be accomplished by video. And you imagine your corporation and you're trying to win a piece of business and your competitor is willing to get on a plane and fly to Singapore and makes the case versus someone says, look, I'll just do a Zoom call. I don't -- if you think about the money management business, for example, I don't know how much capital is going to get allocated to a new manager, who on a Zoom call. In the same way, I found it difficult to hire someone by Zoom, I think, it's difficult to make an important business decision, whether it's committing capital or signing a long-term contract with someone that you have not physically met. So we do think there's a long-term future for business travel. On the consumer side, we're -- we think there's going to be a -- once people feel safe in traveling, we think there will be a very rapid rebound. Again, assuming, people continue to -- they're going to continue to afford to travel. I think people will -- the -- being stuck at home, people are dreaming of whatever beach or city, they'd love to go visit. And I think as soon as they feel comfortable they're going to do so. And you're seeing some of that in China, already, with holiday weekends, hotels having pretty full occupancy. QSR. Why do you continue to think 3Gs model of cost control can work in environment, which has proved that some costs cannot be cut without damaging impacts on revenue? QSR is -- the business here is not being driven by cost control. There was an initial opportunity for -- in each acquisition that they've done for them to kind of rightsize the corporate overhead of each business. But -- and certainly, in the restaurant brands case, they have all these brands or some of these brands, for example, Burger King was starve for capital, that stores were underinvested in. And this management team was a catalyst for significant investments in these brands that's really enabled the turnaround of the company. So we do not think that sort of the criticisms on 3G, I think, largely relate to their investment in craft, but that we don't think they apply here. On F2, how do you assess the risk that in case of no settlement, the government can essentially convert senior preferred stock into common stock? I think that's -- the government already owns 80% of the common stock of these 2 companies. The incremental value of the government gets from converting its preferred stock kind of diluting itself, if you will, and wiping out the common shareholder. I don't see much value there to the government, and I think, there's significant litigation risk, but more importantly, these companies need to raise private capital and how the common shareholders are treated, will affect in both of these companies' ability to raise capital. And I think the last thing, the Treasury Secretary or the Federal Housing Finance Authority is going to do right now is something that's clearly anti-shareholder because it's the shareholders that will be part of the refinancing or recapitalization of the companies. Notably, a lot of people -- the press tends to write about Fannie and Freddie as being a hedge fund stock. But interestingly, the largest shareholders or publicly disclosed shareholders of Fannie and Freddie are the capital -- the capital group, which is one of the largest mutual fund companies with millions of small shareholders. They own about 10% or maybe a little bit more than 10% of both Fannie and Freddie, and it's a real investment. And I know everyone doesn't like hedge funds, but this is Middle America that will get wiped out at the government would do such a thing. Why don't we take 3 more minutes of questions? Central plank of your bullish turn on equity markets was the U.S. government seemingly finally taking the required action to lock, shut down the economy given your mishandling of the crisis and that best confused messaging since then, are you still as confident as you were? So everything we do is probabilistic. It's not sort of confident or not confident but our thesis on unwinding our hedges and reinvesting in the portfolio was driven by a couple of things. One, the value of the hedge has gone from $0 to $2.6 billion. And we believe that the government was taking a series of steps that would reduce meaningfully the corporate credit risk and kind of systemic risk, we thought that would cause spreads to narrow. So that's why we unwound the hedge at a large profit. And the other reason why we did so is, we thought the opportunity cost, if you will, of that capital with stocks trading at with Lowe's trading at whatever it was, $78 a share or something. We felt that was a better use of our money to take money out of a hedge and invest in stocks. And we're -- the companies we own, if you think about these businesses, Agilent, the restaurant companies, Lowe's, walking our way down the list, each of them has different degrees of exposure impact from the crisis, but we think they all survive pretty much no matter what happens. And the environment is such that their competitive position, Hilton's competitive position is going to be stronger as a result. The same thing is really true for pretty much every company in our portfolio, even Fannie Freddie, the threat of competition to Fannie and Freddie is really -- it's been made clear that there really is no future for the housing finance system that can survive the inevitable periodic crises other than a well-capitalized privatized Fannie and Freddie. So we really think the crisis, if anything, reinforced the importance and the nature of the principles that we apply, we invest in the market. Why don't I take one more minute? Once you have made the decision to reinvest CDS proceeds in the market, did you not consider reinvesting in equity such as the ADP and Raytheon? What made you UTX? What made you choose, for example, Howard Hughes over other stocks, we've had a very high-level engagement until recently? So we did actually focus on -- or a lot of stocks trading that would look like inexpensive prices. We focused our capital on situations that we knew the best because we didn't, we thought there was a risk that the opportunity to buy would be a very finite opportunity. And we, therefore, focus our analysis and our capital on situations that we could come up to speed with very quickly, and those included, obviously, everything we owned in the existing portfolio plus investments that we had owned recently. And so we -- but we made a decision to invest in the companies. We invested in based on price, based on our level of confidence in our ability to predict kind of the future outcome for each business. And that's what led us to the portfolio that we currently owned. We did take a -- actually a pretty large stake in a company in the middle of the crisis at prices that look very, very attractive. We ended up selling that investment at about the price we paid, as we felt more comfortable reinvesting. We had an opportunity, for example, to put capital in Howard Hughes at a -- what we believe to be a very attractive price, and we felt that to be a better risk/reward than the position that we sold. Time will tell whether each of these decisions were good decisions. Anyway, I think, it was obviously a very good period for Pershing Square. We're excited to have another very strong year on an absolute and on a relative basis, one of our strongest years ever, more than 30 percentage points ahead of the S&P year-to-date. And we still like what we own, and we still think the stocks are cheap. So with that, I will pause, and thank you for joining, and we look forward to communicating with you, I guess, with our mid-year report. Have a nice day. Stay safe. Bye.

Thank you, everyone. This concludes your conference call for today. You may now disconnect.