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

Hello, and welcome to the First Quarter 2022 Investor Call for Pershing Square Capital Management. [Operator Instructions] Today's call is being recorded. It's now my pleasure to turn the call over to your host, Mr. William Ackman, CEO and Portfolio Manager.

Thank you, operator, and 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 in the last -- the period since the end of the quarter and year-to-date, we're down in the low 20s for our biggest fund, and it looks 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're going to 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 try -- what we don't do. So we are not a trading firm trying to position ourselves so that we're going to perform -- we're 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 companies over time. 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 that 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've 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 have 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've owned pretty much the same business we owned at the start of the year, the most significant drama, if you will, with 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 in a business we purchased and a business we've 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, it's not at all a permanent loss, but more a function of kind of short term or even, again, don't know 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 3 months, despite of 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 believe 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 that most people would point to 3 fairly obvious factors, perhaps number one on 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 too 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 over time. 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, 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've 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 bet 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 in the -- down '18 to '22, about 800 to 1,000 basis points. It would be 800 to 1,000 basis points worse, if you will, if we did not have that hedge, if you will, in place. So we've actually seen quite a dramatic average decline in our portfolio, offset somewhat by this hedge interest rates, which we have in place today. We are still strongly of the view that Federal Reserve policy is going to have to get a lot more aggressive. We are seeing -- witnessing reading the newspaper and by virtue of our often a seat on the Board of Directors or close understanding of the businesses that we own and following other companies in the market that there is an inflation configuration, if you will. There is a fire ranging. And unfortunately, we think the Federal Reserve has not been aggressive enough in putting out that fire. And 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 fire department coming out and putting out 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 on the fire over the next 6 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 something worse, a holocaust type of fire. And these conditions are really destructive 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 cost. 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, my view would be Federal actually got aggressive at eliminate inflation, 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 [ Paul Walker ] 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 position. But why don't we start -- we're going to go largest to smallest our 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 of 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 would be added to the Board of Directors of UMG. I've not yet attended my first Board meeting, but 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 a similar increase of that magnitude in the prior year's quarter. So really very strong growth over the last 2 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 in 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 in 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 of the overall streaming revenues, any pricing that the music providers would take would flow directly out to Universal's revenues...

And to the artists.

And for 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 off to the artist. And that is really just a percentage of the revenues of a formula, if you will. And so when Universal does better, it's 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 cost, which may be subject to that inflation are 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. It's growing very quickly and we think we'll likely see perhaps even better growth in the future if the service providers, the Spotifys of the world, do take price.

One obvious question, particularly in light of our Netflix experience. Netflix is a streaming company. Netflix has experienced some competitively -- negative competitive dynamics, people perhaps turning off Netflix versus other streaming services, why don't 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 it's music, that has a long runway for growth. So both of those companies share that characteristic, and we expect that 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 business is its 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 3 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. And even if they did because Universal's music is on all 3 of those services, and they're the 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 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 a nominally levered company today, particularly when you monetize some of their noncore or where their on-balance sheet assets. So basically an unlevered company growing in the high teens -- revenues in the 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 at 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 a position we wanted to make quite large. Next largest is Lowe's, kind of mid- to high-teens depending upon the fund. And Charles, an obvious place to start a lot of drama and retail earnings announcement [ flows ] seem to be above the fray, why? And bring us up to date.

Sure. So as it's kind of well documented at this point, the home improvement sector has 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 homebuilders, the narrative at least coming out of the sector in Lowe's and Home Depot specifically is, they see a very supportive medium-term economic outlook actually, which is really informed by consumer's 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 of despite rising mortgage rates, home equity values are still very, very robust, and that continue to rise. In aging housing stocks, the homes are basically as old as they've 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, there is a general lack of new housing inventory. And on that last point, it's actually fairly well-documented that the U.S. is 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 I kind of comparing contrasting lows 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 has an extremely supportive macroeconomic backdrop. And look, that could always change, but there's really no indication at present that there's any kind of slowing for this category. You are seeing some mix shift underneath kind of headline numbers, which I'll 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 of 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're 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're 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 lapped over and 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, 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 lost sales, if you will, in Q2. And then just focusing for the strength of the business model, notwithstanding kind of the headline sales decline, they very deftly manage through inflationary pressures at the gross margin line and drove significant operating leverage at the SG&A line, which benefited from improving labor productivity. So unlike perhaps some other retailers, too, what you're seeing is despite kind of high single-digit inflation, the consumer is basically accepting inflation entirely and they're basically passing that through. So their gross margins 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 an 8% reduction in their share count. They bought back $4 billion of stock this quarter. And 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.

As for the balance sheet, with what kind of leverage, Charles?

So they basically target kind of 2.75x net debt to adjusted EBITDAR, which capitalizes the rent expense. They're still actually 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 their buyback program. So focusing on the demand environment and kind of 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 they have another year of accelerated double-digit earnings growth. And so we believe that over the next 12 months, they're likely to generate roughly $14 in earnings per share, and they're essentially -- they are trading at 13x our view of next 12 months earnings, which is the lowest multiple that Lowe's has traded at in the last decade. And so the stock it's down meaningfully this year, 29% to be precise, but that's entirely due to the multiple compression of roughly 35% in earnings that actually increased our expectations that decreased 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 base 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 or homeowners, and they generally have fixed rate mortgages. So they're very advantaged versus the typical Walmart customer, for example, may not own their home and had to face rising rents as well.

Yes. 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, they're engaging in remodel activity. So it does skew 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 fixed 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 spend. And you'll see two things there: One, both Depot and Lowe's would note that roughly 2/3 of the spend in the store or closer to 75% is repair and remodel activity. So it's basically just fixing things that are broken or taking on remodel projects. And -- so they're not quite as sensitive towards like a specific turnover in 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 relevant. And then there's a dynamic, too, 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.

Let's go to Anthony to talk about Chipotle. And maybe start with how much their 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 a multiple of forward earnings, today it's in the low 30s. So that's kind of most of the decline. There was a -- they did 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 decline 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 3-year cumulative basis, and what that means is basically, since the pandemic began, the average sales per Chipotle store are 1/3 higher, which is just incredible performance on both an absolute basis and relative to their competitors. The second quarter, which we're currently in 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 3-year stack kind of in the low 30s. There's 3 key drivers of the current momentum: first, you have an ongoing recovery 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 20/80 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 of 10% price, a 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 pandemic, additional 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 attachments like Guac and Queso. 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. They're testing items like Garlic Guajillo Steak and then several different dessert offerings. 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 in 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, 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 is 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 the cost -- the 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're 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. And management also reiterated longer term that 27% margin on a full year, once average restaurant sales reached the $3 million level, is still in play. And those average restaurant sales stood at 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, have 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 at 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 grown -- the company that's growing units by 8% per year, promotion opportunities are available broadly and rapidly if you're a top performer, and that has really resonated with their people.

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 flow as we expect the business to generate over time 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've generally used call it, 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. We build in a margin-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're not -- 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 which was trading at the beginning of the year, based on our model, we still expect it to earn a very attractive return, high teens, 20s type returns owning this business over time. Obviously, if the stock comes down 30%, our IRR goes up higher. And nothing we've 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're doing great and a tremendous credit to the management team. Hilton -- Ryan, why don't you 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 their 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 on what management has seen 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 you've talked a lot about the appreciation we have for its capital-light nature and the high growth that it's able to achieve having other people build out units with the branding 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 is a beneficiary of that overall industry structure, but at the same time, by 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 capital-light business that does not have the overhead and the high degree of labor cost 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 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 in an inflationary environment, Hilton will be the beneficiary of higher pricing. At the same time, it should be able to keep its cost 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 the long-term characteristics, we've talked a lot about in past calls, how we like 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 it could be a little bit lower. They're targeting maybe a 5% rate for 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 franchise business model. Now that has not allowed the company to -- well, the earnings growth is very strong. Certainly, the stock market has declined, and the result, Hilton has declined with it. It's down 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 historical levels where they've been buying back anywhere between 6% 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 does indeed continue at the current levels.

Sure. Just to add to what Ryan is saying, not only did Hilton, the parent company figured out how to operate more effectively during COVID, but hotels have done the same. And there's a lot of use of technology, no longer having to wait online to go find your room, kind of the digital key and check-in and even how people think about how often they want the rooms cleaned, all of these sort of benefits were enabling hotels actually to improve their margins. So a franchise system only works if both the franchisor and the franchisee are doing well, and that is the case here. Do 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 these 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 would use that as something to supplement existing travel that you wanted to do. And we're actually starting to see that come back. Hilton actually, it's 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 that the airlines are reporting and their expectations for summer travel, they think it's very likely that the business travelers are 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, that's kind of starting to happen right now and will be even stronger in the coming months.

Okay. Great. 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 continued the strong streak of performance. So Tim Hortons in Canada is now only about 500 basis points below pre-COVID levels and management provided guidance that leads you to believe that it should recover by the end of the year or at worst, by early next year. The company actually held an Investor Day focused on its 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 Tims maintained or gained share in hot beverages, breakfast foods and baked goods, the company thinks they have a meaningful opportunity to expand their share in new product lines, specifically in cold beverages and afternoon foods. The company highlighted several growth initiatives and believes 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 refounding its menu and actually also launching a simplified late-night specific menu, which actually allows franchisees to stay open longer and actually minimize the 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, digital sales at 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 4x more and visited Tim Hortons' locations 5x as much as a nondigital guest. 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're seeing rising wages as well as input costs. So with the help of the franchisor, the franchises are taking pricing actions, they're 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 its 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 its franchisees take price, but that it's cost structure is obviously not subject to the same inflationary pressures. So the business model's unique attributes are actually particularly attractive in inflationary environment like this. With all that being said, restaurant brands now trades at 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 repurchasing and retiring shares at what we think is a pretty compelling valuation.

Thanks, Feroz. And you're hearing a bit of a theme here. We like businesses that have royalty like characteristics, Universal top of the list. What's interesting here is the artist is really the franchisee in a way, where the artist is creating the content in which he'll receive a royalty. Hilton, a royalty on people staying in Hilton-branded hotels, Restaurant Brands are royalty on people eating in our various concepts that are franchised by Restaurant Brands. And what's interesting is we've 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 indeed it's very powerful economic characteristics and all of these stocks are cheap. I 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 our public entity because it uses leverage, but call it, 11.5% to 13.5% for Chipotle, Hilton is between 9% and 13%, Restaurant Brands between 9% and 12%. And now Howard Hughes position size about 9.5% to 11.2%. And Ben, why don't you update us on that business.

Sure. Howard Hughes actually also just had Investor Day in April where they showcased their 2021 results, which was the strongest year in its history across all segments of the business. In its master-planned communities segment, Howard Hughes produced record land sales in 2021 while recording high single-digit price increases in the communities. In its operating asset business, its net operating income reached all-time highs in 2021 with the roadmap to stabilize the existing portfolio with over $350 million of recurring NOI. And in Ward 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 sum-of-the-parts NAV to $170 per share versus today's price in the mid-80s. That strong progress continued in Q1 this year, where it saw its MPCs grow sequential new home sales, but a decline in year-over-year levels, given it was the lasting a very strong Q1 in 2021. And it's operating assets, their multifamily and retail assets saw significant NOI increases, but was partially offset by a 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 in office tower in Chicago, yielding net proceeds of $169 million on an initial investment of $30 million. But 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 count. But we'd also comment on the current environment and potential future impact on Howard Hughes. And it's important to note that its 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 from mostly higher-cost states, rising mortgage rates and home prices had less of an impact on demand in these communities.

Actually, I would say we've seen no impact on demand in these communities.

Yes. They've done incredibly well. And they're also differentiated from developers and homebuilders since they own a huge land bank and they are 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 insulation throughout economic cycles. Lastly, Howard Hughes' limited near-term debt maturities with a substantial portion of its debt maturing in 2026 or later. And with 82% of its debt fixed or swapped to fixed rate and $688 million of cash on hand at the end of Q1, its balance sheet is really well positioned. If you put all of these factors together, we believe Howard Hughes is constructed to withstand a potential downturn and continue to thrive over the long term.

I mean people get rich in real estate in inflationary periods. And the reason for that is they generally borrow money on a fixed rate basis and they own 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 a really good business. Now this is a perennially cheap stock. And despite management having a fantastic year last year. And what you've seen at least in the first quarter of this year, I would say other than Lowe's, how much -- what percentage of the company did Lowe's buyback in Q1?