Pershing Square Holdings Annual Report 2014

Summary

The 2014 annual report is a founding document in two senses. It contains the first shareholder letter Bill Ackman wrote knowing the public would read it — Pershing Square Holdings had listed on Euronext Amsterdam on October 13, 2014 — and it lays out, with unusual self-awareness, the strategic evolution from "Pershing Square 1.0" (outside-the-boardroom activism, short holding periods, constant recycling of capital) to "Pershing Square 2.0" (deep board-level engagement with companies like Howard Hughes, Canadian Pacific, and Restaurant Brands). The year itself was one of the strongest in the firm's history: the Allergan campaign, executed through an unprecedented joint venture with Valeant Pharmaceuticals, ended with Allergan sold to Actavis at roughly $240 per share against a $128 average cost. The report also records the intact conviction on the Herbalife short and introduces the permanent-capital logic that the PSH listing was built to serve. It is the golden-era Ackman at full confidence, writing the manual for the machine he believed he had finished building.

Full Text

The Chairman's Statement and Investment Manager's Report, complete; audited financial statements remain in the archive. Words unchanged.

Chairman’s Statement INTRODUCTION This Annual Report is the first to be produced by Pershing Square Holdings, Ltd. following its initial public offering (“IPO”), and the first time that I have written to you as Chairman of the Board. 2014 was a year of significant change for the Company, in which assets under management (“AUM”)1 increased from $2.5 billion to $6.6 billion. This was due primarily to (i) strong investment performance, and (ii) the additional capital raised in connection with the listing of the Company’s Public Shares on Euronext Amsterdam.

INVESTMENT PERFORMANCE

The Investment Manager’s strategy of being a disciplined activist investor has generated historical returns for investors substantially greater than that of the S&P 500. Please see the chart on page 11 and accompanying footnotes. For the period January 1, 2014 through September 30, 2014, the Company returned 33.1% net of fees. Since the IPO on October 1, 2014 through year-end 2014, the growth in net asset value (“NAV”) was 5.5%. The details of the investment performance generated by the Company are set out in the 2014 Key Highlights and in the Financial Highlights.

CAPITAL BASE

The listing of PSH’s shares on Euronext Amsterdam on October 13, 2014 via an IPO was a significant event in the long-term future of PSH. The Company started operations on December 31, 2012 with $2.2 billion of capital and was initially structured as an open-ended collective investment scheme. By September 30, 2014, on the eve of the pricing of the IPO, the capital base had increased to $3.3 billion through capital growth. At the time of the IPO, a further $2.9 billion was raised, and the Company became a closed-ended investment holding company with AUM of $6.2 billion. By December 31, 2014, the strong investment performance had increased the AUM to $6.6 billion. Following the year end, the Company continued to perform well and by February 28, 2015 the AUM had increased to $7.1 billion.

The Board and PSCM are exploring options for the Company to issue low-cost, long-term, unsecured, covenant-light debt in order to reduce PSH’s cost of capital. If we decide that it would be beneficial for the Company to issue debt, we will update investors in due course.

INVESTMENT MANAGER

The Company does not have an executive management team. The Company has appointed PSCM as Investment Manager. The Investment Manager had $19.0 billion of AUM as of December 31, 2014, of which the Company accounted for $6.6 billion. The Investment Manager aims to invest the Company’s assets pari passu with those of its other unlisted funds. The Board believes that it is a major benefit for the Company that its funds are being invested alongside other funds managed by PSCM. This additional capital enables the entities managed by PSCM to buy meaningful stakes in larger companies, and thereby apply its activist strategy to companies which might otherwise be too large for a single investor to effect change. This gives investors in the Company exposure to the superior capital growth that can be generated by following this investment strategy.

CORPORATE GOVERNANCE / BOARD

The Board consists of five non-executive Directors. Richard Battey, Nicholas Botta and William Scott were appointed to the Board on March 29, 2012. Immediately prior to the IPO, Jonathan Kestenbaum and I joined the Board. I took on the additional responsibility of the role of Chairman on October 6, 2014 and 1 With respect to the Company, total AUM is the NAV of the Company without taking into effect accrued and/or crystallized performance fees as of the end of the period. With respect to other funds managed by PSCM, total AUM is the aggregate NAV (without double counting investments between funds) and does not include: (i) redemptions effective as of the end of the period, (ii) accrued and/or crystallized performance fee/allocation and (iii) deferred compensation payable by Pershing Square International, Ltd.

(“PSI”) to PSCM. 2 PERSHING SQUARE HOLDINGS, LTD.

Richard Battey took on the role of Chairman of the Audit Committee. The members of the Board have considerable and relevant experience in listed and unlisted funds and companies. Although the Board does not approve individual investment decisions made by the Investment Manager, we do have responsibility for overseeing the investment process and reviewing the investment portfolio. The Board also monitors the Company’s exposure to risk. The Board reports in detail on corporate governance matters and delegation of responsibilities later in this Annual Report. The Company has recently joined the Association of Investment Companies (“AIC”) and complies with the AIC Code, except where otherwise indicated herein.

PREMIUM / DISCOUNT

The Board monitors the trading activity of the Company’s shares on a regular basis. The Company publishes its NAV weekly on its website together with monthly performance reports disclosing certain information with respect to the Company’s underlying positions, which are predominantly in large cap listed companies. The Board and the Investment Manager believe that this transparency will help the Company’s shares trade over the long term at or above NAV. In the period following the IPO through January 31, 2015, the Company’s shares traded at an average discount to NAV of 7.1%. We believe that the primary sellers impacting the share price were event driven hedge funds that bought shares in the IPO and were under pressure to generate liquidity because of market volatility shortly after the IPO. During January 2015, the Investment Manager organised meetings to explain the Company’s strategy to potential investors and we believe this increased demand for the shares. By late January 2015, most of the investors mentioned above had sold their positions and the discount narrowed significantly through February 2015. The average discount to NAV in February 2015 was 3.6%.

The Board will continue to monitor the performance of the Company’s share price versus NAV per share and the Investment Manager is committed to an ongoing, pro-active global investor relations effort. PSH NAV vs. Trading Price (October 13, 2014 – February 28, 2015)

41/31/01 41/32/01 41/2/11 41/21/11 41/22/11 41/2/21 41/21/21 41/22/21 51/1/1 51/11/1 51/12/1 51/13/1 51/01/2 51/02/2 Share Price NAV per Share $27.16

EVENTS: SHAREHOLDER PORFOLIO UPDATE AND ANNUAL GENERAL MEETING The Investment Manager will present a portfolio update to shareholders in London on April 28, 2015. Shareholders will have the opportunity to hear from and submit questions to Bill Ackman and other members of the Pershing Square team. The Company’s Annual General Meeting will be held in Guernsey on April 29, 2015. Details of both events will be posted on the Company’s website www.pershingsquareholdings.com. I look forward to reporting to you again in our interim statement in May 2015. /s/ Anne Farlow Anne Farlow Chairman of the Board March 24, 2015 4 PERSHING SQUARE HOLDINGS, LTD.

2014 Key Highlights PERFORMANCE Pershing Square Holdings, Ltd. Performance vs. the S&P 500 PSH Gross Return (1) PSH Net Return (1,2) S&P 500(3) 2014 50.6% 40.4% 13.7% PERFORMANCE ATTRIBUTION(4) Below are the attributions to gross performance of the portfolio of the Company for 2014. Winners Losers Allergan, Inc. 19.1% Federal National Mortgage Association (0.6)% Canadian Pacific Railway Limited 7.0% The Procter & Gamble Company (0.5)% Herbalife Ltd. (short) 6.1% 6 Other Positions (1.4)% Restaurant Brands International Inc. 5.5% Air Products & Chemicals, Inc. 5.1% Beam Inc. 2.9% Platform Specialty Products Corporation 2.7% Zoetis Inc. 2.2% The Howard Hughes Corporation 1.2% Undisclosed Position 0.7% 5 Other Positions 0.6% Total Winners 53.1% Total Losers (2.5)% Total Winners and Losers 2014 50.6% Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying footnotes on page 25.

PORTFOLIO UPDATE

Allergan, Inc. (AGN) In February of 2014, Pershing Square formed a joint venture with Valeant Pharmaceuticals International to pursue a merger between Valeant and Allergan. Allergan is a leading specialty drug company in aesthetics, dermatology and ophthalmology. Over the course of two months, the Pershing Square/Valeant joint venture acquired a 9.7% stake in Allergan at an average cost of $128 per share, which we deemed to be a fair price for the business, assuming no improvement in operations or a transaction. Allergan had a strong track record of organic growth driven by a portfolio of market-leading products, including the fast-growing Botox franchise, but was not known to allocate capital efficiently or run its business cost effectively.

Given the strategic overlap between Valeant and Allergan’s product portfolios, along with Valeant’s superior cost structure, operating model and capital allocation strategy, we believed that a merger between Valeant and Allergan had the potential to create enormous shareholder value. On April 22nd, Valeant and Pershing Square announced an unsolicited offer to acquire Allergan for $161 per share, a 38% premium to Allergan’s unaffected stock price, and a takeover battle ensued with two price increases, litigation, two proxy contests, a war of words, and ultimately a transaction.

On November 17th, Allergan announced a merger with Actavis plc for cash and stock valued at ~$240 per share when the transaction closed on March 17th. Prior to closing, we hedged a substantial portion of the Actavis shares we would have received while electing to retain 1.35 million shares (held across all funds, ~500,000 are held in PSH) in the newly merged company which we consider to be undervalued and well managed. Herbalife Ltd. (HLF) Short We remain confident in our short thesis that HLF is an illegal pyramid scheme that will collapse or otherwise be shut down by regulators. The company’s business has continued to deteriorate as reflected by its substantially reduced forward earnings guidance for 2015. Herbalife is doing its best to attack the messenger with a public relations campaign against Pershing Square. Ultimately, the facts will drive the outcome. We expect continued substantial business deterioration as the company is forced to reform its highly abusive and deceptive practices, or is shut down. Air Products and Chemicals, Inc. (APD) Air Products and Chemicals, Inc. has made meaningful progress since Seifi Ghasemi became CEO on July 1st of 2014. We believe that Seifi is the ideal leader to transform Air Products, and we applaud the Air Products Board for hiring Seifi as Chairman/CEO and supporting him in his efforts to improve the company. Seifi’s announced goals are to increase EBIT margins from ~16% to ~22.5%, comparable to that of industry leader Praxair Inc. Air Products expects that half of this 650 basis point improvement will come from SG&A and overhead, and half from gains in productivity and operational efficiencies. Air Products was at the top of the industry two decades ago, and Seifi has stated that he believes there are no structural issues that should prevent the company from regaining its industry-leading performance.

Early results, including earnings announcements in October 2014 and January 2015, have been impressive. Earnings per share (EPS) have increased 13% and 16%, respectively in Seifi’s first two quarters as CEO. Operating margins are at the highest levels in nearly a decade, driven partially by reductions in SG&A of ~8% in the most recent quarter. With operating margins now at ~17.5%, Air Products has closed 150 basis points of its margin gap versus Praxair with remarkable rapidity. Air Products’ fiscal year 2015 guidance calls for EPS of $6.30-6.55, which represents growth of 10-13% despite foreign exchange headwinds. Canadian Pacific Railway Limited (CP) The remarkable transformation of Canadian Pacific continues under the leadership of Hunter Harrison and the reconstituted CP Board in 2014. Full-year EPS grew 32%, in spite of severe winter weather conditions in the first quarter of the year. In 2014, CP achieved an operating ratio of 64.7%, besting its four-year 65% operating ratio target just two years into the operating plan. On an annual basis, CP has risen from the least efficient Class I railroad to the third-best, and the improvements are continuing. This progress has been achieved while maintaining industry-leading safety performance. The drive to operational excellence is enhancing service and reliability, while lowering CP’s cost to serve its customers. In October, CP held an analyst day to outline its revised multi-year plan. The company’s new four-year targets call for $10 billion of revenue by 2018, representing a 10.5% compound annual growth rate. This impressive revenue growth is driven by efficiencies and service-level improvements that permit CP to win business for which it historically could not compete. CP’s announced revenue and margin goals translate into about $20 per share in earnings in 2018 including the impact of projected share repurchases. At the inception of our investment in 2011, CP earned $3.15 per share.

The achievement of $20 per share in earnings would represent more than a sixfold increase in the earnings power of the business following the proxy contest and Hunter Harrison’s appointment as CEO. We believe CP remains an attractive investment led by a superlative management team. 6 PERSHING SQUARE HOLDINGS, LTD.

Restaurant Brands International Inc. (RBI) At the end of August, Burger King announced that it would acquire Tim Hortons, Canada’s leading quickservice restaurant (QSR) company, for $12 billion forming the newly renamed Restaurant Brands International (RBI). The transaction closed in December of 2014. Tim Hortons operates a 100% franchised business model with ~4,500 units. In Canada, where 80% of Tim Hortons’ restaurants are located, the company commands a market share which RBI estimates to be more than 40% of total QSR traffic and nearly 75% of QSR caffeinated beverages sales. We believe the acquisition of Tim Hortons will create significant long-term value for RBI shareholders as executed by the company’s controlling shareholder, 3G Capital, which has an extremely strong track record of successful business transformations. In the four years that 3G has owned a controlling stake in RBI, the company has dramatically improved its operations, reduced its capital intensity, significantly grown its number of restaurants, and put in place an improved capital structure. We believe the improvements that 3G has enacted at Burger King will serve as a template to create value in the Tim Hortons transaction. We believe there is substantial unit growth opportunity outside of Canada, and that under 3G’s leadership, Tim Hortons is well positioned to identify meaningful operations and capital efficiencies. The acquisition enhances Restaurant Brands’ medium and long-term EPS growth rate, and long-term shareholder value. Platform Specialty Products Corporation (PAH) We believe that Platform Specialty Products has the opportunity to invest large amounts of capital at a high rate of return by acquiring a portfolio of specialty chemicals businesses that can operate more efficiently as part of a larger industry platform.

Platform’s business model of investment in asset-light, high-touch specialty chemical businesses is characterized by high margins, low capital intensity, and high switching-costs. Platform’s management team has a demonstrated record of value creation which benefits by an environment which is favorable for M&A activity. In 2014, the company announced $5 billion in acquisitions in the agricultural chemicals industry by acquiring Chemtura AgroSolutions, Agriphar and Arysta LifeScience Limited. Agricultural chemicals are vital to increased food production, and are a key input to growing crop output to meet the rising demand for food worldwide. Agricultural chemicals have high barriers to entry, both from the need for intensive (and lengthy) research programs and the high hurdle of regulatory approval associated with any input in the food chain. With these acquisitions, we believe that Platform has assembled a leading global crop solutions business that offers a full product portfolio and diversity across crop varieties and geographies. Zoetis Inc. (ZTS) In November, Pershing Square announced an 8.5% stake in Zoetis, the world leader in branded animal healthcare products. Until 2013, Zoetis was a non-core subsidiary of Pfizer, whose primary business is human healthcare products. In January 2013, Pfizer completed an initial public offering of a 20% stake in Zoetis. The separation from Pfizer was completed in June 2013, when Pfizer split off its remaining 80% ownership to its shareholders. The separation resulted in the creation of the only large, independent, publicly traded animal health company in the world. The company has a market capitalization of ~$24 billion and ~$5 billion in revenue. Zoetis’ business model passes our high bar for business quality. Zoetis participates in markets with strong secular growth, driven by global increases in protein consumption, pet ownership, and the use of medicines to treat pets and livestock.

As a result, the global animal health market has grown at an average of about 4% since 2008 and has experienced positive volume growth every year since 2003. Historically, Zoetis’ organic growth has exceeded the industry average.

Zoetis’ animal healthcare portfolio is highly durable. In 2014, ~80% of Zoetis’ revenue was derived from products that are not patent protected. Rather than rely on patents, which have a finite life, Zoetis’ business is driven by brand, market position, customer relationships and service, and other durable factors which have led to long product lifecycles. One of the most important factors which contribute to the durability of Zoetis’ products is the small size of animal health products. Only about 20 products in the industry have sales exceeding $100 million, with the majority of products having sales significantly below this level. Gross margins of branded animal health products are lower than branded human health products. This combination of smaller products and lower gross margins has made it difficult for generic manufacturers to compete in the animal health market. We have had a very positive dialogue with the board and management of the company. In February of 2015, Bill Doyle from our investment team joined the Zoetis Board of Directors. We expect the company to add an additional director shortly. We look forward to working with the board and management as a long-term shareholder of Zoetis. The Howard Hughes Corporation (HHC) A little more than four years ago on November 10, 2010, HHC became a public company in a spinoff from General Growth Properties. At the time, there was considerable skepticism about the orphaned development assets that comprised HHC’s asset base. This was reflected in the company’s share price which closed at $36.90 that day. Since its launch as a public company shareholders have been rewarded with a four-fold increase in the company’s stock price. In a short period of time, management designed and launched development or monetization plans for each of the company’s assets.

HHC continues to create value converting its development-stage assets and vacant land into income-producing real estate and high-rise residential condominiums held for sale. We have not before seen a real estate company accomplish so much in so little time while maintaining superbly high quality execution along the way. Credit for this progress belongs to the extraordinary management team at HHC that is led by CEO David Weinreb and President Grant Herlitz, and a highly shareholder-oriented, real-estate-savvy board of directors. While the stock declined at the end of 2014 due to concerns about the decline in energy prices and its impact on the Houston assets held by the company, we viewed the market reaction as overdone and temporary. Since the beginning of 2015, the stock price has returned to near its all-time high. We believe that HHC is well positioned to benefit from the housing recovery, and that over time, the intrinsic value of HHC will be easier for investors to assess as the company’s cash generation from stabilized income-producing assets increases. Fannie Mae (FNMA) / Freddie Mac (FMCC) Fannie Mae and Freddie Mac remain a critical piece of the U.S. mortgage market and we expect will serve as a core driver of the continuing housing recovery. In spite of much rhetoric about the desirability of replacing and shutting down Fannie and Freddie, we believe that there is no credible alternative to replace them. Consumers in the U.S. benefit enormously from the existence of the 30-year, prepayable, fixed-rate mortgage. As a result, we believe that Fannie and Freddie’s role is fundamental to the economy, and that ultimately, a renewed and recapitalized Fannie and Freddie is a far better alternative to any other. Beginning in 2013, the U.S. Government began stripping all profits from Fannie and Freddie and sending them to the Treasury every quarter, in perpetuity.

The Treasury unilaterally amended the 10% dividend rate on its senior preferred stock to a variable dividend equal to 100% of Fannie and Freddie’s future earnings and existing net worth. We view this net worth sweep as an unlawful taking of shareholders’ private property, and brought suit in District Court and in the U.S. Court of Federal Claims on behalf of common and preferred shareholders. 8 PERSHING SQUARE HOLDINGS, LTD.

In September of 2014, the U.S. District Court for the District of Columbia dismissed shareholder lawsuits seeking to enjoin the net worth sweep undertaking by the government. We believe that much of the U.S. District Court ruling may ultimately be overturned on appeal. The adverse court ruling resulted in a large decline in Fannie and Freddie’s respective share prices, which we used as an opportunity to purchase additional shares in both companies. We voluntarily withdrew our case in the U.S. District Court and are devoting our legal resources to reversing the Federal Government’s improper seizure of common shareholders’ property by prosecuting our Constitutional takings claims in the U.S. Court of Federal Claims. In addition to our belief that the net worth sweep constitutes an unlawful taking under the U.S. Constitution, we believe that it is an untenable economic arrangement. By stripping Fannie and Freddie of the earnings that they could otherwise use to build capital, the Treasury is subjecting the U.S. taxpayer to grave risk during the next economic downturn. We remain convinced that a reformed Fannie and Freddie is the only credible path to preserving widespread access to the 30-year, prepayable, fixed-rate mortgage at a reasonable cost. It is therefore essential that Fannie and Freddie build a sufficient level of capital through the retention of their earnings so they can continue to perform their vital function in the mortgage markets while limiting risk to the U.S. taxpayer. A reformed and well-capitalized Fannie and Freddie will accomplish the important policy objective of providing widespread and affordable access to mortgage credit for millions of Americans while, at the same time, delivering tremendous economic value to the U.S. taxpayer through Treasury’s ownership of warrants on 79.9% of Fannie and Freddie’s common stock.

While we remain confident in the prospects for Fannie and Freddie and believe our investment in their common shares will ultimately be worth a large multiple of current prices, the litigation is likely to continue for a protracted period before being resolved, unless the Administration, Treasury, Congress and other interested parties forge a consensual resolution. In light of the inherent uncertainty of the situation, our combined investment in the two companies represents about 3% of our capital at current market values. Exited Positions During 2014, we exited our positions in Beam Inc. through a sale to Suntory Holdings, General Growth Properties, Inc. in a share sale to the company, and Procter & Gamble through open market sales.

Investment Manager’s Report HISTORICAL PERFORMANCE Pershing Square Holdings, Ltd. Performance vs. the S&P 500 PSH Net Return (1,2) S&P 500(3) 2013 9.6% 32.4% 2014 40.4% 13.7% 2013 - 2014 Cumulative (Since Inception) 53.8% 50.4% Compound Annual Return 24.0% 22.7% The table below and the chart on the following page reflect the net performance of Pershing Square, L.P., the Pershing Square fund with the longest track record, since inception. We present the Pershing Square, L.P. track record using its historical performance fee of 20% and a 10% performance fee. We used a 10% performance fee as it is what we estimate that the performance fee would be once the Offset Amount (as defined in footnote 2 on page 25) has been paid in full assuming current levels of Company fee-paying assets, and current levels of Pershing Square private funds’ fee-paying assets. Pershing Square, L.P. Performance vs. the S&P 500 Net/20% PF (1,5) Net/10% PF (1,6) S&P 500(3) Delta Net/10% PF to S&P 500 2004 42.6% 47.2% 10.9% 36.3% 2005 39.9% 44.9% 4.9% 40.0% 2006 22.5% 25.4% 15.8% 9.6% 2007 22.0% 24.8% 5.5% 19.3% 2008 (13.0)% (13.0)% (37.0)% 24.0% 2009 40.6% 43.8% 26.5% 17.3% 2010 29.7% 33.4% 15.1% 18.3% 2011 (1.1)% (1.1)% 2.1% (3.2)% 2012 13.3% 14.8% 16.0% (1.2)% 2013 9.7% 10.9% 32.4% (21.5)% 2014 36.9% 41.5% 13.7% 27.8% 2004 - 2014 Cumulative (Since Inception) 696.2% 892.1% 132.1% 760.0% Compound Annual Return 20.8% 23.2% 8.0% 15.2% Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying footnotes on page 25. 10 PERSHING SQUARE HOLDINGS, LTD.

Pershing Square, L.P. Performance vs. the S&P 500 1000% 892.1% 900% PSLP Net (20% Performance Fee)(1,5) 800% PSLP Net (10% Performance Fee)(1,6) 696.2% 700% 600% S&P 500(3) -100% 1/31/04 12/31/14 PUBLIC ACTIVIST INVESTMENTS SINCE INCEPTION(7) Below are all of the companies to date, both long and short, in which Pershing Square has taken a public, active role in seeking to effectuate change. Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying footnotes on page 25.

LETTER TO SHAREHOLDERS Dear Shareholder: As this is the first annual letter that will be read by the public Pershing Square Holdings, Ltd. investors as well as one that is read by investors who have been our partners for years, I thought it would be useful to provide an overview of our strategy as it has developed over the last eleven years. In preparation for writing this letter, I re-read our investor letters since inception and highlighted the sections which I thought would be most useful to an understanding of Pershing Square. I often read the annual reports of companies in which we invest for the ten or more years preceding our investment as a way to understand the progress of a company and its strategy. To save you the effort of doing so for Pershing Square, later in this report, I have included excerpts from our previous letters organized by topic. Re-reading our investor letters was a useful exercise in that it has enabled me to better understand the development of our strategy over time. While the core of our investment strategy remains unchanged, the growth of the firm, our increasing “reputational equity,” expanded relationships and experience have enabled us to intervene as an active investor differently from our approach in the past. In Pershing Square 1.0, we took substantial stakes and pushed for corporate changes which we believed would create shareholder value. Our holding periods were shorter. We achieved high rates of return, but required constant recycling of capital into new ideas. The changes we advocated were more structural and corporate than managerial and operating – think Wendy’s spinning off Tim Hortons, or Ceridian being sold to private equity.8 We proposed change from outside the board room as we did not generally become a member of the boards of target companies. In retrospect, the development of our investment in General Growth Properties (GGP) represents the inception of Pershing Square 2.0.

In GGP, I joined my first board since the inception of Pershing Square, more than five years after we launched the firm. At the inception of our GGP investment, our original strategy was a financial restructuring of the company in bankruptcy. From the perspective of the board of directors, we identified additional opportunities to create value which led to a recapitalization of GGP along with a change in management which we played a role in identifying. It was the creation of The Howard Hughes Corporation (HHC) – which began as a spinoff of unrelated assets or businesses to unlock value – where we chose to take a much deeper approach. Unlike Tim Hortons, HHC did not actually exist at the time of our investment in GGP. We created HHC by assembling a pool of unrelated assets from GGP as a means to unlock the value of these principally non-income producing assets. Unlike in Wendy’s where we were advocating for the Tim Hortons spinoff from outside the boardroom, with HHC, we had the benefit and the responsibility of seeing it through. By going beyond a financial restructuring and getting deeper into the creation of a new board and in the recruitment of management, we recognized the potential for greater board oversight to create substantial longer-term value for Pershing Square and other stakeholders. HHC was not part of our original plan at the time of our initial investment in GGP. Since we created HHC from idea to launch, we had to help build a board of directors. As the largest stakeholder with more than a 25% stake in the new spinoff company, we ended up with the right to appoint one third of the board. With these attributes came responsibility. I became chairman of HHC because there was no one else logical to serve in this role. We then hired a new management team led by David Weinreb and Grant Herlitz.

While we had input into GGP’s new management team – we recommended Sandeep Mathrani for the job – at HHC, we identified and recruited the team and designed their compensation. 12 PERSHING SQUARE HOLDINGS, LTD.

In retrospect, the transition from Pershing Square 1.0 to 2.0 was unplanned and largely organic. Our involvement with HHC led us to other deep engagements at J.C. Penney, Justice Holdings/Burger King (now Restaurant Brands International), Canadian Pacific, Air Products, Platform Specialty Products, and Zoetis. With one disappointing exception, J.C. Penney, Pershing Square 2.0’s track record of board engagements has been extremely strong. While our degree of engagement has varied, the approach is similar. Find a great business where there is an opportunity for management, operational, and/or governance improvements. Build a large stake at an attractive price. Work with management and the board to make necessary changes. Seek board representation for members of the Pershing Square team or affiliated or independent representatives that we identify. While we give up some flexibility when joining a board, we have found that managements, boards, and Pershing Square benefit by our being present in the board room. CEOs often tell us that our involvement enables them to accelerate initiatives that they had previously advocated, but that the historic board was tentative about making out of concern with what the shareholders might think. With a large – and often the largest – shareholder represented on the board, who typically has the support of the majority of other owners, boards become more comfortable accelerating necessary change or making substantial new investments or acquisitions because they already have a shareholder sounding board in the board room. As our typical investments today incorporate both structural and operational improvements, they offer more levers to create value. The combination of these initiatives has enabled us to earn larger multiples of capital over longer holding periods. GGP, which we recently exited, is the best and perhaps most extreme example.

Our three current longest-standing holdings, HHC, CP, and Restaurant Brands have each appreciated multiple times since our initial investment. The balance of these commitments – Air Products, Platform Specialty Products, and Zoetis – are all off to strong starts since we got involved. We do not believe it is necessary for us to have a board seat in these commitments if we are confident that the existing board already has appropriate shareholder representation, and a management team with exceptional operating and capital allocation discipline. Restaurant Brands, which is controlled by 3G, is a good such example. While the bulk of our capital is invested in Pershing Square 2.0-like commitments, we are still open to shorter-term commitments if the opportunity for profit relative to risk is large enough. The benefits to our transition from Pershing Square 1.0 to 2.0 are significant. With reduced turnover in the portfolio, we can better understand our investments, reduce frictional costs, and continue to achieve high rates of return. Our reputational equity is also enhanced because as a longer-term investor, our recommendations for corporate change are more welcomed by the companies in which we invest and the major shareholders who own them. Longer-term investing in high quality businesses is also more scalable than Pershing Square 1.0’s strategy. Once we are in a position of influence and own a high quality business run by able management who manages the business well and allocates free cash flow intelligently, absent excessive overvaluation or a substantially better use of capital, there are few good reasons to sell. It is essential though that these commitments have all of the above: high business quality, managerial and operating talent, and intelligent capital allocation for them to continue to generate high rates of return over the long term. We believe that one of the biggest threats to the strategy has been the open-ended nature of our capital base.

With the launch and increasing scale of PSH and a growing base of employee capital, our effective permanent capital base is quickly approaching a majority of our capital. When this is combined with loyal investors, relatively long-term contractual commitments in the private funds, and an active investor relations program, our capital base approaches the ideal of permanency. We took advantage of this increased permanency by being nearly 100% invested in our core activist strategy beginning last year. Our 2014 results benefited from not being diluted by our historic need to keep a large pool of assets in cash and liquid passive investments. We expect that the growing stability of our capital will continue to be an enormous competitive advantage for the strategy and for Pershing Square. 2014 was one of the strongest years in our history as measured by performance, net dollars of profits generated, as well as developments with respect to existing holdings and a new investment which should

generate profits in future years. For a detailed review of the portfolio during 2014, please refer to the PSCM Annual Investor Update which is available on the Company’s website. The IPO of Pershing Square Holdings was perhaps the most significant accomplishment of 2014 in light of its material strategic long-term benefits to our investment approach. None of 2014’s accomplishments could have been achieved without extraordinary contributions from every member of the Pershing Square team. Our finance, accounting, investor relations, legal and compliance, administrative, technology, and investment teams committed an enormous amount of time, insight, and energy to the IPO and listing of Pershing Square Holdings while simultaneously being responsible for their day jobs running the operations and investment oversight functions of Pershing Square. Eleven years after our launch, the Pershing Square organization is functioning at its highest level of effectiveness ever. This is partly due to our extremely low turnover and the fact that most of us have worked together for more than five years and many of us for substantially longer. We are proud of our friendly, open, hard-working and family-oriented culture that has contributed greatly to our success, and that we have worked hard to preserve as the organization has grown. Long-term, our culture is likely to continue to be a key competitive advantage for the firm. Over the next 10 or so pages, I have excerpted sections from the Pershing Square letters from inception to the present that cover our business model, investment strategy, risk management, valuation, hedging, trading, investor relations, and other topics that would be of interest to a new investor in Pershing Square. These excerpts are cited as originally written with any updates reflected within end brackets.

You will note that there are de minimis updates, as even a decade later, our investment principles and philosophy are largely unchanged. For new Pershing Square investors, we hope you find these principles useful in understanding what to expect from us going forward. For our longer-term investors, you may find the thoughts on the attached pages to be a helpful reminder of the key elements of our strategy. As always, we encourage you to contact the investor relations team at IR-pershingsquareholdings@stockwellgroup.com if you have any questions. Sincerely, William A. Ackman 14 PERSHING SQUARE HOLDINGS, LTD.

PERSHING SQUARE PRINCIPLES risk and operational management which I will The Pershing Square Business Model discuss below. In order to achieve long-term success, Pershing  There is an inherent balance to our long/short Square must make good investments and operate investment approach. Historically, when equity with a robust business model. With much media or credit markets weaken, our shorts become attention focused on hedge fund failures, I thought more valuable, and occasionally materially it would be worthwhile reviewing the characteristics more valuable, offsetting somewhat the markof our business model and explaining why we will to-market declines in our long portfolio. If we withstand industry-specific and overall choose to unwind these short positions during environmental threats to the investment and hedge market downturns, we can generate capital to fund businesses. The principal factors which invest in a now less expensive market. These contribute to the robustness of our business model short investments generally stand on their own are as follows: in that they do not typically require a stock market or credit market decline to be  Our portfolio management approach is successful. That said, they have served as a inherently low risk (where risk is defined as the useful hedging tool during periods of dramatic probability of a permanent loss of capital), market declines. particularly when compared with other hedge  We have been paranoid about counterparty risk fund business models. An important since the inception of the firm. First, we trade distinguishing factor about Pershing Square with counterparties which we believe to be compared to most other hedge funds is that we creditworthy. Second, we have negotiated ISDA do not generally use margin leverage in our agreements which provide us with daily markinvestment strategy. The lawyers prefer that I to-market cash and U.S.

Treasurys equal to the put in the word “generally” to give us the previous day’s market value of our derivative flexibility to use margin to manage short-term contracts [in excess of certain minimum capital flows, but, to-date, we have not used but thresholds]. In cases where we are required to an immaterial amount of margin, and only for a post initial margin and therefore have some brief period of time, and we have no intention of exposure beyond the market value of our changing this approach. derivative contracts, we have typically  We generally invest in higher quality purchased CDS on our counterparties to further businesses with dominant and defensive mitigate counterparty risk. While our approach market positions that generate predictable free to counterparty risk has protected us from any cash flow streams and that have modestly or counterparty losses to date, please be negatively leveraged (cash in excess of debt) forewarned there is no perfect approach to balance sheets. We buy these businesses at avoiding counterparty risk. deep discounts to our estimate of intrinsic value giving us a margin of safety against a Our Approach to Risk Management permanent impairment of capital. I say Our simple approach to investing also allows us to “generally” again here because we do make avoid complicated approaches to risk exceptions in certain limited circumstances; that management. Our investment strategy does not is, we may buy a more leveraged or lower require us to open offices all over the globe. As quality business if we believe the price paid such, we don’t need traders working around the sufficiently discounts the risk. clock. We can go to sleep at night and sleep. Our  We often seek investments where we can weekends are largely our own. Our risk effectuate positive change to catalyze the management approach is to: (1) put our eggs in a realization of value.

This serves to accelerate few very sturdy baskets, (2) store those baskets in the recognition of value, helps us avoid “dead very safe places where they cannot be taken away money” situations, and protects us somewhat from us and sold at precisely the wrong time due to from managerial actions which can destroy margin calls, and (3) to know and track those value. baskets and their contents very carefully. We call  We are diversified to an adequate but not this approach the sleep-at-night approach to risk excessive extent. This has further benefits for management. If I can’t, we won’t.

I am extremely skeptical of more automated, attract and allow for the retention of top talent. Our algorithmic, Value at Risk, and other business team can be compensated appropriately even in school sanctioned approaches to risk times of short-term underperformance. Hedge management. None of these approaches saved funds which barely (or don’t even) cover their costs Lehman, Bear Stearns, Fannie, Freddie, AIG, with management fees are inherently unstable WaMu, Wachovia or any of the other institutions enterprises because in an unprofitable year they that used these and other ostensibly more cannot pay their people and are likely to lose their sophisticated risk management strategies. most talented professionals to other firms. Our investment strategy and approach to Pershing Square is a nice place to work. While this counterparty risk serves to limit the risks inherent sounds like an obvious approach to retaining in our individual investment selections, our talent, many and perhaps most hedge funds don’t counterparty risk, and the portfolio as a whole. fit this description. We are big believers in taking There are, however, other important risks to our care of our team not just financially and with business, principally operational, reputational, and attractive benefits, and we have those in spades. regulatory risk. We consider every employee at the firm a member of our extended family, and we treat and care for Operational Risk them appropriately. We do this not for business reasons, but it has important long-term business Our investment approach is largely straightforward benefits. and relatively simple. This, coupled with the concentrated nature of the portfolio, allows us to Pershing Square is an extremely exciting place to run our business with a limited number of work. We believe our work creates value beyond personnel.

We have [ten] investment professionals the profits we historically have generated for our including myself. investors. Our approach to value creation at businesses has created enormous value for We could manage our portfolio with less human investors who happened to own companies to talent than we have. For members of the which we contributed to the creation of value. investment team reading this letter, don’t be Similarly, investors and counterparties who concerned because I have no intention of shrinking listened to our views on the bond insurers, Fannie the team, but I make the point nonetheless. Mae and Freddie Mac, etc. saved themselves from Simplicity in our investment approach allows for a large losses or perhaps profited by short sales. simpler back office and a smaller overall staff. We The fact that our work creates value for the have [70] people total at Pershing Square. It could markets as a whole provides additional motivation be fewer, but one of Tim Barefield’s (our COO) to the team. important risk management principles provides for back-up talent for every role in the firm. Bottom line, we are built to last, and we will continue to work hard to deserve your continued Our Noah’s Ark approach to personnel duplication support. makes for a good analogy for the ship we have designed. We have worked hard to build a Reputational and Regulatory Risk business that can withstand the Great Deluge, and this goes beyond counterparty risk. For example, it Reputational risk is one of the key risk factors for a is not yet clear this year whether there will be any business that is subject to a high degree of incentive allocation to be shared at the firm. [This regulatory scrutiny in an industry that seems to excerpt was from November 3, 2008] That said, generate considerable public scorn.

Our approach whether or not the funds’ finish the year in the to assessing reputational risk is to apply the New black, it will be extremely unlikely that a member of York Times test. We ask ourselves whether we our team leaves by choice, and I have no intention would be comfortable having our family and friends of letting anyone go. This is due to several factors: read a front page New York Times story about actions taken by Pershing Square written by a Pershing Square’s large amount of assets under knowledgeable and intelligent reporter who has management per investment principal and per access to all of the facts. If we are comfortable with overall employee are important ratios to consider such an article being read by our close friends, our when evaluating the sustainability of Pershing families, and the public at large, our action passes Square or any hedge fund for that matter. The the test. If not, we reconsider our potential action. economics of a high-asset-per-employee ratio 16 PERSHING SQUARE HOLDINGS, LTD.

Concentration and Volatility permanent loss of capital in these situations is limited. Our investment policy of concentration will lead to volatile and eccentric results particularly in the We have historically also invested in other short term. As a result, we will likely have months, investments that have materially different risk and quarters, and years where we will underperform reward characteristics. These investments – the market benchmarks and our long-term because of the circumstances surrounding the expected rates of return. companies at the time of our investment, the highly leveraged nature of the businesses or assets, the We believe, however, that while [the funds] are at relative illiquidity of the investment, and/or the greater risk of underperformance during short-term structure of our investment – have a materially periods and are likely to be substantially more greater likelihood of a potential permanent loss of volatile than less concentrated strategies, our capital for the funds. In light of this greater risk, we approach has the strongest probability of leading require the potential for a materially greater reward to high long-term levels of investment performance if we are successful, and we size the investments over a three to five-year measuring period. appropriately. Depending upon the risk of loss, these investments may individually comprise a few Pershing Square’s performance over the long term percent or less of capital, and often less than one will primarily be a function of the equity percent of the portfolio. investments we make on a security-by-security basis – principally as long investors and less so as On Retaining the Option to Abandon short sellers.

As you know, our holdings are concentrated so our performance will likely be I consider one of our investment strengths to be more volatile than that of investors who are more our willingness to promptly change our mind when diversified. confronted with new information which is inconsistent with our original investment thesis. I There are also likely to be periods during which our have learned from prior experience that sometimes performance dramatically exceeds or greatly the better part of valor in an investment situation is underperforms stock market indexes. We are to move on. willing to endure a high degree of stock price and portfolio volatility because we believe it allows us Long Investments to achieve a greater degree of investment performance over the long term. We believe that As a general rule, we purchase simple, predictable, this strategy is appropriately matched to the long- free-cash-flow generative businesses that have term capital we and our investors have committed sustainable competitive advantages due to brand to the funds. power, unique assets, long-term contractual arrangements, or other factors. These companies In light of the high degree of concentration of the are [generally] modestly or negatively leveraged fund, you should expect a similar degree of (i.e., have more cash than debt) and do not need concentration in our performance. That is, our top access to the capital markets to survive and thrive. few ideas should contribute the majority of our These businesses generate more capital than they profits for the year. If we can avoid significant need for reinvestment. They deploy this excess losses and have a few good successes each year, capital by buying back their own shares and by you will likely be happy with the results. paying dividends to shareholders.

Risk of Permanent Loss of Capital and Investment As a result of the above characteristics, the Sizing intrinsic value of the businesses that we own is relatively immune to equity and credit market The substantial majority of the portfolio has been volatility. They [generally] do not have large debts invested in large and mid-capitalization North that need to be refinanced. They [generally] do not American listed equities, often with catalysts to need to raise equity capital to continue to exist or unlock value, at times situations where Pershing even to grow. Because these companies are Square can be the catalyst. Because these buyers of their own shares, we are actually the investments tend to be well-capitalized dominant beneficiaries of short-term declines in their share business franchises that have been acquired at prices because more shares can be repurchased discounted valuations, we believe the risk of in the market with the same amount of capital. Our proportionate interest in these companies will grow

at a higher rate if their stocks decline than if their and the event-driven nature of most of our share prices were to have risen over the same investments. period. While a more positive macro environment will Because these businesses have superior increase the value of our holdings, we expect to economic characteristics and limited or negative generate high long-term rates of return from our financial leverage, I would expect our long existing holdings even without a substantial investments, on average, to decline less than the improvement in the economy. I have come to think market as a whole in a dramatic market decline. of our investment approach as akin to a form of The stock prices of our investments, however, are long-term arbitrage, where we invest and then still likely to decline during periods of equity market work with our portfolio companies to cause the declines unless specific value-creating events spread between our purchase price and intrinsic occur that will cause a realization of value. value to narrow. In some cases, in addition to unlocking existing value, we can assist a company Pershing’s investment strategy requires us to in increasing its long-term intrinsic value by identify investments for which we can determine bringing in new management, adopting a change their outcome with a very high degree of in strategy, modifying its structure and approach to probability. As a result, we typically invest in allocating capital, by selling or spinning off nonbusinesses with low business volatility and a high core assets, through cost control and with other degree of cash flow predictability. approaches.

As an investor who has successfully effectuated Our ability to cause the price-value spread to corporate change and as typically one of the narrow is, in most cases, unrelated to macro largest holders of the companies in which we events, and has improved significantly over the last invest, we are well positioned to push for value- [eleven] years. It is largely a function of Pershing creating actions in the event such opportunities are Square’s growing influence in the capital markets, created in volatile markets. our experience with previous investments, and specific circumstances with each of our holdings. For obvious reasons, we much prefer that a stock price declines while we are acquiring our interest Short Selling for it enables us to buy a full position at a lower price. While we don’t automatically buy more if the While our shorts in [some] previous years reduced share prices of our holdings decline, it is the rare our performance largely on a mark-to-market circumstance where an existing holding’s stock basis, the drag on fund performance was price declines meaningfully and we are not excited [generally] small when compared with our absolute to take advantage of the opportunity. This is true performance. While our short investments are because the businesses in which we generally designed to enable us to profit from securitychoose to invest are those whose values are not specific opportunities, they have the important materially affected by extrinsic factors we cannot additional benefit of hedging our long investments, control. While nearly every one of our investments which typically have some degree of economic is exposed to the economy to some degree, we sensitivity.

Our shorts are also a source of liquidity attempt to identify companies for which increases in dramatic market downturns. or decreases in interest rates, commodity prices, short-term volatility in the economy, and similar Our favorite short opportunities are companies that factors are not particularly material to our are highly leveraged, need access to capital to investment thesis. survive, require substantial management judgment in the determination of their reported earnings, and Long Exposure and Market Correlation have fundamentally bad business models. These criteria have led us to short investments in the Our greater long equity exposure means that we financial service industry, principally insurance or are likely to have greater daily correlation with credit guarantee businesses. For equity shorts, we short-term moves in the market than if we had less have an additional criterion which requires that exposure. Over longer periods, we expect our there is a “ceiling on valuation.” A ceiling on portfolio to continue its high degree of divergence valuation is what we deem to be the equivalent of from overall stock market performance because of a margin of safety for long investments. In other the high degree of concentration in our holdings words, we look for equity shorts where the conventional bounds of valuation for a particular 18 PERSHING SQUARE HOLDINGS, LTD.

business protect us from material stock price Mispriced Probabilistic Investments increases. Investing is a probabilistic business. For every Because it is difficult to identify opportunities with commitment of capital we make, we compare our the above criteria, you should expect that we will estimation of the likelihood of success with the find few short investments over time, certainly probability of failure. We then assess how much when compared with long opportunities. That said, we can make in a successful outcome with our when we find interesting shorts, we can often make best estimate of what we can lose in an these positions quite large using CDS while taking unsuccessful outcome. We are willing to take more minimal risk of the loss of a material amount of risk in a situation that offers more reward. fund capital. We find the purchase of CDS to be a far superior While most of our long investments are comprised means to implement a short sale when compared of great businesses or assets at fair prices with a with shorting stock because of the modest risk catalyst to create value, we occasionally are willing incurred versus the potential reward. While our risk to invest a small amount of fund capital in in purchasing CDS is limited to modest premium situations which offer the potential for a many-fold payments, the reward is potentially many times the profit at the risk of a large or near-total loss of capital that we risk. CDS positions can be built in capital invested. I typically call these investments enormous size, usually substantially larger than mispriced options. Our CDS investments fit this that of equity shorts. We have [historically] found profile. While not all mispriced options will be the degree of liquidity available in CDS to be profitable for the funds, I expect our collective ample for us to execute and realize our experience in these commitments to be quite investments.

By comparison, shorting stocks favorable over time. requires us to borrow shares which can often be in limited supply, require the payment of substantial Valuation borrowing costs, and are at risk of being called away at inopportune times. For the above reasons, We believe the value of a business is equal to the you should expect most of our notional short present value of the cash the business generates exposure to be executed through CDS rather than for its owner over its lifespan. By analogy to debt equity shorts. For those of you who are less instruments, a business is like a bond where the familiar with CDS, below I provide a brief primer on owner will receive a stream of coupons over its life, CDS. but where the coupons are variable and not precisely known, and the business’ life or term is CDS contracts are best described as multi-year similarly uncertain. To value a business, one needs insurance policies which pay off when a company to predict approximately how much cash the defaults on its obligations. These contracts trade in business will generate that can be distributed to its the over-the-counter market and are priced on a owners over its life on a per-share basis. I minute-by-minute basis based on the market’s emphasize ‘per share’ because dilution from option estimate of the probability of default of the issuer issuance or from ill-advised acquisitions – or, referenced in the CDS contract. conversely, accretion from stock buybacks – can have a very material impact on the long-term, perThe degree of risk associated with CDS largely share value created for owners. depends on which side of the contract the counterparty is exposed. The seller of the contract Because of the inherent uncertainty in valuing is the insurer and the buyer is the insured.

We bonds with unknown coupons and terms, we have have only been a buyer of CDS contracts (or a generally chosen to invest in businesses where the seller of contracts we already own), which means coupons (the economic earnings) are more that we commit to pay quarterly premiums for the predictable, and the long-term prospects are more full term of the CDS contract which can typically certain. This has led us to purchase interests in range from one to ten years. Our maximum simple, predictable, free-cash-flow-generative exposure in a CDS contract is the present value of businesses. We also require a purchase price these future contractual premium payments. Our which represents a large discount to our estimate maximum potential for gain is the face value or of intrinsic value. This, perhaps more than notional amount of the contract. By contrast, the anything, helps mitigate the risk of our being wrong risk to the seller of CDS is the notional amount of about our future estimate of a business’ the contract or, in insurance terms, the face performance. amount of the policy.

Management and governance can have a big bankruptcy, changes to capital structures, impact on the per-share prospects of even the best operating enhancements, a sale to a strategic businesses, and an even greater impact on lower- buyer, and others – that make them somewhat less quality businesses. This has led us to purchase sensitive to overall stock market movements. Even higher-quality businesses when we can find them so, if the stock market were suddenly to decline at prices that make sense. The importance of good substantially, most of our long investments would governance and management to a successful likely decline in value. investment outcome is made particularly clear when the cash flows to the owners of a business While some hedge fund investors mitigate their are back-end loaded. The majority of the cash (often large) gross exposures through offsetting generated by most publicly traded businesses is short positions that equal or approach the size of not distributed to their owners in the short term. their long portfolio and result in a low net exposure, Cash returned to owners in the form of dividends this is not an approach with which we are and stock buybacks usually represent a minority of comfortable. Despite our substantial net long the cash generated by the business, with the exposure since inception, we have been able to balance of a business’ cash often reinvested in generate high returns with modest downward new projects or acquisitions. volatility because of the inherent balance in our portfolio: The substantial majority of our assets are As a shareholder willing and able to take a pro- typically invested in high quality, well-capitalized active or re-active stance with respect to our businesses at substantial discounts to intrinsic holdings, we can help mitigate the risk of poor value with catalysts for value creation.

These long governance and the inefficient use of excess cash investments are [occasionally] balanced by short by having an impact on both management and positions, principally expressed through credit governance. While we can have significant default swaps, in high-risk, highly leveraged influence, we cannot completely eliminate poor enterprises often with aggressive and/or fraudulent investment or management decisions. As a large accounting and bad business models. influential shareholder, we can also often play a meaningful role in determining when the equity Hedging Instruments “bond” comes due. For example, if it makes sense While we make no attempt to manage short-term for a business to be sold because it has reached volatility in our performance, we have always the end of its strategic life, or because sought to identify investments from which we will management cannot be identified to maximize the profit in the event of dramatic downward moves in value of a business, or because the greatest longthe stock or credit markets. For this category of term value can be generated through a sale, we investments or hedges, our strong preference is for can meaningfully increase the probability that a situations where we risk only a modest amount of sale can be executed. capital in exchange for a large payoff should the Hedging event take place, and a potential total loss of the capital invested in the event it does not take place. We have never managed the funds to be so-called Because of the limited amount of our capital that “market neutral,” nor have we attempted to mitigate we expose to these commitments, the cost of such (or take advantage of) the funds’ exposure to a hedging program in the last few years has been short-term market movements because we do not a small drag on our performance, with the risk believe we have a competitive advantage in doing limited to the modest amount of capital invested in so.

Rather, we invest our capital in a small number these strategies. Viewed in its entirety, however, of situations which we believe have modest this investment program has generated enormous downside risk and substantial opportunities for net returns for the funds largely due to profits from profit. The modest downside risk comes from: (1) credit default swaps (CDS) in 2007 through 2009. the identification of high quality businesses that are relatively immune to short-term macro factors and For the first five years of our existence, we other extrinsic risks outside of our control, and (2) purchased large amounts of CDS on single-name the fact that we have purchased our investments at credits or the investment grade indexes to perform prices which we believe to be a substantial this function. CDS were an ideal form of disaster discount to our assessment of intrinsic value. In protection because we were able to identify credits addition, many of our investments have specific whose ratings or perceived creditworthiness were catalysts to unlock value – progress through much greater than the reality. As a consequence, 20 PERSHING SQUARE HOLDINGS, LTD.

we could short credits on which we expected to The Impact of Macro Factors on Our Investment profit as the market eventually reassessed their Selection creditworthiness, when credit events took place, or when stocks and bonds generally declined in Despite the fact that we occasionally have an value. These were ideal hedges, as the best and opinion, we spend little time trying to outguess least costly hedge is one which you would market prognosticators about the short-term future purchase as a standalone investment without of the markets or the economy for the purpose of regard to its hedging benefits, but one which also deciding whether or not to invest. Since we believe is likely to increase in value dramatically at times of that short-term market and economic market stress. prognostication is largely a fool’s errand, we invest according to a strategy that makes the need to rely We have been unable to identify large single- on short-term market or economic assessments name, standalone CDS investments since 2009. largely irrelevant. This is largely due to the rapid improvement in corporate creditworthiness over the last [six] years. Our strategy is to seek to identify businesses and occasionally collections of assets which trade in Asymmetry in Hedging and Investing the public markets for which we can predict with a high degree of confidence their future cash flows – Since the inception of the funds, we have not precisely, but within a reasonable band of purchased options which offer asymmetric payoffs outcomes. We seek to identify companies which in the event of the occurrence of low-probability offer a high degree of predictability in their catastrophic or otherwise unanticipated negative businesses and are relatively immune to extrinsic events. These events could include large factors like fluctuations in commodity prices, movements in interest rates, currencies, or other interest rates, and the economic cycle.

Often, we asset prices that we believe may occur during are not capable of predicting a business’ earnings periods of market stress. Most of the options that power over an extended period of time. These we have purchased that fit this description have investments typically end up in the “Don’t Know” historically expired worthless. You have not noticed pile. these losses because the size of these commitments has been immaterial. Because we cannot predict the economic cycles with precision, we look for businesses which are We have committed capital to these investments capitalized to withstand difficult economic times or because of the potential hedging benefits they even the normal ups and downs of any business. If offer, and also, in certain cases, because we we can find such a business and it trades at a believe the pricing of the instruments understates deep discount to our estimate of fair value, we the expected value of the payoff event. For each of have found a potential investment for the portfolio. these investments, the payoffs have historically Next we look for the factors that have led to the been zero or nominal unless there is a large business’ undervaluation, and judge – based on movement in the underlying instrument, which is our assessment of the company’s governance only likely to occur during periods of extraordinary structure, management team, ownership, and other market stress. As such, they are not likely to factors – whether we can effectuate change in protect the funds from other than very large market order to unlock value. When the price is right, the declines, and even then there is no guarantee that business is high quality, the management is they will serve their desired function. excellent, and there are no changes to be made, we are willing to make a passive investment.

We have also made asymmetric investments which are not for hedging purposes but which also offer Our assessment of the short-term supply and large payoffs on relatively modest commitments of demand for securities plays almost no role in our capital where we similarly believe that the market determining whether to invest capital, long or short. has mispriced the probability of a positive outcome. If we believed that it was possible to accurately In some cases, as with GGP, we were able to buy predict short-term market or individual stock price common stock for less than a dollar per share movements and we had the capability to do so because the probability of a recovery for ourselves, we might have a different approach. shareholders was correctly perceived to be de minimis, but where our active intervention could Over the past [11] years, we have profited not meaningfully tilt the probability of a successful because of our predictive powers concerning outcome in our favor. macro events, but rather because of our ability to

identify high quality companies with low business requirement that one build reputational equity volatility that trade at a discount to intrinsic value, among the community of investors who represent where catalysts exist or can be created to narrow the largest shareholders of corporate America. It the valuation gap. takes years to build a track record with institutions such that they are willing to back an activist Because we do not believe that we have a seeking control or substantial influence over a competitive advantage in predicting short-term corporation. It takes years of doing what we say we market or economic conditions, we generally are going to do and strong investment choose to invest in businesses that will excel in performance to get the institutional and retail almost any economic environment. Even so, given backing required to effect change at large cap that our funds have investments which are companies. Our large and growing reputational generally more long than short; an improving equity will therefore remain a very significant moat economy will assist the funds’ performance. for Pershing Square in the future. One of our additional barriers to entry is less tangible, but no We expect, however, that investment selection, less significant. It is best deemed creativity. Many rather than macro factors or stock market of our most successful investments have been in movements, will continue to be the principal situations and used transaction structures that determinant of our performance as the substantial were previously unprecedented. majority of our historic (and anticipated) profits have come from the narrowing of valuation Doing large unprecedented transactions attracts discrepancies between the prices we have paid for attention, some number of detractors, and our investments (or received in shorting a security) enormous media and other public scrutiny.

As we and fair value. have said before, it requires a very thick and calloused skin. It also requires some tolerance Our Strategy’s Structural and Competitive from our investors who are likely to read periodic Advantages criticisms from those who resent our success and would like to see us fail, from our adversaries, and As a large capitalization activist investor, we from members of the media who are often not that believe our strategy benefits from a large well informed of the facts, or otherwise fail to check opportunity set, sizeable barriers to entry, and so-called “facts” presented by our adversaries. We limited competition. tolerate the enormous volumes of press and the occasional attacks as a necessary and unfortunate We believe that the largest companies offer the evil of a high-profile activist strategy. most opportunity for corporate change because they are typically held by passive shareholders and Trading and Liquidity are too large to be vulnerable to private equity buyouts. Large cap businesses are typically high Trading is largely an art and not a science, a quality companies, as they would not typically discipline in which you can always look back and achieve high valuations without substantial conclude that you could have done it better. That is revenues, profits, and free cash flow. After one of the reasons why portfolio managers hire decades of high profits and cash flows, many large traders (it enables the portfolio manager to shift the businesses become less disciplined about cost blame to others) and why being a trader is such a control and capital allocation, and may otherwise treacherous job. lose focus.

The number of large cap companies is substantial, particularly when compared to a We seek investments in which there is a wide strategy which, due to its concentration and long- spread between price and value and then term holding periods, requires that we identify only complete sufficient due diligence to obtain high one or two new ideas per year to generate conviction in our analysis. As a result, when we attractive returns for our investors. find something we would like to buy, once we have completed our work, our general approach is to Large capitalization shareholder activism has the buy as much of a particular security as we can benefit of significant barriers to entry to prevent without disturbing the price until we reach our large capital flows into the strategy. If one wishes targeted position size. In some cases, securities to be a large cap activist, one has to raise large decline as we buy them (the ideal situation), in amounts of capital, which is difficult for a start-up others they stay at approximately the same price, investment manager to achieve. More significantly, the greatest barrier to entry for the strategy is the 22 PERSHING SQUARE HOLDINGS, LTD.

or alternatively they rise in price (the problematic While there are certain situations today that we will case). pass on because of their small size, there are others that we can now pursue that we would not One of the reasons why we prefer liquid securities have had the resources to execute in the past. In to illiquid situations is because of the greater other words, while some smaller names have probability that we will be able to acquire a position dropped off the list, new larger names have been at or around the price that our analysis was based added to our investment universe. upon. Unless we believe that at the time of purchase, it is a once-in-a-lifetime buying We believe that these larger businesses generally opportunity (think GGP), we typically leave some offer greater opportunities for the kinds of room to increase our position if the price/value corporate change that we often pursue. This is due relationship becomes even more favorable in the to the fact that these large enterprises have not future. Unlike many investors, we do not take token been owned by active investors historically and positions as we begin work and then add to have been largely insulated from private equity and positions as we build conviction. We are either all- other unsolicited investors because of their scale. in (while often retaining a “re-buy” ticket in our As a result, we continue to believe that for the pocket), or we keep our chips in a large pile of U.S. foreseeable future, scale will be an asset for Treasurys. Pershing Square, and, therefore, we have kept the [core private] funds open to new subscriptions.

The Scale and Shareholder Activism goal has not been to raise additional capital, but rather to maintain capital stability by accepting We believe that large scale shareholder activism is capital to replace redeeming investors over time. one of the few investment strategies where there are economies and competitive advantages that That said, we intend to manage our capital flows come with scale. The economies of scale arise carefully. If we receive commitments for amounts from the fact that large capitalization companies that we feel we cannot invest or which will cause have typically never been pushed by an activist or unacceptable dilution in current holdings, we will a private equity investor and, as such, often offer postpone accepting these funds until our unrecognized opportunities for value creation. circumstances change. While this may cause some These opportunities arise due to hidden value in investor nuisance, we will do our best to keep you undervalued subsidiaries or divisions, inefficient in the loop so that we minimize any inconvenience uses of capital, and opportunities for cost reduction on your part. and margin expansion. As our funds have grown in size, we are able to invest in and influence a The alternative would be to close the funds universe of companies that previously were too temporarily or permanently. In light of the openlarge for us to work with. Historically, we have ended structure of [some of] our funds, we think addressed this problem by raising SPVs to pursue that such an approach would lead to reduced a particular investment, although there are stability in our capital base. disclosure and other risks associated with using SPVs to address this issue.

Transparency From a competitive standpoint, we have few Our goal in our communications with you is to give competitors in large cap shareholder activism, and you the information we would want if our positions we believe that we are unlikely to have many such were reversed, that is, if we were the investor and new competitors in the future. This is due to the you the investment manager. Using this paradigm, difficulty of raising sufficient capital to form a start we endeavor to inform you about business up to pursue this strategy, and the time required to challenges and related developments as promptly build the reputational equity needed to effectuate as practicable, as good news generally takes care it. Large cap activism is one of the few investment of itself. We will, however, not disclose information strategies where one’s track record on previous to anyone (unless of course we are required to do investments increases the probability of success so by law) if we believe it may compromise our on future such investments. It takes years to build investment program. Fortunately, our investment such a record, and as such, our track record of strategy by its nature is readily transparent successful activism is an important long-term because it is largely comprised of a small number competitive advantage for Pershing Square. of long investments in listed North American companies, and the amount of turnover in the portfolio is generally modest.

Transparency, however, creates risk for the funds and who hedge fund managers actually are, and to because an early disclosure of a position that we help mitigate some of the negative attention that are accumulating or selling would likely harm our our industry, undeservedly for the most part, ability to maximize value for our investors. For this receives. reason, absent a legal requirement, we are careful to avoid making early disclosures of investment We are going to make mistakes. Because we information that could be damaging to the funds. manage a large pool of capital and we make active investments in large capitalization, high-profile Investor Relations companies, our mistakes are often going to be much more visible than those of other investment With more than [500 (and likely thousands more professionals. The dollar losses are also generally with PSH)] investors, the demand on my and other going to be larger. Our mistakes are therefore members of the Investment Team’s time to meet going to attract a disproportionate amount of media with investors on an ad hoc basis risks taking time attention. This media attention is a natural outcome away from investment decision making and of our high profile strategy. Over time, the media analysis. At the same time, investors have a right has been helpful in our engagements with our to a high degree of transparency in their portfolio companies, and we expect the firm’s investments in the funds. visibility to continue to be a sustainable competitive advantage. As always, the Investor Relations team under Tony Asnes’s oversight will be available to answer Confidence and Humility in Investing investor questions as they arise on a day-to-day basis. You should expect the IR team to be Confidence and conviction without humility can be extremely well informed, and members of the team dangerous in the investment business.

When one should be able to answer substantially all of the shares an investment thesis publicly, it can be questions that you have, other than questions that more difficult to change one’s mind because the if answered might disadvantage the firm. human mind has a tendency to ignore data that are inconsistent with a firmly held view, and particularly I thoroughly enjoy the company of our investors. so, when that view is aired publicly. That is likely That is part of the problem. Time management for why Wall Street analysts continued to rate MBIA a our small Investment Team is a critical success buy until it nearly went bankrupt. And, I believe it is factor for Pershing Square going forward. We are why analysts will likely keep their buy ratings until confident that [our quarterly investor] calls will Herbalife is shut down by regulators or the increase the quality and timeliness of information company faces substantial distributor defections flow, decrease the time that I and the other [and collapses due to deteriorating fundamentals]. members of the Investment Team spend in oneon-one meetings, while allowing the Investment I have learned that the key to long-term success in Team to continue our pursuit of our most important investing is to balance confidence with the humility long-term goal of delivering high returns while to recognize when the facts are no longer taking a modest risk of a permanent loss of fund consistent with one’s original investment thesis. It capital. is critically important not to let psychological factors interfere with economic rationality in investment Media decision making. The nature of our investment approach has Our willingness to change our mind and exit at a historically attracted large amounts of media substantial loss on a high-profile investment [i.e., attention which we have used to our advantage in J.C.

Penney] should give you comfort that we will negotiating with companies that are resistant to our make rational investment decisions without regard ideas. Oftentimes, a public airing of issues is to emotional, personal or other considerations. extremely effective in motivating a publicity-shy This approach will likely serve to mitigate losses in company to see the light on important shareholder failed investments and is a critical component of and governance issues. our long-term approach. We have also cooperated with the media occasionally to do our part on behalf of the hedge fund industry in attempting to remove some of the stigma surrounding what hedge funds actually do 24 PERSHING SQUARE HOLDINGS, LTD.

FOOTNOTES TO 2014 KEY HIGHLIGHTS AND INVESTMENT MANAGER’S REPORT 1 Performance results are presented on a gross and net basis. Net returns include the reinvestment of all dividends, interest, and capital gains and assume an investor has been invested in the relevant Pershing Square fund since inception and participated in any “new issues”, as such term is defined under Rules 5130 and 5131 of FINRA. Net returns also reflect the deduction of, among other things, management fees, brokerage commissions, administrative expenses and historical or assumed performance fee/allocation (if any). 2 The inception date for the Company is December 31, 2012. The Company’s performance fee during 2013 and 2014 was 16%. The 16% performance fee will be reduced by 20% of all performance fees/allocations earned by Pershing Square and its affiliates from other existing and certain future private funds, provided that no reduction will occur until certain expenses of the Company that have been advanced by Pershing Square (i.e., underwriting fees and other costs of the placing and admission of Public Shares, commissions paid to placement agents and other formation/offering expenses incurred during the private phase of the Company) plus a yield of 4.25 per cent. per annum (the “Offset Amount”), are recouped by Pershing Square. 3 The S&P 500 (“index”) has been selected for purposes of comparing the performance of an investment in the Pershing Square funds with a wellknown, broad-based equity benchmark. The statistical data regarding the index has been obtained from Bloomberg and the returns are calculated assuming all dividends are reinvested. The index is not subject to any of the fees or expenses to which a Pershing Square fund is subject.

The Pershing Square funds are not restricted to investing in those securities which comprise this index, their performance may or may not correlate to this index and it should not be considered a proxy for this index. The volatility of an index may materially differ from the volatility of the Pershing Square funds’ portfolio. The S&P 500 is comprised of a representative sample of 500 U.S. large cap companies. The index is an unmanaged, floatweighted index with each stock's weight in the index in proportion to its float, as determined by Standard & Poor’s. The S&P 500 index is proprietary to and is calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P® and S&P 500®, among other famous marks, are registered trademarks of Standard & Poor's Financial Services LLC. © 2014 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. All rights reserved. 4 This report reflects the attributions to performance of the portfolio of the Company. Positions with performance attributions of at least 50 basis points are listed above separately, while positions with performance attributions of 50 basis points or less are aggregated. The attributions presented herein are based on gross returns which do not reflect deduction of certain fees or expenses charged to the Company, including, without limitation, management fees and accrued performance fee. Inclusion of such fees and expenses would produce lower returns than presented here. In addition, at times, Pershing Square may engage in hedging transactions to seek to reduce risk in the portfolio, including investment specific hedges that do not relate to the underlying securities of an issuer in which the Company is invested.

The gross returns reflected herein (i) include only returns on the investment in the underlying issuer and the hedge positions that directly relate to the securities that reference the underlying issuer (e.g., if the Company was long Issuer A stock and also purchased puts on Issuer A stock, the gross return reflects the profit/loss on the stock and the profit/loss on the put); (ii) do not reflect the cost/benefit of hedges that do not relate to the securities that reference the underlying issuer (e.g., if the Company was long Issuer A stock and short Issuer B stock, the profit/loss on the Issuer B stock is not included in the gross returns attributable to the investment in Issuer A); and (iii) do not reflect the cost/benefit of portfolio hedges. Performance with respect to currency hedging related to a specific issuer is included in the overall performance attribution of such issuer. The performance attributions to the gross returns provided herein are for illustrative purposes only. The securities on this list may not have been held by the Company for the entire calendar year. All investments involve risk including the loss of principal. It should not be assumed that investments made in the future will be profitable or will equal the performance of the securities on this list. It should not be assumed that investments made in the future will be profitable. Past performance is not indicative of future results. Please refer to the net performance figures presented on page 5. 5 PSLP’s performance results are presented as it is the Pershing Square fund with the longest track record and substantially the same investment strategy to the Company. The inception date for PSLP is January 1, 2004. In 2004, PSLP earned a $1.5 million (approximately 3.9%) annual management fee and performance allocation equal to 20% above a 6% hurdle from PSLP, in accordance with the terms of the limited partnership agreement of PSLP then in effect.

That limited partnership agreement was later amended to provide for a 1.5% annual management fee and 20% performance allocation effective January 1, 2005. The net returns for PSLP set out herein reflect the different fee arrangements in 2004, and subsequently. In addition, pursuant to a separate agreement, in 2004 the sole unaffiliated limited partner paid Pershing Square an additional $840,000 for overhead expenses in connection with services provided unrelated to PSLP, which have not been taken into account in determining PSLP’s net returns. To the extent that such overhead expenses had been included as fund expenses, net returns would have been lower. 6 The performance fee of the Company would be 10% based on current levels of Company fee paying AUM and total Pershing Square private funds’ fee-paying AUM as of February 28, 2015, assuming the Offset Amount (as defined below) is paid in full. References to “Company fee paying AUM” exclude any AUM attributable to management shares and references to “Pershing Square private funds’ fee-paying AUM” exclude (i) any AUM attributable to investments in any Pershing Square fund by PSCM, its employees and affiliates and (ii) any AUM attributable to investments in PS V, L.P., PS V International, Ltd. and their affiliates. The hypothetical cumulative net returns presented herein are calculated based on the application of the historical monthly net returns of PSLP as adjusted to reflect the hypothetical lower performance fee of 10%. This information is presented only for the limited purpose of providing a sample illustration. Furthermore, the information provided herein assumes that each of the relevant Pershing Square funds earns the same rate of return, net of management fee and expenses, but before performance fee/allocation, as PSLP. Actual performance of the other Pershing Square funds has differed in the past and is expected to differ in the future.

As a result, actual returns may vary significantly from the hypothetical calculation set forth in this table. 7 While the Pershing Square funds are concentrated and often take an active role with respect to certain investments, they will own, and in the past have owned, a larger number of investments, including passive investments and hedging-related positions. “Short equity” includes options and other instruments that provide short economic exposure. All trademarks are the property of their respective owners. It should not be assumed that any of the securities transactions or holdings discussed herein were or will prove to be profitable, or that the investment recommendations or decisions Pershing Square make in the future will be profitable or will equal the investment performance of the securities discussed herein. Specific companies shown in this presentation are meant to demonstrate Pershing Square’s active investment style and the types of industries in which the Pershing Square funds invest and are not selected based on past performance. 8 Please see page 11 for a complete list of companies with respect to which Pershing Square has taken a public active role in seeking to effectuate change.

Key Themes

• Capital Allocation Discipline — the Allergan position was underwritten as a bet on Valeant's "superior cost structure, operating model and capital allocation strategy," and the letter frames permanent capital itself as the firm's most important allocation decision
• The Activist Premium — Pershing Square 2.0's claim that board-level engagement creates value that passive ownership cannot
• The Right CEO — the letter's pattern of recruiting and backing operators, from David Weinreb at HHC to Seifi Ghasemi at Air Products, and — fatefully — its endorsement of Valeant's model under J. Michael Pearson
• PSH IPO Prospectus — the listing document whose promise this letter begins to redeem

Context & Significance

This is Act II, the golden era, at its zenith — and the letter knows it. Ackman describes 2014 as "one of the strongest years in our history as measured by performance, net dollars of profits generated, as well as developments with respect to existing holdings." The mindset on display is that of a builder who has just removed the last structural constraint on his strategy. For a decade, the open-ended fund structure meant that even a brilliant activist could be forced to sell at the wrong moment by redeeming limited partners; the PSH listing, in his telling, solves this permanently. There is genuine intellectual force in the 1.0-to-2.0 framing: the admission that GGP and HHC taught him boardrooms create more value than proxy fights is a real evolution, not marketing.

What the letter cannot see is what the confidence conceals. The same Valeant partnership that made Allergan the year's triumph also made Valeant the fund's largest position, and the letter's praise for its operating model reads very differently after Act III. The Allergan trade itself was a new structure — financing a bidder to force a sale — executed at a moment when everything Ackman touched worked. Even the Herbalife paragraph, one defiant sentence about a thesis that "will collapse or otherwise be shut down by regulators," shows the golden-era habit of treating adversarial positions as settled conclusions. Read in sequence, the 2014 letter is the baseline against which the valley years must be measured: the principles here are the ones the 2016 report will have to re-examine under duress.