Pershing Square Holdings Annual Report 2018

Summary

The 2018 annual report closes the valley years with an unlikely combination: another decline in NAV per share (-0.7%, though 370 basis points ahead of the S&P 500) paired with the most confident structural statement Ackman had made since 2014. The letter reports that the eighteen-month rebuild is complete — the strategy refocused on core principles, the management company shrunk back to an investment-centric operation, and the capital base transformed: roughly $6 billion of the firm's approximately $8 billion in assets now sits in PSH, and the Pershing Square team itself owns more than 20% of the shares. The centerpiece is a self-interview, a "primer on PSH" written for a turnover-renewed shareholder base, in which Ackman recasts the closed-end fund as a tax-efficient holding company of minority "subsidiaries" — Restaurant Brands, Hilton, Starbucks, ADP, Chipotle, Howard Hughes, United Technologies, Lowe's, Fannie Mae and Freddie Mac. It is the doctrinal bridge from the valley to the renaissance.

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 In early 2018, the Investment Manager announced that it had taken significant steps to refocus its organization, and to address the subpar investment performance in previous years. I am pleased to report that these actions had a positive impact during 2018. PSH’s Net Asset Value (“NAV”) grew strongly for the majority of the year, until Q4 2018, when the share prices of PSH’s portfolio companies declined along with the broader market leaving NAV slightly down for the year, albeit 370 bps ahead of the S&P 500 Index (“S&P 500”).i,ii As the markets have recovered in 2019, PSH’s NAV has substantially outperformed the S&P 500, which the Board believes attests to the quality of PSH’s portfolio companies, the effectiveness of the Investment Manager’s activist strategy and the validity of its investment theses. Many investors today are increasingly allocating capital to passive investment strategies. The Investment Manager’s longterm activist strategy is a key differentiator. The Investment Manager aims to invest in businesses that can be successful in a variety of macro-economic environments and generate superior returns for shareholders over the long term. The distinction is often less apparent when markets are rising, and can be more evident during periods of market turbulence.

INVESTMENT PERFORMANCE

During the year ended December 31, 2018, PSH’s NAV declined -0.7%, ending the year at $17.30 per share. Over the same period, the S&P 500 declined -4.4%. Through September 30, 2018, PSH’s NAV increased 15.8%, significantly outpacing the S&P 500 return of 10.6%. As a result of the market pullback in Q4 2018, PSH gave back all of its gains. From the beginning of the year to March 19, 2019, PSH’s NAV has increased 31.9%, significantly outperforming the S&P 500, which returned 13.5% over the same period.i,ii I note that this excellent performance is due to strong earnings growth and positive developments across all of our portfolio companies.

It would be impossible for every position in a large and diverse portfolio to outperform in a volatile market, but it can occur when an activist invests in a portfolio of 8-12 carefully selected companies.

INVESTMENT MANAGER

The Board has delegated the task of managing the Company’s assets to the Investment Manager as set out in the Investment Management Agreement (the “IMA”) entered into by PSH and PSCM at the inception of PSH. Although the Board does not make individual investment decisions, the Board is ultimately accountable for oversight of the Investment Manager. The Investment Manager’s strategy is predicated on primarily investing in mid/large-cap companies generating relatively predictable, growing free-cash-flows with formidable barriers to entry and a compelling value proposition. The Investment Manager seeks to invest in excellent businesses with opportunities for improvement and often positions itself to work directly with management and the Board to unlock long-term value. The Board was pleased to see the Investment Manager make four new investments in 2018 in alignment with these investment principles and constructively engage with existing portfolio companies. All of PSH’s current portfolio companies are listed in the United States or Canada. They are heavily exposed to the U.S. domestic market, but not immune to the global economy. The Investment Manager believes our portfolio companies are well placed to continue to grow earnings and generate positive cashflows, which should lead to an increase in their valuations over the long term. Pershing Square Holdings, Ltd. Annual Report 2018 3

CORPORATE ACTIONS In 2018, the Board initiated a number of corporate actions. The Company removed its 4.99% ownership limit, creating the potential for additional demand for shares, and completed a $300 million company tender in May 2018 at a price of $13.47 per share, a 20.5% discount to NAV (the “Company Tender”). The Company Tender reduced the public shares outstanding by 9.5% and generated 2.1% accretion to NAV. The Company also added a U.S. Dollar–denominated quotation on the LSE on May 29, 2018. Following these corporate actions, senior executives and other affiliates of the Investment Manager purchased more than $520 million of Public Shares in the open market.iii The Board was supportive of these purchases as they further align the Investment Manager’s interests with those of other shareholders. The Board recognizes that these corporate actions and further investment in the Company by the Investment Manager’s affiliates have had a minimal effect on the persistent discount to NAV at which the Public Shares trade. The Board and the Investment Manager believe that only a sustained period of positive investment performance will lead to a material reduction in the discount over time. The Board remains committed to reviewing the discount management options available to the Company and is prepared to take further corporate action to address the discount if the Board believes it will result in a longterm benefit for all shareholders. PSH NAV vs Trading Price (January 1, 2018 – March 19, 2019) $23 $22.81 SSehrairees P1rice (NA:PSH) $22 SNeArVie Ps2er Share $21 Series3 $20 $19 $18 $17 $16.50 $16 $15 $14 $13 $12 J a n- 01- 1 8 Fe b- 01- 1 8 M ar- 01 -1 8 A pr- 0 1-1 8 M ay- 01- 1 8 J u n- 0 1-1 8 J ul- 01- 1 8 A u g- 0 1-1 8 Se p- 01- 1 8 Oct- 01- 1 8 N o v- 01- 1 8 Dec- 01- 1 8 J a n- 01- 1 9 Fe b- 01- 1 9 M ar- 01 M -1 a 9 r-1 9-1 9 Pershing Square Holdings, Ltd. Annual Report 2018 4

DIVIDEND In February 2019, PSH announced that it will pay a quarterly dividend of $0.10 per Public Share, which represented a 2.5% yield based on the closing price of $15.70 per Public Share on the date of the announcement. As PSH invests primarily in S&P 500 companies, the PSH dividend has been set at a level which approximates the weighted average dividend yield of the S&P 500.iv The IMA has been amended to account for the effect of the dividend on fees paid to the Investment Manager so that the dividend is treated the way a return of capital is treated in the IMA. The Board believes that the dividend expands the universe of potential PSH investors to those who prefer or require dividendpaying equities as part of their investment strategy. Additionally, it represents a return of capital to shareholders at NAV. PSH BOND The PSH Bonds ($1 billion aggregate principal amount of Senior Notes with a 5.5% per annum interest rate) have traded up from approximately par at year-end 2018 to $102 as of March 19, 2019. The Bonds are rated BBB+ with a negative outlook by Fitch and rated BBB with a stable outlook by S&P. The terms of the Bonds do not allow PSH to incur debt beyond a total debt-to-capital ratio of 33.3% and restrict Company buybacks or dividends that would cause the ratio to be exceeded. The Company’s total debt to capital ratio was 20.7%v as of December 31, 2018 and as the Company’s assets have grown in 2019, the ratio has decreased to 16.5% as of March 19, 2019. The Board and the Investment Manager continue to believe that the long-term leverage from the Bonds is prudent. While the leverage of the Bonds amplified losses in recent years, as the Company’s performance has improved in 2019, it has accelerated the increase in NAV.

CORPORATE GOVERNANCE / BOARD

The Board made a number of enhancements to its governance in 2018, including the establishment of a Remuneration Committee, the adoption of a policy on Director tenure, and the appointment of a Senior Independent Director. In February 2019, the Board adopted a policy on Board diversity. These changes are discussed further in the Corporate Governance Report. The Board continues to work effectively and diligently on behalf of all shareholders. The Board has benefitted greatly from the additional insight of Bronwyn Curtis and Richard Wohanka who were elected to the PSH Board in April 2018 as independent directors following Jonathan Kestenbaum’s retirement. I would like to thank my fellow directors for all of their contributions throughout the year. Pershing Square Holdings, Ltd. Annual Report 2018 5

EVENTS: SHAREHOLDER PORTFOLIO UPDATE AND ANNUAL GENERAL MEETING The Investment Manager presented a portfolio update to shareholders in London on February 13, 2019. Slides from that presentation are available on PSH’s website: pershingsquareholdings.com. PSH’s 2019 Annual General Meeting will be held in Guernsey on May 7, 2019. Details of the event will be posted on pershingsquareholdings.com. I will report to you on the first half of 2019 in August 2019, and the Investment Manager will keep you informed of any significant developments in the portfolio before then, when appropriate. /s/ Anne Farlow Anne Farlow Chairman of the Board March 25, 2019 Pershing Square Holdings, Ltd. Annual Report 2018 6

Investment Manager’s Report LETTER TO SHAREHOLDERS To the Shareholders of Pershing Square Holdings, Ltd : 2018 was an excellent year for PSH based on our portfolio companies’ operating results and their general business progress. We outperformed our benchmark, the S&P 500, by 370 basis points with a 0.7% decline in NAV per share for the year.5 Our performance was substantially stronger as of last year’s third quarter, with PSH’s NAV per share up 15.8% versus 10.6% for the S&P 500, before market turbulence and volatility unrelated to the businesses we owned intervened. Since year end, more constructive market conditions and the continued operating progress of our portfolio companies have led PSH to generate strong 2019 year-to-date, absolute and relative performance of more than 31.9% versus 13.5% for the S&P, our best start to a year in the 15-year history of Pershing Square. We attribute our improved performance to initiatives that we have implemented over the last 18 months. First, we refocused our investment strategy on the core principles that have driven our profitability since the inception of Pershing Square. Our portfolio today represents the results of our strategy of investing in simple, predictable, free-cash-flow-generative businesses which are protected by large competitive moats. Today, we own one of the highest quality collections of businesses we have owned since the inception of Pershing Square. Second, as we previously disclosed, we restructured and simplified Pershing Square Capital Management by returning to our roots as an investment-centric operation rather than an asset management business with the attendant requirements to continually raise capital. We are no longer seeking to raise capital for the Pershing Square private funds.

This has freed up substantial time and renewed focus which have enabled me and the other members of the investment team to invest nearly all of our business time and attention on the identification, monitoring, and oversight of our portfolio companies. PSH now represents a large percentage of our capital under management. Excluding Pershing Square VI, our ADP coinvestment vehicle, $6 billion out of approximately $8 billion of assets*—about three quarters of our core assets—are now in PSH. I and other members of the Pershing Square team have materially increased our investment in PSH through market purchases, and now own more than 20% of shares outstanding, representing more than $1 billion of PSH’s shareholder equity. This provides PSH with a large, stable shareholder/manager whose interests are closely aligned with the long-term interests of all PSH shareholders. The stability of our capital base is an enormous competitive advantage which should assist us in generating higher rates of return over time, particularly in light of the changes to the equity capital markets over the past decade, as many active managers have abandoned their strategies and become closet index investors, and/or their clients have left for index funds. Many market commentators have described the stock market as “broken” and a “Wild West environment” as a result of the impact of large index ownership of equities and the disproportionate amount of trading and price discovery caused by ETFs, quantitative trading, and other non-fundamentally driven investment strategies. These developments have led to occasional market shocks and large mispricings of individual securities which can force investors with unstable capital to rush for the exits, leading to even greater dislocations.

In a market break like that in December, downward volatility scares investors who in turn redeem capital from funds, forcing their managers to sell, causing further downward market movements, with the vicious cycle continuing until stocks get cheap enough and/or positive news flow causes a reversal of the above factors. *PSH’s assets are financed by $5 billion of equity and $1 billion of debt. Pershing Square Holdings, Ltd. Annual Report 2018 7

We took advantage of the year-end market downdraft by making a large new investment in Hilton Worldwide Holdings while other investors became forced or irrational sellers. We would likely have been sellers rather than opportunistic buyers had PSH been subject to the risk of investor redemptions. As PSH now represents about three-quarters of our core assets—a percentage which is likely to increase over time as we are no longer seeking to raise capital in the core private funds—our assets are now a much better match for our investment strategy as a long-term, influential owner of high quality businesses undergoing business transformations. While our original business plan for Pershing Square did not contemplate that a substantial majority of our capital base would be represented by PSH in 2019, over the long term we expected that PSH would grow to become the majority of our capital. The faster arrival of this moment is a material positive development for PSH and our private fund investors as we can now invest capital largely without regard to shorter-term considerations in a world where most investors are constrained by short-term factors and unstable capital. While our capital base is stable, there has been a significant amount of turnover in our shareholder base. As a result, I thought this year’s letter might be a good place to provide a primer on PSH, particularly for our newer shareholders. Below, I have answered the questions I would ask if our positions were reversed, and you were the manager, and I the independent shareholder. What is PSH’s long-term goal? Our long-term goal is to maximize the long-term compound annual rate of growth in PSH’s intrinsic value per share, which we estimate conservatively to be our net asset value or book value per share. Net asset value and book value are the same for PSH because our assets are marked to market in our financial statements. Why did we choose a Guernsey-domiciled, closed-ended fund structure for PSH?

We chose a Guernsey-domiciled, closed-ended fund structure for PSH because we believed it was the best and most taxefficient alternative for a long-term investment operation with a strategy of acquiring minority interests in publicly traded corporations. Unlike corporations in jurisdictions where gains from sales of investments are taxable including in the U.S., PSH does not incur entity-level taxation when it sells an investment with a gain. Non-U.S. holders pay no taxes on activity that occurs at PSH other than withholding taxes on dividends. For U.S. holders, PSH is treated as a Passive Foreign Investment Corporation with tax treatment similar to that of a U.S. partnership, but with some important benefits and drawbacks. We recommend that you consult your tax advisor for more details. How should one think about PSH? While PSH is legally a closed-ended fund, in our view it is best thought of as a tax-efficient investment holding company that owns minority interests in public companies which are of a quality and scale where legal control is often difficult if not impossible to achieve. Our strategy is to acquire smaller pieces of superb businesses over which we have substantial influence, rather than controlling interests in lower quality businesses. Today, PSH owns minority interests in ten “subsidiary” portfolio companies, as depicted on the next page: Pershing Square Holdings, Ltd. Annual Report 2018 8

The formal definition of a subsidiary is a corporation controlled by a holding company, where control is typically represented by a 50% or greater ownership interest. In the case of PSH’s “subsidiaries,” however, we have generally owned less than 20% of shares outstanding, and usually fewer than 10% of shares outstanding. Even so, we are always one of the largest shareholders of our investees, and we are an influential owner whether or not we have board seats, regardless of what percentage of the company we own. Our influence in each situation varies depending on what is required to create value. In our existing portfolio, in some cases, we have selected some of the directors and/or the CEO. In one case, we took the business public through a merger with a special purpose acquisition company we controlled. In another, we influenced the long-term corporate structure. In one of our more active examples, we created the business from scratch by selecting assets from a then-portfolio company, placing them in a new subsidiary, identifying a new management team and board, and then we took the company public by injecting capital and spinning it off to shareholders. In two recent cases, we identified undervalued situations which already had excellent management and good governance with nothing for us to do other than applaud. Even in these initially more passive cases, we stand ready to be helpful, if and when help is necessary or we have a good idea to share. In sum, we do what is necessary and required to maximize the long-term value of each portfolio company. How does our form of influence differ from traditional corporate control? The ability to change corporate policy is extremely valuable, which is why investors are typically prepared to pay premiums for control.

In light of our strategy and track record for effecting change at large capitalization businesses over the last 15 years, we have been able to achieve a large degree of influence over the management, governance, and strategy of our portfolio companies without necessitating the purchase of a controlling interest, which nearly always requires the payment of a large premium. Rather, we have been able to acquire large minority stakes on the stock market often at large discounts to intrinsic value because of shareholder disappointment with the company’s business progress or due to general stock market volatility. Our influence comes from the support of other shareholders who have benefitted from changes that we have implemented at our portfolio companies over the last 15 years. The quid pro quo for our achieving influence without paying premiums for control is that we share the benefits of our occasionally expensive and time-consuming interventions with shareholders who often own 90% or more of the companies in our portfolio, and who don’t do the same work or pay their share of the costs. I have often been asked why we haven’t attempted to take businesses private so that 100% of the benefits would inure to Pershing Square rather than to all of the shareholders. While we would not rule out the purchase of control of one of our companies (greater stability in our capital base makes this more possible and therefore more likely), (1) we are happy to share Pershing Square Holdings, Ltd. Annual Report 2018 9

any value we have helped create with other shareholders; (2) it is rare that one of our portfolio companies is available for sale; (3) going private transactions are inherently highly competitive, typically require the use of large amounts of leverage, and suffer from the so-called “winner’s curse;” and (4) we have found a strategy that works, so we intend to stick to it. Ultimately, it is the other shareholders’ support that has enabled us to achieve sufficient influence to effectuate change, and we are extremely grateful for that support. We believe, therefore, that it is entirely appropriate for the shareholders who have supported us to have the opportunity to share the rewards that we, with their support, have helped generate. What kind of businesses does PSH own? Pershing Square Holdings has assembled one of the highest quality collections of “subsidiaries” in the world. Businesses like Restaurant Brands, Hilton, Starbucks, ADP, Chipotle, Howard Hughes, United Technologies, Lowe’s, Fannie Mae and Freddie Mac, each have high returns on capital, very long-term growth trajectories, wide competitive moats, unique and irreplaceable brands and/or other assets. Great businesses achieve large capitalization status because of their favorable economic characteristics and difficult to penetrate competitive moats which have enabled them to compound their earnings and intrinsic value, often over decades. These businesses are rarely available for sale and would be difficult if not impossible to acquire even if offered for sale because of their large scale and their shareholders’ reluctance to sell such extraordinary businesses, other than at very large premiums to market. Are there benefits to PSH from owning minority interests rather than controlling interests? The principal responsibilities of the management of a traditional holding company include portfolio company acquisition, oversight, and capital allocation.

We perform these same responsibilities with less influence over our portfolio companies than if we had legal control, but with other materially important benefits. These benefits include a substantially greater universe of potential acquisition targets because they are publicly traded, and our ability to operate with much greater flexibility and liquidity. Because PSH does not pay taxes on the sale of its holdings and owns minority rather than controlling interests, we have much greater flexibility when compared to other companies in making changes to our portfolio, the most important capital allocation decision of a holding company. As a minority owner, we can always purchase more of an existing investment if we are pleased with its business progress and the price remains or becomes even more attractive. We did so earlier last year in Chipotle shortly after the company hired CEO Brian Niccol, when the company’s share price was less than half of today’s market price, and 21% lower than our original cost. While a holding company with 100% ownership of each of its subsidiaries, the more typical structure, would generally be able to effectuate changes more easily at each subsidiary because it has actual legal control, it would have other important drawbacks compared with PSH’s structure. It would not be able to acquire more ownership in a strongly performing, undervalued subsidiary, nor would it easily be able to reduce its interest in each subsidiary without incurring material tax, transaction, and other frictional costs, which include the time required to sell an interest in a private company. It would also incur the likely reputational and negative morale impact of one subsidiary’s sale on the employees of the holding company’s other subsidiaries. Pershing Square Holdings, Ltd. Annual Report 2018 10

How do our portfolio companies’ managements benefit from our strategy? Our large minority ownership and our portfolio companies’ publicly traded status have another very important benefit: it is often the ideal context in which to recruit the most experienced and talented management teams. Many of the best CEOs prefer to operate on a public stage with the access to capital that comes from public ownership, but without the leveraged capital structures that are typically used in private equity. The perceived downside to managing a traditional public company, however, is the short-term orientation of many Wall Street analysts and public market investors. With the backing of a large shareholder who can “protect” them from Wall Street, our CEOs have found that they can have the best of public ownership along with the benefit of a private owner’s orientation and long-term timeframe. Often, the changes that are necessary in a turnaround can take time, require large upfront expenditures, and don’t fit within the demands of earnings guidance requirements and many investors’ and analysts’ short-term orientations. Pershing Square, as a large influential investor with a track record for successful turnarounds, can provide management with the required runway and necessary long-term backing to succeed. While we generally have a large degree of influence, we use it sparingly with the management teams of our portfolio companies. Our first choice is to make sure that we have the best CEOs running the companies we own. With the right talent in place, we applaud their successes and wait for the phone to ring when they want input from us. Occasionally, we will ask a question, share an idea, or raise an issue. Most of the time, our CEOs rarely hear from us. More often, they seek us out. We view our job as oversight, not day-to-day management. What role do we play in capital allocation at our portfolio companies?

While we generally don’t control dividend or buyback policies at our portfolio companies, we help to guide and/or support management teams and boards in the determination of appropriate capital allocation policies. As a result, companies that we own that generate excess capital which cannot be effectively used in their businesses or in acquisitions that make sense, distribute these funds to us and the other owners in the form of share repurchases or dividends. In general, we would not allocate capital differently at our portfolio companies if we owned 100% of their shares outstanding. What is the downside to PSH’s corporate structure and domicile? While PSH is more tax efficient and has greater flexibility in owning minority interests in corporations than a U.S. C corporation, it does have a couple of drawbacks. First, we are unable, due to regulatory reasons, to list PSH in the U.S., and therefore are listed only in Amsterdam and London. As an investor in principally U.S. publicly traded corporations, PSH is an anomaly in being listed only in European stock markets. Because PSH is listed offshore, we are limited in how we may engage with U.S. investors. As a result, a large source of potential demand for PSH stock is largely unaware of the existence of the company. The second big drawback of being structured as a European closed-ended fund rather than a U.S. corporation is that many investors lump PSH into a category with completely unrelated “investment funds” about which there is much received wisdom. While we chose the closed-ended fund structure for its tax benefits and long-term stable capital, for now we are branded with the closed-ended fund nomenclature and its negative perceived attributes. The accepted wisdom is that European closed-ended funds will almost always trade at discounts to NAV as there is only a limited universe of dedicated buyers for these funds.

What makes matters worse is that not only are we perceived to be a Pershing Square Holdings, Ltd. Annual Report 2018 11

European closed-ended fund which “should” trade at a discount, but we are also deemed to be a hedge fund by most investors and the media. In order to fix this perception, which we believe would improve the trading price of PSH, we need to change the way we are understood by investors. How is PSH different from a typical long-short, equity hedge fund? Most equity hedge funds are short-term, passive, highly diversified investors in securities with large gross long and short exposures relative to capital, which use margin borrowings and derivatives to amplify their exposures. They have short-term, finite-life capital from their high net worth and institutional investors who obtain ownership through private placements. They have limited transparency, are not publicly traded, and do not return capital to their investors unless and until they receive redemption notices from investors. By contrast, PSH is a long-term investor in a concentrated portfolio of high quality businesses over which we have substantial influence and often board representation. PSH is a publicly traded corporation with hundreds, and likely thousands, of shareholders with an independent board of directors, a corporate, infinite-life form, financed with a modest amount of investment-grade, unsecured, publicly traded bonds without mark-to-market covenants. We are listed on the London Stock Exchange and Euronext Amsterdam, provide a high-degree of transparency into our holdings, and report to our investors in public filings with weekly NAV updates, quarterly reports, and investor conference calls. We have returned substantial capital to shareholders having repurchased 9.5% of our shares in the last year and recently initiated a quarterly dividend of 10 cents per share.

Pershing Square’s management owns more than 20% of shares outstanding as a result of open market purchases over the last 10 months.6 While we have made one short sale investment in the last few years, we have no current intention of shorting stocks in the future. When the comparison is made, I believe that Pershing Square Holdings, Ltd., whose legal form is a closed-ended fund, is best thought of as a publicly traded investment holding company, not a hedge fund or traditional closed-ended fund. Is PSH undervalued? The Pershing Square strategy, as represented by Pershing Square, L.P., the fund with the longest track record, has generated a 14% compound annual return over more than 15 years, inclusive, of course, of the last few years of substantially below historical performance. We view the last few years as an anomaly, and expect that with continued focus on our core strategy, we have the potential to generate returns comparable to the first 11 years of Pershing Square (Note: over the first 11 years from January 1, 2004 to December 31, 2014, Pershing Square, L.P. compounded at 20.8% per annum).7 With PSH’s stock currently trading at 72% of book value (Reminder: book value equals net asset value, as all of our holdings are marked to market in our financial reports), we believe that PSH is extremely undervalued, particularly as we are back on track with the core strategy that has generated our long-term success. We note that prior to the period of sub-par performance, PSH traded at a low single-digit percentage discount to NAV. While compound annual long-term growth in net asset value per share will be the principal driver of long-term investor returns in PSH, it is our strong preference for PSH to trade at or around its intrinsic value, for which we believe book value or net asset value is a conservative estimate.

While we can make some good arguments as to why PSH’s intrinsic value is greater than its NAV, for now, our short- to intermediate-term goal is to have PSH trade at or around NAV. This will give shareholders who need to sell the opportunity to exit at a fair price. In the current situation, with our stock trading at about a 28% discount to NAV—the widest discount in our history—it is, in our view, an opportunistic time to be a buyer, not a seller, of PSH. Pershing Square Holdings, Ltd. Annual Report 2018 12

Would more share buybacks help? While we are not opposed to share buybacks, we do not believe that material additional repurchases of shares at the present time are in the best interest of PSH shareholders. Large buybacks may in fact be counterproductive to reducing the discount. Last May’s company self-tender for 9.5% of shares outstanding coupled with shares purchased thereafter by Pershing Square management have reduced the effective free float of PSH over the last 10 months by 24.5%.8 Despite this substantial reduction in float, PSH’s discount to NAV has widened further, and even more so in the first few months of 2019 during a period of very strong relative and absolute performance. As PSH has become more closely held over time, PSH’s trading liquidity has been reduced, making it more difficult for buyers and sellers to transact in the shares. This reduced liquidity increases the impact that a buyer or seller has on the trading price of PSH. The current share price’s discount to NAV strongly suggests that there remain a number of selling shareholders who are not particularly sensitive to the discount they realize when selling shares. Rather, they are apparently more focused on the actual stock price realized. NAV has increased 31.9% year-to-date while PSH’s stock price has increased by only 27.5% as the discount has widened. We believe that additional reductions in float will not only make it difficult for selling shareholders to sell, but will also make PSH less desirable for investors who wish to build a substantial position in PSH, further reducing the universe of potential buyers. Buybacks also create other issues for PSH. In light of the reduced float and lesser liquidity of PSH shares, in order for us to repurchase a meaningful percentage of shares outstanding, we would likely have to pay a substantial premium to the market price.

The potential accretion to NAV per share from such a purchase would be small relative to the return that we believe could be earned by investing the capital in an existing or newly identified investment. For example, in July of last year, PSH invested $495 million in Starbucks at an average price of $51.30 per share. To date, the Starbucks’ purchase has increased NAV by 476 basis points.9 Had we instead used the same $495 million to complete a second self-tender for PSH shares, we estimate that we would have had to pay a price which represented about a 15% or so discount to NAV in light of the tender’s large size (about 15% of public shares outstanding) particularly in light of the company’s $300 million self-tender two months prior. While an incremental $495 million buyback at a 15% discount to NAV would have created an immediate 236 basis point increase in NAV, the benefit would have stopped there. The accretion in NAV would have been less than half the 476 basis points increase in NAV created by the Starbucks acquisition, which had the additional benefit of reducing, rather than increasing, our leverage. PSH also benefits from increases in Starbucks share price in the future. Buybacks have other drawbacks as they reduce our shareholders’ equity and increase our leverage. We would not be surprised to find that a higher leveraged PSH trades at a greater discount to NAV when compared to a less leveraged PSH. Furthermore, beyond our inherently conservative view of financial leverage, we believe that access to low-cost leverage will over time become an additional competitive advantage for PSH. As a result, we are cautious in the amount of leverage we are willing to incur relative to the market value of our assets, even though our bond covenants provide us with substantially more headroom— our bond’s debt incurrence covenant would allow us to incur about twice as much leverage as we have now.

While we are not opposed to issuing more bonds as our net asset value and equity grows, we intend to make sure that our bondholders always have a substantial margin of safety, an approach which we expect will reward us over time with lowercost, long-term financing. After all, our shareholders own the equity that comes after all of our bondholders have been paid in full, and, in management’s case, conservatism in the use of leverage is particularly prudent as our ownership of PSH represents the substantial majority of our liquid net worth. Pershing Square Holdings, Ltd. Annual Report 2018 13

Buybacks also increase our percentage exposure to all of our existing investments. Assuming each holding is appropriately sized before the buyback, each will become oversized after the repurchase. As a result, a large share repurchase program would require us to immediately initiate a selling program in each of our holdings in order to resize them appropriately. As Pershing Square is one of the largest shareholders and often an insider, a portfolio-wide selling program would be a negative signal to other shareholders, and a meaningful negative in our relationships with our companies, their managements, and our performance. All of the above said, we are not opposed to share repurchases in the event that (1) we have substantial free cash available for purchases, and do not believe that we will be able to identify an attractive new investment in the then-current market environment, (2) our existing holdings are trading at large discounts to their intrinsic value, (3) the repurchase will not cause PSH to be overleveraged, (4) the price paid is a very large discount to NAV, and (5) we do not believe that further reductions in float will be counterproductive to our goal of causing PSH to trade at or around intrinsic value. Why did we introduce a quarterly dividend? On February 13th, PSH announced the initiation of a quarterly dividend of 10 cents per share. While we are generally of the view that companies should pay dividends only in the event that they generate excess capital that cannot be used in their business, this is not the case at PSH. PSH is nearly fully invested, and there are a significant number of potential opportunities that we are considering. We and the Board chose to initiate a dividend as we believe it may have the benefit of substantially increasing the universe of potential long-term owners of PSH to include the large number of investors who will only buy common stocks that pay dividends.

At its current level, the dividend consumes a sufficiently small amount of capital that it will not interfere with the implementation of our investment strategy. As a result, we believe that the trade-off of potentially attracting more long-term investors who could contribute to reducing the discount to NAV, compared with the resulting slightly smaller capital base, is a trade-off worth making.

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All members of the Pershing Square team are incredibly appreciative of your support which we expect to richly reward over the long term. As I have often said, experience is making mistakes and learning from them, and learn we have done. Pershing Square is better, stronger, and more capable because of the challenges we have faced and addressed. It is the rare public markets investor that has the privilege to invest truly long duration capital. As the manager of Pershing Square Holdings, we intend to continue to exploit the opportunity to invest capital in a world comprised of competitors with capital structures that are short term and porous. We will work very hard to generate the profits that you deserve to earn in exchange for your support. While we operate in corporate form, we view you as our long-term partners in this endeavor. As your 20% partner, we are highly incentivized to achieve a great outcome for all. On the pages that follow, we provide updates on our portfolio companies. We welcome any additional questions you may have at IR-PershingSquareHoldings@camarco.co.uk. Sincerely, William A. Ackman Pershing Square Holdings, Ltd. Annual Report 2018 14

PORTFOLIO UPDATE Performance Attribution Below are the contributors and detractors to gross performance of the portfolio of the Company for 2018 and year-to-date 2019(10). January 1, 2018 –December 31, 2018 January 1, 2019 – March 19, 2019 Chipotle Mexican Grill, Inc. 6.2 % Chipotle Mexican Grill, Inc. 8.5 % Automatic Data Processing, Inc. 5.5 % Restaurant Brands International Inc. 4.2 % Starbucks Corporation 3.3 % Automatic Data Processing, Inc. 3.5 % Accretion (Relating to Share Buyback and Company Tender) 2.1 % Federal National Mortgage Association 3.3 % Lowe’s Companies, Inc. 0.7 % Hilton Worldwide Holdings Inc. 3.1 % Federal Home Loan Mortgage Corporation (1.6)% United Technologies Corporation 2.1 % United Technologies Corporation (2.2)% Lowe's Companies Inc. 2.1 % Restaurant Brands International Inc. (2.2)% Federal Home Loan Mortgage Corporation 1.8 % Federal National Mortgage Association (3.0)% Starbucks Corporation 1.8 % Herbalife Ltd. (3.3)% The Howard Hughes Corporation 1.0 % The Howard Hughes Corporation (3.6)% Platform Specialty Products Corporation 1.0 % All Other Positions and Other Income and Expense (1.2)% Other Income and Expense (0.3)% Net Contributors and Detractors 0.7 % Net Contributors and Detractors 32.1 % Positions with contributions or detractions to performance of 50 basis points or more are listed above separately, while positions with contributions or detractions to performance of less than 50 basis points are aggregated. Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying endnotes and important disclaimers on pages 98–100. All year-to-date performance information is as of March 19, 2019. Chipotle Mexican Grill (“CMG”) Chipotle’s strong performance in 2018 was driven by an organizational transformation and accelerated growth under a new world-class management team. Brian Niccol, formerly CEO of Taco Bell, joined Chipotle as CEO in March 2018.

Pershing Square Advisory Board Member and Chipotle Board Member Ali Namvar was a member of the three-person CEO search committee that led the effort to identify and recruit Brian. In his first year at the company, Brian has moved quickly to execute a people and culture transformation, including the addition of key external hires in the roles of Chief Marketing Officer, Chief People Officer, Chief Legal Officer and Chief Development Officer, the elimination of two layers of management to streamline decision making and increase agility, and the relocation of Chipotle’s headquarters to southern California. The new management team has revamped Chipotle’s approach to innovation and marketing. New initiatives now pass through a “stage-gate” process in which the company tests, learns, and iterates on each initiative so that management is highly confident in the probability of success before a national rollout. Marketing spend has been shifted from an inefficient field-based, promotion-driven approach to a centralized strategy that aims to elevate Chipotle from a food brand to a purpose-driven lifestyle brand. Pershing Square Holdings, Ltd. Annual Report 2018 15

Early signs that the new strategy is working have already emerged as demonstrated by same-store sales growth of 6.1% in the fourth quarter of 2018, including transaction growth of 2.0%. This was the highest level of same-store sales growth in the last six quarters, which had been negative since the summer of 2017. This return to transaction growth was underpinned by robust customer response to the “For Real” marketing campaign launched in October, and accelerated growth in digital sales, including delivery. Chipotle shares appreciated 49% in 2018 and have increased a further 54% in the first few months of 2019. The company has made clear that driving robust same-store sales growth is the key priority for 2019, with growth initiatives identified in the areas of digital, marketing, menu, and operations. The company began the year with the highly successful introduction of a new menu option called Lifestyle Bowls in January, and then launched the next iteration of its marketing campaign in February. In March, the company launched its highly anticipated loyalty program nationally with further enhancements to digital ordering to speed up both pick-up and delivery expected in the coming months. The company has increased its store opening plans in 2019 as it has been able to achieve returns on new stores approaching peak historical levels. We remain actively engaged on Chipotle’s board and are confident that management will continue to execute on the brand’s vast unrealized growth potential. Automatic Data Processing, Inc (“ADP”) ADP is a high-quality, defensive business which is in the early stages of a long-term transformation that should drive significant value creation as it closes the performance gap and achieves its structural potential. 2018 was a critical year for ADP.

In response to our 2017 proxy contest, ADP made broad commitments to shareholders to accelerate revenue growth, bolster its competitive position (specifically in the enterprise market) and improve operational efficiencies and margins. ADP began to execute upon these commitments in 2018 and introduced new medium-term (fiscal year 2021) targets at its June 2018 Analyst Day. At the Analyst Day, ADP provided a comprehensive update on the business trajectory and next-generation product portfolio. ADP committed to achieving accelerated revenue growth and operational efficiency improvements (targeting 23% to 25% adjusted EBIT margins) over the coming years. These projections represent substantial increases in management’s prior guidance. ADP’s new targets provide a credible plan for ADP to realize $7 of earnings per share by FY 2021 (vs. $4 at the time of our initial investment). We believe the targets still only capture a fraction of ADP’s structural potential, as we expect it will exceed its medium-term targets and make accelerated margin progress thereafter. In support of the operating targets communicated at the Analyst Day, ADP executed numerous transformation initiatives in 2018, including accelerating the company’s Service Alignment Initiative, executing an Early Retirement Program, moving up the roll-out of its next-generation product portfolio and strengthening the talent and performance culture at the company. In support of ADP’s transformation, the company promoted a current executive to Chief Transformation Officer and has further bolstered the management team with new external hires (including a new Chief Strategy Officer and Chief Financial Officer). We view the hiring of external executives with relevant skills and fresh perspectives positively as it further assists ADP in executing on its transformation.

Recent financial results have provided some early validation of the transformation underway at ADP as evidenced by accelerated organic growth, significant margin expansion and upward revisions in current fiscal year 2019 earnings-per-share guidance which now stands at $5.30 to $5.40 per share (an increase of 17% to 19% over the previous year). We believe ADP’s ongoing transformation will be further demonstrated over the coming quarters. Pershing Square Holdings, Ltd. Annual Report 2018 16

We believe ADP can sustain mid-to-high-single-digit top-line growth, which when coupled with the substantial opportunity to improve ADP’s cost structure and the high operating leverage realized on incremental revenue, should allow ADP to compound earnings per share at a mid-to-high-teens growth rate for many years. At present, ADP trades at 25 times our estimate of next-twelve-months earnings which is below our estimate of the company’s intrinsic value based upon its highquality defensive business and accelerated earnings growth profile. ADP shares appreciated 14% in 2018 including dividends and 19% 2019 year-to-date. Restaurant Brands International (“QSR”) QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from three leading brands: Burger King, Tim Hortons and Popeyes. The company’s unique business model allows it to capitalize on its significant long-term unit growth opportunity with minimal capital investment. QSR’s strong overall business performance continued during 2018 with 25% EPS growth, which reflects strong business progress and the benefits of the refinancing of the 9% Buffett preferred. The company grew total net units by 5%, with 6% growth at Burger King, 2% at Tim Hortons and 7% at Popeyes. Same-store-sales increased by 2% at both Burger King and Popeyes and 1% at Tim Hortons. Since the end of 2017, QSR has taken several actions to combat the recent slowdown in same-store sales at Tim Hortons. The company replaced Tim Hortons management with the team that had previously turned around weak same-store sales at Burger King, improved relations with franchisees, and unveiled a new operating plan entitled “Winning Together,” which is focused on improving the restaurant experience, new product development, and brand communications. During 2018, Tim Hortons launched all-day breakfast, a kids menu, and a store reimaging program.

This month, the company also launched its loyalty program nationwide after successfully testing it in select markets. We believe the company’s recent initiatives are already generating better results, as same-store sales momentum improved in each quarter throughout 2018, with a 2% increase in the fourth quarter. Earlier this year, QSR elevated Daniel Schwartz to Executive Chairman and promoted Jose Cil to CEO. We believe Jose’s deep operational experience and successful 18-year track record at Burger King position him well to lead QSR. In 2018, QSR’s share price, including dividends, declined 12% due to concerns regarding soft same-store sales at Tim Hortons earlier in the year and the broader market downturn in the fourth quarter. The share price is up 23% this year, primarily reflecting significant improved fourth quarter results at Tim Hortons. QSR currently trades at 22 times our estimate of this year’s free cash flow, which is a discount to lower-growth franchised peers and below our estimate of intrinsic value. We believe that continued improvement at Tim Hortons, and the opportunity for the company to tell its story at its first QSR investor day in May, will highlight the company’s significant long-term growth potential and serve as potential catalysts for future share price appreciation. Pershing Square Holdings, Ltd. Annual Report 2018 17

Lowe’s Companies, Inc (“LOW”) Lowe’s was one of four new investments in 2018. Lowe’s is a high-quality business led by a new, high-caliber management team that has committed to meaningfully narrowing the performance gap with its direct competitor, Home Depot. We initiated our investment after the company announced a CEO search process. In May, Lowe’s announced that Marvin Ellison, a former senior executive at Home Depot, would become CEO. We believe that Marvin has the relevant experience, leadership qualities and skill-set to allow Lowe’s to achieve its potential. Since Marvin started in July, he has assembled a new leadership team of seasoned executives, many of whom previously worked with him at Home Depot. In December, management hosted an Analyst Day and outlined a credible plan to narrow the performance gap with Home Depot. Lowe’s strategy is centered around better execution of “retail fundamentals,” including enhanced merchandising, transforming its supply chain, achieving operational efficiencies, and better engaging with its customers. The new plan calls for Lowe’s to achieve a 12% operating margin over the medium-term compared with its current operating margin of 9.2%, and Home Depot’s operating margin of 14.6%. Achieving these targets will generate significant profit improvement which, when coupled with the company’s large and ongoing share repurchase program, will further accelerate future earnings per share growth. While Lowe’s has already demonstrated early signs of progress, we believe the positive impact of the company’s business transformation will become more pronounced over the course of 2019. Lowe’s currently trades at 17 times analyst estimates of 2019 earnings, a discount to Home Depot, even though these estimates do not incorporate the potential for future profit improvement.

We believe that there is substantial upside potential as Lowe’s narrows the performance gap with Home Depot, which will significantly increase earnings, and likely result in a valuation that better reflects the company’s underlying business quality and long-term growth prospects. In 2018, Lowe’s share price, including dividends, appreciated 8% from our initial average cost, as initial investor excitement regarding the turnaround potential was partially offset by concerns regarding recent weakness in the housing market. We believe that there is likely further upside to the housing cycle as many of the fundamental drivers of the housing market remain intact. Furthermore, Lowe’s derives a meaningful portion of its revenue from less-cyclical repair and maintenance spend, which should moderate the impact of fluctuations in the housing cycle. In 2019, the company’s share price has increased 13%. Starbucks (“SBUX”) Starbucks, a new addition to the portfolio in 2018, is the global dominant brand in the specialty coffee category, with 30,000 owned and licensed stores that generate approximately $35 billion in annual systemwide sales. The category benefits from a loyal customer base with a frequent consumption habit and trade-up potential. Starbucks’ market position is protected by a wide moat with competitive advantages over both low-cost and boutique players. Starbucks is one of the rare mega-cap businesses with a long runway for reinvesting free cash flow at exceptionally high rates of return. New Starbucks stores have industry-leading unit economics, which we estimate generate a pretax return on investment of 55% in the U.S. and 75% in China. The company should continue to grow revenues at a high-single-digit rate driven by unit growth in underpenetrated markets such as China where per-capita coffee consumption is less than 1% of U.S. levels, and product innovations which have generated continued same-store-sales growth.

Despite an enviable long-term track record, Starbucks’ stock was down modestly over the three years prior to our investment while earnings grew 50% over that timeframe, allowing us to acquire Starbucks shares at a 25% discount to the company’s Pershing Square Holdings, Ltd. Annual Report 2018 18

historical average valuation multiple of 26 times forward earnings. We believe that the reduced valuation was driven by concerns regarding a slowdown in U.S. same-store sales, the perceived risk to its achieving its long-term financial growth targets, and uncertainty due to the company’s senior leadership transition and management turnover. Starbucks has demonstrated strong progress in addressing each of these concerns since we made our investment. Driven by a resurgence in Starbucks’ core beverage category, U.S. same-store sales grew 4% in each of the last two quarters, following four consecutive quarters of between 1% and 2% growth. Tailwinds that should drive continued growth include the rollout of the Nitro cold beverage platform from 40% of the store base in January to 100% by the end of September, new marketing efforts to less frequent customers, loyalty program changes to allow members to earn rewards more quickly, the rollout of delivery, and the wind-down of inventory rationalization efforts. Management unveiled updated long-term financial growth targets at its biennial investor day in December, which we believe will prove to be conservative over time, particularly management’s operating profit margin guidance. We are impressed by the bold actions the new leadership team has taken to simplify the business and drive improved results including portfolio realignment, an ongoing overhead reduction program, and a $20 billion share buyback program, which should reduce shares outstanding by about 20% over the 2018-2020 timeframe. In 2018, Starbucks’ shares including dividends increased 27% from our average cost at inception and an additional 11% yearto-date in 2019. Despite this outsized return since our investment, we believe prospective returns remain compelling as the company should continue to grow long-term earnings at a high rate due to strong secular growth and outstanding unit economics.

Hilton Worldwide Holdings Inc (“HLT”) We reestablished an investment in Hilton in the fourth quarter of 2018 as the decline in the company’s share price provided us with an opportunity to once again own Hilton at an attractive valuation. We previously owned a small investment in Hilton in 2016, but sold our stake as its share price appreciated rapidly during our accumulation period. Hilton is a high-quality, assetlight, high-margin business with significant growth potential led by a superb management team. We believe that Hilton has a unique competitive moat: its large and growing network of brands and properties offers a robust self-reinforcing value proposition for both guests and hotel owners. For guests, Hilton provides a consistent and reliable experience in a large variety of destinations at diverse price points, as well as an attractive loyalty program with enhanced awards, amenities, and customer service. For hotel owners, Hilton provides access to its more than 85 million loyalty program members, large-scale marketing programs, best-in-class reservation and IT systems, and supply chain purchasing power, which collectively allow hotel owners to achieve superior, above-market rates of return on capital. Hilton’s robust value proposition for its franchisees and partners has allowed the company to expand its room count by 6% to 7% per year, a key driver of Hilton’s long-term growth. We believe that Hilton can maintain its current pace of unit growth over the long term as the company expands its international footprint with existing brands, continues to create new brands, and converts unbranded hotels to Hilton’s network of brands. Hilton’s current pipeline, more than half of which is under construction, amounts to 40% of its existing hotel rooms. In addition, secular growth in travel should underpin strong revenue per available room (“RevPAR”) growth (a measure of same-store sales for the lodging industry) over the longer term.

While we expect RevPAR to remain positive over the coming years, unlike a typical hotel owner, Hilton’s fee-based, asset-light business model insulates the company from the outsized negative impact on profitability from potential short-term declines in RevPAR. We believe Hilton can sustain attractive high-single-digit, top-line growth, which, coupled with cost-control and a robust share repurchase program, should allow it to compound earnings per share at a mid-teens growth rate for many years. Pershing Square Holdings, Ltd. Annual Report 2018 19

At present, Hilton trades at less than 23 times our estimate of 2019 earnings, a discount to its historical average, and below our estimate of the company’s intrinsic value based upon its high-quality, fee-based business model and strong future growth potential. We believe sustained execution by Hilton’s management team will demonstrate the durability of Hilton’s business model, which we believe is currently underappreciated by the market. Hilton’s share price, including dividends, declined 2% in 2018 from our initial average cost, but has returned 20% year-to-date. United Technologies (“UTX”) United Technologies, another new investment in 2018, is a high-quality industrial conglomerate which owns market-leading businesses with favorable long-term growth trends and recurring cash flows in the aerospace, elevators and HVAC industries. We believe that UTX has one of the most advantaged business portfolios in the multi-industrial sector, as each of its businesses has significant barriers to entry, high switching costs, substantial pricing power and large future growth potential. The company’s multi-year backlog and recurring service contracts both underpin its future growth and moderate UTX’s cyclicality. After disclosing our investment in February, we met with management and expressed our view that the company’s three businesses are more likely to perform better and achieve fair value as independent companies as they each possess unique fundamental drivers, capital requirements, competitive characteristics, and investor constituencies. In November, shortly after completing its value-enhancing acquisition of Rockwell Collins, the company announced a three-way separation of the company into Aerospace, Otis Elevator, and Carrier. During 2018, UTX’s organic revenue grew 8% and EPS grew 14%.

Despite strong business results and the announcement of a value-creating business separation, UTX’s share price declined 16% during the year from our average cost due to investor dissatisfaction with management’s protracted announced timeframe to complete the separation, and the broader market downturn in the fourth quarter. The share price has since rebounded 20% in 2019 as UTX reported strong fourth quarter results and revised the separation timeline to a shorter period. UTX currently trades at a lower multiple of earnings (15 times) and at a wider sum-of-the-parts discount to peers (30%) than at the time of our initial investment despite significant business progress, the closing of a value-enhancing acquisition, and the announcement of a value-creating business separation. We believe the upcoming separation, which should be completed by early 2020, will likely serve as a catalyst for future significant share price appreciation. The Howard Hughes Corporation (“HHC”) During 2018, HHC continued to make strong business progress. It recently reported the highest level of residential land sales in its master planned communities in HHC’s history. Sales of units in HHC’s Ward Village in Hawaii remained strong. Since the initial pre-sale launch of units in 2014, Ward Village has sold more than 1,900 condo units generating total proceeds of over $2.2 billion at projected 30% gross margins. In addition, HHC now has 50 million square feet of development entitlements within its existing portfolio and is nearing completion of the South Street Seaport development in downtown New York. HHC’s share price decreased 26% in 2018 and rebounded 13% year-to-date in 2019. While HHC has now operated independently since 2010, it operated quietly, out of view from much of the investment community until 2017 when it had its first Investor Day.

Despite HHC’s recent public facing efforts, the company is still not well followed or understood by the investment community which, in our view, is one of the reasons why the company’s stock declined in the fourth quarter. HHC tends to be grouped with homebuilding-related stocks, which declined in the fourth quarter as the market focused on potential housing headwinds. Pershing Square Holdings, Ltd. Annual Report 2018 20

Today, HHC owns a highly diversified portfolio of operating assets that generate consistent cash flows. We expect that over time, as other investors gain a better understanding of HHC’s business and appreciate that it has different and more favorable economic characteristics than a homebuilder, HHC will achieve a valuation that is more reflective of its intrinsic value that continues to grow at a rapid pace. Fannie Mae (“FNMA”, or “Fannie”) and Freddie Mac (“FMCC”, or “Freddie”) Following a difficult 2018 driven primarily by a lack of progress on housing finance reform, FNMA and FMCC common and preferred shares have rebounded sharply in the first few months of this year as the probability of a favorable resolution to the status of both companies has increased. Favorable recent developments include repeated comments from Treasury Secretary Steven Mnuchin citing GSE reform as a key priority for 2019; the U.S. Treasury, on behalf of the taxpayer, achieving an annualized return on its Senior Preferred Stock investment greater than the originally bargained for 10% rate; Democrats winning control of one branch of Congress in the 2018 midterm elections increasing the odds of administration-led reform, and, new leadership at FHFA, Fannie and Freddie’s primary regulator, with Joseph Otting serving as Acting Director while Mark Calabria awaits Senate confirmation. While we believe that Congress has an important role to play in housing finance reform efforts, we do not believe that the administration will allow a gridlocked, divided Congress to cause it to miss the window for achieving an end to the current untenable status quo. Completing one of the largest private capital raises in history necessitates favorable economic and financial market conditions like the current environment, with GDP growth at robust levels, unemployment at record lows, and national home prices and stock market indices at or near all-time highs.

We believe that 2019 is the optimal time for action, ahead of the next presidential election in 2020, and that Treasury has a unique opportunity to exercise its warrants in Fannie and Freddie and utilize over $150 billion of these profits to fund key government priorities. FNMA and FMCC common shares declined 60% and 58%, respectively, in 2018, but have since increased 149% and 136% year-to-date in 2019. FNMA and FMCC preferred shares declined 20% and 6% during 2018 and have increased 28% and 26% year-to-date in 2019. Exited Positions We exited our investments in Mondelez International, Nike Inc., and Herbalife Ltd in 2018, and Platform Specialty Products Corporation in 2019. Pershing Square Holdings, Ltd. Annual Report 2018 21

PUBLIC ACTIVIST INVESTMENTS SINCE INCEPTION(11) Below are all of the companies, both long and short, in which Pershing Square has taken a public, active role in seeking to effectuate change. Long Activist Positions ® 2004 2004 2004 2005 2005 2006 2006 2007 2008 2008 2008 2009 2010 2010 2010 2010 2010 2011 2011 2012 2013 2013 2013 2013 2014 2014 2015 2015 2015 2016 2017 2018 2018 2018 2018 Short Activist Positions* 2004 2005 2007 2007 2007 2012 *Short Activist Positions includes options and other instruments that provide short economic exposure Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying endnotes and disclaimers on pages 98–100. Pershing Square Holdings, Ltd. Annual Report 2018 22

Principal Risks and Uncertainties The Board has ultimate responsibility for the Company’s conditions. The Board and the Investment Manager have risk management. The Board believes that identifying the adopted procedures and controls for the ongoing assessment, inherent risks related to the business and operations of the monitoring and mitigation of material risks and the Board Company and developing an effective strategy to manage reviews the management of these risks at each quarterly and mitigate these risks is crucial to the ongoing viability of Board meeting. the Company. Accordingly, the Board, with the input of the The Board believes that the risks described below are Investment Manager, has carried out a robust assessment the principal risks faced by the Company. This is not of the principal risks facing the Company, including those intended to be a complete list of all risks. Please refer to that would threaten its business model, future performance, the Company’s Prospectus, available on the Company’s solvency or liquidity. website (pershingsquareholdings.com), for a more The Board has identified a number of risks specific to complete description of the risks applicable to the Company. the investment activities, structure and operations of Additional information related to risk management is the Company, as well as risks relating to general market provided in Note 13. Risk Description Mitigating Factors Investment Risk The Company’s investments are exposed The Investment Manager makes investment decisions in alignment with to the risk of the loss of capital. There is its core investment principles as described in the Company’s Investment no assurance that the Company’s portfolio Policy. investments will increase in value or that the Company will not incur significant losses.

The The Investment Manager is an experienced investor and performs Company’s strategy may not be successful and extensive research prior to investment, along with ongoing monitoring shareholders may lose all, or substantially all, of the position once held in the Company’s portfolio. of their investment in the Company. Senior executives and other investment personnel of the Investment Manager have aligned their interests with the Company’s shareholders by making a substantial investment in the Company. Investment The Investment Manager has broad investment The Board receives a report from the Investment Manager at each Manager’s Authority authority in executing the Company’s strategy quarterly Board meeting or more frequently, as necessary, on and may use whatever investment techniques it developments and risks relating to existing and new portfolio positions, believes are suitable for the Company, including activist engagements, financial instruments used in the portfolio and the novel or untested approaches. portfolio composition as a whole. In addition, the Company’s strategy depends The Board receives a daily summary of media reports regarding the on the ability of the Investment Manager to activities of the Investment Manager and the portfolio companies. successfully identify attractive investment opportunities. Senior executives and other investment personnel of the Investment Manager have aligned their interests with the Company’s shareholders by making a substantial investment in the Company. Pershing Square Holdings, Ltd. Annual Report 2018 23

Risk Description Mitigating Factors Portfolio The Investment Manager may invest a The Investment Manager performs extensive research prior to Concentration significant proportion of the Company’s capital investment, along with ongoing monitoring of the position once held in in a limited number of investments, subject the Company’s portfolio. The Investment Manager is mindful of sector to the Company’s Investment Policy. Because and industry exposures and other fundamental correlations between the Company’s portfolio is highly concentrated businesses in which the Company invests. and primarily invested in public equities (or derivatives referencing public equities), it is The Board reviews portfolio concentration and receives a detailed sensitive to fluctuations in equity prices and overview of the portfolio positions no less than quarterly, but more investment results over time may be volatile. frequently as necessary. A concentrated portfolio also exacerbates the risk that a loss in any one position could have Senior executives and other investment personnel of the Investment a material adverse impact on the Company’s Manager have aligned their interests with the Company’s shareholders assets. by making a substantial investment in the Company. Investments by the Company in, or giving exposure to, the securities of any one issuer may not, in the aggregate, represent more than 25% of the Company’s gross assets, measured at the time of making the investment. Activist Strategies The Investment Manager may pursue an The Investment Manager has significant experience conducting activist activist role with respect to an investment, campaigns. which may involve substantial costs in time, resources and capital and which may involve The Board reviews the Investment Manager’s activist engagements at litigation or opposition of the target company’s each Board meeting, or more frequently as necessary. management, board or shareholders.

Short Selling From time to time, the Company may enter The Investment Manager enters into these positions infrequently, may into short positions which theoretically could use CDS or other derivative positions to obtain economic short exposure result in unlimited loss. and relies on extensive due diligence prior to putting on a short position. Use of Indebtedness The Company has incurred indebtedness as a The Board regularly receives information regarding the Bonds and the result of issuing $1 billion in Senior Notes at Company’s portfolio leverage, if any, at each quarterly Board meeting. 5.5% due 2022 (the “Bonds”), and may incur additional indebtedness in the future, provided Unlike margin debt, the Bonds do not have mark-to-market covenants that it complies with certain restrictive (which could require forced sales when equity prices decline). covenants contained in the Bonds’ Indenture. Such leverage may have the effect of increasing The Investment Manager generally does not believe in the use of a losses. material amount of margin leverage because of the potential risk of forced sales at inferior prices in the event of short-term declines in The Company may use derivatives, including security prices in a margined portfolio. equity options, in order to obtain securityspecific non-recourse leverage in an effort to reduce the capital commitment to a specific investment, while potentially enhancing the returns on the capital invested in that investment. Regulatory Risk Regulatory risk can negatively impact the Prior to initiating a position, the Investment Manager considers the Company in a number of ways. For example, possible legal and regulatory issues that could impact its ability to changes in laws or regulations, or a failure to achieve the objective with respect to such position.

The Investment comply with these, could have a detrimental Manager’s legal and compliance team monitors regulatory changes on an impact on the Company’s ability to freely ongoing basis. acquire and dispose of certain securities or deploy certain investment techniques. The Board is apprised of any regulatory inquiries and material regulatory developments. Pershing Square Holdings, Ltd. Annual Report 2018 24

Risk Description Mitigating Factors Reputational Risk Reputational damage to the Investment The Investment Manager’s Director of Communications and external Manager and the Company as a result of public relations firms monitor media coverage and actively engage negative publicity could impair the Investment with media sources as necessary. Investment Manager personnel and Manager’s ability to effect its strategy on behalf the Board receive media clips daily to monitor public sentiment of the of the Company. Company’s activities. Company announcements, other than routine or portfolio-related announcements, are generally approved by the Chairman and Ms. Curtis prior to their release. The Board receives an update on media-related activity on a quarterly basis and considers measures to address concerns as they arise. Business Continuity The Investment Manager is dependent on The investment team and other senior personnel of the Investment William Ackman to provide its investment Manager are experienced, longstanding employees. advisory services to the Company as he has ultimate discretion with respect to all The Board has reviewed the Investment Manager’s succession plan investment decisions. and has deemed it to be satisfactory. If a key man event occurs prior to October 2021, there are key man provisions in place in the Company’s Articles of Incorporation that will trigger a continuation vote. NAV Discount The Public Shares of the Company have in the For a summary of actions the Company has taken to address the past, currently and may in the future trade at a discount, please see “Discount to NAV” in the Report of the Directors significant discount to NAV. The Board monitors the trading activity of the shares on a regular basis and addresses the discount to NAV at its regular quarterly meetings.

The Company has also retained advisers to maintain regular contact with existing and potential shareholders and to consider other potential measures to reduce the discount of share price to NAV. Tax Risk U.S. tax regulations would cause the Company The Investment Manager may obtain economic exposure to certain to incur negative tax consequences if the types of investments through derivative instruments such as total return Company invests in U.S. Real Property Holding swaps. Companies and other tax regulations may restrict the types of investments the Company The Company aims to conduct its affairs in such a manner as to avoid may make without potentially incurring adverse tax consequences and engages experienced tax advisors as adverse consequences. appropriate. Changes to the tax laws of, or practice in a Investment decisions of the Investment Manager are based primarily tax jurisdiction affecting the Company could upon economic, not tax, considerations. adversely affect the value of the Company’s investments and decrease the post-tax returns to shareholders. Investments in the Company may not be tax efficient for certain shareholders. The Investment Manager may make an investment decision which is tax efficient for some shareholders but which may result in adverse tax or economic consequences for other shareholders. Pershing Square Holdings, Ltd. Annual Report 2018 25

Risk Description Mitigating Factors Market Risk Adverse changes affecting the global financial In order to mitigate market-related downside risk, the Company may markets and economy as a whole may have a acquire put options, short market indices, baskets of securities and/ material negative impact on the performance or purchase credit default swaps, but the Company is not committed to of the Company’s investments or may cause the maintaining market hedges at any time. prices of financial and derivative instruments in which the Company invests to be highly volatile. Currency Risk The value of the Company’s investments The Company may hedge its foreign currency exposure associated with denominated in non-U.S. currencies may be these investments by entering into forward exchange contracts and adversely affected by fluctuations in currency currency options, which offset increases or decreases in the fair value of exchange rates. the Company’s non-USD denominated investments. Portfolio The Company may be restricted from trading in Securities subject to restrictions on trading may be sold during open Liquidity Risk certain securities in its portfolio for which the trading windows or pursuant to block trades or automatic trading plans. Investment Manager has board representation or for contractual, regulatory or other reasons. The Company invests primarily in liquid, large-capitalization securities which are readily convertible to cash under normal market conditions. Stressful market conditions may prevent the The Investment Manager actively manages the Company’s cash and cash Company from having sufficient liquidity to equivalents to ensure, as much as possible, that the Company will have meet its liabilities when due. sufficient liquidity under both normal and stressful market conditions.

Counterparty Credit The Company is subject to the risk that a The Company seeks to trade only with reputable counterparties that Risk counterparty to a financial instrument will fail the Investment Manager believes to be creditworthy. The Investment to discharge an obligation or commitment that Manager negotiates its International Swaps and Derivatives Association is entered into with the Company, resulting in a (“ISDA”) agreements to include bilateral collateral arrangements and, financial loss to the Company. in certain cases, tri-party agreements where collateral is held by a third party custodian. Thereafter, the Investment Manager monitors exposure, performs reconciliations, and posts/ receives cash or U.S. Treasury collateral to/ from each of the Company’s counterparties on a daily basis. The Investment Manager also reviews credit ratings reports on its counterparties weekly. From time to time, the Company purchases credit default swap contracts on the Company’s counterparties as a form of credit protection. Pershing Square Holdings, Ltd. Annual Report 2018 26

Key Themes

• Inversion and Thesis Stress-Testing — the self-interview format is the post-2016 process turned inward: answer the hardest questions a skeptic would ask
• Capital Allocation Discipline — the firm itself became the allocation: shrinking the organization, buying PSH shares, concentrating capital in the permanent vehicle
• Simple, Predictable, Free-Cash-Flow-Generative Businesses — the primer's portfolio roster is the rebuilt doctrine rendered as ten companies
• The Activist Premium — "influence without control," restated as an explicit theory of why minority stakes in superb businesses beat control of mediocre ones

Context & Significance

This is Act III, the valley, in its final year — and the letter reads like the exit interview from that period. The numbers are still those of a damaged franchise: a fourth consecutive year without a positive NAV return, a shareholder base that had largely turned over, a discount to NAV wide enough that Ackman and his team were buying PSH shares in the market themselves. But the mindset has changed from defense to architecture. Where the 2016 letter asked "what did we get wrong?" and the 2017 letter asked "what are we going to do about it?", this one asks the questions a new shareholder would ask — and answers them with a coherent theory of the firm.

That theory matters beyond 2018. The primer format — why Guernsey, why closed-end, why minority stakes, why share the gains with free-riding co-owners — is Ackman formalizing, apparently for himself as much as for readers, what Pershing Square had become after the private funds were allowed to run off. The Hilton paragraph contains the whole argument in miniature: in a market break, investors with redeemable capital become forced sellers; PSH, structurally incapable of suffering redemptions, became the buyer. The permanent-capital idea announced in the 2014 letter was no longer an aspiration; it had survived a stress test and produced a trade.

The honest hindsight is that the letter's confidence was earned but ahead of the evidence — the full-year number was still negative, and the "best start to a year in the 15-year history" it cites for early 2019 was only weeks old. But the sequence validates the document: the portfolio rostered here is, nearly name for name, the portfolio that would deliver the 2019 turnaround. The valley did not end with a great year. It ended with this letter's quiet claim that the machine was finally built correctly — simpler strategy, smaller organization, permanent capital, aligned ownership — and that the returns were now a matter of time.