Pershing Square Holdings Annual Report 2019

Summary

The 2019 annual report records the turnaround year: a 58.1% total NAV return, the best in the firm's sixteen-year history, with not a single holding producing a mark-to-market or realized loss. Ackman attributes the result not to new brilliance but to the organizational surgery described in the two prior reports — the refocused strategy and the investment-centric structure implemented in late 2017, with 85% of the firm's $8.5 billion in assets now in PSH and the manager owning more than 22% of its shares. Because the letter was written in the spring of 2020, the report also contains the first full account of the COVID-19 credit hedge — the trade that would define the renaissance — including the decision to hedge rather than liquidate, the exit for $2.6 billion of proceeds against $27 million of cost, and the immediate redeployment into Agilent, Berkshire Hathaway, Hilton, Howard Hughes, Lowe's, Restaurant Brands, and a re-established Starbucks position. It is the visible beginning of Act IV.

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 I am pleased to report that in 2019, PSH generated its highest annual return since it started investing in 2013. This is also the highest return generated by the Investment Manager since the inception of its investment strategy in 2004. In my letter to you last year, I noted that the Investment Manager took a number of steps in 2018 to refocus its organization following a period of underperformance and that those actions had begun to have a positive impact. The Investment Manager’s performance in 2019 makes it clear that those steps have set PSH fi rmly back on track. During the year, PSH executed its investment strategy eff ectively, generating substantial Net Asset Value (“NAV”) appreciation which signifi cantly outperformed the S&P 500 Index (“S&P 500”).i This 26.6 percentage points of outperformance in an already rising market demonstrates the skill of the Investment Manager in identifying investment opportunities, and then engaging with those companies to unlock value for shareholders.ii Although the main purpose of this statement is to report to you on 2019, it is impossible to ignore the events of 2020 as the coronavirus rampages across the world. We are concerned about the eff ect it will have on the fi nancial markets, our portfolio companies and their employees, our investors, our colleagues and our families. The Investment Manager will provide you with more details on the impact on our portfolio companies and the steps which were taken to protect your investment.

INVESTMENT PERFORMANCE

During the year ended December 31, 2019, PSH’s NAV increased 58.1%, ending the year at $26.94 per share. Over the same period, the S&P 500 increased 31.5%.i,ii The Investment Manager continued to engage with PSH’s portfolio companies through direct Board representation in some situations, and less formal, private engagement in others.

Each investment in the portfolio was analyzed in detail to identify and determine the opportunity for long-term value creation. The result of such deep diligence is that the Investment Manager makes high-conviction, concentrated investment decisions. In 2019, all of PSH’s portfolio companies were positive contributors to performance due to strong earnings growth and positive developments across all of our companies. From the beginning of the year to March 31, 2020, PSH’s NAV has increased 3.3% compared to a 19.6% decline in the S&P 500. This signifi cant outperformance is due to large notional hedges acquired by the Investment Manager to off set potential portfolio losses in the event of severe declines in the fi nancial markets. The Board appreciates the Investment Manager’s foresight in identifying the coronavirus as a material risk to the portfolio and for taking these steps to mitigate the losses. The Investment Manager’s Report sets out more information on the hedge positions and the diligence process which led to making this important investment decision.

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 Pershing Square Capital Management, L.P. 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 Board has adopted terms of reference describing its principal responsibilities, which are available on the PSH website. The Investment Manager continues to follow its strategy of investing primarily in large-cap companies that generate relatively predictable, growing free-cash-fl ows with formidable barriers to entry and a compelling value proposition.

The Investment Manager is a fundamental value investor that utilizes a range of activist strategies to unlock long-term value for shareholders, and seeks to invest in excellent businesses with opportunities for improvement. In 2019, the Investment Pershing Square Holdings, Ltd. Annual Report 2019 3

Manager made two new investments in alignment with these investment principles. Equally important, is the decision of when to sell an investment. The Board was pleased to note the discipline exercised by the Investment Manager in 2019 and early 2020 in deciding to sell the shares of four portfolio companies. In most cases, the Investment Manager exits an investment because the value identifi ed at the time of the investment is more fully refl ected in the share price, and the Investment Manager believes there are more compelling investment opportunities in other companies.

PORTFOLIO CHANGES

In 2019, the Company established new investments in Agilent Technologies (“A”) and Berkshire Hathaway (“BRK.B”). The Company exited its investments in Automatic Data Processing (“ADP”), Platform Specialty Products (“PAH”) and United Technologies (“UTX”). In January 2020, PSH exited its position in Starbucks (“SBUX”). These portfolio changes are discussed in detail in the Investment Manager’s Report.

CORPORATE ACTIONS

The PSH Board took a number of corporate actions in 2019 that we believe will contribute to the long-term success of the Company. • Dividend In February 2019, PSH announced that it will pay a quarterly dividend of $0.10 per Public Share, a 2.2% yield at the current PSH share price.iii The dividend represents a return of capital at NAV which can currently be reinvested in PSH shares at a discount to NAV. The Board believes that the payment of a quarterly dividend expands PSH’s potential investor base to include shareholders who prefer or are required to invest in dividend-paying equities. As PSH’s current dividend yield is similar to that of the S&P 500iv, we believe this further emphasizes that PSH is an attractive alternative to an S&P 500 portfolio. • Share Buyback Programs Over the course of 2019, PSH instituted share buyback programs totaling $300,000,000 of PSH’s outstanding Public Shares on the London Stock Exchange and Euronext Amsterdam.

The Board and the Investment Manager instituted the share buyback programs after assessing PSH’s available free cash, the trading prices of PSH’s existing portfolio companies, PSH’s leverage and discount level, and determined that the share buyback program was in the best long-term interest of the PSH shareholders. In 2019, 9.4 million PSH Public shares were repurchased with a total cost of $174 million at an average price of $18.56 per share and average discount of 28%. Since May 2, 2017, when PSH initiated its fi rst share repurchase program, through March 31, 2020, the Company has repurchased 42,464,631 PSH Public Shares at a total cost of $650,468,642 at an average price of $15.32 per share and an average discount of 24.4%. The combined $650 million of PSH share buybacks and $540 million of cumulative share purchases by PSCM affi liates have reduced the free fl oat of PSH by 32.9% since the IPO.v The daily trading volume of PSH across all exchanges has averaged $8.5 million per day in 2019. The Board notes that a further reduction in the free fl oat could reduce daily trading volumes and monitors this consideration carefully. • 2039 Bond Issuance In July 2019, the PSH Board announced the issuance of $400,000,000 of 4.950% 20-year unsecured Bonds, callable at 100% of par after 15 years. This unsolicited, opportunistic issuance represented an attractive fi rst step in beginning the process of refi nancing PSH’s existing debt which comes due in less than two-and-a-half years. The interest rate of the 2039 Bonds is materially below what was implied by the thentrading price of PSH’s pre-existing 2022 Bonds.vi Following the issuance of the 2039 Bonds, PSH’s 2022 Bonds Pershing Square Holdings, Ltd. Annual Report 2019 4

saw signifi cant spread compression; as of December 31, 2019 they traded at T+150 vs T+300 a year ago. Since the start of the market decline in 2020, the spread has widened signifi cantly along with the credit spreads of other investment grade bonds. We believe that the issuance of the 2039 Bonds established a favorable benchmark spread which will assist PSH over time in refi nancing, and/or extending the maturity of the 2022 Bonds. The PSH Board believes that the ability to access low-cost, investment-grade, long-term debt is an important competitive advantage for PSH and is appropriate for PSH’s investment holding company structure.

DISCOUNT TO NET ASSET VALUE

In addition to PSH’s NAV performance, the Board pays close attention to PSH’s share price performance. In 2019, PSH’s share price increased signifi cantly by 51.2%vii but as this was less than the increase in NAV, it led to a modest widening of the discount from 25.2% to 28.9% over the course of the year. It may seem an anomaly that the discount should widen in a year when the Investment Manager delivered outstanding investment performance. However, investors often sell their holdings after a period of exceptional gain, or because they have a change in strategy, and new investors are often reluctant to buy after a signifi cant rise in share price. The Board continues to believe that the best way to narrow the discount is to generate sustained positive performance over the long term. It is interesting to note that as of February 29, 2020, we estimate that approximately 56% of our investors are based in the US, 23% in the UK, 6% in Europe and 15% in the rest of the world. PSH is not permitted to market its shares in various countries (including the US), but investors are generally able to buy our shares on the London Stock Exchange and on Euronext in Amsterdam.

The Board welcomes the interest of all investors in the PSH investment strategy, and believes that attracting a wider group of investors to PSH will assist in reducing the discount to NAV at which the shares currently trade.

SHAREHOLDER ENGAGEMENT

Engaging with our shareholders and understanding your concerns has been a key focus of the Board in 2019. I personally spoke to shareholders holding over 40% of the Public Shares unaffi liated with the Investment Manager, and the other Directors and I intend to continue meeting with shareholders as our schedules permit. The Board actively considers feedback received through these interactions when making decisions that aff ect shareholders. I have both enjoyed and greatly benefi ted from meeting so many of you this past year. The Investment Manager also operates a robust investor relations program that acts as a resource for existing shareholders, and actively seeks to engage with potential future shareholders. The Board coordinates closely with the Investment Manager to ensure that it remains apprised of shareholder feedback. PSH BONDS The PSH Bonds include the $1 billion aggregate principal amount of 2022 Senior Notes with a 5.500% per annum interest rate and $400 million aggregate principal amount of 2039 Senior Notes with a 4.950% annual interest rate. The 2022 Bonds have traded down from approximately $105.94 at year-end 2019 to $99.78 as of March 31, 2020. The Bonds are rated BBB with a stable outlook by Fitch and rated BBB with a positive 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 and dividends that would cause the ratio to be exceeded. The Company’s total debt to capital ratio was 19.7% as of December 31, 2019 and 19.6% as of March 31, 2020.viii Pershing Square Holdings, Ltd. Annual Report 2019 5

The Board and the Investment Manager continue to believe that a modest amount of long-term leverage is prudent. While the leverage of the Bonds amplifi ed losses in previous years, as the Company’s performance improved in 2019, it accelerated the increase in NAV.

CORPORATE GOVERNANCE / BOARD

The Board continues to prioritize maintaining high standards of corporate governance. The Board has recently made a number of enhancements to its governance practices, including adopting terms of reference and establishing a Risk Committee. These and other changes are discussed further in the Corporate Governance Report. The Board continues to work eff ectively and diligently on behalf of all shareholders. I would like to thank my fellow directors for all of their contributions throughout the year. Bill Scott, who has been a Director since 2012, has informed me that he will not off er himself for re-election to the PSH Board at our Annual General Meeting (“AGM”) in April 2020 due to his commitment to other directorships. We will miss his valuable input at our Board meetings. I am working with the Nomination Committee to fi nd another suitably qualifi ed director who will enhance the skills of the Board, and will report back to you in due course.

EVENTS: SHAREHOLDER PORTFOLIO UPDATE AND ANNUAL GENERAL MEETING The Investment Manager presented a portfolio update to shareholders in New York on February 5, 2020, and in London on February 10, 2020. Slides from the presentation are available on PSH’s website: www.pershingsquareholdings.com. PSH’s 2020 AGM will be held in Guernsey on April 27, 2020. On March 25, 2020, the States of Guernsey announced mandatory measures to reduce the transmission of the coronavirus. The measures require people to stay at home, except for very limited purposes, and prohibit all gatherings of more than two people in public. The Board fully supports these measures to protect public health and safety and requests that shareholders not attend the AGM in person but instead submit proxy votes in electronic form. The results of the voting will be announced as soon as practicable after the conclusion of the AGM. I will report to you on the fi rst half of 2020 in August 2020, and the Investment Manager will keep you informed of any signifi cant developments in the portfolio before then, when appropriate. /s/ Anne Farlow Anne Farlow Chairman of the Board April 6, 2020 Pershing Square Holdings, Ltd. Annual Report 2019 6

Investment Manager’s Report LETTER TO SHAREHOLDERS To the Shareholders of Pershing Square Holdings, Ltd.: 2019 was an extraordinary year for PSH. We generated our best NAV returns in Pershing Square Capital Management, L.P.’s 16-year history with a total NAV return including dividends of 58.1%, and a total stock price return of 51.2%.5 2019 was also an excellent year for our portfolio companies as their operating and business progress largely kept pace with their stock price returns. We made two new investments, Agilent and Berkshire Hathaway, and exited three positions. We incurred no markto-market or realized losses on any of our holdings in 2019, a fi rst for Pershing Square. We continued to make progress after the turn of the year. In advance of recent market declines, in January we sold our stake in Starbucks as it approached our estimate of intrinsic value. In February, we sold a third of our stake in Chipotle in order to reduce what had become an outsized position. At the time of sale, Chipotle represented more than 20% of the portfolio due to the company’s substantial business progress and strong share price appreciation. Earlier this year, we were suffi ciently concerned about the health and economic implications of the coronavirus that we considered, for the fi rst time ever, liquidating the portfolio in its entirety because we believed it was likely that markets would decline materially. After a careful review of the portfolio, we concluded that a hedging strategy was more consistent with our long-term ownership philosophy, and would likely lead to a better long-term outcome than selling off all of our assets. To mitigate coronavirus risk, in late February, we entered into a series of large hedging transactions in the credit default swap market that have off set the substantial stock price declines of our investment holdings in the recent market downdraft.

After the initial market decline, we unwound our credit hedges and redeployed a substantial majority of capital by adding to existing investments including Restaurant Brands, Lowe’s, Hilton, and Berkshire Hathaway, and by investing $500 million ($432 million from PSH) in a secondary share off ering by Howard Hughes. We also re-established a position in Starbucks. PSH has approximately 18% of the portfolio in free cash, and we are continuing to look for only the most extraordinary opportunities. We believe that our success in 2019 was driven by a series of organizational and investment-related changes we implemented in late 2017. In sum, we focused our investment strategy on the core principles that have driven our high rates of return since the inception of Pershing Square, and restructured the organization to an investment-centric operation without the attendant requirements to continually raise capital. Today, 85% of our total assets – approximately $7.2 billion out of $8.5 billion – is represented by Pershing Square Holdings.6 Our competition is principally comprised of passive investors, and active investors with impermanent capital. Our greater capital stability is an important structural competitive advantage for our long-term investment strategy that should enable us to generate high risk-adjusted returns over the long term. While we continue to manage two private funds for long-term investors of the fi rm, we are no longer actively raising capital for these vehicles. As a result, we are now able to operate with greater focus and substantially improved productivity. In addition, we moved last May from hedge-fund central in midtown Manhattan to our new offi ce at 787 Eleventh Avenue, on the far west side in a neighborhood known as Hell’s Kitchen. Without marketing or investor relations responsibilities, the investment team’s resources are now entirely dedicated to investment analysis, selection, monitoring, and portfolio management.

Pershing Square Holdings, Ltd. Annual Report 2019 7

During the year, PSH engaged in a series of corporate transactions including the initiation of a quarterly ten-cent dividend, the launch of a series of buyback programs totaling $300 million, and the issuance of a 20-year bond (callable beginning in year 10 and at par by year 15). Since the inception of PSH’s buyback program on May 2, 2017, PSH has acquired $650 million of its shares representing 17.7% of initial shares outstanding.7 We continue to believe that PSH is undervalued at current market prices and NAV discount levels, and we have substantial available free cash. We have therefore continued to opportunistically buy back shares. During 2019 and after year end, affi liates of the Investment Manager continued to acquire additional shares of PSH. Unlike many other closed ended funds where the investment manager has only a de minimis investment, in PSH, the manager is by far the largest investor. We now own more than 22% of the fully diluted shares outstanding, representing $1.28 billion of PSH’s equity.8 Our large ownership stake in PSH materially improves the manager’s alignment of interests with other shareholders, particularly when compared with other investment funds. As a result of the incentive fee, we receive a larger percentage of the profi ts than other shareholders to compensate us for managing the portfolio. Many critics of incentive fees argue that they give investment managers an incentive to take excessive risk because if a fund is profi table, the manager receives a fee, but if the fund loses money, the manager can walk away without personal losses. In other words, if the manager does not have a substantial ownership stake in the fund, the incentive fee can be considered a free, or nearly free, option which increases the incentive to take risk because options become more valuable with increased volatility.

At PSH, the fact that affi liates of the manager own more than 22% of shares outstanding minimizes the incentive for the manager to take excessive risks, as losses are borne proportionately by the manager with other investors. In other words, the risk of loss and opportunity for gain of our large shareholding overwhelm the option value of the incentive fee. Furthermore, in our case, our PSH ownership is a disproportionately larger percentage of our net worths than for nearly all of our unaffi liated shareholders, so our principal incentive is to protect PSH from permanent losses, and then to maximize long-term profi ts. Coronavirus It would be inappropriate to write about the investment implications of the coronavirus without fi rst acknowledging the severe health implications and tragic loss of life that we are all experiencing in our own neighborhoods, nations, and around the globe. It was in fact our initial focus on the health risks of the virus that led to our decision to deploy a hedging strategy to protect PSH’s investment portfolio. Health and wealth are highly correlated, and we therefore must solve this global health crisis in order for global GDP to grow, and for job and wealth creation to occur. We have previously summarized our thoughts on the coronavirus and our hedging strategy in a series of communications beginning on March 3rd (Link) when we disclosed that we had entered into hedging transactions, on March 9th (Link) when we disclosed the positive eff ect of the hedges on NAV, and on March 25th (Link) and March 26th (Link) when we provided detailed information about the unwinding of our hedges, and the reinvestment of capital in our portfolio and in certain new investments. Rather than repeat our coronavirus analysis in detail again here, I provide a short summary and then elaborate on the portfolio-specifi c implications of the virus.

On March 3, 2020, we disclosed in a press release that we had acquired large notional hedges which had asymmetric payoff characteristics. We did so because of our concern about the likely negative eff ect of the coronavirus on the U.S. and global economy, and on equity and credit markets. Our hedges were in the form of the purchase of credit default swaps (CDS) on the U.S. investment grade and high yield credit indices, and the European investment grade credit index. Pershing Square Holdings, Ltd. Annual Report 2019 8

After we purchased these hedges, U.S. and global equity and credit markets declined dramatically, and our hedges increased in value from zero to a peak of $2.7 billion (in PSH $2.3 billion).9 At this value, our hedges were worth approximately 40% of our total capital as our equity investments declined substantially over the same period. The risk of remaining short credit versus the potential rewards became less attractive as the hedges increased in value. Furthermore, the opportunity cost of this capital increased as the proceeds from the hedges could be reinvested in our portfolio companies and other new opportunities at highly discounted valuations. As various U.S. state, city and local governments began to aggressively confront the health and economic risks of the coronavirus through unprecedented non-essential business closures and shelter-in-place/stay-at-home implementations or “lockdowns,” we believed that our worst case fears would not be realized. The U.S. federal government and the U.S. Treasury have also intervened in fi nancial markets in an unprecedented fashion, and Congress has passed legislation which will help bridge the economy and our country’s workforce and citizens during what we believe to be a temporary but massive and extremely painful economic shock. We have been encouraged by the Treasury Secretary’s and the Administration’s all-in approach to mitigating the damage to the capital markets, and for keeping fi nancial markets functioning and open, which are critical for our economy and capitalism to work. For all of the above reasons, as we became increasingly positive on equity and credit markets, beginning on March 12th and entirely on March 23rd, we completed the exit of our hedges which generated total proceeds of $2.6 billion for the Pershing Square funds ($2.1 billion for PSH), compared with premiums paid and commissions totaling $27 million. These gains off set a similar amount of mark-to-market losses in our equity portfolio.

We have redeployed the substantial majority of our net proceeds from these hedges by adding to our investments in Agilent, Berkshire Hathaway, Hilton, Lowe’s, Howard Hughes, Restaurant Brands, and by repurchasing our stake in Starbucks. We have done so at deeply discounted prices and now own substantially larger stakes in each company. Even after these additional investments, we maintain a cash position of about 18% of the portfolio. In summary, as a result of the reinvestment of the proceeds from our hedging transactions, we have four percentage points more cash (free cash before the decline was equal to 14% of the portfolio), and we have increased our stakes in Agilent by 16%, Berkshire Hathaway by 39%, Hilton by 34%, Howard Hughes by 158%, Lowe’s by 46%, and Restaurant Brands by 26%. We have also reestablished a 10% of capital position in Starbucks. If our portfolio companies grow in value and their stock prices increase over the long term as we expect, the long-term returns for PSH will be substantially greater than before as a result of the reinvestment of the proceeds from the hedging transactions. You might ask whether it was prudent for us to have unwound hedges and reinvested capital without knowing whether equity markets had bottomed. We of course do not know whether the recent lows that have been achieved will be breached by further market declines. Our decision to unwind our hedges was driven by the less favorable risk-reward ratio off ered by our credit hedges as spreads widened, and the much more favorable risk-reward ratio presented by the then-trading values of companies in which we bought shares. At the prices paid and based on our estimates of the long-term cash fl ows these businesses will generate, we believe our recent acquisitions will generate very high rates of return over a multi-year holding period. If stock prices decline further, the returns we could have earned by waiting to invest capital would be even higher.

We have kept substantial cash on hand to allow us to buy more at lower prices if markets decline further. Pershing Square Holdings, Ltd. Annual Report 2019 9

In our experience, it is diffi cult for a large investor to buy stocks while markets are recovering as liquidity is generally limited when markets rise rapidly. It would not be a surprise to see a rapid recovery in the stock market when investors have greater confi dence that the risks of the virus are largely behind us. We have therefore chosen to be a substantial buyer as markets have declined. While it is diffi cult to predict when markets will make a full recovery, we believe that the factors for a stock market recovery are coming into view. Namely, nearly the entire country and much of the world are essentially in lockdown, which implies that the number of cases and resulting deaths should peak over the next several months. This combined with the availability of cheaper and faster testing will enable many employees to go back to work allowing the U.S. and other countries to begin an economic recovery. We are not, however, predicting a V-shaped recovery as it will be sometime before the virus’ impact can be eliminated, and the required social distancing and other virus-safe behavioral requirements will somewhat restrain the global economy. Furthermore, the psychological and fi nancial impact of the economic shock we are currently experiencing will likely cause many consumers to be hesitant about opening their wallets until the passage of time heals memories of this challenging time, and corporate and consumer balance sheets are repaired. To share a note of optimism, the enormous economic and reputational incentives to discover therapeutic cures, more accurate, faster and cheaper testing, and a vaccine are driving scientists, technologists, corporations, governments and academic and research institutions around the globe to work toward a solution to our global malaise. This increases the likelihood that we may be positively surprised with a faster than expected cure or other mitigants to the virus and its negative health and economic eff ects.

It is important to be reminded that the value of a business is the present value of the cash it generates over its life. While many investors and market commentators use the heuristic of assigning a price-earnings multiple to analyst estimates of next year’s earnings, this simplistic approach is not valid for the current environment, as the next 12 months of earnings are not representative of the true long-term earnings power of most companies. The revenues and earnings for the majority of businesses over the next year or so will be extremely poor, and in some cases disastrous, but for companies with strong balance sheets, dominant market positions, and which do not need access to capital, the virus will likely only disrupt the next 12 to 24 months of cash fl ows. In a discounted cash fl ow valuation of a company, the loss or disruption of the fi rst, and possibly second, year of cash fl ows, does not generally destroy more than 5% to 10% of the value of the business. The fact that many stocks have declined by 30% to 60% or more from levels that did not appear to be overvalued suggests that there are many compelling bargains in the equity markets. We discuss some of these opportunities in our portfolio below. The Impact of Coronavirus on our Portfolio Companies The important question is what impact will the virus have on our portfolio companies? We are fortunate to own businesses that are designed to withstand the test of time. Our strategy of investing in simple, predictable, free-cash-fl ow-generative, conservatively fi nanced companies with limited exposure to extrinsic factors we cannot control should serve us well in the current, highly stressed environment. Importantly, our portfolio companies are generally considered essential businesses, and for the most part will remain open to the extent possible during a state and/or a national shutdown.

All of our portfolio companies, however, will be aff ected to varying degrees in the short term by the virus’ impact on the global economy. Below, we share a few observations on the short- and long-term impact of the crisis on each of our companies. Pershing Square Holdings, Ltd. Annual Report 2019 10

As a provider of testing equipment for labs around the globe, Agilent is well positioned to benefi t from increasing investments in healthcare, safety-related testing, pharmaceuticals, and other industries where highly accurate testing is essential for environmental, safety, product design, quality control, and other reasons. In the short term, Agilent will be aff ected somewhat by the recent closure of university labs, generally lower global business activity, and the impact of lower energy prices on a small portion of the company’s customer base. In sum, we believe the net impact of the virus on Agilent’s longterm intrinsic value to be minimal. Berkshire Hathaway was built by Warren Buff ett to withstand a global economic shock like this one. With more than $120 billion of free cash available for investment, Berkshire is well positioned to deploy capital opportunistically. Pandemics are generally excluded from insurance policies, and we believe that Berkshire’s insurance operations have limited exposure to the coronavirus. Berkshire is also highly advantaged in being able to invest its insurance company capital in equities when compared with other insurers who are generally limited to fi xed income investments where there is little yield to be found. Berkshire’s privately owned portfolio of industrial and other businesses will absorb some short-term economic impact from the virus. In light of Berkshire’s extraordinarily strong fi nancial position and the nature of the portfolio companies it owns, we believe that Berkshire will not be materially negatively impacted as a result of the crisis. Rather, we believe that Berkshire will emerge from this crisis as a more valuable enterprise as the market decline will enable it to invest a substantial portion of its cash in investments which will accelerate its long-term growth in intrinsic value.

We believe that restaurants that have easy-to-use digital ordering, delivery, and drive-thru will emerge stronger from this crisis, as their customers will become more accustomed to ordering home delivery on the company’s mobile apps, and using the drive-thru or digital order ahead for takeout orders (including Chipotlanes). While we expect that Chipotle – the Restaurant Brands concepts of Burger King, Popeye’s and Tim Horton’s – as well as Starbucks will lose a substantial amount of sales during shutdowns, they will likely gain digital and delivery market share during this period, and will thereby emerge stronger from the crisis. Chipotle’s burrito and bowl off erings are ideally suited for delivery, and off er families a healthy alternative to cooking at home. We expect Chipotle’s superb digital delivery off ering should benefi t as its customers order home delivery of the company’s low-priced, healthy, high quality food. For Restaurant Brands’ concepts, drive-thru, pickup and delivery represent about two-thirds of sales suggesting that they are well positioned to provide low-cost food in the current environment. Starbucks’ superb digital off ering, delivery, and no-touch pick up are well adapted to service its consumers’ global coff ee habit, particularly when compared with competitors who have not built digital and delivery off erings. Lowe’s should also emerge stronger following the crisis as it has the capital structure and cash fl ows to withstand any shortterm negative impact on its business. As consumers spend more time in their homes, they have historically shown a greater propensity to do repair and other home-related upgrades for which Lowe’s will be a benefi ciary. As a provider of cleaning supplies, masks, goggles, protective equipment and clothing, and appliances, Lowe’s is also an important supplier of crisisrelated items. We expect Lowe’s to emerge a stronger, more dominant and more profi table company after the crisis.

Fannie Mae and Freddie Mac have already proven themselves essential to the U.S. housing fi nance system, which is a critically important bulwark for the U.S. economy. The current disarray in the non-agency residential and rental housing mortgage market, which has recently occurred as a result of the crisis, will remind the Congress and the American people Pershing Square Holdings, Ltd. Annual Report 2019 11

of the critically important function that Fannie and Freddie perform during periods of economic stress. The crisis has also made manifestly clear the need to recapitalize Fannie and Freddie so that the private sector becomes the fi rst loss capital in the housing fi nance system, which should provide even greater urgency for a recapitalization and privatization of the two companies. While we wait for the necessary steps for this to occur, both companies are quickly rebuilding needed capital through retained earnings. For these reasons, we believe that Fannie and Freddie will emerge as even stronger and more essential enterprises after the crisis. The Howard Hughes Corporation has signifi cant short-term exposure to the crisis. In particular, the decline in oil prices will negatively impact Houston, the location of the Woodlands and Bridgelands, two of HHC’s master-planned communities. HHC’s Summerlin master plan community will also be aff ected by the virus’ impact on the casino and conference business in Las Vegas. The company’s other assets will also be impacted to varying degrees. In order to mitigate these risks, on Friday, March 27th, HHC completed a $600 million equity off ering, the fi rst such equity off ering of any company since the crisis began. HHC was able to complete the off ering as a result of a $500 million investment from Pershing Square ($432 million from PSH) and $100 million from other long-term oriented shareholders. The independent directors of HHC made a decision to raise capital to ensure the company would maintain a fortress balance sheet, now with more than $1 billion of cash, in light of the potential short- to intermediate-term impact of the crisis on the company’s business. We believe that HHC will continue to create substantial long-term value for its shareholders, and that its portfolio of small cities with large population infl ows will remain highly desirable places to live and work.

We therefore viewed the opportunity to increase our investment to approximately 30% of the company to be highly attractive at the current share price.10 While there is more short-term risk to HHC’s business, we believe that this risk is more than compensated for by the opportunity to invest capital at the current valuation. The hotel industry and Hilton have been highly impacted by the crisis as many hotels have closed or are experiencing very large declines in occupancy. As a result, we expect Hilton’s revenues to decline over the next several or more quarters, and to begin to recover with increases in economic activity as the global economy reopens. After adjusting Hilton’s intrinsic value for the impact on our valuation from reduced revenues and cash fl ows, we continue to believe that Hilton stock is highly attractive at current valuations. We also believe that the crisis will cause independent hotels to seek an affi liation with global brands like Hilton, which will contribute to the company’s long-term growth. Hilton is well positioned to succeed because it has the best management team in the industry, a portfolio of great brands, a dominant market position, a capital-light economic model, and a strong balance sheet. In all of our portfolio companies, we are fortunate in their being led by superb management teams who have the skills, leadership qualities, and adaptability to manage through these challenging times. We are extraordinarily grateful for their leadership. We continue to expect that markets (and our performance) will remain volatile, and therefore, new opportunities may present themselves that are superior to investments we currently own. This may lead us to sell certain of our existing holdings including investments we recently purchased. We may also choose to reestablish similar or diff erent forms of hedges or raise or deploy more cash based on developments with the coronavirus and other market factors.

In other words, we are more likely to change our investment positioning and/or have higher portfolio turnover in this environment than we typically do. Pershing Square Holdings, Ltd. Annual Report 2019 12

We are in one of the most challenging periods of time for our country, and for the world. Tens of thousands of people have or will soon become severely sick, and many will die. Millions will lose jobs and struggle to regain employment. This is a global tragedy that could have been prevented with better long-term planning, which should have begun more than a decade ago. I have always said that experience is making mistakes and learning from them. And learn from this we must. We are all incredibly fortunate to work alongside a superb team of talented, motivated, extremely high-quality human beings at Pershing Square. The recent market turmoil when combined with our transition to working from home would be a challenge to any company. I am proud to say that every team at Pershing Square rose to the challenge enabling us to fl awlessly execute during this challenging period. Thank you for your long-term commitment to Pershing Square. We are honored and fortunate to manage capital on behalf of investors who have committed to us for the long term. Sincerely, William A. Ackman Pershing Square Holdings, Ltd. Annual Report 2019 13

2019 PORTFOLIO UPDATE Performance Attribution Below are the contributors and detractors to gross performance of the portfolio of the Company for 2019 and year-to-date 2020(11). January 1, 2019 – December 31, 2019 January 1, 2020 – March 31, 2020 Chipotle Mexican Grill, Inc. 14.7 % Index CDS (Hedge) 37.7 % Hilton Worldwide Holdings Inc. 9.0 % Starbucks Corporation 1.0 % Starbucks Corporation 5.7 % Share Buyback Accretion 0.8 % Lowe's Companies Inc. 5.3 % Bond Interest Expense (0.3)% Restaurant Brands International Inc. 4.5 % Agilent Technologies Inc. (2.0)% Federal National Mortgage Association 4.5 % Federal Home Loan Mortgage Corporation (2.2)% Automatic Data Processing, Inc. 4.4 % Berkshire Hathaway Inc. (2.4)% Federal Home Loan Mortgage Corporation 2.7 % Chipotle Mexican Grill, Inc. (2.9)% The Howard Hughes Corporation 2.6 % Federal National Mortgage Association (3.1)% United Technologies Corporation 2.4 % Lowe's Companies Inc. (3.9)% Agilent Technologies Inc. 2.1 % Restaurant Brands International Inc. (5.0)% Berkshire Hathaway Inc. 1.9 % Hilton Worldwide Holdings Inc. (6.5)% Share Buyback Accretion 1.9 % The Howard Hughes Corporation (7.2)% Platform Specialty Products Corporation 1.0 % All Other Positions and Other Income and Expense 0.3 % Other Income and Expense 0.2 % Bond Interest Expense (1.8)% Net Contributors and Detractors 61.1 % Net Contributors and Detractors 4.3 % 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, except for accretion and bond interest expense. 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 95-97. In this year’s portfolio update, we report on the business progress made by our portfolio companies in 2019.

In the Investment Manager’s letter, we have previously summarized the impact of the coronavirus on these companies, and therefore do not do so again below. Agilent (“A”) In 2019, PSH initiated an investment in Agilent, a leading analytical measurement and testing company. Agilent is a highquality business with a strong competitive position in an attractive industry experiencing long-term secular growth. Agilent primarily sells chromatography and mass spectrometry instruments and the associated consumables and aftermarket services. Agilent’s products and services enable mission-critical measurement and testing activities across a diversifi ed set of end markets, including pharmaceuticals, chemicals, energy, food safety, environmental testing, and forensics. Pershing Square Holdings, Ltd. Annual Report 2019 14

Agilent operates with an advantaged “razor/razor blade” business model whereby profi table instrument sales enlarge the company’s installed base and drive recurring sales of highly profi table consumables and services. Recurring revenue from consumables and services have historically grown at about double the rate of instrument sales, and now comprise nearly 60% of the company’s total revenues. The growth and stability of Agilent’s recurring revenue has allowed the company to generate annual organic revenue growth of 6% over the last decade with its worst year revenue decline of 2% in the 2009 fi nancial crisis. Agilent’s future growth prospects remain strong as increasing regulatory standards and heightened consumer expectations drive further demand for analytical measurement and testing. As Agilent continues to increase the attachment rate of its consumables and services, recurring revenues will become an increasing percentage of overall revenues, as their growth rate is higher than instrument sales. Over time, we expect that Agilent will become an even more annuity-like, faster-growing business. Since 2014, when Agilent spun off its more cyclical electronic measurement and testing business and appointed Mike McMullen as CEO, the company has generated 6% annual organic revenue growth while increasing profi t margins by more than fi ve percentage points, and delivering annual EPS growth of 15%. Despite this progress, Agilent’s current 26% EBITDA margins are approximately nine percentage points lower than its closest peer, Waters Corp., despite having a revenue base more than twice as large. Agilent’s lower EBITDA margins refl ect lower gross profi t margins, slightly higher R&D, and signifi cantly higher overhead expenses. Given Agilent’s meaningful scale advantage, we believe that the company should be able to more than close the margin gap with Waters.

In 2019, Agilent’s organic revenue grew 5% due to 10% growth in its recurring consumables and services business, its highest level of growth since the spinoff over fi ve years ago. The company’s instrument business declined 1% due primarily to weakness in China, where government-led initiatives that are aimed at broadening access to generic pharmaceutical drugs and transitioning to a more scalable model for food safety testing, have led to a temporary deferral of instrument purchases. Although instrument sales may remain soft in the near-term, these Chinese government initiatives are likely to ultimately result in a signifi cant increase in demand for Agilent’s products and services over time, and further accelerate the company’s revenue growth from current levels. For the year, Agilent’s operating profi t grew 9% as margins increased 80 basis points due to an impressive 300 basis points of margin expansion in the consumables and services business. Earnings per share increased by 11%. Agilent’s current valuation does not refl ect the company’s high-quality business model, increasing mix of recurring revenue, strong long-term growth potential, and signifi cant margin expansion opportunity. We believe the combination of Agilent’s strong growth potential, signifi cant margin expansion opportunity, and lower tax rate will allow the company to grow earnings per share at a mid-to-high teens annual rate for the foreseeable future driving long-term shareholder value. Chipotle Mexican Grill (“CMG”) Chipotle achieved outstanding operating performance in 2019 due to the successful business transformation led by CEO Brian Niccol and his team. Same-store sales grew 11%, with 7% transaction growth. Each quarter sales grew faster than the previous one on both a one-year and two-year basis. Chipotle’s digital business nearly doubled from 2018 levels, and now accounts for 20% of sales as customers increasingly choose to access Chipotle through order-ahead pickup and delivery.

The successful launches of Lifestyle Bowl salads in January, the Chipotle Rewards loyalty program in March, and the carne asada limited time off ering in September fueled sales momentum throughout the year. Pershing Square Holdings, Ltd. Annual Report 2019 15

Robust sales growth drove substantial operating leverage, highlighting the strength of Chipotle’s economic model. Restaurant margins expanded 1.8 percentage points in 2019 to 20.5%, while average restaurant sales grew 10% to $2.2 million. Management estimates that restaurant margins will reach 25% or more once average restaurant sales return to peak historical levels of $2.5 million, a sales level previously attained with no meaningful contribution from digital orders. Chipotle has an extensive pipeline of initiatives to drive continued momentum in 2020 and beyond. Management plans to introduce a few new menu items each year, including queso blanco which was launched nationwide on February 27 following strong customer feedback in test markets. The company’s Chipotlane digital drive-thru channel will be installed in most newly opened restaurants, which should further enhance the company’s high returns on capital and new-unit productivity. The company’s loyalty program will also be a major focus for 2020, including the buildout of database marketing and personalization capabilities. We are confi dent that management will continue to execute on Chipotle’s substantial unrealized growth potential for many years to come. Restaurant Brands International (“QSR”) QSR’s strong performance in 2019 continued to demonstrate the attractiveness of its high-quality, royalty-based franchised business model. Its three brands – Burger King, Tim Hortons and Popeyes – all have signifi cant long-term growth potential. QSR’s unique business model has allowed it to capitalize on its underlying brands’ growth with minimal capital investment. The company grew total net units by 5%, with 6% growth at Burger King, 2% at Tim Hortons, and 7% at Popeyes. While same-store sales declined slightly at Tim Hortons, they increased by 3% at Burger King and 12% at Popeyes. QSR’s strong overall performance led to 7% organic EBITDA growth in 2019.

Burger King’s strong performance was bolstered by the launch of the Impossible Whopper and the continued expansion of delivery. Popeyes’ strong results were driven by the launch of its iconic chicken sandwich, which is now considered one of the most successful product launches in the industry’s history. Tim Hortons’ results suff ered during the year partly due to the launch of Tims Rewards, its loyalty program, which resulted in a headwind for same-store sales, as the negative impact from rewards redemptions more than off set the growth in incremental customer transactions. Management recently made improvements to the loyalty program that should moderate the program’s negative impact on same-store sales. The company is working on several new initiatives to return the brand to its historical levels of growth. Lowe’s Companies (“LOW”) Lowe’s is a high-quality business with signifi cant long-term earnings growth potential. We initiated our investment in Lowe’s in mid-2018 because we believed a new high-caliber management team would be able to narrow the performance gap with Home Depot that had materialized over the preceding decade. In late 2018, Lowe’s outlined a credible plan to turn around the company, which we expect will improve margins and accelerate same-store sales growth. In 2019, Lowe’s began to lay the foundation for its multi-year transformation by working to reestablish best-in-class retail fundamentals including improved customer service and product merchandising, reduced structural costs and labor effi ciencies, modernized technology systems, and expanded distribution capabilities.

While signifi cant progress was made in 2019, Lowe’s experienced issues related to legacy pricing systems which pressured gross margins in 2019. 2019 U.S. samestore sales grew 3% and earnings-per-share grew 12%. 2020 will see Lowe’s shift its attention from basic retail fundamentals to more strategic initiatives including improving omnichannel capabilities and investing behind the Pro customer (the professional tradesmen that perform repair and maintenance, remodeling and construction services for others). Lowe’s will also be re-platforming its decade-old ecommerce platform in the coming months, which, when complete, will dramatically enhance functionality and the overall user experience, accelerating sales growth. Pershing Square Holdings, Ltd. Annual Report 2019 16

We believe that Lowe’s is well positioned for the future given the critical function it fulfi lls in the retail ecosystem, its conservatively fi nanced balance sheet, and signifi cant cash fl ow generation. Hilton Worldwide Holdings Inc. (“HLT”) Hilton is a high-quality, asset light, high-margin business with signifi cant long-term growth potential led by a superb management team. We invested in Hilton because we believe Hilton has a unique value proposition which allows the business to 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 over the long-term. We believe this was underappreciated by the market at the time we made our investment in 2018. Hilton delivered strong business performance in 2019. With only 1% systemwide comparable sales growth (“RevPAR”), franchise, licensing and management revenue grew 8%, and earnings increased 14%. This performance was driven by robust net unit growth of 7%, and signifi cant share repurchases, highlighting Hilton’s unique ability to grow earnings and generate substantial free cash fl ow even in a softer lodging environment. At the end of 2019, Hilton’s development pipeline consisted of over 387,000 rooms in 116 countries, half of which are under construction (amounting to 40% of its existing room base), which should provide a continued runway for net unit growth over the coming years. Berkshire Hathaway (“BRK.B”) Berkshire was one of PSH’s two new investments in 2019. As long admirers of the company, we took advantage of the opportunity to invest at a valuation which represents one of its widest discounts to intrinsic value in many years. Berkshire’s discounted valuation, large excess cash balances, and substantial margin opportunities at several key operating subsidiaries provided an attractive investment opportunity.

Berkshire’s primary asset, the world’s largest insurance business representing roughly half of the company’s value, performed well in 2019. Berkshire’s fl oat (the net premiums received held on Berkshire’s balance sheet that will be used to pay for expected losses in the future) grew at a 5% rate. Its insurance operations generated an underwriting profi t (i.e. a negative cost of fl oat), and net tangible book value grew by 45% driven by appreciation in Berkshire’s investment portfolio and growing investment income. Since the end of 2007, Berkshire has averaged an 8% annual rate of return on its insurance investment portfolio with an average of 20% of its portfolio in cash. While we expect the investment portfolio to be volatile in any given quarter or year, we believe the value of Berkshire’s investments will grow signifi cantly over time. Berkshire’s industrial business also performed well in 2019 with profi ts at Berkshire’s non-insurance segment increasing by 3%. This performance was driven by strong results at Berkshire’s Utilities & Energy portfolio which realized 8% net income growth. Burlington Northern Santa Fe reported 5% net income growth, as the railroad’s operating ratio increased by two percentage points amidst a weak volume growth environment for the rail sector. Despite solid operating ratio improvement in 2019, BNSF still has signifi cant opportunity for further improvement. Progress in these two business units was partially off set by fl at net income growth at the Manufacturing, Service & Retailing segment, which was impacted by certain negative one-time events off setting growth in many of the other businesses in the segment. Notably, net income declined 15% at Lubrizol (one of the largest businesses in this segment) which experienced a major business disruption following a fi re at one of its factories. Pershing Square Holdings, Ltd. Annual Report 2019 17

The Howard Hughes Corporation (“HHC”) 2019 was a year of signifi cant organizational change for HHC. In June 2019, HHC’s Board of Directors announced a detailed review of all potential strategic alternatives. Following a thorough review, in October 2019 the Board concluded that the best interests of shareholders would be served by HHC executing a transformation plan under new executive leadership. The company named Paul Layne as new CEO. Paul had previously served as President of HHC’s Central Region, responsible for its master planned communities (“MPC”) in Houston, which includes The Woodlands, The Woodlands Hills and Bridgeland. Under Paul’s leadership, HHC is in the early innings of executing on a three-pillared transformation plan designed to create a lean, decentralized organization built around the company’s core MPC business. The plan’s three pillars are: • Streamlined organizational structure and a $50 million per annum reduction in overhead expenses, achieved in part by relocating HHC’s headquarters from Dallas to The Woodlands in Houston • Sale of $2 billion of non-core assets with estimated net cash proceeds of $600 million which can be redeployed into development opportunities in the MPCs and possible share repurchases • Accelerated growth in the core MPC business, where the company has extensive demand for attractive, nearto intermediate-term capital deployment opportunities, as evidenced by the recently announced $565 million acquisition of premium offi ce space in The Woodlands The company continued to demonstrate solid underlying business momentum amid substantial organizational transformation. In 2019, HHC recorded the highest level of residential land sales in its history. Operating asset NOI grew 20% on a full year basis driven by new development and continued stabilization of existing assets.

Sales of units in HHC’s Ward Village in Hawaii remained strong, with its latest luxury condo tower more than 50% pre-sold less than two months after launching public pre-sales. Fannie Mae (“FNMA”, or “Fannie”) and Freddie Mac (“FMCC”, or “Freddie”) FNMA and FMCC common and preferred shares performed exceptionally well in 2019 as major progress was made towards ending their conservatorships. Key milestones achieved include the appointment of Mark Calabria as FHFA Director in April, the release of Treasury’s Housing Finance Reform Plan followed by the eff ective suspension of the net worth sweep in September, and favorable decisions in both the Fifth Circuit and Court of Federal Claims. This progress continued in February when FHFA hired Houlihan Lokey as a fi nancial advisor to assist in developing a plan to end the conservatorships. The next major milestones include the re-proposal of the GSE capital rule, which is now expected by late May, and a Fourth Amendment to the Preferred Stock Purchase Agreements, which will be negotiated between FHFA and Treasury and is expected by end of the year. Exited Positions As previously disclosed, we exited our positions in Platform Specialty Products, United Technologies, and Automatic Data Processing. Pershing Square Holdings, Ltd. Annual Report 2019 18

PUBLIC ACTIVIST INVESTMENTS SINCE INCEPTION (12) Long Activist Positions 2004 2004 2004 2004 2004 2005 2005 ® 2006 2006 2007 2008 2008 2008 2009 Justice Holdings Ltd. 2010 2010 2010 2010 2010 2011 2011 2012 2013 2013 2013 2013 2014 2014 2015 2015 2015 2016 2017 2018 2018 2018 2018 2019 Short Activist Positions* 2004 2005 2007 2007 2007 2012

• Short Activist Positions includes options, credit default swaps and other instruments that provide short economic exposure. The companies on this page reflect all of the portfolio companies, long and short, as of March 31, 2020, in respect of which (a) PSCM or any Pershing Square fund, as applicable, has filed Schedule 13D, Form 4 or a similar non-US filing or has made a Hart-Scott Rodino filing; or (b) PSCM has publicly recommended changes to the company’s strategy in an investment-specific white paper, letter or presentation. 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 95-97. Pershing Square Holdings, Ltd. Annual Report 2019 19

Principal Risks and Uncertainties The Board has ultimate responsibility for the Company’s adopted procedures and controls for the ongoing assessment, risk management. The Board believes that identifying the monitoring and mitigation of existing and emerging material inherent risks related to the business and operations of the risks. The Board reviews the management of investment Company and developing an eff ective strategy to manage risk and operational risks at each quarterly Board meeting. and mitigate these risks is crucial to the ongoing viability and The Board has also established a Risk Committee to review success of the Company. Accordingly, the Board, with the emerging risks and conduct its annual risk assessment. input of the Investment Manager, has carried out a robust The Board believes that the risks described below are assessment of the principal and emerging risks facing the the principal risks faced by the Company. This is not Company, including those that would threaten its business intended to be a complete list of all risks. Please refer to the model, future performance, solvency or liquidity. Company’s Prospectus, available on the Company’s website The Board has identifi ed a number of risks specifi c to (www.pershingsquareholdings.com), for a more complete the investment activities, structure and operations of description of the risks applicable to the Company. Additional the Company, as well as risks relating to general market information related to fi nancial risk management is provided conditions. The Board and the Investment Manager have in Note 13. Risk Description Mitigating Factors Investment Risk The Company’s investments are exposed The Investment Manager makes investment decisions in alignment with its to the risk of the loss of capital.

There is core investment principles as described in the Company’s Investment Policy. no assurance that the Company’s portfolio investments will increase in value or that the The Investment Manager is an experienced investor and performs Company will not incur signifi cant losses. The extensive research prior to making investments, along with ongoing Company’s strategy may not be successful and monitoring of positions held in the Company’s portfolio. shareholders may lose all, or substantially all, of their investment in the Company. Senior executives and investment personnel of the Investment Manager have aligned their interests with the Company’s shareholders by making substantial investments in the Company. Investment The Investment Manager has broad investment The Board receives a report from the Investment Manager at each Manager’s authority in executing the Company’s strategy quarterly Board meeting or as necessary, on developments and Authority and may use whatever investment techniques it risks relating to portfolio positions, activist engagements, fi nancial believes are suitable for the Company, including instruments used in the portfolio and the portfolio composition as a novel or untested approaches. 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 Company’s underlying successfully identify attractive investment portfolio positions. opportunities. Senior executives and investment personnel of the Investment Manager have aligned their interests with the Company’s shareholders by making substantial investments in the Company. Pershing Square Holdings, Ltd. Annual Report 2019 20

Risk Description Mitigating Factors Portfolio The Investment Manager may invest a The Investment Manager performs extensive research prior to making Concentration signifi cant proportion of the Company’s capital new investments, along with ongoing monitoring of positions 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 fl uctuations 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 investment personnel of the Investment Manager a material adverse impact on the Company’s have aligned their interests with the Company’s shareholders by making assets. a substantial investment in the Company. The Investment Policy prohibits investments by the Company in, or giving exposure to, the securities of any one issuer representing 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 signifi cant experience conducting activist activist role with respect to an investment, campaigns. which may involve substantial use of time, resources and capital and litigation The Board reviews the Investment Manager’s activist engagements at by 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 and into short positions which theoretically could may use credit default swaps or other derivative positions to obtain result in unlimited loss. economic short exposure. The Investment Manager relies on extensive due diligence prior to putting on a short position. Use of Indebtedness The Company has incurred indebtedness as a The Board receives information regarding the Bonds and the Company’s result of issuing $1 billion in Senior Notes at portfolio leverage, if any, at each quarterly Board meeting. 5.5% due 2022 (the “2022 Bonds”) and $400 million in Senior Notes at 4.95% due 2039 (the Unlike margin debt, the Bonds do not have mark-to-market covenants “2039 Bonds” and together with the 2022 (which could require forced sales when equity prices decline). Bonds, the “Bonds”), and may incur additional indebtedness in the future, provided that it The Investment Manager generally does not believe in the use of a complies with certain restrictive covenants material amount of margin leverage because of the potential risk of contained in the Bonds’ Indentures. Such forced sales at inferior prices in the event of short-term declines in leverage may have the eff ect of increasing losses. security prices in a margined portfolio. The Company may use derivatives, including equity options, in order to obtain security-specifi c non-recourse leverage in an eff ort to reduce the capital commitment to a specifi c investment, while potentially enhancing the returns on the capital invested in that investment. Pershing Square Holdings, Ltd. Annual Report 2019 21

Risk Description Mitigating Factors Regulatory Risk Regulatory risk can negatively impact the Prior to initiating an investment, the Investment Manager considers Company in a number of ways. For example, the possible legal and regulatory issues that could impact its ability changes in laws or regulations, or a failure to to achieve its 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 and informs the Board of emerging risks. acquire and dispose of certain securities or deploy certain investment techniques. The Board is apprised of any regulatory inquiries and material regulatory developments. 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 fi rms 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 eff ect 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 emerging 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. signifi cant 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. Pershing Square Holdings, Ltd. Annual Report 2019 22

Risk Description Mitigating Factors Tax Risk Changes to the tax laws of, or practice in a The Investment Manager may obtain economic exposure to certain tax jurisdiction aff ecting the Company could types of investments through derivative instruments such as total return adversely aff ect the value of the Company’s swaps. investments and decrease the post-tax returns to shareholders. The Company aims to conduct its aff airs in such a manner as to avoid adverse tax consequences and engages experienced tax advisors as Investments in the Company may not be tax appropriate. effi cient for certain shareholders. The Investment Manager may make an investment decision Investment decisions of the Investment Manager are based primarily which is tax effi cient for some shareholders but upon economic, not tax, considerations. which may result in adverse tax or economic consequences for other shareholders. U.S. tax rules will cause the Company to incur a 21% corporate tax on realized gains from U.S. Real Property Holding Companies. Other tax rules may restrict the types of investments the Company may make without potentially incurring adverse consequences. Market Risk Adverse changes aff ecting the global fi nancial The Investment Manager monitors emerging risks to global markets markets and economy as a whole may have a that may impact the Company’s portfolio. material negative impact on the performance of the Company’s investments or may cause the In order to mitigate market-related downside risk, the Company may prices of fi nancial and derivative instruments acquire put options, short market indices or baskets of securities and/ in which the Company invests to be highly or purchase credit default swaps, but the Company is not committed to volatile. maintaining market hedges at any time.

Currency Risk The value of the Company’s investments The Investment Manager monitors the Company’s foreign currency denominated in non-U.S. currencies may be exposure and may enter into forward exchange contracts and currency adversely aff ected by fl uctuations in currency options to hedge increases or decreases in the fair value of the Company’s exchange rates. 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 The Investment Manager actively monitors positions with trading or for contractual, regulatory or other reasons. restrictions to identify future selling opportunities. Stressful market conditions may prevent the The Company invests primarily in liquid, large-capitalization securities Company from having suffi cient liquidity to which are readily convertible to cash under normal market conditions. meet its liabilities when due. The Investment Manager actively manages the Company’s cash and cash equivalents to ensure, as much as possible, that the Company will have suffi cient liquidity under both normal and stressful market conditions. Counterparty The Company is subject to the risk that a The Company seeks to trade only with reputable counterparties that Credit Risk counterparty to a fi nancial 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. fi nancial loss. 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. As appropriate, the Company may purchase credit default swap contracts on the Company’s counterparties as a form of credit protection. Pershing Square Holdings, Ltd. Annual Report 2019 23

Key Themes

• Concentration as Risk Mitigation — a year with zero losing positions from a ten-name portfolio is the doctrine's strongest single-year exhibit
• Simple, Predictable, Free-Cash-Flow-Generative Businesses — the 2018 roster, held through volatility, produced the return
• Asymmetric Hedging — the COVID CDS trade's first complete telling: $27 million of premium, $2.7 billion of peak value, proceeds redeployed at panic prices
• Capital Allocation Discipline — selling Starbucks near intrinsic value in January, trimming Chipotle above 20% of the portfolio, then buying everything back cheaper in March

Context & Significance

This is Act IV, the renaissance, its opening chapter — and the letter's most revealing move is how deliberately it declines to claim genius. Ackman dates the recovery's cause to "late 2017," not to any 2019 insight: the valley's rebuilding, he is saying, compounded on schedule. That framing is itself a post-2016 habit — results attributed to process rather than personality, the opposite of the golden-era voice in which Ackman the protagonist bent outcomes. The mindset is quieter and more institutional: discussions of buyback math ($650 million repurchased, 17.7% of initial shares), incentive-fee alignment, even the move from midtown to Hell's Kitchen, all argue that Pershing Square is now a structure rather than a personality cult.

Then the document turns, in its final pages, into something else: the first draft of the COVID trade, written weeks after the fact. The reasoning it records is the mature form of everything the valley taught. Faced with a possible catastrophic decline, the 2015-era response would have been to hold and argue; the 2020 response was to buy insurance with bounded cost — and, crucially, to consider and reject liquidating the whole portfolio as inconsistent with "our long-term ownership philosophy." The hedge protected the book; the redeployment — Howard Hughes up 158%, Berkshire up 39%, Lowe's up 46% — converted protection into offense at the exact moment redeemable funds were forced sellers.

The honest hindsight notes one irony. The letter's proudest structural claim — capital stability as competitive advantage — was proven within weeks of the year's close, under conditions no one anticipated. The 2019 return restored the track record; the March 2020 sequence, documented in this same report, demonstrated that the rebuilt machine could perform under maximum stress. The renaissance did not begin when the market went up. It began when the firm acted correctly in a crash — and this letter is where Ackman first shows he knows it.