This month we’re looking at something a little bit different — it’s a publicly traded Master Limited Partnership (MLP) that I’ve been interested in for a while (I don’t own shares of this one currently).
But it’s not like the typical MLP, most of which are energy transportation businesses that own pipelines, storage facilities, or distribution networks. No, this one is in the death business. And I should tell you up front that not only is the business not everyone’s favorite to discuss, but that there are also those who think StoneMor has been a bit too aggressive with their accounting in recognizing sales for burial plots that remain unoccupied, and a bit too leveraged — more on that in a bit.
StoneMor (STON) is a Master Limited Partnership that owns and operates 232 cemeteries (at last count) and 57 funeral homes (the cemeteries bring in over 90% of revenue). It came public in 2004 after being owned by private equity, and has been focused on generating steady distributable cash-flow from ownership of those cemeteries, sales of their burial plots and other products and services (ie, grave markers, urns, etc), and on growth of that cash flow from acquisitions, investment returns, leverage, and real-estate divestment. If there is one element of the business that is more critical to their financial success than any other, it is the pre-need sale of burial plots and services, which they use to make acquisitions accretive and to accelerate revenue recognition.
STON has a market cap of $180 million, and about as much in short and long-term debt, as well as a much larger balance sheet that has their trust funds and cemetery properties on one side, and their obligations to provide future services on the other (that’s a simplifications, a bit more later). The share price as of the close on Thursday is $15.29 , and the current distribution to unitholders is $2.22 per year, for a yield of just about 14.5%. That’s substantially higher than the current yields for most MLPs, but of course there are no really comparable public partnerships. Their two strongest competitors in the cemetery business, Service Corp and Stewart, both pay dividends, too, though they’re regular public companies and those dividends are in the 2-3% range. All three seem to have roughly comparable balance sheets (a third competitor, Carriage Services, is smaller and looks significantly more fiscally ...