Investor and Analyst Day November 12, 2014

Transcription

1 Investor and Analyst Day November 12, 2014

2 Forward-Looking Statements This presentation contains certain statements that may be deemed to be forward-looking statements within the meaning of the Securities Acts. All statements, other than statements of historical facts, that address activities, events or developments that the Partnership expects, projects, believes or anticipates will or may occur in the future, including, without limitation, the outlook for population growth and death rates, general industry conditions including future operating results of the Partnership s properties, capital expenditures, asset sales, expansion and growth opportunities, bank borrowings, financing activities and other such matters, are forwardlooking statements. Although the Partnership believes that its expectations stated in this presentation are based on reasonable assumptions, actual results may differ from those projected in the forward-looking statements. When considering forward-looking statements, the reader should keep in mind the risk factors and other cautionary statements set forth in StoneMor s Annual Report on Form 10-K and Quarterly Reports filed with the Securities and Exchange Commission. Except as required under applicable law, StoneMor assumes no obligation to update or revise any forwardlooking statements made herein or any other forward-looking statements made by StoneMor, whether as a result of new information, future events, or otherwise. 2

3 Management Team Representatives Name Title Larry Miller Chairman, President and Chief Executive Officer Tim Yost Chief Financial Officer John McNamara Director of Investor Relations 3

4 Agenda Topic Presenter Who We Are Larry Miller Industry Dynamics Larry Miller Growth Strategy Larry Miller Financial Strategy Tim Yost Financial Performance Tim Yost Q&A 4

5 Who We Are Larry Miller President & CEO

6 StoneMor At-a-Glance Second largest owner and operator of cemeteries in the U.S. 303 cemeteries / 98 funeral homes, located across 28 states and Puerto Rico Complete range of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a pre-need basis Over 12,490 acres of land, as of December 30, 2013, equivalent to a weighted average sales life of 240 years 45,470 burials performed in 2013 $841 million in Merchandise and Perpetual Care Trusts as of September 30, 2014 We are the only deathcare company structured as a master limited partnership (MLP) 6

7 Business Overview A full suite of memorialization products and services 100,000+ pre-need and at-need contracts written in 2013 Average contract value of $2,600 12,500+ funeral calls in 2013 Average per call value of $4,000 Burial Lots Grave Opening & Closing Mausoleums Caskets Lawn Crypts Funeral Services Cremation Burial Vaults Grave Markers Memorials 7

8 Our Evolution Metric 2004 (IPO) (1) 2014 (2) Operational Data Cemeteries / Funeral Homes 132 / / 98 Employees ~1,100 ~3,400 Annual Interments ~22,000 ~45,000 Funeral Service Calls ,535 Financial Data Production-Based Revenue $89 million $350 million Adj. Operating Profit $29 million $71 million Distribution per Unit $1.85 $2.43 Market Cap $175 million $761 million (1) Represents data as of 12/31/2004 or for the twelve month period ended 12/31/2004, as applicable. (2) Represents data as of 9/30/2014 or for the twelve month period ended 9/30/2014, as applicable. 8

9 Our Footprint in 2004 Strong regional presence at the time of our IPO Ohio 2 Cemeteries 1 Funeral Home Rhode Island 2 Cemeteries WA Pennsylvania 44 Cemeteries 2 Funeral Homes OR CA CO KS IA MO AR IL MS MI IN PA PA OH OH WV WV VA VA KY NC TN TN SC AL GA AL GA New Jersey 6 Cemeteries Delaware 1 Cemetery Maryland 10 Cemeteries 1 Funeral Home West Virginia 32 Cemeteries Virginia 29 Cemeteries 2 Funeral Homes Alabama 1 Cemetery 1 Funeral Home FL 132 Cemeteries + 7 Funeral Homes Tennessee 3 Cemeteries Georgia 1 Cemetery = 139 Total Locations As of December 31,

10 Our Footprint Today Significantly enhanced geographic scale and diversity Oregon 6 Cemeteries 12 Funeral Homes California 6 Cemeteries 9 Funeral Homes OR CA WA Washington 3 Cemeteries 2 Funeral Homes Kansas 3 Cemeteries 2 Funeral Homes CO Iowa 1 Cemetery Illinois 8 Cemeteries 22Funeral Homes KS Indiana 11 Cemeteries 5 Funeral Homes IA MO AR IL Michigan 13 Cemeteries MS Kentucky 2 Cemeteries MI IN TN KY AL OH Ohio 14 Cemeteries 2 Funeral Homes WV GA PA SC VA NC Rhode Island 2 Cemeteries Pennsylvania 52 Cemeteries 8 Funeral Homes New Jersey 6 Cemeteries Delaware 1 Cemetery Maryland 10 Cemeteries 1 Funeral Home Virginia 31 Cemeteries 2 Funeral Homes South Carolina 8 Cemeteries 3 Funeral Homes West Virginia 33 Cemeteries 2 Funeral Homes North Carolina 16 Cemeteries Hawaii 1 Cemetery 303 Cemeteries +98 Funeral Homes = 401 Total Locations As of September 30, 2014 Colorado 2 Cemeteries Missouri 6 Cemeteries 5 Funeral Homes 10 Arkansas 2 Funeral Homes Mississippi 2 Cemeteries 1 Funeral Home Alabama 9 Cemeteries 6 Funeral Homes FL Tennessee 11 Cemeteries 5 Funeral Homes Georgia 7 Cemeteries Florida 4 Cemeteries 17 Funeral Homes Puerto Rico 7 Cemeteries 5 Funeral Homes

11 Diversified Revenue Streams BUSINESS MIX BY REVENUE STREAM Year ended December 31, 2013 Funeral Home Revenues, 18.2% Other Cemetery Revenues, 1.5% Interest Income, 2.8% Pre-need Sales, 37.0% Investment Income, 9.9% At-need Sales, 30.6% More than 60% of revenues generated through highly predictable and at-need business StoneMor s 800+ person sales team creates an unparalleled advantage in pre-need sales 11

12 Geographic Diversity by State REVENUE BY STATE Year ended December 31, 2013 Other States 18.8% Pennsylvania 12.7% Indiana 2.7% Oregon 2.9% Puerto Rico 3.1% California 8.8% Ohio 8.1% Alabama 3.8% Florida 4.3% Virginia 6.7% North Carolina 4.8% West Virginia 5.1% Maryland 5.7% Michigan 6.2% New Jersey 6.3% Only one state represents more than 10% of sales 12

13 Mission-Driven Strategy Mission To help families memorialize every life with dignity. Vision To be the preferred operator of deathcare facilities and preferred provider of deathcare services. Strategy To use an aggressive, yet conservatively financed acquisition strategy to build market share. Leverage these positions to expand service offerings. 13

14 A Transformational 2014 for StoneMor A number of strategic transactions in 2014 mark an exciting inflection point in our growth 1 Priced $53mm equity offering Proceeds used to de-lever Transaction upsized due to strong investor demand 6 Increased Distribution to $0.61/unit $0.01 increase from $0.60 Announced intention to increase quarterly distributions by at least $0.01/unit each quarter through Closing of AOP Transaction ($53mm) 8 Increased Distribution to $0.62/unit Financed with four-year non-cash common units issued to AIM Opportunities for other Archdioceses $0.01 increase from $ nd consecutive quarterly distribution increase February May June July August October 2 $130mm equity commitment from private investment firm, American Infrastructure MLP Funds ("AIM ) 5 Closing of SCI Acquisition ($54mm) Immediately accretive Financed with proceeds from May equity offering Capitalization of general partner ~$50mm available for future acquisition opportunities 4 Priced $67mm equity offering Proceeds used to fund SCI acquisition and de-lever 7 Announced 2Q 2014 Results Reaffirmed intent to increase quarterly distribution at least $0.01/unit through the end of

15 StoneMor Value Proposition in Context StoneMor features the key attributes of high-performing MLPs as well as an attractive total return profile Key Attributes of High-Performing MLPs StoneMor? Stable and Growing Cash Flow Long-lived, Secure Assets Defensible Competitive Advantage Attractive Industry Fundamentals Conservative Financial Profile 15

16 Industry Dynamics Larry Miller President & CEO

17 Industry Snapshot We are a leader in an industry with great opportunity Favorable Demographics Aging population driving both at-need and preneed demand Large and Growing Market $22 billion industry Healthy historical and projected growth Fragmented Ownership 80% of properties are owned by independents Only a few scale players Substantial Barriers to Entry No new supply Significant financial and operating regulations 17

18 Demographic Tailwinds Aging of the Baby Boom Generation will: 1. Accelerate the death rate at-need sales 2. Expand our target pre-need market (55 to 65 age range) More financially stable and resilient to economic downturns Beginning to think of legacy ANNUAL BIRTHS IN THE U.S. ( ) PROJECTED U.S. POPULATION OVER 55 (in millions) (in millions) Source: Department of Health and Human Services. Source: U.S. Department of Commerce Census Bureau. 18

19 Large and Growing Industry Industry growth driven by demographics and supported by everpresent demand for memorialization and celebrations of life DEATH CARE MARKET SIZE $22 Billion Market Cemeteries, 10,500, 27% CONTINUED GROWTH Deaths in the U.S. (millions) 3.3 $6 billion $16 billion 2.1 Funeral Homes & Crematories 22,000, 73% P Source: National Funeral Directors Association. Source: National Funeral Directors Association; U.S. Census Bureau. 19

20 Cremation: Friend (not Foe) Cremation projected to rise to >50% of total deaths in the U.S. by 2020 Well established trend presents a slight headwind for traditional cemetery burials However, also represents a key component of our growth strategy Western society still memorializes life regardless of the method of disposition RISE IN CREMATION Cremation as a Percentage of Total Deaths 80% 70% 60% 50% 40% CREATES OPPORTUNITY Stronger linkage between cremation and memorialization options Cremation gardens Cremation related products and services Increased land utilization Higher profit margins 30% 20% 10% 0% Source: National Funeral Directors Association. 20

21 Highly Fragmented Ownership Ownership of deathcare facilities is highly fragmented Majority of cemetery owners are non-economic in nature (e.g. religious or municipal) OWNERSHIP BREAKDOWN LARGEST PUBLIC CEMETERY OPERATORS Owned by Consolidators, 20% (1) Cemeteries Funeral Homes Ratio SCI 489 1,614 1 : 3.3 StoneMor : 1 Carriage : 5 Independent Operators, 80% As the only cemetery-focused scale player, we are uniquely well-positioned to execute on our consolidation strategy Source: Raymond James Research & National Association of Funeral Directors. (1) Includes non-public consolidators. Source: SEC company filings; National Funeral Directors Association. 21

22 Substantial Barriers to Entry CEMETERY BARRIERS Scarcity and cost of real estate near densely populated areas Zoning restrictions Initial capital requirements Strength of family tradition and heritage Administratively complex business for new entrants FUNERAL HOME BARRIERS Licensing requirements Funeral homes are part of the community Strength of family tradition and heritage Only an experienced, well-capitalized acquirer like StoneMor can gain share in this industry 22

23 Growth Strategy Larry Miller President & CEO

24 Our Acquisition Approach Philosophy Disciplined target selection never break the model Strategic locations to create and / or enhance market clusters Target Criteria Accretive from day one IRR > cost of capital Cemetery 25+ year sales life 200+ annual interments Funeral 150+ Annual Calls Strong legacy Integration Seasoned, professional management Consolidate office functions into home office Institute pre-need sales program Leverage buying power to reduce product costs Professional trust fund management 24

25 Proven Acquisition Track Record 175 cemeteries and 100 funeral homes acquired since 2004 IPO (1) Record year in 2014 Target acquisition multiples of 4x 6x EBITDA Every cemetery acquisition has met or exceeded plan ACQUISITIONS SINCE IPO (CUMULATIVE PURCHASE PRICE) ($ in millions) $400 $107mm of acquisitions YTD; Historical average of $27mm annually since IPO $354 $300 $200 $173 $189 $224 $247 $100 $0 # Cemeteries: # Funeral Homes: $16 $33 $115 $117 $ YTD (1) Net of sales and divestitures, 171 cemeteries and 92 funeral homes acquired since 2004 IPO. 25

26 2014 Acquisition Highlights: Archdiocese of Philadelphia Closed in May 2014 with $53 million initial lease payment Key Stats 13 cemeteries leased 60-year management agreement 7,000 existing burials per year Rationale Strengthen market position in Philadelphia backyard Introduce pre-need sales to large and growing population Upside from optimizing productivity of land Significant opportunities for other Archdioceses 26

27 2014 Acquisition Highlights: Service Corporation International $54 million acquisition closed in June 2014 Key Stats 12 cemeteries, 9 funeral homes 1,140 acres of land; FL, NC, PA, VA 3,500 annual interments 1,900 annual funeral home calls Rationale Improve footprint in attractive markets Upside from implementation of pre-need sales Significant administrative synergies 27

28 2014 Acquisition Highlights: Philadelphia Market Penetration 2014 acquisitions have fortified our position across the entire metro area AOP AOP SCI SCI SCI AOP AOP AOP AOP AOP AOP AOP AOP AOP AOP AOP Source: Google Maps. 28

29 Organic Growth Initiatives Continuous organic growth efforts support our acquisition strategy SALES FORCE GROWTH EXPANDED PRODUCT/SERVICE OFFERINGS Effective sales force management Thorough training in consultative pre-need sales Commissioned Salespeople MARKETING AND CONSUMER REACH OPTIMIZE REAL ESTATE PRODUCTIVITY Building up Cremation gardens 29

30 Financial Strategy Tim Yost CFO

31 We Are The Only Deathcare MLP We use MLP status to conservatively unlock value MLP Overview We make distributions to unitholders on a quarterly basis Qualifying income generated primarily from the sale of real property Non-qualifying activities operated through taxable subsidiaries MLP status reviewed by IRS and confirmed in recent audit Category Qualifying Non-Qualifying Qualification Parameters Interment Rights Burial lots Lawn and mausoleum crypts Cremation niches Perpetual care rights N/A Merchandise Burial Vaults Caskets Grave markers Services / Other Vault installation Casket and other installations Other Interest and dividends Funeral home sales Our Competitive Advantage Patent pending for the application of the MLP structure to the cemetery business 31

32 MLP Rationale Highly secure assets generating reliable, predictable cash flow OPERATIONAL ASSETS Long-lived operating real estate assets Over $341 mm of cemetery property (book value) 12,000 acres of land; average sales life of 240 years FINANCIAL ASSETS Long-lived capital market assets Over $840mm in perpetual and merchandise trusts 3 rd party mgmt, income/preservation of capital Trust Fund Assets ($ in millions) $600 $492 $500 $400 $349 $300 $200 $100 $0 Perpetual Trusts Merchandise Trusts Perfect match of long-term operating and financial assets 32

33 Keys to Our Success We have delivered steady, conservatively financed growth Transformational 2014 is an inflection point toward future growth Proven Track Record Recent Developments Growth Through Disciplined Acquisition Underwriting Avg. $27mm annual acquisitions ( 05-13) Target 4x 6x EBITDA purchase prices Every cemetery acquisition has met or exceeded plan 2014 acquisitions ~4x average annual pace AOP and SCI properties operating on plan 56% Debt / Enterprise Value Prudent Balance Sheet Management 43% 33% 32% 40% 36% 27% Well capitalized GP with AIM s investment 2 equity raises ($120mm) to de-lever Refinance senior notes to lower cost of debt 12/08 12/09 12/10 12/11 12/12 12/13 9/14 Deliver Reliable, Consistent Value to Unitholders Distributions / LP Unit $1.90 $1.93 $2.03 $2.12 $2.22 $2.23 $2.33 $2.35 $2.39 $ TTM Distributions expected to grow by $0.01 per unit each quarter through the end of 2015 Coverage has consistently been >1.2x 33

34 Transformative Event AIM Investment $130 million equity commitment from American Infrastructure MLP Funds (AIM) $55 million used for purchase of Archdiocese of Philadelphia properties Four-year non-cash common units (matches property cash flow) Acquisition of an indirect majority interest in our general partner ~$50 million available for future acquisition opportunities Capitalization of general partner facilitates growth Aligns us with well-capitalized MLP sector expert Provides capital base at the GP to access nascent assets (e.g. AOP) that have working capital needs Acquisitions can later be dropped down to the MLP 34

35 Financial Performance Tim Yost CFO

36 Strong Recent Results We deliver reliable, predictable yield with accelerating growth We focus on three financial metrics Production-Based Revenue: total value of contracts written, investment and other income Adjusted Operating Profit: normalizes timing-related differences between GAAP and accrual Distributable Free Cash Flow: indicator of our ability to pay distributions to our unitholders PRODUCTION-BASED REVENUE ($ in millions) ADJUSTED OPERATING PROFIT ($ in millions) ($ in millions) DISTRIBUTABLE FCF $350 $327 $80 $80 $76 $300 $250 $200 $150 $296 $240 $264 $70 $60 $50 $40 $30 $54 $67 $47 $50 $70 $60 $50 $40 $30 $53 $57 $50 $100 $20 $20 $50 $10 $10 $ Q3'13 YTD Q3'14 YTD $ Q3'13 YTD Q3'14 YTD $ Q3'13 YTD* Q3'14 YTD 36 *Includes $11.9 million one-time gain from legal settlement

37 Historical Performance Steady growth as we have built the business through acquisitions and pre-need sales efforts GAAP results not indicative of true financial performance REVENUE OPERATING PROFIT ($ in millions) ($ in millions) $281 $296 $327 $277 $350 $67 $71 $181 $218 $197 $247 $228 $243 $246 $36 $38 $49 $54 $13 $3 $10 $14 $6 $ Q3'14 GAAP Old GAAP TTM Q3'14 GAAP Old GAAP TTM 37

38 Strong and Growing Asset Base Asset base has grown while leverage has remained steady TOTAL ASSETS AND DEBT ($ in millions) $1,800 $1,709 $1,600 $1,474 $1,400 $1,200 $1,146 $1,249 $1,344 $1,000 $800 $600 $738 $855 $400 $200 $161 $183 $220 $195 $255 $292 $270 $ Q3'14 Total Assets Total Debt 38

39 Low-Risk Balance Sheet Marketable assets provide full debt protection NET LIQUID ASSETS ($ in millions) $700 $600 $500 $41 $154 $400 $300 $200 $656 $270 $100 $191 $0 Cash, AR and Merchandise Trust AP and Accrued Liabilities Merchandise Liability Debt Excess Cash and Assets Significant additional value from long-term assets Cemetery Property Approximately 12,490 acres, weighted average sales life of over 240 years $341 million book value as of September 30, 2014 Perpetual Care Trusts Fund future maintenance costs Assets of $349 million as of September 30,

40 Substantial Distribution Coverage History of sustained distributions and significant coverage ADJUSTED OPERATING PROFIT AND DISTRIBUTIONS ($ in millions) Average distribution coverage = 1.23x $80 $70 $67 $71 $60 $50 $49 $45 $54 $47 $51 $59 $40 $30 $36 $27 $38 $32 $20 $10 $0 $13 $14 $13 $10 $6 $ Q3'14 TTM Adjusted Operating Profit Distributions GAAP Operating Profit 40

41 Continued Growth 3 distribution increases in the last 2 years (including last two quarters) 2-year distribution growth in line with other MLP sectors Per Company guidance, distributions are expected to grow by $0.01 per quarter through 2015 DISTRIBUTIONS PER LP UNIT $2.80 $2.68 $2.60 $2.52 $2.40 $2.20 $2.00 $1.90 $1.93 $2.03 $2.12 $2.22 $2.23 $2.33 $2.35 $2.39 $1.80 $1.60 $1.40 $1.20 $ Q4'14E Ann. 41 Q4'15E Ann.

42 Compelling Investment Characteristics Transformational 2014 has reduced risk in our business Well-capitalized general partner, an enhanced growth profile and reduced leverage However, STON units still offer an attractive yield relative to the broader MLP index and other asset classes STONEMOR YIELD vs. BENCHMARK ASSET CLASSES Yield Spread: 4.0% 5.9% 6.2% 7.3% 7.6% 10% 9.6% 8% 6% 5.6% 4% 3.7% 3.4% 2% 2.3% 2.0% 0% StoneMor Alerian MLP Index MSCI US REIT Index PHLX Utility Sector Index US 10-Year Treasury S&P 500 Current Yield (%) Source: Bloomberg and Index monthly reports. Market data as of 11/7/

43 Recap StoneMor Investment Thesis StoneMor features the key attributes of high-performing MLPs as well as an attractive total return profile Key Attributes of High-Performing MLPs StoneMor? StoneMor Investment Thesis Stable and Growing Cash Flow Long-lived, Secure Assets Defensible Competitive Advantage Attractive Industry Fundamentals Conservative Financial Profile Highly predictable, non-cyclical business model 40 consecutive quarterly distributions Proven track record of accretive acquisitions $340mm+ of cemetery property (book value) 12,000 acres of land; avg. sales life of 240 years $841mm+ in perpetual & merchandise trusts Scale to create leveraged market positions Cemetery / pre-need expertise drives organic growth MLP facilitates acquisition growth Demographic tailwinds Large, growing and fragmented market Prohibitive barriers to entry Significant, growing asset base with modest leverage Well-capitalized general partner Discipline in returning capital to unitholders 43

44 Thank You