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StoneMor Partners, LP (NYSE:STON)

Q3 2008 Earnings Call

November 10, 2008 10:00 am ET

Executives

Tim Yost - Vice President of Financial Reporting and Investor Relations

Lawrence Miller - Chairman of the Board, President, Chief Executive Officer

Paul Waimberg - Vice President - Finance and Corporate Development

William R. Shane - Chief Financial Officer, Executive Vice President, Director

Analysts

John Ransom - Raymond James & Associates

Napoleon Overton - Morgan, Keegan & Company, Inc.

[Tom Lim - Wapasa Research]

[Saul Lewis - Wapasa Research]

Melissa Jaffe - Merrill Lynch

Operator

Welcome to the StoneMor Partners third quarter 2008 earnings call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded on November 10, 2008.

Your speakers for today are Tim Yost, Vice President of Financial Reporting and Investor Relations, Lawrence Miller, President and Chief Executive Officer, and Paul Waimberg, Vice President of Finance and Corporate Development. I would now like to turn the conference over to Mr. Yost.

Tim Yost

Statements made in this conference call and in our public filings, releases and websites which are not historical facts may be forward-looking statements that involve risks and uncertainties and are subject to change at any time. We caution investors that any forward-looking statements made by us are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly as a result of any revisions to any of the forward-looking statements to reflect future events or other developments.

Furthermore, given the provisions of the SEC’s Regulation G which as you know limits our ability to provide non-GAAP financial information, we are only going to discuss non-GAAP financial information which is provided in the earnings release and is therefore reconciled with probably GAAP financial information. The full earnings release can be found on our website at www.stonemor.com.

I would now like to introduce Larry Miller, who will take over the call from here.

Lawrence Miller

Welcome to our third quarter 2008 conference call. As the operator mentioned, I’ll give some opening remarks and then Tim and Paul will give some more information and details. Bill Shane, our Chief Financial Officer, who’s usually our primary speaker is sitting here next to me but unfortunately is a little under the weather and is hoarse. So rather than have you suffer through trying to hear him talk at a whisper, we’ll handle the call and with Q&A if there’s anything that we can’t handle, Bill can write some notes and we can take care of that.

As we said we’re pleased to report that the company continues to achieve strong results. Today we reported significant increases in revenue, adjusted operating profits and distributable free cash flow. As previously reported we have increased our dividend by 7.8% since the beginning of the year. Also, our acquisition pipeline continues to be robust and we expect to close additional acquisitions by the end of December or early January.

We’re currently preparing our budgets for 2009 and while we are obviously very cautious given the current economic conditions, we are not as of yet experiencing any downturn in sales and at this time are not projecting a downturn in 2009.

As we detailed in our release and 10Q, about 1/2 of our revenue is from at-need or time of death sales or products and services which generally are not correlated to the economy. The balance of our sales are from pre-arrangements and fortunately our sales are primarily to the older more stable part of the population. Since we provide credit we can tailor customers’ payments to their ability to pay.

If our sales are affected, and we’re not sure that they are, but if they were what we would expect to see is the same unit sales of spaces and that as I think we’ve said in the past is the most important driver for us. As long as our sales force is continuing to attract new families, then ultimately we get all of the revenue and services that those families need for their funeral.

What we’ve seen in the past where unemployment has gotten close to double digits we’ve been able to maintain that new family but what happens is sometimes the families won’t purchase all of the revenue and services at the time of sale. We try to work with monthly payments. We’re obviously sensitive to their discretionary income and their ability to make that monthly payment.

The worst that we could do is to overload someone with a payment that’s more than their monthly capability and then force them into a cancellation. So we’re very adept and right now we’re talking to all of our sales people making them very conscious and sensitive to be sure that when they walk out of that home with the sale that it’s with a monthly payment that the families can afford. Then what will happen is as soon as things turn around, typically the same sales people would go back into those homes and refinance the contract by adding whatever items may not have been purchased. It may just be a slight timing difference.

It’s the same thing with our accounts receivable. We’ve seen no meaningful increase in our delinquencies. Again if in fact unemployment gets close to double digits, we’ll probably see some impact but typically because we’re very flexible and again our creditors have been trained to work with the customers to ensure that if someone gets laid off, we give them a reasonable opportunity to find other work or get back to their original job and then get the full payments back.

So we’re looking at 2009 with cautious optimism.

As we noted in our 10Q, except for a $1.2 million write-down in our merchandise trust and about a $1.3 million write-down in our perpetual care trust, we do not have other than temporarily impaired assets. Tim or Paul will talk about that a little bit more.

We primarily invest these funds to generate interest in dividends and do not rely on capital gains in order to maintain our cash flow targets. As such we are able to hold these securities for long periods of time and our cash flow is generally not impacted by market fluctuations.

Finally while we continue our strategy of growth through accretive acquisitions, we have begun several new initiatives which we believe will drive additional revenue and cash flow. It’s always been a goal of ours to look for additional products, services, channels, and ways to take a cemetery that has a somewhat limited market area and increase the revenue from that market area.

So the first program we’ve committed to is to upgrade the Internet presence of our locations by substantially revamping their websites and allowing customers to make their cemetery service and merchandise purchases online. While this program is in its infancy, we believe that this sales channel which is unique in the industry may contribute substantial operating profits in the future.

Additionally we are in the pilot phase of assessing the demand for pre-need pet memorialization and cremation. It is estimated that pet owners will spend in excess of $40 billion in 2008 for pet related expenditures. Our consumer research and research from many others in the industry has shown that these owners are not only seeking guidance as to how to memorialize their pets but also have indicated that they would like to be able to do so on a pre-need basis. We believe we are uniquely able to service this demand based on our national presence and our pre-need sales expertise.

So again we will continue to grow the company through acquisitions but hopefully we can add additional revenues and services in our existing market areas.

With that I’ll turn it over to Tim, our VP of Financial Reporting.

Tim Yost

I want to begin by pointing out that there was an error in the press release that we released this morning. The table for adjusted operating profit is in place twice instead of the distribution of free cash flow table. We are in the process of rectifying that. A new release should be out shortly after this call.

I’m going to discuss operations and the operating results on the balance sheet, and after that I’ll turn the call over to Paul Waimberg who will discuss our refinancing efforts, cash flow and acquisitions.

As Larry mentioned we had a particularly strong quarter. Our revenues increased by about 30%. That’s consistent with our year-to-date trends. Additionally a component of our revenue is our funeral home revenues which increased over 150% quarter-over-quarter. These are both very, very strong results. They’re both also related primarily, if not entirely, to the acquisitions that we completed in 2007.

Expenses are all in line with our expectations. They’re consistent with the growth that we’ve seen in the number of properties. The one thing that’s difficult to understand is because of the way that we recognize revenues, these results are somewhat muted.

Our results for the quarter highlight the fact that although the acquisitions contribute to cash flow, the deferred revenues combined with the fixed operating costs of the additional locations tend to have a negative impact on reported operating profits. Since this was a large acquisition, the impact is very evident in our results for the quarter and for the year-to-date period. For this reason we present adjusted operating profit in order to represent the current activity level of our sales people which is how we evaluate our business.

For the quarter that metric increased by 34%. That’s solely attributable to the fact that we wrote approximately 31% more contracts during the period and of the contracts that we had written the average revenue per contract increased 6.6%. Although the increase is significant and that’s the increase in the adjusted operating profit, it also includes a noncash impairment charge related to assets held in the merchandise trust which I’ll discuss in a minute. This impairment charge is not a component of our GAAP operating profit as it’s captured under deferred revenues.

With that I’ll move on to the balance sheet. Obviously the first item that I’d like to discuss is the market value of our merchandise in perpetual care trusts. Based on the current market conditions, and Larry discussed this a little bit in the introduction, the market value of the assets in these trusts has declined.

Two important things to remember and I’m just sort of reiterating what Larry said because they are very important concepts is that we invest these funds primarily for yield and not for capital gains. We also have the ability and the desire to hold these investments for a long time as long as we’re achieving our investment goals which we currently are.

In order to determine if the declines of the market value of the assets in the trust are other than temporary, we performed a rigorous analysis of all the securities. We not only considered the size and the duration of the unrealized loss but also the future economic prospects of the company’s underlying securities. Additionally we assessed, as I mentioned before, whether the current yield is sustainable and we believe it is.

Based on this analysis we determined that 11 securities in the merchandise trust were impaired by approximately $1.2 million and eight securities in the perpetual care trust were impaired by approximately $1.3 million. Because we already reflect the trusts at market value this impairment has no affect on our current financial statements other than disclosure in our financial statement notes.

The impairment in the merchandise trust will serve to reduce future revenue recognition as we deliver the underlying products and services associated with the fund. It has no affect on our perpetual care trust unless the yield is impaired which again I want to reiterate we do not believe it is.

We maintained a significant balance of cash and cash equivalents in the merchandise trust which means that we are generally not required to sell securities at a loss in the ordinary course of business. For the quarter we added some additional disclosure to the notes to our financial statements in order to give some more visibility into the types of equity assets that are held in the trust.

The second item I want to discuss briefly is the $80 million of debt which we have coming due on September 20, 2009. We are required by accounting rules to move that from a long-term liability to a current liability and we have done so and it’s presented in our balance sheet.

With that I’d like to turn the call over to Paul Waimberg, who will discuss our refinancing efforts to date as well as cash flow and acquisitions.

Paul Waimberg

As you mentioned $80 million of our senior debt is due September 2009. We are already talking to potential lenders about financing alternatives and we expect to be successful in refinancing our debt by the end of the second quarter of 2009.

Now while we’re looking at our cash flow, as we mentioned in our press release today our cash flow from operations this quarter was $10.1 million compared to approximately $5 million in the same period last year. That’s what we expected. That 99% increase comes from four different groups.

When I look at the cash flow from operations, I really divide it into four components: Net income and adjustment to net income, accounts receivable activities, net charge activities and working capital items. The first three are all [inaudible] cash generators in the third quarter of 2008 as expected like I said before and they were somewhat offset by an increase in working capital items. Also those three components were the main reason why cash flow went up from $5 million to $10 million for the three months ending in September.

For the nine months ending in September we had an increase in cash flow from operations from approximately $14.8 million to $19.1 million. That’s a $4.3 million increase, a 29% increase, and again the net income component was the main driver behind that increase of approximately $4 million. The other three components basically generated approximately $300,000 of that increase.

Investing activities. In the third quarter of 2008 we completed one acquisition of approximately $1 million compared to the two acquisitions in ’07. We had some increase in capital expenditures in maintenance cap ex that had to do mainly with the fact that we have 40,000 more cemeteries and 30 more funeral homes than we had last year. We had definitely an increase in capital expenditure relating to mausoleum construction and land development which as you know increases our capacity to sell those products in the future.

For the nine months ending in September again in terms of acquisition we completed two acquisitions worth $2.2 million compared to $2.5 million in the same period last year. Our maintenance cap ex reached $3.7 million compared to $1.2 million in the same period last year. I just want to point out that approximately $1.1 million of that $3.7 million had to do with our new headquarters which we don’t expect to happen again in the future. The other major increase in cap ex came from mausoleum construction and land development where we spent approximately $3.3 million compared to $1.6 million last year.

In terms of finance activities our net borrowings in the three months ending in September ’08 totaled $3 million. $1 million of that went for acquisitions so we borrowed only $2 million for other items compared to approximately $5 million in the same period last year. For the nine months our borrowings were a total of $10.5 million compared to $12.5 million in the same period last year, lower than what we did last year in the same period.

In terms of acquisitions, as Larry mentioned before, we are working on different transactions. In 2008 for the first nine months we closed on seven cemeteries and two funeral homes. We are now in the advanced stages of negotiations with various sellers. We’re talking about four to six transactions. If we are successful in all of them, we’re talking in the next 90 to 120 days closing on 23 cemeteries and three funeral homes totaling approximately $40 million of acquisitions.

With that I will transfer to the call back to Larry.

Lawrence Miller

Operator, we’re ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Ransom - Raymond James & Associates.

John Ransom - Raymond James & Associates

On the working capital, you didn’t borrow any in the quarter and that was a little higher than what we were expecting. Are you guys still targeting that $10 million to $15 million use on the working capital line after the acquisition or has that number changed?

William R. Shane

I hope you can hear me as I’m going to talk just a little bit. We’re still anticipating that borrowing. A little bit less than we said for the second quarter last year. But our original estimate was actually $15 million to $18 million over the first two years and I think we’ll be a little bit less, but yes we’re still looking at borrowing.

John Ransom - Raymond James & Associates

On the acquisition opportunities, any other details besides $40 million in revenue? Locations; that type of thing?

Paul Waimberg

First of all, the important detail is that they’re all cash accretive. We only look at those kinds of transactions. In terms of locations I would say that they’re all in states where we already have a presence and they’re just going to enhance our presence in that state.

John Ransom - Raymond James & Associates

Can you just give us an update on your debt covenants?

Paul Waimberg

I just want to say also that when we say we’re in the stages of negotiations that means that we have basically executed letters of intent with all those sellers. So that’s what that means for some clarification.

In terms of our covenant ratios we are well within our targets and our limits so we don’t expect any problems that way.

William R. Shane

And there’s significant available capital to use for working capital purposes and acquisitions.

Operator

Our next question comes from Napoleon Overton - Morgan, Keegan & Company, Inc.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Would you comment on what you think the likely alternatives are for refinancing the debt that you have coming due next year and what you would look at to finance the $40 million in the acquisition pipeline you’ve got?

William R. Shane

The $40 million in the acquisition pipeline is going to be financed by available funding under our current acquisition line and the accordion feature on the acquisition line. So we currently have in place enough available debt to complete those financings. We’ve already started talking with our banks. The way we do it is we generate an acquisition package and send that acquisition package to our banks for approval and have requested that the accordion feature be triggered. So that will all get done I hope by the first quarter of next year and under the available lines that we have.

The $80 million that comes due, $40 million is from Prudential Insurance Company and $40 million is from a company called IStar Financial; I’m sure we’ve talked about that a number of times before. We started a while ago. We’ve talked to our current banks of which Bank of America is the lead and we’ve talked to a number of insurance companies, we’ve talked to IStar Financial about where they stand, we’ve talked to Prudential Bank about where they stand.

The overall sense of everybody is while they think it’s not to anybody’s benefit to do something before the end of the year because we’d probably suffer significant increased interest expense, everything is really positive and looks great for some time before the end of the second quarter next year. So all we can say now is that all the people that we’ve contacted are very positive, the company’s been doing real well, and we should be fine.

Napoleon Overton - Morgan, Keegan & Company, Inc.

As to Service Corp, I know you can’t comment on their results, but they did refer to some weakness in their pre-need sales and their very large death care company. What do you think accounts for the difference between your experience with continued strong sales versus the experience of the largest company in the industry with noting some weak sales?

Lawrence Miller

I can’t obviously comment on Service Corp and we really don’t know that much about their internal operations. But I think it’s pretty clear. A number of years ago when the industry got in trouble, I think Service Corp and maybe the rest of the death care companies kind of reigned in their pre-needs sales organization a little bit and focused a little bit more on the at-need side of the business or the funeral follow up where they are not as aggressive marketing down the street and will rely on people coming into their cemeteries.

We haven’t changed our philosophy in 30 years. We’ve been a very aggressive strong committed pre-needs sales organization with a very active sales training department. We’re constantly replenishing our sales force, pruning out the weak and adding strong, and as we’ve done more and more acquisitions we’ve been able to attract a higher quality of sales people. Right now I’m going to knock on wood because we’re feeling as I said cautiously optimistic about ’09 and as of today we’re right where we need to be.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Could you tell us whether your sales excluding the contribution from acquisitions was up or down versus last year?

Lawrence Miller

That’s a number that’s a little bit harder to track because when we shift people around, when we look at our pool of assets and obviously size, demographics, things that appear differently, we’re not as focused on what I guess other people might say is same-store because we may have someone who’s really, really adept at selling and they’re in a small market where they’re miracle workers who do say $400,000 or $500,000 a year in sales. But as we make an acquisition and it’s a larger property and a larger market that same individual can generate $1 million or $1.1 million too in personal sales.

We’d rather move that person even though we may not be able to replace their production dollar-for-dollar in the smaller property, overall for the company there’s a benefit.

I guess if I looked at hard cold data, I’d probably say that the sales were down from same-store but when we look at that again we look at margins and we shift costs around. In some of our smaller properties it’s not possible to sustain a constant or large growth rate because the communities are just small.

We do have a number of properties as we mentioned in the past that are in smaller rural communities. So at some point in time we will let them take a break and kind of refresh the community and refresh the pool of potential pre-needs. But if we do that, we are very careful to lower costs accordingly so that the end of the day we get about the same contribution to income.

Napoleon Overton - Morgan, Keegan & Company, Inc.

One last question and really an accounting question. The recognition of the other-than-temporary impairment charge on the merchandise receivables. I was thinking that for that to happen would require the market value of those securities to decline to the point where it eliminated the gross margin that you had booked when those sales were originally made. Is that correct?

Tim Yost

No, not necessarily. They were decreased in value and decreased below cost to a point where we believe that they are adequately valued in market. You can’t look at it on an asset-by-asset basis. We don’t buy one stock for one product that we purchase. It’s a portfolio. So we haven’t necessarily eroded the margins at all. Those go to the deferred trust revenue rather than the principal and the cost. Does that make sense?

Napoleon Overton - Morgan, Keegan & Company, Inc.

I think so but I think I’m going to call you off line and talk some more about that.

Tim Yost

That’s fine. I can give you a headache with it.

William R. Shane

The value of the trust are still significantly in excess of our merchandise liabilities.

Tim Yost

Significantly.

William R. Shane

We do not have an asset-by-asset matching so that was not the determination of other-than-temporary impairment. The determination of other-than-temporary impairment as Tim said was an evaluation of the asset itself in the trust and based on that determination we decided whether it was other-than-temporary impairment.

Napoleon Overton - Morgan, Keegan & Company, Inc.

All year long you’ve been talking about raising the dividend and pretty much all year long you have increased the distribution to limited partners. Have you achieved the basic level or range of distributions that you envisioned at the beginning of the year or do you see the potential for additional increases over the next quarter or two?

Tim Yost

Clearly as we did the acquisitions last year and projected their impact on the company, we’re more than satisfied where we are. It’s fair to say that had the economy not run into the brick wall, which again it hasn’t affected us yet but we’re not smart enough to know what it’s going to look like in three or six months, we clearly would have been extremely optimistic today about an additional increase in the distribution next quarter because we sort of implied that before.

I’m not suggesting that we will not increase the distribution next quarter. I just think that it’s prudent for us to not make any predictions of doing that given the uncertainty in the market. If we see some impact on our sales and need to conserve some cash it’s prudent to keep the company growing strong long term, we’ll obviously do that. But we’re not sure. We’re just going to ride out the next few months and see how things progress.

Operator

Our next question comes from [Tom Lim - Wapasa Research].

[Tom Lim - Wapasa Research]

Regarding OTTI again, is there any extent to which it is forward-looking? In other words, your financial statements get cut off at September 30 but obviously the market in October took a real beating. Is there any further OTTI you would then register say in the fourth quarter or might your valuation have included October’s decline?

Tim Yost

As I mentioned we considered all factors. Not only the size and duration of the loss but the future economic prospects of the company that underlie the securities of the funds that we own. We took forward-looking to the best of our ability into account as well when we did the other-than-temporary impairment. That also doesn’t mean that we might not have further other-than-temporary impairments as markets deteriorate and change. There could be, but as of this point in time, no.

Tom Lin

Regarding the cap ex requirements of the new initiatives you’ve mentioned, particularly perhaps the upgrading websites? I’d suppose you’d need some hardware and maybe consultants and so forth. And also what you might be envisioning with the pre-needs pet cemetery or memorial space?

Tim Yost

The good news as far as the website goes, that’s already finished. Not that we won’t continue to tweak it but that’s actually online. Our biggest struggle was trying to figure out how we can handle the cash and all the complications with right-to-privacy and all that, but we’ve been through that so the website is up and running. Now it’s just a question of our marketing people monitoring the activity and doing the minor things that might make it a more attractive user-friendly site. But that’s in place.

As far as pets, the good news is obviously we own a lot of cemeteries throughout the United States. To the extent that the cemeteries are involved, the cost to set aside or designate certain areas for pet burial is relatively inexpensive for us. I think we probably have 43 active pet cemeteries today but in order to increase that is a nominal cost.

On the pre-needs side it’s really more variable costs related to marketing. Our research really surprisingly we’ve gotten some phenomenal response relative to people’s interest in having assistance at the time of death. They’re not quite sure. Most people end up taking the pet to the vet and then the vet handles all of that and it’s somewhat cold, analytic and I guess not consistent with the way we treat our humans. So what we’ve found is that people seem to be very interested in purchasing a package which would involve us at the time of death of their pet but would also provide some type of memento, keepsake, memorialization following the death of the pet. And that has very low cost.

There are other initiatives which will follow behind but the good news is one of the strategic directions we took a year or so ago was to look for revenue enhancing items that use very little capital. And these two programs actually, particularly the pet, use very little capital. It’s almost completely variable cost driven.

[Tom Lim - Wapasa Research]

But you’re saying you already have certain cemeteries set aside for pets.

Tim Yost

It’s slightly different. The focus for a while for us was more as thinking what our cemetery had we thought that if we built these pet cemeteries, people would just immediately choose to bury their pet in the cemetery. There are people that do that but I think the research which we piggy-backed off some other industry experts and some independent research but then confirmed it with our own in-depth research showed that it’s not so much going to be driven by the cemetery as it is by helping them with the handling of the pet at the time of death, whether it’s taking it to the vet, whether it’s taking it to the crematory, but more importantly creating some keepsake and some legacy.

Our industry’s always been about celebrating and remembrance. We use that word memorialization but what we’re really trying to do is to create legacies for people, and it appears that a lot of people are very interested in doing the same thing with their pets.

We’re not talking about a lot of money. We’re talking about a price point of $500, $600, $700 which would save them from the burden of removing the pet, taking it to the crematory or to the vet or what have you, and then something that they can have as a permanent memory of the pet.

[Tom Lim - Wapasa Research]

What percentage of your revenues now is from pets?

Tim Yost

Very minimal.

[Tom Lim - Wapasa Research]

Not material in other words?

Tim Yost

Not at all.

[Tom Lim - Wapasa Research]

The website you mentioned is finished. Is that up and running then fully?

Tim Yost

Yes.

[Tom Lim - Wapasa Research]

As of when?

Tim Yost

They’re location specific.

Lawrence Miller

That was about a month ago.

Tim Yost

Yes. We wanted to work again because of the issues with payment and privacy and making sure that they’re very informative and pre-need’s always been about education so they’ve always had that ability but when the people go to the shopping cart we want to make sure it’s a good experience. So we’re still a little bit early in it but we’re pretty hopeful.

Lawrence Miller

And we’ve redone all of our cemetery websites. 60 of them are up and active currently and the rest will be up.

Tim Yost

It’s just a matter of turning on the button. We’re just testing it to be sure we’ve got it nailed.

Operator

Our next question comes from [Saul Lewis - Wapasa Research].

[Saul Lewis - Wapasa Research]

I wanted to ask as you continue with the acquisitions how you’re financing it. You mentioned you’re borrowing money. Are you thinking of continuing to use one of the partner units as currency particularly since the price is so depressed?

William R. Shane

We would not want to use the units at what we consider really depressed prices.

[Saul Lewis - Wapasa Research]

So we’re not looking at some absolution coming from these?

William R. Shane

No.

Operator

Our next question comes from Melissa Jaffe - Merrill Lynch.

Melissa Jaffe - Merrill Lynch

I think I missed when you said what your working capital borrowings were in the quarter?

Paul Waimberg

The working capital borrowings for the quarter were $3 million. $1 million was acquisitions so it was actually only $2 million.

Melissa Jaffe - Merrill Lynch

I know you said that you were going to have some additional disclosures around the trust portfolios in your Q but maybe if you could just talk about some of the changes you’ve made, if any, or tweaks in light of the market environment? Did you make like an asset allocation or anything like that?

William R. Shane

We haven’t changed it at all. We haven’t changed it yet.

Tim Yost

We’ve done a significant analysis and the most important point to us and because it’s a driver of why we invest in what we invest in is the yield provided by those securities. Currently we don’t believe that any of the yields are impaired and we’re achieving our investing goals. So at current we don’t have any plan to reallocate the assets; however as the market turns we may.

William R. Shane

We do it constantly.

Tim Yost

It’s constant but it’s very involved. Every quarter prior to our Board meeting our trust and compliance committee meets with our financial advisors and reviews in depth obviously the performance but also different types of possible asset allocations and a look forward. Actually we have a Board meeting that will take place tomorrow but as of now we’ve made no changes.

William R. Shane

Many of the assets in our trust funds have increased their cash distributions so we’re getting a greater cash distribution that we originally anticipated especially with respect to the master limited partnerships that we have in those funds. Since our distributions are based upon us achieving our income distribution and there’s no capital gains that are required at all, our recommendations so far up until today has been not to restructure your portfolio.

Operator

Our next question comes from Napoleon Overton - Morgan, Keegan & Company, Inc.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Just one more question. You have a fabulous track record of making accretive acquisitions but a lot of companies are finding it prudent to just close down or greatly scale back their capital funding commitments in the current environment. (a) Have you contemplated that and (b) how has your underwriting of potential investments in acquisitions changed over the last three to four months?

William R. Shane

Yes we considered it and we decided against it. That’s number one. The cemetery business is a different type of business. We looked and we asked, “How are the economic circumstances going to affect the cemetery business?” I don’t want to be glib here but basically we bury dead people and we’re going to continue to do that, and the companies that we buy are going to continue to do that.

We re-evaluated so when we make an acquisition we look at it based upon a discounted cash flow model. We re-evaluated our investment criteria. So those have changed in our model. We’ve re-evaluated all the criteria in our model that are estimates of the current economic situation. So that’s changed in our model. What might result in our model is a reduced purchase price offer.

But with respect to our available capital, we’ve got almost our entire acquisition line still available and we intend to go forward and make acquisitions. Our goal is to get accretive acquisitions. It’s a great market place now. The deal flow is increasing I guess because many people seem to be backing out and we’re not. So things are going real well and we expect that to continue to do well for us in the future.

Napoleon Overton - Morgan, Keegan & Company, Inc.

If you could translate that into an internal rate of return or otherwise?

William R. Shane

We can’t do that. Our estimated return is higher than we evaluated our cost of capital.

Operator

Mr. Yost, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Tim Yost

Thank you for joining us on the call. It’s been a good quarter. We’re looking to close out the year strong and be back to you early next year and hopefully things are feeling as good then as they are now. Thank you and have a good day.

Operator

Ladies and Gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect.

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Source: StoneMor Partners, LP Q3 2008 (Quarter End 9/30/08) Earnings Call Transcript

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