“Distributable Available Cash” At StoneMor Partners, L.P.
Funds for which Luma Asset Management consults believe the limited partnership units of StoneMor Partners (which we refer to as the “partnership” or the “Company”) are substantially overvalued in the public market. We have taken a short position in the partnership units and will make money if the price of the limited partnership units decreases in the market.
On March 20, 2016, we published a comprehensive note – which is available here – that described our reasons for believing that an investment in StoneMor involves substantial investment risk. We updated this view after the Company announced its First Quarter 2016 results and added additional concerns in a report we published on May 16, 2016, which is available here. In a report earlier this week, we covered the changing disclosures regarding contracts the Company has signed over time and the puzzling implications from the changes in those disclosures.
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In this report we quickly note that the Company has also changed the way it calculates “Distributable Available Cash” over time. This calls into question – along with the Company’s other disclosure changes – whether the Company has modified its calculations and definitions to enlighten unit holders or obfuscate the numbers.
“Distributable available cash” (“DAC”) is used by the Company and its unit holders as an indication of how much cash is available to distribute to the unit holders at the end of the period. Putting aside, for the moment, that much of what the Company has included in this calculation is neither “cash” nor readily “distributable” because of various State laws, the Company has also seemingly changed the way it calculates this important metric over time.
At the Company’s 2015 Investor and Analyst Day, the Company showed a chart depicting 2014’s year-end distributable available cash as $80 million:
But in the earnings release for year-end 2014, the DAC was shown as just $73.482 million:
In fact, 2014’s DAC, according to that release (shown above), was less than the DAC for 2013, which was shown as $83.950 million.
But, by the time of StoneMor’s Investor and Analyst Conference (8 months later), the DAC for 2013 and 2014 had been recalculated. As the slide from the investor deck above depicts, 2014’s DAC was shown as greater than 2013, which was calculated to be just $79 million, nearly $5 million lower than the number shown in the earnings release.
Why did these numbers change? Why should unit holders credit the new numbers in the slide deck and not credit the ones released by the Company in its earnings releases?
We believe the changing metrics and calculations make it very difficult to evaluate the value of the units of the partnership. We are short those units and will benefit if they fall in value.
See full PDF below.