Grave Concerns

For the Archdiocese of Philadelphia, last week's agreement to lease its 13 cemeteries for $89 million over 35 years promises to be a salve to the local Catholic Church's financial wounds.

But for independent Philadelphia-area funeral directors, the announcement that Levittown-based StoneMor Partners L.P. - one of the nation's largest operators of cemeteries and funeral homes - will manage those burial grounds has set off alarm bells.

"To say that we're disappointed is the understatement of the century," said David Lambie, a funeral director at Lambie Funeral Home in Northeast Philadelphia and president of the Philadelphia Funeral Directors Association.

The experience of area funeral directors with Service Corp. International and Stewart Enterprises Inc., two funeral-home and cemetery giants, has them fearing frequent and big price increases from StoneMor, Lambie said.

Larry Miller, chief executive of StoneMor and a Philadelphia native who graduated from Cardinal Dougherty High School and Temple University, said StoneMor is different.

"When we take over these properties, unless they're due for their annual price increase, we don't raise prices," Miller said.

StoneMor's price increases are keyed to the cost of living, not to pay for its deals, he said, adding that his plan for all StoneMor properties over the next 10 years calls for a maximum annual price increase of 3 percent.

Lambie said he does not trust the large conglomerates and will watch StoneMor closely.

"I can tell you that for years and years on July 1 of every year, the archdiocese raised prices by $50. We'll find out next year if they go up $50 or if they go up more," Lambie said.

On July 1, the archdiocese's Catholic Cemeteries Office increased the price for opening and closing a six-foot grave by $50, or 3.3 percent, to $1,550.

StoneMor representatives plan to meet with funeral directors and monument dealers soon to address their concerns.

"StoneMor has always had a very good relationship with funeral directors," said Miller, who started in the cemetery industry in 1972 as an accountant for a publicly traded Philadelphia firm with three cemeteries.

Funeral homes and cemeteries both work with families when someone dies, but they have different regulators and different rules for dealing with money paid in advance for funerals and burials.

In Pennsylvania, funeral homes are regulated by the state Board of Funeral Directors. The state Real Estate Commission regulates cemetery operators.

When a funeral home accepts money for a funeral in advance, it must put all the money in trust. That goes not just for the service, but also for a casket and other merchandise.

By contrast, when a cemetery owner sells a burial plot in advance, Pennsylvania regulations require that 15 percent of the money go into an endowment for future care of the grave, but the cemetery operator can use the rest of the money immediately.

Cemetery owners also sell the grave vaults that hold the caskets underground, as well as monuments and even gravedigging services in advance. They have to put 70 percent of that money into trust, but can use 30 percent of it to pay for current operations.

In addition, StoneMor collects investment income from the money in trust for purchases of merchandise. That amounted to 9.9 percent of revenue last year.

At the end of March, StoneMor had $410 million in its merchandise trust, $280 million more than was required to buy the merchandise.

That cushion is one reason advance sales drive the for-profit cemetery business, and why StoneMor agreed to pay the archdiocese $53 million at closing, plus $36 million in years six through 35 of the 60-year lease. Closing is expected by the end of this year, pending regulatory approvals and certain conditions.

Miller said StoneMor plans to hire 75 to 100 salespeople for the archdiocesan cemeteries. The archdiocese now has three and sells little in advance.

Even though five of the 13 cemeteries can no longer be used for traditional graves, about 1,400 of the total 2,375 acres are undeveloped, including some that are farmed or even wooded.

An acre can hold 1,200 to 1,500 side-by-side traditional graves.

"We could not sell out of availability if we wanted to," Miller said.

StoneMor will not limit its marketing to the five Southeastern Pennsylvania counties in the Archdiocese of Philadelphia, according to Miller. "I have a suspicion we're going to find a lot of Catholics who have moved over into New Jersey and will gladly come back to be buried over here," he said.

The lease is Miller's first with the Catholic Church, and he assured officials the cemeteries will retain their Catholic character.

He says he is motivated to keep Archbishop Charles J. Chaput happy. Miller's hope is that the Philadelphia deal "opens up other doors in other dioceses that also have financial issues."

Headquarters: Levittown

Founded: 1999

Cemeteries:

277 (operated in 27 states and Puerto Rico)

Funeral homes: 92

Employees:

2,938 full time at the end of 2012.

Market value: $502.8 millionEndText

215-854-4651

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