Stalking Exotic MLPs

The MLP space is dominated by oil and gas, and within the oil and gas sector the offerings tend to be concentrated around midstream assets like pipelines. As toll collectors, pipeline companies can offer fairly predictable distributions that are more insulated from commodity fluctuations.

But there are MLP offerings outside of the energy sector, and today I want to mention a few. These range from diversified offerings that hold some oil and gas companies, to owners of chemical plants and all the way to oddball businesses like cemeteries and amusement parks.

Icahn Enterprises LP (Nasdaq: IEP) is an MLP that is involved in nine primary business segments: Investment, Automotive, Energy, Gaming, Railcar, Food Packaging, Metals, Real Estate and Home Fashion. IEP invests in energy-related companies that we like such as CVR Refining (NYSE: CVRR) and American Railcar Industries (Nasdaq: ARII), but more than half of its assets is invested in the automotive sector and in investment funds.

IEP also owns one of the largest independent metal recycling companies in the US in PSC Metals and a stake in casino operator Tropicana Entertainment (OTC: TPCA). Since 2000, IEP has achieved an average annual return of 20.2 percent, and units currently yield 6.6 percent. However, it should be noted that Carl Icahn’s activist style may not appeal to typical MLP investors.

In the chemicals sector we have PetroLogistics LP (NYSE: PDH), which launched in 2012 and operates in an interesting niche. PDH owns and operates the world’s largest propane dehydrogenation facility for propylene production. Propylene is widely used in the petrochemical industry, and PDH is strategically located near the Houston Ship Channel and within 50 miles of the plants responsible for approximately half of US propylene consumption.

As natural gas supplies have increased in the US, so too have those of propane, a byproduct of natural gas production. This has depressed propane prices even as declining propylene output from oil refiners has strengthened propylene prices. PDH is well-positioned to benefit from this propane-propylene differential. PDH units have sold off in recent months partly on concerns that increasing propane exports will boost prices, and this has pushed the yield of PDH above 10 percent.

Among the more unusual MLP offerings would have to be StoneMor Partners LP (NYSE: STON). The partnership is the second-largest owner/operator of cemeteries in the United States and is the only publicly traded MLP operating in this space. STON also operates 92 funeral homes. The partnership completed its IPO in September 2004, with the goal of generating increasing distributable cash flow (DCF) for its unitholders through acquisitions, cemetery merchandise and services, and income from managed trusts.

Whereas pipeline MLPs have fairly predictable distributions because they are mostly fee-based businesses, STON asserts that its distributions are predictable thanks to predictable death rates and an aging population.

The partnership argues that the scarcity and high cost of real estate near densely populated areas presents a significant barrier to entry for competitors. Management has increased distributions by 30 percent since the IPO, and units presently yield 10.2 percent. But before rushing out to buy this one, note that there have been a number of articles questioning the sustainability of the distribution.  

The last unconventional MLP I want to look at today is Cedar Fair LP (NYSE: FUN). Cedar Fair is one of the largest regional amusement-resort operators in the world, with 11 amusement parks, four outdoor water parks, one indoor water park and five hotels. Its operations are located in 13 of the 25 largest metropolitan in the US, as well as in Toronto, Canada.

One warning flag on StoneMor is the low level of institutional ownership, at just 9.9 percent of the float. Institutions seem to have a lot more faith in Cedar Fair, holding 56.1 percent of units outstanding. Cedar Fair had a record first half this year, leading the CEO to suggest that 2013 will be the fourth consecutive year of record results. At the current price, the annualized yield is 5.7 percent.

For more on non-traditional MLPs, including an in-depth analysis of Icahn Enterprises, see the forthcoming September issue of MLP Profits, Next week we will continue our look at this niche with a review of MLPs in real estate, fertilizer production and the timber industry.  

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)