Updated at 6:51 p.m. on Tuesday, March 26, 2019, with more information.
Chattanooga-based CBL Properties said Tuesday it would suspend payment of its dividend for two quarters and set aside $90 million in connection with the proposed settlement of a class action suit.
The suit, filed three years ago in Florida against the shopping center owner and operator, claimed that CBL and affiliated entities overcharged tenants at bulk metered malls for electricity.
CBL, which holds 67 malls nationwide including Hamilton Place and Northgate malls in Chattanooga, denied the allegations of wrongdoing and continued to do so Tuesday even with the announcement of the settlement.
"We deny all allegations of wrongdoing and conduct our business with the utmost integrity," the company said in a statement. "However, given the class certification, denial of our petition to appeal, an accelerated trial schedule, and the potential cost of an adverse outcome or prolonged litigation, we believe that the proposed settlement is in the best interest of the company and its shareholders."
A trial date had been set for April 2 in Fort Myers, Florida., in federal court.
CBL shares fell in after-hours trading following the announcement that it had approved the structure of the settlement. A couple of hours after the company's announcement, CBL's stock had fallen by 12 percent to $1.68 per share in after-hours trading.
The suspension of the dividend for two quarters will preserve about $26 million in cash at the current quarterly dividend rate, according to CBL. Based on the current projection of taxable income for 2019, which includes the impact of the settlement, the real estate investment trust believes it will satisfy all required distributions for the 2019 taxable year.
The lawsuit filed by Hagens Berman and Buckner+Miles claimed CBL tenants had been victim to a "criminal enterprise" in which the company knowingly overcharged its mall tenants for electricity by up to 100 percent.
The suit said CBL promised its small business tenants that their electricity charges would not exceed what it was charged by local public utilities for the electricity the tenants actually used. But, the suit said, CBL breached its own lease agreements and state law by inflating both the electricity rates charged and the amounts of electricity used by tenants.
Attorney Thomas Loeser of Hagens Berman in Seattle said the settlement is "a fair and adequate resolution of the litigation."
"We believe the settlement, if approved by the court, will fairly compensate the class members," he said.
Under the terms of the proposed settlement, CBL is to set aside a common fund with a monetary and non-monetary value of $90 million to be disbursed to class members in accordance with a formula to be agreed upon by the parties that is based upon aggregate damages of $60 million.
Class members will be comprised of past and current tenants at certain of it shopping centers that it owns or formerly owned during the class period which will extend from Jan. 1, 2011, through the date of court's preliminary approval.
Class members who are past tenants and make a claim will receive payment of their claims in cash, according to CBL. Class members who are current tenants will receive monthly credits against rents and future charges over the next five years.
Any amounts under the settlement allocated to tenants with outstanding amounts payable to the company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the company, CBL said.
Attorney's fees and associated costs to be paid to class counsel, which is expected to total a maximum of $28 million, and class administration costs, expected to not exceed $150,000, will be funded by the common fund but must be approved by the court, according to the company.
Under the terms of the proposed settlement, CBL will not pay dividends to holders of its common shares payable in the third and fourth quarters of 2019, CBL said. The settlement does not restrict its ability to declare dividends payable in 2020 or in subsequent years.
CBL anticipates accruing in its financial statements for the first quarter of 2019 a reserve with related to the settlement of about $88.1 million. CBL said insurance does not cover the proposed settlement amounts.
Contact Mike Pare at firstname.lastname@example.org or 423-757-6318. Follow him on Twitter @MikePareTFP.