Chattanooga-based CBL Properties on Monday said it's suspending future dividends on common and preferred stock, citing an anticipated drop in net operating income for 2020.
"Suspending dividends is a significant and difficult decision, one that was carefully considered by management and the board," said Stephen D. Lebovitz, CBL's chief executive officer. "However, preserving free cash flow is a paramount objective for CBL at this time."
CBL's stock fell sharply shortly after the announcement in after-hours trading, declining by 33 percent and dropping to about 90 cents per share Monday night.
The dividend suspension not only includes common shares but CBL's 7.375% Series D Cumulative Redeemable Preferred Stock and 6.625% Series E Cumulative Redeemable Preferred Stock.
In March, the owner of Hamilton Place and Northgate malls in Chattanooga and 68 shopping centers nationally said 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.
CBL said then that the suspension of the common dividend for two quarters would preserve about $26 million in cash at the current quarterly dividend rate.
Company spokeswoman Stacey Keating said Monday that the preferred dividends are about $11 million per quarter.
The new dividend suspension will be reviewed quarterly by the board, but it's expected to remain in place until year-end 2020, according to CBL.
Lebovitz said the expected drop in net operating income in 2020 is a result of heightened retailer bankruptcies, restructurings and store closings in 2019.
"Offsetting these declines by retaining available cash is necessary to maintain the market dominant position of our properties and to reduce debt," he said.
Lebovitz said CBL has made significant efforts over the past 18 months to reduce operating costs, including executive compensation and overall corporate expense, as well as execution of a strategy to utilize joint venture and other structures to reduce capital expenditures.
"Ultimately, we believe these actions will allow the company to return greater value to its shareholders," he said.
The company said it made the determination about the dividends following a review of current taxable income projections for 2019 and 2020. The company said it will review taxable income on a regular basis and take measures, if necessary, to ensure that it meets the minimum distribution requirements to maintain its status as a real estate investment trust (REIT).
Unpaid dividends on CBL's preferred stock shall accrue without interest, according to CBL. No dividends may be paid on shares of CBL's common stock unless all accrued but unpaid dividends on its preferred stock, and any current dividend then due, have been, or contemporaneously are, paid in cash, or a cash sum sufficient for such payment has been set apart for payment, the company said.
"The preferred dividends do accrue and may be paid, when and if declared, at a later date," Keating said.
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