CBL & Associates Properties (NYSE:CBL), a mall real estate investment trust (REIT), has been struggling to adapt to the changing retail landscape for some time. E-commerce disruption has weighed on many of the company's tenants and has led to bankruptcies and store closures.
One of the worst fears of dividend investors is a dividend cut, and this fear just became a reality for CBL's investors. Management announced on Monday afternoon that it is suspending all future dividends on both its common and preferred stock until further notice. Shares were down 26% as of 11:30 a.m. EST on Tuesday.
CBL simply isn't generating enough free cash flow to continue to pay its dividend if it wants to remain in business for much longer.
As CEO Stephen Lebovitz said in the press release announcing the cut: "We anticipate a decline in net operating income in 2020 as 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."
CBL expects the dividend suspension to remain in place until the end of 2020 at a minimum.
It's worth mentioning that the suspension of preferred stock dividends as well as common is a bit of an extreme step, and one that could make it very difficult to restart common dividends in the future. In a nutshell, preferred stock dividends accrue, and any unpaid preferred dividends must be paid before any future common dividends can be paid.
The bottom line is that the news of a dividend suspension tells investors that CBL is in even worse shape than many had previously thought. This is probably a smart decision by management, but it remains to be seen if the increased financial flexibility will ultimately help turn the company around.