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EX-32.2 - EX-32.2 - GRIFFIN INDUSTRIAL REALTY, INC.grif-20180228ex322601954.htm
EX-32.1 - EX-32.1 - GRIFFIN INDUSTRIAL REALTY, INC.grif-20180228ex321141a04.htm
EX-31.2 - EX-31.2 - GRIFFIN INDUSTRIAL REALTY, INC.grif-20180228ex312fe9c7f.htm
EX-31.1 - EX-31.1 - GRIFFIN INDUSTRIAL REALTY, INC.grif-20180228ex311680637.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED February 28, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM              TO             

 

Commission File No. 1-12879

 

GRIFFIN INDUSTRIAL REALTY, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

06-0868496

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification Number)

 

 

 

641 Lexington Avenue, New York, New York

 

10022

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s Telephone Number including Area Code  (212) 218-7910

______________________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☒

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

Number of shares of Common Stock outstanding at March 30, 2018: 5,001,006

 

 

 

 


 

GRIFFIN INDUSTRIAL REALTY, INC.

 

FORM 10-Q

 

Index

 

 

 

 

 

PART I  -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) as of February 28, 2018 and November 30, 2017

3

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) for the Three Months Ended February 28, 2018 and  2017

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended February 28, 2018 and 2017

5

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three Months Ended February 28, 2018 and 2017 

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Three  Months Ended February 28,  2018 and 2017

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

 

 

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

 

 

ITEM 4

Controls and Procedures

28

 

 

 

 

PART II - 

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

29

 

 

 

 

 

ITEM 2

Unregistered Sales of Equity and Use of Proceeds

29

 

 

 

 

 

ITEMS 3-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

29

 

 

 

 

 

 

SIGNATURES

34

 

 

 

 


 

PART I  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Feb. 28, 2018

 

Nov. 30, 2017

ASSETS

 

 

 

 

 

 

Real estate assets at cost, net

 

$

196,561

 

$

196,740

Cash and cash equivalents

 

 

33,260

 

 

30,068

Real estate held for sale

 

 

1,864

 

 

1,932

Deferred income taxes

 

 

1,388

 

 

1,904

Other assets

 

 

19,792

 

 

18,393

Total assets

 

$

252,865

 

$

249,037

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Mortgage loans, net of debt issuance costs

 

$

135,230

 

$

129,203

Deferred revenue

 

 

11,009

 

 

11,818

Accounts payable and accrued liabilities

 

 

4,758

 

 

4,991

Dividend payable

 

 

 —

 

 

2,000

Other liabilities

 

 

7,428

 

 

7,972

Total liabilities

 

 

158,425

 

 

155,984

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,546,500 and 5,541,029 shares issued, respectively, and 5,001,006 and 5,000,535 shares outstanding, respectively

 

 

55

 

 

55

Additional paid-in capital

 

 

109,046

 

 

108,770

Retained earnings

 

 

1,998

 

 

2,806

Accumulated other comprehensive income (loss), net of tax

 

 

1,821

 

 

(284)

Treasury stock, at cost, 545,494 and 540,494 shares, respectively

 

 

(18,480)

 

 

(18,294)

Total stockholders' equity

 

 

94,440

 

 

93,053

Total liabilities and stockholders' equity

 

$

252,865

 

$

249,037

 

See Notes to Consolidated Financial Statements.

 

3


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

    

Feb. 28, 2018

    

Feb. 28, 2017

Rental revenue

 

$

8,180

 

$

6,979

Revenue from property sales

 

 

125

 

 

 —

Total revenue

 

 

8,305

 

 

6,979

 

 

 

 

 

 

 

Operating expenses of rental properties

 

 

2,677

 

 

2,485

Depreciation and amortization expense

 

 

2,818

 

 

2,350

General and administrative expenses

 

 

2,137

 

 

2,230

Costs related to property sales

 

 

89

 

 

 —

Total expenses

 

 

7,721

 

 

7,065

 

 

 

 

 

 

 

Operating income (loss)

 

 

584

 

 

(86)

 

 

 

 

 

 

 

Interest expense

 

 

(1,532)

 

 

(1,313)

Investment income

 

 

15

 

 

 9

Loss before income tax (provision) benefit

 

 

(933)

 

 

(1,390)

Income tax (provision) benefit

 

 

(790)

 

 

451

Net loss

 

$

(1,723)

 

$

(939)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

 

$

(0.34)

 

$

(0.19)

 

 

 

 

 

 

 

Diluted net loss per common share

 

$

(0.34)

 

$

(0.19)

 

See Notes to Consolidated Financial Statements.

4


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

    

Feb. 28, 2018

    

Feb. 28, 2017

Net loss

 

$

(1,723)

 

$

(939)

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

Reclassifications included in net loss

 

 

192

 

 

209

Unrealized gain on cash flow hedges

 

 

1,949

 

 

204

Increase in fair value of Centaur Media plc

 

 

 —

 

 

127

Total other comprehensive income, net of tax

 

 

2,141

 

 

540

Total comprehensive income (loss)

 

$

418

 

$

(399)

 

See Notes to Consolidated Financial Statements.

5


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended February 28, 2018 and 2017

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of

 

 

 

 

Additional

 

 

 

Accumulated Other

 

 

 

 

 

 

 

 

Common Stock

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

    

Issued

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Stock

    

Total

Balance at November 30, 2016

 

5,541,029

 

$

55

 

$

108,438

 

$

179

 

$

(1,049)

 

$

(16,820)

 

$

90,803

Stock-based compensation

 

 —

 

 

 —

 

 

82

 

 

 —

 

 

 —

 

 

 —

 

 

82

Repurchase of common stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,474)

 

 

(1,474)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(939)

 

 

 —

 

 

 —

 

 

(939)

Total other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

540

 

 

 —

 

 

540

Balance at February 28, 2017

 

5,541,029

 

$

55

 

$

108,520

 

$

(760)

 

$

(509)

 

$

(18,294)

 

$

89,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 30, 2017

 

5,541,029

 

$

55

 

$

108,770

 

$

2,806

 

$

(284)

 

$

(18,294)

 

$

93,053

Adoption of ASU 2016-09 - Cumulative effect of recognition of tax benefit from exercise of stock options

 

 —

 

 

 —

 

 

 —

 

 

879

 

 

 —

 

 

 —

 

 

879

Adoption of ASU 2018-02

 

 —

 

 

 —

 

 

 —

 

 

36

 

 

(36)

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 

90

 

 

 —

 

 

 —

 

 

 —

 

 

90

Exercise of stock options, including shares tendered related to stock options exercised

 

5,471

 

 

 —

 

 

186

 

 

 —

 

 

 —

 

 

(186)

 

 

 —

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(1,723)

 

 

 —

 

 

 —

 

 

(1,723)

Total other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,141

 

 

 —

 

 

2,141

Balance at February 28, 2018

 

5,546,500

 

$

55

 

$

109,046

 

$

1,998

 

$

1,821

 

$

(18,480)

 

$

94,440

 

 

See Notes to Consolidated Financial Statements.

6


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

    

Feb. 28, 2018

    

Feb. 28, 2017

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(1,723)

 

$

(939)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

2,818

 

 

2,350

Deferred income taxes

 

 

790

 

 

(451)

Stock-based compensation expense

 

 

90

 

 

82

Amortization of debt issuance costs

 

 

70

 

 

64

Gain on sale of property

 

 

(36)

 

 

 —

Amortization of terminated swap agreement

 

 

58

 

 

 —

Changes in assets and liabilities:

 

 

 

 

 

 

Other assets

 

 

318

 

 

(1,043)

Accounts payable and accrued liabilities

 

 

(249)

 

 

(295)

Deferred revenue

 

 

(809)

 

 

654

Other liabilities

 

 

67

 

 

571

Net cash provided by operating activities

 

 

1,394

 

 

993

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Additions to real estate assets

 

 

(2,270)

 

 

(2,233)

Proceeds from sale of property, net of expenses

 

 

103

 

 

 —

Deferred leasing costs and other

 

 

(101)

 

 

(336)

Proceeds from property sale returned from escrow

 

 

91

 

 

 —

Net cash used in investing activities

 

 

(2,177)

 

 

(2,569)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Proceeds from mortgage loans

 

 

18,781

 

 

 —

Principal payments on mortgage loans

 

 

(12,639)

 

 

(771)

Dividends paid to stockholders

 

 

(2,000)

 

 

(1,514)

Payment of debt issuance costs

 

 

(167)

 

 

(14)

Repurchase of common stock

 

 

 —

 

 

(594)

Net cash provided by (used in) financing activities

 

 

3,975

 

 

(2,893)

Net increase (decrease) in cash and cash equivalents

 

 

3,192

 

 

(4,469)

Cash and cash equivalents at beginning of period

 

 

30,068

 

 

24,689

Cash and cash equivalents at end of period

 

$

33,260

 

$

20,220

 

See Notes to Consolidated Financial Statements.

7


 

GRIFFIN INDUSTRIAL REALTY, INC.

Notes to Consolidated Financial Statements

(dollars in thousands unless otherwise noted, except per share data)

(unaudited)

 

1.    Summary of Significant Accounting Policies

 

Basis of Presentation

 

Griffin Industrial Realty, Inc. ("Griffin") is a real estate business principally engaged in developing, managing and leasing industrial/warehouse properties and, to a lesser extent, office/flex properties. Griffin seeks to add to its property portfolio through the acquisition and development of land or purchase of buildings in select markets targeted by Griffin. Periodically, Griffin may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which is not consistent with Griffin's core development and leasing strategy. These financial statements have been prepared in conformity with the standards of accounting measurement set forth by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 270, “Interim Reporting” and in accordance with the accounting policies stated in Griffin’s audited consolidated financial statements for the fiscal year ended November 30, 2017 (“fiscal 2017”) included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 8, 2018. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements appearing in that report. All adjustments, comprising only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods, have been reflected and all intercompany transactions have been eliminated. The consolidated balance sheet data as of November 30, 2017 was derived from Griffin’s audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). 

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. Griffin regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations and valuation of derivative instruments.  Griffin bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by Griffin may differ materially and adversely from Griffin’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

As of February 28, 2018, Griffin was a party to several interest rate swap agreements to hedge its interest rate exposure. Griffin does not use derivatives for speculative purposes. Griffin applies FASB ASC 815-10, “Derivatives and Hedging,” (“ASC 815-10”) as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. ASC 815-10 requires Griffin to recognize all derivatives as either assets or liabilities on its consolidated balance sheet and measure those instruments at fair value. The changes in the fair values of the interest rate swap agreements are measured in accordance with ASC 815-10 and reflected in the carrying values of the interest rate swap agreements on Griffin’s consolidated balance sheet. The estimated fair values are based primarily on projected future swap rates.

 

Griffin applies cash flow hedge accounting to its interest rate swap agreements that are designated as hedges of the variability of future cash flows from floating rate liabilities based on the benchmark interest rates. Changes in the fair values of Griffin’s interest rate swap agreements are recorded as components of accumulated other comprehensive income (loss) in stockholders’ equity to the extent they are effective. Any ineffective portions of the changes in fair values of these instruments would be recorded as interest expense or interest income.

 

The results of operations for the three months ended February 28, 2018 (the “2018 first quarter”) are not necessarily indicative of the results to be expected for the full year. The three months ended February 28, 2017 are referred to herein as the “2017 first quarter.”   

 

8


 

Recent Adopted Accounting Pronouncements

 

In February 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which is intended to eliminate the stranded tax effects within Accumulated Other Comprehensive Income (“AOCI”) resulting from the Tax Cuts and Jobs Act (“TCJA”) that was enacted on December 22, 2017. The effective date of ASU 2018-02 is for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted for public entities for which financial statements have not yet been released. Griffin elected to early adopt and apply the provisions of ASU 2018-02 in the 2018 first quarter. This adoption resulted in a one-time reclassification of the effect of re-measuring Griffin’s net deferred tax assets related to interest rate swap agreements within AOCI and retained earnings resulting from the reduction in the U.S. federal statutory tax rate from 35% to 21%. The reclassification resulted in a decrease to AOCI and an increase to retained earnings of $36 in the 2018 first quarter, with no net impact to total stockholders’ equity.

 

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation:  Scope of Modification Accounting,” which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. This Update requires modification only if the fair value, vesting conditions or the classification of the award changes as a result of the change in terms or conditions. This Update became effective for Griffin in the 2018 first quarter and was applied on a prospective basis. The adoption of ASU No. 2017-09 did not have an impact on Griffin’s consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) – Clarifying the Definition of a Business,” which provides a more robust framework to use in determining when a set of assets and activities is a business. This Update also provides greater consistency in applying the guidance by making the definition of a business more operable. This Update became effective for Griffin in the 2018 first quarter. The adoption of ASU 2017-01 did not have an impact on Griffin’s consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation:  Improvements to Employee Share-Based Payment Accounting,” which relates to the accounting for employee share-based payments. This Update addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This Update became effective for Griffin in the 2018 first quarter.  Griffin recorded a deferred tax asset of $879 with a corresponding increase in retained earnings upon adoption. The adoption of ASU 2016-09 did not affect the classification of any current awards and did not have a retrospective impact on Griffin’s cash flows as no tax benefits from stock options were recognized in the periods presented. Griffin will continue its policy of estimating the forfeiture rate of options.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which is intended to improve the financial reporting for hedging relationships to better represent the economic results of a company’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance. This Update will make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend the presentation and disclosure requirements and change how entities assess effectiveness. This Update will become effective for Griffin in fiscal 2020. Griffin is evaluating the impact that the application of this Update will have on its consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. The accounting applied by lessors under this Update is largely unchanged from that applied under current U.S. GAAP. Leases will be either classified as finance or operating, with classification affecting the pattern of expense recognition in the income statement. This Update also requires significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. This Update will become effective for Griffin in fiscal 2020 using a modified restatement approach for leases in effect as of and after the date of adoption. Early adoption and practical expedients to measure the effect of adoption is allowed. Griffin is evaluating the impact that the application of this Update will have on its consolidated financial statements.

9


 

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This Update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This Update is not applicable to revenue from leases. This Update supersedes most current revenue recognition guidance, including industry specific guidance, and requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Additionally, the Update requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. The Update permits the use of either the retrospective or cumulative effect transition method. This Update will be effective for Griffin in fiscal 2019. Certain aspects of this new standard may affect revenue recognition of Griffin, however, Griffin does not anticipate a significant impact on its consolidated financial statements from the application of this Update for lease revenue because revenue from leases are not subject to this Update. Griffin is evaluating the impact that the application of this Update will have on its consolidated financial statements.

 

 

 

 

2.    Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurement” (“ASC 820”), which establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 applies to assets or liabilities for which there are quoted market prices in active markets for identical assets or liabilities. Griffin’s available-for-sale securities were considered Level 1 within the fair value hierarchy prior to their sale in fiscal 2017 (see Note 7).

 

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.  Level 2 assets and liabilities include Griffin’s interest rate swap agreements (see Note 4). These inputs are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, Griffin has categorized these derivative instruments as Level 2 within the fair value hierarchy.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. 

 

During the 2018 first quarter, Griffin did not transfer any assets or liabilities into or out of Levels 1 or 2. The following are Griffin’s financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2018

 

    

Quoted Prices in

    

Significant

    

Significant

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

Interest rate swap assets

 

$

 —

 

$

2,726

 

$

 —

Interest rate swap liabilities

 

$

 —

 

$

239

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2017

 

    

Quoted Prices in

    

Significant

    

Significant

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

Interest rate swap assets

 

$

 —

 

$

644

 

$

 —

Interest rate swap liabilities

 

$

 —

 

$

845

 

$

 —

 

10


 

The carrying and estimated fair values of Griffin’s financial instruments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

February 28, 2018

 

November 30, 2017

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

    

Level

    

Value

    

Fair Value

    

Value

    

Fair Value

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

33,260

 

$

33,260

 

$

30,068

 

$

30,068

Proceeds held in escrow

 

1

 

$

 —

 

$

 —

 

$

91

 

$

91

Interest rate swap assets

 

2

 

$

2,726

 

$

2,726

 

$

644

 

$

644

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans, net of debt issuance costs

 

2

 

$

135,230

 

$

134,745

 

$

129,203

 

$

128,999

Interest rate swap liabilities

 

2

 

$

239

 

$

239

 

$

845

 

$

845

 

The amounts included in the consolidated financial statements for cash and cash equivalents, proceeds held in escrow, leasing receivables from tenants and accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these instruments. The fair values of the mortgage loans are estimated based on current rates offered to Griffin for similar debt of the same remaining maturities and, additionally, Griffin considers its credit worthiness in determining the fair value of its mortgage loans. The fair values of the interest rate swaps (used for purposes other than trading) are determined based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current Overnight Index Swap rate and swap curve along with other market data, taking into account current interest rates and the credit worthiness of the counterparty for assets and the credit worthiness of Griffin for liabilities.

 

 

 

3.    Real Estate Assets

 

Real estate assets consist of:

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

    

Useful Lives

    

Feb. 28, 2018

    

Nov. 30, 2017

Land

 

 

 

$

20,403

 

$

20,403

Land improvements

 

10 to 30 years

 

 

30,851

 

 

30,833

Buildings and improvements

 

10 to 40 years

 

 

187,269

 

 

187,116

Tenant improvements

 

Shorter of useful life or terms of related lease

 

 

27,820

 

 

27,924

Machinery and equipment

 

3 to 20 years

 

 

10,958

 

 

10,958

Construction in progress

 

 

 

 

2,570

 

 

486

Development costs

 

 

 

 

14,204

 

 

14,132

 

 

 

 

 

294,075

 

 

291,852

Accumulated depreciation

 

 

 

 

(97,514)

 

 

(95,112)

 

 

 

 

$

196,561

 

$

196,740

 

Total depreciation expense and capitalized interest related to real estate assets were as follows:

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

    

Feb. 28, 2018

    

Feb. 28, 2017

Depreciation expense

 

$

2,402

 

$

2,095

 

 

 

 

 

 

 

Capitalized interest

 

$

38

 

$

 —

 

 

11


 

Real estate assets held for sale consist of:

 

 

 

 

 

 

 

 

 

    

Feb. 28, 2018

    

Nov. 30, 2017

Land

 

$

503

 

$

504

Land improvements

 

 

354

 

 

354

Development costs

 

 

1,007

 

 

1,074

 

 

$

1,864

 

$

1,932

 

Real estate assets held for sale were reduced in the 2018 first quarter by $68 related to a  property sale that closed.

 

 

 

 

 

 

 

 

 

 

4.    Mortgage Loans

 

Griffin’s mortgage loans, which are nonrecourse, consist of:

 

 

 

 

 

 

 

 

 

    

Feb. 28, 2018

    

Nov. 30, 2017

Variable rate, due January 27, 2020 *

 

$

3,445

 

$

3,478

Variable rate, due October 3, 2022 *

 

 

4,344

 

 

4,367

Variable rate, due January 2, 2025 *

 

 

20,087

 

 

20,221

Variable rate, due May 1, 2026 *

 

 

13,757

 

 

13,844

Variable rate, due November 17, 2026 *

 

 

25,910

 

 

26,076

Variable rate, due August 1, 2027 *

 

 

10,464

 

 

10,523

3.97%, due September 1, 2027

 

 

12,062

 

 

12,115

Variable rate, due February 1, 2028 *

 

 

18,781

 

 

 —

5.09%, due July 1, 2029

 

 

6,493

 

 

6,597

5.09%, due July 1, 2029

 

 

4,549

 

 

4,622

4.33%, due August 1, 2030

 

 

17,227

 

 

17,308

Variable rate, due March 1, 2027 *

 

 

 —

 

 

11,826

Nonrecourse mortgage loans prior to debt issuance costs

 

 

137,119

 

 

130,977

Debt issuance costs, net

 

 

(1,889)

 

 

(1,774)

Nonrecourse mortgage loans, net

 

$

135,230

 

$

129,203


*Griffin entered into interest rate swap agreements to effectively fix the interest rates on these loans (see below).

 

As of February 28, 2018, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgage loans on certain of its real estate assets. Griffin accounts for its interest rate swap agreements as effective cash flow hedges (see Note 2). No ineffectiveness on the cash flow hedges was recognized as of February 28, 2018 and none is anticipated over the term of the agreements. Amounts in accumulated other comprehensive income (loss) will be reclassified into interest expense over the term of the swap agreements to achieve fixed interest rates on each mortgage. None of the interest rate swap agreements contain any credit risk related contingent features. In the 2018 first quarter and the 2017 first quarter, Griffin recognized gains, included in other comprehensive income, before taxes of $2,746 and $671 on its interest rate swap agreements. As of February 28, 2018, $411 was expected to be reclassified over the next twelve months from accumulated other comprehensive income (loss) to interest expense. As of February 28, 2018, the net fair value of Griffin’s interest rate swap agreements was $2,487, with $2,726 included in other assets and $239 included in other liabilities on Griffin’s consolidated balance sheet.

 

On January 30, 2018, a subsidiary of Griffin closed on a nonrecourse mortgage loan (the “2018 People’s Mortgage”) with People’s United Bank, N.A. (“People’s Bank”) for $18,781. The 2018 People’s Mortgage refinanced an existing mortgage loan with People’s Bank that was due on March 1, 2027 and was collateralized by two industrial/warehouse buildings in New England Tradeport (“NE Tradeport”), Griffin’s industrial park located in Windsor and East Granby, Connecticut. The 2018 People’s Mortgage is collateralized by the same two buildings aggregating approximately 275,000 square feet along with 330 Stone Road, an approximately 137,000 square foot industrial/warehouse building in NE Tradeport that was completed and placed in service near the end of fiscal 2017. Griffin received proceeds of $7,000 (before transaction costs), net of $11,781 used to refinance the existing mortgage loan with People’s Bank. The 2018 People’s Mortgage has a ten year term with monthly principal payments based on a twenty-five year amortization schedule. The interest rate for the 2018 People’s Mortgage is a floating rate of the one

12


 

month LIBOR rate plus 1.95%. At the time the 2018 People’s Mortgage closed, Griffin entered into an interest rate swap agreement with People’s Bank that, combined with an existing swap agreement with People’s Bank, effectively fixes the interest rate of the 2018 People’s Mortgage at 4.57% over the balance of the mortgage loan’s ten year term.

 

On March 29, 2018, a subsidiary of Griffin closed on a $13,800 construction to permanent mortgage loan (the “State Farm Loan”) with State Farm Life Insurance Company (“State Farm”), which is expected to provide a significant portion of the financing for the construction of an approximately 234,000 square foot build-to-suit industrial/warehouse building (“220 Tradeport Drive”) in NE Tradeport (see Note 8). In the fourth quarter of fiscal 2017, Griffin entered into a long-term lease with one tenant for the entire building. The State Farm Loan will initially function as a construction loan, with Griffin drawing funds as construction of 220 Tradeport Drive progresses. Upon completion of 220 Tradeport Drive and the commencement of rent payments by the tenant, the State Farm Loan will convert to a fifteen year nonrecourse permanent mortgage loan,  which is expected to take place in fiscal 2019. The interest rate on the loan is 4.51%. During the construction period, only interest payments will be made. Monthly principal payments, which will begin after conversion to a nonrecourse permanent mortgage loan, will be based on a twenty-five year amortization schedule. The State Farm Loan may be increased up to $14,288 if the tenant in 220 Tradeport Drive opts to have Griffin make certain additional improvements to 220 Tradeport Drive.

 

 

5.     Revolving Credit Agreement

 

Griffin has a $15,000 revolving credit line (the “Webster Credit Line”) with Webster Bank, N.A. that expires July 31, 2018. Griffin has the option to further extend the term of the Webster Credit Line for an additional year, provided there is no default at the time such extension is requested. Interest on borrowings under the Webster Credit Line is at the one month LIBOR rate plus 2.75%. 

 

The Webster Credit Line is collateralized by Griffin’s properties in Griffin Center South, aggregating approximately 235,000 square feet, and an approximately 48,000 square foot single-story office building in Griffin Center. There have been no borrowings under the Webster Credit Line since its inception in fiscal 2013. As of February 28, 2018, the Webster Credit Line secured certain unused standby letters of credit aggregating $2,214 that are related to Griffin's development activities.

 

 

6.    Stockholders’ Equity

 

Per Share Results

 

Basic and diluted per share results were based on the following:

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

Feb. 28, 2018

    

Feb. 28, 2017

Net loss

 

$

(1,723)

 

$

(939)

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

 

5,001,000

 

 

5,040,000

Incremental shares from assumed exercise of Griffin stock options (a)

 

 

 —

 

 

 —

Adjusted weighted average shares for computation of diluted per share results

 

 

5,001,000

 

 

5,040,000


(a)

Incremental shares from the assumed exercise of Griffin stock options are not included in periods where the inclusion of such shares would be anti-dilutive. The incremental shares from the assumed exercise of stock options for the 2018 first quarter and 2017 first quarter would have been 39,000 and 23,000, respectively.

 

Griffin Stock Option Plan

 

Stock options are granted by Griffin under the Griffin Industrial Realty, Inc. 2009 Stock Option Plan (the “2009 Stock Option Plan”). Options granted under the 2009 Stock Option Plan may be either incentive stock options or non-qualified stock options issued at an exercise price not less than fair market value on the date approved by Griffin’s

13


 

Compensation Committee. Vesting of all of Griffin's stock options is solely based upon service requirements and does not contain market or performance conditions.

 

Stock options issued expire ten years from the grant date. In accordance with the 2009 Stock Option Plan, stock options issued to non-employee directors upon their initial election to the board of directors are fully exercisable immediately upon the date of the option grant. Stock options issued to non-employee directors upon their re-election to the board of directors vest on the second anniversary from the date of grant. Stock options issued to employees vest in equal installments on the third, fourth and fifth anniversaries from the date of grant. None of the stock options outstanding at February 28, 2018 may be exercised as stock appreciation rights.

 

There were no options granted by Griffin in the 2018 first quarter. The following options were granted by Griffin under the 2009 Stock Option Plan to Griffin employees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

Feb. 28, 2018

 

Feb. 28, 2017

 

    

 

    

Fair Value per

    

 

    

Fair Value per

 

 

Number of

 

Option at

 

Number of

 

Option at

 

 

Shares

 

Grant Date

 

Shares

 

Grant Date

Employees

 

 -

 

$

 -

 

5,000

 

$

 11.13

 

The fair values of all options granted were estimated as of the grant date using the Black-Scholes option-pricing model. Assumptions used in determining the fair value of the stock options granted were as follows:

 

 

 

 

 

 

 

 

For the Three Months Ended

 

    

Feb. 28, 2018

    

Feb. 28, 2017

 

Expected volatility

 

 —

 

32.7

%  

Risk free interest rates

 

 —

 

2.1

%  

Expected option term (in years)

 

 —

 

7.5

 

Annual dividend yield

 

 —

 

0.9

%  

 

 

 

 

 

Number of option holders at February 28, 2018

      

30

 

Compensation expense and related tax benefits for stock options were as follows:

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

Feb. 28, 2018

 

Feb. 28, 2017

Compensation expense

 

$

90

 

$

82

 

 

 

 

 

 

 

Related tax benefit

 

$

13

 

$

20

 

For all periods presented, the forfeiture rate for directors was 0%, forfeiture rates for executives ranged from 17.9% to 22.6% and forfeiture rates for employees ranged from 38.3% to 41.1%. These rates were utilized based on the historical activity of the grantees.

 

As of February 28, 2018, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

 

 

 

 

Balance of Fiscal 2018

    

$

250

Fiscal 2019

 

$

234

Fiscal 2020

 

$

112

Fiscal 2021

 

$

34

 

14


 

A summary of the activity under the 2009 Griffin Stock Option Plan is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

February 28, 2018

 

February 28, 2017

 

 

 

 

 

Weighted

 

 

 

 

Weighted

 

 

 

 

 

 Avg.

 

 

 

 

 Avg.

 

 

Number of

 

 

Exercise 

 

Number of

 

 

Exercise 

 

 

Shares

 

 

Price

 

Shares

 

 

Price

Outstanding at beginning of period

 

333,762

 

$

29.22

 

324,546

 

$

29.23

Granted

 

 —

 

$

 —

 

5,000

 

$

30.81

Exercised

 

(5,471)

 

$

34.04

 

 —

 

$

 —

Forfeited

 

(19,779)

 

$

33.95

 

 —

 

$

 —

Outstanding at end of period

 

308,512

 

$

28.83

 

329,546

 

$

29.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted Avg.

    

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

Range of Exercise Prices for

 

Outstanding at

 

Weighted Avg.

 

Contractual Life

 

Total Intrinsic

Vested and Nonvested Options

 

February 28, 2018

 

Exercise Price

 

(in years)

 

Value

$23.00 - $28.00

 

124,293

 

$

26.67

 

7.7

 

$

1,205

$28.00 - $32.00

 

128,248

 

$

29.07

 

3.8

 

 

935

$32.00 - $39.00

 

55,971

 

$

33.11

 

1.0

 

 

182

 

 

308,512

 

$

28.83

 

4.9

 

$

2,322

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated other comprehensive income (loss), net of tax, is comprised of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended Feb. 28, 2018

 

 

 

 

 

Unrealized gain

 

 

 

 

 

Unrealized gain on

 

on investment in

 

 

 

 

    

cash flow hedges

    

Centaur Media

    

Total

Balance November 30, 2017

 

$

(284)

 

$

 —

 

$

(284)

Other comprehensive income before reclassifications

 

 

1,949

 

 

 —

 

 

1,949

Amounts reclassified

 

 

192

 

 

 —

 

 

192

Adoption of ASU 2018-02 - reclassification to retained earnings

 

 

(36)

 

 

 —

 

 

(36)

Net activity for other comprehensive income

 

 

2,105

 

 

 —

 

 

2,105

Balance February 28, 2018

 

$

1,821

 

$

 —

 

$

1,821

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended Feb. 28, 2017

 

 

 

 

 

Unrealized gain

 

 

 

 

 

Unrealized loss on

 

on investment in