0001104659-15-050591.txt : 20150710 0001104659-15-050591.hdr.sgml : 20150710 20150710111218 ACCESSION NUMBER: 0001104659-15-050591 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20150531 FILED AS OF DATE: 20150710 DATE AS OF CHANGE: 20150710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRIFFIN INDUSTRIAL REALTY, INC. CENTRAL INDEX KEY: 0001037390 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 060868486 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12879 FILM NUMBER: 15982824 BUSINESS ADDRESS: STREET 1: ONE ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2122187910 MAIL ADDRESS: STREET 1: ONE ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: GRIFFIN LAND & NURSERIES INC DATE OF NAME CHANGE: 19970408 10-Q 1 a15-13015_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED May 31, 2015

 

o         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)

 

 

 

One Rockefeller Plaza, New York, New York

 

10020

(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 x  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 x 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 x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

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

 

Number of shares of Common Stock outstanding at July 2, 2015:  5,152,708

 

 

 



Table of Contents

 

GRIFFIN INDUSTRIAL REALTY, INC.

FORM 10-Q

Index

 

PART I -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited)
May 31, 2015 and November 30, 2014

3

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited)
Three Months and Six Months Ended May 31, 2015 and 2014

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three Months and Six Months Ended May 31, 2015 and 2014

5

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
Six Months Ended May 31, 2015 and 2014

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited)
Six Months Ended May 31, 2015 and 2014

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8-25

 

 

 

 

 

ITEM 2

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

26-36

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

 

 

ITEM 4

Controls and Procedures

38

 

 

 

 

PART II -

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

39

 

 

 

 

 

ITEMS 2-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

39-42

 

 

 

 

 

 

SIGNATURES

43

 



Table of Contents

 

PART I                                                FINANCIAL INFORMATION

 

ITEM 1.                                             FINANCIAL STATEMENTS

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

ASSETS

 

 

 

 

 

Real estate assets at cost, net

 

$

146,429

 

$

134,522

 

Real estate held for sale, net

 

11,414

 

9,943

 

Cash and cash equivalents

 

18,777

 

17,059

 

Deferred income taxes

 

6,428

 

5,996

 

Available for sale securities - Investment in Centaur Media plc

 

2,373

 

1,924

 

Note receivable

 

1,500

 

1,451

 

Proceeds held in escrow

 

1,000

 

1,000

 

Other assets

 

13,426

 

14,446

 

Assets of discontinued operation

 

36

 

36

 

Total assets

 

$

201,383

 

$

186,377

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

 

$

79,965

 

$

70,168

 

Deferred revenue

 

11,763

 

8,349

 

Accounts payable and accrued liabilities

 

6,315

 

3,505

 

Dividend payable

 

 

1,030

 

Other liabilities

 

7,960

 

7,438

 

Liabilities of discontinued operation

 

 

8

 

Total liabilities

 

106,003

 

90,498

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,541,029 and 5,537,895 shares issued, respectively and 5,152,708 and 5,149,574 shares outstanding, respectively

 

55

 

55

 

Additional paid-in capital

 

108,129

 

107,887

 

Retained earnings

 

1,296

 

2,238

 

Accumulated other comprehensive loss, net of tax

 

(634

)

(835

)

Treasury stock, at cost, 388,321 shares

 

(13,466

)

(13,466

)

Total stockholders’ equity

 

95,380

 

95,879

 

Total liabilities and stockholders’ equity

 

$

201,383

 

$

186,377

 

 

 See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

May 31, 2015

 

May 31, 2014

 

Rental revenue

 

$

5,951

 

$

5,064

 

$

11,358

 

$

10,030

 

Revenue from property sales

 

245

 

277

 

1,071

 

370

 

Total revenue

 

6,196

 

5,341

 

12,429

 

10,400

 

 

 

 

 

 

 

 

 

 

 

Operating expenses of rental properties

 

1,872

 

1,747

 

4,285

 

4,198

 

Depreciation and amortization expense

 

1,886

 

1,638

 

3,704

 

3,279

 

Costs related to property sales

 

118

 

70

 

322

 

94

 

General and administrative expenses

 

1,847

 

1,696

 

3,858

 

3,880

 

Total expenses

 

5,723

 

5,151

 

12,169

 

11,451

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

473

 

190

 

260

 

(1,051

)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(917

)

(774

)

(1,844

)

(1,678

)

Investment income

 

71

 

141

 

105

 

188

 

Gain on sale of common stock in Centaur Media plc

 

 

 

 

318

 

Loss before income tax benefit

 

(373

)

(443

)

(1,479

)

(2,223

)

Income tax benefit

 

139

 

218

 

537

 

900

 

Loss from continuing operations

 

(234

)

(225

)

(942

)

(1,323

)

Discontinued operations, net of tax:

 

 

 

 

 

 

 

 

 

Gain from landscape nursery business, including the gain (loss) on sale of assets of $3 and ($28), net of tax, in the 2014 three month and six month periods, respectively

 

 

390

 

 

118

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(234

)

$

165

 

$

(942

)

$

(1,205

)

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.05

)

$

(0.04

)

$

(0.18

)

$

(0.26

)

Income from discontinued operations

 

 

0.07

 

 

0.03

 

Basic net (loss) income per common share

 

$

(0.05

)

$

0.03

 

$

(0.18

)

$

(0.23

)

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per common share:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.05

)

$

(0.04

)

$

(0.18

)

$

(0.26

)

Income from discontinued operations

 

 

0.07

 

 

0.03

 

Diluted net (loss) income per common share

 

$

(0.05

)

$

0.03

 

$

(0.18

)

$

(0.23

)

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

May 31, 2015

 

May 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(234

)

$

165

 

$

(942

)

$

(1,205

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net (loss) income

 

191

 

(144

)

368

 

(191

)

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in fair value of Centaur Media plc

 

276

 

(212

)

291

 

327

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges

 

(132

)

(221

)

(458

)

(332

)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), net of tax

 

335

 

(577

)

201

 

(196

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

101

 

$

(412

)

$

(741

)

$

(1,401

)

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended May 31, 2015 and May 31, 2014

(dollars in thousands)

(unaudited)

 

 

 

Shares of 
Common 
Stock 
Issued

 

Common 
Stock

 

Additional 
Paid-in 
Capital

 

Retained 
Earnings

 

Accumulated 
Other 
Comprehensive 
Loss

 

Treasury 
Stock

 

Total

 

Balance at November 30, 2013

 

5,534,687

 

$

55

 

$

107,603

 

$

4,372

 

$

(449

)

$

(13,466

)

$

98,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

83

 

 

 

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

3,208

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

(1,205

)

 

 

(1,205

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive loss, net of tax

 

 

 

 

 

(196

)

 

(196

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2014

 

5,537,895

 

$

55

 

$

107,766

 

$

3,167

 

$

(645

)

$

(13,466

)

$

96,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 30, 2014

 

5,537,895

 

$

55

 

$

107,887

 

$

2,238

 

$

(835

)

$

(13,466

)

$

95,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

162

 

 

 

 

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

3,134

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

(942

)

 

 

(942

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income, net of tax

 

 

 

 

 

201

 

 

201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2015

 

5,541,029

 

$

55

 

$

108,129

 

$

1,296

 

$

(634

)

$

(13,466

)

$

95,380

 

 

See Notes to Consolidated Financial Statements.

 

6



Table of Contents

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

Operating activities:

 

 

 

 

 

Net loss

 

$

(942

)

$

(1,205

)

(Income) from discontinued operations

 

 

(118

)

Loss from continuing operations

 

(942

)

(1,323

)

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities of continuing operations:

 

 

 

 

 

Depreciation and amortization

 

3,704

 

3,279

 

Gain on sales of property

 

(749

)

(276

)

Deferred income taxes

 

(537

)

(900

)

Stock-based compensation expense

 

162

 

213

 

Amortization of debt issuance costs

 

126

 

131

 

Accretion of discount on note receivable

 

(49

)

(115

)

Gain on sale of common stock in Centaur Media plc

 

 

(318

)

Changes in assets and liabilities:

 

 

 

 

 

Other assets

 

1,172

 

872

 

Accounts payable and accrued liabilities

 

43

 

(70

)

Deferred revenue

 

4,485

 

(625

)

Other liabilities

 

379

 

106

 

Net cash provided by operating activities of continuing operations

 

7,794

 

974

 

Net cash used in operating activities of discontinued operations

 

 

(511

)

Net cash provided by operating activities

 

7,794

 

463

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Additions to real estate assets

 

(14,080

)

(8,927

)

Deferred leasing costs and other

 

(669

)

(127

)

Proceeds from property sales returned from escrow

 

 

8,864

 

Proceeds from sales of common stock in Centaur Media plc

 

 

566

 

Proceeds from sale of business

 

 

169

 

Net cash (used in) provided by investing activities

 

(14,749

)

545

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from debt

 

10,891

 

 

Payments of debt

 

(1,094

)

(1,069

)

Dividends paid to stockholders

 

(1,030

)

(1,029

)

Debt issuance costs

 

(174

)

(102

)

Exercise of stock options

 

80

 

80

 

Net cash provided by (used in) financing activities

 

8,673

 

(2,120

)

Net increase (decrease) in cash and cash equivalents

 

1,718

 

(1,112

)

Cash and cash equivalents at beginning of period

 

17,059

 

14,179

 

Cash and cash equivalents at end of period

 

$

18,777

 

$

13,067

 

 

See Notes to Consolidated Financial Statements.

 

7



Table of Contents

 

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

 

On May 13, 2015, Griffin Land & Nurseries, Inc. changed its name to Griffin Industrial Realty, Inc. (“Griffin”) to reflect better Griffin’s ongoing real estate business that is principally engaged in developing, managing and leasing industrial and, to a lesser extent, commercial properties.  Periodically, Griffin may also 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.  The accompanying unaudited consolidated financial statements of Griffin reflect its real estate business after Griffin sold its landscape nursery business in January 2014 (see below).

 

The growing operations of Griffin’s landscape nursery business, previously conducted through its wholly-owned subsidiary, Imperial Nurseries, Inc. (“Imperial”), is reported as a discontinued operation due to the sale, effective January 8, 2014, of its inventory and certain of its assets (the “Imperial Sale”) to Monrovia Connecticut LLC (“Monrovia”), a subsidiary of Monrovia Nursery Company (see Note 8). Concurrent with the Imperial Sale, a subsidiary of Griffin and Imperial entered into a long-term lease with Monrovia for Imperial’s Connecticut production nursery. Imperial was engaged in growing landscape nursery plants in containers for sale to independent retail garden centers and rewholesalers, whose main customers were landscape contractors. As the growing operations of Imperial are reflected as a discontinued operation in Griffin’s unaudited consolidated financial statements, Griffin’s continuing operations presented in the accompanying financial statements solely reflect its real estate business and, therefore, industry segment information is not presented.

 

These financial statements have been prepared in conformity with the standards of accounting measurement set forth by Financial Accounting Standards Board (“FASB”) 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, 2014 (“fiscal 2014”) included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2015. 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, 2014 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, valuation of derivative instruments and the estimated costs to complete required offsite improvements to land sold. 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

 

8



Table of Contents

 

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 May 31, 2015, 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 May 31, 2015 (the “2015 second quarter”) and the six months ended May 31, 2015 (the “2015 six month period”) are not necessarily indicative of the results to be expected for the full year. The three months and six months ended May 31, 2014 are referred to herein as the “2014 second quarter” and “2014 six month period,” respectively.  Certain amounts from the 2014 periods have been reclassified to conform to the current presentation.

 

Recent Accounting Pronouncements

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Interest-Imputation of Interest,” which requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct reduction from the carrying amount of the associated debt liability, consistent with debt discounts. The guidance must be applied on a retrospective basis and will be effective for Griffin in fiscal 2017. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on Griffin’s financial position or results of operations.

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. This standard 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 2018 and early adoption is not permitted. Certain aspects of this new standard may affect revenue recognition of Griffin. Griffin is evaluating the impact that the application of this update will have on its consolidated financial statements.

 

9



Table of Contents

 

2.              Real Estate Assets

 

Real estate assets, net consist of:

 

 

 

Estimated
Useful Lives

 

May 31, 2015

 

Nov. 30, 2014

 

Land

 

 

 

$

17,676

 

$

17,955

 

Land improvements

 

10 to 30 years

 

14,500

 

18,527

 

Buildings and improvements

 

10 to 40 years

 

136,556

 

135,857

 

Tenant improvements

 

Shorter of useful life or terms of related lease

 

17,804

 

14,820

 

Machinery and equipment

 

3 to 20 years

 

7,622

 

11,810

 

Construction in progress

 

 

 

14,418

 

3,829

 

Development costs

 

 

 

6,999

 

6,486

 

 

 

 

 

215,575

 

209,284

 

Accumulated depreciation

 

 

 

(69,146

)

(74,762

)

 

 

 

 

$

146,429

 

$

134,522

 

 

During the 2015 second quarter, land, land improvements, buildings and improvements and machinery and equipment of the Florida farm previously used by Imperial were reclassified into real estate assets held for sale as a result of the tenant leasing the Florida farm notifying Griffin of its intent to purchase the Florida farm under the purchase option in its lease (see below).

 

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

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

May 31, 2015

 

May 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

1,596

 

$

1,374

 

$

3,146

 

$

2,798

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest

 

$

204

 

$

251

 

$

367

 

$

375

 

 

In the 2013 fourth quarter, Griffin completed the sale of approximately 90 acres of undeveloped land for approximately $9,000 in cash, before transaction costs (the “Windsor Land Sale”). The land sold is located in Windsor, Connecticut and is part of an approximately 253 acre parcel of undeveloped land that straddles the town line between Windsor and Bloomfield, Connecticut. Under the terms of the Windsor Land Sale, Griffin and the buyer are each constructing roadways connecting the land parcel sold with existing town roads. The roads being built will become new town roads, providing public access to the remaining acreage in Griffin’s land parcel. As a result of Griffin’s continuing involvement with the land sold, the Windsor Land Sale is being accounted for under the percentage of completion method. Accordingly, the revenue and pretax gain on the sale are being recognized on a pro rata basis in a ratio equal to the percentage of the total costs incurred to the total anticipated costs of sale, including costs of the required roadwork. Costs included in determining the percentage of completion include the cost of the

 

10



Table of Contents

 

land sold, allocated master planning costs and the cost of road construction. At the closing of the Windsor Land Sale, cash proceeds of $8,860 were placed in escrow for the potential purchase of a replacement property in a like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended. The proceeds held in escrow were returned to Griffin in the 2014 second quarter, as a replacement property was not acquired.

 

As of May 31, 2015, approximately 76% of the total costs related to the Windsor Land Sale have been incurred; therefore, from the date of the Windsor Land Sale through May 31, 2015, approximately 76% of the total revenue and pretax gain on the sale have been recognized in Griffin’s consolidated statements of operations. Griffin’s consolidated statements of operations for the 2015 second quarter and 2015 six month period include revenue of $245 and $1,071, respectively, and a pretax gain of $127 and $749, respectively, from the Windsor Land Sale. Griffin’s consolidated statements of operations for the 2014 second quarter and 2014 six month period include revenue of $277 and $370, respectively, and a pretax gain of $207 and $276, respectively, from the Windsor Land Sale. As of May 31, 2015, Griffin has recognized total revenue of $6,844 and a total pretax gain of $5,097 from the Windsor Land Sale. The balance of the revenue and pretax gain on sale will be recognized when the remaining costs are incurred, which is expected to take place in the third and fourth quarters of fiscal 2015. Deferred revenue on Griffin’s consolidated balance sheet as of May 31, 2015, includes $2,124 related to the Windsor Land Sale that will be recognized as the remaining costs are incurred. Including the pretax gain on sale recognized in the 2015 six month period, fiscal 2014 and fiscal 2013, the total pretax gain on the Windsor Land Sale is expected to be approximately $6,678 after all revenue is recognized and all costs are incurred. While management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required roadways being constructed, increases or decreases in future costs as compared with current estimated amounts would reduce or increase the gain recognized in future periods.

 

Real estate assets held for sale, net consist of:

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

Land

 

$

565

 

$

286

 

Land improvements

 

4,089

 

 

Building and improvements

 

1,207

 

 

Machinery and equipment

 

4,188

 

 

Development costs

 

9,677

 

9,657

 

 

 

19,726

 

9,943

 

Accumulated depreciation

 

(8,312

)

 

 

 

$

11,414

 

$

9,943

 

 

Included in real estate assets held for sale, net as of May 31, 2015 are land, land improvements, buildings and improvements and machinery and equipment with a net book value of $1,451 reflecting the reclassification of the Florida farm assets from real estate assets, net in the 2015 second quarter.  The Florida farm had been used by Imperial prior to being shut down in fiscal 2008 and has been leased to a private company grower of landscape nursery products since fiscal 2009.  In the 2015 second quarter, the tenant that leases the Florida farm gave notice of its intent to exercise the purchase option for the Florida farm under the terms of its lease. The purchase price is approximately $4,100 and the sale is expected to close by the end of the fiscal 2015 third quarter. On June 1, 2015, Griffin received a deposit of $400 as required under the terms of the lease agreement.  There is no guarantee that this transaction will be completed based on its current terms, or at all.

 

11



Table of Contents

 

3.              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 are considered Level 1 within the fair value hierarchy.

 

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 include Griffin’s note receivable from Monrovia (see Note 8).  Level 2 liabilities include Griffin’s interest rate swap derivatives (see Note 5). 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 2015 six month period, Griffin did not transfer any assets or liabilities in 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:

 

 

 

May 31, 2015

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

2,373

 

$

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities

 

$

 

$

2,465

 

$

 

 

12



Table of Contents

 

 

 

November 30, 2014

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

1,924

 

$

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap asset

 

$

 

$

8

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities

 

$

 

$

2,330

 

$

 

 

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

 

 

 

Fair Value

 

May 31, 2015

 

November 30, 2014

 

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Level

 

Value

 

Fair Value

 

Value

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

18,777

 

$

18,777

 

$

17,059

 

$

17,059

 

Available-for-sale securities

 

1

 

2,373

 

2,373

 

1,924

 

1,924

 

Note receivable

 

2

 

1,500

 

1,500

 

1,451

 

1,451

 

Interest rate swap

 

2

 

 

 

8

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

 

2

 

79,965

 

80,909

 

70,168

 

71,014

 

Interest rate swaps

 

2

 

2,465

 

2,465

 

2,330

 

2,330

 

 

The amounts included in the financial statements for cash and cash equivalents, note receivable, leasing receivables and accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these instruments. The fair values of the available-for-sale securities are based on quoted market prices. 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 OIS 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.

 

4.              Investment in Centaur Media plc

 

As of May 31, 2015, Griffin held 1,952,462 shares of common stock in Centaur Media plc (“Centaur Media”). Griffin’s investment in the common stock of Centaur Media is accounted for as an available-for-sale security under ASC 320-10, “Investments — Debt and Equity Securities.” Accordingly, changes in the fair value of Centaur Media, reflecting both changes in the stock price and changes in the foreign currency exchange rate, are included, net of income taxes, in accumulated other comprehensive income (see Note 7). In the 2014 six month period, Griffin had a pretax gain of $318 from the sale of 500,000 shares of its Centaur Media common stock, which generated total cash proceeds of $566, after transaction costs. Griffin has not sold any of its Centaur Media common stock since the sale in the 2014 six month period.

 

13



Table of Contents

 

The fair value, cost and unrealized gain of Griffin’s investment in Centaur Media are as follows:

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

 

 

 

 

 

 

Fair value

 

$

2,373

 

$

1,924

 

Cost

 

1,014

 

1,014

 

Unrealized gain

 

$

1,359

 

$

910

 

 

5.              Mortgage Loans

 

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

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

 

 

 

 

 

 

5.73%, due August 1, 2015

 

$

17,966

 

$

18,189

 

Variable rate mortgage, due October 2, 2017*

 

6,306

 

6,394

 

Variable rate mortgage, due February 1, 2019*

 

10,751

 

10,888

 

Variable rate mortgage, due August 1, 2019*

 

7,598

 

7,691

 

Variable rate mortgage, due January 27, 2020*

 

3,789

 

3,848

 

Variable rate mortgage, due September 1, 2023*

 

 

8,875

 

Variable rate mortgage, due January 2, 2025*

 

19,604

 

 

5.09%, due July 1, 2029

 

7,570

 

7,750

 

5.09%, due July 1, 2029

 

6,381

 

6,533

 

Total nonrecourse mortgages

 

$

79,965

 

$

70,168

 

 


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

 

On December 31, 2014, two subsidiaries of Griffin closed on a new nonrecourse mortgage (“the 2025 First Niagara Mortgage”) for $21,600. The 2025 First Niagara Mortgage refinanced an existing mortgage with First Niagara Bank (“First Niagara”) which was due on September 1, 2023 and was collateralized by an approximately 228,000 square foot industrial building (“4275 Fritch Drive”) in Lower Nazareth, Pennsylvania. The 2025 First Niagara Mortgage is collateralized by 4275 Fritch Drive along with an adjacent approximately 303,000 square foot industrial building (“4270 Fritch Drive”). Griffin received net proceeds of $10,891 at closing (before transaction costs), in addition to $8,859 used to refinance the existing mortgage with First Niagara.  The remaining $1,850 of loan proceeds will not be advanced until a portion of the remaining vacant space in 4270 Fritch Drive is leased. The 2025 First Niagara Mortgage has a ten-year term with monthly payments based on a twenty-five year amortization schedule. The interest rate for the 2025 First Niagara Mortgage is a floating rate of the one month LIBOR rate plus 1.95%. At the time the 2025 First Niagara Mortgage closed, Griffin entered into an interest rate swap agreement with First Niagara that, combined with an existing interest rate swap agreement with First Niagara, effectively fixes the rate of the 2025 First Niagara Mortgage at 4.43% over the mortgage loan’s ten-year term.

 

As of May 31, 2015, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgages on certain of its real estate assets. Griffin accounts for its interest rate

 

14



Table of Contents

 

swap agreements as effective cash flow hedges (see Note 3). No ineffectiveness on the cash flow hedges was recognized as of May 31, 2015 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 rates on each mortgage. None of the interest rate swap agreements contain any credit risk related contingent features. In the 2015 and 2014 six month periods, Griffin recognized losses (included in other comprehensive loss) before taxes of $727 and $526, respectively, on its interest rate swap agreements.

 

As of May 31, 2015, $1,115 was expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense. As of May 31, 2015, the net fair value of Griffin’s interest rate swap agreements was $2,465 and is included in other liabilities on Griffin’s consolidated balance sheet.

 

Griffin’s 5.73% nonrecourse mortgage loan on three industrial buildings in Tradeport with an aggregate of approximately 392,000 square feet matures on August 1, 2015 with a payment of $17,891 due on that date.  On June 9, 2015, a subsidiary of Griffin agreed to terms with 40|86 Mortgage Capital, Inc. (“40|86 Mortgage Capital”) on a nonrecourse mortgage loan of up to $18,000 (subject to certain limitations based on the loan to value percentage).  As per the terms of the proposed mortgage loan, $2,500 of the mortgage proceeds would be deposited into an escrow account that would become available to Griffin when a lease of approximately 88,000 square feet, currently on a month-to-month basis in one of the buildings that collateralizes the mortgage loan, is extended.  The proposed mortgage loan would have an interest rate of 4.33% and a fifteen year term with payments based on a thirty year amortization schedule. The mortgage proceeds would be used to refinance the mortgage loan on the three industrial buildings in Tradeport that matures on August 1, 2015. Closing on this proposed mortgage loan is subject to completion of a definitive mortgage agreement. There is no guarantee that the proposed mortgage loan with 40|86 Mortgage Capital will be completed on its current terms, or at all.

 

On June 3, 2015, a subsidiary of Griffin and Webster Bank agreed to terms on a nonrecourse mortgage loan of up to $14,100 (subject to certain limitations based on the loan to value percentage) on an approximately 280,000 square foot industrial building under construction in the Lehigh Valley (“5220 Jaindl Boulevard”) that is expected to be completed and placed in service in the 2015 third quarter.  The proposed mortgage loan with Webster Bank would have a floating interest rate of the one month LIBOR rate plus 1.65%, but Griffin would enter into an interest rate swap agreement with Webster Bank at closing to fix the rate for the entire loan term. The proposed mortgage loan with Webster Bank would have an initial funding of $11,500, with an additional $2,600 funded when the tenant that has leased approximately 196,000 square feet in 5220 Jaindl Boulevard exercises its option to lease the balance of the building or when another tenant leases the currently unleased space.  The proposed mortgage loan with Webster Bank would have a ten year term with payments based on a twenty-five year amortization schedule and is expected to close in the fiscal 2015 third quarter. Closing on this proposed mortgage loan is subject to completion of a definitive mortgage agreement. There is no guarantee that the proposed mortgage loan with Webster Bank will be completed on its current terms, or at all.

 

6.              Revolving Credit Agreement

 

Griffin has a $12,500 revolving credit line with Webster Bank (the “Webster Credit Line”) that expires May 1, 2016. The Webster Credit Line was scheduled to expire on May 1, 2015, however, prior to that date Griffin exercised its option to extend the Webster Credit Line for one year. 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.

 

15



Table of Contents

 

7.              Stockholders’ Equity

 

Per Share Results

 

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

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

May 31, 2015

 

May 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations for computation of basic and diluted per share results, net of tax

 

$

(234

)

$

(225

)

$

(942

)

$

(1,323

)

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations for computation of basic and diluted per share results, net of tax

 

 

390

 

 

118

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(234

)

$

165

 

$

(942

)

$

(1,205

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

5,150,000

 

5,147,000

 

5,150,000

 

5,147,000

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares for computation of diluted per share results

 

5,150,000

 

5,147,000

 

5,150,000

 

5,147,000

 

 


(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. Such assessment is based on income (loss) from continuing operations when net income includes discontinued operations. The incremental shares from the assumed exercise of stock options for the three months and six months ended May 31, 2015 would have been 23,000 and 19,000, respectively.  The incremental shares from the assumed exercise of stock options for the three months and six months ended May 31, 2014 would have been 12,000 and 13,000, 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 fair market value on the date approved by Griffin’s Compensation Committee. Vesting of all of Griffin’s previously issued stock options is solely based upon service requirements and does not contain market or performance conditions. Stock options issued will 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.

 

16



Table of Contents

 

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 May 31, 2015 may be exercised as stock appreciation rights.

 

The following options were granted by Griffin under the 2009 Stock Option Plan to non-employee directors either upon their initial election or their re-election to Griffin’s Board of Directors:

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

 

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

 

 

 

 

 

 

 

 

 

 

Non-employee directors

 

8,282

 

$

14.39

 

8,532

 

$

12.42

 

 

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 in the 2015 and 2014 six month periods were as follows:

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

 

 

 

 

 

 

Expected volatility

 

40.8

%

38.9

%

Risk free interest rate

 

2.0

%

2.2

%

Expected option term (in years)

 

8.5

 

8.5

 

Annual dividend yield

 

0.7

%

0.7

%

 

Activity under the 2009 Stock Option Plan is summarized as follows:

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

 

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Outstanding at beginning of period

 

222,001

 

$

30.35

 

239,677

 

$

30.35

 

Granted

 

8,282

 

$

31.38

 

8,532

 

$

28.12

 

Exercised

 

(3,134

)

$

25.53

 

(3,208

)

$

24.94

 

Forfeited

 

 

$

 

(23,000

)

$

30.27

 

Outstanding at end of period

 

227,149

 

$

30.45

 

222,001

 

$

30.35

 

 

17



Table of Contents

 

Range of Exercise
Prices

 

 

Outstanding at
May 31, 2015

 

Weighted
Avg. Exercise
Price

 

Weighted Avg.
Remaining
Contractual Life
(in years)

 

Total
Intrinsic
Value

 

$23.00-$28.00

 

14,934

 

$

25.43

 

6.7

 

$

106

 

$28.00-$32.00

 

129,140

 

$

29.06

 

5.9

 

$

446

 

$32.00-$39.00

 

83,075

 

$

33.52

 

3.4

 

$

1

 

 

 

227,149

 

$

30.45

 

5.0

 

$

553

 

 

Number of option holders at May 31, 2015

 

 

 

 

 

15

 

 

 

 

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

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

May 31, 2015

 

May 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Compensation expense - continuing operations

 

$

69

 

$

60

 

$

162

 

$

213

 

Compensation expense - discontinued operations

 

 

 

 

(130

)

Net compensation expense

 

$

69

 

$

60

 

$

162

 

$

83

 

 

 

 

 

 

 

 

 

 

 

Related tax benefit - continuing operations

 

$

23

 

$

16

 

$

41

 

$

40

 

Related tax benefit - discontinued operations

 

 

 

 

 

Net related tax benefit

 

$

23

 

$

16

 

$

41

 

$

40

 

 

As of May 31, 2015, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

Balance of Fiscal 2015

 

$

82

 

Fiscal 2016

 

$

79

 

Fiscal 2017

 

$

19

 

 

18



Table of Contents

 

Accumulated Other Comprehensive Loss

 

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

 

For the six months ended May 31, 2015:

 

 

 

 

 

Unrealized gain

 

 

 

 

 

Unrealized loss on

 

on investment in

 

 

 

 

 

cash flow hedges

 

Centaur Media

 

Total

 

Balance November 30, 2014

 

$

(1,464

)

$

629

 

$

(835

)

 

 

 

 

 

 

 

 

Other comprehensive (loss) income before reclassfications

 

(458

)

291

 

(167

)

Amounts reclassified

 

368

 

 

368

 

Net activity for other comprehensive loss

 

(90

)

291

 

201

 

Balance May 31, 2015

 

$

(1,554

)

$

920

 

$

(634

)

 

For the six months ended May 31, 2014:

 

 

 

 

 

Unrealized gain

 

Actuarial gain

 

 

 

 

 

Unrealized loss on

 

on investment in

 

on postretirement

 

 

 

 

 

cash flow hedges

 

Centaur Media

 

benefits program

 

Total

 

Balance November 30, 2013

 

$

(1,401

)

$

648

 

$

304

 

$

(449

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income before reclassifications

 

(332

)

327

 

 

(5

)

Amounts reclassified

 

317

 

(204

)

(304

)

(191

)

Net activity for other comprehensive loss

 

(15

)

123

 

(304

)

(196

)

Balance May 31, 2014

 

$

(1,416

)

$

771

 

$

 

$

(645

)

 

19



Table of Contents

 

The components of other comprehensive income (loss) are as follows:

 

 

 

For the Three Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

 

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on cash flow hedges (interest expense)

 

$

303

 

$

(112

)

$

191

 

$

253

 

$

(93

)

$

160

 

Termination of postretirement benefits program ($283, net of tax to discontinued operations, $21, net of tax to general and administrative expense)

 

 

 

 

(485

)

181

 

(304

)

Total reclassifications included in net income (loss)

 

303

 

(112

)

191

 

(232

)

88

 

(144

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for a (decrease) increase in the foreign currency exchange rate

 

(23

)

8

 

(15

)

1

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for an increase (decrease) in fair value

 

448

 

(157

)

291

 

(327

)

115

 

(212

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in fair value adjustments on Griffin’s cash flow hedges

 

(209

)

77

 

(132

)

(349

)

128

 

(221

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other changes in other comprehensive income (loss)

 

216

 

(72

)

144

 

(675

)

242

 

(433

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

$

519

 

$

(184

)

$

335

 

$

(907

)

$

330

 

$

(577

)

 

20



Table of Contents

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2015

 

May 31, 2014

 

 

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on cash flow hedges (interest expense)

 

$

584

 

$

(216

)

$

368

 

$

503

 

$

(186

)

$

317

 

Termination of postretirement benefits program ($283, net of tax to discontinued operations, $21, net of tax to general and administrative expense)

 

 

 

 

(485

)

181

 

(304

)

Realized gain on sale of Centaur Media (gain on sale)

 

 

 

 

(321

)

117

 

(204

)

Total reclassifications included in net income (loss)

 

584

 

(216

)

368

 

(303

)

112

 

(191

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for a (decrease) increase in the foreign currency exchange rate

 

(49

)

17

 

(32

)

62

 

(22

)

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for an increase in fair value

 

498

 

(175

)

323

 

441

 

(154

)

287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in fair value adjustments on Griffin’s cash flow hedges

 

(727

)

269

 

(458

)

(526

)

194

 

(332

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total change in other comprehensive income (loss)

 

(278

)

111

 

(167

)

(23

)

18

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

$

306

 

$

(105

)

$

201

 

$

(326

)

$

130

 

$

(196

)

 

Cash Dividend

 

Griffin did not declare a cash dividend in the 2015 or 2014 six month periods. During the 2015 first quarter, Griffin paid $1,030 for the cash dividend declared in the 2014 fourth quarter. During the 2014 first quarter, Griffin paid $1,029 for the cash dividend declared in the 2013 fourth quarter.

 

8.    Discontinued Operation

 

Effective January 8, 2014, in accordance with the terms of the Imperial Sale, Imperial sold its inventory and certain assets for $732 in cash and a non-interest bearing note receivable of $4,250 (the “Promissory Note”). The Promissory Note was due in two installments: $2,750 was due and paid on June 1, 2014 and $1,500 was due and paid on June 1, 2015. The Promissory Note was discounted at 7% to its present value of $4,036 at inception and was secured by an irrevocable letter of credit. Under the terms of the Imperial Sale, Griffin and Imperial agreed to indemnify Monrovia for any potential environmental liabilities relating to periods prior to the effective date of the Imperial Sale and also agreed to certain non-competition restrictions for a four-year period. Net cash of $732 was received from Monrovia in the 2014 six month period and Griffin paid $563 in severance and other expenses related to the Imperial Sale.

 

Concurrent with the Imperial Sale, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into a Lease and Option Agreement and an Addendum to such agreement (the “Imperial Lease”, and together with the Imperial Sale, the “Imperial Transaction”) with Monrovia, pursuant to which Monrovia is leasing Imperial’s Connecticut production nursery for a ten-year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease

 

21



Table of Contents

 

provides for net annual rent payable to Griffin of $500 for each of the first five years with rent for subsequent years determined in accordance with the Imperial Lease. The Imperial Lease also grants Monrovia an option to purchase most of the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period for $10,500, or $7,000 if only a certain portion of the land is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease. Accordingly, the operating results of Imperial’s growing operations are reflected as a discontinued operation in Griffin’s consolidated statements of operations for all periods presented and the assets and liabilities of the growing operations of Imperial (excluding those assets that are part of the Imperial Lease) are shown as assets and liabilities of the discontinued operation on Griffin’s consolidated balance sheets.

 

Revenue and the pretax income from Imperial’s growing operations, reflected as a discontinued operation in Griffin’s consolidated statements of operations, were as follows:

 

 

 

For the Three
Months Ended

 

For the Six
Months Ended

 

 

 

May 31, 2014

 

May 31, 2014

 

 

 

 

 

 

 

Net sales and other revenue

 

$

69

 

$

80

 

 

 

 

 

 

 

Pretax income

 

$

644

 

$

244

 

 

The pretax loss from the Imperial Sale in the 2014 six month period was as follows:

 

Consideration received from Monrovia, reflecting initial cash of $732 and note receivable of $4,036

 

$

4,768

 

Carrying value of assets sold, principally inventory

 

(4,561

)

Curtailment of employee benefit plan

 

309

 

Severance and other expenses

 

(563

)

 

 

$

(47

)

 

22



Table of Contents

 

9.              Supplemental Financial Statement Information

 

Other Assets

 

Griffin’s other assets are comprised of the following:

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

 

 

 

 

 

 

Deferred leasing costs

 

$

4,244

 

$

4,059

 

Deferred rent receivable

 

3,828

 

3,454

 

Lease receivables

 

1,502

 

1,343

 

Mortgage escrows

 

1,373

 

1,073

 

Deferred financing costs

 

775

 

727

 

Prepaid expenses

 

523

 

2,133

 

Intangible assets

 

416

 

506

 

Property and equipment, net

 

190

 

230

 

Other

 

575

 

921

 

 

 

$

13,426

 

$

14,446

 

 

Accounts Payable and Accrued Liabilities

 

Griffin’s accounts payable and accrued liabilities are comprised of the following:

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

 

 

 

 

 

 

Accrued construction costs and retainage

 

$

4,677

 

$

1,910

 

Trade payables

 

724

 

670

 

Accrued salaries, wages and other compensation

 

374

 

242

 

Accrued interest payable

 

356

 

312

 

Other

 

184

 

371

 

 

 

$

6,315

 

$

3,505

 

 

Other Liabilities

 

Griffin’s other liabilities are comprised of the following:

 

 

 

May 31, 2015

 

Nov. 30, 2014

 

 

 

 

 

 

 

Deferred compensation

 

$

3,983

 

$

3,784

 

Interest rate swap agreements

 

2,465

 

2,330

 

Prepaid rent from tenants

 

847

 

690

 

Conditional asset retirement obligations

 

288

 

288

 

Security deposits

 

273

 

224

 

Other

 

104

 

122

 

 

 

$

7,960

 

$

7,438

 

 

23



Table of Contents

 

Supplemental Cash Flow Information

 

Increases of $449 and $503 in the 2015 and 2014 six month periods, respectively, in Griffin’s Investment in Centaur Media reflect the mark to market adjustments of this investment and did not affect Griffin’s cash. In the 2014 six month period, Griffin sold 500,000 shares of its Centaur Media common stock (see Note 4).

 

Accounts payable and accrued liabilities related to additions to real estate assets increased by $2,767 and $1,617 in the 2015 six month period and 2014 six month period, respectively.

 

Interest payments were as follows:

 

For the Three Months Ended,

 

For the Six Months Ended,

 

May 31, 2015

 

May 31, 2014

 

May 31, 2015

 

May 31, 2014

 

 

 

 

 

 

 

 

 

$

 1,053

 

$

955

 

$

2,049

 

$

1,930

 

 

Income Taxes

 

Griffin’s effective income tax rate on continuing operations was 36.3% for the 2015 six month period as compared to 40.5% for the 2014 six month period. The effective tax rate in the 2015 six month period is based on management’s projections for the balance of the year. To the extent that actual results differ from current projections, the effective income tax rate may change.

 

As of May 31, 2015, Griffin’s consolidated balance sheet includes a net deferred tax asset of $6,428. Although Griffin has incurred a cumulative pretax loss from continuing operations (excluding nonrecurring items) for the three fiscal years ended November 30, 2014, management has concluded that a valuation allowance against its net deferred tax assets is not required.

 

10.       Commitments and Contingencies

 

As of May 31, 2015, Griffin had committed purchase obligations of approximately $10,627, principally for the construction of 5220 Jaindl Boulevard and for building and tenant improvements in other Griffin properties.

 

On June 27, 2014, Griffin entered into an agreement to sell approximately 29 acres of an approximately 45 acre land parcel of the undeveloped land in Griffin Center for a purchase price of a minimum of $3,250, subject to adjustment based on the actual number of acres conveyed. If this sale were to be completed, the development potential of the remaining unsold acreage of the land parcel may be severely limited. Completion of this transaction is subject to significant contingencies, including due diligence by the purchaser which does not expire until fiscal 2016. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

Griffin is involved, as a defendant, in various litigation matters arising in the ordinary course of business. In the opinion of management, based on the advice of legal counsel, the ultimate liability, if any, with respect to these matters is not expected to be material, individually or in the aggregate, to Griffin’s consolidated financial position, results of operations or cash flows.

 

24



Table of Contents

 

11.       Subsequent Events

 

See Note 5 for disclosure of subsequent events related to Griffin’s nonrecourse mortgage loans.

 

25



Table of Contents

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

On May 13, 2015, Griffin Land & Nurseries, Inc. changed its name to Griffin Industrial Realty, Inc. (“Griffin”) to reflect better Griffin’s ongoing real estate business that is principally engaged in developing, managing and leasing industrial and, to a lesser extent, commercial properties. Griffin’s unaudited consolidated financial statements reflect its real estate business after Griffin sold its landscape nursery business last year (see below). The significant accounting policies and methods used in the preparation of Griffin’s unaudited consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q are consistent with those used in the preparation of Griffin’s audited consolidated financial statements for its fiscal year ended November 30, 2014 (“fiscal 2014”) included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2015.

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“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, valuation of derivative instruments and the estimated costs to complete required offsite improvements. 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. The significant accounting estimates used by Griffin in the preparation of its financial statements for the three months and six months ended May 31, 2015 are consistent with those used by Griffin to prepare its consolidated financial statements for fiscal 2014.

 

Effective January 8, 2014, Griffin completed the sale (the “Imperial Sale”) of the growing operations of its wholly-owned subsidiary in the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”) to Monrovia Connecticut LLC (“Monrovia”) and entered into a lease of Imperial’s Connecticut farm to Monrovia (the “Imperial Lease”, and together with the Imperial Sale, the “Imperial Transaction”). Accordingly, Imperial’s growing operations are reflected as a discontinued operation in Griffin’s consolidated financial statements for all periods presented.

 

Summary

 

For the three months ended May 31, 2015 (the “2015 second quarter”), Griffin incurred a loss from continuing operations and a net loss of approximately $0.2 million. For the three months ended May 31, 2014 (the “2014 second quarter”), Griffin incurred a loss from continuing operations of approximately $0.2 million, income from discontinued operations of approximately $0.4 million and net income of approximately $0.2 million. Griffin’s loss from continuing operations was essentially unchanged in the 2015 second quarter as compared to the 2014 second quarter as an increase in operating income in the

 

26



Table of Contents

 

2015 second quarter as compared to the 2014 second quarter was offset by higher interest expense, lower investment income and the effect of a lower effective income tax benefit rate in the 2015 second quarter as compared to the 2014 second quarter. The increase in operating income in the 2015 second quarter as compared to the 2014 second quarter was due principally to an increase in profit from leasing activities (rental revenue less operating expenses of rental properties), as more space was under lease in the 2015 second quarter than the 2014 second quarter, partially offset by higher depreciation and amortization expense in the 2015 second quarter as compared to the 2014 second quarter.

 

For the six months ended May 31, 2015 (the “2015 six month period”), Griffin incurred a loss from continuing operations and a net loss of approximately $0.9 million. For the six months ended May 31, 2014 (the “2014 six month period”), Griffin incurred a loss from continuing operations of approximately $1.3 million, income from discontinued operations of approximately $0.1 million and a net loss of approximately $1.2 million. Griffin’s lower loss from continuing operations in the 2015 six month period as compared to the 2014 six month period principally reflects operating income in the 2015 six month period as compared to an operating loss in the 2014 six month period, partially offset by higher interest expense and lower investment income in the 2015 six month period as compared to the 2014 six month period.  Griffin also benefitted from a gain on the sale of a portion of Griffin’s common stock in Centaur Media plc (“Centaur Media”) in the 2014 six month period (Griffin did not sell any of its Centaur Media common stock in the 2015 six month period). The increased operating results in the 2015 six month period as compared to the 2014 six month period principally reflect a higher gain on property sales and increased profit from leasing activities in the 2015 six month period as compared to the 2014 six month period, partially offset by higher depreciation and amortization expense in the 2015 six month period as compared to the 2014 six month period.

 

Results of Operations

 

2015 Second Quarter Compared to 2014 Second Quarter

 

Total revenue increased from approximately $5.3 million in the 2014 second quarter to approximately $6.2 million in the 2015 second quarter, reflecting an increase of approximately $0.9 million in rental revenue in the 2015 second quarter as compared to the 2014 second quarter. Rental revenue increased from approximately $5.1 million in the 2014 second quarter to approximately $6.0 million in the 2015 second quarter and revenue from property sales was approximately $0.2 million in both the 2014 and 2015 second quarters. The increase in rental revenue principally reflects: (a) an increase of approximately $1.0 million from leasing previously vacant space; partially offset by (b) a decrease of approximately $0.2 million from leases that expired and were not renewed.

 

A summary of the square footage of the buildings in Griffin’s real estate portfolio is as follows:

 

 

 

Total
Square Footage

 

Leased Square
Footage

 

Percentage
Leased

 

As of May 31, 2014

 

2,462,000

 

1,950,000

 

79

%

As of November 30, 2014

 

2,765,000

 

2,317,000

 

84

%

As of May 31, 2015

 

2,765,000

 

2,423,000

 

88

%

 

27



Table of Contents

 

Note: Not reflected in the total square footage or leased square footage in the table above is an approximately 280,000 square foot building currently under construction in Lehigh Valley Tradeport II (see Liquidity and Capital Resources). In the 2015 six month period, Griffin entered into a five-year lease for approximately 196,000 square feet in this building that includes a tenant option to lease the entire building.

 

The increase in total square footage subsequent to May 31, 2014 reflects an approximately 303,000 square foot industrial building (“4270 Fritch Drive”) completed and placed in service in the fiscal 2014 third quarter. That building, located in the Lehigh Valley of Pennsylvania, is adjacent to an approximately 228,000 square foot fully leased industrial building (“4275 Fritch Drive”). These two buildings combine to form Lehigh Valley Tradeport I, which was developed on land acquired by Griffin several years ago. A lease for approximately 201,000 square feet in 4270 Fritch Drive was signed in the fiscal 2014 fourth quarter, with tenant occupancy at the beginning of the 2015 second quarter. The reported overall vacancy rate in the Lehigh Valley continued to remain low through the first six months of fiscal 2015.

 

The increase of approximately 106,000 square feet in space leased as of May 31, 2015 as compared to November 30, 2014 reflects several new leases aggregating approximately 125,000 square feet, mostly for previously vacant industrial/warehouse space in New England Tradeport (“Tradeport”), Griffin’s industrial park located in Windsor and East Granby, Connecticut. A lease of approximately 88,000 square feet at 754 Rainbow Road in Tradeport, including approximately 16,000 square feet of previously vacant space that was added to the lease in fiscal 2015, is on a month-to-month basis, but is expected to become a long-term lease of approximately 88,000 square feet. In addition to the leasing of vacant space, Griffin extended several leases aggregating approximately 168,000 square feet that included approximately 127,000 square feet of industrial/warehouse space in Tradeport and approximately 41,000 square feet of office/flex space in Griffin Center and Griffin Center South. Two leases aggregating approximately 19,000 square feet of office/flex space in Griffin Center South expired and were not renewed. Activity by prospective tenants where Griffin’s Connecticut properties are located (the north submarket of Hartford) was muted during most of fiscal 2014; however, there was an increase in inquiries from prospective tenants, mostly for industrial/warehouse space, in the latter part of fiscal 2014 that continued into the first six months of fiscal 2015. There is no guarantee that an increase in inquiries by prospective tenants or an active real estate market will result in leasing space that was vacant as of May 31, 2015.

 

Revenue from property sales in both the 2015 and 2014 second quarters reflects the recognition of revenue related to the sale of approximately 90 acres of undeveloped land in Windsor, Connecticut (the “Windsor Land Sale”) for cash proceeds of approximately $9.0 million (before transaction expenses) that closed in the fiscal year ended November 30, 2013 (“fiscal 2013”). Under the terms of the Windsor Land Sale, Griffin is required to construct roadways that will connect the land sold to existing town roadways. Accordingly, because of Griffin’s continuing involvement with the land that was sold, the Windsor Land Sale is being accounted for under the percentage of completion method. From the closing of the Windsor Land Sale through the end of the 2015 second quarter, Griffin has recognized revenue of approximately $6.8 million from the Windsor Land Sale. The balance of the revenue from the Windsor Land Sale, approximately $2.1 million, will be recognized as the remaining costs of the required roadway construction are incurred, which is expected to be in the second half of fiscal 2015. Property sales occur

 

28