10-Q 1 grif-20160229x10q.htm 10-Q grif_Current Folio_10Q

 

 

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 29, 2016

 

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   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

 

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 April 1, 2016: 5,152,708

 

 

 

 


 

GRIFFIN INDUSTRIAL REALTY, INC.

 

FORM 10-Q

 

Index

 

 

 

 

 

PART I  -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) as of February 29, 2016 and November 30, 2015

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) for the Three Months Ended February 29, 2016 and February 28, 2015

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss (unaudited) for the Three Months Ended February 29, 2016 and February 28, 2015

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three Months Ended February 29, 2016 and February 28, 2015

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended February 29, 2016 and February 28, 2015

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8-19

 

 

 

 

 

ITEM 2

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

20-26

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

26 

 

 

 

 

 

ITEM 4

Controls and Procedures

26-27

 

 

 

 

PART II - 

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

28 

 

 

 

 

 

ITEMS 2-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

28-31

 

 

 

 

 

 

SIGNATURES

32 

 

 

 

 


 

PART I  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Feb. 29, 2016

 

Nov. 30, 2015

 

ASSETS

 

 

 

 

 

 

 

Real estate assets at cost, net

 

$

166,912

 

$

166,455

 

Real estate held for sale

 

 

1,598

 

 

1,418

 

Cash and cash equivalents

 

 

19,752

 

 

18,271

 

Deferred income taxes

 

 

6,466

 

 

5,838

 

Mortgage proceeds held in escrow

 

 

1,600

 

 

1,600

 

Available for sale securities - Investment in Centaur Media plc

 

 

1,577

 

 

1,970

 

Other assets

 

 

13,651

 

 

13,749

 

Total assets

 

$

211,556

 

$

209,301

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Mortgage loans

 

$

94,248

 

$

90,436

 

Deferred revenue

 

 

10,301

 

 

10,790

 

Accounts payable and accrued liabilities

 

 

4,022

 

 

3,348

 

Dividend payable

 

 

 —

 

 

1,546

 

Other liabilities

 

 

9,624

 

 

8,372

 

Total liabilities

 

 

118,195

 

 

114,492

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

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

 

 

55

 

 

55

 

Additional paid-in capital

 

 

108,259

 

 

108,188

 

Retained earnings

 

 

782

 

 

1,117

 

Accumulated other comprehensive loss, net of tax

 

 

(2,269)

 

 

(1,085)

 

Treasury stock, at cost, 388,321 shares

 

 

(13,466)

 

 

(13,466)

 

Total stockholders' equity

 

 

93,361

 

 

94,809

 

Total liabilities and stockholders' equity

 

$

211,556

 

$

209,301

 

 

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. 29, 2016

    

Feb. 28, 2015

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

6,682

 

$

5,407

 

Revenue from property sales

 

 

 —

 

 

826

 

Total revenue

 

 

6,682

 

 

6,233

 

 

 

 

 

 

 

 

 

Operating expenses of rental properties

 

 

2,166

 

 

2,413

 

Depreciation and amortization expense

 

 

2,145

 

 

1,818

 

Costs related to property sales

 

 

 —

 

 

204

 

General and administrative expenses

 

 

1,567

 

 

2,011

 

Total expenses

 

 

5,878

 

 

6,446

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

804

 

 

(213)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,091)

 

 

(927)

 

Investment income

 

 

7

 

 

34

 

Loss before income tax (provision) benefit

 

 

(280)

 

 

(1,106)

 

Income tax (provision) benefit

 

 

(55)

 

 

398

 

Net loss

 

$

(335)

 

$

(708)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

 

$

(0.07)

 

$

(0.14)

 

 

 

 

 

 

 

 

 

Diluted net loss per common share

 

$

(0.07)

 

$

(0.14)

 

 

See Notes to Consolidated Financial Statements.

4


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Comprehensive Loss

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

    

Feb. 29, 2016

    

Feb. 28, 2015

 

 

 

 

 

 

 

 

 

Net loss

 

$

(335)

 

$

(708)

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

Reclassifications included in net loss

 

 

213

 

 

177

 

(Decrease) increase in fair value of Centaur Media plc

 

 

(256)

 

 

15

 

Unrealized loss on cash flow hedges

 

 

(1,141)

 

 

(326)

 

Total other comprehensive loss, net of tax

 

 

(1,184)

 

 

(134)

 

Total comprehensive loss

 

$

(1,519)

 

$

(842)

 

 

See Notes to Consolidated Financial Statements.

5


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended February 29, 2016 and February 28, 2015

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of

 

 

 

 

Additional

 

 

 

 

Accumulated Other

 

 

 

 

 

 

 

 

Common Stock

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

    

Issued

    

Stock

    

Capital

    

Earnings

    

Loss

    

Stock

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 30, 2014

 

5,537,895

 

$

55

 

$

107,887

 

$

2,238

 

$

(835)

 

$

(13,466)

 

$

95,879

Stock-based compensation

 

 —

 

 

 —

 

 

93

 

 

 —

 

 

 —

 

 

 —

 

 

93

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(708)

 

 

 —

 

 

 —

 

 

(708)

Total other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(134)

 

 

 —

 

 

(134)

Balance at February 28, 2015

 

5,537,895

 

$

55

 

$

107,980

 

$

1,530

 

$

(969)

 

$

(13,466)

 

$

95,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 30, 2015

 

5,541,029

 

$

55

 

$

108,188

 

$

1,117

 

$

(1,085)

 

$

(13,466)

 

$

94,809

Stock-based compensation

 

 —

 

 

 —

 

 

71

 

 

 —

 

 

 —

 

 

 —

 

 

71

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(335)

 

 

 —

 

 

 —

 

 

(335)

Total other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,184)

 

 

 —

 

 

(1,184)

Balance at February 29, 2016

 

5,541,029

 

$

55

 

$

108,259

 

$

782

 

$

(2,269)

 

$

(13,466)

 

$

93,361

 

 

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. 29, 2016

    

Feb. 28, 2015

 

Operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(335)

 

$

(708)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,145

 

 

1,818

 

Gain on sales of properties

 

 

 —

 

 

(622)

 

Deferred income taxes

 

 

55

 

 

(398)

 

Stock-based compensation expense

 

 

71

 

 

93

 

Amortization of debt issuance costs

 

 

53

 

 

64

 

Accretion of discount on note receivable

 

 

 —

 

 

(25)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Other assets

 

 

314

 

 

805

 

Accounts payable and accrued liabilities

 

 

86

 

 

600

 

Deferred revenue

 

 

(489)

 

 

434

 

Other liabilities

 

 

(221)

 

 

200

 

Net cash provided by operating activities

 

 

1,679

 

 

2,261

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Additions to real estate assets

 

 

(1,933)

 

 

(4,545)

 

Deferred leasing costs and other

 

 

(434)

 

 

(461)

 

Net cash used in investing activities

 

 

(2,367)

 

 

(5,006)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Proceeds from debt

 

 

4,450

 

 

10,891

 

Dividends paid to stockholders

 

 

(1,546)

 

 

(1,030)

 

Payments of debt

 

 

(638)

 

 

(515)

 

Debt issuance costs

 

 

(97)

 

 

(143)

 

Net cash provided by financing activities

 

 

2,169

 

 

9,203

 

Net increase in cash and cash equivalents

 

 

1,481

 

 

6,458

 

Cash and cash equivalents at beginning of period

 

 

18,271

 

 

17,059

 

Cash and cash equivalents at end of period

 

$

19,752

 

$

23,517

 

 

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 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. 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, 2015 (“fiscal 2015”) included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") on February 12, 2016. 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, 2015 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 related 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 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 29, 2016, 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, “Derivatives and Hedging,” (“ASC 815”) as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. ASC 815 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 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 29, 2016 (the “2016 first quarter”) are not necessarily indicative of the results to be expected for the full year. The three months ended February 28, 2015 are referred to herein as the “2015 first quarter.” Certain amounts from the 2015 first quarter have been reclassified to conform to the current presentation.

 

Prior to May 13, 2015, Griffin was known as Griffin Land & Nurseries, Inc. On May 13, 2015, Griffin changed its name to better reflect its ongoing real estate business after Griffin sold the growing operations of its wholly-owned

8


 

subsidiary in the landscape nursery business, Imperial Nurseries, Inc., to Monrovia Connecticut LLC in the fiscal 2014 first quarter and entered into a lease of Imperial’s Connecticut farm to Monrovia.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update 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 will also be allowed. Griffin is evaluating the impact that the application of this Update will have on its consolidated financial statements.

 

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, "Financial Instruments - Overall," which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). This Update also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This Update also eliminates the requirement for an entity to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. In addition, entities must assess the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. This Update will be effective for Griffin in fiscal 2019. Early adoption is permitted for certain provisions. Upon adoption, changes in the fair value of Griffin's available-for-sale securities will be recognized through net income.

 

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, "Interest-Imputation of Interest:  Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting," which addresses line-of-credit arrangements that were omitted from Accounting Standards Update No. 2015-03 (see below). This Update states that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing those costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this Update is not expected to have a material impact on Griffin's financial statements.

 

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. This Update must be applied on a retrospective basis and will be effective for Griffin in fiscal 2017. Early adoption is permitted. The adoption of this Update 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 2019 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


 

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 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 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 2016 first quarter, 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 29, 2016

 

 

    

Quoted Prices in

    

Significant

    

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

1,577

 

$

 —

 

$

 —

 

Interest rate swap liabilities

 

$

 —

 

$

4,240

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2015

 

 

    

Quoted Prices in

    

Significant

    

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

1,970

 

$

 —

 

$

 —

 

Interest rate swap liabilities

 

$

 —

 

$

2,766

 

$

 —

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

February 29, 2016

 

November 30, 2015

 

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

    

Level

    

Value

    

Fair Value

    

Value

    

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

19,752

 

$

19,752

 

$

18,271

 

$

18,271

 

Marketable equity securities

 

1

 

 

1,577

 

 

1,577

 

 

1,970

 

 

1,970

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

 

2

 

$

94,248

 

$

95,834

 

$

90,436

 

$

91,406

 

Interest rate swaps

 

2

 

 

4,240

 

 

4,240

 

 

2,766

 

 

2,766

 

 

10


 

The amounts included in the financial statements for cash and cash equivalents, 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.

 

3.    Real Estate Assets

 

Real estate assets, net consist of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

    

Useful Lives

    

Feb. 29, 2016

    

Nov. 30, 2015

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

 

$

17,977

 

$

18,157

 

Land improvements

 

10 to 30 years

 

 

22,518

 

 

22,440

 

Buildings and improvements

 

10 to 40 years

 

 

154,423

 

 

149,111

 

Tenant improvements

 

Shorter of useful life or terms of related lease

 

 

21,173

 

 

19,611

 

Machinery and equipment

 

3 to 20 years

 

 

11,810

 

 

11,810

 

Construction in progress

 

 

 

 

5,799

 

 

10,240

 

Development costs

 

 

 

 

15,868

 

 

15,870

 

 

 

 

 

 

249,568

 

 

247,239

 

Accumulated depreciation

 

 

 

 

(82,656)

 

 

(80,784)

 

 

 

 

 

$

166,912

 

$

166,455

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

    

Feb. 29, 2016

    

Feb. 28, 2015

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

1,884

 

$

1,550

 

 

 

 

 

 

 

 

 

Capitalized interest

 

$

84

 

$

163

 

 

In the fiscal 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 were each required to construct roadways connecting the land parcel sold with existing town roads. The roads constructed by the buyer and the road being constructed by Griffin will become new town roads, thereby 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 land sold, allocated master planning costs and the cost of road construction.

 

As of February 29, 2016, approximately 92% of the total costs related to the Windsor Land Sale have been incurred; therefore, from the date of the Windsor Land Sale through February 29, 2016, approximately 92% of the total revenue and pretax gain on the sale have been recognized in Griffin's consolidated statements of operations. Griffin did not incur any costs in the 2016 first quarter from the Windsor Land Sale, therefore, Griffin did not recognize any associated revenue in the 2016 first quarter. Griffin's consolidated statements of operations for the 2015 first quarter included revenue of $826 and a pretax gain of $622 from the Windsor Land Sale. Through November 30, 2015, Griffin's

11


 

consolidated statements of operations included total revenue of $8,256 and a total pretax gain of $6,228 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 fiscal 2016. Deferred revenue on Griffin's consolidated balance sheet as of February 29, 2016, includes $712 related to the Windsor Land Sale that will be recognized as the remaining costs are incurred. The total pretax gain on the Windsor Land Sale is expected to be $6,765 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:

 

 

 

 

 

 

 

 

 

 

    

Feb. 29, 2016

    

Nov. 30, 2015

 

 

 

 

 

 

 

 

 

Land

 

$

258

 

$

78

 

Development costs

 

 

1,340

 

 

1,340

 

 

 

$

1,598

 

$

1,418

 

 

 

4.    Investment in Centaur Media plc

 

As of February 29, 2016, 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, “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 loss (see Note 7). Griffin did not sell any of its Centaur Media common stock in the 2016 first quarter or in the 2015 first quarter.

 

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

 

 

 

 

 

 

 

 

 

 

    

Feb. 29, 2016

    

Nov. 30, 2015

 

 

 

 

 

 

 

 

 

Fair value

 

$

1,577

 

$

1,970

 

Cost

 

 

1,014

 

 

1,014

 

Unrealized gain

 

$

563

 

$

956

 

 

 

 

 

5.    Mortgage Loans

 

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

 

 

 

 

 

 

 

 

 

 

    

Feb. 29, 2016

    

Nov. 30, 2015

 

 

 

 

 

 

 

 

 

Variable rate mortgage, due October 2, 2017 *

 

$

6,172

 

$

6,217

 

Variable rate mortgage, due February 1, 2019 *

 

 

10,537

 

 

10,610

 

Variable rate mortgage, due August 1, 2019 *

 

 

7,452

 

 

7,501

 

Variable rate mortgage, due January 27, 2020 *

 

 

3,699

 

 

3,729

 

Variable rate mortgage, due January 2, 2025 *

 

 

21,120

 

 

19,385

 

Variable rate mortgage, due September 1, 2025 *

 

 

13,979

 

 

11,457

 

5.09%, due July 1, 2029

 

 

7,291

 

 

7,385

 

5.09%, due July 1, 2029

 

 

6,146

 

 

6,226

 

4.33%, due August 1, 2030

 

 

17,852

 

 

17,926

 

Total nonrecourse mortgage loans

 

$

94,248

 

$

90,436

 


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

 

12


 

On December 10, 2015, Griffin received proceeds (the "Webster Earn-Out") of $2,600 related to the mortgage obtained by one of its subsidiaries with Webster Bank (the "2015 Webster Mortgage") on its property at 5220 Jaindl Boulevard ("5220 Jaindl Boulevard"), an approximately 280,000 square foot industrial/warehouse building in the Lehigh Valley of Pennsylvania. The 2015 Webster Mortgage closed on September 1, 2015, at which time initial proceeds of $11,500 (before transaction costs) were received. At the time of the mortgage closing, Griffin had leased approximately 196,000 square feet of 5220 Jaindl Boulevard. The Webster Earn-Out was subsequently received by Griffin when the tenant that leased that space exercised its option to lease the balance of the building. Griffin agreed that it would enter into a master lease with its subsidiary that owns 5220 Jaindl Boulevard should the lease at 5220 Jaindl Boulevard expire and not be renewed. The master lease would be co-terminus with the 2015 Webster Mortgage. The 2015 Webster Mortgage has a ten year term with monthly payments based on a twenty-five year amortization schedule. The interest rate for the 2015 Webster Mortgage is a floating rate of the one month LIBOR rate plus 1.65%. At the time the 2015 Webster Mortgage closed, Griffin also entered into an interest rate swap agreement with Webster Bank for a notional principal amount of $11,500 at inception to fix the interest rate at 3.77% on the initial funds advanced under the 2015 Webster Mortgage. At the time the Webster Earn-Out was received, Griffin entered into another interest rate swap agreement with Webster Bank for a notional principal amount of $2,600 to fix the interest rate on the Webster Earn-Out at 3.67%. The two interest rate swap agreements effectively fix the interest rate on the 2015 Webster Mortgage at 3.75% over the remainder of the mortgage loan’s ten year term.

 

On December 11, 2015, Griffin received proceeds (the "First Niagara Earn-Out") of $1,850 related to the mortgage obtained by two of its subsidiaries with First Niagara Bank ("the 2025 First Niagara Mortgage") on its properties at 4270 Fritch Drive ("4270 Fritch Drive") and 4275 Fritch Drive ("4275 Fritch Drive"). The 2025 First Niagara Mortgage closed on December 31, 2014, at which time proceeds of $10,891 (before transaction costs) were received, in addition to $8,859 used to refinance the existing mortgage on 4275 Fritch Drive with First Niagara Bank. The 2025 First Niagara Mortgage is collateralized by 4270 Fritch Drive, an approximately 303,000 square foot industrial/warehouse building, and 4275 Fritch Drive, an adjacent approximately 228,000 square foot industrial/warehouse building in Lower Nazareth, Pennsylvania. At the time of the mortgage closing, approximately 201,000 square feet of 4270 Fritch Drive was leased. The First Niagara Earn-Out was subsequently received by Griffin when the remaining vacant space of approximately 102,000 square feet was leased. Griffin agreed to enter into a master lease with its subsidiaries that own 4270 and 4275 Fritch Drive in order to maintain a minimum net rent equal to the debt service on the 2025 First Niagara Mortgage. The master lease would be co-terminus with the 2025 First Niagara Mortgage. 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 Bank that, combined with an existing interest rate swap agreement with First Niagara Bank, effectively fixed the rate of the 2025 First Niagara Mortgage at 4.43% over the mortgage loan’s ten year term. At the time the First Niagara Earn-Out was received, Griffin entered into another interest rate swap agreement with First Niagara Bank for a notional principal amount of $1,850 to fix the interest rate on the First Niagara Earn-Out at 3.88%. The combination of the three interest rate swap agreements effectively fixes the interest rate on the 2025 First Niagara Mortgage at 4.39% over the remainder of the mortgage loan’s ten year term.

 

On July 29, 2015, a subsidiary of Griffin closed on a new nonrecourse mortgage with 40|86 Mortgage Capital, Inc. ("the 40|86 Mortgage") for $18,000. The 40|86 Mortgage refinanced an existing 5.73% nonrecourse mortgage which was due on August 1, 2015 and was collateralized by three industrial buildings totaling approximately 392,000 square feet ("75 International Drive," "754 Rainbow Road" and "758 Rainbow Road") in New England Tradeport, Griffin’s industrial park located in Windsor and East Granby, Connecticut. The 40|86 Mortgage is collateralized by the same three properties. Griffin received proceeds of $14,875 at closing (before transaction costs), which were applied to the payoff of the maturing 5.73% nonrecourse mortgage of $17,891. The remaining $3,125 of loan proceeds was placed in escrow at closing. In the fiscal 2015 fourth quarter, as per the terms of the 40|86 Mortgage, $2,500 of the escrowed proceeds was released to Griffin when the tenant that was leasing approximately 88,000 square feet on a month-to-month basis in 754 Rainbow Road extended into a long-term lease for that space and $25 of the escrowed proceeds was also released to Griffin upon renewal of insurance coverage on the mortgaged properties. The remaining $600 of mortgage proceeds deposited into escrow at closing was released to Griffin subsequent to the end of the 2016 first quarter when tenant improvement work for the full building tenant in 758 Rainbow Road was completed. The 40|86 Mortgage has a fifteen year term with monthly payments based on a thirty year amortization schedule. The interest rate for the 40|86 Mortgage is 4.33%.

 

13


 

As of February 29, 2016, 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 swap agreements as effective cash flow hedges (see Note 2). No ineffectiveness on the cash flow hedges was recognized as of February 29, 2016 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 2016 and 2015 first quarters, Griffin recognized losses (included in other comprehensive loss) before taxes of $1,812 and $518, respectively, on its interest rate swap agreements. As of February 29, 2016, $1,231 was expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense. As of February 29, 2016, the net fair value of Griffin’s interest rate swap agreements was $4,240 and is included in other liabilities on Griffin’s consolidated balance sheet.

 

 

6.     Revolving Credit Agreement

 

Griffin has a $12,500 revolving credit line with Webster Bank (the “Webster Credit Line”) that expires May 1, 2016. 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. Griffin expects to seek renewal of the Webster Credit Line when it expires.

 

The Webster Credit Line secures certain unused standby letters of credit aggregating $4,117 that are related to Griffin's development activities.

 

7.    Stockholders’ Equity

 

Per Share Results

 

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

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

Feb. 29, 2016

    

Feb. 28, 2015

 

 

 

 

 

 

 

 

 

Net loss

 

$

(335)

 

$

(708)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

 

5,153,000

 

 

5,150,000

 

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

 

 

 —

 

 

 —

 

Adjusted weighted average shares for computation of diluted per share results

 

 

5,153,000

 

 

5,150,000

 


(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 three month periods ended February 29, 2016 and February 28, 2015 would have been 1,000 and 18,000, 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. Stock options issued to

14


 

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 29, 2016 may be exercised as stock appreciation rights.

 

 

 

 

 

Number of option holders at February 29, 2016

      

15

 

 

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

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

 

Feb. 29, 2016

 

Feb. 28, 2015

 

 

 

 

 

 

 

 

 

Net compensation expense

 

$

71

 

$

93

 

 

 

 

 

 

 

 

 

Net related tax benefit

 

$

12

 

$

18

 

 

As of February 29, 2016, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

 

 

 

 

 

Balance of Fiscal 2016

    

$

42

 

Fiscal 2017

 

$

19

 

 

There were no options granted, exercised or forfeited in the 2016 and 2015 first quarters. As of February 29, 2016, there were 225,727 options outstanding with a weighted average exercise price of $30.47. As of February 28, 2015, there were 222,001 options outstanding with a weighted average exercise price of $30.35.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted Avg.

    

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

Range of Exercise Prices for

 

Outstanding at

 

Weighted Avg.

 

Contractual Life

 

Total Intrinsic

 

Vested and Nonvested Options

 

February 29, 2016

 

Exercise Price

 

(in years)

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

$23.00 - $28.00

 

14,934

 

$

25.43

 

5.9

 

$

 —

 

$28.00 - $32.00

 

127,718

 

$

29.07

 

5.2

 

 

 —

 

$32.00 - $39.00

 

83,075

 

$

33.52

 

2.6

 

 

 —

 

 

 

225,727

 

$

30.47

 

4.3

 

$

 —

 

 

15


 

Accumulated Other Comprehensive Loss

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended Feb. 29, 2016

 

 

 

 

 

 

Unrealized gain

 

 

 

 

 

 

Unrealized loss on

 

on investment in

 

 

 

 

 

    

cash flow hedges

    

Centaur Media

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

Balance November 30, 2015

 

$

(1,744)

 

$

659

 

$

(1,085)

 

Other comprehensive loss before reclassifications

 

 

(1,141)

 

 

(256)

 

 

(1,397)

 

Amounts reclassified

 

 

213

 

 

 

 

213

 

Net activity for other comprehensive loss

 

 

(928)

 

 

(256)

 

 

(1,184)

 

Balance February 29, 2016

 

$

(2,672)

 

$

403

 

$

(2,269)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended Feb. 28, 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 reclassifications

 

 

(326)

 

 

15

 

 

(311)

 

Amounts reclassified

 

 

177

 

 

 —

 

 

177

 

Net activity for other comprehensive loss

 

 

(149)

 

 

15

 

 

(134)

 

Balance February 28, 2015

 

$

(1,613)

 

$

644

 

$

(969)

 

 

The components of other comprehensive loss are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

February 29, 2016

 

February 28, 2015

 

 

 

 

 

 

Tax

 

 

 

 

 

 

 

Tax

 

 

 

 

 

 

 

 

 

(Expense)

 

Net-of

 

 

 

 

(Expense)

 

Net-of

 

 

   

Pre-Tax

    

Benefit

    

Tax

    

Pre-Tax

    

Benefit

    

Tax

 

Reclassifications included in net loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on cash flow hedges (interest expense)

 

$

338

 

$

(125)

 

$

213

 

$

281

 

$

(104)

 

$

177

 

Total reclassifications included in net loss

 

 

338

 

 

(125)

 

 

213

 

 

281

 

 

(104)

 

 

177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(128)

 

 

45

 

 

(83)

 

 

(26)

 

 

9

 

 

(17)

 

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

 

 

(265)

 

 

92

 

 

(173)

 

 

50

 

 

(18)

 

 

32

 

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

 

 

(1,812)

 

 

671

 

 

(1,141)

 

 

(518)

 

 

192

 

 

(326)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other changes in other comprehensive loss

 

 

(2,205)

 

 

808

 

 

(1,397)

 

 

(494)

 

 

183

 

 

(311)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

$

(1,867)

 

$

683

 

$

(1,184)

 

$

(213)

 

$

79