grif_Current Folio

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 May 31, 2018

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

FOR THE TRANSITION PERIOD FROM TO

Commission File No. 1-12879

GRIFFIN INDUSTRIAL REALTY, INC.

(Exact name of registrant as specified in its charter)


Delaware		06-0868496
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

641 Lexington Avenue, New York, New York		10022
(Address of principal executive offices)		(Zip Code)

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

______________________________________________________________________________________

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

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

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

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


Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐

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

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

Number of shares of Common Stock outstanding at June 29, 2018: 5,028,608

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, 2018		Nov. 30, 2017
ASSETS
Real estate assets at cost, net	$	205,114	$	196,740
Cash and cash equivalents		28,778		30,068
Real estate assets held for sale		1,217		1,932
Deferred income taxes		1,313		1,904
Other assets		19,009		18,393
Total assets	$	255,431	$	249,037

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans, net of debt issuance costs	$	133,965	$	129,203
Deferred revenue		9,836		11,818
Accounts payable and accrued liabilities		8,596		4,991
Dividend payable		—		2,000
Other liabilities		7,534		7,972
Total liabilities		159,931		155,984
Commitments and Contingencies (Note 8)
Stockholders' Equity
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,577,852 and 5,541,029 shares issued, respectively, and 5,018,953 and 5,000,535 shares outstanding, respectively		56		55
Additional paid-in capital		110,156		108,770
Retained earnings		2,329		2,806
Accumulated other comprehensive income (loss), net of tax		1,974		(284)
Treasury stock, at cost, 558,899 and 540,494 shares, respectively		(19,015)		(18,294)
Total stockholders' equity		95,500		93,053
Total liabilities and stockholders' equity	$	255,431	$	249,037

See Notes to Consolidated Financial Statements.

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, 2018		May 31, 2017		May 31, 2018		May 31, 2017
Rental revenue	$	8,193	$	7,332	$	16,373	$	14,311
Revenue from property sales		898		10,755		1,023		10,755
Total revenue		9,091		18,087		17,396		25,066

Operating expenses of rental properties		2,412		2,204		5,089		4,689
Depreciation and amortization expense		2,889		2,386		5,707		4,736
General and administrative expenses		1,836		2,166		3,973		4,396
Costs related to property sales		55		2,660		144		2,660
Total expenses		7,192		9,416		14,913		16,481

Operating income		1,899		8,671		2,483		8,585

Interest expense		(1,547)		(1,444)		(3,079)		(2,757)
Investment income		11		53		26		62
Income (loss) before income tax provision		363		7,280		(570)		5,890
Income tax provision		(32)		(2,553)		(822)		(2,102)
Net income (loss)	$	331	$	4,727	$	(1,392)	$	3,788


Basic net income (loss) per common share	$	0.07	$	0.95	$	(0.28)	$	0.75

Diluted net income (loss) per common share	$	0.07	$	0.94	$	(0.28)	$	0.75

See Notes to Consolidated Financial Statements.

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, 2018		May 31, 2017		May 31, 2018		May 31, 2017
Net income (loss)	$	331	$	4,727	$	(1,392)	$	3,788

Other comprehensive income (loss), net of tax:
Reclassifications included in net income (loss)		146		218		338		427
Unrealized gain (loss) on cash flow hedges		7		(829)		1,956		(625)
Increase in fair value of Centaur Media plc		—		65		—		192
Total other comprehensive income (loss), net of tax		153		(546)		2,294		(6)
Total comprehensive income	$	484	$	4,181	$	902	$	3,782

See Notes to Consolidated Financial Statements.

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended May 31, 2018 and 2017

(dollars in thousands)

(unaudited)


	Shares of			Additional				Accumulated Other
	Common Stock	Common		Paid-in		Retained		Comprehensive		Treasury
	Issued	Stock		Capital		Earnings		Income (Loss)		Stock		Total
Balance at November 30, 2016	5,541,029	$	55	$	108,438	$	179	$	(1,049)	$	(16,820)	$	90,803
Stock-based compensation expense	—		—		170		—		—		—		170
Repurchase of common stock	—		—		—		—		—		(1,474)		(1,474)
Net income	—		—		—		3,788		—		—		3,788
Total other comprehensive loss, net of tax	—		—		—		—		(6)		—		(6)
Balance at May 31, 2017	5,541,029	$	55	$	108,608	$	3,967	$	(1,055)	$	(18,294)	$	93,281

Balance at November 30, 2017	5,541,029	$	55	$	108,770	$	2,806	$	(284)	$	(18,294)	$	93,053
Adoption of ASU 2016-09 - Cumulative effect of recognition of tax benefit from exercise of stock options	—		—		—		879		—		—		879
Adoption of ASU 2018-02 - Reclassification of taxes	—		—		—		36		(36)		—		—
Stock-based compensation expense	—		—		178		—		—		—		178
Exercise of stock options, including tax benefit of $46 and shares tendered related to stock options exercised and tax withholdings	36,823		1		1,208		—		—		(721)		488
Net loss	—		—		—		(1,392)		—		—		(1,392)
Total other comprehensive income, net of tax	—		—		—		—		2,294		—		2,294
Balance at May 31, 2018	5,577,852	$	56	$	110,156	$	2,329	$	1,974	$	(19,015)	$	95,500

See Notes to Consolidated Financial Statements.

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)


	For the Six Months Ended
	May 31, 2018		May 31, 2017
Operating activities:
Net (loss) income	$	(1,392)	$	3,788
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		5,707		4,736
Gain on sales of properties		(879)		(8,095)
Deferred income taxes		822		2,102
Stock-based compensation expense		178		170
Amortization of debt issuance costs		146		134
Other		112		—
Changes in assets and liabilities:
Other assets		1,577		(991)
Accounts payable and accrued liabilities		(879)		(923)
Deferred revenue		(1,982)		720
Other liabilities		241		913
Net cash provided by operating activities		3,651		2,554

Investing activities:
Additions to real estate assets		(8,085)		(5,322)
Proceeds from sales of properties, net of expenses		998		10,086
Proceeds from sales of properties deposited in escrow, net		(754)		(6,175)
Deferred leasing costs and other		(239)		(874)
Net cash used in investing activities		(8,080)		(2,285)

Financing activities:
Proceeds from mortgage loans		18,781		12,000
Principal payments on mortgage loans		(13,572)		(1,604)
Dividends paid to stockholders		(2,000)		(1,514)
Payment of debt issuance costs		(558)		(222)
Proceeds from exercise of stock options		527		—
Repurchase of common stock		—		(1,474)
Other		(39)		—
Net cash provided by financing activities		3,139		7,186
Net (decrease) increase in cash and cash equivalents		(1,290)		7,455
Cash and cash equivalents at beginning of period		30,068		24,689
Cash and cash equivalents at end of period	$	28,778	$	32,144

See Notes to Consolidated Financial Statements.

GRIFFIN INDUSTRIAL REALTY, INC.

Notes to Consolidated Financial Statements

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

(unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

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

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

As of May 31, 2018, Griffin was a party to several interest rate swap agreements to hedge its interest rate exposure. Griffin does not use derivatives for speculative purposes. Griffin applies FASB ASC 815-10, “Derivatives and Hedging,” (“ASC 815-10”) as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. ASC 815-10 requires Griffin to recognize all derivatives as either assets or liabilities on its consolidated balance sheet and measure those instruments at fair value. The changes in the fair values of the interest rate swap agreements are measured in accordance with ASC 815-10 and reflected in the carrying values of the interest rate swap agreements on Griffin’s consolidated balance sheet. The estimated fair values are based primarily on projected future swap rates.

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

The results of operations for the three months ended May 31, 2018 (the “2018 second quarter”) and the six months ended May 31, 2018 (the “2018 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, 2017 are referred to herein as the “2017 second quarter” and “2017 six month period,” respectively.

Recent Accounting Pronouncements Adopted

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

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

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

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

Recent Accounting Pronouncements Not Yet Adopted

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which is intended to improve the financial reporting for hedging relationships to better represent the economic results of a company’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance. This Update will make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend the presentation and disclosure requirements and change how entities assess effectiveness. This Update will become effective for Griffin in fiscal 2020. Griffin does not expect an impact from the application of this Update on its consolidated financial statements.

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

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

2. Fair Value

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

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

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

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

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


	May 31, 2018
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Interest rate swap assets	$	—	$	2,800	$	—
Interest rate swap liabilities	$	—	$	171	$	—


	November 30, 2017
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Interest rate swap assets	$	—	$	644	$	—
Interest rate swap liabilities	$	—	$	845	$	—

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


	Fair Value	May 31, 2018				November 30, 2017
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Value		Fair Value		Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	28,778	$	28,778	$	30,068	$	30,068
Sale proceeds held in escrow	1	$	845	$	845	$	91	$	91
Interest rate swap assets	2	$	2,800	$	2,800	$	644	$	644
Financial liabilities:
Mortgage loans, net of debt issuance costs	2	$	133,965	$	133,765	$	129,203	$	128,999
Interest rate swap liabilities	2	$	171	$	171	$	845	$	845

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

3. Real Estate Assets

Real estate assets consist of:


	Estimated
	Useful Lives	May 31, 2018		Nov. 30, 2017
Land		$	20,679	$	20,403
Land improvements	10 to 30 years		31,635		30,833
Buildings and improvements	10 to 40 years		187,520		187,116
Tenant improvements	Shorter of useful life or terms of related lease		27,814		27,924
Machinery and equipment	3 to 20 years		10,958		10,958
Construction in progress			12,387		486
Development costs			14,226		14,132
			305,219		291,852
Accumulated depreciation			(100,105)		(95,112)
		$	205,114	$	196,740

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


	For the Three Months Ended				For the Six Months Ended
	May 31, 2018		May 31, 2017		May 31, 2018		May 31, 2017
Depreciation expense	$	2,457	$	2,112	$	4,859	$	4,207

Capitalized interest	$	94	$	—	$	132	$	—

On April 26, 2018, Griffin closed on the sale of approximately 49 acres (the “Southwick Land Sale”) of undeveloped land in Southwick, Massachusetts. Griffin received cash proceeds of $850 before transaction costs and recorded a pretax gain of $794 on the Southwick Land Sale. The net cash proceeds, after transaction costs, of $847 from the Southwick Land Sale were deposited into escrow for a potential acquisition of a replacement property in a like-kind

exchange (“1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended, for income tax purposes.

On April 28, 2017, Griffin closed on the sale of approximately 67 acres (the “2017 Phoenix Crossing Land Sale”) of undeveloped land in Phoenix Crossing, the approximately 268 acre business park master planned by Griffin that straddles the town line between Windsor and Bloomfield, Connecticut. Griffin received cash proceeds of $10,250 before transaction costs and recorded a pretax gain of $7,975 on the 2017 Phoenix Crossing Land Sale. The net cash proceeds, after transaction costs, of $9,711 from the 2017 Phoenix Crossing Land Sale were deposited into escrow and subsequently used for the acquisition of a replacement property in a 1031 Like-Kind Exchange.

Real estate assets held for sale consist of:


	May 31, 2018		Nov. 30, 2017
Land	$	210	$	504
Land improvements		—		354
Development costs		1,007		1,074
	$	1,217	$	1,932

Real estate assets held for sale were reduced in the 2018 six month period by $105 related to property sales that closed and by $610 related to a property sale that is no longer expected to take place.

4. Mortgage Loans

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


	May 31, 2018		Nov. 30, 2017
Variable rate, due January 27, 2020 *	$	3,412	$	3,478
Variable rate, due October 3, 2022 *		4,321		4,367
Variable rate, due January 2, 2025 *		19,949		20,221
Variable rate, due May 1, 2026 *		13,665		13,844
Variable rate, due November 17, 2026 *		25,742		26,076
Variable rate, due August 1, 2027 *		10,404		10,523
3.97%, due September 1, 2027		12,008		12,115
Variable rate, due February 1, 2028 *		18,678		—
5.09%, due July 1, 2029		6,387		6,597
5.09%, due July 1, 2029		4,475		4,622
4.33%, due August 1, 2030		17,145		17,308
Variable rate, due March 1, 2027 *		—		11,826
Nonrecourse mortgage loans prior to debt issuance costs		136,186		130,977
Debt issuance costs, net		(2,221)		(1,774)
Nonrecourse mortgage loans, net of debt issuance costs	$	133,965	$	129,203

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

As of May 31, 2018, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgage loans on certain of its real estate assets. Griffin accounts for its interest rate swap agreements as effective cash flow hedges (see Note 2). No ineffectiveness on the cash flow hedges was recognized as of May 31, 2018 and none is anticipated over the term of the agreements. Amounts in accumulated other comprehensive income (loss) will be reclassified into interest expense over the term of the swap agreements to achieve fixed interest rates on each variable rate mortgage. None of the interest rate swap agreements contain any credit risk related contingent features. In the 2018 six month period, Griffin recognized a gain, included in other comprehensive income, before taxes of $2,942 on its interest rate swap agreements. In the 2017 six month period, Griffin recognized a loss, included in other comprehensive loss, before taxes of $284 on its interest rate swap agreements. As of May 31, 2018, $201 was expected to be reclassified over the next twelve months from accumulated other comprehensive income to interest expense. As of May 31, 2018, the net fair value of Griffin’s interest rate swap agreements was $2,629, with $2,800 included in other assets and $171 included in other liabilities on Griffin’s consolidated balance sheet.

On March 29, 2018, a subsidiary of Griffin closed on a $13,800 construction to permanent mortgage loan (the “State Farm Loan”) with State Farm Life Insurance Company (“State Farm”), which is expected to provide a significant portion of the financing for the construction of an approximately 234,000 square foot build-to-suit industrial/warehouse building (“220 Tradeport Drive”) in New England Tradeport (“NE Tradeport”), Griffin’s industrial park located in Windsor and East Granby, Connecticut. Griffin expects to spend a total of approximately $17,100 related to the development of 220 Tradeport Drive, including all related site work, building construction, tenant improvements, leasing costs and financing costs. In the fourth quarter of fiscal 2017, Griffin entered into a long-term lease with one tenant for the entire building. The State Farm Loan will initially function as a construction loan, with Griffin drawing funds as construction of 220 Tradeport Drive progresses. Upon completion of 220 Tradeport Drive, expected in the second half of fiscal 2018, and the commencement of rent payments by the tenant (six months after lease commencement), the State Farm Loan will convert to a fifteen year nonrecourse permanent mortgage loan, which is expected to take place in fiscal 2019. The interest rate on the loan is 4.51%. During the construction period, only interest payments will be made. Monthly principal payments, which will begin after conversion to a nonrecourse permanent mortgage loan, will be based on a twenty-five year amortization schedule. The State Farm Loan may be increased up to $14,288 if the tenant in 220 Tradeport Drive opts to have Griffin make certain additional improvements to 220 Tradeport Drive. The first drawdown under the State Farm Loan took place subsequent to May 31, 2018.

On March 15, 2017, a subsidiary of Griffin closed on a $12,000 nonrecourse mortgage (the “2017 People’s Mortgage”) with People’s United Bank, N.A. (“People’s Bank”). On January 30, 2018, that subsidiary refinanced the 2017 People’s Mortgage with a new nonrecourse mortgage loan (the “2018 People’s Mortgage”) with People’s Bank. The 2017 People’s Mortgage had a balance of $11,781 at the time of refinancing. The 2018 People’s Mortgage is collateralized by the same two NE Tradeport industrial/warehouse buildings, aggregating approximately 275,000 square feet, that collateralized the 2017 People’s Mortgage. In addition, 330 Stone Road, an approximately 137,000 square foot industrial/warehouse building in NE Tradeport that was completed and placed in service near the end of fiscal 2017, was added to the collateral for the 2018 People’s Mortgage. At the closing of the 2018 People’s Mortgage, Griffin received additional mortgage proceeds of $7,000 (before transaction costs), net of the $11,781 used to refinance the 2017 People’s Mortgage. The 2018 People’s Mortgage has a ten year term with monthly principal payments based on a twenty-five year amortization schedule. The interest rate for the 2018 People’s Mortgage is a floating rate of the one month LIBOR rate plus 1.95%. At the time the 2018 People’s Mortgage closed, Griffin entered into an interest rate swap agreement with People’s Bank that, combined with an interest rate swap agreement with People’s Bank entered into at the time the 2017 People’s Mortgage closed, effectively fixes the interest rate of the 2018 People’s Mortgage at 4.57% over the mortgage loan’s ten year term. Under the terms of the 2018 People’s Mortgage, Griffin entered into a master lease for 759 Rainbow Road (“759 Rainbow”), one of buildings that collateralize the 2018 People’s Mortgage. The master lease would only become effective if the full building tenant in 759 Rainbow does not renew its lease when it is scheduled to expire in fiscal 2019. The master lease would be in effect until either the space is re-leased to a new tenant or the maturity date of the 2018 People’s Mortgage.

5. Revolving Credit Agreement

Griffin has a $15,000 revolving credit line (the “Webster Credit Line”) with Webster Bank, N.A. (“Webster Bank”) that was scheduled to expire on July 31, 2018. In the 2018 second quarter, Griffin exercised its option to extend the Webster Credit Line for one year, and on June 18, 2018, Griffin and Webster Bank completed the Second Mortgage Modification Agreement that extended the maturity of the Webster Credit Line to July 31, 2019. Interest on borrowings under the Webster Credit Line remains at the one month LIBOR rate plus 2.75%. The Webster Credit Line is collateralized by Griffin’s properties in Griffin Center South in Bloomfield, Connecticut, aggregating approximately 235,000 square feet, and an approximately 48,000 square foot single-story office building in Griffin Center in Windsor, Connecticut. There have been no borrowings under the Webster Credit Line since its inception in fiscal 2013. As of May 31, 2018, the Webster Credit Line secured certain unused standby letters of credit aggregating $1,068 that are related to Griffin's development activities.

6. Stockholders’ Equity

Per Share Results

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


	For the Three Months Ended				For the Six Months Ended
	May 31, 2018		May 31, 2017		May 31, 2018		May 31, 2017
Net income (loss)	$	331	$	4,727	$	(1,392)	$	3,788

Weighted average shares outstanding for computation of basic per share results		5,006,000		5,001,000		5,003,000		5,020,000
Incremental shares from assumed exercise of Griffin stock options (a)		57,000		22,000		—		23,000
Adjusted weighted average shares for computation of diluted per share results		5,063,000		5,023,000		5,003,000		5,043,000

(a)

Incremental shares from the assumed exercise of Griffin stock options are not included in periods where the inclusion of such shares would be anti-dilutive. The incremental shares from the assumed exercise of stock options for the 2018 six month period would have been 53,000.

Universal Shelf Filing/At-the-Market Equity Offering Program

On April 11, 2018, Griffin filed a universal shelf registration statement on Form S-3 (the “Universal Shelf”) with the SEC. Under the Universal Shelf, Griffin may offer and sell up to $50,000 of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, units or any combination of such securities during the three year period that commenced upon the Universal Shelf becoming effective on April 25, 2018. Under the Universal Shelf, Griffin may periodically offer one or more types of securities in amounts, at prices and on terms announced, if and when the securities are ever offered. On May 10, 2018, Griffin filed a prospectus supplement with the SEC under which it may issue and sell, from time to time, up to an aggregate of $30,000 of its common stock (“Common Stock”) under an “at-the-market” equity offering program (the “ATM Program”) through Robert W. Baird & Co. Incorporated (“Baird”), as sales agent. Under a sales agreement with Baird, Griffin will set the parameters for the sales of its Common Stock under the ATM Program, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales of shares may not be made. Sales of Common Stock, if any, under the ATM Program would be made in offerings as defined in Rule 415 of the Securities Act of 1933, as amended. In addition, with the prior consent of Griffin, Baird may also sell shares in privately negotiated transactions. Griffin expects to use net proceeds, if any, from the ATM Program over time for acquisitions of target properties consistent with Griffin’s investment strategies, repayment of debt and general corporate purposes. If Griffin obtains additional capital by issuing equity, the interests of its existing stockholders will be diluted. If Griffin incurs additional indebtedness, that indebtedness may impose financial and other covenants that may significantly restrict Griffin’s operations. Griffin currently does not expect to issue Common Stock under the ATM Program or issue other securities under the Universal Shelf in the near term.

Griffin Stock Option Plan

Stock options are granted by Griffin under the Griffin Industrial Realty, Inc. 2009 Stock Option Plan (the “2009 Stock Option Plan”). Options granted under the 2009 Stock Option Plan may be either incentive stock options or non-qualified stock options issued at an exercise price not less than fair market value on the date approved by Griffin’s Compensation Committee. Vesting of all of Griffin's stock options is solely based upon service requirements and does not contain market or performance conditions.

Stock options issued expire ten years from the grant date. In accordance with the 2009 Stock Option Plan, stock options issued to non-employee directors upon their initial election to the board of directors are fully exercisable immediately upon the date of the option grant. Stock options issued to non-employee directors upon their re-election to the board of directors vest on the second anniversary from the date of grant. Stock options issued to employees vest in

equal installments on the third, fourth and fifth anniversaries from the date of grant. None of the stock options outstanding at May 31, 2018 may be exercised as stock appreciation rights.

The following options were granted by Griffin under the 2009 Stock Option Plan to Griffin directors and employees:


	For the Six Months Ended
	May 31, 2018			May 31, 2017
		Fair Value per			Fair Value per
	Number of	Option at		Number of	Option at
	Shares	Grant Date		Shares	Grant Date
Non-employee directors	5,195	$	14.41	6,570	$	13.49
Employees	-	$	-	5,000	$	11.13
	5,195			11,570

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


	For the Six Months Ended
	May 31, 2018		May 31, 2017
Expected volatility	30.5	%	32.7 to 39.6	%
Risk free interest rates	3.0	%	2.1 to 2.2	%
Expected option term (in years)	8.5		7.5 to 8.5
Annual dividend yield	1.1	%	0.8 to 0.9	%


Number of option holders at May 31, 2018		29

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


	For the Three Months Ended				For the Six Months Ended
	May 31, 2018		May 31, 2017		May 31, 2018		May 31, 2017
Compensation expense	$	88	$	88	$	178	$	170

Related tax benefit	$	13	$	20	$	26	$	40

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

As of May 31, 2018, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:


Balance of Fiscal 2018	$	181
Fiscal 2019	$	270
Fiscal 2020	$	128
Fiscal 2021	$	34

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


	For the Six Months Ended
	May 31, 2018			May 31, 2017
			Weighted			Weighted
			Avg.			Avg.
	Number of		Exercise	Number of		Exercise
	Shares		Price	Shares		Price
Outstanding at beginning of period	333,762	$	29.22	324,546	$	29.23
Granted	5,195	$	38.48	11,570	$	30.59


PART I -		FINANCIAL INFORMATION

	ITEM 1	Financial Statements

		Consolidated Balance Sheets (unaudited) as of May 31, 2018 and November 30, 2017	3

		Consolidated Statements of Operations (unaudited) for the Three Months and Six Months Ended May 31, 2018 and 2017	4

		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months and Six Months Ended May 31, 2018 and 2017	5

		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Six Months Ended May 31, 2018 and 2017	6

		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended May 31, 2018 and 2017	7

		Notes to Consolidated Financial Statements (unaudited)	8

	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	31

	ITEM 4	Controls and Procedures	31

PART II -		OTHER INFORMATION

	ITEM 1	Not Applicable

	ITEM 1A	Risk Factors	32

	ITEM 2	Unregistered Sales of Equity and Use of Proceeds	32

	ITEMS 3-5	Not Applicable

	ITEM 6	Exhibits	32

		SIGNATURES	38