10-Q 1 grif-20180831x10q.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 August 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 every Interactive Data File required to be submitted 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 such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 September 28, 2018: 5,045,050

 

 

 

 


 

GRIFFIN INDUSTRIAL REALTY, INC.

 

FORM 10-Q

 

Index

 

 

 

 

 

PART I  -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

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

3

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) for the Three Months and Nine Months Ended August 31, 2018 and 2017

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months and Nine Months Ended August 31, 2018 and 2017

5

 

 

 

 

 

 

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

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended August 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

23

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

 

 

ITEM 4

Controls and Procedures

34

 

 

 

 

PART II - 

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

35

 

 

 

 

 

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

 

 

ITEMS 3-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

35

 

 

 

 

 

 

SIGNATURES

40

 

 

 

 


 

PART I  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Aug. 31, 2018

 

Nov. 30, 2017

ASSETS

 

 

 

 

 

 

Real estate assets at cost, net

 

$

215,220

 

$

196,740

Cash and cash equivalents

 

 

11,972

 

 

30,068

Short-term investments

 

 

11,000

 

 

 —

Deferred income taxes

 

 

1,436

 

 

1,904

Real estate assets held for sale

 

 

1,217

 

 

1,932

Other assets

 

 

21,704

 

 

18,393

Total assets

 

$

262,549

 

$

249,037

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Mortgage and construction loans, net of debt issuance costs

 

$

141,113

 

$

129,203

Deferred revenue

 

 

11,817

 

 

11,818

Accounts payable and accrued liabilities

 

 

5,520

 

 

4,991

Dividend payable

 

 

 —

 

 

2,000

Other liabilities

 

 

7,702

 

 

7,972

Total liabilities

 

 

166,152

 

 

155,984

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,615,583 and 5,541,029 shares issued, respectively, and 5,045,050 and 5,000,535 shares outstanding, respectively

 

 

56

 

 

55

Additional paid-in capital

 

 

111,414

 

 

108,770

Retained earnings

 

 

2,207

 

 

2,806

Accumulated other comprehensive income (loss), net of tax

 

 

2,203

 

 

(284)

Treasury stock, at cost, 570,533 and 540,494 shares, respectively

 

 

(19,483)

 

 

(18,294)

Total stockholders' equity

 

 

96,397

 

 

93,053

Total liabilities and stockholders' equity

 

$

262,549

 

$

249,037

 

See Notes to Consolidated Financial Statements.

 

3


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

    

Aug. 31, 2018

    

Aug. 31, 2017

    

Aug. 31, 2018

    

Aug. 31, 2017

Rental revenue

 

$

8,001

 

$

7,759

 

$

24,374

 

$

22,070

Revenue from property sales

 

 

 —

 

 

2,195

 

 

1,023

 

 

12,950

Total revenue

 

 

8,001

 

 

9,954

 

 

25,397

 

 

35,020

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses of rental properties

 

 

2,189

 

 

2,133

 

 

7,278

 

 

6,822

Depreciation and amortization expense

 

 

2,743

 

 

2,637

 

 

8,450

 

 

7,373

General and administrative expenses

 

 

1,842

 

 

1,735

 

 

5,815

 

 

6,131

Costs related to property sales

 

 

 —

 

 

255

 

 

144

 

 

2,915

Total expenses

 

 

6,774

 

 

6,760

 

 

21,687

 

 

23,241

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,227

 

 

3,194

 

 

3,710

 

 

11,779

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,487)

 

 

(1,443)

 

 

(4,566)

 

 

(4,200)

Investment income

 

 

49

 

 

 7

 

 

75

 

 

69

Gain on sales of common stock of Centaur Media plc

 

 

 —

 

 

275

 

 

 —

 

 

275

(Loss) income before income tax benefit (provision)

 

 

(211)

 

 

2,033

 

 

(781)

 

 

7,923

Income tax benefit (provision)

 

 

89

 

 

(704)

 

 

(733)

 

 

(2,806)

Net (loss) income

 

$

(122)

 

$

1,329

 

$

(1,514)

 

$

5,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share

 

$

(0.02)

 

$

0.27

 

$

(0.30)

 

$

1.02

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per common share

 

$

(0.02)

 

$

0.26

 

$

(0.30)

 

$

1.02

 

See Notes to Consolidated Financial Statements.

4


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

    

Aug. 31, 2018

    

Aug. 31, 2017

    

Aug. 31, 2018

    

Aug. 31, 2017

Net (loss) income

 

$

(122)

 

$

1,329

 

$

(1,514)

 

$

5,117

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net (loss) income

 

 

97

 

 

37

 

 

435

 

 

464

Unrealized gain (loss) on cash flow hedges

 

 

132

 

 

(697)

 

 

2,088

 

 

(1,322)

(Decrease) increase in fair value of Centaur Media plc

 

 

 —

 

 

(33)

 

 

 —

 

 

159

Total other comprehensive income (loss), net of tax

 

 

229

 

 

(693)

 

 

2,523

 

 

(699)

Total comprehensive income

 

$

107

 

$

636

 

$

1,009

 

$

4,418

 

See Notes to Consolidated Financial Statements.

5


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended August 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

 

 —

 

 

 —

 

 

260

 

 

 —

 

 

 —

 

 

 —

 

 

260

Repurchase of common stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,474)

 

 

(1,474)

Net income

 

 —

 

 

 —

 

 

 —

 

 

5,117

 

 

 —

 

 

 —

 

 

5,117

Total other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(699)

 

 

 —

 

 

(699)

Balance at August 31, 2017

 

5,541,029

 

$

55

 

$

108,698

 

$

5,296

 

$

(1,748)

 

$

(18,294)

 

$

94,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 30, 2017

 

5,541,029

 

$

55

 

$

108,770

 

$

2,806

 

$

(284)

 

$

(18,294)

 

$

93,053

Adoption of ASU No. 2016-09 - Cumulative effect of recognition of tax benefit from exercise of stock options

 

 —

 

 

 —

 

 

 —

 

 

879

 

 

 —

 

 

 —

 

 

879

Adoption of ASU No. 2018-02 - Reclassification of taxes

 

 —

 

 

 —

 

 

 —

 

 

36

 

 

(36)

 

 

 —

 

 

 —

Stock-based compensation expense

 

 —

 

 

 —

 

 

261

 

 

 —

 

 

 —

 

 

 —

 

 

261

Exercise of stock options, including shares tendered related to stock options exercised and tax withholdings

 

74,554

 

 

 1

 

 

2,383

 

 

 —

 

 

 —

 

 

(1,189)

 

 

1,195

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(1,514)

 

 

 —

 

 

 —

 

 

(1,514)

Total other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,523

 

 

 —

 

 

2,523

Balance at August 31, 2018

 

5,615,583

 

$

56

 

$

111,414

 

$

2,207

 

$

2,203

 

$

(19,483)

 

$

96,397

 

 

See Notes to Consolidated Financial Statements.

6


 

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

    

Aug. 31, 2018

    

Aug. 31, 2017

Operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(1,514)

 

$

5,117

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

8,450

 

 

7,373

Gain on sales of properties

 

 

(879)

 

 

(10,035)

Deferred income taxes

 

 

634

 

 

2,806

Stock-based compensation expense

 

 

261

 

 

260

Amortization of debt issuance costs

 

 

224

 

 

262

Gain on sales of common stock of Centaur Media plc

 

 

 —

 

 

(275)

Amortization of terminated swap agreement

 

 

162

 

 

40

Payment of employee withholding taxes on options exercised

 

 

(39)

 

 

 —

Changes in assets and liabilities:

 

 

 

 

 

 

Other assets

 

 

(1,950)

 

 

(3,235)

Accounts payable and accrued liabilities

 

 

(832)

 

 

(462)

Deferred revenue

 

 

(1)

 

 

2,880

Other liabilities

 

 

480

 

 

974

Net cash provided by operating activities

 

 

4,996

 

 

5,705

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Additions to real estate assets

 

 

(23,667)

 

 

(10,964)

Short-term investments, net

 

 

(11,000)

 

 

 —

Proceeds from sales of properties, net of expenses

 

 

998

 

 

12,119

Deferred leasing costs and other

 

 

(485)

 

 

(1,110)

Proceeds from sales of properties returned from escrow, net

 

 

91

 

 

3,444

Acquisition of building

 

 

 —

 

 

(18,440)

Proceeds from sales of common stock of Centaur Media plc

 

 

 —

 

 

1,216

Net cash used in investing activities

 

 

(34,063)

 

 

(13,735)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Proceeds from mortgage loans and construction loan

 

 

26,806

 

 

34,750

Principal payments on mortgage loans

 

 

(14,501)

 

 

(12,559)

Dividends paid to stockholders

 

 

(2,000)

 

 

(1,514)

Proceeds from exercise of stock options

 

 

1,234

 

 

 —

Payment of debt issuance costs

 

 

(568)

 

 

(533)

Repurchase of common stock

 

 

 —

 

 

(1,474)

Payment for termination of interest rate swap agreement

 

 

 —

 

 

(341)

Net cash provided by financing activities

 

 

10,971

 

 

18,329

Net (decrease) increase in cash and cash equivalents

 

 

(18,096)

 

 

10,299

Cash and cash equivalents at beginning of period

 

 

30,068

 

 

24,689

Cash and cash equivalents at end of period

 

$

11,972

 

$

34,988

 

See Notes to Consolidated Financial Statements.

7


 

GRIFFIN INDUSTRIAL REALTY, INC.

Notes to Consolidated Financial Statements

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

(unaudited)

 

1.    Summary of Significant Accounting Policies

 

Basis of Presentation

 

Griffin Industrial Realty, Inc. ("Griffin") is a real estate business principally engaged in developing, managing and leasing industrial/warehouse properties and, to a lesser extent, office/flex properties. Griffin seeks to add to its 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 August 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.

 

Griffin’s short-term investments are repurchase agreements with Webster Bank, N.A. (“Webster Bank”) that are collateralized with securities issued by the United States Government or its sponsored agencies and are accounted for as held-to-maturity securities under ASC 320, “Investments – Debt and Equity Securities” (“ASC 320”). The repurchase agreements are carried at cost, which approximates fair value due to their short-term nature.

 

8


 

The results of operations for the three months ended August 31, 2018 (the “2018 third quarter”) and the nine months ended August 31, 2018 (the “2018 nine month period”) are not necessarily indicative of the results to be expected for the full year. The three months and nine months ended August 31, 2017 are referred to herein as the “2017 third quarter” and “2017 nine 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 No. 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 No. 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, 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 No. 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 No. 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 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This Update removes, modifies and adds certain disclosure requirements in FASB ASC 820, “Fair Value Measurement” (“ASC 820”). The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively in the year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This Update will become effective for Griffin in fiscal 2021. Early adoption is permitted upon issuance for any removed or modified disclosures. Griffin does not expect the application of this Update to have an impact on its consolidated financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” to include share-based payment transactions for acquiring goods and services from nonemployees. This Update simplifies the accounting for nonemployee share-based

9


 

payments by aligning it more closely with the accounting for employee awards. This Update will become effective for Griffin in fiscal 2020. Early adoption is permitted, but no earlier than Griffin’s adoption of Topic 606 (see below). Griffin does not expect the application of this Update to have an impact on its consolidated financial statements.

 

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 the application of this Update to have an impact 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 retrospective approach for leases in effect as of and after the date of adoption. Early adoption and practical expedients to measure the effect of adoption are 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 (Topic 606).” 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. Griffin is evaluating the impact that the application of this Update will have on its consolidated financial statements.

 

There are various other Updates recently issued which represent technical corrections to the accounting literature or apply  to specific industries. Griffin does not expect the application of any of these other Updates to have an impact on its consolidated financial statements.

 

 

 

 

2.    Fair Value

 

Griffin applies the provisions of 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

10


 

markets; therefore, Griffin has categorized these derivative instruments as Level 2 within the fair value hierarchy. Level 2 assets also include Griffin’s short-term investments in repurchase agreements with Webster Bank (see Note 1). The repurchase agreements are carried at cost, which approximates fair value. These agreements are classified as Level 2 based on the adequacy of collateral and their short-term nature.

 

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 nine 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:

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2018

 

    

Quoted Prices in

    

Significant

    

Significant

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

Short-term investments

 

$

 —

 

$

11,000

 

$

 —

Interest rate swap assets

 

$

 —

 

$

2,973

 

$

 —

Interest rate swap liabilities

 

$

 —

 

$

100

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

August 31, 2018

 

November 30, 2017

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

    

Level

    

Value

    

Fair Value

    

Value

    

Fair Value

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

11,972

 

$

11,972

 

$

30,068

 

$

30,068

Sale proceeds held in escrow

 

1

 

$

 —

 

$

 —

 

$

91

 

$

91

Short-term investments

 

2

 

$

11,000

 

$

11,000

 

$

 —

 

$

 —

Interest rate swap assets

 

2

 

$

2,973

 

$

2,973

 

$

644

 

$

644

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage and construction loans, net of debt issuance costs

 

2

 

$

141,113

 

$

140,916

 

$

129,203

 

$

128,999

Interest rate swap liabilities

 

2

 

$

100

 

$

100

 

$

845

 

$

845

 

The amounts included in the consolidated financial statements for cash and cash equivalents, short-term investments, 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 and construction 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.

 

 

 

11


 

3.    Real Estate Assets

 

Real estate assets consist of:

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

    

Useful Lives

    

Aug. 31, 2018

 

Nov. 30, 2017

Land

 

 

 

$

23,395

 

$

20,403

Land improvements

 

10 to 30 years

 

 

31,786

 

 

30,833

Buildings and improvements

 

10 to 40 years

 

 

187,752

 

 

187,116

Tenant improvements

 

Shorter of useful life or terms of related lease

 

 

28,032

 

 

27,924

Machinery and equipment

 

3 to 20 years

 

 

10,958

 

 

10,958

Construction in progress

 

 

 

 

22,729

 

 

486

Development costs

 

 

 

 

13,068

 

 

14,132

 

 

 

 

 

317,720

 

 

291,852

Accumulated depreciation

 

 

 

 

(102,500)

 

 

(95,112)

 

 

 

 

$

215,220

 

$

196,740

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

Aug. 31, 2018

    

Aug. 31, 2017

    

Aug. 31, 2018

    

Aug. 31, 2017

Depreciation expense

 

$

2,399

 

$

2,283

 

$

7,258

 

$

6,490

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest

 

$

206

 

$

26

 

$

338

 

$

26

 

On April 26, 2018, Griffin closed on the sale of approximately 49 acres (the “2018 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 2018 Southwick Land Sale. The net cash proceeds, after transaction costs, of $847 from the 2018 Southwick Land Sale were deposited into escrow for the 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 July 18, 2018, Griffin closed on the purchase of an approximately 22 acre parcel of undeveloped land in Concord, North Carolina (the “Concord Land”) for a purchase price of $2,600, before transaction costs, as a replacement property under a 1031 Like-Kind Exchange.

 

On August 4, 2017, Griffin completed the sale of approximately 76 acres (the “2017 Southwick Land Sale”) of undeveloped land in Southwick, Massachusetts. Griffin received cash proceeds of $2,100, before transaction costs, and recorded a pretax gain of $1,890 on the 2017 Southwick Land Sale. The net cash proceeds, after transaction costs, of $1,943 from the 2017 Southwick Land Sale were deposited into escrow for the acquisition of a replacement property as part of a 1031 Like-Kind Exchange. On August 24, 2017, Griffin closed on the purchase of an approximately 14 acre parcel of undeveloped land in Upper Macungie Township, Lehigh County, Pennsylvania (the “Macungie Land”) for a purchase price of $1,800, before transaction costs, as a replacement property under a 1031 Like-Kind Exchange.

 

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 (see below) of 215 International Drive (“215 International”), an approximately 277,000 square foot industrial/warehouse building in Concord, North Carolina, as the replacement property under a 1031 Like-Kind Exchange.

 

On June 9, 2017, Griffin closed on the purchase of 215 International Drive for a purchase price of $18,440. The purchase price was paid in cash at closing using proceeds of $9,711 held in escrow from the 2017 Phoenix Crossing Land Sale with the balance paid from Griffin’s cash on hand. Griffin incurred approximately $71 of acquisition costs on

12


 

the purchase of 215 International which are included in general and administrative expenses on Griffin’s consolidated statements of operations for the 2017 third quarter and 2017 nine month period. 215 International was constructed in 2015 and was 74% leased at the time it was acquired. Subsequent to the closing, one of the tenants in 215 International leased an additional approximately 73,000 square feet, which resulted in 215 International being fully leased. 215 International was Griffin’s first property in the Charlotte area. Griffin determined that the fair value of the assets acquired approximated the purchase price. Of the $18,440 purchase price, $16,789 represented the fair value of the real estate assets and $1,651 represented the fair value of the acquired intangible assets, comprised of the value of the in-place leases at the time of purchase and the value of tenant relationships. The intangible assets are included in other assets on Griffin’s consolidated balance sheet.

 

Real estate assets held for sale consist of:

 

 

 

 

 

 

 

 

    

Aug. 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 nine month period by $105 related to property sales that closed and by $610, which was reclassified into real estate assets as a result of a proposed property sale that is no longer expected to take place.

 

 

 

 

 

 

 

 

 

 

 

4.    Mortgage and Construction Loans

 

Griffin’s mortgage and construction loans consist of:

 

 

 

 

 

 

 

 

 

    

Aug. 31, 2018

    

Nov. 30, 2017

3.91%, due January 27, 2020 *

 

$

3,378

 

$

3,478

4.72%, due October 3, 2022 *

 

 

4,297

 

 

4,367

4.39%, due January 2, 2025 *

 

 

19,811

 

 

20,221

4.17%, due May 1, 2026 *

 

 

13,577

 

 

13,844

3.79%, November 17, 2026 *

 

 

25,573

 

 

26,076

4.39%, due August 1, 2027 *

 

 

10,345

 

 

10,523

3.97%, due September 1, 2027

 

 

11,953

 

 

12,115

4.57%, due February 1, 2028 *

 

 

18,581

 

 

 —

5.09%, due July 1, 2029

 

 

6,280

 

 

6,597

5.09%, due July 1, 2029

 

 

4,400

 

 

4,622

4.33%, due August 1, 2030

 

 

17,062

 

 

17,308

4.45%, due March 1, 2027 *

 

 

 —

 

 

11,826

Nonrecourse mortgage loans

 

 

135,257

 

 

130,977

Debt issuance costs

 

 

(1,780)

 

 

(1,774)

Nonrecourse mortgage loans, net of debt issuance costs

 

 

133,477

 

 

129,203

 

 

 

 

 

 

 

4.51% construction loan

 

 

8,025

 

 

 —

Debt issuance costs

 

 

(389)

 

 

 —

Construction loan, net of debt issuance costs

 

 

7,636

 

 

 —

 

 

 

 

 

 

 

Mortgage and construction loans, net of debt issuance costs

 

$

141,113

 

$

129,203


*Variable rate loans. Griffin has entered into interest rate swap agreements to effectively fix the interest rates on these loans to the rates reflected above. 

 

Griffin’s weighted average interest rate on its mortgage loans, including the effect of its interest rate swap agreements, was 4.30% and 4.26% as of August 31, 2018 and November 30, 2017, respectively. As of August 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

13


 

Note 2). No ineffectiveness on the cash flow hedges was recognized as of August 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 nine month period, Griffin recognized a gain, included in other comprehensive income, before taxes of $3,236 on its interest rate swap agreements. In the 2017 nine month period, Griffin recognized a loss, included in other comprehensive loss, before taxes of $1,045 on its interest rate swap agreements. As of August 31, 2018, $74 was expected to be reclassified over the next twelve months to accumulated other comprehensive income from interest expense. As of August 31, 2018, the net fair value of Griffin’s interest rate swap agreements was $2,873, with $2,973 included in other assets and $100 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”), to provide a significant portion of the funds 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. In the fiscal 2017 fourth quarter, Griffin entered into a long-term lease with one tenant for the entire building. Upon completion of 220 Tradeport Drive and commencement of rent payments by the tenant (six months after lease commencement), the State Farm Loan provides that it will convert to a fifteen year nonrecourse permanent mortgage loan, which is expected to take place in fiscal 2019. Under the terms of the State Farm Loan, the interest rate on the loan is 4.51% during both the construction phase and for the term of the permanent mortgage. Monthly principal payments, which 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 certain additional improvements are made to 220 Tradeport Drive.

 

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 the buildings that collateralizes 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.

 

On July 14, 2017, a subsidiary of Griffin closed on a $10,600 nonrecourse mortgage loan (the “2017 Berkshire Mortgage”) with Berkshire Bank (“Berkshire”). The 2017 Berkshire Mortgage refinanced an existing mortgage loan (the “2009 Berkshire Mortgage”) with Berkshire that was due on February 1, 2019 and was collateralized by 100 International Drive (“100 International”), an approximately 304,000 square foot industrial/warehouse building in NE Tradeport. The 2009 Berkshire Mortgage had a balance of $10,120 at the time of the refinancing and a variable interest rate of the one month LIBOR rate plus 2.75%. At the time Griffin completed the 2009 Berkshire Mortgage, Griffin entered into an interest rate swap agreement with Berkshire (the “2009 Berkshire Swap”) to effectively fix the interest rate on the 2009 Berkshire Mortgage at 6.35% for the term of that loan. The 2017 Berkshire Mortgage is collateralized by the same property that collateralized the 2009 Berkshire Mortgage. Just prior to closing on the 2017 Berkshire Mortgage, Griffin completed a lease amendment with the full building tenant in 100 International to extend the lease from its scheduled expiration date of July 31, 2019 to July 31, 2025. Under the terms of the 2017 Berkshire Mortgage, Griffin entered into a master lease of 100 International that would become effective if the tenant in 100 International does not renew its lease when it is scheduled to expire in 2025. The 2017 Berkshire Mortgage has a ten year term with

14


 

monthly principal payments based on a twenty-five year amortization schedule. The interest rate for the 2017 Berkshire Mortgage is a variable rate consisting of the one month LIBOR rate plus 2.05%. At the time the 2017 Berkshire Mortgage closed, Griffin terminated the 2009 Berkshire Swap and entered into a new interest rate swap agreement with Berkshire that effectively fixes the interest rate of the 2017 Berkshire Mortgage at 4.39% over the loan term. Griffin paid $341 in connection with the termination of the 2009 Berkshire Swap.

 

 

5.     Revolving Credit Agreement

 

Griffin has a $15,000 revolving credit line (the “Webster Credit Line”) with Webster Bank that was scheduled to expire on July 31, 2018. In the 2018 third quarter, Griffin and Webster Bank completed the Second Mortgage Modification Agreement that extended the Webster Credit Line through 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 August 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 Nine Months Ended

 

 

Aug. 31, 2018

    

Aug. 31, 2017

 

Aug. 31, 2018

    

Aug. 31, 2017

Net (loss) income

 

$

(122)

 

$

1,329

 

$

(1,514)

 

$

5,117

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

 

5,031,000

 

 

5,001,000

 

 

5,013,000

 

 

5,013,000

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

 

 

 —

 

 

27,000

 

 

 —

 

 

24,000

Adjusted weighted average shares for computation of diluted per share results

 

 

5,031,000

 

 

5,028,000

 

 

5,013,000

 

 

5,037,000


(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 third quarter and 2018 nine month period would have been 76,000 and 60,000, respectively. 

 

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

15


 

proceeds, if any, from the ATM Program 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 August 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 Nine Months Ended

 

 

Aug. 31, 2018

 

Aug. 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 Nine Months Ended

 

    

Aug. 31, 2018

    

Aug. 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 August 31, 2018

      

28

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended 

 

    

Aug. 31, 2018

    

Aug. 31, 2017

 

Aug. 31, 2018

 

Aug. 31, 2017

Compensation expense

 

$

83