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, 2019

OR

☐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 No.)
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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	GRIF	The Nasdaq Stock Market LLC

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 October 4, 2019:  5,072,621

GRIFFIN INDUSTRIAL REALTY, INC.

FORM 10-Q

Index

PART I  -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Balance Sheets (unaudited) as of August 31, 2019 and November 30, 2018	3
		Consolidated Statements of Operations (unaudited) for the Three Months and Nine Months Ended August 31, 2019 and 2018	4
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months and Nine Months Ended August 31, 2019 and 2018	5
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Nine Months Ended August 31, 2019 and 2018	6
		Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended August 31, 2019 and 2018	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
	ITEMS 2-5	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, 2019		Nov. 30, 2018
ASSETS
Real estate assets at cost, net	$	227,909	$	213,621
Cash and cash equivalents		4,410		8,592
Short-term investments		9,011		17,000
Deferred income taxes		2,842		1,556
Real estate assets held for sale, net		2,137		2,652
Other assets		21,715		20,048
Total assets	$	268,024	$	263,469
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and construction loans, net of debt issuance costs	$	143,571	$	145,052
Deferred revenue		11,897		10,599
Accounts payable and accrued liabilities		4,816		3,333
Dividend payable		—		2,279
Other liabilities		13,271		7,378
Total liabilities		173,555		168,641
Commitments and Contingencies (Note 8)
Stockholders' Equity
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,665,544 and 5,635,706 shares issued, respectively, and 5,072,621 and 5,065,173 shares outstanding, respectively		57		56
Additional paid-in capital		113,132		112,071
Retained earnings (deficit)		6,039		(211)
Accumulated other comprehensive (loss) income, net of tax		(4,430)		2,395
Treasury stock, at cost, 592,923 and 570,533 shares, respectively		(20,329)		(19,483)
Total stockholders' equity		94,469		94,828
Total liabilities and stockholders' equity	$	268,024	$	263,469

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, 2019		Aug. 31, 2018		Aug. 31, 2019		Aug. 31, 2018
Rental revenue	$	8,600	$	8,001	$	25,458	$	24,374
Revenue from property sales		302		—		9,828		1,023
Total revenue		8,902		8,001		35,286		25,397
Operating expenses of rental properties		2,483		2,189		7,567		7,278
Depreciation and amortization expense		2,925		2,743		8,806		8,450
General and administrative expenses		1,668		1,842		5,567		5,815
Costs related to property sales		176		—		1,999		144
Total expenses		7,252		6,774		23,939		21,687
Gain on insurance recovery		—		—		126		—
Operating income		1,650		1,227		11,473		3,710
Interest expense		(1,508)		(1,487)		(4,776)		(4,566)
Investment income		61		49		242		75
Income (loss) before income tax benefit (provision)		203		(211)		6,939		(781)
Income tax benefit (provision)		814		89		(689)		(733)
Net income (loss)	$	1,017	$	(122)	$	6,250	$	(1,514)
Basic net income (loss) per common share	$	0.20	$	(0.02)	$	1.23	$	(0.30)
Diluted net income (loss) per common share	$	0.20	$	(0.02)	$	1.23	$	(0.30)

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, 2019		Aug. 31, 2018		Aug. 31, 2019		Aug. 31, 2018
Net income (loss)	$	1,017	$	(122)	$	6,250	$	(1,514)
Other comprehensive (loss) income, net of tax:
Reclassifications included in net income (loss)		6		97		74		435
Unrealized (loss) gain on cash flow hedges		(2,645)		132		(6,899)		2,088
Total other comprehensive (loss) income, net of tax		(2,639)		229		(6,825)		2,523
Total comprehensive (loss) income	$	(1,622)	$	107	$	(575)	$	1,009

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, 2019 and 2018

(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, 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
Balance at November 30, 2018	5,635,706	$	56	$	112,071	$	(211)	$	2,395	$	(19,483)	$	94,828
Stock-based compensation expense	—		—		205		—		—		—		205
Exercise of stock options, including tax benefit of $59 and shares tendered related to stock options exercised and tax withholdings	29,838		1		856		—		—		(846)		11
Net income	—		—		—		6,250		—		—		6,250
Total other comprehensive loss, net of tax	—		—		—		—		(6,825)		—		(6,825)
Balance at August 31, 2019	5,665,544	$	57	$	113,132	$	6,039	$	(4,430)	$	(20,329)	$	94,469

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, 2019		Aug. 31, 2018
Operating activities:
Net income (loss)	$	6,250	$	(1,514)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		8,806		8,450
Gain on sales of properties		(7,829)		(879)
Deferred income taxes		689		634
Amortization of debt issuance costs		211		224
Stock-based compensation expense		205		261
Gain on insurance recovery		(126)		—
Payment of employee withholding taxes on options exercised		(87)		(39)
Amortization of terminated swap agreement		31		162
Changes in assets and liabilities:
Other assets		(2,623)		(1,950)
Accounts payable and accrued liabilities		(355)		(832)
Deferred revenue		1,298		(1)
Other liabilities		213		480
Net cash provided by operating activities		6,683		4,996
Investing activities:
Additions to real estate assets		(21,805)		(23,667)
Proceeds from sales of properties, net of expenses		9,475		998
Short-term investments, net		7,989		(11,000)
Proceeds from sales of properties (deposited into) returned from escrow, net		(2,217)		91
Deferred leasing costs and other		(462)		(485)
Net cash used in investing activities		(7,020)		(34,063)
Financing activities:
Principal payments on mortgage loans		(2,896)		(14,501)
Dividends paid to stockholders		(2,279)		(2,000)
Proceeds from mortgage and construction loans		1,265		26,806
Proceeds from exercise of stock options		98		1,234
Payment of debt issuance costs		(33)		(568)
Net cash (used in) provided by financing activities		(3,845)		10,971
Net decrease in cash and cash equivalents		(4,182)		(18,096)
Cash and cash equivalents at beginning of period		8,592		30,068
Cash and cash equivalents at end of period	$	4,410	$	11,972

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 also seeks to add to its industrial/warehouse property portfolio through the acquisition and development of land or the 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, 2018 (“fiscal 2018”) included in Griffin’s Annual Report on Form 10-K/A filed with the United States Securities and Exchange Commission (the “SEC”) on April 5, 2019. 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, 2018 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.

Griffin considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. At August 31, 2019 and November 30, 2018, $3,569 and $4,980, respectively, of the cash and cash equivalents included on Griffin’s consolidated balance sheet were held in cash equivalents. Griffin’s short-term investments are comprised of 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 FASB ASC 320, “Investments – Debt and Equity Securities” (“ASC 320”). The repurchase agreements are carried at their resell amounts, which approximates fair value due to their short-term nature. Interest on repurchase agreements is reflected as interest receivable that is included in other assets.

As of August 31, 2019, Griffin was a party to several interest rate swap agreements to hedge its interest rate exposures. 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.

8

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. The changes in the fair values of Griffin’s interest rate swap agreements are recorded as components of Accumulated Other Comprehensive (Loss) Income (“AOCI”) in stockholders’ equity to the extent they are effective. Any ineffective portions of the changes in the fair values of these instruments would be recorded as interest expense or interest income.

The results of operations for the three months ended August 31, 2019 (the “2019 third quarter”) and the nine months ended August 31, 2019 (the “2019 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, 2018 are referred to herein as the “2018 third quarter” and “2018 nine month period,” respectively.      

Recent Accounting Pronouncements Adopted

In May 2014, the FASB issued Accounting Standards Update (“ASU” or “Update”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 is not applicable to rental revenue from leases. ASU No. 2014-09 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, ASU No. 2014-09 requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. ASU No. 2014-09 permits the use of either the retrospective or cumulative effect transition method.

Griffin concluded that it has two material revenue streams: (i) rental revenue; and (ii) revenue from property sales. As noted above, rental revenue is not subject to ASU No. 2014-09 because it is subject to the guidance of FASB ASC Topic 840, Leases. Revenue from property sales was evaluated based on the criteria established under ASU No. 2014-09, which served as the basis for the accounting analysis and documentation as it relates to the impact of ASU No. 2014-09. Griffin determined that there was no change in the recognition of revenue from property sales upon adoption of ASU No. 2014-09. In cases where there are no further performance obligations, Griffin recognizes revenue from property sales at the time of closing. Griffin adopted the modified retrospective method for ASU No. 2014-09 when it became effective for Griffin on December 1, 2018. As there was no change to its recognition of revenue, Griffin did not record a cumulative effect adjustment to its consolidated balance sheet at the time of adoption.

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. ASU No. 2016-09 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. ASU No. 2016-09 became effective for Griffin in the three months ended February 28, 2018 (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 ASU No. 2016-09, Griffin is continuing its policy of estimating the forfeiture rate of options.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which is intended to eliminate the stranded tax effects within 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.

9

Recent Accounting Pronouncements Not Yet Adopted

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 ASU No. 2016-02 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. ASU No. 2016-02 also requires significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” which provides narrow amendments to clarify how to apply certain aspects of the new lease standard and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides an alternative transition method that permits an entity to use the effective date of ASU No. 2016-02 as the date of initial application through the recognition of a cumulative effect adjustment to the opening balance of retained earnings upon adoption. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease standard will continue to be in accordance with current U.S. GAAP under FASB ASC Topic 840, “Leases.” In December 2018, the FASB issued ASU No. 2018-20, “Leases (Topic 842): Narrow Scope Improvements for Lessors,” which provides clarification on implementation issues associated with adopting ASU No. 2016-02. In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842): Codification Improvements,” which clarifies the determination of fair value of an underlying asset by lessors that are not manufacturers or dealers, presentation on the statement of cash flows for sales-type and direct financing leases and transition issues related to Topic 250, Accounting Changes and Error Corrections. ASU No. 2016-02, ASU No. 2018-10, ASU No. 2018-11, ASU No. 2018-20 and ASU No. 2019-01 will become effective for Griffin in the fiscal year ending November 30, 2020 (“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 ASU No. 2016-02 will have 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. ASU No. 2017-12 will make more financial and nonfinancial hedging strategies eligible for hedge accounting, amend the presentation and disclosure requirements and change how entities assess effectiveness. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which provides clarification on implementation issues associated with adopting ASU No. 2017-12. ASU No. 2017-12 and ASU No. 2019-04 will each become effective for Griffin in fiscal 2020. Griffin does not expect the application of either of ASU No. 2017-12 or ASU No. 2019-04 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. ASU No. 2018-07 simplifies the accounting for nonemployee share-based payments by aligning it more closely with the accounting for employee awards. ASU No. 2018-07 will become effective for Griffin in fiscal 2020. Early adoption is permitted, but no earlier than Griffin’s adoption of Topic 606 (see above). Griffin does not expect the application of ASU No. 2018-07 to have an impact on its consolidated financial statements.

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.” ASU No. 2018-13 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. ASU No. 2018-13 will become effective for Griffin in the fiscal year ended November 30, 2021 (“fiscal 2021”). Early adoption is permitted upon issuance for any removed or modified disclosures. Griffin does not expect the application of ASU No. 2018-13 to have an impact on its consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge

10

Accounting Purposes.” ASU No. 2018-16 permits the use of the Swap OIS Rate (“OIS Rate”) based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (“LIBOR”) and the OIS Rate based on the Federal Funds Effective Rate. For entities that have not already adopted ASU No. 2017-12 (see above), the amendments in ASU No. 2018-16 are required to be adopted concurrently with the amendments in ASU No. 2017-12. Griffin intends to adopt ASU No. 2018-16 when ASU No. 2017-12 becomes effective. Griffin does not expect the application of ASU No. 2018-16 to have an impact 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. The categorization of an asset or liability 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.

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 2 assets also include Griffin’s short-term investments in repurchase agreements with Webster Bank (see Note 1). The repurchase agreements are carried at their resell amounts, which approximates fair value due to 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.

11

During the 2019 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, 2019
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Interest rate swap asset	$	—	$	6	$	—
Interest rate swap liabilities	$	—	$	5,736	$	—

	November 30, 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	$	—	$	3,157	$	—
Interest rate swap liabilities	$	—	$	56	$	—

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

	Fair Value	August 31, 2019				November 30, 2018
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Value		Fair Value		Value		Fair Value
Financial assets:
Cash and cash equivalents	1	$	4,410	$	4,410	$	8,592	$	8,592
Short-term investments	2	$	9,011	$	9,011	$	17,000	$	17,000
Interest rate swap assets	2	$	6	$	6	$	3,157	$	3,157
Financial liabilities:
Mortgage and construction loans, net of debt issuance costs	2	$	143,571	$	146,300	$	145,052	$	144,712
Interest rate swap liabilities	2	$	5,736	$	5,736	$	56	$	56

The amounts included in the consolidated financial statements for cash and cash equivalents, short-term investments, sale proceeds held in escrow (see Note 7), lease receivables from tenants and accounts payable and accrued liabilities approximate their fair values because of the short-term maturities of these instruments. The fair values of the mortgage and construction loans, net of debt issuance costs, 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 and construction loans. The fair values of the interest rate swaps (used for purposes other than trading) are determined based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current OIS Rate and swap curve along with other market data, taking into account current interest rates and the credit worthiness of the counterparty for assets and the credit worthiness of Griffin for liabilities.

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3.    Real Estate Assets

Real estate assets consist of:

	Estimated
	Useful Lives	Aug. 31, 2019		Nov. 30, 2018
Land		$	27,374	$	21,961
Land improvements	10 to 30 years		34,005		38,280
Buildings and improvements	10 to 40 years		202,399		204,258
Tenant improvements	Shorter of useful life or terms of related lease		28,827		29,163
Machinery and equipment	3 to 20 years		7,557		10,958
Construction in progress			16,641		562
Development costs			13,502		13,443
			330,305		318,625
Accumulated depreciation			(102,396)		(105,004)
		$	227,909	$	213,621

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, 2019		Aug. 31, 2018		Aug. 31, 2019		Aug. 31, 2018
Depreciation expense	$	2,583	$	2,399	$	7,773	$	7,258
Capitalized interest	$	160	$	206	$	289	$	338

Real estate assets held for sale consist of:

	Aug. 31, 2019		Nov. 30, 2018
Land	$	323	$	1,645
Land improvements		4,355		—
Buildings and improvements		2,622		—
Tenant improvements		509		—
Machinery and equipment		3,400		—
Development costs		1,009		1,007
		12,218		2,652
Accumulated depreciation		(10,081)		—
	$	2,137	$	2,652

On May 3, 2019, Griffin closed on the sale of approximately 280 acres (the “Simsbury Land Sale”) of undeveloped land in Simsbury, Connecticut. Griffin received cash proceeds of $7,700, before transaction costs, and recorded a pretax gain of $7,349 on the Simsbury Land Sale. The buyer plans to use the land to generate solar electricity. The net cash proceeds, after transaction costs, of $7,627 from the Simsbury Land Sale were deposited into escrow and subsequently used for the acquisition (see below) of replacement properties 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 16, 2019, Griffin closed on the purchase of approximately 36 acres of undeveloped land in Charlotte, North Carolina for $4,725, before transaction costs, and on July 18, 2019, Griffin closed on the purchase of an adjacent approximately 8 acres of undeveloped land for $855, before transaction costs, resulting in a combined land parcel of approximately 44 acres (the “Charlotte Land”).  Both land purchases were replacement properties under a 1031 Like-Kind Exchange for the Simsbury Land Sale. Griffin plans to construct approximately 500,000 square feet of industrial/warehouse space on the Charlotte Land.  

On December 26, 2018, Griffin closed on the sale of development rights for approximately 116 acres (the “East Windsor Land”) of undeveloped land in East Windsor, Connecticut. Griffin received cash proceeds of $866, before

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transaction costs, and recorded a pretax gain of $52 on the sale of the development rights. On April 1, 2019, Griffin closed on the sale of the East Windsor Land for $700, before transaction costs, and recorded a pretax gain of $42 on the sale of the land. The gain on the development rights and the gain on the subsequent sale of the land were not significant as the cost basis of the East Windsor Land was relatively high.

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 the acquisition of a replacement property in a 1031 Like-Kind Exchange. On July 18, 2018, Griffin closed on the purchase of an approximately 22 acre parcel of undeveloped land in Concord, North Carolina for a purchase price of $2,600, before transaction costs, as a replacement property under a 1031 Like-Kind Exchange.

In the 2019 nine month period, real estate assets held for sale, net, was reduced by $515 reflecting (a) a reduction of $1,741 for property sales that closed, partially offset by (b) an increase of $1,226 from real estate assets, net, being transferred into real estate assets held for sale, net, as a result of entering into agreements to sell such real estate. Included in real estate assets transferred into real estate assets held for sale, net, in the 2019 nine month period were the assets of Griffin’s nursery farm in Quincy, Florida (the “Florida Farm”), the approximately 7,200 square foot restaurant building (the “Restaurant Building”) in Griffin Center in Windsor, Connecticut, and approximately seven acres of undeveloped land in Windsor as Griffin entered into agreements to sell these properties (see Note 9).

4.    Mortgage and Construction Loans

Griffin’s mortgage and construction loans consist of:

	Aug. 31, 2019		Nov. 30, 2018
3.91%, due January 27, 2020 *	$	3,241	$	3,345
4.72%, due October 3, 2022 *		4,199		4,273
4.39%, due January 2, 2025 *		19,245		19,674
4.17%, due May 1, 2026 *		13,208		13,487
3.79%, due November 17, 2026 *		24,879		25,402
4.39%, due August 1, 2027 *		10,097		10,284
3.97%, due September 1, 2027		11,730		11,898
4.57%, due February 1, 2028 *		18,173		18,482
5.09%, due July 1, 2029		5,839		6,172
5.09%, due July 1, 2029		4,091		4,324
4.33%, due August 1, 2030		16,721		16,978
4.51%, due April 1, 2034		14,107		—
Nonrecourse mortgage loans		145,530		134,319
Debt issuance costs		(1,959)		(1,723)
Nonrecourse mortgage loans, net of debt issuance costs		143,571		132,596
4.51% construction loan		—		12,842
Debt issuance costs		—		(386)
Construction loan, net of debt issuance costs		—		12,456
Mortgage and construction loans, net of debt issuance costs	$	143,571	$	145,052

*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 4.31% as of August 31, 2019 and November 30, 2018. As of August 31, 2019, 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 August 31, 2019 and none is anticipated over the term of

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the agreements. Amounts in AOCI 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 2019 nine month period, Griffin recognized a loss, included in other comprehensive income, before taxes of $8,800 on its interest rate swap agreements. 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. As of August 31, 2019, $590 was expected to be reclassified over the next twelve months to AOCI from interest expense. As of August 31, 2019, the net fair value of Griffin’s interest rate swap agreements was a net liability of $5,730, with $6 included in other assets and $5,736 included in other liabilities on Griffin’s consolidated balance sheet.

On March 29, 2018, a subsidiary of Griffin closed on a construction to permanent mortgage loan (the “State Farm Loan”) with State Farm Life Insurance Company that provided a significant portion of the funds for the construction of an approximately 234,000 square foot build-to-suit industrial/warehouse building (“220 Tradeport”) 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. In the fiscal 2018 fourth quarter, 220 Tradeport was completed and the lease commenced. In the 2019 second quarter, rental payments from the tenant began. On August 1, 2019, Griffin converted the State Farm Loan to a nonrecourse permanent mortgage loan of $14,107 that matures on April 1, 2034. Monthly payments of principal and interest started on September 1, 2019. Principal payments on the State Farm Loan are based on a twenty-five year amortization schedule.  Under the terms of the State Farm Loan, the interest rate on the loan remains at 4.51% during the term of the permanent mortgage.

On January 30, 2018, a subsidiary of Griffin closed on a nonrecourse mortgage loan (the “2018 People’s Mortgage”) with People’s United Bank, N.A. (“People’s Bank”) for $18,781.  The 2018 People’s Mortgage refinanced a $12,000 nonrecourse mortgage loan with People’s Bank that was due on March 1, 2027 and was collateralized by two industrial/warehouse buildings in NE Tradeport. The 2018 People’s Mortgage is collateralized by the same two buildings aggregating approximately 275,000 square feet in addition to 330 Stone Road, an approximately 137,000 square foot industrial/warehouse building in NE Tradeport that was completed and placed in service near the end of fiscal 2017. Griffin received additional proceeds of $7,000 (before transaction costs), net of $11,781 used to refinance the existing mortgage loan with People’s Bank. The 2018 People’s Mortgage has a  ten year term with monthly principal payments based on a twenty-five  year amortization schedule. The interest rate for the 2018 People’s Mortgage is a floating rate of the one month LIBOR rate plus 1.95%. At the time the 2018 People’s Mortgage closed, Griffin entered into an interest rate swap agreement with People’s Bank that, combined with an existing interest rate swap agreement with People’s Bank, 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 2022. 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.

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5.    Revolving Credit Agreement

On September 19, 2019, Griffin executed an amendment (the “Revolving Credit Line Amendment”) to its $15,000 revolving credit line (the “Webster Credit Line” and, as amended by the Revolving Credit Line Amendment, the “Amended Webster Credit Line”) with Webster Bank that was originally scheduled to expire on July 31, 2019 (which was extended to September 30, 2019 on July 26, 2019). The Revolving Credit Line Amendment provided for an extension of the maturity date to September 30, 2021, with an option to extend for an additional year through September 30, 2022, reduced the interest rate from the one month LIBOR rate plus 2.75% to the one month LIBOR rate plus 2.50%, and increased the amount of the Webster Credit Line from $15,000 to $19,500, while adding an approximately 31,000 square foot industrial/warehouse building in Bloomfield, Connecticut to the Webster Credit Line’s original collateral, which included 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. Under the terms of the Revolving Credit Line Amendment, Griffin must maintain: (a) a maximum loan to value ratio of 72%; (b) a minimum liquidity, as defined in the Revolving Credit Line Amendment, of $5,000; and (c) a fixed charge coverage ratio, defined as EBITDA minus cash income taxes and dividends paid, divided by debt service, of at least 1.1 to 1.0. As of August 31, 2019, the Webster Credit Line secured certain unused standby letters of credit aggregating $639 that are related to Griffin's development activities.

On September 19, 2019, Griffin and Webster Bank also entered into an additional credit line of $15,000 to be used to finance property acquisitions (the “Acquisition Credit Line”). The Acquisition Credit Line is unsecured, expires on September 30, 2021, with an option to extend for an additional year through September 30, 2022, and may be used to fund up to 65% of the purchase price of real estate acquisitions. Interest on advances under the Acquisition Credit Line are at the one month LIBOR rate plus 2.75%. Amounts borrowed under the Acquisition Credit Line are expected to be repaid from proceeds from long-term financing of the property acquired. If amounts borrowed under the Acquisition Credit Line are not repaid within 135 days from the date the properties are acquired Griffin has agreed to either (a) repay the portion of the Acquisition Credit Line allocable to such advance or (b) execute a first-lien mortgage in favor of Webster Bank. Under the terms of the Acquisition Credit Line, Griffin must maintain (i) a minimum debt service coverage ratio of the aggregate acquired property (as defined in the Acquisition Credit Line) equal to or greater than 1.25 times; (ii) a minimum net worth of not less than $80,000; (iii) a minimum liquidity, as defined in the Acquisition Credit Line, of $5,000; (iv) a ratio of total debt plus preferred stock, to total assets not to exceed 50% of the total fair market value of Griffin’s assets; and (v) a fixed charge coverage ratio, calculated the same as under the Revolving Credit Line Amendment, of at least 1.1 to 1.0.

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, 2019		Aug. 31, 2018		Aug. 31, 2019		Aug. 31, 2018
Net income (loss)	$	1,017	$	(122)	$	6,250	$	(1,514)
Weighted average shares outstanding for computation of basic per share results		5,073,000		5,031,000		5,068,000		5,013,000
Incremental shares from assumed exercise of Griffin stock options (a)		40,000		—		34,000		—
Adjusted weighted average shares for computation of diluted per share results		5,113,000		5,031,000		5,102,000		5,013,000

(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. 

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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 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 (as amended, 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, 2019 may be exercised as stock appreciation rights.

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

	For the Nine Months Ended
	Aug. 31, 2019			Aug. 31, 2018
		Fair Value per			Fair Value per
	Number of	Option at		Number of	Option at
	Shares	Grant Date		Shares	Grant Date
Non-employee directors	5,946	$	12.87	5,195	$	14.41

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, 2019		Aug. 31, 2018
Expected volatility	30.9	%	30.5	%
Risk free interest rates	2.3	%	3.0	%
Expected option term (in years)	8.5		8.5
Annual dividend yield	1.2	%	1.1	%

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Number of option holders at August 31, 2019 26

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

	For the Three Months Ended				For the Nine Months Ended
	Aug. 31, 2019		Aug. 31, 2018		Aug. 31, 2019		Aug. 31, 2018
Compensation expense	$	21	$	83	$	205	$	261
Related tax benefit	$	9	$	14	$	35	$	40

For all periods presented, the forfeiture rate for directors ranged from 0% to 2%, 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 August 31, 2019, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

Balance of Fiscal 2019	$	57
Fiscal 2020	$	149
Fiscal 2021	$	39

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

	For the Nine Months Ended
	August 31, 2019			August 31, 2018
	Number of		Weighted Avg.	Number of		Weighted Avg.
	Shares		Exercise Price	Shares		Exercise Price
Outstanding at beginning of period	224,001	$	28.20	333,762	$	29.22
Granted	5,946	$	36.99	5,195	$	38.48
Exercised	(29,838)	$	28.71	(74,554)	$	31.97
Forfeited	(7,788)	$	32.62	(20,279)	$	33.78
Outstanding at end of period	192,321	$	28.21	244,124	$	28.20

				Weighted Avg.
				Remaining
Range of Exercise Prices for	Outstanding at	Weighted Avg.		Contractual Life	Total Intrinsic
Vested and Nonvested Options	August 31, 2019	Exercise Price		(in years)	Value
$23.00 - $28.00	115,137	$	26.76	6.5	$	1,063
$28.00 - $32.00	65,212	$	29.21	2.8		442
$32.00 - $39.00	11,972	$	36.74	8.3		7
	192,321	$	28.21	5.3	$	1,512

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Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss), net of tax, comprised of unrealized gains on cash flow hedges is as follows:

	For the Nine Months Ended
	Aug. 31, 2019		Aug. 31, 2018
Balance at beginning of period	$	2,395	$	(284)
Other comprehensive (loss) income before reclassifications		(6,899)		2,088
Amounts reclassified		74		435
Adoption of ASU No. 2018-02 - reclassification of deferred taxes to retained earnings		—		(36)
Net activity for other comprehensive (loss) income		(6,825)		2,487
Balance at end of period	$	(4,430)	$	2,203

Changes in accumulated other comprehensive income (loss) are as follows:

	For the Three Months Ended
	August 31, 2019						August 31, 2018
			Tax						Tax
			(Expense)		Net-of				(Expense)		Net-of
	Pre-Tax		Benefit		Tax		Pre-Tax		Benefit		Tax
Reclassification included in net income:
Loss on cash flow hedges (interest expense)	$	8	$	(2)	$	6	$	126	$	(29)	$	97
Change in other comprehensive (loss) income:
(Decrease) increase in fair value adjustments on Griffin’s cash flow hedges		(3,443)		798		(2,645)		168		(36)		132
Other comprehensive (loss) income	$	(3,435)	$	796	$	(2,639)	$	294	$	(65)	$	229

	For the Nine Months Ended
	August 31, 2019						August 31, 2018
			Tax						Tax
			(Expense)		Net-of				(Expense)		Net-of
	Pre-Tax		Benefit		Tax		Pre-Tax		Benefit		Tax
Reclassification included in net income (loss):
Loss on cash flow hedges (interest expense)	$	96	$	(22)	$	74	$	557	$	(122)	$	435
Change in other comprehensive (loss) income:
(Decrease) increase in fair value adjustments on Griffin’s cash flow hedges		(8,896)		1,997		(6,899)		2,679		(591)		2,088
Other comprehensive (loss) income	$	(8,800)	$	1,975	$	(6,825)	$	3,236	$	(713)	$	2,523

Cash Dividend

Griffin did not declare a cash dividend in either the 2019 nine month period or the 2018 nine month period. During the 2019 nine month period, Griffin paid $2,279 for the cash dividend declared in the 2018 fourth quarter. During the 2018 nine month period, Griffin paid $2,000 for the cash dividend declared in the 2017 fourth quarter.

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7.    Supplemental Financial Statement Information

Investments

As of August 31, 2019 and November 30, 2018, Griffin held $9,011 and $17,000, respectively, of repurchase agreements accounted for as held-to-maturity securities under ASC 320 and classified as short-term investments on its consolidated balance sheet. The repurchase agreements are with Webster Bank and are collateralized by securities issued by the U.S. government or its sponsored agencies. The repurchase agreements are carried at their resell amounts, which approximates fair value due to their short-term nature. As of August 31, 2019, Griffin’s repurchase agreements had a weighted average maturity of approximately 55 days with no maturities longer than six months.

Other Assets

Griffin's other assets are comprised of the following:

	Aug. 31, 2019		Nov. 30, 2018
Deferred rent receivable	$	5,846	$	5,602
Prepaid expenses		4,664		2,780
Deferred leasing costs, net		4,502		4,355
Sale proceeds held in escrow		2,217		—
Lease receivables from tenants		1,275		407
Intangible assets, net		1,177		1,399
Deposits		892		1,072
Mortgage escrows		286		452
Registration statement costs		281		281
Furniture, fixtures and equipment, net		206		245
Deferred financing costs related to the Webster Credit Line		54		33
Interest rate swap assets		6		3,157
Other		309		265
Total other assets	$	21,715	$	20,048

Accounts Payable and Accrued Liabilities

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

	Aug. 31, 2019		Nov. 30, 2018
Accrued construction costs and retainage	$	2,315	$	832
Accrued interest payable		551		555
Accrued lease commissions		491		136
Accrued salaries, wages and other compensation		483		931
Trade payables		352		380
Other		624		499
Total accounts payable and accrued liabilities	$	4,816	$	3,333

Other Liabilities

Griffin's other liabilities are comprised of the following:

	Aug. 31, 2019		Nov. 30, 2018
Interest rate swap liabilities	$	5,736	$	56
Deferred compensation plan		5,382		5,145
Prepaid rent from tenants		1,357		1,134
Security deposits of tenants		547		533
Conditional asset retirement obligations		171		171
Land sale deposits		—		260
Other		78		79
Total other liabilities	$	13,271	$	7,378

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Supplemental Cash Flow Information

In the 2019 nine month period, Griffin received 22,390 shares of its Common Stock in connection with the exercise of stock options as consideration for the exercise price and for reimbursement of income tax withholdings related to those stock option exercises. The shares received were recorded as treasury stock which resulted in an increase in treasury stock of $846 and did not affect Griffin’s cash.

In the 2018 nine month period, Griffin received 30,039 shares of its Common Stock in connection with the exercise of stock options as consideration for the exercise price and for reimbursement of income tax withholdings related to those stock option exercises. The shares received were recorded as treasury stock, which resulted in an increase in treasury stock of $1,189, and did not affect Griffin’s cash.

Accounts payable and accrued liabilities related to additions to real estate assets increased by $1,483 and $1,461 in the 2019 nine month period and 2018 nine month period, respectively.

Interest payments were as follows:

For the Three Months Ended					For the Nine Months Ended
Aug. 31, 2019		Aug. 31, 2018		Aug. 31, 2019		Aug. 31, 2018
$	1,609	$	1,545	$	4,828	$	4,474

Included in deferred leasing costs and other on the Consolidated Statement of Cash Flows for the 2019 nine month period are net proceeds of $126 from an insurance recovery.

Income Taxes

Griffin’s income tax provision was $689  in the 2019 nine month period as compared to $733 in the 2018 nine month period. The 2019 nine month period income tax provision included: (a) a charge of $1,621 related to the 2019 nine month period pretax income of $6,939, reflecting an effective tax rate of 23.4%; partially offset by (b) a benefit of $873 for the partial reduction of the valuation allowance on deferred tax assets related primarily to net operating loss carryforwards in Connecticut; and (c) an income tax benefit of $59 for the exercise of stock options. On June 26, 2019, Connecticut enacted legislation phasing out its capital based tax over a four-year period beginning January 1, 2021. Griffin historically has paid the Connecticut capital based tax rather than the corporation income tax, because the capital based tax was the higher amount. In light of the new tax law, management evaluated the recoverability of its Connecticut deferred tax assets and determined that, based on projected future operating results and the phase-out of the capital based tax, the valuation allowance against its Connecticut deferred tax assets should be reduced.

The income tax provision in the 2018 nine month period included a charge of $1,001 for the re-measurement of Griffin’s deferred tax assets and liabilities as a result of the reduction in the U.S. federal corporate statutory rate from 35% to 21% under the TCJA, which was enacted on December 22, 2017 and became effective for Griffin in the 2018 first quarter. As Griffin had net deferred tax assets when the TCJA became effective for Griffin, the re-measurement of its deferred tax assets and liabilities resulted in the charge that is included in Griffin’s 2018 nine month period income tax provision. Partially offsetting the charge for the re-measurement of deferred tax assets and liabilities in the 2018 nine month period was an income tax benefit of $148 based on the 2018 nine month period pretax loss of $781, reflecting an effective tax rate of 19.0%,  and an income tax benefit of $120 for the exercise of stock options.

Griffin’s federal income tax returns for fiscal 2016, fiscal 2017 and fiscal 2018 are open to examination by the Internal Revenue Service. 

8.    Commitments and Contingencies

As of August 31, 2019, Griffin had committed purchase obligations of approximately $3,062, principally related to the completion of construction of two industrial/warehouse buildings totaling approximately 283,000 square feet in Concord, North Carolina, as well as improvements at other Griffin properties.

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On January 11, 2018, Griffin entered into an agreement to purchase an approximately 14 acre parcel of undeveloped land in the Lehigh Valley of Pennsylvania (the “Lehigh Valley Land”) for $3,600 in cash.  The agreement has been amended several times and the purchase price has been reduced to $1,850 in cash principally reflecting the reduced development potential for an industrial/warehouse building from approximately 156,000 square feet  to approximately 100,000 square feet on the site as a result of certain wetlands that may not be disturbed. The closing of this purchase is subject to several conditions, including obtaining the required governmental approvals for Griffin’s revised development plans for the Lehigh Valley Land. There is no guarantee that this transaction will be completed under revised terms, or at all.

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

9.    Subsequent Events

In accordance with FASB ASC 855, “Subsequent Events,” Griffin has evaluated all events or transactions occurring after August 31, 2019, the balance sheet date, and noted that there have been no such events or transactions which would require recognition or disclosure in the consolidated financial statements as of and for the period ended August 31, 2019, other than the disclosures herein.

On September 5, 2019, Griffin entered into an agreement to sell all real estate assets of the Florida Farm previously used by Imperial Nurseries, Inc. prior to being shut down in fiscal 2009 for a purchase price of $2,300 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is not expected to take place until fiscal 2020. There is no guarantee that this transaction will be completed under its current terms, or at all.

On September 11, 2019, Griffin entered into an agreement to sell the approximately seven acres of undeveloped land in Windsor, Connecticut for a purchase price of $750 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the fiscal 2020 first quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

Also on September 11, 2019, Griffin entered into an agreement to sell the Restaurant Building for a purchase price of $650 in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the 2019 fourth quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

On September 19, 2019, Griffin and Webster Bank entered into a new $15,000 Acquisition Credit Line to be used to finance property acquisitions (see Note 5). Also on  September 19, 2019, Griffin and Webster Bank executed the Revolving Credit Line Amendment to the Webster Credit Line that increased the amount of the Webster Credit Line to $19,500 and extended the Webster Credit Line through September 30, 2021 (see Note 5).

On September 27, 2019, Griffin entered into an agreement to acquire an approximately 100,000 square foot fully leased industrial/warehouse building in Orlando, Florida (the “Orlando Building”) for $10,150 to be paid in cash at closing. This would be Griffin’s first industrial/warehouse building in the Orlando area. Griffin intends to finance the purchase of the Orlando Building using the Acquisition Credit Line and cash on hand. Closing on the purchase of the Orlando Building is subject to the satisfactory completion of due diligence by Griffin. There is no guarantee that this transaction will be completed under its current terms, or at all.

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

Overview

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 also seeks to add to its industrial/warehouse property portfolio through the acquisition and development of land or the 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.

The significant accounting policies and methods used in the preparation of Griffin’s unaudited consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q are consistent with those used in the preparation of Griffin’s audited consolidated financial statements for its fiscal year ended November 30, 2018 (“fiscal 2018”) included in Griffin’s Annual Report on Form 10-K/A as filed with the United States Securities and Exchange Commission (the “SEC”) on April 5, 2019 (“Form 10-K”).

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. Griffin regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations 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. The significant accounting estimates used by Griffin in the preparation of its financial statements for the three months and nine months ended August 31, 2019 are consistent with those used by Griffin to prepare its consolidated financial statements for fiscal 2018.

Summary

For the three months ended August 31, 2019 (the “2019 third quarter”), Griffin had net income of approximately $1.0 million as compared to a  net loss of approximately $0.1 million for the three months ended August 31, 2018 (the “2018 third quarter”). The net income in the 2019 third quarter, as compared to the net loss in the 2018 third quarter, principally reflected an approximately $0.4 million increase in operating income and an approximately $0.7 million increase in income tax benefit in the 2019 third quarter, as compared to the 2018 third quarter.

The approximately $0.4 million increase in operating income in the 2019 third quarter, as compared to the 2018 third quarter, principally reflected: (a) an approximately $0.3 million increase in net operating income from leasing (“Leasing NOI”)1, which Griffin defines as rental revenue less operating expenses of rental properties; (b) an approximately $0.1 million increase in gain on property sales (revenue from property sales less costs related to property sales);  and (c) an approximately $0.2 million decrease in general and administrative expenses; partially offset by (d) an approximately $0.2 million increase in depreciation and amortization expense in the 2019 third quarter, in each case as compared to the 2018 third quarter.

The increase in Leasing NOI principally reflected higher rental revenue as a result of more space under lease 

1Leasing NOI is not a financial measure in conformity with U.S. GAAP. It is presented because Griffin believes it is a useful financial indicator for measuring results of its real estate leasing activities. However, it should not be considered as an alternative to operating income as a measure of operating results in accordance with U.S. GAAP. In prior years, Griffin referred to this metric as “profit from leasing activities.” In fiscal 2019, Griffin changed from profit from leasing activities to Leasing NOI to be more in line with terminology used by other real estate companies.

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in the 2019 third quarter than the 2018 third quarter, driven by the commencement in the three months ended November 30, 2018 (the “2018 fourth quarter”) of the full building lease of 220 Tradeport Drive (“220 Tradeport”), an approximately 234,000 square foot build-to-suit industrial/warehouse building in New England Tradeport (“NE Tradeport”), Griffin’s industrial park in Windsor and East Granby, Connecticut.  The increase in gain on property sales reflected several small land sales completed in the 2019 third quarter. There were no property sales in the 2018 third quarter. The lower general and administrative expenses in the 2019 third quarter, as compared to the 2018 third quarter, principally reflected lower compensation expense. The higher depreciation and amortization expense in the 2019 third quarter, as compared to the 2018 third quarter, principally reflected depreciation and amortization expense on properties that were added to Griffin’s real estate portfolio subsequent to the end of the 2018 third quarter.

The higher income tax benefit in the 2019 third quarter, as compared to the 2018 third quarter, principally reflected the inclusion in the 2019 third quarter of approximately $0.9 million for a reduction to the valuation allowance on Connecticut state deferred tax assets as a result of a change in Connecticut’s tax law whereby the capital based tax is being phased out over the next four years.  

For the nine months ended August 31, 2019 (the “2019 nine month period”), Griffin had net income of approximately $6.3 million as compared to a net loss of approximately $1.5 million for the nine months ended August 31, 2018 (the “2018 nine month period”). The net income in the 2019 nine month period, as compared to the net loss in the 2018 nine month period, principally reflected an approximately $7.8 million increase in operating income and an approximately $0.2 million increase in investment income in the 2019 nine month period, as compared to the 2018 nine month period, partially offset by an approximately $0.2 million increase in interest expense in the 2019 nine month period, as compared to the 2018 nine month period.

The approximately $7.8 million increase in operating income in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected: (a) an approximately $7.0 million increase in gains on property sales; (b) an approximately $0.8 million increase in Leasing NOI; (c) an approximately $0.2 million decrease in general and administrative expenses;  and (d) an approximately $0.1 million gain from an insurance recovery in the 2019 nine month period; partially offset by (e) an approximately $0.3 million increase in depreciation and amortization expense in the 2019 nine month period, as compared to the 2018 nine month period.

The increase in gains from property sales in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected a pretax gain of approximately $7.3 million from the sale of approximately 280 acres of undeveloped land in Simsbury, Connecticut (the “Simsbury Land Sale”). The increase in Leasing NOI principally reflected higher rental revenue in the 2019 nine month period as a result of more space under lease in the 2019 nine month period than the 2018 nine month period, driven by the full building lease of 220 Tradeport that commenced in the 2018 fourth quarter. The lower general and administrative expenses in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected lower compensation expense and the 2018 nine month period including an approximately $0.1 million expense for the removal of structures on Griffin’s land that remained from the tobacco growing operations of former affiliates of Griffin. The gain from an insurance recovery reflected the settlement of an insurance claim for storm damage to Griffin’s nursery farm in Quincy, Florida (the “Florida Farm”) that had been leased to a grower of landscape nursery products. The higher depreciation and amortization expense in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected depreciation and amortization expense on properties that were added to Griffin’s real estate portfolio subsequent to the end of the 2018 nine month period. The higher interest expense in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected the higher principal amount of mortgage loans outstanding in the 2019 nine month period as compared to the 2018 nine month period.

The approximately $0.7 million income tax provision in the 2019 nine month period reflected approximately $1.6 million related to the 2019 nine month period pretax income of approximately $6.9 million, partially offset by the income tax benefit of approximately $0.9 million for a reduction to the valuation allowance on Connecticut state deferred tax assets as a result of the aforementioned change in Connecticut’s tax law. The approximately $0.7 million income tax provision in the 2018 nine month period reflected an approximately $1.0 million charge for the re-measurement of Griffin’s deferred tax assets and liabilities as a result of the reduction in the U.S. federal corporate statutory tax rate from 35% to 21% under the Tax Cuts and Jobs Act (“TCJA”) that became effective for Griffin in the three months ended February 28, 2018 (the “2018 first quarter”), partially offset by an approximately $0.2 million income tax benefit related to the fiscal 2018 nine month period pretax loss of approximately $0.8 million and a benefit of approximately $0.1 million from stock options exercised in the 2018 nine month period. As Griffin had net deferred tax

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assets when the TCJA became effective for Griffin, the re-measurement of its deferred tax assets and liabilities resulted in the charge that is included in Griffin’s 2018 nine month period income tax provision.

Results of Operations

2019 Third Quarter Compared to 2018 Third Quarter

Total revenue increased from approximately $8.0 million in the 2018 third quarter to approximately $8.9 million in the 2019 third quarter, reflecting increases in rental revenue and revenue from property sales of approximately $0.6 million and $0.3 million, respectively.

Rental revenue increased to approximately $8.6 million in the 2019 third quarter from approximately $8.0 million in the 2018 third quarter. The approximately $0.6 million increase in rental revenue in the 2019 third quarter, as compared to the 2018 third quarter, was principally due to: (a) approximately $0.5 million of rental revenue from 220 Tradeport; (b) an increase of approximately $0.2 million in rental revenue from leasing previously vacant space subsequent to the 2018 third quarter; and (c) an increase of approximately $0.1 million from all other rental properties; partially offset by (d) a decrease of approximately $0.2 million in rental revenue from leases that expired or terminated subsequent to the 2018 third quarter, including approximately $0.1 million as a result of the early termination, in the 2018 fourth quarter, of the Florida Farm lease due to the former tenant’s bankruptcy filing. Leasing NOI for the 2019 third quarter increased to approximately $6.1 million from approximately $5.8 million in the 2018 third quarter as a result of the increase in rental revenue in the 2019 third quarter, as compared to the 2018 third quarter, partially offset by the increase of approximately $0.3 million in operating expenses of rental properties in the 2019 third quarter, as compared to the 2018 third quarter.

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

	Total	Leased
	Square	Square	Percentage
	Footage	Footage	Leased
As of August 31, 2018	3,710,000	3,471,000	94%
As of November 30, 2018	4,078,000	3,777,000	93%
As of August 31, 2019	4,078,000	3,830,000	94%

The increase in total square footage of approximately 368,000 square feet from August 31, 2018 to November 30, 2018 was due to the completion in the 2018 fourth quarter of 220 Tradeport and 6975 Ambassador Drive (“6975 Ambassador”), an approximately 134,000 square foot industrial/warehouse building in the Lehigh Valley of Pennsylvania, that was built on speculation. The approximately 53,000 square foot increase in space leased as of August 31, 2019, as compared to November 30, 2018, reflected:  (a) a lease for approximately 64,000 square feet of 6975 Ambassador executed during the 2019 third quarter; and (b) leasing approximately 30,000 square feet of previously vacant primarily industrial/warehouse space in connection with the expansion and extension of two leases; partially offset by (c) a lease of approximately 23,000 square feet of industrial/warehouse space in NE Tradeport that expired and was not renewed; and (d) a reduction of approximately 17,000 square feet as a result of several lease extensions and relocations of office/flex space whereby the tenants reduced their space leased. Such relocations included a tenant in Griffin’s two multi-story office buildings in Griffin Center in Windsor, Connecticut that downsized from approximately 34,000 square feet under leases that were scheduled to expire on July 31, 2019,  to approximately 25,000 square feet under a new six-year lease.

As of August 31, 2019, Griffin’s approximately 3,645,000 square feet of industrial/warehouse space (89% of Griffin’s total square footage), comprised of approximately 2,051,000 square feet in the north submarket of Hartford, Connecticut, 1,317,000 square feet in the Lehigh Valley and approximately 277,000 square feet in the Charlotte, North Carolina area,  was 97% leased. The only significant vacancies of industrial/warehouse space included the remaining approximately 70,000 square feet in 6975 Ambassador and approximately 48,000 square feet in NE Tradeport.

Subsequent to August 31, 2019, Griffin completed the construction, on speculation, of two industrial/warehouse buildings (“160 and 180 International”) aggregating approximately 283,000 square feet on a land parcel in Concord, North Carolina (the “Concord Land”) in the greater Charlotte area, that was purchased in fiscal 2018. Upon completion of 160 and 180 International, Griffin’s total real estate portfolio increased to approximately 4,361,000 square feet, with

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industrial/warehouse space of approximately 3,928,000 square feet (90% of Griffin’s total square footage). On September 13, 2019, Griffin entered into a lease for approximately 74,000 square feet of 160 International.

Activity in the industrial/warehouse market in the north submarket of Hartford improved during the 2019 third quarter, whereas the Lehigh Valley and Charlotte, North Carolina industrial/warehouse real estate markets remained relatively strong through the 2019 third quarter. Griffin’s office/flex buildings, aggregating approximately 433,000 square feet (11% of Griffin’s total square footage) and located entirely in the north submarket of Hartford, were approximately 70% leased as of August 31, 2019. The office/flex market where Griffin’s space is located remained weak through the 2019 third quarter.

Revenue from property sales of approximately $0.3 million in the 2019 third quarter principally reflected approximately $0.2 million from the sale of two residential lots (one of which is in Stratton Farms, Griffin’s residential development in Suffield, Connecticut) and approximately $0.1 million from the sale of air rights of certain land parcels in NE Tradeport. There were no property sales in the 2018 third quarter. Property sales occur periodically and year to year changes in revenue from property sales may not be indicative of any trends in Griffin’s real estate business.

Operating expenses of rental properties increased to approximately $2.5 million in the 2019 third quarter from approximately $2.2 million in the 2018 third quarter. The approximately $0.3 million increase in operating expenses of rental properties in the 2019 third quarter, as compared to the 2018 third quarter, principally reflected approximately $0.1 million of operating expenses at each of 220 Tradeport and 6975 Ambassador, the two buildings that were placed in service in the 2018 fourth quarter, and an approximately $0.1 million net increase in operating expenses across all other properties.

Depreciation and amortization expense increased to approximately $2.9 million in the 2019 third quarter from approximately $2.7 million in the 2018 third quarter. The approximately $0.2 million increase in depreciation and amortization expense in the 2019 third quarter, as compared to the 2018 third quarter, is principally related to 220 Tradeport and 6975 Ambassador.

General and administrative expenses decreased to approximately $1.6 million in the 2019 third quarter from approximately $1.8 million in the 2018 third quarter. The approximately $0.2 million decrease in general and administrative expenses in the 2019 third quarter, as compared to the 2018 third quarter, principally reflected lower compensation expense.

Interest expense of approximately $1.5 million in the 2019 third quarter was essentially unchanged from the 2018 third quarter. An increase of approximately $0.1 million in interest expense on the State Farm Loan (as defined below) as a result of the higher amount outstanding thereunder in the 2019 third quarter, as compared to the 2018 third quarter, was offset by lower interest expense across all other mortgage loans.

The income tax benefit increased to approximately $0.8 million in the 2019 third quarter from approximately $0.1 million in the 2018 third quarter. The income tax benefit in the 2019 third quarter principally reflected an income tax benefit of approximately $0.9 million in the 2019 third quarter for a partial reduction of the valuation allowance on Connecticut state deferred tax assets partially offset by a charge of approximately $0.1 million for income taxes on current period pretax income. On June 26, 2019, Connecticut enacted legislation phasing out its capital based tax over a four-year period beginning January 1, 2021. Griffin historically has paid the Connecticut capital based tax rather than the corporation income tax, because the capital based tax was the higher amount. In light of the new tax law, management evaluated the recoverability of its Connecticut deferred tax assets and determined that, based on projected future operating results and the phase-out of the capital based tax, the valuation allowance against its Connecticut deferred tax assets should be reduced. The income tax benefit in the 2018 third quarter related to the 2018 third quarter pretax loss of approximately $0.2 million and tax benefits from the exercise of stock options.

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2019 Nine Month Period Compared to 2018 Nine Month Period

Total revenue increased from approximately $25.4 million in the 2018 nine month period to approximately $35.3 million in the 2019 nine month period, reflecting increases in revenue from property sales and rental revenue of approximately $8.8 million and $1.1 million, respectively.

Revenue from property sales of approximately $9.8 million in the 2019 nine month period principally reflected: (a) approximately $7.7 million from the Simsbury Land Sale which closed after the buyer procured the required entitlements and approvals for its planned development of a facility to generate solar electricity on the land acquired; (b) a total of approximately $1.6 million from the sales of approximately 116 acres of undeveloped land in East Windsor, Connecticut (the “East Windsor Land”) and the East Windsor Land’s development rights in two separate transactions; and (c) approximately $0.5 million from several smaller land sales. Revenue from property sales of approximately $1.0 million in the 2018 nine month period principally reflected approximately $0.8 million from the sale of approximately 49 acres of undeveloped land in Southwick, Massachusetts (the “Southwick Land Sale”), approximately $0.1 million from the sale of a residential lot at Stratton Farms, and the recognition of approximately $0.1 million of revenue from a buyer’s forfeiture of a deposit on a potential land sale.  Property sales occur periodically and year to year changes in revenue from property sales may not be indicative of any trends in Griffin’s real estate business.

Rental revenue increased to approximately $25.5 million in the 2019 nine month period from approximately $24.4 million in the 2018 nine month period. The approximately $1.1 million increase in rental revenue in the 2019 nine month period, as compared to the 2018 nine month period, was principally due to: (a) approximately $1.3 million of rental revenue from 220 Tradeport; and (b) an increase of approximately $0.4 million in rental revenue from leasing previously vacant space; partially offset by (c) a decrease of approximately $0.6 million in rental revenue from leases that expired or terminated subsequent to the 2018 nine month period, including approximately $0.3 million as a result of the early termination of the Florida Farm lease. Leasing NOI increased to approximately $17.9 million in the 2019 nine month period from approximately $17.1 million in the 2018 nine month period as a result of the increase in rental revenue partially offset by an increase in operating expenses of rental properties in the 2019 nine month period, as compared to the 2018 nine month period.

Operating expenses of rental properties increased to approximately $7.6 million in the 2019 nine month period from approximately $7.3 million in the 2018 nine month period.  The approximately $0.3 million increase in operating expenses of rental properties in the 2019 nine month period, as compared to the 2018 nine month period, was principally due to approximately $0.4 million of operating expenses at 220 Tradeport and 6975 Ambassador, the two buildings that were placed in service in the 2018 fourth quarter, partially offset by an approximately $0.1 million net reduction in operating expenses across all other rental properties, principally due to lower snow removal expenses in the 2019 nine month period, as compared to the 2018 nine month period. 

Depreciation and amortization expense increased to approximately $8.8 million in the 2019 nine month period from approximately $8.4 million in the 2018 nine month period.  Approximately $0.7 million of depreciation and amortization expense related to 220 Tradeport and 6975 Ambassador in the 2019 nine month period was partially offset by a decrease of approximately $0.3 million of depreciation and amortization expense across all other properties as a result of certain real estate assets becoming fully depreciated and certain deferred leasing costs becoming fully amortized prior to the 2019 nine month period.

General and administrative expenses decreased to approximately $5.6 million in the 2019 nine month period from approximately $5.8 million in the 2018 nine month period. The approximately $0.2 million decrease in the 2019 nine month period, as compared to the 2018  nine month period, principally reflected an approximately $0.1 million decrease in compensation expense in the 2019 nine month period and an expense in the 2018 nine month period of approximately $0.1 million for removal of structures on Griffin’s land holdings that remained from the tobacco growing operations of former affiliates of Griffin. 

Operating income in the 2019 nine month period also included a gain on insurance recovery of approximately $0.1 million, which related solely to proceeds, net of expenses, from the settlement of an insurance claim for storm damage to the Florida Farm.

Interest expense increased to approximately $4.8 million in the 2019 nine month period from approximately $4.6 million in the 2018 nine month period. The approximately $0.2 million increase in interest expense in the 2019 nine 

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month period, as compared to the 2018 nine month period, principally reflected an approximately $0.4 million increase in interest expense on the State Farm Loan as a result of the higher amount outstanding thereunder in the 2019 nine month period, as compared to the 2018 nine month period, partially offset by a decrease in interest expense of approximately $0.2 million across all other mortgage loans.  

Investment income increased to approximately $0.2 million in the 2019 nine month period from approximately $0.1 million in the 2018 nine month period. The approximately $0.1 million increase in investment income in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected the earnings on Griffin’s short-term investments, which 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.

The income tax provision of approximately $0.7 million in the 2019 nine month period was essentially unchanged from the 2018 nine month period.  The 2019 nine month period income tax provision included an income tax benefit of approximately $0.9 million due to a partial reduction to the valuation allowance on Connecticut state deferred tax assets as a result of a change in Connecticut’s tax law whereby the capital based tax is being phased out over the next four years beginning January 1,2021. Excluding the benefit from the reduction of the valuation allowance on state deferred tax assets, the 2019 nine month period income tax provision reflected an effective tax rate of 23.4%, partially offset by a benefit for the exercise of stock options. The income tax provision in the 2018 nine month period included a charge of approximately $1.0 million for the re-measurement of Griffin’s deferred tax assets and liabilities as a result of the reduction in the U.S. federal corporate statutory tax rate from 35% to 21% under the TCJA, which was enacted on December 22, 2017 and became effective for Griffin in the 2018 first quarter. As Griffin had net deferred tax assets when the TCJA became effective for Griffin, the re-measurement of its deferred tax assets and liabilities resulted in the charge that was included in the 2018 nine month period income tax provision. Partially offsetting the charge for the re-measurement of deferred tax assets and liabilities in the 2018 nine month period was an income tax benefit of approximately $0.3 million related to the 2018 nine month period pretax loss of approximately $0.8 million and stock options exercised in the 2018 nine month period.

Off Balance Sheet Arrangements

Griffin does not have any material off balance sheet arrangements.

Liquidity and Capital Resources

Net cash provided by operating activities was approximately $6.7 million in the 2019 nine month period as compared to approximately $5.0 million in the 2018 nine month period.  The approximately $1.7 million increase in net cash provided by operating activities in the 2019 nine month period, as compared to the 2018 nine month period, principally reflected an increase in cash of approximately $0.9 million from results of operations as adjusted for noncash expenses, gains on property sales and a gain on an insurance recovery, and a net increase of approximately $0.8 million in cash from changes in assets and liabilities in the 2019 nine month period, as compared to the 2018 nine month period. The increase in cash from results of operations, as adjusted for noncash expenses and gains on property sales, principally reflected the approximately $0.8 million increase in Leasing NOI2 in the 2019 nine month period, as compared to the 2018 nine month period.

Net cash used in investing activities was approximately $7.0 million in the 2019 nine month period as compared to approximately $34.1 million in the 2018 nine month period. The net cash used in investing activities in the 2019 nine month period reflected: (a) cash payments of approximately $21.8 million for additions to real estate assets; and (b) cash payments of approximately $0.5 million for deferred leasing costs and other uses; partially offset by (c) $8.0 million of cash from a decrease in short-term investments; and (d)  net cash proceeds of approximately $9.5 million from property sales, partially offset by approximately $2.2 million of proceeds from property sales deposited into escrow

2Leasing NOI is not a financial measure in conformity with U.S. GAAP. It is presented because Griffin believes it is a useful financial indicator for measuring results of its real estate leasing activities. However, it should not be considered as an alternative to operating income as a measure of operating results in accordance with U.S. GAAP. In prior years, Griffin referred to this metric as “profit from leasing activities.” In fiscal 2019, Griffin changed from profit from leasing activities to Leasing NOI to be more in line with terminology used by other real estate companies.

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

The approximately $21.8 million of cash payments for additions to real estate assets in the 2019 nine month period reflected the following:

New building construction (including site work)	$	13.1 million
Purchase of undeveloped land	$	5.7 million
Tenant and building improvements related to leasing	$	2.5 million
Development costs and infrastructure improvements	$	0.5 million

Cash payments for new building construction (including site work) in the 2019 nine month period included approximately $12.7 million for construction, on speculation, of 160 and 180 International. Griffin expects to spend a total of approximately $15.0 million for the site work and construction (excluding tenant improvements) of 160 and 180 International, which were both completed subsequent to August 31, 2019. Cash payments for new building construction in the 2019 nine month period also included a total of approximately $0.4 million on 220 Tradeport and 6975 Ambassador, which were both completed in the 2018 fourth quarter. The total cost of site work and construction (excluding tenant improvements) of 220 Tradeport and 6975 Ambassador was approximately $13.2 million and approximately $8.1 million, respectively.

Cash payments of $5.7 million, including transaction costs, for the purchase of undeveloped land in the 2019 nine month period, was for a total of approximately 44 acres in two separate purchases of adjoining land parcels in Charlotte, North Carolina (the “Charlotte Land”). Both land purchases were replacement properties under a 1031 Like-Kind Exchange for the Simsbury Land Sale. Griffin has obtained most of the governmental approvals required for its planned construction of three industrial/warehouse buildings aggregating approximately 500,000square feet on the Charlotte Land and expects to obtain the remaining approvals in the 2019 fourth quarter.

Cash payments of approximately $2.5 million for tenant and building improvements in the 2019 nine month period were related to leases signed in the latter part of fiscal 2018 and fiscal 2019. 

Cash payments of approximately $0.5 million for deferred leasing costs and other uses in the 2019 nine month period reflected approximately $0.6 million of cash payments for lease commissions and other costs related to new and renewed leases partially offset by approximately $0.1 million of cash received from the insurance settlement for storm damage to the Florida Farm.

The approximately $8.0 million of cash from short-term investments in the 2019 nine month period reflected the net reduction in Griffin’s investment in repurchase agreements with Webster Bank from $17.0 million as of November 30, 2018 to approximately $9.0 million as of August 31, 2019. The weighted average maturity of Griffin’s short-term investments as of August 31, 2019 was approximately 55 days with no maturities longer than six months. The net cash proceeds of approximately $9.5 million from property sales principally reflected the proceeds from the Simsbury Land Sale and the sales of the East Windsor Land and the East Windsor Land development rights (see “Results of Operations – 2019 Nine Month Period Compared to 2018 Nine Month Period” above). The approximately $7.6 million of net cash proceeds, after transaction costs, from the Simsbury Land Sale were deposited into escrow at closing for the purchase of a replacement property under a  1031 Like-Kind Exchange. Approximately $5.4 million of the net cash proceeds from the Simsbury Land Sale that were deposited in escrow were subsequently used for the purchase of the Charlotte Land, leaving approximately $2.2 million remaining in escrow as of August 31, 2019. If Griffin does not acquire another replacement property by October 30, 2019, the remaining proceeds held in escrow would be returned to Griffin.

The net cash of approximately $34.1 million used in investing activities in the 2018 nine month period reflected: (a) cash payments of approximately $23.7 million for additions to real estate assets; (b) net cash of $11.0 million used for short-term investments; and (c) cash payments of approximately $0.5 million for deferred leasing

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costs and other uses; partially offset by (d) cash proceeds of approximately $1.0 million from property sales; and (e) approximately $0.1 million of cash proceeds from a fiscal 2017 property sale returned from escrow.

The approximately $23.7 million of cash payments for additions to real estate assets in the 2018 nine month period reflected the following:

New building construction (including site work)	$	16.7 million
Tenant and building improvements related to leasing	$	3.7 million
Purchase of undeveloped land	$	2.7 million
Development costs and infrastructure improvements	$	0.6 million

Cash payments for new building construction (including site work) in the 2018 nine month period principally reflected approximately $10.4 million for the construction of 220 Tradeport, approximately $6.2 million for the construction, on speculation, of 6975 Ambassador and approximately $0.1 million for the final payments for the construction of 330 Stone Road (“330 Stone”), an approximately 137,000 square foot industrial/warehouse building built on speculation in NE Tradeport that was completed in the three months ended November 30, 2017 (the “2017 fourth quarter”) and is currently fully leased. Griffin paid a total of approximately $7.6 million for site work and construction of the building shell for 330 Stone.  Cash payments for tenant and building improvements in the 2018 nine month period principally related to the full-building lease at 220 Tradeport (approximately $1.3 million), the approximately 74,000 square foot lease at 330 Stone that commenced just prior to the end of fiscal 2017 (approximately $1.4 million), and other new leases (approximately $1.0 million) signed in the latter part of fiscal 2017 or the 2018 nine month period.

The cash payment of approximately $2.7 million in the 2018 nine month period for the purchase of undeveloped land was for the Concord Land. Approximately $0.8 million of the purchase price of the Concord Land was paid using the proceeds from the Southwick Land Sale (see below) to complete a 1031 Like-Kind Exchange.

The cash proceeds of approximately $1.0 million from property sales in the 2018 nine month period principally reflected approximately $0.8 million from the sale of approximately 49 acres (the “Southwick Land Sale”) of undeveloped land in Southwick, Massachusetts, approximately $0.1 million from the sale of a Stratton Farms residential lot and approximately $0.1 million from a buyer’s forfeiture of a deposit on a potential land sale. The approximately $0.1 million of cash proceeds from property sales that were returned from escrow reflected the remaining cash proceeds from a fiscal 2017 land sale that were deposited into escrow at closing that were returned to Griffin after a replacement property under a 1031 Like-Kind Exchange was purchased. 

Net cash used in financing activities was approximately $3.8 million in the 2019 nine month period as compared to net cash provided by financing activities of approximately $11.0 million in the 2018 nine month period. The net cash used in financing activities in the 2019 nine month period reflected: (a) approximately $2.9 million of recurring principal payments on mortgage loans; and (b) a payment of approximately $2.3 million for a dividend on Griffin’s common stock (“Common Stock”) that was declared in the fiscal 2018 fourth quarter and paid in the 2019 nine month period; partially offset by (c) approximately $1.3 million of proceeds from the State Farm Loan (see below); and (d) approximately $0.1 million of cash received from the exercise of stock options.

The net cash provided by financing activities of approximately $11.0 million in the 2018 nine month period reflected proceeds of approximately $26.8 million from mortgage loans and a construction loan and approximately $1.2 million from the exercise of stock options; partially offset by: (a) approximately $14.5 million of principal payments on mortgage loans; (b) a payment of approximately $2.0 million for a dividend on Common Stock that was declared in the 2017 fourth quarter and paid in the 2018 nine month period; and (c) approximately $0.6 million for payments of debt issuance costs.

On January 30, 2018, a subsidiary of Griffin closed on a nonrecourse mortgage loan (the “2018 People’s Mortgage”) with People’s Bank N.A. (“People’s Bank”) for approximately $18.8 million. The 2018 People’s Mortgage refinanced an existing $12.0 million nonrecourse mortgage loan with People’s Bank (the “2017 People’s Mortgage”) that was due on March 1, 2027 and was collateralized by two industrial/warehouse buildings in NE Tradeport. The 2018 People’s Mortgage is collateralized by the same two buildings aggregating approximately 275,000 square feet along with 330 Stone. Griffin received additional proceeds of $7.0 million (before transaction costs), net of approximately $11.8 million 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

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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 existing swap agreement with People’s Bank, 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 2022 and would remain in effect until either the space is re-leased to a new tenant or the maturity date of the 2018 People’s Mortgage.

On March 29, 2018, a subsidiary of Griffin closed on a construction to permanent mortgage loan (the “State Farm Loan”) with State Farm Life Insurance Company to provide a significant portion of the funds for the construction of 220 Tradeport and tenant improvements related to the full building lease of that building. As a build-to-suit transaction,  prior to the start of construction, Griffin entered into a twelve and a half year lease for 220 Tradeport. In the 2019 nine month period, Griffin received loan proceeds from the State Farm Loan of approximately $1.3 million, increasing the amount outstanding under the State Farm Loan to approximately $14.1 million.  On August 1, 2019, Griffin converted the State Farm Loan to a $14.1 million nonrecourse permanent mortgage loan that matures on April 1, 2034, with monthly payments of principal and interest that began on September 1, 2019. Monthly principal payments under the State Farm Loan are based on a twenty-five year amortization schedule. Under the terms of the State Farm Loan, the interest rate on the loan remains at 4.51% for the term of the permanent mortgage.

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 million 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 million of its Common Stock under an “at-the-market” equity offering program (the “ATM Program”) through Robert W. Baird & Co. Incorporated (“Baird”), as sales agent. Under the sales agreement with Baird, Griffin sets 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 the net 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.

On September 19, 2019, Griffin executed an amendment ( the “Revolving Credit Line Amendment”) to its $15.0 million revolving credit line (the “Webster Credit Line” and, as amended by the Revolving Credit Line Amendment, the “Amended Webster Credit Line”) with Webster Bank that was originally scheduled to expire on July 31, 2019 (which was extended to September 30, 2019 on July 26, 2019). The Revolving Credit Line Amendment provided for an extension of the maturity date to September 30, 2021, with an option to extend for an additional year through September 30, 2022, reduced the interest rate from the one month LIBOR rate plus 2.75% to the one month LIBOR rate plus 2.50%, and increased the amount of the Webster Credit Line from $15.0 million to $19.5 million, while adding an approximately 31,000 square foot industrial/warehouse building in Bloomfield, Connecticut to the Webster Credit Line’s original collateral, which included 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. Under the terms of the Revolving Credit Line Amendment, Griffin must maintain (a) a maximum loan to value ratio of 72%, (b) a minimum liquidity, as defined in the Revolving Credit Line Amendment, of $5.0 million and (c) a fixed charge coverage ratio, defined as EBITDA minus cash income taxes and dividends paid, divided by debt service, of at least 1.1 to 1.0. 

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On September 19, 2019, Griffin and Webster Bank also entered into an additional credit line of $15.0 million to be used to finance property acquisitions (the “Acquisition Credit Line”). The Acquisition Credit Line is unsecured, expires on September 30, 2021, with an option to extend for an additional year through September 30, 2022, and may be used to fund up to 65% of the purchase price of real estate acquisitions. Interest on advances under the Acquisition Credit Line are at the one month LIBOR rate plus 2.75%. Amounts borrowed under the Acquisition Credit Line are expected to be repaid from proceeds from long-term financing of the property acquired. If amounts borrowed under the Acquisition Credit Line are not repaid within 135 days from the date the properties are acquiredGriffin has agreed to either (a) repay the portion of the Acquisition Credit Line allocable to such advance or (b) execute a first-lien mortgage in favor of Webster Bank. Under the terms of the Acquisition Credit Line, Griffin must maintain (i) a minimum debt service coverage ratio of the aggregate acquired property (as defined in the Acquisition Credit Line) equal to or greater than 1.25 times, (ii) a minimum net worth of not less than $80.0 million, (iii) a minimum liquidity, as defined in the Acquisition Credit Line, of $5.0 million, (iv) a ratio of total debt plus preferred stock, to total assets not to exceed 50% of the total fair market value of Griffin’s assets and (v) a fixed charge coverage ratio, calculated the same as under the Revolving Credit Line Amendment, of at least 1.1 to 1.0.

With its cash and cash equivalents, short-term investments, and availability under the Amended Webster Credit Line and Acquisition Credit Line, Griffin does not expect to issue Common Stock under the ATM Program or issue other securities under the Universal Shelf in the near term. Griffin cannot give assurance that it could issue Common Stock under the ATM Program or obtain additional capital under the Universal Shelf on favorable terms, or at all. See “Risk Factors-Risks Related to the Real Estate Industry-Volatility in the capital and credit markets could materially adversely impact Griffin” and “Risk Factors-Risks Related to Griffin’s Common Stock-Issuances or sales of Griffin’s common stock or the perception that such issuances or sales might occur could adversely affect the per share trading price of Griffin’s common stock” included in Part I, Item 1A “Risk Factors” of Griffin’s Form 10-K.

On January 11, 2018, Griffin entered into an agreement to purchase an approximately 14 acre parcel of undeveloped land in the Lehigh Valley of Pennsylvania (the “Lehigh Valley Land”) for $3.6 million in cash. Subsequently, the agreement has been amended several times, reducing the purchase price to approximately $1.9 million in cash as a result of determining that certain wetlands on the site could not be disturbed, thereby reducing the development potential for an industrial/warehouse building on the Lehigh Valley Land from approximately 156,000 square feet  to approximately 100,000 square feet. The closing of this purchase is subject to several conditions, including obtaining the required governmental approvals for Griffin’s revised development plans for the Lehigh Valley Land. There is no guarantee that this transaction will be completed under its revised terms, or at all.

On September 5, 2019, Griffin entered into an agreement to sell all real estate assets of the Florida Farm previously used by Imperial Nurseries, Inc. prior to being shut down in fiscal 2009 for a purchase price of $2.3 million in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is not expected to take place until fiscal 2020. There is no guarantee that this transaction will be completed under its current terms, or at all.

On September 11, 2019, Griffin entered into an agreement to sell the approximately seven acres of undeveloped land in Windsor, Connecticut for a purchase price of approximately $0.8 million in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the fiscal 2020  first quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

Also on September 11, 2019, Griffin entered into an agreement to sell the approximately 7,200 square foot restaurant building (the “Restaurant Building”) in Windsor, Connecticut for a purchase price of approximately $0.7 million in cash. Completion of this transaction is subject to the satisfactory outcome of the buyer’s due diligence and is scheduled to close in the 2019 fourth quarter. There is no guarantee that this transaction will be completed under its current terms, or at all.

On September 27, 2019, Griffin entered into an agreement to acquire an approximately 100,000 square foot fully leased industrial/warehouse building in Orlando, Florida (the “Orlando Building”) for approximately $10.2 million to be paid in cash at closing. This would be Griffin’s first industrial/warehouse building in the Orlando area. Griffin intends to finance the purchase of the Orlando Building using the Acquisition Credit Line and cash on hand. Closing on the purchase of the Orlando Building is subject to the satisfactory completion of due diligence by Griffin. There is no guarantee that this transaction will be completed under its current terms, or at all.

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In the near-term, Griffin plans to continue to invest in its real estate business, including construction of additional buildings on its undeveloped land, expenditures for tenant improvements as new leases and lease renewals are signed, infrastructure improvements required for future development of its real estate holdings and the potential acquisition of additional properties and/or undeveloped land parcels in the Middle Atlantic, Northeast and Southeast regions to expand the industrial/warehouse portion of its real estate portfolio. Real estate acquisitions may or may not occur based on many factors, including real estate pricing. Griffin may commence speculative construction projects on its undeveloped land that is either currently owned or acquired in the future if it believes market conditions are favorable for such development. Griffin may also construct additional build-to-suit facilities on its undeveloped land if lease terms are favorable.

As of August 31, 2019, Griffin had approximately $13.4 million of cash, cash equivalents and short-term investments and approximately $2.2 million of cash proceeds from a property sale held in escrow. Management believes that its cash, cash equivalents, short-term investments, cash proceeds held in escrow, cash generated from leasing operations and borrowing capacity under the Amended Webster Credit Line and the Acquisition Credit Line will be sufficient to meet its working capital requirements, to purchase the Orlando Building and the Lehigh Valley Land,  to fund the anticipated construction on the Charlotte Land, to make other investments in real estate assets and to pay dividends on its Common Stock, when and if declared by the Board of Directors, for at least the next twelve months.

Forward-Looking Information

The above information in Management’s Discussion and Analysis of Financial Condition and Results of Operations includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include, but are not limited to, statements about the costs of site work and construction;  near-term expectations regarding any potential issuances of securities under the ATM Program or the Universal Shelf, and anticipated uses of any future proceeds from the ATM Program; the purchase of the Orlando Building, the purchase of the Lehigh Valley Land and Griffin’s plans with regard to the foregoing property, the closing of the sales of the Florida Farm, the Restaurant Building and the seven acres of undeveloped land in Windsor, Connecticut, expectations regarding obtaining approvals for, and planned construction on the Charlotte Land; the acquisition and development of additional properties and/or undeveloped land parcels; construction of additional buildings, tenant improvements and infrastructure improvements;  the signing of new and renewal leases; the investment in Griffin’s real estate business and expansion of the industrial/warehouse portion of Griffin’s real estate portfolio; Griffin’s anticipated future liquidity and capital expenditures; and other statements with the words “believes,” “anticipates,” “plans,” “expects,”  “may” or similar expressions. Although Griffin believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. The forward-looking statements made herein are based on assumptions and estimates that, while considered reasonable by Griffin as of the date hereof, are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies and other important factors, many of which are beyond the control of Griffin. Griffin’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under the heading Part I, Item 1A “Risk Factors” of Griffin’s Annual Report on Form 10-K.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Griffin maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Griffin’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), Griffin carried out an evaluation, under the supervision and with the participation of Griffin’s management, including Griffin’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Griffin’s disclosure controls and procedures as of the end of the fiscal period covered by this report. Based on the foregoing, Griffin’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in Griffin’s internal control over financial reporting during Griffin’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Griffin’s internal control over financial reporting.

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PART IIOTHER INFORMATION

ITEM 1A.   RISK FACTORS.

There have been no material changes to the risk factors previously disclosed in Part I,  Item 1A of Griffin’s Annual Report on Form 10-K.

ITEM 6.     EXHIBITS.

EXHIBIT INDEX

		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith
3.1	Amended and Restated Certificate of Incorporation of Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.)	10-Q	001-12879	3.1	10/10/13
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.)	8-K	001-12879	3.1	5/13/15
3.3	Amended and Restated By-laws of Griffin Industrial Realty, Inc.	8-K	001-12879	3.1	3/6/19
10.2†	Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) 2009 Stock Option Plan	10-K	001-12879	10.2	2/13/14
10.3†	Form of Stock Option Agreement under Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) 2009 Stock Option Plan	10-K	001-12879	10.3	2/13/14
10.4	Mortgage Deed, Security Agreement, Financing Statement and Fixture Filing with Absolute Assignment of Rents and Leases dated September 17, 2002 between Tradeport Development I, LLC and Farm Bureau Life Insurance Company	10-Q	001-12879	10.21	10/11/02
10.5	Open-End Mortgage Deed and Security Agreement dated December 17, 2002 between Griffin Center Development IV, LLC and Webster Bank, N.A.	10-K	001-12879	10.24	2/28/03
10.6	Secured Installment Note and First Amendment of Mortgage and Loan Documents dated April 16, 2004 among Tradeport Development I, LLC, and Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) and Farm Bureau Life Insurance Company	10-Q	001-12879	10.28	7/13/04
10.7	Mortgage Deed, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated July 6, 2005 by Tradeport Development II, LLC in favor of First Sunamerica Life Insurance Company	10-Q	001-12879	10.29	11/2/05
10.8	Promissory Note dated July 6, 2005	10-Q	001-12879	10.30	11/2/05
10.9	Guaranty Agreement as of July 6, 2005 by Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) in favor of First Sunamerica Life Insurance Company	10-Q	001-12879	10.31	11/2/05

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		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith
10.10	Amended and Restated Mortgage Deed, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated November 15, 2006 by Tradeport Development II, LLC in favor of First Sunamerica Life Insurance Company	10-K	001-12879	10.32	2/15/07
10.11	Amended and Restated Promissory Note dated November 15, 2006	10-K	001-12879	10.33	2/15/07
10.12	Guaranty Agreement as of November 15, 2006 by Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) in favor of First Sunamerica Life Insurance Company	10-K	001-12879	10.34	2/15/07
10.13	Construction Loan and Security Agreement dated February 6, 2009 by and between Tradeport Development III, LLC, Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.), and Berkshire Bank	10-Q	001-12879	10.36	10/6/10
10.14	$12,000,000 Construction Note dated February 6, 2009	10-Q	001-12879	10.37	4/9/09
10.15	Loan and Security Agreement dated July 9, 2009 between Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) and People’s United Bank, N.A.	10-Q	001-12879	10.40	10/8/09
10.16	$10,500,000 Promissory Note dated July 9, 2009	10-Q	001-12879	10.41	10/8/09
10.17	Mortgage and Security Agreement dated January 27, 2010 between Riverbend Crossings III Holdings, LLC and NewAlliance Bank	10-Q	001-12879	10.42	10/6/10
10.18	$4,300,000 Promissory Note dated January 27, 2010	10-Q	001-12879	10.43	4/8/10
10.19	First Modification of Promissory Note, Mortgage Deed and Security Agreement and Other Loan Documents between Riverbend Crossings III Holdings, LLC and NewAlliance Bank dated October 27, 2010	10-K	001-12879	10.44	2/10/11
10.23	Third Modification Agreement between Griffin Center Development IV, LLC, Griffin Center Development V, LLC, Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.) and Webster Bank, N.A. dated June 15, 2012	8-K	001-12879	10.48	6/20/12
10.24	Second Amendment to Mortgage Deed and Security Agreement and other Loan Documents between Riverbend Crossings III Holdings, LLC and First Niagara Bank, N.A. dated April 1, 2013	10-Q	001-12879	10.49	7/11/13
10.25	Amended and Restated Term Note dated April 1, 2013	10-Q	001-12879	10.50	7/11/13
10.26	Revolving Line of Credit Loan Agreement with Webster Bank, N.A. dated April 24, 2013	10-Q	001-12879	10.51	7/11/13
10.28	Mortgage and Security Agreement between Riverbend Bethlehem Holdings I, LLC and First Niagara Bank, N.A. effective August 28, 2013	10-Q	001-12879	10.53	10/10/13
10.29	$9,100,000 Term Note effective August 28, 2013	10-Q	001-12879	10.54	10/10/13

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		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith
10.31	First Modification of Mortgage and Loan Documents between Griffin Center Development I, LLC, Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.), Tradeport Development I, LLC and Farm Bureau Life Insurance Company, dated June 6, 2014	8-K	001-12879	10.1	6/9/14
10.32	Amended and Restated Secured Installment Note of Griffin Center Development I, LLC to Farm Bureau Life Insurance Company, dated June 6, 2014	8-K	001-12879	10.2	6/9/14
10.33	Second Modification of Mortgage and Loan Documents between Tradeport Development I, LLC, Griffin Industrial Realty, Inc. (f/k/a Griffin Land & Nurseries, Inc.), Griffin Center Development I, LLC and Farm Bureau Life Insurance Company, dated June 6, 2014	8-K	001-12879	10.3	6/9/14
10.34	Amended and Restated Secured Installment Note of Tradeport Development I, LLC to Farm Bureau Life Insurance Company, dated June 6, 2014	8-K	001-12879	10.4	6/9/14
10.35	Mortgage and Security Agreement between Riverbend Bethlehem Holdings I, LLC and First Niagara Bank, N.A. effective December 31, 2014	10-K	001-12879	10.35	2/13/15
10.36	Mortgage and Security Agreement between Riverbend Bethlehem Holdings II, LLC and First Niagara Bank, N.A. effective December 31, 2014	10-K	001-12879	10.36	2/13/15
10.37	$21,600,000 Term Note effective December 31, 2014	10-K	001-12879	10.37	2/13/15
10.38	Mortgage, Assignment of Rents and Security Agreement dated July 29, 2015 between Tradeport Development II, LLC and 40|86 Mortgage Capital, Inc.	10-Q	001-12879	10.38	10/9/15
10.39	$18,000,000 Promissory Note dated July 29, 2015	10-Q	001-12879	10.39	10/9/15
10.40	Open-End Mortgage, Assignment of Leases and Rents and Security Agreement by Riverbend Hanover Properties II, LLC as Mortgagor to and for the benefit of Webster Bank, N.A. as Mortgagee dated August 28, 2015 and effective as of September 1, 2015	10-Q	001-12879	10.40	10/9/15
10.41	$14,100,000 Promissory Note dated September 1, 2015	10-Q	001-12879	10.41	10/9/15
10.42†	Letter Agreement by and between Griffin Industrial Realty, Inc. and John J. Kirby, Jr. dated July 22, 2015	10-K	001-12879	10.41	2/12/16
10.43†	Letter Agreement by and between Griffin Industrial Realty, Inc. and David M. Danziger dated March 8, 2016	10-Q	001-12879	10.42	4/8/16
10.44†	Letter Agreement by and between Griffin Industrial Realty, Inc. and Winston J. Churchill, Jr. dated May 16, 2016	10-Q	001-12879	10.43	7/8/16
10.45	$14,350,000 Promissory Note dated April 26, 2016	10-Q	001-12879	10.44	7/8/16
10.46	Loan and Security Agreement between Griffin Industrial Realty, Inc. and People’s United Bank, N.A. dated April 26, 2016	10-Q	001-12879	10.45	7/8/16

37

		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith
10.47	First Amendment to Revolving Line of Credit Loan Agreement by and between Griffin Industrial Realty, Inc. and Webster Bank, N.A. dated April 26, 2016	10-Q	001-12879	10.46	7/8/16
10.48	Second Amendment to Revolving Line of Credit Loan Agreement by and between Griffin Industrial Realty, Inc. and Webster Bank, N.A. dated July 22, 2016	10-Q	001-12879	10.47	10/7/16
10.49	Amended and Restated Revolving Line of Credit Note with Webster Bank, N.A. dated July 22, 2016	10-Q	001-12879	10.48	10/7/16
10.50	$26,724,948.03 Promissory Note dated November 17, 2016	10-K	001-12879	10.49	2/10/17
10.51	Open‑End Mortgage, Assignment of Leases and Rents and Security Agreement by Riverbend Hanover Properties I, LLC as Mortgagor to and for the benefit of Webster Bank, N.A. as Mortgagee dated November 14, 2016 and effective as of November 17, 2016	10-K	001-12879	10.50	2/10/17
10.52	Open‑End Mortgage, Assignment of Leases and Rents and Security Agreement by Riverbend Hanover Properties II, LLC as Mortgagor to and for the benefit of Webster Bank, N.A. as Mortgagee dated November 14, 2016 and effective as of November 17, 2016	10-K	001-12879	10.51	2/10/17
10.53†	Griffin Industrial Realty, Inc. Deferred Compensation and Supplemental Retirement Plan as amended and restated effective January 1, 2017	10-Q	001-12879	10.52	4/7/17
10.54	Loan and Security Agreement between Tradeport Development V, LLC and People’s United Bank N.A. dated March 15, 2017	10-Q	001-12879	10.53	4/7/17
10.55	$12,000,000 Promissory Note dated March 15, 2017	10-Q	001-12879	10.54	4/7/17
10.56	$10,600,000 Term Note dated July 14, 2017	10-Q	001-12879	10.56	10/10/17
10.57	Amended and Restated Loan and Security Agreement dated July 14, 2017 between Tradeport Development III, LLC and Berkshire Bank	10-Q	001-12879	10.57	10/10/17
10.58	$12,150,000 Promissory Note dated August 30, 2017	10-Q	001-12879	10.58	10/10/17
10.59	Deed of Trust, Assignment of Rents and Security Agreement dated August 30, 2017 from Riverbend Concord Properties, LLC for the benefit of 40|86 Mortgage Capital, Inc.	10-Q	001-12879	10.59	10/10/17
10.60	Fourth Modification Agreement between Griffin Center Development IV, LLC, Griffin Center Development V, LLC, Griffin Industrial Realty, Inc. and Webster Bank, N.A. dated September 22, 2017	10-K	001-12879	10.60	2/8/18
10.61	Amended and Restated Open-End Mortgage Deed and Security Agreement dated January 30, 2018 between Tradeport Development V, LLC and People’s United Bank, N.A.	10-K	001-12879	10.61	2/8/18

38

		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith
10.62	$14,287,500 Promissory Note dated March 29, 2018	10-Q	001-12879	10.62	7/10/18
10.63	Open-End Construction Mortgage Deed and Security Agreement by Tradeport Development VI, LLC in favor of and for the benefit of State Farm Life Insurance Company dated March 29, 2018	10-Q	001-12879	10.63	7/10/18
10.64	Construction Loan Agreement by and between State Farm Life Insurance Company and Tradeport Development VI, LLC dated March 29, 2018	10-Q	001-12879	10.64	7/10/18
10.65	Sales Agreement dated May 10, 2018 by and between Griffin Industrial Realty, Inc. and Robert W. Baird & Co. Incorporated	8-K	001-12879	1.1	5/10/18
10.66	First Amendment to Griffin Industrial Realty, Inc. 2009 Stock Option Plan	8-K	001-12879	10.1	5/17/19
10.67†	Letter Agreement by and between Griffin Industrial Realty, Inc. and Frederick M. Danziger dated June 7, 2019	10-Q	001-12879	10.67	7/9/19
10.68	Revolving Line of Credit Loan Agreement between Griffin Industrial Realty, Inc. and Webster Bank, N.A., dated September 19, 2019	8-K	001-12879	10.1	9/24/19
10.69	Third Amendment to Revolving Line of Credit Loan Agreement betweenGriffin Industrial Realty, Inc. and Webster Bank N.A., dated September 19, 2019	8-K	001-12879	10.2	9/24/19
31.1	Certifications of Chief Executive Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended					*
31.2	Certifications of Chief Financial Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended					*
32.1	Certifications of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350					**
32.2	Certifications of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350					**
101.INS	XBRL Instance Document					*
101.SCH	XBRL Taxonomy Extension Schema Document					*
101.CAL	XBRL Taxonomy Calculation Linkbase Document					*
101.LAB	XBRL Taxonomy Label Linkbase Document					*
101.PRE	XBRL Taxonomy Presentation Linkbase Document					*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					*

†	A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 6 of Form 10-Q.
*	Filed herewith.
**	Furnished herewith.

39

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GRIFFIN INDUSTRIAL REALTY, INC.
	BY:	/s/ MICHAEL S. GAMZON
DATE: October 9, 2019	Michael S. Gamzon
	President and Chief Executive Officer
	BY:	/s/ ANTHONY J. GALICI
DATE: October 9, 2019	Anthony J. Galici
	Vice President, Chief Financial Officer and Secretary,
	Principal Accounting Officer

40