GRIF
GRIFFIN INDUSTRIAL REALTY, INC.
10-Q
  2019-Oct-09 at 09:59 am Get Reserve Plan For Historical Filings Read Filing at SEC

716 Highlight All Clear Highlights
10 Board
1 Gas 1 Oil
3 Claims 6 Closing
24 Costly 2 Fraud
8 Liquidation 170 Loss
1 Weaknesses 94 Agreement
6 Better 32 Effective
8 Favorable 44 Gains
6 Growth 9 Profitability
4 Progress 9 Settlement
1 Strong 3 Amended
68 Bank 1 Bond
15 Buyer 5 Contract
19 Dividend 18 Expect
71 Loan 2 Meeting
8 Presentation 6 Product
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DOCUMENT: grif-20190831x10q.htm

 

 

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.

 

 

 

12

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

13

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

14

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.

 

 

15

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. 

 

16

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

%  

 

17

 

 

 

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