UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 1-12879

GRIFFIN INDUSTRIAL REALTY, INC.

(Exact name of registrant as specified in its charter)

(212) 218-7910

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 Act). Yes ☐  No ☒

The aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $81,533,000 based on the closing sales price on The Nasdaq Stock Market LLC on May 31, 2017, the last business day of the registrant’s most recently completed second quarter. Shares of Common Stock held by each executive officer, director and persons or entities known to the registrant to be affiliates of the foregoing have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusive determination for other purposes.

As of January 31, 2018, 5,001,006 shares of common stock were outstanding.

FORWARD‑LOOKING STATEMENTS

This Annual Report on Form 10‑K (the “Annual Report”) contains forward‑looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained in this Annual Report that relate to future events or conditions, including without limitation, the statements in Part I, Item 1. “Business” and Item 1A. “Risk Factors” and in Part II Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as located elsewhere in this Annual Report regarding industry prospects or Griffin Industrial Realty, Inc.’s (“Griffin”) plans, expectations, or prospective results of operations or financial position, may be deemed to be forward‑looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward‑looking statements. Such forward‑looking statements represent management’s current expectations and are inherently uncertain. There are a number of important factors that could materially impact the value of Griffin’s common stock or cause actual results to differ materially from those indicated by such forward‑looking statements. Such factors include: adverse economic conditions and credit markets; a downturn in the commercial and residential real estate markets; risks associated with concentration of real estate holdings; risks associated with entering new real estate markets; risks associated with competition with other parties for acquisition of properties; risks associated with the use of third-party managers for day-to-day property management; risks relating to reliance on lease revenues; risks associated with nonrecourse mortgage loans; risks of financing arrangements that include balloon payment obligations; risks associated with failure to effectively hedge against interest rate changes; risks associated with volatility in the capital markets; risks associated with increased operating expenses; potential environmental liabilities; governmental regulations; inadequate insurance coverage; risks of environmental factors; risks associated with the cost of raw materials or energy costs; risks associated with deficiencies in disclosure controls and procedures or internal control over financial reporting; risks associated with information technology security breaches; litigation risks; and the concentrated ownership of Griffin common stock by members of the Cullman and Ernst families. These and the important factors discussed under the caption “Risk Factors” in Part I, Item 1A of this Annual Report for the fiscal year ended November 30, 2017, among others, could cause actual results to differ materially from those indicated by forward‑looking statements made in this Annual Report and presented elsewhere by management from time to time. Any such forward‑looking statements represent management’s estimates as of the date of this Annual Report. While Griffin may elect to update such forward‑looking statements at some point in the future, Griffin disclaims any obligation to do so, even if subsequent events cause Griffin’s views to change. These forward‑looking statements should not be relied upon as representing Griffin’s views as of any date subsequent to the date of this Annual Report.

GRIFFIN INDUSTRIAL REALTY, INC.

FORM 10-K

Index

PART I

ITEM 1.  BUSINESS.

Griffin Industrial Realty, Inc. (“Griffin”) is a real estate business principally engaged in developing, managing and leasing industrial/warehouse properties, and to a lesser extent, office/flex properties. Griffin seeks to add to its 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. Prior to May 13, 2015, Griffin was known as Griffin Land & Nurseries, Inc. On May 13, 2015, Griffin changed its name to better reflect its ongoing real estate business and focus on industrial/warehouse properties after the sale in fiscal 2014 of the landscape nursery business that Griffin had operated through its wholly owned subsidiary, Imperial Nurseries, Inc.

As of November 30, 2017, Griffin owned thirty‑five buildings comprising approximately 3,710,000 square feet that was 95% leased. Approximately 88% of Griffin’s currently owned square footage is industrial/warehouse space, with the balance principally being office/flex space. As of November 30, 2017, approximately 98% of Griffin’s industrial/warehouse space was leased and approximately 71% of Griffin’s office/flex space was leased. As stated in “Item 2. Properties” below, Griffin uses nonrecourse mortgage loans to finance some of its real estate development activities, and as of November 30, 2017, approximately $131.0 million was outstanding under such loans. In fiscal 2017, profit from leasing activities (which Griffin defines as rental revenue less operating expenses of rental properties) was approximately $21.1 million, while debt service on nonrecourse mortgage loans was approximately $8.7 million.

Through fiscal 2009, all of Griffin’s buildings were located in the north submarket of Hartford, Connecticut. In fiscal 2010, Griffin started the expansion of its real estate holdings to areas outside of Hartford by purchasing an industrial/warehouse building and undeveloped land in the Lehigh Valley of Pennsylvania (see “Lehigh Valley, Pennsylvania” on page 8). In fiscal 2017, Griffin expanded its real estate holdings into the southeast United States by acquiring 215 International Drive (“215 International”), an approximately 277,000 square foot industrial/warehouse building in Concord, North Carolina, which is in the greater Charlotte area (see “Charlotte, North Carolina” on page 9). 215 International was 74% leased at the time of acquisition. Subsequently, an existing tenant in that building leased all of the remaining vacant space. Griffin expects to continue to seek to acquire and develop properties that are consistent with its core strategy of developing and leasing industrial/warehouse properties. Griffin targets properties that are in close proximity to transportation infrastructure (highways, airports, railways and sea ports) that can accommodate single and multiple tenants in flexible layouts. Griffin expects that most of such potential acquisitions of either undeveloped land or land and buildings will likely be located outside of the Hartford area in select markets targeted by Griffin.

The Q4 2017 CBRE|New England Marketview Report (the “Q4 2017 CBRE|New England Report”) from CBRE Group, Inc. (“CBRE”), a national real estate services company, stated that as of December 31, 2017, the overall vacancy rate in the greater Hartford industrial market decreased to 8.8% at the end of 2017 from 12.3% at the end of 2014, with approximately 0.8 million square feet of net absorption in the greater Hartford industrial market in 2017. The greater Hartford industrial market had been stagnant in the years 2012 through 2014, but improved during the past three years. Griffin believes that it benefits from its reputation as a stable landlord with sufficient resources to meet its obligations and deliver space to tenants timely and in accordance with the terms of their lease agreements.

CBRE’s Q4 2017 Market Snapshot Report on Lehigh Valley PA Industrial stated that as of December 31, 2017, the vacancy rate in that market was 6.9%, with a net absorption of approximately 2.2 million square feet in 2017. CBRE’s Q4 2017 Marketview Charlotte Industrial Report stated a vacancy rate of 4.6% for warehouse space at the end of 2017, with absorption of 3.1 million square feet of warehouse space in 2017.

All of Griffin’s office/flex space is in the north submarket of Hartford. The Q4 2017 CBRE|New England Report stated that as of December 31, 2017, the overall vacancy rate in the greater Hartford office market was approximately 17.9%, as compared to 16% at the end of the two previous years, and the vacancy rate for office space in the north submarket increased to 30.9% at December 31, 2017 from 21% a year earlier. As of November 30, 2017, square footage of office/flex buildings comprised approximately 12% of Griffin’s total square footage. Griffin expects

that its office/flex space will continue to become a smaller percentage of its total space as Griffin expects to focus on the growth of its industrial/warehouse building portfolio either through the acquisition of fully or partially leased buildings, development of buildings on land currently owned or to be acquired, or both.

Additional capacity or an increase in vacancies in either the industrial or office markets could adversely affect Griffin’s operating results by potentially resulting in longer times to lease vacant space, eroding lease rates in Griffin’s properties or hindering renewals by existing tenants. There can be no assurances as to the directions of the Hartford, Lehigh Valley or Charlotte real estate markets in the near future.

In fiscal 2017, in addition to the acquisition of 215 International, Griffin completed construction, on speculation, of an approximately 137,000 square foot industrial/warehouse building (“330 Stone”) in New England Tradeport (“NE Tradeport”), Griffin’s master‑planned industrial park near Bradley International Airport and Interstate 91, located in Windsor and East Granby, Connecticut. As of November 30, 2017, Griffin had leased approximately 74,000 square feet of 330 Stone to a tenant that relocated from approximately 39,000 square feet in another of Griffin’s NE Tradeport industrial/warehouse buildings. Griffin was able to backfill the vacated space with a new tenant that is expected to take occupancy in the fiscal 2018 first quarter. In fiscal 2017, Griffin also leased approximately 104,000 square feet of previously vacant NE Tradeport industrial/warehouse space, including a ten and one-half year lease for approximately 89,000 square feet. Griffin extended leases aggregating approximately 387,000 square feet in fiscal 2017, including a full building lease of 100 International Drive (“100 International”) an approximately 304,000 square foot industrial/warehouse building in NE Tradeport. That lease extension, done in connection with refinancing the mortgage loan on 100 International, resulted in an additional six years of lease term beyond the original lease expiration date of July 31, 2019. Also in fiscal 2017, Griffin completed a full building lease of approximately 23,000 square feet of office/flex space, replacing the tenant that did not extend its lease of that building. The net effect of Griffin’s construction, acquisition and leasing transactions in fiscal 2017 was an increase of approximately 461,000 square feet of industrial/warehouse space under lease as of November 30, 2017 as compared to November 30, 2016 and a decrease of approximately 11,000 square feet in office/flex space under lease as of November 30, 2017 as compared to November 30, 2016. A lease of approximately 11,000 square feet of office/flex space was entered into subsequent to November 30, 2017.

In fiscal 2016, Griffin completed and placed in service an approximately 252,000 square foot industrial building (“5210 Jaindl”) in the Lehigh Valley of Pennsylvania, thus completing the development of an approximately 50 acre parcel of undeveloped land acquired in December 2013. As of November 30, 2016, Griffin had entered into two leases for 5210 Jaindl resulting in that building being fully leased. Both of those leases became effective in the fiscal 2017 first quarter. In addition to the two leases at 5210 Jaindl, Griffin entered into several other leases aggregating approximately 240,000 square feet in fiscal 2016, all but approximately 21,000 square feet of which was for industrial/warehouse space. Included in the fiscal 2016 leasing activity was a lease for approximately 101,000 square feet in 4270 Fritch Drive (“4270 Fritch”), an approximately 303,000 square foot industrial/warehouse building in the Lehigh Valley built in fiscal 2014. As of November 30, 2016, Griffin’s five Lehigh Valley industrial/warehouse buildings aggregating approximately 1,183,000 square feet were fully leased. In addition to the Lehigh Valley leasing, Griffin completed several leases aggregating approximately 139,000 square feet for its Connecticut properties, including approximately 118,000 square feet of industrial/warehouse space, mostly in NE Tradeport. In fiscal 2016, Griffin also extended leases aggregating approximately 248,000 square feet, most of which was NE Tradeport industrial/warehouse space. Also in fiscal 2016, leases for approximately 132,000 square feet expired, which included a lease for an entire approximately 57,000 square foot NE Tradeport industrial/warehouse building that was subsequently re-leased during the year. The net effect of these transactions was an increase of approximately 410,000 square feet in industrial/warehouse space under lease as of November 30, 2016 as compared to November 30, 2015 and a decrease of approximately 51,000 square feet in office/flex space under lease as of November 30, 2016 as compared to November 30, 2015.

In fiscal 2015, Griffin completed and placed in service an approximately 280,000 square foot industrial building (“5220 Jaindl”) in the Lehigh Valley of Pennsylvania. The tenant that initially leased approximately 196,000 square feet in 5220 Jaindl when the building was placed in service subsequently exercised its option under the lease to lease the balance of the building. Rental revenue on the additional space commenced in fiscal 2016. In addition to fully leasing 5220 Jaindl in fiscal 2015, Griffin completed several other leases aggregating approximately 191,000 square feet, of which approximately 90% was for industrial/warehouse space and approximately 10% was for office/flex space. In fiscal 2015, several leases aggregating approximately 52,000 square feet of office/flex space expired and were not renewed and

a lease of approximately 31,000 square feet of industrial/warehouse space was terminated early for which Griffin received a lease termination fee.

Periodically, Griffin may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which does not fit into Griffin’s core strategy of developing and leasing industrial and commercial properties. Such sale transactions may take place either before or after obtaining development approvals and building basic infrastructure.

In fiscal 2017, Griffin completed several land sales, the largest being the sale of approximately 67 acres of undeveloped land in Phoenix Crossing (the “2017 Phoenix Crossing Land Sale”) for approximately $10.3 million. The land sold under the 2017 Phoenix Crossing Land Sale is part of an approximately 268 acre parcel of land in Bloomfield and Windsor, Connecticut known as Phoenix Crossing. The proceeds from the 2017 Phoenix Crossing Land Sale were placed in escrow at closing and subsequently used in the acquisition of 215 International as part of a like-kind exchange (a “1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended. The Like-Kind Exchange enables Griffin to defer the gain on the 2017 Phoenix Crossing Land Sale for income tax purposes. In addition to the 2017 Phoenix Crossing Land Sale, Griffin also sold approximately 76 acres of undeveloped land in Southwick, Massachusetts (the “Southwick Land Sale”) for approximately $2.1 million. The proceeds from the Southwick Land Sale were also placed in escrow at closing and subsequently used for the purchase of approximately 14 acres of undeveloped land in the Lehigh Valley under a 1031 Like-Kind Exchange. In the fiscal 2017 fourth quarter, Griffin started site work for an approximately 134,000 square foot industrial building to be built on the Lehigh Valley land acquired. Construction is expected to begin in the fiscal 2018 first quarter, with completion anticipated during the fiscal 2018 third quarter.

In fiscal 2017, Griffin also completed two smaller sales of undeveloped land in Phoenix Crossing for a total of approximately $1.3 million and the sale of two small residential lots for a total of approximately $0.2 million. Griffin also recognized the remaining $0.1 million of revenue from the fiscal 2013 sale of approximately 90 acres of undeveloped land in Phoenix Crossing (the “2013 Phoenix Crossing Land Sale”). Under the terms of the 2013 Phoenix Crossing Land Sale, Griffin and the buyer each were required to construct roadways connecting the land parcel that was sold to existing town roads. As a result of Griffin’s continuing involvement with the land sold, the 2013 Phoenix Crossing Land Sale was accounted for under the percentage of completion method, whereby revenue and gain were recognized as costs related to the 2013 Phoenix Crossing Land Sale were incurred. From the closing of the 2013 Phoenix Crossing Land Sale through fiscal 2017, when Griffin completed its required roadwork, Griffin recognized total revenue of approximately $9.0 million and a total pretax gain of approximately $6.7 million from the 2013 Phoenix Crossing Land Sale.

In fiscal 2016, Griffin completed one land sale for approximately $3.8 million and recognized revenue of approximately $0.6 million related to the 2103 Phoenix Crossing Land Sale. In fiscal 2015, Griffin completed one land sale for approximately $0.6 million and recognized revenue of $2.5 million related to the 2013 Phoenix Crossing Land Sale.

A portion of Griffin’s landholdings in Connecticut is zoned for residential use. The weakness in the residential real estate market has adversely affected Griffin’s residential real estate development activities. The continued weakness of the residential real estate market could result in lower selling prices for Griffin’s land intended for residential use or delay the sale of such land.

Griffin’s development of its land is affected by regulatory and other constraints. Subdivision and other residential development may also be affected by the potential adoption of initiatives meant to limit or concentrate residential growth. Industrial/warehouse development activities on Griffin’s undeveloped land may also be affected by traffic considerations, potential environmental issues, community opposition and other restrictions to development imposed by governmental agencies.

Industrial/Warehouse Properties

Connecticut

A significant portion of Griffin’s industrial development in Connecticut has been focused on NE Tradeport, where Griffin has built and currently owns fourteen industrial/warehouse buildings aggregating approximately 1,603,000 square feet. NE Tradeport was approximately 96% leased as of November 30, 2017. Griffin’s total portfolio of approximately 1,818,000 square feet of industrial/warehouse space in Connecticut was 96% leased as of November 30, 2017. In NE Tradeport, Griffin holds the rights to 658,000 square feet available for development under the State Traffic

Certificate (“STC”) which relates to three approved building sites on approximately 70 acres and an approved addition to one of Griffin’s existing buildings. Construction of 220 Tradeport Drive (see below) would use two of the three approved building sites on the 70 acre parcel and reduce the square footage available for development under the STC in NE Tradeport by approximately 234,000 square feet. Griffin owns an additional 95 acres of undeveloped land within NE Tradeport, 60 acres of which are located in Windsor and the abutting 35 acres of which are located in East Granby. There are no STC or other approvals currently in place (other than zoning in the case of Windsor) for the development of this remaining land for industrial use. Griffin believes that additional infrastructure improvements, which may be significant, may be required to obtain approvals to develop portions of this land, particularly the portions in East Granby. Griffin expects to continue to direct much of its real estate efforts in Connecticut on the construction and leasing of its industrial/warehouse facilities at NE Tradeport.

On October 18, 2017, Griffin entered into a full building lease (the “220 Tradeport Lease”) for an approximately 234,000 square foot industrial/warehouse building (“220 Tradeport Drive”) to be built on two of the remaining three approved building sites in NE Tradeport. Construction of 220 Tradeport Drive would reduce the square feet available for development rights in NE Tradeport to approximately 370,000 square feet. The tenant is an investment grade company that intends to use 220 Tradeport Drive for the distribution of automotive parts. The 220 Tradeport Lease, which would commence upon completion of construction of 220 Tradeport Drive, has a term of twelve years and six months with the tenant having several five year renewal options. Provided the tenant meets certain conditions, the tenant has an option (the “Expansion Option”) to cause Griffin to construct an approximately 54,000 square foot addition to 220 Tradeport Drive. If the tenant exercises the Expansion Option, the term for the 220 Tradeport Lease would be extended for at least ten years upon the tenant occupying the additional space. Griffin expects to commence construction of 220 Tradeport Drive in the fiscal 2018 first quarter and complete 220 Tradeport Drive in the second half of fiscal 2018. Griffin expects to spend approximately $17.5 million related to development of 220 Tradeport Drive, including all related site work, building construction, tenant improvements, leasing and financing costs. Griffin has agreed to terms with State Farm Life Insurance Company (“State Farm”) on a construction to permanent mortgage loan for up to $13.8 million. The loan would provide financing during the construction period and, if 220 Tradeport Drive is completed and rent payments under the 220 Tradeport Lease commence, would convert to a fifteen year nonrecourse permanent mortgage loan. There is no guarantee that the construction to permanent mortgage loan with State Farm will be completed under its current terms, or at all.

In fiscal 2017, Griffin leased approximately 216,000 square feet in NE Tradeport, including approximately 74,000 square feet in 330 Stone, a new industrial/warehouse building that was completed and placed in service in the fiscal 2017 fourth quarter. The approximately 74,000 square feet in 330 Stone was leased to a tenant that relocated from approximately 39,000 square feet in another of Griffin’s NE Tradeport industrial/warehouse buildings. The space vacated was subsequently leased to a new tenant in fiscal 2017. Also in fiscal 2017, Griffin renewed several leases aggregating approximately 361,000 square feet, including the approximately 304,000 square feet at 100 International. The rental rates for leases in NE Tradeport that were renewed in fiscal 2017 were, on average, essentially unchanged from the rental rates of the expiring leases. Management believes that the rental rates on three of the four NE Tradeport leases aggregating approximately 58,000 square feet that are scheduled to expire in fiscal 2018 are essentially at the market rates for similar space, and one lease of approximately 48,000 square feet (see below) that is scheduled to expire in fiscal 2018 is above market rates due to the significant amount of tenant improvement work done to that space to meet the tenant’s requirements. Griffin has entered into an agreement with the tenant that will be vacating the approximately 48,000 square feet whereby the tenant has agreed to pay Griffin approximately $0.2 million in connection with a termination of the lease earlier than the original lease expiration.

In addition to its industrial/warehouse buildings in NE Tradeport, Griffin owns a 165,000 square foot industrial building (“1985 Blue Hills”) in Griffin Center, Griffin’s office park in Windsor and Bloomfield, Connecticut, that is being used principally as a data center and call center, an approximately 31,000 square foot industrial/warehouse building (“131 Phoenix”) in Bloomfield, Connecticut that is being used principally as a research and development facility and an approximately 18,000 square foot industrial/warehouse building (“210 West Newberry”) in Griffin Center South, Griffin’s office/flex park in Bloomfield, Connecticut. 131 Phoenix is on an approximately 5 acre site that is part of Phoenix Crossing. As of November 30, 2017, Griffin owns approximately 76 acres of undeveloped land in Phoenix Crossing that is zoned for industrial and commercial development.

As of November 30, 2017, approximately $74.1 million was invested (net book value) by Griffin in its Connecticut industrial/warehouse buildings, approximately $3.7 million was invested (net book value) by Griffin in the

undeveloped NE Tradeport land and approximately $1.5 million was invested in the undeveloped Phoenix Crossing land. As of November 30, 2017, fourteen of Griffin’s Connecticut industrial/warehouse buildings were mortgaged for an aggregate of approximately $64.7 million and 210 West Newberry was included in the collateral for Griffin’s $15.0 million revolving line of credit. Subsequent to November 30, 2017, a subsidiary of Griffin closed on the refinancing of an existing mortgage loan that was collateralized by two NE Tradeport industrial/warehouse buildings. The refinancing generated additional mortgage proceeds of $7.0 million and added 330 Stone to the collateral.

A summary of Griffin’s Connecticut industrial/warehouse square footage owned and leased at the end of each of the past three fiscal years and leases in Griffin’s Connecticut industrial/warehouse buildings scheduled to expire during each of the next three fiscal years are as follows:

Lehigh Valley, Pennsylvania

In fiscal 2010, Griffin completed its first acquisitions of property outside of the Hartford, Connecticut area, when it acquired a fully leased approximately 120,000 square foot industrial building and approximately 51 acres of undeveloped land in the Lehigh Valley of Pennsylvania. Subsequently, Griffin acquired an approximately 49 acre parcel of undeveloped land in the Lehigh Valley. Over the past five years, Griffin has built, on speculation, four additional industrial/warehouse buildings aggregating approximately 1,063,000 square feet on those two land parcels. As of November 30, 2017, Griffin owned five fully leased industrial/warehouse buildings in the Lehigh Valley aggregating approximately 1,183,000 square feet. Approximately $65.2 million was invested (net book value) in these buildings as of November 30, 2017. All five Lehigh Valley industrial/warehouse buildings are mortgaged under three separate nonrecourse mortgage loans for a total of approximately $49.8 million as of November 30, 2017.

In the fiscal 2017 fourth quarter, Griffin purchased approximately 14 acres of undeveloped land in the Lehigh Valley that had been under agreement. The closing on this purchase took place after Griffin received all governmental approvals for its planned development, on speculation, of an approximately 134,000 square foot industrial/warehouse building on the land acquired. Griffin started site work in the fiscal 2017 fourth quarter with building construction anticipated to begin in the fiscal 2018 first quarter. Griffin expects to spend approximately $7.8 million for site work and construction of the building shell and complete construction in the fiscal 2018 third quarter.

On January 11, 2018, Griffin entered into an agreement to purchase an approximately 14 acre parcel of undeveloped land in the Lehigh Valley for $3.6 million in cash. If the transaction closes, Griffin plans to construct an industrial/warehouse building on the land to be purchased, the size of which will be based upon findings during due diligence. The closing of this purchase, anticipated to take place in late fiscal 2018 or early fiscal 2019, is subject to several conditions, including the satisfactory outcome of due diligence and obtaining all governmental approvals for

Griffin’s development plans for the land to be purchased. There is no guarantee that this transaction will be completed under its current terms, or at all.

A summary of Griffin’s Lehigh Valley industrial/warehouse square footage owned and leased at the end of each of the past three fiscal years and leases in Griffin’s Lehigh Valley industrial/warehouse buildings scheduled to expire during each of the next three fiscal years are as follows:

Charlotte, North Carolina

On June 9, 2017, Griffin closed on the acquisition of 215 International, Griffin’s first property in the Charlotte area. 215 International was constructed in 2015 and was 74% leased at the time it was acquired. Subsequent to the closing, one of the tenants in 215 International leased all of the remaining approximately 73,000 square feet that had been vacant at the time the building was acquired. None of the leases for 215 International expire within the next three years. On August 30, 2017, Griffin closed on a $12.15 million nonrecourse mortgage loan collateralized by 215 International.

On October 4, 2017, Griffin entered into an agreement to purchase an approximately 22 acre parcel of undeveloped land in Concord, North Carolina (the “Concord Land”) for $2.6 million in cash. If the transaction closes, Griffin plans to construct an industrial/warehouse development on the Concord Land, which is located near 215 International. The amount of industrial/warehouse space to be developed there will be based upon findings during due diligence. The closing of this purchase, anticipated to take place in fiscal 2018, is subject to several conditions, including the satisfactory outcome of due diligence and obtaining all governmental approvals for Griffin’s development plans for the Concord Land. There is no guarantee that this transaction will be completed under its current terms, or at all.

Griffin may seek to acquire additional properties and/or undeveloped land parcels to expand the industrial/warehouse portion of its real estate business. Griffin continues to examine potential properties for acquisition in the Middle Atlantic, Northeast and Southeast states and selected markets targeted by Griffin.

Office/Flex Properties

Griffin’s office/flex properties are located in Griffin Center in Windsor and Bloomfield, Connecticut and Griffin Center South in Bloomfield. In Griffin Center, Griffin currently owns two multi‑story office buildings that have an aggregate of approximately 161,000 square feet, a single story office building of approximately 48,000 square feet and a small restaurant building of approximately 7,000 square feet. In Griffin Center South, Griffin currently owns eight office/flex buildings with an aggregate of approximately 217,000 square feet of single story office/flex space. As of November 30, 2017, Griffin’s total office/flex space of approximately 433,000 square feet comprised approximately 12% of Griffin’s total real estate portfolio. Griffin’s office/flex square footage was approximately 71% leased as of November 30, 2017.

In fiscal 2017, Griffin entered into a ten year full building lease for the approximately 23,000 square feet at 206 West Newberry Road in Griffin Center South to replace the tenant in that building that did not renew its lease. The full

building tenant there had previously informed Griffin that it would not be renewing its lease when it expired in fiscal 2017. In addition, Griffin renewed two leases aggregating approximately 25,000 square feet of office/flex space in fiscal 2017 and a lease for approximately 12,000 square feet of office/flex space expired and was not renewed.

In fiscal 2016, Griffin entered into two new leases for office/flex space aggregating approximately 21,000 square feet, including a lease for approximately 16,000 square feet in the single story Griffin Center office building that resulted in that building becoming fully leased. Also in fiscal 2016, two leases of office/flex space aggregating approximately 26,000 square feet were renewed, while leases aggregating approximately 72,000 square feet of office/flex space expired. The tenant of one of the expired office/flex leases (approximately 21,000 square feet) did not renew because they entered into a full building lease for 131 Phoenix, Griffin’s approximately 31,000 square foot industrial/warehouse building in Phoenix Crossing. The rental rates for office/flex leases that were renewed in fiscal 2016 were, on average, approximately 5% lower than the rental rates of the expiring leases. Currently there are approximately 156 acres of undeveloped land in Griffin Center and approximately 75 acres of undeveloped land in Griffin Center South that are owned by Griffin. As of November 30, 2017, approximately $18.7 million was invested (net book value) in Griffin’s office/flex buildings and approximately $1.6 million was invested by Griffin in the undeveloped land in Griffin Center and Griffin Center South. Griffin’s two multi‑story office buildings in Griffin Center are mortgaged for approximately $4.4 million as of November 30, 2017, and Griffin’s single story office building in Griffin Center and the eight single-story office/flex buildings and industrial/warehouse building in Griffin Center South are the collateral for Griffin’s $15.0 million revolving line of credit. There were no borrowings under the revolving line of credit as of November 30, 2017.

A summary of Griffin’s office/flex square footage owned and leased at the end of each of the past three fiscal years and leases in Griffin’s office/flex buildings scheduled to expire (excluding the space where a replacement lease has been secured) during each of the next three fiscal years are as follows:

Residential Developments

Simsbury, Connecticut

Several years ago, Griffin filed plans for the creation of a residential community, called Meadowood, on a 363 acre site in the Town of Simsbury, Connecticut (“Simsbury”). After several years of litigation with the town regarding this proposed residential development, a settlement was reached. The settlement terms included, among other things, approval for up to 296 homes, certain remediation measures and offsite road improvements to be performed by Griffin and the purchase by Simsbury of a portion of the Meadowood land for open space. The sale of land to Simsbury closed in fiscal 2008. In fiscal 2012, Griffin performed a portion of the required remediation work on the site and completed the required offsite road improvements. In fiscal 2014, Griffin completed the required remediation work. As of November 30, 2017, the book value of the land for this development, including design, development and legal costs, was approximately $8.5 million. Griffin is continuing to evaluate its plans for Meadowood.

Suffield, Connecticut

In fiscal 2006, Griffin completed the infrastructure for a fifty lot residential subdivision in Suffield, Connecticut called Stratton Farms. Griffin sold twenty‑five residential lots in Stratton Farms to a local homebuilder in fiscal 2006 and fiscal 2007. Griffin subsequently sold five additional lots. As of November 30, 2017, Griffin held twenty Stratton Farms residential lots. The book value for Griffin’s Stratton Farms holdings was approximately $1.1 million at November 30, 2017. Subsequent to November 30, 2017, Griffin sold an additional Stratton Farms residential lot.

Other

Concurrently with the sale of the landscape nursery business in fiscal 2014, Imperial Nurseries, Inc. (“Imperial”), Griffin and Monrovia Connecticut LLC (“Monrovia”) entered into a Lease and Option Agreement, which was amended in fiscal 2016 (as amended, the “Imperial Lease”) pursuant to which Monrovia leased Imperial’s production nursery located in Granby and East Granby, Connecticut (the “Connecticut Farm”) for a ten year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease also grants Monrovia an option to purchase the land, land improvements and other operating assets that were used by Imperial on the Connecticut Farm during the first thirteen years of the lease period for $9.5 million, or $7.0 million if only a certain portion of the Connecticut Farm is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease.

Prior to the fiscal 2009 third quarter, Imperial operated a production nursery in Quincy, Florida (the “Florida Farm”). In fiscal 2009, Imperial shut down its growing operations on the Florida Farm and leased that facility to a grower of landscape nursery plants. In fiscal 2015, the tenant exercised its option to acquire the Florida Farm, but subsequently informed Imperial that it would not close on the acquisition. As a result, Griffin retained the tenant’s deposit of $400,000 and the Florida Farm lease was extended through April 30, 2016. After the expiration of that lease, Griffin then entered into a new lease of the Florida Farm with another grower of landscape nursery plants that started July 1, 2016. The new lease of the Florida Farm has a three year term and contains an option for the tenant to purchase the Florida Farm at any time during the lease period for a purchase price between $3.4 million and $3.9 million depending upon the date of sale. On December 18, 2017, the tenant leasing the Florida Farm declared bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Griffin has yet to determine the impact, if any, this will have on their lease of the Florida Farm, which expires on June 30, 2019.

In fiscal 2017, Griffin leased approximately 560 acres of undeveloped land in Connecticut and Massachusetts to local farmers. Approximately 650 acres and 550 acres were leased to local farmers in fiscal 2016 and fiscal 2015, respectively. The revenue generated from the leasing of farmland is not material to Griffin’s total revenue.

On January 25, 2016, Griffin entered into an Option Purchase Agreement (the “Simsbury Option Agreement”) whereby Griffin granted the buyer an exclusive three month option, in exchange for a nominal fee, to purchase approximately 280 acres of undeveloped land in Simsbury, Connecticut for approximately $7.7 million. The buyer may extend the option period for up to three years upon payment of additional option fees. Through November 30, 2017, the buyer paid approximately $0.1 million of additional option fees, and subsequent to November 30, 2017 the buyer paid an additional $0.1 million to extend its option period through January 2019. Subsequent to November 30, 2017, the buyer received approval from the state regulatory authority for the buyer’s planned use of the land, which is to generate solar electricity. A closing on the land sale contemplated by the Simsbury Option Agreement is subject to several significant contingencies, including the potential appeal of the approvals recently granted by the state regulatory authority. Griffin expects the decision of the state regulatory authority to be appealed. There is no guarantee that the sale of land as contemplated under the Simsbury Option Agreement will be completed under its current terms, or at all.

On May 5, 2017, Griffin entered into an Option Purchase Agreement (the “EGW Option Agreement”) whereby Griffin granted the buyer an exclusive three month option, in exchange for a nominal fee, to purchase approximately 288 acres of undeveloped land in East Granby and Windsor, Connecticut for approximately $7.8 million. The buyer may extend the option period for up to three years upon payment of additional option fees. The land subject to the EGW Option Agreement does not have any of the approvals that would be required for the buyer’s planned use of the land, which is to generate solar electricity. A closing on the land sale contemplated by the EGW Option Agreement is subject to several significant contingencies, including the buyer procuring electrical utility supply contracts, approval by the state public utility regulatory authorities and governmental approvals for the planned use of the land. There is no

guarantee that the sale of land as contemplated under the EGW Option Agreement will be completed under its current terms, or at all.

Griffin is evaluating its other land holdings for development or sale in the future. Griffin anticipates that obtaining subdivision approvals for residential development in many of the towns where it owns residentially‑zoned land will be an extended process.

Investments

Centaur Media plc

In fiscal 2017, Griffin sold all of its 1,952,462 shares of Centaur Media plc (“Centaur Media”), a publicly traded company listed on the London Stock Exchange, for cash proceeds of approximately $1.2 million and a pretax gain of approximately $0.3 million. Griffin had reflected its investment in Centaur Media as an available‑for‑sale security. Accordingly, prior to the sale of the shares of Centaur Media, changes in the fair value of Griffin’s investment in Centaur Media, including both changes in the stock price and changes in the foreign currency exchange rate, were not included in Griffin’s net income but were included in Griffin’s other comprehensive income. Upon the sale of its investment in Centaur, all amounts that had been reflected in other comprehensive income were reclassified into net income on Griffin’s consolidated statement of operations.

Employees

As of November 30, 2017, Griffin employed 30 people on a full‑time basis and two employees on a part-time basis. Presently, none of Griffin’s employees are represented by a union. Griffin believes that relations with its employees are satisfactory.

Competition

The market for leasing industrial/warehouse space and office/flex space is highly competitive. Griffin competes for tenants with owners of numerous properties located in the portions of Connecticut, Massachusetts, the Lehigh Valley of Pennsylvania and Charlotte, North Carolina in which Griffin’s real estate holdings are located. Some of these competitors have greater financial resources than Griffin. Griffin’s real estate business competes on the bases of location, price, availability of space, convenience and amenities.

There is a great amount of competition for the acquisition of industrial/warehouse buildings and for the acquisition of undeveloped land for construction of such buildings. Griffin competes for the acquisition of industrial/warehouse properties with real estate investment trusts (“REITs”) and institutional investors, such as pension funds, private real estate investment funds, insurance company investment accounts, public and private investment companies, individuals and other entities engaged in real estate investment activities. Some of these competitors have greater financial resources than Griffin, and may be able to accept more risk, including risk related to the creditworthiness of tenants or the degree of leverage they may be willing to take on. Competitors for acquisitions may also have advantages from a lower cost of capital or greater operating efficiencies associated with being a larger entity.

Regulation: Environmental Matters

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to remediate properly such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. In connection with the ownership (direct or indirect), operation, management and development of real estate properties, Griffin may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. The value of Griffin’s land may be affected by the presence of residual chemicals from the prior use of the land for farming, principally on a portion of the land that is intended for residential use. In the event that Griffin is unable to remediate adequately any of its land

intended for residential use, Griffin’s ability to develop such property for its intended purposes would be materially affected.

Griffin periodically reviews its properties for the purpose of evaluating such properties’ compliance with applicable state and federal environmental laws. In connection with the sale of Imperial, Griffin has incurred a small amount of costs to remediate a small area of the Connecticut Farm that is leased to Monrovia under the Imperial Lease. As of the date of this Annual Report on Form 10‑K, Griffin is in discussions with the Connecticut Department of Energy and Environmental Protection (“DEEP”) regarding the recent findings of exceedances of certain residual pesticides on a limited portion of the Connecticut Farm being leased to Monrovia. At this time, Griffin does not anticipate experiencing, in the next twelve months, any material expense in complying with such laws. Griffin may incur remediation costs in the future in connection with its development operations. Such costs are not expected to be significant as compared to expected proceeds from development projects or property sales.

Griffin maintains a corporate website at www.griffinindustrial.com. Griffin’s Annual Report on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and the proxy statement for Griffin’s Annual Meeting of Stockholders can be accessed through Griffin’s website or through the SEC website at www.sec.gov. Griffin will provide electronic or paper copies of its foregoing filings free of charge upon request. Griffin was incorporated in 1970.

ITEM 1A.  RISK FACTORS.

Griffin’s real estate business is subject to a number of risks. The risk factors discussed below are those that management deems to be material, but they may not be the only risks facing Griffin. Additional risks not currently known or currently deemed not to be material may also impact Griffin. If any of the following risks occur, Griffin’s business, financial condition, operating results and cash flows could be adversely affected. Investors should also refer to Griffin’s quarterly reports on Form 10-Q for any material updates to these risk factors.

Risks Related to Griffin’s Business and Properties

Griffin’s real estate portfolio is concentrated in the industrial real estate sector, and its business would be adversely affected by an economic downturn in that sector.

88% of Griffin’s buildings are warehouse/distribution facilities and light manufacturing facilities in the industrial real estate sector. This level of concentration exposes Griffin to the risk of economic downturns in the industrial real estate sector to a greater extent than if its properties were more diversified across other sectors of the real estate industry. In particular, an economic downturn affecting the leasing market for industrial properties could have a material adverse effect on Griffin’s results of operations, cash flows, financial condition, ability to satisfy debt obligations and ability to pay dividends to stockholders.

Griffin’s real estate portfolio is geographically concentrated, which causes it to be especially susceptible to adverse developments in those markets. 

In addition to general, regional, national and international economic conditions, Griffin’s operating performance is impacted by the economic conditions of the specific geographic markets in which it has concentrations of properties. The portfolio includes holdings in Connecticut, the Lehigh Valley of Pennsylvania and Concord, North Carolina, which represented 61%, 32% and 7% of Griffin’s portfolio by square footage, respectively, as of November 30, 2017.  This geographic concentration could adversely affect Griffin’s operating performance if conditions become less favorable in any of the states or regions in which it has a concentration of properties. Griffin cannot assure that any of its markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of properties. Griffin’s operations may also be adversely affected if competing properties are built in its target markets. The construction of new facilities by competitors would increase capacity in the marketplace, and an increase in the amount of vacancies in competitors’ properties and negative absorption of space could result in Griffin experiencing longer times to lease vacant space, eroding lease rates or hindering renewals by existing tenants. Any adverse economic or real estate developments in Griffin’s target markets, or any decrease in demand for industrial space resulting from the regulatory environment, business climate or energy or fiscal problems in these markets, could materially and adversely impact Griffin’s results of operations, cash flows, financial condition, ability to satisfy debt obligations and ability to pay dividends to stockholders.

Griffin’s ability to grow its portfolio partially depends on its ability to develop properties, which may suffer under certain circumstances.

Griffin intends to continue to develop properties when warranted by its assessment of market conditions. Griffin’s general construction and development activities include the risks that:

Griffin’s ability to achieve growth in its portfolio partially depends in part on Griffin’s ability to acquire properties, which may suffer under certain circumstances.

Griffin acquires individual properties and in the future, may acquire portfolios of properties.  Griffin’s acquisition activities and their success are generally subject to the following risks:

Griffin may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against Griffin based upon ownership of those properties, Griffin might have to pay substantial sums to settle it, which could adversely affect its cash flow.

Weakness in Griffin’s office/flex portfolio could negatively impact its business.

Griffin’s office/flex portfolio, which comprises 12% of its total square footage and was 71% occupied as of November 30, 2017, is concentrated in the north submarket of Hartford.  The demand for office/flex space in this market is weak and competitive, with market vacancy in excess of 30% as of December 31, 2017, according to the Q4 2017 CBRE|New England Report. There is no certainty that Griffin will retain existing tenants or attract new tenants to its office/flex buildings.  Re-leasing Griffin’s office/flex properties typically requires greater investment per square foot than for Griffin’s industrial/warehouse properties and could negatively impact Griffin’s results of operations and cash flow.

Griffin may experience increased operating costs, which could adversely affect Griffin’s results of operations.

Griffin’s properties are subject to increases in operating expenses such as real estate taxes, fuel, utilities, labor, repairs and maintenance, building materials and insurance. While many of Griffin’s current tenants generally are obligated to pay a significant portion of these costs, there are no assurances that existing or new tenants will agree to or make such payments.  If operating expenses increase, Griffin may not be able to pass these costs on to its tenants and, therefore, any such increases could have an adverse effect on Griffin’s results of operations and cash flow.

Griffin relies on third party managers for day-to-day property management of certain of its properties.

Griffin relies on local third party managers for the day-to-day management of its Lehigh Valley and Concord, North Carolina properties. To the extent that Griffin uses a third party manager, the cash flows from its Lehigh Valley and Concord properties may be adversely affected if the property manager fails to provide quality services. These third party managers may fail to manage Griffin’s properties effectively or in accordance with their agreements with Griffin, may be negligent in their performance and may engage in criminal or fraudulent activity. If any of these events occur, Griffin could incur losses or face liabilities from the loss or injury to its property or to persons at its properties. In addition, disputes may arise between Griffin and these third party managers, and Griffin may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective alternative service providers to manage the relevant properties. Additionally, third party managers may manage and own other properties that may compete with Griffin’s properties, which may result in conflicts of interest and decisions regarding the operation of Griffin’s properties that are not in Griffin’s best interests. Griffin likely would rely on third-party managers in any new markets it enters through its acquisition activities.

Unfavorable events affecting Griffin’s existing and potential tenants and its properties, or negative market conditions that may affect Griffin’s existing and potential tenants, could have an adverse impact on Griffin’s ability to attract new tenants, re-let space, collect rent and renew leases, and thus could have a negative effect on Griffin’s results of operations and cash flow.

The substantial majority of Griffin’s revenue is derived from lease revenue from its industrial/warehouse and office/flex buildings.  Griffin’s results of operations and cash flows depend on its ability to lease space to tenants on economically favorable terms. Therefore, Griffin could be adversely affected by various factors and events over which Griffin has limited control, such as:

If a tenant is unable to pay rent due to Griffin, Griffin may be forced to evict the tenant, or engage in other remedies, which may be expensive and time consuming and may adversely affect Griffin’s results of operation and cash flows.

If Griffin’s tenants do not renew their leases as they expire, Griffin may not be able to re-lease the space. Furthermore, leases that are renewed, or new leases for space that is re-let, may have terms that are less economically favorable to Griffin than current lease terms, or may require Griffin to incur significant costs, such as for renovations, tenant improvements or lease transaction costs.

Any of these events could adversely affect Griffin’s results of operations and cash flows and its ability to make dividend payments and service its indebtedness.

A significant portion of Griffin’s costs, such as real estate taxes, insurance costs, and debt service payments, are fixed, which means that they generally are not reduced when circumstances cause a decrease in cash flow from its properties.

Declining real estate valuations and any related impairment charges could materially adversely affect Griffin’s financial condition, results of operations, cash flows, ability to satisfy debt obligations and ability to pay dividends on, and the per share trading price of, its common stock.

Griffin reviews the carrying value of its properties when circumstances, such as adverse market conditions, indicate a potential impairment may exist. Griffin bases its review on an estimate of the future cash flows (excluding interest charges) expected to result from the property’s use and eventual disposition on an undiscounted basis. Griffin considers factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. With respect to undeveloped land, Griffin evaluates the cash flow to be generated from the potential use or sale of such land as compared to the costs, including entitlement and infrastructure costs for the intended use or costs required to prepare the land for sale. If Griffin’s evaluation indicates that it may be unable to recover the carrying value of a real estate investment, an impairment loss would be recorded to the extent that the carrying value exceeds the estimated fair value of the property.

Impairment losses have a direct impact on Griffin’s results of operations because recording an impairment loss results in an immediate negative adjustment to Griffin’s operating results. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause Griffin to reevaluate the assumptions used in its impairment analysis. Impairment charges could materially adversely affect Griffin’s financial condition, results of operations, cash flows and ability to pay dividends on, and the per share trading price of, its common stock.

Griffin’s use of nonrecourse mortgage loans could have a material adverse effect on its financial condition.

As of November 30, 2017, Griffin had indebtedness under nonrecourse mortgage loans of approximately $131.0 million, collateralized by approximately 88% of the total square footage of its industrial/warehouse and office/flex buildings. If a significant number of Griffin’s tenants were unable to meet their obligations to Griffin or if Griffin were unable to lease a significant amount of space in its properties on economically favorable lease terms, there would be a risk that Griffin would not have sufficient cash flow from operations for payments of required principal and interest on these loans. If Griffin was unable to make such payments and was to default, the property collateralizing the mortgage loan could be foreclosed upon, and Griffin’s financial condition and results of operations would be adversely affected. In addition, two of Griffin’s nonrecourse mortgage loans contain cross default provisions. A default under a mortgage loan that has cross default provisions may cause Griffin to automatically default on another loan.

Griffin’s use of financing arrangements that include balloon payment obligations could have a material adverse effect on its financial condition.

Approximately 91% of Griffin’s nonrecourse mortgage loans as of November 30, 2017 require a lump-sum or “balloon” payment at maturity. Griffin’s ability to make a balloon payment at maturity may be uncertain and may depend upon its ability to obtain additional financing. At the time the balloon payment is due, Griffin may or may not be

able to refinance the balloon payment on terms as favorable as the original mortgage terms. If Griffin were to be unable to refinance the balloon payment, then it may be forced to sell the property or pay the balloon payment using its existing cash on hand or other liquidity sources, or the property could be foreclosed. Any balloon payments that Griffin makes out of its existing cash or liquidity may have a material adverse effect on its financial condition and leave it with insufficient cash to invest in other properties, pay dividends to stockholders or meet its other obligations.

Griffin’s failure to effectively hedge against interest rate fluctuation could have a material adverse effect on its financial condition.

Griffin has entered into several interest rate swap agreements to hedge its interest rate exposures related to its variable rate nonrecourse mortgages on certain of its industrial/warehouse and office/flex buildings. These agreements have costs and involve the risks that these arrangements may not be effective in reducing Griffin’s exposure to interest rate fluctuations and that a court could rule that such agreements are not legally enforceable. The failure to hedge effectively against interest rate fluctuations may materially adversely affect Griffin’s results of operations if interest rates were to rise materially. Additionally, any settlement charges incurred to terminate an interest rate swap agreement may result in increased interest expense, which may also have an adverse effect on Griffin’s results of operations.

Griffin may suffer adverse effects as a result of the terms of and covenants relating to its revolving credit facility.

Griffin’s continued ability to borrow under its $15 million revolving credit facility is subject to compliance with financial and other covenants. Griffin’s failure to comply with such covenants could cause a default under this credit facility, and Griffin may then be required to repay amounts outstanding, if any, under the facility with capital from other sources. Under those circumstances, other sources of capital may not be available to Griffin, or may be available only on unattractive terms. 

Griffin relies on key personnel.

Griffin’s success depends to a significant degree upon the contribution of certain key personnel, including but not limited to Griffin’s Executive Chairman, President and Chief Executive Officer, Griffin Industrial, LLC’s Senior Vice President and Griffin Industrial, LLC’s Vice President of Construction.  If any of Griffin’s key personnel were to cease employment, Griffin’s operating results could suffer. Griffin’s ability to retain its senior management group or attract suitable replacements should any members of the senior management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation on their availability could adversely affect Griffin’s results of operations and cash flows.  Griffin has not obtained and does not expect to obtain key man life insurance on any of its key personnel.

Risks Related to the Real Estate Industry

Changing or adverse political and economic conditions and credit markets may impact Griffin’s results of operations and financial condition.

Griffin’s real estate business may be affected by market conditions and political and economic uncertainty experienced by the U.S. economy as a whole, conditions in the credit markets or by local economic conditions in the markets in which its properties are located. Such conditions may impact Griffin’s results of operations, financial condition or ability to expand its operations and pay dividends to stockholders as a result of the following:

An increase in interest rates could adversely impact Griffin’s ability to refinance existing debt or to finance new developments and acquisitions.

Rising interest rates could limit Griffin’s ability to refinance existing debt on favorable terms, or at all, when it matures. Interest rates have been in recent years, and currently remain, low by historical standards.  However, the Federal Reserve raised its benchmark interest rate multiple times in 2017, and further interest rate increases may occur. If interest rates increase, so will Griffin’s interest costs, which would adversely affect Griffin’s cash flow and ability to pay principal and interest on its debt.

From time to time, Griffin enters into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. These agreements, which are intended to lessen the impact of rising interest rates on Griffin, expose Griffin to the risks that the other parties to the agreements might not perform, or that Griffin could incur significant costs associated with the settlement of the agreements, or that the agreements might be unenforceable and the underlying transactions would fail to qualify as highly-effective cash flow hedges under relevant accounting guidance.

In addition, an increase in interest rates could decrease the amounts third parties are willing to lend to Griffin for use towards potential acquisitions or development costs, thereby limiting its ability to grow its property portfolio. 

Griffin may not be able to compete successfully with other entities that operate in its industry.

Griffin experiences a great amount of competition for the acquisition of industrial/warehouse buildings, for the acquisition of undeveloped land for construction of such buildings and for attracting tenants for its properties.  Griffin competes with well-capitalized real estate investors such as pension funds and their advisors, private real estate investment funds, bank and insurance company investment accounts, public and private investment companies, including REITs, individuals and other entities engaged in real estate investment activities. Some of these competitors have greater financial resources than Griffin, and may be able to accept more risk, including risk related to the creditworthiness of tenants or the degree of leverage they may be willing to take on. Competitors for acquisitions may also have advantages from a lower cost of capital or greater operating efficiencies associated with being a larger entity. Some of these competitors may be able to offer prospective tenants more attractive financial or other terms than Griffin is able to offer.

Griffin may experience increased costs of raw materials and energy, which could adversely affect its operations.

Griffin’s construction activities and maintenance of its current portfolio could be adversely affected by increases in raw materials or energy costs. As petroleum and other energy costs increase, products used in the construction of Griffin’s facilities, such as steel, masonry, asphalt, cement and building products may increase. An increase in the cost of building new facilities could negatively impact Griffin’s future operating results through increased depreciation expense. An increase in construction costs would also require increased investment in Griffin’s real estate assets, which may lower the return on investment in new facilities. An increase in energy costs could increase Griffin’s building operating expenses and thereby lower Griffin’s operating results.

Real estate investments are illiquid, and Griffin may not be able to sell its properties when Griffin determines it is appropriate to do so.

Real estate properties are not as liquid as other types of investments and this lack of liquidity could limit Griffin’s ability to react promptly to changes in economic, financial, investment or other conditions. In addition, provisions of the Internal Revenue Code of 1986, as amended, provide for the ability to exchange “like-kind” property to

defer income taxes related to a gain on sale. The illiquidity of real estate properties may limit Griffin’s ability to find a replacement property to effectuate such an exchange.

Potential environmental liabilities could result in substantial costs.

Griffin has properties in Connecticut, the Lehigh Valley of Pennsylvania and Concord, North Carolina in addition to extensive land holdings in Connecticut, Massachusetts and Florida. Under federal, state and local environmental laws, ordinances and regulations, Griffin may be required to investigate and clean up the effects of releases of hazardous substances or petroleum products at its properties because of its current or past ownership or operation of the real estate. If previously unidentified environmental problems arise, Griffin may have to make substantial payments, which could adversely affect its cash flow. As an owner or operator of properties, Griffin may have to pay for property damage and for investigation and clean‑up costs incurred in connection with a contamination. The law typically imposes cleanup responsibility and liability regardless of whether the owner or operator knew of or caused the contamination. Changes in environmental regulations may impact the development potential of Griffin’s undeveloped land or could increase operating costs due to the cost of complying with new regulations.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require Griffin to make expenditures that adversely impact Griffin’s operating results.

All of Griffin’s properties are required to comply with the Americans with Disabilities Act ("ADA"). The ADA generally requires that places of public accommodation comply with federal requirements related to access and use by people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. Expenditures related to complying with the provisions of the ADA could adversely affect Griffin’s results of operations and financial condition. In addition, Griffin is required to operate its properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to Griffin’s properties. Griffin may be required to make substantial capital expenditures to comply with those requirements and these expenditures could have a material adverse effect on Griffin’s operating results and financial condition and Griffin’s ability to satisfy debt obligations and issue dividends to stockholders.

Governmental regulations and control could adversely affect Griffin’s real estate development activities.

Griffin’s operations are subject to governmental regulations that affect real estate development, such as local zoning ordinances. Any changes in such regulations may impact the ability of Griffin to develop its properties or increase Griffin’s costs of development. Subdivision and other residential development may also be affected by the potential adoption of initiatives meant to limit or concentrate residential growth. Commercial and industrial development activities of Griffin’s undeveloped land may also be affected by traffic considerations, potential environmental issues, community opposition and other restrictions to development imposed by governmental agencies.

Uninsured losses or a loss in excess of insured limits could adversely affect Griffin’s business, results of operations and financial condition.

Griffin carries comprehensive insurance coverage, including property, fire, terrorism and loss of rental revenue. The insurance coverage contains policy specifications and insured limits. However, there are certain losses that are not generally insured against or that are not fully insured against. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of Griffin’s properties, Griffin could experience a significant loss of capital invested and potential revenue from the properties affected.

Volatility in the capital and credit markets could materially adversely impact Griffin.

Volatility and disruption in the capital and credit markets could make it more difficult to borrow money. Market volatility could hinder Griffin’s ability to obtain new debt financing or refinance maturing debt on favorable terms, or at all. Any financing or refinancing issues could materially adversely affect Griffin. Market turmoil and the tightening of credit can lead to an increased lack of consumer confidence and widespread reduction of business activity in general, which also could materially adversely impact Griffin, including its ability to acquire and dispose of assets on favorable terms, or at all.

If Griffin fails to maintain appropriate internal controls in the future, it may not be able to report its financial results accurately, which may adversely affect the per share trading price of its common stock and its business.

Griffin’s efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the related regulations regarding its required assessment of internal control over financial reporting and its external auditors’ audit of that assessment requires the commitment of significant financial and managerial resources. Griffin’s system of internal controls may not prevent all errors, misstatements or misrepresentations, and there can be no guarantee that its internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness or significant deficiency, in Griffin’s internal control over financial reporting that may occur in the future could result in misstatements of its results of operations, restatements of its financial statements and a decline in its stock price, or otherwise materially adversely affect Griffin’s business, reputation, results of operations, financial condition or liquidity.

Information technology (“IT”) security breaches and other incidents could disrupt Griffin’s operations, compromise confidential information maintained by Griffin, and damage Griffin’s reputation, all of which could negatively impact Griffin’s business, results of operations and the per share trading price of its common stock.

As part of Griffin’s normal business activities, it uses information technology and other computer resources to carry out important operational activities and to maintain its business records. Griffin’s computer systems, including its backup systems, are subject to interruption or damage from power outages, computer and telecommunications failures, computer viruses, security breaches (including through cyber-attack and data theft), usage errors and catastrophic events, such as fires, floods, tornadoes and hurricanes. If Griffin’s computer systems and its backup systems are compromised, degraded, damaged or breached, or otherwise cease to function properly, Griffin could suffer interruptions in its operations or unintentionally allow misappropriation of proprietary or confidential information, which could damage its reputation and require Griffin to incur significant costs to remediate or otherwise resolve these issues. There can be no assurance that the security efforts and measures Griffin has implemented will be effective or that attempted security breaches or disruptions would not be successful or damaging.

Griffin is subject to litigation that may adversely impact operating results.

From time to time, Griffin may be a party to legal proceedings and claims arising in the ordinary course of business which could become significant. Given the inherent uncertainty of litigation, Griffin can offer no assurance that a future adverse development related to existing litigation or any future litigation will not have a material adverse impact on its business, consolidated financial position, results of operations or cash flows.

Griffin is exposed to the potential impacts of future climate change and climate-change related risks.

Griffin is exposed to potential physical risks from possible future changes in climate. Griffin’s properties may be exposed to rare catastrophic weather events, such as severe storms and/or floods. If the frequency of extreme weather events increases due to climate change, Griffin’s exposure to these events could increase.

As a real estate owner and developer, Griffin may be adversely impacted in the future by stricter energy efficiency standards for buildings.  Griffin may be required to make improvements to its existing properties to meet such standards and the costs to meet these standards may increase Griffin’s costs for new construction.

Griffin’s properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of Griffin’s properties could require Griffin to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant

mold or other airborne contaminants could expose Griffin to liability from its tenants, employees of its tenants or others if property damage or personal injury is alleged to have occurred.

Risks Related to Griffin’s Organization and Structure

The concentrated ownership of Griffin common stock by members of the Cullman and Ernst families may limit other Griffin stockholders’ ability to influence Griffin’s corporate and management policies. 

Members of the Cullman and Ernst families (the “Cullman and Ernst Group”), which include Frederick M. Danziger, Griffin’s Executive Chairman, Michael S. Gamzon, a director and Griffin’s President and Chief Executive Officer and Edgar M. Cullman, Jr., a director of Griffin, members of their families and trusts for their benefit, partnerships in which they own substantial interests and charitable foundations on whose boards of directors they sit, owned, directly or indirectly, approximately 45.6% of the outstanding common stock of Griffin as of November 30, 2017. There is an informal understanding that the persons and entities included in the Cullman and Ernst Group will vote together the shares owned by each of them. As a result, the Cullman and Ernst Group may effectively control the determination of Griffin’s corporate and management policies and may limit other Griffin stockholders’ ability to influence Griffin’s corporate and management policies.

Griffin’s board of directors may change its investment and financing policies without stockholder approval and Griffin may become more highly leveraged, which may increase Griffin’s risk of default under its debt obligations.

Griffin’s investment and financing policies are exclusively determined by its board of directors. Accordingly, Griffin’s stockholders do not control these policies. Further, Griffin’s charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that Griffin may incur. Griffin’s board of directors may alter or eliminate its current policy on borrowing at any time without stockholder approval. If this policy changed, Griffin could become more highly leveraged which could result in an increase in its debt service. Higher leverage also increases the risk of default on Griffin’s obligations. In addition, a change in Griffin’s investment policies, including the manner in which Griffin allocates its resources across the portfolio or the types of assets in which Griffin seeks to invest, may increase its exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to Griffin’s policies with regard to the foregoing could adversely affect Griffin’s financial condition, results of operations, cash flows and its ability to pay dividends on, and the per share trading price of, its common stock.

Changes to the U.S. federal income tax laws, including the recent comprehensive tax reform legislation, could have an adverse impact on Griffin’s business and financial results.

The United States recently enacted the Tax Cuts and Jobs Act (“TCJA”) that includes significant changes to the U.S. federal income taxation of business entities. These changes include, among others, a permanent reduction to the corporate income tax rate, an expansion of the bonus depreciation provisions relating to the deductibility of certain eligible capital expenses, a limitation on the utilization of net operating losses to offset taxable income, and a partial limitation on the deductibility of business interest expense. Griffin is currently evaluating the potential impact of the TCJA on its operations. The impact of the TCJA could be material to Griffin’s results of operations in future periods.

Risks Related to Griffin’s Common Stock

Issuances of Griffin’s common stock or the perception that such issuances might occur could adversely affect the per share trading price of Griffin’s common stock.

The issuance of Griffin common stock in connection with future property, portfolio or business acquisitions, to repay indebtedness or for general corporate purposes could have an adverse effect on the per share trading price of Griffin’s common stock and would be dilutive to existing stockholders.  Griffin’s Board of Directors can authorize the issuance of additional securities without stockholder approval. Griffin’s ability to develop and acquire proprieties in part depends on Griffin’s access to capital which may in the future include the issuance of common equity.

The market price and trading volume of Griffin’s common stock may be volatile.

The trading volume in Griffin’s common stock may fluctuate and cause significant price variations to occur. If the per share trading price of Griffin’s common stock declines significantly, stockholders may be unable to resell their

shares at or above the price paid for them. Griffin cannot assure stockholders that the per share trading price of its common stock will not fluctuate or decline significantly in the future.

Some of the factors that could negatively affect Griffin’s share price or result in fluctuations in the price or trading volume of its common stock include:

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert Griffin’s management’s attention and resources, which could have an adverse effect on Griffin’s financial condition, results of operations, cash flows and Griffin’s ability to pay dividends on, and the per share trading price of, its common stock.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2.  PROPERTIES.

Land Holdings

Griffin is a major landholder in the state of Connecticut, owning approximately 2,791 acres. Griffin also owns approximately 346 acres of land in Massachusetts, approximately 131 acres of land in Pennsylvania, approximately 18 acres in North Carolina and approximately 1,066 acres in northern Florida. Griffin believes the fair market value of its land in Connecticut and Massachusetts is substantially in excess of its book value.

Listings of the locations of Griffin’s land holdings, a portion of which, principally in Bloomfield, East Granby and Windsor, Connecticut, Breinigsville, Lower Nazareth Township and Hanover Township, Pennsylvania and Concord, North Carolina have been developed, are as follows:

Developed Properties

As of November 30, 2017, Griffin owned thirty‑five buildings, comprised of twenty-three industrial/warehouse buildings, eleven office/flex buildings and a small restaurant building. A listing of those facilities is as follows:

*     Included as collateral under one of Griffin’s nonrecourse mortgage loans or Griffin’s revolving line of credit as of November 30, 2017.

**    Subsequent to November 30, 2017, Griffin added this building as collateral to one of its nonrecourse mortgage loans and received additional mortgage proceeds of $7.0 million.

Griffin subleases approximately 1,920 square feet in New York City for its executive offices from Bloomingdale Properties, Inc. (“Bloomingdale Properties”), an entity that is controlled by certain members of the Cullman and Ernst Group. The sublease with Bloomingdale Properties was approved by Griffin’s Audit Committee and the lease rates under the sublease were at market rate at the time the sublease was signed.

As with many companies engaged in real estate investment and development, Griffin holds its real estate portfolio subject to mortgage debt. See Note 5 to Griffin’s consolidated financial statements for information concerning the mortgage debt associated with Griffin’s properties.

ITEM 3.  LEGAL PROCEEDINGS.

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 to Griffin’s financial position, results of operations or cash flows.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

The following are the high and low prices of Griffin’s common stock as traded on The Nasdaq Stock Market LLC:

On January 31, 2018, the number of record holders of common stock of Griffin was approximately 162 which does not include beneficial owners whose shares are held of record in the names of brokers or nominees. The closing market price as quoted on The Nasdaq Stock Market LLC on such date was $37.10 per share.

Dividend Policy

Griffin’s dividend policy is to consider the payment of an annual dividend at the end of its fiscal year, which enables the Board of Directors to evaluate both Griffin’s prior full year results and its cash needs for the succeeding year when determining whether to declare an annual dividend and the amount thereof, if any. In fiscal 2017 and fiscal 2016, Griffin declared an annual dividend of $0.40 and $0.30 per share, respectively.  

Issuer Purchases of Equity Securities

On March 31, 2016, Griffin’s Board of Directors authorized a stock repurchase program whereby Griffin could have repurchased up to $5.0 million in outstanding shares of its common stock in privately negotiated transactions. The stock repurchase program expired on May 10, 2017, and therefore no repurchases were made during the fiscal 2017 fourth quarter.  Griffin repurchased a total of 152,173 shares for approximately $4.8 million under the stock repurchase program.

Stock Performance Graph

The following graph compares the total percentage changes in the cumulative total stockholder return (assuming the reinvestment of dividends) on Griffin’s common stock with the cumulative total return of the Russell 2000 Index and the Russell Microcap Index from December 1, 2012 to November 30, 2017. It is assumed in the graph that the value of each investment was $100 at December 1, 2012. Griffin has selected an index of companies with a similar market capitalization because, for the period from December 1, 2012 to January 8, 2014, when Griffin sold its landscape nursery business, Griffin is not aware of any other company that substantially participated in both the landscape nursery and real estate businesses, and would therefore be suitable for comparison to Griffin as a “peer issuer” within Griffin’s lines of business. In addition, following the sale of the landscape nursery business, Griffin has not been able to identify issuers in the real estate business that are comparable peers, as most of those companies are significantly larger in size or have real estate holdings that either differ geographically or by type of property from Griffin’s holdings. Accordingly, Griffin selected an index of companies with a similar market capitalization.

ITEM 6.  SELECTED FINANCIAL DATA.

The following table sets forth selected statement of operations data for fiscal years 2013 through 2017 and balance sheet data as of the end of each fiscal year. The selected statement of operations data for fiscal 2015, fiscal 2016 and fiscal 2017 and the selected balance sheet data for fiscal 2016 and fiscal 2017 are derived from the audited consolidated financial statements included in Item 8 of this Annual Report. The selected statement of operations data for fiscal 2013 and fiscal 2014 and the balance sheet data for fiscal 2013, fiscal 2014 and fiscal 2015 were derived from the audited consolidated financial statements for those years. This selected financial data should be read in conjunction with the consolidated financial statements and accompanying notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this Annual Report. Historical results are not necessarily indicative of future performance.

ITEM 7.  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 seeks to add to its 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. Prior to May 13, 2015, Griffin was known as Griffin Land & Nurseries, Inc. On May 13, 2015, Griffin changed its name to better reflect its ongoing real estate business and focus on industrial/warehouse properties after the sale in fiscal 2014 of the landscape nursery business that Griffin had operated through its wholly owned subsidiary, Imperial Nurseries, Inc. (“Imperial”).

The notes to Griffin’s consolidated financial statements included in Item 8 of this Annual Report contain a summary of the significant accounting policies and methods used in the preparation of Griffin’s consolidated financial statements. In the opinion of management, because of the relative magnitude of Griffin’s real estate assets, accounting methods and estimates related to those assets are critical to the preparation of Griffin’s consolidated financial statements. Griffin uses accounting policies and methods under accounting principles generally accepted in the United States of America (“U.S. GAAP”). The following are the critical accounting estimates and methods used by Griffin:

Revenue and gain recognition: Revenue includes rental revenue from Griffin’s industrial and commercial properties and proceeds from property sales. Rental revenue is accounted for on a straight‑line basis over the applicable lease term in accordance with the Financial Accounting Standards Board (“FASB”) ASC 840, “Leases.” Gains on property sales are recognized in accordance with FASB ASC 360‑20 “Property, Plant and Equipment‑Real Estate Sales” based on the specific terms of each sale. When the percentage of completion method is used to account for a sale of real estate, costs included in determining the percentage of completion include the costs of the land sold, allocated master planning costs, selling and transaction costs and estimated future costs related to the land sold.

Impairment of long‑lived assets: Griffin reviews annually, as well as when conditions may indicate, its long‑lived assets to determine if there are any indications of impairment, such as a prolonged vacancy in one of Griffin’s rental properties. If indications of impairment are present, Griffin evaluates the carrying value of the assets in relation to undiscounted cash flows or the estimated fair value of the underlying assets. Development costs that have been capitalized are reviewed periodically for future recoverability.

Stock based compensation: Griffin determines stock based compensation based on the estimated fair values of stock options as determined on their grant dates using the Black‑Scholes option‑pricing model. In determining the estimated fair values of stock options issued, Griffin makes assumptions on expected volatility, risk free interest rates, expected option terms and dividend yields.

Derivative instruments: Griffin evaluates each interest rate swap agreement to determine if it qualifies as an effective cash flow hedge. Changes in the fair value of each interest rate swap agreement that management determines to be an effective cash flow hedge are recorded as a component of other comprehensive income. The fair value of each interest rate swap agreement is determined based on observable market participant data, such as yield curves, as of the fair value measurement date.

Income taxes: In accounting for income taxes under FASB ASC 740, “Income Taxes,” management estimates future taxable income from operations, the sale of appreciated assets, the remaining years before the expiration of loss credit carryforwards, future reversals of existing temporary differences and tax planning strategies in determining if it is more likely than not that Griffin will realize the benefits of its deferred tax assets. Deferred tax assets and deferred tax liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and deferred tax liabilities of a change in tax rates on income is recognized in the period that the tax rate change is enacted.

Summary

In the fiscal year ended November 30, 2017 (“fiscal 2017”), Griffin had net income of approximately $4.6 million as compared to net income of approximately $0.6 million in the fiscal year ended November 30, 2016 (“fiscal 2016”). The increase in net income in fiscal 2017, as compared to fiscal 2016, principally reflected an increase of approximately $7.0 million in operating income in fiscal 2017 as compared to fiscal 2016, partially offset by increases of approximately $1.1 million in interest expense and approximately $1.9 million in income tax expense in fiscal 2017 as compared to fiscal 2016.

The approximately $7.0 million increase in operating income in fiscal 2017, as compared to fiscal 2016, principally reflected increases of approximately $6.6 million in gain from property sales (revenue from property sales less costs related to property sales) and approximately $2.8 million in profit from leasing activities (which Griffin defines as rental revenue less operating expenses of rental properties), partially offset by increases in depreciation and amortization expense and general and administrative expenses of approximately $1.3 million and approximately $1.2 million, respectively. The higher gain from property sales in fiscal 2017, as compared to fiscal 2016, was driven by gains of approximately $8.0 million from the sale of approximately 67 acres of undeveloped land in Phoenix Crossing, the approximately 268 acre business park master planned by Griffin that straddles the town line between Windsor and Bloomfield, Connecticut (the “2017 Phoenix Crossing Land Sale”) and approximately $1.9 million from the sale of approximately 76 acres of undeveloped land in Southwick, Massachusetts (the “Southwick Land Sale”). As of November 30, 2017, Griffin owns approximately 76 acres of undeveloped land in Phoenix Crossing that is zoned for industrial and commercial development. The gain from property sales in fiscal 2016 principally reflected a gain of approximately $3.2 million from the sale of approximately 29 acres of undeveloped land in Griffin Center (the “Griffin Center Land Sale”). The increase in profit from leasing activities in fiscal 2017, as compared to fiscal 2016, was driven by an increase in rental revenue as a result of more space leased in fiscal 2017 than fiscal 2016, including the impact of the fiscal 2017 acquisition of 215 International Drive (“215 International”), an approximately 277,000 square foot industrial/warehouse building in the Charlotte, North Carolina area. The increase in depreciation and amortization expense in fiscal 2017, as compared to fiscal 2016, principally reflected depreciation and amortization expense on 215 International and a full year of depreciation expense, as compared to a partial year in fiscal 2016, on 5210 Jaindl Boulevard (“5210 Jaindl”), an approximately 252,000 square foot industrial/warehouse building in the Lehigh Valley of Pennsylvania that was completed and placed in service in the 2016 third quarter. The increase in general and administrative expenses in fiscal 2017, as compared to fiscal 2016, principally reflected an increase in compensation expense (mostly due to incentive compensation), the write-off of costs incurred for a potential purchase of undeveloped land that was not completed and higher expenses related to Griffin’s non-qualified deferred compensation plan.

The higher interest expense in fiscal 2017, as compared to fiscal 2016, principally reflected an increase in the amount outstanding under Griffin’s mortgage loans in fiscal 2017 as compared to fiscal 2016 and less capitalized interest in fiscal 2017 than fiscal 2016. The higher income tax expense in fiscal 2017, as compared to fiscal 2016, principally reflected the higher pretax income in fiscal 2017, as compared to fiscal 2016.

Results of Operations

Fiscal 2017 Compared to Fiscal 2016

Total revenue increased to approximately $43.9 million in fiscal 2017 from approximately $30.9 million in fiscal 2016, reflecting increases of approximately $9.6 million in revenue from property sales and approximately $3.4 million in rental revenue. Rental revenue increased to approximately $29.9 million in fiscal 2017 from approximately $26.5 million in fiscal 2016. The approximately $3.4 million increase in rental revenue in fiscal 2017 over fiscal 2016 was principally due to: (a) an increase of approximately $1.9 million from leasing previously vacant space; (b) an increase of approximately $1.8 million from 5210 Jaindl, which was placed in service and fully leased in fiscal 2016 with tenants taking occupancy and generating rental revenue starting in fiscal 2017; and (c) approximately $0.7 million of rental revenue from 215 International, the industrial/warehouse building acquired on June 9, 2017; partially offset by (d) a decrease of approximately $1.0 million from leases that expired.

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

The approximately 413,000 square foot increase in total square footage as of November 30, 2017, as compared to November 30, 2016, was due to: (a) the acquisition of 215 International, the approximately 277,000 square foot industrial/warehouse building in Concord, North Carolina, Griffin’s first property in the greater Charlotte area; and (b) the completion of construction and placing into service of 330 Stone Road (“330 Stone”), an approximately 137,000 square foot industrial/warehouse building in New England Tradeport (“NE Tradeport”), Griffin’s industrial park located in Windsor and East Granby, Connecticut. 330 Stone, built on speculation and completed just prior to the end of fiscal 2017, was approximately 54% leased as of November 30, 2017.

The approximately 449,000 square foot net increase in space leased as of November 30, 2017, as compared to November 30, 2016, was principally due to: (a) approximately 277,000 square feet at 215 International, which was 74% leased when acquired and subsequently became fully leased; (b) approximately 74,000 square feet being leased in 330 Stone; and (c) two new leases of industrial/warehouse space aggregating approximately 104,000 square feet in NE Tradeport; partially offset by (d) the expiration of an approximately 12,000 square foot lease of office/flex space in Griffin Center South in Bloomfield, Connecticut.

All of Griffin’s Connecticut industrial/warehouse and office/flex buildings are located in the north submarket of Hartford. The real estate market for industrial/warehouse space in the Hartford, Connecticut area has improved over the last three years. The Q4 2017 CBRE|New England Marketview Report (“Q4 2017 CBRE|New England Report”) from CBRE Group, Inc. (“CBRE”), a national real estate services company, stated that the overall vacancy rate in the greater Hartford industrial market decreased to 8.8% at the end of 2017 from 12.3% at the end of 2014, and net absorption in the greater Hartford industrial market in 2017 was approximately 0.8 million square feet. The Hartford office/flex market remained weak in 2017. According to the Q4 2017 CBRE|New England Report, the overall vacancy rate of office/flex space increased to 17.9% at the end of 2017 from 16.0% at the end of the two previous years, with vacancy in the north submarket of Hartford at approximately 30.9% at the end of 2017. Griffin’s office/flex space was approximately 12% of Griffin’s total square footage as of November 30, 2017. Griffin expects that its office/flex buildings will continue to become a smaller percentage of its total real estate portfolio as Griffin intends to focus on the growth of its industrial/warehouse building portfolio either through the acquisition of fully or partially leased buildings, development of buildings on land currently owned or to be acquired or both.

The real estate market for industrial/warehouse space in the Lehigh Valley has experienced strong growth and leasing activity during the past two years. The vacancy rate of Lehigh Valley industrial/warehouse properties as reported in the Q4 2017 CBRE Market Snapshot Report on Lehigh Valley PA Industrial (the “Q4 2017 CBRE Lehigh Valley Report”) was 6.9% at the end of 2017, with a net absorption of approximately 2.2 million square feet in 2017. The Charlotte, North Carolina industrial real estate market is strong. CBRE’s Q4 2017 Marketview Charlotte Industrial Report stated a vacancy rate of 4.46% for warehouse space at the end of 2017, with absorption of 3.1 million square feet of warehouse space in 2017. There is no guarantee that an active or strong real estate market or an increase in inquiries from prospective tenants will result in leasing space that was vacant as of November 30, 2017.

Revenue from property sales increased to approximately $14.0 million in fiscal 2017 from approximately $4.4 million in fiscal 2016. Property sales revenue in fiscal 2017 included: (a) approximately $10.3 million from the 2017 Phoenix Crossing Land Sale; (b) approximately $2.1 million from the Southwick Land Sale; and (c) approximately $1.3 million from the sale of two smaller parcels of undeveloped land in Phoenix Crossing. In addition, Griffin sold two small residential lots for total revenue of approximately $0.2 million and recognized approximately $0.1 million of revenue from a prior year land sale (see below). The costs related to the 2017 Phoenix Crossing Land Sale, the Southwick Land Sale and the sale of two smaller Phoenix Crossing parcels of undeveloped land were approximately $2.3 million, $0.2 million and $1.2 million, respectively, resulting in pretax gains of approximately $8.0 million,

$1.9 million and $0.1 million, respectively. The costs of the two smaller Phoenix Crossing parcels were relatively higher than the costs of other Phoenix Crossing land sold because those parcels were acquired more recently than the other Phoenix Crossing land, which had been held for many years and had a low cost basis.

Revenue from property sales in fiscal 2017 included recognition of the remaining approximately $0.1 million from the sale of approximately 90 acres of undeveloped land in Phoenix Crossing (the “2013 Phoenix Crossing Land Sale”) that closed in the fiscal year ended November 30, 2013 (“fiscal 2013”) and has been accounted for under the percentage of completion method whereby revenue and gain were recognized as costs related to the 2013 Phoenix Crossing Land Sale were incurred. Under the terms of the 2013 Phoenix Crossing Land Sale, Griffin constructed roads to connect the land sold to existing town roads. Such construction was completed in fiscal 2017. Accordingly, because of Griffin’s continued involvement with the land that was sold, the 2013 Phoenix Crossing Land Sale was accounted for under the percentage of completion method. From the closing of the 2013 Phoenix Crossing Land Sale through fiscal 2017, Griffin has recognized total revenue of approximately $9.0 million and a total pretax gain of approximately $6.7 million from the 2013 Phoenix Crossing Land Sale. Property sales occur periodically and changes in revenue from year to year from property sales may not be indicative of any trends in Griffin’s real estate business.

Griffin’s revenue from property sales of approximately $4.4 million in fiscal 2016 reflected approximately $3.8 million from the sale of approximately 29 acres of undeveloped land in Griffin Center (the “Griffin Center Land Sale”) that resulted in a pretax gain of approximately $3.2 million and the recognition of approximately $0.6 million of revenue from the 2013 Phoenix Crossing Land Sale that resulted in a pretax gain of approximately $0.4 million.

Operating expenses of rental properties increased to approximately $8.9 million in fiscal 2017 from approximately $8.3 million in fiscal 2016. The increase of approximately $0.6 million in operating expenses of rental properties in fiscal 2017, as compared to fiscal 2016, principally reflected: (a) an increase of approximately $0.4 million at 5210 Jaindl, which was in service for the entire year in fiscal 2017 versus five months in fiscal 2016; (b) approximately $0.1 million at 215 International, acquired in fiscal 2017; and (c) increases aggregating approximately $0.1 million across all other properties.

Depreciation and amortization expense increased to approximately $10.1 million in fiscal 2017 from approximately $8.8 million in fiscal 2016. The increase of approximately $1.3 million in depreciation and amortization expense in fiscal 2017, as compared to fiscal 2016, principally reflected: (a) an increase of approximately $0.6 million related to 5210 Jaindl, which was in service for the entire year in fiscal 2017 versus five months in fiscal 2016; (b) approximately $0.5 million related to 215 International, acquired in fiscal 2017; and (c) an increase of approximately $0.2 million related to all other properties.

Griffin’s general and administrative expenses increased to approximately $8.6 million in fiscal 2017 from approximately $7.4 million in fiscal 2016. The increase of approximately $1.2 million in general and administrative expenses in fiscal 2017, as compared to fiscal 2016, principally reflected: (a) an increase of approximately $0.6 million in compensation expense, which includes increases of approximately $0.4 million of incentive compensation expense and approximately $0.2 million of salary expense; (b) an increase of approximately $0.3 million related to Griffin’s non-qualified deferred compensation plan; and (c) approximately $0.3 million for the write-off of costs incurred for a potential purchase of a parcel of undeveloped land in the Lehigh Valley that was not completed. The increase in incentive compensation expense in fiscal 2017, as compared to fiscal 2016, reflected Griffin’s improved results of operations in fiscal 2017, as compared to fiscal 2016, that led to the achievement of certain objectives of Griffin’s incentive compensation plan. The increase in salary expense in fiscal 2017, as compared to fiscal 2016, principally reflected the addition of the Director of Acquisitions position in fiscal 2017. The expense increase related to the non-qualified deferred compensation plan reflected the effect of higher stock market performance on participant balances in fiscal 2017, as compared to fiscal 2016, which resulted in a greater increase in Griffin’s non-qualified deferred compensation plan liability in fiscal 2017, as compared to fiscal 2016.

Griffin’s interest expense increased to approximately $5.7 million in fiscal 2017 from approximately $4.5 million in fiscal 2016. The increase of approximately $1.2 million in interest expense in fiscal 2017, as compared to fiscal 2016, principally reflected: (a) approximately $0.5 million from financing 5210 Jaindl, which closed just prior to the end of fiscal 2016; (b) approximately $0.4 million from financing two previously unleveraged NE Tradeport industrial/warehouse buildings in fiscal 2017; (c) approximately $0.2 million less interest capitalized in fiscal 2017 as compared to fiscal 2016; and (d) approximately $0.1 million from financing 215 International in fiscal 2017.

In fiscal 2017, Griffin sold its remaining holdings of the common stock of Centaur Media plc (“Centaur Media”) for cash proceeds of approximately $1.2 million and a pretax gain of approximately $0.3 million. The approximately $0.1 million gain on the sale of assets in fiscal 2016 was from the disposition of certain fully depreciated equipment.

Griffin’s income tax provision increased to approximately $2.7 million in fiscal 2017 from approximately $0.7 million in fiscal 2016. The income tax provision in fiscal 2017 reflected an effective tax rate of 36.7% on pretax income of approximately $7.3 million as compared to an effective tax rate of 56.1% on pretax income of approximately $1.3 million in fiscal 2016. The approximately $2.0 million increase in the income tax provision in fiscal 2017, as compared to fiscal 2016, reflected approximately $2.2 million as a result of the higher pretax income in fiscal 2017 than fiscal 2016, partially offset by the inclusion in fiscal 2016 of a charge of approximately $0.2 million related to the reduction of the expected realization rate of tax benefits from Connecticut state net operating loss carryforwards as a result of a change in Connecticut tax law, effective for Griffin in fiscal 2016, that limits the future usage of loss carryforwards to 50% of taxable income. The charge for the reduction of the expected realization rate of tax benefits from Connecticut state net operating loss carryforwards increased the fiscal 2016 effective tax rate by approximately 12%.

Fiscal 2016 Compared to Fiscal 2015

Total revenue increased to approximately $30.9 million in fiscal 2016 from approximately $28.1 million in fiscal 2015, reflecting an increase of approximately $1.9 million in rental revenue and approximately $0.9 million in revenue from property sales. Rental revenue increased to approximately $26.5 million in fiscal 2016 from approximately $24.6 million in fiscal 2015 principally reflecting: (a) an increase of approximately $1.9 million from leasing previously vacant space; and (b) an increase of approximately $1.6 million from leasing space in 5220 Jaindl Boulevard (“5220 Jaindl”), which was completed and placed in service at the start of the fiscal 2015 fourth quarter; partially offset by (c) a decrease of approximately $1.5 million from leases that expired; and (d) a decrease of approximately $0.2 million of rental revenue from lower expense reimbursements, as a result of lower expenses, from tenants and other changes.

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

The approximately 252,000 square foot increase in total square footage as of November 30, 2016, as compared to November 30, 2015, reflected the construction in fiscal 2016 of 5210 Jaindl, the approximately 252,000 square foot industrial/warehouse building which was the second of the two buildings built on an approximately 49 acre parcel of land known as Lehigh Valley Tradeport II. 5210 Jaindl was completed in the 2016 third quarter and Griffin entered into two leases for that building, resulting in 5210 Jaindl being fully leased as of November 30, 2016. Both of the new leases at 5210 Jaindl became effective in the 2017 first quarter upon completion of tenant improvements.

The approximately 360,000 square foot net increase in space leased as of November 30, 2016, as compared to November 30, 2015, reflected the approximately 252,000 square feet leased at 5210 Jaindl and several new leases aggregating approximately 240,000 square feet in other buildings, partially offset by several leases aggregating approximately 132,000 square feet that expired. Included in the approximately 240,000 square feet of new leasing in fiscal 2016 was a lease of approximately 101,000 square feet in 4270 Fritch Drive (“4270 Fritch”), one of Griffin’s other industrial/warehouse buildings in the Lehigh Valley, a full building lease of 25 International Drive (“25 International”), an approximately 57,000 square foot industrial/warehouse building in NE Tradeport, a full building lease of an approximately 31,000 square foot industrial/warehouse building in Bloomfield, Connecticut, and a lease of approximately 16,000 square feet in a single story office building in Griffin Center. The new lease of 25 International replaced a lease that expired earlier in the year. The tenant of the expired lease had, in fiscal 2014, entered into a ten year full building lease of 758 Rainbow Road (“758 Rainbow”), an approximately 138,000 square foot building in NE Tradeport, while remaining in 25 International during its period of transition to the larger facility.

Also in the third quarter of fiscal 2016, Griffin entered into a new three year lease of its production nursery in Quincy, Florida (the “Florida Farm”). The Florida Farm had been leased to a nursery grower since fiscal 2009, but that lease ended in the fiscal 2016 second quarter. The new lease contains an option for the tenant to purchase the Florida Farm for a purchase price between $3.4 million and $3.9 million depending upon the date of sale. Subsequent to November 30, 2017, the tenant of the Florida Farm lease filed for protection under Chapter 11 of the U. S. Bankruptcy Code. Griffin has yet to determine the impact, if any, this will have on the Florida Farm Lease, which expires on June 30, 2019.

Griffin’s revenue from property sales increased to approximately $4.4 million in fiscal 2016 from approximately $3.5 million in fiscal 2015. In fiscal 2016, Griffin completed the Griffin Center Land Sale for approximately $3.8 million in cash and a pretax gain of approximately $3.2 million. In fiscal 2016, in addition to the Griffin Center Land Sale, Griffin recognized revenue of approximately $0.6 million and a gain of approximately $0.4 million from the 2013 Phoenix Crossing Land Sale. From the closing of the 2013 Phoenix Crossing Land Sale  through November 30, 2016, Griffin had recognized approximately $8.8 million of revenue from the 2013 Phoenix Crossing Land Sale, reflecting approximately 99% of the total revenue to be recognized from such sale. The balance of the revenue from the 2013 Phoenix Crossing Land Sale, approximately $0.1 million, was subsequently recognized in fiscal 2017.

The approximately $3.5 million of revenue from property sales in fiscal 2015 reflected: (a) approximately $2.5 million from the recognition of revenue related to the 2013 Phoenix Crossing Land Sale; (b) approximately $0.6 million from the sale of land that had been part of the Connecticut farm used by Imperial and (c) $0.4 million from the retention of a deposit (the “Florida Farm Deposit”) related to the sale of the Florida Farm, which did not close. Griffin received the Florida Farm Deposit in fiscal 2015 from the tenant that leased the Florida Farm at that time in connection with that tenant giving notice to Griffin that it was exercising its option under the lease to purchase the Florida Farm. The tenant subsequently notified Griffin that it would not close on the purchase and Griffin retained the Florida Farm Deposit and entered into an agreement with the tenant to extend its lease through April 30, 2016. Property sales occur periodically, and changes in revenue from year to year from those transactions may not be indicative of any trends in Griffin’s real estate business.

Operating expenses of rental properties decreased to approximately $8.2 million in fiscal 2016 from approximately $8.4 million in fiscal 2015. The slight decrease of approximately $0.2 million in operating expenses of rental properties in fiscal 2016, as compared to fiscal 2015, principally reflected decreases of approximately $0.4 million in snow removal expenses, due to less severe winter weather in fiscal 2016 than fiscal 2015, and approximately $0.3 million in utility expenses, partially offset by operating expense increases of approximately $0.3 million at 5220 Jaindl, which was in service for the entire year in fiscal 2016 versus three months in fiscal 2015, approximately $0.1 million of operating expenses at 5210 Jaindl, which was placed in service in fiscal 2016, and approximately $0.1 million for real estate taxes.

Depreciation and amortization expense increased to approximately $8.8 million in fiscal 2016 from approximately $7.7 million in fiscal 2015. The increase of approximately $1.1 million in depreciation and amortization expense in fiscal 2016, as compared to fiscal 2015, reflected increases of approximately $0.6 million related to 5220 Jaindl, which was in service for the entire year in fiscal 2016 versus three months in fiscal 2015, approximately $0.2 million related to 5210 Jaindl, which was placed in service in fiscal 2016, and approximately $0.5 million for tenant improvements related to new leases, offset by lower depreciation expense of approximately $0.2 million due to assets becoming fully depreciated.

Griffin’s general and administrative expenses increased to approximately $7.4 million in fiscal 2016 from approximately $7.1 million in fiscal 2015. The increase of approximately $0.3 million in general and administrative expenses in fiscal 2016, as compared to fiscal 2015, principally reflected an increase of approximately $0.2 million related to Griffin’s non-qualified deferred compensation plan and approximately $0.1 million for an increase in incentive compensation expense. The expense increase related to the non-qualified deferred compensation plan reflected the effect of higher stock market performance on participant balances in fiscal 2016, as compared to fiscal 2015, which resulted in a greater increase in Griffin’s non-qualified deferred compensation plan liability in fiscal 2016 as compared to fiscal 2015. The increase in incentive compensation expense reflected Griffin’s improved results in fiscal 2016 with regard to profit from leasing activities and gain on property sales as measured under Griffin’s incentive compensation plan.

Griffin’s interest expense increased to approximately $4.5 million in fiscal 2016 from approximately $3.7 million in fiscal 2015. The increase of approximately $0.8 million in interest expense in fiscal 2016, as compared to fiscal 2015, principally reflected approximately $0.5 million less interest capitalized in fiscal 2016 than fiscal 2015 and an increase in interest expense of approximately $0.4 million due to the increase in the amount outstanding under mortgage loans in fiscal 2016 as compared to fiscal 2015. The lower amount of capitalized interest in fiscal 2016, as compared to fiscal 2015, reflected the higher amount of construction activity in fiscal 2015 than fiscal 2016. The increase in the amount outstanding under mortgage loans in fiscal 2016, as compared to fiscal 2015, reflected borrowings completed in the fiscal 2015 fourth quarter that were outstanding for the entire year in fiscal 2016, a new borrowing in fiscal 2016 on 5210 Jaindl, and adding a previously unleveraged NE Tradeport building to a mortgage on several other NE Tradeport buildings in fiscal 2016.

Griffin’s income tax provision increased to approximately $0.7 million in fiscal 2016 from approximately $0.4 million in fiscal 2015. The increase of approximately $0.3 million reflected approximately $0.2 million as a result of the higher pretax income in fiscal 2016 than fiscal 2015 and approximately $0.1 million related to decreases in the valuation of certain state income tax benefits in fiscal 2016. In fiscal 2016, Griffin’s income tax provision included a charge of approximately $0.2 million for the reduction of the expected realization rate of tax benefits from Connecticut state net operating loss carryforwards as a result of a change in Connecticut tax law, effective for Griffin beginning in fiscal 2016, that limits the future usage of loss carryforwards to 50% of taxable income. In fiscal 2015, Griffin’s income tax provision included a charge of approximately $0.1 million for the reduction of the expected realization rate of tax benefits from certain state net operating loss carryforwards and other temporary differences as a result of changes in the expected utilization of such benefits. Griffin’s effective income tax rate increased to 56.1% in fiscal 2016 from 47.2% in fiscal 2015. The higher effective tax rate in fiscal 2016, as compared to fiscal 2015, principally reflected the effect in fiscal 2016 of a higher charge related to the reduction of certain state tax benefits.

Off Balance Sheet Arrangements

Griffin does not have any off balance sheet arrangements.

Liquidity and Capital Resources

Net cash provided by operating activities was approximately $9.4 million in fiscal 2017 as compared to approximately $7.2 million in fiscal 2016. The approximately $2.2 million increase in net cash provided by operating activities in fiscal 2017, as compared to fiscal 2016, principally reflected an increase of approximately $1.6 million of cash provided by changes in assets and liabilities in fiscal 2017, as compared to fiscal 2016, and an increase of approximately $0.6 million of cash provided by net income as adjusted for gains on property sales and noncash expenses and credits in fiscal 2017, as compared to fiscal 2016. The increase in net income as adjusted for gains on property sales and noncash expenses and credits reflects the approximately $2.8 million increase in profit from leasing activities (which Griffin defines as rental revenue less operating expenses of rental properties) in fiscal 2017, partially offset by the approximately $1.1 million increase in interest expense and the approximately $1.2 million increase in general and administrative expenses, a portion of which were noncash and reflected in the favorable changes in assets and liabilities.

The approximately $1.6 million increase in cash from changes in assets and liabilities in fiscal 2017, as compared to fiscal 2016, principally reflected: (a) an increase in deferred revenue of approximately $2.4 million in fiscal 2017 as compared to a decrease of approximately $0.7 million in fiscal 2016; and (b) an increase in other liabilities of approximately $1.1 million in fiscal 2017 as compared to an increase of approximately $0.4 million in fiscal 2016; partially offset by (c) an increase in other assets of approximately $2.1 million in fiscal 2017 as compared to a decrease of approximately $0.1 million in fiscal 2016. The favorable change in deferred revenue in fiscal 2017, as compared to fiscal 2016, principally reflected cash received from tenants for tenant and building improvements that will be recognized as rental revenue over the tenants’ respective lease terms. The favorable change in other liabilities in fiscal 2017 principally reflected the increase of Griffin’s non-qualified deferred compensation plan liability, reflected in general and administrative expenses, as a result of the increase in participant balances in fiscal 2017. The unfavorable change in other assets principally reflected differences in reported rental revenue and cash received from tenants due to the effect of rent abatements given to tenants primarily at the start of leases and an increase in amounts due from tenants,

principally for timing of receiving payments from tenants for additional tenant and building improvements related to new leases.

In fiscal 2016, net cash provided by operating activities decreased to approximately $7.2 million from approximately $13.0 million in fiscal 2015. The approximately $5.8 million decrease in net cash provided by operating activities in fiscal 2016, as compared to fiscal 2015, principally reflected a decrease of approximately $6.8 million of cash from changes in assets and liabilities in fiscal 2016 as compared to fiscal 2015, partially offset by an increase of approximately $1.1 million in cash generated from the increase in net income as adjusted for gains on property sales and noncash expenses and credits in fiscal 2016, as compared to fiscal 2015, which principally reflected the increase in profit from leasing activities in fiscal 2016, as compared to fiscal 2015, driven by the increase in rental revenue.

The decrease in cash from changes in assets and liabilities in fiscal 2016, as compared to fiscal 2015, principally reflected: (a) fiscal 2016 having an approximately $0.7 million decrease in cash from the change in deferred revenue as compared to an approximately $4.9 million increase in cash from the change in deferred revenue in fiscal 2015; and (b) fiscal 2016 having an approximately $0.1 million increase in cash from the change in other assets as compared to an approximately $1.1 million increase in cash from the change in other assets in fiscal 2015. The change in deferred revenue of approximately $0.7 million in fiscal 2016 principally reflected the recognition of revenue from the 2013 Phoenix Crossing Land Sale. The change in deferred revenue in fiscal 2015 principally reflected approximately $6.4 million of cash received from a tenant related to building and tenant improvements in connection with a ten year full building lease of 758 Rainbow that is being recognized as additional rental revenue over the lease term, offset by a reduction of deferred revenue from the recognition of approximately $2.5 million of revenue from the 2013 Phoenix Crossing Land Sale. The increase in cash from the change in other assets in fiscal 2015 principally reflected approximately $0.9 million from a reduction in lease receivables.

Net cash used in investing activities was approximately $19.9 million in fiscal 2017 as compared to approximately $16.6 million in fiscal 2016 and approximately $29.7 million in fiscal 2015. The net cash used in investing activities in fiscal 2017 reflected: (a) cash payments of approximately $18.4 million for the acquisition of 215 International; (b) cash payments of approximately $17.6 million for additions to real estate assets; and (c) cash payments of approximately $1.6 million for deferred leasing costs and other uses; partially offset by (d) cash proceeds of approximately $13.0 million from property sales; (e) approximately $3.4 million of net cash proceeds from property sales returned from escrow; and (f) cash proceeds of approximately $1.2 million from the sale of Centaur Media common stock. The approximately $13.0 million of cash proceeds from property sales reflected approximately $9.7 million from the 2017 Phoenix Crossing Land Sale, approximately $1.9 million from the Southwick Land Sale, approximately $1.2 million from the sale of two smaller parcels of undeveloped land in Phoenix Crossing and approximately $0.2 million from the sale of two small residential lots. The approximately $3.4 million of net cash proceeds from property sales returned from escrow reflects approximately $3.5 million from the Griffin Center Land Sale, offset by approximately $0.1 million of cash that remained in escrow from the Southwick Land Sale. The cash proceeds from the Griffin Center Land Sale were deposited into escrow at closing for the potential purchase of a replacement property in a like-kind exchange (a “1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended (the “IRC”). The net cash proceeds from the Griffin Center Land Sale were returned to Griffin in fiscal 2017 because a replacement property was not purchased in the time period required for a 1031 Like-Kind Exchange. The cash proceeds of approximately $1.9 million from the Southwick Land Sale were deposited into escrow at closing and subsequently, approximately $1.8 million of such proceeds were used to purchase approximately 14 acres of undeveloped land in the Lehigh Valley of Pennsylvania (see below). The remaining approximately $0.1 million of proceeds from the Southwick Land Sale that remained in escrow was returned to Griffin in the fiscal 2018 first quarter.

On June 9, 2017, Griffin paid cash of approximately $18.4 million (net of allowances) for the acquisition of 215 International, using the approximately $9.7 million of proceeds from the 2017 Phoenix Crossing Land Sale that were deposited in escrow at the closing of that transaction for the purchase of a replacement property for a 1031 Like-Kind Exchange, with the balance of approximately $8.7 million paid from cash on hand. Subsequent to the acquisition, Griffin closed on a nonrecourse mortgage loan of $12.15 million collateralized by 215 International (see below).

Cash payments of approximately $17.6 million for additions to real estate assets in fiscal 2017 reflected the following:

Cash payments for tenant and building improvements in fiscal 2017 related to new leases signed in the latter part of fiscal 2016 and fiscal 2017. Cash of approximately $2.4 million (including acquisition expenses) was paid for the purchase of approximately 14 acres of undeveloped land in the Lehigh Valley that had been under agreement. The closing on this purchase took place after Griffin received all governmental approvals for its planned development, on speculation, of an approximately 134,000 square foot industrial/warehouse building on the land acquired. Griffin started site work in the fiscal 2017 fourth quarter with building construction anticipated to begin in the fiscal 2018 first quarter. Griffin expects to spend approximately $7.8 million for site work and construction of the building shell and expects to complete construction in the fiscal 2018 third quarter. Cash payments for new building construction in fiscal 2017 were for 330 Stone, the approximately 137,000 square foot industrial/warehouse building in NE Tradeport that was built on speculation in fiscal 2017. 330 Stone was 54% leased as of November 30, 2017 as a result of a lease for approximately 74,000 square feet with a tenant that had leased approximately 39,000 square feet in one of Griffin’s other NE Tradeport industrial/warehouse buildings.

Cash payments of approximately $1.6 million in fiscal 2017 for deferred leasing costs and other uses reflected approximately $1.5 million for lease commissions and other costs related to new and renewed leases and approximately $0.1 million for purchases of property and equipment.

In fiscal 2016, the net cash used in investing activities of approximately $16.6 million reflected cash payments of approximately $15.7 million for additions to real estate assets and approximately $0.9 million for deferred leasing costs and other uses. The cash spent on deferred leasing costs and other in fiscal 2016 principally reflected lease commissions paid to real estate brokers for new leases. The approximately $3.5 million of proceeds, net of transaction expenses, received from the Griffin Center Land Sale were placed in escrow for potential acquisition of a replacement property in a like-kind exchange under a 1031 Like-Kind Exchange. As a replacement property was not purchased in the time period required for a 1031 Like-Kind Exchange, the proceeds from the Griffin Center Land Sale were returned to Griffin in fiscal 2017.

Cash payments for additions to real estate assets in fiscal 2016 reflected the following:

Cash payments in fiscal 2016 for new building construction reflected the construction, on speculation, of 5210 Jaindl, which was started in the fiscal 2015 fourth quarter and completed in fiscal 2016. Through November 30, 2016, Griffin made total cash payments of approximately $12.0 million for the direct site work and building shell for 5210 Jaindl. Cash payments in fiscal 2016 for tenant and building improvements principally reflected tenant improvement work related to leases signed in the latter part of fiscal 2015 and fiscal 2016. The cash spent on development costs and infrastructure improvements in fiscal 2016 principally reflected road improvements related to the 2013 Phoenix Crossing Land Sale.

In fiscal 2015, the net cash used in investing activities of approximately $29.7 million reflected cash payments of approximately $31.2 million for additions to real estate assets and approximately $1.0 million for deferred leasing costs and other uses, partially offset by $1.5 million of cash received from the second and final payment under the note receivable from Monrovia Connecticut, LLC (“Monrovia”), the buyer of Imperial, and approximately $1.0 million of cash proceeds from property sales.

Cash payments for additions to real estate assets in fiscal 2015 reflect the following:

Fiscal 2015 cash payments for new building construction, including site work, principally reflected the construction, on speculation, of 5220 Jaindl and the start of site work for 5210 Jaindl. The fiscal 2015 cash payments for tenant and building improvements related to leasing included approximately $7.8 million for improvements in connection with the ten year full building lease of 758 Rainbow and approximately $2.9 million of improvements at 5220 Jaindl. The cash payments for development costs and infrastructure improvements primarily reflected ongoing road construction and other offsite improvements required under the terms of the 2013 Phoenix Crossing Land Sale.

Proceeds from property sales in fiscal 2015 reflected approximately $0.6 million from the sale of land that had been part of the Connecticut farm used by Imperial but not part of the long-term lease to Monrovia and approximately $0.4 million from the deposit retained on the sale of the Florida Farm that did not close.

Net cash provided by financing activities was approximately $15.9 million in fiscal 2017 as compared to approximately $15.8 million in fiscal 2016 and approximately $18.0 million in fiscal 2015. The net cash provided by financing activities in fiscal 2017 reflected proceeds of approximately $39.1 million from new mortgage loans (see below); partially offset by: (a) approximately $19.3 million of principal payments on mortgage loans; (b) a payment of approximately $1.5 million for a dividend on Griffin’s common stock that was declared in the fiscal 2016 fourth quarter and paid in fiscal 2017; (c) approximately $1.5 million paid for the repurchase of common stock; (d) approximately $0.6 million of payments for debt issuance costs; and (e) a payment of approximately $0.3 million for the termination of an interest rate swap agreement. The principal payments on mortgage loans include approximately $16.0 million for the repayment of two mortgage loans that were refinanced (see below), and approximately $3.3 million of recurring principal payments.

In fiscal 2016, net cash provided by financing activities of approximately $15.8 million reflected $45.5 million of proceeds from new mortgage debt (see below) and $0.6 million of mortgage proceeds released from escrow, partially offset by: (a) approximately $24.8 million of principal payments on mortgage loans; (b) approximately $3.4 million paid for the repurchase of common stock (see below); (c) a payment of approximately $1.5 million for a dividend on Griffin’s common stock that was declared in the fiscal 2015 fourth quarter and paid in fiscal 2016; and (d) approximately $0.6 million of payments for debt issuance costs. The principal payments on mortgage loans included approximately $21.1 million for the repayment of two mortgage loans that were refinanced (see below), approximately $2.7 million of recurring principal payments and a $1.0 million principal repayment from mortgage proceeds that had been held in escrow.

The net cash provided by financing activities of approximately $18.0 million in fiscal 2015 reflected net proceeds of approximately $40.4 million from three mortgage loans (see below) and approximately $0.1 million received from the exercise of stock options, partially offset by: (a) approximately $20.1 million of payments of principal on Griffin’s mortgage loans; (b) a payment of approximately $1.0 million for a dividend on Griffin’s common stock that was declared in the fiscal 2014 fourth quarter and paid in fiscal 2015; (c) approximately $0.8 million of payments for debt issuance costs; and (d) approximately $0.6 million of mortgage proceeds placed in escrow. The principal payments on mortgage loans included approximately $17.9 million for the repayment of a mortgage loan that was refinanced (see below) and approximately $2.2 million of recurring principal payments.

On September 22, 2017, two subsidiaries of Griffin closed on the refinancing of a nonrecourse mortgage (the “2012 Webster Mortgage”) with Webster Bank, N. A. (“Webster Bank”) that was collateralized by 5 and 7 Waterside Crossing, two multi-story office buildings aggregating approximately 161,000 square feet in Griffin Center in Windsor, Connecticut. Immediately prior to the refinancing, the 2012 Webster Mortgage had a balance of approximately $5.9 million with a maturity date of October 2, 2017. The refinanced nonrecourse mortgage loan (the “2017 Webster Mortgage”) was for approximately $4.4 million, has a five year term with monthly principal payments based on a twenty-five year amortization schedule and is collateralized by the same properties that collateralized the 2012 Webster Mortgage. The 2017 Webster Mortgage has a variable interest rate consisting of the one-month LIBOR rate plus 2.75%, but Griffin entered into an interest rate swap agreement with Webster Bank that effectively fixes the interest rate on the

2017 Webster Mortgage at 4.72% over the term of the 2017 Webster Mortgage. The 2012 Webster Mortgage had a variable interest rate that was effectively fixed at 3.86% through an interest rate swap agreement with Webster Bank. Griffin used cash on hand of approximately $1.0 million and approximately $0.5 million of cash that had been held in escrow by Webster Bank to repay a portion of the 2012 Webster Mortgage in connection with the refinancing.

On August 30, 2017, a subsidiary of Griffin closed on a $12.15 million nonrecourse mortgage (the “2017 40|86 Mortgage”) with 40|86 Mortgage Capital, Inc. The 2017 40|86 Mortgage is collateralized by 215 International, which Griffin acquired on June 9, 2017. The 2017 40|86 Mortgage has an interest rate of 3.97% and a ten year term with monthly principal payments based on a thirty year amortization schedule.

On July 14, 2017, a subsidiary of Griffin closed on a $10.6 million nonrecourse mortgage loan (the “2017 Berkshire Mortgage”) with Berkshire Bank. The 2017 Berkshire Mortgage refinanced an existing mortgage loan (the “2009 Berkshire Mortgage”) with Berkshire Bank that was due on February 1, 2019 and was collateralized by 100 International Drive (“100 International”), an approximately 304,000 square foot industrial/warehouse building in NE Tradeport. The 2009 Berkshire Mortgage had a balance of approximately $10.1 million at the time of the refinancing and a variable interest rate consisting of the one month LIBOR rate plus 2.75%. At the time Griffin closed on the 2009 Berkshire Mortgage, Griffin entered into an interest rate swap agreement with Berkshire Bank (the “2009 Berkshire Swap”) to effectively fix the interest rate on the 2009 Berkshire Mortgage at 6.35% for the term of that loan. The 2017 Berkshire Mortgage is collateralized by the same property that collateralized the 2009 Berkshire Mortgage. Just prior to the closing on the 2017 Berkshire Mortgage, Griffin completed a lease amendment with the full building tenant in 100 International to extend the lease from its scheduled expiration date of July 31, 2019 to July 31, 2025. Under the terms of the 2017 Berkshire Mortgage, Griffin entered into a master lease of 100 International that would become effective if the tenant in 100 International does not renew its lease when it expires. The 2017 Berkshire Mortgage has a ten year term with monthly principal payments based on a twenty-five year amortization schedule. The interest rate for the 2017 Berkshire Loan is a variable rate consisting of the one month LIBOR rate plus 2.05%. At the time the 2017 Berkshire Mortgage closed, Griffin terminated the 2009 Berkshire Swap and entered into a new interest rate swap agreement with Berkshire Bank that effectively fixes the interest rate of the 2017 Berkshire Mortgage at 4.39% over the loan term. Griffin paid approximately $0.3 million in connection with the termination of the 2009 Berkshire Swap.

On March 15, 2017, a subsidiary of Griffin closed on a $12.0 million nonrecourse mortgage loan (the “2017 People's Mortgage”) with People’s United Bank, N.A. (“People’s Bank”). The 2017 People’s Mortgage is collateralized by two industrial/warehouse buildings (755 and 759 Rainbow Road) in NE Tradeport aggregating approximately 275,000 square feet. The 2017 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 2017 People’s Mortgage is a variable rate consisting of the one month LIBOR rate plus 1.95%. At the time the 2017 People’s Mortgage closed, Griffin also entered into an interest rate swap agreement with People’s Bank that effectively fixes the interest rate at 4.45% for the full loan term. In accordance with the terms of the 2017 People’s Mortgage, Griffin entered into a master lease for 759 Rainbow Road that would only become effective if the full building tenant in that building does not renew its lease, which is scheduled to expire in fiscal 2019. The master lease would be in effect until the earlier to occur of the space being re-leased to a new tenant or the due date of the 2017 People’s Mortgage. Subsequent to November 30, 2017, Griffin closed on the refinancing of the 2017 People’s Mortgage, adding 330 Stone to the collateral and receiving $7.0 million of additional mortgage proceeds (see below).

On November 17, 2016, Griffin closed on a nonrecourse mortgage (the “2016 Webster Mortgage”) for approximately $26.7 million. The 2016 Webster Mortgage refinanced an existing mortgage with Webster Bank, which was due on September 1, 2025 and was collateralized by 5220 Jaindl (see below). The 2016 Webster Mortgage is collateralized by the approximately 280,000 square foot industrial/warehouse building, 5220 Jaindl, along with 5210 Jaindl, the adjacent approximately 252,000 square foot industrial/warehouse building. Griffin received net proceeds of $13.0 million (before transaction costs), net of approximately $13.7 million used to refinance the existing mortgage with Webster Bank. The 2016 Webster Mortgage has a ten year term with monthly principal payments based on a twenty-five year amortization schedule. The interest rate for the 2016 Webster Mortgage is a variable rate of the one month LIBOR rate plus 1.70%. At the time the 2016 Webster Mortgage closed, Griffin entered into an interest rate swap agreement with Webster Bank that, combined with two existing swap agreements with Webster Bank, effectively fixes the rate of the 2016 Webster Mortgage at 3.79% over the mortgage loan’s ten year term. 

On September 1, 2015, Griffin closed on a $14.1 million nonrecourse mortgage loan (the “2015 Webster Mortgage”) with Webster Bank. The 2015 Webster Mortgage was collateralized by 5220 Jaindl. At closing, Griffin received cash proceeds from the 2015 Webster Mortgage (before transaction costs) of $11.5 million. Subsequent to the closing of this loan, the tenant that was leasing approximately 196,000 square feet in 5220 Jaindl exercised its option to lease the balance of the building and Webster Bank advanced the balance of the mortgage loan proceeds ($2.6 million) to Griffin on December 10, 2015. The 2015 Webster Mortgage had a variable interest rate of the one month LIBOR rate plus 1.65%, but Griffin entered into an interest rate swap agreement with Webster Bank at closing that effectively fixes the interest rate at 3.77% over the loan term on the loan proceeds received at closing. At the time Griffin received the additional proceeds of $2.6 million, Griffin entered into a second interest rate swap agreement with Webster Bank to effectively fix the interest rate on those loan proceeds at 3.67% for the balance of the term of the loan.

On April 26, 2016, Griffin closed on a nonrecourse mortgage (the “2016 People’s Mortgage”) with People’s Bank and received mortgage proceeds of $14.35 million, before transaction costs. The 2016 People’s Mortgage refinanced an existing mortgage (the “2009 People’s Mortgage”) with People’s Bank that was due on August 1, 2019 and was collateralized by four of Griffin’s NE Tradeport industrial/warehouse buildings totaling approximately 240,000 square feet (14, 15, 16 and 40 International Drive). The 2009 People’s Mortgage had a balance of approximately $7.4 million at the time of the refinancing and a variable interest rate of the one month LIBOR rate plus 3.08%. Griffin had entered into an interest rate swap agreement with People’s Bank to effectively fix the rate on the 2009 People’s Mortgage at 6.58% for the term of that loan. The 2016 People’s Mortgage is collateralized by the same four properties as the 2009 People’s Mortgage along with another approximately 98,000 square foot industrial/warehouse building (35 International Drive) in NE Tradeport. At the closing of the 2016 People’s Mortgage, Griffin used a portion of the proceeds to repay the 2009 People’s Mortgage. The 2016 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 2016 People’s Mortgage is a variable rate of the one month LIBOR rate plus 2.0%. At the time the 2016 People’s Mortgage closed, Griffin entered into a second interest rate swap agreement with People’s Bank that, combined with the existing interest rate swap agreement with People’s Bank, effectively fixes the interest rate of the 2016 People’s Mortgage at 4.17% over the loan term. The terms of the 2016 People’s Mortgage require that if either the tenant that leases approximately 58,000 square feet in 40 International Drive or the tenant that leases approximately 40,000 square feet in 14 International Drive does not extend its respective lease when it expires in fiscal 2021, a subsidiary of Griffin will enter into a master lease of the vacated space. The master lease would be guaranteed by Griffin and be in effect until either the space is re-leased to a new tenant or the due date of the 2016 People’s Mortgage Loan, whichever occurs first.

On December 31, 2014, Griffin closed on a nonrecourse mortgage loan (the “2014 KeyBank Mortgage”) on 4275 Fritch Drive (“4275 Fritch”) with First Niagara Bank, which was subsequently acquired by KeyBank. The 2014 KeyBank Mortgage refinanced an existing mortgage loan on 4275 Fritch and added 4270 Fritch to the collateral. Griffin received mortgage proceeds of approximately $10.9 million (before transaction costs) in addition to approximately $8.9 million used to refinance the existing mortgage on 4275 Fritch. The 2014 KeyBank Mortgage is collateralized by 4270 Fritch, an approximately 303,000 square foot industrial/warehouse building, and 4275 Fritch, an adjacent approximately 228,000 square foot industrial/warehouse building. At the time of the mortgage closing, approximately 201,000 square feet of 4270 Fritch was leased. On December 11, 2015, Griffin received additional mortgage proceeds of $1.85 million (the “KeyBank Earn-Out”) when the remaining vacant space of approximately 102,000 square feet was leased. Griffin agreed that it would enter into a master lease with its subsidiaries that own 4270 Fritch and 4275 Fritch in order to maintain a minimum net rent equal to the debt service on the 2014 KeyBank Mortgage. The master lease would be co-terminus with the 2014 KeyBank Mortgage. The 2014 KeyBank Mortgage has a ten year term with monthly principal payments based on a twenty-five year amortization schedule. The interest rate for the 2014 KeyBank Mortgage is a variable rate of the one month LIBOR rate plus 1.95%. At the time the 2014 KeyBank Mortgage closed, Griffin entered into an interest rate swap agreement that, combined with an existing interest rate swap agreement, effectively fixed the rate of the 2014 KeyBank Mortgage at 4.43% over the mortgage loan’s ten year term. At the time the KeyBank Earn-Out was received, Griffin entered into another interest rate swap agreement with KeyBank for a notional principal amount of $1.85 million to fix the interest rate on the KeyBank Earn-Out at 3.88%. The combination of the three interest rate swap agreements effectively fixes the interest rate on the 2014 KeyBank Mortgage at 4.39% over the remainder of the mortgage loan’s ten year term.

On July 29, 2015, a subsidiary of Griffin closed on an $18.0 million nonrecourse mortgage loan (the “2015 40|86 Mortgage”) with 40|86 Mortgage Capital, Inc. The 2015 40|86 Mortgage Loan is collateralized by three

industrial/warehouse buildings in NE Tradeport (75 International Drive, 754 and 758 Rainbow Road) aggregating approximately 392,000 square feet, has a fixed interest rate of 4.33% and a fifteen year term, with payments based on a thirty year amortization schedule. At closing, Griffin received cash proceeds from the 2015 40|86 Mortgage (before financing costs) of approximately $14.9 million, which were used to refinance the maturing mortgage that had a principal balance of approximately $17.9 million and an interest rate of 5.73%. The remaining approximately $3.1 million of mortgage proceeds were deposited into escrow. As per the terms of the 2015 40|86 Mortgage, $2.5 million of the escrowed proceeds were released to Griffin in fiscal 2015 when the tenant that was leasing approximately 88,000 square feet on a month‑to‑month basis in 754 Rainbow Road entered into a long‑term lease for that space and the remaining $0.6 million of escrowed proceeds were released to Griffin in fiscal 2016 when tenant improvements for the full building tenant in 758 Rainbow Road were completed.

On July 22, 2016, Griffin entered into a two-year extension to its revolving credit line with Webster Bank (the “Webster Credit Line”) that was scheduled to expire on August 1, 2016. The terms of the extension increased the amount of the credit line from $12.5 million to $15.0 million and Griffin has the option to further extend the credit line for an additional year provided there is no default at the time such extension is requested. The interest rate on the credit line extension remained at the one month LIBOR rate plus 2.75% and the collateral for the Webster Credit Line, Griffin’s eight single-story office/flex buildings aggregating approximately 217,000 square feet in Griffin Center South, an approximately 48,000 square foot single-story office building in Griffin Center, and an approximately 18,000 square foot industrial/warehouse building in Griffin Center South also remained the same. There have been no borrowings under the Webster Credit Line since its inception, however, the Webster Credit Line does secure certain unused standby letters of credit aggregating approximately $2.2 million that are related to Griffin's development activities.

In fiscal 2016, Griffin’s Board of Directors authorized a stock repurchase program whereby, effective May 11, 2016, Griffin could repurchase up to $5.0 million of its outstanding common stock over a twelve month period in privately negotiated transactions. The stock repurchase program did not obligate Griffin to repurchase any specific amount of stock. In fiscal 2016, Griffin repurchased 105,000 shares of its common stock for approximately $3.4 million. In fiscal 2017, Griffin repurchased 47,173 shares of its outstanding common stock for approximately $1.5 million before the repurchase program expired on May 10, 2017. Under the stock repurchase program, Griffin repurchased a total of 152,173 shares of its outstanding common stock for approximately $4.8 million.

Griffin’s payments (including principal and interest) under contractual obligations as of November 30, 2017 are as follows:

On January 25, 2016, Griffin entered into an Option Purchase Agreement (the “Simsbury Option Agreement”) whereby Griffin granted the buyer an exclusive three month option, in exchange for a nominal fee, to purchase approximately 280 acres of undeveloped land in Simsbury, Connecticut for approximately $7.7 million. The buyer may extend the option period for up to three years upon payment of additional option fees. Through November 30, 2017, the buyer paid approximately $0.1 million of option fees, and subsequent to November 30, 2017, the buyer paid an additional approximately $0.1 million to extend its option period through January 2019. Subsequent to November 30, 2017, the buyer received approval from the state regulatory authority for the buyer’s planned use of the land, which is to generate solar electricity. A closing on the land sale contemplated by the Simsbury Option Agreement is subject to

several significant contingencies, including the potential appeal of the approvals recently granted by the state regulatory authority. Griffin expects the decision of the state regulatory authority to be appealed. There is no guarantee that the sale of land as contemplated under the Simsbury Option Agreement will be completed under its current terms, or at all.

On May 5, 2017, Griffin entered into an Option Purchase Agreement (the “EGW Option Agreement”) whereby Griffin granted the buyer an exclusive three month option, in exchange for a nominal fee, to purchase approximately 288 acres of undeveloped land in East Granby and Windsor, Connecticut for approximately $7.8 million. The buyer may extend the option period for up to three years upon payment of additional option fees. The land subject to the EGW Option Agreement does not have any of the approvals that would be required for the buyer’s planned use of the land, which is to generate solar electricity. A closing on the land sale contemplated by the EGW Option Agreement is subject to several significant contingencies, including the buyer procuring electrical utility supply contracts, approval by the state public utility regulatory authorities and governmental approvals for the planned use of the land. There is no guarantee that the sale of land as contemplated under the EGW Option Agreement will be completed under its current terms, or at all.

On October 4, 2017, Griffin entered into an agreement to purchase an approximately 22 acre parcel of undeveloped land in Concord, North Carolina (the “Concord Land”) for $2.6 million in cash. If the transaction closes, Griffin plans to construct an industrial/warehouse development on the Concord Land, which is located near 215 International. The amount of industrial/warehouse space to be developed there will be based upon findings during due diligence. The closing of this purchase, anticipated to take place in fiscal 2018, is subject to several conditions, including the satisfactory outcome of due diligence and obtaining all governmental approvals for Griffin’s development plans for the Concord Land. There is no guarantee that this transaction will be completed under its current terms, or at all.

On October 18, 2017, Griffin entered into a full building lease (the “220 Tradeport Lease”) for an approximately 234,000 square foot industrial/warehouse building (“220 Tradeport Drive”) to be built in NE Tradeport. The tenant is an investment grade company that intends to use 220 Tradeport Drive for the distribution of automotive parts. The Lease, which would commence upon completion of construction of the 220 Tradeport Drive, has a term of twelve years and six months with the tenant having several five year renewal options. Provided the tenant meets certain conditions, the tenant has an option (the “Expansion Option”) to cause Griffin to construct an approximately 54,000 square foot addition to 220 Tradeport Drive. If the tenant exercises the Expansion Option, the term of the 220 Tradeport Lease would be extended for at least ten years upon the tenant occupying the additional space. Griffin expects to commence construction of 220 Tradeport Drive in the fiscal 2018 first quarter, with completion expected in the second half of fiscal 2018. Griffin expects to spend approximately $17.5 million related to development of 220 Tradeport Drive, including all related site work, building construction, tenant improvements, leasing expenses and financing costs. Griffin has agreed to terms with State Farm Life Insurance Company (“State Farm”) on a construction to permanent mortgage loan for up to $13.8 million. The loan would provide financing during the construction period and, upon completion of 220 Tradeport Drive and commencement of rent payments under the 220 Tradeport Lease, would convert to a fifteen year nonrecourse permanent mortgage loan. The interest rate on the loan is 4.51%. During the construction period, only interest payments would be made. Monthly principal payments, which will begin after conversion to a nonrecourse permanent mortgage loan, will be based on a twenty-five year amortization schedule. There is no guarantee that the construction to permanent mortgage loan with State Farm will be completed under its current terms, or at all.

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. If the transaction closes, Griffin plans to construct an industrial/warehouse building on the Lehigh Valley Land, the size of which will be based upon findings during due diligence. The closing of this purchase, anticipated to take place in late fiscal 2018 or early fiscal 2019, is subject to several conditions, including the satisfactory outcome of due diligence and obtaining all governmental approvals for Griffin’s development plans for the Lehigh Valley Land. There is no guarantee that this transaction will be completed under its current terms, or at all.

On January 30, 2018, one of Griffin’s subsidiaries closed on the refinancing (the “Refinanced Loan”) of the 2017 People’s Mortgage with People’s Bank, adding 330 Stone to the collateral and receiving $7.0 million of additional mortgage proceeds. The 2017 People’s Mortgage had a balance of approximately $11.8 million at the time of the refinancing. The Refinanced Loan has a new ten year term with monthly principal payments based on a twenty-five year amortization schedule. The Refinanced Loan has a variable interest rate based on the one month LIBOR rate plus 1.95%, but 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 on the Refinanced Loan at 4.57% over the term of the Refinanced Loan.

In the near-term, Griffin plans to continue to invest in its real estate business, including construction of 220 Tradeport Drive, construction, on speculation, of a building in the Lehigh Valley on land recently purchased and construction of additional buildings on its undeveloped land, expenditures for tenant improvements as new leases 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 build‑to‑suit facilities on its undeveloped land if lease terms are favorable.

As of November 30, 2017, Griffin had cash and cash equivalents of approximately $30.1 million. Management believes that its cash and cash equivalents as of November 30, 2017, proceeds from the Refinanced Loan, cash generated from operations, and borrowing capacity under the Webster Credit Line will be sufficient to meet its working capital requirements, the continued investment in real estate assets, construction of buildings currently planned to be built in fiscal 2018, completion of the acquisitions of the Concord Land and the Lehigh Valley Land, and the payment of dividends on its common stock, when and if declared by the Board of Directors, for at least the next twelve months. Griffin may also continue to seek additional financing secured by nonrecourse mortgage loans on its properties.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted and became effective for Grifin on January 1, 2018. The TCJA reduces the U.S. federal corporate statutory income tax rate from 35% to 21%, which is expected to result in a blended fiscal 2018 federal corporate statutory rate for Griffin of approximately 22.2%. The impact of the lower statutory rate applied to Griffin’s deferred tax assets and deferred tax liabilities is expected to be recorded as a discrete item in Griffin’s income tax expense in the fiscal 2018 first quarter. Based on the TCJA, Griffin expects to record income tax expense of between approximately $1.0 million and $1.1 million, due to the re-measurement of its net deferred tax assets on its consolidated balance sheet in the fiscal 2018 first quarter. Griffin is currently evaluating the potential impact of the TCJA on its operations.

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. These forward‑looking statements include, but are not limited to, Griffin’s expectations regarding the leasing of currently vacant space, the acquisition of additional properties and/or undeveloped land parcels, the commencement of speculative construction, the completion of 220 Tradeport Drive, closing on the construction to permanent loan with State Farm, the ability to obtain mortgage financing on Griffin’s unleveraged properties, completion of the acquisitions of the Concord Land and the Lehigh Valley Land, completion of the land sales contemplated under the Simsbury Option Agreement and the EGW Option Agreement, Griffin’s anticipated future liquidity, anticipated impacts of the Tax Cuts and Jobs Act, and other statements with the words “believes,” “anticipates,” “plans,” “expects” 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, 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 Item 1A “Risk Factors” and elsewhere in this Annual Report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk represents the risk of changes in the value of a financial instrument, derivative or non‑derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. Changes in these factors could cause fluctuations in earnings and cash flows.

For fixed rate mortgage debt, changes in interest rates generally affect the fair market value of the debt instrument, but not earnings or cash flows. Griffin does not have an obligation to prepay any fixed rate debt prior to maturity and, therefore, interest rate risk and changes in the fair market value of fixed rate debt should not have a significant impact on earnings or cash flows until such debt is refinanced, if necessary. Griffin’s mortgage interest rates and related principal payment requirements are described in Note 5 to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect future earnings and cash flows. As of November 30, 2017, Griffin had a total of approximately $90.3 million of variable rate debt outstanding, for which Griffin has entered into interest rate swap agreements which effectively fix the interest rates on that debt. There were no other variable rate borrowings outstanding as of November 30, 2017.

Griffin is exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of Griffin’s cash equivalents. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)