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)

Registrant’s telephone number, including area code (212) 218-7910

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 every Interactive Data File required to be submitted 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 such files). Yes ☒  No ☐

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

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 $102,655,000 based on the closing sales price on The Nasdaq Stock Market LLC on May 31, 2019, 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, 2020,  5,075,120 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 a  concentration of real estate holdings; risks associated with the acquisition or development of properties, current portfolio weaknesses and 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 restrictive credit facility terms and covenants; reliance on key personnel; risks associated with failure to effectively hedge against interest rate changes; risks related to the discontinuance of LIBOR; risks associated with volatility in the capital markets; risks associated with increased operating expenses; potential environmental liabilities; governmental laws and regulations; inadequate insurance coverage; risks of environmental factors; risks associated with the cost of raw materials, labor or energy costs; illiquidity of real estate investments; risks associated with deficiencies in disclosure controls and procedures or internal control over financial reporting; risks associated with information technology security breaches; litigation risks; risks related to issuance or sales of common stock; risks related to volatility of common stock; risks of future offerings that are senior to common stock, or preferred stock issuances; 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, 2019, 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, acquiring, managing and leasing industrial/warehouse properties. Griffin seeks to add to its industrial/warehouse property portfolio through the acquisition and development of land or the purchase of buildings in select markets targeted by Griffin. Griffin also owns several office/flex properties and undeveloped land. Periodically, Griffin may sell certain of its real estate assets that it has owned for an extended time period and the use of which is not consistent with Griffin’s core focus on industrial/warehouse properties.

Griffin’s industrial/warehouse buildings are located in the north submarket of Hartford, Connecticut, the Lehigh Valley of Pennsylvania,  and the greater Charlotte, North Carolina area, and in fiscal 2019, Griffin expanded into central Florida by acquiring 7466 Chancellor Drive (“7466 Chancellor”), an approximately 100,000 square foot fully leased industrial/warehouse building in Orlando, Florida. Griffin expects to continue to seek to acquire and develop properties that are consistent with its core industrial/warehouse focused strategy. Griffin targets properties that are in close proximity to transportation infrastructure (highways, airports, railways and seaports) and 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.

As of November 30, 2019, Griffin owned forty buildings comprising approximately 4,462,000 square feet that were 90% leased. Approximately 90% of Griffin’s square footage is industrial/warehouse space, with the balance being office/flex space. As of November 30, 2019, approximately 93% of Griffin’s industrial/warehouse space was leased and approximately 70% of Griffin’s office/flex space was leased. As stated in “Item 2. Properties” below, Griffin generally uses nonrecourse mortgage loans and occasionally uses construction loans to finance some of its real estate development activities, and as of November 30, 2019, approximately $144.5 million was outstanding under all such loans. In fiscal 2019,  operating income from leasing (“Leasing NOI”)1,  which Griffin defines as rental revenue less operating expenses of rental properties, was approximately $24.2 million, while debt service (interest and scheduled principal payments) on nonrecourse mortgage loans and a construction loan was approximately $10.3 million.

In fiscal 2019, the net effect of leasing transactions was an increase of approximately 269,000 square feet of industrial/warehouse space under lease as of November 30, 2019, as compared to November 30, 2018, and a decrease of approximately 10,000 square feet of office/flex space under lease as of November 30, 2019, as compared to November 30, 2018. In fiscal 2019,  in addition to the acquisition of 7466 Chancellor, Griffin completed and placed in service two industrial/warehouse buildings (“160 International” and “180 International”) aggregating approximately 283,000 square feet on a land parcel in Concord, North Carolina (the “Concord Land”) in the greater Charlotte area, that was purchased in fiscal 2018. In the fourth quarter of fiscal 2019, Griffin entered into two leases aggregating approximately 105,000 square feet in 160 International. In fiscal 2019, Griffin also leased approximately 64,000 square feet of previously vacant space in 6975 Ambassador Drive (“6975 Ambassador”), an approximately 134,000 square foot industrial/warehouse building in the Lehigh Valley of Pennsylvania that was built on speculation in fiscal 2018.  Additionally, in Connecticut, Griffin leased approximately 30,000 square feet (mostly industrial/warehouse space) of previously vacant space in connection with the expansion and extension of two leases. A lease of approximately 23,000 square feet of industrial/warehouse space in New England Tradeport (“NE Tradeport”), Griffin’s industrial park in Windsor and East Granby, Connecticut, expired in fiscal 2019 and was not renewed.  A reduction of approximately 17,000 square feet of office/flex space leased resulted from several lease extensions and relocations whereby the tenants reduced their space leased. Such relocations included a tenant in Griffin’s two multi-story office buildings in Griffin Center in Windsor, Connecticut that downsized from approximately 34,000 square feet under leases that were set to expire on July 31, 2019, to approximately 25,000 square feet under a new six-year lease. In fiscal 2019, Griffin extended leases aggregating approximately 141,000 square feet, that included two leases for industrial/warehouse

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

space in NE Tradeport aggregating approximately 80,000 square feet and several leases for office/flex space aggregating approximately 61,000 square feet.

The net effect of Griffin’s leasing transactions in fiscal 2018 was an increase of approximately 256,000 square feet of industrial/warehouse space under lease as of November 30, 2018, as compared to November 30, 2017, and an increase of approximately 4,000 square feet of office/flex space under lease as of November 30, 2018, as compared to November 30, 2017. In fiscal 2018, Griffin completed and placed in service two industrial/warehouse buildings, one of which was an approximately 234,000 square foot build-to-suit building (“220 Tradeport”) in NE Tradeport. As a build-to-suit building, Griffin entered into a twelve and a half-year lease for 220 Tradeport prior to the start of construction. The other building completed in fiscal 2018 was 6975 Ambassador. In fiscal 2018, Griffin also leased approximately 70,000 square feet of previously vacant NE Tradeport industrial/warehouse space, including the remaining 63,000 square feet in 330 Stone Road (“330 Stone”), an approximately 137,000 square foot industrial/warehouse building in NE Tradeport that was placed in service and partially leased just prior to the end of fiscal 2017. Griffin also extended leases aggregating approximately 408,000 square feet in fiscal 2018, including a full building lease of 4275 Fritch Drive, an approximately 228,000 square foot industrial/warehouse building in the Lehigh Valley. Also in fiscal 2018, Griffin completed a lease of approximately 11,000 square feet of previously vacant office/flex space. Leases for approximately 55,000 square feet (mostly industrial/warehouse space) expired in fiscal 2018 and were not re-leased.

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 of office/flex space under lease as of November 30, 2017, as compared to November 30, 2016. In fiscal 2017, Griffin entered the Charlotte, North Carolina market with the purchase of 215 International Drive (“215 International”), an approximately 277,000 square foot industrial/warehouse building in Concord, North Carolina. Subsequent to completing the purchase, Griffin leased the approximately 73,000 square feet in that building that was vacant at the time of the acquisition. Also in fiscal 2017, Griffin completed construction, on speculation, of 330 Stone and leased approximately 74,000 square feet of that building to a tenant that relocated from approximately 39,000 square feet in another of Griffin’s NE Tradeport industrial/warehouse buildings. The balance of 330 Stone was leased in fiscal 2018. Griffin was able to backfill the approximately 39,000 square feet that was vacated with a new tenant that took occupancy in the first quarter of fiscal 2018. In fiscal 2017, Griffin also leased approximately 104,000 square feet of previously vacant NE Tradeport industrial/warehouse space, including a ten and a 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. 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 renew its lease of that building.

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, 2019. Additional capacity or an increase in vacancies in either the industrial/warehouse 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,  Charlotte or Orlando real estate markets in the near future.

In fiscal 2019, Griffin completed several land sales, the largest being the sale of approximately 280 acres  of undeveloped land in Simsbury, Connecticut (the “Simsbury Land Sale”) for approximately $7.7 million. The proceeds from the Simsbury Land Sale were placed in escrow at closing to be used as part of a like-kind exchange (a “1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended, that enabled Griffin to defer the gain on the Simsbury Land Sale for income tax purposes. Subsequently, the sale proceeds were used to acquire two undeveloped parcels of land in Charlotte, North Carolina totaling approximately 44 acres (the “Charlotte Land”) and an approximately 14 acre parcel of undeveloped land in the Lehigh Valley (the “Lehigh Valley Land”). Griffin plans to construct three industrial/warehouse buildings aggregating approximately 520,000 square feet on the Charlotte Land and an approximately 100,000 square foot industrial/warehouse building on the Lehigh Valley Land.

In fiscal 2019, Griffin also completed the sales of approximately 116 acres of undeveloped land in East Windsor, Connecticut (the “East Windsor Land”) and the East Windsor Land’s development rights in two separate

transactions totaling approximately $1.6 million. Griffin also received approximately $0.5 million from several smaller land sales.

In fiscal 2018, Griffin completed a land sale of approximately 49 acres of undeveloped land in Southwick, Massachusetts (the “2018 Southwick Land Sale”) for approximately $0.9 million. The proceeds from the 2018 Southwick Land Sale were placed in escrow at closing and subsequently used in the acquisition of an approximately 22 acre parcel of undeveloped land in Concord, North Carolina (the ‘Concord Land”) as part of a 1031 Like-Kind Exchange that enabled Griffin to defer the gain on the 2018 Southwick Land Sale for income tax purposes. Construction of 160 International and 180 International commenced in fiscal 2018 and both buildings were completed in fiscal 2019. Additionally, Griffin also completed one smaller land sale in fiscal 2018 for approximately $0.1 million.

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 1031 Like-Kind Exchange. In addition to the 2017 Phoenix Crossing Land Sale, Griffin also sold approximately 76 acres of undeveloped land in Southwick, Massachusetts (the “2017 Southwick Land Sale”) for approximately $2.1 million. The proceeds from the 2017 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 fiscal 2018, Griffin constructed 6975 Ambassador on the Lehigh Valley land acquired.

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.

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 regions and selected markets targeted by Griffin. Real estate acquisitions may or may not occur based on many factors, including real estate pricing. Griffin may commence speculative construction projects on its undeveloped land that is either currently owned or acquired in the future if it believes market conditions are favorable for such development. Griffin may also construct additional build-to-suit facilities on its undeveloped land if lease terms are favorable.

Periodically, Griffin may sell certain portions of its real estate assets that it has owned for an extended time period and the use of which is not consistent with Griffin’s core industrial/warehouse development, acquisition and leasing strategy. Such sale transactions may take place either before or after obtaining development approvals and building basic infrastructure.

Griffin’s development of its land is affected by regulatory and other constraints. Subdivision and commercial or residential development of land may also be affected by the potential adoption of initiatives meant to limit or concentrate growth. Development 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. Portions of Griffin’s landholdings in Connecticut are zoned for residential and office uses. The weakness in these markets has adversely affected Griffin, and may continue to do so in the future, by potentially lowering selling prices for land intended for such uses or delaying sales or development of such land.

Griffin maintains a corporate website at www.griffinindustrial.com. Griffin’s Annual Report on Form 10‑K (including audited financial statements), 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 at www.griffinindustrial.com/investors or through the Securities Exchange Commission (the “SEC”) website at http://www.sec.gov. Griffin will provide electronic or paper copies of its foregoing filings free of charge upon request. Griffin was incorporated in 1970.

Industrial/Warehouse Properties

Hartford, Connecticut

All of Griffin’s Connecticut industrial/warehouse buildings, aggregating approximately 2,052,000 square feet, are located in the north submarket of Hartford, Connecticut and were 98% leased as of November 30, 2019. Subsequent to November 30, 2019, Griffin leased its remaining vacant industrial/warehouse space in Connecticut. A significant portion of Griffin’s industrial/warehouse development in Connecticut is in NE Tradeport, where Griffin has built and currently owns fifteen industrial/warehouse buildings aggregating approximately 1,837,000 square feet. Griffin owns three industrial/warehouse buildings in Connecticut that are not located in NE Tradeport, including a 165,000 square foot industrial building (“1985 Blue Hills”) in Windsor, Connecticut. Under the terms of the full building lease of 1985 Blue Hills, which runs through March 31, 2024 with several options for the tenant to renew, the tenant has the option to purchase the building from March 1, 2021 through May 1, 2021 at a purchase price that is the greater of $11.5 million or fair market value as determined under the terms of the lease.

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

In fiscal 2019, Griffin leased approximately 23,000 square feet in NE Tradeport that replaced a lease that expired and was not renewed. Also in fiscal 2019, Griffin renewed two leases aggregating approximately 80,000 square feet in NE Tradeport. The rental rates for leases in NE Tradeport that were renewed in fiscal 2019 were essentially unchanged from the rental rates of the expiring leases. Management believes that the rental rates on the two NE Tradeport leases aggregating approximately 39,000 square feet that are scheduled to expire in fiscal 2020 are at market rates for similar space.

The Q4 2019 CBRE|New England Marketview Report (“Q4 2019 CBRE|New England Report”) from CBRE Group, Inc. (“CBRE”), a national real estate services company, stated that the vacancy rate in the north submarket of Hartford increased to 6.5% at the end of 2019 from 5.4% at the end of 2018,  and that an additional approximately

0.4 million square feet became available in 2019.  Griffin’s occupancy performance in fiscal 2019 outpaced the performance of Hartford’s north submarket.

In Connecticut, Griffin holds entitlements and/or plans (not yet approved) to develop approximately 1,180,000 square feet of industrial/warehouse space on land owned by Griffin. In NE Tradeport, Griffin holds entitlements to develop an additional approximately 434,000 square feet, consisting of a new industrial/warehouse building of approximately 234,000 square feet on an approximately 34 acre parcel and approved additions aggregating approximately 200,000 square feet to two buildings, and development plans (not yet approved) for an additional approximately 248,000 square foot building.  Griffin also holds entitlements to construct an additional approximately 498,000 square feet on two other land parcels in Connecticut, including approximately 267,000 square feet on a 27 acre parcel in Phoenix Crossing (the “Phoenix Crossing Parcel”) that is under agreement to be sold for approximately $3.8 million (see below). There is no guarantee that Griffin will develop the entitled square footage or sell the entitled land parcels to a third party for development.

Griffin owns an additional 99 acres of undeveloped land within NE Tradeport, 60 acres of which are in Windsor and the abutting 39 acres of which are in East Granby. Full approvals for the development of this remaining land for industrial use are not in place, and the East Granby land would require a zone change for industrial development. Parts of such acreage may not be developable. Griffin believes that additional infrastructure improvements, which may be significant, may be required to obtain approvals to develop portions of this land, particularly the land in East Granby. Griffin expects to continue to direct much of its real estate efforts in Connecticut on the construction and leasing of industrial/warehouse facilities in NE Tradeport and other suitably located land currently owned. As of November 30, 2019, Griffin also owns approximately 76 acres of undeveloped land in Phoenix Crossing (including the Phoenix Crossing Parcel)  that is zoned for industrial and commercial development.

As of November 30, 2019, approximately $84.2 million was invested (net book value) by Griffin in its Connecticut industrial/warehouse buildings, approximately $2.9 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, 2019, sixteen of Griffin’s Connecticut industrial/warehouse buildings were mortgaged for an aggregate of approximately $81.6 million.

On January 7, 2020, Griffin entered into an agreement to sell the Phoenix Crossing Parcel for a purchase price of approximately $3.8 million, before transaction costs. Completion of this transaction is contingent on a number of factors, including the buyer entering into a lease agreement with a third-party who would occupy the development on the land to be acquired and obtaining all necessary final permits from governmental authorities for its specific development plans. There is no guarantee that this transaction will be completed under its current terms, or at all.

Lehigh Valley, Pennsylvania

Since entering the Lehigh Valley market in fiscal 2010, Griffin has grown its portfolio to six industrial/warehouse buildings aggregating approximately 1,317,000 square feet as of November 30, 2019. A summary of Griffin’s Lehigh Valley industrial/warehouse square footage 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 the next three fiscal years are as follows:

In fiscal 2019, Griffin leased approximately 64,000 square feet in 6975 Ambassador. Subsequent to November 30, 2019, the balance of 6975 Ambassador was substantially leased. Griffin also acquired the Lehigh Valley Land for approximately $1.9 million in fiscal 2019 using the proceeds from the Simsbury Land Sale to complete a 1031 Like-Kind Exchange. Griffin expects to build an approximately 100,000 square foot industrial/warehouse building on the Lehigh Valley Land. Approximately $71.2 million was invested (net book value) in Griffin’s Lehigh Valley buildings as of November 30, 2019.  As of November 30, 2019, all of the Lehigh Valley industrial/warehouse buildings, except 6975 Ambassador, were mortgaged for a total of approximately $47.0 million. Subsequent to November 30, 2019, Griffin entered into a $15.0 million nonrecourse mortgage loan collateralized by 6975 Ambassador and 871 Nestle Way, an approximately 120,000 square foot industrial/warehouse building in the Lehigh Valley. Approximately $3.2 million of the loan proceeds were used to repay the mortgage loan on 871 Nestle Way that was scheduled to mature on January 27, 2020.

Management believes that a lease for approximately 201,000 square feet of industrial/warehouse space that is scheduled to expire in fiscal 2020 will not be renewed. The vacancy rate of Lehigh Valley industrial/warehouse properties, in the counties where Griffin’s Lehigh Valley properties are located, as reported in CBRE’s Q4 2019 Marketview Lehigh Valley PA Industrial Report (the “Q4 2019 CBRE Lehigh Valley Report”) was 4.2% at the end of 2019, with a net absorption of approximately 4.2 million square feet in 2019.

Charlotte, North Carolina

In fiscal 2017, Griffin entered the Charlotte, North Carolina market when it acquired 215 International in Concord, North Carolina, in the greater Charlotte area, which was 74% leased when it was acquired. Subsequent to the purchase of 215 International, one of the tenants in that building leased the remaining approximately 73,000 square feet that had been vacant at the time the building was acquired. A summary of Griffin’s Charlotte, North Carolina industrial/warehouse square footage at the end of each of the past three fiscal years and leases in Griffin’s Charlotte, North Carolina industrial/warehouse building scheduled to expire during the next three fiscal years are as follows:

In fiscal 2019, Griffin completed and placed in service two industrial/warehouse buildings, 160 International and 180 International, aggregating approximately 283,000 square feet on the Concord Land and entered into two leases aggregating approximately 105,000 square feet of 160 International. In fiscal 2019, Griffin also acquired two

undeveloped parcels of land in Charlotte, North Carolina totaling approximately 44 acres on which Griffin plans to construct three industrial/warehouse buildings aggregating approximately 520,000 square feet. The purchase price of approximately $5.6 million for the Charlotte Land was paid using proceeds from the Simsbury Land Sale to complete a 1031 Like-Kind Exchange. As of November 30, 2019, approximately $34.5 million was invested (net book value) in Griffin’s three industrial/warehouse buildings in North Carolina, and 215 International was mortgaged under a nonrecourse mortgage loan for approximately $11.7 million.

The Charlotte, North Carolina industrial real estate market remained strong in 2019. CBRE’s Q4 2019 Marketview Charlotte Industrial Report reported a vacancy rate of 5.0% for warehouse space at the end of 2019, as compared 5.3% at the end of 2018 and absorption of 5.3 million square feet of warehouse space in 2019, as compared to 4.8 million in 2018.  

Orlando, Florida

In fiscal 2019, Griffin entered the Orlando, Florida market by acquiring 7466 Chancellor, which is fully leased to a single tenant. The lease for 7466 Chancellor runs through January 31, 2025. Griffin utilized its acquisition line of credit (the “Acquisition Credit Line”) with Webster Bank, N.A. (“Webster Bank”) to finance a portion of the acquisition of 7466 Chancellor, and, as of November 30, 2019, there was a balance outstanding on Griffin’s Acquisition Credit Line of approximately $5.9 million. Subsequent to November 30, 2019, Griffin repaid the full amount outstanding on its Acquisition Credit Line with proceeds from a mortgage loan secured by 7466 Chancellor.  

On January 2, 2020, Griffin entered into an agreement to acquire an approximately 108,000 square foot fully leased industrial/warehouse building in Orlando, Florida for approximately $7.9 million. On January 13, 2020, Griffin entered into an agreement with a different seller to acquire an approximately 68,000 square foot industrial/warehouse building in Orlando, Florida that is approximately 32% leased for approximately $5.7 million. There is no guarantee that either of these building acquisitions will be completed under their current terms, or at all.

Office/Flex Properties

All of Griffin’s office/flex properties are located in Griffin Center in Windsor and Bloomfield, Connecticut and Griffin Center South in Bloomfield, which are in the north submarket of Hartford. 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 7,200 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. Griffin’s office/flex square footage was approximately 70% leased as of November 30, 2019.

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

* Less than 1%.

As of November 30, 2019, Griffin’s total office/flex space of approximately 433,000 square feet comprised approximately 10% 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 plans 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. Management believes that the rental rates on the leases for office/flex space of approximately 22,000 square feet that are scheduled to expire in fiscal 2020 are at market rates for similar space.

The Hartford office/flex market remained weak in 2019, as evidenced by vacancy rates at the end of 2019, as stated in the Q4 2019 CBRE|New England Report, of 18.3% for the overall Hartford market. The vacancy rate in the north submarket of Hartford decreased slightly to 31.8% from 33.6% at the end of 2018.

In fiscal 2019, there was a net reduction of approximately 17,000 square feet of office/flex space under lease that was the result of several lease extensions and relocations whereby the tenants reduced their space leased. Such relocations included a tenant in Griffin’s two multi-story office buildings in Griffin Center in Windsor, Connecticut that downsized from approximately 34,000 square feet under leases that were set to expire on July 31, 2019, to approximately 25,000 square feet under a new six-year lease. In fiscal 2019, Griffin renewed a lease for approximately 29,000 square feet of office/flex space at a rental rate approximately 13% lower than the expiring rental rate for five and a half years. Griffin also renewed a lease for approximately 15,000 square feet of office/flex space at the same rate as the expiring lease for a two-year term. There was another lease for approximately 7,000 square feet of office/flex space, whereby the tenant expanded its leased space slightly and renewed for a term of five years. That rental rate is approximately 11% lower than the expiring rental rate. 

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, 2019, approximately $17.1 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 $4.2 million as of November 30, 2019, and Griffin’s single story office building in Griffin Center and the eight single-story office/flex buildings, an industrial/warehouse building in Griffin Center South and an industrial/warehouse building in Phoenix Crossing are the collateral for Griffin’s $19.5 million revolving line of credit.

Residential Developments

Simsbury, Connecticut

Several years ago, Griffin filed plans for a proposed residential development (“Meadowood”) in Simsbury, Connecticut (“Simsbury”). After several years of litigation with Simsbury regarding Meadowood, a settlement was reached. The settlement terms included, among other items, 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 a portion of the Meadowood land to Simsbury closed in fiscal 2008. In fiscal 2012, Griffin completed the required offsite road improvements and in fiscal 2014, Griffin completed the required remediation work. In the 2019 fourth quarter, management decided to pursue alternatives to a large scale long-term residential development for Meadowood that would enable Griffin to realize proceeds in a more timely manner that could be redeployed by Griffin towards its key strategy of increasing its industrial/warehouse portfolio. As a result of these actions, in  the fiscal 2019 fourth quarter, Griffin recorded an impairment loss of $3.1 million to lower the carrying value of the real estate assets of Meadowood to their estimated fair value of approximately $5.4 million. 

On February 3, 2020, Griffin entered into an option agreement (the “Meadowood Option Agreement”) with a national land conservation organization (the “Conservation Organization”) to sell the approximately 277 acres of Meadowood (the “Meadowood Land”). For a minimal fee, the Meadowood Option Agreement grants the Conservation Organization the right to purchase the Meadowood Land for open space and farmland preservation whereby Griffin would receive net proceeds of approximately $5.4 million, if the purchase option is exercised. The Meadowood Option Agreement grants the Conservation Organization an initial term of twelve months, with one six-month extension, to exercise its option and acquire the Meadowood Land. Completion of a sale of the Meadowood Land contemplated under the Meadowood Option Agreement is subject to several contingencies, including the satisfactory outcome of due diligence by the Conservation Organization and the Conservation Organization securing funding from several public and

private sources to acquire the Meadowood Land. There is no guarantee that a sale of the Meadowood Land will be completed under the current terms of the Meadowood Option Agreement, or at all.

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 has subsequently sold seven additional lots, including the sale of one residential lot in fiscal 2019. As of November 30, 2019, Griffin held eighteen Stratton Farms residential lots. The book value for Stratton Farms was approximately $1.0 million at November 30, 2019.  

Other Land

Concurrent with Griffin’s sale in fiscal 2014 of its landscape nursery business, Imperial Nurseries, Inc. (“Imperial”), Griffin and the buyer, 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. The Imperial Lease grants Monrovia options to extend the term for up to an additional fifteen years and 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. After the expiration of that lease, Griffin entered into a new three-year lease of the Florida Farm with another grower that started July 1, 2016. On December 18, 2017, the tenant leasing the Florida Farm filed for protection under Chapter 11 of the U.S. Bankruptcy Code and subsequently rejected the Florida Farm Lease effective September 15, 2018. The lease of the Florida Farm had a rental rate of $0.5 million per year at the time it was terminated. On September 28, 2018, Griffin and the tenant entered into a Stipulated Order whereby Griffin agreed to allow the tenant to remain on the Florida Farm through October 31, 2018 at the then current rental rate under the Florida Farm Lease. Griffin received all rent due under the Florida Farm Lease and the Stipulated Order. In fiscal 2019, Griffin entered into an agreement to sell the Florida Farm, but subsequent to November 30 , 2019 the buyer notified Griffin that they were not moving forward with the proposed transaction. Griffin is currently marketing the Florida Farm for sale or lease.

In fiscal 2019, Griffin leased approximately 364 acres of undeveloped land in Connecticut and Massachusetts to local farmers. Approximately 427 acres and 560 acres were leased to local farmers in fiscal 2018 and fiscal 2017, respectively. The revenue generated from the leasing of farmland is not material to Griffin’s total revenue.

On December 10, 2019, Griffin entered into an Option Purchase Agreement (the “East Granby/Windsor Option Agreement”) whereby Griffin granted the buyer an exclusive one-year option, in exchange for a nominal fee, to purchase approximately 280 acres of undeveloped land in East Granby and Windsor, Connecticut. The purchase price has a range of a minimum of $6.0 million to a maximum of $7.95 million based upon the final approved use of the land. The buyer may extend the option period for up to three years upon payment of additional option fees. The land subject to the East Granby/Windsor Option Agreement does not have any of the approvals that would be required for the buyer’s planned use of the land. A closing on the land sale contemplated by the East Granby/Windsor Option Agreement is subject to several significant contingencies, including the buyer securing contracts under a competitive bidding process for the buyer’s projected use and obtaining local and state approvals for that planned use. There is no guarantee that the sale of land as contemplated under the East Granby/Windsor Option Agreement will be completed under its current terms, or at all.

Employees

As of November 30, 2019, Griffin had 32 employees, including 31 full‑time employees. 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 in the areas where Griffin’s buildings 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”), 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 and state 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 federal and state environmental laws. In connection with the sale of Imperial, Griffin 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, Griffin is in discussions with the Connecticut Department of Energy and Environmental Protection regarding 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 on any of its properties. 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.

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.

90% 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,  the greater Charlotte, North Carolina area and Orlando, Florida, which represented 56%, 29%, 13% and 2% of Griffin’s total portfolio by square footage, respectively, as of November 30, 2019. 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 such liabilities, which could adversely affect its cash flow and financial position.

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

Griffin’s office/flex portfolio, which comprises 10% of its total square footage and was 70% occupied as of November 30, 2019, 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, 2019, according to the Q4 2019 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. Additionally, for space that has remained or remains unleased, Griffin has incurred, and will continue to incur, all of the building’s operating costs for such space without reimbursements from tenants.

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,  greater Charlotte, North Carolina and Orlando, Florida properties. To the extent that Griffin uses a third-party manager, the cash flows from its Lehigh Valley, greater Charlotte and Orlando 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 has and likely would continue to 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 and construction loans could have a material adverse effect on its financial condition.

As of November 30, 2019, Griffin had indebtedness under nonrecourse mortgage loans of approximately $144.5 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 93% of Griffin’s nonrecourse mortgage loans as of November 30, 2019 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 have a material adverse effect on 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 credit facilities.

Griffin’s continued ability to borrow under its credit facilities with Webster Bank, including its $19.5 million revolving credit facility and its $15 million acquisition credit facility, is subject to compliance with certain financial and other covenants. Griffin’s failure to comply with such covenants under any of its credit facilities could cause a default under such credit facility, and Griffin may then be required to repay amounts outstanding, if any, under such 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’s risk related to the discontinuation of LIBOR

In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is expected that a transition away from the widespread use of LIBOR to alternative interest rates will occur over the course of the next two years. As of November 30, 2019, Griffin’s had approximately $5.9 million of floating rate debt outstanding under the Acquisition Credit Line, the interest on which is based on LIBOR. Griffin also had approximately $92.4 million of floating rate debt under nonrecourse mortgage loans, the interest on which is based on LIBOR, however, Griffin entered into interest rate swap agreements whereby the floating LIBOR rates under all mortgage loans are hedged, effectively fixing the interest rate on those loans. 

In the event that LIBOR is no longer available, the revolving credit line provides for a transition to a comparable rate of interest determined by Webster Bank and the Acquisition Credit Line contemplates that Webster Bank will transition to an alternate rate of interest to the LIBOR rate taking into account then prevailing standards in the market for determining interest rates for commercial loans made by financial institutions in the United States at such time. Such an event would not affect Griffin’s ability to borrow or maintain already outstanding borrowings, but the replacement rate or alternate base rate could be higher or more volatile than LIBOR prior to its discontinuance. The full impact of the expected transition away from LIBOR and the potential discontinuation of LIBOR after 2021 is unclear, but these changes could adversely affect Griffin’s cash flow, financial condition and results of operations.

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 President and Chief Executive Officer, Griffin Industrial, LLC’s Senior Vice President and Griffin Industrial, LLC’s Vice President of Construction and Development. 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 2018, 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 could affect Griffin’s 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.

The market for leasing industrial/warehouse space and office/flex space is highly competitive. Griffin competes for tenants with owners of numerous properties in the areas where Griffin’s buildings are located. Some of Griffin’s competitors for tenants have greater financial resources than Griffin and may be able to offer prospective tenants more attractive financial or other terms than Griffin is able to offer and may be able to accept more risk related to the creditworthiness of tenants. Griffin’s competes for tenants 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”), 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 degree of leverage they may be willing to take on and risk related to acquiring properties that are not substantially leased. Competitors for acquisitions may also have advantages from a lower cost of capital or greater operating efficiencies associated with being a larger entity.

Griffin may experience increased costs of raw materials, labor 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, labor or energy costs. 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. The lack of availability of labor could also result in higher construction costs as a result of increases in wage rates or delay construction of new facilities. Furthermore, 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. Additionally, government international trade policies, including implementation of or changes in tariffs, could impact the cost of products used in Griffin’s 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, the greater Charlotte area in North Carolina and Orlando, Florida in addition to extensive land holdings in Connecticut, Massachusetts and northern 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 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, wetlands restrictions, storm water regulations and open space preservation initiatives. Any changes in regulations regarding these matters 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, liability, 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 in 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 have a material adverse  effect on Griffin. Market turmoil and the tightening of credit could 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 IT 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, hurricanes 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 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 44.9% of the outstanding common stock of Griffin as of November 30, 2019. 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.

Risks Related to Griffin’s Common Stock

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

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. Griffin’s board of directors can authorize the issuance of additional securities without stockholder approval. Furthermore, on May 10, 2018, Griffin filed a shelf registration statement on Form S-3 with the SEC that allows it to offer up to $30 million of securities from time to time in one or more public offerings of its common stock.

The issuance or sale of Griffin common stock, including under Griffin’s shelf registration statement, in connection with future property, portfolio or business acquisitions, to repay indebtedness or for general corporate purposes, or the availability of shares for resale in the open market, could have an adverse effect on the per share trading price of Griffin’s common stock and would be dilutive to existing stockholders.

The exercise of any options or the issuance of any common stock granted to certain directors, executive officers and other employees under Griffin’s 2009 Stock Option Plan or other equity incentive plan could also have an adverse effect on the per share trading price of its common stock and be dilutive to existing stockholders. The existence of such options could also adversely affect the terms upon which Griffin may be able to obtain additional capital through the sale of equity securities.

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.

In the future, Griffin may attempt to increase its capital resources by making offerings of debt or additional equity securities, including medium-term notes, senior or subordinated notes and classes or series of its preferred stock under the Shelf Registration Statement. Upon liquidation, holders of Griffin debt securities and shares of Griffin preferred stock, and lenders with respect to other borrowings will be entitled to receive its available assets prior to distribution to the holders of its common stock. Additionally, any convertible or exchangeable securities that Griffin issues in the future may have rights, preferences and privileges more favorable than those of its common stock and may result in dilution to owners of its common stock. Holders of Griffin common stock are not entitled to preemptive rights or other protections against dilution. Any shares of Griffin preferred stock that are issued in the future under the Shelf Registration Statement or otherwise, could have a preference on liquidating distributions or a preference on dividend payments that could limit Griffin’s ability pay dividends to the holders of its common stock. Because Griffin’s decision to issue securities in any future offering under the Shelf Registration Statement or otherwise will depend on market conditions and other factors beyond its control, Griffin cannot predict or estimate the amount, timing or nature of its any such future offerings. Thus, Griffin’s stockholders bear the risk of any such future offerings reducing the per share trading price of its common stock and diluting their interest in Griffin.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2.  PROPERTIES.

Land Holdings

As of November 30, 2019, Griffin’s land holdings were as follows:

Note: The development of some of Griffin’s undeveloped land may be limited by difficulties in obtaining entitlements, government regulations such as zoning, traffic considerations, potential environmental issues, initiatives intended to limit or concentrate residential growth, other restrictions to development imposed by governmental agencies and the nature of the land itself (i.e. the presence of wetlands or topography of the land).

Developed Properties

As of November 30, 2019, Griffin owned forty buildings, comprised of twenty-eight 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 as of January 31, 2020.

**   Included as collateral under Griffin’s revolving line of credit with Webster Bank as of January 31, 2020.

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

Griffin’s common stock is traded on The Nasdaq Stock Market LLC under the symbol GRIF. As of January 31, 2020, there were 141 holders of record of Griffin common stock, 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 $40.50 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.

ITEM 6.  SELECTED FINANCIAL DATA.

The following table sets forth selected statement of operations data for fiscal years 2015 through 2019 and balance sheet data as of the end of each fiscal year. The selected statement of operations data for fiscal 2017, fiscal 2018 and fiscal 2019 and the selected balance sheet data for fiscal 2018 and fiscal 2019 are derived from the audited consolidated financial statements included in Item 8 of this Annual Report. The selected statement of operations data for fiscal 2015 and fiscal 2016 and the balance sheet data for fiscal 2015, fiscal 2016 and fiscal 2017 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, Item 7. “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, acquiring, managing and leasing industrial/warehouse properties. Griffin seeks to add to its industrial/warehouse property portfolio through the acquisition and development of land or the purchase of buildings in select markets targeted by Griffin. Griffin also owns several office/flex properties and undeveloped land. Periodically, Griffin may sell certain of its real estate assets that it has owned for an extended time period and the use of which is not consistent with Griffin’s core focus on industrial/warehouse properties.

The notes to Griffin’s consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplemental Data” 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 terms in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 840, “Leases.” Gains on property sales are recognized in accordance with FASB ASC 606, “Revenue from Contracts with Customers,” based on the specific terms of each sale.  When the percentage of completion method is used to account for a sale of real estate, gains on sales are recognized over time as performance obligations are satisfied.

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 indicators of impairment, such as a prolonged vacancy in one of Griffin’s rental properties. If indicators of impairment are present, Griffin evaluates the carrying value of the assets in relation to the operating performance and expected future undiscounted cash flows or the estimated fair value based on expected future cash flows 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 net operating loss 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, 2019 (“fiscal 2019”), Griffin had net income of approximately $3.7 million as compared to a  net loss of approximately $1.7 million in the fiscal year ended November 30, 2018 (“fiscal 2018”). Net  income in fiscal 2019, as compared to the net loss in fiscal 2018, principally reflected: (a) an increase of approximately $4.6 million in operating income in fiscal 2019 as compared to fiscal 2018;  and (b) an increase of approximately $0.1 million in investment income in fiscal 2019 as compared to fiscal 2018; partially offset by (c)  an increase of approximately $0.7 million in the income tax provision in fiscal 2019 as compared to fiscal 2018; and (d) an increase of approximately $0.1 million in interest expense in fiscal 2019 as compared to fiscal 2018.

The higher operating income in fiscal 2019, as compared to fiscal 2018, reflected: (a) an approximately $7.0 million increase in gain from property sales; (b) an approximately $1.0 million increase in operating income from leasing (“Leasing NOI”)2, which Griffin defines as rental revenue less operating expenses of rental properties; (c) an approximately $0.1 million decrease in general and administrative expense in fiscal 2019 as compared to fiscal 2018; and (d) a gain on insurance recovery of approximately $0.1 million for storm damage to the approximately 1,066 acre parcel of undeveloped land in Quincy, Florida (the “Florida Farm”); partially offset by (e) an impairment loss on real estate assets of $3.1 million; and (f) an approximately $0.4 million increase in depreciation and amortization expense in fiscal 2019 as compared to fiscal 2018. The higher gain from property sales in fiscal 2019, as compared to fiscal 2018, principally reflected a gain of approximately $7.3 million in fiscal 2019 from the sale of approximately 280 acres of undeveloped land in Simsbury, Connecticut (the “Simsbury Land Sale”).

The increase in Leasing NOI to approximately $24.2 million in fiscal 2019, from approximately $23.2 million in fiscal 2018, principally reflected an approximately $1.4 million increase in rental revenue in fiscal 2019, as compared to fiscal 2018, partially offset by an increase of approximately $0.5 million in operating expenses of rental properties in fiscal 2019, as compared to fiscal 2018. The increase in rental revenue principally reflects more space under lease in fiscal 2019 as compared to fiscal 2018. The increase in operating expenses of rental properties principally reflects a full year of expenses in fiscal 2019 for both 6975 Ambassador Drive (“6975 Ambassador”), an approximately 134,000 square foot industrial/warehouse building in the Lehigh Valley of Pennsylvania and 220 Tradeport Drive (“220 Tradeport”), an approximately 234,000 square foot industrial/warehouse building in New England Tradeport (“NE Tradeport”), Griffin’s industrial park in Windsor and East Granby, Connecticut, as compared to expenses for those buildings only being incurred during the fourth quarter of fiscal 2018 (the “2018 fourth quarter”). 6975 Ambassador and 220 Tradeport were both placed in service in the 2018 fourth quarter. The impairment loss reflects the write down of the real estate assets of Griffin’s approved but unbuilt residential development (“Meadowood”) in Simsbury, Connecticut. The higher depreciation and amortization expense in fiscal 2019, as compared to fiscal 2018, principally reflected higher depreciation and amortization related to 220 Tradeport and 6975 Ambassador, partially offset by a reduction of depreciation and amortization expense on tenant improvements related to leases that terminated in fiscal 2019. The higher interest expense in fiscal 2019, as compared to fiscal 2018, principally reflected the higher amount of debt outstanding in fiscal 2019 as compared to fiscal 2018.

Griffin had an income tax benefit of approximately $0.2 million in fiscal 2019 as compared to an income tax provision of approximately $0.5 million in fiscal 2018. The income tax benefit in fiscal 2019 principally reflected a credit of approximately $0.9 million included in the fiscal 2019 income tax provision from a change in Connecticut tax law that more than offset approximately $0.7 million of income taxes provided on fiscal 2019 pretax income of approximately $3.5 million. The income tax provision in fiscal 2018 principally reflected a charge of approximately $1.0 million for the re-measurement of Griffin’s deferred tax assets and liabilities due to the reduction of the U.S. federal corporate statutory tax rate from 35% to 21% under the Tax Cuts and Jobs Act (“TCJA”), partially offset by a tax benefit of approximately $0.5 million on Griffin’s pretax loss of approximately $1.1 million in fiscal 2018.  

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

Results of Operations

Fiscal 2019 Compared to Fiscal 2018

Total revenue increased to approximately $44.0 million in fiscal 2019 from approximately $33.8 million in fiscal 2018, reflecting increases of approximately $8.8 million in revenue from property sales and approximately $1.4 million in rental revenue. Rental revenue increased to approximately $34.2 million in fiscal 2019 from approximately $32.8 million in fiscal 2018. The approximately $1.4 million increase in rental revenue in fiscal 2019 over fiscal 2018 was principally due to: (a) an increase of approximately $1.3 million from 220 Tradeport, which was completed and fully leased in the 2018 fourth quarter; and (b) an increase of approximately $0.6 million from leasing previously vacant space; partially offset by (c) a decrease of approximately $0.5 million in rental revenue 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 384,000 square foot increase in total square footage as of November 30, 2019, as compared to November 30, 2018, was due to: (a) placing into service in the fiscal 2019 fourth quarter (the “2019 fourth quarter”) upon the completion of construction, on speculation, two industrial/warehouse buildings (“160 International” and “180 International”), aggregating approximately 283,000 square feet in Concord, North Carolina in the greater Charlotte area; and (b) the acquisition in the 2019 fourth quarter of 7466 Chancellor Drive (“7466 Chancellor”), an approximately 100,000 square foot industrial/warehouse building in Orlando, Florida, and Griffin’s first property in that market.

The approximately 257,000 square foot net increase in leased square footage as of November 30, 2019, as compared to November 30, 2018, was principally due to: (a) approximately 105,000 square feet in 160 International being leased; (b) the acquisition of 7466 Chancellor, which is fully leased: (c) approximately 64,000 square feet in 6975 Ambassador being leased; (d) leasing approximately 30,000 square feet of previously vacant primarily industrial/warehouse space in connection with the expansion and extension of two leases; partially offset by (e) a reduction of approximately 23,000 square feet due to the expiration of a lease of industrial/warehouse space in NE Tradeport; and (f) a reduction of approximately 17,000 square feet as the result of several lease extensions and relocations of office/flex space whereby the tenants reduced their space leased. Such relocations included a tenant in Griffin’s two multi-story office buildings in Griffin Center in Windsor, Connecticut, that downsized from an aggregate of approximately 34,000 square feet under leases that were scheduled to expire on July 31, 2019, to approximately 25,000 square feet under a new six-year lease. In fiscal 2019, Griffin extended leases aggregating approximately 141,000 square feet, that included two leases for industrial/warehouse space in NE Tradeport aggregating approximately 80,000 square feet and several leases for office/flex space aggregating approximately 60,000 square feet.

As of November 30, 2019, Griffin’s approximately 4,029,000 square feet of industrial/warehouse space, which comprised approximately 90% of Griffin’s total square footage, was 93% leased (97% leased excluding 160 International and 180 International). The only significant vacancies, excluding the vacancies in 160 International and 180 International, were approximately 70,000 square feet in 6975 Ambassador and approximately 48,000 square feet in NE Tradeport. Both of those spaces were leased in the fiscal 2020 first quarter. Griffin’s office/flex buildings aggregating approximately 433,000 square feet (10% of Griffin’s total square footage) in the Hartford, Connecticut area, were approximately 70% leased as of November 30, 2019.

Revenue from property sales increased to approximately $9.8 million in fiscal 2019 from approximately $1.0 million in fiscal 2018. Property sales revenue in fiscal 2019 included: (a) approximately $7.7 million from the Simsbury Land Sale which closed after the buyer procured the required entitlements and approvals for its planned development of a facility to generate solar electricity on the land acquired; (b) a total of approximately $1.6 million from the sales of approximately 116 acres of undeveloped land in East Windsor, Connecticut (the “East Windsor Land”) and the East Windsor Land’s development rights in two separate transactions; and (c) approximately $0.5 million from

several smaller land sales, including approximately $0.1 million from the sale of a residential lot at Stratton Farms (“Stratton Farms”), Griffin’s residential subdivision in Suffield, Connecticut.  The aggregated cost related to the property sales in fiscal 2019 was approximately $2.0 million, resulting in a total pretax gain of approximately $7.8 million from property sales in fiscal 2019.

Revenue from property sales of approximately $1.0 million in fiscal 2018 reflected approximately $0.8 million from the sale of approximately 49 acres of undeveloped land in Southwick, Massachusetts (the “2018 Southwick Land Sale”), approximately $0.1 million from the sale of a Stratton Farms residential lot and approximately $0.1 million from the buyer’s forfeiture of a deposit on a potential land sale that was not completed. The aggregated costs related to such property sales and the deposit forfeiture in fiscal 2018 was approximately $0.1 million, resulting in a total pretax gain of approximately $0.9 million from property sales in fiscal 2018. 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.

Operating expenses of rental properties increased to approximately $10.0 million in fiscal 2019 from approximately $9.5 million in fiscal 2018. The increase of approximately $0.5 million in operating expenses of rental properties in fiscal 2019, as compared to fiscal 2018, principally reflected: (a) an increase of approximately $0.2 million in operating expenses for 6975 Ambassador being in service for the entire year in fiscal 2019; (b) an increase of approximately $0.2 million in operating expenses for 220 Tradeport being in service for the entire year in fiscal 2019; and (c) increases aggregating approximately $0.1 million in operating expenses across all other properties.

Depreciation and amortization expense increased to approximately $11.8 million in fiscal 2019 from approximately $11.4 million in fiscal 2018. The increase of approximately $0.4 million in depreciation and amortization expense in fiscal 2019, as compared to fiscal 2018, principally reflected: (a) an increase of approximately $0.5 million related to 220 Tradeport; (b) an increase of approximately $0.2 million related to 6975 Ambassador;  and (c) increases aggregating approximately $0.1 million across all other properties; partially offset by  (d) a decrease of approximately $0.3 million related to tenant improvements becoming fully depreciated in fiscal 2018 as a result of leases that terminated in that year.

General and administrative expenses decreased by less than $0.1 million in fiscal 2019 to remain essentially unchanged at approximately $7.7 million. The less than $0.1 million decrease in fiscal 2019, as compared to fiscal 2018, principally reflected: (a) an approximately $0.4 million decrease in compensation expenses in fiscal 2019; and (b) an expense of approximately $0.1 million in fiscal 2018 for removal of structures on Griffin’s land that remained from the tobacco growing operations of former affiliates of Griffin; partially offset by (c) an increase of approximately $0.3 million related to Griffin’s non-qualified deferred compensation plan; and (d) a net increase of approximately $0.1 million in all other general and administrative expenses. The decrease in compensation expenses principally reflects the effect of the retirement of Frederick M. Danziger as Griffin’s Executive Chairman and the resignation of the Director of Acquisitions in fiscal 2019. Mr. Danziger remained as Non-executive Chairman of Griffin’s Board of Directors. The higher expense related to Griffin’s non-qualified deferred compensation plan reflected the effect of higher stock market performance on participant balances in fiscal 2019, as compared to fiscal 2018, which resulted in a greater increase in the non-qualified deferred compensation plan liability in fiscal 2019 as compared to fiscal 2018.

In the 2019 fourth quarter, management decided to pursue alternatives to a large scale long-term residential development for Meadowood that would enable Griffin to realize proceeds in a more timely manner that could be redeployed by Griffin towards its key strategy of increasing its industrial/warehouse portfolio. As a result of these actions, in the fiscal 2019 fourth quarter, Griffin recorded an impairment loss of $3.1 million to lower the carrying value of the real estate assets of Meadowood to their estimated fair value of approximately $5.4 million. On February 3, 2020, Griffin entered into an option agreement that contemplates a sale of the Meadowood land that, if exercised, would generate net cash proceeds to Griffin of approximately $5.4 million (see “Liquidity and Capital Resources” below). 

Interest expense increased to approximately $6.4 million in fiscal 2019 from approximately $6.3 million in fiscal 2018. The increase of approximately $0.1 million in interest expense in fiscal 2019, as compared to fiscal 2018, principally reflected: (a) an approximately $0.4  million increase in interest expense on the 2018 State Farm Loan (as defined below) as a result of the higher amount outstanding thereunder in fiscal 2019 as compared to fiscal 2018;  offset by (b) a decrease of approximately $0.2 million across all other mortgage loans in fiscal 2019 as compared to fiscal 2018; and (c) a decrease of $0.1 million in fiscal 2019, as compared to fiscal 2018, due to an interest rate swap agreement that expired in the first quarter of fiscal 2019.

Investment income increased to approximately $0.3 million in fiscal 2019 from approximately $0.2 million in fiscal 2018. The increase of approximately $0.1 million in investment income in fiscal 2019, as compared to fiscal 2018,  principally reflected the earnings on Griffin’s short-term investments, which are repurchase agreements with Webster Bank, N.A. (“Webster Bank”) that are collateralized with securities issued by the United States Government or its sponsored agencies.

Griffin had an income tax benefit of approximately $0.2 million in fiscal 2019 as compared to an income tax provision of approximately $0.5 million in fiscal 2018. The income tax benefit in fiscal 2019 principally reflected a credit of approximately $0.9 million included in the fiscal 2019 income tax provision from a change in Connecticut tax law that more than offset approximately $0.7 million of income taxes provided on fiscal 2019 pretax income of approximately $3.5 million. The credit of approximately $0.9 million included in the fiscal 2019 income tax benefit was due to a partial reduction to the valuation allowance on Connecticut state deferred tax assets as a result of the change in Connecticut’s tax law whereby the capital based tax is being phased out over four consecutive years beginning January 1, 2021. The income tax provision in fiscal 2018 principally reflected a charge of approximately $1.0 million for the re-measurement of Griffin’s deferred tax assets and liabilities due to the reduction of the U.S. federal corporate statutory tax rate from 35% to 21% as the TCJA became effective for Griffin in the fiscal 2018 first quarter, partially offset by a tax benefit of approximately $0.5 million on Griffin’s pretax loss of approximately $1.1 million in fiscal 2018.  

For a discussion of Griffin’s results of operations for fiscal 2017, including a year-to-year comparison between fiscal 2018 and fiscal 2017, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Griffin’s Annual Report Form 10-K/A for the year ended November 30, 2018.

Off Balance Sheet Arrangements

Griffin does not have any off balance sheet arrangements.

Liquidity and Capital Resources

In fiscal 2019, net cash provided by operating activities increased to approximately $11.3 million from approximately $8.4 million in fiscal 2018. The approximately $2.8 million increase in net cash provided by operating activities in fiscal 2019, as compared to fiscal 2018, principally reflected the approximately $1.0 million increase in Leasing NOI in fiscal 2019, as compared to fiscal 2018, and an increase in cash from changes in assets and liabilities in fiscal 2019, as compared to fiscal 2018. The increase in cash from changes in assets and liabilities principally reflected the increase in deferred revenue of approximately $1.8 million in fiscal 2019, as compared to an increase of approximately $0.3 million in fiscal 2018. The favorable change in deferred revenue in fiscal 2019, as compared to fiscal 2018, principally reflected cash received from tenants for tenant and building improvements that will be recognized as rental revenue over the tenants’ respective lease terms.

Net cash used in investing activities was approximately $15.0 million in fiscal 2019, as compared to approximately $45.3 million in fiscal 2018. The net cash used in investing activities in fiscal 2019 reflected: (a) cash payments of approximately $29.4 million for additions to real estate assets; (b) cash payments of approximately $10.2 million for the acquisition of 7466 Chancellor; and (c) cash payments of approximately $1.0 million for deferred leasing costs and other uses; partially offset by (d) $16.0 million of cash received as a result of a decrease in short-term investments; and (e) net cash proceeds of approximately $9.5 million from property sales.

The approximately $29.4 million of cash payments for additions to real estate assets in fiscal 2019 reflected the following:

Cash payments for new building construction (including site work) in fiscal 2019 included approximately $15.0 million for the construction, on speculation, of 160 International and 180 International which were started in the 2018 fourth quarter and completed in fiscal 2019. Including cash paid in fiscal 2018 and remaining cash to be paid

subsequent to November 30, 2019, the total cost of construction (including site work) for 160 International and 180 International is expected to be approximately $16.3 million. Cash payments for new building construction (including site work) in fiscal 2019 also included the approximately $0.4 million of final payments for the construction of 220 Tradeport and 6975 Ambassador, which were both completed in the 2018 fourth quarter. The total cost of site work and construction (excluding tenant improvement costs) of 220 Tradeport and 6975 Ambassador was approximately $13.2 million and approximately $8.1 million, respectively.

Cash payments of $7.9 million for purchases of undeveloped land in fiscal 2019 were comprised of (a) approximately $5.7 million for the purchase of approximately 44 acres in two adjoining land parcels in Charlotte, North Carolina (the “Charlotte Land”); and (b) approximately $2.2 million for the purchase of approximately 14 acres of undeveloped land in the Lehigh Valley (the “Lehigh Valley Land”). These acquired land parcels were replacement properties in a like-kind exchange (a “1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended for income tax purposes, for the Simsbury Land Sale. Griffin has obtained governmental approvals required for its planned construction of three industrial/warehouse buildings aggregating approximately 520,000 square feet on the Charlotte Land and an approximately 100,000 square foot industrial/warehouse building on the Lehigh Valley Land.

Cash payments of approximately $5.0 million in fiscal 2019 for tenant and building improvements related to leasing principally reflected tenant improvement work for leases signed in the latter part of fiscal 2018 and fiscal 2019. The cash spent on development costs and infrastructure improvements in fiscal 2019 principally reflected approximately $0.5 million for initial planning and development of the Lehigh Valley Land and approximately $0.4 million for the initial planning and development of the Charlotte Land.

On October 25, 2019, Griffin paid cash of approximately $10.2 million for the acquisition of 7466 Chancellor, using approximately $5.9 million borrowed under the Acquisition Credit Line (as defined below), with the balance paid from cash on hand. Subsequent to November 30, 2019, Griffin closed on a nonrecourse mortgage loan of $6.5 million collateralized by 7466 Chancellor (see below). 7466 Chancellor was a replacement property under a  reverse like-kind exchange (a “Reverse 1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended, to defer taxable gains on subsequent sales of real property. On February 3, 2020, Griffin sold a parcel of undeveloped land to complete the Reverse 1031 Like-Kind Exchange (see below).

Cash payments of approximately $1.0 million for deferred leasing costs and other in fiscal 2019 principally reflected lease commissions paid to real estate brokers for new leases.

The approximately $16.0 million of cash from short-term investments in fiscal 2019 reflected the net reduction of Griffin’s investment in repurchase agreements with Webster Bank from $17.0 million as of November 30, 2018 to approximately $1.0 million as of November 30, 2019. As of November 30, 2019, Griffin held one repurchase agreement that is scheduled to mature on February 14, 2020.

The approximately $9.5 million of net cash proceeds from property sales, after transaction costs, in fiscal 2019 principally reflected approximately $7.6 million from the Simsbury Land Sale, approximately $1.6 million from the sales of the East Windsor Land and the East Windsor Land development rights and approximately $0.3 million from several smaller property sales (see “Results of Operations – Fiscal 2019 Compared to Fiscal 2018” above). The net cash proceeds from the Simsbury Land Sale were deposited into escrow at closing for the purchase of replacement properties under a 1031 Like-Kind Exchange.

In fiscal 2018, net cash used in investing activities of approximately $45.3 million reflected: (a) cash payments of approximately $28.6 million for additions to real estate assets; (b) net cash of $17.0 million used for short-term investments; and (c) cash payments of approximately $0.8 million for deferred leasing costs and other uses; partially offset by (d) cash proceeds of approximately $1.0 million from property sales; and (e) approximately $0.1 million of cash proceeds from a fiscal 2017 property sale returned from escrow.

The approximately $28.6 million of cash payments for additions to real estate assets in fiscal 2018 reflected the following:

Cash payments for new building construction (including site work) in fiscal 2018 included approximately $12.8 million for the construction of 220 Tradeport and approximately $7.7 million for the construction, on speculation, of 6975 Ambassador. Griffin completed construction of both 220 Tradeport and 6975 Ambassador in the 2018 fourth quarter. Cash payments for new building construction (including site work) in fiscal 2018 also included the approximately $0.1 million of final payments for the construction of 330 Stone, which was completed in the fiscal 2017 fourth quarter, and approximately $0.1 million for the start of construction, on speculation, of 160 International and 180 International.

Cash payments for tenant and building improvements related to leasing in fiscal 2018 principally related to the full building lease at 220 Tradeport (approximately $2.0 million), the approximately 74,000 square foot lease at 330 Stone that commenced just prior to the end of fiscal 2017 (approximately $1.5 million) and approximately $1.1 million related to other new leases and lease renewals signed in the latter part of fiscal 2017 and fiscal 2018.

The cash payment of approximately $2.7 million, including acquisition costs, for the purchase of undeveloped land in fiscal 2018 was for the purchase of undeveloped land in Concord, North Carolina (the “Concord Land”), an approximately 22 acre parcel in the greater Charlotte area on which 160 International and 180 International were built. Approximately $0.8 million of the purchase price of the Concord Land was paid using proceeds from the 2018 Southwick Land Sale to complete a 1031 Like-Kind Exchange (see below).

Net cash payments of $17.0 million used for short-term investments in fiscal 2018 reflected the investment in repurchase agreements with Webster Bank that are collateralized with securities issued by the United States Government or its sponsored agencies. As of November 30, 2018, these repurchase agreements had maturities of up to six months, and a weighted average maturity of less than 90 days. Cash payments of approximately $0.8 million for deferred leasing costs and other uses in fiscal 2018 reflected approximately $0.7 million for lease commissions and other costs related to new and renewed leases and approximately $0.1 million for purchases of equipment.

The approximately $1.0 million of cash proceeds from property sales in fiscal 2018 reflected approximately $0.8 million from the 2018 Southwick Land Sale, approximately $0.1 million from the sale of a Stratton Farms residential lot and approximately $0.1 million from a buyer’s forfeiture of a deposit on a potential land sale that did not close. The approximately $0.1 million of cash proceeds from property sales returned from escrow in fiscal 2018 reflected the amount remaining after approximately $1.8 million of the approximately $1.9 million of total cash proceeds from the 2017 Southwick Land Sale, deposited into escrow at closing, were used to purchase the Lehigh Valley land site for 6975 Ambassador in fiscal 2017 to complete a 1031 Like-Kind Exchange.

Net cash provided by financing activities was approximately $1.0 million in fiscal 2019, as compared to approximately $15.4 million in fiscal 2018. The net cash provided by financing activities in fiscal 2019 reflected: (a) proceeds of approximately $5.9 million from borrowing under Griffin’s Acquisition Credit Line (defined below) for the acquisition of 7466 Chancellor; (b) proceeds of approximately $1.3 million received from the 2018 State Farm Loan (defined below) at the time it was converted from a construction loan to a nonrecourse permanent mortgage loan (see below); and (c) approximately $0.1 million of cash received from the exercise of stock options; partially offset by (d) approximately $4.0 million of recurring principal payments on mortgage loans; and (e) a payment of approximately $2.3 million for a dividend on Griffin’s common stock (“Common Stock”) that was declared in the 2018 fourth quarter and paid in the first quarter of fiscal 2019.

On March 29, 2018, a subsidiary of Griffin closed on a construction to permanent mortgage loan (the “2018 State Farm Loan”) with State Farm Life Insurance Company to provide a significant portion of the funds for the construction of 220 Tradeport and tenant improvements related to the full building lease of that building. As a build-to-suit transaction, prior to the start of construction, Griffin entered into a twelve and a half-year lease for 220 Tradeport. In

fiscal 2019, Griffin received cash proceeds of approximately $1.3 million from the 2018 State Farm Loan, increasing the amount outstanding under the 2018 State Farm Loan to approximately $14.1 million.  On August 1, 2019, Griffin converted the 2018 State Farm Loan to a $14.1 million nonrecourse permanent mortgage loan that matures on April 1, 2034, with monthly payments of principal and interest that began on September 1, 2019. Monthly principal payments under the 2018 State Farm Loan are based on a twenty-five-year amortization schedule. Under the terms of the 2018 State Farm Loan, the interest rate on the loan remains at 4.51% for the term of the permanent mortgage loan.  

On September 19, 2019, Griffin executed an amendment (the “Revolving Credit Line Amendment”) to its $15 million revolving credit line (the “Webster Credit Line” and, as amended by the Revolving Credit Line Amendment, the “Amended Webster Credit Line”) with Webster Bank that had been extended to September 30, 2019. The Revolving Credit Line Amendment (i) provided for an extension of the maturity date to September 30, 2021, with an option to extend for an additional year through September 30, 2022; (ii) reduced the interest rate from the one month London Interbank Offered Rate (“LIBOR”) plus 2.75% to the one month LIBOR rate plus 2.50%; and (iii) increased the amount of the Amended Webster Credit Line from $15.0 million to $19.5 million, while adding an approximately 31,000 square foot industrial/warehouse building in Bloomfield, Connecticut to the Webster Credit Line’s original collateral, which is comprised of Griffin’s properties in Griffin Center South in Bloomfield, Connecticut, aggregating approximately 235,000 square feet, and an approximately 48,000 square foot single-story office building in Griffin Center in Windsor, Connecticut. In the event that Webster Bank determines that LIBOR is no longer available, the Amended Webster Credit Line contemplates that Webster Bank will transition to a comparable rate of interest to the LIBOR rate.  Under the terms of the Revolving Credit Line Amendment, Griffin must maintain: (a) a maximum loan to value ratio of 72%; (b) a minimum liquidity, as defined in the Revolving Credit Line Amendment, of $5.0 million; and (c) a fixed charge coverage ratio, defined as EBITDA minus cash income taxes and dividends paid, divided by debt service (“Fixed Charge Coverage Ratio”), of at least 1.1 to 1.0. As of November 30, 2019, the Amended Webster Credit Line secured certain standby letters of credit aggregating approximately $0.5 million that are related to Griffin's development activities.

On September 19, 2019, Griffin and Webster Bank also entered into an additional credit line of $15.0 million to be used to finance property acquisitions (the “Acquisition Credit Line”). The Acquisition Credit Line is unsecured, expires on September 30, 2021, with an option to extend for an additional year through September 30, 2022, and may be used to fund up to 65% of the purchase price of real estate acquisitions. Interest on advances under the Acquisition Credit Line are at the one-month LIBOR rate plus 2.75%. In the event that LIBOR is no longer readily determinable or widely available, the Acquisition Credit Line contemplates that Webster Bank shall transition to an alternate rate of interest to the LIBOR rate taking into account then prevailing standards in the market for determining interest rates for commercial loans made by financial institutions in the United States at such time. Amounts borrowed under the Acquisition Credit Line are expected to be repaid from proceeds from long-term financing of the property acquired. If amounts borrowed under the Acquisition Credit Line are not repaid within 135 days from the date the properties are acquired, Griffin has agreed to either (a) repay the portion of the Acquisition Credit Line allocable to such advance or (b) execute a first-lien mortgage in favor of Webster Bank. Under the terms of the Acquisition Credit Line, Griffin must maintain (i) a minimum debt service coverage ratio of the aggregate acquired property (as defined in the Acquisition Credit Line) equal to or greater than 1.25 times; (ii) total stockholders’ equity and minimum net worth of not less than $80.0 million; (iii) a minimum liquidity, as defined in the Acquisition Credit Line, of $5.0 million; (iv) a ratio of total debt plus preferred stock, to total assets not to exceed 50% of the total fair market value of Griffin’s assets; and (v) a Fixed Charge Coverage Ratio of at least 1.1 to 1.0. As of November 30, 2019, approximately $5.9 million was outstanding under the Acquisition Credit Line for the purchase of 7466 Chancellor that was subsequently repaid with the proceeds from a nonrecourse mortgage secured by 7466 Chancellor (see below).

In fiscal 2018, the net cash provided by financing activities reflected proceeds from mortgage and construction loans of approximately $31.6 million and approximately $1.8 million from the exercise of stock options; partially offset by: (a) approximately $15.4 million of principal payments on mortgage loans; (b) a payment of approximately $2.0 million for a dividend on Common Stock that was declared in the fiscal 2017 fourth quarter and paid in fiscal 2018; and (c) approximately $0.6 million for payments of debt issuance costs.

The proceeds of $31.6 million from mortgage and construction loans in fiscal 2018 reflected approximately $18.8 million from the 2018 People’s Mortgage (defined below) and approximately $12.8 million from the 2018 State Farm Loan. The principal payments on mortgage loans of approximately $15.4 million reflected a payment of

approximately $11.8 million in connection with a mortgage loan refinancing and approximately $3.6 million of recurring principal payments.

On March 15, 2017, a subsidiary of Griffin closed on a $12.0 million nonrecourse mortgage (the “2017 People’s Mortgage”) with People’s United Bank, N.A. (“People’s Bank”). On January 30, 2018, that subsidiary refinanced the 2017 People’s Mortgage with a new approximately $18.8 million nonrecourse mortgage loan (the “2018 People’s Mortgage”) with People’s Bank. The 2017 People’s Mortgage had a balance of approximately $11.8 million at the time of refinancing. The 2018 People’s Mortgage is collateralized by the same two NE Tradeport industrial/warehouse buildings (aggregating approximately 275,000 square feet) that collateralized the 2017 People’s Mortgage, in addition to 330 Stone. Upon closing the 2018 People’s Mortgage, Griffin received cash proceeds of $7.0 million (before transaction costs), net of the approximately $11.8 million used to refinance the 2017 People’s Mortgage. The 2018 People’s Mortgage has a ten-year term with monthly principal payments based on a twenty-five-year amortization schedule. The interest rate for the 2018 People’s Mortgage is a floating rate of the one-month LIBOR rate plus 1.95%. At the time the 2018 People’s Mortgage closed, Griffin entered into an interest rate swap agreement with People’s Bank that, combined with an interest rate swap agreement with People’s Bank that was entered into at the time the 2017 People’s Mortgage closed, effectively fixes the interest rate of the 2018 People’s Mortgage at 4.57% over the mortgage loan’s ten-year term. Under the terms of the 2018 People’s Mortgage, Griffin entered into a master lease for 759 Rainbow Road (“759 Rainbow”), one of the buildings that collateralize the 2018 People’s Mortgage. The master lease would become effective only if the full building tenant in 759 Rainbow does not renew its lease when it is scheduled to expire in fiscal 2022 and would stay in effect until either the space is re-leased to a new tenant or the maturity date of the 2018 People’s Mortgage.

On December 20, 2019, two wholly owned subsidiaries of Griffin entered into a $6.5 million nonrecourse mortgage loan (the “2020 Webster Mortgage”) with Webster Bank. The 2020 Webster Mortgage is collateralized by 7466 Chancellor and has a ten-year term with monthly principal payments based on a twenty-five-year amortization schedule. The interest rate for the 2020 Webster Mortgage is a floating rate of the one-month LIBOR rate plus 1.75%. At the time the 2020 Webster Mortgage closed, Griffin entered into an interest rate swap agreement with Webster Bank that effectively fixes the interest rate on the 2020 Webster Mortgage at 3.6% for the entire loan term. Approximately $5.9 million of the proceeds from the 2020 Webster Mortgage were used to repay Webster Bank for the borrowing under the Acquisition Credit Line that was used to finance a portion of the purchase price of 7466 Chancellor (see above).

On January 23, 2020, two wholly owned subsidiaries of Griffin entered into a $15.0 million nonrecourse mortgage loan (the “2020 State Farm Mortgage”) with State Farm Life Insurance Company. The 2020 State Farm Mortgage is collateralized by two industrial/warehouse buildings, 6975 Ambassador and 871 Nestle Way, that aggregate approximately 254,000 square feet in the Lehigh Valley of Pennsylvania. The 2020 State Farm Mortgage has a ten-year term with monthly principal payments based on a twenty-five-year amortization schedule. The interest rate for the 2020 State Farm Mortgage is 3.48%. Approximately $3.2 million of the proceeds from the 2020 State Farm Mortgage were used to repay the mortgage loan on 871 Nestle Way that was scheduled to mature on January 27, 2020. 

On February 3, 2020, Griffin closed on the sale of approximately seven acres of undeveloped land in Windsor, Connecticut for a purchase price of approximately $0.8 million in cash to complete a Reverse 1031 Like-Kind Exchange.

On April 11, 2018, Griffin filed a universal shelf registration statement on Form S-3 (the “Universal Shelf”) with the SEC. Under the Universal Shelf, Griffin may offer and sell up to $50 million of a variety of securities including common stock, preferred stock, warrants, depositary shares, debt securities, units or any combination of such securities during the three year period that commenced upon the Universal Shelf becoming effective on April 25, 2018. Under the Universal Shelf, Griffin may periodically offer one or more types of securities in amounts, at prices and on terms announced, if and when the securities are ever offered. On May 10, 2018, Griffin filed a prospectus supplement with the SEC under which it may issue and sell, from time to time, up to an aggregate of $30 million of its Common Stock under an “at-the-market” equity offering program (the “ATM Program”) through Robert W. Baird & Co. Incorporated (“Baird”), as sales agent. Under the sales agreement with Baird, Griffin sets the parameters for the sales of its Common Stock under the ATM Program, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales of shares may not be made. Sales of Common Stock, if any, under the ATM Program would be made in offerings as defined in Rule 415 of the Securities Act of 1933, as amended. In addition, with the prior consent of Griffin, Baird may also sell shares in privately negotiated transactions. Griffin expects to use the net proceeds, if any,

from the ATM Program for acquisitions of target properties consistent with Griffin’s investment strategies, repayment of debt and general corporate purposes. If Griffin obtains additional capital by issuing equity, the interests of its existing stockholders will be diluted. If Griffin incurs additional indebtedness, that indebtedness may impose financial and other covenants that may significantly restrict Griffin’s operations.

On December 10, 2019, Griffin entered into an Option Purchase Agreement (the “East Granby/Windsor Option Agreement”) whereby Griffin granted the buyer an exclusive one-year option, in exchange for a nominal fee, to purchase approximately 280 acres of undeveloped land in East Granby and Windsor, Connecticut. The purchase price has a range of a minimum of $6.0 million to a maximum of $7.95 million based upon the final approved use of the land. The buyer may extend the option period for an additional two years upon payment of additional option fees. The land subject to the East Granby/Windsor Option Agreement does not have any of the approvals that would be required for the buyer’s planned use of the land. A closing on the land sale contemplated by the East Granby/Windsor Option Agreement is subject to several significant contingencies, including the buyer securing contracts under a competitive bidding process that would require changes in the use of the land and obtaining local and state approvals for that planned use. There is no guarantee that the land sale contemplated under the East Granby/Windsor Option Agreement will be completed under its current terms, or at all.

On January 2, 2020, Griffin entered into an Agreement of Sale and Purchase to acquire an approximately 108,000 square foot fully leased industrial/warehouse building in Orlando, Florida for a purchase price of approximately $7.9 million, before transaction costs. On January 13, 2020, Griffin entered into another Agreement of Sale and Purchase to acquire a mostly vacant approximately 68,000 square foot industrial/warehouse building in Orlando, Florida for a purchase price of approximately $5.7 million, before transaction costs. There is no guarantee that either of these building acquisitions will be completed under their current terms, or at all.

On January 7, 2020, Griffin entered into an agreement to sell approximately 27 acres of undeveloped land in Windsor, Connecticut for a purchase price is approximately $3.8 million, before transaction costs. Completion of this transaction is contingent on a number of factors, including the buyer entering into a  lease agreement with a third-party for a  development on the land to be acquired and obtaining all necessary final permits from governmental authorities for such development plans for the site it would acquire. There is no guarantee that this transaction will be completed under its current terms, or at all.

On February 3, 2020, Griffin entered into an option agreement (the “Meadowood Option Agreement”) with a national land conservation organization (the “Conservation Organization”) to sell the approximate 277 acres of Meadowood (the “Meadowood Land”). For a minimal fee, the Meadowood Option Agreement grants the Conservation Organization the right to purchase the Meadowood Land for open space and farmland preservation whereby Griffin would receive net proceeds of approximately $5.4 million, if the purchase option is exercised. The Meadowood Option Agreement grants the Conservation Organization an initial term of twelve months, with one six-month extension, to exercise its option to acquire the Meadowood Land. Completion of a sale of the Meadowood Land contemplated under the Meadowood Option Agreement is subject to several contingencies, including the satisfactory outcome of due diligence by the Conservation Organization and the Conservation Organization securing funding from several public and private sources to acquire the Meadowood Land. There is no guarantee that a sale of the Meadowood Land contemplated under the Meadowood Option Agreement will be completed under its current terms, or at all.

Griffin cannot give assurance that it could issue Common Stock under the ATM Program or obtain additional capital under the Universal Shelf on favorable terms, or at all. See “Risk Factors-Risks Related to the Real Estate Industry-Volatility in the capital and credit markets could materially adversely impact Griffin” and “Risk Factors-Risks Related to Griffin’s Common Stock-Issuances or sales of Griffin’s common stock or the perception that such issuances or sales might occur could adversely affect the per share trading price of Griffin’s common stock” included in Part I, Item 1A of this Annual Report.

In the near-term, Griffin plans to continue to invest in its real estate business, including acquisition of the industrial/warehouse buildings under agreement, construction of additional buildings on its undeveloped land, expenditures for tenant improvements as new leases and lease renewals are signed, infrastructure improvements required for future development of its real estate holdings and the potential acquisition of additional properties and/or undeveloped land parcels in the Middle Atlantic, Northeast and Southeast regions to expand the industrial/warehouse portion of its real estate portfolio. Real estate acquisitions may or may not occur based on many factors, including real

estate pricing. Griffin may commence speculative construction projects on its undeveloped land that is either currently owned or acquired in the future if it believes market conditions are favorable for such development. Griffin may also construct additional build-to-suit facilities on its undeveloped land if lease terms are favorable.

As of November 30, 2019, Griffin had cash, cash equivalents and short-term investments totaling approximately $6.9 million. Management believes that its cash, cash equivalents and short-term investments as of November 30, 2019, cash generated from leasing operations and property sales, proceeds from mortgage loans closed subsequent to November 30, 2019 and borrowing capacity under the Amended Webster Credit Line and Acquisition Credit Line will be sufficient to meet its working capital requirements, to purchase industrial/warehouse buildings currently under agreement, to make other investments in real estate assets, and to pay dividends on its Common Stock, when and if declared by the Board of Directors, for at least the next twelve months.

Forward‑Looking Information

The above information in Management’s Discussion and Analysis of Financial Condition and Results of Operations includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements about the completion of building purchases currently under agreement or the possibility of sales pursuant to certain option agreements;  completion of property sales under agreement, near-term expectations regarding any potential issuance of securities under the ATM Program or the Universal Shelf, and anticipated use of any future proceeds from the ATM program; anticipated closing dates of such purchases and Griffin’s plans with regard to the foregoing properties; the acquisition and development of additional properties and/or undeveloped land parcels; construction of additional buildings, tenant improvements and infrastructure improvements; Griffin’s anticipated future liquidity and capital expenditures; 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.

Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

See Notes to Consolidated Financial Statements.

GRIFFIN INDUSTRIAL REALTY, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)