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 significant accounting policies and methods used in the preparation of
Griffin's unaudited consolidated financial statements included in Item 1 of this
Quarterly Report on Form 10-Q are consistent with those used in the preparation
of Griffin's audited consolidated financial statements for its fiscal year ended
November 30, 2019 ("fiscal 2019") included in Griffin's Annual Report on
Form 10-K ("Form 10-K") as filed with the United States Securities and Exchange
Commission (the "SEC") on February 13, 2020.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses in the reporting period. Griffin regularly
evaluates estimates and assumptions related to the useful life and
recoverability of long-lived assets, stock-based compensation expense, deferred
income tax asset valuations and the valuation of derivative instruments. Griffin
bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are
not readily apparent from other sources. The actual results experienced by
Griffin may differ materially and adversely from Griffin's estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected. The significant
accounting estimates used by Griffin in the preparation of its financial
statements for the three months ended February 29, 2020 are consistent with
those used by Griffin to prepare its consolidated financial statements for
fiscal 2019.
Summary
For the three months ended February 29, 2020 (the "2020 first quarter"), Griffin
incurred a net loss of approximately $0.3 million, as compared to a net loss of
approximately $0.6 million for the three months ended February 28, 2019 (the
"2019 first quarter"). The lower net loss in the 2020 first quarter, as compared
to the 2019 first quarter, principally reflected an increase of approximately
$0.6 million in operating income in the 2020 first quarter, as compared to the
2019 first quarter, partially offset by: (a) an increase of approximately
$0.1 million in interest expense; (b) a decrease of approximately $0.1 million
in investment income; and (c) a decrease of approximately $0.1 million in income
tax benefit in the 2020 first quarter, as compared to the 2019 first quarter.
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The approximately $0.6 million increase in operating income in the 2020 first
quarter, as compared to the 2019 first quarter, principally reflected an
increase of approximately $0.5 million from gain on property sales (defined as
revenue from property sales less costs related to property sales) and an
increase of approximately $0.3 million in net operating income from leasing
("Leasing NOI")1, which Griffin defines as rental revenue less operating
expenses of rental properties, partially offset by an increase of approximately
$0.3 million in depreciation and amortization expense. The higher gain on
property sales in the 2020 first quarter, as compared to the 2019 first quarter,
reflected a gain of approximately $0.6 million in the 2020 first quarter on the
sale of approximately seven acres of undeveloped land in Windsor, Connecticut
(the "2020 Windsor Land Sale"), as compared to the gain of approximately
$0.1 million in the 2019 first quarter on the sale of the development rights for
a 116 acre land parcel in East Windsor, Connecticut (the "East Windsor Land").
The increase in Leasing NOI in the 2020 first quarter, as compared to the 2019
first quarter, principally reflected higher rental revenue in the 2020 first
quarter as a result of more space under lease in the 2020 first quarter than the
2019 first quarter. The higher depreciation and amortization expense in the 2020
first quarter, as compared to the 2019 first quarter, principally reflected
depreciation and amortization expense on the properties that were added to
Griffin's real estate portfolio subsequent to the end of the 2019 first quarter.
General and administrative expenses in the 2020 first quarter were essentially
unchanged as compared to the 2019 first quarter. The higher interest expense in
the 2020 first quarter, as compared to the 2019 first quarter, principally
reflected the higher amount of mortgage loans outstanding in the 2020 first
quarter, as compared to the 2019 first quarter.
Results of Operations
Factors That May Impact Results of Operations
We are not aware of any material trends or uncertainties, other than national
economic conditions affecting real estate generally and those risks listed in
Part II. Item 1A. "Risk Factors," of this Quarterly Report on Form 10-Q, that
may reasonably be expected to have a material impact, favorable or unfavorable,
on revenues or income from the acquisition, management and operation of our
properties. However, due to the recent outbreak of the coronavirus (COVID-19) in
the U.S. and globally, Griffin's tenants and their operations, and, thus, their
ability to pay rent, may be impacted. The impact of COVID-19 on our future
results could be significant and will largely depend on future developments,
which are highly uncertain and cannot be predicted, including new information,
which may emerge concerning the severity of COVID-19, the success of actions
taken to contain or treat COVID-19 and reactions by consumers, companies,
governmental entities and capital markets.
2020 First Quarter Compared to 2019 First Quarter
Total revenue increased to approximately $9.7 million in the 2020 first quarter
from approximately $9.3 million in the 2019 first quarter, reflecting an
approximately $0.5 million increase in rental revenue, partially offset by a
decrease of approximately $0.1 million in revenue from property sales.
Rental revenue increased to approximately $8.9 million in the 2020 first quarter
from approximately $8.4 million in the 2019 first quarter. The approximately
$0.5 million increase in rental revenue in the 2020 first quarter over the 2019
first quarter was principally due to: (a) approximately $0.2 million of rental
revenue from an approximately 100,000 square foot industrial/warehouse building
("7466 Chancellor") in Orlando, Florida, that was acquired on October 25, 2019;
and (b) approximately $0.3 million of rental revenue from leasing previously
vacant space, including approximately $0.1 million from the lease of
approximately 60,000 square feet in 6975 Ambassador Drive ("6975 Ambassador"),
the approximately 134,000 square foot industrial/warehouse building in the
Lehigh Valley of Pennsylvania that was completed and placed in service in fiscal
2018; partially offset by (c) a decrease of approximately $0.1 million in rental
revenue as a result of a lease that expired subsequent to the 2019 first
quarter.
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1 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.
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A summary of the total square footage and leased square footage of the buildings
in Griffin's real estate portfolio is as follows:
Total Leased
Square Square Percentage
Footage Footage Leased
As of February 28, 2019 4,078,000 3,784,000 93%
As of November 30, 2019 4,462,000 4,034,000 90%
As of February 29, 2020 4,570,000 4,237,000 93%
The approximately 384,000 square foot increase in total square footage from
February 28, 2019 to November 30, 2019 was due to: (a) the completion and
placing into service in the three months ended November 30, 2019 (the "2019
fourth quarter") of 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. The approximately 108,000 increase in
total square footage from November 30, 2019 to February 29, 2020 reflected the
acquisition of 3320 Maggie Boulevard ("3320 Maggie"), an approximately 108,000
square foot single tenant, fully leased industrial/warehouse building in
Orlando, Florida.
The approximately 203,000 square foot increase in space leased as of
February 29, 2020, as compared to November 30, 2019, reflected the acquisition
of 3320 Maggie and entering into three new leases, aggregating approximately
115,000 square feet, partially offset by an approximately 22,000 square foot
lease of industrial/warehouse space that expired and was not renewed. The new
leases in the 2020 first quarter reflected: (a) approximately 108,000 square
feet of industrial/warehouse space, comprised of approximately 60,000 square
feet in 6975 Ambassador and approximately 48,000 square feet in New England
Tradeport ("NE Tradeport"), Griffin's industrial park in East Granby and
Windsor, Connecticut; and (b) an approximately 7,000 square foot restaurant
building in Griffin Center in Windsor, Connecticut. Subsequent to the end of the
2020 first quarter, a tenant that leased approximately 11,000 square feet in one
of Griffin's office/flex buildings entered into a lease agreement whereby that
tenant will relocate to the vacated approximately 22,000 square feet of
industrial/warehouse space.
As of February 29, 2020, Griffin's approximately 4,137,000 square feet of
industrial/warehouse space (91% of Griffin's total square footage), comprised of
approximately 2,052,000 square feet in the north submarket of Hartford,
Connecticut, 1,317,000 square feet in the Lehigh Valley, approximately 560,000
square feet in the Charlotte, North Carolina area and approximately 208,000
square feet in Orlando, Florida was 95% leased. The only significant vacancies
of industrial/warehouse space were approximately 178,000 square feet in
160 International and 180 International in the Charlotte market and
approximately 22,000 square feet in NE Tradeport, which was leased subsequent to
the end of the 2020 first quarter (see above). Excluding the vacancies in 160
International and 180 International, which were placed in service in the 2019
fourth quarter, Griffin's industrial/warehouse space was 99% leased as of
February 29, 2020, although Griffin expects that a tenant that leases
approximately 201,000 square feet in one of Griffin's industrial/warehouse
buildings in the Lehigh Valley will not renew its lease when it is scheduled to
expire on July 31, 2020. Griffin's office/flex buildings, aggregating
approximately 433,000 square feet (9% of Griffin's total square footage) in the
north submarket of Hartford, were 72% leased as of February 29, 2020.
Revenue from property sales of approximately $0.8 million in the 2020 first
quarter reflected the 2020 Windsor Land Sale that generated a gain of
approximately $0.6 million. The 2020 Windsor Land Sale completed a reverse
like-kind exchange (a "Reverse 1031 Like-Kind Exchange") under Section 1031 of
the Internal Revenue Code of 1986, as amended. The Reverse 1031 Like-Kind
Exchange was initiated with the acquisition of 7466 Chancellor in the 2019
fourth quarter. As a result of the Reverse 1031 Like-Kind Exchange, income taxes
on the 2020 Windsor Land Sale gain are deferred.
Revenue from property sales of approximately $0.9 million in the 2019 first
quarter reflected the sale of the development rights (but not the land itself)
for the East Windsor Land, which generated a gain of approximately $0.1 million
in the 2019 first quarter. The gain on sale of the development rights was not
significant as the cost basis of the East Windsor Land was relatively high.
Subsequent to the end of the 2019 first quarter, Griffin closed on the sale of
the East Windsor Land for $0.7 million. Property sales occur periodically and
year-to-year changes in revenue from property sales may not be indicative of any
trends in Griffin's real estate business.
Operating expenses of rental properties increased to approximately $2.9 million
in the 2020 first quarter from approximately $2.7 million in the 2019 first
quarter. The increase of approximately $0.2 million in operating expenses of
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rental properties reflected approximately $0.1 million related to the buildings
that were added to Griffin's portfolio subsequent to the 2019 first quarter,
7466 Chancellor, 160 International and 180 International, and an approximately
$0.1 million increase in operating expenses across all of Griffin's other
buildings. Depreciation and amortization expense increased to approximately
$3.2 million in the 2020 first quarter from approximately $2.9 million in the
2019 first quarter. The approximately $0.3 million increase in depreciation and
amortization expense in the 2020 first quarter, as compared to the 2019 first
quarter, reflected depreciation and amortization expense related to the
buildings that were added to Griffin's portfolio subsequent to the 2019 first
quarter.
Griffin's general and administrative expenses of approximately $2.1 million in
the 2020 first quarter were essentially unchanged from the 2019 first quarter.
Decreases of approximately $0.2 million related to Griffin's non-qualified
deferred compensation plan and approximately $0.1 million due to lower
compensation expense were offset by increases of approximately $0.2 million in
legal and consulting fees and approximately $0.1 million in all other general
and administrative expenses. The decrease in expenses related to the
non-qualified deferred compensation plan reflected the effect of lower stock
market performance on a lower level of participant balances in the 2020 first
quarter, as compared to the 2019 first quarter, which resulted in a smaller
increase in the non-qualified deferred compensation plan liability in the 2020
first quarter, as compared to the 2019 first quarter. The lower compensation
expense principally reflected the retirement of Frederick M. Danziger as
Griffin's Executive Chairman and the resignation of Griffin's Director of
Acquisitions in the fiscal 2019 third quarter. Mr. Danziger remained as
Non-executive Chairman through March 3, 2020, when Gordon DuGan was appointed as
Chairman. Mr. Danziger remains a director on Griffin's Board. The increase in
legal and consulting fees in the 2020 first quarter, as compared to the 2019
first quarter, is principally related to Griffin's efforts to pursue conversion
to a real estate investment trust ("REIT").
Griffin's interest expense increased to approximately $1.8 million in the 2020
first quarter from approximately $1.7 million in the 2019 first quarter. The
approximately $0.1 million increase in interest expense in the 2020 first
quarter, as compared to the 2019 first quarter, principally reflected interest
expense on a $6.5 million nonrecourse mortgage loan on 7466 Chancellor and a
$15.0 million nonrecourse mortgage loan on 6975 Ambassador and 871 Nestle Way
("871 Nestle Way"), an approximately 120,000 square foot industrial/warehouse
building in the Lehigh Valley. Approximately $3.2 million of the proceeds from
the mortgage loan on 6975 Ambassador and 871 Nestle Way were used to repay a
maturing mortgage loan on 871 Nestle Way.
Investment income decreased to $26,000 in the 2020 first quarter from
approximately $0.1 million in the 2019 first quarter. The approximately
$0.1 million decrease in investment income reflects the lower amount of
short-term investments in the 2020 first quarter, as compared to the 2019 first
quarter.
Griffin's income tax benefit decreased to approximately $0.1 million in the 2020
first quarter from approximately $0.2 million in the 2019 first quarter. The
approximately $0.1 million decrease in Griffin's income tax benefit in the 2020
first quarter, as compared to the 2019 first quarter, reflects a decrease in the
pretax loss to approximately $0.4 million in the 2020 first quarter from
approximately $0.8 million in the 2019 first quarter.
Off Balance Sheet Arrangements
Griffin does not have any material off balance sheet arrangements.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $0.4 million in the
2020 first quarter, as compared to approximately $1.5 million in the 2019 first
quarter. The approximately $1.1 million decrease in net cash provided by
operating activities in the 2020 first quarter, as compared to the 2019 first
quarter, principally reflected a net decrease of approximately $1.3 million in
cash from changes in assets and liabilities partially offset by the
approximately $0.3 million increase in Leasing NOI2 in the 2020 first quarter,
as compared to the 2019 first quarter. The net decrease in cash from changes in
assets and liabilities was driven by a payment of approximately $1.9 million
under Griffin's non-qualified deferred compensation plan to Mr. Danziger in the
2020 first quarter as a result of his retirement in fiscal 2019.
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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.
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Net cash used in investing activities was approximately $10.1 million in the
2020 first quarter, as compared to net cash provided by investing activities of
approximately $0.8 million in the 2019 first quarter. The net cash used in
investing activities in the 2020 first quarter reflected: (a) cash payments of
approximately $7.9 million for the acquisition of 3320 Maggie; (b) cash payments
of approximately $3.8 million for additions to real estate assets; and (c) cash
payments of approximately $0.2 million for deferred leasing costs and other
uses; partially offset by (d) cash proceeds of approximately $1.0 million from a
decrease in short-term investments; and (e) cash proceeds of approximately
$0.7 million from a property sale.
The acquisition of 3320 Maggie was made utilizing a Reverse 1031 Like-Kind
Exchange. As such, as of February 29, 2020, 3320 Maggie is in the possession of
a qualified intermediary engaged to execute the Reverse 1031 Like-Kind Exchange
until a subsequent sale transaction and the Reverse 1031 Like-Kind Exchange are
completed. Griffin retains essentially all of the legal and economic benefits
and obligations related to 3320 Maggie prior to the completion of the Reverse
1031 Like-Kind Exchange. Accordingly, 3320 Maggie is included in Griffin's
consolidated financial statements as a consolidated variable interest entity
until legal title is transferred to Griffin upon completion of the Reverse 1031
Like-Kind Exchange.
The approximately $3.8 million of cash payments for additions to real estate
assets in the 2020 first quarter reflected the following:
Tenant and building improvements related to leasing $ 2.2 million
New building construction (including site work) $ 0.9 million
Development costs and infrastructure improvements $ 0.7 millionCash payments in the 2020 first quarter for tenant and building improvements
related to new leases signed in the latter part of fiscal 2019 and the 2020
first quarter. Cash payments for new building construction (including site work)
in the 2020 first quarter reflected final payments of the construction costs for
160 International and 180 International, which were completed and placed in
service in the 2019 fourth quarter. Cash payments in the 2020 first quarter for
development costs and infrastructure improvements principally reflected planning
and design costs related to a planned development of three industrial/warehouse
buildings aggregating approximately 520,000 square feet on an approximately 44
acre parcel of undeveloped land in Charlotte, North Carolina that was purchased
in fiscal 2019.
Cash payments of approximately $0.2 million in the 2020 first quarter for
deferred leasing costs and other uses principally reflected lease commissions
paid to real estate brokers for new leases.
The $1.0 million of cash from short-term investments in the 2020 first quarter
reflected the maturity of Griffin's repurchase agreement that was collateralized
with securities issued by the United States Government or its sponsored
agencies, with Webster Bank, N.A. ("Webster Bank"). The approximately
$0.7 million of cash proceeds from property sales in the 2020 first quarter
reflected the 2020 Windsor Land Sale.
The net cash provided by investing activities of approximately $0.8 million in
the 2019 first quarter reflected: (a) $2.0 million of cash from a decrease in
short-term investments; and (b) cash proceeds of approximately $0.9 million from
a property sale; partially offset by (c) cash payments of approximately
$1.9 million for additions to real estate assets; and (d) cash payments of
approximately $0.2 million for deferred leasing costs and other uses.
The $2.0 million of cash from short-term investments in the 2019 first quarter
reflected the net reduction, from $17.0 million as of November 30, 2018 to
$15.0 million as of February 28, 2019, in Griffin's investment in repurchase
agreements with Webster Bank. The cash proceeds of approximately $0.9 million
from a property sale reflected the sale of the development rights for the East
Windsor Land (see "Results of Operations - 2020 First Quarter Compared to 2019
First Quarter" above).
The approximately $1.9 million of cash payments for additions to real estate
assets in the 2019 first quarter reflected the following:
New building construction (including site work) $ 1.6 million
Tenant and building improvements related to leasing $ 0.2 million
Development costs and infrastructure improvements $ 0.1 million
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Cash payments for new building construction (including site work) in the 2019
first quarter included approximately $1.2 million for construction, on
speculation, of 160 International and 180 International. Cash payments for new
building construction in the 2019 first quarter also included approximately
$0.4 million on 220 Tradeport Drive ("220 Tradeport"), an approximately 234,000
square foot build-to-suit industrial building in NE Tradeport, and
6975 Ambassador, which were both completed in the fiscal 2018 fourth quarter.
Cash payments for tenant and building improvements in the 2019 first quarter
were related to leases signed in the latter part of fiscal 2018.
Cash payments of approximately $0.2 million for deferred leasing costs and other
uses in the 2019 first quarter reflected lease commissions and other costs
related to new and renewed leases.
Net cash provided by financing activities was approximately $12.5 million in the
2020 first quarter, as compared to net cash used in financing activities of
approximately $3.1 million in the 2019 first quarter. The net cash provided by
financing activities in the 2020 first quarter reflected $21.5 million of
proceeds from mortgage loans, partially offset by: (a) approximately
$4.3 million of principal payments on mortgage loans; (b) an approximately
$2.5 million dividend payment on Griffin's common stock that was declared in the
2019 fourth quarter and paid in the 2020 first quarter; (c) approximately
$1.8 million for a net repayment under Griffin's line of credit for acquisitions
(the "Acquisition Credit Line") with Webster Bank; and (d) approximately
$0.4 million of payments for debt issuance costs.
Proceeds from mortgage loans in the 2020 first quarter reflected a $15.0 million
nonrecourse mortgage loan (the "2020 State Farm Mortgage") with State Farm Life
Insurance Company ("State Farm"), and a $6.5 million nonrecourse mortgage loan
(the "2020 Webster Mortgage") with Webster Bank. On December 20, 2019, two
wholly owned subsidiaries of Griffin entered into the 2020 Webster Mortgage,
collateralized by 7466 Chancellor, that 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 3.60% 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 below).
On January 23, 2020, two wholly owned subsidiaries of Griffin entered into the
2020 State Farm Mortgage, which is collateralized by two industrial/warehouse
buildings in the Lehigh Valley of Pennsylvania, 6975 Ambassador and 871 Nestle
Way, that aggregate approximately 254,000 square feet. 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.
The approximately $4.3 million of principal payments on mortgage loans in the
2020 first quarter reflected the repayment of the mortgage loan on 871 Nestle
Way and a total of approximately $1.1 million of recurring principal payments on
Griffin's nonrecourse mortgage loans. The approximately $1.8 million net
repayment on revolving lines of credit in the 2020 first quarter reflected the
repayment of the approximately $5.9 million that was outstanding on the
Acquisition Credit Line as of November 30, 2019, representing the amount that
was drawn to finance a portion of the purchase price of 7466 Chancellor,
partially offset by $4.1 million borrowed on the Acquisition Credit Line in the
2020 first quarter that was used to finance a portion of the purchase price of
3320 Maggie.
The net cash used in financing activities in the 2019 first quarter reflected:
(a) an approximately $2.3 million dividend payment on Griffin's common stock
that was declared in the 2018 fourth quarter and paid in the 2019 first quarter;
and (b) approximately $0.9 million of recurring principal payments on mortgage
loans; partially offset by (c) approximately $0.1 million of proceeds from the
construction to permanent mortgage loan (the "2019 State Farm Loan") with State
Farm that provided a significant portion of the funds for the construction of
220 Tradeport and tenant improvements related to the full building lease of that
building. On August 1, 2019, Griffin converted the 2019 State Farm Loan to a
$14.1 million nonrecourse permanent mortgage that matures on April 1, 2034. The
interest rate on the 2019 State Farm Loan is 4.51% with monthly principal
payments based on a twenty-five-year amortization schedule.
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
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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 (the "Securities Act"). 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. Griffin cannot give assurance that it could issue Common
Stock under the ATM Program or obtain additional capital under the Universal
Shelf on favorable terms, or at all. See "Risk Factors-Risks Related to the Real
Estate Industry-Volatility in the capital and credit markets could materially
adversely impact Griffin" and "Risk Factors-Risks Related to Griffin's Common
Stock-Issuances or sales of Griffin's common stock or the perception that such
issuances or sales might occur could adversely affect the per share trading
price of Griffin's common stock" included in Part I, Item 1A "Risk Factors" of
Griffin's Annual Report on Form 10-K filed with the SEC for the fiscal year
ended November 30, 2019.
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 7, 2020, Griffin entered into an agreement to sell approximately
27 acres of undeveloped land in Windsor, Connecticut 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 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 (the "Meadowood
Land") of Griffin's approved but unbuilt residential development, Meadowood, in
Simsbury, Connecticut. 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.
Subsequent to February 29, 2020, Griffin's Board of Directors approved a plan
for Griffin to pursue conversion to a real estate investment trust ("REIT") for
federal tax purposes, subject to approval by Griffin's stockholders at Griffin's
2020 Annual Meeting of Stockholders (the "2020 Annual Meeting"). If successful
in the conversion process,
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Griffin expects to elect REIT status for federal tax purposes commencing with
the taxable year beginning January 1, 2021. In connection with the REIT
conversion, Griffin expects to distribute its accumulated earnings and profits
(the "E&P Distribution") to stockholders. Griffin currently estimates the range
of its required E&P Distribution to be approximately $14.0 million to
$19.0 million. Griffin's actual E&P Distribution may vary depending on a number
of items, including the occurrence and timing of certain transactions and
Griffin's actual results through December 31, 2020. Griffin intends for the E&P
Distribution to be paid out in a combination of at least 20% in cash and up to
80% in Griffin Common Stock.
On March 4, 2020, Griffin announced its intention to offer for sale its two
multi-story office buildings ("5 and 7 Waterside") in Griffin Center in the
greater Hartford, Connecticut area. However, as a result of the current market
conditions caused by the COVID-19 pandemic, Griffin has suspended its efforts to
sell 5 and 7 Waterside. Griffin expects to resume its efforts to sell 5 and 7
Waterside when Griffin believes that the market has stabilized.
On March 3, 2020, Gordon F. DuGan was appointed as Chairman of the Board of
Directors. Mr. DuGan and Griffin entered into a Chairmanship and Advisory
Agreement (the "Advisory Agreement") on March 3, 2020, whereby Mr. DuGan also
agreed to serve as a non-employee advisor to Griffin on, amongst other things,
growth strategy, including identifying markets, acquisitions and other
transactions, recruitment of key personnel, potential capital raising efforts
and general management advice (collectively the "Advisory Services"). As
compensation to Mr. DuGan for providing such Advisory Services, Mr. DuGan
received: (i) an non-qualified stock option to acquire 48,000 shares of Griffin
Common Stock at an exercise price of $45.98 per share under the Griffin
Industrial Realty, Inc. 2009 Stock Option Plan (the "2009 Plan"); and (ii) a
non-qualified stock option (the "Supplemental Advisor Option") to acquire 52,000
shares of Griffin Common Stock at an exercise price of $46.91 per share under
the Griffin Industrial Realty, Inc. and Griffin Industrial, LLC 2020 Incentive
Award Plan (the "2020 Incentive Award Plan"), contingent upon approval of the
2020 Incentive Award Plan by Griffin's stockholders at the 2020 Annual Meeting.
If such approval is not obtained, the Supplemental Advisor Option would be
canceled for no consideration, provided that Griffin has agreed to instead grant
Mr. DuGan a non-qualified stock option to purchase 50,000 shares of Griffin
Common Stock pursuant to the 2009 Plan in the 2021 fiscal year.
On March 9, 2020, Griffin completed the sale of 53,293 shares of Griffin's
Common Stock at a price per share of $46.91, for cash proceeds of approximately
$2,500,000, in accordance with the Advisory Agreement and pursuant to a Stock
Purchase Agreement, dated as of March 5, 2020, between Mr. DuGan and Griffin.
On March 9, 2020, Griffin closed on the acquisition of 170 Sunport Lane ("170
Sunport"), an approximately 68,000 square foot mostly vacant
industrial/warehouse building in Orlando, Florida. The purchase price of
approximately $5.7 million was paid using cash on hand. The acquisition of 170
Sunport was made utilizing a Reverse 1031 Like-Kind Exchange that was entered
into at closing to defer taxable gains on potential subsequent sales of real
estate property. As such, subsequent to the closing, 170 Sunport is in the
possession of a qualified intermediary engaged to execute the Reverse 1031
Like-Kind Exchange until a subsequent sale transaction and the Reverse 1031
Like-Kind Exchange are completed.
In the near-term, Griffin plans to continue to invest in its real estate
business, including the 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 build-to-suit facilities on its undeveloped land if lease terms are
favorable.
As of February 29, 2020, Griffin had cash and cash equivalents of approximately
$8.7 million. Management believes that its cash and cash equivalents as of
February 29, 2020, cash received from the sale of its Common Stock on March 9,
2020, cash generated from leasing operations and property sales, and borrowing
capacity under the Webster Credit Line and the Acquisition Credit Line will be
sufficient to meet its working capital requirements, 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.
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In addition, Griffin is continuing to monitor the outbreak of the coronavirus
(COVID-19) and its impact on Griffin's business, tenants and industry as a
whole. The magnitude and duration of the pandemic and its impact on Griffin's
operations and liquidity is uncertain as of the filing date of this Quarterly
Report on Form 10-Q as this continues to evolve globally. However, if the
outbreak continues on its current trajectory, such impacts could grow and become
material. To the extent that Griffin or its tenants are impacted by the COVID-19
outbreak, this could materially disrupt Griffin's business operations. See Part
II. Item 1A. "Risk Factors," of this Quarterly Report on Form 10-Q for further
discussion of the possible impact of the COVID-19 pandemic on Griffin's
business.
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 and Section 21E of the Exchange
Act of 1934, as amended. These forward-looking statements include, but are not
limited to the possibility of sales pursuant to certain option agreements;
completion of property sales under agreement; anticipated closing dates of such
sales and Griffin's plans with regard to the foregoing properties; the potential
sale of 5 and 7 Waterside; potential vacancies in Griffin's buildings; the
renewal of the approximately 201,000 square foot lease scheduled to expire on
July 31, 2020; the acquisition and development of additional properties and/or
undeveloped land parcels; construction of additional buildings, tenant
improvements and infrastructure improvements; 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; Griffin's
anticipated future liquidity and capital expenditures; completion of a sale of
the Meadowood Land; conversion to a REIT, the estimated range of the E&P
Distribution, expectations and uncertainties related to COVID-19 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 forwardlooking 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 Part I, Item 1A "Risk
Factors" of Griffin's Annual Report on Form 10-K for the fiscal year ended
November 30, 2019 filed with the SEC on February 13, 2020.
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