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 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 endedNovember 30, 2019 ("fiscal 2019") included in Griffin's Annual Report on Form 10-K ("Form 10-K") as filed with theUnited States Securities and Exchange Commission (the "SEC") onFebruary 13, 2020 . The preparation of financial statements in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. Griffin regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations and the valuation of derivative instruments. Griffin bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by Griffin may differ materially and adversely from Griffin's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The significant accounting estimates used by Griffin in the preparation of its financial statements for the three months and nine months endedAugust 31, 2020 are consistent with those used by Griffin to prepare its consolidated financial
statements for fiscal 2019. Summary For the three months endedAugust 31, 2020 (the "2020 third quarter"), Griffin incurred a net loss of approximately$0.6 million , as compared to net income of approximately$1.0 million for the three months endedAugust 31, 2019 (the "2019 third quarter"). The net loss in the 2020 third quarter, as compared to net income in the 2019 third quarter, principally reflected an approximately$0.4 million decrease in operating income, an approximately$0.4 million expense for the change in the fair value of financial instruments in the 2020 third quarter, an approximately$0.3 million increase in interest expense and an approximately$0.5 million decrease in the income tax benefit in the 2020 third quarter, as compared to the 2019 third quarter. The approximately$0.4 million decrease in operating income in the 2020 third quarter, as compared to the 2019 third quarter, principally reflected: (a) increases of approximately$0.7 million and approximately$0.6 million in depreciation and amortization expense and general and administrative expenses, respectively, in the 2020 third quarter, as compared to the 2019 third quarter; partially offset by (b) an approximately$0.9 million increase in net operating income from leasing ("Leasing NOI") 1 , which Griffin defines as rental revenue less operating expenses of rental properties in the 2020 third quarter, as compared to the 2019 third quarter. The increase in Leasing NOI in the 2020 third quarter, as compared to the 2019 third quarter, principally reflected higher rental revenue as a result of more space being under lease in the 2020 third quarter than the 2019 third quarter, driven by rental revenue from three industrial/warehouse buildings inOrlando, Florida that were acquired subsequent toAugust 31, 2019 , an industrial/warehouse building in theCharlotte, North Carolina area that was completed and partially leased subsequent toAugust 31, 2019 and, to a lesser extent, improved occupancy in Griffin's 1Leasing NOI is not a financial measure in conformity withU.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 withU.S. GAAP. 28
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other industrial/warehouse buildings. The higher depreciation and amortization expense in the 2020 third quarter, as compared to the 2019 third quarter, principally reflected depreciation and amortization expense on the buildings that were added to Griffin's real estate portfolio subsequent toAugust 31, 2019 . The higher general and administrative expenses in the 2020 third quarter, as compared to the 2019 third quarter, principally reflected expenses incurred in connection with Griffin's previously announced potential conversion to a real estate investment trust ("REIT"). The higher interest expense in the 2020 third quarter, as compared to the 2019 third quarter, principally reflected the higher amount of mortgage loans outstanding and higher borrowings under Griffin's credit lines in the 2020 third quarter, as compared to the 2019 third quarter. The change in the fair value of financial instruments in the 2020 third quarter reflected the change in fair value of the Warrant (as defined below) and the conditional value rights ("CVR") liabilities fromAugust 24, 2020 , the date they were issued, through the end of the 2020 third quarter. The lower income tax benefit in the 2020 third quarter, as compared to the 2019 third quarter, reflected the inclusion in the 2019 third quarter of an approximately$0.9 million tax benefit as a result of a change inConnecticut's tax law in 2019, partially offset by the effect of the pretax loss of approximately$0.9 million in the 2020 third quarter, as compared to pretax income of approximately$0.2 million in the 2019 third quarter. For the nine months endedAugust 31, 2020 (the "2020 nine month period"), Griffin incurred a net loss of approximately$1.7 million , as compared to net income of approximately$6.3 million for the nine months endedAugust 31, 2019 (the "2019 nine month period"). The net loss in the 2020 nine month period, as compared to net income in the 2019 nine month period, principally reflected an approximately$7.8 million decrease in operating income, an approximately$0.7 million increase in interest expense, an approximately$0.4 million expense for the change in the fair value of financial instruments in the 2020 nine month period and an approximately$0.2 million decrease in investment income in the 2020 nine month period, as compared to the 2019 nine month period, partially offset by an approximately$0.6 million income tax benefit in the 2020 nine month period, as compared to an approximately$0.7 million income tax expense in the 2019 nine month period. The approximately$7.8 million decrease in operating income in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected: (a) a decrease of approximately$7.0 million of gain on property sales in the 2020 nine month period, as compared to the 2019 nine month period; (b) increases of approximately$1.4 million and approximately$1.2 million in depreciation and amortization expense and general and administrative expenses, respectively, in the 2020 nine month period, as compared to the 2019 nine month period; and (c) an approximately$0.1 million gain from an insurance recovery in the 2019 nine month period; partially offset by (d) an approximately$1.9 million increase in Leasing NOI in the 2020 nine month period, as compared to the 2019 nine month period. The increase in Leasing NOI in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected higher rental revenue as a result of more space being under lease in the 2020 nine month period than the 2019 nine month period, driven by rental revenue from the three industrial/warehouse buildings inOrlando, Florida that were acquired subsequent toAugust 31, 2019 , the industrial/warehouse building in theCharlotte, North Carolina area that was completed and partially leased subsequent toAugust 31, 2019 and, to a lesser extent, an increase in space under lease in Griffin's other existing industrial/warehouse properties. The lower gain from property sales in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected the pretax gain of approximately$7.4 million from the sale of approximately 280 acres of undeveloped land inSimsbury, Connecticut (the "Simsbury Land Sale") in the 2019 nine month period. The higher depreciation and amortization expense in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected depreciation and amortization expense on the buildings that were added to Griffin's real estate portfolio subsequent toAugust 31, 2019 . The higher general and administrative expenses in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected expenses incurred in connection with Griffin's potential conversion to a REIT. The gain from an insurance recovery in the 2019 nine month period reflected the settlement of an insurance claim for storm damage to Griffin's nursery farm inQuincy, Florida (the "Florida Farm "). The higher interest expense in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected the higher amount of mortgage loans outstanding in the 2020 nine month period, as compared to the 2019 nine month period. The income tax benefit in the 2020 nine month period, as compared to the income tax expense in the 2019 nine month period, reflected the pretax loss of approximately$2.2 million in the 2020 nine month period, as compared to pretax income of approximately$6.9 million in the 2019 nine month period, partially offset by the inclusion in the 2019 nine month period of a$0.9 million income tax benefit that resulted from of a change inConnecticut tax law. 29 Table of Contents Results of Operations Impact of Covid-19 During and subsequent to the 2020 nine month period, the world has been impacted by the spread of the coronavirus (COVID-19), which has created significant economic uncertainty and volatility. The full extent to which the coronavirus pandemic impacts Griffin's business, operations, liquidity and financial results will depend on numerous evolving factors that Griffin is not able to predict at this time, including: the duration and scope of the pandemic; governmental, business and individuals' actions that have been and continue to be taken in response to the pandemic; the impact on economic activity from the pandemic and actions taken in response; the effect on Griffin's tenants and their businesses; the ability of tenants to make their rental payments; any closures of tenants' facilities; the ability of existing or prospective tenants to evaluate or enter into leases; and Griffin's ability to complete property sales. Any of these events could materially adversely impact Griffin's business, financial condition, results of operations or stock price. During the 2020 third quarter, COVID-19 did not have a material impact on Griffin's rent collections. Griffin collected 99.9% of rent during each month in the 2020 third quarter, inclusive of rent relief. Griffin entered into agreements with two tenants that granted rent relief aggregating approximately 0.5% of Griffin's anticipated total annual rental revenue for the fiscal year endingNovember 30, 2020 . The much larger of these two tenants is a subsidiary of a Fortune 500 company and the rent relief was granted as part of an early 5-year renewal of that tenant's lease that was executed subsequent toAugust 31, 2020 . Griffin did not receive any new requests for rent relief fromApril 30, 2020 through the end of the 2020 third quarter, and none of the requests received prior toApril 30, 2020 remain outstanding. Subsequent to the end of the 2020 third quarter, one tenant that leases approximately 59,000 square feet in one of Griffin's industrial/warehouse buildings inConnecticut requested rent relief under its lease that expires onDecember 31, 2020 . The tenant has paid all rent throughSeptember 30, 2020 , however, as of the date of this filing, Griffin has not determined if it will grant any rent relief in connection with such request. The lease for approximately 59,000 square feet will not be renewed, as Griffin previously entered into a lease agreement with the adjoining tenant in the same building, whereby the adjoining tenant has agreed to expand into that space afterDecember 31, 2020 .
See Part II, Item 1A "Risk Factors" for further discussion of the possible impact of the COVID-19 pandemic on Griffin's business.
2020 Third Quarter Compared to 2019 Third Quarter
Rental revenue increased to approximately$9.6 million in the 2020 third quarter from approximately$8.6 million in the 2019 third quarter, whereas revenue from property sales was approximately$0.3 million in both the 2020 third quarter and the 2019 third quarter, respectively. Accordingly, total revenue increased to approximately$9.9 million in the 2020 third quarter from approximately$8.9 million in the 2019 third quarter. Revenue from property sales of approximately$0.3 million in the 2020 third quarter was from the sale of several small parcels of residential land. Revenue from property sales of approximately$0.3 million in the 2019 third quarter was from the sale of two small parcels of residential land and the sale of air rights of certain land parcels in New England Tradeport, Griffin's industrial park inWindsor andEast Granby, Connecticut ("NE Tradeport"). The pretax gain on property sales (revenue from property sales less costs related to property sales) was approximately$0.2 million in the 2020 third quarter, as compared to approximately$0.1 million in the 2019 third quarter. Property sales occur periodically and year to year changes in revenue from property sales may not be indicative of any trends in Griffin's real estate business. The approximately$1.0 million increase in rental revenue in the 2020 third quarter, as compared to the 2019 third quarter, principally reflected rental revenue of approximately$0.6 million from the industrial/warehouse buildings that were added to Griffin's portfolio subsequent toAugust 31, 2019 , rental revenue of approximately$0.2 million from leasing first generation space in6975 Ambassador Drive ("6975 Ambassador"), an approximately 134,000 square foot building in theLehigh Valley ofPennsylvania , which was completed in the fiscal year endedNovember 30, 2018 ("fiscal 2018"), and an increase of approximately$0.2 million of rental revenue from tenant expense reimbursements. 30 Table of Contents Summaries of the total square footage and leased square footage of Griffin's industrial/warehouse buildings and Griffin's total real estate portfolio are as follows: Total Leased Square Square Percentage Industrial/Warehouse Properties Footage Footage Leased As of August 31, 2019 3,645,000 3,527,000 96.8% As of November 30, 2019 4,029,000 3,732,000 92.6% As of August 31, 2020 4,206,000 3,966,000 94.3% Total Portfolio As of August 31, 2019 4,078,000 3,830,000 93.9% As of November 30, 2019 4,462,000 4,034,000 90.4% As of August 31, 2020 4,639,000 4,246,000 91.5%
The increase in square footage subsequent toAugust 31, 2019 reflected the acquisition of three industrial/warehouse buildings aggregating approximately 277,000 square feet inOrlando, Florida and the completion of construction of two buildings aggregating approximately 283,000 square feet in theCharlotte, North Carolina area. Of the three industrial/warehouse buildings acquired inOrlando, Florida ,7466 Chancellor Drive ("7466 Chancellor"), an approximately 100,000 square foot building acquired in the three months endedNovember 30, 2019 (the "2019 fourth quarter") and3320 Maggie Boulevard ("3320 Maggie"), an approximately 108,000 square foot building acquired in the three months endedFebruary 29, 2020 (the "2020 first quarter"), were both fully leased when they were acquired, whereas170 Sunport Lane ("170 Sunport"), an approximately 68,000 square foot building acquired in the three months endedMay 31, 2020 (the "2020 second quarter"), was mostly vacant when acquired and remained as such throughAugust 31, 2020 . Construction of the two industrial/warehouse buildings in theCharlotte, North Carolina area,160 International Drive ("160 International") and180 International Drive ("180 International"), was completed in the 2019 fourth quarter. 160 International is approximately 147,000 square feet and was 71% leased as ofAugust 31, 2020 , whereas 180 International is approximately 136,000 square feet and was not leased as ofAugust 31, 2020 . Griffin did not enter into any new leases for vacant space in the 2020 third quarter but did enter into three lease extensions for approximately 83,000 square feet of industrial/warehouse space. Approximately 79,000 square feet of the 83,000 square feet renewed was in NE Tradeport. One of these leases was an early 10-year, 5-month extension of approximately 40,000 square feet leased as production and distribution space to an international quick service restaurant chain and the other was an early 2-year extension of approximately 39,000 square feet of distribution space leased to one of the largest e-commerce providers of home furnishings. The third renewal was for a 3-year extension of a smaller tenant in 170 Sunport. As ofAugust 31, 2020 , Griffin's thirty industrial/warehouse buildings comprised of approximately 2,052,000 square feet in the north submarket ofHartford, Connecticut , approximately 1,317,000 square feet in theLehigh Valley , approximately 560,000 square feet in theCharlotte, North Carolina area and approximately 277,000 square feet inOrlando, Florida represented 91% of Griffin's total real estate portfolio and were 94.3% leased. The percentage leased for stabilized 2 industrial/warehouse properties was 99.7% as ofAugust 31, 2020 , the same percentage as ofMay 31, 2020 . In Griffin's office/flex portfolio, one lease was extended for a term of 5 years and 1 month, in exchange for the tenant's reduction in premises from approximately 4,500 square feet to approximately 2,200 square feet. Griffin's twelve office/flex buildings, which aggregate approximately 433,000 square feet and represent 9% of Griffin's total real estate portfolio, were 64.7% leased as ofAugust 31, 2020 , as compared to 65.2% leased as ofMay 31, 2020 . Griffin's total real estate portfolio of approximately 4,639,000 square feet was 91.5% leased as ofAugust 31, 2020 (96.2% leased for stabilized properties), as compared to 91.6% leased as ofMay 31, 2020 (96.2% leased for stabilized properties). Operating expenses of rental properties increased to approximately$2.6 million in the 2020 third quarter from approximately$2.5 million in the 2019 third quarter. The increase in operating expenses of rental properties reflected expenses related to the properties that were added to Griffin's portfolio subsequent toAugust 31, 2019 . Operating expenses related to all other properties were essentially unchanged in the 2020 third quarter, as compared to the 2019 third quarter. 2 Stabilized properties reflect buildings that have reached 90% leased or have been in-service for at least one year since development completion or acquisition date, whichever is earlier. Stabilized properties exclude160 and 180 International Drive and170 Sunport Lane . 31 Table of Contents
Leasing NOI and Leasing NOI on a cash basis ("Cash Leasing NOI") 3 for Griffin's industrial/warehouse properties and for Griffin's total portfolio for the 2020 and 2019 third quarters were as follows:
Industrial/Warehouse Properties Total Portfolio 2020 2019 2020 2019 Third Third Third Third Quarter Quarter Quarter Quarter Rental revenue$ 7,994,000 $ 6,962,000 $ 9,575,000 $ 8,600,000
Operating expenses of rental properties (1,807,000) (1,650,000) (2,595,000) (2,483,000) Leasing NOI 6,187,000 5,312,000 6,980,000 6,117,000 Noncash rental revenue including straight-line rents (690,000)
(283,000) (746,000) (321,000) Cash Leasing NOI$ 5,497,000 $ 5,029,000 $ 6,234,000 $ 5,796,000
The increases in Leasing NOI and Cash Leasing NOI principally reflected the increases in rental revenue as a result of more space under lease in the 2020 third quarter, as compared to the 2019 third quarter, due mostly to the industrial/warehouse buildings added to Griffin's portfolio subsequent toAugust 31, 2019 , and to a lesser extent, from more space under lease and increases in rental rates in Griffin's other industrial/warehouse properties in the 2020 third quarter, as compared to the 2019 third quarter. See below for a reconciliation of Leasing NOI and Cash Leasing NOI to net income/(loss) reported in the Consolidated Financial Statements. The increase in depreciation and amortization expense to approximately$3.6 million in the 2020 third quarter, from approximately$2.9 million in the 2019 third quarter, principally reflected depreciation and amortization expense on the industrial/warehouse properties added to Griffin's portfolio subsequent toAugust 31, 2019 . The increase in general and administrative expenses to approximately$2.3 million in the 2020 third quarter, from approximately$1.7 million in the 2019 third quarter, principally reflected: (a) an approximately$0.2 million increase in expense related to Griffin's non-qualified deferred compensation plan; (b) an approximately$0.2 million increase in legal and consulting fees; (c) an increase of approximately$0.1 million in stock option expense; and (d) an increase of approximately$0.1 million in all other general and administrative expenses. The expense increase related to Griffin's non-qualified deferred compensation plan reflected the effect on participant balances of higher stock market performance in the 2020 third quarter, as compared to the 2019 third quarter, which resulted in a greater increase in the non-qualified deferred compensation plan liability in the 2020 third quarter than the 2019 third quarter. The increase in legal and consulting fees principally reflected expenses related to Griffin's efforts to pursue a potential conversion to a REIT. The increase in stock option expenses principally reflected the options granted toGordon DuGan under the Chairmanship and Advisory Agreement (the "Advisory Agreement") uponMr. DuGan's appointment as Chairman of the Board
of Directors onMarch 3, 2020 .
The increase in interest expense to approximately$1.8 million in the 2020 third quarter, from approximately$1.5 million in the 2019 third quarter, principally reflected approximately$0.2 million as a result of a higher amount of debt outstanding in the 2020 third quarter, as compared to the 2019 third quarter, and approximately$0.1 million from lower capitalized interest in the 2020 third quarter, as compared to the 2019 third quarter. The higher amount of debt in the 2020 third quarter, as compared to the 2019 third quarter, reflected borrowings to finance a portion of the cost to purchase the industrial/warehouse buildings inOrlando, Florida that were acquired subsequent toAugust 31, 2019 . The lower amount of capitalized interest in the 2020 third quarter, as compared to the 2019 third quarter, reflected interest capitalized in the 2019 third quarter related to the construction of 160 International and 180 International, which were completed in the 2019 fourth quarter. The expense for the change in the fair value of financial instruments of approximately$0.4 million in the 2020 third quarter reflected the changes in fair value of the Warrant liability and the CVR liability fromAugust 24, 2020 , the date they were issued, through the end of the 2020 third quarter. 3 Cash Leasing NOI, which Griffin defines as rental revenue less operating expenses of rental properties and noncash rental revenue including straight-line rents, and is not a financial measure in conformity withU.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 withU.S. GAAP. 32 Table of Contents Investment income was minimal in the 2020 third quarter, as compared to approximately$0.1 million in the 2019 third quarter. In 2019 third quarter, Griffin had approximately$9.0 million of short-term investments (repurchase agreements withWebster Bank, N.A. ("Webster Bank ") that were collateralized with securities issued by the United States Government or its sponsored agencies). Griffin did not have any short-term investment in the 2020 third quarter. The decrease in the income tax benefit to approximately$0.3 million in the 2020 third quarter, from approximately$0.8 million in the 2019 third quarter, principally reflected the inclusion in the 2019 third quarter of an approximately$0.9 million tax benefit from a reduction to the valuation allowance onConnecticut state deferred tax assets as a result of a change inConnecticut's state tax law whereby the capital based tax is being phased out, partially offset by the effect of a tax benefit on the 2020 third quarter pretax loss of approximately$0.9 million , versus a tax expense on the 2019 third quarter pretax income of approximately$0.2 million .
2020 Nine Month Period Compared to 2019 Nine Month Period
Rental revenue increased to approximately$27.7 million in the 2020 nine month period from approximately$25.5 million in the 2019 nine month period, whereas revenue from property sales was approximately$1.1 million in the 2020 nine month period, as compared to approximately$9.8 million in the 2019 nine month period. Accordingly, total revenue decreased to approximately$28.8 million in the 2020 nine month period from approximately$35.3 million in the 2019 nine month period.
Revenue from property sales of approximately$1.1 million in the 2020 nine month period reflected approximately$0.8 million from the sale of approximately seven acres of undeveloped land inWindsor, Connecticut (the "2020 Windsor Land Sale") that was completed in the 2020 first quarter, approximately$0.1 million from the sale, to a local utility company, of an easement (the "Florida Easement Sale") on a small area of theFlorida Farm and approximately$0.3 million from the sale of several small residential land parcels inConnecticut in the 2020 third quarter. These transactions resulted in an aggregate pretax gain of approximately$0.8 million in the 2020 nine month period. Revenue from property sales of approximately$9.8 million in the 2019 nine month period principally reflected: (a) approximately$7.7 million from the Simsbury Land Sale; (b) a total of approximately$1.6 million from the sales of approximately 116 acres of undeveloped land inEast Windsor, Connecticut (the "EastWindsor Land ") and the EastWindsor Land's development rights in two separate transactions; and (c) approximately$0.5 million from several smaller land sales. These property sales resulted in an aggregate pretax gain of approximately$7.8 million in the 2019 nine month period. 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.
The approximately$2.2 million increase in rental revenue in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected rental revenue of approximately$1.3 million from the industrial/warehouse buildings that were added to Griffin's portfolio subsequent toAugust 31, 2019 , rental revenue of approximately$0.5 million from leasing first generation space in 6975 Ambassador, an increase of approximately$0.3 million from tenant expense reimbursements and other rental revenue and approximately$0.1 million from leasing other previously vacant space, net of rental revenue lost from leases that expired and were not renewed. The approximately$0.4 million increase in operating expenses of rental properties in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected operating expenses of the industrial/warehouse buildings that were added to Griffin's portfolio subsequent toAugust 31, 2019 . 33 Table of Contents Leasing NOI and Cash Leasing NOI for Griffin's industrial/warehouse properties and for Griffin's total portfolio for the 2020 and 2019 nine month periods
were as follows: Industrial/Warehouse Properties Total Portfolio 2020 2019 2020 2019 Nine Month Nine Month Nine Month Nine Month Period Period Period Period
Rental revenue$ 23,036,000 $ 20,809,000 $ 27,703,000 $ 25,458,000 Operating expenses of rental properties (5,624,000) (5,116,000) (7,921,000) (7,567,000) Leasing NOI 17,412,000 15,693,000 19,782,000 17,891,000 Noncash rental revenue including straight-line rents (1,397,000) (1,242,000) (1,798,000) (1,329,000) Cash Leasing NOI$ 16,015,000
The increases in Leasing NOI and Cash Leasing NOI principally reflected the increases in rental revenue as a result of more space under lease in the 2020 nine month period, as compared to the 2019 nine month period, due mostly to the industrial/warehouse buildings added to Griffin's portfolio subsequent toAugust 31, 2019 , and to a lesser extent, from more space under lease and increases in rental rates in Griffin's other industrial/warehouse properties. See below for a reconciliation of Leasing NOI and Cash Leasing NOI to net income/(loss) reported in the Consolidated Financial Statements. The increase in depreciation and amortization expense to approximately$10.2 million in the 2020 nine month period, from approximately$8.8 million in the 2019 nine month period, principally reflected depreciation and amortization expense related to the industrial/warehouse properties that were added to Griffin's portfolio subsequent toAugust 31, 2019 . The increase in general and administrative expenses to approximately$6.8 million in the 2020 nine month period, from approximately$5.6 million in the 2019 nine month period, principally reflected increases in legal and consulting fees, stock option expenses and all other general and administrative expenses of approximately$0.8 million ,$0.2 million and$0.2 million , respectively. The increase in legal and consulting fees principally reflected expenses related to Griffin's efforts to pursue a potential conversion to a REIT. The increase in stock option expenses principally reflected the options granted toMr. DuGan under the Advisory Agreement upon his appointment as Chairman of the Board of Directors onMarch 3, 2020 . Operating income in the 2019 nine month period also included a gain on insurance recovery of approximately$0.1 million , which related solely to proceeds, net of expenses, from the settlement of the insurance claim for storm damage to theFlorida Farm .
The increase in interest expense to approximately$5.5 million in the 2020 nine month period, from approximately$4.8 million in the 2019 nine month period, reflected approximately$0.5 million from the higher amount of debt outstanding in the 2020 nine month period and approximately$0.2 million from a lower amount of capitalized interest in the 2020 nine month period, as compared to the 2019 nine month period. The higher amount of debt in the 2020 nine month period, as compared to the 2019 nine month period, reflected borrowings to finance a portion of the cost to purchase the industrial/warehouse buildings inOrlando, Florida that were acquired subsequent toAugust 31, 2019 . The lower amount of capitalized interest in the 2020 nine month period, as compared to the 2019 nine month period, reflected interest capitalized in the 2019 nine month period related to the construction of 160 International and 180 International, which were completed in the 2019 fourth quarter. The expense for the change in the fair value of financial instruments of approximately$0.4 million in the 2020 nine month period reflected the change in fair value of the Warrant liability and the CVR liability fromAugust 24, 2020 , the date they were issued, through the end of the 2020 third quarter. Investment income was minimal in the 2020 nine month period, as compared to approximately$0.2 million in the 2019 nine month period reflecting having fewer short-term investments in the 2020 nine month period, as compared to the 2019 nine month period.
The income tax benefit of approximately
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approximately$2.2 million in the 2020 nine month period versus pretax income of approximately$6.9 million in the 2019 nine month period, partially offset by the inclusion in the 2019 nine month period of an approximately$0.9 million income tax benefit from a reduction to the valuation allowance onConnecticut state deferred tax assets as a result of a change inConnecticut tax law whereby the capital based tax is being phased out.
Below is a reconciliation of Leasing NOI and Cash Leasing NOI to operating income and net income as reported in the Consolidated Financial Statements:
2020 2019 2020 2019 Third Third Nine Month Nine Month Quarter Quarter Period Period Net (loss) income$ (641,000) $ 1,017,000 $ (1,654,000) $ 6,250,000 Income tax benefit (provision) 291,000 814,000 562,000 (689,000) Pretax (loss) income (932,000) 203,000 (2,216,000) 6,939,000 Exclude: Investment income (3,000) (61,000) (31,000) (242,000)
Change in fair value of financial instruments 414,000
- 414,000 - Interest expense 1,776,000 1,508,000 5,467,000 4,776,000 Operating income 1,255,000 1,650,000 3,634,000 11,473,000 Exclude: Gain on insurance recovery - - - (126,000) Costs related to property sales 129,000 176,000 314,000 1,999,000 Depreciation and amortization expense 3,594,000 2,925,000 10,188,000 8,806,000 General and administrative expenses 2,290,000 1,668,000 6,785,000 5,567,000 Revenue from property sales (288,000) (302,000) (1,139,000) (9,828,000) Leasing NOI 6,980,000 6,117,000 19,782,000 17,891,000 Noncash rental revenue including straight-line rents (746,000) (321,000) (1,798,000) (1,329,000) Cash Leasing NOI$ 6,234,000 $ 5,796,000 $ 17,984,000 $ 16,562,000 Leasing NOI$ 6,980,000 $ 6,117,000 $ 19,782,000 $ 17,891,000 Exclude: Rental revenue from non-industrial/warehouse properties (1,581,000) (1,638,000) (4,667,000) (4,649,000) Operating expenses of non-industrial/warehouse properties 788,000 833,000 2,297,000 2,451,000 Leasing NOI of industrial/warehouse properties 6,187,000 5,312,000 17,412,000 15,693,000 Noncash rental revenue including straight-line rents of industrial/warehouse properties (690,000)
(283,000) (1,397,000) (1,242,000)
Cash Leasing NOI for industrial/warehouse properties
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$4.3 million in the 2020 nine month period, as compared to approximately$6.7 million in the 2019 nine month period. The approximately$2.4 million decrease in net cash provided by operating activities in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected the approximately$2.0 million reduction in cash as a result of changes in assets and liabilities. The higher cash usage from changes in assets and liabilities in the 2020 nine month period, as compared to the 2019 nine month period, principally reflected the decrease in other liabilities in the 2020 nine month period, as compared to an increase in the 2019 nine month period, driven by a payment of approximately$1.9 million under Griffin's non-qualified deferred compensation plan in the 2020 first quarter, and timing of changes in other assets and accounts payable and accrued liabilities. 35 Table of Contents Net cash used in investing activities was approximately$22.9 million in the 2020 nine month period, as compared to approximately$7.0 million in the 2019 nine month period. The net cash used in investing activities in the 2020 nine month period reflected: (a) cash payments totaling approximately$13.7 million for the acquisitions of 3320 Maggie and 170 Sunport; (b) cash payments of approximately$10.2 million for additions to real estate assets; and (c) cash payments of approximately$1.2 million for deferred leasing costs and other uses; partially offset by (d) cash proceeds of approximately$1.1 million from property sales; and (e) cash proceeds of approximately$1.0 million from a decrease in short-term investments. The acquisitions of 3320 Maggie and 170 Sunport were each made utilizing a reverse like-kind exchange structure (a "Reverse 1031 Like-Kind Exchange") under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, 3320 Maggie and 170 Sunport were held by a qualified intermediary upon being acquired by Griffin. As Griffin did not complete any of the sale transactions contemplated under the Reverse 1031 Like-Kind Exchanges, the legal titles of 3320 Maggie and 170 Sunport were transferred from the qualified intermediary to Griffin prior toAugust 31, 2020 . As Griffin retained essentially all of the legal and economic benefits and obligations related to 3320 Maggie and 170 Sunport from the date they were acquired, 3320 Maggie and 170 Sunport were included in Griffin's consolidated financial statements as consolidated variable interest entities from the dates they were acquired.
The approximately
Tenant and building improvements related to leasing
Cash payments in the 2020 nine month period for tenant and building improvements related to new leases signed in the latter part of fiscal 2019 and the 2020 nine month period, with approximately$3.1 million of tenant and building improvements in the 2020 nine month period related to leases of first generation space. Cash payments for new building construction (including site work) in the 2020 nine month period reflected final payments of the construction costs for 160 International and 180 International, which were completed in the 2019 fourth quarter at a total cost (excluding tenant work) of approximately$7.7 million and$7.6 million , respectively. Cash payments in the 2020 nine month period for development costs and infrastructure improvements principally reflected planning and design costs related to: (i) the planned development of three industrial/warehouse buildings aggregating approximately 520,000 square feet on an approximately 44 acre parcel of undeveloped land inCharlotte, North Carolina (the "Charlotte Land") that was purchased in fiscal 2019; and (ii) the planned development of an approximately 103,000 square foot industrial/warehouse building on an approximately 14 acre parcel of undeveloped land ("Chapmans Road ") in theLehigh Valley ofPennsylvania that was purchased in fiscal 2019. Subsequent to the end of the 2020 third quarter, Griffin started construction on the industrial/warehouse building onChapmans Road , with an expected completion bySeptember 30, 2021 . Cash payments of approximately$1.2 million in the 2020 nine month period for deferred leasing costs and other uses principally reflected lease commissions paid to real estate brokers for new leases. The approximately$1.1 million of cash proceeds from property sales in the 2020 nine month period reflected the 2020 Windsor Land Sale, the Florida Easement Sale and several small residential land sales. The$1.0 million of cash from the decrease in short-term investments in the 2020 nine month period reflected the maturity of Griffin's repurchase agreement that was collateralized with securities issued by the United States Government or its sponsored agencies, withWebster Bank .
The net cash used in investing activities of approximately$7.0 million in the 2019 nine month period reflected: (a) cash payments of approximately$21.8 million for additions to real estate assets; and (b) cash payments of approximately$0.5 million for deferred leasing costs and other uses; partially offset by (c) net cash proceeds of approximately$9.5 million from property sales, partially offset by approximately$2.2 million of proceeds from property sales deposited into escrow for the purchase of a replacement property for a like-kind exchange (a "1031 Like-Kind Exchange") under Section 1031 of the Code for income tax purposes; and (d) approximately$8.0 million of cash from a decrease in short-term investments. 36 Table of Contents
The approximately
New building construction (including site work)
$ 5.7 million
Tenant and building improvements related to leasing
Cash payments for new building construction (including site work) in the 2019 nine month period included approximately$12.7 million for construction of 160 International and 180 International and a total of approximately$0.4 million for final payments for the construction of220 Tradeport Drive ("220 Tradeport"), an approximately 234,000 square foot industrial/warehouse building in NE Tradeport, and6975 Ambassador Drive , which were both completed in the three months endedNovember 30, 2018 (the "2018 fourth quarter").
Cash payments of
Cash payments of approximately$2.5 million for tenant and building improvements in the 2019 nine month period were related to leases signed in the latter part of fiscal 2018 and the 2019 nine month period. Cash payments of approximately$0.5 million for deferred leasing costs and other uses in the 2019 nine month period reflected approximately$0.6 million of cash payments for lease commissions and other costs related to new and renewed leases partially offset by approximately$0.1 million of cash received from the insurance settlement for storm damage to theFlorida Farm . The approximately$8.0 million of cash from short-term investments in the 2019 nine month period reflected the net reduction in Griffin's investment in repurchase agreements withWebster Bank from$17.0 million as ofNovember 30, 2018 to approximately$9.0 million as ofAugust 31, 2019 . The net cash proceeds of approximately$9.5 million from property sales in the 2019 nine month period principally reflected the proceeds from the Simsbury Land Sale and the sales of the EastWindsor Land and the EastWindsor Land development rights (see "Results of Operations - 2020 Nine Month Period Compared to 2019 Nine Month Period" above). The approximately$7.6 million of net cash proceeds, after transaction costs, from the Simsbury Land Sale were deposited into escrow at closing for the purchase of a replacement property under a 1031 Like-Kind Exchange. Approximately$5.4 million of the net cash proceeds from the Simsbury Land Sale that were deposited in escrow were subsequently used in the purchase of the Charlotte Land, leaving approximately$2.2 million remaining in escrow as ofAugust 31, 2019 , which were used to acquire the undeveloped land in theLehigh Valley in the 2019 fourth quarter. Net cash provided by financing activities was approximately$40.5 million in the 2020 nine month period, as compared to net cash used in financing activities of approximately$3.8 million in the 2019 nine month period. The net cash provided by financing activities in the 2020 nine month period reflected: (a) approximately$27.3 million from the sale of common stock, par value$0.01 per share ("Common Stock"); (b)$26.6 million of proceeds from mortgage loans; (c) approximately$2.0 million from the sale of the Warrant (as defined below); and (d) approximately$0.2 million of proceeds from the exercise of stock options; partially offset by (e) approximately$6.6 million of principal payments on mortgage loans; (f) approximately$5.9 million for a net repayment under Griffin's line of credit for acquisitions (the "Acquisition Credit Line") withWebster Bank ; (g) 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 nine month period; and (h) approximately$0.5 million of payments for debt issuance costs.
The total proceeds from the sale of Common Stock reflected (a) approximately
OnAugust 24, 2020 , pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement") by and betweenGriffin and CM Change Industrial LP ("Cambiar"), an investment entity managed byCambiar Management LLC , Griffin: (i) sold 504,590 shares of its Common Stock; and (ii) issued a warrant (the "Warrant") to Cambiar to acquire 504,590 additional shares of Common Stock (subject to adjustment as set forth therein) at an exercise price of 37
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$60.00 per share (the "Exercise Price"). Cambiar paid$50.00 per share of Common Stock and$4.00 per Warrant Share for the Warrant for total proceeds of approximately$27.2 million , before expenses of approximately$0.4 million . Pursuant to the Securities Purchase Agreement, for so long as Cambiar owns shares of Common Stock constituting more than 4.9% of Griffin's Common Stock issued and outstanding, Cambiar will have the right to designate one member (the "Purchaser Nominee") to Griffin's Board of Directors (subject to certain terms and conditions set forth therein) and such Purchaser Nominee shall be nominated by theBoard for re-election as a director at each subsequent meeting of the Company's stockholders. Until the one-year anniversary of the date of the Securities Purchase Agreement, Cambiar may not transfer any of the shares of Common Stock without Griffin's prior written consent. For additional details regarding this transaction, see Note 2 to the Consolidated Financial Statements. OnAugust 24, 2020 , Griffin and Cambiar also entered into a Contingent Value Rights Agreement (the "Contingent Value Rights Agreement"), pursuant to which Cambiar is entitled to a one-time cash payment in the event that Griffin's volume weighted average share price per share of Common Stock for the thirty trading day period ending at the date of the one-year anniversary of the date of the Securities Purchase Agreement (the "30-Day VWAP") is less than the purchase price paid by Cambiar in respect of each Common Share (the "Common Share Purchase Price"), subject to adjustment as described therein. If the 30-Day VWAP is less than the Common Shares Purchase Price, Cambiar is entitled to a one-time cash payment per CVR calculated on a linear basis relative to the difference between the 30-Day VWAP and the Common Shares Purchase Price. Such payment will in no event exceed an amount equal to 10% of the Common Share Purchase Price. OnMarch 3, 2020 ,Mr. DuGan was appointed as Chairman of the Board of Directors.Mr. DuGan and Griffin entered into the Advisory Agreement wherebyMr. 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 toMr. DuGan for providing such Advisory Services,Mr. DuGan received: (i) a non-qualified stock option to acquire 48,000 shares of Griffin Common Stock at an exercise price of$45.98 per share under theGriffin 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 theGriffin Industrial Realty, Inc. andGriffin Industrial, LLC 2020 Incentive Award Plan (the "2020 Incentive Award Plan"). OnMarch 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$2.5 million , in accordance with the Advisory Agreement and pursuant to the Stock Purchase Agreement, dated as ofMarch 5, 2020 , betweenMr. DuGan and Griffin. Proceeds from mortgage loans in the 2020 nine month period reflected: (a) a$6.5 million nonrecourse mortgage loan (the "2019 Webster Mortgage") withWebster Bank : (b) a$15.0 million nonrecourse mortgage loan (the "2020 State Farm Mortgage") withState Farm Life Insurance Company ("State Farm "); and (c) a$5.1 million nonrecourse mortgage loan (the "2020 Webster Mortgage") withWebster Bank . OnDecember 20, 2019 , two wholly owned subsidiaries of Griffin entered into the 2019 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 2019 Webster Mortgage is a floating rate of the one-month LIBOR rate plus 1.75%. At the time the 2019 Webster Mortgage closed, Griffin entered into an interest rate swap agreement withWebster Bank that effectively fixes the interest rate on the 2019 Webster Mortgage at 3.60% for the entire loan term. Approximately$5.9 million of the proceeds from the 2019 Webster Mortgage were used to repayWebster Bank for the borrowing under Griffin's Acquisition Credit Line that was used to finance a portion of the purchase price of 7466 Chancellor (see below). OnJanuary 23, 2020 , two wholly owned subsidiaries of Griffin entered into the 2020 State Farm Mortgage, which is collateralized by 6975 Ambassador and871 Nestle Way , two industrial/warehouse buildings in theLehigh Valley ofPennsylvania aggregating approximately 254,000 square feet. The 2020State 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 on871 Nestle Way that was scheduled to mature onJanuary 27, 2020 . OnJune 30, 2020 , a wholly owned subsidiary of Griffin entered into the 2020 Webster Mortgage, which is collateralized by 3320 Maggie, which was acquired onFebruary 18, 2020 . The 2020 Webster Mortgage has a ten-year term with monthly principal payments based on a twenty-five-year amortization schedule. The interest rate for the 38 Table of Contents 2020 Webster Mortgage is a floating rate of the one month LIBOR rate plus 2.56%. At the time the 2020 Webster Mortgage closed, Griffin entered into an interest rate swap agreement withWebster Bank that effectively fixes the interest rate of the 2020 Webster Mortgage at 3.50% for the entire loan term.$4.1 million of the proceeds from the 2020 Webster Mortgage were used to repayWebster Bank for the borrowing under Griffin's Acquisition Credit Line that was used to finance a portion of the purchase price of 3320 Maggie (see below). The approximately$6.7 million of principal payments on mortgage loans in the 2020 nine month period reflected the repayment of the mortgage loan on871 Nestle Way and approximately$3.5 million of recurring principal payments on Griffin's nonrecourse mortgage loans. The approximately$5.9 million net repayment on revolving lines of credit in the 2020 nine month period reflected the repayment of the amount outstanding on the Acquisition Credit Line as ofNovember 30, 2019 that had been drawn to finance a portion of the purchase price of 7466 Chancellor.$4.1 million borrowed on the Acquisition Credit Line in the 2020 first quarter to finance a portion of the purchase price of 3320 Maggie was repaid in the 2020 third quarter with the proceeds from the 2020 Webster Mortgage. The net cash used in financing activities in the 2019 nine month period reflected: (a) approximately$2.9 million of recurring principal payments on mortgage loans; and (b) a payment of approximately$2.3 million for a dividend on Griffin's Common Stock that was declared in the 2018 fourth quarter and paid in the 2019 nine month period; partially offset by (c) approximately$1.3 million of proceeds from the construction to permanent mortgage loan withState Farm ("the 2019 State Farm Loan") that provided a significant portion of the funds for the construction of 220 Tradeport and (d) approximately$0.1 million of cash received from the exercise of stock options. OnAugust 1, 2019 , Griffin converted the 2019 State Farm Loan from a construction loan to a$14.1 million nonrecourse permanent mortgage loan that matures onApril 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. OnApril 11, 2018 , Griffin filed a universal shelf registration statement on Form S-3 (the "Universal Shelf") with theSEC . 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 onApril 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. OnMay 10, 2018 , Griffin filed a prospectus supplement with theSEC 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") throughRobert 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 theSEC for the fiscal year endedNovember 30, 2019 . OnDecember 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 inEast Granby andWindsor, Connecticut for use as a solar farm. The purchase price has a range from a minimum of$6.0 million to a maximum of$7.95 million based upon the projected amount of electricity to be generated from the site. The buyer may extend the option period for an additional two years upon payment of additional option fees. The land subject to theEast 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 theEast Granby /Windsor Option Agreement is subject to several significant contingencies, including 39
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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
OnFebruary 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, inSimsbury, Connecticut . For a minimal fee, the Meadowood Option Agreement grants theConservation 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 theConservation 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 and theConservation 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.
In the 2020 nine month period, Griffin's Board of Directors approved a plan for Griffin to pursue conversion to a REIT for federal income tax purposes. At Griffin's 2020 Annual Meeting of Stockholders, amendments to Griffin's bylaws and Griffin's reincorporation fromDelaware toMaryland were approved by Griffin's stockholders, essentially enabling Griffin to continue to pursue its conversion to a REIT. If successful in the conversion process, Griffin may elect REIT status for federal income tax purposes commencing with the taxable year beginningJanuary 1, 2021 . In connection with the REIT conversion, Griffin would be required 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 throughDecember 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. Griffin continues to evaluate the appropriate timing for conversion to a REIT. OnJune 24, 2020 , Griffin entered into a Purchase and Sale Agreement (the "First Allentown Purchase Agreement") to acquire, for a purchase price of$3.1 million , an approximately 18 acre parcel of undeveloped land in theLehigh Valley . OnAugust 27, 2020 , Griffin entered into a Purchase and Sale Agreement (the "Second Allentown Purchase Agreement") to acquire, for a purchase price of$1.1 million , approximately 5 acres of undeveloped land that abuts the 18 acre parcel to be acquired under the First Allentown Purchase Agreement. Closings on the land acquisitions contemplated under the First Allentown Purchase Agreement and the Second Allentown Purchase Agreement are subject to significant contingencies, including Griffin obtaining all governmental approvals for its planned development of an approximately 210,000 square foot industrial/warehouse building on the land parcels that would be acquired. There is no guarantee that the land acquisitions as contemplated under the First Allentown Purchase Agreement and the Second Allentown Purchase Agreement will be completed under their current terms, or at all. OnJuly 17, 2020 , Griffin entered into a Purchase and Sale Agreement (the "Orlando Purchase Agreement") to acquire, for a purchase price of$5.3 million , an approximately 14 acre parcel of undeveloped land inOrlando, Florida . Closing on the land acquisition contemplated under the Orlando Purchase Agreement is subject to significant contingencies, including Griffin obtaining all governmental approvals for its planned development of two industrial/warehouse buildings totaling approximately 195,000 square feet industrial/warehouse building on the land parcel that would be acquired. There is no guarantee that the land acquisition as contemplated under the Orlando Purchase Agreement will be completed under its current terms, or at all. OnSeptember 21, 2020 , Griffin entered into an Agreement to Purchase and Sell 5 and 7Waterside Crossing (the "Waterside Sale Agreement"), to sell, for a purchase price of$6.25 million , its two multi-story office buildings in Griffin Center aggregating approximately 161,000 square feet. Completion of this transaction is subject to the buyer's satisfactory completion of due diligence. If Griffin were to complete the sale of 5 and 7Waterside Crossing based on the current terms of the Waterside Sale Agreement, Griffin would incur a loss on sale of approximately$1.7 million . There is no guarantee that the sale as contemplated under the Waterside Sale Agreement will be completed under its
current terms, or at all. 40 Table of Contents OnSeptember 28, 2020 , Griffin entered into a Purchase and Sale Agreement (the "55 GRS Agreement") to sell, for a purchase price of$1.4 million , its approximately 40,000 square foot office/flex building at55 Griffin Road South in Griffin Center South. Completion of this transaction is subject to the buyer's satisfactory completion of due diligence. If Griffin were to complete the sale of55 Griffin Road South based on the current terms of the 55 GRS Agreement, such transaction would result in a pretax gain of approximately$1.0 million . There is no guarantee that the sale as contemplated under the 55 GRS Agreement will be completed under its current terms, or at all. In the near-term, Griffin plans to continue to invest in its real estate business, including 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, construction of additional buildings on its undeveloped land, expenditures for tenant improvements as new leases and lease renewals are signed, and infrastructure improvements required for future development of its real estate holdings. 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 ofAugust 31, 2020 , Griffin had cash and cash equivalents of approximately$27.8 million . Management believes that its cash and cash equivalents as ofAugust 31, 2020 , cash generated from leasing operations and property sales (if any), borrowing capacity under its$19.5 million credit line withWebster Bank and the$15.0 million Acquisition Credit Line will be sufficient to meet its working capital requirements, to make other investments in real estate assets, to pay obligations, if any, under the Contingent Value Rights Agreement 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 and Section 21E of the Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to the possibility of property 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; potential vacancies in Griffin's buildings; the acquisition and development of additional properties and/or undeveloped land parcels; construction of additional buildings, completion dates of buildings under construction, 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 and proceeds from the Securities Purchase Agreement; 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 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 Part I, Item 1A "Risk Factors" in Griffin's Annual Report on Form 10-K for the fiscal year endedNovember 30, 2019 filed with theSEC onFebruary 13, 2020 and under the heading Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. 41 Table of Contents
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