INDUS REALTY TRUST, INC. - Quarter Report: 2014 May (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED May 31, 2014

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM              TO             

 

Commission File No. 1-12879

 

GRIFFIN LAND & NURSERIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s Telephone Number including Area Code   (212) 218-7910

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

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

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Number of shares of Common Stock outstanding at July 3, 2014:  5,149,574

 

 

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GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Balance Sheets (unaudited) May 31, 2014 and November 30, 2013	3
		Consolidated Statements of Operations (unaudited) Three Months and Six Months Ended May 31, 2014 and June 1, 2013	4
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months and Six Months Ended May 31, 2014 and June 1, 2013	5
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) Six Months Ended May 31, 2014 and June 1, 2013	6
		Consolidated Statements of Cash Flows (unaudited) Six Months Ended May 31, 2014 and June 1, 2013	7
		Notes to Consolidated Financial Statements (unaudited)	8-24
	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25-32
	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	32-33
	ITEM 4	Controls and Procedures	33
PART II -		OTHER INFORMATION
	ITEM 1	Not Applicable
	ITEM 1A	Risk Factors	34
	ITEMS 2-5	Not Applicable
	ITEM 6	Exhibits	34-37
		SIGNATURES	38

 

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PART I                                                            FINANCIAL INFORMATION

 

ITEM 1.                                                         FINANCIAL STATEMENTS

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

		May 31, 2014			November 30, 2013
ASSETS
Real estate assets at cost, net of accumulated depreciation		$	140,540		$	131,190
Real estate held for sale		1,104			1,104
Cash and cash equivalents		13,067			14,179
Proceeds held in escrow		—			8,860
Deferred income taxes		6,927			5,975
Note receivable		4,151			—
Available for sale securities - Investment in Centaur Media plc		2,142			2,208
Property and equipment, net of accumulated depreciation		256			1,950
Other assets		12,320			13,634
Assets of discontinued operation		672			5,627
Total assets		$	181,179		$	184,727
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgage loans		$	65,639		$	66,708
Deferred revenue		7,472			8,467
Accounts payable and accrued liabilities		4,620			3,011
Dividend payable		—			1,029
Other liabilities		6,477			6,629
Liabilities of discontinued operation		94			768
Total liabilities		84,302			86,612
Commitments and Contingencies (Note 11)
Stockholders’ Equity
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,537,895 and 5,534,687 shares issued, respectively, and 5,149,574 and 5,146,366 shares outstanding, respectively		55			55
Additional paid-in capital		107,766			107,603
Retained earnings		3,167			4,372
Accumulated other comprehensive loss, net of tax		(645		)	(449		)
Treasury stock, at cost, 388,321 shares		(13,466		)	(13,466		)
Total stockholders’ equity		96,877			98,115
Total liabilities and stockholders’ equity		$	181,179		$	184,727

 

 See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

		For the Three Months Ended,						For the Six Months Ended,
		May 31, 2014			June 1, 2013			May 31, 2014			June 1, 2013
Rental revenue		$	5,064		$	4,798		$	10,030		$	9,539
Revenue from property sales		277			1,590			370			2,474
Total revenue		5,341			6,388			10,400			12,013
Operating expenses of rental properties		1,747			1,723			4,198			3,787
Depreciation and amortization expense		1,638			1,727			3,279			3,320
Costs related to property sales		70			222			94			365
General and administrative expenses		1,696			2,135			3,880			4,340
Total expenses		5,151			5,807			11,451			11,812
Operating income (loss)		190			581			(1,051		)	201
Interest expense		(774		)	(965		)	(1,678		)	(1,943		)
Investment income		141			51			188			51
Gain on sale of common stock in Centaur Media plc		—			—			318			504
Loss on debt extinguishment		—			(286		)	—			(286		)
Gain on sale of investment in Shemin Nurseries Holding Corp.		—			—			—			3,397
(Loss) income before income tax benefit (provision)		(443		)	(619		)	(2,223		)	1,924
Income tax benefit (provision)		218			225			900			(634		)
(Loss) income from continuing operations		(225		)	(394		)	(1,323		)	1,290
Discontinued operations, net of tax:
Gain (loss) from landscape nursery business, including the gain (loss) on sale of assets of $3 and ($28), net of tax, in the 2014 three month period and 2014 six month period, respectively		390			282			118			(92		)
Net income (loss)		$	165		$	(112	)	$	(1,205	)	$	1,198
Basic net income (loss) per common share:
(Loss) income from continuing operations		$	(0.04	)	$	(0.08	)	$	(0.26	)	$	0.25
Income (loss) from discontinued operations		0.07			0.06			0.03			(0.02		)
Basic net income (loss) per common share		$	0.03		$	(0.02	)	$	(0.23	)	$	0.23
Diluted net income (loss) per common share:
(Loss) income from continuing operations		$	(0.04	)	$	(0.08	)	$	(0.26	)	$	0.25
Income (loss) from discontinued operations		0.07			0.06			0.03			(0.02		)
Diluted net income (loss) per common share		$	0.03		$	(0.02	)	$	(0.23	)	$	0.23

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

		For the Three Months Ended,						For the Six Months Ended,
		May 31, 2014			June 1, 2013			May 31, 2014			June 1, 2013
Net income (loss)		$	165		$	(112	)	$	(1,205	)	$	1,198
Other comprehensive loss, net of tax:
Reclassifications included in net income (loss)		(144		)	120			(191		)	(102		)
(Decrease) increase in fair value of Centaur Media plc		(212		)	(633		)	327			(672		)
Unrealized (loss) gain on cash flow hedges		(221		)	184			(332		)	267
Total other comprehensive loss, net of tax		(577		)	(329		)	(196		)	(507		)
Total comprehensive (loss) income		$	(412	)	$	(441	)	$	(1,401	)	$	691

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended May 31, 2014 and June 1, 2013

(dollars in thousands)

(unaudited)

 

		Shares of Common Stock Issued		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 1, 2012		5,527,911		$	55		$	107,056		$	11,222		$	(721	)	$	(13,466	)	$	104,146
Stock-based compensation		—		—			267			—			—			—			267
Exercise of stock options		6,776		—			80			—			—			—			80
Net income		—		—			—			1,198			—			—			1,198
Total other comprehensive loss, net of tax		—		—			—			—			(507		)	—			(507		)
Balance at June 1, 2013		5,534,687		$	55		$	107,403		$	12,420		$	(1,228	)	$	(13,466	)	$	105,184
Balance at November 30, 2013		5,534,687		$	55		$	107,603		$	4,372		$	(449	)	$	(13,466	)	$	98,115
Stock-based compensation		—		—			83			—			—			—			83
Exercise of stock options		3,208		—			80			—			—			—			80
Net loss		—		—			—			(1,205		)	—			—			(1,205		)
Total other comprehensive loss, net of tax		—		—			—			—			(196		)	—			(196		)
Balance at May 31, 2014		5,537,895		$	55		$	107,766		$	3,167		$	(645	)	$	(13,466	)	$	96,877

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

		For the Six Months Ended,
		May 31, 2014			June 1, 2013
Operating activities:
Net (loss) income		$	(1,205	)	$	1,198
(Income) loss from discontinued operations		(118		)	92
(Loss) income from continuing operations		(1,323		)	1,290
Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities of continuing operations:
Depreciation and amortization		3,279			3,320
Deferred income taxes		(900		)	634
Gain on sale of common stock in Centaur Media plc		(318		)	(504		)
Gain on sales of property		(276		)	(2,109		)
Stock-based compensation expense		213			236
Amortization of debt issuance costs		131			144
Accretion of discount on note receivable		(115		)	—
Loss on debt extinguishment		—			286
Gain on sale of investment in Shemin Nurseries Holding Corp.		—			(3,397		)
Changes in assets and liabilities:
Other assets		803			913
Accounts payable and accrued liabilities		(70		)	232
Deferred revenue		(625		)	(945		)
Other liabilities		106			376
Net cash provided by operating activities of continuing operations		905			476
Net cash used in operating activities of discontinued operations		(511		)	(4,712		)
Net cash provided by (used in) operating activities		394			(4,236		)
Investing activities:
Additions to real estate assets		(8,927		)	(10,051		)
Proceeds from property sales returned from escrow		8,864			6,934
Proceeds from the sale of common stock in Centaur Media plc		566			1,160
Proceeds from the sale of business		169			—
Additions to property and equipment		(58		)	(65		)
Proceeds from the sale of investment in Shemin Nurseries Holding Corp.		—			3,418
Net cash provided by investing activities		614			1,396
Financing activities:
Payments of debt		(1,069		)	(925		)
Dividends paid to stockholders		(1,029		)	(1,028		)
Debt issuance costs		(102		)	(214		)
Exercise of stock options		80			80
Debt modification costs		—			(70		)
Net cash used in financing activities		(2,120		)	(2,157		)
Net decrease in cash and cash equivalents		(1,112		)	(4,997		)
Cash and cash equivalents at beginning of period		14,179			10,181
Cash and cash equivalents at end of period		$	13,067		$	5,184

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements

(dollars in thousands unless otherwise noted, except per share data)

(unaudited)

 

1.              Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Griffin Land & Nurseries, Inc. (“Griffin”) reflect Griffin’s real estate business, conducted through its wholly-owned subsidiary, Griffin Land, LLC (“Griffin Land”) and Griffin’s landscape nursery business, conducted through its wholly-owned subsidiary, Imperial Nurseries, Inc. (“Imperial”) that is reported as a discontinued operation (see below).  Griffin Land is principally engaged in the development, management and leasing of industrial and commercial properties. Periodically, Griffin Land may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which is not consistent with Griffin Land’s core development and leasing strategy.

 

Imperial’s growing operations are reflected in the accompanying unaudited consolidated financial statements as a discontinued operation due to the sale, effective January 8, 2014, of its inventory and certain of its assets (the “Imperial Sale”) to Monrovia Connecticut LLC (“Monrovia”), a subsidiary of Monrovia Nursery Company (see Notes 2, 4 and 10).  Concurrent with the Imperial Sale, a subsidiary of Griffin and Imperial entered into a long-term lease with Monrovia for Imperial’s Connecticut production nursery.  As the growing operations of Imperial are reflected as a discontinued operation in Griffin’s unaudited consolidated financial statements, Griffin’s continuing operations presented in the accompanying financial statements solely reflect its real estate business and, therefore, industry segment information is not presented.  Accordingly, certain prior period amounts in Griffin’s unaudited consolidated financial statements have been reclassified to conform to the current presentation which better reflects Griffin’s real estate business, including presentation of an unclassified balance sheet consistent with real estate industry practice.  Certain parts of Imperial’s prior year results, such as rental revenue and expense related to the leasing of Imperial’s Florida farm to another grower and certain expenses related to the property and equipment of Imperial’s Connecticut farm, which continues to be owned by Griffin and leased to Monrovia, are included in Griffin’s continuing operations.

 

Through the fiscal year ended November 30, 2013 (“fiscal 2013”), Griffin reported on a 52-53 week fiscal year that ended on the Saturday nearest November 30 and included four quarters of 13 weeks each.  Starting in the fiscal year ending November 30, 2014 (“fiscal 2014”), Griffin is reporting on a twelve month fiscal year that will end on November 30 with interim periods comprised of three months that end on the last day of the third month of each quarter.  Accordingly, the fiscal 2014 second quarter ended on May 31, 2014.

 

These financial statements have been prepared in conformity with the standards of accounting measurement set forth by the Financial Accounting Standards Board (“FASB”) ASC 270, “Interim Reporting.”  The accompanying financial statements have been prepared in accordance with the accounting policies stated in Griffin’s consolidated audited financial statements for fiscal 2013 included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2014, and should be read in conjunction with the Notes to Consolidated Financial Statements appearing in that report. All adjustments, comprising only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods, have been reflected and all intercompany transactions have been eliminated.  The consolidated balance sheet data as of November 30, 2013 was derived from Griffin’s audited financial statements but

 

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does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period.  Griffin regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations, valuation of derivative instruments and the estimated costs to complete required offsite improvements to land sold.  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.

 

As of May 31, 2014, Griffin was a party to several interest rate swap agreements to hedge its interest rate exposures.  Griffin does not use derivatives for speculative purposes.  Griffin applies FASB ASC 815-10, “Derivatives and Hedging,” (“ASC 815-10”) as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities.  ASC 815-10 requires Griffin to recognize all derivatives as either assets or liabilities on its consolidated balance sheet and measure those instruments at fair value.  The changes in the fair values of the interest rate swap agreements are assessed in accordance with ASC 815-10 and reflected in the carrying values of the interest rate swap agreements on Griffin’s consolidated balance sheet.  The estimated fair values are based primarily on projected future swap rates.

 

Griffin applies cash flow hedge accounting to its interest rate swap agreements that are designated as hedges of the variability of future cash flows from floating rate liabilities based on the benchmark interest rates.  The change in fair values of Griffin’s interest rate swap agreements are recorded as components of accumulated other comprehensive income in stockholders’ equity to the extent they are effective.  Any ineffective portions of the change in fair value of these instruments would be recorded as interest expense.

 

The results of operations for the three months ended May 31, 2014 (the “2014 second quarter”) and the six months ended May 31, 2014 (the “2014 six month period”) are not necessarily indicative of the results to be expected for the full year. The thirteen and twenty-six weeks ended June 1, 2013 are referred to herein as the “2013 second quarter” and “2013 six month period,” respectively.

 

Recent Accounting Pronouncements

 

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Specifically, this update requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions.  This update was effective for Griffin in the 2014 second quarter.  The adoption of this guidance did not have an impact on Griffin’s financial position or results of operations.

 

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2.              Discontinued Operation

 

Effective January 8, 2014, in accordance with the terms of the Imperial Sale (see Notes 1, 4 and 10), Imperial sold its inventory and certain assets for $732 in cash and a non-interest bearing note receivable of $4,250 (the “Promissory Note”).  Net cash of $732 was received from Monrovia in the 2014 six month period and Griffin paid $563 in severance and other expenses.  The Promissory Note is due in two installments: $2,750 was due on June 1, 2014 and $1,500 is due on June 1, 2015. The Promissory Note was discounted at 7% to its present value of $4,036 at inception and is secured by an irrevocable letter of credit.  Subsequent to the end of the 2014 second quarter, Griffin received payment of the $2,750 installment from Monrovia.  Under the terms of the Imperial Sale, Griffin and Imperial agreed to indemnify Monrovia for any potential environmental liabilities relating to periods prior to the effective date of the Imperial Sale and also agreed to certain non-competition restrictions for a four-year period.

 

Concurrent with the Imperial Sale, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into a Lease and Option Agreement and an Addendum to such agreement (the “Imperial Lease”, and together with the Imperial Sale, the “Imperial Transaction”) with Monrovia, pursuant to which Monrovia is leasing Imperial’s Connecticut production nursery for a ten-year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease provides for net annual rent payable to Griffin of $500 for each of the first five years with rent for subsequent years determined in accordance with the Imperial Lease. The Imperial Lease also grants Monrovia an option to purchase most of the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period for $10,500, or $7,000 if only a certain portion of the land is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease.  Accordingly, the operating results of Imperial’s growing operations are reflected as a discontinued operation in Griffin’s consolidated statements of operations for all periods presented and the assets and liabilities of the growing operations of Imperial (excluding those assets that are part of the Imperial Lease) are shown as assets and liabilities of the discontinued operation on Griffin’s consolidated balance sheets.  The property and equipment previously used by Imperial and currently leased to Monrovia were reclassified on January 8, 2014 from property and equipment to real estate assets on Griffin’s consolidated balance sheet. The property and equipment had a cost of $11,485 and accumulated depreciation of $9,850 at the time it was reclassified.

 

Revenue and the pretax income (loss) from Imperial’s growing operations, reflected as a discontinued operation in Griffin’s consolidated statements of operations, were as follows:

 

		For the Three Months Ended,						For the Six Months Ended,
		May 31, 2014			June 1, 2013			May 31, 2014			June 1, 2013
Net sales and other revenue		$	69		$	8,855		$	80		$	8,940
Pretax income (loss)		$	644		$	384		$	244		$	(205	)

 

The pretax income of Imperial’s discontinued operation in the 2014 second quarter and 2014 six month period includes $451 for the reclassification of actuarial gains related to Griffin’s postretirement benefits program from other comprehensive income into pretax income as a result of the termination of Griffin’s postretirement benefits program (see Note 10).

 

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In the thirteen weeks ended November 30, 2013 (the “ 2013 fourth quarter”), a charge of $10,400 was included in cost of landscape nursery sales to reduce Imperial’s nursery inventories to fair value, which was the net realizable value based on the terms of the Imperial Sale.  The pretax loss from the Imperial Sale in the 2014 six month period was as follows:

 

Consideration received from Monrovia, reflecting cash of $732 and note receivable of $4,036		$	4,768
Carrying value of assets sold, principally inventory		(4,561		)
Curtailment of employee benefit plan (see Note 10)		309
Severance and other expenses		(563		)
Pretax loss		$	(47	)

 

The assets and liabilities of Imperial’s growing operation, reflected as a discontinued operation, are as follows:

 

		May 31, 2014			November 30, 2013
Assets:
Accounts receivable		$	387		$	1,151
Inventories		—			4,116
Other		285			360
		$	672		$	5,627
Liabilities:
Accounts payable and accrued liabilities		$	94		$	768

 

3.              Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurements” (“ASC 820”), which establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  ASC 820 establishes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 applies to assets or liabilities for which there are quoted market prices in active markets for identical assets or liabilities.  Griffin’s available-for-sale securities are considered Level 1 within the fair value hierarchy.

 

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.  Level 2 liabilities include Griffin’s interest rate swap derivatives (see Note 7).  These inputs are readily available in

 

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public markets or can be derived from information available in publicly quoted markets; therefore, Griffin has categorized these derivative instruments as Level 2 within the fair value hierarchy.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

During the 2014 six month period, Griffin did not transfer any assets or liabilities in or out of Levels 1 or 2.  The following are Griffin’s financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:

 

		May 31, 2014
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	2,142		$	—		$	—
Interest rate swap asset		$	—		$	38		$	—
Interest rate swap liabilities		$	—		$	2,282		$	—

 

		November 30, 2013
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	2,208		$	—		$	—
Interest rate swap asset		$	—		$	63		$	—
Interest rate swap liabilities		$	—		$	2,285		$	—

 

The carrying and estimated fair values of Griffin’s financial instruments are as follows:

 

		Fair Value		May 31, 2014						November 30, 2013
		Hierarchy		Carrying			Estimated			Carrying			Estimated
		Level		Value			Fair Value			Value			Fair Value
Financial assets:
Cash and cash equivalents		1		$	13,067		$	13,067		$	14,179		$	14,179
Available-for-sale securities		1		2,142			2,142			2,208			2,208
Interest rate swap		2		38			38			63			63
Financial liabilities:
Mortgage debt		2		65,639			66,418			66,708			67,931
Interest rate swaps		2		2,282			2,282			2,285			2,285

 

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The fair values of the available-for-sale securities are based on quoted market prices.  The fair values of the mortgage debt are estimated based on current rates offered to Griffin for similar debt of the same remaining maturities, and additionally, Griffin considers its credit worthiness in determining the fair value of its debt.  The fair values of the interest rate swaps (used for purposes other than trading) are determined based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current OIS rate and swap curve along with other market data, taking into account current interest rates and the credit worthiness of the counterparty for assets and the credit worthiness of Griffin for liabilities.

 

4.              Real Estate Assets

 

Real estate assets consist of:

 

		Estimated Useful Lives		May 31, 2014			November 30, 2013
Land				$	18,224		$	17,507
Land improvements		10 to 30 years		17,090			15,529
Buildings and improvements		10 to 40 years		123,711			122,057
Tenant improvements		Shorter of useful life or terms of related lease		16,296			16,126
Machinery and equipment		3 to 20 years		11,810			4,188
Development costs				26,739			16,861
				213,870			192,268
Accumulated depreciation				(73,330		)	(61,078		)
				$	140,540		$	131,190

 

Included in real estate assets, net as of May 31, 2014 was $1,547 reflecting the net book value of Imperial’s Connecticut farm assets that were leased to Monrovia effective January 8, 2014 (see Notes 1, 2 and 10).  Prior to that date, these assets were reported as part of property and equipment.  The assets reclassified from property and equipment to real estate assets had a cost of $11,485, net of accumulated depreciation of $9,850 at the time of the reclassification.

 

Total depreciation expense and capitalized interest related to real estate assets, net were as follows:

 

		For the Three Months Ended,						For the Six Months Ended,
		May 31, 2014			June 1, 2013			May 31, 2014			June 1, 2013
Depreciation expense		$	1,374		$	1,368		$	2,798		$	2,748
Capitalized interest		$	251		$	—		$	375		$	—

 

In the 2013 fourth quarter, Griffin Land completed the sale of approximately 90 acres of undeveloped land for approximately $9,000 in cash, before transaction costs (the “Windsor Land Sale”).  The land sold is located in Windsor, Connecticut and is part of an approximately 268 acre parcel of undeveloped land that straddles the town line between Windsor and Bloomfield, Connecticut.  Under the

 

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terms of the Windsor Land Sale, Griffin Land and the buyer will each construct roadways connecting the land parcel sold with existing town roads. The roads to be built will become new town roads, thereby providing public access to the remaining acreage in Griffin Land’s land parcel.  As a result of Griffin Land’s continuing involvement with the land sold, the Windsor Land Sale is being accounted for under the percentage of completion method, whereby the revenue and gain on the sale are being recognized as the total costs related to the property sold are incurred.  At the closing of the Windsor Land Sale, cash proceeds of $8,860 were placed in escrow for the potential purchase of a replacement property in a like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, which was reflected as Proceeds Held in Escrow on Griffin’s consolidated balance sheet as of November 30, 2013.  The proceeds held in escrow were returned to Griffin in the 2014 second quarter as a replacement property was not acquired.

 

As of May 31, 2014, approximately 34% of the total costs related to the Windsor Land Sale have been incurred; therefore, from the date of the Windsor Land Sale through May 31, 2014, approximately 34% of the total revenue and pretax gain on the sale have been recognized in Griffin’s consolidated statements of operations.  Griffin’s consolidated statements of operations for the 2014 second quarter and 2014 six month period include revenue of $277 and $370, respectively, and a pretax gain of $207 and $276, respectively, from the Windsor Land Sale.  The balance of the revenue and pretax gain on sale will be recognized when the remaining costs are incurred, which is expected to take place mostly in the third and fourth quarters of fiscal 2014.  Included on Griffin’s consolidated balance sheet as of May 31, 2014, is deferred revenue of $5,930 that will be recognized as the remaining costs are incurred.  Including the pretax gain on sale of $1,990 recognized in fiscal 2013 and $276 recognized in the 2014 six month period, the total gain on the Windsor Land Sale is expected to be approximately $6,688 after all revenue is recognized and all costs are incurred.  While management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required roadways, increases or decreases in future costs as compared with current estimated amounts would reduce or increase the gain recognized in future periods (see Note 10).

 

Real estate assets held for sale consist of:

 

		May 31, 2014			November 30, 2013
Land		$	30		$	30
Development costs		1,074			1,074
		$	1,104		$	1,104

 

5.              Investments

 

Centaur Media plc

 

Griffin’s investment in the common stock of Centaur Media plc (“Centaur Media”) is accounted for as an available-for-sale security under FASB ASC 320-10, “Investments — Debt and Equity Securities.”  Accordingly, changes in the fair value of Centaur Media, reflecting both changes in the stock price and changes in the foreign currency exchange rate, are included, net of income taxes, in accumulated other comprehensive income (see Note 9).

 

As of November 30, 2013, Griffin held 2,452,462 shares of Centaur Media common stock.  In the 2014 six month period, Griffin sold 500,000 shares of its Centaur Media common stock for total cash proceeds of $566, after transaction costs.  The sale of Centaur Media common stock resulted in a pretax gain of $318 in the 2014 six month period.  Griffin utilized the average cost method to determine its gain

 

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on the sale of Centaur stock.  As of May 31, 2014, Griffin held 1,952,462 shares of Centaur Media common stock.

 

The cost, unrealized gain and fair value of Griffin’s investment in Centaur Media are as follows:

 

		May 31, 2014			November 30, 2013
Fair value		$	2,142		$	2,208
Cost		1,014			1,274
Unrealized gain		$	1,128		$	934

 

Shemin Nurseries Holding Corp.

 

As of December 1, 2012, Griffin held an approximate 14% equity interest in Shemin Nurseries Holding Corp. (“SNHC”), which operated a landscape nursery distribution business through its subsidiary.  Griffin accounted for its investment in SNHC under the cost method of accounting for investments.  As a result of cash distributions from SNHC in years prior to fiscal 2013 which were treated as returns of investment, Griffin did not have any remaining book value in its investment in SNHC as of December 1, 2012.  On January 18, 2013, Griffin completed the sale of its investment in SNHC for total cash proceeds of $3,418, resulting in a pretax gain of $3,397.

 

6.              Property and Equipment

 

Property and equipment consist of:

 

		Estimated Useful Lives		May 31, 2014			November 30, 2013
Land				$	—		$	437
Land improvements		10 to 20 years		—			1,561
Buildings and improvements		10 to 40 years		—			1,865
Machinery and equipment		3 to 20 years		1,220			12,135
				1,220			15,998
Accumulated depreciation				(964		)	(14,048		)
				$	256		$	1,950

 

As a result of the Imperial Lease, certain assets of the Connecticut farm were reclassified from property and equipment to real estate assets on January 8, 2014.  The net book value of the assets reclassified was $1,635, reflecting cost of $11,485 net of accumulated depreciation of $9,850.

 

Griffin incurred new capital lease obligations of $53 and $48 related to equipment acquisitions in the 2014 six month period and the 2013 six month period, respectively.

 

7.              Mortgage Loans

 

Griffin’s mortgage loans, which are nonrecourse, consist of:

 

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