INDUS REALTY TRUST, INC. - Quarter Report: 2015 February (Form 10-Q)

Table of Contents

 

 

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 February 28, 2015

 

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 April 2, 2015:  5,149,574

 

 

Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Balance Sheets (unaudited) February 28, 2015 and November 30, 2014	3
		Consolidated Statements of Operations (unaudited) Three Months Ended February 28, 2015 and 2014	4
		Consolidated Statements of Comprehensive Loss (unaudited) Three Months Ended February 28, 2015 and 2014	5
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) Three Months Ended February 28, 2015 and 2014	6
		Consolidated Statements of Cash Flows (unaudited) Three Months Ended February 28, 2015 and 2014	7
		Notes to Consolidated Financial Statements (unaudited)	8-21
	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22-29
	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	29
	ITEM 4	Controls and Procedures	29-30
PART II -		OTHER INFORMATION
	ITEM 1	Not Applicable
	ITEM 1A	Risk Factors	31
	ITEMS 2-5	Not Applicable
	ITEM 6	Exhibits	31-34
		SIGNATURES	35

 

Table of Contents

 

PART I                                                            FINANCIAL INFORMATION

 

ITEM 1.                                                     FINANCIAL STATEMENTS

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

		Feb. 28, 2015			Nov. 30, 2014
ASSETS
Real estate assets at cost, net of accumulated depreciation		$	137,412		$	134,522
Real estate held for sale		9,963			9,943
Cash and cash equivalents		23,517			17,059
Deferred income taxes		6,473			5,996
Available for sale securities - Investment in Centaur Media plc		1,948			1,924
Note receivable		1,476			1,451
Proceeds held in escrow		1,000			1,000
Property and equipment, net of accumulated depreciation		211			230
Other assets		13,699			14,216
Assets of discontinued operation		36			36
Total assets		$	195,735		$	186,377
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgage loans		$	80,544		$	70,168
Deferred revenue		7,957			8,349
Accounts payable and accrued liabilities		4,223			3,505
Dividend payable		—			1,030
Other liabilities		7,881			7,438
Liabilities of discontinued operation		—			8
Total liabilities		100,605			90,498
Commitments and Contingencies (Note 10)
Stockholders’ Equity
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,537,895 shares issued and 5,149,574 shares outstanding		55			55
Additional paid-in capital		107,980			107,887
Retained earnings		1,530			2,238
Accumulated other comprehensive loss, net of tax		(969		)	(835		)
Treasury stock, at cost, 388,321 shares		(13,466		)	(13,466		)
Total stockholders’ equity		95,130			95,879
Total liabilities and stockholders’ equity		$	195,735		$	186,377

 

 See Notes to Consolidated Financial Statements.

 

3

Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

		For the Three Months Ended,
		Feb. 28, 2015			Feb. 28, 2014
Rental revenue		$	5,407		$	4,966
Revenue from property sales		826			93
Total revenue		6,233			5,059
Operating expenses of rental properties		2,413			2,451
Depreciation and amortization expense		1,818			1,641
Costs related to property sales		204			24
General and administrative expenses		2,011			2,184
Total expenses		6,446			6,300
Operating loss		(213		)	(1,241		)
Interest expense		(927		)	(904		)
Investment income		34			47
Gain on sale of common stock in Centaur Media plc		—			318
Loss before income tax benefit		(1,106		)	(1,780		)
Income tax benefit		398			682
Loss from continuing operations		(708		)	(1,098		)
Discontinued operations, net of tax:
Loss from landscape nursery business, net of tax, including loss on sale of assets of $31, net of tax, in the 2014 first quarter		—			(272		)
Net loss		$	(708	)	$	(1,370	)
Basic net loss per common share:
Loss from continuing operations		$	(0.14	)	$	(0.21	)
Loss from discontinued operations		—			(0.06		)
Basic net loss per common share		$	(0.14	)	$	(0.27	)
Diluted net loss per common share:
Loss from continuing operations		$	(0.14	)	$	(0.21	)
Loss from discontinued operations		—			(0.06		)
Diluted net loss per common share		$	(0.14	)	$	(0.27	)

 

See Notes to Consolidated Financial Statements.

 

4

Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Loss

(dollars in thousands)

(unaudited)

 

		For the Three Months Ended,
		Feb. 28, 2015			Feb. 28, 2014
Net loss		$	(708	)	$	(1,370	)
Other comprehensive (loss) income, net of tax:
Reclassifications included in net loss		177			(47		)
Increase in fair value of Centaur Media plc		15			539
Unrealized loss on cash flow hedges		(326		)	(111		)
Total other comprehensive (loss) income, net of tax		(134		)	381
Total comprehensive loss		$	(842	)	$	(989	)

 

See Notes to Consolidated Financial Statements.

 

5

Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended February 28, 2015 and February 28, 2014

(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 November 30, 2013		5,534,687		$	55		$	107,603		$	4,372		$	(449	)	$	(13,466	)	$	98,115
Stock-based compensation		—		—			23			—			—			—			23
Net loss		—		—			—			(1,370		)	—			—			(1,370		)
Total other comprehensive income, net of tax		—		—			—			—			381			—			381
Balance at February 28, 2014		5,534,687		$	55		$	107,626		$	3,002		$	(68	)	$	(13,466	)	$	97,149
Balance at November 30, 2014		5,537,895		$	55		$	107,887		$	2,238		$	(835	)	$	(13,466	)	$	95,879
Stock-based compensation		—		—			93			—			—			—			93
Net loss		—		—			—			(708		)	—			—			(708		)
Total other comprehensive loss, net of tax		—		—			—			—			(134		)	—			(134		)
Balance at February 28, 2015		5,537,895		$	55		$	107,980		$	1,530		$	(969	)	$	(13,466	)	$	95,130

 

See Notes to Consolidated Financial Statements.

 

6

Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

		For the Three Months Ended,
		Feb. 28, 2015			Feb. 28, 2014
Operating activities:
Net loss		$	(708	)	$	(1,370	)
Loss from discontinued operations		—			272
Loss from continuing operations		(708		)	(1,098		)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization		1,818			1,641
Gain on sales of property		(622		)	(69		)
Deferred income taxes		(398		)	(682		)
Stock-based compensation expense		93			153
Amortization of debt issuance costs		64			65
Accretion of discount on note receivable		(25		)	(46		)
Gain on sale of common stock in Centaur Media plc		—			(318		)
Changes in assets and liabilities:
Other assets		349			69
Accounts payable and accrued liabilities		600			458
Deferred revenue		434			(352		)
Other liabilities		200			132
Net cash provided by (used in) operating activities of continuing operations		1,805			(47		)
Net cash used in operating activities of discontinued operations		—			(914		)
Net cash provided by (used in) operating activities		1,805			(961		)
Investing activities:
Additions to real estate assets		(4,545		)	(2,686		)
Additions to property and equipment		(5		)	(49		)
Proceeds from sale of business		—			874
Proceeds from sales of common stock in Centaur Media plc		—			251
Net cash used in investing activities		(4,550		)	(1,610		)
Financing activities:
Proceeds from debt		10,891			—
Dividends paid to stockholders		(1,030		)	(1,029		)
Payments of debt		(515		)	(529		)
Debt issuance costs		(143		)	—
Net cash provided by (used in) financing activities		9,203			(1,558		)
Net increase (decrease) in cash and cash equivalents		6,458			(4,129		)
Cash and cash equivalents at beginning of period		17,059			14,179
Cash and cash equivalents at end of period		$	23,517		$	10,050

 

See Notes to Consolidated Financial Statements.

 

7

Table of Contents

 

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, which is conducted through its wholly-owned subsidiary, Griffin Land, LLC (“Griffin Land”). The growing operations of Griffin’s landscape nursery business, previously conducted through its wholly-owned subsidiary, Imperial Nurseries, Inc. (“Imperial”), is reported as a discontinued operation (see below). Griffin Land is principally in the business of developing, managing and leasing 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 was engaged in growing landscape nursery plants in containers for sale to independent retail garden centers and rewholesalers, whose main customers are landscape contractors. Imperial’s 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 Note 8). 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.

 

These financial statements have been prepared in conformity with the standards of accounting measurement set forth by Financial Accounting Standards Board (“FASB”) ASC 270, “Interim Reporting” and in accordance with the accounting policies stated in Griffin’s audited consolidated financial statements for the fiscal year ended November 30, 2014 (“fiscal 2014”) included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2015. These financial statements 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, 2014 was derived from Griffin’s audited financial statements but 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.

 

8

Table of Contents

 

As of February 28, 2015, 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 measured 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 (loss) in stockholders’ equity to the extent they are effective. Any ineffective portions of the changes in fair values of these instruments would be recorded as interest expense or interest income.

 

The results of operations for the three months ended February 28, 2015 (the “2015 first quarter”) are not necessarily indicative of the results to be expected for the full year. The three months ended February 28, 2014 are referred to herein as the “2014 first quarter.”

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. This standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Additionally, the update requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. The update permits the use of either the retrospective or cumulative effect transition method. This update will be effective for Griffin in fiscal 2018 and early adoption is not permitted. Certain aspects of this new standard may affect revenue recognition of Griffin Land. Griffin is evaluating the impact that the application of this update will have on its consolidated financial statements.

 

9

Table of Contents

 

2.              Real Estate Assets

 

Real estate assets consist of:

 

		Estimated Useful Lives		Feb. 28, 2015				Nov. 30, 2014
Land				$		17,955		$		17,955
Land improvements		10 to 30 years				18,568				18,527
Buildings and improvements		10 to 40 years				137,430				135,857
Tenant improvements		Shorter of useful life or terms of related lease				17,430				14,820
Machinery and equipment		3 to 20 years				11,810				11,810
Development costs						10,129				10,315
						213,322				209,284
Accumulated depreciation						(75,910)				(74,762)
				$		137,412		$		134,522

 

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

 

		For the Three Months Ended,
		Feb. 28, 2015				Feb. 28, 2014
Depreciation expense		$		1,550		$		1,424
Capitalized interest		$		163		$		124

 

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 253 acre parcel of undeveloped land that straddles the town line between Windsor and Bloomfield, Connecticut. Under the terms of the Windsor Land Sale, Griffin Land and the buyer are each constructing roadways connecting the land parcel sold with existing town roads. The roads being 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. Accordingly, the revenue and pretax gain on the sale are being recognized on a pro rata basis in a ratio equal to the percentage of the total costs incurred to the total anticipated costs of sale, including costs of the required roadwork. Costs included in determining the percentage of completion include the cost of the land sold, allocated master planning costs and the cost of road construction. 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. The proceeds held in escrow were returned to Griffin in the second quarter of fiscal 2014, as a replacement property was not acquired.

 

As of February 28, 2015, approximately 74% of the total costs related to the Windsor Land Sale have been incurred; therefore, from the date of the Windsor Land Sale through February 28, 2015,

 

10

Table of Contents

 

approximately 74% 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 2015 and 2014 first quarters include revenue of $826 and $93, respectively, and pretax gains of $622 and $69, respectively, from the Windsor Land Sale. Griffin’s consolidated statements of operations for fiscal 2014 and fiscal 2013 include revenue of $3,105 and $2,668, respectively, and pretax gains of $2,358 and $1,990, 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 second and third quarters of fiscal 2015. Included in deferred revenue on Griffin’s consolidated balance sheet as of February 28, 2015, is $2,369 that will be recognized as the remaining costs are incurred. Including the pretax gain on sale recognized in the 2015 first quarter, fiscal 2014 and fiscal 2013, the total pretax gain on the Windsor Land Sale is expected to be approximately $6,754 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.

 

Real estate assets held for sale consist of:

 

		Feb. 28, 2015				Nov. 30, 2014
Land		$		286		$		286
Development costs				9,677				9,657
		$		9,963		$		9,943

 

3.              Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurement” (“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’s 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 5). These inputs are readily available in 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.

 

11

Table of Contents

 

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 2015 first quarter, 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:

 

		February 28, 2015
		Quoted Prices in				Significant				Significant
		Active Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)
Marketable equity securities		$		1,948		$		—		$		—
Interest rate swap asset		$		—		$		6		$		—
Interest rate swap liabilities		$		—		$		2,565		$		—

 

		November 30, 2014
		Quoted Prices in				Significant				Significant
		Active Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)
Marketable equity securities		$		1,924		$		—		$		—
Interest rate swap asset		$		—		$		8		$		—
Interest rate swap liabilities		$		—		$		2,330		$		—

 

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

 

		Fair Value		February 28, 2015						November 30, 2014
		Hierarchy		Carrying			Estimated			Carrying			Estimated
		Level		Value			Fair Value			Value			Fair Value
Financial assets:
Cash and cash equivalents		1		$	23,517		$	23,517		$	17,059		$	17,059
Available-for-sale securities		1		1,948			1,948			1,924			1,924
Interest rate swap		2		6			6			8			8
Financial liabilities:
Mortgage loans		2		80,544			81,403			70,168			71,014
Interest rate swaps		2		2,565			2,565			2,330			2,330

 

The amounts included in the financial statements for cash and cash equivalents and accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these instruments. The fair values of the available-for-sale securities are based on quoted market prices. The

 

12

Table of Contents

 

fair values of the mortgage loans 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 mortgage loans. 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.     Investment

 

As of February 28, 2015, Griffin held 1,952,462 shares of common stock in Centaur Media plc (“Centaur Media”). Griffin’s investment in the common stock of Centaur Media is accounted for as an available-for-sale security under 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 7). In the 2014 first quarter, Griffin had a pretax gain of $318 from the sale of 500,000 shares of its Centaur Media common stock, which generated total cash proceeds of $566, after transaction costs, including $315 that was received in the fiscal 2014 second quarter. Griffin has not sold any of its Centaur Media common stock since the sale in the 2014 first quarter.

 

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

 

		Feb. 28, 2015				Nov. 30, 2014
Fair value		$		1,948		$		1,924
Cost				1,014				1,014
Unrealized gain		$		934		$		910

 

13

Table of Contents

 

5.     Mortgage Loans

 

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

 

		Feb. 28, 2015				Nov. 30, 2014
5.73%, due August 1, 2015		$		18,078		$		18,189
Variable rate mortgage, due October 2, 2017*				6,350				6,394
Variable rate mortgage, due February 1, 2019*				10,820				10,888
Variable rate mortgage, due August 1, 2019*				7,645				7,691
Variable rate mortgage, due January 27, 2020*				3,819				3,848
Variable rate mortgage, due September 1, 2023*				—				8,875
Variable rate mortgage, due January 2, 2025*				19,714				—
5.09%, due July 1, 2029				7,660				7,750
5.09%, due July 1, 2029				6,458				6,533
Total nonrecourse mortgages		$		80,544		$		70,168

 

* Griffin entered into interest rate swap agreements effectively to fix the interest rates on these loans (see below).

 

On December 31, 2014, two subsidiaries of Griffin closed on a new mortgage (“the 2025 First Niagara Mortgage”) for $21,600. The 2025 First Niagara Mortgage refinanced an existing mortgage with First Niagara Bank (“First Niagara”) which was due on September 1, 2023 and was collateralized by an approximately 228,000 square foot industrial building (“4275 Fritch Drive”) in Lower Nazareth, Pennsylvania. The 2025 First Niagara Mortgage is collateralized by 4275 Fritch Drive along with an adjacent approximately 303,000 square foot industrial building (“4270 Fritch Drive”). Griffin received net proceeds of $10,891 at closing (before transaction costs), in addition to $8,859 used to refinance the existing mortgage with First Niagara and $1,850 held back until a portion of the remaining vacant space in 4270 Fritch Drive is leased. The 2025 First Niagara Mortgage has a ten-year term with monthly payments based on a twenty-five year amortization schedule. The interest rate for the 2025 First Niagara Mortgage is a floating rate of the one month LIBOR rate plus 1.95%. At the time the 2025 First Niagara Mortgage closed, Griffin entered into an interest rate swap agreement with First Niagara that, combined with an existing interest rate swap agreement with First Niagara, effectively fixes the rate of the 2025 First Niagara Mortgage at 4.43% over the mortgage loan’s ten-year term.

 

As of February 28, 2015, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgages on certain of its real estate assets. Griffin accounts for its interest rate swap agreements as effective cash flow hedges (see Note 3). No ineffectiveness on the cash flow hedges was recognized as of February 28, 2015 and none is anticipated over the term of the agreements. Amounts in accumulated other comprehensive income (loss) will be reclassified into interest expense over the term of the swap agreements to achieve fixed rates on each mortgage. None of the interest rate swap agreements contain any credit risk related contingent features. In the 2015 and 2014 first quarters, Griffin recognized losses (included in other comprehensive loss) before taxes of $518 and $177, respectively, on its interest rate swap agreements.

 

As of February 28, 2015, $1,118 was expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense. As of February 28, 2015, the net fair value of Griffin’s interest rate swap agreements was $2,559, with $6 included in other assets and $2,565 included in other liabilities on Griffin’s consolidated balance sheet.

 

14

Table of Contents

 

6.     Revolving Credit Agreement

 

Griffin has a $12,500 revolving credit line with Webster Bank (the “Webster Credit Line”) that expires May 1, 2015. Griffin has an option to extend the Webster Credit Line for an additional year. Interest on the outstanding borrowings under the Webster Credit Line is at the one month LIBOR rate plus 2.75%. The Webster Credit Line is collateralized by Griffin Land’s properties in Griffin Center South, aggregating approximately 235,000 square feet, and an approximately 48,000 square foot single-story office building in Griffin Center. There have been no borrowings under the Webster Credit Line since its inception.

 

7.     Stockholders’ Equity

 

Per Share Results

 

Basic and diluted per share results were based on the following:

 

		For the Three Months Ended,
		Feb. 28, 2015				Feb. 28, 2014
Loss from continuing operations for computation of basic and diluted per share results, net of tax		$		(708)		$		(1,098)
Loss from discontinued operations for computation of basic and diluted per share results, net of tax				—				(272)
Net loss		$		(708)		$		(1,370)
Weighted average shares outstanding for computation of basic per share results		5,150,000				5,147,000
Incremental shares from assumed exercise of Griffin stock options (a)		—				—
Adjusted weighted average shares for computation of diluted per share results		5,150,000				5,147,000

 

(a)                    Incremental shares from the assumed exercise of Griffin stock options are not included in periods where the inclusion of such shares would be anti-dilutive. Such assessment is based on income (loss) from continuing operations when net income includes discontinued operations. The incremental shares from the assumed exercise of stock options in the three month periods ended February 28, 2015 and 2014 would have been 18,000 and 16,000, respectively.

 

15

Table of Contents

 

Griffin Stock Option Plan

 

Stock options are granted by Griffin under the Griffin Land & Nurseries, Inc. 2009 Stock Option Plan (the “2009 Stock Option Plan”). Options granted under the 2009 Stock Option Plan may be either incentive stock options or non-qualified stock options issued at fair market value on the date approved by Griffin’s Compensation Committee. Vesting of all of Griffin’s previously issued stock options is solely based upon service requirements and does not contain market or performance conditions. Stock options issued will expire ten years from the grant date. In accordance with the 2009 Stock Option Plan, stock options issued to non-employee directors upon their initial election to the board of directors are fully exercisable immediately upon the date of the option grant. Stock options issued to non-employee directors upon their reelection to the board of directors vest on the second anniversary from the date of grant. Stock options issued to employees vest in equal installments on the third, fourth and fifth anniversaries from the date of grant. None of the stock options outstanding at February 28, 2015 may be exercised as stock appreciation rights. Griffin did not grant any stock options in either the 2015 first quarter or 2014 first quarter.

 

Activity under the Griffin Stock Option Plan is summarized as follows:

 

		For the Three Months Ended,
		February 28, 2015							February 28, 2014
		Number of Shares			Weighted Avg. Exercise Price				Number of Shares			Weighted Avg. Exercise Price
Outstanding at beginning of period			222,001		$		30.35			239,677		$		30.35
Forfeited			—		$		—			(23,000)		$		30.27
Outstanding at end of period			222,001		$		30.35			216,677		$		30.36

 

Range of Exercise Prices		Outstanding at February 28, 2015			Weighted Avg. Exercise Price				Weighted Avg. Remaining Contractual Life (in years)			Total Intrinsic Value
$23.00-$28.00			18,068		$		25.45			5.7		$		121
$28.00-$32.00			120,858		$		28.90			5.9		$		390
$32.00-$39.00			83,075		$		33.52			3.6		$		—
			222,001		$		30.35			5.0		$		511

 

Number of option holders at February 28, 2015

14

 

16

Table of Contents

 

Compensation expense and related tax benefits for stock options were as follows:

 

		For the Three Months Ended,
		Feb. 28, 2015				Feb. 28, 2014
Compensation expense - continuing operations		$		93		$		153
Compensation expense - discontinued operations				—				(130)
Net compensation expense		$		93		$		23
Related tax benefit - continuing operations		$		18		$		24
Related tax benefit - discontinued operations				—				—
Net related tax benefit		$		18		$		24

 

As of February 28, 2015, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

Balance of Fiscal 2015		$		97
Fiscal 2016		$		47

 

Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss, net of tax, is comprised of the following:

 

						Unrealized gain
		Unrealized loss on				on investment in
		cash flow hedges				Centaur Media				Total
Balance November 30, 2014		$		(1,464)		$		629		$		(835)
Other comprehensive (loss) income before reclassfications				(326)				15				(311)
Amounts reclassified				177				—				177
Net activity for other comprehensive loss				(149)				15				(134)
Balance February 28, 2015		$		(1,613)		$		644		$		(969)

 

17