GRIF Griffin Industrial Realty Inc

PART I

and leased approximately 74,000 square feet of that building to a tenant that relocated from approximately 39,000 square feet in another of Griffin’s NE Tradeport industrial/warehouse buildings. The balance of 330 Stone was leased in fiscal 2018. Griffin was able to backfill the approximately 39,000 square feet that was vacated with a new tenant that took occupancy in the first quarter of fiscal 2018. In fiscal 2017, Griffin also leased approximately 104,000 square feet of previously vacant NE Tradeport industrial/warehouse space, including a ten and a half year lease for approximately 89,000 square feet. Griffin extended leases aggregating approximately 387,000 square feet in fiscal 2017, including a full building lease of 100 International Drive (“100 International”), an approximately 304,000 square foot industrial/warehouse building in NE Tradeport. That lease extension, done in connection with refinancing the mortgage loan on 100 International, resulted in an additional six years of lease term beyond the original lease expiration date of July 31, 2019. In fiscal 2017, Griffin completed a full building lease of approximately 23,000 square feet of office/flex space, replacing the tenant that did not renew its lease of that building. The net effect of Griffin’s construction, acquisition and leasing transactions in fiscal 2017 was an increase of approximately 461,000 square feet of industrial/warehouse space under lease as of November 30, 2017, as compared to November 30, 2016, and a decrease of approximately 11,000 square feet in office/flex space under lease as of November 30, 2017, as compared to November 30, 2016.

In fiscal 2016, Griffin completed and placed in service an approximately 252,000 square foot industrial building (“5210 Jaindl”) in the Lehigh Valley, thus completing the development of an approximately 50 acre parcel of undeveloped land acquired in December 2013. As of November 30, 2016, 5210 Jaindl was fully leased. In addition to the two leases at 5210 Jaindl, Griffin entered into several other leases aggregating approximately 240,000 square feet in fiscal 2016, all but approximately 21,000 square feet of which was for industrial/warehouse space. Included in the fiscal 2016 leasing activity was a lease for approximately 101,000 square feet in 4270 Fritch Drive (“4270 Fritch”), an approximately 303,000 square foot industrial/warehouse building in the Lehigh Valley built in fiscal 2014. In addition to the Lehigh Valley leasing, Griffin completed several leases aggregating approximately 139,000 square feet for its Connecticut properties, including approximately 118,000 square feet of industrial/warehouse space, mostly in NE Tradeport. In fiscal 2016, Griffin also extended leases aggregating approximately 248,000 square feet, most of which was NE Tradeport industrial/warehouse space. Also in fiscal 2016, leases for approximately 132,000 square feet expired, including a lease for an entire approximately 57,000 square foot NE Tradeport industrial/warehouse building that was subsequently re-leased during fiscal 2016. The net effect of these transactions was an increase of approximately 410,000 square feet in industrial/warehouse space under lease as of November 30, 2016, as compared to November 30, 2015, and a decrease of approximately 51,000 square feet in office/flex space under lease as of November 30, 2016, as compared to November 30, 2015.

There is no guarantee that an active or strong real estate market or an increase in inquiries from prospective tenants will result in leasing space that was vacant as of November 30, 2018 or leasing space in buildings expected to be completed in 2019. Additional capacity or an increase in vacancies in either the industrial or office markets could adversely affect Griffin’s operating results by potentially resulting in longer times to lease vacant space, eroding lease rates in Griffin’s properties or hindering renewals by existing tenants. There can be no assurances as to the directions of the Hartford, Lehigh Valley or Charlotte real estate markets in the near future.

In fiscal 2018, Griffin completed a land sale of approximately 49 acres of undeveloped land in Southwick, Massachusetts (the “2018 Southwick Land Sale”) for approximately $0.9 million. The proceeds from the 2018 Southwick Land Sale were placed in escrow at closing and subsequently used in the acquisition of an approximately 22 acre parcel of undeveloped land in Concord, North Carolina (the ‘Concord Land”) as part of a like-kind exchange (a “1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended. The 1031 Like-Kind Exchange enabled Griffin to defer the gain on the 2018 Southwick Land Sale for income tax purposes. In fiscal 2018, Griffin commenced construction of two warehouse/industrial buildings totaling approximately 283,000 square feet on the Concord Land. Additionally, Griffin also completed one smaller land sale in fiscal 2018 for approximately $0.1 million.

In fiscal 2017, Griffin completed several land sales, the largest being the sale of approximately 67 acres of undeveloped land in Phoenix Crossing (the “2017 Phoenix Crossing Land Sale”) for approximately $10.3 million. The land sold under the 2017 Phoenix Crossing Land Sale is part of an approximately 268 acre parcel of land in Bloomfield and Windsor, Connecticut known as Phoenix Crossing. The proceeds from the 2017 Phoenix Crossing Land Sale were placed in escrow at closing and subsequently used in the acquisition of 215 International as part of a 1031 Like-Kind Exchange. In addition to the 2017 Phoenix Crossing Land Sale, Griffin also sold approximately 76 acres of undeveloped land in Southwick, Massachusetts (the “2017 Southwick Land Sale”) for approximately $2.1 million. The proceeds from

the 2017 Southwick Land Sale were also placed in escrow at closing and subsequently used for the purchase of approximately 14 acres of undeveloped land in the Lehigh Valley under a 1031 Like-Kind Exchange. In fiscal 2018, Griffin constructed 6975 Ambassador on the Lehigh Valley land acquired.

In fiscal 2017, Griffin also completed two smaller sales of undeveloped land in Phoenix Crossing for a total of approximately $1.3 million and the sale of two small residential lots for a total of approximately $0.2 million. Griffin also recognized the remaining $0.1 million of revenue from the fiscal 2013 sale of approximately 90 acres of undeveloped land in Phoenix Crossing (the “2013 Phoenix Crossing Land Sale”). Under the terms of the 2013 Phoenix Crossing Land Sale, Griffin and the buyer each were required to construct roadways connecting the land parcel that was sold to existing town roads. As a result of Griffin’s continuing involvement with the land sold, the 2013 Phoenix Crossing Land Sale was accounted for under the percentage of completion method, whereby revenue and gain were recognized as costs related to the 2013 Phoenix Crossing Land Sale were incurred. From the closing of the 2013 Phoenix Crossing Land Sale through fiscal 2017, when Griffin completed its required roadwork, Griffin recognized total revenue of approximately $9.0 million and a total pretax gain of approximately $6.7 million from the 2013 Phoenix Crossing Land Sale.

In fiscal 2016, Griffin completed one land sale for approximately $3.8 million and recognized revenue of approximately $0.6 million related to the 2013 Phoenix Crossing Land Sale.

Periodically, Griffin 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’s core development and leasing strategy. Such sale transactions may take place either before or after obtaining development approvals and building basic infrastructure.

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

Griffin maintains a corporate website at www.griffinindustrial.com. Griffin’s Annual Report on Form 10‑K (including audited financial statements), quarterly reports on Form 10‑Q, current reports on Form 8‑K and the proxy statement for Griffin’s Annual Meeting of Stockholders can be accessed through Griffin’s website at www.griffinindustrial.com/investors or through the SEC website at http://www.sec.gov. Griffin will provide electronic or paper copies of its foregoing filings free of charge upon request. Griffin was incorporated in 1970.

Griffin’s total portfolio of approximately 2,051,000 square feet of industrial/warehouse space in Connecticut was 98% leased as of November 30, 2018. A significant portion of Griffin’s industrial development in Connecticut is in NE Tradeport, where Griffin has built and currently owns fifteen industrial/warehouse buildings aggregating approximately 1,837,000 square feet. Griffin owns three industrial/warehouse buildings in Connecticut that are not located in NE Tradeport, including a 165,000 square foot industrial building (“1985 Blue Hills”) in Windsor, Connecticut, that is being used principally as a data center and call center. Under the terms of the full building lease of 1985 Blue Hills, which runs through March 31, 2024 with several options to renew, the tenant has the option to purchase the building from March 1, 2021 through May 1, 2021 at a purchase price that is the greater of $11.5 million or fair market value as determined under the terms of the lease.

In fiscal 2018, Griffin leased approximately 331,000 square feet in NE Tradeport, including the full building lease of approximately 234,000 square feet in 220 Tradeport and approximately 63,000 square feet in 330 Stone. Approximately 27,000 square feet of the fiscal 2018 leasing replaced existing leases that expired and were not renewed.  Also in fiscal 2018, Griffin renewed several leases aggregating approximately 180,000 square feet, including a full building lease for approximately 127,000 square feet at 759 Rainbow Road. The rental rates for leases in NE Tradeport that were renewed in fiscal 2018 were, on average, essentially unchanged from the rental rates of the expiring leases. Management believes that the rental rates on the two NE Tradeport leases aggregating approximately 46,000 square feet that are scheduled to expire in fiscal 2019 are approximately 10% below market rates for similar space.

The Q4 2018 CBRE|New England Marketview Report (“Q4 2018 CBRE|New England Report”) from CBRE Group, Inc. (“CBRE”), a national real estate services company, stated that the vacancy rate in the greater Hartford industrial market decreased to 7.2% at the end of 2018 from 8.8% at the end of 2017, and that net absorption in the greater Hartford industrial market in 2018 was approximately 1.2 million square feet. The Q4 2018 CBRE|New England Report also stated that the vacancy rate in the north submarket of Hartford, where Griffin’s properties are located, decreased to 5.4% at the end of 2018 from 6.3% at the end of 2017, with net absorption of approximately 0.3 million square feet in 2018. The decrease in the Hartford industrial market vacancy rate in 2018 continued the downward trend from 2014, when the vacancy rate in the Hartford industrial market was 12.3%.

In NE Tradeport, Griffin holds entitlements to potentially develop an additional approximately 440,000 square feet, consisting of one approved building site on approximately 34 acres and approved additions to two of its existing buildings. Griffin owns an additional 99 acres of undeveloped land within NE Tradeport, 60 acres of which are in Windsor and the abutting 39 acres of which are in East Granby. Full approvals for the development of this remaining

land for industrial use are not in place, and the East Granby land would require a zone change for industrial development. Parts of such acreage may not be developable. Griffin believes that additional infrastructure improvements, which may be significant, may be required to obtain approvals to develop portions of this land, particularly the land in East Granby. Griffin expects to continue to direct much of its real estate efforts in Connecticut on the construction and leasing of industrial/warehouse facilities in NE Tradeport and other suitably located land currently owned. As of November 30, 2018, Griffin also owns approximately 76 acres of undeveloped land in Phoenix Crossing that is zoned for industrial and commercial development.

As of November 30, 2018, approximately $86.4 million was invested (net book value) by Griffin in its Connecticut industrial/warehouse buildings, approximately $2.8 million was invested (net book value) by Griffin in the undeveloped NE Tradeport land and approximately $1.5 million was invested in the undeveloped Phoenix Crossing land. As of November 30, 2018, sixteen of Griffin’s Connecticut industrial/warehouse buildings were mortgaged for an aggregate of approximately $82.6 million.

Lehigh Valley, Pennsylvania

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

Since Griffin entered the Lehigh Valley market in fiscal 2010, Griffin has purchased a fully leased approximately 120,000 square foot industrial building, acquired approximately 114 acres of undeveloped land and built, on speculation, five industrial/warehouse buildings aggregating approximately 1,197,000 square feet on the land acquired. As of November 30, 2018, Griffin owned six industrial/warehouse buildings in the Lehigh Valley aggregating approximately 1,317,000 square feet.

In fiscal 2017, Griffin acquired an approximately 14 acre parcel of undeveloped land in the Lehigh Valley, and in the fourth quarter of fiscal 2018 completed 6975 Ambassador, an approximately 134,000 square foot industrial/warehouse building, built on speculation on that land parcel. 6975 Ambassador is not yet leased, however, Griffin’s other five buildings in Lehigh Valley are fully leased. In fiscal 2018, Griffin renewed a full building lease for one of its Lehigh Valley industrial/warehouse buildings at a rental rate 12% higher than the rental rate in effect at the time of the renewal.  Approximately $72.9 million was invested (net book value) in Griffin’s Lehigh Valley buildings as of November 30, 2018. All Lehigh Valley industrial/warehouse buildings, except 6975 Ambassador, are mortgaged under three separate nonrecourse mortgage loans for a total of approximately $48.4 million as of November 30, 2018. 

The vacancy rate of Lehigh Valley industrial/warehouse properties, in the counties where Griffin’s Lehigh Valley properties are located, as reported in CBRE’s Q4 2018 Marketview Lehigh Valley PA Industrial Report (the “Q4 2018 CBRE Lehigh Valley Report”) was 4.8% at the end of 2018, with a net absorption of approximately 5.5 million square feet in 2018.

On January 11, 2018, Griffin entered into an agreement to purchase an approximately 14 acre parcel of undeveloped land in the Lehigh Valley (the “Lehigh Valley Land”). Subsequently, the agreement was amended to reduce the purchase price from $3.6 million in cash to $3.1 million in cash and extend the due diligence and entitlement periods. If the transaction closes, Griffin plans to construct an approximately 156,000 square foot industrial/warehouse building on the Lehigh Valley Land. The closing of this purchase, anticipated to take place in fiscal 2019, is subject to several conditions, including obtaining all governmental approvals for Griffin’s development plans for the Lehigh Valley Land. There is no guarantee that this transaction will be completed under its current terms, or at all.

Charlotte, North Carolina

A summary of Griffin’s Charlotte, North Carolina industrial/warehouse square footage at the end of each of the past two fiscal years and leases in Griffin’s Charlotte, North Carolina industrial/warehouse building scheduled to expire during the next three fiscal years are as follows:

In fiscal 2017, Griffin completed its first acquisition of property in the Charlotte, North Carolina area when it acquired 215 International, which was constructed in 2015 and 74% leased when it was acquired. Subsequent to the closing, one of the tenants in 215 International leased the remaining approximately 73,000 square feet that had been vacant at the time the building was acquired. As of November 30, 2018, approximately $17.4 million was invested (net book value) in 215 International, and this building was mortgaged under a nonrecourse mortgage loan for approximately $11.9 million. CBRE’s Q4 2018 Marketview Charlotte Industrial Report stated a vacancy rate of 5.3% for warehouse space at the end of 2018 and absorption of 4.8 million square feet of warehouse space in 2018.

In the fiscal 2018 third quarter, Griffin purchased the Concord Land for approximately $2.7 million in cash, including acquisition expenses. Approximately $0.8 million of the purchase price of the Concord Land was paid using the proceeds from the 2018 Southwick Land Sale to complete a 1031 Like-Kind Exchange. In the fiscal 2018 fourth quarter, Griffin started site work and construction, on speculation, on two industrial/warehouse buildings aggregating approximately 283,000 square feet on the Concord Land. Griffin expects to spend approximately $15.0 million for the site work and construction of those two buildings, with expected completion of the buildings in the second half of fiscal 2019.

On June 26, 2018, Griffin entered into an agreement for the purchase of approximately 36 acres of undeveloped land in Mecklenburg County, North Carolina in the greater Charlotte area (the “Mecklenburg Land”) for approximately $4.7 million in cash. On December 5, 2018, Griffin entered into an agreement for the purchase of approximately 9 acres of undeveloped land (the “Additional Mecklenburg Land”) that is adjacent to the Mecklenburg Land for approximately $0.9 million in cash. If acquired, the Additional Mecklenburg Land is expected to be combined with the Mecklenburg Land to enable Griffin to construct more industrial/warehouse space than could be constructed on the Mecklenburg Land alone. Closings on the purchases of the Mecklenburg Land and the Additional Mecklenburg Land are subject to several conditions, including obtaining all governmental approvals for Griffin’s development plans. Griffin would only complete the purchase of the Additional Mecklenburg Land if the Mecklenburg Land is acquired. The amount of industrial/warehouse space to be developed on the Mecklenburg Land and, if also acquired, the Additional Mecklenburg Land, will be based upon findings during the approvals process. The closings on the purchases of the Mecklenburg Land 

and the Additional Mecklenburg Land are not anticipated to take place until the third quarter of fiscal 2019. There is no guarantee that the purchases of the Mecklenburg Land and the Additional Mecklenburg Land will be completed under their current terms, or at all.

Griffin may seek to acquire additional properties and/or undeveloped land parcels to expand the industrial/warehouse portion of its real estate business. Griffin continues to examine potential properties for acquisition in the Middle Atlantic, Northeast and Southeast regions and selected markets targeted by Griffin. Real estate acquisitions may or may not occur based on many factors, including real estate pricing. Griffin may commence speculative construction projects on its undeveloped land that is either currently owned or acquired in the future if it believes market conditions are favorable for such development. Griffin may also construct additional build-to-suit facilities on its undeveloped land if lease terms are favorable.

All of Griffin’s office/flex properties are located in Griffin Center in Windsor and Bloomfield, Connecticut and Griffin Center South in Bloomfield, which are in the north submarket of Hartford. The Hartford office/flex market remained weak in 2018, as evidenced by vacancy rates at the end of 2018, as stated in the Q4 2018 CBRE|New England Report, of 17.2% for the overall Hartford market and 33.6% in north submarket of Hartford.

In Griffin Center, Griffin currently owns two multi‑story office buildings that have an aggregate of approximately 161,000 square feet, a single story office building of approximately 48,000 square feet and a small restaurant building of approximately 7,000 square feet. In Griffin Center South, Griffin currently owns eight office/flex buildings with an aggregate of approximately 217,000 square feet of single story office/flex space. Griffin’s office/flex square footage was approximately 72% leased as of November 30, 2018.

As of November 30, 2018, Griffin’s total office/flex space of approximately 433,000 square feet comprised approximately 11% of Griffin’s total square footage. Griffin expects that its office/flex space will continue to become a smaller percentage of its total space as Griffin expects to focus on the growth of its industrial/warehouse building portfolio either through the acquisition of fully or partially leased buildings, development of buildings on land currently owned or to be acquired, or both.

In fiscal 2018, Griffin entered into a five year lease for approximately 11,000 square feet at 320 West Newberry Road in Griffin Center South that was previously vacant. Additionally, Griffin renewed a lease for approximately 8,000 square feet of office/flex space in fiscal 2018 at the same rate as the expiring lease and the lease for the approximately 7,000 square foot restaurant building expired. Management believes that the rental rates on the leases for office/flex space scheduled to expire in fiscal 2019 are approximately 15% higher than the market rates for similar space.

Currently there are approximately 156 acres of undeveloped land in Griffin Center and approximately 75 acres of undeveloped land in Griffin Center South that are owned by Griffin. As of November 30, 2018, approximately $17.8 million was invested (net book value) in Griffin’s office/flex buildings and approximately $1.6 million was invested by Griffin in the undeveloped land in Griffin Center and Griffin Center South. Griffin’s two multi‑story office buildings in Griffin Center are mortgaged for approximately $4.3 million as of November 30, 2018, and Griffin’s single story office building in Griffin Center and the eight single-story office/flex buildings and an industrial/warehouse building in Griffin Center South are the collateral for Griffin’s $15.0 million revolving line of credit. There were no borrowings under the revolving line of credit as of November 30, 2018.

Residential Developments

Simsbury, Connecticut

Several years ago, Griffin filed plans for Meadowood, a proposed residential community in Simsbury, Connecticut (“Simsbury”). After several years of litigation with the town regarding this proposed residential development, a settlement was reached. The settlement terms included, among other items, approval for up to 296 homes, certain remediation measures and offsite road improvements to be performed by Griffin and the purchase by Simsbury of a portion of the Meadowood land for open space. The sale of land to Simsbury closed in fiscal 2008. In fiscal 2012, Griffin performed a portion of the required remediation work on the site and completed the required offsite road improvements. In fiscal 2014, Griffin completed the required remediation work. As of November 30, 2018, the book value of the land for this development, including design, development and legal costs, was approximately $8.5 million. Griffin is continuing to evaluate its plans for Meadowood.

Suffield, Connecticut

In fiscal 2006, Griffin completed the infrastructure for a fifty lot residential subdivision in Suffield, Connecticut called Stratton Farms. Griffin sold twenty‑five residential lots in Stratton Farms to a local homebuilder in fiscal 2006 and fiscal 2007. Griffin subsequently sold six additional lots. As of November 30, 2018, Griffin held nineteen Stratton Farms residential lots. The book value for Griffin’s Stratton Farms was approximately $1.0 million at November 30, 2018.

Other

Concurrent with Griffin’s sale in fiscal 2014 of its landscape nursery business, Imperial Nurseries, Inc. (“Imperial”), Griffin and the buyer, Monrovia Connecticut LLC (“Monrovia”) entered into a Lease and Option Agreement, which was amended in fiscal 2016 (as amended, the “Imperial Lease”) pursuant to which Monrovia leased Imperial’s production nursery located in Granby and East Granby, Connecticut (the “Connecticut Farm”) for a ten year period. The Imperial Lease grants Monrovia options to extend the term for up to an additional fifteen years and to purchase the land, land improvements and other operating assets that were used by Imperial on the Connecticut Farm during the first thirteen years of the lease period for $9.5 million, or $7.0 million if only a certain portion of the Connecticut Farm is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease.

Prior to the fiscal 2009 third quarter, Imperial operated a production nursery in Quincy, Florida (the “Florida Farm”). In fiscal 2009, Imperial shut down its growing operations on the Florida Farm and leased that facility to a grower of landscape nursery plants. After the expiration of that lease, Griffin entered into a new three year lease of the Florida Farm with another grower that started July 1, 2016. On December 18, 2017, the tenant leasing the Florida Farm filed for protection under Chapter 11 of the U.S. Bankruptcy Code and subsequently rejected the Florida Farm Lease effective September 15, 2018. The lease of the Florida Farm had a rental rate of $0.5 million per year at the time it was terminated. On September 28, 2018, Griffin and the tenant entered into a Stipulated Order whereby Griffin agreed to allow the tenant to remain on the Florida Farm through October 31, 2018 at the then current rental rate under the Florida Farm Lease. Griffin received all rent due under the Florida Farm Lease and the Stipulated Order. The Florida Farm was not leased as of November 30, 2018. Griffin is currently marketing the Florida Farm for sale or lease.

In fiscal 2018, Griffin leased approximately 427 acres of undeveloped land in Connecticut and Massachusetts to local farmers. Approximately 560 acres and 650 acres were leased to local farmers in fiscal 2017 and fiscal 2016, respectively. The revenue generated from the leasing of farmland is not material to Griffin’s total revenue.

On January 25, 2016, Griffin entered into an Option Purchase Agreement (the “Simsbury Option Agreement”), subsequently amended on January 22, 2019. Under the terms of the Simsbury Option Agreement, as amended, Griffin granted the buyer an exclusive option to purchase approximately 280 acres of undeveloped land in Simsbury, Connecticut for approximately $7.7 million. Through November 30, 2018, the buyer paid approximately $0.3 million of option fees to extend its option period through January 25, 2019. In fiscal 2018, the buyer received approval from Connecticut’s regulatory authority for the buyer’s planned use of the land, which is to generate solar electricity. Subsequent litigation challenging that approval was settled during fiscal 2018, thereby allowing the buyer to use the land to be purchased as planned. On January 24, 2019, the buyer exercised its option to purchase the land under the Simsbury Option Agreement, as amended. As per the terms of the Simsbury Option Agreement, as amended, closing on the land sale contemplated by the Simsbury Option Agreement, as amended, is required to take place within 90 days from the date the buyer exercised its option to purchase the land. There is no guarantee that the sale of land as contemplated under the Simsbury Option Agreement, as amended, will be completed under its current terms, or at all.

On May 5, 2017, Griffin entered into an Option Purchase Agreement (the “EGW Option Agreement”) whereby Griffin granted the buyer an exclusive option to purchase approximately 288 acres of undeveloped land in East Granby and Windsor, Connecticut for approximately $7.8 million. The buyer intended to use the land to generate solar electricity. The buyer’s option expired on May 5, 2018 and was not extended, thus terminating the EGW Option Agreement. Accordingly, the buyer forfeited the option fees (approximately $50,000) paid through that date.

Employees

As of November 30, 2018, Griffin had 34 employees, including 33 full‑time employees. Presently, none of Griffin’s employees are represented by a union. Griffin believes that relations with its employees are satisfactory.

Competition

The market for leasing industrial/warehouse space and office/flex space is highly competitive. Griffin competes for tenants with owners of numerous properties in the areas where Griffin’s buildings are located. Some of these competitors have greater financial resources than Griffin. Griffin’s real estate business competes on the bases of location, price, availability of space, convenience and amenities.

There is a great amount of competition for the acquisition of industrial/warehouse buildings and for the acquisition of undeveloped land for construction of such buildings. Griffin competes for the acquisition of industrial/warehouse properties with real estate investment trusts (“REITs”) and institutional investors, such as pension funds, private real estate investment funds, insurance company investment accounts, public and private investment companies, individuals and other entities engaged in real estate investment activities. Some of these competitors have greater financial resources than Griffin, and may be able to accept more risk, including risk related to the creditworthiness of tenants or the degree of leverage they may be willing to take on. Competitors for acquisitions may also have advantages from a lower cost of capital or greater operating efficiencies associated with being a larger entity.

Regulation: Environmental Matters

Under various federal and state laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to remediate properly such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. In connection with the ownership (direct or indirect), operation, management and development of real estate properties, Griffin may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. The value of Griffin’s land may be affected by the presence of residual chemicals from the prior use of the land for farming, principally on a portion of the land that is intended for residential use. In the event that Griffin is unable to remediate adequately any of its land intended for residential use, Griffin’s ability to develop such property for its intended purposes would be materially affected.

Griffin periodically reviews its properties for the purpose of evaluating such properties’ compliance with applicable federal and state environmental laws. In connection with the sale of Imperial, Griffin incurred a small amount of costs to remediate a small area of the Connecticut Farm that is leased to Monrovia under the Imperial Lease. As of the date of this Annual Report, Griffin is in discussions with the Connecticut Department of Energy and Environmental Protection (“DEEP”) regarding findings of exceedances of certain residual pesticides on a limited portion of the Connecticut Farm being leased to Monrovia. At this time, Griffin does not anticipate experiencing, in the next twelve months, any material expense in complying with such laws on any of its properties. Griffin may incur remediation costs in the future in connection with its development operations. Such costs are not expected to be significant as compared to expected proceeds from development projects or property sales.

Griffin’s ability to achieve growth in its portfolio partially depends in part on Griffin’s ability to acquire properties, which may suffer under certain circumstances.

Griffin acquires individual properties and in the future, may acquire portfolios of properties.  Griffin’s acquisition activities and their success are generally subject to the following risks:

Griffin may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against Griffin based upon ownership of those properties, Griffin might have to pay substantial sums to settle such liabilities, which could adversely affect its cash flow and financial position.

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

Griffin’s office/flex portfolio, which comprises 11% of its total square footage and was 72% occupied as of November 30, 2018, is concentrated in the north submarket of Hartford.  The demand for office/flex space in this market is weak and competitive, with market vacancy in excess of 33% as of December 31, 2018, according to the Q4 2018 CBRE|New England Report. There is no certainty that Griffin will retain existing tenants or attract new tenants to its office/flex buildings.  Re-leasing Griffin’s office/flex properties typically requires greater investment per square foot than for Griffin’s industrial/warehouse properties and could negatively impact Griffin’s results of operations and cash flow.

Griffin may experience increased operating costs, which could adversely affect Griffin’s results of operations.

Griffin’s properties are subject to increases in o perating expenses such as real estate taxes, fuel, utilities, labor, repairs and maintenance, building materials and insurance. While many of Griffin’s current tenants generally are obligated to pay a significant portion of these costs, there are no assurances that existing or new tenants will agree to or make such payments.  If operating expenses increase, Griffin may not be able to pass these costs on to its tenants and, therefore, any such increases could have an adverse effect on Griffin’s results of operations and cash flow.

Griffin relies on third party managers for day-to-day property management of certain of its properties.

Griffin relies on local third party managers for the day-to-day management of its Lehigh Valley and Concord, North Carolina properties. To the extent that Griffin uses a third party manager, the cash flows from its Lehigh Valley and Concord properties may be adversely affected if the property manager fails to provide quality services. These third party managers may fail to manage Griffin’s properties effectively or in accordance with their agreements with Griffin, may be negligent in their performance and may engage in criminal or fraudulent activity. If any of these events occur, Griffin could incur losses or face liabilities from the loss or injury to its property or to persons at its properties. In addition, disputes may arise between Griffin and these third party managers, and Griffin may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective alternative service providers to manage the relevant properties. Additionally, third party managers may manage and own other properties that may compete with Griffin’s properties, which may result in conflicts of interest and decisions regarding the operation of Griffin’s properties that are not in Griffin’s best interests. Griffin likely would rely on third-party managers in any new markets it enters through its acquisition activities.

Unfavorable events affecting Griffin’s existing and potential tenants and its properties, or negative market conditions that may affect Griffin’s existing and potential tenants, could have an adverse impact on Griffin’s ability to attract new tenants, re-let space, collect rent and renew leases, and thus could have a negative effect on Griffin’s results of operations and cash flow.

The substantial majority of Griffin’s revenue is derived from lease revenue from its industrial/warehouse and office/flex buildings.  Griffin’s results of operations and cash flows depend on its ability to lease space to tenants on economically favorable terms. Therefore, Griffin could be adversely affected by various factors and events over which Griffin has limited control, such as:

If a tenant is unable to pay rent due to Griffin, Griffin may be forced to evict the tenant, or engage in other remedies, which may be expensive and time consuming and may adversely affect Griffin’s results of operation and cash flows.

If Griffin’s tenants do not renew their leases as they expire, Griffin may not be able to re-lease the space. Furthermore, leases that are renewed, or new leases for space that is re-let, may have terms that are less economically favorable to Griffin than current lease terms, or may require Griffin to incur significant costs, such as for renovations, tenant improvements or lease transaction costs.

Any of these events could adversely affect Griffin’s results of operations and cash flows and its ability to make dividend payments and service its indebtedness.

A significant portion of Griffin’s costs, such as real estate taxes, insurance costs, and debt service payments, are fixed, which means that they generally are not reduced when circumstances cause a decrease in cash flow from its properties.

Declining real estate valuations and any related impairment charges could materially adversely affect Griffin’s financial condition, results of operations, cash flows, ability to satisfy debt obligations and ability to pay dividends on, and the per share trading price of, its common stock.

Griffin reviews the carrying value of its properties when circumstances, such as adverse market conditions, indicate a potential impairment may exist. Griffin bases its review on an estimate of the future cash flows (excluding interest charges) expected to result from the property’s use and eventual disposition on an undiscounted basis. Griffin considers factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. With respect to undeveloped land, Griffin evaluates the cash flow to be generated from the potential use or sale of such land as compared to the costs, including entitlement and infrastructure costs for the intended use or costs required to prepare the land for sale. If Griffin’s evaluation indicates that it may be unable to recover the carrying value of a real estate investment, an impairment loss would be recorded to the extent that the carrying value exceeds the estimated fair value of the property.

Impairment losses have a direct impact on Griffin’s results of operations because recording an impairment loss results in an immediate negative adjustment to Griffin’s operating results. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause Griffin to reevaluate the assumptions used in its impairment analysis. Impairment charges could materially adversely affect Griffin’s financial condition, results of operations, cash flows and ability to pay dividends on, and the per share trading price of, its common stock.

Griffin’s use of nonrecourse mortgage loans and construction loans could have a material adverse effect on its financial condition.

As of November 30, 2018, Griffin had indebtedness under nonrecourse mortgage loans and a construction loan of approximately $147.2 million, collateralized by approximately 89% of the total square footage of its industrial/warehouse and office/flex buildings. If a significant number of Griffin’s tenants were unable to meet their obligations to Griffin or if Griffin were unable to lease a significant amount of space in its properties on economically favorable lease terms, there would be a risk that Griffin would not have sufficient cash flow from operations for payments of required principal and interest on these loans. If Griffin was unable to make such payments and was to default, the property collateralizing the mortgage loan could be foreclosed upon, and Griffin’s financial condition and results of operations would be adversely affected. In addition, two of Griffin’s nonrecourse mortgage loans contain cross default provisions. A default under a mortgage loan that has cross default provisions may cause Griffin to automatically default on another loan.

Griffin’s use of financing arrangements that include balloon payment obligations could have a material adverse effect on its financial condition.

Approximately 92% of Griffin’s nonrecourse mortgage loans as of November 30, 2018 require a lump-sum or “balloon” payment at maturity. Griffin’s ability to make a balloon payment at maturity may be uncertain and may

depend upon its ability to obtain additional financing. At the time the balloon payment is due, Griffin may or may not be able to refinance the balloon payment on terms as favorable as the original mortgage terms. If Griffin were to be unable to refinance the balloon payment, then it may be forced to sell the property or pay the balloon payment using its existing cash on hand or other liquidity sources, or the property could be foreclosed. Any balloon payments that Griffin makes out of its existing cash or liquidity may have a material adverse effect on its financial condition and leave it with insufficient cash to invest in other properties, pay dividends to stockholders or meet its other obligations.

Griffin’s failure to effectively hedge against interest rate fluctuation could have a material adverse effect on its financial condition.

Griffin has entered into several interest rate swap agreements to hedge its interest rate exposures related to its variable rate nonrecourse mortgages on certain of its industrial/warehouse and office/flex buildings. These agreements have costs and involve the risks that these arrangements may not be effective in reducing Griffin’s exposure to interest rate fluctuations and that a court could rule that such agreements are not legally enforceable. The failure to hedge effectively against interest rate fluctuations may have a material adverse effect on Griffin’s results of operations if interest rates were to rise materially. Additionally, any settlement charges incurred to terminate an interest rate swap agreement may result in increased interest expense, which may also have an adverse effect on Griffin’s results of operations.

Griffin may suffer adverse effects as a result of the terms of and covenants relating to its revolving credit facility.

Griffin’s continued ability to borrow under its $15 million revolving credit facility is subject to compliance with financial and other covenants. Griffin’s failure to comply with such covenants could cause a default under this credit facility, and Griffin may then be required to repay amounts outstanding, if any, under the facility with capital from other sources. Under those circumstances, other sources of capital may not be available to Griffin, or may be available only on unattractive terms. 

Griffin relies on key personnel.

Griffin’s success depends to a significant degree upon the contribution of certain key personnel, including but not limited to Griffin’s Executive Chairman, President and Chief Executive Officer, Griffin Industrial, LLC’s Senior Vice President and Griffin Industrial, LLC’s Vice President of Construction.  If any of Griffin’s key personnel were to cease employment, Griffin’s operating results could suffer. Griffin’s ability to retain its senior management group or attract suitable replacements should any members of the senior management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation on their availability could adversely affect Griffin’s results of operations and cash flows.  Griffin has not obtained and does not expect to obtain key man life insurance on any of its key personnel.

Risks Related to the Real Estate Industry

Changing or adverse political and economic conditions and credit markets may impact Griffin’s results of operations and financial condition.

Griffin’s real estate business may be affected by market conditions and political and economic uncertainty experienced by the U.S. economy as a whole, conditions in the credit markets or by local economic conditions in the markets in which its properties are located. Such conditions may impact Griffin’s results of operations, financial condition or ability to expand its operations and pay dividends to stockholders as a result of the following:

An increase in interest rates could adversely impact Griffin’s ability to refinance existing debt or to finance new developments and acquisitions.

Rising interest rates could limit Griffin’s ability to refinance existing debt on favorable terms, or at all, when it matures. Interest rates have been in recent years, and currently remain, low by historical standards.  However, the Federal Reserve raised its benchmark interest rate multiple times in 2017 and 2018, and further interest rate increases may occur. If interest rates increase, so will Griffin’s interest costs, which would adversely affect Griffin’s cash flow and could affect Griffin’s ability to pay principal and interest on its debt.

From time to time, Griffin enters into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. These agreements, which are intended to lessen the impact of rising interest rates on Griffin, expose Griffin to the risks that the other parties to the agreements might not perform, or that Griffin could incur significant costs associated with the settlement of the agreements, or that the agreements might be unenforceable and the underlying transactions would fail to qualify as highly-effective cash flow hedges under relevant accounting guidance.

In addition, an increase in interest rates could decrease the amounts third parties are willing to lend to Griffin for use towards potential acquisitions or development costs, thereby limiting its ability to grow its property portfolio. 

Griffin may not be able to compete successfully with other entities that operate in its industry.

Griffin experiences a great amount of competition for the acquisition of industrial/warehouse buildings, for the acquisition of undeveloped land for construction of such buildings and for attracting tenants for its properties.  Griffin competes with well-capitalized real estate investors such as pension funds and their advisors, private real estate investment funds, bank and insurance company investment accounts, public and private investment companies, including REITs, individuals and other entities engaged in real estate investment activities. Some of these competitors have greater financial resources than Griffin, and may be able to accept more risk, including risk related to the creditworthiness of tenants or the degree of leverage they may be willing to take on. Competitors for acquisitions may also have advantages from a lower cost of capital or greater operating efficiencies associated with being a larger entity. Some of these competitors may be able to offer prospective tenants more attractive financial or other terms than Griffin is able to offer.

Griffin may experience increased costs of raw materials and energy, which could adversely affect its operations.

Griffin’s construction activities and maintenance of its current portfolio could be adversely affected by increases in raw materials or energy costs. As petroleum and other energy costs increase, products used in the construction of Griffin’s facilities, such as steel, masonry, asphalt, cement and building products may increase. Additionally, government international trade policies, including implementation of or changes in tariffs, could impact the cost of products used in Griffin’s facilities. An increase in the cost of building new facilities could negatively impact Griffin’s future operating results through increased depreciation expense. An increase in construction costs would also require increased investment in Griffin’s real estate assets, which may lower the return on investment in new facilities. An increase in energy costs could increase Griffin’s building operating expenses and thereby lower Griffin’s operating results.

Real estate investments are illiquid, and Griffin may not be able to sell its properties when Griffin determines it is appropriate to do so.

Real estate properties are not as liquid as other types of investments and this lack of liquidity could limit Griffin’s ability to react promptly to changes in economic, financial, investment or other conditions. In addition, provisions of the Internal Revenue Code of 1986, as amended, provide for the ability to exchange “like-kind” property to defer income taxes related to a gain on sale. The illiquidity of real estate properties may limit Griffin’s ability to find a replacement property to effectuate such an exchange.

Potential environmental liabilities could result in substantial costs.

Griffin has properties in Connecticut, the Lehigh Valley of Pennsylvania and Concord, North Carolina in addition to extensive land holdings in Connecticut, Massachusetts and Florida. Under federal, state and local environmental laws, ordinances and regulations, Griffin may be required to investigate and clean up the effects of releases of hazardous substances or petroleum products at its properties because of its current or past ownership or operation of the real estate. If previously unidentified environmental problems arise, Griffin may have to make substantial payments, which could adversely affect its cash flow. As an owner or operator of properties, Griffin may have to pay for property damage and for investigation and clean‑up costs incurred in connection with a contamination. The law typically imposes cleanup responsibility and liability regardless of whether the owner or operator knew of or caused the contamination. Changes in environmental regulations may impact the development potential of Griffin’s undeveloped land or could increase operating costs due to the cost of complying with new regulations.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require Griffin to make expenditures that adversely impact Griffin’s operating results.

All of Griffin’s properties are required to comply with the Americans with Disabilities Act ("ADA"). The ADA generally requires that places of public accommodation comply with federal requirements related to access and use by people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. Expenditures related to complying with the provisions of the ADA could adversely affect Griffin’s results of operations and financial condition. In addition, Griffin is required to operate its properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to Griffin’s properties. Griffin may be required to make substantial capital expenditures to comply with those requirements and these expenditures could have a material adverse effect on Griffin’s operating results and financial condition and Griffin’s ability to satisfy debt obligations and issue dividends to stockholders.

Governmental regulations and control could adversely affect Griffin’s real estate development activities.

Griffin’s operations are subject to governmental regulations that affect real estate development, such as local zoning ordinances. Any changes in such regulations may impact the ability of Griffin to develop its properties or increase Griffin’s costs of development. Subdivision and other residential development may also be affected by the potential adoption of initiatives meant to limit or concentrate residential growth. Commercial and industrial development activities of Griffin’s undeveloped land may also be affected by traffic considerations, potential environmental issues, community opposition and other restrictions to development imposed by governmental agencies.

Uninsured losses or a loss in excess of insured limits could adversely affect Griffin’s business, results of operations and financial condition.

Griffin carries comprehensive insurance coverage, including property, fire, terrorism and loss of rental revenue. The insurance coverage contains policy specifications and insured limits. However, there are certain losses that are not generally insured against or that are not fully insured against. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of Griffin’s properties, Griffin could experience a significant loss of capital invested in and potential revenue from the properties affected.

Volatility in the capital and credit markets could materially adversely impact Griffin.

Volatility and disruption in the capital and credit markets could make it more difficult to borrow money. Market volatility could hinder Griffin’s ability to obtain new debt financing or refinance maturing debt on favorable terms, or at

all. Any financing or refinancing issues could have a material adverse  effect on Griffin. Market turmoil and the tightening of credit could lead to an increased lack of consumer confidence and widespread reduction of business activity in general, which also could materially adversely impact Griffin, including its ability to acquire and dispose of assets on favorable terms, or at all.

If Griffin fails to maintain appropriate internal controls in the future, it may not be able to report its financial results accurately, which may adversely affect the per share trading price of its common stock and its business.

Griffin’s efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the related regulations regarding its required assessment of internal control over financial reporting and its external auditors’ audit of that assessment requires the commitment of significant financial and managerial resources. Griffin’s system of internal controls may not prevent all errors, misstatements or misrepresentations, and there can be no guarantee that its internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness or significant deficiency, in Griffin’s internal control over financial reporting that may occur in the future could result in misstatements of its results of operations, restatements of its financial statements and a decline in its stock price, or otherwise materially adversely affect Griffin’s business, reputation, results of operations, financial condition or liquidity.

Information technology (“IT”) security breaches and other incidents could disrupt Griffin’s operations, compromise confidential information maintained by Griffin, and damage Griffin’s reputation, all of which could negatively impact Griffin’s business, results of operations and the per share trading price of its common stock.

As part of Griffin’s normal business activities, it uses IT and other computer resources to carry out important operational activities and to maintain its business records. Griffin’s computer systems, including its backup systems, are subject to interruption or damage from power outages, computer and telecommunications failures, computer viruses, security breaches (including through cyber-attack and data theft), usage errors and catastrophic events, such as fires, floods, tornadoes and hurricanes. If Griffin’s computer systems and its backup systems are compromised, degraded, damaged or breached, or otherwise cease to function properly, Griffin could suffer interruptions in its operations or unintentionally allow misappropriation of proprietary or confidential information, which could damage its reputation and require Griffin to incur significant costs to remediate or otherwise resolve these issues. There can be no assurance that the security efforts and measures Griffin has implemented will be effective or that attempted security breaches or disruptions would not be successful or damaging.

Griffin is subject to litigation that may adversely impact operating results.

From time to time, Griffin may be a party to legal proceedings and claims arising in the ordinary course of business which could become significant. Given the inherent uncertainty of litigation, Griffin can offer no assurance that a future adverse development related to existing litigation or any future litigation will not have a material adverse impact on its business, consolidated financial position, results of operations or cash flows.

Griffin is exposed to the potential impacts of future climate change and climate-change related risks.

Griffin is exposed to potential physical risks from possible future changes in climate. Griffin’s properties may be exposed to rare catastrophic weather events, such as severe storms and/or floods. If the frequency of extreme weather events increases due to climate change, Griffin’s exposure to these events could increase.

As a real estate owner and developer, Griffin may be adversely impacted in the future by stricter energy efficiency standards for buildings.  Griffin may be required to make improvements to its existing properties to meet such standards and the costs to meet these standards may increase Griffin’s costs for new construction.

Griffin’s properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne

toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of Griffin’s properties could require Griffin to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose Griffin to liability from its tenants, employees of its tenants or others if property damage or personal injury is alleged to have occurred.

Risks Related to Griffin’s Organization and Structure

The concentrated ownership of Griffin common stock by members of the Cullman and Ernst families may limit other Griffin stockholders’ ability to influence Griffin’s corporate and management policies. 

Members of the Cullman and Ernst families (the “Cullman and Ernst Group”), which include Frederick M. Danziger, Griffin’s Executive Chairman, Michael S. Gamzon, a director and Griffin’s President and Chief Executive Officer and Edgar M. Cullman, Jr., a director of Griffin, members of their families and trusts for their benefit, partnerships in which they own substantial interests and charitable foundations on whose boards of directors they sit, owned, directly or indirectly, approximately 44.9% of the outstanding common stock of Griffin as of November 30, 2018. There is an informal understanding that the persons and entities included in the Cullman and Ernst Group will vote together the shares owned by each of them. As a result, the Cullman and Ernst Group may effectively control the determination of Griffin’s corporate and management policies and may limit other Griffin stockholders’ ability to influence Griffin’s corporate and management policies.

Griffin’s board of directors may change its investment and financing policies without stockholder approval and Griffin may become more highly leveraged, which may increase Griffin’s risk of default under its debt obligations.

Griffin’s investment and financing policies are exclusively determined by its board of directors. Accordingly, Griffin’s stockholders do not control these policies. Further, Griffin’s charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that Griffin may incur. Griffin’s board of directors may alter or eliminate its current policy on borrowing at any time without stockholder approval. If this policy changed, Griffin could become more highly leveraged which could result in an increase in its debt service. Higher leverage also increases the risk of default on Griffin’s obligations. In addition, a change in Griffin’s investment policies, including the manner in which Griffin allocates its resources across the portfolio or the types of assets in which Griffin seeks to invest, may increase its exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to Griffin’s policies with regard to the foregoing could adversely affect Griffin’s financial condition, results of operations, cash flows and its ability to pay dividends on, and the per share trading price of, its common stock.

Changes to the U.S. federal income tax laws, including the recent comprehensive tax reform legislation, could have an adverse impact on Griffin’s business and financial results.

In December 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”) that includes significant changes to the U.S. federal income taxation of business entities. These changes include, among others, a permanent reduction to the corporate income tax rate, an expansion of the bonus depreciation provisions relating to the deductibility of certain eligible capital expenses, a limitation on the utilization of net operating losses to offset taxable income, and a partial limitation on the deductibility of business interest expense. Griffin is currently evaluating the potential impact on its operations of certain aspects of the TCJA that have not yet become effective for Griffin. The impact of those aspects of the TCJA that are not yet effective for Griffin could be material to Griffin’s results of operations in future periods.

Risks Related to Griffin’s Common Stock

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

Griffin’s ability to develop and acquire proprieties in part depends on Griffin’s access to capital which may in the future include the issuance of common equity. Griffin’s board of directors can authorize the issuance of additional securities without stockholder approval. Furthermore, o n May 10, 2018, Griffin filed a shelf registration statement on

Form S-3 with the SEC that allows it to offer up to $30 million of securities from time to time in one or more public offerings of its common stock.

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

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

The market price and trading volume of Griffin’s common stock may be volatile.

The trading volume in Griffin’s common stock may fluctuate and cause significant price variations to occur. If the per share trading price of Griffin’s common stock declines significantly, stockholders may be unable to resell their shares at or above the price paid for them. Griffin cannot assure stockholders that the per share trading price of its common stock will not fluctuate or decline significantly in the future.

Some of the factors that could negatively affect Griffin’s share price or result in fluctuations in the price or trading volume of its common stock include:

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert Griffin’s management’s attention and resources, which could have an adverse effect on Griffin’s financial condition, results of operations, cash flows and Griffin’s ability to pay dividends on, and the per share trading price of, its common stock.

In the future, Griffin may attempt to increase its capital resources by making offerings of debt or additional equity securities, including medium-term notes, senior or subordinated notes and classes or series of its preferred stock

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