3. Real Estate Assets

Real estate assets consist of:


	Estimated
	Useful Lives	Nov. 30, 2017		Nov. 30, 2016
Land		$	20,403	$	17,895
Land improvements	10 to 30 years		30,833		27,592
Buildings and improvements	10 to 40 years		187,116		164,353
Tenant improvements	Shorter of useful life or terms of related lease		27,924		21,925
Machinery and equipment	3 to 20 years		10,958		11,022
Construction in progress			486		1,659
Development costs			14,132		14,615
			291,852		259,061
Accumulated depreciation			(95,112)		(86,801)
		$	196,740	$	172,260

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


	For the Fiscal Years Ended
	Nov. 30, 2017		Nov. 30, 2016		Nov. 30, 2015
Depreciation expense	$	8,831	$	7,768	$	6,539

Capitalized interest	$	103	$	274	$	777

On April 28, 2017, Griffin closed on the sale of approximately 67 acres (the “2017 Phoenix Crossing Land Sale”) of undeveloped land in Phoenix Crossing, the approximately 268 acre business park master planned by Griffin that straddles the town line between Windsor and Bloomfield, Connecticut. Griffin received cash proceeds of $10,250 before transaction costs and recorded a pretax gain of $7,975 on the 2017 Phoenix Crossing Land Sale. The net cash proceeds of $9,711 from the 2017 Phoenix Crossing Land Sale were placed in escrow and subsequently used for the acquisition of a replacement property, 215 International, in a like-kind exchange (a “1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986 (the “IRC”), as amended (see below).

On June 9, 2017, Griffin closed on the acquisition of 215 International, an approximately 277,000 square foot industrial/warehouse building in Concord, North Carolina, for $18,440. 215 International is Griffin’s first property in the Charlotte area. The purchase price was paid in cash at closing using the proceeds held in escrow from the 2017 Phoenix Crossing Land Sale (see above) of $9,711 with the balance paid from Griffin’s cash on hand. Griffin incurred approximately $71 of acquisition costs on the purchase of 215 International which are included in general and administrative expenses on Griffin’s fiscal 2017 consolidated statement of operations. 215 International was constructed in 2015 and was 74% leased at the time it was acquired. Subsequent to the closing, one of the tenants in 215 International leased the approximately 73,000 square feet that had been vacant at the time the building was acquired. Rental revenue of $722 and operating income of $112 from 215 International are included in Griffin’s fiscal 2017 consolidated statement of operations. Griffin determined that the fair value of the assets acquired approximated the purchase price. Of the $18,440 purchase price, $16,789 represented the fair value of the real estate assets and $1,651 represented the fair value of the acquired intangible assets, comprised of the value of in-place leases at the time of acquisition and the tenant relationship intangible assets (see Notes 2 and 9). The intangible assets are included in other assets on Griffin’s consolidated balance sheet. The value of the real estate assets primarily represents the value given to the building and land improvements that will be depreciated over forty years. Other building and tenant improvements will be depreciated over a period of five to eighteen years. The value of the intangible assets will primarily be amortized over five to ten years.

Consolidated unaudited pro forma results of operations for Griffin are presented below assuming that the acquisition of 215 International had occurred at the beginning of fiscal 2017. Pro forma results are not presented for fiscal 2016 as the lease for the first tenant did not commence until October 2016 and such pro forma results would not be meaningful. Pro forma financial information is not necessarily indicative of Griffin’s actual results of operations if the acquisition had been completed at the beginning of fiscal 2017, nor is it necessarily an indication of future operating results.


	For the Fiscal Year Ended November 30, 2017
	As reported			Adjustments (a)	Pro forma
Rental revenue	$	29,939	$	370	$	30,309
Revenue from property sales		13,945		—		13,945
Total revenue		43,884		370		44,254

Operating expenses of rental properties		8,866		39		8,905
Depreciation and amortization expense		10,064		470		10,534
Costs related to property sales		3,780		—		3,780
General and administrative expenses		8,552		—		8,552
Total expenses		31,262		509		31,771

Operating income		12,622		(139)		12,483

Interest expense		(5,690)		—		(5,690)
Other non-operating income		368		—		368
Income before income tax (provision) benefit		7,300		(139)		7,161
Income tax (provision) benefit		(2,673)		51		(2,622)
Net income	$	4,627	$	(88)	$	4,539

Earnings per share:
Basic	$	0.92			$	0.91
Diluted	$	0.92			$	0.90

(a)

Adjustments do not reflect revenue from leasing, subsequent to the date of acquisition, the approximately 73,000 square feet that was vacant at the time 215 International was acquired and interest expense from financing of 215 International subsequent to the date of the acquisition (see Note 5).

On August 4, 2017, Griffin completed the sale of approximately 76 acres (the “Southwick Land Sale”) of undeveloped land in Southwick, Massachusetts. Griffin received cash proceeds of $2,100 before transaction costs and recorded a pretax gain of $1,890 on the Southwick Land Sale. The net cash proceeds of $1,943 from the Southwick Land Sale were placed in escrow and subsequently used for the acquisition of a replacement property in a 1031 Like-Kind Exchange (see below). The remaining amount of $91 in escrow was returned in the 2018 first quarter.

On August 24, 2017, Griffin closed on the purchase of approximately 14 acres of undeveloped land in the Lehigh Valley of Pennsylvania. The purchase price of $1,800 (excluding costs related to the purchase) was paid in cash at closing using the proceeds from the Southwick Land Sale that had been held in escrow (see above). The land acquired had all governmental approvals in place for Griffin’s planned development of an approximately 134,000 square foot industrial/warehouse building. Griffin began construction, on speculation, on this building in the fourth quarter of fiscal 2017 and expects to complete construction in the third quarter of fiscal 2018.

On September 22, 2016, Griffin closed on the sale of approximately 29 acres of an approximately 45 acre land parcel in Griffin Center in Bloomfield, Connecticut for cash proceeds of $3,756 and a pretax gain of $3,174. An additional approximately 15 acres of that land parcel, much of which is wetlands with very limited development potential, was donated to an affiliate of the purchaser at the time of the closing. Griffin retained approximately one acre, which is adjacent to other undeveloped land owned by Griffin. The net cash proceeds from the sale of $3,536 were placed in escrow for the potential acquisition of a replacement property as part of a 1031 Like-Kind Exchange. A replacement property was not purchased within the time frame required under IRC regulations regarding 1031 Like-Kind Exchanges, therefore, the proceeds placed in escrow were returned to Griffin in fiscal 2017 (see Note 9).

The farm in Quincy, Florida (the “Florida Farm”) that had been used by Imperial prior to being shut down in fiscal 2009 was leased to a private company grower of landscape nursery products from fiscal 2009 until April 30, 2016. In the 2015 second quarter, that tenant gave notice of its intent to exercise the purchase option for the Florida Farm under the terms of its lease for approximately $4,100. On June 1, 2015, Griffin received a deposit of $400 as required under the terms of the lease agreement. In August 2015, that tenant informed Griffin that it would not close on the purchase of the Florida Farm. Imperial and the tenant subsequently entered into a Holdover and Settlement Agreement (the “Agreement”) which permitted the tenant to continue to lease the Florida Farm at an agreed upon rental rate through April 30, 2016. The Agreement also stipulated that Imperial was entitled to retain the deposit against the purchase price made by the tenant when it exercised its option to purchase the Florida Farm; therefore, the $400 deposit is reflected as revenue from property sales in Griffin's fiscal 2015 consolidated statement of operations. Subsequent to that lease expiration, Griffin entered into a three year lease of the Florida Farm with a new tenant that includes an option for the new tenant to purchase the Florida Farm for a purchase price between $3,400 and $3,900 depending upon the date of sale. Subsequent to November 30, 2017, the tenant currently leasing the Florida Farm declared bankruptcy under Chapter 11 of the U.S. Bankruptcy Code (see Note 12). Griffin has not determined the impact, if any, this will have on its lease, which expires in June 30, 2019.

In the 2013 fourth quarter, Griffin closed on the sale of approximately 90 acres of undeveloped land in Phoenix Crossing for $8,968 in cash, before transaction costs (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 sold with existing town roads. Once completed, the roads constructed by the buyer and by Griffin became new town roads, thereby providing public access to the remaining acreage in Griffin’s land parcel. 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. Accordingly, the revenue and pretax gain on the sale were 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 the 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.

As of November 30, 2017, Griffin had completed the required improvements related to the 2013 Phoenix Crossing Land Sale; accordingly, all of the remaining revenue and pretax gain on the sale were recognized in Griffin’s fiscal 2017 consolidated statement of operations. The revenue and pretax gain recognized by Griffin from the closing of the 2013 Phoenix Crossing Land Sale in fiscal 2013 through fiscal 2017 are as follows:


	For the Fiscal Years Ended
	Nov. 30, 2017		Nov. 30, 2016		Nov. 30, 2015		Nov. 30, 2014		Nov. 30, 2013		Total
Revenue	$	104	$	608	$	2,483	$	3,105	$	2,668	$	8,968

Pretax gain	$	66	$	380	$	1,880	$	2,358	$	1,990	$	6,674

On March 29, 2017, the full building tenant in an approximately 100,000 square foot industrial/warehouse building in New England Tradeport (“NE Tradeport”), Griffin’s industrial park located in Windsor and East Granby, Connecticut, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to the Chapter 11 filing, Griffin entered into an Amendment to Lease (the “Amendment”) with this tenant which was approved by the U.S. Bankruptcy Court. Under the terms of the Amendment, the tenant’s premises will be reduced to approximately 52,000 square feet prior to June 1, 2018, however, the per square foot rental rates and lease expiration date of March 31, 2024 under the existing lease remain the same. The tenant has also agreed to pay a termination fee of $243 in monthly installments over the balance of the lease term. Rental revenue from this tenant was $1,142 in fiscal 2017.

Real estate assets held for sale consist of:


	Nov. 30, 2017		Nov. 30, 2016
Land	$	504	$	264
Land improvements		354		—
Development costs		1,074		2,728
	$	1,932	$	2,992

In fiscal 2017, $1,757 was reclassified from real estate assets to real estate assets held for sale related to sales agreements currently under contract (see Note 11). Real estate assets held for sale were reduced in fiscal 2017 by $2,817 for property sales that closed.