3. Real Estate Assets

Real estate assets consist of:


	Estimated
	Useful Lives	Nov. 30, 2018		Nov. 30, 2017
Land		$	21,961	$	20,403
Land improvements	10 to 30 years		38,280		30,833
Buildings and improvements	10 to 40 years		204,258		187,116
Tenant improvements	Shorter of useful life or terms of related lease		29,163		27,924
Machinery and equipment	3 to 20 years		10,958		10,958
Construction in progress			562		486
Development costs			13,443		14,132
			318,625		291,852
Accumulated depreciation			(105,004)		(95,112)
		$	213,621	$	196,740

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


	For the Fiscal Years Ended
	Nov. 30, 2018		Nov. 30, 2017		Nov. 30, 2016
Depreciation expense	$	9,853	$	8,831	$	7,768

Capitalized interest	$	352	$	103	$	274

On April 26, 2018, Griffin closed on the sale of approximately 49 acres (the “2018 Southwick Land Sale”) of undeveloped land in Southwick, Massachusetts. Griffin received cash proceeds of $850, before transaction costs, and recorded a pretax gain of $794 on the 2018 Southwick Land Sale. The net cash proceeds, after transaction costs, of $847 from the 2018 Southwick Land Sale were deposited into escrow for the acquisition of a replacement property in a like-kind exchange (“1031 Like-Kind Exchange”) under Section 1031 of the Internal Revenue Code of 1986, as amended (the “IRC”), for income tax purposes. On July 18, 2018, Griffin closed on the purchase of an approximately 22 acre parcel of undeveloped land in Concord, North Carolina (the “Concord Land”) for a purchase price of $2,600, before transaction costs, as a replacement property under a 1031 Like-Kind Exchange.

On August 4, 2017, Griffin completed the sale of approximately 76 acres (the “2017 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 2017 Southwick Land Sale. The net cash proceeds, after transaction costs, of $1,943 from the 2017 Southwick Land Sale were deposited into escrow for the acquisition of a replacement property as part of a 1031 Like-Kind Exchange. On August 24, 2017, Griffin closed on the purchase of an approximately 14 acre parcel of undeveloped land in Upper Macungie Township, Lehigh County, Pennsylvania (the “Macungie Land”) for a purchase price of $1,800, before transaction costs, as a replacement property under a 1031 Like-Kind Exchange. The remaining amount of $91 in escrow was returned to Griffin in the fiscal 2018 first quarter.

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, after transaction costs, of $9,711 from the 2017 Phoenix Crossing Land Sale were deposited into escrow and subsequently used for the acquisition (see below) of 215 International, an approximately 277,000 square foot industrial/warehouse building in Concord, North Carolina, as the replacement property under a 1031 Like-Kind Exchange.

On June 9, 2017, Griffin closed on the purchase of 215 International for a purchase price of $18,440. 215 International was Griffin’s first property in the Charlotte area. The purchase price was paid in cash at closing using proceeds of $9,711 held in escrow from the 2017 Phoenix Crossing Land Sale (see above) 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 was 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 are being depreciated over forty years. Other building and tenant improvements are being depreciated over a period of five to eighteen years. The value of the intangible assets is being 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 the financing of 215 International subsequent to the date of the acquisition (see Note 5).

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).

Real estate assets held for sale consist of:


	Nov. 30, 2018		Nov. 30, 2017
Land	$	1,645	$	504
Land improvements		—		354
Development costs		1,007		1,074
	$	2,652	$	1,932

The increase in real estate assets held for sale in fiscal 2018 reflected $1,435 reclassified from real estate assets for land expected to be sold partially offset by $610 reclassified to real estate assets as a result of a proposed property sale that is no longer expected to take place and a reduction of $105 for property sales that closed.