INVESTMENTS

A summary of Barnwell’s investments is as follows:



	June 30, 2016		September 30, 2015
Investment in Kukio Resort land development partnerships	$	3,494,000	$	6,238,000
Investment in leasehold land interest – Lot 4C	50,000		50,000
Total investments	$	3,544,000	$	6,288,000

Investment in Kukio Resort land development partnerships

On November 27, 2013, Barnwell, through a wholly-owned subsidiary, entered into two limited liability limited partnerships, KD Kona 2013 LLLP ("KD Kona") and KKM Makai, LLLP ("KKM Makai"), and indirectly acquired, through their ownership of interest in Kaupulehu Makai, LLLP ("Kaupulehu Makai"), a 19.6% non-controlling ownership interest in each of KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD Kaupulehu, LLLP for $5,140,000. These entities own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KD Kaupulehu, LLLP, which is comprised of KD Acquisition, LLLP (“KD I”) and KD Acquisition II, LLLP (“KD II”), is the developer of Kaupulehu Lot 4A Increments I and II, the area in which Barnwell has interests in percentage of sales payments. Barnwell’s investment in these entities is accounted for using the equity method of accounting. The partnerships derive income from the sale of residential parcels as well as from commission on real estate sales by the real estate sales office. As of June 30, 2016, 25 lots remained to be sold at Kaupulehu Increment I, one ocean front parcel in Kaupulehu Increment II was available for sale, and one lot remained to be sold at Maniniowali.

In April 2016, the Kukio Resort land development partnerships made a cash distribution to its partners of which Barnwell received $5,320,000, after distributing $40,000 to minority interests.

Equity in income of affiliates was $2,200,000 and $2,616,000 for the three and nine months ended June 30, 2016, respectively, and $988,000 and $1,444,000 for the three and nine months ended June 30, 2015, respectively. The equity in the underlying net assets of the Kukio Resort land development partnerships exceeds the carrying value of the investment in affiliates by approximately $356,000 as of June 30, 2016, which is attributable to differences in the value of capitalized development costs and a note receivable. The basis difference will be recognized as the partnerships sell lots and recognize the associated costs and sell memberships for the Kuki`o Golf and Beach Club for which the receivable relates. The basis difference adjustments of $17,000 and $34,000 for the three and nine months ended June 30, 2016, respectively, increased equity in income of affiliates, and the basis difference adjustment for both the three and nine months ended June 30, 2015 was a $74,000 increase in equity in income of affiliates.

Barnwell, as well as KD I, KD II and certain other owners of the partnerships, have jointly and severally executed a surety indemnification agreement. Bonds issued by the surety at June 30, 2016 totaled approximately $4,144,000 and relate to certain construction contracts of KD I. If any such performance bonds are called, we may be obligated to reimburse the issuer of the performance bond as Barnwell, KD I and certain other partners are jointly and severally liable. However, we believe that it is remote that a material amount of any currently outstanding performance bonds will be called. Performance bonds do not have stated expiration dates. Rather, the performance bonds are released as the underlying performance is completed.

As of June 30, 2016, Barnwell’s maximum loss exposure as a result of its investment in the Kukio Resort land development partnerships was approximately $7,638,000, consisting of the carrying value of the investment of $3,494,000 and $4,144,000 from the surety indemnification agreement of which we are jointly and severally liable.

Summarized financial information for the Kukio Resort land development partnerships is as follows:



	Three months ended June 30, 2016		Three months ended June 30, 2015
Revenue	$	23,584,000	$	12,078,000
Gross profit	$	10,732,000	$	5,285,000
Net earnings	$	10,029,000	$	4,215,000



	Nine months ended June 30, 2016		Nine months ended June 30, 2015
Revenue	$	31,703,000	$	22,785,000
Gross profit	$	14,186,000	$	9,694,000
Net earnings	$	12,020,000	$	6,779,000

Percentage of sales payments

Kaupulehu Developments has the right to receive payments from KD I and KD II resulting from the sale of lots and/or residential units within approximately 870 acres of the Kaupulehu Lot 4A area by KD I and KD II in two increments (“Increment I” and “Increment II”) (see Note 16).

The following table summarizes the total of Increment I and Increment II percentage of sales payment revenues received from KD I and KD II:



	Three months ended June 30,						Nine months ended June 30,
	2016			2015			2016			2015
Sale of interest in leasehold land:
Proceeds	$	1,775,000		$	1,473,000		$	2,255,000		$	3,623,000
Fees	(273,000		)	(207,000		)	(340,000		)	(508,000		)
Revenues – sale of interest in leasehold land, net	$	1,502,000		$	1,266,000		$	1,915,000		$	3,115,000

Investment in leasehold land interest - Lot 4C

Kaupulehu Developments holds an interest in an area of approximately 1,000 acres of vacant leasehold land zoned conservation located adjacent to Lot 4A. The lease terminates in December 2025.