INVESTMENTS

A summary of Barnwell’s non-current investments is as follows:



	September 30,
	2017		2016
Investment in Kukio Resort land development partnerships	$	2,159,000	$	3,502,000
Investment in leasehold land interest – Lot 4C	50,000		50,000
Total non-current investments	$	2,209,000	$	3,552,000

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 and KKM Makai, LLLP, and indirectly acquired 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 I and 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 and percentage of future distributions to KD II's members. 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, of which 23 lots remained to be sold at Kaupulehu Increment I, as well as from commissions on real estate sales by the real estate sales office.

During the year ended September 30, 2017, Barnwell received net cash distributions in the amount of $3,223,000 from the Kukio Resort land development partnerships after distributing $396,000 to non-controlling interests. During the year ended September 30, 2016, Barnwell received net cash distributions in the amount of $5,320,000 from the Kukio Resort land development partnerships after distributing $40,000 to non-controlling interests.

Equity in income of affiliates was $2,276,000 and $2,624,000 for the years ended September 30, 2017 and 2016, 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 $322,000 as of September 30, 2017, 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 $28,000 and $39,000, for the years ended September 30, 2017 and 2016, respectively, increased equity in income of affiliates.

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



	Year ended September 30,
	2017		2016
Revenue	$	31,578,000	$	33,874,000
Gross profit	$	14,584,000	$	15,332,000
Net earnings	$	11,107,000	$	12,212,000

Sale of interest in leasehold land

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 19).

With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on the following percentages of the gross receipts from KD I’s sales of single-family residential lots in Increment I: 9% of the gross proceeds from single-family lot sales up to aggregate gross proceeds of $100,000,000; 10% of such aggregate gross proceeds greater than $100,000,000 up to $300,000,000; and 14% of such aggregate gross proceeds in excess of $300,000,000. In fiscal 2017, two single-family lots in Increment I were sold bringing the total amount of gross proceeds from single-family lot sales through September 30, 2017 to $208,000,000. As of September 30, 2017, 23 single-family lots, of the 80 lots developed within Increment I, remained to be sold.

Kaupulehu Developments is entitled to receive payments from KD II resulting from the sale of lots and/or residential units by KD II within Increment II. The payments are based on a percentage of gross receipts from KD II's sales ranging from 8% to 10% of the price of improved or unimproved lots or 2.60% to 3.25% of the price of units constructed on a lot, to be determined in the future depending upon a number of variables, including whether the lots are sold prior to improvement. Two ocean front parcels approximately two to three acres in size fronting the ocean were developed within Increment II by KD II, of which one was sold in fiscal 2017 and one was sold in fiscal 2016. The remaining acreage within Increment II is not yet under development. It is uncertain when or if KD II will develop the other areas of Increment II.

Kaupulehu Developments is also entitled to receive 50% of distributions otherwise payable from KD II to its members after the members of KD II have received distributions equal to the original basis of capital invested in the project, up to $8,000,000. In fiscal 2017, the members of KD II received cumulative distributions equal to the original basis of capital invested in the project after which Kaupulehu Developments received $2,500,000 from KD II representing an amount equal to 50% of the distributions KD II made to its members in September 2017. Kaupulehu Developments incurred fees of $343,000 related to this payment which was included in "Accrued operating and other expenses" on the Company's Consolidated Balance Sheet at September 30, 2017, and was paid in October 2017.

The following table summarizes the Increment I and Increment II revenues received from KD I and KD II and the amount of fees directly related to such revenues (see Note 17 "Commitments and Contingencies - Other Matters"):



	Year ended September 30,
	2017			2016
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land	$	4,503,000		$	2,255,000
Fees - included in general and administrative expenses	(648,000		)	(340,000		)
Sale of interest in leasehold land, net of fees	$	3,855,000		$	1,915,000

There is no assurance with regards to the amounts of future payments from Increment I or Increment II to be received.

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, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025.