INVESTMENTS

A summary of Barnwell’s investments is as follows:



	December 31, 2017		September 30, 2017
Investment in Kukio Resort land development partnerships	$	2,006,000	$	2,159,000
Investment in leasehold land interest – Lot 4C	50,000		50,000
Total investments	$	2,056,000	$	2,209,000

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 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 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 remain to be sold at Kaupulehu Increment I as of December 31, 2017, as well as from commissions on real estate sales by the real estate sales office.

During the three months ended December 31, 2016, Barnwell received net cash distributions in the amount of $443,000 from the Kukio Resort land development partnerships after distributing $54,000 to non-controlling interests.

Equity in loss of affiliates was $153,000 for the three months ended December 31, 2017 and equity in income of affiliates was $2,326,000 for the three months ended December 31, 2016. 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 $319,000 as of December 31, 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 $3,000 and $19,000, for the three months ended December 31, 2017 and 2016, respectively, increased equity in income of affiliates.

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



	Three months ended December 31,
	2017			2016
Revenue	$	1,560,000		$	24,874,000
Gross profit	$	686,000		$	11,496,000
Net (loss) earnings	$	(503,000	)	$	10,661,000

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 12).

The following table summarizes the percentage of sales payment revenues received from KD I and KD II and the amount of fees directly related to such revenues:



	Three months ended December 31,
	2017		2016
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land	$	—	$	1,678,000
Fees - included in general and administrative expenses	—		(260,000		)
Proceeds from sale of interest in leasehold land, net of fees paid	$	—	$	1,418,000

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.