INVESTMENTS

A summary of Barnwell’s investments is as follows:



	June 30, 2018		September 30, 2017
Investment in Kukio Resort Land Development Partnerships	$	1,645,000	$	2,159,000
Investment in leasehold land interest – Lot 4C	50,000		50,000
Total investments	$	1,695,000	$	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 (“KDK”) for $5,140,000. These entities, collectively referred to hereinafter as the “Kukio Resort Land Development Partnerships,” 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. KDK holds interests in KD Acquisition, LLLP (“KD I”) and KD Acquisition II, LP, formerly KD Acquisition II, LLLP (“KD II”). KD I is the developer of Kaupulehu Lot 4A Increment I, and KD II is the developer of Kaupulehu Lot 4A Increment II. Barnwell's ownership interests in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting. The partnerships derive income from the sale of residential parcels as well as from commissions on real estate sales by the real estate sales office. As of June 30, 2018, 22 lots remained to be sold at Kaupulehu Increment I.

During the nine months ended June 30, 2018 and 2017, Barnwell received net cash distributions in the amount of $373,000 and $2,509,000, respectively, from the Kukio Resort Land Development Partnerships after distributing $44,000 and $307,000, respectively, to minority interests.

Barnwell's share of the operating results of its equity affiliates was income of $136,000 and a loss of $97,000 for the three and nine months ended June 30, 2018, respectively, and a loss of $31,000 and income of $2,125,000 for the three and nine months ended June 30, 2017, 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 $316,000 as of June 30, 2018, which is attributable to differences in the value of capitalized development costs and a note receivable. The basis difference is being 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 $6,000 for the three and nine months ended June 30, 2018, respectively, and $20,000 for the nine months ended June 30, 2017, increased equity in income of affiliates. There was no basis difference adjustment for the three months ended June 30, 2017.

Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:



	Three months ended June 30,
	2018		2017
Revenue	$	3,559,000	$	956,000
Gross profit	$	1,777,000	$	396,000
Net earnings	$	841,000	$	57,000



	Nine months ended June 30,
	2018		2017
Revenue	$	7,348,000	$	27,152,000
Gross profit	$	3,511,000	$	12,346,000
Net earnings	$	153,000	$	10,119,000

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).

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: 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. During the three and nine months ended June 30, 2018, KD I sold one lot in Increment I for $3,100,000 and Kaupulehu Developments received a percentage of sales payment of $310,000. There were no Increment I percentage of sales payments received in the three and nine months ended June 30, 2017.

With respect to Increment II, 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 the first was sold in fiscal 2016 and second was sold in fiscal 2017. Kaupulehu Developments received a percentage of sales payment of $1,678,000 from the sale of the second lot in the nine months ended June 30, 2017. 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 Barnwell 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, and an additional $1,000,000 was received from KD II in June 2018 under this arrangement, for a cumulative total of $3,500,000 received out of the $8,000,000 maximum. The $1,000,000 received in June 2018 is included in the table below. Kaupulehu Development incurred fees of $137,000 related to this payment which was included in "Accrued operating and other expenses" on the Company's Consolidated Balance Sheet at June 30, 2018 and was paid in July 2018.

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 June 30,					Nine months ended June 30,
	2018			2017		2018			2017
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land	$	1,310,000		$	—	$	1,310,000		$	1,678,000
Fees - included in general and administrative expenses	(175,000		)	—		(175,000		)	(260,000		)
Proceeds from sale of interest in leasehold land, net of fees paid	$	1,135,000		$	—	$	1,135,000		$	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.