INVESTMENTS

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



	September 30,
	2018		2017
Investment in Kukio Resort Land Development Partnerships	$	1,558,000	$	2,159,000
Investment in leasehold land interest – Lot 4C	50,000		50,000
Total non-current investments	$	1,608,000	$	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 and KKM Makai, and indirectly acquired a 19.6% non-controlling ownership interest in each of KD Kukio Resorts, KD Maniniowali, and 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 (“Increment I”), and KD II is the developer of Kaupulehu Lot 4A Increment II (“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.

During the year ended September 30, 2018, Barnwell received net cash distributions in the amount of $735,000 from the Kukio Resort Land Development Partnerships after distributing $89,000 to non-controlling interests. 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.

Equity in income of affiliates was $223,000 and $2,276,000 for the years ended September 30, 2018 and 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 $314,000 as of September 30, 2018, 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 $8,000 and $28,000, for the years ended September 30, 2018 and 2017, respectively, increased equity in income of affiliates.

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



	Year ended September 30,
	2018		2017
Revenue	$	11,362,000	$	31,578,000
Gross profit	$	5,757,000	$	14,584,000
Net earnings	$	1,815,000	$	11,107,000

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 Increment I and Increment II by KD I and KD II (see Note 16).

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. In fiscal 2018, three single-family lots in Increment I were sold bringing the total amount of gross proceeds from single-family lot sales through September 30, 2018 to $215,000,000. As of September 30, 2018, 20 single-family lots, of the 80 lots developed within Increment I, remained to be sold.

Under the terms of the Increment II agreement with KD 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 one was sold in fiscal 2017 and one was sold in fiscal 2016. The remaining acreage within Increment II is not yet under development.

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, 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 arrangement also included the rights to three single-family residential lots in Phase 2 of Increment II when developed, at no cost to Barnwell, with a commitment by Barnwell to begin to construct a residence upon each lot within six months of transfer. These lots were not yet developed as of September 30, 2018.

The following table summarizes the Increment I and Increment II revenues from KD I and KD II and the amount of fees directly related to such revenues (see Note 14 "Commitments and Contingencies - Other Matters"):



	Year ended September 30,
	2018			2017
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land	$	1,645,000		$	4,503,000
Fees - included in general and administrative expenses	(216,000		)	(648,000		)
Sale of interest in leasehold land, net of fees	$	1,429,000		$	3,855,000

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.