INVESTMENTS

12 Months Ended

Sep. 30, 2020

Investments, All Other Investments [Abstract]

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


	September 30,
	2020		2019
Investment in Kukio Resort Land Development Partnerships	$	901,000	$	930,000
Investment in leasehold land interest – Lot 4C	—		50,000
Total non-current investments	$	901,000	$	980,000

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, and indirectly acquired a 19.6% non-controlling ownership interest in each of KD Kukio Resorts, KD Maniniowali, and KDK for $5,140,000. 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 I and KD II. KD I is the developer of Increment I and KD II is the developer of Increment II. Barnwell's ownership interests in the Kukio Resort Land Development Partnerships are 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.

In March 2019, KD II admitted a new development partner, Replay, a party unrelated to Barnwell, in an effort to move forward with development of the remainder of Increment II at Kaupulehu. Effective March 7, 2019, KDK and Replay hold ownership interests of 55% and 45%, respectively, of KD II. Accordingly, Barnwell has a 10.8% indirect non-controlling ownership interest in KD II through KDK as of that date that will continue to be accounted for using the equity method of accounting. Barnwell continues to have an indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, KD Maniniowali, and KD I.

Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interests in KD Kona and KKM, based on its respective partnership sharing ratios. Additionally, Barnwell is entitled to a preferred return from KKM on any allocated equity in income of the Kukio Resort Land Development Partnerships in excess of its partnership sharing ratio for cumulative distributions to all of its partners in excess of $45,000,000 from those partnerships. Cumulative distributions from the Kukio Resort Land Development Partnerships have reached the $45,000,000 threshold and in August 2020, the Kukio Resort Land Development Partnerships made distributions in excess of the threshold out of the proceeds from the sale of two lots in Increment I in that month. Accordingly, Barnwell received a $197,000 partial payment of the preferred return in August 2020, which is reflected as an additional equity pickup in the "Equity in income (loss) of affiliates" line item on the accompanying Consolidated Statement of Operations for the year ended September 30, 2020. Additionally, subsequent to September 30, 2020, the Kukio Resort Land Development Partnerships sold one lot in Increment I and made additional net cash distributions of $1,034,000 to the Company. Accordingly, Barnwell received additional preferred return payments of $459,000, which will be reflected in Barnwell's financial results for the quarter ending December 31, 2020. The preferred return payments received after September 30, 2020 brought the cumulative preferred return total to $656,000, which is the total amount Barnwell was entitled to, and thus there is no more preferred return outstanding as of the date of this report.

During the year ended September 30, 2020, Barnwell received net cash distributions in the amount of $360,000 from the Kukio Resort Land Development Partnerships after distributing $20,000 to non-controlling interests. Of the $360,000 net cash distribution received from the Kukio Resort Land Development Partnerships, $197,000 represented a partial payment of the preferred return from KKM, as discussed above.

During the year ended September 30, 2019, Barnwell received net cash distributions in the amount of $314,000 from the Kukio Resort Land Development Partnerships after distributing $38,000 to non-controlling interests.

Barnwell's share of the operating results of its equity affiliates was income of $352,000 for the year ended September 30, 2020, which includes the $197,000 partial payment of the preferred return from KKM discussed above, as compared to a loss of $276,000 for the year ended September 30, 2019. 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 $284,000 as of September 30, 2020, 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 $13,000 and $18,000, for the years ended September 30, 2020 and 2019, respectively, increased equity in income of affiliates.

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


	Year ended September 30,
	2020		2019
Revenue	$	7,911,000	$	7,507,000
Gross profit	$	4,071,000	$	3,157,000
Net earnings (loss)	$	618,000	$	(1,095,000)

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 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: 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 2020, two single-family lots in Increment I were sold bringing the total amount of gross proceeds from single-family lot sales through September 30, 2020 to $219,700,000. As of the date of this report, with the inclusion of the November 2020 lot sale mentioned above, 16 single-family lots, of the 80 lots developed within Increment I, remained to be sold.

Under the terms of the former Increment II agreement with KD II, Kaupulehu Developments was entitled to receive payments from KD II resulting from the sale of lots and/or residential units by KD II within Increment II. Through March 6, 2019, the payments were 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.

Through March 6, 2019, Kaupulehu Developments was 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. Through March 6, 2019, a cumulative total of $3,500,000 was received from KD II under this arrangement, out of the $8,000,000 maximum. The former 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.

Concurrent with the transaction whereby KD II admitted Replay as a new development partner, Kaupulehu Developments entered into new agreements with KD II whereby the aforementioned terms of the former Increment II arrangement were eliminated and Kaupulehu Developments will instead be entitled to 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK’s cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000 as to the priority payout. Such interests are limited to distributions or net profits interests and Barnwell will not have any partnership interests in KD II or KDK through its interest in Kaupulehu Developments. The new arrangement also gives Barnwell rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell. Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots. Also, in addition to Barnwell’s existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is now also obligated to pay an amount equal to 0.72% and 0.20% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell, in compensation for the agreement of these parties to admit the new development partner for Increment II. Such compensation will be reflected as the obligation becomes probable and the amount of the obligation can be reasonably estimated. The new agreements also specify that Kaupulehu Developments was to be paid $1,000,000 by KD II prior to admission of Replay as a partner. This $1,000,000 payment had already been received in June 2018 and is included in the $3,500,000 cumulative total as of March 6, 2019 discussed above.

The Increment I percentage of sales arrangement between Barnwell and KD I remains unchanged.

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 17 “Commitments and Contingencies - Other Matters”):


	Year ended September 30,
	2020		2019
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land	$	325,000	$	165,000
Fees - included in general and administrative expenses	(40,000)		(20,000)
Sale of interest in leasehold land, net of fees paid	$	285,000	$	145,000

In November 2020, subsequent to the close of the year ended September 30, 2020, Kaupulehu Developments received a percentage of sales payment of $170,000 from the sale of one lot within Phase II of Increment I. Financial results from the receipt of this payment will be reflected in Barnwell's quarter ending December 31, 2020. 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. Due to recent uncertainty regarding the timing of future development and potential use of water rights within Lot 4C prior to the expiration of the lease term, management determined there was an impairment in the carrying value of Lot 4C and the Company recorded a $50,000 write-off in its investment in leasehold land interest in Lot 4C, which is included in “Impairment of assets” in the accompanying Consolidated Statements of Operations for the year ended September 30, 2020.