INVESTMENTS

12 Months Ended

Sep. 30, 2011

INVESTMENTS

INVESTMENTS

5. INVESTMENTS

A summary of Barnwell’s investments at September 30, 2011 and 2010 is as follows:

	September 30,
	2011		2010
Investment in two residential parcels	$	2,331,000	$	3,020,000
Investment in joint ventures	1,754,000		1,875,000
Investment in land interests:
Leasehold land zoned conservation – Lot 4C	50,000		50,000
Lot acquisition rights – Mauka Lands	488,000		488,000
Total investments	$	4,623,000	$	5,433,000

Investment in two residential parcels

Kaupulehu 2007 owns two residential parcels in the Lot 4A Increment I area located approximately six miles north of the Kona International Airport in the North Kona District of the island of Hawaii, north of Hualalai Resort at Historic Ka’upulehu, between the Queen Kaahumanu Highway and the Pacific Ocean.

During the year ended September 30, 2010, due to changes in fair values for real estate in the Lot 4A Increment I area of Kaupulehu, North Kona, Hawaii, Barnwell recorded a $1,578,000 write-down of its investment in residential parcels.  Barnwell recognized an additional impairment loss of $689,000 during the year ended September 30, 2011 primarily due to changes in fair values in the area of Kaupulehu 2007’s interests.

Investment in joint ventures

Kaupulehu Investors, LLC, a limited liability company 80%-owned by Barnwell, owns 1.5% passive minority interests in Hualalai Investors JV, LLC and Hualalai Investors II, LLC (hereinafter collectively referred to as “Hualalai Investors”), owners of Hualalai Resort, and a 1.5% passive minority interest in Kona Village Investors, LLC, owner of Kona Village Resort.  Kaupulehu Investors, LLC accounts for its 1.5% passive investments under the cost method.

Kona Village Resort sustained considerable damage as a result of the March 11, 2011 tsunami generated by a 9.0-magnitude earthquake that took place off the coast of Japan and subsequently announced it would close indefinitely and lay off its employees.  As a result of the resort’s shutdown, Barnwell determined a write-off of its remaining investment in Kona Village Investors, LLC was necessary.  The write-off totaled $121,000 for the year ended September 30, 2011.  No reduction was necessary during the year ended September 30, 2010.

Kaupulehu Investors, LLC received a $45,000 cash distribution in March 2010 from Kona Village Investors, LLC, representing a return of capital.

Development rights

Kaupulehu Developments received its final development rights option payment in December 2010.  Revenues related to sales of development rights under option for the years ended September 30, 2011 and 2010 are summarized as follows:

	Year ended September 30,
	2011			2010
Sale of development rights under option:
Proceeds	$	2,656,000		$	2,656,000
Fees	(159,000		)	(159,000		)
Revenues – sale of development rights, net	$	2,497,000		$	2,497,000

All capitalized costs associated with Kaupulehu Developments’ development rights were expensed in previous years.

There are no remaining development rights options outstanding as of September 30, 2011.

Percentage of sales payments

Kaupulehu Developments has the right to receive payments from WB and WBKD, entities not affiliated with Barnwell and its subsidiaries, resulting from the sale of lots and/or residential units within approximately 870 acres of the Kaupulehu Lot 4A area by WB and WBKD in two increments (“Increment I” and “Increment II”).  Increment I is an area planned for approximately 80 single-family lots and a beach club on the portion of the property bordering the Pacific Ocean.  The purchasers of the 80 single-family lots will have the right to apply for membership in the Kuki’o Golf and Beach Club, which is located adjacent to and south of the Four Seasons Resort Hualalai at Historic Ka’upulehu.  Increment II, which has not been developed, is the remaining portion of the approximately 870-acre property and is zoned for single-family and multi-family residential units and a golf course and clubhouse and is currently planned for approximately 350-400 residential units.

With respect to Increment I, Kaupulehu Developments is entitled to receive payments from WB based on the following percentages of the gross receipts from WB’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.

WB sold three ocean front single-family lots in Increment I during the year ended September 30, 2011 and nine ocean front single-family lots during the year ended September 30, 2010.  As of September 30, 2011, 22 of the 23 ocean front lots and seven of the 15 ocean view lots in Phase I of Increment I have been sold.  Forty-two single-family lots are planned for Phase II of Increment I, for a total of 80 single-family lots planned for Increment I.  The Company cannot predict when WB will complete the single-family lots in Phase II of Increment I and be permitted to begin marketing them.

The following table summarizes the Increment I percentage of sales payment revenues received from WB for the years ended September 30, 2011 and 2010:

	Year ended September 30,
	2011			2010
Sale of interest in leasehold land:
Proceeds	$	1,325,000		$	3,560,000
Fees	(80,000		)	(213,000		)
Revenues – sale of interest in leasehold land, net	$	1,245,000		$	3,347,000

With respect to Increment II, which is not yet developed, Kaupulehu Developments is entitled to receive future payments from WBKD based on a percentage of the sales prices of the residential lots or units, 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.  Furthermore, Kaupulehu Developments is entitled to receive up to $8,000,000 in additional payments after the members of WBKD have received distributions equal to the capital they invested in the project. Any future payments from WBKD under this agreement are contingent future profits which will be recognized when they are realized.

There is no assurance with regards to the amounts of future payments to be received.

Lot 4C

Barnwell owns a 77.6% controlling interest in Kaupulehu Developments, a Hawaii general partnership that owns interests in leasehold land for property located approximately six miles north of the Kona International Airport in the North Kona District of the island of Hawaii.

Lot 4C is an area of approximately 1,000 acres of vacant leasehold land zoned conservation and is located adjacent to Lot 4A.  WB and/or WBKD have the exclusive right to negotiate with Kaupulehu Developments with respect to Lot 4C until June 2015.  However, this right to negotiate will terminate in June 2013 if WB and/or WBKD have not completed all environmental assessments and surveys reasonably required to support a petition to the Hawaii State Land Use Commission for reclassification of Lot 4C.

There is no assurance that the required land use reclassification and rezoning from regulatory agencies will be obtained, that the necessary development terms and agreements will be successfully negotiated for Lot 4C, or that WB and/or WBKD will enter into an agreement with Kaupulehu Developments regarding Lot 4C.

Lot acquisition rights

Barnwell, through wholly-owned Kaupulehu Mauka Investors, LLC, owns acquisition rights as to 14 lots within agricultural-zoned leasehold land in the upland area of Kaupulehu (“Mauka Lands”) situated between the Queen Kaahumanu Highway and the Mamalahoa Highway at Kaupulehu, on the island of Hawaii.  The acquisition rights give Barnwell the right to acquire 14 residential lots, currently estimated to be two to five acres in size, which may be developed on the Mauka Lands.  These lands are currently classified as agricultural by the state of Hawaii and, accordingly, the developer of these lands (Hualalai Investors) will need to pursue both state and county of Hawaii approvals for reclassification and rezoning to permit the development of residential lots and negotiate development terms.

There is no assurance that the developer of the Mauka Lands will obtain the necessary land use reclassification, rezoning, permits, approvals, and development terms and agreements needed to develop the Mauka Lands.  If the developer of the Mauka Lands is unable to obtain such required land use changes, development terms and agreements with respect to the Mauka Lands and Barnwell is therefore unable to fully recover its investment in the Mauka Lands, we will incur an expense resulting from a write-off of the lot acquisition rights.