INVESTMENTS IN AFFILIATES

At December 31, 2014 and 2013, investments consisted principally of equity in limited liability companies. The Company has the ability to exercise significant influence over the operating and financial policies of these investments and, accordingly, accounts for its investments using the equity method of accounting. The amount of the Company’s investment at December 31, 2014 that represents undistributed earnings of investments in affiliates was approximately $1.9 million. Dividends and distributions from unconsolidated affiliates totaled $17.9 million in 2014, $6.6 million in 2013 and $2.9 million for 2012. The Company’s investments in affiliates totaled $418.6 million and $341.4 million as of December 31, 2014 and 2013, respectively.

Operating results include the Company’s proportionate share of net income from its equity method investments. A summary of financial information for the Company’s equity method investments at December 31 is as follows (in millions):



	2014		2013
Current assets	$	52.7	$	43.5
Non-current assets	935.6		673.2
Total assets	$	988.3	$	716.7

Current liabilities	$	53.0	$	44.2
Non-current liabilities	245.9		107.9
Total liabilities	$	298.9	$	152.1



	Year Ended December 31,
	2014		2013		2012
Operating revenue	$	71.0	$	37.8	$	29.8
Operating costs and expenses	65.9		31.1		32.5
Operating (loss) income	$	5.1	$	6.7	$	(2.7	)
Income (loss) from continuing operations*	$	5.0	$	6.8	$	(11.5	)
Net income (loss)	$	5.0	$	6.8	$	(11.5	)

* Includes earnings from equity method investments held by the investee.

Significant joint ventures at December 31, 2014, included the following:

In 2002, the Company entered into a joint venture with DMB Communities II, an affiliate of DMB Associates, Inc., an Arizona-based developer of master-planned communities (“DMB”), for the development of Kukui’ula, a master planned resort residential community located in Poipu, Kauai, planned for up to 1,500 high-end residential units. The carrying value of the Company's investment in Kukui'ula, which includes capital contributed by A&B to the joint venture, the value of land initially contributed, net of joint venture earnings and losses, was $267.8 million as of December 31, 2014. The total capital contributed to-date to the joint venture by the Company was approximately 59 percent as of December 31, 2014. Due to the joint venture’s obligation to complete improvements and amenities, the joint venture uses the percentage-of-completion method for revenue recognition. The Company does not have a controlling financial interest in the joint venture, but exercises significant influence over the operating and financial policies of the venture, and therefore, accounts for its investment using the equity method. Due to the complex nature of cash distributions to the members, net income of the joint venture is allocated to the members, including the Company, using the Hypothetical Liquidation at Book Value (“HLBV”) method. Under the HLBV method, joint venture income or loss is allocated to the members based on the period change in each member’s claim on the net assets of the venture, excluding capital contributions and distributions made during the period.

In 2010, A&B acquired fully-entitled land near the Ala Moana Center in Honolulu for the development of Waihonua, a 340-saleable unit residential high-rise condominium. In 2012, the Company formed a joint venture and contributed the land, pre-development assets and cash. The Company also secured capital partners that provided the remainder of the $65.0 million in total equity required for the project and the joint venture secured construction financing. In connection with the project, the Company provided a limited guaranty to the construction lender of the lesser of $20 million or the outstanding loan balance. The Company's exposure to loss is limited to its equity investment and the outstanding balance on the loan, up to $20 million. Construction was completed in November 2014, and 12 units closed in December 2014. The remaining 328 units closed in January 2015 and the construction loan was paid off. The Company's investment at December 31, 2014 and 2013 was $35.6 million and $33.4 million, respectively. The Company does not have a controlling financial interest in the joint venture, but exercises significant influence over the operating and financial policies of the venture, and therefore, accounts for its investment under the equity method.

In July 2014, the Company invested $23.8 million in KRS II, an entity that owns and operates a 12-megawatt solar farm in Koloa, Kauai. The Company does not have a controlling financial interest in KRS II, but exercises significant influence over the operating and financial policies of the venture, and therefore, accounts for its investment under the equity method. The investment return from the Company's investment in KRS II is principally composed of federal and state tax benefits. As tax benefits are realized over the life of the investment, the Company recognizes a non-cash reduction to the carrying amount of its investment in KRS II. Due to the complex nature of cash distributions, net income of the joint venture is allocated to the Company using the HLBV method. Under the HLBV method, joint venture income or loss is allocated to the members based on the period change in each member’s claim on the net assets of the venture, excluding capital contributions and distributions made during the period. For the year ended December 31, 2014, the Company recorded a net, non-cash reduction of $14.7 million in Other income (expense) in the Consolidated Statements of Income. The Company's investment balance at December 31, 2014 was $8.4 million. The Company expects that future reductions to its investment in KRS II will be recognized as tax benefits are realized. In connection with the KRS II investment, the Company provided a limited indemnity to Kauai Island Utility Cooperative ("KIUC") that indemnifies KIUC for payments up to $6.0 million made by KIUC under a KIUC guaranty to the lender that provided KRS II's project financing. KIUC is an equity partner and managing member of KRS II, project sponsor and customer for the output of the KRS II facility. The fair value of the Company's indemnity was not material.

In October 2014, the Company contributed land, pre-paid development assets and cash to The Collection LLC, a joint venture formed to develop a 464-unit high-rise residential condominium project on Oahu, consisting of a 396-unit high-rise condominium tower, 14 three-bedroom townhomes, and a 54-unit mid-rise building. In addition to the Company's initial contribution, the Company also secured equity partners that will contribute an additional $16.8 million in cash. The Company's total agreed upon contribution, which includes the land and pre-paid development assets already contributed, is $50.3 million. In connection with the project, the Company provided a limited guaranty to the construction lender for the project at the lesser of $30 million or the outstanding loan balance. The Company's exposure to loss is limited to its total equity investment and the outstanding balance on the loan, up to $30 million. The fair value of the Company's guaranty was not material. The Company's investment at December 31, 2014 was $45.9 million. The Company accounts for its investment under the equity method.

The Company also has investments in various other joint ventures that operate or develop real estate and joint ventures that engage in materials and construction-related activities and renewable energy. The Company does not have a controlling financial interest, but has the ability to exercise significant influence over the operating and financial policies of these joint ventures and, accordingly, accounts for its investments in these ventures using the equity method of accounting.

On September 24, 2013, KDC LLC ("KDC"), a wholly owned subsidiary of the Company and member of Kukui'ula Village LLC ("Village"), entered into an Amended and Restated Limited Liability Company Agreement of Kukui'ula Village ("Agreement") with DMB Kukui'ula Village LLC ("DMB"), a Delaware limited liability company, as a member, and KKV Management LLC, a Hawaii limited liability company, as the manager and a member. Village owns and operates The Shops at Kukui'ula, a commercial retail center on the south shore of Kauai. Under the Agreement, KDC assumed control of Village, and accordingly, consolidated Village's assets and liabilities at fair value. Prior to the consolidation of the assets and liabilities of Village on September 24, 2013, the carrying value of the Company's investment in Village was approximately $6.3 million. Based on the other member's forfeiture of their interest in the joint venture for no consideration, there was an indication that the fair value of the Company's investment in Village was below its carrying value. Consequently, the Company wrote down its investment in Village in connection with the consolidation of Village in 2013.

During the second quarter of 2012, as a result of a change in its development strategy in connection with the Separation, A&B recorded non-cash impairments and equity losses totaling $9.8 million related to two of its three real estate development projects on the Mainland, of which $5.1 million relates to the Company’s Santa Barbara (CA) landholdings and $4.7 million relates to the Company’s joint venture investment in Bakersfield (CA) for a commercial development. The impairment write-downs to estimated fair values reflect the Company’s change to its development strategy to focus on development projects in Hawaii, and therefore, its related decision not to proceed with the development of these California real estate assets in the near term.

The fair value of the Company's investment in the The Shops at Kukui'ula joint venture was based on a third party appraisal of the value of The Shops at Kukui'ula, which utilized various techniques, including the sales comparison approach, income capitalization approach, and the cost approach. The Company’s investment in affiliates measured at fair value on a nonrecurring basis was as follows (in millions):



	Total Fair Value Measurement as of Year End		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un-observable Inputs (Level 3)		Total Loss for the Year
Year Ended December 31, 2013
The Shops at Kukui'ula Investment	$	—	$	—	$	—	$	6.3	$	6.3

Year Ended December 31, 2012
Santa Barbara (CA) landholdings	$	5.9	$	—	$	—	$	5.9	$	5.1
Bakersfield (CA) joint venture*	7.0		—		—		7.0		4.7
Total	$	12.9	$	—	$	—	$	12.9	$	9.8

* The Total Loss for the Year includes equity in losses of $3.9 million related to the write down of landholdings owned by the joint venture.