INVESTMENTS

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



	September 30,
	2015		2014
Investment in Kukio Resort land development partnerships	$	6,238,000	$	4,658,000
Investment in residential parcel	—		1,192,000
Investment in leasehold land interest – Lot 4C	50,000		50,000
Total non-current investments	$	6,288,000	$	5,900,000

Investment in residential parcels

At September 30, 2015, Kaupulehu 2007 owned one residential parcel in the Lot 4A Increment I area located 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, which is classified as a current asset and included in "Investment held for sale" in the Consolidated Balance Sheet at September 30, 2015.

A second residential parcel, which was included in investment held for sale at September 30, 2014, was sold in October 2014 for $1,250,000 for a nominal loss which is included in "General and administrative" expenses in the Consolidated Statements of Operations.

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 for $5,140,000. These entities 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. KD Kaupulehu, LLLP, which is comprised of KD I and KD II, is the developer of Kaupulehu Lot 4A Increments I and II, the area in which Barnwell has interests in percentage of sales payments. Barnwell’s investment in these entities is accounted for using the equity method of accounting. The partnerships derive income from the sale of residential parcels, of which 28 lots remain to be sold at Kaupulehu Increment I, two ocean front parcels in Kaupulehu Increment II are currently being developed for eventual sale, and one lot remains at Maniniowali, as well as from commission on real estate sales by the real estate sales office.

The limited liability limited partnership agreements provide for a priority return of Barnwell’s investment prior to profit distributions, however there is no assurance as to the timing or amount of any future cash distributions from the partnerships. Net profits, losses and cash flows of the partnerships are allocated to Barnwell and the other partners at varying percentages based on whether the initial and any additional capital contributions plus any preferred returns due to contributing partners have been repaid to the investors.

Barnwell’s share of the income of its equity affiliates was $1,580,000 for the year ended September 30, 2015, and the share of the loss of its equity affiliates was $482,000 for the year ended September 30, 2014. 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 $390,000 as of September 30, 2015, which is attributable to differences in the value of capitalized development costs and a note receivable. The basis difference for the capitalized development costs will be recognized as the partnerships sell lots and recognize the associated costs. The basis difference for the note receivable will be recognized as the partnerships sell memberships for the Kuki`o Golf and Beach Club for which the receivable relates. The basis difference adjustment for the year ended September 30, 2015 was an $82,000 increase in equity in income of affiliates, and the basis difference adjustment for the year ended September 30, 2014 was inconsequential.

Barnwell, as well as KD I, KD II and certain other owners of the partnerships, have jointly and severally executed a surety indemnification agreement. Bonds issued by the surety at September 30, 2015 totaled approximately $4,144,000 and relate to certain construction contracts of KD I. If any such performance bonds are called, we may be obligated to reimburse the issuer of the performance bond as Barnwell, KD I, and certain other partners are jointly and severally liable, however we believe that it is remote that a material amount of any currently outstanding performance bonds will be called. Performance bonds do not have stated expiration dates. Rather, the performance bonds are released as the underlying performance is completed.

As of September 30, 2015, Barnwell’s maximum loss exposure as a result of its investment in the Kukio Resort land development partnerships was approximately $10,382,000, consisting of the carrying value of the investment of $6,238,000 and $4,144,000 from the surety indemnification agreement of which we are jointly and severally liable.

Summarized financial information for the Kukio Resort land development partnerships is as follows:



	Year ended		November 27, 2013 -
	September 30, 2015		September 30, 2014
Revenue	$	29,898,000	$	5,114,000
Gross profit	$	13,594,000	$	2,058,000
Net income (loss)	$	7,500,000	$	(1,614,000	)

Percentage of sales payments

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 18).

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: 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. In fiscal 2015, 17 single-family lots in Increment I were sold bringing the total amount of gross proceeds from single-family lot sales through September 30, 2015 to $199,000,000.

The following table summarizes the Increment I percentage of sales payment revenues received from KD I:



	Year ended September 30,
	2015			2014
Sale of interest in leasehold land:
Proceeds	$	3,772,000		$	740,000
Fees	(528,000		)	(104,000		)
Revenues – sale of interest in leasehold land, net	$	3,244,000		$	636,000

As of September 30, 2015, all of the 38 single-family lots in Phase I of Increment I have been sold by KD I. 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. A portion of the 42 single-family lots in Phase II of Increment I have been completed and 14 of the lots have been sold as of September 30, 2015.

Two residential lots approximately two to three acres in size fronting the ocean are also currently being developed within Increment II by KD II, and the remaining acreage within Increment II is not yet under development. Kaupulehu Developments is entitled to receive future payments from KD II based on a percentage of the sales prices of the residential lots or units, as well as additional payments after the members of KD II have received distributions equal to the capital they invested in the project. It is uncertain when or if KD II will develop the other areas of Increment II.

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. The lease terminates in December 2025.

Investment in joint ventures

On July 25, 2014, Kaupulehu Investors, LLC, an entity in which Barnwell has an 80% interest, received $3,297,000 for the sale of its 1.5% passive minority interests in the Hualalai Resort and Kona Village Resort to an independent third party, with an additional $102,000 received in fiscal 2015 relating to the sale of an interest in a related utility. Kaupulehu Investors, LLC previously wrote off its investment in the Hualalai Resort due to its other-than-temporary decline in fair value and in Kona Village Resort as a result of the March 2011 tsunami which caused the resort to shut down indefinitely. As these previous write downs reduced the carrying value of the investments to zero, Barnwell recognized a $3,399,000 gain on this transaction in the year ended September 30, 2014, which is reflected in “Gain on sale of investments” in the Consolidated Statements of Operations, of which $679,000 relates to non-controlling interests. Kaupulehu Investors, LLC’s capital and operating cash call investments in the Hualalai Resort and the Kona Village Resort prior to the sale totaled $3,193,000.