Parker Ranch Foundation Trust

Perpetuating Richard Smart's Charitable Vision

Richard Smart created the Parker Ranch Foundation Trust (sometimes referred to as the "Trust") on September 10, 1992 exclusively for health care, education, and charitable purposes within the scope of Section 501 (c) (3) of the Internal Revenue Code. The holdings of the Trust included substantially all assets of the Richard Smart Trust (the "Personal Trust"). Beneficiaries of the Trust included North Hawaii Community Hospital, (formally Lucy Henriques Medical Center), Parker School Trust Corporation, Hawaii Preparatory Academy and Hawaii Community Foundation.

The Parker Ranch Foundation Trust was granted recognition by the Internal Revenue Service as a 501 (c) (3) charitable organization in January 1993. Lengthy legal challenges by Mr. Smart's sons delayed the start of Smart's estate plan. These lawsuits were resolved in 1995, and Parker Ranch, Inc. was then incorporated as the vehicle for holding and managing, directly or indirectly, the business assets of Richard Smart's estate. The Trust is its sole shareholder.

Richard Smart, settlor of the Trust, named Warren Gunderson, Mel Hewett and Richard S. Hendrick as the initial trustees. Today's trustees are Michael W. Gibson, Warren H. Haruki, Timothy E. Johns, David H. McCoy and Brendan G. Moynahan.
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Richard Smart Trust (the "Personal Trust")

The Personal Trust was a revocable personal trust created under the terms of a Trust Agreement dated August 3, 1978 (restated in its entirety on September 20, 1991, and amended on October 23, 1992 with several amendments and restatements) between Richard Smart as grantor and certain individual trustees. Smart transferred substantially all of his personal assets to the Personal Trust. Upon his death on November 12, 1992 the Personal Trust became irrevocable under the terms of the agreement. The amended restated agreement dictated that certain expenses, bequests or devices in the Last Will and Testament of Richard Smart be paid from Personal Trust principal, with the residual transferred to the Parker Ranch Foundation Trust.

How The Trust Began

Richard Smart was strongly influenced by the long tenure of Bishop Estate as he intended the Parker Ranch Foundation Trust documents to provide guidelines for the future.

Smart’s vision was to focus on the educational and health needs of the Waimea community. He formulated the Trust to support that vision. The first named beneficiary was Parker School and soon thereafter he added the Lucy Henriques Medical Center, which later became North Hawaii Community Hospital. Smart believed that health care costs were rising at a faster rate than education-related expenses and he therefore designated a larger share of Trust distributions to health care.

To further address both education and healthcare Smart added two additional beneficiaries: Hawaii Preparatory Academy and the Hawaii Community Foundation’s Richard Smart Fund, which makes discretionary charitable distributions to fulfill other needs within the Kamuela community.

Richard Smart's Intentions

In a departure from the Bishop Estate model, where the Bishop Estate actually runs the Kamehameha Schools, Smart wanted Parker Ranch Foundation Trust trustees to manage Trust assets in support of the charitable services of separately operating named Beneficiaries. While there would be communication between the Trustees and the Beneficiaries, the separate existence and operations of the parties would be respected.

A Parker Ranch Foundation Trust Distribution Committee was formed with six members (three Trustees and three beneficiary members) to review the programs, purposes and financial needs of the Kamuela Charities and the Community Foundation.

Parker Ranch Lands

Richard Smart was mindful of the history of Parker Ranch being a sixth generation member of the Parker family. The economics of cattle ranching was undergoing some major changes in the 1960's that reduced operating profits. Smart sold land over the years to fund Ranch operations. Smart provided broad powers in the trustees, including selling land for Trust purposes. Smart also knew the Ranch needed to diversify to become profitable. His intention was for the various Parker Ranch entities to support the beneficiaries through distributable income. A separate corporation, Parker Ranch, Inc. was formed in 1995 to be the for-profit arm of the Trust.

One of the primary goals of the Parker Ranch Foundation Trust as envisioned by Smart is to manage land and other assets to maximize the value of the Trust in order to provide a source for distributable income to the beneficiaries.

Trustee Roles

The primary role of the Trustees is to establish a return on Trust assets to support the charitable Beneficiaries. Land sales to generate the best and highest return to the Beneficiaries, without damaging the value of the remaining holdings, and with sensitivity to the surrounding lands and community, was another important goal set forth by Richard Smart. Smart understood that initial distributions to Beneficiaries would be through the sale of assets because the Ranch was not profitable when the Trust was formed. Then, as today, Trustees remain acutely mindful of the importance to maintain the unique lifestyle and character of the Waimea community.

In the event of large capital asset sales, Trustees were given broad discretion to make partial, or withhold, distributions to Beneficiaries. It was important to Smart that there be an appropriate balance of short term Beneficiary needs, intermediate term maximization of Trust assets, and the long term charitable purposes of the Trust.

Source: Michael Shea, former Honolulu-based attorney who prepared the Parker Ranch Foundation Trust documents under Richard Smart's guidance.

Parker Ranch 1992 - present

WWhen Richard Smart formed the Parker Ranch Foundation Trust, it was funded with land and with $10,000 in cash. Operations of the Ranch continued under the management of the Richard Smart Trust.

At his death in 1992, land rich, cash poor Parker Ranch faced a massive liquidity crisis. Cash requirements to pay for substantial estate taxes, attorney fees and settlement costs associated with family lawsuits, monetary bequests under Richard Smart's will and additional losses from business operations required millions of dollars.

Four major commercial properties in Waimea were bequeathed to Smart's family members, which significantly reduced income from commercial leasing. Income generated from cattle operations and a venture into visitor activities did not provide nearly enough income in the years following Richard Smart's death to repay the Trust's $26 million debt.

The Trustees were faced with major decisions to produce immediate cash resources. Selected works from Smart's art collection and certain land parcels were sold to meet the demands for cash. Decisions may have been different had Smart funded the Trust with more cash rather than substantially all land assets. These circumstances made for trying times for the trustees at the time-Warren Gunderson, Richard Henrick and Mel Hewett, and for the entire Parker Ranch ‘ohana.

Assets and operations of Parker Ranch then consisted of an operating but unprofitable ranch with large tracts of pasture lands, commercial leasing operations centered on an aging shopping center and the 2020 town center project that would require substantial development costs.
Parker Ranch trustees continued oversight of Parker Ranch, Inc., as its sole shareholder. Livestock and other operations were the main business of Parker Ranch, Inc.

The effects of a four-year drought, high feed and transportation costs, and falling beef prices troubled Parker Ranch cattle operations, while leasing revenues stagnated in an old shopping center. Visitor operations were devastated during the post-Gulf War era. Smart's visionary 2020 Plan that included development of residential and commercial real estate made slow progress due to lack of cash for the required infrastructure improvements.

The very survival of this 150+year paniolo legacy was being tested.

Parker Ranch and the Trust also faced enormous transition in organizational structure as the Ranch had operated as a sole proprietorship since its humble beginnings more than 150 years before and later as a Trust with a single dominant manager, Alfred W. Carter. Competing island ranches, including Kahua, incorporated in 1928, and Ponoholo, incorporated in 1979, took different organizational paths.

Its history defined Parker Ranch as a paternalistic business organization instead of a more traditional corporate model. Beef and other food allowances, housing, medical and other needs were provided under the Parker Ranch umbrella. The death of Richard Smart brought a close to the era of providing these benefits and a move to modernizing employee benefits and practices.
Modernizing and streamlining Parker Ranch business operations became legal duties made necessary by the charitable purposes of the Trust. Following Smart's death, Parker Ranch operations needed to change to produce the income necessary to satisfy the charitable nature of the Trust.

By 1995, the diverse business operations of Parker Ranch did not yet meet a coherent business plan with reporting and organizational lines still weak and unclear. To survive, Parker Ranch needed to remodel itself and let go of bygone procedures. Business operations needed an overhaul to comply with the mission of the Trust.

The Parker Ranch Foundation Trust began this evolution in three phases. The first phase, a period of probate settlement and litigation, concluded in 1995 and existing short-term debt repayment was successfully concluded in 1999 with long-term permanent financial restructuring. Phase two involved diversification and land planning. Phase three, the current phase, involves governance and strategic planning.

In 1999, for the first time since its inception, the Trust was on firmer ground and its day-to-day survival was not in question. Financial challenges were addressed with changes to business operations. Profitability from cattle operations needed improvement and other business operations, particularly real estate, required further expansion and diversification to generate more stable income for distribution to Trust beneficiaries.

During phase two’s diversification and land planning from 2005 through 2007, tremendous progress was made with the Beneficiaries on the Ranch’s long-term strategic planning process. The Distribution Committee unanimously endorsed long-term guiding principles for the Ranch under the umbrella of a Next Century Plan. As the strategic plan continues to evolve and be implemented over the next several years during phase three of the evolution, the Ranch is well positioned to lead within the community and resolve many issues, and to explore diversification alternatives for the lands in a sustainable manner, respectful of the rich culture and history of the Kamuela area.

Most notable within the current phase was restructuring of the Trust. In 2007, with full support of the Beneficiaries, the Parker Ranch Foundation Trust Trustees petitioned for and were granted a change in the Trust’s governance structure by the Hawai’i Probate Court. Trustees sought approval to reform the Trust’s governance structure in order to qualify for a new federal tax status, known as a Type I supporting organization. Under the newly approved revised structure, Beneficiaries appoint Trustees, giving them more input and control in Trust matters. In addition, there is more flexibility for the Trust’s distributions, better ensuring continuation of meaningful distributions to the four beneficiary groups.

Conversion to Type I supporting organization status – from the Trust’s previous Type III status – was requested in response to recently-enacted federal legislation containing tax law changes related to charitable reform. Because the legislation subjects Type III supporting organizations, but not Type I’s, to additional operating restrictions and requirements, conversion has enabled the Trustees to move forward with careful and planned asset management to optimize ongoing support to the Beneficiaries over the long term, which was Richard Smart’s primary purpose in creating the Parker Ranch Foundation Trust. The approval to convert to a Type I supporting organization strengthens plans for the future direction of the Ranch.

Ranching

A number of changes have been made in ranching operations to progress toward profitability. Ranching operations have transitioned to a cow/calf operation due to the high cost of raising cattle to maturity in Hawaii. The primary purpose of Parker Ranch's herd now is to produce calves. Once weaned, these calves are shipped to the mainland US to complete their growth.

Transportation costs are offset by lower grain costs, the elimination of a Hawaii-based slaughter operation and the more rapid growth of calves on mainland grasses. A biannual breeding season resulting in two calf crops fills mainland beef demands when other operators are not able to do so. In addition, open range ranching has been replaced by less labor intensive ranching in smaller fenced paddocks. Parker Ranch reduced its livestock workforce from 79 in 1991 to 12 in 2007. Overall employee numbers decreased from 112 in 1991 to approximately 50 employees today.

Parker Ranch also sought to improve the quality of its beef through genetics and animal husbandry to increase its value to market. Parker Ranch participates in an innovative marketing plan geared around two branded beef programs called Ranchers Renaissance and Country Natural Beef, whereby grocery retailers pay premiums to ranchers that consistently produce a higher quality of beef. With two branded beef distribution channels, Parker Ranch has executed its cattle marketing plan to the point that it generates solid profits.

Reducing ranching expenses and increasing revenue have positioned Parker Ranch to be a low cost provider in a commodity-based market. Cattle ranching, even in the best of times, remains a challenge.

Diversification

Today, Parker Ranch continues to explore diversification of assets in order to provide the Trust, as its sole stockholder, with income to fund Beneficiaries and fulfill its mission. Modern ranches must rely on diversification to survive, from cattle ranching and forestry to tourism and retail.

Parker Ranch Center

Parker Ranch Center was sold in October 2005 to M & J Wilkow Ltd., a Chicago-based real estate investment trust. The Parker Ranch Store, along with the Parker Ranch Museum & Visitor Center, both owned and operated by Parker Ranch Inc., continue to operate from the Parker Ranch Center.

HoloHolo Ku

As the first residential development in the 2020 plan envisioned by Richard Smart, land was sold in 2001 to a developer who subsequently built 44 condominium homes that were offered for sale in 2002.

Luala'i at Parker Ranch

Luala'i at Parker Ranch, a residential joint venture development between Parker Ranch and Schuler Homes, launched in August 2002. The project features 3 and 4 bedroom single-family market entry homes. The development meets a goal of the Parker Ranch 2020 Plan initiated by Richard Smart in 1986.

Parker Square

In 2001, Parker Ranch negotiated the sale of Parker Square , a 17,642 square-foot retail and commercial office building in Waimea to Kauai-based Niu Pia Farms Ltd. Sale proceeds allowed Parker Ranch to reinvest in other projects including Parker Ranch Center.

Investment Portfolio

In keeping with the Trust's strategy to develop an investment portfolio, lands outside the core of ranch operations or business use were sold. In 2006, the Ranch successfully concluded negotiations with the U.S. Army for its acquisition of approximately 24,000 acres of land in an area known as Keamuku. This sale allowed a significant portion of long-term debt to be paid off. The balance sheet has been strengthened, and there is improved liquidity and debt reduction An investment portfolio, not tied to land or cattle, has been established producing a reliable income stream for beneficiaries.

Organizational Changes

The challenge of remaking an outdated operation has been addressed by a progressive corporate model reorganization of Parker Ranch, Inc. These organizational changes have been made to lead the Parker Ranch family of companies toward the goal of providing income to help the Trust to fulfill its goals. Through 2008, nearly $15 million in cash and land has been distributed to Trust beneficiaries.

Parker Ranch Inc. has reorganized into six divisions, or companies, to improve business operations through consolidation, exploring new opportunities and clarifying issues of responsibility, accountability and reporting.

The structure of the Ranch has evolved to a modern efficient corporate governance model with a slate of highly qualified and professional individuals who were retained to fill the new management structure.

Parker Ranch Inc. Leadership

Chris J. Kanazawa serves as President and Chief Executive Officer of Parker Ranch Inc., the for-profit arm of Parker Ranch. Kanazawa is responsible for overall ranch performance, including the implementation of its strategic plan. Consistent with that plan, Kanazawa oversees day-to-day management of the Ranch in addition to the Ranch's financial, investment and business activities.

Kanazawa spent more than 23 years in the real estate industry and had his own real estate consulting firm on Oahu. Prior to starting his own company, he served as President and Chief Executive Officer of Coldwell Banker Commercial Pacific Properties from 2000 to 2002. He also held positions at AMFAC/JMB for seventeen years, four of which he served as President of the Real Estate Division. Kanazawa obtained his Bachelor of Arts degree in Economics from the University of Hawaii and a Master of Business Administration degree in accounting and finance from the University Of Southern California Graduate School Of Business.

As President/CEO, Kanazawa is charged with leading Parker Ranch as it strives to branch out and further diversify its business operations while maintaining Waimea’s unique paniolo heritage and preserving the community’s character. His extensive experience, coupled with his skills in formulating land use strategies, master planning and in consensus building between community and business interests are key traits to his position.

Diane Quitiquit is Parker Ranch Vice President. Her qualifications include seven years as County of Hawaii Director of Research and Development and executive leadership positions at two Big Island hotels.

Michael "Corky" Bryan is Vice President, Livestock Operations. His prior experience included managing Kona's Pu'uwa'awa'a Ranch for ten years and serving as Vice President General Manager of Hawaii Meat Packing Co.

Jeffrey H. Sakamoto is Vice President, Finance. Sakamoto, who holds a BBA in Accounting from the University of Hawaii, is responsible for directing the accounting, finance and tax compliance functions for all Parker Ranch entities.

Parker Ranch Inc. has modified benefit packages for new hires and future retirees and elevated performance standards. It eliminated the college education and beef benefit and modified the medical and dental package for future retirees, moving from a paternalistic organization to a solid business-based organization.

These changes have resulted in higher productivity and current and projected cost savings.

Strategic Plan and Governance Policy

The third phase of asset appreciation is intended to enhance funds to the Trust beneficiaries and the greater Waimea community. Trust focus has clearly moved from clearing past obligations to planning for the future.

Parker Ranch initiated a comprehensive review of its strategic plan to update and refresh its vision statement and the underlying strategic principles. A planning team was enlisted with specific expertise relevant to the issues facing Parker Ranch. This team engaged the trustees, directors, management and beneficiaries of Parker Ranch in a renewed strategic planning effort, addressing both the current and long-term goals and objectives for the Ranch and its stakeholders. This theme of stewardship required careful consideration as to how the Ranch manages land holdings, natural resources and support activities; achieves an economic premium for assets; enhances the superior Parker Ranch brand; and provides leadership in encouraging stakeholders to support this theme of stewardship.

Subsequently, the Ranch concluded development of a set of Guiding Land Planning Principles that established the framework for all strategic planning. The Principles recognize the importance of protecting the rich history and legacy of Parker Ranch, preserving the wide open country of Waimea, promoting sustainability of our community and lifestyle, sustaining profitable and “Best of Class” business operations, and providing meaningful financial support for the beneficiaries. With these Guiding Principles, the Ranch is better prepared to follow a defined process in evaluating creative approaches to enhance the value of land holdings and improve business operations.

Among the most significant recent achievements has been the tremendous progress made with the beneficiaries on the long-term strategic planning process. In November 2006, the Distribution Committee unanimously endorsed the adoption of long-term the guiding principles for the Ranch under the umbrella of the Next Century Plan.

With the concluded conversion to Type I supporting organization status in 2007, the Trustees, working closely with Beneficiaries, are able to move forward with careful and planned asset management to optimize ongoing support to the Beneficiaries over the long term.

The Strategic Plan now defines the overall strategy of the Trust. Detailed financial goals and projections for Parker Ranch Inc., and the Trust have been established. These goals emphasize an orderly diversification of Trust assets as opposed to liquidation of assets under unfavorable economic conditions or their dissipation through maintaining the status quo. The Three-Year Plan projected a return to profitability by the 2005-2008 period. Profitability was in fact first realized in 2006.

For a current financial picture, return to the home page and click on the most recent Annual Report.

In spite of challenging circumstances since 1995 the Trust has made significant distributions to beneficiaries. For the most recent distribution information, return to the home page and click on Distributions.