PMG ThinkBook

2020

2020

NZ commercial property and investment magaz ine

OV E R C O V ID -19 ?

W he re d o e s the s m a r t m o ne y g o?

N Z e c onomy c ommentary

C ommerc ial property and inve s tment

E x pert opinion, trends and ideas 1

PMG | THINKBOOK

THINKBOOK

NZ commercial property and investment magaz ine

ISSUE 3

FEATURED INSIDE Scott McKenzie, CEO of PMG, asks the question, "Where's commercial property heading in 2020 and beyond?"

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CONTENTS 4

THREE BLACK SWANS

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A BRAVE NEW WORLD

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WHERE'S COMMERCIAL PROPERTY HEADING?

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PMG TENANT STORY

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DIGITAL HUMANS IN A CONTACTLESS WORLD

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By Cameron Bagrie, Bagrie Investments

By Denis McMahon, Founder and Chairman of PMG

By Scott McKenzie, CEO of PMG

A look at Tui Products, Bravesight and Forsite

Interview with UneeQ COO Bradley Scott

CLIMATE CHANGE, COVID-19, GREENER BUILDINGS AND PROPERTY INVESTMENT Interview with New Zealand Green Building Council CEO Andrew Eagles

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GRINDING GEAR GAMES CASE STUDY

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HOW, WHY & WHERE TO START INVESTING

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PMG INVESTOR STORIES

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STRATEGIES FOR INVESTING IN UNCERTAIN TIMES

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THE FUTURE OF INVESTING

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ENTERPRISE ANGELS

The ingenious gamers grow into a league of their own

With WealthDesign’s John Barber

As told by four investors

By Daniel Lem, Head of Investment at PMG

Interview with Futurist Dave Wild

Interview with Enterprise Angels CEO Nina Le Lievre

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STATE OF THE NATION

THREE BLACK SWANS

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MANAGING DIRECTOR AND CHIEF ECONOMIST OF BAGRIE ECONOMICS CAMERON BAGRIE SHARES HIS VIEWS OF THE COVID-19 WORLD WE LIVE IN.

There is no point sugar-coating the obvious.

The world, New Zealand included, faces challenges like we have never seen. Difficult times deliver both challenge and opportunity.

There are always two sides to the equation.

On some levels we shouldn’t be surprised. It happens every ten or so years. New Zealand, and the global economy, were due.

It’s one of the most uncertain environments I have ever seen.

We’ve been hit by three black swans.

Black swan #1 was COVID-19 — part one, disruption in China and the global supply chain.

Getting stuff in and out became challenging.

Black swan #2 is COVID-19 — part two, a virus that has grown exponentially around the globe.

We need to stop the spread. Countries that had contained the virus are now seeing a second wave.

Black swan #3 has been the policy response, which has been bigger than Ben-Hur. Central banks have cranked up the printing press and governments around the globe are piling on the debt.

We shouldn’t be surprised to see policymakers stepping up to the plate. But the scale of response has been so immense, many are wondering about the long-term consequences.

We need the support but we also need market forces to play a role so zombie companies don’t become the norm.

Interest rates are now basically zero. The Reserve Bank has committed to keeping them low and is buying bonds to ensure this. We are engaging in what is called quantitative easing (QE). Banks have reduced deposit and mortgage lending rates.

The Government is undertaking the biggest fiscal injection in our history.

Money is being put in people’s pockets to stem the negativity from job losses and hits to business income. The Government is backing banks via a business lending facility to make loans and keep the credit lines open. The Reserve Bank has relaxed rules the banks operate under to assist with the provision of liquidity and loans.

New Zealand entered this downturn with a strong fiscal position. Net debt for the Government was 21% of gross domestic product. It’s going a lot higher

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and that will be a “tax” on subsequent generations.

Making the banks safer in the past decade has meant we are now in position for banks to step up and put more liquidity into the economy.

The New Zealand dollar has fallen, though bounced up of late.

Aggressive steps dampened the depth of the downturn. The New Zealand economy has bounced over June and July. A degree of normalcy has returned with COVID-19 at bay — for now.

We need to be realistic about what the future may entail. The world continues to be ravaged by the virus. New Zealand looks like the place to be,

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but a weak global environment will impact our economy, as will continued border control. Housing may have bounced but unemployment continues to push higher.

That said, I’m not a believer in Chicken Little commentary. Yes, we have taken a hit and there is a real risk of a W shaped cycle, but the sky-is-fallingstyle assessments don’t help.

As a parent and investor, to me New Zealand looks pretty damn good. I’d rather be here than anywhere else. Investing is often about relativity not absolutes.

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There will be opportunities out of this. A lot of people and businesses have been struggling to find good deals. As economic conditions shift, capital from these groups will be deployed at an appropriate price. The digital economy will flourish. Healthcare, too. New Zealand provides food. The world needs food.

Witness supermarkets locally and imagine if you lived overseas. Well capitalised businesses could benefit. Highly leveraged ones will not.

In an environment of isolation, DIY has become a pastime (and learning experience).

Gardening too.

For firms, it’s about market share rather than the market. The recovery, when it comes, will see you in a stronger market position.

Quality counts.

Smart firms and individuals will take the time to learn and improve over the months ahead.

While predicting the future in the current environment is prone to huge variability, we should accept that there will be significant structural changes when we come out the other side. Life will not go back to 'normal'.

That’s what happens after major events. Smart firms will look to leverage off what these changes could be.

Do we have a benchmark for the path ahead? I don’t think so. This is a health crisis with severe economic consequences. It’s uncharted territory.

We went in hard during the Global Financial Crisis in 2008/09 but the economy, in general, came out the other side as asset prices bounced on lower interest rates. But it took some sectors, such as international tourism, six years to recover.

This event is worse than 1987-1991 in terms of the up-front hit, but we know from that episode that it took a long time for the full extent of economic problems to ultimately materialise. Brace for some dead cat bounces but a long slog.

That’s an exciting market, not a boring one.

For long-term investors, that’s an environment where you could get, and execute on, the best deals. But it’s about being patient and focusing on the long term because the biggest certainty is uncertainty.

While Bagrie Economics uses all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Bagrie Economics shall not be liable for any loss or damage sustained by any person relying on such work, whatever the cause of such loss or damage.

The content does not constitute advice.

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STATE OF THE NATION

A BRAVE NEW WORLD It's up to us.

BY: DENIS MCMAHON, FOUNDER AND CHAIRMAN OF PMG FUNDS AUGUST 2020

Since NZ emerged from lockdown 1.0, life in Level 1 felt relatively normal. But for many businesses, it is far from it. Now in lockdown 2.0 for Auckland and Level 2 for the rest of New Zealand, it’s no surprise retail, hospitality and tourism sectors are still suffering.

In 2019, total international tourism accounted for $17.2 billion1. That’s a lot of money not coming into NZ right now. Even local cafes and restaurants, which serve mostly domestic patrons, are noticing it.

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https://www.tourismnewzealand.com/about/about-the-tourism-industy/

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What I can say is, from my experience over thirty years in the property industry and having not only witnessed but survived the three previous downturns, businesses will do what needs to be done to survive and prosper.

Chatting with one of my favourite cafĂŠ owners back in May, I very quickly realised that her idea of normal was gone. She had no idea if and when things were ever truly going to return to what was once the norm. I guess it was then that it registered for me just how dramatically and quickly our world had changed. But also, the opportunities to innovate that lie ahead.

It also underlined how different this crisis is compared to ones in the past that I have lived through since founding PMG in 1992. Different because this has been artificially manufactured in response to a health threat and has, in the words of Tony Alexander, been created by "the temporary,

voluntary crushing of the economy". It has not arisen from high inflation, housing bubbles or suspect bank lending practices, but in response to a powerful virus. If ever there was a cause to reflect on just how brittle our world really is, then this is surely it.

The good news is that, unlike the Global Financial Crisis (GFC) for example, most businesses were able to immediately reclaim their lives by simply starting up again, post lockdowns. For the lucky few, it has meant not only business as usual but they will have worked longer and potentially employed more people (at least temporarily) to catch up on the backlog. Professional services firms such as

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Th ha e do ve re om n is m ot sd b uc ay ee h th n to eo pa ta rie yin ke s g he ci a a rc tt rt ul en f r at ti om in on an g t in o d th th so e ep I m r fo ed ev r o ia aili ne . ng

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businesses up and down the country; those business owners already know what they have to do to survive and will be making those changes themselves.

What they do need, is for you and me to put the narrative of fear with these few months behind us and to go out and support them in this brave new world that we find ourselves in. For this is truly a unique crisis that was brought on by literally having to close our doors, and so the worst of its damage can be mitigated by opening up the economy and getting the wheels of industry turning again.

Of course, it won’t be easy or plain sailing, as we’ve seen with Auckland going into lockdown 2.5 (down from 3.0), but we have so many more positives in our favour than in 2008 with low, possibly negative, interest rates, a strong banking sector, a Reserve Bank that is making all of the right moves and our primary markets holding up well. There is much to take heart from and so I for one have not been paying attention to the prevailing doomsday theories circulating in the media. I will be focused on making sure that those of our tenants who are experiencing temporary difficulties receive our help and support just as we did in the GFC. The good news is that those tenants who we assisted through those dark times are still with us today and, I am certain, will still be with us for years to come. We’re in this together.

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lawyers, accountants and investment advisors etc. have seen this with increased employment and insolvency disputes.

Others have come back to discover that things may have changed in terms of customer numbers or behaviour and are coming up with new strategies to combat that. For some, their business will be a thing of the past, with tourism and hospitality sectors being most notably affected.

The fiscal response from governments worldwide has been to throw money at the situation, which is absolutely the right response, provided that it is targeted to achieve the desired recovery. The New Zealand Government’s response has been no different.

I will not join the fray of the debate on the likely success of such an approach, or of its long-term cost and effect on the country. What I can say is, from my experience over thirty years in the property industry and having not only witnessed but survived the three previous downturns, businesses will do what needs to be done to survive and prosper.

The latest buzz word doing the rounds from the spin doctors in Wellington is “reimagining”; business needs to reimagine itself in this new environment. Business does not need this advice from a group of people who are being paid by the efforts of the 500,000 small to medium-sized

WE HAVE SO MANY MORE POSITIVES IN OUR FAVOUR THAN IN 2008 WITH LOW, POSSIBLY NEGATIVE, INTEREST RATES, A STRONG BANKING SECTOR, A RESERVE BANK THAT IS MAKING ALL OF THE RIGHT MOVES AND OUR PRIMARY MARKETS HOLDING UP WELL.

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COMMERCIAL PROPERTY

WHERE’S COMMERCIAL PROPERTY HEADING in 2020 and beyond?

BY: SCOTT McKENZIE, CEO of PMG

I write this as we move into the second half of 2020, while the world continues to fight an invisible enemy that knows no borders. On the face of it, New Zealand appears to be faring well, however, the next six to 12 months will be judged by the Government and the nation’s ability to withhold through the pandemic, both from a health and economic perspective.

There has been much commentary out there about how the health and corresponding economic crisis will impact commercial property in New Zealand; many have been less than glossy.

With the benefit of being three months into ‘the new norm’ I can say the commercial property sector is holding up pretty well.

This is thanks to the NZ economy and the commercial property

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sector having been in a good position going into the lockdown: • Government debt was low, at only 20% GDP; much lower than pre-2007 Global Financial Crisis (GFC).

• Listed property vehicles had gained 32% in 2019, with 17.5% down by end of May 2020, representing a rebalancing from significant uplift last year. While this rebalancing was predicted to happen in 2020, prior to COVID-19, it’s happened faster and more sharply than expected.

• Vacancy in prime office space (Auckland 6% vs 14% in GFC; Christchurch 5.7% vs 10%) was at an all-time low.

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New Zealand banks have higher Tier 1 capital ratios – 15-16% (now), vs 10-12% pre-GFC. • The Official Cash Rate, and corresponding interest rates, was far lower in February 2020 at 1% (now 0.25%) compared to 8.25% in 2007.

How commercial property fares over the next year will depend on a number of factors, including New Zealand’s, and indeed the world’s, ongoing containment of the virus,

the opening of New Zealand borders to tourists, Government fiscal stimulus, Central Bank monetary stimulus and the ability for businesses to adapt, innovate and remain sustainable.

With these variables in mind, this is how PMG sees each sector performing in the next 12 months.

INDUSTRIAL The industrial sector’s resilience in the hard times and strong performance in the good times is why it is a favoured asset class for many investors globally, consisting of almost 50% of all transactions in New Zealand in 2019 (for transactions over $50m)1. Pre-COVID-19, prime industrial vacancy was at and approaching new lows in Auckland (1.7%), Hamilton (2.3%), Tauranga (2.4%), Wellington (2.8%) and Christchurch (2.4%)2. Post-lockdown, this sector has held up well given the manufacturing, logistics and warehousing nature of occupiers and their services being deemed essential throughout Alert Level 4. Looking ahead, and given the recent exponential increase in the long-term trend toward online shopping, the need for more warehousing and logistics space is expected to continue. This, coupled with a global trend for bringing manufacturing and supply chains closer to home, is likely to help underpin the industrial property sector for the medium to long term.

OFFICE The office sector performed well through 2019. Businesses have continued to expand and hire additional people, which has historically supported low prime office vacancy in Auckland (5.2%), Wellington (5.9%) and Christchurch (5.7%)3. Post-COVID-19 and the ‘work from home experiment’ we have all been through, there are some claims that the office sector will suffer from businesses wanting to downsize or get rid of their offices altogether after some witnessed increased productivity at home. I have written an article on our website on why this will not be the case. However, the key points on why we won’t see a major structural shift in the office sector overnight include the following: • There are lease contracts in place. Companies cannot, en masse, up and leave their offices due to their legal obligations of lease terms, with some not expiring for several years. https://www.bayleys.co.nz/media/1c7b9581-3a05-4b73-8c84ef163568d905 2 Colliers, December 2019 3 Colliers, December 2019 1

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• Humans innately require physical and social interaction to maintain mental health4 .

• Increased productivity was not the consensus.

While working from home can be productive, a Colliers New Zealand Research Report (June 2020) said 52% of respondents felt productivity decreased, 41% felt no change, and only 8% reported an increase.

• Working from home can be counterproductive and detrimental to long-term working relationships, team cohesion and company progression. There must be a balance between both.

• Research conducted by global office design and delivery company Unispace (The COVID-19 Scramble, May 2020) revealed that 100% of executives interviewed noted there will be an increased uptake of working from home as part of their future strategy, but the workplace is also here to stay.

• It’s not what businesses are planning.

Unispace’s research also revealed there won’t be a significant reduction in floorplate, with 95% of executives interviewed stating their office footprint is likely to remain the same for now. The highest reduction of floor space was said to be 25%.

• History shows we’ve been here before. In 1998, when Auckland’s CBD power cut meant all city workers had to work from home for five weeks, some businesses failed but most couldn’t https://www.forbes.com/sites/onemind/2020/03/17/whenhome-becomes-the-workplace-mental-health-and-remotework/#4558e0261760 4

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wait to get back to the city centre5. Similarly, when the World Trade Center towers fell in 2001, businesses and people gravitated back to Manhattan.

We expect to see progressive businesses pursuing higher quality office space in the short to medium term. Firms seeking to be more efficient in the way they use office space is expected to drive the need to create spaces to suit physical interaction, collaboration, innovation and creativity; a trend that has been in play for many years. Access to finance for developers in conjunction with economic uncertainty is likely to mean limited new office buildings being constructed in the short to medium term as well. This constraint on supply will equally help underpin occupancy levels and values for office properties.

RETAIL The retail property sector has been undergoing changes and challenges for some time, thanks to the uptake of online shopping. COVID-19 has sped this trend up and, therefore, we do expect to see more retailers vacating their premises when leases expire over the next 12 months. Those retailers with retail spaces that will thrive over the next few months will have alternative revenue channels (online, and direct selling) and either will focus on providing a service as part of their offering (like shoe fitting, fashion styling) over and above just https://www.rnz.co.nz/national/programmes/eyewitness/audio/2018636891/the-night-the-lights-went-out-in-auckland 5

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selling product, or will create an environment where people can enjoy an ‘experience’ or be entertained.

EARLY CHILDHOOD EDUCATION (ECE) For the childcare sector, the outlook is looking positive. While the impact of job losses in the sector is yet to be seen, in May the Government announced more commitment and financial support for qualified early childhood education (ECE) teachers6. Given ECE fees are already subsidised for parents with children aged 3 to 5 years, the high uptake of the subsidy by parents, and the well-documented evidence about the benefits of early childhood education, we believe the outlook for the sector is good.

Rolleston, Christchurch

What does this mean for PMG’s portfolio?

There is still much uncertainty out there, which could disrupt commercial property returns. Predicting where property valuations may go from here is anybody’s guess. What we do know, however, is that as long as you take a long-term view toward investing in commercial real estate, you will be rewarded in the long run.

This is caveated with the need, now more than ever before, to remain focused on quality, anticipating fast-moving market trends and positioning your offering accordingly.

Innov8 Building, Christchurch

For these reasons, I continue to remain positive about the commercial property sector. It not only provides the home for productive businesses of New Zealand, it is also a backbone of the country’s Gross Domestic Product.

PMG’s investment strategy remains focused on growing quality unlisted real estate funds with diversification across geographies, buildings and sectors, with an emphasis on tenant resilience across multiple properties. We do not try to pick the highs and lows of economic cycles. As longterm investors in property, we look for the right properties, in the right locations, with the right tenants for the right prices.

Our acquisition of the 5 Green Star-rated Vodafone Innov8 building in Christchurch on 30 June 2020 is a good example of this.

For the past five years we have embarked on a deliberate strategy of lowering our funds’ exposure to the tourism, retail and hospitality sectors. Across PMG’s entire portfolio, we currently have less than 8% of tenants weighted toward these sectors.

While PMG’s funds are not immune, maintaining a clear strategy has helped PMG minimise the financial impact across all our funds to date. Our focus on continuing to improve the overall quality and robustness of our funds, including income resilience, remains resolute.

https://www.rnz.co.nz/news/political/416915/government-reveals-278-point-2m-for-early-childhood-education-funding 6

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How PMG Supported Tenant Tui Products Through the COVID-19 Lockdown -June 2020THE TENANT

BY CHIEF FINANCIAL OFFICER ANDREW GRICE

PMG TENANT STORY - TUI PRODUCTS

COMMERCIAL PROPERTY

Business: Tui Products, Mount Maunganui.

Industry: Manufacturer and distributer.

About: With over 100 years of experience in the gardening industry, Tui Products continually develops innovative products to suit New Zealand’s distinct climate, conditions and lifestyle, supplying everything from compost to firewood and pet food.

CHALLENGE Our customers are the big retailers in New Zealand like Mitre 10, Bunnings and The Warehouse. During lockdown, we weren’t deemed an essential service, so most of our business activity had to cease, except for selling firewood and packaged birdseed to supermarkets. This meant for April, we were only able to achieve about 30% of our budgeted sales, which normally is a busy month because traditionally Easter is a big gardening period.

Level 3 was a lot better. From a business perspective, we exceeded our sales budget for May because the weather was good and once people were able to go and shop in a more normal fashion, they were still able to do some projects they would have done in April. One of the benefits of everyone being stuck at home was that they pottered around within their confines. We recovered some of the ground that we lost; our team has had to work very hard to replenish stock levels post-lockdown and keep up with demand. We were able to retain all our staff despite the lockdown, which we are thankful for.

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SOLUTION When we knew lockdown was happening, and once we saw what it was doing to our business, I made a call to Brian at PMG straight away, who looks after us.

PMG proactively proposed a rent relief package for us for April and May. We were grateful that PMG was prepared to come to the party and help us out and help us through.

To get a quick and fair resolution on rent, one of our biggest outgoings, made a real difference. When you have problems with cash flow, that’s often the beginning of the end, so to be able to sort those things out really early on in Level 4 meant we could focus on the actual business and what we do. It was an anxious time for us but it was a stress-free situation with PMG CEO Scott McKenzie’s backing as well.

OUTLOOK We are probably in an industry which usually goes well in tough financial times because people stay at home and grow their own vegetables. The more people stay at home, the better business is in the gardening industry. We’re positive it will stay strong.

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BY BRAVESIGHT OPERATIONS MANAGER KAREN SAUNDERS

PMG TENANT STORY - BRAVESIGHT

COMMERCIAL PROPERTY

How PMG Tenant Bravesight Navigated Lockdown as a Business and Essential Service Provider -June 2020THE TENANT

Business: Bravesight, Tauranga.

Industry: E-commerce Marketing.

About: Bravesight is an e-commerce marketing company that helps clients grow their business through technology and targeted marketing to increase the number of sales and delivery.

Businesses employ Bravesight because of our reputation for helping customers increase profits. Many clients have manual processes that they want to automate, and have probably tried before with another vendor and failed.

Where we succeed is by replicating existing processes in a way that works online, or by completely automating them.

Digitising processes often aren’t copy-and-paste, so we spend time looking at the business systems, and the overall business goals, so we can help owners and managers achieve these through the right application of technology.

CHALLENGE During the COVID-19 lockdown, working from home presented new challenges for our team, mostly due to their families being in the same space. Many of our clients supply essential services, and as an essential service ourselves we needed to support all our clients.

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SOLUTION Before the Government announcement of lockdown in March, our team agreed on a business continuation plan (BCP). Our BCP enabled our team to confidently transition to working from home, which was not something they had done before. Our infrastructure is set up in a way that allowed the transition to happen overnight, with zero impact on our clients' services.

Overall, it allowed more work-time flexibility, which we have maintained post-lockdown.

We also increased our marketing activity, initially focusing on helping our immediate clients with the upcoming bumpy ride, then widening this to our marketing network. We are presently building a business-to-business e-commerce guide, which will be free for businesses that want to explore what a digital transformation might look like for their business. We will also be creating additional guides for specific areas that will help prospective clients, or those who are working with other vendors already, to better maximise the resources they have today.

OUTLOOK We expect to see more demand for digitisation of services. When digital transformation projects go right, they increase revenue and profitability beyond any initial expectations. Setting the right expectation can be a challenge and is often a best guess. We are working on a framework to help clients make that decision with confidence.

For Bravesight, saying "trust us" isn’t enough when businesses enter times of uncertainty. A business owner wants to be confident they can make a good decision. We expect to help more companies that have been putting off these kinds of projects and now have seen the value of starting them sooner rather than later.

Bravesight has a workshop registered under the NZTE COVID-19 Business Advisory Funding. This is for businesses impacted by COVID-19 or looking for support to transition their business using digital tools. More information is on our website, bravesight.com.

Karen Saunders, Bravesight

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BY FORSITE HEAD OF DEVELOPMENT - SARAH YOCK

PMG TENANT STORY - FORSITE

COMMERCIAL PROPERTY

How PMG Tenant Forsite Added a New COVID-19 Discovery Feature to Assist Clients’ Health and Safety Needs During the Pandemic -June 2020THE TENANT Business: Forsite, Auckland.

Industry: Property Technology.

About: Forsite is in the business of assisting in the effective management of the compliance and health and safety of contractors and people on sites, globally, via a real-time, smartphone-based proofof-presence application. The Forsite solution helps managers and owners of property and businesses to effectively track and assist in the safety of people going into and onto their sites.

In 2015, we recognised the need to increase the visibility of compliance for building managers to promote a safer, more cost-efficient working relationship for both contractors and property managers. So, we created Forsite.

By leveraging smartphone apps, geolocation and sensors, our solution delivers unparalleled accuracy and automation to on-site health and safety. Forsite currently protects over 2.5 million square metres of property globally and offers solutions in a range of industries like construction, merchandising and property.

CHALLENGE COVID-19 has certainly presented several challenges to our business. With teams across New Zealand and Europe, collaboration can be challenging at the best of times. Lockdown required some adjusting for everyone. We are fortunate we had already embraced some days working from home from early 2019, so we were well versed and set up with the correct tools. I’ve been impressed with our team's ‘can do’ attitude to overcome the challenges presented, performing during these unique times.

Each new Alert Level created health and safety requirements for our clients, such as contact tracing for staff members, not just contractors and suppliers on sites. It became crucial for our team to be agile and quickly develop features within the app to support our clients’ requests. The Forsite solution puts us in a unique position to help our clients operate safely and effectively, so we have been busy doing all we can to support this.

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SOLUTION The nature of the pandemic has created an acceleration of tech adoption to limit virus transmission risks, contact trace and improve remote working capabilities. So we developed a feature called the COVID-19 Risk Discovery Survey, which meant all Forsite users had to answer health and overseas travel-related questions around their possible exposure to COVID-19 before they were able to check into a site. This feature has seen the Forsite solution taken up within new industries. An example of this is the construction crew working on Auckland’s latest retail, hospitality and commercial development, Commercial Bay. They installed Forsite for all their contractors in the first lockdown to keep their team safe.

We have seen a similar shift in the United Kingdom, with a large amount of opportunity in new industries due to the need for smart tech solutions to support safe business operations through this time. We can’t wait to take them on!

OUTLOOK We’re optimistic about our future and excited to move in whichever direction opportunities lie. It’s clear this is our new normal, and businesses need to adapt to survive. Understanding technology can play a leading role in this change.

Currently, we’re looking at how we can best help with our existing product and future enhancements. Forsite, through its effective health and safety and compliance management of people, is fundamentally set up to help businesses contact trace, and reduce human contact and transmission risks. We believe we have an important role to play with our clients, and prospective clients, to keep them and their people safe.

Sarah Yock, Forsite

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COMMERCIAL PROPERTY

DIGITAL HUMANS IN A CONTACTLESS WORLD Interview with UneeQ COO Bradley Scott How can digital humans influence the way property funds managers deliver value for tenants and investors? How does it relate to property funds management in particular, and how to use them to deliver value to tenants?

Property funds management is without a doubt a ‘people’ business – real humans talking to other real humans, be they customers, tenants or investors, about creating value from their investment or from the space they operate in. But what if we could remove the ‘people’ part of that interaction, without losing the ‘human’ aspect? A new company that specialises in creating digital humans for customer service and business interactions is trying to do just that.

Over the last few decades, digital technology has increasingly focused on how it can streamline and maximise the efficiency of customer service. Be it via websites, apps or chatbots, doing business without the need for real human interaction has become more appealing simply because it saves time and cost for both companies and their customers.

However, a new piece of technology is today opening up even greater customer service capabilities for a range of industries, including property management – the Digital Human.

A New Zealand-based company that is leading in this area is UneeQ (formerly known as FaceMe), which has developed an intelligent digital human platform powered by AI that helps businesses create real-time interactions

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with customers using the power of the human face. In other words, customer service delivered contactlessly – useful in a social distancing world.

UneeQ Chief Operations Officer Bradley Scott says the company has created interactive digital humans for telecommunications companies, banks, mental health providers and the property industry, all for the purpose of humanising interactions that would otherwise be mechanical.

He says it’s about creating memorable personas who build emotional connections, as much as it is about efficiency, the speed of doing business, and the fact that real people are “expensive”.

“What’s more, real people can be unpredictable when it comes to delivering customer service. With a digital human, you can be sure that any information communicated is correct and consistently delivered every time,” Scott says.

Most significantly, through user feedback, UneeQ has discovered customers will have conversations with digital humans that they simply wouldn’t have with a real human, because a digital human will never be judgemental.

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“Be it banking, financial advice, medical or mental health queries, there are some questions that people tend not to ask if they are dealing with a real human as they may be embarrassed or self-conscious – but they are comfortable asking a machine,” he says.

“What this means is that digital humans can unlock interactions that real humans can’t.”

He describes an application that UneeQ has already trialled for an apartment complex in Australia – a Digital Concierge called Mel (short for Melbourne).

With her smiling visage appearing on screens in lifts and on mobile phone apps, Mel welcomes residents to the building, answers questions, tells jokes, checks train times, directs delivery people where to go, and even lets in residents who have lost their keys – all with lifelike facial expressions.

The benefits of such a use for digital humans in the property sector are obvious – happy, well-cared for residents or tenants who receive efficient services in an engaging, low-cost way.

When considering what other opportunities digital humans could provide to the property management sector, Scott believes the use cases are endless.

For the property investment sector, this could mean everything from virtual building tours and online tutorials about investing, to basic Q&A for potential tenants. And as Scott notes, the platform is designed for use by all levels in the industry, not just the big corporates.

“The thing to keep in mind is that you can infinitely scale digital humans, which you can’t do with real humans. Once set up, the ongoing cost of a digital human is minuscule compared to the ongoing cost of employing a real one,” he says.

At the end of the day, it’s about reducing costs and maximising efficiency while increasing positive engagement with both investors and tenants. And for a people-focused industry like property, that’s something we should do everything humanly possible to achieve.

With a digital human, you can be sure that any information communicated is correct and consistently delivered every time.

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COMMERCIAL PROPERTY

Climate Change, COVID-19, Greener Buildings and Property Investment WHAT’S OUR ROLE AND WHO SHOULD PAY? INTERVIEW WITH NEW ZEALAND GREEN BUILDING COUNCIL CEO ANDREW EAGLES

Everybody loves green buildings! International research has shown that 95% of occupants want to live and work in green buildings, and the companies and landlords that want to attract these tenants are building greener to match demand1. However, there are still a substantial number of buildings in New Zealand that were built well before sustainability was a priority for the industry. https://www.nzgbc.org.nz/Attachment?Action=Download&Attachment_id=2353 1

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2020

With our built environment creating upwards of 20% of New Zealand’s carbon emissions2, the questions for property investors become: what should our role be in helping to improve the sustainability of these buildings? What can we do to speed up New Zealand’s progress when it comes to making our existing building stock greener, and who should pay for it?

At PMG, this is an issue that we have been wrestling with for a long time. As environmentally conscious individuals and responsible property funds managers, we are highly aware of the responsibility we have to drive forward sustainability within our portfolio, not only to support the environment but to maintain the quality and 'shelf life', and improve the value of the properties in our portfolio for investors. But we also face the age-old challenge of balancing out the costs that come with making the shift to ‘greening’ existing buildings.

This question is one that has been top of mind for the team at the New Zealand Green Building Council (NZGBC) for the past two decades, and the progress that has been made in that time in developing solutions is significant. We spoke with current NZGBC CEO Andrew Eagles to learn more about the increasing momentum that’s taking place around green building in New Zealand right now, and how both investors and tenants can collaborate to improve the sustainability of property portfolios across the industry.

On the day we met with Andrew Eagles in January 2020, he had just come from a meeting with the NZ Prime Minister and several key ministers, where they discussed the new $12b infrastructure package announced by the Government that morning.

Included in the infrastructure package was a firm commitment from Government to building healthy, energy-efficient buildings, including a $200m allocation towards greening the public sector estate, among many other commitments.

At the time, Eagles was obviously pleased with the commitments, and that the idea of green building had resonated at the highest levels in New Zealand with bipartisan support. https://www.nzgbc.org.nz/Attachment?Action=Download&Attachment_id=2635 2

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However, with the increased economic uncertainty that New Zealand is now facing in the wake of the global COVID-19 pandemic, he recognises that implementation will be one of the key challenges the industry will face in the future.

“To have greener buildings enshrined in NZ law is a huge step forward, but it’s just one part of the journey. Property investors still need to step up and find out where their buildings currently sit on the green spectrum and work towards improvements,” he says. “Increasingly, indexes will be used to assess which portfolios are taking this seriously compared with others.”

Go back two decades and green building was a fledgling concept in New Zealand. Some key new buildings were being designed, but the newly formed NZGBC in those days struggled to break through wider industry perception that green building was too difficult and overly expensive, all while working through the complexities of creating rating tools applicable to New Zealand’s unique conditions.

Eagles says the most tangible change that occurred in the intervening years was the conscious commitments from investors and developers to

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verifying the green performance of their building stock, encouraged by the establishment and improvement of rating tools like Green Star and NABERSNZ. “Since the introduction of Green Star in 2007, the NZGBC has been successful in mainstreaming the rating tool for commercial office buildings in New Zealand’s main centres to the point where today, over 80% of new commercial office buildings in the Auckland CBD are Green Star rated,” he says.

Now, following the passing of the zero carbon bill in November 2019, he says interest in green building has heightened, especially as there are deadlines for meeting zero carbon targets.

“Many investors today are rightly seeing high carbon as a risky investment. Unhealthy buildings with high running costs and high carbon are not a good look, nor attractive to tenants.

Green building then is ultimately about saving money and creating a better return on investment.”

Eagles cites a notable example from Australia, where research showed that the move to higher NABERS ratings in the Australian office building stock saved businesses $750m.

In relation to New Zealand’s zero carbon act, NZGBC’s specific request to building owners is that they start certifying their existing buildings to zero carbon in 2020, and to have all their buildings zero carbon by 2030.

Similarly, they are asking developers to build their new buildings to zero carbon and 20% less embodied carbon by 2025. They’re also asking tenants to inform their landlords in 2020 that they will be seeking zero carbon rated buildings in their leases by 2025.

“Property investors need to realise that this issue is not going away. The unequivocal global scientific consensus is that climate change is coming like a freight train, and the window for addressing it is getting smaller all the time. Plus, with our buildings responsible for 20% of NZ’s greenhouse gas emissions, it’s crucial that we address this through our built environment.

“There are benefits to investors for improving the environmental impact of their investments.

Increasingly, buyers are seeking greener buildings, which raises the value of these properties, they

2020

are cheaper to run so attract tenants with lower operating budgets and, in time, will be a requirement by Government anyway.”

Eagles has one key message for investors who are wanting to make their buildings greener: it’s time to collaborate.

“The fact is, it’s never been easier for property investors to get started on the journey towards greening their buildings. The first step is understanding where your portfolio sits on the green spectrum. If you have an office building that is over 1000 square metres, get it NABERSNZ rated. It’s a relatively low cost to do, and you’ll then have a very real sense of where you sit on the scale,” says Eagles.

“Maybe your building will only be two stars, but at least you’ll know, and you won’t need to publicise that – but it will mean you have a starting point to then plan and improve things.

“Another thing to realise is that if you have a Government tenant, they are going to be seeking ratings with your lease renewal, so now is the time to start addressing it. Basically, start understanding your building stock, before you’re embarrassed by it,” says Eagles.

“What’s helpful is that we have now introduced a rating tool, Green Star Performance, which can be applied to any building type, so we can rate retail, industrial, convention centres and others by the same measure. Having been through a health crisis,

tenants are going to be really interested in the health of their building. The potential of slower economic activity will heighten their interest in saving on bills. Greener buildings deliver healthy buildings that cost less to run.

“Remember, NZGBC is here to help. Costs for building green are down, our rating tools are better today than they have ever been, and there are many case studies and examples that we can share with investors to demonstrate the pathway to maximising their return on investment in green building,” he says.

“It just makes sense, and the ultimate result is you’ll have happier, healthier tenants. So, start the journey today, or risk being left behind.”

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COMMERCIAL PROPERTY

GRINDING GEAR GAMES CASE STUDY The ingenious gamers grow into a league of their own.

THE TENANT At PMG, we pride ourselves on having a proactive approach to assisting clients and their property needs. For us, the support of our tenant Grinding Gear Games is no different.

Founded in 2006, Grinding Gear Games began as a small start-up business in Auckland with the vision of creating an action role-playing game (RPG). The three founders are self-described “hardcore gamers” and grew bored of the market offering, so they developed the free-to-play video

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game Path of Exile to meet their own action RPG needs.

By 2020, the once small business has evolved from its original founding team of three to a bustling team of 150.

Recognised as a world-leading product, Path of Exile recently won the 2020 British Academy of Film and Television Arts (BAFTA) for Best Evolving Game, beating the likes of Fortnite. It’s also the first New Zealand-made game to win the accolade.

2020

GRINDING GEARS GAMES OFFICE, 6 ALDERMAN DRIVE, AUCKLAND

CHALLENGE

SOLUTION

Our PMG Asset Management Team sought to find the ideal space to house the ever-growing Grinding Gear Games team, with 6 Alderman Drive in Henderson meeting the brief.

Leasing the company an entire floor of the building back in 2015, it gave their team a spacious 1100sqm to work in and, more importantly, the room to expand in the future.

And they did. Grinding Gear Games went on to lease a 110sqm space on level 2, taking them to a total of 1210sqm. As of August 2021, Grinding Gear Games will have a new sevenyear lease term and will move to a total of 1929sqm in the 6 Alderman Drive property.

For co-founder and director Chris Wilson, working with PMG has meant he’s been able to focus on his business. “PMG do a great job. We know that we can count on them to quickly find a solution for any issues that crop up around the office,” he says. “This lets us get on with our core business activity – developing games.”

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PMG do a great job. We know that we can count on them to quickly find a solution for any issues.

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In the beginning, Grinding Gear Games made do with working across three small offices with a floor space of around 500sqm in Titirangi Village, West Auckland. When the team reached 50, the space became cramped and was less than ideal for communication.

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INVESTING

HOW, WHY AND WHERE to

Start Investing With WealthDesign’s John Barber

For the younger generations coming up through the ranks, navigating the investment world for the first time can be overwhelming. WealthDesign’s John Barber shares some of his advice on where to begin, KiwiSaver, averaging into the market and strategising like a dairy farmer.

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2020

five-year goals, John encourages his clients to take a picture of them and save it as their phone background.

“Because every time you pick up your phone, you’re actually seeing what you're trying to achieve. If it's important enough to you, that will just chip away at your brain and help you achieve the goals,” he says.

When it comes to investing, John starts with the KiwiSaver concept, then continues educating his young clientele around the power of compounding interest on long-term investments.

“KiwiSaver is a brilliant vehicle for young people to grow wealth over time. But it's a pretty blunt tool in the fact that you've got to hope that the fund manager is doing a good job and you've got very little control of where your money's invested within the tool,” he says.

“If you set a plan with KiwiSaver, you're going to pretty well cover your retirement… if you just stick to the plan.”

Research platforms like Morningstar provides WealthDesign access to performance results of each KiwiSaver fund, so they can help people make the right As a young adult, it is hard to know when decisions. For example, a 25-year-old who or where to start investing. While it might plans to use $20,000 of their KiwiSaver funds feel like something you’d do with your for a house purchase, shouldn’t invest in a money in your 40s or 50s, in reality you growth fund where there’s a possibility of should start as young as possible. losing 30% in a downturn. Instead, it’s better We’ve enlisted Managing Director John to invest in a conservative fund that aligns Barber from independent financial planning with their goal of firm WealthDesign accessing their capital to share his general in a short time frame. thoughts on the Beyond KiwiSaver, topic. WealthDesign John says to first save is a boutique practice It's the diversity that three months’ worth offering wealth of wages to build a management services you're looking for when “cash buffer.”

Because to clients across without something New Zealand, from you're building a strategy to fall back on, your investment planning to investments will take mortgage broking. for long-term investing. a hit if you ever need “We have a number of the cash quickly third-generation clients (aka liquidity). and in a provincial For example, the town like Palmerston young married couple North, you don't get to with kids and no cash savings will hurt if do that unless you are good at what you do,” one of them gets made redundant.

They’d John says. have to look to sell any investments and only For new clients, they first look at what their get 60 or 70% of their capital back if there’s goals are before setting up a plan to achieve a recession. them. After writing down one-, three- and

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Investing then for young generations is about learning first hand, getting the right advice, and having liquidity, according to John.

“I tend to like buying shares in New Zealand and Australian markets that you directly own, in your own name, rather than giving it to a managed fund, because it actually teaches you about investing over time,” he says.

Rather than trying to pick the peaks and troughs, instead average into the market and have dividends reinvested.

Monitor them yourself so you’re in tune with your money. It’s all about making the money you save work harder and faster for you, in order to achieve financial goals, like buying a house.

The consensus in New Zealand is to buy rental property (and more debt) to grow wealth, but that isn’t always the answer according to John.

“The biggest barrier we find for younger people wanting to save, is they want to borrow money and buy houses. Kiwis still have a love of rental properties,” John says, “despite the disincentives. There’s the five-year bright line tax test, where investors must pay capital gains tax on any profit. Also the market is now more difficult to break into than it was for previous generations.”

That’s where unlisted property (like PMG) and listed property (on the New Zealand stock exchange) offers greater opportunity.

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“Listed property stock can trade higher than their net tangible asset (the assets of the company). Unlisted property stocks sell at their net tangible asset value, therefore, by having them as part of your portfolio you’ll reduce your overall risk. Having both unlisted and listed property stocks work together nicely for you.”

Commercial property has been said to have an old boys’ club mentality. John says that historically it was most likely because you could only buy into it if you had half the capital, and “it wasn’t seen as sexy.” But that isn’t the case with opportunities like PMG’s Generation Fund, where the current minimum investment amount is $1000.

“You're leveraging on guaranteed inflation,” John says of how you can make money in property.

“You're pretty well guaranteed that a commercial building in Hamilton in 10 years’ time would cost more to build than it is [valued] today. So you can't help but make money over time out of commercial building as long as you've got good tenants.”

Content of this article is the opinion of John Barber and is not intended as personalised financial advice. You should seek independent financial advice from an authorised financial advisor before making any investment decisions.

2020

THREE

INVESTMENT STRATEGIES from WealthDesign

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3

1 1. THE RACEHORSE OWNER

2. THE SHEEP FARMER

“The first one is the racehorse owner, and he's the guy who only ever has one investment. If it works, you're a hero. If it doesn't work, it's a disaster.”

“Then the second… is the sheep farmer.

They buy a sheep to sell to somebody else to make a profit. Now, that is what I call the fund managers. They're trying to buy and sell something to make a margin.”

3. THE DAIRY FARMER “The third strategy, the one that I always use, is what I call the dairy farmer. You have a range of assets that spit out cash flow and you hold for a long period of time. One of them may not work but the other 99% do; it's the diversity that you're looking for when you're building a strategy for long-term investing.”

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PMG | THINKBOOK

INVESTING

Investor Stories

WE SPOKE WITH FOUR PMG INVESTORS TO FIND OUT ABOUT THEIR INVESTMENT JOURNEY TO DATE AND THEIR THOUGHTS TO THE NEXT GENERATION ON PLANNING FOR THE FUTURE.

4 MEET PAUL What do you wish you knew back when you made your first investment?

“I started off making investments maybe 20 years ago, in my early 20s, which involved forestry shares and shares in a number of businesses. The decisions weren’t completely uninformed but I could have done more research.

“I would have put more importance on getting the right advice [from someone like a financial advisor]. It comes down to having a better understanding of what your desired outcome is and your reasons for investing, rather than the short-term performance requirement.”

4

What age would you recommend alternative investments to KiwiSaver?

4

Why is commercial property an important part of your investment portfolio?

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“There are so many different options out there with different profile risks and returns, and so many different opportunities to invest in at an earlier age.

Rather than saving sums of money in banks, I feel it’s a lot more prudent to seek early advice and invest sooner. As soon as you start saving, I would start looking at the options.”

“The commercial component is to do with income and building a liquid asset base. Like most people, I’ve got a mortgage and a house, some other Kiwi-type investments, and a few other things that aren’t very liquid, so having a liquid asset is important so I can move the money around if I need to.”

2020

4

What would you say to the next generation is the number one rule of investing?

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What do you see as a barrier to investing for the next generation?

“There’s probably two. If it looks like it’s too good to be true, it’s too good to be true. If the returns are disproportionately higher than everything else in the market, it’s probably not real. The other one comes back to getting the right advice to invest as soon as you can.”

“The way I see it, it’s becoming harder to save a substantial deposit to buy a house, at which point you’re going to get a mortgage for the balance. If you took that deposit money and invested it in a higher rate of return, you will meet your target sooner.”

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MEET BRENDAN What do you wish you knew back when you made your first investment?

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Why is commercial property an important part of your investment portfolio?

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What would you say to the next generation is the number one rule of investing?

“I would have bought more into the stock market over time. The other thing would have been to buy into funds earlier as well. Rather than try to do some of it on my own. Let the professionals do the research for you.”

“For me, I think it’s a security of investment in that you own the underlying land. That gives you stable income with potential for growth."

“As far as investment into a commercial property fund, you’re spreading your risk over multiple tenants, not just relying on one or two. Going into a fund allows you to have that risk spread out across multiple tenants and multiple properties. That’s why a fund is so good; the fluctuations won’t be as great, the gains may not be as great either, but you take the fluctuations out of it.”

“Do your homework. Make sure you know what you’re getting into, what the business is, and how it operates. With some investments, if it sounds too good to be true, it is: high returns are high risk.”

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What was the best piece of advice you’ve ever received regarding money and investing?

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What do you see as a barrier to investing for the next generation?

“Buy land, because you’ll always own the land.

There’s always risk in buying into or buying businesses because if they go under you normally lose your money; you’ve got nothing to fall back on. Take your time. You’re not going to (apart from maybe one per cent of the world) get rich overnight.”

“Having the spare income to be able to divert into investing and whether they are educated in investing. Are they thinking, when they’re 60, what their future is going to look like?”

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4 MEET HEATH What do you wish you knew back when you made your first investment?

“I’d be probably one of the few people that wouldn’t change anything. I bought my first house at 21. Back then, houses were three years’ wages. It’s different now; it’s 10 years of wages.

“While I had one rented out, it was just easier to go buy another one. I had three, sold them all, bought a nice house that I could live in, paid off all my debt, and then found [PMG] and started investing with them.”

4

Why is commercial property an important part of your investment portfolio?

4

What age would you recommend alternative investments to KiwiSaver?

“As soon as you possibly can. Save just 10% of it, don’t touch it, and that’s your retirement fund.

“Compared to KiwiSaver there are other things you can invest your money in, where you’ve got more control if something does happen; like investing with PMG, I can get my money out [when available]. Whereas with KiwiSaver it’s just locked in and that’s the end of it.”

4

What would you say to the next generation is the number one rule of investing?

4

What was the best piece of advice you have ever received regarding money and investing?

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“Because of you guys. You make it so easy to invest in commercial. I don’t have to look after it or do the maintenance; it’s all just done. You’ve got downfalls if a tenant shifts out and it could be a lot harder to get a new company in there, but once they’re in there, and you look after them, it’s far easier than residential, I believe.”

“If you’ve got a steady income, you’ve got to decide a percentage to put away every week.

Once you understand how saving works, you just start talking to people to find out what a good investment is.”

“When I was growing up it was just ‘buy a house’. Once you’ve got your foot on the ladder, you’re going down the river with everyone else.

“Never spend money you haven’t got. The only thing you ever borrow money for is appreciating assets, like property. Only borrow money for stuff that’s going up in value.”

2020

4 MEET JULIAN What do you wish you knew back when you made your first investment?

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Why is commercial property an important part of your investment portfolio?

“I would start investing earlier on, and I’d start learning about investment as early as possible. I would try and learn, when I had some disposable income, maybe around my 20s, before I committed to buying my first house.”

“I see it as one of the key parts of having a diversified portfolio. I obviously started – like a lot of investors – with a residential property for my own house and an investment property. Then looking at that compared to the pros and cons of commercial property, I found that sector more interesting… [regarding] the yield and the way it’s professionally managed.

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What age would you recommend alternative investments to KiwiSaver?

4

What was the best piece of advice you’ve ever received regarding money and investing?

4

What would you say to the next generation is the number one rule of investing?

“When anyone starts having disposable income.

When you’re in your early 20s, and you’ve got your first job, can afford to live, and have got some spare capacity, just start off that journey as early as possible.”

“Diversification. You want to have diversification with different asset classes, and within each asset class have diversification as well. The more people you talk to, you really understand not to put all your eggs in one basket. Because there’s a chance you’ll lose it if there’s adverse conditions, whether it’s economically, the company or a property isn’t doing well.”

“Learn about investing and diversify. Learn about different investment classes, and what their risk and return profiles look like. Understand what different classes of investments look like.”

4

What do you see as a barrier to investing in commercial property for the next generation?

“The first barrier is just not knowing that class of asset actually exists and is available for them to invest.

And number two is a lack of understanding about the importance of investing. They’re competing against the new iPhone… So a lot of them might not understand why it’s actually important to invest. I personally don’t think our current superannuation scheme will work forever so I think when I retire, I’d need to have the ability to stand on my own feet rather than rely on the Government.”

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INVESTING

BY PMG DIRECTOR & HEAD OF INVESTMENT DANIEL LEM

STRATEGIES FOR INVESTING IN UNCERTAIN TIMES 38

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A cautious approach to leverage is always prudent and will soften the impact of a market downturn.

One reason that makes timing difficult is the impacts of market uncertainty do not follow a straight line. Yields and effective rents are variable across different property sectors, and charts produced by analysts are often jagged in appearance. This brings feelings of both euphoria and concern, which may impact investors’ decisions and cause irrational actions.

Over our 28 years in the business, PMG has resisted making investment decisions on the basis of single events and have found that good properties remain good properties even during a downturn. The fundamentals of location and tenant quality are paramount and have helped keep us in a strong position during difficult times.

Diversification is critical. Working with a financial professional to spread your risk makes a lot of sense. Diversification doesn’t guarantee a profit, but over time it can help to reduce the effects of volatility.

We regularly invest – in good times and bad times – keeping a close eye on property fundamentals. In our view, investing for income is also a good idea. Income-producing investments can provide a cushion, and the income is yours whether the market is strong or weak. We have also found that by hedging a percentage of our debt, we are able to generate longer-term positive cash flow across market cycles, without having to worry about moving interest rates. In this way, hedging has provided us an additional level of security.

We have found it is also helpful to remain invested during periods of volatility, allowing participation in the markets' long-term upward trend. Time and upward trend, rather than timing itself, has proven to be a better approach for PMG.

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arket uncertainty is the result of investors reacting to economic, political and corporate factors, and is an inevitable part of investing. In any climate, it is important to stay calm and get professional advice.

At PMG, we have always taken a long-term view of real estate investing and, therefore, the ups and downs become less important. Successful market timing during a soft market is extremely difficult because it requires two near-perfect actions – getting out at the right time and getting back in at the right time. As a result, investors often end up buying high and selling low.

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2020

Over our 28 years in the business, PMG has resisted making investment decisions on the basis of single events.

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PMG | THINKBOOK

We continue to use low to moderate levels of leverage. This provides a buffer so that if some tenants begin to struggle during a downturn, we can continue to meet mortgage obligations while paying our investors a regular distribution. It is important to note here that distributable returns are not guaranteed; however, the single largest impact to returns is leverage. A cautious approach to leverage is always prudent and will soften the impact of a market downturn.

Uncertain markets also bring opportunity.

Building owners who have found themselves over-leveraged during a downturn and collecting less rent may be forced to sell by their lender. A job loss or business failure may also necessitate a sale. Often, highquality assets must also be sold. PMG is able to capitalise on these opportunities and, due to our in-house expertise and market contacts, we can take on both vacancy and redevelopment risk to reposition an asset.

We find during uncertain times there is more choice and less competition. However, when selecting an investment, it is important to be clear on the property fundamentals that should always be present in any investment.

It is also evident that during market uncertainty, investors tend to gravitate to higher quality properties for security. It is for this reason that quality properties hold their value the best and secondary properties will suffer more greatly during a downturn. Our policy is to recycle older assets when they are at 12 o'clock (of their property clock, i.e. are still performing well), in favour of higher quality more modern properties, which offer strong income resilience.

These five investment strategies have helped PMG ride out the bumps and remain focused on the big picture.

1

Stay calm and invest for the long term

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2

Maintain a diversified investment portfolio

3

Invest regularly — in good times and bad

4

Invest for income

5

Avoid jumping in and out of the market

2020

PMG Generation Fund Securing financial freedom for every generation.

You don’t have to be wealthy to invest.

When it comes to investing in commercial property, many believe you need to have a lot of money in the bank to break into the market. When buying a commercial property in New Zealand is typically more than $1 million, you’d be forgiven for thinking that way.

In reality, you don’t need to be uber wealthy, or even buy the property yourself. That’s where a fund manager like PMG comes in, making it easier for everyday New Zealanders to buy a slice of the pie.

PMG Generation Fund was launched in March 2020 to provide New Zealanders of all ages and stages with greater access to commercial property investment. With a low minimum investment of $1,000 (1000 units valued at $1 each)*, securing your financial freedom has never been easier.

Read more about PMG Generation Fund on our website pmgfunds.co.nz. * Metric correct as of quarter ending 30 June 2020.

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INVESTING

THE FUTURE OF INVESTING Investing, by its very definition, is all about trust in the future. So, who better to talk to about what the future holds for the next generation of investors than a futurist?

AN INTERVIEW WITH FUTURIST DAVE WILD

For more than a decade, renowned futurist Dave Wild has been helping people take stock of the future and plan for it, but he doesn’t own a crystal ball or boast any special prophetic gifts. Dave’s secret for understanding the future is simple: we understand the future by looking at the past. Particularly the very recent past that’s all around us. Sound familiar?

“The point I always try to make is that the future isn’t actually in ‘The Future’. The future is actually all around us. It’s here, happening right now. It’s just that we don’t see it,” Dave Wild says.

“People think the world moves very quickly today, and technology is making change happen faster – but in truth, the future typically arrives very slowly.

The reason it feels fast is because we are creatures of habit, and because of that we remain blind to significant changes that are happening all around

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us. When something comes along that challenges those habits, it hits a tipping point in our minds, frequently causing angst, stress, and a sense of disruption.”

However, even faster than ‘fast-moving’ technological shifts are other external forces – such as the biological and economic impacts of the 2020 pandemic. There is no doubt that the combination of these events are having a significant impact on the investment world today, further amplifying this underlying sense of disruption. And it’s raising new questions, especially for anyone wondering what the future holds for the next generation of investors.

What will the world be like when today’s younger generation reaches retirement? Will home ownership still be a thing? Will KiwiSaver even exist anymore?

2020

In facing such questions, Dave wants people to realise that “while everything seems to change, one thing that doesn’t change is our deep human need for trust.

“Disruption, as a word, gets overused. It suggests everything we know now will be smashed and chaos will result. But change is all about shifting from one pattern to another; and if you’re clinging to the old way of doing things you will feel that change more sharply,” he says.

“Think about how communication technology has evolved. Send someone a stone tablet or a carrier pigeon today and they’ll think you’re living in the past, but these were once considered modern technologies. Meanwhile, we’re still busy sending emails, which, as a technology platform is now as old as the lava lamp. Even looking at the very recent past when society at large was forced to rapidly shift to video-calling at scale – those platforms had already been available for almost a decade.

“In the present day, it shouldn’t seem unusual to manage an investment portfolio via an app or a conversational interface like Alexa or Siri – as those technologies are already well-established, even if our habits for making full use of them aren’t. What will persist through every new evolution will be the need for trust – however, it’s critical to keep in mind the way each generation measures trust is very different.”

When thinking about how investing will evolve in future, Dave says it’s helpful to look at other industries as comparators. Uber is the classic example of disrupting expectations around transacting travel. What if this same principle was applied to property ownership, and money?

“The shifting expectations of the next generation around investing in property or stocks will be reflective of the changes we’ve seen with transportation. Transactions will need to become increasingly frictionless, flexible and instant,” he says.

“This means it will be important for the investment entities to establish trust quickly – be it KiwiSaver, property funds managers or whoever.

It will depend on creating new ways of connecting with the timeless human desires for trust and permanence, which transcends generations.”

Dave believes that the investment sector is at such a point of evolution right now, where the user experience is becoming increasingly compelling for those entering the market. He estimates that investment companies have no more than a decade to adapt their habits, products and services, or risk being overlooked by the next generation of investors.

“One of the most important modern dynamics to understand is that humanity is at the beginning of the Fourth Industrial Revolution, where biological, physical and digital forces are colliding. Investment models are still developing, and technology continues to push the limits, so future-focused strategies are paramount," Dave says.

Dave has a word for planning for this unknown future. It’s called being ‘Futuready’.

“Being Futuready means having a mind flex for a world you’ve not yet lived in. You may not fully comprehend the particular challenges you’ll face in achieving your goals, but it’s critical to progress forward. That way you’ll be positioned to build an enduring foundation of trust that can bridge your past, present and future,” he says.

Sounds a lot like good investment advice.

“Remember, planning isn’t about the plan. It’s about what your plan represents; a view of your future and the people in it. So yes, everything has changed, but nothing has changed. Trust in the support of others can build a stronger foundation, for investing in the present to create a greater future.”

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INVESTING

ENTERPRISE ANGELS

AN INTERVIEW WITH CEO NINA LE LIEVRE

ENCOURAGING INVESTMENTS IN CUTTING-EDGE VENTURES

Enterprise Angels is an investment network connecting investors with entrepreneurs around New Zealand. We chat to CEO Nina Le Lievre about New Zealand innovation, angel investing and working in a male-dominated industry.

Tell us about Enterprise Angels.

Enterprise Angels (EA) facilitates the investment of experienced businesspeople into high-growth, innovative start-ups. In addition to an angel club, we manage three angel funds (EA Funds 1, 2 and 3) and provide administration and compliance services to the largest impact fund in New Zealand, Purpose Capital Impact Fund.

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It’s a super exciting, innovative and fast-moving industry to work in. The founders we work with are unique and talented. They are passionate about the problem their business is seeking to solve. In any week, I will typically come across at least one problem being solved, that I never even knew was a problem. For example, did you know they burn fossil fuels to fill the shortage of carbon dioxide in greenhouses? Hot Lime Labs is currently working with EA to give their solution a boost.

In addition to the founders I meet, I get to work with experienced and savvy businesspeople who want to make a difference.

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What type of businesses and start-ups does EA support?

We look for NZ-based companies with the potential to scale internationally, a unique product or service with some barriers to entry (e.g. IP), and capable and aspirational founders. Founders who have been there and done it are typically able to raise more capital from our membership. Finally, the company’s product or service will ideally have early traction and market validation, like successful sales.

A few recent standouts showing their agility and resourcefulness with the advent of COVID-19 are the following Bay of Plenty companies: HEILALA VANILLA PRODUCES PRODUCTS FROM VANILLA GROWN IN TONGA. THE COMPANY EVEN REDEPLOYED SOME RESOURCES TO MAKE VANILLA HAND SANITISER.

WING ACOUSTICS IS A DISRUPTIVE NEW SPEAKER TECHNOLOGY WITH CRYSTALCLEAR SOUND. THE FOUNDER SPENT LOCKDOWN IN THE LAB TO PROGRESS THE DEVELOPMENT.

SPOKE PHONE TURNS A MOBILE PHONE INTO AN OFFICE PHONE SYSTEM. DEMAND HAS NEVER BEEN HIGHER.

VIDAPP IS A PLATFORM THAT HELPS BUSINESSES SUCCESSFULLY LAUNCH VIDEO APPS. WITH MANY HEALTH BUSINESSES NOW PROVIDING ONLINE CLASSES, SALES HAVE SOARED.

INHIBIT COATINGS USES SILVER NANOPARTICLES WITH ANTIBACTERIAL AND ANTIVIRAL PROPERTIES FOR SURFACE COATINGS.

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PMG | THINKBOOK

What type of investors are investing in these ventures?

We attract investors with an appetite for some high-risk investments in their portfolio and a longterm investment horizon.

Our membership is all about active engagement, so if you have business experience and connections that our start-ups can leverage to help them grow, you will thrive in this community. We invest smart money!

How do you find being a female CEO in a sector dominated by male CEOs? I have always worked in the finance sector and have been fortunate to work with forwardthinking people (often males), learning a lot from them along the way. I haven’t experienced much bias (that I’ve been aware of). Possibly the one interesting comment I heard when I was moving into the role was, "how would I look after my family with such a high-pressured role?" Do males get asked this question too?

My advice to females working in this industry – trust yourself, speak up, try to meet with and learn from leaders you admire (whatever gender).

I’ve certainly learnt from some of the best business leaders in my local community and the angel community, including Bill Murphy, Neil Craig, James Beale, Beppie Holm, Ian Greaves, Rob Dorey and Suse Reynolds.

Where a male CEO may work 8am to 6pm in the office, I work flexible hours, so I’m generally home for the kids after school. I work in the evenings and early mornings to balance this.

I have a strong ability to empathise with people and really enjoy building strong relationships. I believe partnering is one of the best ways to effectively grow a business to benefit all stakeholders.

In terms of investment, I work hard to get female founders funded. I know there are biases out there and some of our female founders have experienced this, so I want to ensure they get the best experience with EA.

What’s your advice for people looking to invest in start-ups?

Diversify! Double down on investments you know and understand. Then look to other experienced members and investors for exposure to other industries and sectors that you don’t understand.

Angel investments are long-term investments with very limited liquidity. It should be money that you can afford to lose as the success rate is relatively low, but the returns on the ones that do succeed should be commensurately higher to reflect that risk.

You also need to consider how much time and money you have to invest in this space. You shouldn’t invest more than 5-10% of your net wealth. Your overall wealth and amount of funds available for angel investments will dictate how much you invest in each deal.

Get involved, help with due diligence and talk to other investors. The more involved you are, the more you will understand the space and opportunities that you can invest in.

But be warned, like many fun things, it can be addictive!

Content of this article is the opinion of Nina Le Lievre and is not intended as personalised financial advice. You should seek independent financial advice from an authorised financial advisor before making any investment decisions.

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2020

Money doesn't grow on trees, but it does at PMG. Reap the reward of compounding returns.

Ask us about our Reinvestment Plan today.

P 0800 219 476 pmgfunds.co.nz

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