This was submitted to Value Investors Club on 24 Jan 2025. Will update on acceptance!
Summerset Group is an operator in the retirement sector in New Zealand and Australia.
Many regard them to be in the business of “aged care” but this demonstrates a misunderstanding of their model. They would more accurately be described as a homebuilder or property developer.
Quick overview of how the business works:
- You’ve reached retirement age, your family home is too big/costly to maintain and your health is deteriorating.
- You sell the family home and use that money to buy a home in a retirement village for $1 million.
- You live a resort-style life with all amenities and medical care on-site and pay a weekly “management fee” (usually around $150-$200).
- When you die, Summerset has the right to buy the home back off you for the same price you paid ($1 million), but they get to keep a 25% fee (known as a “deferred management fee”).
- The end result is $750k goes to your estate for your grandkids, and $250k goes to Summerset.
- Summerset sells the home to the next person, and on it goes.
This type of arrangement is known as an “occupational rights agreement” or an ORA, which allows you to live in the village for as long as you wish, but when you decide to vacate (usually when you die), you are obligated to sell the ORA back to Summerset, minus a 25% fee.
There are four main ways Summerset makes money from this model:
- Deferred management fees – When you buy the ORA, you pay everything up front. When you vacate, Summerset refunds it to you, minus their cut, which is currently 25%.
- Weekly management fees – Like upkeep or body corp, paid by all residents, in the range of $200 a week.
- Care fees – From residents who cannot live independently and instead live in care units (such as people with dementia, alzheimers etc). This is more akin to what people might think of as a nursing home. Care fee rates are set by the NZ government in most cases, and are not a big driver of profit for Summerset (this business segment more or less breaks even). However, there are “premium care” offerings which are profitable, but not a substantial part of the business (yet).
- Rises in property values – Usually the biggest component of profit, which is both non-cash and non-taxable, but is recorded in the P&L under NZIFRS.
On first look at Summerset’s P&L, you’ll find their net profit consists entirely of an increase in property values (FY23: $441m in property fair value gains, $436m net profit).

Without the fair value movements in their (currently $7b) portfolio of properties, they would be making a loss.
Meaning the actual cash-flowing business of deferred management fees, weekly management fees, and care fees is in fact loss-making on its own.
This is evident by their tax obligation, which is a tax refund/benefit each year. They do not make a taxable profit.
However, they still create (a lot!) of shareholder value, just not in the way you think.
Summerset had net assets of $292m 10 years ago (2014), which has nearly 10x’d to $2.7b today (June 2024).

The secret to their growth is not obvious from their financial accounts – there’s nuance that needs to be understood in how cash moves through the business.
Let’s go back to the ORA:
The company only “banks” their profit when the resident dies (or moves out), and this can take some time (ten years or longer).This might seem like a problem, but it’s not, because they receive all the cash up-front.
As an example, they selll a resident a house for $1 million, on the condition it must sell be sold back to them in ten years for $750,000.
This arrangement means they’re essentially leasing the house out for $250,000, but collecting $1 million in cash up front.
Essentially they are not selling homes but renting them, while collecting 4x the rent up-front AND collecting weekly fees along the way.
The obvious double-benefit to this model is over the period of that lease, the home increases significantly in value.
Summerset’s business allows them to:
- Retain ownership of the property (which is rising in value over time)
- Rent it out at zero risk (since they collect all the rent up front)
- Hold a 300% deposit.
From a cashflow perspective, this is superior to any other homebuilding or property development business. It translates into Summerset receiving millions in interest free loans from retirees which they then get to sit on for 10+ years (and use to buy and develop more property).
This is akin to insurance companies collecting billions in insurance premiums on the first day of the year, knowing during the year only some of it will need to be paid back. Meaning yes – Summerset is essentially operating on a float.
The good news is, compared to the insurance style float that Buffett loves so much, Summerset’s is superior:
- There’s no uncertainty risk with the float. Summerset knows exactly how much it needs to pay back, and it’s guaranteed to be profitable. For example, Summerset knows that for every $1 million ORA they receive, they will never have to pay back more than $750,000.
- The $250,000 fee is in the bank and guaranteed from Day 1, so there’s no debtor risk.
- It’s interest free, so there’s no interest-rate risk.
- The ORA does not need to be repaid until they’ve already resold the ORA to the next resident, so there’s no liquidity risk.
This means once Summerset sell an ORA for the first time, they have a permanent float on that ORA forever (since no ORA needs to be repaid until a new one is received from the next resident).
This amount of ORAs under their control currently sits at $2.7b and should only continue to grow (in the last financial year, Summerset sold 1,103 ORAs – 560 new sales and 543 resales).

The result is a property portfolio that has grown from $550m to $6.8b since 2011:


Where’s the risk?
The risk lies in the property valuations.
If Summerset sells an ORA for $1m and house prices tumble, they can’t sell the ORA to the next person for $1m. Let’s say, as an example, the best they can get is $700k.
Since they need to return $750k ($1m ORA minus $250k deferred management fee) to the vacating resident, and only managed to resell the ORA for $700k, they’re $50k out of pocket.
If property values fall even further, and the next round of ORA’s can only be sold for $600k, the problem spirals.
Despite the solid economics of the business model, this highlights the still important need for prudence when investing the ORAs in new developments and caution in over-extending.
This became apparent with Ryman Healthcare – once a darling of the industry who took on a large amount of interest-bearing to debt to fund an ambitious development plan just before Covid. They were forced to raise $1b in capital in 2024 and heavily restructure debt to avoid breaching covenants, which has caused Ryman’s growth to halt to a standstill, a CEO resignation, a battered share price, and net assets to fall for the first time in its history.
This actually presents an equally interesting opportunity with Ryman Healthcare, which now trades at just 0.7 book value under the guidance of a brand new board and CEO.
However, in my estimation the better opportunity still rests with Summerset, trading at just 1x book value (historically they’ve traded as high as 4x and normally in the range of 1.5x to 2.5x) while sitting in a significantly better financial position, with an unblemished track record of market-beating growth and an established team.
Summerset presents an opportunity to buy $3b of premium quality New Zealand and Australian housing at book value (already a historically low multiple). On top (for free) you get a proven business that has grown net assets 10x in 10 years, with superb industry demographics (fast aging population in NZ and Aus) and significant undersupply. Conditions are ideal for growth rate to sustain or even accelerate over the next decade.
Catalysts:
- Reversion to mean P/B 1.5x to 2.5x (currently hovering around 1x).
- Interest rates forecast to fall in NZ this year = home prices increase (much of Summerset’s business is contingent on prospective residents being able to sell their homes).
- Demographics are near perfect (65+ population growing quickly and expected to reach 25% of population by 2038).
- Large supply shortage of retirement/aged care in New Zealand, even if supply doubled would not meet requirements.
- Summerset currently has 41 villages housing 8,500 residents. NZ is forecast to have 1 million people aged 65+ by 2028. TAM is big and rising!
- Australian business just becoming operational – one village opened, one under construction (Australian market has equally good demographics, and equally insufficient supply).
Disclosure: Long SUM in the @moneybren portfolio and my personal portfolio.