SYDNEY, Sept 5 Shares in Australia's largest
listed aged care operators plunged to record lows on Monday
after the country's health department warned providers they are
not permitted to make residents pay for capital maintenance and
Estia Health Ltd shares tumbled as much as 31
percent, those in Japara Healthcare Ltd fell as much as
26 percent and shares in Regis Healthcare Ltd dropped
as much as 22.4 percent. Shares of all three companies had cut
their losses by afternoon. The broader Australian stock market
index S&P/ASX 200 climbed 1.0 percent.
The health department warned after market hours on Friday
that, under Australian law, companies cannot levy aged care
residents refurbishment charges for "asset management or
replacement" or for any other extras "unless the resident
receives a direct benefit". It did not outline any proposed
penalties for levying such fees.
Estia had introduced an "asset replacement contribution" for
residents in June, a company spokesman said. Regis charges a
similar fee, according to its website, asking residents to
contribute to the replacement of "fixtures and fittings". A
Japara spokeswoman said it also charges a capital refurbishment
fee, although that is now under review as a result of the health
Investing in aged care operators is viewed by analysts as a
means to profit from Australia's ageing population and tap
generous government subsidies. Estia, Japara and Regis derive
most of their income from government funding but each company
also draws roughly a quarter of their revenue directly from
resident fees, according to their annual reports.
"We understand that capital refurbishment fees have been
recently introduced by some of the larger operators," Zara
Lyons, an analyst at broker CLSA, said in a note, downgrading
stock target prices for Estia, Japara and Regis following the
health department warning.
"We have applied a regulatory uncertainty discount of 30 per
cent. We stress that we don't believe near-term earnings will be
impacted - this is more a medium-term issue."
All three companies listed in 2014 and saw their shares soar
to record highs in 2015. Even before Monday's sharp declines,
their shares were punished last month after weak earnings.
(Reporting by Tom Westbrook; Editing by Muralikumar