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Why the Estia Health share price sank 6% lower today

In morning trade the Estia Health Ltd (ASX: EHE) share price has come under pressure after the release of a trading update.

At the time of writing the aged care provider’s shares are down 6% to $2.81.

What was in the update?

In February Estia Health advised that it expected to “deliver low to mid-single digit percentage increase on FY18 EBITDA from the existing portfolio of homes in FY19.”

Unfortunately, this is no longer going to be the case after a decline in its occupancy rate.

According to the release, Estia Health’s occupancy has been impacted by continuing adverse publicity in the sector and influenza in South Australia.

In addition to this, the company has decided to close its older facility at Mona Vale in order to accelerate the re-development of a well-positioned site.

Combined, this has led to the company’s occupancy rate sliding to 93% on 5,992 operational beds, compared to 93.9% at the end of December.

As a result, instead of a low to mid-single digit percentage increase, the company expects EBITDA generated from existing homes to fall to between $86 million and $88 million in FY 2019. This will be a 2.3% to 4.5% decline on FY 2018’s $90.1 million.

Full year EBITDA including new homes, and after all items including the additional funding increase, Royal Commission costs, costs of opening new homes, and home closure costs, is expected to be in the range of $92 million to $94 million.

While this is an increase of 2% to 4% compared to FY 2018, it is lower than management previously anticipated.

This news appears to have spooked shareholders of fellow aged care providers. In morning trade the Japara Healthcare Ltd (ASX: JHC) share price has dropped 2.5% lower and the Regis Healthcare Ltd (ASX: REG) share price has tumbled around 2% lower.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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