HealthcareCentene to spend $1.65B to shed real estate holdings

Centene to spend $1.65B to shed real estate holdings

Centene will spend up to $1.65 billion to reduce its domestic real estate footprint, the company announced Friday during its investor day.

The for-profit health insurer expects shedding 65% of its domestic leased space will cost $800 million. Centene also eyes another $850 million in spending on sales or subleases of space in buildings it owns. The company anticipates the expenses to primarily impact its second and third quarter earnings. Beginning next year, Centene predicts these real estate deals at more than 300 locations will save $200 million a year.

The insurer plans final decisions on its real estate holdings within weeks and will provide an update during its second-quarter earnings call next month. Centene will formally decommission properties throughout this year, Chief Financial Officer Drew Asher said.

“We are committed to our local-based health plan model and will be maintaining a strong local presence,” Asher said. “But in many cases, we just don’t need the same square footage that we needed pre-pandemic.”

Regulators require Centene to have offices in every service area where it operates. Centene generally leases space in states where its health plans, specialty companies and claims processing facilities do business, the insurer disclosed in an annual report filed to the Securities and Exchange Commission in December.

Centene budgeted $389 million for lease operating expenses this year, little changed from $390 million 2021, according to the December filing. Real estate and equipment costs made up the bulk of those expenses. Centene recorded a total lease liability of $3.8 billion at the end of last year.

The insurer announced it would reduce its physical geographic footprint during its first quarter earnings call. Centene attributed the move to employees working remotely during the COVID-19 pandemic and to its ongoing “value-creation plan” to grow adjusted earnings per share to at least $7.50 by 2024.

Centene unveiled the value-creation plan in November after its comparatively low profit margins attracted the attention of activist investor Politan Capital Management, which owns $900 million stake in the insurer. Politan Capital Management has pressed the company to boost its value by selling subsidiaries and overhauling its leadership and board.

On Friday, Centene CEO Sarah London said the company is moving forward with a plan to unload its foreign portfolio this year. The insurer is evaluating the divestiture of its $2 billion international businesses, which include United Kingdom-based provider Circle Health and a few facilities in Spain.

“The mantra for Centene’s portfolio review has not changed,” London said. “If it doesn’t fit, it doesn’t stay.”

Centene last month announced sales of pharmacy companies Magellan Rx and PANTHERx Rare in separate transactions collectively valued at $2.8 billion. The insurer also plans to sell a majority stake in home health provider U.S. Medical Management to a group of private equity firms, the company disclosed in November.

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