Centene will spend $1.65 billion to dispose of its real estate holdings

Centene will spend up to $1.65 billion to reduce its national real estate footprint, the company announced Friday at its Investor Day.

The for-profit health insurer expects removing 65% of its rented home space will cost $800 million. Centene also plans to spend an additional $850 million selling or subletting space in buildings it owns. The company expects the expenses will primarily impact its second and third quarter results. Starting next year, Centene projects that these real estate transactions in more than 300 locations will save $200 million annually.

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

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

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

Centene has budgeted $389 million for lease operating expenses this year, little change from $390 million in 2021, according to the December filing. Real estate and equipment costs made up the bulk of these expenses. Centene recorded total rental liabilities of $3.8 billion at the end of last year.

The insurer announced that 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 its ongoing “value creation plan” to boost adjusted earnings per share to at least $7.50 by 2024.

Centene unveiled the value creation plan in November after its relatively low profit margins caught the eye of activist investor Politan Capital Management, which has a $900 million stake in the insurer. Politan Capital Management pressed the company to increase its value by selling subsidiaries and revamping its management and board of directors.

On Friday, Centene CEO Sarah London said the company was moving forward with a plan to unload its overseas portfolio this year. The insurer is evaluating the sale of its $2 billion international business, which includes UK provider Circle Health and a few facilities in Spain.

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

Centene last month announced the sale of pharmaceutical 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 healthcare provider US Medical Management to a group of private equity firms, the company announced in November.