Centene cuts pleased investors, but may be ‘disastrous’ for St. Louis office market | local business

Centene cuts pleased investors, but may be 'disastrous' for St. Louis office market |  local business
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CLAYTON – For decades, managed care company Centene Corp. focused on scale. Centene, now one of the largest in its industry, is recalibrating itself for efficiency.

The change in strategy this week abruptly ended its plans for a headquarters on North Carolina’s east coast, surprising local leaders but pleasing Wall Street. With 90% of its workforce now fully or partially remote, the company has been quietly giving up most of its once-expansive office space in St. Petersburg. Louis and across the country.

The company may not have had a choice: Investors wanted the company to cut costs and improve profit margins. With a new CEO at the helm, the company has been aggressively downsizing its real estate portfolio across the country, moves likely to improve its bottom line but leaving cities like St. Louis grappling with dozens of vacant office buildings.

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“Making sure Centene delivers on its margin expansion promises is something investors take very seriously,” said Julie Utterback, senior equity analyst at Morningstar Research Services. “It seems that this management team is also taking it very seriously, which is appreciated.”

The East Coast campus wasn’t Centene’s only victim. The company already said it would no longer finish the $770 million expansion of its Clayton headquarters that would have added nearly 1 million square feet of office space, hundreds of apartments or condominiums, retail stores, a 1,000-seat civic auditorium and a hotel near South Hanley Road and Forsyth Boulevard.

And Centene has vacated nearly its entire real estate footprint here, roughly 1 million square feet of office space, according to marketing materials those properties buy for rent or sublet:

• Approximately 300,000 square feet in Chesterfield.

• 180,000 square feet in Des Peres.

• 100,000 square feet in Richmond Heights.

• 100,000 square feet at Creve Coeur.

• More than 60,000 square feet in St. Louis city.

The company confirmed in a statement that it will vacate “several leased locations,” though it did not say which ones. Centene’s spokesman also said it will keep its headquarters in Clayton, its hub in Ferguson and its Home State Health headquarters in St. Petersburg. Louis, despite a marketing brochure advertising The entire building in sublease.

It’s a radical departure from the way the company previously operated, gobbling up any block of office space in the region that was 75,000 square feet or larger. And it comes on the heels of the pandemic that chilled the office market as businesses think about their needs, commercial real estate experts said.

“The Centene effect, combined with the COVID effect, is disastrous for St. Louis,” said Kevin McLaughlin of KMA Commercial Real Estate.

And Centene offices are coming to market at a time when St. Louis already has a surplus of office space.

“There’s a lot of competition that you didn’t have three or five years ago,” McLaughlin said.

Centene’s vast real estate portfolio was the product of its former CEO, Michael Neidorff, who spearheaded initial plans for the 3,900-job East Coast headquarters in North Carolina.

For years under Neidorff, Centene succeeded through growth. Neidorff expanded the company from a $40 million health plan to a behemoth in the managed care industry, generating $126 billion in revenue last year. Neidorff took medical leave in February and Sarah London was named his replacement in March. Neidorff died in April at the age of 79.

After years of acquisitions, investors have been looking for changes. Analysts said the company’s share price was underperforming its peers. Last year, the company announced a plan to improve margins and shed non-core assets. After an investor investor stepped in last year, the company agreed to review its board of directors.

During an earnings report in July, Centene said it planned to reduce its leased domestic space by 70%, which it hoped would save $200 million in rent each year.

“From my perspective, having two corporate headquarters is not a way to gain efficiency,” said Morningstar analyst Utterback.

The company also announced plans to sell a hospital business in Spain and a company that runs radiology clinics in Slovakia and the Czech Republic.

Investors seem pleased with the moves. After news broke that Centene was scrapping its East Coast headquarters plans, Wall Street reacted enthusiastically: Centene shares rose 1.6% on Friday, closing at $96.90.

In Clayton, where officials are still dismantling their development agreement with the company, Mayor Michelle Harris said the company’s presence is really a positive for the region.

And his decision not to hold his East Coast campus brought “some closure to the community” that Centene is not leaving the St. Louis area.

“I hope your employees come to Clayton for lunch,” Harris said.

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