Centene’s cuts pleased investors, but may be ‘disastrous’ for St. Louis’ office market | Local Business

CLAYTON — For decades, managed health care company Centene Corp. focused on scale. Now one of the biggest in its industry, Centene is recalibrating itself for greater efficiency.

The shift in strategy brought its headquarters plans on North Carolina’s east coast to an abrupt end this week, stunning local executives there but pleasing Wall Street. With 90% of its workforce now fully or partially remote, the company has quietly shed most of its once-extensive office footprint in St. Louis and across the country.

The company may have had no choice: Investors wanted the company to cut costs and improve profit margins. With a new CEO at the helm, the company has drastically reduced its real estate portfolio across the country — moves that are likely to improve its bottom line but leave cities, like the St. Louis area, struggling with dozens vacant office buildings.

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“Ensuring 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 also takes this very seriously, which is appreciated.”

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

And Centene has freed up nearly all of its real estate footprint here — about 1 million square feet of office space — according to marketing materials buying these properties to 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.

• Over 60,000 square feet in the city of St. Louis.

The company confirmed in a statement that it would leave “several leased sites”, although it did not specify which ones. Centene’s spokesperson also said it would maintain its headquarters in Clayton, its operations center in Ferguson and its headquarters in St. Louis – despite a advertising brochure marketing the entire building as a sublease.

It’s a U-turn from how the company used to operate, gobbling up any block of office space in the region that was 75,000 square feet or more. And that follows the pandemic which has chilled the office market as businesses rethink their needs, commercial property experts have said.

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

And Centene offices are coming on the market at a time when Saint-Louis already has a surplus of offices.

“There are tons of competitions that you didn’t have three or five years ago,” McLaughlin said.

Centene’s extensive real estate portfolio was the product of its former CEO, Michael Neidoff, who spearheaded initial plans for the East Coast headquarters that was to create 3,900 jobs in North Carolina.

For years under Neidorff, Centene succeeded through growth. Neidorff has grown the company from a $40 million health plan to a giant in the managed care industry, generating $126 billion in revenue last year. Neidorff went on sick leave in February and Sarah London was appointed to replace her in March. Neidorff died in April at the age of 79.

After years of acquisitions, investors are looking for change. Analysts said the company’s share price underperformed its peers. Last year, the company announced a plan to improve margins and shed non-core assets. After the intervention of an activist investor last year, the company agreed to reshuffle its board.

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

“From my point of view, having two headquarters is not a way to gain efficiency,” said Utterback, the Morningstar analyst.

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

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

In Clayton, where authorities are still in the process of dismantling its development agreement with the company, Mayor Michelle Harris said the company’s presence is a real benefit to the area.

And its decision not to realize its East Coast campus has brought “some closure to the community” that Centene is not going to leave the St. Louis area.

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

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