Centene’s austerity cuts please investors but could be ‘disastrous’ for the St. Louis office market | Local business


CLAYTON — For decades, managed healthcare company Centene Corp. scale. Centene is now one of the largest in its industry, recalibrating for efficiency.

The shift in strategy this week brought an abrupt end to plans for an East Coast headquarters in North Carolina, stunning local leaders there but pleasing to Wall Street. With 90% of its workforce now wholly or partially remote, the company has quietly shed most of its once expansive 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 aggressively downsized its real estate portfolio across the country — moves that are likely to improve earnings, but leave cities, such as the St. Louis area, struggling with dozens of 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 sounds like this management team is taking that very seriously too, which is appreciated.”

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

And Centene has left nearly its entire real estate footprint here — about 1 million square feet of office space — according to marketing materials buying these properties for lease or sublease:

• Approximately 300,000 square feet in Chesterfield.

• 180,000 square feet in Des Peres.

• 100,000 square feet in Richmond Heights.

• 100,000 square meters in Creve Coeur.

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

The company confirmed in a statement that it will be leaving “various leased locations,” though it didn’t specify which ones. Centene’s spokesperson also said it will maintain its headquarters in Clayton, its operations center in Ferguson and the Home State Health headquarters in St. Louis — despite a marketing brochure advertising the entire property for subletting.

It’s a sea change in how the company previously operated, swallowing up every block of office space in the region that was 75,000 square feet more. And it comes on the heels of the pandemic that has cooled the office market as companies rethink their needs, commercial real estate experts 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 the 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 to five years ago,” McLaughlin said.

Centene’s extensive real estate portfolio was a product of former CEO, Michael Neidoff, who spearheaded initial plans for the East Coast headquarters, which would bring 3,900 jobs to North Carolina.

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

After years of acquisitions, investors are looking for change. Analysts said the company’s stock price underperformed compared to its competitors. Last year, the company announced a plan to improve margins and divest non-essential assets. After an activist 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 cut its home rental space by 70%, which is expected to save $200 million in rent per year.

“From my perspective, having two headquarters is not a way to become more efficient,” said Morningstar analyst Utterback.

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 the news broke that Centene was canceling its plans for its East Coast headquarters, Wall Street reacted enthusiastically: Centene stock rose 1.6% on Friday, closing at $96.90.

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

And the decision not to run the East Coast campus brought “some closure to the community” that Centene will not leave the St. Louis area.

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

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