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Centene’s cuts appease investors, but could be ‘disastrous’ for St. Louis office market | local business

Centene's cuts appease investors, but could be 'disastrous' for St. Louis office market |  local business
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CLAYTON – For decades, managed healthcare company Centene Corp. Focuses on scale. Now one of the largest in its industry, Centene is recalibrating for efficiency.

The change in strategy brought an abrupt end to plans for an East Coast headquarters in North Carolina this week, stunning local leaders there but delighting Wall Street. With 90% of its workforce now fully or partially remote, the company continues to quietly shed much of its sprawling office footprint of eleven in St. Louis and across the country.

The company may have no choice: Investors wanted the company to cut costs and improve profit margins. Led by a new CEO, the company is aggressively paring down its real estate portfolio across the country — moves that are likely to improve its bottom line but leave cities like the St. Louis area grappling with dozens of empty office buildings.

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“Ensuring that Centene delivers on its margin expansion commitments is something that investors take very seriously,” said Julie Utterback, senior equity analyst at Morningstar Research Services. “This management team seems to be taking it very seriously as well, which is appreciated.”

The East Coast campus was not Centene’s only casualty. The company has already said it won’t finish a $770 million headquarters expansion in Clayton that would add about 1 million square feet of office space, hundreds of apartments or condos, retail stores, a 1,000-seat civic auditorium and a nearby hotel. South Hanley Road and Forsyth Boulevard.

And Centene has vacated nearly its entire real estate footprint here — about 1 million square feet of office space — according to marketing materials that purchased the properties to lease or sublease:

• Approximately 300,000 sq. ft. in Chesterfield.

• 180,000 sq. ft. in Des Peres.

• 100,000 sq.ft in Richmond Heights.

• 100,000 sq. ft. in Creve Coeur.

• Over 60,000 square feet in downtown St. Louis.

The company confirmed in a statement that it would vacate “several leased locations,” though it did not specify which ones. Centene’s spokeswoman also said it will maintain its headquarters in Clayton, its operations center in Ferguson and its home state health headquarters in St. Louis — though Marketing brochure advertising Entire building for sublease.

It’s a facade of how the company previously operated, with any office space in the region 75,000 square feet or more. Commercial real estate experts say this comes as the pandemic cools the office market as companies turn down their demand.

“The Sentinel effect combined with the Covid effect is catastrophic for the St. Louis market,” said Kevin McLaughlin of KMA Commercial Real Estate.

And Centen Offices is coming to the market at a time when St. Louis already has a surplus of office space

“You have 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 its former CEO, Michael Niedorff, who led the initial plans for an East Coast headquarters that brought 3,900 jobs to North Carolina.

Over the years under Niedorf, Centene succeeded through growth. Neidorff grew the company from a $40 million health plan to a giant of the managed care industry, bringing in $126 billion in revenue last year. Niedorff took a medical leave of absence in February, and Sarah London was named her replacement in March. Niedorf died in April at the age of 79.

Years after the acquisition, investors are looking for change. Analysts say the company’s share price is underperforming its peers. Last year the company announced a plan to improve margins and cut non-essential assets. After an activist investor stepped in last year, the company agreed to overhaul its board of directors.

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

“From my perspective, having two corporate headquarters is not a way to achieve efficiency,” 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 pleased with the move. After news broke that Centene was scrapping its East Coast headquarters plans, Wall Street responded with enthusiasm: Centene stock rose 1.6% on Friday, closing at $96.90.

In Clayton, where officials are still finalizing its development agreement with the company, Mayor Michelle Harris said the company’s presence is a real positive for the area.

And the decision not to operate its East Coast campus brings “some closure to the community” that Centene is not leaving the St. Louis area.

“I’m hoping their staff will come to Clayton for lunch,” Harris said.

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