Centene’s cuts pleased investors, but St. Louis’ office market | local business

Centene's cuts pleased investors, but St.  Louis' office market |  local business
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CLAYTON – Centene Corp., the healthcare company that has run for decades. focused on scale. Now one of the largest in the industry, Centene is being recalibrated for efficiency.

The change in strategy put an abrupt end to plans for an East Coast headquarters in North Carolina this week, surprising local leaders there but pleasing Wall Street. With 90% of its workforce now fully or partially remote, the company was once a St. Louis and across the country.

The company may have no choice: Investors wanted the company to cut costs and improve profit margins. With a new CEO on board, the company is aggressively weakening its real estate portfolio across the country – moves that are likely to improve its profitability, but St. Louis area is plagued with dozens of empty 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. “Looks like this management team is taking this very seriously as well, which is admirable.”

The East End campus wasn’t Centene’s only casualty. The company said it will no longer complete the $770 million headquarters expansion in Clayton, which will add nearly 1 million square feet of office space, hundreds of apartments or condos, retail stores, a 1,000-seat civic auditorium and a hotel nearby. South Hanley Road and Forsyth Avenue.

And Centene has emptied nearly its entire real estate footprint – about 1 million square feet of office space – according to marketing materials that bought these properties to 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 feet in Creve Coeur.

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

The company confirmed in a statement that it would vacate “several rentals”, but did not specify which ones. The Centene spokesperson also has its headquarters in Clayton, its operations center in Ferguson and its Home State Health center in St. Louis – a marketing brochure advertising to lease the entire building.

A facet of how the company used to run is sweeping away any block of office space in the area that is 75,000 square feet or more. Commercial real estate experts said it came in the immediate aftermath of the pandemic that cooled the office market as companies rethought their needs.

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

And Centene offices, St. Louis already has a surplus of office space.

“There’s a ton 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 Neidorff, who oversaw initial plans for the East Coast headquarters to bring 3,900 jobs to North Carolina.

Centene has managed to grow over the years under Neidorff. Neidorff brought in $126 billion in revenue last year, expanding the company from a $40 million health plan to a giant in the managed care industry. Neidorff took medical leave in February and Sarah London was appointed to replace him 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 stock price underperformed its peers. Last year, the company announced its plan to improve margins and divest non-core assets. After an activist investor stepped in last year, the company agreed to overhaul its board.

In an earnings report in July, Centene said it plans to reduce its local rental space by 70%, which it expects to save $200 million in rent each year.

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

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

Investors seem happy with the moves. Wall Street reacted enthusiastically after news that Centene was shelving its East Coast headquarters plans: Centene stock rose 1.6% to close at $96.90 on Friday.

In Clayton, where authorities are still revoking the development agreement with the company, Mayor Michelle Harris said the company’s presence has been really positive for the area.

And the decision not to run the East Coast campus is Centene’s St. Louis area.

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

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