Business

Centene’s cuts have pleased investors, but could be “disastrous” for St. Louis Office Market Local Business

Centene's cuts have pleased investors, but could be "disastrous" for St.  Louis Office Market Local Business
Written by boustamohamed31

CLAYTON — Decades-managed healthcare company Centene Corp. focused on scale. Now one of the largest in its industry, Centene has recalibrated for efficiency.

The shift in strategy brought an abrupt end this week to plans for an East Coast headquarters in North Carolina, stunning local leaders there but satisfying Wall Street. With 90% of its workforce already fully or partially remote, the company is quietly giving up 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 been aggressively reducing its real estate portfolio across the country — moves that are likely to improve the bottom line but leave cities such as St. Louis region, which is struggling with dozens of vacant office buildings.

People also read…

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

The East Coast campus was not Centene’s only victim. The company has already said it will no longer complete a $770 million expansion of its Clayton headquarters that would have added nearly 1 million square feet of office space, hundreds of apartments or condos, retail, a 1,000-seat civic auditorium and a hotel on nearby South Hanley Road and Forsyth Blvd.

And Centene has vacated nearly its entire real estate footprint here — roughly 1 million square feet of office space — according to marketing materials shopping those 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 feet in Creve Coeur.

• More than 60,000 square feet in St. city ​​of louis.

The company confirmed in a statement that it would be vacating “several tenured positions,” though it did not specify which ones. The Centene spokesman also said it will keep its headquarters in Clayton, its operations center in Ferguson and Home State Health’s headquarters in St. Louis. Louis — despite a marketing brochure advertisement entire building for sublease.

It’s an about-face from how the company used to operate, gobbling up every block of office space in the region that was 75,000 square feet or more. And it comes amid a 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 detrimental to St. Louis market,” said Kevin McLaughlin of KMA Commercial Real Estate.

And the Centene offices come on the 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 is a product of former CEO Michael Naidorf, who led the initial plans for the East Coast headquarters, which was supposed to bring 3,900 jobs to North Carolina.

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

After years of acquisitions, investors are looking for a change. 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 activist investor stepped in last year, the company agreed to overhaul its board of directors.

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

“From my perspective, having two corporate headquarters is not a way to achieve 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 scrapping plans for an East Coast headquarters, Wall Street reacted with enthusiasm: Centene shares rose 1.6% on Friday to close at $96.90.

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

And its decision not to run its East Coast campus brought “some closure to the community” that Centene would not be leaving St. Louis area.

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

About the author

boustamohamed31

Leave a Comment