Centen’s cut cheers investors, but could be ‘catastrophic’ for St. Louis office market local business

Clayton – For decades, the managed health care company Centene Corp. focused on scale. Now one of the largest in its industry, Centene is recalibrating for efficiency.

The change in strategy abruptly ended its 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 is quietly leaving most of its expanding office footprint in St. Louis and across the country.

The company could have had no choice: Investors wanted the company to cut costs and improve profit margins. With a new CEO at the helm, the company is aggressively reducing its real estate portfolio across the country — moves that are likely to improve its bottom line but leave out cities like the St. Louis area, with dozens of vacant offices. Struggling with buildings.

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“Ensuring that Sentinel delivers on its promise of margin expansion is something that investors take very seriously,” said Julie Utterbach, senior equity analyst at Morningstar Research Services. “It looks like this management team is taking this very seriously, which is appreciated.”

The East Coast campus was not Senten’s only casualty. The company had already said that it was no longer going to end its $770 million headquarters expansion in Clayton, which would include approximately 1 million square feet of office space, hundreds of apartments or condos, retail shops, a 1,000-seat civic auditorium and a hotel. shall include. South Hanley Road and Forsyth Boulevard.

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

• Roughly 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.

• 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. A Sentinel spokesperson also said it would maintain its headquarters in Clayton, operations center in Ferguson and its home state health headquarters in St. Louis – despite a marketing brochure advertising the entire building for sub-lease.

It’s a face to face with how the company previously operated had any block of office space in the region exceeded 75,000 squares or feet. And it comes on the heels of a pandemic that cooled the office market as companies rethink their needs, commercial real estate experts said.

“The Sentinel effect, along with the COVID impact, is devastating for the St. Louis market,” said Kevin McLaughlin of KMA Commercial Real Estate.

And Sentinel offices are coming to market at a time when St. Louis already has a surplus of office space.

“Three to five years ago you didn’t have a lot of competition,” McLaughlin said.

Centene’s vast real estate portfolio was a product of its former CEO, Michael Needorf, who led initial plans for an East Coast headquarters that would bring 3,900 jobs to North Carolina.

For years under Niedorf, Sentinel was successful through development. Neidorff expanded the company from a $40 million health plan to a giant in the managed care industry, generating $126 billion in revenue last year. Niedorf took a medical leave of absence in February and Sarah London was named as his replacement in March. Niedorf died in April at the age of 79.

After years of acquisitions, investors are looking for change. Analysts said the company’s stock price was underperforming its peers. Last year, the company had announced plans to improve margins and reduce non-essential assets. After an active investor stepped down last year, the company agreed to make changes to its board of directors.

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

“From my point of view, there is no way to achieve efficiency by having two corporate headquarters,” said Morningstar analyst Utterbach.

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 this move. After news broke that Centene was scrapping plans for its East Coast headquarters, Wall Street reacted with enthusiasm: Sentine stock closed up 1.6% at $96.90 on Friday.

In Clayton, where executives are still terminating their 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 “something closure for the community” that Sentinel is not going to leave the St. Louis area.

“I expect his staff to come to Clayton for lunch,” Harris said.

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