CLAYTON — For decades, managed health care company Centene Corp. focused on scale. Now one of the largest in its industry, Centene is recalibrating for efficiency.
The shift in strategy brought an abrupt end this week to its plans for an East Coast headquarters in North Carolina, stunning local leaders there but pleasing Wall Street. With 90% of its workforce now fully or partly remote, the company has been quietly relinquishing most of its once expansive office footprint in St. Louis and across the country.
The company may not have had a choice: Investors wanted the company to cut costs and improve profit margins. With a new CEO at the helm, the company has been aggressively slimming its real estate portfolio across the country — moves that are likely to improve its bottom line but leave cities, like the St. Louis region, grappling with dozens of vacant office buildings.
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“Making sure that Centene delivers on its promises of margin expansion is something that 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 as well, which is appreciated.”
The East Coast campus wasn’t Centene’s only casualty. The company already said it was no longer going to finish its $770 million headquarters expansion in Clayton that would have added nearly 1 million square feet of office space, hundreds of apartments or condos, retail shops, a 1,000-seat civic auditorium and a hotel near South Hanley Road and Forsyth Boulevard.
And Centene has vacated nearly its entire real estate footprint here — approximately 1 million square feet of office space — according to marketing materials shopping those properties for lease or sublease:
• 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.
• More than 60,000 square feet in St. Louis city.
The company confirmed in a statement that it will vacate “several leased locations,” though it did not state which ones. The Centene spokesperson also said it will 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 sublease.
It’s an about-face to how the company previously operated, gobbling any block of office space in the region that was 75,000 square or feet more. And it comes on the heels of the pandemic that cooled the office market as companies rethought 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 on the market at a time when St. Louis already has a surplus of office space.
“There’s tons of competition you didn’t have three to five years ago,” McLaughlin said.
Centene’s expansive real estate portfolio was a product of its former CEO, Michael Neidorff, who led the initial plans for the East Coast headquarters that was to bring 3,900 jobs to North Carolina.
For years under Neidorff, Centene succeeded through growth. Neidorff expanded the company from a $40 million health plan to a giant in the managed care industry, bringing in $126 billion in revenues last year. Neidorff took a medical leave of absence in February, and Sarah London was named as his replacement in March. Neidorff died in April at the age of 79.
After years of acquisitions, investors have been looking for change. Analysts said the company’s stock price was underperforming, relative to its peers. Last year the company announced a plan to improve margins and shed 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 decrease its domestic leased space by 70%, which it expected would save $200 million in rent each year.
“From my perspective, having two corporate headquarters is not a way to gain efficiency,” Utterback, the Morningstar analyst, said.
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 moves. After news broke that Centene was scrapping its East Coast headquarters plans, Wall Street reacted with enthusiasm: Centene stock rose 1.6% on Friday, closing at $96.90.
In Clayton, where officials are still dismantling its development agreement with the company, Mayor Michelle Harris said the company’s presence is a real positive for the region.
And its decision to not carry out its East Coast campus brought “some closure for the community” that Centene isn’t going to leave the St. Louis area.
“I’m hoping their employees come to lunch in Clayton,” Harris said.