Steph Kukuljan, Annika Merrilees
CLAYTON – For decades, managed healthcare company Centene Corp. on the size. Now one of the largest in its industry, Centene is refocusing on efficiency.
The strategy change abruptly ended its plans for an East Coast headquarters in North Carolina this week, impressing local leaders there but pleasing Wall Street. With 90% of its workforce now working fully or partially remotely, the company has quietly vacated most of its once-expansive office space 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 aggressively trimmed its real estate portfolio across the country — moves that are likely to improve earnings but have cities like the St. Louis-area struggling with dozens of vacant office buildings.
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“Ensuring that Centene delivers on its promises of margin expansion is something investors take very seriously,” said Julie Utterback, senior equity analyst at Morningstar Research Services. “It sounds like this management team takes that very seriously as well, which is appreciated.”
The East Coast campus wasn’t Centene’s only casualty. The company previously said it added its $770 million Clayton headquarters expansion, which added nearly 1 million square feet of office space, hundreds of apartments or condos, retail stores, a 1,000-seat city auditorium and a nearby hotel. will no longer complete South Hanley Road and Forsyth Boulevard.
And Centene has cleared almost all of its real estate space here — about 1 million square feet of office space — according to marketing materials that buy these 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 the city of St. Louis.
The company confirmed in a statement that it would be vacating “several leased locations,” but didn’t specify which ones. The Centene spokesman also said it will retain its Clayton headquarters, its operations center in Ferguson and its Home State Health headquarters in St. Louis — despite a marketing brochure advertising the entire building for subleases.
It’s a reversal from the company’s previous modus operandi, which gobbled up every office block in the region that was 75,000 square feet or larger. And it follows the pandemic that has cooled the office market as companies reconsider their needs, commercial real estate experts said.
“The Centene effect combined with the COVID effect is catastrophic for the 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 was a product of its former CEO Michael Neidorff, who spearheaded the original plans for the East Coast headquarters that would bring 3,900 jobs to North Carolina.
For years, Centene was successful through growth under Neidoff. Neidorf grew the company from a $40 million healthcare plan into a giant in the managed care industry, generating $126 billion in sales last year. Neidorff was given medical leave in February and Sarah London was named to succeed 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 compared to its peers. Last year, the company announced a plan to improve margins and trim non-essential assets. After an activist investor jumped in last year, the company agreed to overhaul its board.
During an earnings report in July, Centene said it plans to reduce its domestic rental space by 70%, which it expects would save $200 million in rent annually.
“In my view, there’s no way to gain efficiencies with two corporate headquarters,” said Utterback, an analyst at Morningstar.
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 appear to be happy with the measures. After it was announced that Centene was abandoning its East Coast headquarters plans, Wall Street reacted enthusiastically, with Centene shares up 1.6% on Friday to close at $96.90.
In Clayton, where officials are still canceling the development agreement with the company, Mayor Michelle Harris said the company’s presence is a real asset to the region.
And its decision not to operate its East Coast campus brought “a degree to the community” that Centene won’t be leaving the St. Louis area.
“I hope your employees come to Clayton for lunch,” Harris said.
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