CLAYTON – For decades, healthcare company Centene Corp. focused on the scale. Now one of the largest in its industry, Centene is being recalibrated for efficiency.
The shift in strategy abruptly ended plans for an East Coast headquarters in North Carolina this week, surprising local leaders there but delighting Wall Street. With 90% of its workforce now fully or partially remote, the company is quietly vacating much of its once-spacious office space in St. Petersburg. Louis and across the country.
The company may not have had a choice: Investors wanted the company to cut costs and improve profit margins. Under a new CEO, the company is aggressively slimming down its real estate portfolio across the country — the bottom line will improve, but St. Louis area is struggling with dozens of vacant office buildings.
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“Making sure Centene delivers on its margin expansion promises is something investors take very seriously,” said Julie Utterback, senior equity analyst at Morningstar Research Services. “This management team seems to be taking it very seriously as well, and that’s commendable.”
The East Coast campus wasn’t Centene’s only victim. The company has already said it will not complete a $770 million headquarters expansion in Clayton that would add about 1 million square feet of office space, hundreds of apartments or condos, retail stores, a 1,000-seat civic auditorium and a nearby hotel. South Hanley Road and Forsyth Boulevard.
Centene has vacated nearly its entire real estate footprint here — about 1 million square feet of office space, according to marketing materials that lease or sublease the property:
• 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 meters in St. Petersburg. Louis city.
The company said it would vacate “several leased locations,” though it did not say which ones. A Centene spokesman said it will also maintain its headquarters in Clayton, its operations center in Ferguson and its Home State Health headquarters in St. Petersburg. Louis – though marketing brochure advertisement the entire building is sublet.
It’s an about-face from how the company used to operate, snapping up any block of office space of 75,000 square feet or more in the region. It comes on the heels of a pandemic that has cooled the office market as companies rethink their needs, commercial real estate experts said.
“The Centene effect, along with the COVID effect, is the St. Louis market,” said Kevin McLaughlin of KMA Commercial Real Estate.
Centene offices come to the market at a time when St. Louis already has office space.
“Three to five years ago, you have a lot of competition,” McLaughlin said.
Centene’s extensive real estate portfolio was the product of former CEO Michael Neidorff, who led initial plans for the East Coast headquarters to bring 3,900 jobs to North Carolina.
Over the years, under Neidorff’s leadership, Centene has succeeded through growth. Neidorff turned the company from a $40 million health plan into a giant in the managed care industry, bringing in $126 billion in revenue last year. Neidorff went on 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 buyouts, investors are looking for a change. Analysts said the company’s stock price is undervalued compared to its peers. Last year, the company announced plans to improve margins and shed non-essential assets. The company agreed to overhaul its board of directors after an activist investor stepped in last year.
During its earnings report in July, Centene said it planned to reduce its domestic lease space by 70%, which it expected to save $200 million in rent annually.
“From my perspective, having two corporate headquarters is not a way to gain efficiency,” said Morningstar analyst Utterback.
The company also announced plans to sell its Spanish hospital business and the company that runs radiology clinics in Slovakia and the Czech Republic.
Investors seem happy with these steps. After news broke that Centene was scrapping plans for an East Coast headquarters, Wall Street reacted enthusiastically: Centene shares closed up 1.6% at $96.90 on Friday.
In Clayton, where officials are still finalizing a development agreement with the company, Mayor Michelle Harris said the company’s presence is a real positive for the area.
And the decision not to implement the East Coast campus, Centene’s St. Louis area.
“I hope their staff will come to lunch in Clayton,” Harris said.
