Steward Health Care has run up against more roadblocks than anticipated en route to selling or closing its hospitals, so Sebastian River Medical Center employees and patients eager to know who will operate the North County hospital now must wait nearly three weeks longer than expected.
The Aug. 22 final hearing date on the sale of Steward’s Florida hospitals has been pushed to Sept. 10.
Signed agreements to sell five Boston-area hospitals were supposed to be inked last Friday and finalized this Tuesday. The hearing on those deals, plus the complex sale of the Stewardship Health physicians’ group, is now postponed to Friday morning in a Texas federal bankruptcy court.
The sale of Steward’s hospitals follows a May 6 Chapter 11 bankruptcy filing, in which the company declared more than $9 billion in debt.
Marketing the 31 hospitals in seven states has proven more tricky than expected, thanks to Steward’s landlord, Medical Properties Trust, a publicly traded Real Estate Investment Trust which purchases hospital land and buildings and then leases the facilities back to the hospital operators.
A prospectus filed with the Securities and Exchange Commission for a stock offering in 2021 showed that, as of the end of 2020, Steward Healthcare hospitals represented 22 percent of MPT’s expected income from hospital rents.
Steward began falling behind in rent payments in 2021, renegotiating its debt to MPT twice.
As of December 2023, Steward was reportedly $50 million in arrears on its rent.
Within the fine print of a stock prospectus, MPT described what would happen should its tenants experience dire financial straits, with rents unpaid and leases terminated.
“There can be no assurance that we would be able to find another tenant in a timely fashion, or at all, or that, if another tenant were found, we would be able to enter into a new lease on favorable terms. If we are unable to re-let the properties to healthcare operators, we may be forced to sell the properties at a loss due to the repositioning expenses likely to be incurred by non-healthcare purchasers. Alternatively, we may be required to spend substantial amounts to adapt the facility to other uses.”
While this boilerplate legalese can be found in many prospectuses, in this case some of the dire scenarios could very well become reality.
Steward rejected its master leases with MPT three weeks ago.
MPT owns 61 medical properties in Indian River County, which it purchased from Steward for $60.5 million. In addition to the nearly 18 acres and the main Sebastian River Medical Center buildings, MPT owns dozens of medical condominiums, which it leases out to physicians and clinics. The trust also owns several small vacant properties near the hospital of roughly one acre each, and a medical condo at 330 17th Street in Vero Beach.
Sales of the Massachusetts hospitals, with side deals for the new owns to either buy or lease the properties, were supposed to have been executed last Friday, making Steward hospitals eligible for up to $30 million in pre-paid Medicaid reimbursements from the Commonwealth of Massachusetts, to help those hospitals take care of patients through the ownership transition.
If Steward succeeds in getting part or all of the $30 million from Massachusetts taxpayers, that should free up operating cash for what are known as the “second round” hospitals, including those in Florida.
Steward’s lead restructuring attorney Ray Schrock has reassured bankruptcy Judge Chris Lopez that the auctions should proceed more smoothly in Florida, citing “multiple competing bids” for the most profitable hospitals of the lot.
