News Analysis
Steward Health Care and its mega-landlord Medical Properties Trust have brokered an uneasy truce to allow Orlando Health’s bid for Sebastian River Medical Center and two Brevard County hospitals to move forward, avoiding an all-out court battle, for now.
But a leaked confidential document in the court record last week showed that one potential competitor for the Sebastian hospital – HCA Healthcare, the operator of Lawnwood Medical Center – backed out of the bidding after MPT demanded $500 million for the real property under the three Florida hospitals, quadruple what it paid Steward for them just seven years ago.
Even though Orlando Health’s bid for the three hospitals of $439.4 million included up to $275 million for the land and buildings owned by MPT, Toby King, who heads up the effort to market the hospitals, said Orlando Health had “indicated it believed the real property underlying the (three) hospitals had a value of between $175 million to $200 million.”
The public disclosure of HCA’s withdrawal from the bidding for Sebastian River came in a flurry of adversarial filings in Steward’s federal bankruptcy case, through which Steward is seeking to sell off its hospitals to raise cash as part of its Chapter 11 bankruptcy proceeding.
Steward triggered the latest battle by accusing MPT, the real estate investment trust which owns part or all of the real property housing 30 of Steward’s 31 hospitals, of interfering with potential bidders, and using its position as landlord to pressure bidders to allocate most of their offers to its inflated asking prices for the buildings.
MPT then filed an objection to the court’s designation of Orlando Health’s $439.4 million offer for Sebastian and the two Brevard Hospital’s as the “Stalking Horse” bid – the bid other parties would need to beat – contending that Steward had no right to broker a deal that included property owned by the real estate trust.
Steward then filed a response packet right before a scheduled hearing, including dozens of documents marked as exhibits. One such exhibit, which Steward said was filed hastily by mistake, were MPT emails marked “highly confidential,” showing that MPT had killed a possible bid deal with HCA Healthcare.
“As just one example of MPT’s interference leading to bidding being chilled, on August 2, 2024, MPT demanded that a highly-qualified and interested competitive bidder to the Stalking Horse Bidder allocate $500 million of value to MPT’s real property (an amount that was substantially in excess of the bidder’s proposed total enterprise bid), which resulted in the bidder rescinding all of its previous offers and ultimately walking away, to the detriment of all parties including the Debtors and MPT,” Steward’s response said.
The emails between MPT and HCA executives confirm that MPT demanded $500 million for the real property under the three hospitals. MPT also discouraged the possibility of HCA leasing the hospitals – as Steward has been doing – by informing them that any rents going forward would be “materially higher.”
Attorneys for MPT told federal bankruptcy Judge Christopher Lopez that the confidential correspondence was intended to fulfill MPT’s obligation to notify Steward of dealings regarding the leased real property, but that correspondence was not to be disclosed, especially in open court.
Lopez ordered the documents sealed, and the parties temporarily agreed that Orlando Health with its $439.4 million offer would be designated as the “stalking horse bid,” in hopes that the three hospitals attract higher bids before the final sales hearing on Sept. 10.
A total of 40 hospital companies have signed non-disclosure agreements and obtained bid packets for Sebastian and the two Brevard hospitals, King said.
The reason MPT agreed to let the Orlando Health stand as the “stalking horse bid” is that the parties have until October to settle on a final allocation of hospital assets – meaning that the successful bidder, Steward and MPT must sit down after the Sept. 10 auction to work out the division of the proceeds.
Unlike Steward, MPT has not declared bankruptcy, so there’s no court or trustee forcing it to sell assets at a loss. If there is no consensus among MPT, Steward and the bidders on the asset allocation in October, the matter will be litigated with a deadline of Dec. 31 for resolution. There is also a 30-day post-closing window for the bidder, MPT, Steward and other major stakeholders to review and object to the final closing documents.
The sale is also subject to all regulatory approvals by state and federal agencies. The Florida Agency for Health Care Administration has had an attorney sitting in on the bankruptcy hearings, has conducted inspections at the beleaguered Steward hospitals for sale, and has filed claims for delinquent accounts, but it’s unclear whether AHCA would object to Orlando Health or some other buyer taking over Sebastian River and the two Brevard hospitals.
Should the parties still not be able to move forward to closing terms that are mutually acceptable, Orlando Health would be paid up to $20.2 million in break-up fees to cover its time, trouble and legal expenses. Then, presumably, the whole bidding process would begin again.
Though Steward’s barrier island patients, its doctors and its employees should know who the winning bidder will be in September, the final closing and hand-over date for Sebastian River Medical Center would appear to be months away.
