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Universal Health's Sweet REIT

Universal, which declined the opportunity to comment for this story, saw its stock drop $1.35 Friday to $57.76. UHT, which surged on last month's dividend increase, added 48 cents to $34.48. Both stocks have outperformed the broader market over the past year.

Close Ties

Universal formally established UHT in 1986. At that time, the company named only one person -- besides its own chairman -- as a UHT director. That person, Daniel Cain, currently fails to qualify as an independent director because he pocketed a $200,000 "finder's fee" from a transaction involving UHT in 2003. However, UHT lists its remaining four directors, added in more recent years, as independent.

Still, UHT counts little else as its own. Miller chairs and runs both Universal and UHT. Universal Controller Charles Boyle doubles as CFO of the REIT. Cheryl Ramagano serves as treasurer of both companies. And Bruce Gilbert is the sole general counsel for Universal and UHT.

Indeed, UHT's proxy states that all of the REIT's officers work for Universal as well. And Universal itself has acknowledged the power it wields over UHT as a result.

"We conduct the trust's day-to-day affairs, provide administrative services and present investment opportunities," Universal disclosed in its latest annual report. Thus, "management believes that it has the ability to exercise significant influence over the trust."

For Universal, at least, that arrangement has so far worked out quite well.

Untapped Value

Tsoupros, one of only two analysts who regularly follow UHT, has offered specific details.

In the beginning, he wrote, Universal leased virtually all of UHT's real estate. Even today, he noted, Universal still leases plenty.

For example, he said, Universal leases five of UHT's seven hospitals. Moreover, he said, the minimum rent generated by those hospitals totals just $11.5 million even though true market rates would bring in an estimated $46.6 million.

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