Universal Health's Sweet REIT

For years, Universal Health Services (UHS Quote) has relied on a real estate investment trust -- spawned and now run by the company itself -- for deeply discounted lease rates on hospitals and medical office buildings.

However, the hospital operator could see that lucrative arrangement come to an end. The REIT, known as Universal Health Realty Income Trust (UHT Quote), or UHT, recently fielded a buyout offer from an unidentified party that could seek true market rates for the Universal leases. UHT rejected that offer, without explanation, but still looks like a ripe takeover candidate to some.

Currently, Universal owns just 6.7% of UHT and has only one director -- Chairman Alan Miller -- on UHT's board. However, Universal relies on its own executives to run UHT and even pockets an annual fee, totaling more than $1 million, for its services. Under that arrangement, Universal has long managed to secure cheap lease rates for much of UHT's property. Up to now, Universal -- which provides more than half of UHT's revenue -- has always ranked as the REIT's largest tenant. ...