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Hi, LittleBluestem,

My point of view boils down to this. We're paying $6 for two businesses. The Canadian business is worth $5-6 per share on its own. So you're getting the American business for very low cost and perhaps free, depending on what price you acquired EXETF at. If I'm getting a very cheap business and have low downside, I'm not too concerned if some of the value that comes off the top end via lawsuits, poor management, etc. Remember, I don't expect to own this forever.

In this case, my work suggests the American unit is worth at least $10 per share and maybe $15. I realize I haven't divulged that information in previous articles. But my valuation uses recent HUD mortgages taken out on the American's units properties, providing a good third-party valuation on those assets. Recent per-bed valuation of Sabra also shows what the market values a similar company at.

EXETF has had a strategic advisor in place for some time and they have made a public statement that they intend to effect some type of transaction, including a sale or spinoff.

In short, $6.XX is way too cheap a price for these assets when we have the possibility of a value-unlocking catalyst on the horizon. Healthcare is a good hunting ground for PE, though there are plenty of companies that might be interested in acquiring the American unit, including Sabra.

As I mentioned upboard, this is similar to the UNTD/FTD situation. UNTD is a a terrible business but it was hiding FTD, a solid if unimpressive business. I see EXETF as much the same, even with the warts that you point out. If I pay 10% of the value of an asset-backed business (the American unit), it's hard to foresee losing money. In fact, I foresee the chance for substantial gain with management only having to follow through on its commitment to separate the business. My only concern is if these lawsuits scare away potential buyers, but then there's always the spinoff route. Even if the American unit doesn't get full value in a spinoff, due to the lawsuits, etc, it's not going to trade at $1 per share (ie $100 mn) with $1 bn+ in net assets.

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