SAM - The Sarmaya Analysis Model

Utilizing a very robust and flexible modelling tool, developed in-house, the Sarmaya team is able to efficiently run a series of assumptions and data points through the model in order to properly assess any potential investment opportunity in the multi-family space.  This proprietary, in house created model is called The Sarmaya Analysis Model- SAM.  The flexibility and ease of use of The Model allows for the simplified analysis of the current state of any prospective investment, while simultaneously running assumptions related to The Manager’s value-add strategy to create significant investor value.

SAM allows for focus on the key drivers to determine the ability to increase overall value. The Model allows for projection and analysis of key success factors like Net Operating Income of the asset, rent to market increases, increased overall rents resulting from Capital Expenditure and Unit Rehabilitation programs, expense reduction opportunities, while at the same time factoring in Sarmaya’s Community Betterment initiatives.  The Model is flexible and versatile enough to allow for modelling multiple scenarios by varying assumption inputs.  

Being able to efficiently assess any prospective investment allows The Manager the ability to source out and focus on those investment opportunities, satisfying the Sarmaya Investment Mandate, that will create and maximize investor value.

Prospective investments, filtered through The Sarmaya Investment Mandate, will be evaluated using SAM for determining the potential internal rate of return and equity multiple through The Manager’s extensive due diligence and modelling process.  The Manager, may at its sole discretion, contemplate both a refinancing model scenario and a disposition model scenario.  SAM will allow The Manager to filter and then only consider potential opportunities resulting:

• A required estimated Internal Rate of Return of at least 6% (although the target is at least 9%)
• A required minimum estimated Equity multiple of at least 35%
• Potential Opportunities that do not meet the above criteria generated by SAM will not even be considered

All criteria must be satisfied in order to potentially proceed with an investment opportunity.

The principal criteria SAM identifies and analyses are as follows:

• Historical financial information of the property (operating expenses, current deferred maintenance, rent rolls etc., current NOI)
• Templates created with the ability to include in The Model a forecast for:
  1. A forecast for “value-add” in terms of increased rents
     1. Forecasting the ability to bring units up to market and also capture new rent rates post rehab
     2. Forecasting Capital Expenditure Initiatives
     3. Forecasting reduction of expenses and ultimately increasing NOI and increasing investor value
  2. Community Betterment initiatives
  3. Other costs, such as debt financing and taxes, as well as operating assumptions etc.
  4. Manager’s Waterfall performance fee structure and show related expected cash outflows to both The Manager and investor over the course of the investment
  5. An estimated refinancing and return of capital scenario, as well as adjusted post-refinancing, revised debt costs and resulting financial performance on a go-forward basis
  6. A potential disposition scenario and resulting return estimate

• The above templates within The Model produce an Annual Cash Flow Analysis for each deal and a Deal Presentation Summary complete with estimated key metrics such as IRR and Equity multiples

Due Diligence

1. Financial Analysis: An historic and current financial analysis of the proposed investment property
   1. SAM will analyse the trailing 3 and 12 months results
   2. Based on the results of SAM on the financial information input, assumptions of all operating cost items and other deal related assumptions will be input to project forward
2. Rent Roll Analysis: Analysis of rent roll and comparison to current market rents in the prospective investment area, allows SAM to analyse unit mix and current asking rents and allows for a model on a go forward rent proposition to be accurately created
3. Capital Expenditure and Unit Rehabilitation Analysis:   SAM has a schedule built in to allow for the input of Capital Expenditure and Unit Rehabilitation items and cost out on a per unit basis.
   1. The revenue schedule created then allows the projecting of an accurate rehab schedule based on the review of lease expirations as part of the Rent Roll analysis described above
   2. This also allows for more accurate forecasting of the changing revenues on a month to month basis
4. Tax Analysis:  SAM allows for the inputting of the anticipated taxes on the property using the appropriate millage rate and the assessed value percentage and thus, accurately forecasting future taxes owing
5. Debt Financing Analysis: SAM allows for the input of estimated debt financing and the cost of borrowing for each period under consideration
   1. This can be expanded and reduced for micro and macro models to identify various debt ratios