Glossary term
Pro Forma
A pro forma is a forecast of a property's future income, expenses and returns, built on stated assumptions about rents, occupancy and costs.
A pro forma projects what a property may earn over the years ahead. It lists assumed rent growth, occupancy, expenses, renovation costs, financing and an exit price, then calculates NOI, cash flow and returns such as IRR.
It is only as good as its assumptions. Small changes to rent growth or exit cap rate can change the answer a lot, so careful investors test several scenarios.
Compare a pro forma to actual results such as the T12 and rent roll to see whether the assumptions are realistic.
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