Pro Forma

A pro forma is a projected financial statement that models a property's expected income, expenses, and returns based on assumptions about future performance rather than historical actuals. In CRE transactions, brokers and sellers present pro forma projections that typically assume higher rents, lower vacancy, and optimistic expense ratios compared to trailing actuals. Key assumptions in a NNN pro forma include rent escalation rates, renewal probability, re-tenanting costs, cap rate at exit, and financing terms. Experienced investors always compare the pro forma to trailing 12-month actuals and stress-test key assumptions. A common red flag is a pro forma NOI significantly higher than the trailing NOI without a clear catalyst (like a signed lease at higher rent). For NNN properties, the pro forma is simpler than multi-tenant assets but still requires scrutiny around lease expiration, tenant credit trajectory, and market rent growth assumptions.