Pro Forma is a forward-looking cash flow projection based on a set of assumptions. Pro forma financial statements depict future financial results if the underlying assumptions hold true.
For example, a pro forma may project that property occupancy will increase from 80% to 90% over the next 3 years and that rental rates will increase by 4.0% annually while expenses will grow by 3.0% per year over the same time frame. Pro formas can be used to illustrate the financial impact of executing a business plan for a property and are useful for investors to compare potential investments and conduct due diligence against the sponsor’s assumptions and projections.
