T12 vs. pro forma: what each one proves

A T12 asks: what revenue and expenses were recorded during the latest twelve months? A pro forma asks: what could the property produce under a defined set of future assumptions? The former can contain accounting noise and past conditions; the latter can contain optimism. Neither deserves blind acceptance.

The most useful comparison aligns categories and periods, then explains every meaningful delta. If the pro forma shows higher rent, lower vacancy, lower payroll, and lower repairs, those are four distinct claims with different evidence and execution risk.

Begin with reported T12 NOI and list adjustments in a fixed order: accounting reclasses, one-time removals, current run-rate changes, contractual changes, and business-plan assumptions. This avoids mixing a factual correction with a speculative improvement.

Timing matters. A rent increase that arrives at rollover should not receive twelve months of credit in year one. A tax reassessment or new insurance premium may begin at closing. Capex may reduce occupancy before it increases rent. The bridge should reflect when cash flows actually change.

Large forecast improvements are not automatically wrong; they are priorities for diligence. Rent growth points to lease files and comparable properties. Expense savings point to contracts, staffing plans, and vendor bids. Occupancy recovery points to demand, product condition, and marketing velocity.

An IC memo should make the bridge visible. If a recommendation depends on stabilized NOI, state how much of the value comes from unproven future performance rather than current operations. That lets decision-makers price execution risk instead of discovering it after closing.