What is a pro forma check that ensures the model is internally consistent?

• A. Ensure sources equal uses.
• B. Ensure exit value matches cap rates.
• C. Ensure NOI aligns with rent roll.
• D. Ensure sources equal uses, debt service coverage >1, NOI realization aligns with rent roll, and exit value matches cap rates; cross-checks for year-to-year cash balance.

Answer: (D)

In a pro forma, the strongest internal consistency check is to verify that sources of funds equal uses, the debt service coverage ratio is above 1, NOI realizations align with the rent roll, and the exit value matches the cap rate applied to the NOI, with cross-checks for year-to-year cash balance. This combination ties together financing, operating performance, and terminal value, ensuring every piece of the model supports the others.

Why this is best: balancing sources and uses confirms the financing structure is feasible. A DSCR above 1 shows the project has enough operating income to cover debt service, preventing hidden cash shortfalls. Making sure NOI realizations align with the rent roll keeps occupancy and rent assumptions consistent with actual operating results. Ensuring the exit value matches the cap rate applied to NOI guarantees that the terminal valuation is coherent with the income stream assumptions. The year-to-year cash balance cross-checks catch timing differences and hidden inconsistencies, providing a comprehensive integrity check across the entire model.

Other options miss at least one critical dimension: one point only checks financing balance, another focuses on exit valuation, another on current NOI/rent alignment. Only the full combination ensures the model is internally coherent from financing through operations to exit.