Company: CMCT
Filing Date: 2025-03-07
Form Type: 10-K
Source: 0000908311-25-000017
Chunk: 195

Company: Creative Media & Community Trust Corp
Filing Date: 2025-03-07
Form: 10-K
Item: Item 8
Chunk 195
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 the asset exceed the carrying amount of the investment in real estate. Management concluded that the carrying value of the assets 

F-2

were recoverable and therefore it was not required to perform an analysis of the fair value of the assets. Estimates and assumptions used for the undiscounted future cash flows of the properties include rental rates, lease-up period, growth rates, estimated holding periods, capital expenditures and terminal capitalization rates. 

We identified the process for evaluating real estate impairment and certain assumptions used for the undiscounted future cash flows of the properties as a critical audit matter because of (1) the significant assumptions management makes when determining whether events or changes in circumstances have occurred indicating that the carrying amounts of investments in real estate assets may not be recoverable and (2) for those investments in real estate where indications of impairment have been identified, the significant estimates and assumptions management makes to evaluate whether the undiscounted future cash flows expected to be generated over the life of the asset exceed the carrying amount of the property, including those related to rental rates, lease-up period, growth rates, estimated holding period, capital expenditures and terminal capitalization rates. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate (1) whether management appropriately identified impairment indicators and (2) the reasonableness of management’s assumptions related to rental rates, lease-up period, growth rates, estimated holding period, capital expenditures and terminal capitalization rates for the undiscounted future cash flows analysis. 

How the Critical Audit Matter Was Addressed in the Audit

•We tested the effectiveness of controls over (1) management’s identification of possible circumstances that may indicate that the carrying amounts of investments in real estate are no longer recoverable and (2) the undiscounted cash flows, including review of significant inputs.

•We evaluated the accuracy, relevance, and completeness of changes in circumstances that could indicate the carrying amounts of real estate assets may not be recoverable.

•We performed corroborating inquiries with management, including property accounting, leasing and portfolio oversight to determine whether factors were identified in the current period that may be an impairment indicator, and corroborated these inquiries through review of third-party market reports and inspection of meeting minutes of the Board of Directors. In addition, we evaluated whether factors were identified in the current period that may result in a change to assumptions used in the undiscounted cash flow models.

•We selected certain office and multifamily properties to evaluate whether the assumptions