Company: LXP
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001444838-25-000023
Chunk: 83

Company: LXP Industrial Trust
Filing Date: 2025-02-13
Form: 10-K
Item: Item 8
Chunk 83
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 flows expected to be derived from the asset to the respective carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the fair value of the asset. An asset is determined to be impaired if the asset's carrying value exceeds its estimated fair value.   

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The Company makes significant assumptions to estimate its holding period of an asset. Additionally, for those real estate assets where indications of impairment have been identified, the Company makes significant estimates and assumptions related to rental rates and capitalization rates included in the estimated future undiscounted cash flows and, as necessary, the discount rate applied to determine fair value of the assets.  Changes in these assumptions could have a significant impact on the identification of real estate assets for impairment, the estimated fair value of the asset, or the amount of any impairment charge recognized.

Auditing management’s assumptions requires evaluation of whether management appropriately identified impairment indicators relating to the assets’ estimated holding periods and whether management’s anticipated future undiscounted cash flows and estimated fair values are reasonable. Because of the subjectivity of these assumptions our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to evaluate management’s estimated holding period of an asset and to evaluate the assumptions used in undiscounted cash flows and fair value models included the following, among others:

•We tested the effectiveness of controls over management's evaluation of real estate assets for impairment, specifically over identification of possible events or changes in estimated holding period of an asset, controls over estimated rental rates and capitalization rates used in management’s anticipated future undiscounted cash flows, as well as controls over management selection and estimation of discount rates in estimating fair value of real estate assets.

•We evaluated the Company’s assessment of estimated holding periods by:

◦Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset.

◦Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset. 

◦Evaluating the consistency of the assumptions used with audit evidence obtained in other audit areas.

◦Reading minutes of the executive committee and board of directors’ meetings to identify any indicators that a long-lived asset will likely be sold or otherwise disposed of before the end of its estimated holding period.

•We evaluated the Company’s estimate of anticipated future undiscounted cash flows for those assets with impairment indicators, and the estimated fair