Last Wednesday, an article in The Motley Fool cautioned investors about a proposed Financial Accounting Standards Board (FASB) change that would be a huge risk to American Tower’s business model, and the author implored the nation’s second largest tower owner to take immediate steps to alert Wall Street as to how they were going to address that concern.
As of today they haven’t, and the Street shrugged off concerns about the FASB’s new accounting standard that requires new reporting rules regarding lease transactions.
Possibly because it wasn’t an October surprise since the final standard was approved last January and the Street, American Tower and other vertical realtors had a chance to digest it, especially since it was proposed ten years ago and is the result of thousands of comments, hundreds of meetings, dozens of workshops, and webcasts.
Plus, it doesn’t take effect for public companies for fiscal years, and interim periods within those fiscal years beginning Dec. 15, 2018 and for all other tower companies that are not publically traded, for fiscal years beginning after Dec. 15, 2019, and for interim periods within fiscal years beginning after Dec. 15, 2020.
The standard will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.
However, a lessee may elect to not record an asset and a liability for a lease with a term of 12 months or less, as long as the lease does not include a purchase option that the lessee is reasonably certain to exercise.
The new standard responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities. The rule will effectively boost the debt companies report on their balance sheets.
An AT&T spokesperson said in a November 2015 article in The Wall Street Journal, “The company’s leases are already disclosed in its annual report’s footnotes, and the new rule would simply change the presentation of this information without giving investors and analysts significant new information beyond what we already provide.”
American Tower addressed the new regulation in its latest quarterly earnings report and acknowledged that it is evaluating the impact the standard will have on its financial statements.
American Tower and SBA Communications, with lease agreements in other countries, may need to have dual reporting structures to comply with both U.S. GAAP and International Financial Reporting Standards.
In early morning trading, American Tower was up $.77 to $116.90. On Wednesday morning when The Motley Fool article was published it was at $115.30.
In commenting on the company’s excellent third quarter earnings report, CEO Jim Taiclet said: “In response to rapid growth in mobile data usage, our tenants continue to utilize a combination of incremental spectrum assets, advancing technology and our diverse portfolio of real estate to expand their mobile networks and deliver top-quality service to their subscribers. Our global asset base of nearly 144,000 towers and over 700 small cell systems is uniquely positioned to benefit from these continuing investments, and as a result, we were able to extend our long track record of generating double-digit growth in property revenue, adjusted EBITDA, and consolidated AFFO per share in the third quarter.”