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Leases
 12 Months Ended
Dec. 31, 2021
Presentation Of Leases For Lessee [Abstract]  
Leases

10.

Leases

Group as a Lessee

We have lease contracts for various items of sites, buildings, leased circuits and poles used in our operations.  We considered in the lease term the non-cancellable period of the lease together with the periods covered by an option to extend and option to terminate the lease.

Our consolidated estimated useful lives of ROU assets as at December 31, 2021 are as follows:

 

Sites

 

1 – 30 years

International leased circuits(1)

 

1 – 10 years

Poles(2)

 

1 – 12 years

Domestic leased circuits(3)

 

1 – 10 years

Office buildings

 

1 – 25 years

Co-located sites

 

3 – 7 years

 

 

(1)

As at December 31, 2020, the estimated useful life ranges from 3-7 years.

 

(2)

As at December 31, 2020, the estimated useful life ranges from 1-10 years.

 

(3)

As at December 31, 2020, the estimated useful life ranges from 4-10 years.

 

 

 

Our consolidated rollforward analysis of ROU assets as at December 31, 2021 and 2020 are as follows:

 

 

 

Sites

 

 

International

Leased

Circuits

 

 

Poles

 

 

Domestic

Leased

Circuits

 

 

Office

Buildings

 

 

Co-located

Sites

 

 

Total

 

 

 

(in million pesos)

 

As at December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at beginning of the year

 

 

14,412

 

 

 

4,341

 

 

 

726

 

 

 

1,214

 

 

 

906

 

 

 

11

 

 

 

21,610

 

Additions (Note 29)

 

 

3,538

 

 

 

2,600

 

 

 

2,576

 

 

 

39

 

 

 

582

 

 

 

—

 

 

 

9,335

 

Asset retirement obligation

 

 

556

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

172

 

 

 

—

 

 

 

728

 

Terminations

 

 

(158

)

 

 

(1,181

)

 

 

—

 

 

 

—

 

 

 

(24

)

 

 

—

 

 

 

(1,363

)

Modifications

 

 

(294

)

 

 

(1,472

)

 

 

79

 

 

 

41

 

 

 

(52

)

 

 

(2

)

 

 

(1,700

)

Adjustments

 

 

(3

)

 

 

—

 

 

 

(11

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14

)

Reclassifications

 

 

(197

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

197

 

 

 

—

 

 

 

—

 

Balances at end of the year

 

 

17,854

 

 

 

4,288

 

 

 

3,370

 

 

 

1,294

 

 

 

1,781

 

 

 

9

 

 

 

28,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at beginning of the year

 

 

(3,926

)

 

 

(834

)

 

 

(340

)

 

 

(183

)

 

 

(436

)

 

 

(1

)

 

 

(5,720

)

Terminations

 

 

113

 

 

 

223

 

 

 

—

 

 

 

—

 

 

 

37

 

 

 

—

 

 

 

373

 

Adjustments

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

2

 

Modifications

 

 

3

 

 

 

—

 

 

 

(7

)

 

 

—

 

 

 

(4

)

 

 

—

 

 

 

(8

)

Depreciation (Note 3)

 

 

(2,764

)

 

 

(735

)

 

 

(620

)

 

 

(244

)

 

 

(574

)

 

 

(3

)

 

 

(4,940

)

Reclassifications

 

 

17

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(17

)

 

 

—

 

 

 

—

 

Balances at end of the year

 

 

(6,556

)

 

 

(1,346

)

 

 

(967

)

 

 

(427

)

 

 

(993

)

 

 

(4

)

 

 

(10,293

)

Net book value as at December 31, 2020

 

 

11,298

 

 

 

2,942

 

 

 

2,403

 

 

 

867

 

 

 

788

 

 

 

5

 

 

 

18,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at beginning of the year

 

 

17,854

 

 

 

4,288

 

 

 

3,370

 

 

 

1,294

 

 

 

1,781

 

 

 

9

 

 

 

28,596

 

Additions (Note 29)

 

 

5,967

 

 

 

226

 

 

 

47

 

 

 

890

 

 

 

184

 

 

 

—

 

 

 

7,314

 

Modifications

 

 

107

 

 

 

33

 

 

 

230

 

 

 

(309

)

 

 

(9

)

 

 

1

 

 

 

53

 

Asset retirement obligation

 

 

211

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

213

 

Currency translation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Disposals

 

 

(1

)

 

 

—

 

 

 

(16

)

 

 

—

 

 

 

(6

)

 

 

—

 

 

 

(23

)

Terminations

 

 

(1,045

)

 

 

(290

)

 

 

—

 

 

 

(143

)

 

 

(284

)

 

 

—

 

 

 

(1,762

)

Balances at end of the year

 

 

23,093

 

 

 

4,257

 

 

 

3,631

 

 

 

1,732

 

 

 

1,669

 

 

 

10

 

 

 

34,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at beginning of the year

 

 

(6,556

)

 

 

(1,346

)

 

 

(967

)

 

 

(427

)

 

 

(993

)

 

 

(4

)

 

 

(10,293

)

Terminations

 

 

889

 

 

 

148

 

 

 

—

 

 

 

35

 

 

 

281

 

 

 

—

 

 

 

1,353

 

Disposals

 

 

1

 

 

 

—

 

 

 

16

 

 

 

—

 

 

 

6

 

 

 

—

 

 

 

23

 

Currency translation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

(1

)

Modifications

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4

)

 

 

—

 

 

 

(5

)

Depreciation (Note 3)

 

 

(2,999

)

 

 

(816

)

 

 

(678

)

 

 

(574

)

 

 

(319

)

 

 

(2

)

 

 

(5,388

)

Balances at end of the year

 

 

(8,666

)

 

 

(2,014

)

 

 

(1,629

)

 

 

(966

)

 

 

(1,030

)

 

 

(6

)

 

 

(14,311

)

Net book value as at December 31, 2021

 

 

14,427

 

 

 

2,243

 

 

 

2,002

 

 

 

766

 

 

 

639

 

 

 

4

 

 

 

20,081

 

 

 

 

The following amounts are recognized in our consolidated income statements for the years ended December 31, 2021, 2020 and 2019:

 

 

 

2021

 

 

2020

 

 

2019

 

 

 

(in million pesos)

 

Depreciation expense of ROU assets (Note 3)

 

 

5,388

 

 

 

4,940

 

 

 

4,393

 

Expenses relating to short-term leases

   (included in general and administrative expenses) (Note 5)

 

 

1,459

 

 

 

618

 

 

 

378

 

Interest expense on lease liabilities (Note 5)

 

 

1,170

 

 

 

1,125

 

 

 

1,061

 

Variable lease payments (included in general and administrative expenses)

   (Note 5)

 

 

771

 

 

 

764

 

 

 

708

 

Expenses relating to leases of low-value assets

   (included in general and administrative expenses) (Note 5)

 

 

1

 

 

 

2

 

 

 

204

 

Total amount recognized in consolidated income statements

 

 

8,789

 

 

 

7,449

 

 

 

6,744

 

 

Our consolidated rollforward analysis of lease liabilities as at December 31, 2021 and 2020 are as follows:

 

 

 

2021

 

 

2020

 

 

 

(in million pesos)

 

Balances at beginning of the year

 

 

20,025

 

 

 

16,315

 

Additions (Note 29)

 

 

7,314

 

 

 

11,122

 

Accretion on lease liabilities (Note 5)

 

 

1,170

 

 

 

1,125

 

Foreign exchange gain (losses) – net

 

 

147

 

 

 

(171

)

Lease modifications

 

 

33

 

 

 

(1,397

)

Adjustment

 

 

11

 

 

 

—

 

Termination

 

 

(467

)

 

 

(1,188

)

Settlement of obligations

 

 

(6,547

)

 

 

(5,781

)

Balances at end of the year (Notes 3 and 29)

 

 

21,686

 

 

 

20,025

 

Less current portion of lease liabilities (Note 28)

 

 

4,555

 

 

 

4,043

 

Noncurrent portion of lease liabilities (Note 28)

 

 

17,131

 

 

 

15,982

 

 

We had total cash outflows for leases of Php6,547 million, Php5,781 million and Php5,399 million for the years ended December 31, 2021, 2020 and 2019, respectively.  We also had non-cash additions to ROU assets of Php7,314 million and Php9,335 million, respectively, as at December 31, 2021 and 2020, respectively.  We had non-cash additions to lease liabilities of Php7,314 million and Php11,122 million as at December 31, 2021 and 2020, respectively.   The future cash outflows relating to leases that have not yet commenced are disclosed in Note 29 – Notes to the Statements of Cash Flows.

We have entered into several lease contracts that include automatic extension and termination options.  These options are negotiated by us to provide flexibility in managing the leased-asset portfolio and align with our business needs.  However, in some of these lease contracts, we did not impute the renewal period in our assessment of the lease terms of these contracts since said renewal period is not yet reasonably estimable at the time of transition or commencement date of the lease, see Note 3 – Managements Use of Accounting Judgments, Estimates and Assumptions – Determining the lease term of contracts with renewal and termination options – Company as a Lessee.

Group as a Lessor

We have entered into operating leases on our investment property portfolio consisting of certain office buildings and business offices.  See Note 14 – Investment Properties.  These leases have term of five years.  All leases include a clause to enable upward revision of the rental charge on annual basis according to prevailing market conditions.  The lessee is also required to provide a residual guarantee on the properties.  Rental income recognized by us amounted to Php48 million, Php51 million and Php49 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Future minimum rentals receivable under non-cancellable operating leases as at December 31, 2021 and 2020 are as follows.

 

 

 

2021

 

 

2020

 

 

 

(in million pesos)

 

Within one year

 

 

51

 

 

 

58

 

After one year but not more than five years

 

 

—

 

 

 

—

 

More than five years

 

 

—

 

 

 

—

 

 

 

 

51

 

 

 

58

 

Sale and Leaseback

On January 28, 2020, PLDT was authorized by the Board of Directors to negotiate and enter into a contract for the sale of Smart Headquarters.  The transaction is subject to the compulsory notification process of the Philippine Competition Commission, or PCC, pursuant to Sections 12(b) and 16 of the Philippine Competition Act.  

After undertaking the compulsory notification process, PLDT on September 3, 2020 received the PCC Decision No. 16-M-013/2020 stating that the PCC resolves to take no further action on the transaction considering that it will not likely result in substantial lessening of competition due to the existence of sufficient competitive constraints.

On October 5, 2020, PLDT signed the sale agreement with the buyer and received in full the consideration of Php5,500 million plus 12% VAT.  The sale does not include the telecommunication assets owned or used by PLDT and Smart that are located in the Smart Headquarters.  Smart, the current lessee of the property, continues to occupy the property pursuant to a new contract of lease with the buyer executed on October 5, 2020.  The sale and leaseback resulted to a gain of Php3,275 million.  The new contract of lease is for a period of five years and stipulates that the lessee has the option to pre-terminate without penalty after the second-year subject to a 12-month notice.