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Property and Equipment | 12 Months Ended
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Dec. 31, 2022
Disclosure of detailed information about property, plant and equipment [abstract] |
Property and Equipment | 9. Property and Equipment Changes in property and equipment account for the years ended December 31, 2022, 2021 and 2020 are as follows:
|  | Cable and wire facilities |  |  | Central equipment |  |  | Network facilities |  |  | Buildings |  |  | Vehicles, furniture and other network equipment |  |  | Information origination and termination equipment |  |  | Land improvements |  |  | IT systems and platforms |  |  | Security platforms |  |  | Property under construction |  |  | Total |
|  | (in million pesos) |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost |  |  | 205,338 |  |  |  | 3,134 |  |  |  | 298,169 |  |  |  | 23,647 |  |  |  | 41,856 |  |  |  | 46,885 |  |  |  | 4,427 |  |  |  | 23,868 |  |  |  | 104 |  |  |  | 50,060 |  |  |  | 697,488 |
Accumulated depreciation, impairment and amortization |  |  | (147,048 | ) |  |  | (2,585 | ) |  |  | (186,566 | ) |  |  | (18,674 | ) |  |  | (35,260 | ) |  |  | (29,545 | ) |  |  | (279 | ) |  |  | (16,651 | ) |  |  | (12 | ) |  |  | — |  |  |  | (436,620 | )
Net book value |  |  | 58,290 |  |  |  | 549 |  |  |  | 111,603 |  |  |  | 4,973 |  |  |  | 6,596 |  |  |  | 17,340 |  |  |  | 4,148 |  |  |  | 7,217 |  |  |  | 92 |  |  |  | 50,060 |  |  |  | 260,868 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net book value at beginning of the year |  |  | 58,290 |  |  |  | 549 |  |  |  | 111,603 |  |  |  | 4,973 |  |  |  | 6,596 |  |  |  | 17,340 |  |  |  | 4,148 |  |  |  | 7,217 |  |  |  | 92 |  |  |  | 50,060 |  |  |  | 260,868 |
Additions (Note 4) |  |  | 1,306 |  |  |  | 906 |  |  |  | 141 |  |  |  | 145 |  |  |  | 570 |  |  |  | 5,678 |  |  |  | 43 |  |  |  | 23 |  |  |  | 145 |  |  |  | 80,026 |  |  |  | 88,983 |
Disposals/Retirements |  |  | (9 | ) |  |  | (1 | ) |  |  | (81 | ) |  |  | (27 | ) |  |  | (52 | ) |  |  | — |  |  |  | (163 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (333 | )
Reclassifications |  |  | — |  |  |  | 1,850 |  |  |  | — |  |  |  | 2,795 |  |  |  | 55 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,554 | ) |  |  | 146 |
Impairment losses recognized during the year (Note 5) |  |  | (27 | ) |  |  | — |  |  |  | (121 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (148 | )
Transfers and others |  |  | 22,641 |  |  |  | — |  |  |  | 30,328 |  |  |  | 629 |  |  |  | 195 |  |  |  | 10,077 |  |  |  | 145 |  |  |  | 4,900 |  |  |  | 107 |  |  |  | (69,022 | ) |  |  | — |
Translation differences charged directly to cumulative translation adjustments |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Adjustments |  |  | 8 |  |  |  | — |  |  |  | — |  |  |  | (8 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Depreciation and amortization |  |  | (10,676 | ) |  |  | (552 | ) |  |  | (23,282 | ) |  |  | (1,091 | ) |  |  | (2,124 | ) |  |  | (5,245 | ) |  |  | (10 | ) |  |  | (3,635 | ) |  |  | (166 | ) |  |  | — |  |  |  | (46,781 | )
Net book value at end of the year |  |  | 71,533 |  |  |  | 2,752 |  |  |  | 118,589 |  |  |  | 7,416 |  |  |  | 5,239 |  |  |  | 27,850 |  |  |  | 4,163 |  |  |  | 8,506 |  |  |  | 178 |  |  |  | 56,510 |  |  |  | 302,736 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost |  |  | 229,160 |  |  |  | 5,896 |  |  |  | 327,195 |  |  |  | 26,838 |  |  |  | 40,586 |  |  |  | 62,595 |  |  |  | 4,451 |  |  |  | 27,099 |  |  |  | 355 |  |  |  | 56,510 |  |  |  | 780,685 |
Accumulated depreciation, impairment and amortization |  |  | (157,627 | ) |  |  | (3,144 | ) |  |  | (208,606 | ) |  |  | (19,422 | ) |  |  | (35,347 | ) |  |  | (34,745 | ) |  |  | (288 | ) |  |  | (18,593 | ) |  |  | (177 | ) |  |  | — |  |  |  | (477,949 | )
Net book value |  |  | 71,533 |  |  |  | 2,752 |  |  |  | 118,589 |  |  |  | 7,416 |  |  |  | 5,239 |  |  |  | 27,850 |  |  |  | 4,163 |  |  |  | 8,506 |  |  |  | 178 |  |  |  | 56,510 |  |  |  | 302,736 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net book value at beginning of the year |  |  | 71,533 |  |  |  | 2,752 |  |  |  | 118,589 |  |  |  | 7,416 |  |  |  | 5,239 |  |  |  | 27,850 |  |  |  | 4,163 |  |  |  | 8,506 |  |  |  | 178 |  |  |  | 56,510 |  |  |  | 302,736 |
Additions (Note 4) |  |  | 194 |  |  |  | 265 |  |  |  | 3,656 |  |  |  | 31 |  |  |  | 731 |  |  |  | 6,389 |  |  |  | 28 |  |  |  | 8 |  |  |  | — |  |  |  | 85,508 |  |  |  | 96,810 |
Telecom assets additions subject to subsequent sale and leaseback from tower companies |  |  | — |  |  |  | — |  |  |  | 16,841 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 16,841 |
Disposals/Retirements |  |  | (5 | ) |  |  | — |  |  |  | (6,529 | ) |  |  | (1 | ) |  |  | (158 | ) |  |  | — |  |  |  | (7 | ) |  |  | (20 | ) |  |  | — |  |  |  | (7,976 | ) |  |  | (14,696 | )
Reclassifications |  |  | 11 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (11 | ) |  |  | — |
Reclassifications to assets held-for-sale |  |  | — |  |  |  | — |  |  |  | (12,372 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,641 | ) |  |  | (16,013 | )
Impairment losses recognized during the year (Note 5) |  |  | (112 | ) |  |  | — |  |  |  | (66 | ) |  |  | — |  |  |  | (131 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (309 | )
Transfers and others |  |  | 32,323 |  |  |  | 666 |  |  |  | 24,155 |  |  |  | 724 |  |  |  | 412 |  |  |  | 8,445 |  |  |  | 120 |  |  |  | 8,092 |  |  |  | 21 |  |  |  | (74,958 | ) |  |  | — |
Translation differences charged directly to cumulative translation adjustments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 2 |
Adjustments |  |  | 7 |  |  |  | 512 |  |  |  | — |  |  |  | (2 | ) |  |  | (240 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5 | ) |  |  | 272 |
Acquisition through business combinations |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 23 |  |  |  | 77 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 100 |
Depreciation and amortization (Note 3) |  |  | (32,994 | ) |  |  | (589 | ) |  |  | (42,311 | ) |  |  | (1,545 | ) |  |  | (1,774 | ) |  |  | (7,898 | ) |  |  | (32 | ) |  |  | (5,789 | ) |  |  | (66 | ) |  |  | — |  |  |  | (92,998 | )
Net book value at end of the year |  |  | 70,957 |  |  |  | 3,606 |  |  |  | 101,963 |  |  |  | 6,646 |  |  |  | 4,157 |  |  |  | 34,786 |  |  |  | 4,272 |  |  |  | 10,798 |  |  |  | 133 |  |  |  | 55,427 |  |  |  | 292,745 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost |  |  | 261,429 |  |  |  | 7,338 |  |  |  | 328,729 |  |  |  | 26,788 |  |  |  | 40,572 |  |  |  | 77,429 |  |  |  | 4,591 |  |  |  | 35,095 |  |  |  | 377 |  |  |  | 55,427 |  |  |  | 837,775 |
Accumulated depreciation, impairment and amortization |  |  | (190,472 | ) |  |  | (3,732 | ) |  |  | (226,766 | ) |  |  | (20,142 | ) |  |  | (36,415 | ) |  |  | (42,643 | ) |  |  | (319 | ) |  |  | (24,297 | ) |  |  | (244 | ) |  |  | — |  |  |  | (545,030 | )
Net book value |  |  | 70,957 |  |  |  | 3,606 |  |  |  | 101,963 |  |  |  | 6,646 |  |  |  | 4,157 |  |  |  | 34,786 |  |  |  | 4,272 |  |  |  | 10,798 |  |  |  | 133 |  |  |  | 55,427 |  |  |  | 292,745 |
Interest capitalized to property and equipment that qualified as borrowing costs amounted to Php 1,748 million, Php 1,582 million and Php 1,597 million for the years ended December 31, 2022, 2021 and 2020, respectively. See Note 5 – Income and Expenses – Financing Costs – Net and Note 29 – Notes to the Statements of Cash Flows. The average interest capitalization rate used was approximately 4% for each of the years ended December 31, 2022, 2021 and 2020, respectively. Our net foreign exchange differences, which qualified as borrowing costs, amounted to Php 351 million, Php 29 million and nil for the years ended December 31, 2022, 2021 and 2020, respectively. The cost of fully depreciated property and equipment that are still being used in the Group’s operations amounted to Php 83,055 million and Php 77,201 million as at December 31, 2022 and 2021, respectively. As at December 31, 2022, the estimated useful lives of our property and equipment are as follows:
Cable and wire facilities |  | 5 – 15 years
Central equipment |  | 3 – 15 years
Network facilities |  | 3 – 15 years
Buildings |  | 25 – 50 years
Vehicles, furniture and other network equipment |  | 3 – 15 years
Information origination and termination equipment |  | 5 – 15 years
Land improvements |  | 10 years
IT systems and platforms |  | 3 – 5 years
Security platforms |  | 3 – 5 years
Leasehold improvements |  | 3 – 10 years or the term of the lease, whichever is shorter
See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating useful lives of property and equipment. Sale and Leaseback of Telecom Towers On April 19, 2022, Smart and DMPI signed Sale and Purchase Agreements, or SPAs, with a subsidiary of Edotco Group and a subsidiary of EdgePoint, or the TowerCos, in connection with the sale of 5,907 telecom towers and related passive telecommunication infrastructure for Php 77 billion. Out of the total towers, 2,973 towers located primarily in Luzon, Visayas and Mindanao were acquired by Edotco Towers, Inc., a subsidiary of Edotco Group, and 2,934 towers located in Luzon were acquired by Comworks Infratech Corp., subsidiary of EdgePoint. Concurrent with the execution of the SPAs, Smart also entered into Master Service Agreements, or MSAs, with the TowerCos wherein Smart agreed to leaseback the towers sold in the transaction for a period of 10 years. In addition to space, the TowerCos are responsible for providing operations and maintenance services, as well as power to the sites. The sale and leaseback with the ToweCos is complemented by a commitment to place service orders for a total of 1,000 Build-To-Suit, or BTS, sites before December 31, 2025 and 50 comitted BTS sites each year for five years starting January 1, 2026, or another total of 500 BTS sites. Thus, total committed BTS sites with the TowerCos is 1,500. The closing of the agreements will be on a staggered basis depending on the satisfaction of closing conditions based on the number of towers transferred. The first closing commenced in June 2022, with the final closing in 2023. The following summarizes the completed sale of Smart and DMPI as at 2022:
Closing Date |  | Number of Tower Assets Sold |  |  | Cash Consideration |  |  | Net Book Value of Tower Assets (excluding taxes) |
|  |  |  |  | (in million pesos) |  |  |  |
June 1, 2022 |  |  | 3,012 |  |  |  | 39,228 |  |  |  | 12,937 |
August 1, 2022 |  |  | 1,013 |  |  |  | 13,190 |  |  |  | 5,253 |
September 1, 2022 |  |  | 151 |  |  |  | 1,801 |  |  |  | 1,606 |
October 3, 2022 |  |  | 259 |  |  |  | 3,529 |  |  |  | 1,377 |
December 9, 2022 |  |  | 230 |  |  |  | 2,744 |  |  |  | 1,701 |
|  |  | 4,665 |  |  |  | 60,492 |  |  |  | 22,874 |
On the same day that the telecom towers were sold, the MSAs covering the leaseback arrangements for those towers became effective. As at December 31, 2022, we have completed the sale of 4,665 telecom towers representing 79% of the towers portfolio subject to the sale. As a result, we received total proceeds of Php 60,492 million, and recognized gain on sale and leaseback amounting to Php 24,563 million (or Php 18,783 million after tax) and treated this as a non-core income. The remaining telecom towers with net book value of Php 7,125 million, subject to sale and purchase agreement until 2023, were reclassified from “Property and equipment” to “Assets classified as held-for-sale” under current assets in our consolidated statement of financial position as at December 31, 2022. On February 10, 2023 and March 15, 2023, we completed additional sale of 287 and 95 telecom towers for a consideration of Php 4,054 million and Php 1,133 million, respectively, increasing the total completed sale and leaseback transaction to date to 85% of the towers portfolio subject to the sale. Meanwhile, on December 15, 2022 and March 16, 2023, Smart and DMPI signed a new set of SPAs, with Unity Digital Infrastructure, or Unity, and Frontier Tower Associates Philippines Inc., or Frontier, respectively, in connection with the sale of 1,662 telecom towers and related passive telecom infrastructure for a total of Php 21,309 million. Out of the total towers, 650 towers located primarily in Visayas and Mindanao were acquired by Unity and 1,012 towers located in Luzon were acquired by Frontier. Concurrent with the execution of the SPAs, Smart also entered into MSAs with Unity and Frontier wherein Smart has agreed to leaseback the towers sold in the transaction for a period of 10 years. In addition to space, Unity and Frontier will also be responsible for providing operations and maintenance services, as well as power to the sites. The sale and leaseback with Unity is complemented by a commitment to place service orders for a total of 220 BTS sites within the next two to four years. Meanwhile, the sale and leaseback with Frontier includes a commitment to place service orders for 550 points of service within the next three to four years, of which 400 are co-locations and the balance for new BTS sites. With these additional sites from Unity and Frontier, total commitment with all TowerCos is for 2,270 sites. The closing of the agreements will be on a staggered basis depending on the satisfaction of closing conditions based on the number of towers transferred. The first closing for both SPAs is expected to commence upon securing approval from the Philippine Competition Commission.

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