HSBC 2008 Annual Report Download - page 416

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 23
414
On 31 May 2007, HSBC entered into a contract for the sale and leaseback of the property and long leasehold land
comprising 8 Canada Square, London to Metrovacesa, S.A. (‘Metrovacesa’) for £1,090 million (US$2,154 million).
In the normal course of business, HSBC provided finance to Metrovacesa in respect of the debt element of this
transaction at arm’s length market rates in the form of a bridging loan of £810 million (US$1,601 million) secured by
a charge on the property. The equity portion of £280 million (US$553 million) was settled in cash by Metrovacesa on
31 May 2007. At 31 December 2007, the sale was not recognised in the financial statements because HSBC retained
a significant interest by virtue of the loan provided to part-finance the purchase of the building. The equity portion
received from Metrovacesa was presented in the balance sheet as deferred income at 31 December 2007 with a value
of US$562 million.
On 4 December 2008, HSBC purchased Project Maple II, B.V., the subsidiary of Metrovacesa which owned
8 Canada Square, for £838 million (US$1,315 million). At this date the deferred income recognised by HSBC was
released to the income statement. The net effect on the income statement for the year ended 31 December 2008 was
£244 million (US$383 million), comprising a gain of £265 million (US$416 million) included within ‘Other
operating income’ and a charge of £21 million (US$33 million) included within ‘Depreciation and impairment
of property, plant and equipment’.
At 31 December 2008, the property has been reclassified to Property plant and equipment and Prepayments and
accrued income (representing the long leasehold on the land) because it no longer meets the criteria for recognition as
a non-current asset held for sale.
Leasehold land and buildings
Leasehold land and buildings are considered to be held under finance lease contracts where the value of the land
cannot reliably be separated from the value of the lease, and the respective contracts do not meet the criteria for
classification as operating leases.
Included within ‘Short leasehold land and buildings’ are the following amounts in respect of assets classed as
improvements to buildings, which are carried at depreciated historical cost:
2008 2007
Cost
Accumulated
depreciation Cost
Accumulated
depreciation
US$m US$m US$m US$m
At 1 January .................................................................. 1,490 (671) 1,277 (351)
Additions ....................................................................... 314 – 294 –
Disposals ....................................................................... (40) 12 (117) 94
Depreciation charge for the year .................................. – (116) – (123)
Exchange differences .................................................... (141) 100 43 (10)
Other changes ............................................................... (2) – (7) (281)
At 31 December ............................................................ 1,621 (675) 1,490 (671)
Net carrying amount at 31 December ........................... 946 819
Investment properties
The composition of the investment properties at fair value in the year was as follows:
Freehold
land and
buildings
Long
leasehold
land and
buildings
Short
leasehold
land and
buildings Total
US$m US$m US$m US$m
Fair value
At 1 January 2008 .......................................................... 925 205 216 1,346
Additions at cost ............................................................ 78 – – 78
Fair value adjustments ................................................... (93) 4 (3) (92)
Disposals ........................................................................ (2) – – (2)
Transfers ........................................................................ – – (1) (1)
Exchange differences ..................................................... (196) (15) 5 (206)
Other changes ................................................................ (146) (6) – (152)
At 31 December 2008 .................................................... 566 188 217 971