Cadogan emerges from Covid’s ‘long shadow’

Chelsea landlord Cadogan Estates has bucked the prevailing trend by announcing rising rental incomes and rising capital values. In its 2022 annual results, published this morning, the estate said total income had increased by 10.4% to £186.5m. And in stark contrast to recent results from REITs such as British Land and Landsec, the property portfolio value also increased by 5.4% to £5.1bn, with its commercial portfolio value rising by 5.2% to £3.6bn. Cadogan chief executive Hugh Seaborn (pictured) acknowledged the difference between his numbers and those of some of his peers. “They are pretty buoyant, robust results for a central London property co,” he said. However, operating profit before capital items was down by 2.4% to of £98.4m, due to an increase in property expenses as investment increased in major placemaking and development projects. Seaborn said: “If 2021 was a year of recovery, then 2022 was one where we finally emerged from the long shadow of the pandemic and benefited from our carefully targeted support and investment to deliver a robust performance.” He added: “We’ve gone through so many huge challenges recently but we have reasons to be cautiously optimistic.” Government “holding us back” Much of the estate – 45.3% – is retail, where gross rental income increased by 7.1% to £86.3m. Cadogan said footfall across its retail estate had also been growing steadily over the year, and was now consistently surpassing 2019 levels. However, Seaborn was adamant that performance could have been even better. He said Chelsea, along with the rest of London and much of the UK, was being unnecessarily held back by the government’s refusal to reverse its position on tax-free shopping. “It’s really important that government reinstates tax-free shopping,” he said. “But for the broader London economy, not just for shopping. It’s almost a misnomer. By not having it, we effectively have a tourist tax on London and therefore the rest of the country is suffering from that. And obviously, we’re losing people to Paris, Madrid, Milan.” He added that those cities had experienced a far higher level of growth in international shoppers. Seaborn said while talks were continuing with the Treasury, there were no signs of movement yet. He said: “There are positive noises. The government seems to have an understanding of the impact, but it’s very slow moving. However, it wasn’t very slow moving when it was abolished. That happened overnight.” On the horizon Gross income from the office portfolio also increased by 16% to £39.1m, while gross residential rental income increased by 8.2% to £39.5m. In total, pretax profit including revaluation gains was £340.2m. The rise in capital values is partly due to the estate’s investment in new development coming on line. Major developments coming along over the next 12 months include 196-222 King’s Road, which is due to complete this year, and its Sloane Street improvements and hotel, which will open in Q4. For now, the future pipeline is mostly increment and granular, including planning consent at 30-33 Sloane Street and an application in for the conversion of the former Peruvian Embassy at 51-52 Sloane Street. But Seaborn says the estate is always looking for areas where a larger site can be assembled, as with the 196-222 King’s Road site. Values have also crept up because, as a retail-dominated estate, it had already taken sizeable hits during and before Covid. This year, it revelled in a valuation gain of £262.5m, following 2021’s gain of £34.6m. However, this followed the previous year’s £800m loss, and a £581m loss in 2019. While a £5.1bn valuation is welcome, it is down from 2018 £6.1bn valuation. And while the results show retail values rose by 10.7% and residential values were up by 6%, capital values for offices, which make up 14% of the portfolio, fell by 4.2%. The estate paid its owners – the Cadogan family – a £76.5m dividend, although more than 90% of this has been set aside to make provision for the next 10-year charge in lieu of inheritance tax, charged at 6% of the asset value of the estate. The last charge, of more than £200m, was paid at the end of last year. Green ambitions Cadogan’s ambitious sustainability strategy is starting to show results, with reductions in waste, electricity use and water consumption. It also has an ambition to increase urban greening by 25% by 2030. In the last year it achieved 12.5%, with two pocket forests slowly taking shape and scores of trees being planted. For Seaborn this is all part of Cadogan’s core mission: “Making huge efforts to make the estate one of the most attractive shopping locations in the UK”. He is unapologetic about “curating” the estate, to make sure it has “the right tenants in the right places”, even if that does mean some, such as All Saints, have to find new homes. “We will be relentless in concentrating on that curation piece,” he said. Allied to this is the increase in outdoor eating. Although that was born out of necessity during the pandemic, it has now become a permanent and growing feature, which Seaborn says is vital for animating the streets. As part of this mission, Cadogan is investing £46m on improvements to the Sloane Street public realm. But Seaborn wants to go further. “This is a lofty ambition, but when we finished Stone Street, I believe it will be the most beautiful luxury shopping street in Europe. That’s what we’re aiming to achieve.” And there is always room to improve, says Seaborn. While Sloane Street may be on its way to being the zenith of luxury shopping, Sloane Square is trickier. “It feels to me like there’s more that needs to happen there,” he said. “It’s a beautiful square in many ways, but in other ways it’s a busy roundabout. I think there’s definitely more we can do.” Not that he can simply wave a magic wand and make the cars vanish. If not an artery, it is certainly one of the main veins flowing through central London. But, incrementally and granularly, Seaborn will find a way to improve it. Already there is outside seating in the middle of the roundabout. The uses are being mixed up and enhanced and more greenery is being added every day. Perhaps a pocket forest would help. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Image © Will Bremridge View average retail rents in Chelsea >>