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Good morning, everybody. I'm pleased to welcome you to today's conference call. And today's agenda will cover our results from the second quarter and the first half of 2023 together with the outlook for the portfolio.
I'm joined by our CEO, Jochen Klösges; our CFO, Marc Hess; and our Chief Market Officer, Christof Winkelmann. They will take you through a presentation. And this will be followed by a question-and-answer session.
And now I'm handing over to Jochen. Please, the floor is yours.
Thank you, Jürgen. Good morning. I would also like to welcome you all to the presentation of our results for the second quarter and the first half of this year. This is a busy day. And in just a few hours, we will also be holding this year's general meeting.
And it's only a few short weeks since the 20th of July when we celebrated the 100th anniversary of our predecessor institutions, Deutsche WohnstättenBank AG. We've been looking back in recent days on the eventful first century for our banks, spanning periods of historic upheaval, several changes of name and numerous notable successes.
On the June 4, Atlantic BidCo successfully completed the voluntary public takeover offer of Aareal and became the owner of approximately 90% of the shares. Atlantic BidCo is indirectly held by funds controlled, managed or advised by Advent International, Centerbridge Partners as well as the Canada Pension Plan Investment Board, and other minority shareholders.
These new investors have committed to supporting our strategic ambitions to strengthen our position as a leading international provider of property financing and to continue development of our software, digital solutions and payment services businesses.
Therefore, we will continue to implement our Aareal Next Level strategy with the support of these investors, pursuing further potential across all three of our business segments, whilst maintaining, of course, our conservative risk policy.
Above all, we're looking ahead together with our new owners with a clear view of opportunities, but also of challenges.
Challenges and opportunities – these words prompt me to talk about the second quarter of this current financial year, upon we which are reporting today.
We're reporting operating profits for the first six months of 2023 that almost matched the result for the first six months of 2022 and confirming our operating profit targets for 2023. This is despite the investment in our business which we described when we reported the full year 2022 results and despite headwinds in the US office market.
A challenging environment in the US had a relatively low impact on our first quarter results, but is visible in the second quarters loan loss provision. However, our strong profitability, which has increased significantly over five years, and the performance of all our other property finance portfolios has helped us to cope with this challenge.
We've been able to manage the headwinds resulting from the current situation on the US office property market in the first six months, and we've been able to invest more than originally planned in our company to support future growth.
Last, but not least, we have ended our exposure in Russia.
All of this shows that our business model is robust. We have once again demonstrated our high operating resilience, even in a difficult environment.
Looking in more detail at the figures we are presenting today. At €87 million, our consolidated operating profit for the first half of 2023 was just a little lower than the previous year's figure. And this despite the considerable strategic investments that I've just mentioned and much higher loss allowance.
So this is despite the investments in Aareon. This is despite the expenses of a swift reduction of legacy exposures in the loan portfolio. This is despite the cost of ending our business in Russia, and a higher loss allowance in the US.
Although we have been facing these happenings, we were able to generate a positive consolidated operating profit of €87 million in the first half of the year, of which €25 million was posted in the second quarter. And this was possible mainly because we have strengthened our operating profitability, and along with that our resilience.
Aareal Bank's net interest income has never been higher in a single quarter than between April and June 2023 And it's never been higher in a half-year period than the first six months of this year.
Net commission income continues to develop favorably, growing at a double-digit rate in the second quarter and the first half of 2023. We are also in a position of financial strength based on a profitable liquidity position and with stable, very solid capitalization. We were able to, once again, slightly increase our CET1 ratio despite the growth in lending volume.
And in the most recent ECB stress test, we achieved an above average result. Marc Hess will elaborate on this later.
Despite increased burdens from the loss allowance for the US office, financings and further investments at Aareon, we are confident that we will meet our forecast for the full year 2023. Consolidated operating profit, however, may come in at the lower end of the communicated range of between €240 million and €280 million.
To sum up, Aareal Bank Group is performing well, both in terms of operations and financial position, and is well prepared for the next phase in its development.
I am now pleased to hand over to Marc who will provide more detailed information on our financial results. Please, Marc?
Yeah. Thank you very much, Jochen. And very good morning from my side as well.
Let me continue with an overview of the first six months. Our top line performance remained very dynamic in the first half. Indeed, I think you can see here it on page 4, we showed a great momentum that was driven by net interest income mainly. It is up 40% year-over-year. We are benefiting from rising interest rates as well as from portfolio growth at good margins over the last 12 months and from our broadly diversified funding mix.
Net commission income showed double-digit growth as well, driven by both the BDS segment and by Aareon's performance. The reported increase in costs is attributable almost entirely to M&A in Aareon and the announced efficiency measures as well in Aareon.
Risk provisions reflect the effect of the previously announced investment in a swift NPL reduction, provisions relating to the US office market and the sale of our remaining Russian exposure. I will come back to that in a moment.
Bottom line was nearly stable compared to last year at €87 million euros. Jochen just mentioned that despite of the additional burdens that we had to take.
Continuing on page 2, you can see a more detailed outlook or more detailed look at the – of the developments of the key income components. Indeed, our earnings momentums remained really strong in the first six months and net interest income, as I just said, grew by 40% to €462 million, hitting a record high for Aareal Bank, as did the €240 million in net interest income in the second quarter alone.
One reason behind the strong increase is the profitable growth of our portfolio over recent years, which we were able to continue in the second quarter with good gross margins on new business. We also benefited strongly from the interest rate environment in our deposit taking business. Net interest income from the BDS segment increased significantly to €111 million in the first six months. It is also a remarkable result in absolute terms, I think.
These results evidence the advantages of our diversified business model. While increased interest rates have put property markets under pressure, our BDS segment has benefited. As you can observe the structure of our business model is like a hedge [Technical Difficulty] negative effects of rising rates.
Net commission income continues to develop favorably too. It grew by 13% in the first six months to reach €149 million. Solid sales revenues development at our software business Aareon and growth of net commission income in our BDS segment both contributed.
Jochen has already touched up on it. It's thanks to our much higher profitability, what we call, operative resilience that we are able to absorb multiple headwinds and invest at the same time.
On the next page, I would like to have a closer look into costs and LLPs. First of all, we have increased the announced investment in Aareon efficiency program to approximately €60 million, an amount which we have already absorbed almost completely in the first half. The investments were predominantly related to the combination of Aareon's UK entities and the optimization of the product portfolios. And we will see the benefits already starting in the second half on the cost line. These expenses are the main reason for the increase in admin expenses. I would say the only reason that we have reported in the first half of 2023.
We managed to keep costs stable at the bank, again. Together with the strong growth in income, this leads to a very good cost income ratio of only 32% for the first six months and 30% for the second quarter. You will certainly agree with me that these are excellent figures in absolute and in relative terms.
As already mentioned, we have seen further headwinds in the US office market. Risk provisions increased by 50% in the first six months to €160 million, of which €128 million were recognized in the second quarter. A further €33 million of loss allowances were recognized in the fair value P&L line for those loans held at fair value P&L.
So, total risk provisions, including further NPL, in the second quarter amounted to €161 million or close to €200 million for the first half. At around €100 million, the largest part was attributable to the US office properties. In addition, the €60 million budgeted for a swift reduction of the NPL inventory was fully drawn upon in the second quarter. Of that amount, around €35 million went to the termination of the remaining exposure in Russia.
With the provisions added in the second quarter, we've recognized an extensive loss allowance for all the risks identifiable today. However, if you ask me now, if this is all or if there will be new charges for our US office property portfolio, what I can say is, as of today, we cannot give you a conclusive answer. But we feel well prepared with the extensive risk provisions that we have made. And we will, of course, remain vigilant.
Now let me hand back to Jochen and to Christof for comments on the development of the three segments.
Thank you, Marc. And also, a warm welcome from my side. In structured property financing, new business gained traction in the second quarter at roughly €3 billion. New business in the second quarter significantly exceeded the previous quarter and the same quarter of the previous year. New business in total for the first half of 2023 now is totaling €4.1 billion euros.
And we've very much stayed true to committing to be selective and risk aware, meaning we are not growing at all cost, but are in line with our conservative risk standards which we haven't changed throughout the cycles, and that can be seen in the average loan to value at roughly 53% for the loans newly originated in the first half of 2023. So for the €4.1 billion, which is 4 percentage points lower than the first half of 2022.
At around 290 basis points, during the first six months, the average gross margins were well ahead both the previous year and ahead of plan. The plan was 240 basis points to 250 basis points and previous year's comparable figures were at 227 basis points.
I think also a positive to mention is that we were able to further grow our green loan book by a total of €1.4 billion, which is consisting of €900 million of newly originated green loans and €500 million of conversions of existing loans that are fulfilling our very strict green lending parameters.
Jochen?
Thanks, Christof. Let's now turn to the next page and to our second segment, Banking & Digital Solutions. This segment has been performing well too. Marc has already described the significant increase in net interest income for the first half of this year. Here we can see the positive effects of rising interest rates on our deposit taking business.
At the same time, average deposit volumes exceeded our targets of around €13 billion for the first half of the year at €13.5 billion. This was achieved despite increased competition for deposits in the markets.
As expected, we are seeing a shift from demand to term deposits, but we are also seeing term deposits growing steadily, which are usually held over the long term.
Net commission income too increased at BDS in the first half of 2023. It is growing steadily, with an increasing proportion from recurring revenue as set out in our strategy.
And now let's turn to our third business line, our software subsidiary, Aareon, where the growth strategy of recent years is paying off. sales revenues increased significantly by around 15% in the first half of the year. Aareon has also increased the recurring share of total revenue to 76%.
The earning side also looks reassuring. Adjusted EBITDA increased by 22% in the first half of the year to reach €39 million. After the strong growth of recent years, partly driven by acquisitions, Aareon's management placed a strategic focus on measures to enhance efficiency in the first two quarters of this year.
The originally budgeted investment of roughly €35 million was extended to approximately €60 million. The early retirement program announced at our annual press conference in March was completed already ahead of schedule.
Regarding the new partner program, Aareon Connect, which was launched in the first quarter, Aareon was able to expand its circle of partners and to attract the first clients. The program allows clients to integrate third-party software solutions and services with Aareon's systems much more easily. This marks an important step in the deepening of Aareon's client relationships.
And in addition, Aareon is continuing to pursue its acquisition program and announced yesterday the acquisition of IESA. IESA is the leading provider of software solutions for property managers in Spain. With this acquisition, Aareon is expanding its geographical footprint into southern Europe and is enhancing its range of services in the strategically important property management markets. This is Aareon's third recent action in this sector, following UTS in Germany and Twinq in the Netherlands.
And now it's my pleasure to hand over again to Christoph who will provide more detailed information on our loan portfolio. Please, Christof.
Thank you, Jochen. This would be on slide number 11. As you can see, overall, portfolio volume has grown to €32.1 billion. And this means that we are already having an interest bearing portfolio for the year and target somewhere between €32 billion to €33 billion.
To mention is that the composition, as you can see, quarter-over-quarter has not changed much over the past six months compared to 2022. We are continuously broadly diversified across regions and our different property types.
As in the past, we are not providing project development, but are providing financings for properties that require innovations to improve the energy efficiency and ESG conformity, which we do some of.
In the same time, our green property portfolio grew to €7.7 billion, as I've mentioned before, and this is including €3 billion total green loans to date.
On page number 12, I think the metrics somewhat speak for themselves. The LTV for the overall book stands at a solid 55%, providing what I would call a comfortable cushion in turbulent times that we are going through at current.
Yield on debt is steadily improving over the last years and averaging 9.5%. Mind you that bespoken hotels and retail portfolio have improved significantly, standing at a 10.9% debt yield for the overall hotel portfolio globally and a 10.7% debt yield for our complete retail portfolio. I think this is a very comfortable position. And it shows that our assets that we signed are able to indeed pay debt service even in an increased interest rate environment.
On page number 13, I think due to maybe situation that we are all in, this is a view on the total US portfolio. If we are looking at the performing US portfolio, it is amounting to €8 billion at a very solid LTV. That is also true for the office properties. There are no exceptions. For 93% of our entire US portfolio, delayed LTV is below 60% and only for 2% it is above the 70% mark.
Also, mind you, whilst those are turbulent times, turbulent times also bring about opportunity. So we are selectively underwriting highly attractive, accredited, and risk encompassing new business also in the US at this point in time, going forward as well.
On page number 14, it's a bit of a deeper dive on only the office portfolio of the US. And we are making no secret that our headwinds in the US when it comes to especially office properties.
We are managing them very closely. This, by the way, does go up all the way to the board. They're involved on most of these cases personally as well, together with our clients to find solutions in this, I would call, challenging times.
We have around 50 US office financing projects concentrating on high quality, grade A properties in class A markets. We're not scattered throughout the Midwest, but in the major MSAs across the US. Therefore, New York represents a bit more than 50% of our total US portfolio. And the rest is largely spread out throughout the major US cities. The overall LTV is at 63% at current.
Also to mind you is that the maturities for the upcoming lease renewals and renewals for the book are very manageable, as you can see on the bottom left graph, with 11% for the year 2023 and only 88% for the year 2024.
Also, just another news that has just come across is that, especially for New York State and New York City, state employees for the largest part have now been ordered back into the office, maybe partly attributable to what I've said beforehand, that we will have a hybrid world, but it doesn't consist simply of home office. There needs to be interaction. And also, mind you that people will get together. And what we have seen currently is that the actual space needs will vary in different markets, but are not half of what they were beforehand, simply because people need to come to the office. And I'll get to that in a bit more detail for the European part.
On slide number 15, we have looked at our US office portfolio in a stress scenario. If we were to take the market data for the US LTVs, we're looking at about 35% market value decline for the US and general. If we were to mirror that to our portfolio, that would equal roughly 20%.
We have taken the stress to the scenario – stressed our portfolio despite only having to be stressed at about 20% or 25%. The LTV would increase at an overall 63% to 83%, with late LTVs above 100% being less than 1%, i.e. €50 million, and the range between €80 million and €100 million would consist of a bit less than 7%, i.e. €300 million.
We have to date check all the values of our US office financings. More than half of that externally and the rest internally. So the values that you're seeing here are what we would say up to date. And as Marc was saying, we can't predict the future, but we are well positioned with the current provisioning, we believe, to weather the storms that may be lying ahead of us still.
On slide number 16, I'd like to take you to Europe. Also here, we are located in the major cities when it comes to office.
Looking at the portfolio, we believe we're in good shape to cope with the structural shifts in this asset class. And the structural shift is not much of a surprise. It is that class A properties in good locations benefit only the good times, but also in the bad times with a flight to quality and that less fit assets probably will have a quicker change than expected and need to either have invest or at least change to alternative use.
The LTVs are sound and we see a significant cushion even in its most stressed scenario that assumes an impairment of 25%. So far, across Europe, we have not seen similar difficulties as we have seen in the US. But also here, we are keeping our ears and eyes open. And at the same time also here, we are using opportunities in these markets to underwrite loans that are in excellent locations with excellent sponsorship and excellent risk/reward.
What is essential for us is to stay in the market and remain in close client contact. Just as a number, we have about one-third of the French office portfolio in refurbishments, and I would say more than 95% of our portfolio are not in the greatest city of Paris, but are in the city center of Paris. This is our Parisian – our French office portfolio.
In the UK, we have nine deals in the office segment. Of this, the majority is in London with nearly €600 million. There are differences between Europe and the US when it comes to officers, mind you, that, for example, Sweden has had over 30% home office ratio before COVID came. And surprisingly, it still has 30% home office ratio as of today, indicating that markets are very different. And when I was talking about the Parisian office market where we are located, the majority of the market we are in would have vacancies at or below 2%, indicating there is no vacancy with rental rates achieving all-time historically speaking.
The UK portfolio, as I said, the majority is in the London Metropolitan area. We are focusing on hospitality and, virtually, there's no exposure in the late LTV above 60%. We are focusing on high class hotels in the greater London area.
If we're entertaining logistics, these are usually part of either portfolio across the UK or across Europe. As I've said, one of our USPs is the cross border financing portfolio is highly diversified, highly granular, very good risk/reward for our purposes.
On the residential side, we're focusing on student housing and some build to rent. We think of that as an attractive sector, also in the UK. And with office exposure, as I mentioned, at around €600 million, going forward, we are looking at opportunities also here.
Retail, we are focusing on retail parks, though, we have not underwritten any retail engagement in the recent past.
Mind you again, the LTV on hospitality, that was bespoke for many quarters over the past years is at 53% LTV and the retail at 51%.
With this, I'd like to hand over to Marc with an update on the NPLs.
Yeah. Thank you, Christof. Let's turn to page 18 and have a look at the non-performing loans indeed. Despite the increase in NPLs relating to the US office loans in the first half of this year, NPL exposure are over €300 million lower than in the midst of the pandemic.
The NPL ratio stood at 4.1% at the end of June. According to the EBA methodology, our NPL ratio is at 3.2. And the NPE ratio according to EBA would be at 2.8. So you can see that we have the most conservative definition here when we're talking about 4.1.
As described during the presentation of our results for the 2022 year-end in March, we set a budget of €60 million to enable a swift reduction in NPLs in this current year. And the aim is here to further strengthen our resilience. We have fully used this budget, including around €35 million going into the termination of our remaining exposure in Russia. And we have also prepared some other NPLs in southern Europe to be reduced then in the second half of this year. So this is due to follow.
On page 20, you can see our balance sheet and the liquidity ratios. Not much to say about it. So you can see that the LCR is at 225% and the NSFR at 120%. So, both very sound. The treasury portfolio investments are in very liquid, mainly public sector bonds, and we fully hedge them against interest rate risks as we have no significant unrealized losses within our portfolio.
Our funding activities are displayed on page 21. They remain, of course, broadly diversified. We are benefiting from the initiatives that we have undertaken in recent years to attract new investors for our issues and to introduce new funding sources, for example, through our cooperation with Raisin. The retail deposit volume sourced via Raisin and Weltsparen has grown to more than €1.7 billion. For us, this is a big success, since we only commenced activities in this market segment in the middle of last year, so only 12 months ago.
Regarding the capital market funding, our activities focused on the Pfandbriefe. In the first half of this year, most recently in July, we successfully issued a three-year Pfandbriefe of €500 million, which attracted high demand. We can say the highest demand we ever had, with an order book of around €3 billion. So, really six times oversubscribed.
Our capital position can be found on page 23. And it improved further during the first half of 2023. And the CET1 ratio rose slightly compared to the 2022 year-end to reach 19.4% at the end of June.
Positive effects from the dividend retention after the successful PTO closing, and that was able to compensate then the RWA increase that we had from the growth of the portfolio and, of course, also from the macro headwinds.
The leverage ratio also very sound at 6.2%.
And this sound capital position and restructure and also the operating resilience clearly reflected in the ECB stress test. You know they were published only recently. You can find the results on page 24.
We are very pleased with how we did in this year's stress test. You can see in the graphic below on that page left that we really did very well. It shows how we stand compared to other institutes in Germany that also finance commercial real estate. And we are not only above the average of all stressed EBA and ECB banks, we are well above the requirements that apply to us too.
The stress scenario was really severe. It included an approved adjustment of the prices for financial assets and real estate, the significant price adjustment applied to the real estate market that amounted to 30% discount, really reflecting a severe tightening in financing conditions and a weak economic outlook. So as I said, we believe a real harsh assumption. Nevertheless, our CET1 ratio remained comfortably within the 11 to 14 range defined by the ECB.
This brings us to the outlook now. As already mentioned by Jochen, our strong profitability has enabled us to offset the significant challenges that arose in the second quarter.
We are lifting our guidance on net interest income, the principal source of our income, for this year. At the same time, we expect higher risk provisions than originally planned at the beginning of the year. So all in all, this should be somehow leveling out.
Admin expenses should now come in at the upper end of the guided range, given the additional efficiency enhancement measures undertaken at Aareon. The underlying costs are, of course, fully in line with what we predicted at the beginning of the year. So all in all, we can say we remain confident for reaching our consolidated operating profit target. However, as of today, we expect it to reach the lower end of the target range of 240 basis points to 280 basis points due to the additional measures undertaken at Aareon.
And with this, let me hand back to Jochen for his concluding remarks.
Thank you very much, Marc. So, ladies and gentlemen, you see the figures we've just presented to you today mainly demonstrate three things. First, all three business lines of Aareal Bank Group are making very good progress in operating terms and earnings momentum is still very strong.
Second, on this basis, we are not only able to make considerable investments to prepare the bank and the group for the future and further improve its competitiveness, but also to offset the headwind arising from the current challenging market environment and to reach our targets.
And third, we will remain vigilant given the current environment and keep in close touch with our clients in order to prepare for any contingencies. But thanks to our operating profitability and our financial strength, we still have very good reasons to look ahead with confidence.
So thank you very much for your attention. We look forward to hearing and, of course, answering your questions now.
[Operator Instructions]. That question is from the line of Johannes Thormann with HSBC.
Johannes Thormann, HSBC. Some questions on my side. First of all, on the fees, you mentioned that operating costs have a certain M&A element. Can you quantify how much of the fee income growth was from organic business and how much is M&A?
Secondly, on page 7 of the presentations and the nice increase in new business, everybody tells us real estate market transactions are down and nobody can write new business. What has been the underlying focus of your new business? We see strong share of hotel, but also on office, can you probably provide a bit more detail on this, what has been driving this business?
And last, but not least, on page 14 of the presentation of the US office, probably a bit more color. Is there any difference between the regional exposure between New York having half of it and then the rest in the other cities in terms of the NPLs? Or is this – just any lessons learned? Has been one business more difficult?
The first one would be a quick answer. Out of the €17 million increase that we have shown in fee income in the first half, €10 million come from inorganic growth in Aareon. Here, I would say it's basically 50%. Why? Because in the €17 million, we also have minus €3 million increased fees for funding measures. So, you threw it out, I would say we have underlying plus €20 million and, therefore, half of it come from inorganic growth.
Let me start with the second questions, I guess. Christof will add something to my comments and then answer the question about the composition of our US office portfolio and regional aspects.
So, you know that always in times like these, which are challenging, of course, are also times of opportunities. I guess, we proved that already during the pandemic that we did not stop doing business. It's obviously a time where we need to consider to be very careful. You can see that with our leverage – our low LTVs are roughly 53% of our new business we did in the first half of this year and the increasing gross margins of roughly 219 basis points we wrote in the first half, I guess, excellent numbers. But, again, of course, we, I guess, mentioned that many times during our presentation, we're, of course, vigilant, we keep our ears and eyes open, like Christof mentioned.
But there are always opportunities. And even in the US, we did, for example, office new business with excellent parameters. And I guess, therefore, this is not an unusual strategy for Aareal Bank and that's also the reason why you see the strong increase in our underlying revenue growth. And of course, it's time to be conservative, which we are. But I would now like to ask Christof to elaborate a bit on that. And to give you some insight about the portfolio, you asked about the regional diversification over there.
If we look back at the past three years, there have been different moments where banks have been very active. They have not been active, but been active in certain asset classes, some banks have completely retracted from some asset classes. They have now come back into those asset classes. I think important for our clients is that we are there throughout the cycle.
Real estate is a very cyclical business. And some of our clients make their monies by buying assets in opportune times, maybe as of today, where they think they can get a better price than they might have gotten four or five years ago, and other clients are more active in the years four or five years ago and are not so active at current due to the macroeconomic outlook.
And yes, you're absolutely right. Transaction volume has largely decreased across the globe. It is slowly picking back up. We are seeing first signs of that. And that was my original prediction at the beginning of the year that I think the second half, we'll see some more transactions. Why would you see transactions? By the way, it is, I think – the point of the turning point will be once the view on interest rates gets firm, i.e. interest rates are not increasing anymore – they don't have to decrease yet. But I think the point of the ceiling being reached, that is where transactions will be had because buyers and sellers will come lot closer to each other, being able to plan.
If we look at what we are doing, as I never fail to mention is, we have some mainstream business lines and we have some USPs. As I've mentioned before, cross border transactions in Europe in the logistics space where, nowadays, large sovereign wealth funds, pension funds think it's a good time to acquire large portfolios, and they need the knowhow for structuring such quite difficult structures.
Likewise, on the hospitality space, as I've mentioned before, it's an asset class I've always talked a lot about. We have dedication to it, as you know, [indiscernible] very well to the crisis. And it is still an opportune time for us to invest into hospitality, also today with clients buying new assets. And maybe that differentiates us or gives us a bigger market share and talk about being able to apply these USPS.
And as Jochen has just mentioned, we have also done office transactions in the US. And as I mentioned, these are at current valuations with very long, average weighted lease durations, with excellent sponsorship and absolute top class A tenants and location.
And as I've said beforehand, we are there throughout the cycles for the clients. And also for us, it is a good time to do some business, when others maybe are shying away because it gives us a competitive edge with the in-depth knowhow that we have on real estate.
When it comes to the geographic diversification in the US, as I've mentioned before, 50% plus of the office exposure is in New York. We also have hotels in New York and retail in New York. But so we are having exposure on the California markets, i.e. Los Angeles and San Francisco. And just San Francisco is also a very hard hit market for different reasons maybe than some of the other ones because the tech segment was very big or is very big. And they're slowly coming back to the office, while slower coming back to the office than maybe the financial insurance sector and also the government sector in New York City where, as I've mentioned before, we are seeing some actually first positive signs on leasing momentum, on vacancy rates.
And also mind you that if you were to project outwards, as I've mentioned on the last call in the US, and especially in New York City, there was a very large influx of supply in 2019, 2020 and 2021 that was being greeted by COVID and work from home and maybe also the scare that went along with the crisis. Now there is virtually no construction in the US in the most major markets, also tending to lean to a possible projection. That vacancy rate will decrease because there's simply very little new product coming into the market and the product that came in since 2019 is currently being largely absorbed. Again, here also, flight to quality and, as I've mentioned before, the, by far, majority of our portfolio is Class A and Class A market buildings, which I think are very helpful in the recovery and the first ones to get occupied and to sustain a crisis.
Probably one little follow-up on the €100 million risk provisions related to US office property you flagged. How is this regional distribution? Do we have 50% New York or more New York?
I would say the majority would be New York just simply because of the majority of our office portfolio being in New York. So I would say the majority of that, or at least bigger than 50%, is in New York. And as Jochen had mentioned before, and Marc likewise, we believe that we have taken a very good step in this quarter to make sure that we can weather the storms that might be lying ahead and have accounted for the risks that we can currently see.
And also, quite frankly, Johannes, everybody's looking forward, having a question mark as to what will happen in the future. And as I've said there, the first market reports also coming out for New York, especially also for London, that are saying there's no construction, people need good grade office space, people are coming back to the office, and in parts, quite frankly, are being mandated to come back to the office by the employers, maybe realizing that an 80/20 shift is not the ultimate goal and where we'll end up I don't know. But we see that across the markets. Again, I'm not saying it's all rosy and everything is good as of this point. But we are long term lenders. So we have to anticipate trends. And what we are seeing across the portfolio currently is, again, the first rays of light in a, what I would call, pretty sinister environment. And again, that is something that we need to prepare for because we are in the business for more than just the next six months.
Next question is from the line of [indiscernible].
I have one question. The closing of the takeover, has there been any discussions about a delisting?
You know that the Atlantic BidCo disclosed an offer document within that PTO process. And that is a paragraph saying that there might be a delisting, but this is basically condition to market circumstances. So far, we see no new decision or anything about that as of today.
There are no further questions at this time. This concludes the Q&A.
So then, thank you from our side for joining us this morning. As always, the IR team [indiscernible] for your follow-up calls. Sorry if some of the calls could be delayed because we have our AGM coming up.
Yeah. Jürgen, thank you very much. Yeah, I hope we answered all your questions. It's always good in these times to see Christof being part of our team here because he is on a daily basis in talks with our clients and has a really close grip to the markets. And, yeah, feel free to contact Jürgen and his team. If you have further questions, we'll be happy to answer them.
And thanks for participating here today. And hope to see you soon. Thank you very much and have a good day. Bye-bye.