Overview

Walker & Dunlop, Inc. (NYSE: WD) is a leading commercial real estate services and finance company in the United States. Walker & Dunlop has built a diversified suite of commercial real estate services to meet the needs of its customers, including multifamily lending, property sales, appraisal, valuation, and research, commercial real estate debt brokerage and advisory services, investment management, and affordable housing lending, tax credit syndication, development, and investment.

Financials

Despite the challenging market environment, Walker & Dunlop delivered solid financial results in the first quarter of 2024. Walker & Dunlop reported quarterly revenue of $228,059,000, down 4% from the same period last year. Net income for the quarter was $11,866,000, a 55% decrease compared to the first quarter of 2023. However, Walker & Dunlop's adjusted EBITDA, a key performance metric, increased 9% year-over-year to $74,136,000, highlighting the strength of its diversified business model.

The decrease in revenue was primarily driven by declines in loan origination fees, the fair value of expected net cash flows from servicing, property sales broker fees, and other revenues, partially offset by increases in servicing fees and placement fees and other interest income. The decrease in net income was largely due to the significant change in the provision (benefit) for credit losses, which switched from a large benefit in 2023 to a small provision in 2024, as well as increases in interest expense on corporate debt and other operating expenses, partially offset by decreases in personnel costs.

Business Overview

Despite the market challenges, Walker & Dunlop's management team remains optimistic about the company's long-term growth prospects. In the first quarter, Walker & Dunlop's debt brokerage volume increased 40% year-over-year, driven by strong demand for capital across all commercial real estate asset classes, not just multifamily. This diversification of Walker & Dunlop's transaction volume is a testament to the breadth of its capabilities and the expertise of its team.

Walker & Dunlop's servicing and asset management business also continued to perform well, generating stable cash revenues from the growing servicing portfolio and assets under management. Servicing fees increased 6% year-over-year, and Walker & Dunlop's adjusted EBITDA for the Servicing & Asset Management segment grew 6% compared to the same period last year.

Walker & Dunlop's affordable housing business, Walker & Dunlop Affordable Equity, generated $18 million in revenues in the first quarter, down 9% from the same period in 2023. However, Walker & Dunlop recently closed a new $163 million affordable housing fund, which is expected to contribute to syndication fee revenue in the second quarter.

Walker & Dunlop's credit performance remains strong, with only six defaulted loans in its at-risk servicing portfolio as of March 31, 2024, representing 11 basis points of the portfolio. The weighted average debt service coverage ratio for the portfolio remains above 2x, and over 90% of the loans are fixed-rate, providing stability in the current rising interest rate environment.

Outlook

Looking ahead, Walker & Dunlop's management team is cautiously optimistic about the market's ability to adjust to the higher interest rate environment. Walker & Dunlop's pipeline of closed and signed deal flow for the second quarter is already 35% above the level closed for all of the first quarter, suggesting that many clients are looking to transact rather than push transactions further into the future.

While Walker & Dunlop's diluted earnings per share started the year slowly, its adjusted EBITDA and adjusted core EPS are in line with its full-year expectations through the first quarter. Management believes Walker & Dunlop still has the ability to achieve its 2024 guidance for diluted EPS, adjusted core EPS, and adjusted EBITDA, with the expectation that activity will pick up as the year progresses and the majority of earnings will be generated in the second half of the year.

Walker & Dunlop's long-term growth strategy, which focuses on driving sustainable growth through its origination and servicing platform, continues to underpin the way Walker & Dunlop manages its business through up and down markets. Walker & Dunlop's investments in technology, including its small-balance lending platform and appraisal business, Apprise, have generated significant efficiencies and growth opportunities, even in the current challenging environment.

Conclusion

Walker & Dunlop's geographic diversification and its ability to provide capital solutions across all commercial real estate asset classes position it well to navigate the market's evolving dynamics. With a strong balance sheet, a growing servicing portfolio, and a talented management team, Walker & Dunlop appears poised to continue its long-term growth trajectory and capitalize on opportunities as the market adjusts to the higher interest rate environment.