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Samantha.Bennett


Real Estate Finance Company Walker & Dunlop's Proactive Approach to Financial Operations

2023-07-30

Walker & Dunlop (W&D), a real estate finance company, held its earnings call meeting to discuss the company's financial performance and growth opportunities. The meeting covered various topics, including cost reduction efforts, investments in client relationships and technology, employee wellness programs, and the company's focus on winning business.

One of the key highlights of the meeting was the company's focus on cost containment and investment strategies. The CEO emphasized the importance of reducing costs while still investing in client relationships, technology, and employee wellness. This balanced approach indicates the company's commitment to managing their finances effectively without compromising on crucial areas such as client satisfaction and employee well-being.

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The CEO's mention of being "pennywise and pound foolish" demonstrated the company's awareness of the potential risks of indiscriminate cost-cutting. Instead, they are making strategic decisions to optimize their spending, reflecting a thoughtful and calculated approach to cost containment.

Another interesting aspect discussed in the meeting was the company's decision to delay their all-company meeting until 2024. This decision, while recognizing the value of bringing people together, reflects the company's focus on cost containment and investment strategies. By allocating resources elsewhere, they aim to prioritize other areas of their business.

The CEO also highlighted the company's focus on winning every piece of business they can, leveraging their scale with Fannie Mae and Freddie Mac. This competitive mindset and drive to maximize market share indicate the company's determination to succeed.

Furthermore, the CEO acknowledged the challenges faced by the company in the multifamily property sales business, indicating that they are actively working on strategies to address this issue.

Overall, the meeting showcased Walker & Dunlop's proactive and strategic approach to managing their financial operations. Their focus on cost containment and investment strategies, emphasis on winning business, and acknowledgment of challenges in certain areas demonstrate their commitment to growth and adaptability.

In terms of the market outlook, Walker & Dunlop is focused on cost containment and reduction efforts while still investing in client relationships, technology, and employee wellness programs. They are actively traveling to maintain their company culture and are determined to win every piece of business possible, leveraging their scale with Fannie Mae and Freddie Mac. Although multifamily property sales volumes were down in Q1, the company expects their investment in valuations and broker opinions of value to pay off when transaction markets resume. They also anticipate their debt capital markets group to become more relevant due to the pullback by banks. However, finding financing for non-multifamily assets remains challenging. The company is closely working with HUD to deploy more capital and meet borrowers' needs.

The key drivers of Walker & Dunlop's business include servicing and asset management revenues, the performance of their property sales team, the success of their debt brokerage group, the liquidity provided by government-sponsored enterprises (GSEs), and their capital allocation strategy.

Looking ahead, the company plans to continue investing in client relationships, technology, and employees. They aim to win every piece of business possible, particularly with Fannie Mae and Freddie Mac. Additionally, they intend to leverage their market position and expertise in debt capital markets to capitalize on opportunities. The company also plans to generate valuations and broker opinions of value to prepare for when transaction markets resume. They will work closely with HUD to help deploy more capital and meet borrowers' needs, especially for multifamily construction loans. The company sees significant growth opportunities across the business when the market stabilizes.

In terms of the competitive landscape, brokers in the commercial real estate sector may face a lack of business due to issues in the office sector. As a result, they may turn to more resilient sectors like multifamily. Walker & Dunlop's national platform, with strong investment sales teams in every Metropolitan Statistical Area (MSA), gives them a competitive advantage.

During the meeting, the company's key performance indicators (KPIs) were discussed, including transaction volumes, adjusted EPS, and adjusted EBITDA. While the company experienced a significant drop of 47% in transaction volumes in Q1 compared to the previous year, they managed to achieve a growth of 10% in adjusted EPS and 9% in adjusted EBITDA. These KPIs indicate the company's ability to maintain profitability and financial performance even in challenging market conditions. The speaker also highlighted the importance of the company's core business model, which allows them to continue investing in clients, people, brand, and technology. The goal mentioned was to return to the type of growth and financial performance that investors expect from the company.

In terms of the company's outlook, Walker & Dunlop has a relatively positive view. They have a healthy cash position, are generating liquidity, and have confidence in their business model and management. They have routine communication with their large national banks and no concerns regarding overall liquidity. There are no indications of any significant issues or concerns for the company's outlook in the near term.

The participants of the call were Willy Walker, Chairman and CEO of Walker & Dunlop, and Greg Florkowski, Executive Vice President and Chief Financial Officer.

In conclusion, Walker & Dunlop faced challenges in the first quarter of 2023 due to uncertainty around interest rates and volatile market conditions. Despite these challenges, the company closed $6.7 billion of total transaction volume, with multifamily property sales volume outperforming the broader market decline. The Federal Reserve's tightening cycle was highlighted as a factor impacting the company's financial performance. Total revenue for Q1 was down 25%, and diluted earnings per share were down 63% compared to the same period in the previous year. However, the company's focus on cost containment, investment strategies, and their ability to adapt to market challenges demonstrate their proactive and strategic approach to managing their financial operations.