Real estate has been a hot commodity in recent years, and strength in the commercial real estate market has made it necessary for buyers to get the financing and related services that they need in order to make smart acquisitions. Walker & Dunlop (WD +0.98%) has done a great job of positioning itself to take full advantage of the lucrative opportunities in real estate right now, with its focus on commercial and multifamily properties helping it tune into the favorable trends in the industry.
Coming into Wednesday's third-quarter financial report, Walker & Dunlop investors were prepared to see a pause in the company's bottom-line growth, but they still wanted signs that the company was moving forward with its long-term growth plans. Walker & Dunlop didn't disappoint, and better earnings than many had expected were icing on the cake in light of continued optimism about the future. Let's take a closer look at Walker & Dunlop to see why its latest results are reason to celebrate.
Image source: Walker & Dunlop.
Walker & Dunlop moves higher
Walker & Dunlop's third-quarter results reflected the favorable conditions in the industry. Revenue jumped 16% to $179.7 million, setting a new record and doubling the 8% growth rate that most of those following the stock had expected to see. Net income growth also accelerated to 16%, producing $34.4 million in earnings that translated to $1.06 per share. That figure was well above the consensus forecast among investors for $0.97 per share.
Walker & Dunlop continued to expand its business at a breakneck pace. Total transaction volume jumped 70% from the previous year's quarter to $8.5 billion, with a nearly 80% jump in loan originations driving the company's overall growth. The biggest influences in the loan business were huge jumps in volume from Freddie Mac and from brokered transactions, which tripled and doubled from year-earlier levels, respectively. The gains were enough to offset double-digit percentage declines in loan volume from key industry player Fannie Mae as well as from Ginnie Mae loans tied to the Department of Housing and Urban Development. The company attributed the gains to a substantial boost in the number of mortgage bankers and brokers it has on staff, as well as continued strength in the commercial and multifamily real estate markets and low interest rates. Investment-related sales also climbed due to strong demand in the market. Loan origination fees were up 15% over the past year.
Walker & Dunlop's mortgage servicing portfolio also kept growing. Total assets soared 19% year over year to $70.28 billion, with the largest gains coming on loans from Fannie Mae and Freddie Mac. Servicing success ties back to Walker & Dunlop's loan originations, because the financing company retains servicing rights on many of its assets. Weighted average maturities shortened somewhat, but less than 5% of its loans from Fannie Mae and Freddie Mac are scheduled to mature in the next 15 months. Servicing fees jumped more than 20%, making the unit the biggest contributor to revenue growth in percentage terms. Ancillary revenue from escrow earnings and interest income almost doubled from the previous year's quarter, reflecting gains in transaction counts.
Can Walker & Dunlop keep up the pace?
CEO Willy Walker couldn't have been happier with how things have gone. "Our third quarter financial results reflect continued success toward achieving our mission," Walker said, "to build the premier commercial real estate financial company in the United States."
The CEO also sees reason for optimism. "Given the fundamentals underlying commercial real estate, the demographic trends supporting multifamily housing, and Walker & Dunlop's consistent growth and financial performance," Walker stated, "we expect the momentum we have gained this year to continue into 2018."
There was just one reason for investors to have concerns about the future: Walker & Dunlop reported a 60-day delinquency provision for the first time in a long while. Still, with a single loan representing just $6 million in exposure, overreacting to the news wouldn't make sense.
With so much strength in the real estate market broadly, it was important for Walker & Dunlop to keep up the pace. These results show the long-term potential for the commercial and multifamily real estate financing and services specialist, and even as conditions in the market change, Walker & Dunlop has the capacity to adapt and keep serving its customers well far into the future.
