Image source: Walker & Dunlop.
Commercial real estate projects typically need financing, and Walker & Dunlop (WD 0.10%) has jumped into the world of real estate finance to meet immense demand for funding.
Coming into Wednesday's third-quarter financial report, Walker & Dunlop investors had some doubts about whether the company would be able to sustain its earnings growth. Yet its results put those fears to rest, as the real estate financing specialist took full advantage of opportunities throughout the industry to produce impressive growth. Let's look more closely at how Walker & Dunlop fared last quarter and what's ahead for the real estate company.
Walker & Dunlop builds a solid foundation
Walker & Dunlop's third-quarter results were impressive. Revenue of $120.8 million was up 23% from the year-earlier quarter and marked a new all-time high for the company, more than tripling the expected 7% growth rate from those following the stock. Net income climbed by more than a third to $20.3 million, and that translated into earnings of $0.66 per share, almost $0.20 better than the consensus forecast among investors.
Looking more closely at Walker & Dunlop's numbers, the health of the commercial real estate industry was evident from the company's 58% surge in transaction volume to $4.9 billion, with lending with government-sponsored enterprises Fannie Mae (FNMA 1.37%) and Freddie Mac (FMCC 1.10%) climbing 13%. Loan origination volume climbed 32%, with the company seeing record volume in brokered loan originations. Mortgage banking gains rose 12% to $70.8 million, with most of the growth within that arena coming from gains on mortgage servicing rights. Servicing fees climbed at a 17% pace to $29.3 million, and net warehouse interest income jumped 36% to $6.9 million. Climbing investment sales volume, prepayment fees, and assumption fees also helped boost revenue.
On the expense side, Walker & Dunlop held cost growth down to 19%, with much of the climb coming from rising labor costs related to its healthier transaction volume. Servicing-rights write-offs climbed due to rising loan prepayments, but operating margins nevertheless climbed by 3 percentage points to 28% compared to the previous year's third quarter.
CEO and Chairman Willy Walker was pleased with overall results. "Walker & Dunlop is benefiting from the wave of commercial real-estate financing and the heightened volume of commercial real estate investment taking place today," Walker said. The executive highlighted the rise of the multifamily residential market, where outstanding debt topped the $1 trillion mark for the first time ever, as having particularly high potential.
What's ahead for Walker & Dunlop?
Walker has high hopes for the company going forward. "We head toward 2016 with considerable macroeconomic tailwinds, one of the very best teams in the industry, and a proven track record of growth both organically and through acquisition," Walker said.
The size of Walker & Dunlop's portfolios has grown extensively, showing the number of opportunities that the company sees in the current market. The real estate financing specialist's servicing portfolio in particular grew to $47.8 billion, with average servicing fees of a quarter-percent driving fee growth as the company added $6.6 billion in net loans over the past year.
At the same time, credit quality has remained strong. Walker & Dunlop reported no 60-day delinquencies as of the end of the quarter, and it had no net write-offs in its at-risk servicing portfolio. The company set aside just $100,000 in its loan-loss provision during the quarter.
Walker & Dunlop investors were ecstatic about the results, sending the stock up more than 10% within hours after the announcement. Given the current state of the real estate market, Walker & Dunlop looks to be riding high and could continue to capitalize on strong conditions as long as they last.
