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How W&D Plans to Ride Out The Turmoil

BETHESDA, MD—The company is buying back about $75 million of its stock, for starters.

By Erika Morphy | erikamorphy | | Updated on February 12, 2016
Freddie Mac headquarters Freddie Mac headquarters
BETHESDA, MD—Walker & Dunlop reported its fourth quarter and fiscal year 2015 results with its year over year increases in income. For the quarter, net income rose 26% from same period the previous year, to $20.4 million. For the year, it rose by 60% to $82.1 million. The company also announced it would buy back about $75 million of its stock, a move that, generally speaking, has gotten a bad rap in this current cycle as it is perceived to be done largely to make the stock look more attractive to investors and fatten executives paychecks. W&D, though, appears to be old school on this. Another, more traditional reason companies might buy back a stock is to plow the proceeds back into operations. This is especially smart to do if management believes the stock is undervalued. While CEO Willy Walker didn’t discuss W&D’s current stock price (which was $19.66 per share after Thursday’s close; the stock has ranged between $15.87 and $33.17 per share for the last 52 weeks) during the company’s earnings call other than in the broadest of terms (“given the current sell-off in our stock…”) he did explain how the company will be using the proceeds. It will
  • Rebuild its interim loan portfolio to $400 million by the end of 2016.
  • Fund $50 million to $75 million in CBMS loans through its conduit, WDCPF.

A Bigger Opportunity The larger takeaway from the call, though, is that W&D sees the turmoil in the global equity markets  — and subsequent freeze in the CMBS market — as an opportunity to dig in even deeper in the CRE finance markets. The volatility is concerning, yes. But it also gives W&D more runway to expand. The GSEs, Walker noted, tend to do very well in this kind of environment because what investor wouldn’t want government-backed paper? W&D, it hardly needs to be said, has very strong origination platforms with Fannie Mae, Freddie Mac and HUD. “Our goal is to continue growing with the GSEs [and] gain market share,” Walker said. W&D’ newer programs are also gearing up in expectation of more activity. Life insurance, for instance, is expected to play a larger role in financing the quality deals. Last year, W&D’s capital markets group originated between $3 billion to $5 billion, mostly by brokering loans to life insurance companies and banks. This year, the company is aiming for the upper end of that $3 billion to $5 billion goal in expectation of maturing loans and fewer capital sources to refi them. Walker also expects an uptick in the company’s HUD business for much the same reason he expects borrowers to flock to the GSEs this year. HUD’s construction program, in particular, will likely attract borrowers, especially as construction finance is expected to contract. Construction loans will be a significant portion of W&D’s HUD production this year, Walker predicted.

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