Walker & Dunlop, Inc. (NYSE:WD) This fall 2022 Earnings Convention Name February 21, 2023 8:30 AM ET
Firm Individuals
Kelsey Duffey – Senior Vice President of Investor Relations
Willy Walker – Chairman and Chief Government Officer
Greg Florkowski – Government Vice President and Chief Monetary Officer
Convention Name Individuals
Jade Rahmani – KBW
Jay McCanless – Wedbush Securities
Kelsey Duffey
Good morning, I’m Kelsey Duffey, Senior Vice President of Investor Relations at Walker & Dunlop, and I wish to welcome you to Walker & Dunlop’s Fourth Quarter and Full-Yr 2022 Earnings Convention Name and Webcast.
Internet hosting the decision at the moment is Willy Walker, Walker & Dunlop Chairman and CEO. He’s joined by Greg Florkowski, Government Vice President & CFO. As we speak’s webcast is being recorded, and a replay will probably be obtainable through webcast on the Investor Relations part of our web site.
This morning, we posted our earnings launch and presentation to the Investor Relations part of our web site, www.walkerdunlop.com. These slides function a reference level for a few of what Willy and Greg will contact on in the course of the name.
Please additionally observe that we are going to reference the non-GAAP monetary metrics, adjusted EBITDA and adjusted core EPS, in the course of the course of this name. Please confer with the appendix of the earnings presentation for a reconciliation of those non-GAAP monetary metrics. Buyers are urged to rigorously learn the forward-looking statements language in our earnings launch. Statements made on this name which aren’t historic details could also be deemed forward-looking statements inside the which means of the Personal Securities Litigation Reform Act of 1995.
Ahead-looking statements describe our present expectations, and precise outcomes could differ materially. Walker & Dunlop is underneath no obligation to replace or alter our forward-looking statements whether or not on account of new data, future occasions, or in any other case and we expressly disclaim any obligation to take action. Extra detailed details about danger components may be present in our annual and quarterly studies filed with the SEC.
I’ll now flip the decision over to Willy.
Willy Walker
Thanks, Kelsey, and good morning, everybody. 2022 was a difficult yr for the debt markets, business actual property trade, and Walker & Dunlop. Since going public in 2010, now we have generated excellent shareholder returns of over 800%. But in 2022, not solely was our inventory worth down precipitously, however we didn’t obtain our annual monetary targets. Whereas the Federal Reserve elevating rates of interest by 425 foundation factors, is the direct cause for the business actual property financing and gross sales markets falling aside. We take full accountability for our 2022 efficiency.
On this earnings name final yr, we outlined important development for Walker & Dunlop, not figuring out the extent of the dramatic of the Federal Reserve’s tightening plan. And because the fee hikes acquired extra constant and important, the business actual property transaction market slowed down dramatically. We closed $11.2 billion of whole transaction quantity in This fall, down 59% from This fall of 2021, producing whole revenues of $283 million, down 31% from This fall of 2021.
Diluted earnings per share was $1.24, down 49% from the earlier yr, reflective of the dramatic deceleration in capital markets exercise we noticed within the again half of the yr. Full-year debt financing and gross sales quantity was $63 billion, down solely 7% year-over-year, producing revenues of $1.3 billion flat from 2021. Full-year diluted earnings per share was $6.36, down 22% from 2021, primarily attributable to important declines in mortgage servicing rights from our Fannie Mae and HUD mortgage originations.
The dramatic drop in MSR revenues was attributable to pricing with Fannie Mae and general lending volumes with HUD. The rising rate of interest surroundings in Q3 and This fall pressured us to regulate pricing on our Fannie Mae loans to make offers work for our purchasers, which resulted in decrease assure charges for Fannie Mae and decrease servicing charges for Walker & Dunlop. To grasp the magnitude of this price compression, had our 2022 Fannie Mae mortgage originations been completed with 2021 common servicing charges it will have added over $2 of diluted earnings per share on the yr, a 31% improve general reported earnings per share.
Because the Fed slows the tempo of tightening and charges stabilize, we anticipate servicing charges to revert to historic profitability ranges. Our This fall HUD quantity of $187 million was nicely under price range. And whereas we completed the yr because the quantity two HUD lender $1.1 billion of mortgage originations was lower than 50% of our annual price range expectation. HUD has loads of capital significantly for multifamily development loans. However till HUD modifies their lending applications to be extra market aggressive, deploying their capital will proceed to be difficult.
Even with the decreased profitability in Fannie and dramatically decrease volumes with HUD, our scaled lending partnerships with Fannie Mae and Freddie Mac confirmed their worth within the third and fourth quarters. Floating fee loans had been in excessive demand in This fall within the space of the market Freddie Mac dominates and we closed $2.3 billion of Freddie loans, up 49% year-over-year. Our Freddie Mac originations totaled $6.3 billion for the yr, making W&D the third largest Freddie Mac Optigo lender, up one place within the lead tables.
As I start to speak about our Fannie Mae volumes, we’ll run a graphic produced by CoStar that exhibits Walker & Dunlop’s unimaginable market share good points with Fannie Mae over the previous 5 years. Our This fall quantity with Fannie Mae was solely $995 million, attributable to Freddie Mac’s competitiveness. Our full-year 2022 Fannie Mae quantity of $10 billion introduced us to 16.5% market share, an all-time excessive and solidified our rating because the primary Fannie Mae DUS lender for the fourth consecutive yr.
Our Fannie Mae lending volumes have persistently grown as this chart clearly demonstrates and now we have taken important market share from the competitors over the previous 5 years. We ended the yr with mixed GSE market share of 12.7% making us the most important GSE lender within the nation for 2022, one thing now we have by no means completed earlier than. This scale with the 2 largest suppliers of capital to the multifamily trade can pay important advantages to Walker & Dunlop and our purchasers in 2023 and past.
As giant banks CMBS lenders, debt funds and life insurance coverage corporations step again from the market in This fall, our capital markets group had a stable quarter closing $4.4 billion in financing quantity. Whereas this quantity was off 66% from This fall of 2021, it was an accomplishment given general market volatility and lack of liquidity. On the yr, our debt brokerage quantity totaled $25.9 billion, a lower of 13% from 2021, when capital was free and debt funds had been lending on any asset they might discover.
This fall multifamily property gross sales quantity of $3.3 billion was equally down 64% year-over -year, however $3.3 billion was nonetheless wholesome quantity in the course of the quarter. Our full-year 2022 gross sales quantity was $19.7 billion, up 2% from 2021 in a market that was off 17%. As this slide exhibits on institutional measurement multifamily gross sales, W&D grew market share from 7.8% in 2021 to 10.2% in 2022.
Have a look at the precipitous fall with a few of our largest rivals on this slide. W&D, which solely entered this market in 2015, is firmly within the combine to have the most important multifamily gross sales platform within the nation. The Mortgage Bankers Affiliation lately launched their business actual property finance forecast, which as you may see on this slide, initiatives the 2023 multifamily financing market to say no 16% to $384 billion and the full business actual property finance market to be down 15% to $684 billion.
Freddie Mac’s 2023 multifamily market estimate is bigger at $440 billion, a market of this measurement with the GSEs taking part in an outsized position presents an enormous alternative for Walker & Dunlop to develop volumes and seize market share. And seeking to 2024, the MBA estimates that multifamily origination volumes grew 26% to $486 billion and whole CRE originations grew 32% to $906 billion. These estimates are compelling and simply as Walker & Dunlop outperformed in the course of the nice monetary disaster and COVID pandemic, our group, model and know-how ought to outperform as soon as once more.
A lot of our competitor companies have introduced layoffs. We assume that charges stabilize in 2023 and financing and gross sales actions improve within the again half of the yr. So we’re holding on to our complete group for the next causes. First, we’re a particularly environment friendly firm. As you may see on the left-hand facet of this slide, our income per worker is dramatically greater than the competitors at proper round $1 million per worker. As the center graph exhibits, our effectivity ratio outlined as SG&A expense as a share of whole revenues is dramatically higher than the competitors. Lastly, as you may see on the right-hand graph, our adjusted EBITDA margin is on the high-end of the peer set by a big margin.
Second, now we have licenses to entry countercyclical capital from Fannie Mae, Freddie Mac and HUD and obtain file market share with the GSEs in 2022. Third, we’re distinctive with credit score and solely take danger on multifamily properties. We’ve got seen no credit score degradation in our at-risk mortgage servicing portfolio and with a median debt service protection ratio of over 2 instances and no credit score danger by any means on workplace buildings nor development loans, we really feel excellent from a credit score perspective.
Fourth, now we have sturdy long-term income streams from our $123 billion servicing portfolio and $17 billion asset administration enterprise. This fall servicing revenues had been $77 million and topped $300 million for all of 2022. Added to that servicing income was escrow revenue of $53 million, which began the yr at $2 million in Q1 and grew to $26 million by This fall.
Throughout the fourth quarter, money revenues from mortgage originations, property gross sales, servicing and asset administration and escrows drove adjusted EBITDA to $93 million bringing full-year EBITDA to $325 million, up 5% over the earlier yr. The power in EBITDA is reflective of the enterprise mannequin now we have constructed and clearly differentiates W&D from a few of our extra transaction centered rivals.
Lastly, we’re a terrific place to work. A designation earned for eight of the final 11 years and have a historical past of zigging when others zag. We grew in the course of the nice monetary disaster and had been the primary mortgage firm to go public after the good monetary disaster in December of 2010. And our monetary efficiency in the course of the pandemic wildly outperformed, permitting us to make three main acquisitions in 2021 and 2022 which might be driving our future development at the moment.
For these 5 causes, we see nice alternative for development over the approaching years. The present market circumstances require motion. And as Greg will define in a second, now we have reduce prices to enhance profitability. We reduce bills, eradicated important discretionary spending and will not be backfilling positions. And since our 2022 efficiency fell shy of our annual price range, we didn’t absolutely fund our bonus pool. We funded the overall worker bonus pool on the highest degree potential, making an allowance for inflationary pressures and the tight labor markets. And reduce the senior government bonus pool dramatically to perform this. The senior government group was eligible for 50% bonuses attributable to assembly targets similar to adjusted EBITDA and solely obtained 25% bonuses so as to add funding to the overall pool.
As I stated initially, our 2022 efficiency was unacceptable and the senior administration group is accountable and accountable for it. Whereas the capital markets proceed to evolve every day with our group in place and expectations for a extra secure market within the second half of 2023, we’re assured we are able to meet our 2023 monetary targets and return to the expansion that W&D traders have come to anticipate from us.
I’ll now flip the decision over to Greg to debate our This fall and full-year monetary efficiency together with 2023 steering, after which I will come again with how we plan to execute in 2023 and past. Greg?
Greg Florkowski
Thanks, Willy, and good morning, everybody. Our $11.2 billion of fourth quarter transaction quantity generated whole revenues of $283 million, down 31% from the identical quarter final yr and diluted earnings per share of $1.24, down 49%, in comparison with final yr.
Because of the difficult fourth quarter market dynamics Willy simply described and the related impacts on our deal degree profitability, our working margin and return on fairness stay under our goal ranges at 17 % and 10% respectively. We proceed to generate sturdy and rising money revenues from our servicing and asset administration companies and profit from the variable nature of our compensation construction when transaction volumes decline.
Consequently, adjusted EBITDA was $93 million, down solely 16% from the identical quarter final yr regardless of a 59% year-over-year decline in whole transaction volumes. Notably, latest acquisitions Alliant and Zelman contributed $42 million of revenues this quarter and over $130 million of primarily money revenues this yr. Highlighting the steadiness of these two companies and the worth of these latest investments.
We additionally proceed to profit from earnings on our escrow deposits, that are tied to short-term charges and grew dramatically all year long, growing to $26 million in This fall, up from simply $2 million a yr in the past.
Coming into 2022, we had been assured that our investments in folks, model and know-how together with a robust and constant shopper base and a secure rate of interest surroundings would permit us to proceed rising revenues, diluted EPS and adjusted EBITDA by double-digits and ship a excessive 20% working margin and excessive teenagers to low 20% return on fairness. Our outperformance in the course of the first half of the yr supported that confidence, however the unprecedented actions in rates of interest and related impacts on liquidity, provide to business actual property introduced on a steep decline in transaction volumes and non-cash MSR margins all through the second half of the yr and we didn’t meet our targets.
Prime line outcomes stay wholesome with whole transaction quantity of $63 billion, down solely 7% and whole revenues of $1.3 billion flat in comparison with 2021. And we generated $325 million in adjusted EBITDA, up 5% over the prior yr. Nonetheless, diluted earnings per share ended the yr at $6.36, down 22%, in comparison with final yr and annual return on fairness and working margin had been 13% and 21% respectively, additionally under our targets.
As business actual property transaction exercise fell during the last a number of months, we evaluated our enterprise wants in working mannequin and made changes. Throughout the fourth quarter, we terminated nearly all of our short-term employment contracts, stopped backfilling positions and dramatically lowered growth-related hiring. And in consequence, our headcount has steadily declined since October. We additionally look carefully at discretionary spending and lowered journey and leisure, terminated a number of third-party service contracts, and renegotiated a handful of leases throughout the nation. We incurred minimal prices within the fourth quarter in reference to these selections. And in whole lowered the run fee of personnel and controllable basic and administrative bills by greater than $15 million.
Paying on bills, I need to spend a couple of minutes on one other adjustment made in the course of the fourth quarter. As a reminder, the acquisitions of GeoPhy and Alliant had been structured with earn outs tied to efficiency milestone. To-date, Alliant has achieved $36 million of its $100 million earn out forward of our expectations, whereas GeoPhy has not but achieved any of its $205 million earn out. We’re required to revalue our earn out liabilities quarterly and in the course of the fourth quarter, we acknowledged a web discount of $13 million to the opposite bills line merchandise related to these revaluations.
The Alliant group continues to carry out above our expectations and is nicely on observe to attaining the total earn out. Transportable housing on this nation is entrance and heart. And we really feel excellent about that acquisition and the combination of Alliant in solely our first yr collectively. And we incurred an expense of $5 million related to the revaluation of this earn out.
With respect to GeoPhy, we align the earn out milestones with the expansion of two rising companies, small stability lending and appraiser. Whereas each companies grew revenues in 2022, the expansion was lower than our expectations after we structured the earnouts as a result of we didn’t anticipate the financial disruption that started final summer season. Subsequently, we lowered the carrying worth of the GeoPhy earn out legal responsibility by $18 million. We see alternative for development in 2023 as we proceed to seize market share within the small stability lending and appraisal sectors and we stay centered on scaling each companies towards our drive to 25 targets, which might additionally allow GeoPhy to realize the total worth of the earnout.
We’ll proceed to revalue each earnouts periodically and anticipate to make additional analysis changes as we true up precise efficiency to our estimates over the subsequent a number of years. In 2022, we launched phase monetary outcomes to supply additional perception and transparency into our working construction and monetary efficiency.
As proven on slide 11, our capital markets phase which incorporates our transaction associated companies. Excuse me, contains our transaction associated companies. Transaction volumes for 2022 had been down 7%, in comparison with final yr producing $709 million of revenues, down 20%. Revenues declined extra steeply than transaction volumes, due primarily to tighter servicing charges on new Fannie Mae loans, inflicting a 33% decline in non-cash MSR revenues.
Servicing price margin on new loans stay under historic ranges to start out 2023. And though multi-family lending demand stays robust, significantly with the GSEs, liquidity and transaction volumes supporting different asset courses confronted headwinds in 2023. And we face difficult year-over-year comps for the subsequent two quarters.
Now stated a little bit greater than 60% of compensation prices for this phase are variable, mitigating anticipated declines in transaction associated revenues. Importantly, now we have established a group with a observe file of executing for our purchasers via tough circumstances and we consider within the long-term outlook of the business actual property sector. As Willy said, this group has captured market share and delivered immense worth to our purchasers via unprecedented volatility. We’ll proceed making investments to maintain this group intact and stay centered on attaining our long-term drive to 25 targets of $65 billion of debt financing volumes and $25 billion of property gross sales quantity. Our SAM phase contains the efficiency of our servicing actions and asset administration companies.
Turning to slip 11, we ended the quarter — slide 12, we ended the quarter with $123 billion servicing portfolio, $17 billion of belongings underneath administration and $2.7 billion of escrow balances, producing full-year revenues of $507 million, up 34 %. With quick -term charges anticipated to stay excessive, we’ll proceed to see will increase in our escrow and different curiosity revenue, which grew from $8 million in 2021 to $51 million in 2022.
Given the present fee outlook, we anticipate to generate between $120 million and $130 million of escrow and different curiosity revenue in 2023. Greater than double our curiosity earnings in 2022. Additionally included in our SAM phase is the affect of forecasted losses on our at-risk portfolio, which was a web advantage of $14 million in 2022, as we up to date our loss forecast and unwound the remaining pandemic associated reserves.
Our at-risk portfolio stays extremely wholesome. We common lower than 1 foundation level of losses during the last three years. The typical debt service protection ratio in our portfolio is over 2 instances and we held solely 7 foundation factors of delinquent loans in our portfolio on December thirty first. We maintain credit score publicity solely on multi-family loans and the asset class continues to carry out exceptionally nicely. We’ll replace the historic loss fee utilized in our loss forecast once more Q1 2023 simply as we did in Q1 final yr. Our loss forecast will ponder the financial headwinds we face.
However we’re additionally updating the historic loss fee with one other yr of close to zero mortgage losses and anticipate recognizing a profit simply as we did a yr in the past after we up to date our loss forecast. Our company phase represents the company G&A of our enterprise, which incorporates nearly all of our fastened overhead bills and our company debt expense. In 2022, the company phase included a 1-time acquire acknowledged within the first quarter of $40 million ensuing from the GeoPhy acquisition and a tax advantage of $6 million acknowledged within the third quarter after we restructured our company group chart and repatriated sure belongings acquired from GeoPhy.
These two gadgets generated over $1 of diluted EPS and won’t be repeated in 2023. One of many major drivers of bills inside the phase is curiosity expense on our company debt. On this quarter, we up to date our phase reporting to allocate company debt expense to supply a greater reflection of the efficiency of every phase. This yr, curiosity expense totaled $34 million, up $8 million in 2021, up from $8 million in 2021, attributable to a rise in debt assist our acquisition of Alliant and the dramatic will increase in short-term charges during the last yr.
In January, we elevated the dimensions of our time period mortgage by $200 million to $795 million and used $116 million of the proceeds to pay down debt assumed within the Alliant acquisition. A barely greater debt stability and a full-year of upper short-term charges will lead to continued development in curiosity expense in 2023. Nonetheless, we raised roughly $80 million of strategic capital from the debt upsized and eradicated roughly $25 million in necessary annual principal pay downs by paying off the Alliant debt, creating larger capital flexibility.
Importantly, as proven on slide 13, our debt to adjusted EBITDA ratio at December 31 was 2.2 instances and the $120 million to $130 million of escrow and different curiosity revenue anticipated from our escrow balances in 2023 is greater than offset the elevated price of borrow. As we sit up for 2023, we do not have a crystal ball, however we’re planning for short-term charges to stay at or above present ranges all yr. Consequently, we’re managing our enterprise with the expectation that transaction exercise within the first half of this yr will probably be slower than the identical interval final yr. However return to development within the second half of the yr.
We’re planning for servicing charges on new Fannie Mae lending to stay under historic ranges till late in 2023. Underneath this state of affairs, we anticipate diluted EPS to be flat in 2023 because the 1-time acquisition associated revenues I discussed earlier are changed with greater money pushed servicing and escrow revenues. That in flip will drive our capability to ship double-digit development in adjusted EBITDA this yr. We additionally anticipate working margins to stay within the low 20% vary and ROE to stay within the low teenagers till transaction exercise and servicing charges on new loans normalize.
As we built-in latest acquisitions this yr and handled the impacts of an unprecedented evolving macroeconomic surroundings, we felt that core efficiency of Walker & Dunlop’s enterprise mannequin was being overshadowed. Subsequently, we’re introducing a brand new metric known as adjusted core EPS, which higher displays the working efficiency of our enterprise by eliminating giant swings that may happen from non-cash MSR revenues and bills and 1 time acquisition associated revenues in our non-revaluation adjustment.
As proven on slide 15, adjusted core EPS eliminates variations between precise and estimated credit score losses, removes the impacts of each amortization and depreciation and non-cash MSR revenues, and removes the affect of earn out in different acquisition-related revenues and bills. Additionally included on this slide is a glance again on the pattern in adjusted core EPS during the last three years. Though adjusted core EPS fell simply over 10% in 2022, that decline was largely pushed by the general decline in transaction volumes and associated revenues.
For 2023, we anticipate to develop adjusted core EPS by double-digits, largely on the continued development in servicing, asset administration and escrow associated revenues. We’ll proceed to share updates and steering on this metric within the coming quarters and years as we expect it gives traders with a clear view into the general well being of our enterprise.
Turning briefly to capital allocation in 2023. We ended the yr with $226 million of money earlier than closing our debt refinanced in January. Our money at all times decreases seasonally within the first quarter as we pay annual subjective and efficiency associated bonuses and settle our annual tax liabilities. Our enterprise will proceed to generate robust money movement in 2023 and now we have the monetary flexibility to prioritize investing capital again into the enterprise carefully with returning capital to shareholders.
Yesterday, our Board of Administrators authorised a quarterly dividend of $0.63 per share, a 5% improve and licensed the 75 million share repurchase program. That is our fifth annual dividend improve since we initiated the dividend in February 2018 at $0.25 per share. And represents a cumulative improve of 152% during the last 5 years. Our outlook for 2023 and anticipated double-digit development in adjusted EBITDA provides us confidence to extend the dividend but once more, whereas nonetheless retaining capital to assist the enterprise.
We entered 2023 with conviction that now we have the appropriate group in place and a model that continues to realize market share. We’re centered on leveraging know-how to create working efficiencies and scale rising companies for the long-term. We even have an skilled administration group that has handled market disruptions and recessions and never solely prevailed, however grown. Our enterprise mannequin is diversified because of the strategic investments we revamped the previous few years and sturdy attributable to our servicing portfolio that has steadily grown over time. Publish price administration mixed with our regular money movement era will permit us to climate the present storm and emerge voice for development.
Most significantly, we stay centered on investing in our enterprise to realize our long-term drive to 25 targets and delivering returns for our shareholders. Thanks for becoming a member of us this morning and on your continued confidence in Walker & Dunlop.
I will now flip the decision again over to Willy.
Willy Walker
Thanks, Greg. Not often it ever has forecasting for our enterprise and the broader financial system been tougher. On one hand multi-family fundamentals are extraordinarily robust. The general public multifamily REITs, who’ve already reported present stable development in rents and compressing cap charges to start out the yr. With over 80% of Walker & Dunlop revenues coming from the multifamily trade and 100% of our credit score danger being on multifamily properties, we really feel nice about our market positioning. And because the largest GSE lender within the nation, we really feel extraordinarily good about our entry to capital to fulfill our purchasers’ borrowing wants.
And but after watching the Federal Reserve successive 75 foundation level fee hikes within the again half of 2022 actually sees the financing and gross sales markets. It is exceedingly tough to foretell when transaction volumes will return to a normalized tempo. There are many information factors to offer us optimism. On the Nationwide Multifamily Housing Council’s Annual Convention in Las Vegas three weeks in the past, the subject of debate was when rates of interest and cap charges stabilize to permit traders to transact once more and never misery. Considered one of Walker & Dunlop’s largest warehouse lenders, a Citibank, that halted all CRE lending within the again half of 2022, simply provided to develop the dimensions of our warehouse line and ask us to take down our unused capability.
And many of the lenders on the Mortgage Bankers Affiliation Annual Convention final week had been seeking to lend extra on business actual property in 2023 than they did in 2022. And eventually, the Federal Reserve’s 25 foundation level fee hike earlier this month was nicely obtained by the market, and prompted an uptick in transaction volumes. But readability on whether or not the Fed raises 2 or 3 extra instances and by how a lot is conserving loads of traders on the sidelines till they know the cap fee they’re shopping for or financing they’re utilizing is correctly priced.
So we preserve focusing at Walker & Dunlop on the issues we management, assembly our purchasers’ wants, investing in new companies and know-how, minding our bills, and sustaining a unprecedented group of pros. And because of the power of our enterprise mannequin and recurring revenues, we are able to afford to do that to additional lengthen our aggressive benefit within the market. We’re nonetheless assured in attaining our five-year strategic plan known as the Drive 25. Hitting the $65 billion debt financing objective will probably be difficult. We’ll both have to considerably outperform the market with the group now we have in place at the moment as now we have a observe file of doing or add to our group via acquisitions as we even have a observe file of doing.
To place numbers to this, to realize our $65 billion goal, we might want to develop originations at a 14% compound annual development fee over the subsequent three years, which is considerably decrease than our 10-year compound annual development fee of 20%. Our property gross sales quantity goal is $25 billion and having simply bought underneath $20 billion final yr, we’re very assured in attaining this goal. Our funding gross sales group expanded volumes by 2% in a market that contracted by 17% final yr. And this distinctive group has the chance to not solely exceed our 2025 objective, however develop into different asset courses, similar to industrial, retail, workplace and hospitality gross sales. And all of this development, whether or not in multifamily or new asset courses, will drive incremental debt and fairness financing to Walker & Dunlop.
Our servicing portfolio will develop to over $160 billion, if we obtain our debt financing targets. And our asset administration enterprise already exceeds its drive to 25 objective of $10 billion. Revisiting the SAM phase slide Greg simply walked via, each servicing and asset administration confirmed great worth in 2022, and we’ll proceed to take action going ahead. It’s due to W&D’s enterprise mannequin and the expansion of our servicing and asset administration companies, that we had annual transaction volumes fall 7% and but held revenues flat and noticed a 5% development in EBITDA.
Past our scaled financing, property gross sales, servicing and asset administration companies, we proceed to spend money on our rising companies and know-how. Our proprietary lung database galaxy is uncovering data-driven financing and gross sales alternatives that our competitors is not discovering. And our know-how enabled small stability lending and appraisal companies proceed to realize market share and can start contributing significant revenues at greater margins over the subsequent three years. Precisely as we did with our debt and property brokerage companies, we’ll scale small stability lending and value determinations to over $100 million in annual revenues with each being primarily powered by know-how.
Lastly, our investments in Zelman, Alliant and GeoPhy are driving development in new areas. Zelman’s analysis is extraordinarily sticky and exceeded its annual price range in 20 22. Alliant additionally exceeded its annual price range, drove important development in Walker & Dunlop’s reasonably priced lending enterprise, and helped us recruit an distinctive reasonably priced gross sales group. And whereas the GeoPhy earn out is targeted on the expansion and profitability of our small stability lending and appraisal companies, having the technological capabilities of GeoPhy inside W&D is reworking know-how throughout the corporate.
2022 was a difficult yr and I am extraordinarily pleased with the customer support, execution and teamwork at W&D. And but even within the context of the Fed elevating charges by 425 foundation factors and the market seizing, W&D held revenues flat grew adjusted EBITDA by 5% and gained important market share in each financing and gross sales. These are big accomplishments, due to our group and enterprise mannequin.
2023 will definitely have its share of challenges, however W&D does nicely when issues get exhausting. Our tradition shines, our enterprise mannequin exhibits its power, our entry to countercyclical capital turns into a much bigger aggressive benefit and our capability to spend money on our folks, model and know-how drives us ahead, whereas the competitors steps again. Cash has worth as soon as once more and because the markets alter to the brand new price of capital and asset values, whereas [Indiscernible] will probably be there to assist our purchasers and proceed rising.
Many due to everybody on your time this morning. I’ll now flip the decision over to Kelsey to open the road for any questions.
Query-and-Reply Session
Operator
The road is now open for questions. [Operator Instructions] Our first query is coming from Jade Rahmani of KBW. Jade?
Jade Rahmani
Are you able to hear me?
Willy Walker
We will, Jade.
Jade Rahmani
Hey, how’s it going?
Willy Walker
Nice.
Jade Rahmani
Thanks a lot on your feedback. Simply on the Fannie Mae facet, that was one of many foremost variances for the draw back versus our estimate. Are you able to touch upon the outlook for that enterprise line? Specifically, traditionally WDs had extraordinarily robust market share with Fannie Mae, a really high-quality observe file with the corporate. And I do know that in my conversations with the trade, the GSEs are very centered on mission-driven housing — reasonably priced housing. So the place does WD’s enterprise mannequin match inside that? And are you assured that Fannie Mae originations specifically will choose up as we transfer later within the yr? Thanks.
Willy Walker
Positive, Jade. Nicely, as I hope that slide that we put up there, the CoStar produced, it is a fairly dramatic slide because it pertains to the expansion in W&D’s volumes with Fannie Mae during the last 5 years. As not solely we moved into the primary place, however then we moved additional to the appropriate and gained a variety of quantity, a variety of our competitor companies moved to the left and in some situations fell off the chart.
The businesses are there to supply liquidity when the market dislocates, which is the place we’re at the moment. And they’re doing that. And so from an general quantity standpoint, I do not suppose now we have any doubt that we are going to proceed to be on the very high of the lead tables and proceed to do an amazing quantity of quantity with Fannie Mae. As Greg and I each underscored, servicing charges have been underneath stress attributable to pricing out there. It’s our very robust conviction that when charges stabilize and cap charges stabilize, we are able to get again to historic pricing on servicing charges. However till we get again to that second, each deal in a rising fee surroundings goes to be underneath stress from a pricing standpoint. And subsequently we’re going to be underneath stress to lowering these charges simply as Fannie is lowering their GP to have the ability to win enterprise.
The ultimate piece is the concentrate on affordability and mission. In case you look within the Fannie Mae press launch that introduced that Walker & Dunlop was largest DUS lender in 2022, it additionally breaks out in that press launch the varied, if you’ll, subgroups of reasonably priced housing, manufactured housing, seniors housing, [Li-Tech] (ph) housing, et cetera, et cetera, and also you take a look at these lead tables, you may see very clearly Jade that Walker & Dunlop is true there because it pertains to the specialty merchandise and being excessive within the lead tables with Fannie Mae on these areas of the enterprise which might be mission pushed and are crucial to them hitting their scorecard.
And the ultimate piece I would say is we have solely had a lion within Walker & Dunlop for a yr. A lion had an distinctive yr in 2022 and Greg underscored their monetary efficiency in his feedback. Our continued development within the reasonably priced housing house as a tax credit score syndicator as a lender of debt, as an fairness razor after which deployer is tremendous, tremendous useful. To us rising and having, if you’ll, the synergies between our core present enterprise pre-Alliant acquisition to the place we’re at the moment post-Alliant acquisition and integration.
Jade Rahmani
Nice. So simply to substantiate, it feels like you have no issues when it comes to a shift happening at Fannie Mae with respect to their concentrate on reasonably priced that’s — that has a detrimental affect on W&D?
Willy Walker
No.
Jade Rahmani
Nice. Second query could be the credit score efficiency. I imply, it is astonishing to me how good the efficiency is. You famous common debt service protection ratio after which danger sharing guide at over 2 instances. I feel that even defaulted loans with a really, very minimal lower. So what are you seeing on the credit score facet? And particularly as multifamily loans come up for compensation particularly floating fee loans? What do you anticipate to occur? And will this even be a possibility to increase servicing of these loans as they arrive up for maturity?
Willy Walker
So Jade, as I’ve heard you ask in a pair different investor excuse me, a pair different earnings calls up to now this cycle. There may be very clearly a problem with floating fee financing and specifically folks, who have to fund escrow accounts for brand spanking new caps that have to go in place on these floating fee loans. There are a few issues to bear in mind because it relates particularly to Walker & Dunlop. The very first thing is that we don’t carry any danger on CLOs, interval finish of assertion. We’ve got no danger on CLOs. The second factor is that our Freddie Mac enterprise and our Freddie Mac servicing guide carries no danger to Walker & Dunlop. And so whereas Freddie Mac has been the predominant floating fee lender within the multifamily house, as I underscored given our This fall quantity with Freddie Mac, and our decrease quantity of Fannie Mae, we do not take danger on these Freddie Mac loans, the BP’s patrons on these loans are those who carry the danger on these floating fee loans.
Does it present a possibility for Walker & Dunlop to step in and assist our purchasers in refinancing these offers, attempting to probably negotiate with the grasp servicers some kind of reduction from a cap price expense standpoint? Very a lot so. And as you may think about, we’re doing that every day. However because it pertains to credit score danger to Walker & Dunlop, we do not carry credit score danger on these floating fee Freddie Mac loans.
After which I would say the ultimate factor is as an organization that emerged from being a small privately held family-owned firm to the corporate we’re at the moment, credit score has at all times been on the heart of all the things we do at Walker & Dunlop. Once I joined Walker & Dunlop, if we had one mortgage go dangerous, it might have bankrupted the corporate. And on account of that, that very deep concentrate on credit score has paid unimaginable dividends as we scale this enterprise to be a lot, a lot larger. To the purpose the place fairly actually, we are able to “afford to take extra losses”, however we do not due to that credit score underwriting self-discipline.
And David Levy, who’s our Chief Credit score Officer, I’ve acquired unimaginable confidence in David and his complete underwriting group, and so we really feel extraordinarily good proper now from a credit score perspective, significantly Jade given the underlying fundamentals of multifamily. Whereas the transaction quantity has fallen off precipitously, given the place charges have gone and ready for adjustment to cap charges for folks to permit to reenter the market. As I stated initially of my feedback, all of the publicly traded multifamily REITs, who’ve reported up to now are displaying improbable hire development and compressing cap charges beginning 2023. And so the basics of multifamily are holding up very nicely and that performs into the power of our fastened fee Fannie Mae mortgage servicing portfolio.
Jade Rahmani
Thanks very a lot.
Willy Walker
Sure.
Operator
Thanks, Jade. Our subsequent query comes from Jay McCanless at Wedbush Securities. Jay?
Jay McCanless
Thanks. Good morning, everybody. Thanks for taking my questions. If we might begin with the adjusted earnings calculation and Greg, please right me the place I am incorrect on this, however it appears just like the change from the way in which you had been expressing it within the third quarter of ‘22 to now, appears such as you simply took inventory comp out of it and made a change to the tax adjustment. Am I studying that accurately?
Greg Florkowski
For probably the most half, and we’re additionally absolutely together with the entire revaluation changes as nicely Jay, which we’ve not included prior to now, significantly the fourth quarter adjustment to the earnouts. So there is a slight change from that. However…
Jay McCanless
I imply excessive degree, why exclude the inventory comp? I might suppose that is one thing that since it is a non-cash expense, sometimes one thing you need to take out to point out true working earnings?
Greg Florkowski
Sure, I feel extra — not essentially attempting to make it a money metric, Jay, however one thing that simply provides you a greater sense of type of the core efficiency of the platform and the inventory comp is a significant a part of our compensation plan for many of our key executives and senior administration. And we really feel prefer it’s an vital expense to incorporate, as a result of it’s what retains folks. So we do not need to — we expect that is an vital adjustment for EBITDA, however not essentially for the brand new core adjusted EPS metric.
Jay McCanless
Okay, acquired you. After which I assume the second query on GeoPhy, is it extra a aggressive subject with everybody attempting to do extra small stability lending proper now, Willy? Or was it actually a requirement subject from the potential debtors?
Willy Walker
So Jay, I would say there are a few issues there. To begin with, now we have been considerably capital constrained within the field that the businesses have been prepared to lend on. As a result of there are some necessities within the SBL house because it pertains to the variety of properties owned that make it in order that lending to a brand new borrower within the SBL house has been considerably difficult with the businesses. We raised exterior capital to have the ability to meet that want after which had our capital associate in that three way partnership principally stated that they did not need to do lending within the again half of the yr. And in order that type of took that supply of capital off to the facet. They’ve now come again and stated that they’re able to go and rolling up their sleeves and saying let’s put cash to work. And we even have if you’ll, improve momentum with the businesses in our SBL house.
I’ve to let you know there are only a few items to our enterprise. That I’ve as a lot pleasure and confidence round as our SBL lending house. And the explanation for that to be form of direct and blunt. In all of our companies, it is a very, very aggressive panorama, however this SBL house is dominated by the large cash heart banks. And as I’ve stated to our group a number of instances, if we will not beat the large cash heart banks from a centered shopper service and execution standpoint, I imply that is what Walker & Dunlop constructed itself on. You take a look at the lead desk that we confirmed there because it pertains to our Fannie Mae volumes and the way we have simply moved up and moved up. These are some fairly huge manufacturers that we jumped over. These are some fairly huge manufacturers that we have continued to outperform in opposition to.
And so SBL simply provides us one other, if you’ll, chunk on the apple to go after a few of these giant behemoth companies that basically not centered on this house and begin to take share. After which the ultimate factor I would let you know, there have been a few upstart corporations in that house, one among which was bought to a regional financial institution, so I form of low cost them as being a aggressive pressure anymore. After which there are just a few different entrepreneurial corporations and that now we have to essentially compete with to win market share. And we really feel excellent about that type of head-to-head battle.
Jay McCanless
Nice. Thanks. After which I assume my subsequent query, I do know you talked about it within the ready remarks that your confidence round adjusted EBITDA provides you the arrogance to boost the dividend, however being I do not know skeptical, I might say of what charges are going to do that yr? It simply looks like — possibly appears untimely to boost the dividend at this level. Possibly can speak about that and form of the bull larger round making that call?
Willy Walker
I don’t — let’s simply put it this manner, we had an excellent dialogue at our board assembly, however given our general monetary efficiency, the pure hedge that now we have from our escrows in opposition to growing curiosity expense and the money that the servicing portfolio, in addition to the asset administration portfolio kick off. We really feel extraordinarily good because it pertains to our money producing capabilities. And on account of that, reasonably than elevating the dividend 10% as we have completed fairly persistently, the Board determined to go together with the 5% dividend improve. However felt excellent and really assured in doing that.
Jay McCanless
Nice. Thanks. After which my final query, we have seen a variety of fee facility between January 23 and February 23, I assume, might you discuss a little bit bit about what volumes appear like in January directionally after which what you’ve got seen up to now in February and have you ever seen some folks getting extra hesitant or purchasers getting extra hesitant about getting into transactions simply given a few of the volatility we have already had this yr?
Willy Walker
It is really the other. In case you take a look at — I imply, we had been at NMHC and I used to be assembly with one of many businesses. And I stated, how you feel about hitting your cap this yr they usually’re like, nicely, for the primary and second week of the yr, our inflows had been nothing. So in the event that they proceed at that degree, they had been $700 million per week for the primary two weeks of the yr and we cannot hit our cap. However we had $4.3 billion of inflows final week, and so in the event that they proceed at that fee, boy, we’ll must handle to our cap.
The yr began out sluggish because it sometimes does, but in addition coming off of six months of very restricted transaction quantity is our numbers and the general market volumes would let you know. The market has began to realize momentum. However as Greg and I each underscored and as you may think about, we had been modifying our feedback up till yesterday afternoon to try to get traders as insightful of you available on the market as we presumably can. Simply during the last week, we have added so much to our pipeline. However you add to the pipeline at the moment and it is a March or April deal. And so what we’re seeing is the market construct. We simply had a shopper name us up and say they need to go do a brand new facility with us, as a result of they need to have dry powder, they see the market coming again. We love getting cellphone calls like that, however you are not going to base 1 / 4 on one facility that you simply’re doing for a improbable historic plant.
So I might solely say that we, as I stated in my ready remarks, Jay, we’re seeing loads of indicators for optimism and on the identical time, we’re going from a market that principally shut all the way down to a market that’s gaining its legs. And as you precisely say, with the Fed doing the 25 foundation level increase, we stated, hey, possibly they do yet one more and issues stabilize and off we go after which drone coverage has completed persistently stated, do not get too excited that I am out of this market, I will preserve elevating. And so it is that form of push pull that’s making it in order that initially, now we have to be very, very if you’ll, conservative in our estimates about what we probably can do.
After which the second factor is that there are purchasers, who’re transacting. And I feel one of many greatest points right here that I proceed to form of scratch my head on is, in 2022 within the first half of the yr, there wasn’t a single borrower or investor, who Walker & Dunlop labored with, who was involved about both shopping for an asset on the tightest cap fee that they had ever purchased at, or financing at an rate of interest that was the bottom rate of interest they’ve ever borrowed at. After which abruptly now everyone seems to be ready to not appear like the idiot. Everybody sitting there going, no, I acquired to make it possible for I do not purchase at a cap fee that is not completely priced and I acquired to verify my financing price is not too excessive, as a result of I feel that charges are going to rally once more.
It’s totally fascinating the psychology of the market proper now that everybody’s ready, type of, for any individual else to step in and do one thing in a significant method, so then [dive] (ph) in. However that was the theme at NMHC. The theme at NMHC was the second the dam breaks and any individual goes and makes a significant stake saying they suppose the market has turned, the flood gates will open and the capital will come again.
Jay McCanless
Nice particulars. Thanks, Willie. Respect it.
Willy Walker
Positive.
Operator
We’ve got no additional questions right now. So I’ll now flip the decision again to Willy for closing remarks.
Willy Walker
Thanks everybody for becoming a member of us this morning and thanks to W&D group, and as nicely thanks for the earnings group for pulling all this collectively as successfully and professionally as you at all times do. I hope everybody has a terrific day and I respect you all becoming a member of us this morning. Thanks.
Operator
Goodbye.
