Good morning. I am Kelsey Duffey, Vice President of Investor Relations of Walker & Dunlop. And I would like to welcome you to Walker & Dunlop’s First Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today is Willy Walker, Walker & Dunlop’s Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer. Today’s call is being recorded and a replay will be available via webcast on the Investor Relations section of our website. [Operator Instructions] If you are accessing the webcast on your computer, please click the raise hand icon on the bottom menu bar of the webcast screen. This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides will serve as a reference point for some of what Willy and Steve will touch on during the call this morning. Please also note that we will reference the non-GAAP financial metric adjusted EBITDA during the course of this call. Please refer to the earnings release posted on our website for a reconciliation of this non-GAAP financial metric. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. We expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy.

Thank you, Kelsey and good morning everyone. First and foremost, we hope you and your families and colleagues are staying safe and healthy. The COVID-19 pandemic has dramatically changed the world we live in today and the underlying fundamentals of the U.S. economy. This earning call will be broken up into three segments: W&D pre-COVID, where the investments we have made over the past several years all came together to produce outstanding Q1 financial results; W&D in the crisis, where our team transitioned rapidly to continue providing the capital and solutions our clients have needed; and W&D going forward, where our business model, access to capital and conservative underwriting culture should position us well to endure the downturn and emerge in the other side even stronger and more relevant to our clients. The investments we have made over the past several years in hiring new bankers and brokers, building new technology solutions and expanding our national footprint, generated record Q1 total transaction volume of $11.4 billion, up 91% over the first quarter of last year. As this slide shows every business line had double-digit growth in the quarter. The $5.2 billion of GSE loan originations includes the largest transaction in Walker & Dunlop’s history, a $2 billion credit facility on 67 properties in the Mid-Atlantic for Southern Management Corporation. Walker & Dunlop won this transaction over our three largest competitors, one of whom had this debt on their books for over decades. Winning this financing was an incredible honor and is reflective of the team, brand and capabilities we have built at Walker & Dunlop. And while winning this transaction was a massive accomplishment, underwriting all the properties, structuring the credit facilities, pricing the loans and closing the loans, all in the midst of the COVID-19 crisis, was one of…

Thank you, Willy and good morning everyone. It’s great to be with you today. We started 2020 with a strong quarter at the top and bottom line results. Record total transaction volume of $11 billion drove total revenues of $234 million, up 25% over Q1 ‘19 and diluted earnings per share of $1.49 was up 7% from the same quarter last year, even with the provision build at $23.6 million. Our first quarter results demonstrate the incredible financial performance our business is capable of delivering and validates the investments we have made to build the platform. I will provide a few more brief comments about the first quarter and additional color on our provision build liquidity position and expectations for future performance. Turning to Slide 6, Q1 operating margin was 26% compared to 30% in Q1 of 2019 and would have been 10 percentage points higher and well above our target range without the provision expense. Return on equity was 19% for the quarter, within our target range, while personnel as a percentage of revenue was 38% in the quarter, in line with Q1 of ‘19. Variable compensation expense, which is comprised of commissions and company bonus, totaled $47.6 million or 53% of our total personnel expense in the quarter. As Willy mentioned, during the quarter, we rate locked a portfolio of over $2 billion with Fannie Mae. Large transactions like this one carry significantly lower gain on sale margins as origination and servicing fees as a percentage of the transaction are less than our typical flow of business. Even with this mega transaction, our overall quarterly gain on sale margin came in at 151 basis points within our forecast range of 150 to 170 basis points. This reflects stronger margins on the balance of our Fannie Mae lending and…

Glad you got through the end there, Steve. I was about to step in a little bit earlier and pick up on your piece. Thanks, Steve. We feel very good about the fact that 84% of our total lending last year was on multifamily properties, and that we are one of the very largest lending partners to Fannie, Freddie and HUD, the three major sources of countercyclical capital during market dislocations. The GSEs are continuing to meet their mandate of providing a steady stream of capital to the market, as our Q1 earnings and Steve’s commentary on our Q2 pipeline reflect. And as this slide shows both GSEs have plenty of lending capacity within their 2020 FHFA scorecard to continue providing capital and liquidity to the multifamily market for the remainder of the year. The loans we are currently underwriting and originating have very strong fundamentals and in most cases, include principal, interest, tax and escrows reserves for 6 to 12 months. In addition, the April forbearance numbers that we saw in our own portfolio and across the market were very reassuring. And while it’s still early in May, we are receiving similar positive data surrounding May rents. As of the first 5 days of the month, May collections for many of our largest borrowers are at similar or higher levels than the same time last month, which is a very promising sign. We won’t have a full picture of May rent performance for another couple of weeks, and June is very much at risk of seeing increased rental forbearance requests – however, we are pleased with what we are hearing at this point in the month, and how that should translate into forbearance requests in our own portfolio over the next 30 to 60 days. With the opportunity to…

[Operator Instructions] Our first question is coming from Jade Rahmani at KBW.

Thank you, very much. Nice to hear from you, and hope you’re all safe and well. I also want to commend the management team, including Willy for demonstrating strong leadership during this period. I’ve been listening to the webinars you’ve hosted and I think you have done an outstanding job bringing key issues to life. Just starting with liquidity, I wanted to ask what drove the sequential increase in cash. And if there are any metrics you suggest investors look at, to measure the adequacy of the current liquidity position relative to servicing advances, ongoing cost of operations and potential future credit costs?

Jade, I will start and if Willy wants to jump in, he can follow in. But as far as the growth in cash, there is a couple of things. So we’ve have been using our cash to self-fund agency loans that are held for sale for a while rather than borrowing on the warehouse lines just as a kind of short-term cash management tool. We stopped doing that just to maintain the cash on the balance sheet. In addition, as I mentioned, we stopped originating new loans on our balance sheet. Those use a fair amount of capital, so just stopping that. And then that portfolio itself has actually declined as we’ve been collecting loans as they mature or as they’re paying down, so that’s helped us amass the cash as well. And then finally, and most importantly, we have a cash flow positive business. So as we’re collecting our servicing fees and the interest income that we’re making off the warehouse and the escrows, that’s all adding to the cash balance on a monthly basis.

And in terms of servicing advances, what magnitude would you say is reasonable to expect in terms of W&D’s own cash utilization to fund such advances over, say, the next 4 months to 6 months?

Yes. It’s really hard to pin down a specific number, Jade. I think it’s fair to say we’ve run the board through a variety of scenarios, some relatively benign and some, as you would imagine, would be pretty dramatic increases in terms of forbearance requests. And we feel comfortable that the cash is there to support the need if it arises. But based on the initial results and the encouraging sign as we’re getting from some of our borrowers, we’re not overly concerned. And I think having the advance line in place the P&I on Fannie will also act as a very positive insurance policy for us.

Yes. I’d jump in, Jade, and just say, if you – first of all, Steve and his team have run the board through extensive scenarios that beat the heck out of it. And I would say we feel very comfortable given where we sit today and the cash on the balance sheet as well as the commitment for the line that we’ll be able to withstand a significantly – a very dramatic uptick along those lines. I would also say that, as I mentioned in my comments, April pay – April collections across our portfolio were extremely strong. And through the first 5 days of May, I’ve been out talking to – I talked to 7 major clients yesterday that all have well over 20,000 units, and every one of them was at or ahead of their April collections for the first 5 days of May, one up by 10 percentage points. And so we’re – right now, feeling quite good as it relates to most of our large clients in the majority of our portfolio, not asking for forbearance and not having to use the – either cash on the balance sheet or the facility that we have a commitment for.

Thanks very much. In terms of the outlook for multifamily credit, historically, it’s been a defensive asset class. But in the last cycle, we had excess homeownership that spilled back into the apartment and rental sectors to curtail some potential credit headwinds. What would be your expectation from your vantage point then perhaps, the insights you’ve garnered from clients on multifamily credit outlook?

Yes, that’s an interesting one, Jade, because I know that you asked the question as it relates to sort of will multifamily tenants want to move into single-family homes because of the virus. I would say very clearly, if they couldn’t move into a single-family home pre-crisis, they’re certainly not going to be moving into single-family homes immediately post-crisis. And as you know very well, there is a severe lack of entry-level, single-family housing today, and many of the housing starts that were underway have been halted as the economy has shut down. So as it relates to overall occupancy levels, I would put forth that they will remain very healthy post-crisis. And I would actually think that in some instances, you will get people moving from doubles into singles, and that might drive actually increased demand for single-unit multifamily. Clearly on the student housing side, many universities are looking at taking doubles and turning them into singles, and that is going to drive the need for more off-campus student housing going forward. The other thing that I would say is, as it just relates to the overall creditworthiness of the asset class. Last time around, as you well know, there was a huge oversupply of single family. This time, there isn’t. I did speak to a client yesterday. It was a very large single-family rental portfolio and they were at through 4 days of the month, 91% paid on their SFR portfolio. And they’ve actually received 2% rent bumps on renewals in the month of May, those contracts that were turning. And they’re actually taking their SFR management team and working with their multifamily management team, to take some of the best practices from the management on their SFR portfolio and move it over to their multifamily portfolio. So I would say, just generally speaking, while we obviously don’t know how deep the crisis goes or how deep the economic impact will be, to your point, multi has been and will remain a defensive asset class. People need to live somewhere, and we feel very good right now as it relates to only having credit exposure on multifamily assets.

Thank you very much for taking the questions.

Thanks, Jade.

Thank you. Our next question comes from Henry Coffey at Wedbush Securities.

Yes. Good morning, everyone and thank you for organizing this call. You brought up – you made a comment on student housing. And so – and that’s an interesting observation. But as you look through your portfolio, where are the at-risk sectors? I would assume they’re in nursing homes and extended care homes and obviously, the student housing portion of the portfolio. But what are your thoughts about how those two assets perform?

So I’ll let Steve jump in if he’d like after I make a quick first comment. On the student housing side, our total exposure to student housing is about $2.7 billion in our at-risk portfolio. Those assets, Henry, have been performing exceedingly well at the – over the last 2 months as people finish up their 2019, 2020 academic year. Many students actually are still living in their off-campus student housing and taking their online courses from those units. And the pay rate on those has been exceptional, as has deposits on fall. But there is very clearly, we are heading into a period of time here, where what universities start to communicate as far as going back-to-school in the fall or not, is going to have a big impact on that asset class. And it’s too early to tell. As you probably know, some universities, like Purdue, have been very, if you will, on the front of foot in saying that they very much intend to get back-to-school in the fall. One footnote to that is that the President of Purdue said that they’re going to take one on-campus dorm, put it to the side and have it as a quarantine area, when and if they get an outbreak of the virus on-campus in the fall. That takes that inventory of on-campus housing out of circulation, obviously, and then drives additional demand for off-campus student housing. But student is obviously something that is somewhat of a binary event. Kids are either going back to universities in the fall or they are not, and we will see how that plays out. As it relates to seniors, we don’t have – our seniors portfolio is predominantly HUD loans. And so while many of those loans will invariably ask for forbearance, we…

Yes. And just to add to that, Henry, we’ve got between our Fannie Mae and our on-balance sheet portfolio, about $550 million of exposure to seniors, so relatively modest in terms of the scale on margins.

Two questions around – two more questions, one is with your HUD loans, do they function like normal Ginnie Mae loans? When they stop paying, do you buy the loan, or when they stop paying, you advance? I know they’re...

The answer is yes, Henry. When they stop paying, we advance. We do have the ability to purchase a defaulted loan out of its Ginnie Mae pool. And actually, one of our agency warehouse lines gives us advancing to be able to do that while minimizing the cash. So we do have that option available to us on the multifamily side.

Just my last question is a pretty general one. There’s a lot of craziness going on in the housing market with Calabria not really stepping up to the plate, the way the other parties in the government have, lots of penalties around residential loans, lots of questions, particularly at Fannie about servicer advances. What is the tone of – what is the tone of the GSEs when it comes to multifamily? Are they showing flexibility, or are they taking a fairly rigid stand? How is it – what’s their taste for risk, just kind of an open ended question?

So first of all, multi – as you’ve seen, Henry, the forbearance numbers on the single-family side are dramatically higher than they are on the multifamily side. If you think about it, somebody on the single-family side who is unemployed is going to file for unemployment insurance, and that is a singular event where they likely will also file for forbearance. In the multifamily side, you have the benefit of the, if you will, numbers in the sense that a number of people in a given multifamily property might be unemployed, but that’s not going to cause the overall economic performance of the property to force their forbearance. The second piece to that is, as you know, the CARES Act has the $600 per week boost to unemployment insurance payments, which in many instances, obviously, unemployment benefits are on a state-by-state basis as it relates to total payout. But in many instances, people who are on unemployment today are making $950 to $1,000 a week, which actually brings many of them above what they were making pre-crisis. And so there is money there to pay rents for those people who are receiving unemployment insurance – unemployment benefits under the CARES Act. As it relates to FHA – FHFA and Fannie, I would just say this, when we saw FHFA’s move about 3 weeks ago, to basically say that Fannie and Freddie weren’t going to set up any kind of facility to fund advances to bondholders, we immediately pivoted and went to the private capital markets to get financing for that. And as Steve said in his remarks, we have a commitment from one of the major U.S. banks to provide us with that financing. And it’s more of an insurance policy right now than anything else because of the amount of cash on our balance sheet. And because of the – our current estimation of where we will be on forbearance request. But we’re very happy that we have the commitment, and we’ll have that in place. So I would just say that once we saw where FHFA was headed and that the Fed wasn’t going to step in, we immediately pivoted. And thankfully, we have not only the financial performance, the balance sheet and also the relationships to put something like that together in very short order.

Great. Thank you very much.

Our next question will come from Steve Delaney of JMP.

Good morning. Can you hear me?

We can.

Alright. Well, love the webcast approach, and it’s great to see both of you looking so well. I’d like start with sort of Congress and the forbearance. The Congress appears willing to do pretty much anything that it needs to do to support those impacted by COVID. I’m wondering if you see any risk that the rent forbearance, the original 3 months, do you see that, that period could be extended another 3 months just to continue to support those unemployed and impacted by COVID?

Steve, are you asking about mortgage forbearance, or are you talking about the eviction prohibition?

Eviction, well, on that part, yes.

So here’s the deal. As we saw in April and as we saw in May so far, people pay their rent. They got to live somewhere. The last thing that anyone wants is to stop paying their rent and be in any kind of disagreement with their landlord, whenever the eviction moratorium ends. So people aren’t sitting around just not paying their rent because they’re not going to be kicked out on the curb tomorrow. Having shelter and somewhere to live, whether you are currently still employed but at a diminished level because you were not making tips or whatever the case might be, and now it’s a carryout model versus an in-restaurant model, or whether you are unemployed and receiving the benefits from the federal government, people are still paying rent. So we feel very good about that. And so the eviction moratorium, as much as it got a lot of people concerned at first because it’s something that hasn’t been out there, I don’t think it is having a significant impact on the market and on people’s propensity to pay. I think the bigger question in our mind right now, Steve, is the unemployment benefits underneath the CARES Act and the $600 per week supplemental payment from the federal government. That’s a very important component that needs to stay in place post-July. So if they were to extend the eviction moratorium, I don’t think, given what we’ve seen so far as it relates to renters’ behavior, that’s a big issue. I think what would be a very significant issue is if we get to the end of July, there aren’t either therapeutics out there that are making it so that people feel more comfortable to get back to work or we haven’t seen a big resurgence in employment in the country, and they end up not extending that component of the CARES Act. I’m hard-pressed to think that they won’t when they look at it. But that’s a super important component part to people, I think, being able to continue to pay their rent.

That’s helpful, Willy. Thank you. And in terms of opportunities for W&D, as you look at the space, it seems to me your origination sales force, you have all the capacity that you could possibly need for the current market opportunity. Is it possible that any of the smaller services that don’t have your liquidity and balance sheet, could you envision smaller servicers, possibly having problems with advances? And might there be opportunities for servicing transfers that obviously have to be from one GSE-approved servicer to another as opposed to the residential MSR market? Just curious if there’s any M&A-like opportunity in the servicing side.

Yes. So I think opportunities will present themselves. As I mentioned in my comments, we hired a team last week from one of our biggest competitors, and we also closed the largest transaction in Walker & Dunlop’s history in the midst of this crisis. Those are – that’s pretty – that’s zigging when others zag. I’d also say, it is interesting that – I mean, you look at our financial performance for Q1 and having taken a very significant charge for potential future losses, and we are showing the depth of the platform, the fact that we have, for years and years, as you know, Steve, a lot of people have said, oh, how fast can Walker & Dunlop grow because they’ve got Fannie, Freddie and HUD as their 3 major sources of capital, and those are all government capital, and those are sort of countercyclical. And as you know, we’ve grown as fast or faster than all of our competitors in the market. Now all of a sudden, you put that on its head, and we’re sitting there in probably the best position as it relates to access to "defensive capital". And I would think that investors would find that to be a very attractive piece to the W&D business model and our market positioning. And as it relates to opportunities, look, we acquired Column in 2009 in the depths of the financial crisis. We want to make sure right now that we are watching our cash flow very closely. But as you may recall, when we bought Column from Credit Suisse that was a cashless transaction. They took stock in Walker & Dunlop. It turned out to be a fantastic deal for Credit Suisse, and it turned out to be a fantastic deal for us. So we also have the ability and the track record to do deals that may or may not require us to use a lot of cash or go out and access the debt markets to make it happen. So we’re watching and I’m assuming that over the next several quarters and years, there will be opportunities for us to continue to grow.

And just a final question for me or comment. A couple of years ago, the GSEs made the decision to cancel their pilot programs for single-family rental. And the private sector picked that up with a vengeance and really ran with it, and I think it had become a pretty effective, well-established program in terms of origination and securitization. Needless to say that is completely shut down. It’s not clear. It looks like private CMBS is starting to come back with the transaction. But we’re not seeing any signs that much is going to happen with private RMBS at this time because they’re not included in the AAAs, they’re not included in [indiscernible]. Just curious under the affordability mandate of the GSEs, have you heard any chatter that single-family rental programs might be something they would reconsider? And how would that possibly fit into your toolkit going forward? Do you need a GSE program, or would that area interest you from more of a private sector approach? That’s my final question thanks for your comments.

Sure, Steve. So when Fannie and Freddie first entered the FSR financing space, we were one of the first Freddie Mac optical lenders to be put into the program and we had significant interest in being a major player in that space. As you well know, that got shut down by FHFA. Given everything that FHFA and Dr. Calabria had said, since the onset of this crisis, I am in no way holding out any hope that they allow Fannie and Freddie to do anything new or innovative during this period of time. I’d love to be proven wrong by that statement, but what we have seen is very much a sort of stay in your fairway type attitude and maintain liquidity. I would also say, Steve, as you know, because you listened in and covered Starwood, Jeff DiModica made a comment during their call that they’re seeing the CMBS market start to come back, and they actually have some pretty good expectations as it relates to liquidity coming to the market from CMBS. And from the comment I made a moment ago to Henry’s question, as it relates to the performance of SFR portfolios, if that comment from one of our clients at 91% collected 4 days through May is indicative of the broader SFR market, I would put forth that private capital will find a way to get there. So, while that obviously is one data point and not across the market, so far, I haven’t either heard a sort of crisis-we-need capital and then I also – even if you heard that, if you think about the amount of noise that has come out of the servicer advances, particularly on the single-family side that Dr. Calabria has completely ignored, I would put forth that, I don’t know how loud that would have to get before FHFA would sit there and say, let’s put Fannie and Freddie into this space.

Thank you for the comments.

We have no additional questions. So I will turn the floor back over to Willy for closing remarks.

Great. First of all thank you to everyone who joined us today. I hope you were able to participate via the Zoom and actually see Steve and me giving our remarks live. We’ve been thinking about doing this for quite some time, and it took a global pandemic to get us to use Zoom for our quarterly earnings call and get off of just the audio. The second thing is I would reiterate our hopes and wishes for the health and safety of everyone’s families during these challenging times. And the final one is a real thanks to the W&D team. Q1 was an incredible success and showed the power of all of the investments and all the teamwork that we have been able to build over the past several years. We feel very well positioned right now, given everything that’s going on in the markets. And thanks for everything. Have a great day, and we will be in touch soon. Thanks, Kelsey.

Thanks, everyone.