Earnings Call Transcript - WD Q4 2021

Kelsey Duffey, Vice President of Investor Relations

Good morning, everyone. I'm Kelsey Duffey, Vice President of Investor Relations at Walker & Dunlop, and I'd like to welcome you to Walker & Dunlop's Fourth Quarter and Full Year 2021 Earnings Conference Call and Webcast. Hosting the call today is Willy Walker, Walker & Dunlop's Chairman and CEO. He is joined by Stephen Theobald, Chief Financial Officer. Today's webcast is being recorded and a replay will be available via webcast on the Walker & Dunlop Investor Relations section of our website. This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Steve will touch on during the call. Please also note that we will reference the non-GAAP financial metric, adjusted EBITDA, and adjusted diluted earnings per share during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. 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, may be 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, and 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.

William Walker, Chairman and CEO

Thank you, Kelsey, and good morning, everyone. It's a pleasure to be doing this earnings call from Walker & Dunlop's new offices in New York City. We just held our quarterly Board meeting in our new corporate headquarters in Bethesda, Maryland. The building, our space, and the sense of community are truly spectacular. We decided to sign both leases in the depths of the pandemic when few others were committing to physical office space, and we are now benefiting from the collaboration, creativity, and teamwork that are happening daily in these two offices. Our continued investment in people, brand, and technology produced fantastic Q4 and full year financial results. We generated total transaction volume of $27 billion, up 91% from last year. Record transaction volume led to record quarterly revenues of $408 million, up 16% over last year and diluted earnings per share of $2.42. What a quarter. Yet amongst those fantastic results, the most noteworthy is adjusted EBITDA, up 89% to $110 million on the quarter due to our continued transformation of Walker & Dunlop from a mortgage-centric finance company into a technology-enabled financial services firm. The services businesses we have been investing in over the past 5 years grew dramatically in Q4. Debt brokerage, where Walker & Dunlop acts as an intermediary between lenders and borrowers, increased total transaction volume by 237% in the quarter to $12.7 billion, our largest debt brokerage quarter in Walker & Dunlop's history by a wide margin. Property sales, where Walker & Dunlop acts as a broker between buyers and sellers of multifamily properties, grew to $9.3 billion during the quarter, up 226% over last year and more volume in 1 quarter than we did in all of 2020. These two services businesses accounted for over $20 billion of transaction volume in Q4, an incredible accomplishment and reflective of the talented professionals we have recruited to Walker & Dunlop, the brand we have built, and the implementation of valuable technology solutions. Since we launched our Galaxy database in early 2020, we have been reporting to investors how this data tool has helped us grow both existing and new client relationships. This technology has given our bankers and brokers a true sales advantage and contributed to 75% of our refinancings in Q4 being new loans to Walker & Dunlop and 37% of our total transaction volume in Q4 being done with new clients to Walker & Dunlop. For the full year, these technology efficacy numbers tell a similar story, with 71% of our refinancing as being new loans to our portfolio and 30% of total transaction volume being done with new clients to Walker & Dunlop. It is the combination of our talented bankers and brokers, brand and technology solutions that have driven these amazing results. While we have grown our services businesses dramatically, we continue lending throughout the year and finish 2021 once again as Fannie Mae's largest multifamily lender and Freddie Mac's fourth largest partner. We ended the year neck and neck with CBRE as two of the largest providers of capital to the multifamily industry. And with HUD, we had a strong fourth quarter and record year of lending, originating $2.3 billion in mortgages, largely on affordable properties. Beyond the fantastic results of our core lending and services businesses, we made 3 highly strategic acquisitions during the year. Zelman & Associates is our entry into market research and investment banking. Zelman's industry-leading housing-focused research provides our bankers and brokers with market insights and intelligence that enhances their client relationships. It has been a true pleasure to have Ivy Zelman and her colleagues as part of the Walker & Dunlop team. TapCap was acquired to lay the foundation for automating our small balance loan quoting, underwriting, and closing processes. We rolled out our small loan quote app in Q4 and are very pleased with TapCap's technology and our client engagement with the new app. Since its launch, our site has received over 18,000 views, and we now have an email subscription list with nearly 50,000 current and prospective small loan customers. Finally, Alliant Capital is the largest, and 14th acquisition in Walker & Dunlop's history that closed right at the end of 2021. We now have the full suite of services to be a powerhouse in the affordable housing industry, one of the fastest-growing and most underserved sectors of the multifamily market. Shawn Horwitz and the Alliant team have just started working at Walker & Dunlop, and it is a pleasure to have them with us. We are constantly focused on where we are going at Walker & Dunlop. And in a moment, I will run through the fantastic progress we have made in just 1 year towards achieving our 5-year strategic growth plan called the Drive to '25. But given the changing economic landscape and investor questions about rising interest rates, inflation, and major macroeconomic changes and how they will impact our business, I thought it would be instructive to look back for a moment. Over the past 10 years, we have had the 10-year treasury at a low of 52 basis points and a high of 3.24%. We've had the Dow industrials close at a low of 10,655 and a high of 36,489. We've had 3 distinct presidential administrations, 4 acting and permanent directors of the Federal Housing Finance Administration, and 3 chairs of the Federal Reserve. And yet, as you can see on this slide, we have grown revenues at Walker & Dunlop from $152 million to $1.26 billion, earnings per share from $1.60 to $8.15 and adjusted EBITDA from $32 million to $309 million over the past decade in a continuous, dramatic, and wildly consistent manner. By investing in new services and technology-enabled businesses, we have a business model that allows us to grow dramatically in upmarkets and also provide countercyclical capital when the markets dislocate. This has allowed revenues to grow at a compound annual growth rate of 24% over the past decade, EPS at a compound annual growth rate of 18%, and EBITDA at a compound annual growth rate of 25%. We have seen plenty of change over the past decade, including a pandemic that radically changed all of our lives, yet throughout Walker & Dunlop's performance has been both incredibly consistent and dramatic in terms of growth and financial performance. So now looking forward the 5-year highly ambitious strategic growth plans we launched last year, the Drive to '25, has an overarching goal of doubling revenues from $1 billion in 2020 to $2 billion by 2025. Our progress towards the Drive to '25 after only 1 year is simply fantastic. We set a goal to grow our debt financing volumes to $65 billion by 2025. And in 2021, we increased it by 40% to $49 billion. In Property Sales, we set a goal to grow to $25 billion by 2025 and in just 1 year, grew volumes by 214% to $19 billion. Our loan servicing portfolio ended 2020 at $107 billion, and we finished 2021 at $116 billion, an 8% growth, which is what we need to maintain to achieve our Drive to '25 goal of $160 billion. Finally, we ended 2020 with $1.8 billion of assets under management. We set the ambitious goal to grow AUM to $10 billion by 2025, and with the acquisition of Alliant Capital, added $14 billion of assets under management and achieved our Drive to '25 goal in 2021. Beyond these financial metrics, the Drive to '25 contains ambitious environmental, social, and governance goals, including quantitative goals to increase diversity, equity, and inclusion at Walker & Dunlop. Walker & Dunlop is in a select group of companies that published ambitious quantitative DE&I goals, which are tied to senior executive compensation in our 2021 proxy statement. Walker & Dunlop was also just added to the 2022 Bloomberg Gender Equity Index, which puts us among only 418 publicly traded companies in the world to be featured on this prestigious gender-focused index. And while we still have a long way to go to make Walker & Dunlop and our industry more diverse and equitable, we were ranked number 13 on the Washington Business Journal's Corporate Diversity Index for large companies, putting us high in the ranks with some incredibly large and diverse DC-based companies that share our commitment to diversity and inclusion. Finally, Walker & Dunlop once again was recognized as a great place to work by Fortune Magazine, making that 8 out of the last 10 years we've made that list. I have always said that being a great place to work is the most important honor we can receive for if you have a great place to work, the financial results will follow and follow they have. I'll now turn the call over to Steve to provide more detail on our fourth quarter and full year financial performance, and I'll then come back to discuss our outlook for the future. Steve?

Stephen Theobald, CFO

Thank you, Willy, and good morning, everyone. 2021 ended with very strong transaction volumes, solid earnings, and record adjusted EBITDA. In the fourth quarter, we recognized record total transaction volume of $27 billion, up 91% year-over-year, which drove a 16% increase in total revenues to $407 million. For the full year, total transaction volume was $68 billion, up a phenomenal 66% from 2020. 2021 revenues totaled $1.3 billion, an increase of 16% over the prior year. As we look ahead to 2022, the strength of the commercial real estate market and growth in the Walker & Dunlop brand and sales force set the stage for the continued growth and diversification of our business. Q4 transaction volume was driven by debt brokerage and property sales volumes, which were up 237% and 226%, respectively, from the same quarter last year. The growth in our servicing portfolio, which ended the year with $116 billion of loans and a weighted average servicing fee of 24.9 basis points, generated $73 million of cash servicing fees in the fourth quarter, up 15% over Q4 '20. The increase in cash fees generated by debt brokerage, property sales, and servicing drove quarterly adjusted EBITDA to $110 million, up 89% year-over-year. For the full year, loan origination, property sales, and servicing fees were up a combined 33% from 2020, driving 43% growth in adjusted EBITDA to $309 million, crushing our goal of double-digit EBITDA growth for the year. Q4 diluted earnings per share of $2.42 was down 7% year-over-year, reflecting the decline from last year's massive quarter of GSE lending volumes. 2021 diluted EPS of $8.15 was up 6% over 2020, slightly higher than the projections we provided during our last few earnings calls. Due to the significant growth in EBITDA as we shift our business mix from lending-centric to service-centric, we're introducing an adjusted EPS metric this quarter that excludes the impacts on earnings of noncash MSR gains, amortization and depreciation, provision for credit losses, and stock compensation. This non-GAAP metric should be useful in evaluating the cash generation capabilities of our business by eliminating the impact of revenues and expenses associated with mortgage servicing rights. For Q4 of 2021, the adjusted earnings per share was $2.25 compared to $0.69 in the fourth quarter of last year. For all of 2021, adjusted earnings per share was $6.51 compared to $3.84 in 2020. Historically, as you can see on Slide 11, adjusted EPS has tracked closely with our adjusted EBITDA and is strongest in years with high cash revenues, including loan origination and property sales fees, escrow earnings, and servicing fees. Q4 personnel expense as a percentage of revenues was 48%, up from 45% in the fourth quarter of 2020, largely due to increases in commission expense. Commissions represented 62% of all personnel expenses in Q4 of 2021 compared to just 53% of all personnel expenses in Q4 of last year due to our dramatic growth in transaction volumes. For the full year, personnel expense as a percentage of revenues was 48%, up from 43% in 2020. Along with the year-over-year increase in commissions expense, our elevated 2021 personnel expense ratio reflects our investments in people to launch and acquire new businesses and continue expanding our product offerings. Staying with expenses, fourth quarter other operating expenses increased year-over-year by $14.3 million, primarily due to one-time charges. The first was the $2.7 million write-off of the deferred issuance costs related to our original senior secured term loan that we paid off in mid-December in conjunction with the Alliant acquisition. The second one-time expense was a $7 million earn-out related to the acquisition of the noncontrolling interest in Walker & Dunlop investment sales. Due to the incredible performance of our investment sales team, this earn-out was achieved well ahead of schedule. There will be no additional expenses that are not going forward, as the team has earned the entire amount. Q4 operating margin was 27%, down from 34% in the prior year due to the shift from a huge quarter of noncash mortgage servicing rights last year to cash revenues from our servicing businesses this year as well as the previously mentioned one-time expenses incurred during the quarter. Those one-time expenses accounted for 200 basis points of operating margin. Without them, the operating margin would have been 29% in the quarter. Full year operating margin was 28%, just outside of our annual target range of 29% to 32%. Return on equity for the quarter was 23%, bringing our ROE to 21% for the year within our annual target range of 19% to 22%. With the strong growth in our core products and the acquisitions we have completed over the past year, we are establishing 2022 financial guidance of double-digit revenue growth, double-digit earnings per share growth, and double-digit growth in adjusted EBITDA. Due to the transition of our business from lending-centric to more services-driven and the investments we are making in our emerging technology-enabled platforms, we are establishing an operating margin range of 26% to 29% for the coming year. And we are establishing an annual return on equity target range at 19% to 22%. There are several factors in our 2022 outlook that are important to mention. As we saw in 2021, the growth in our services businesses is driving cash revenues and cash earnings, pushing EBITDA to record levels. This trend should continue in 2022. Yet if our GSE lending volumes expand significantly due to the increased lending caps, we could see increased noncash revenues from mortgage servicing rights, resulting in an increase in operating margin. There is also revenue and margin upside from increases in the earnings rates on our $3.7 billion of escrows. In 2019, prior to the pandemic, we earned $56 million on our escrow deposits. Due to the dramatic drop in rates over the past 2 years, we only earned $8 million on these deposits in 2021. As rates move back up, we will earn more from our escrows. Every 25 basis point increase in the deposit rate translates into approximately $9 million of additional pretax earnings per year. We ended the year with $306 million of cash on the balance sheet. As we softened the market receptivity to our new debt offering in December, our current strong capital position and cash generation give us the ability to supplement our cash on hand with additional debt to continue pursuing acquisitions and recruiting top talent for our banking and brokerage teams into Walker & Dunlop. We ended the year with a debt-to-adjusted EBITDA ratio of 2.4x. Based on our expectations for EBITDA growth and deleveraging, we expect this will drop below 2 sometime in 2022. Our strong results also allow us to continue increasing the quarterly dividend. Yesterday, our Board of Directors approved a quarterly dividend of $0.60 per share, a 20% increase. This is our fourth annual increase since we initiated the dividend in February of 2018 at $0.25 per share. That's a cumulative increase of 140%. The current annualized dividend of $2.40 per share represents a payout ratio of 29% on 2021 net income and 25% of 2021 adjusted EBITDA. Levels enable us to continue growing the dividend while retaining sufficient capital to continue investing in the future growth of the company. 2021 was a transformative year for Walker & Dunlop as we continued investing in people, brand, and technology, so the investments we have made in debt brokerage and property sales grew dramatically — more dramatically than ever — and made tremendous progress towards the achievement of the Drive to '25. Our current financial position is extremely strong, giving us the ability to continue investing in our new businesses to expand our product offerings while leveraging our leadership position in the debt financing and property sales markets to deliver strong financial results in 2022 and beyond. Thank you for your time this morning. And now I'll turn the call back over to Willy.

William Walker, Chairman and CEO

Thank you, Steve. As Steve just outlined, our financial performance and transition from a mortgage-centric finance company into a technology-enabled financial services firm is driving cash earnings, strong EBITDA growth, and the ability to continue investing in our people, brand, and technology. More and more clients are looking to Walker & Dunlop to meet their wide range of commercial real estate needs. As a huge amount of global capital looks to invest in U.S. commercial real estate, the growth opportunities for our fantastic company are almost limitless. During a recent Walker webcast, Dr. Peter Linneman stated, 'We are in a golden age for multifamily.' We expect strong macro market dynamics in multifamily for the next several years: limited new supply, strong rent growth, an active buyer and seller market, and relatively low interest rates to support the refinancing and acquisition markets. Multifamily, after enduring the Great Financial Crisis and global pandemic exceptionally well, is viewed by many as a proxy for fixed income, with the opportunity to generate alpha from operational excellence and potential cap rate compression. In the yield-starved world with inflationary pressures, investing in multifamily assets, and more broadly in commercial real estate is at the top of every large institutional investor's wish list. As one of the largest lenders and service providers to the multifamily industry, Walker & Dunlop is very well positioned to grow transaction volumes and revenues over the coming years. The acquisition of Alliant Capital expands our presence in the affordable housing industry dramatically, giving us confidence that we will grow our lending volumes with the GSEs in 2022. The GSEs should have a new permanent FHFA director soon, and she has increased their annual lending caps and allowed the GSEs to get back to business, albeit with a continued focus on affordable lending with the ability to now syndicate tax credits and continue providing GSE and HUD debt. Walker & Dunlop's affordable bankers and brokers now have a full suite of services to meet our client needs and grow transaction volumes. The Alliant development and investment partners over the past 20 years provide a wealth of new relationships that should become Walker & Dunlop clients. The growth in our multifamily property sales business in 2021 was simply astounding. Its leader, Chris Nicholson, has built piece by piece, the very best multifamily investment sales team in the industry, and yet Chris and his team aren't done yet. We currently have multifamily investment sales teams in 18 of the 20 most actively traded MSAs in the United States, having just added talent in Michigan and Northern California. We will continue growing into new MSAs while also adding brokers and specialty products, such as the FourPoint team we acquired in 2021 for student housing, the senior housing team we added last year in Chicago, and our current focus on affordable and manufactured housing. As we have shown by being Fannie Mae's largest multifamily lending partner for 7 of the last 10 years, there is always the opportunity to add talented bankers and brokers to expand market share in the vast multifamily landscape. Outside of multifamily, the opportunities for growth are numerous. While our mortgage banking volumes in 2021 were truly fantastic, we need to do more in office, retail, industrial, and hospitality. There are 2 main reasons our expanded team of mortgage bankers doesn't do more commercial lending: the Walker & Dunlop brand in multifamily is exceedingly strong and drives outsized multifamily origination volumes; and our lack of investment sales capabilities in the other asset classes. We will focus in the coming years on expanding our lending activities on non-multifamily commercial assets and building out investment sales groups in office, retail, hospitality, and industrial. While nothing is easy, these are logical expansions of Walker & Dunlop's service offerings that will drive increased transaction volumes and revenues. Technology is driving the growth of Walker & Dunlop as well as 2 of our emerging businesses: our automated appraisal business, Appraised, and our small balance lending platform, WD Express. We continue to work closely with our dynamic and insightful joint venture partner, GeoPhy, to grow and apply their technology and data analytics capabilities to other areas of our business, including WD Express. We continue to develop technology that underpins these 2 emerging businesses, which are both extremely important to our future growth. Before I wrap up the call, I want to put Walker & Dunlop's fantastic growth into a broader context. In a recent Washington Business Journal ranking of DC-based companies, Walker & Dunlop was listed as the 37th largest company based on total revenues. Yet our 5-year total shareholder return is number 1 for the top 50 public companies on that list, better than Marriott, better than Lockheed Martin, better than Carlyle, and even better than CoStar. If you look at Walker & Dunlop's 5-year total shareholder return compared to the 5 bank stocks, only Apple beats Walker & Dunlop. Think about that for a moment. Those 5 stocks are the most technologically sophisticated mega-cap companies on earth, and yet Walker & Dunlop has outperformed 4 of the 5 over a 5-year period due to our team's track record of delivering consistent, outperforming growth year in and year out. What is most exciting is that Walker & Dunlop now has the brand and scale to grow even faster. 2021 was an exceptional year. The year began with investors and capital returning to the commercial real estate markets with vengeance, and our investments in people, brand, and technology generated record transaction volume, record revenues, record earnings, and explosive EBITDA growth due to the transformation of our business from lending-centric to services-centric. All of this for a firm of only 1,300 people with average revenue per employee of over $1 million and the cash flow to continue investing in people, brand, technology, and growth. I often talk about the pride I take in leading this incredible company. What amazes me is that when I reach a certain level of pride, the team invariably takes their game to the next level. Thank you to every member of the Walker & Dunlop team for such a successful 2021. The year was a fantastic start to the Drive to '25. Given the growth in our client base and brand, there is no reason we will not continue to knock down the various components of the plan and achieve our strategic and financial goals over the next 4 years. I want to thank everyone for joining us this morning, and I'll now turn the call over to Kelsey to open the lines for any questions.

Kelsey Duffey, Vice President of Investor Relations

The first question is coming from Henry Coffey of Wedbush Securities. Henry?

Henry Coffey, Analyst

Good morning. Congratulations on a great quarter and an incredibly fantastic year. This is another one of those quarters where to really grab the growth we need to jump over to the adjusted EBITDA number. Obviously, your focus on adjusted earnings per share will help amplify that. When we look at the transaction volume in the brokered part, how much of that was multifamily? How much of that was outside the multifamily universe?

William Walker, Chairman and CEO

I haven't analyzed that number in detail, Henry, but I would estimate that it is likely over that figure. Historically, about 75% to 80% of that brokerage volume pertains to multifamily. Steve, am I incorrect in this? I believe I'm on the right track.

Stephen Theobald, CFO

Yes, you are.

William Walker, Chairman and CEO

Yes, we can get the actual number to you, Henry, but it's about 3/4 multi and about 1/4 commercial.

Henry Coffey, Analyst

And then really to understand Alliant in terms of the targeted goals, I'm assuming that factors in Alliant for this year as well, or. So how does that business really work? Do the lending opportunities come at the front end of the transactions? Do the sales come at the back end? How does that business work for Walker & Dunlop in terms of loans and property sales opportunities?

William Walker, Chairman and CEO

Yes. I think, Henry, the two primary revenue streams for Alliant are, as you point out, fees earned off the syndication process. As new funds are raised and investments are closed into those funds, upfront fees are paid to Alliant for providing that execution. Then asset management fees are earned over time, and a significant portion of them are collected on the back end as the properties are disposed of. So that's a key component of the revenue base there. In terms of the benefit to our core business in the investment sales and the financing side, as we discussed in our initial call about Alliant back in the fall, in our model, we did not assume any synergies from the revenue side from those opportunities in the first year. However, we are building a pipeline of both debt financing opportunities as well as investment sales opportunities that we should be able to execute on in 2022. That's obviously factored into our guidance for the year. In addition, we've been able to send some opportunities to the Alliant side for new tax credit investments as well.

Henry Coffey, Analyst

Great. And just one more question. In the single-family, build-to-rent, and manufactured housing area, these are sort of new areas in the housing equation for you all. How are those businesses developing? What should we expect in the future?

William Walker, Chairman and CEO

Henry, thanks for your interest. So, I would put it this way. We have a great team, I think probably the best team in the industry focused on BFR/SFR financing. Coming out of 2020 into '21, the pipeline was strong, but the number of deals that actually got funded during the year was less than anticipated. I would say, with the growth of the pipeline in 2022, it will be the year that the actual fee generation starts to happen. So feeling a lot better right now about our team that's focused on that space and the pipeline that they've built up. But you actually point out, SFR/BFR is an extremely hot space in the housing market and a lot of our institutional clients are focused on it and putting money to work there.

Kelsey Duffey, Vice President of Investor Relations

Our next question will come from Jade Rahmani of KBW. Jade?

Jade Rahmani, Analyst

Thank you very much. Solid quarter from my perspective, and pleased to see the introduction of adjusted EPS, which is a metric we've always looked at just modeling the cash or property for cash earnings. I guess first question would be client sentiment really, given that the increasingly uncertain outlook with respect to the impact of rising rates and the magnitude of rising rates. Have institutional investors reacted at all to this? Has it changed people's outlook in terms of deploying capital?

William Walker, Chairman and CEO

Jade, I can only share what we observe daily regarding our pipeline and my experience at the National Multifamily Housing Council meeting in Orlando, Florida, recently, where I met with numerous clients. The feedback was clear: many expressed that they have more capital ready for deployment than available opportunities. They are eager for product and enthusiastic about the market and asset class, wanting to invest more. I can confidently say that not a single investor I spoke with has expressed concern about rising rates or the current macro environment.

Jade Rahmani, Analyst

Good to hear. And we just say so far 1Q, the pipeline, it sounds like from the language in the press release and your comments, you feel really, really strong.

William Walker, Chairman and CEO

We don't manage the business on a quarter-to-quarter basis. I referenced a 5-year CAGR compared to the bank stock because we consistently deliver strong annual returns. We don't view this in terms of Q1 versus Q2, and we don't provide specific numbers regarding our pipeline. However, you can gather from our earnings release and the tone of our comments that both Steve and I are very confident about our market position and the current macro environment we are operating in.

Jade Rahmani, Analyst

In my view, Walker Dunlop, even though it's grown tremendously, it's still somewhat under-followed and at times, misunderstood by investors. I get the sense that the company, in times of rising rates, gets lumped in with residential mortgage companies, which we know, on the single-family side, there's a big difference with multifamily with, for example, prepayment protection and the longer duration. But I suppose, in terms of rate sensitivities, just looking for you to confirm that these are accurate: the main sensitivities to interest rates would be interest expense, both corporate and warehouse interest income, and escrow earnings, and finally, servicing asset the way it's valued on a discounted cash flow basis. Is there anything else we're missing there in terms of sensitivity to interest rates?

William Walker, Chairman and CEO

Yes, Jade, I agree with your first two points regarding the MSR value. I cannot say that the value isn't affected; it is influenced by interest rates. However, the impact of rates on that valuation is relatively minor due to the prepayment protections in place. We don't observe significant increases in value when rates rise, nor do we see a considerable decrease in value when rates fall.

Jade Rahmani, Analyst

On the GSE side, it sounds like some of the decline in volumes is timing related. They hit their caps in the fourth quarter, and now they have 11% higher caps, so there should be an acceleration. But are there any other factors driving the lower volumes you mentioned, the focus on affordable housing? I know that the banks and GSEs use a trailing 12-month underwriting, and we've seen a huge uptick in multifamily rents. If you're using trailing 12, your debt service coverage ratios could be eclipsed. But if you use more of a forward-looking metric and take into account, say, the last 6 months or 3 months of rent growth, that underwriting could be improved. Any attributes to why did you see volumes decline?

William Walker, Chairman and CEO

A lot of factors. A, they were capped in 2021 to a degree that they were capped in 2020. They played a countercyclical role in 2020 and put out a huge amount of capital, and then they were under new caps in 2021 that stepped down to $70 billion for both. As you know, Jade, that stepped back up to $78 billion for 2022. The second is that they were on a rolling 52-week look back as it relates to those caps in 2021. That look back into 2020 added to their, if you will, lack of competitiveness in the first half of 2021. Once Sandra Thompson came in as acting director, she removed the 52-week look back. So they don't have that 52-week look back right now, which means that they're back in the market. But as I underscored in my comments, they have a significant amount of affordable lending that they must do under their scorecard. As a result, if you bring a deal that doesn't have any affordability to the agencies, they are not likely to be the most competitive source of capital. If you have affordability in the asset, they likely will be the most competitive source of capital. One of the things we are very actively doing and one of the reasons why Alliant is so valuable to Walker & Dunlop is that we are working very hard to underwrite and lend on affordable properties so that Fannie and Freddie can both meet their affordable goals and then shift their focus, if you will, back towards market rate. It's a dynamic market. FHFA is trying to keep Fannie and Freddie very competitive in the market and supplying the capital that they need to supply while meeting their and our customers' needs. But they are also more mission-focused than almost ever right now, and we're trying to figure out how to go find those deals that will meet their mission.

Stephen Theobald, CFO

I would add, Jade, regarding the underwriting question you raised about using T12 for underwriting. I don't believe that has affected agency volumes or their willingness to participate in the market, nor is it a new concern. We have seen a consistent trend in leverage levels over the past three years, where owners are financing deals more in the 60% to 65% range instead of reaching up to 75% or 80%. This is not a new issue. As I mentioned, I don't think it has impacted the overall GSE volumes.

Kelsey Duffey, Vice President of Investor Relations

Our next question comes from Steven Delaney of JMP.

Steven Delaney, Analyst

Congratulations on yet another great year. This is a corny analogy, but when I think back over the years and talking to clients, I like to tell people that Walker & Dunlop is just like a good old dependable train that just keeps rolling down the track and gaining momentum. Then every now and then you slow down, you stop, and you hit on a shining new railcar like Alliant last year. So first thing quickly, do you think there are any more shiny railcars to hit on over the next year or two in the marketplace as you observe it?

William Walker, Chairman and CEO

So, Steve, first of all, great to have you on this morning. Second of all, thanks for all of your focus in coverage of Walker & Dunlop. Look, you know us too well, Steve. Alliant was our 14th acquisition. I would put forth to you that there will certainly be a 15th. We have an incredible business development team that is constantly out looking for opportunities. You know one of the ways we have built this company up so successfully is by acquiring fantastic human capital and then having a company and a platform that brings them in and keeps that human capital at Walker & Dunlop. The ability to go identify great companies, pay what we believe is market prices for them, and then be able to leverage them on the broader Walker & Dunlop platform and get fantastic returns from them is something we've done time and time again. So I would just say yes, we'll have plenty more cars to hit on. I would say one other thing though, Steve, which I think is important: Alliant was our largest acquisition ever. We have moved Sheri Thompson, who ran our HUD business, over to work with Sean Horwitz to seamlessly integrate Alliant into Walker & Dunlop. That integration and leveraging the Alliant platform within Walker & Dunlop is super important. We need to make sure that that very large and very valuable acquisition is leveraged to the maximum that we possibly can. The other thing is investments in technology. We have been, as we mentioned in the call, we acquired TapCap last year, we acquired Enodo the year before that. These technology investments are extremely important to Walker & Dunlop. While investors can see us go and invest in a mortgage banking company or affordable housing company and kind of easily understand the value and how we're going to buy them and integrate them into Walker & Dunlop, we must keep focused on technology companies and investing in technology. That has been a big differentiator for us over the past several years, and we will continue to do that.

Steven Delaney, Analyst

And another obvious characteristic that we get from Walker & Dunlop that some companies aren't comfortable with is your strategy of setting your goals, and then setting out and meeting those. Looking at Slide 7, I mean you just set these goals within the last quarter or two, and now the progress on debt financing and property sales has already taken you well towards your goal. Is this something those two, in particular, that you will consider revising? And if so, would you maybe revise those as soon as on your first quarter earnings call?

William Walker, Chairman and CEO

So first of all, let us bask in the glory for a moment before we go and totally reset it. But I would say this: when we announced the Alliant acquisition in August of last year, we closed it at the end of 2021. But everybody in both our existing asset management business and at Alliant knows that by adding $14 billion to the existing almost $2 billion and getting ourselves to $16 billion of AUM that we're not going to say, 'Oh, great, we're beyond $10 billion, let's just sit here.' We've already gone and recast some of the goals for our existing asset management business as well as for Alliant. While I'm not sure whether we'll do it quarter-over-quarter, Steve, your question is a fair one: as we move through 2022, if we are getting close to achieving goals on debt brokerage, property sales, or things of that nature, we probably need to stop and say, okay, great, fantastic progress. What should you expect over the next couple of years?

Steven Delaney, Analyst

Thanks, Willy. I have a quick question for Steve. Regarding your new dividend rate of $240, if we compare that to the 2021 EPS of $815, it results in a 29% payout. Does the Board consider past earnings when determining dividends, or is there another approach? Additionally, should we expect any changes to the dividend on an annual basis?

Stephen Theobald, CFO

Yes. So Steve, I'll respond in reverse order. To confirm, our practice since we started the dividend in February of 2018 has been to review the dividend amount annually and make adjustments at that time. Of course, situations can change. We discuss this with the Board every quarter. But I believe that’s the established pattern. Regarding our discussions with the Board, it involves a review of past actions, but honestly, those discussions focus more on the future. We consider our liquidity and anticipated results along with adjusted EBITDA generation going forward, as that will inform how we fund the dividend in the future. Therefore, our discussions with the Board are more oriented towards future expectations.

William Walker, Chairman and CEO

And Steve and Steve, I'll just jump in real quick on one quick point, which is just as Steven Delaney, you just mentioned, the point of 29% of earnings in the payout ratio. As you know, the big number to follow there is actually the cash earnings. In the past, that high 20s was a lot of noncash earnings in there. Now with the growth in EBITDA and the growth in cash earnings, that payout ratio is actually a significantly lower number than it was in the past.

Kelsey Duffey, Vice President of Investor Relations

And we have another question from Jade Rahmani.

Jade Rahmani, Analyst

The brokered loan and investment sales businesses have experienced significant growth. Typically, the fourth quarter serves as the peak period for these businesses due to seasonality, at least among competitors. Should we consider a range for the brokered loan business, which was approximately $12.7 billion—essentially close to double the amount from last quarter? It might be reasonable to project growth on top of that for the fourth quarter of 2022 and establish a trend toward that throughout the year. We should really plan on $12.7 billion as a quarterly new run rate. I have a similar inquiry regarding investment sales. Any qualitative insights you could share would assist us in ensuring our projections are aligned.

William Walker, Chairman and CEO

Yes, Jade, I'll jump in here. I think the way you're thinking about it is accurate in terms of the flow of business. Typically, there's a lot of capital markets activity in the fourth quarter as folks are trying to clear the decks from a tax year standpoint. If you go back and look at our volumes over history, there are always exceptions to this. But typically, Q4 would be the high watermark in terms of overall transaction volumes, specifically on the debt brokerage and the property sales side, and then it would come back down to a lower level in Q1 and then build up over the course of the year.

Jade Rahmani, Analyst

Okay. And on producer headcount, excluding Alliant and Zelman, could you talk to what the growth rate is, say, for the fourth quarter on a year-over-year basis?

William Walker, Chairman and CEO

Yes. Jade, we can get that to you. As you know, we continuously add teams, but we haven't done a major acquisition. I think it's just astounding the growth we've seen from the existing team. I think it speaks a lot to not only a robust market but the team and the brand that we've established. I'll be very interested to see some of our peer companies report and what kind of growth they've seen because something tells me that the growth we've seen in debt brokerage and investment sales far outstrips the competition.

Jade Rahmani, Analyst

Okay. And then just lastly, on the debt side. Do you know what the mix of floating versus fixed is?

William Walker, Chairman and CEO

I don't have that number right now. By the end of the year, excluding Alliant, we had 224 bankers and brokers at Walker & Dunlop. I don't have the comparison to last year's fourth quarter, but I believe we were slightly up from $2.05 at the end of last year. So we expect around 10% growth in broker and banker volume year-on-year by the end of the year. Clearly, the growth we have experienced, which is over 200%, significantly exceeds the number of new additions to the team. As for the float-to-fixed ratio, I don't have that number available.

Stephen Theobald, CFO

The amount of floating rate business we've conducted in the past couple of years has been quite minimal. When we were smaller and more focused on Fannie and Freddie, it was a significant concern in terms of overall margins, but that has become much less of a concern for us.

Jade Rahmani, Analyst

Okay. Just on the producer headcount, what would be your target for this year? Are you expecting double-digit growth in that?

William Walker, Chairman and CEO

At the beginning of every year, Jade, I have a conversation with Howard Smith, who's our President. As it relates to the number of bankers and brokers we want to go out and hire. I'll just put it this way: I've been working with Howard now for 17 years, and Howard has yet to miss his hiring goal on an annual basis because it's one of his goals and objectives and he always hits it. I'm not going to tell you what that number is going to be, but to get to double-digit revenue growth, earnings growth, and EBITDA growth on the year, we better go out and add 10% plus in broker and banker volume as far as headcount. But at the same time, I think one of the things you're seeing right now is the leverage we're gaining from the brand and the platform. The collaboration that's going on between our investment sales team and our banking teams is unbelievable to see. That combination of people, the brand, and the technology all coming together is what's getting these outsized gains. While we clearly want to be out there in the market recruiting the very best bankers and brokers to come to Walker & Dunlop, we're getting a lot of leverage from some other things right now, too.

Kelsey Duffey, Vice President of Investor Relations

We have no further questions at this time. So I will turn it back over to Willy to close this out.

William Walker, Chairman and CEO

Thank you, everyone, for joining us this morning. Thank you, Kelsey, and Jenna, and the rest of the Investor Relations team for all your work in getting this done, and thank you to Steve and all of your team for all the work to get our financials done and ready for this call. 2021 was an incredible year for our company. What's really exciting is that the macro backdrop and everything that we've done in the past is only leading to more strength at Walker & Dunlop. Thank you, everyone, for joining us today. Hope you have a fantastic day, and thanks again to everyone on the Walker & Dunlop team for the year and for all we're doing today.