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Walker & Dunlop, Inc CFO to Leave in March 2015; Maintain Market Perform

On Monday, December 17, after the markets closed, Walker & Dunlop announced the departure of CFO Deborah Wilson, effective March 31, 2013. Ms. Wilson’s role will remain unchanged until her departure, and she will sign off on the company’s 2012 audit and 10- K. She plans to take some time off after leaving the company. The move does not trigger any red flags for us, and we are quite confident in the company’s accounting and financial practices. The company has engaged a prominent nationwide search firm to find a replacement. We believe the ideal candidate would have a commercial real estate background and public company experience, but not necessarily multifamily financing or government-sponsored enterprise (GSE) experience (the company has a large number of people who have worked in or around the multifamily space and the GSEs during their careers, and we believe the specific knowledge of these areas that Ms. Wilson had will not be a prerequisite for the next CFO).

We expect an orderly transition for the incoming CFO, and note that Walker & Dunlop’s CEO Willy Walker has been with the company for nine years and COO Howard Smith for 32 years, so the company’s key leadership has remained remarkably stable. We also believe the company’s origination underwriting and credit processes have been and will continue to be solid, with a conservative view on risk and risk sharing. Walker & Dunlop has shown a solid track record in its two years as a public company, and we expect this to continue with the new CFO. With two transformative acquisitions (Column and CWCapital) and the company’s IPO during Ms. Wilson’s tenure, we believe she made a strong contribution, but also believe a fresh set of eyes could help the company as it continues its evolution into a larger, more sophisticated CRE financing company. We maintain our Market Perform rating in light of the continued potential for GSE reform at some point in the next few years and the derivative impacts on the company’s core multifamily financing business, but remain quite confident in the company’s near-term execution and the management team’s ability to navigate policy uncertainty in the long term. We believe investor expectations for origination and earnings outperformance are reasonably high but also expect the company will continue to hit its guidance.

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