Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Investor Presentation (February 2021)
41 slides from Redwood Trust's investor presentation, Feb 25, 2021
Slide 1: Investor Presentation February 25, 2021
Investor Presentation February 25, 2021
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements, including statements regarding our belief that we can increase the market share of our residential lending platform by four to five times by the end of 2025 and estimated yields on our operating business and investment
Slide 3: Our Mission
Our Mission Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all American households.
Slide 4: Redwood Trust provides significant liquidity to the U.S. housing market
Redwood Trust provides significant liquidity to the U.S. housing market Through our market leading brands we: Aggregate mortgages made to homeowners and landlords who don’t qualify for government programs Structure loans into securities and other investments, connecting borrowers with institutional
Slide 5: Most segments of the U.S. housing market rely on some form of private capital
Most segments of the U.S. housing market rely on some form of private capital $3T+ potential non- • There is a substantial need for private capital to support agency financing housing finance activities where government loan opportunity(1) programs fall short • Over the past several years, the GSEs
Slide 6: We address a vast and growing market spanning the entire U.S. housing finance industry
We address a vast and growing market spanning the entire U.S. housing finance industry Non-Agency Consumer Lending • Leading non-agency conduit providing liquidity to a broad set of originators • Innovative technology initiatives aimed at disrupting traditional mortgage workstreams • Best-in-class c
Slide 7: We are disrupting the non-agency mortgage industry with innovative technology and distribution channels
We are disrupting the non-agency mortgage industry with innovative technology and distribution channels Sourcing Technology-enabled / data-driven customer acquisition tools Multichannel Distribution Model Broadly-marketed securitizations Processing Whole loan sales Proprietary automated workflows fo
Slide 8: As the market leader in the non-agency sector, we are poised to capitalize on secular shifts in housing
As the market leader in the non-agency sector, we are poised to capitalize on secular shifts in housing Serving Growing Markets Macro Tailwinds Competitive Advantages • Housing demand continues to • Strong demand for single- • First-to-market brand outpace supply in both owner- family detached homes
Slide 9: Household equity continues to increase, outpacing loan balance limits for government lending programs
Household equity continues to increase, outpacing loan balance limits for government lending programs Value of the US Single Family Housing Market(1) Growing Markets will Likely Require Increased Access to Non-Agency Lending GSE 2021 Median Change in HPA Since Conforming Home Price(2) Limit since 20
Slide 10: Single-family rent growth remains strong and has historically stayed positive even in recessions
Single-family rent growth remains strong and has historically stayed positive even in recessions(1) Home Price Appreciation vs. Single-Family Rent vs. Apartment Rent National YOY % change Home price appreciation Single-family rent Apartment rent 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 1988 2
Slide 11: Growth trends in housing prices and single-family rents continued through 2020
Growth trends in housing prices and single-family rents continued through 2020 Home Price Appreciation vs. Single-Family Rent vs. Apartment Rent National YOY % change Home price appreciation Single-family rent Apartment rent 12.0% 10.0% 9.6% 8.0% 6.0% 4.7% 4.3% 3.8% 3.8% 4.0% 2.0% 0.0% -1.1% -2.0% S
Slide 12: Changing consumer preference and affordability are driving demand for single-family homes held for rent
Changing consumer preference and affordability are driving demand for single-family homes held for rent Rental Homes as Percentage of All Housing Units Trailing 12-month Single-family rental homes Rental homes (2-9 units) Rental homes (10+ units) 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% Single-Family
Slide 13: Our diversified revenue streams can support durable earnings and valuation multiple expansion
Our diversified revenue streams can support durable earnings and valuation multiple expansion Operating Durable earnings 35% of Diversified and Businesses stream and book Equity (1) value growth high-quality >20% Returns (2) earnings 65% of Investment Portfolio Stable to growing Superior total Equit
Slide 14: We have delivered innovative solutions to the non-agency consumer sector for over 25 years
We have delivered innovative solutions to the non-agency consumer sector for over 25 years Enhances housing availability as a leading intermediary between mortgage investors and originators Key source of liquidity for the Channel of interaction for buyers market and sellers • Unparalleled correspond
Slide 15: We are the market leader in non-agency residential securitization, whole loan trading, and credit investing
We are the market leader in non-agency residential securitization, whole loan trading, and credit investing Significant More securitizations Strong Performance opportunity to gain than any other share • ~2%(1) portfolio sponsor delinquency rate • $400B(4) annual market • 110 Sequoia • <1% of portfol
Slide 16: We have completed over $85B in purchases life-to-date with substantial room for growth
We have completed over $85B in purchases life-to-date with substantial room for growth 2021: 110th securitization SEMT 2021-1 ($527m) 2019: 100th securitization SEMT 2019-2 ($405m) 2017: First “Choice” securitization SEMT 2017-CH1 ($308m) $85B 2013: 50th securitization SEMT 2013-10 ($405m) $75B 2010
Slide 17: We believe we can increase our market share 4-5x by the end of 2025
We believe we can increase our market share 4 - 5x by the end of 2025(1) Customer Acquisition Production / Customer • Tech-enabled with high-touch Retention customer service • Turn capital efficiently • Best-in-class user • “Rapid Funding” program experience • Industry leading close • Pipeline monit
Slide 18: We lead the industry in providing capital to a growing market of sophisticated housing investors
We lead the industry in providing capital to a growing market of sophisticated housing investors Highly scalable infrastructure with proprietary processes and technology Target Market Originations Products Loan Book(1) • Small and mid-sized • Robust digital media • Term loans for • $11.6B+ in loans
Slide 19: SFR lending is a $90B addressable market opportunity with limited competitors
SFR lending is a $90B addressable market opportunity with limited competitors Investor Share of Current SFR Property Market(1) Total Housing Market (140.1M inventory)(2)(3) 14.1M Vacant 15.4M Units in All Other Large Buildings Investors (10+ units) Smaller investors 98% dominate the SFR Small Buildi
Slide 20: We have runway for significant growth as the leading provider of credit for housing investors
We have runway for significant growth as the leading provider of credit for housing investors 2021: 15th securitization, CAFL 2020-P1 ($218M) $12B 2020: 16th consecutive month exceeding $100M in funding $11B $10B 2019: CoreVest acquired by Redwood Trust $9B $8B 2017: Closed first Freddie wrapped SFR
Slide 21: We lead the business purpose lending market with proprietary technology-enabled processes
We lead the business purpose lending market with proprietary technology-enabled processes Sourcing Production • Highly curated organic lead • Automated interactions with generation Capital Markets and • In house analytics and Underwriting ensure teams drive all lead consistency and efficiency genera
Slide 22: Our technology is a competitive advantage that solidifies our market leadership position
Our technology is a competitive advantage that solidifies our market leadership position – Highly scalable loan lifecycle system underpins shortest time to close in the industry with highest number of automated controls – Systems drive key performance indicators including over 50% repeat borrower ra
Slide 23: Our investment portfolio supports our operating platforms and third-party mortgage lending activity
Our investment portfolio supports our operating platforms and third-party mortgage lending activity THIRD-PARTY INVESTMENTS • Retained Sequoia securities • Retained single-family rental • Credit-enhancement for GSE – Subordinate (CAFL) securities portfolios – Interest only – Subordinate – Reperformi
Slide 24: Our combined portfolios generate strong risk-adjusted returns with lower leverage than our competitors
Our combined portfolios generate strong risk-adjusted returns with lower leverage than our competitors $2.1 Billion Housing Credit Investments(1) $1.0 Billion Secured Financing (1)(2) Marginable debt 8% Residential Investments Third-Party 20% Investments 37% Non-marginable, Non-marginable non-recour
Slide 25: Portfolio discount and call options provide upside supported by current credit and prepay environment
Portfolio discount and call options provide upside supported by current credit and prepay environment >$400 Million Net Portfolio Discount Sequoia Prepayment (1) Sequoia Prepayment SpeedsSpeeds (1-month CPR) 60% Constant Prepayment Rate 50% CAFL Securities 40% 24% Other Third-Party Securities 30% Se
Slide 26: The impact of prepayments within our securitizations drives potential valuation upside
The impact of prepayments within our securitizations drives potential valuation upside Sample Transaction Clean-Up Call Deal Metrics At Issuance Current Exercisable at Date July 2014 January 2021 10% Pool Loan UPB ($MM) 306 37 Factor Pool Factor 100% 12% Gross Coupon 4.41% 4.36% 60+ DQ % 0% 0% RWT R
Slide 27: We believe best-in-class corporate responsibility is good for our shareholders, partners and employees
We believe best-in-class corporate responsibility is good for our shareholders, partners and employees Corporate Governance Human Capital • Committed to best practices that provide a • A values-based culture enables us to meet our strong foundation for fulfilling our mission and strategic goals to g
Slide 28: Appendix – Financial Tables
Appendix – Financial Tables
Slide 29: Financials-Redwood Review
A further discussion of Redwood's business, financial results and taxable income is included in the fourth quarter 2020 Redwood Review, which is available within 29 the “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
Slide 30: Financials-Redwood Review
(1) A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2020 Redwood Review, which is available within the 30 “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
Slide 31: Financials-Redwood Review
A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2020 Redwood Review, which is available within the 31 “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
Slide 32: Financials-Redwood Review
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2020 Redwood Review, which is available within the 32 “Financials-Redwood Review” section on the Company’s investor relatio
Slide 33: Financials-Redwood Review
(1) (1) A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2020 Redwood Review, which is available within the 33 “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
Slide 34: Financials-Redwood Review
A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2020 Redwood Review, which is available within the 34 “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
Slide 35: Appendix – Endnotes
Appendix – Endnotes
Slide 36: End Notes
End Notes Slide 5 (Most segments of the U.S. housing market rely on some form of Slide 11 (Growth trends in housing prices and single-family rents private capital) continued through 2020) 1. Redwood estimate of total non-agency consumer plus investor financing 1. Resale home price appreciation is th
Slide 37: End Notes (continued)
End Notes (continued) Slide 15 (We are the market leader in non-agency residential Slide 22 (Our technology is a competitive advantage that solidifies our securitization, whole loan trading, and credit investing) market leadership position) 1. Redwood Trust Sequoia jumbo loan portfolio as of Decembe
Slide 38: End Notes (continued)
End Notes (continued) Slide 30 (Financial Tables – Changes in Book Value Per Share) Slide 31 (Financial Tables – Investment Portfolio Key Financial 1. "Investment fair value changes in comprehensive income" presented Results) within this table represent market valuation adjustments on our 1. Amounts
Slide 39: End Notes (continued)
End Notes (continued) Slide 32 (Financial Tables - Capital Allocation Details Table) Slide 34 (Financial Tables – Residential Investments Credit 1. Other assets and liabilities are presented on a net basis within this Characteristics) column 1. Underlying loan performance information provided in thi
Slide 40: End Notes (continued)
End Notes (continued) Slide 34 (Financial Tables – Business Purpose and Multifamily Investments Credit Characteristics) 1. Bridge loans as presented in this table, include $642 million of business purpose bridge loans and $21million of other related assets. 2. Average current debt service coverage r
Slide 41: Redwood Trust
REDWOOD TRUST
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