Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Investor Presentation (July 2021)
46 slides from Redwood Trust's investor presentation, Jul 28, 2021
Slide 1: Investor Presentation
Investor Presentation July 28, 2021 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements, including statements regarding our 2021 forward outlook, estimated adjusted returns on our operating business and investment portfolio, estimated loan acquisition and origination volumes, estimates on our revenue mix,
Slide 3: Our Mission
Our Mission Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all American households. 3
Slide 4: Redwood Trust provides significant liquidity to the housing finance industry
Redwood Trust provides significant liquidity to the housing finance industry through our diversified business model Through our market leading platforms we: Aggregate and originate mortgages made to homeowners and landlords not efficiently served by government programs Structure loans into securitie
Slide 5: Mortgage Banking Operations
We address a vast and growing market spanning the entire non-agency market 1H 2021 Consumer Lending • Leading non-agency conduit providing liquidity to a broad set % of Allocated of originators Capital(1) Mortgage Banking Operations • Innovative technology initiatives aimed at disrupting traditional
Slide 6: We had strong outperformance in 1H 2021
We had strong outperformance in 1H 2021 and are well positioned to sustain our growth trajectory 29% increase in 19% book value ~70% of Adjusted dividend since Q4 2020 to TSR year-to-date(1) with Revenue for 1H $0.18/share further upside potential from 2021 generated from retained earnings and opera
Slide 7: Growth drivers for our business
Growth drivers for our business have potential to deliver attractive shareholder returns over the long-term MACRO & REGULATORY ALPHA DELIVERING BACKDROP GENERATION SHAREHOLDER VALUE Sizeable & Growing Gaining Market Share Unique Total Return Non-agency Market Residential • Record volume growth drive
Slide 8: Macro and Regulatory Backdrop
Macro and Regulatory Backdrop Current trends support a large and growing non- agency market opportunity 8
Slide 9: Macro trends support non-agency residential market expansion
Macro trends support non-agency residential market expansion Growing Markets will Likely Require Increased Average Annual Equity Gains from Q1 2021 Underscore (1) Access to Non-Agency Lending Homebuying & Mobility Trends Emerging from COVID(2) • Homebuying trends over the past year have driven homeo
Slide 10: Migration of non-core GSE products represents a continued growth opportunity
Migration of “non-core” GSE products represents a continued growth opportunity $ billions GSE Originations | 2017 – 2020(1) $2,500 $2,386 3% Core Non-Core Total ($bn) 15% $2,000 2017 50% 50% $835 2018 47% 54% $760 Represents “non- 3% core” GSE products 2019 50% 50% $1,023 15% $1,500 2020 55% 45% $2,
Slide 11: As housing investors gain market share, the GSE footprint is shrinking
As housing investors gain market share, the GSE footprint for those borrowers is shrinking The recently-enacted 7% loan cap on GSE purchases represents increased supply opportunities for private capital • On January 14, 2021, the U.S. Department of the Treasury and the FHFA announced caps on GSE pur
Slide 12: SFR lending is a large and growing sector of the non-agency market
SFR lending is a large and growing sector of the non-agency market SFR Home Demand Increasing in Top 20 Markets Total Housing Market (141.2M Unit Inventory)(3) • Rising home prices and supply shortages increasing 12.5M demand for single-family rental homes, resulting in high Vacant 15.7M Units in La
Slide 13: The addressable market for non-agency lending is primed to expand
The addressable market for non-agency lending is primed to expand, in part due to regulatory tailwinds Non-Agency Loan Origination Volumes by Type $800 Recent regulatory changes $725+ (QM rules and new GSE caps) $35 $700 $600 $150 $525 $500 $482 $90 $90 $Billion $90 $400 $300 $435 $450 + $200 $392 $
Slide 14: Alpha Generation
Alpha Generation Operating platforms with best-in-class customer service and disruptive technologies positioned to continue gaining share of growing market Investment portfolio continues to realize embedded value and deliver strong risk adjusted returns 14
Slide 15: Continued product development across a large addressable market
Our continued product development across a large addressable market drives potential volume growth Residential Business Purpose Annual Addressable $435bn+ $90bn+ Market Near-term Redwood $15-20bn $2-3bn Opportunity(1) Single Asset Ground-up- Single Home Bridge Construction Portfolio Loans 30yr Renta
Slide 16: Our residential conduit is well positioned to capture market share
Our residential conduit is well positioned to continue capturing market share and grow profitably Securitizations Whole Loan Sales $20.0 $14.0 3yr CAGR: 25% $17.0 $11.2 $16.0 $12.0 $14.4 $ in Billions $10.0 $12.0 $7.2 $7.2 $9.7 $8.0 $6.2 57% $ in Billions $8.4 $8.7 $8.0 $7.1 $6.0 $4.6 31% $3.8 57% 5
Slide 17: Runway for significant growth as the leading lender to housing investors
We have runway for significant growth as the leading lender to housing investors $14B $13B $5.0B $4.4B $4.5B $12B 3yr CAGR: 36% $4.0B $10B $3.5B $8B $3.0B $2.5B $6B $2.0B $4B $1.5B $1.0B $2B $0.5B - - Cumulative Loans Closed Cumulative Loans Securitized • We are the leading lender to residential rea
Slide 18: We use partnerships to accelerate the expansion of our footprint
We use partnerships to accelerate the expansion of our operating footprint RWT Horizons – In April 2021, we made a minority preferred equity investment in Churchill Finance, a vertically-integrated real estate finance company – Churchill focuses on the origination, aggregation, and asset management
Slide 19: Disrupting the non-agency mortgage industry with innovative technology
We are disrupting the non-agency mortgage industry with innovative technology and distribution channels Achievements to date in 2021 Sourcing ✓ Speed to distribute loans improved Technology-enabled / data-driven customer 33% versus 2019 acquisition tools ✓ Completed 5 investments to date through RWT
Slide 20: Combined portfolios positioned to generate strong risk-adjusted returns
Our combined portfolios continue to be positioned to generate strong risk-adjusted returns $2.3 Billion Housing Credit Investments(1) $1.1 Billion Secured Financing(1)(2) • Agency CRT Marginable, Recourse • RPL securities Debt • Multifamily 10% securities Non-Marginable, Business Third-Party Non-Rec
Slide 21: Call options and portfolio discount should provide upside to book value
Call options in our securitizations and portfolio discount should provide further upside to current book value $16.00 Book Value Build $15.00 $2.60 $14.00 $13.00 $0.71 $12.00 $1.55 $11.00 $10.00 $9.91 $9.00 A B C $8.00 Book Value 12/31/20 Book Value Appreciation Potential Premium of Potential Book V
Slide 22: Fundamental credit performance supports potential book value upside
Fundamental credit performance supports further potential book value upside SLST Collateral $2.60 per share of Net Discount by Performance Prepay Speed (LHS) 60+ Delinquencies (RHS) Investment Type 14 25 12 20 10 Primarily 8 15 Redwood- 6 10 4 controlled CAFL 2 5 call rights Securities 0 0 Mar-20 Ma
Slide 23: Delivering Shareholder Value
Delivering Shareholder Value Diversified operating model delivers strong shareholder value through unique total return 23
Slide 24: Our franchise sets us apart
Our franchise sets us apart Reputation and Brand Human Capital • Our brand equity was built from strong results • Employees are the foundation of our franchise – over 27-year history, with unparalleled industry cumulative experience and track record of relationships success through many cycles • Lon
Slide 25: Diversified revenue streams can support durable earnings
Our diversified revenue streams can support durable earnings and valuation multiple expansion Durable earnings stream and book Diversified and Operating Businesses value growth high-quality earnings Stable to growing Superior total Investment Portfolio dividends returns • Our unique earnings mix del
Slide 26: Growing contributions from operating businesses can support book value expansion
Growing contributions from our operating businesses can support book value expansion Adjusted Revenue Mix(1) Mortgage Banking Investments 100% 80% 32% 32% 67% 60% 60% 40% 68% 68% 20% 40% 33% 0% 2018 2019 2H 20 1H 21 • Mortgage banking has grown to represent nearly 70% of our adjusted revenue mix in
Slide 27: We have delivered strong financial results
We have delivered strong financial results Return on Equity (annualized) 60% 57% 50% 40% 34% ROE rebounded sharply 30% 29% coming out of the pandemic 20% and continued strength should 20% be driven by: 10% 0% • Improved credit performance from Q3 2020 Q4 2020 Q1 2021 Q2 2021 our differentiated inves
Slide 28: 2021 Forecast Update
RWT 2021 Forecast Update
Slide 29: Profitability: 2021 forecast and first half progress
2021 forecast | First half (1H) progress to date What We Said What We Did (1H) (Q4’20 Financial Outlook for 2021 FY) • 38% after-tax adjusted return(1) on operating businesses Profitability • 20%+ after-tax return target for operating businesses • 11% adjusted return(1) on investment portfolio Incom
Slide 30: 2021 forward outlook
2021 forward outlook Operating Businesses Investment Portfolio Corporate • 2H after-tax adjusted returns(1) • 2H adjusted returns(1) of • Leverage corporate of 20% – 25% on overall 10–12% on deployed capital operations, as capital capital allocated to operating deployment and loan growth businesses
Slide 31: Redwood's outlook
Redwood’s outlook Increase Wallet Share Our share is growing with our scalable platform Technology & Efficiencies Technology and process improvements to reduce industry- wide friction points and further productivity Roadmap to Higher Capital Allocation to Higher Margin Profitable Businesses Growth A
Slide 32: Appendix | Endnotes
RWT Appendix | Endnotes
Slide 33: Redwood Review reference
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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 34: Redwood Review reference
(1) 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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relat
Slide 35: Redwood Review reference
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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 36: Redwood Review reference
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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 37: Redwood Review reference
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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 38: Redwood Review reference
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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 39: Redwood Review reference
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 second quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 40: Redwood Review reference
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 first quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 41: Non-GAAP Measures
Non-GAAP Measures Adjusted Revenue Adjusted Return Adjusted Revenue is a non-GAAP measure derived from GAAP revenue, Adjusted Return for our operating businesses represents non-GAAP After-tax exclusive of non-cash amortization for amounts related to historical business operating return on capital as
Slide 42: Endnotes
Endnotes Slide 5 (We address a vast and growing market spanning the entire non- Slide 7 (Growth drivers for our business have potential agency market) to deliver attractive shareholder returns over the long-term) 1. Allocated capital includes working capital and platform premium for 1. US average so
Slide 43: Endnotes
Endnotes Slide 12 (SFR Lending is a large and growing sector of the non- is calculated by assuming the volume outside of Agency/jumbo reverts agency market) to historical share averages from 2009 - 2020 (10% of a $1.5 trillion market). Total residential mortgage originations volume from 2009 to 2020
Slide 44: Endnotes
Endnotes Slide 20 (Our combined portfolios continue to be positioned to generate Slide 29 (2021 forecast | First half (1H) progress to date) strong risk-adjusted returns) 1. Adjusted Return is a non-GAAP measure. See the Non-GAAP Measures 1. All data presented as of June 30, 2021. section on slide
Slide 45: Endnotes
Endnotes Slide 35 (Mortgage Banking Key Operating Metrics) 3. Adjusted return on capital (non-GAAP) represents the quotient of annualized Adjusted net contribution (non-GAAP), divided by Capital 1. "Mortgage banking income" presented in this table represents the sum of utilized during the period. Se
Slide 46: Endnotes
Endnotes Slide 39 (Recourse Debt Balances at June 30, 2021) Slide 40 (Business Purpose and Multifamily Investments Credit Characteristics) 1. Non-marginable debt and marginable debt refers to whether such debt is subject to market value-based margin calls on underlying collateral that is 1. Bridge l