Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Investor Presentation (May 2021)
45 slides from Redwood Trust's investor presentation, May 11, 2021
Slide 1: Investor Presentation
Investor Presentation May 11, 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, estimated returns on our operating business and investment p
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 RWT Horizons Whole loan sales Venture investment fund focused
Slide 8: Our strategic investments through RWT Horizons enhance our technology roadmap
Our strategic investments through RWT Horizons enhance our technology roadmap RWT Horizons drives innovation that can make mortgage lending and other related processes less redundant, more seamless and moreRWT transparent to our originators, borrowers and investors HORIZONS RWT HORIZONS $25M 3 initi
Slide 9: 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 10: 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 11: 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% 2014 1
Slide 12: 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% 11.2% 10.0% 8.0% 6.0% 4.7% 3.7% 3.8% 3.7% 4.0% 2.0% 0.0% -2.0% -3% -4
Slide 13: 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% 4 million SFR homes added 11.0% 10.5% 5.2
Slide 14: 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 ~40% of Businesses stream and book Diversified and Equity (1) >20% Returns(2) value growth high-quality (after tax) earnings ~60% of Investment Portfolio Stable to growing Superio
Slide 15: 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 16: 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%(2) portfolio sponsor delinquency rate • $400B(4) annual market • 112 Sequoia • <1% of portfol
Slide 17: We have completed over $89B in purchases life-to-date with substantial room for growth
We have completed over $89B in purchases life-to-date with substantial room for growth 2021: 112th securitization SEMT 2021-3 ($356m) 2019: 100th securitization SEMT 2019-2 ($405m) 2017: First “Choice” securitization SEMT 2017-CH1 ($308m) $90B 2013: 50th securitization $80B SEMT 2013-10 ($405m) $70B
Slide 18: 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 experience • “Rapid Funding+” program • Pipeline monitoring • “Redwood Live” a
Slide 19: 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 • $12.2B+ in loans
Slide 20: 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 21: We use partnerships to accelerate the expansion of our SFR footprint
We use partnerships to accelerate the expansion of our SFR 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 of cre
Slide 22: 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: 16th securitization, CAFL 2021-1 ($276M) $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 23: 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 24: 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 25: 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 26: 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 27: 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 >$350 Million Net Portfolio Discount Sequoia Prepayment Speeds(1) 60% Constant Prepayment Rate 50% Sequoia CAFL Securities Securities 15% 40% 8% Third-Party Securities 30% 37% 20% RPL Securities 10%
Slide 28: Callability of securitizations provides meaningful potential near-term upside
Callability of securitizations provides meaningful potential near-term upside Calls Completed through April 2021(1) ($ in m) Deal Metrics At Issuance At Call Estimated ~$0.02 Year 2012 2021 per share of total valuation upside Loan UPB $935 $75 associated with Pool Factor 100% 8% calls exercised Gros
Slide 29: 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 30: Appendix – Financial Tables
Appendix – Financial Tables
Slide 31: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
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 website at ir.redwoodtrust.com
Slide 32: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
(1) 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 website at ir.redwoodtrust.com
Slide 33: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
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 website at ir.redwoodtrust.com
Slide 34: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
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 website at ir.redwoodtrust.com
Slide 35: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
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 36: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
(1) (1) 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 website at ir.redwoodtrust.com
Slide 37: “Financials-Redwood Review” section on the Company’s investor relations website at ir.redwoodtrust.com
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 website at ir.redwoodtrust.com
Slide 38: Appendix – Endnotes
Appendix – Endnotes
Slide 39: End Notes
End Notes Slide 5 (Most segments of the U.S. housing market rely on some form of Slide 11 (Single-family rent growth remains strong and has private capital) historically stayed positive even in recessions) 1. Redwood estimate of total non-agency consumer plus investor financing 1. Resale home price
Slide 40: End Notes
End Notes Slide 14 (Our diversified revenue streams can support durable Slide 18 (We believe we can increase our market share 4-5x by the end earnings and valuation expansion) of 2025) 1. The multiplier for the increase in market share we believe we can 1. Equity allocations for our operating busine
Slide 41: End Notes (continued)
End Notes (continued) Slide 24 (Our technology is a competitive advantage that solidifies Slide 27 (Portfolio discount and call options provide upside our market leadership position) supported by current credit and prepay environment) 1. Includes CoreVest originations only 1. Prepayment speeds repre
Slide 42: End Notes (continued)
End Notes (continued) Slide 31 (Financial Tables – Key Financial Results and Metrics) Slide 34 (Financial Tables – Investment Portfolio Key Financial 1. Economic return on book value is based on the periodic change in GAAP Results) book value per common share plus dividends declared per common share
Slide 43: End Notes (continued)
End Notes (continued) Slide 35 (Financial Tables - Capital Allocation Details Table) Slide 37 (Financial Tables – Residential Investments Credit 1. Other assets and liabilities are presented on a net basis within this column Characteristics) 2. Non-recourse debt presented within this table excludes
Slide 44: End Notes (continued)
End Notes (continued) Slide 37 (Financial Tables – Business Purpose and Multifamily Investments Credit Characteristics) 1. Bridge loans as presented in this table, include $626 million of business purpose bridge loans and $19 million of other related assets. 2. Average current debt service coverage
Slide 45: Redwood Trust
REDWOOD TRUST