Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Investor Day (March 2024)
47 slides from Redwood Trust's investor day presentation, Mar 19, 2024
Slide 1: Redwood Trust Investor Day
Redwood Trust Investor Day March 19, 2024
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements, including statements related to potential book value upside related to embedded discount within our securities portfolio, potential transactional volume achievable for Redwood’s Residential Consumer and Residential Inv
Slide 3: Agenda
Agenda To Own RWT Page 4 Shifting Roles in Housing Page 22 01 02 Finance: How Private Capital Can Support Bank Capital Needs The Power of Partnerships: Page 23 Operating Blueprint: Partnership Page 25 03 Private Credit Partnerships 04 Based Investing Underscore Our Opportunity Election Year Poli
Slide 4: Today's Redwood Speakers
Today’s Redwood Speakers Chris Abate Dash Robinson Brooke Carillo Chief Executive Officer President Chief Financial Officer 3
Slide 5: To Own RWT
To Own RWT Chris Abate Chief Executive Officer 4
Slide 6: Our Thesis
Our Thesis We are on the cusp of a The next bull market for secular shift in the way interest rates and credit mortgages are financed spreads is upon us Private institutional capital has We are positioned in the exhibited great demand for our largest untapped addressable products markets in resident
Slide 7: A Few Things Happened Since Our Last Investor Day
A Few Things Happened Since Our Last Investor Day 6.0% 2024 Investor Day 5.0% Fed Funds Target Rate (%) 4.0% 3.0% 525 bps Increase in Fed Funds since our 2021 Investor 2.0% Day 1.0% 2021 Investor Day 0.0% September 2021 March 2024 6
Slide 8: We've Focused on Strengthening Our Market Positioning
We’ve Focused on Strengthening Our Market Positioning Redwood Business or Segment Poised to Grow Market Share New Platform Seeded Housing Investors Total Addressable Market(1) Clients Served ~$130 Billion 7
Slide 9: As Rates Began to Rise, Housing Transaction Activity Was Among the First to Go
As Rates Began to Rise, Housing Transaction Activity Was Among the First to Go… Quarterly Mortgage Origination Volumes vs. Mortgage Rates $1,261 8.0% Quarterly Mortgage Origination Volume ($bn) $1,076 $1,094 $1,050 $928 $954 6.0% $893 30 Yr Mortgage Rate (%) $689 $678 4.0% $480 $463 $444 $398 $399 $
Slide 10: Fed Tightening Pushed Risk Capital to the Sidelines
…. And Fed Tightening Pushed Risk Capital to the Sidelines A record $6 trillion in money market funds should provide a major tailwind for credit spreads once the Fed eases and managers allocate capital back into risk assets Money Market Fund Assets vs. Fed Funds Target Rate $6,500 6.00% 5.00% $6,000
Slide 11: Consensus Shows Fed Easing in 2H'24; Sectors Hit Early Should Recover
Consensus Shows Fed Easing in 2H’24; Sectors Hit Early Should be Among the First to Recover Homebuyers have exhibited eagerness to move off the sidelines at the first sign of any reprieve Significant Pent-Up Demand After Years of Declining Transaction Volume 4.0 90 3.5 Owner Occupied Housing Units (
Slide 12: Regulatory Reform Has Been the Major Market Catalyst
For Housing Finance, Regulatory Reform Has Been the Major Market Catalyst Over the Past 30 Years We see this latest changing regulatory environment as a major catalyst for Redwood’s strategy Crisis Reform Post Crisis New mREITs & Mortgage Companies Financial Institutions S&L Crisis Reform, Recovery
Slide 13: Final Regulations Remain Uncertain but Life's Too Short for Many Bank Executives
Final Regulations Remain Uncertain…but “Life’s Too Short” for Many Bank Executives Banks have historically transitioned between “rates” and “credit” in response to past crises U.S. Bank Failures Since 2008 600 180 157 160 500 Number of Bank Failures (actual) Total Assets of Failed Banks ($bn) 140 14
Slide 14: A Jumbo Sized NIM Squeeze for Banks
A Jumbo Sized NIM Squeeze for Banks The economics have changed for banks holding large jumbo portfolios after the era of cheap deposits ended Bank Holdings of Jumbo Loans vs. Deposit Costs $1,400 252 Of the $2.8 trillion of residential assets Interest Bearing Deposit Costs (bps) Holdings of Jumbo Lo
Slide 15: Banks Can Grow Market Share by Working with Redwood
Banks Can Grow Market Share by Working with Redwood Redwood’s speed to close and reliable execution support banks’ natural capital advantages Banks Have Ceded Ground to Non-Banks(2) Non-bank originator Bank originator 27% 33% 56% 55% 86% 73% 67% 44% 45% 14% 2006 2010 2015 2020 FY'23 14
Slide 16: Our Securitization Pedigree Stands Above
Our Securitization Pedigree Stands Above Like the GSEs, Redwood has permanent capital, securitization capabilities, and no direct consumer touchpoints - making us an ideal partner Non-Bank Jumbo Securitization Activity 2010 to Present Securitizations # of 74 12 14 10 8 6 7 7 5 5 Rank Issuer (Ticker)
Slide 17: Private Credit is Surpassing Banks and REITs as Dominant Owner of Mortgage Assets
Private Credit is Surpassing Banks and REITs to Become the Dominant Owner of Mortgage-Related Assets In the years following the GFC and Covid, private equity expanded into private credit as U.S. banks pulled back and investors moved back into risk assets Growth in Global Private Debt AUM Post GFC $2
Slide 18: Our Strategic Partnership with CPP Investments is a Watershed Moment
Our Strategic Partnership with CPP Investments is a Watershed Moment We have continued our focus on deployment alongside leading capital partners Joint Venture Financing Facility Capital Commitment Initial Product Eligibility Initial Product Eligibility $500mm Up to $4bn Combined Equity Contribution
Slide 19: Redwood's Addressable Markets: Home Equity Riddle
Redwood’s Addressable Markets: We Aim to Solve the Home Equity “Riddle” Even a 200bps tightening of mortgage rates will leave over 80% of existing mortgages out-of-the-money for refinance Outstanding Mortgages by Mortgage Rate 82% of Existing Agency Mortgages 200Bps+ Out-of-the-Money 1,820.7 18% of
Slide 20: Aspire is Built to be Transformational
Aspire is Built to be Transformational Through our recently launched home equity platform, Aspire, we have access to one of the largest untapped markets in housing finance Ability to organically Unique private Differentiate sourcing create high-quality capital access channels & abilities products $3
Slide 21: Our Goal with Aspire is to Make Home Equity Accessible
Our Goal with Aspire is to Make Home Equity Accessible to all Homeowners We offer homeowners a compelling alternative to additional debt…while providing private institutional capital with efficient access to home price appreciation Sector Participants Average Investment Multiple 3.0-4.0x 3.0 – 4.5x
Slide 22: To Own RWT…
To Own RWT… …is to hold the keys to tremendous option value on the future of housing finance Our Market Positioning $2.68 Net Portfolio Discount + $2.64 Market Levered Take on Fed Easing / Housing Market Recovery Discount to Book Value = $5.32 Per Share(1)(2) Unique Partnerships Drive Path to AUM Gr
Slide 23: Shifting Roles in Housing Finance: Panel
PA N E L Shifting Roles in Housing Finance: How Private Capital Can Support Bank Capital Needs Moderator Panelists Dash Robinson Eric Schuppenhauer Michael Brown Eric Bisman President, Executive Vice President and Managing Director, Global Senior Director, Capital Markets, Redwood Trust President of
Slide 24: The Power of Partnerships: Panel
PA N E L The Power of Partnerships: Private Credit Underscores Our Opportunity Moderator Panelists Steven Delaney Brooke Carillo Dash Robinson Managing Director, Research Chief Financial Officer, President, Analyst, Citizens JMP Securities Redwood Trust Redwood Trust 23
Slide 25: Summary of Partnership with CPP Investments
Summary of Partnership with CPP Investments Redwood and CPP Investments announce $750 million strategic partnership Joint Venture Financing Facility Capital Commitment Initial Product Eligibility Initial Product Eligibility $500mm Up to $4bn Combined Equity Contribution Target Purchasing Power(1) $2
Slide 26: Operating Blueprint: Partnership Based Investing
Operating Blueprint: Partnership Based Investing Dash Robinson Brooke Carillo President, Chief Financial Officer, Redwood Trust Redwood Trust 25
Slide 27: Key Themes Underpinning Our Operating Blueprint
Key Themes Underpinning Our Operating Blueprint The Next Bull Market Cycle for Rates Partnership Based Investment Approach and Credit Spreads is on the Horizon Improves Business ROEs Strong Capital Position Affords Unlocking of Operating Leverage Opportunities for Accretive Capital Supports Durable
Slide 28: Asset Management is a Natural Extension of Our Business Model
Asset Management is a Natural Extension of Our Business Model Redwood oversees $14 billion(1) of collateral across our businesses, primarily sourced through our operating platforms Residential Consumer Originating Jumbo Loans Sourcing Operating Functions Residential Investor $14 Housing Finance (Bri
Slide 29: Partnership Structures Support Our Growth Opportunity
Partnership Structures Support Our Growth Opportunity We can achieve further scale in our operating platforms by investing alongside strategic capital partners Benefits of Joint Venture Drives scale through dedicated Creates upfront and recurring fee-based outside capital income streams Allows Redwo
Slide 30: New Financing Provides Runway to Grow Residential Consumer Jumbo Volume
New Financing Provides Runway to Grow Residential Consumer Jumbo Volume The Residential Consumer opportunity is significant – partnership capital can be used to support growth Residential Consumer Potential Opportunity Estimated $300 Billion Illustrative Impact to Residential Consumer Lock Volume Fi
Slide 31: Addressing the Residential Investor Opportunity with Strategic Partners
We Will Address the Residential Investor Opportunity with Strategic Partners Combining our capital with a strong partnership can support sustained volume growth Residential Investor Potential Opportunity Estimated $130 Billion Illustrative Impact of Partnership to our Residential Figures $bn Residen
Slide 32: Revenue and Capital Allocation Evolution
Revenue and Capital Allocation Evolution Partnership based investing furthers diversification of our revenue and capital mix Revenue Mix(1) Capital Allocation Mix(2) Target 3% 3% Returns(3) 22% 12-18% 35% ROE 60% 81% 46% 25% 12-18% ROE 37% 40% 31% 15-20%+ 16% ROE 2024 Run-Rate Target 5-Year Vision 2
Slide 33: Diversified Corporate Capital Structure
Diversified Corporate Capital Structure Capitalization balanced across a number of public and private capital strategies Capital Structure Enhancement(1) Common Equity Convertible Debt $4.5bn Our goal is to continue to focus on: Unsecured Debt TruPS/Preferred Equity Corporate Term Facility Joint Ven
Slide 34: Strong Liquidity Position Provides Opportunity for Further Deployment
Strong Liquidity Position Provides Opportunity for Further Deployment We have the capital on balance sheet and available financing to support our business goals Available Liquidity(1) Q1’24 QTD Deployment(2) Figures $mm $589 Debt Repurchased $250 $25mm $339 $139mm Cash at 3/15/24 Fully Drawn Proceed
Slide 35: 2024 Run-Rate to Higher Earnings Available for Distribution
2024 Run-Rate to Higher Earnings Available for Distribution Executing our capital light strategy at our operating platforms will allow us to grow EAD towards our current quarterly dividend EAD Path to Supporting our Current Quarterly Dividend Payment1) $0.16 $0.16 $0.02 ($0.01) EAD Per Share $0.04 $
Slide 36: Key Operating Metrics QTD Q1'24
Key Operating Metrics QTD Q1’24(1) 20% QoQ Increase $1.2bn of Securitized Jumbo Collateral in Quarterly Jumbo Lock Volume to date(2) Across Three Deals $139mm $750mm of Capital Deployed Towards New Investments of New or Renewed Warehouse Financing and the Repurchase of 2024 Corporate Debt Capacit
Slide 37: Key Operating Metrics That Drive Earnings Efficiency
Key Operating Metrics That Drive Earnings Efficiency(1) We have committed to reducing G&A by an additional $10 million in 2024 as mortgage banking volumes reflate to return to the lower end of historical ranges Corporate G&A to Total Assets Figures $bn Total Assets Corporate G&A to Total Assets $20.
Slide 38: Election Year Politics: Regulation and Housing Policy
PA N E L Election Year Politics: Insights on Regulation and Housing Policy Moderator Panelists Armando Falcon Isaac Boltansky Ed DeMarco Jason Cave Redwood Trust Board Member and Managing Director and Director President, Principal, CEO, Falcon Capital Advisors LLC of Policy Research, BTIG Housing Po
Slide 39: The Opportunity to Build a More Accessible Housing Market
PA N E L The Opportunity to Build a More Accessible Housing Market Moderator Panelists Kaitlyn Mauritz Faith Schwartz Chrissi Johnson Carlene Graham Head of Investor Relations, Redwood Trust Board Founder and CEO, Chief Operating Officer, Redwood Trust Member and Founder & CEO, Alinement Advisors Re
Slide 40: Our Mission
OUR MISSION Our mission is to make quality housing, whether rented or owned, accessible to all American households.
Slide 41: Q&A
Q&A
Slide 42: Appendix
REDWOOD TRUST Appendix
Slide 43: Endnotes
Endnotes Slide 6 Slide 8 Slide 12 Source: Bloomberg data as of March 2024. Fed Fund Target Source for 30 Yr Mortgage Rate: Bloomberg data as of Note: Analysis limited to commercial bank, savings bank, Rate presents FDTRMID Index per Bloomberg. March 2024. Source for Quarterly Mortgage Origination an
Slide 44: Endnotes
Endnotes Slide 17 Slide 21 Slide 29 Source: Details of CPP Investments and Redwood Trust Source: Based on Redwood Company Data as of December 1. Residential Jumbo market share opportunity for Jumbo partnership per transaction agreements. See also Form 8-k 31, 2023 unless otherwise noted. Lock Volume
Slide 45: Endnotes
Endnotes Slide 31 Slide 33 Slide 36 1. Revenue mix in each year is based on actual or 1. Cash balance at March 15, 2024 includes cash and cash 1. Key operating metrics for Redwood calculated as forecasted values of revenue for each category. 2024 equivalents plus expected proceeds from pledging foll
Slide 46: Glossary of Terms
Glossary of Terms Term Definition Term Definition Term Definition At-the-market stock issuance JV Joint venture SEMT® Sequoia securitization program ATM program LTC Loan to cost SFR Single-family rental BFR Build for rent LTV Loan to value SMA Separately managed accounts bps Basis points MB Mortgage
Slide 47: investorrelations@redwoodtrust.com redwoodtrust.com
investorrelations@redwoodtrust.com redwoodtrust.com