SFL Corporation Ltd. Q3 FY2025 earnings call

Key Points

• Announced 87th consecutive dividend while building SFL as a maritime infrastructure company with a diversified fleet.
• Third quarter revenues: $178 million, EBITDA equivalent cash flow: $113 million. Over 12 months, EBITDA: $473 million.
• Strengthened charter backlog with long-term agreements, invested in cargo handling and fuel efficiency, divested older and less efficient vessels.
• Fleet renewal: Sold 5 dry bulk vessels built 2009-2012, redelivered 8 Capesize bulkers and 7 container ships. 11 vessels now LNG capable, 5 newbuildings under construction.
• Offshore segment: Hercules rig idle, evaluating strategic alternatives. Fleet average age reduced to less than 10 years by selling older vessels.
• Container vessels: Upgraded 13 vessels with $100 million in upgrades (partly funded by charterers), 2 dual-fuel chemical tankers bought, 4 LNG dual-fuel car carriers delivered, 5 16,000 TEU dual-fuel container vessels on order for a leading European operator.

For the third quarter, container vessels were the largest contributor with $82 million in adjusted EBITDA. The car carrier fleet added $23 million (down from $26 million in the second quarter due to SFL Composer's dry docking). The tanker segment generated $44 million, benefiting from long-term charters. Dry bulk contributed $6 million, down from $19 million as part of fleet renewal. Energy assets generated $24 million from LINUS on a long-term charter to ConocoPhillips until May 2029. Total gross charter hire including profit share income was $179 million.

Forward-Looking Statements

• Declared a quarterly dividend of $0.20 per share, 87th consecutive. Charter backlog stands at $4 billion, 2/3 contracted to investment-grade counterparties.
• Remaining capital expenditures: $850 million on 5 container newbuildings, $25 million on fleet efficiency/general upgrades. Liquidity position strong with $278 million in cash and cash equivalents and $40 million undrawn credit lines.

Risks

• Conditions in shipping, offshore, and credit markets could materially affect results.
• Uncertainty around Red Sea situation impacting container ship operations and potential increase in operating expenses if trade returns to normal.
• Volatility in tanker spot rates and order book affecting future charter arrangements for vessels rolling off charters.

Q: Do you guys expect Hercules to be leased in the new year? And the Gulf of America Lease Sale 262 impact?

A: Focused marketing effort on areas where Hercules has unique capabilities like North Sea, Canadian harsh environments, Namibia/South Africa (relatively few competing rigs).

Q: Considering well intervention for the Hercules?

A: Looking for any work, upgraded rig for development drilling to potentially secure longer contracts.

Q: Tanker fleet rolling off, too soon to secure long-term work?

A: Vessels have 2-year options, profit share feature on 4 LR2 product tankers (significant value beyond book value), too early to determine future charters.

Q: Update on $100 million buyback?

A: $80 million remaining on buyback, bought back $10 million this year at avg $7.98 per share.

Q: Red Sea attacks pause, how long for container ships to return?

A: Wait-and-see, risk evaluation ongoing. If trade returns, reduced operating expenses as vessels would no longer need to take longer routes around Africa.

Q: Purchase obligations in charter contracts?

A: Predominantly time charter now, owning residual value of vessels, profit sharing on some vessels where significant market upside exists.

Q: Outlook for new transactions outside container segment?

A: Segment agnostic, looking for opportunities with strong counterparties across maritime space, no specific guidance on investments in specific segments.