SFL

• Financial Strength & Dividends: Celebrated the 90th consecutive quarterly dividend ($22 cents/share) with over $3 billion in accumulated payouts since inception. Net income was $34 million (25 cents/share), and adjusted EBITDA rose 20% quarter-over-quarter to $130 million.
• Car Carrier Strategy Expansion: Added significant scale by ordering four new 7,000 cu LNG dual-fuel car carriers for delivery in 2029. Two were pre-charted for five-plus-five years, adding $150-$300 million in backlog. Existing older vessels were also re-chartered for three years, adding $83 million.
• Spot Market Outperformance: Two Suezmax crude oil tankers traded in a booming spot market, achieving average rates up to $133,000/day in Q2, significantly higher than previous long-term charters. Revenue recognition is load-to-discharge based.
• Fleet Utilization & Composition: The diversified portfolio includes 61 assets (30 container ships, 16 tankers, 11 car carriers, etc.). Utilization remained strong across shipping segments (99.3%-100%). The energy segment ran at 50% utilization due to one rig operating and one stacked.
• Capital Management: Raised $100 million in equity via ATM and DRIP programs at a premium to VWAP, minimizing dilution. Proceeds are being deployed into new projects. No further share issuances planned in the foreseeable future.

• Charter Backlog Visibility: Maintained a robust charter backlog of $3.8 billion, with two-thirds held by investment-grade counterparties, providing high earnings visibility.
• New Building Deployment: Expects to secure charters for the remaining two unchartered new-build car carriers in due course, citing attractive market dynamics and sold-out shipyard slots through 2030.
• Tanker Chartering: Plans to seek new long-term charter opportunities for the two Suezmax tankers currently in the spot market once current trades conclude.
• Drilling Rig Outlook: Hercules rig expected to begin contributing revenue in the first half of 2027 following preparation in Norway and move to Canada in February.

The company does not report financial results broken down by specific product segments in absolute terms within the transcript. However, gross charter hire contributions are provided: Container vessels contributed approximately $83 million; Tankers contributed approximately $62 million; Car carriers contributed approximately $27 million; and Energy assets contributed approximately $24 million. In terms of revenue contribution percentage to the total backlog, Container vessels account for close to 70%, Car carriers around 15%, Energy assets around 10%, and Tankers the balance.

• Spot Market Volatility: Revenue from spot-traded vessels (like the Suezmax tankers) fluctuates significantly based on daily rates and cargo availability. GAAP revenue recognition is delayed until cargo is on board, causing potential volatility in reported quarterly figures.
• Regulatory & Environmental Costs: Transitioning to alternative fuels involves higher capital costs. While customers show willingness to pay for green transport in finished goods (cars/containers), raw material shippers have limited willingness to absorb higher fuel costs.
• Long Lead Times: The offshore drilling and shipping markets operate on long schedules; recovery or expansion in activity (e.g., oil exploration) is a slow process rather than an immediate surge.
• Counterparty Risk: Although mitigated by investment-grade clients, reliance on long-term contracts exposes the firm to credit risks if counterparties default.

Q: Why is management confident ordering spec car carriers despite past caution?

A: COO Trym Sjølie explained that consistent growth in Chinese vehicle exports has created a supply-demand gap starting in 2029-2030. Years of low vessel investment mean older tonnage will phase out, justifying new builds even without attached charters. CEO Ole Hjertaker added that unlike raw materials, finished goods shippers show a distinct willingness to pay premiums for greener fuels, supporting the economic case for modern, eco-friendly vessels.

Q: How do you view the Hercules rig's future given Middle East disruptions and extension options?

A: CEO Ole Bjarte Hjertaker noted the rig is preparing for Canadian operations in February after upgrades in Norway. He emphasized that while oil exploration markets are strengthening, they evolve slowly. Regarding extensions, he highlighted a structured profit-split option: charterers can either extend the lease at favorable rates or purchase the vessel, allowing SFL to capture upside gains or secure long-term cash flow depending on their choice.

Q: What drives the decision to use LNG dual-fuel propulsion for new car carriers?

A: COO Trym Sjølie stated that conventional fuel options are no longer available in shipyards, making LNG, methanol, or ammonia the only choices. He argued LNG is currently the best intermediate solution due to availability and technical requirements, noting existing dual-fuel vessels run exclusively on LNG. CEO Hjertaker reinforced this by observing that end-users demand green transportation, creating a willingness to pay for lower emissions that doesn't exist in bulk commodity shipping.

Q: Are there purchase options in the backlog that could be exercised soon?

A: CEO Ole Hjertaker disclosed that seven tankers (three Suezmax, four LR2) have extension options coming up that are 'well in the money' compared to current spot rates. He detailed a unique contract structure offering charterers a choice: extend the charter for steady cash flow or buy the vessels outright. This gives SFL flexibility to either maintain long-term income or realize a significant windfall gain from asset sales.