Q1 2026 SFL Corp Ltd Earnings Call
Speaker #1: Welcome to SFL's first quarter 2026 conference call. My name is Espinosa and I'm Vice President of Investor Relations in SFL. Our CEO, Ule Asaka, will start the call with an overview of the first quarter highlights, then our Chief Operating Officer, Trym Sjøli, will comment on vessel performance matters, followed by our CFO, Aksel Olesen, who will take us through the financials.
Espen Gjøsund: Welcome to SFL's Q1 2026 conference call. My name is Espen Gjøsund, and I'm Vice President of Investor Relations in SFL. Our CEO, Ole Hjertaker, will start the call with an overview of the Q1 highlights. Our Chief Operating Officer, Trym Sjølie, will comment on vessel performance matters, followed by our CFO, Aksel Olesen, will take us through the financials. The conference call will be concluded by opening up for questions, and I'll explain the procedure to do so prior to the Q&A session. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance.
Speaker #1: The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session.
Speaker #1: Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Speaker #1: Words such as "expect," "anticipate," "intends," "estimates," or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance.
Speaker #1: These statements are based on our current plans and expectations, and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements.
Espen Gjøsund: These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping, offshore, and credit markets. You should therefore not place undue reliance on these forward-looking statements. Please refer to our filings within the Securities and Exchange Commission for a more detailed discussion of risks and uncertainties which may have a direct bearing on results and our financial condition. I will leave the word over to our CEO, Ole Hjertaker, with highlights for Q1.
Speaker #1: Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping offshore and credit markets. You should therefore not place undue reliance on these forward-looking statements.
Speaker #1: Please refer to our filings within the Securities and Exchange Commission for more detailed discussion of risks and uncertainties which may have a direct bearing on results and our financial condition.
Speaker #1: Then I will leave the word over to our CEO, Ule Asaka, with highlights for the first quarter.
Speaker #2: Thank you, Espen. We are pleased to announce our 89th consecutive dividend, and we have firmly positioned SFL as a maritime infrastructure company with a diversified high-quality fleet.
Ole Hjertaker: Thank you, Espen. We are pleased to announce our 89th consecutive dividend, and we have firmly positioned SFL as a maritime infrastructure company with a diversified high quality fleet. For the Q1, we reported revenues of $174 million and an EBITDA equivalent cash flow of $108 million. Over the past 12 months, EBITDA amounts to $443 million, reflecting the continued strength and stability of our operations. Net income in the quarter was $26 million or $0.20 per share, and dividend has been increased to $0.22 per share this quarter. In aggregate, we have now returned $3 billion or more than $30 per share in dividends since 2004.
Speaker #2: For the first quarter, we reported revenues of $174 million and an EBITDA equivalent cash flow of $108 million. Over the past 12 months, EBITDA amounts to $443 million reflecting the continued strength and stability of our operations.
Speaker #2: Net income in the quarter was $26 million, or $0.20 per share, and dividend has been increased to $0.22 per share this quarter. In aggregate, we have now returned $3 billion or more than $30 per share in dividends since 2004.
Speaker #1: Welcome to SFL Corp 2026 conference call. My name is Espen relations in SFL. Our CEO. We're starting the call with an overview of the first quarter highlights.
Speaker #2: And we have a robust charter backlog of $3.7 billion with a very strong counterparty profile where more than two-thirds of the backlog is to customers with an investment-grade credit rating.
Speaker #1: Our chief operating officer, Qim Sjlie, will comment on investor performance, followed by our CFO, Aksel Olesen, who will take us through the results. The conference call will be concluded by opening up for questions, and I'll explain the procedure to do so prior to the Q&A session.
Ole Hjertaker: We have a robust charter backlog of $3.7 billion with a very strong counterparty profile, where more than two-thirds of the backlog is to customers with investment grade credit rating. In the quarter, we announced a new contract for the ultra-deepwater harsh environment drilling rig Hercules, which will be employed in Canada from Q1 2027. The firm part of the contract is 400 days and represents a backlog increase of approximately $170 million. There are also shorter options, in addition to that, which could extend the contract beyond the 400 days. Generally, we see a significant demand for harsh environment, deepwater capable semi-submersible drilling rigs towards the end of the decade and believe this contract could position the rig attractively for prospective drilling campaigns in harsh environment areas.
Speaker #2: In the quarter, we announced a new contract for the Ultra Deepwater Harsh Environment Drilling Rig Hercules, which will be employed in Canada from the first quarter of 2027.
Speaker #2: The third part of the contract is $400 days and represents a backlog increase of approximately $170 million. There are also shorter options in addition to that, which could extend the contract beyond the $400 days.
Speaker #1: Before we begin our presentation, I'd like to note this conference call is for looking statements within the meaning of the US Securities Litigation Reform Act of 1985.
Speaker #1: Words such as expect, anticipate, and anticipate are similar expressions intended to identify these for looking statements. Please note that for looking statements are not keys of future performance.
Speaker #2: Generally, we see a significant demand for harsh environment deepwater-capable semi-submersible drilling rigs towards the end of the decade, and believe this contract could position the rig attractively for prospective drilling campaigns in harsh environment areas.
Speaker #1: These are based on our current expectations and not inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth before looking statements.
Speaker #2: It is the only rig in the market with a valid Canadian safety case, and as previously also worked in Norway and Namibia. This last quarter, we have also had the pleasure of having two 2020-built SuezMax tankers employed in a booming spot market.
Speaker #1: For looking statements that could cause actual results to differ include but are not limited to conditions initiated offshore and credits. You should therefore not place undue reliance on these for looking statements.
Ole Hjertaker: It is the only rig in the market with a valid Canadian safety case and has previously also worked in Norway and Namibia. This last quarter, we have also had the pleasure of having two 2020-built Suezmax tankers employed in a booming spot market. You may remember that we agreed to release the charters on these vessels against a compensation of $11.5 million per vessel in December last year instead of selling the vessels in the market to a third party. We used to have four vessels to the same charterer, and we sold the other two older vessels with net cash proceeds after debt repayment of approximately $52 million in aggregate. Adjusted for the compensation to terminate the charters on the newer vessels, we took nearly $30 million cash off the table.
Speaker #2: You may remember that we agreed to release the charters on these vessels against a compensation of $11.5 million per vessel in December last year, instead of selling the vessels in the market to a third party.
Speaker #1: Refer to our filings for securities and exchange commission for detailed discussion of risks and uncertainties which may have a direct bearing on results and our financial condition.
Speaker #2: We used to have four vessels to the same charterer, and we sold the other two older vessels, with net cash proceeds after debt repayment of approximately $52 million in aggregate.
Speaker #1: I will leave the word over to our CEO, Ole Hjertaker, with highlights for the first quarter.
Speaker #2: So adjusted for the compensation to terminate the charters on the newer vessels, we took nearly $30 million cash off the table. The vessels are currently traded in the spot market, and the market has strengthened significantly since the deal was concluded in December.
Speaker #2: Thank you, Espen. Please do announce our 89th consecutive dividend, and we have firmly commissioned SFL to prioritize being an infrastructure company with a diversified, quality fleet.
Speaker #2: For the first quarter, we reported revenues of $174 million and an EBITDA equivalent cash flow of $108 million. The past 12 months, EBITDA amounts to $143 million, reflecting the continued strength and stability of our operations.
Speaker #2: In fact, net cash flow contribution is now higher from these two vessels alone compared to all four vessels in the original charter arrangement. We reported nearly $54,000 per day on a time charter equivalent basis in the first quarter.
Ole Hjertaker: The vessels are currently traded in the spot market, and the market has strengthened significantly since the deal was concluded in December. In fact, net cash flow contribution is now higher from these two vessels alone compared to all four vessels in the original charter arrangement. We reported nearly $54,000 per day on a time charter equivalent basis in Q1, which compares to a cash break even below $20,000 per day after that service. This is dwarfed by the earnings into Q2, where we have experienced a historically strong market on the back of market disruptions caused by the war in the Middle East. So far, we have covered 53% of vessel days at an average charter rate of around $185,000 per day.
Speaker #2: Which compares to a cash per given below. $20,000 per day after debt service. But this is dwarfed by the earnings into the second quarter, where we have experienced a historically strong market on the back of market disruptions, caused by the war in the Middle East.
Speaker #2: Net income in the quarter $26 million, or $0.20 per share, and dividend has been increased to $0.22 per share this quarter. In aggregate, we have now returned $3 billion or more than $30 per share in since 2004.
Speaker #2: Our robust backlog of $3.7 billion with a very strong counterparty profile where more than two-thirds of the backlog is to customers with great credit rating.
Speaker #2: This quarter, we announced a new contract for the ultra-environment rig Hercules, which will be deployed in Canada from the 1st of 2027. The firm part of the contract for the day represents a backlog increase of approximately $170 million.
Speaker #2: There are also shorter options in addition to that that extend the contract beyond the $400. Generally, we see a significant demand for harsh environment where they're capable, semi-submersible drilling rigs towards the end of the decade, and believe this contract could position the rig attractively for prospective drilling campaigns in harsh environment areas.
Speaker #2: It is the only rig in the market with a Canadian safety case, and as previously also worked in Norway and Namibia. This last quarter, we have also had the pleasure of having two 2020-built SuezMax tankers employed in a booming spot market.
Speaker #2: You may remember that we agreed with the charters on these vessels against a compensation of $11.5 per vessel in December last year, instead of selling the vessels in the market to a third party.
Speaker #2: We used to have four vessels to the same charterer, and we sold the other vessels with net cash proceeds after debt repayment of approximately $52 in aggregate.
Speaker #2: So adjusted for the compensation at the charters on the newer vessels, we had nearly $30 million cash off the table. The vessels are currently traded in the spot market, and the market has strengthened significantly since the deal included in December.
Speaker #2: In fact, national contribution is now higher from these two vessels compared to all vessels in the original charter arrangement. We reported nearly $54,000 per day on a time equivalent base in the first quarter.
Speaker #2: So far, we have covered 53% of vessel days at an average charter rate of around $185,000 per day. But please note that reported charter hire for vessels in the spot market is accounted for on a low-to-discharge basis pursuant to US GAAP.
Speaker #2: This compares to a cash break-even below $20 per day after debt service. But this is dwarfed by the earnings into the second quarter where we have experienced a historic market on the back of market disruptions, caused by the war in the Middle East.
Speaker #2: We therefore expect their average for the full quarter to be lower than the booked revenue so far due to expected ballast days in the remainder of the quarter.
Speaker #2: Also, the spot market is lower than the charter rate we have booked so far this quarter, but still we expect a very firm quarter in the second quarter.
Speaker #2: So far, we have covered $53% of vessel days at an average charter of around $185,000 per day. But please note that reported charter high from the spot market is accounted for on a low-to-discharge base pursuant to US standards.
Speaker #2: While we these vessels right now, we will look for new longer-term charter opportunities in due course. Recently, we also successfully raised $76.6 million in a TAP issue over 2030 senior unsecured bond loan, where we issued $75 million at a price of $103.5 of par value.
Ole Hjertaker: Please note that reported charter hire from vessels in the spot market is accounted for on a load to discharge basis pursuant to US GAAP. We therefore expect their average for the full quarter to be lower than the booked revenue so far due to expected ballast days in the remainder of the quarter. Also, the spot market is lower than the charter rate we have booked so far this quarter, but still, we expect a very firm quarter in Q2. While we are enjoying phenomenal cash flows from these vessels right now, we will look for new longer-term charter opportunities in due course.
Speaker #2: The original bond loan has an interest rate of 7.75%, and we are pleased to see an implied interest rate in the TAP issue of only 6.8%.
Speaker #2: This TAP issue was not planned, but something that came about after reversing barriers from bondholders who wanted to increase their exposure to SFL at premium pricing.
Speaker #2: So we decided to act optimistically in the situation and the transaction was executed on very short notice. And with that, I will now handle the call over to our chief operating officer, Trym Shirley.
Ole Hjertaker: Recently, we also successfully raised $77.6 million in a tap issue over 2030 senior unsecured bond loan, where we issued $75 million at a price of 103.5 of par value. The original bond loan has an interest rate of 7.75%, and we are pleased to see an implied interest rate in the tap issue of only 6.8%. This tap issue was not planned, but something that came about after reverse inquiries from bondholders who wanted to increase their exposure to SFL at premium pricing. We decided to act opportunistically in the situation, and the transaction was executed on very short notice. With that, I will now hand the call over to our Chief Operating Officer, Trym Sjølie.
Speaker #1: Thank you, Ole. We have a diversified fleet of assets chartered out to first-class customers on mostly long-term charters, and the majority of our customer base is large industrial end users.
Speaker #1: Following the sale of two SuezMaxes, the SFL Ottawa and Q4 last year, and SFL Pelon, which was delivered to its new owners in February, our current fleet stands at 57 maritime assets, including vessels, rigs, and contracted new buildings.
Speaker #1: Our backlog from owned and managed shipping assets stands at approximately 3.7 billion dollars, and the fleet is made up of two dry bulk vessels, 30 container ships, 16 large tankers, two chemical tankers, seven car carriers, and two drilling rigs.
Trym Sjølie: Thank you, Ole. We have a diversified fleet of assets chartered out to first-class customers on mostly long-term charters, and the majority of our customer base is large industrial end users. Following the sale of 2 Suezmaxes, the SFL Ottawa in Q4 last year and SFL Pelon, which was delivered to its new owners in February, our current fleet stands at 57 maritime assets, including vessels, rigs, and contracted new builds. Our backlog from owned and managed shipping assets stands at approximately $3.7 billion, and the fleet is made up of 2 dry bulk vessels, 30 container ships, 16 large tankers, 2 chemical tankers, 7 car carriers, and 2 drilling rigs. Two-thirds of our contracted revenue is with investment-grade counterparties, which gives us a high degree of confidence in the earnings visibility of this portfolio, even in a volatile market environment.
Speaker #1: Two-thirds of our contracted revenue is with investment-grade counterparties, which gives us a high degree of confidence in the earnings visibility of this portfolio, even in a volatile market environment.
Speaker #1: Our charter backlog is mainly derived from time charter contracts, and with the exception of four contract container ships on bare bulk leases, the rest are on time charter or operating in a short-term or spot market.
Speaker #1: Charter revenue from our fleet was about $174 million in Q1, and we had a total of $4,598 operating days across the fleet in the quarter.
Speaker #1: Utilization was strong across most segments. As container vessels ran at 100%, car carriers at 100%, and tankers and dry bulk came in at 99%.
Speaker #1: The energy segment ran at 50%, reflecting that our Hercules rig remains warm stacked in Norway in preparation for its new contracts. OpEx for the shipping fleet came in at 42 million dollars in Q1, broadly in line with the budget.
Trym Sjølie: Our charter backlog is mainly derived from time charter contracts, and with the exception of 4 contract container ships on bareboat leases, the rest are on time charter or operating in the short term or spot market. Charter revenue from our fleet was about $174 million in Q1, and we had a total of 4,598 operating days across the fleet in the quarter. Utilization was strong across most segments. Container vessels ran at 100%, car carriers at 100%, and tankers and dry bulk came in at 99%. The energy segment ran at 50%, reflecting that our Hercules rig remains warm stacked in Norway in preparation for its new contracts. Opex for the shipping fleet came in at $42 million in Q1, broadly in line with the budget.
Speaker #1: And this quarter, we had three Maersk S-class container vessels, in all completing dry dock. The Maersk Sarat, Maersk Shivling, and Maersk Skarstin, all undergoing significant upgrades under the new five-year charter agreements with Maersk.
Speaker #1: This is part of our ongoing effort to maintain and improve the quality and earning capacity of our assets over the long term. I will now give the word over to our CFO, Aksel Olsen, who will take us through the financial highlights of the quarter.
Speaker #2: Thank you, Trym. Turning now to the cash flow slides. I find this one valuable because it gives investors a clear view of the businesses' underlying operating performance, separate from the effects of non-cash and non-recurring items in the GAAP results.
Speaker #2: Before I begin, I want to flag the required disclosure. This cash flow presentation is a non-GAAP measure, repairs management tool to help assess underlying performance.
Trym Sjølie: This quarter, we had three Maersk S-class container vessels in or completing dry dock. The Maersk Sarat, Maersk Shivling, and Maersk Skarstind, all undergoing significant upgrades under their new five-year charter rate agreements with Maersk. This is part of our ongoing effort to maintain and improve the quality and earning capacity of our assets over the long term. I will now give the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter.
Speaker #2: It is not prepared in accordance with US GAAP, and investors should not consider it in isolation or as a substitute for any GAAP measure.
Speaker #2: The presentation also includes certain non-cash charges and items we consider non-recurring. In that context, let me take you through the performance of our portfolio.
Speaker #2: Across the fleet as a whole, we generate approximately $177 million of gross charter hire during the quarter. Of that total, approximately $81 million came from our container fleet, including profit share income related to fuel savings on seven of our large container vessels.
Aksel Olesen: Thank you, Trym. Turning now to the cash flow slide. I find this one valuable because it gives investors a clear view of the business' underlying operating performance, separate from the effects of non-cash and non-recurring items in the GAAP results. Before I begin, I want to flag the required disclosure. This cash flow presentation is a non-GAAP measure prepared as a management tool to help assess underlying performance. It is not prepared in accordance with US GAAP, and the investor should not consider it in isolation or as a substitute for any GAAP measure. The presentation also includes certain non-cash charges and items we consider non-recurring. In that context, let me take you through the performance of our portfolio. Across the fleet as whole, we generated approximately $177 million of gross charter hire during the quarter.
Speaker #2: The container market backdrop remains constructive, and the long-term contracted portfolio continues to generate strong visible cash flows. Moving to car carriers. The fleet generated approximately $26 million of gross charter hire, consistent with the previous quarter.
Speaker #2: All vessels are employed on charters with high-quality counterparties providing strong earnings visibility. In tankers, the fleet generated approximately $46 million of gross charter hire, up from approximately $42 million in the prior quarter and meaningful sequential improvement.
Speaker #2: This reflects the continued strength of charter arrangements across the tanker fleet. As previously disclosed, the portfolio now includes two SuezMax tankers trading in short-term market, where we have been well positioned to capture favorable spot rates.
Aksel Olesen: Of that total, approximately $81 million came from our container fleet, including profit share income related to fuel savings on 7 of our large container vessels. The container market backdrop remains constructive. The long-term contracted portfolio continues to generate strong visible cash flows. Moving to car carriers. The fleet generated approximately $26 million of gross charter hire consistent with the previous quarter. All vessels are employed on charters with high-quality counterparties providing strong earnings visibility. In tankers, the fleet generated approximately $46 million of gross charter hire, up from approximately $42 million in the prior quarter, a meaningful sequential improvement. This reflects the continued strength of charter earnings across the tanker fleet. As previously disclosed, the portfolio now includes 2 Suezmax tankers trading in short-term market, where we have been well-positioned to capture favorable spot rates. Turning to dry bulk.
Speaker #2: Turning to dry bulk. As many of you are aware, we have been strategically divesting vessels over recent quarters as part of our fleet renewal.
Speaker #2: We now have two CamsterMax vessels remaining, both trading in the short-term market. Revenue from these vessels was approximately $2 million compared to $3 million in the prior quarter.
Speaker #2: The dry bulk market has shown encouraging improvements which reflected in improving day rate environment so far in the second quarter. Moving to energy. Revenue from our energy assets was approximately $23 million for the quarter.
Speaker #2: This was driven primarily by the line of steering rig, which remains on a long-term contract mechanical Phillips running through May 2029, providing substantial contracted cash flow visibility.
Speaker #2: We're also pleased to announce that the Hercules has secured a new contract as a contribute revenues from the first half of 2027. While we're not in a position to share full details at this stage, this is an important development.
Aksel Olesen: As many of you are aware, we have been strategically divesting vessels over recent quarters as part of our fleet renewal. We now have 2 Kamsarmax vessels remaining, both trading in the short-term market. Revenue from these vessels was approximately $2 million, compared to $3 million in the prior quarter. The dry bulk market has shown encouraging improvements, which reflected in improving day rate environment so far in Q2. Moving to Energy. Revenue from our Energy assets was approximately $23 million for the quarter. This was driven primarily by the Linus drilling rig, which remains on a long-term contract with ConocoPhillips running through May 2029, providing substantial contracted cash flow visibility. We're also pleased to announce that the Hercules has secured a new contract that will contribute revenues from H1 2027.
Speaker #2: It extends the earnings visibility of a key asset and reinforces our confidence in the long-term demand outlook for high-specification drilling units. On the cost side, total operating and G&A expenses for the quarter came in at approximately $69 million, broadly in line with the prior quarter.
Speaker #2: Putting it all together, addressed EBITDA for the quarter was approximately $108 million, also consistent with Q4 25. The sequential stability is a meaningful indicator of the quality of our contracted cash flows and the resilience of our business model across varying market conditions.
Speaker #2: I would remind the listeners that addressed EBITDA is a non-GAAP measure. We define it as net income before interest, taxes, depreciation, amortization, and certain non-recurring and non-cash items reconciliation to GAAP net income is provided in today's earnings release.
Aksel Olesen: While we're not in a position to share full details at this stage, this is an important development. It extends the earnings visibility of a key asset and reinforces our confidence in the long-term demand outlook for high-specification drilling units. On the cost side, total operating engineering expenses for the quarter came in at approximately $69 million, broadly in line with the prior quarter. Putting it all together, adjusted EBITDA for the quarter was approximately $108 million, also consistent with Q4 2025. The sequential stability is a meaningful indicator of the quality of our contracted cash flows and the resilience of our business model across varying market conditions. I would remind the listeners that adjusted EBITDA is a non-GAAP measure. We define it as net income before interest, taxes, depreciation, amortization, and certain non-recurring and non-cash items.
Speaker #2: Turning now to our results on the US GAAP. For the quarter, we reported total operating revenues of approximately $174.5 million, compared to approximately $175.5 million in Q4 25.
Speaker #2: Vessels contributed approximately with $151.5 million, while the rigs contributed with approximately $23 million. Operating expenses were approximately $69 million in line with the prior quarter.
Speaker #2: I want to clearly identify the non-recurring and non-cash items that affected the GAAP net results this quarter, so that investors can appropriately adjust their models.
Speaker #2: Gain on sale of assets, $11.5 million, mark-to-market gain on hedging derivatives of $2.5 million, and mark-to-market gain on equity investments of $1.9 million. After accounting for these items, we reported a GAAP net profit of approximately $26 million for the quarter or $0.20 per share.
Aksel Olesen: A re-reconciliation to GAAP net income is provided in today's earnings release. Turning now to our results on the U.S. GAAP. For the quarter, we reported total operating revenues of approximately $174.5 million, compared to approximately $175.5 million in Q4 2025. Vessels contributed approximately with $151.5 million, while the rigs contributed with approximately $23 million. Operating expenses were approximately $69 million, in line with the prior quarter. I want to clearly identify the non-recurring and non-cash items that affected the GAAP net results this quarter, so that investors can appropriately adjust their models. Gain on sale of assets, $11.5 million. Mark-to-market gain on hedging derivatives of $2.5 million. Mark-to-market gain on equity investments of $1.9 million.
Speaker #2: This compares to a net loss of $4.6 million or $0.04 per share in Q4, a meaningful swing that reflects both the operational improvement and the non-recurring items I just noted.
Speaker #2: Turning to the balance sheet. As of March 31, 2026, we had cash and cash equivalents of approximately $128 million, with an additional approximately $160 million available under unknown credit facilities.
Speaker #2: Giving us a total available liquidity in excess of $280 million. We believe this is a solid and well-positioned balance sheet as improved through 2026.
Speaker #2: Furthermore, I would like to highlight several noteworthy developments. First, we have refinanced the facilities related to both the Hercules and the Linus rigs on favorable terms.
Aksel Olesen: After accounting for these items, we reported a GAAP net profit of approximately $26 million for the quarter or $0.20 per share. This compares to a net loss of $4.6 million or $0.04 per share in Q4, a meaningful swing that reflects both the operational improvement and the non-recurring items I just noted. Turning to the balance sheet. As of 31 March 2026, we have cash and cash equivalents of approximately $128 million, with an additional approximately $160 million available under undrawn credit facilities, giving us a total available liquidity in excess of $280 million. We believe this is a solid and well-positioned balance sheet as we move through 2026. Furthermore, we'd like to highlight several noteworthy developments. First, we have refinanced the facilities related to both the Hercules and the Linus rigs on favorable terms.
Speaker #2: This confirms that the bank lending market for high-quality offshore assets remains open and constructive, and we're very pleased with both outcomes. Second, subsequent to quarter end, we completed a $75 million tap issuance of our 2030 US dollar senior unsecured bonds at 103.5 of PAR.
Speaker #2: Implying a yield-to-majority of approximately 6.8%. This was an optimistic transaction that extends our liquidity runway, and we believe reflects the bond market's confidence in SFL's credit profile.
Speaker #2: Regarding upcoming maturities, our 150 million senior unsecured bonds issued in 2029 mature shortly now in May. We intend to redeem these notes using available liquidity and we are well positioned to do so.
Speaker #2: During the quarter, we made approximately $56 million in scheduled loan amortization. More than $220 million annualized. This reflects the systematic deleveraging of our fleet and is a structural feature on how we manage the balance sheet.
Aksel Olesen: This confirms that the bank lending market for high quality of our assets remains open and constructive, and we're very pleased with both outcomes. Second, subsequent to quarter end, we completed a $75 million tap issuance of our 2030 US dollar senior unsecured bonds at 103.5 of par, implying a yield to maturity of approximately 6.8%. This was an optimistic transaction that extends our liquidity runway and we believe reflects the bond market's confidence in SFL's credit profile. Regarding upcoming maturities, our $150 million senior unsecured bonds issued in 2029 mature shortly now in May. We intend to redeem these notes using available liquidity, and we are well-positioned to do so. During the quarter, we made approximately $56 million in scheduled loan amortization, more than $220 million annualized.
Speaker #2: On new billings, our five contracted container new billings represent remaining capital expenditure commitments of approximately $850 million. We expect to fund these through a combination of pre- and post-delivery financing, and we are seeing strong lender interest, which reflects the quality of the assets, the strength of the charter counterparty, and the favorable financing environment for modern fuel-efficient tonnage.
Speaker #2: Finally, our book XD ratio as of quarter end stood at approximately 27%. Before I hand the call back to Espen, let me close with a few summary points.
Speaker #2: First, the board has declared our 89th consecutive quarterly cash dividend of $22 cents per share, an increase of 10% from the prior quarter, at current prices that represent an annualized dividend yield of approximately 7.5%.
Aksel Olesen: This reflects the systematic deleveraging of our fleet, and it is a structural feature on how we manage the balance sheet. On newbuildings, our 5 contracted container newbuildings represent remaining capital expenditure commitments of approximately $850 million. We expect to fund these through a combination of pre- and post-delivery financing and we are seeing strong lender interest, which reflects the quality of the assets, the strength of the charter counterparty, and the favorable financing environment for modern fuel-efficient tonnage. Finally, our book equity ratio as of quarter end stood at approximately 27%. Before I hand the call back to Espen Gjøsund, let me close with a few summary points. First, the board has declared our 89th consecutive quarterly cash dividend of $0.22 per share, an increase of 10% from the prior quarter.
Speaker #2: now stands at approximately 3.7 billion. We're in two-thirds of that backlog as its customers carrying investment-grade credit ratings. That combination scale duration and counterparty quality provides exceptional cash flow visibility and gives us the confidence to continue investing in growth.
Speaker #2: Third, we have strong balance sheet, ample liquidity, and disciplined capital allocation to remain well-positioned to pursue a creative investment opportunities. The maritime asset market continues to evolve, and we believe SFL is uniquely positioned through a long-term charter model diversified fleet and access to capital to continue generating value for shareholders.
Speaker #2: Thank you all for joining us this morning. I will now hand the call back to Espen to open the line for questions.
Aksel Olesen: At current prices, that represents an annualized dividend yield of approximately 7.5%. Second, our charter backlog now stands at approximately $3.7 billion, when two thirds of that backlog is its customers carrying investment grade credit ratings. That combination, scale, duration, and counterparty quality provides exceptional cash flow visibility and gives us the confidence to continue investing in growth. Third, with strong balance sheet, ample liquidity, and disciplined capital allocation, we remain well positioned to pursue accretive investment opportunities. The maritime asset market continues to evolve. We believe SFL is uniquely positioned through a long-term charter model, diversified fleet, and access to capital to continue generating value for shareholders. Thank you all for joining us this morning. I will now hand the call back to Espen to open the line for questions.
Speaker #1: Thank you, Axel. We will now open for a Q&A session. For those of you who are following this presentation through Zoom, please use the raise hand function under reactions in the toolbar to ask a question.
Speaker #1: When your name is called out, please unmute your speaker to ask your question. Thank you. We will have our first question from Gregory Lewis.
Speaker #1: Greg, please unmute speaker to ask a question, please.
Speaker #3: Hey, thank you. And good morning and good afternoon, everybody. And thanks for taking my questions. Clearly, these are interesting times across all of maritime shipping.
Speaker #3: But I was hoping to talk a little bit more about the tanker sector. Backlog is good at a little over, what, three and a half years.
Speaker #3: But we do have some vessels on the spot that you alluded to. And then even some vessels that are rolling off their existing contracts.
Espen Gjøsund: Thank you, Aksel Olesen. We will now open for a Q&A session. For those of you who are following this presentation through Zoom, please use the Raise Hand function under Reactions in the toolbar to ask a question. When your name is called out, please unmute your speaker to ask your question. Thank you. We will have our first question from Gregory Lewis. Greg, please unmute speaker to ask a question, please.
Speaker #3: Not just over the next couple of quarters, we'll just say. As we sit here today, just given a lot of the volatility in tanker rates and some of the uncertainty out there, how should we be thinking about the opportunities for SFL maybe to put some of these vessels or either extend existing charters maybe that have options or just kind of maybe build out on that backlog portfolio for the tanker market, just given the strength we're seeing in tanker rates?
Gregory Lewis: Hey, thank you. Good morning and good afternoon, everybody, and thanks for taking my questions. You know, clearly these are interesting times across all of maritime shipping. I was hoping to talk a little bit more about the tanker sector. You know, backlog is good at a little over, what, three and a half years. We do have some vessels on the spot that you alluded to, and then even some vessels that are rolling off their existing contracts, you know, not just over the next couple of quarters, we'll just say.
Speaker #1: Yes, thank you, Greg. This is all there. Thanks for the question. We could say that we were lucky in the way we and ended up with the two Suezmax tankers in the spot market.
Speaker #2: We therefore expect for the full quarter to be lower than the booked revenues are due to expected ballast days of the quarter. Also, the spot market is lower than charter rate.
Speaker #1: We did expect that market to firm, but we did not anticipate the extent of how it has firmed. And it's important here to understand that this is, of course, partly due to the market disruption caused by the Arabian Gulf, but also by a significant consolidation on the supply side for VLCCs, i.e., the larger 2 million barrel vessels.
Speaker #2: We have booked so far this quarter, but still expect a very firm quarter in the second quarter. While we are enjoying phenomenal cash flows from these vessels right now, we will look for longer-term charter opportunities in due course.
Gregory Lewis: You know, as we sit here today, just given a lot of the volatility in tanker rates and some of the uncertainty out there, how should we be thinking about the opportunities for SFL maybe to, you know, you know, put some of these vessels or, you know, either extend existing charters maybe that have options or just kinda, you know, maybe build out on that backlog portfolio for the tanker market, just given the strength we're seeing in tanker rates?
Speaker #2: Recently, we also successfully raised $77.6 million in a tap issue for 2030 senior unsecured loan, which issued $70 million at a price of $103.5 per value.
Speaker #1: So we see a combination here that is unprecedented. We've never seen that before. We will look for because our principal business is long-term charters.
Speaker #2: The original loan has an interest rate of 7.75%, and we are pleased to see an implied interest rate in the tap issue of only 6.8%.
Speaker #1: So we will look for longer-term charters also for these two vessels in due course. But for now, we've been enjoying the very strong spot market.
Ole Hjertaker: Yes. Thank you, Greg. This is Ole. Thanks for the question. We, you could say that we were lucky in the way we ended up with the two Suezmax tankers in the spot market. We did expect that market to firm, we did not anticipate the, you know, extent of how it has firmed. You know, it's important here to understand that this is, of course, partly due to the market disruption caused by the Arabian Gulf, but also by a significant consolidation on the supply side for VLCCs, i.e., the larger 2 million barrel vessels. We see a combination here that is unprecedented. We've never seen that before.
Speaker #2: This tap issue was not planned, but something came after reversing high risk from bondholders who wanted to restore to SFL at premium pricing. We decided to act optimistically in the situation and transaction was executed on very short notice.
Speaker #1: We do have some vessels that are coming up later in the year, but there are extension options on those. And given the charter rate and the prevailing market for the these are Aframax LR2 tankers.
Speaker #2: And I will now handle the call over to our chief operating officer Trym Sjlie.
Speaker #1: We would not be surprised if those vessels were extended for another year or two. So we do not have sort of any sort of spot vessels where we effectively control the trading in that sector right now.
Speaker #1: Thank you, Ole. We have a diversified fleet of assets charted out to first-class customers on mostly long-term charters, and the majority of customer base is large industrial end users.
Speaker #1: We've also seen values go up significantly, but also backed by higher charter rates. So we are looking at also new opportunities in also in the tanker space, but cannot comment on the we cannot be specific until or unless we actually do a deal.
Speaker #1: The sale of the Ottawa and Q4 last year and SFL Pelham, which was delivered to its new owners in February, are currently stamped at $57 assets, including vessels, rigs, and.
Aksel Olesen: Of course, our principal business is long-term charters, so we will look for longer term charters also for these two vessels in due course. For now, we've been enjoying the very strong spot market. We do have some vessels that are coming up later in the year, but there are extension options on those. Given the charter rate and the prevailing market for the, you know, these are Aframax or are two tankers, we would not be surprised if those vessels were extended for another year or two. We do not have sort of any sort of spot vessels where we effectively control the trading, you know, in that sector right now.
Speaker #1: Our backlog from owned and managed shipping assets stands at $23 billion. And the fleet is made up of two vessels, 30 containers, 60 tankers, two chemical tankers, seven cargo carriers, two drilling rigs.
Speaker #3: Great. And then I did want to talk a little bit about the 10% dividend increase. That was good to see. That was a nice move higher.
Speaker #3: I mean, I guess it's never just one thing when you think about increasing the dividend. Just given the focus by the company on returning cash to shareholders, but I would be kind of curious how we're thinking about the dividend.
Speaker #1: Two-thirds of our contracted revenue is within grade counterparties, which gives a high degree of confidence in the earnings visibility of this portfolio even in a mild market environment.
Speaker #1: Our charter backlog is mainly derived from time charter contracts and contract containerships on boat leases, the rest of charter, or operating in a short-term or spot market.
Speaker #3: Maybe what drove that? I mean, I'm assuming it was a combination of the backlog. You had some positive developments on the Hercules. Just kind of if you could walk us through from a cash flow perspective, you could arguably pay out a lot more than you're currently paying.
Speaker #1: Charter revenue from our fleet was about $174 million in Q1 and a total of $4,490 days across the fleet in the quarter. Inflation was strong across most segments.
Aksel Olesen: We've also seen values go up significantly, but also backed by higher charter rates. We are looking at those new opportunities in, also in the tanker space, but cannot comment on the. We cannot be specific until or unless we actually do a deal.
Speaker #3: So just if you could kind of walk us through when you were speaking with the board how we kind of came up with the decision for the 10% move.
Speaker #1: As container vessels ran at 100%, cargo carriers and tankers and dry boards at 90%. The energy ran at 50%, reflecting that our Hercules rig remains warm in Norway in preparation for its new contract.
Speaker #1: Yeah. I think from a board perspective, we never give guidance on corporate dividends. But the dividend and the dividend discussion is also always backed by the long-term call it expectations for cash flows going forward.
Gregory Lewis: Great. I did wanna talk a little bit about the 10% dividend increase. That was good to see. That was a nice move higher. I mean, I guess it's never just one thing when you think about increasing the dividend, you know, just given the focus by the company on returning cash to shareholders. I would be kinda curious, you know, how we're thinking about the dividend. You know, maybe what drove that, what, you know what I mean? I'm assuming it was a combination of the backlog. You know, you had some positive developments on the Hercules.
Speaker #1: OPEX for the ship came at $42 million in Q1, broadly with a budget. And this quarter, we had three SFL container vessels in or completing ride-on Maersk Sarat, Maersk Shivling, Sarat ongoing significant upgrades on five-year charter arrangements in Maersk.
Speaker #1: And we have a combination of multiple effects here. And then you mentioned some. We have more clarity now on the Hercules. And that also includes upgrades and investments we need to do on the rig to before that contract.
Speaker #1: There were other contract opportunities where we might have had to invest a lot more in the rig than what we need to do to put it back to work in Canada, which so there is lower capex really on that one.
Gregory Lewis: Just kind of if you could walk us through, you know, from a cash flow perspective of, you know, you could arguably pay out a lot more than you're currently paying. Just if you could kinda walk us through, you know, when you were speaking with the board, how we kinda came up with the decision for the 10% move.
Speaker #1: This is part of our ongoing effort to maintain and improve the quality and earning capacity of our assets over time. I will now give the word over to Aksel Olesen, who will take financial highlights of the quarter.
Speaker #1: Also, incidentally, if you look at the net cash flow from the four vessels we had with Cock Industries in the past, the incremental cash flow in the first quarter from just those two vessels were around 2 cents per share.
Speaker #2: Thank you, Trym. Turning now to the cash flow. I find this one valuable because it gives investors a clear view of this underlying operating performance, separate from the effects of non-cash and non-recurring items in the gap results.
Aksel Olesen: Yeah. I think from a board perspective, we never give guidance on forward dividends. The dividend and the dividend discussion is also always backed by the long term, call it expectations, for cash flows going forward. We have a combination of multiple effects here. Then you mentioned, you know, some we have more clarity now on the Hercules. That also includes.
Speaker #1: But that is a coincidence. It's not a direct link to that uplift. But there's certainly more cash flow and more or less, I would say, uncertainty around our portfolio.
Speaker #2: Before I begin, I want to flag the requirement. This cash compensation is a non-gap measure, repairs the management tool to help assess underlying performance.
Speaker #1: And we also have to remember that we have lots of vessels performance close to 100% utilization. Strong cash flow, strong counterparties. So that is really the confidence the board then had to lift the dividend this quarter from 20 cents to 22 cents and, of course, our long-term objective is, of course, to return cash flow to shareholders.
Speaker #2: This repair in accordance with US gap and investors should not consider it in isolation or as a substitute for any gap measure. The presentation also includes certain non-cash charges items considered non-recurring.
Ole Hjertaker: Upgrades and investments we need to do on the rig, you know, before that contract. There were other contract opportunities where we might have had to invest a lot more in the rig than what we need to do to put it back to work in Canada. We saw there is lower CapEx really, you know, on that one. Also, you know, incidentally, if you look at the net cash flow from the 4 vessels we had with Koch Industries in the past, the incremental cash flow in Q1 from just those 2 vessels were around $0.02 per share. That is, like, that's a coincidence. It's not a direct link to that uplift. There's certainly more cash flow and more, or less, I would say, uncertainty around our portfolio.
Speaker #2: In this context, let me take you through the performance of our portfolio. Across the results, we generated approximately $177 million of cross-charter higher during the quarter.
Speaker #1: So that is our driving force. And that's our all-around incentives are really focused on returning capital to our investors. And we're happy to do that.
Speaker #2: Of that total, approximately $1 million came from the fleet including profit share income rate savings on several large container vessels. Container backdrop remains constructive, and the long-term contracted portfolio continues to gain strong visible cash flows.
Speaker #1: Increase it this quarter.
Speaker #3: All right. Super helpful. Thank you all for taking my questions.
Speaker #1: Thank you, Gregory. We'll take our next question from Kumet Mullah. Please unmute your speaker to ask your question.
Speaker #2: Moving to carriers. The fleet generated approximately $20 million cross-charter higher consistent with the previous quarter. All vessels deployed are high-quality carrying strong earnings visibility.
Speaker #4: Hi, Tim. Thank you for taking my questions. I also wanted to ask about the Hercules. Olli, you briefly touched upon this mentioning that upgrades for the contract you secured may be at a lower than for other contracts you had looked at.
Ole Hjertaker: We also have to remember that we have lots of vessels that are performing, have a stellar performance, you know, close to 100% utilization, strong cash flows, strong counterparties. That is really the confidence the board then had to lift the dividend this quarter from $0.20 to $0.22. Of course, our long-term objective is, of course, to return cash flow to shareholders. You know, that is our driving force, and that's our, you know, all our incentives are really focused on returning capital to our investors, and we're happy to do that, increase it this quarter.
Speaker #2: Tankers, the fleet generated approximately $46 million of cross-charter higher from a $42 million in the prior quarter and meaningful improvement. This reflects the continuous strength of earnings across the tanker fleet.
Speaker #4: But could you talk a bit more about this and how much you currently plan to spend?
Speaker #2: As previously closed, the portfolio includes two SUSMAX tankers trading in short-term fleet, where we have been in well-positioned to capture both rates. Currently viable.
Speaker #1: Thanks. We have not been sort of specific on the numbers. What we are doing, but there are relatively low call it tactical upgrades required.
Speaker #1: We are doing some replacement of equipment, a rig, there are some equipment on board that is coming to the end of the effective life cycle.
Speaker #2: As many of you are aware, there have been strategic investing results in recent quarters as part of our fleet renewal. Two CAMSRMAX vessels remaining both trading in the short-term market.
Gregory Lewis: All right. Super helpful. Thank you all for taking my questions.
Speaker #1: So we are doing that. Those upgrades in parallel. These are more longer-term. This is really to make the rig capable for really long-term deployment in harsh environment.
Speaker #2: Revenue from these vessels was approximately $2 million compared to $3 million in the prior quarter. The dry market has shown cursing improvements which reflected improving day rate environment so far in the second quarter.
Espen Gjøsund: Thank you, Gregory. We'll take our next question from Clement Molla. Please unmute your speaker to ask your question.
Clement Molla: Hi, team. Thank you for taking my questions. I also wanted to ask about the Hercules. Ole, you briefly touched upon this, mentioning that upgrades for the contract you secured may be a lot lower than for other contracts you had looked at. Could you talk a bit more about this and how much you currently plan to spend?
Speaker #1: But the rig was the last employment for the rig was in Canada. And it's going back to Canada. And therefore, very limited upgrades that we have to pay for.
Speaker #2: Moving to energy. Revenue from energy assets was approximately $23 million for the quarter. Even primarily line is still which remains from contract running through May 2029, providing sustainable contract cash flow visibility.
Speaker #1: We have our customer who will pay for some upgrades. That they see as a benefit for them in those vessel operations. So it's a relatively small number.
Ole Hjertaker: Thanks. From a, you know, we have not been sort of specific on the numbers, what we are doing, but there are relatively low, call it tactical upgrades required. We are doing some replacement of equipment. You know, a rig, you know, there are some equipment on board that is coming to the end of the effective life cycle, so we are doing that, those upgrades, you know, in parallel. These are more, you know, longer term. You know, this is, you know, really to make the rig capable for really long-term, you know, deployment in harsh environment. The rig was, you know, the last employment for the rig was in Canada, and it's going back to Canada.
Speaker #2: We're also pleased to announce that the Hercules has secured a new contract as a contribute revenues from the first half of 2027. We're not in a position to share full details at this stage, but it's important it extends the earnings visibility of a key asset and rewards our confident long-term demand outlook for high-specification drilling rigs.
Speaker #1: And we guided on capex for all our vessels. And I would say half of the capex in that we guided in the press release is or so is relating to the Hercules.
Speaker #1: And the other part is relating to our other vessels in the portfolio. But it's compared to our asset base, it's a we're talking small numbers on an aggregate scale.
Speaker #2: On the cost side, operating and G&A expenses for the quarter came in at approximately $69 million, broadly in line with the prior quarter. Putting it together, addressed EBITDA for the quarter was approximately $100 million, also consistent with Q4 25.
Speaker #1: Of course, also as you move into move closer to the mobilization to Canada, we need to increase staffing on the rig right now. It's warm stacked but we need to put the full crew on before drilling operation starts, etc.
Ole Hjertaker: Therefore, very limited upgrades that we have to pay for. We have our customer who will pay for some upgrades that they see as a benefit for them in those vessel operations. It's a relatively small number. We guided, you know, on the, on CapEx, you know, for all our vessels, and I would say half of the CapEx in the you know, that we guided in the press release is or so is relating to the Hercules. The other part is relating to our other, you know, vessels in the portfolio. It's, compared to our asset base, it's, you know, it's a you're talking small numbers on an aggregate scale.
Speaker #1: So that will happen. But this is more I would say that's just how we plan for it and how we ensure that this rig is ready to go and can start to produce cash flow for us at the first opportunity within the commencement window in Canada in the first quarter.
Speaker #2: The sequential stability is a main indicator of quality of our contracted cash flows, and the length of our business model across varying market conditions.
Speaker #2: I would remind the listeners that addressed EBITDA and non-gap measures define it as net income before interest, taxes, inflation, and certain non-recurring and non-cash items.
Speaker #4: That's very helpful. Thank you. I also wanted to ask about the index link contract on the Linus. Could you remind us when the index link hire is revisited?
Speaker #2: A reconciliation to gap net income is provided base earnings base. Turning now to our results on the US gap. Quarter, the total operating revenues of approximately $174.5 million compared to approximately $175.5 million in Q4 25.
Speaker #4: And based on recent market trends, do you expect to see any change on the daily hire under the long-term contract?
Speaker #1: The charter rate for the Linus has been increasing gradually. It's set by our market panel. And it's been creeping upwards the contract runs until May 2029.
Ole Hjertaker: Of course, also, as you move into, move closer to, you know, the mobilization to Canada, we need to increase staffing on the rig. Right now, it's warm stacked, we need to put the full crew on before drilling operation starts, et cetera. That will happen. This is more of what you say. That's just how we plan for it and how we ensure that this rig is ready to go and can start to produce cash flow for us at the first opportunity within the commencement window in Canada in Q1.
Speaker #2: Vessels contributed approximately with 51.5 million, while the rigs contributed with approximately 23 million. Operating expenses were approximately $69 million in line with the prior quarter.
Speaker #1: We don't know that Conoco and this is like two years ago or two or three years ago they had they increased the scope or they extended the license from 2029 to 2049.
Speaker #2: I want to clearly identify the non-recurring and non-cash items that affected the gap net results this quarter, so that investors can appropriately adjust their models.
Speaker #2: Gain on sale of assets 11.5 million, mark-to-market gain on derivatives of 2.5 million, and mark-to-market gain on equity investments of 1.9 million. After accounting for these items, we reported a gap net profit of approximately $26 million.
Speaker #1: So they have another 20 years. And with the increased focus now on energy call it production particularly, I would say in the Northern Hemisphere.
Clement Molla: That's very helpful. Thank you. I also wanted to ask about the index-linked contract on the Linus. Could you remind us when the index-linked hire is revisited? Based on recent market trends, do you expect to see any change on the daily hire under the long-term contract?
Speaker #1: And this is under Norwegian Continental Shelf. We believe there will be a lot more activity in the UK side. And same thing also in Canadian waters.
Speaker #2: This compares to a net loss of $4.6 million or $0.04 per share in Q4 and a swing that reflects both the operational improvement and the non-recurring items noted.
Speaker #1: We expect that there will be a need for high-end units on that field or other similar fields nearby in the foreseeable future. But it's still three years out.
Ole Hjertaker: The charter rate for the Linus has been increasing gradually. It is set by a market panel, and it has been creeping upwards. The contract runs until May 2029. We all know that Conoco, and this is like two years ago or two or three years ago, they had, they increased the scope or they extended the license from 2029 to 2049. They have another 20 years. With increased focus now on energy, call it, production, particularly I would say in the Northern Hemisphere, and this is on the Norwegian continental shelf, we believe there will be a lot more activity on the UK side, and same thing also in Canadian waters.
Speaker #2: Turning to the fleet. As of March 1, 2026, we had cash and cash equivalent approximately $128 million, with an additional approximately $106 million available under unknown credibilities.
Speaker #1: So it's a little early to start discussing anything specific.
Speaker #4: Okay. Makes sense. And final question from me. You've been clear you'll be looking for a long-term contract for the two spots with Maxis when the time is right.
Speaker #2: Giving us a total available liquidity in excess of $180 million. We believe this is solid and balance sheet approved through 2026. Furthermore, I would like to highlight several noteworthy developments.
Speaker #4: Should we expect the same approach to be applied to the two spot Camstar Maxis? Or is a sale maybe more likely for these two vessels?
Speaker #1: Yeah. Well, it's a good question. We have been looking for contracts also for those vessels. But I would say for medium-sized boaters, there's typically not a very long-term.
Speaker #2: First, we have refinanced the facilities related to both the Hercules and the rigs on full terms. This confirms that the bank lending market for high-quality offshore assets remains open and constructive, and we're very pleased with both outcomes.
Speaker #1: It's difficult to find longer-term charges. So typically, they're charters would But that is also the time they can themselves hedge out through FFAs, etc.
Ole Hjertaker: You know, we expect that there will be a need for high-end units, you know, on that field or other, you know, similar fields nearby, you know, in the foreseeable future. It's still three years out, so it's a little early to start, you know, discussing anything specific.
Speaker #2: Second, subsequent trends we completed a $75 million tap issuance of our 2030 US dollar senior unsecured bonds at 103.5 of FAR. Implied yield to majority of approximately $6.8%.
Speaker #1: So we don't find that attractive for SFL. Then we rather take the marginal premium of having the vessels in the spot market compared to looking into on a time charter basis and effectively keep that margin ourselves.
Speaker #2: This was an optimistic transaction that extends our liquidity runway. We believe reflects the bond market's confident in SFL's credit profile. Upcoming maturities are $150 million senior bonds issued in 2029, mature shortly now in May.
Clement Molla: Okay. Makes sense. Final question from me. You've been clear you'll be looking for a long-term contract for the two spot Suezmaxes when the time is right. Should we expect the same approach to be applied to the two spot Kamsarmaxes, or is a sale maybe more likely for these two vessels?
Speaker #1: So when we look for tankers, we typically look for longer-terms than one year. Typically, I would say our sweet spot would be maybe three to five years depending on charter rate, etc.
Speaker #1: But it's all down to finding the right counterparty, finding the right structure of the charter, etc. So this is something that we will work on on a I would say we watch the market closely.
Speaker #2: We intend to redeem these notes in available liquidity and we are well-positioned to do so. During the quarter, we made approximately $56 million in loan amortization.
Ole Hjertaker: Well, it's a good question. We have been looking for contracts also for those vessels. I would say for medium-sized bulkers, there's typically not a very long term. It's difficult to find longer term charters. Typically, they're, you know, charters would do, say, up to 1 year. That is also the time they can themselves hedge out through FFAs, et cetera. We don't find that attractive for SFL. We rather take the marginal premium of having the vessels in the spot market compared to locking it into on a time charter basis, and effectively keep that margin ourselves. When we look for tankers, we typically look for longer terms than 1 year.
Speaker #1: We have very good market intelligence. But we cannot be specific on the charter rate or term. At this stage, we will be opportunistic that.
Speaker #2: $220 million annualized. This reflects the systematic deleveraging of our fleet and is a crucial feature on how we manage the balance sheet. On new billings, our five contracted container new billings represent remaining capital expenditure commitments of approximately $800 million.
Speaker #4: Makes sense. Thank you. I'll turn it over. Thank you for taking my questions.
Speaker #3: As there are no further questions, I would like to thank everyone for participating in this conference call. If you have any follow-up questions to the management, there are contact details in the press release.
Speaker #2: We expect to fund these through a combination of pre and post refinancing, and we are seeing strong lender interest which reflects the quality of the assets, the strength of the charting partners, and the favorable financing environment for modern fuel-efficient tonnage.
Speaker #2: Finally, our book equity ratio as of quarter ends stood at approximately 27%. Before I hand the call back to Espen, let me introduce some reports.
Ole Hjertaker: You know, typically, you know, we, you know, I would say our sweet spot would be maybe 3 to 5 years, depending on charter rates, et cetera. It's all down to finding the right counterparty, finding the right structure of the charter, et cetera. This is something that we will work on. Like we say, we watch the market closely. We have very good market intelligence, but we cannot be specific on the charter rates or term at this stage. We will be opportunistic. That I can assure you.
Speaker #2: First, the board shared our 89 consecutive quarterly cash dividend of $22 cents per share. Of 10% on the prior quarter, at current prices that represents an annualized dividend of approximately 7.5%.
Speaker #2: Second, our charter backlog now stands at approximately 3.7 billion. We're in two-thirds of that backlog is customers carrying some great credit ratings. That combination scale, duration, and counterparty quality provides exceptional cash flow visibility and gives us the confidence to continue investing in growth.
Clement Molla: Makes sense. Thank you. I will turn it over. Thank you for taking my questions.
Espen Gjøsund: As there are no further questions, I would like to thank everyone for participating in this conference call. If you have any follow-up questions to the management, there are contact details in the press release, or you can get in touch with us through the contact pages on our webpage, sflcorp.com. Thank you.
Speaker #2: Third, we have strong balance sheet, ample equity, and disciplined capital allocation to remain well-positioned to pursue accretive investment opportunities. The asset market continues to evolve and we believe SFL is uniquely positioned to earn charting diversified fleets and access to capital to continue generating value for holders.
Speaker #2: Thank you all for joining us this morning. I will now hand the call back to Espen to open the line for questions.
Speaker #1: Thank you, Aksel. We will now open for a Q&A session for those who are following Zoom. Please use the raise hand function for reactions in the toolbar to ask a question.
Speaker #1: Your name is called out. Please mute your speaker to ask your question. Thank you.
Speaker #2: We will have our first question from Gregory Lewis, Greg, please unmute your speaker. To ask a question, please.
Speaker #3: Hey, thank you and good morning and good afternoon, everybody, and actually questions. You know, clearly these are interesting times across all of maritime shipping.
Speaker #3: But I was going to talk a little bit more about the tanker backlog is good and a little over, what, three and a half years.
Speaker #3: But we do have some vessels on spot that you would do. And some vessels that are rolling their existing contracts not just over the next couple of quarters, we'll just see.
Speaker #3: As we sit here to just given a lot of the volatility in tanker rates and uncertainty out there, how do we be thinking about the opportunity for SFL maybe to put some of these vessels or either extend existing charters maybe that have options or just kind of maybe build out on that backlog portfolio for the tanker market just given the strength in tanker rates?
Speaker #4: Yes, thank you, Greg. This is all there. Thanks for the question. I'd say that we were lucky in the way we and ended up with the two max tankers in the spot market.
Speaker #4: We expect that market to firm, but we did not anticipate the extent of how it has firmed. And it's important here to understand that this is, of course, partly due to the market disruption caused by the Arabian Gulf, but also by significant consolidation side for seas, i.e., the larger two-mile vessels.
Speaker #4: So we are a combination that is unprecedented seen that before. We will look for because our principal business is long-term charters, so we will look for longer-term charters also for these two vessels in due course.
Speaker #4: Enjoying the strong spot market. We do have some that are coming up later in the year, but there are extensions on those. And given the charter rate and the prevailing market for the these are African tankers, we would not be surprised if those vessels were extended for another year or two.
Speaker #4: So we do not have sort of any sort of vessels where we effectively the trading in that sector right now. We've also seen values go up significantly, but also by higher charter rates.
Speaker #4: We are looking at new opportunities in also tankers, but cannot comment on the we cannot be specific until or unless we actually do a deal.
Speaker #3: That's great. And then I did want to talk a little bit about the 10% dividend increase. That was good to see. That was a nice move higher.
Speaker #3: I mean, I guess it's just one thing when you think about increasing the dividend. Just be focused by on returning shareholders. But I would be kind of curious how we're thinking about the dividend maybe what drove that, what I'm assuming it was a combination of the you had some positive developments on the Herculean kind of if you could walk us through.
Speaker #3: From a cash flow perspective, you could arguably pay out a lot on your currently paying so just if you kind of walk us through when you were dealing with the board how we kind of came up with decision for the 10% move.
Speaker #4: Yeah. I think from a board perspective, we never give guidance on forward dividend. But the dividend and the dividend discussion is also always by the long-term expectations for cash flows going forward.
Speaker #4: And we have a combination of multiple effects here. And then you mentioned some. We have more clarity in the Hercules and that also includes upgrades and investments we need to do on big before that.
Speaker #4: There were other opportunities where we might have had to invest a lot more in the rate than what we do to put it back to work in Canada, so there is lower capex on that one.
Speaker #4: So incidentally, if you look at the net capital from the four vessels we had with histories in the past, the incremental quarter from those two were 2 cents per share.
Speaker #4: So that is a coincidence. It's not a direct to that uplift. But there's certainly more cash flow and more less, I would say, uncertainty around our portfolio.
Speaker #4: And we also have to remember that we have lots of vessels performing, have a stellar performance close to 100% utilization and cash flow, strong counterparties.
Speaker #4: So that is really the confidence for Dan had to lift the dividend this quarter from 20 cents to 22 cents and our long-term objective is, of course, to return cash flow to shareholders.
Speaker #4: So that is our driving force and that's our all around incentives are really focused on returning capital to investors and we have to do that increase it this quarter.
Speaker #3: So thank you all for taking my questions.
Speaker #2: Thank you, Gregory. We'll take our next question from Clement Moulin. Please unmute your speaker to ask your question.
Speaker #5: Hi, Tim. Thank you for taking my questions. I also wanted to ask about the Hercules. Briefly touched upon this mentioning that upgrades for the contract you secured may be at a lower than for the contracts you had looked at.
Speaker #5: But could you talk a bit about this and how much you currently plan to spend?
Speaker #4: Thanks. From a we have not been sort of specific on the numbers. What we are doing, but there are relatively low tax upgrades required.
Speaker #4: We are doing some placement of equipment, a rig, there are some on board that is coming of the effective life cycle. So we are doing those upgrades in all these more long-term to make the rig capable for really long-term deployment in our environment.
Speaker #4: But the rig was just the employment for the rig was in Canada and it's back to Canada. And therefore, limited upgrades that we have to pay for.
Speaker #4: We have our customer who will pay for some upgrades that they benefit for them in those operations. So it's a relatively small number. And we guided on the capex for all our vessels.
Speaker #4: And I would say half of the capex in the we got it in the process is or so is relating to the Hercules. And the other part is relating to our other vessels in the portfolio.
Speaker #4: But it's compared to our assets, it's a we're talking small numbers on an aggregate scale. Also, as you move into move to the mobilizations or Canada, we need to increase staffing on the rig right now.
Speaker #4: It's warm stacked. But we need to put the full on before the mission starts, etc. So that will happen. But this is more of a that's just how we plan for it.
Speaker #4: We ensure that the rig is ready to go. And then can start to produce cash flow for us at first opportunity in the commencement window in Canada in the first quarter.
Speaker #5: That's very helpful. Thank you. I also wanted to ask about the indexing contract on the Hercules. Could you remind us when the indexing hire is revisited?
Speaker #5: And based on this, do you expect to see any change on the daily hire under the long-term contract?
Speaker #4: The chart on the line has been increasing gradually. It's set by our market now. And it's been creeping upwards the contract runs till May 29.
Speaker #4: We don't know Conoco and this is like two years ago or two or three years ago, they had increased the scope or they extended the license from May 29 to 2049.
Speaker #4: So they have another 20 years and increased focus now on energy production particularly, I would say, in the Northern Hemisphere. And this is underneath that shelf.
Speaker #4: It will be a lot more activity in the UK. And same also in Canadian waters. We expect that there will be a need for high-end units on that field.
Speaker #4: Or other similar fields nearby in the foreseeable future. But it's still three years out. So it's a little early to start these discussing anything specifics there.
Speaker #5: Makes sense. And final question for me. You've been clear. You'll be looking for a long-term contract for the two Swept Maxes. The time is right.
Speaker #5: Should we expect the same approach to be applied to the two Spot Cancer Maxes? Or is a sale maybe more likely for these two vessels?
Speaker #4: Yeah. Well, it's a good question. We have been looking for those vessels. But I would say for medium-sized boaters, there's typically not long-term if they find longer-term charters.
Speaker #4: So typically, they're charters would do, say, up to one year but that is so the time they can themselves hedge out through FFAs, etc.
Speaker #4: So we don't want that attractive SFL. Then we rather take the premium of having the Spot market compared to time charter-based and effectively keep that margin ourselves.
Speaker #4: So when we look for charters or tankers, we typically look for longer terms than one year. Typically, I would say Spot would be three to five years depending on charter rate, etc.
Speaker #4: But it's all down to the right party, finding the right structure of the charter, etc. So this is something we'll work on. We push the more closely.
Speaker #4: We have very good market intelligence, but we cannot specific on the charter rate or term at this stage. We will be open to that.
Speaker #5: Makes sense. Thank you. I'll turn it over. Taking my questions.
Speaker #2: As there are no further questions, I would like to thank everyone for participating in this conference call. If you have any follow-up questions to the contact details in the press release or get in touch with us through the contact pages on our page.
