Good day, and welcome to the Q3 2018 Ship Finance International Limited's Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ole Hjertaker. Please go ahead, sir.

Thank you. And welcome everyone to Ship Finance International on our third quarter conference call. With me here today, I have our CFO, Harald Gurvin and Senior Vice President, André Reppen. 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. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on our current plans and expectations and involve 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 conditions in the shipping offshore and credit markets. For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission. The Board has declared a quarterly dividend of $0.35 per share. This dividend represents $1.40 per share on an annualized basis or 11.6% dividend yield based on closing price of $12.08 yesterday. This is our 59th consecutive dividend and we have now paid nearly $25 per share in dividends or more than $2 billion in aggregate since 2004. The reported net income for the quarter was approximately $30 million or $0.28 per share. This is after an impairment charge of $6 million relating to the sale of VLCC after quarter end and also some positive mark to market on derivatives. Aggregate charter revenues recorded in the quarter including 100% owned subsidiaries accounted for as investments in associate was approximately $155 million and the EBITDA equivalent cash flow in the quarter was approximately $121 million. Last 12 months, the EBITDA equivalent has been approximately $445 million. 2018 has been an active…

Thank you, Ole. On this slide we’re shown a pro forma illustration of cash flows for the third quarter compared to the second quarter. Please note that this is only a guideline to assess the company’s performance and is not in accordance with U.S. GAAP. Total charter hire for the third quarter was $150 million, up from $138 million in the previous quarter. The main reason for the increase is full quarter revenues on the four container vessels on charter Evergreen, which were delivered towards the end of May. We also took delivery of two of the three container vessels on charter to Maersk in September, with a third vessel delivered beginning of October, which should echo the full earnings effect in the fourth quarter. Revenues on tankers was down in the quarter due to the sale of three VLCCs, partly offset by slightly better earnings on the two Suezmaxes trading in the pool. Now further two VLCCs have been sold post quarter end, with the first vessel delivered to this new owner in October and the second vessel scheduled for delivery in December. Dry bulk and offshore revenues were in line with the previous quarter, a slight reduction in dry bulk revenues was due to lower revenues on the seven smaller handysize vessels trading in the spot market. We’re in profit share of approximately $240,000 on the eight capesize dry bulk carriers on charter to Golden Ocean where we received 33% of annual earnings above the base charter rates calculated and payable on a quarter basis. So overall this summarizes to an adjusted EBITDA of $120.5 million for the quarter or $1.12 per share, up from $107.7 million in the previous quarter. We then move on for the profit and loss statement as reported under U.S. GAAP. As we…

[Operator instructions] We can now take our first question from Randy Giddens from Jefferies. Please go ahead.

Hey, guys, this is Chris Robertson, on for Randy, thanks for taking our call. In terms of the current fleet composition is there any particular segment that you'd like to continue to enhance with some second hand vessel acquisitions? And kind of what are your thoughts on the market opportunities out there for each segment?

Thank you. We are -- we look at all the segments I would say in parallel. We've done more acquisitions in the container ship segment over the last few quarters. I would say that's more of a -- it's more of a coincidence. We are -- like we say our relative share in the tanker space now is lower than it’s used to be so we wouldn't mind increasing in that segment and certainly now the market fundamentals in the segment there looks better. But I would say we are segment agnostics and focus on trying to do the best deals and some periods there is a concentration in one sector and another periods in other sectors. As we were very heavily invested in the offshore space a few quarters ago that has changed. So I would say it's a dynamic process. We look at opportunities I would say across the board including the offshore space right now, but we can of course not comment on specific transactions before we do them. But, we hope to deploy the capital we have in new projects within not too long time. But it's all about doing the right deals and not what do a specific percentage in each segment.

That's fair. In terms of the three containerships that were recently acquired, you mentioned that the annual EBITDA contribution will be about $35.5 million was the purchase price closer to maybe 8 times annual EBITDA or 10 times annual EBITDA? And kind of a follow-on to that with the intermediary financing of $200 million was that closer to 55% of the purchase price or 70%?

Well, I would say we are sort of midway there in your ratio, so it's below 9 times EBITDA for those vessels. We have an intermediary financing for those vessels and we expect to as, Harald, indicated, we expect the longer term financing to be put in place in not too long time. The leverage we have on them initially is a very comfortable just over 60%, which is I would say on the low side when you have a very strong chartering counterpart and high class assets as these vessels are. So we hope to revert with that once we have finalized the long-term arrangement.

Okay. And final question for me. It looks like the coverage ratio should remain above 1.3-1.4 in coming quarters. With that, can you comment on the dividend sustainability and any plans to increase the dividend in the next few years?

Yes. Of course, when we make investments, we make investments because we believe they are accretive to the distribution capacity in the long-term. We -- but the dividend is -- and this is sort of always been the express strategy of the Board not to sort of give guidance on future dividends. So we really have to look in the mirror and over the 59 quarters now the dividend have been stable or increasing with very few individual sort of settings where they have been adjusted downwards. So it is our objective to like we say, reinvest the capital and grow the dividend, but I cannot give you specific guiding on when. Right now we are -- from a cash flow perspective, we are -- we still pay down a lot on the Seadrill rigs, while we have -- we are in the period where we have -- we are reducing somewhat lower rate. That is expected to be balanced during mid-2019. And then is really a question how we can deploy the capital we have before we can -- I would say, before we can comfortably sort of increase the dividend level. This is management speaking, but I think we certainly have a very solid cash buffer now. So if we can deploy that hopefully we can also do something to the dividend then.

All right. Appreciate the time and thanks for taking my questions.

Thank you.

Next question goes to Magnus Fyhr from Seaport Global. Please go ahead.

Yes. Hi, guys. And just as a follow-up on the prior question. Looking at slide 10 on your payout, while the cash payout ratios currently -- or dividend ratio is higher than the free cash flow. Looking forward, at least on our estimates that payout ratio should decline to 85% within a year. Would you like to deploy additional capital? I mean, you’ve got $400 million so of cash that you could deploy if you use the marketable securities. Or is that 85% a very comfortable level that's kind of going back to the historical range where you've been. So should we kind of assume that if you get below that level that leaves you some room to start addressing the dividend?

Yes, I mean, the cash flow when you look at the slide 10, of course that's -- there are sort of -- there are three quarters of -- three legacy quarters in that graph. And part of that period or as most of that period is now sort of in the period where we have continued paying high amortization on the Seadrill rigs as I mentioned, while we adjusted the cash or we agreed to adjust the rate downwards. We did it that way to simply to save fees. So we think that was from a cost of capital perspective, it was a -- we think that was a good trade, but the optics of that looks of course like the free cash flow is lower. But we think this will balance and then we have the cash at quarter-end and then with a couple of I would say liquidity, expected liquidity events like the freed up cash on the relating to the leases on the Evergreen vessels. We have the sale of the jack-up rig Soehanah with $84 million. We have the cash from the sale of the securities around $47 million, $15 million net cash from the sale of Front Falcon, et cetera, et cetera. So there is a significant call it hopefully a cash boost on our balance sheet. So hopefully we can deploy that in a meaningful manner, which can also then do something to the graph on page 10 in terms of charter revenues and free cash flow.

Okay, thank you. The other question I had is related to -- I mean, most of these transactions you’ve done here in 2018 have been focused on the container segment, haven’t seen you, I mean, it’s been a lot of activity in the sale and leaseback on the tankers and product tankers we haven’t seen you done anything there. With the market improving at least for the crude tankers is that a market that’s still -- you still see opportunities or the returns are not satisfactory to you?

Well, we’ve looked at some opportunities there, but fair to say when we haven’t done it we can assume that it’s because we haven’t -- for us it has been really made good enough sense at the rate levels. Doing a deal and if you look at sort of sale and leaseback structures, which are certainly if they are bearable base then it’s really more a financing structure it’s all about buying the right asset at what price and what kind of residual value you assume in your call it calculation and then the financing you can combine with it. We tried to be very conscientious on the residual values, we take on when we do deals and we haven’t done anything there in that segment, but we’ve looked at several opportunities. But I cannot comment specifically on that until we do the deal. So it’s certainly a segment we would like to have more exposure to, but it’s all about doing the right deals.

All right, thank you. And just one more a question on the Soehanah the cash what’s in that proceeds there is $84 million net proceeds or are there some debt related to that asset?

No, that one is debt free, so it’s $84 million and then we have $10,000 per day bareboat hire coming in everyday, kicking in everyday until delivery.

Yes. Okay, great. That’s it from me, thank you.

Thank you.

Next question comes from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Yes, hi, Ole and thank you. Ole, I want to ask you about the opportunities that you see out there and how do you compare the potential returns across different sectors? It seems that you have made more acquisitions recently on the containership side, but if I heard correctly you mentioned that that was coincidental, do you view structurally any sector being able to give better returns and I'm talking about returns for deals with long-term charters?

Yes, thank you. Yes, we’ve done most of deals this year in the containership space. But we have certainly looked at a lot of opportunities in other sectors too. And it’s, of course, a long term objective is to balance the segments, but by doing it deal by deal and doing the right deals. So we would love to do deals in the tanker space, I would say maybe if you look at -- if there’s one segment that you can say you’re missing from our portfolio maybe it’s LNG simply because that’s the segment where you see long-term charters to solid counterparties and we haven’t got anything in the portfolio. Again it’s all about doing the right deals. Now the tanker market seems to recover hopefully it’s easier to get deals done there at reasonable levels. So -- but we can only really comment on deals we do and generally we screen projects across the board in all our segments.

How is the competitive landscape right now on the deals that you are negotiating or they come in front of you? And if you can expand beyond the containership space because we’ve been hearing that there are a lot of Chinese and Japanese leasing firms they are trying to do these deals at a very low returns, but I was wondering in other segments outside of containerships if you see higher or lower competition compared to let’s say at the beginning of the year?

Well, generally when you put deals with I would say sort of brand -- big brand names, very solid balance sheets and where they look for bareboat arrangements that's more about a financing sort of angle to it. What we have, we have really two different products. We have -- we can do the financial sort of bareboat charters leaseback, which is really -- where it's really a question of what kind of cost of capital, do you have an orb on the capital compared to your counterparty and what's happening on the residual value. Are you taking on the residual value exposure or do you not? That's one product, that's more of a financial cost of capital orb. The other product where we -- I think we are very competitive is in the build own operate, call that type structures illustrated by the vessels we have with Phillips 66 ship finance, we qualified to run vessels for Phillips 66, who has very high standards for who they want to have -- who they want to do those services for them. And this is part of our, I would say group effort we are better affiliation with Mr. Fredriksen, Frontline, Golden Ocean, et cetera, is that we have very good access to; one, the shipyards; and two management, which means that we can combine these parts and hopefully offer very interesting and compelling time charter products to our customers. So we look at both, but I think that’s certainly where we are on a relative base maybe more competitive than anyone else out there.

Thank you very much, Ole.

Thank you.

We have no further questions on the line at this time.

Thank you. Then I would like to thank everyone for participating in our third quarter conference call. And particularly, I want to thank Mr. Harald Gurvin who will leave us to join Flex LNG from January. We have recruited Aksel Olesen from Pareto Securities as a new CFO and I'm confident that the transition will be smooth for you as stakeholders in the company. If you have any follow-up questions there are contact details in the press release or you can get in touch with us through the contact pages on our webpage www.shipfinance.bm. Thank you.

Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.