Good day, and thank you for standing by. Welcome to the Q3 2021 SFL Corporation's Earnings Conference Call. [Operator Instructions] And please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ole Hjertaker. Thank you. Please go ahead.

Thank you, and welcome, everyone, to SFL's Third Quarter Conference Call. I will start the call by briefly going through the highlights of the quarter. And following that, our CFO, Aksel Olesen, will take us through the financials, and the call will be concluded by opening up for questions. Our Chief Operating Officer, Trym Sjølie will also be present for 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 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. Forward-looking statements are not guarantees of future performance. These statements are based on our current plans and projections 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 with the Securities and Exchange Commission more detailed discussion of our risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. The announced dividend of $0.18 per share is an increase of 20% over last quarter's dividend and represents a dividend yield of around 9% based on closing price yesterday. This is our 71st quarterly dividend. And over the years, we have paid nearly $28 per share in dividends or around $2.4 billion in total. And we have an increased fixed rate charter backlog supporting continued dividend capacity going forward. The total charter revenues was $156…

Thank you, Mr. Hjertaker. On this slide, we have shown a pro forma illustration of cash flows for the third quarter. Please note that this is only a guideline to assess the company's performance and is not in accordance with U.S. GAAP and also net of extraordinary and noncash items. The company generated gross charter hire of approximately $156 million in the third quarter, including $7 million of profit split with approximately 77% of the revenue coming from our fixed charter rate backlog, which currently stands at $2.7 billion, providing us with strong visibility on our cash flow going forward. In the third quarter, the liner fleet generated gross charter hire of approximately $79 million, including approximately $2.8 million in profit split contribution related to fuel savings on some of our large container vessels. Of this amount, more than 90% was derived from our vessels on long-term charters. Following the company's recent acquisitions, SFL fleet -- liner fleet backlog currently stands at approximately $2.1 billion, with an average remaining charter term of approximately 4.6 years or approximately 7 years if weighted by charter hire. During the quarter, SFL took delivery of 2 modern 6,800 TEU container vessels on charter to Maersk, 2 modern 14,000 TEU container vessels on charter to Evergreen, in addition to a 5,300 TEU container vessel that commenced a 7-year charter to Maersk. All these vessels will approve higher effects during the fourth quarter. Our tanker fees generated approximately $16 million in gross charter hire during the quarter. Of this amount, about 75% was derived from our vessels on long-term charters to among others, frontline at Phillips 66. The net charter hire from the company's Suezmax tankers employed in short-term market was approximately $1.7 million compared to $1.8 million in the previous quarters. During the third quarter,…

[Operator Instructions] And your first question comes from the line of Greg Lewis from BTIG.

Yes, I'd like to see the dividend going higher. So yes, that looks pretty good. I guess as we think about the market and the opportunities over the next kind of 12 to 18 months realizing that you're planning more for the long term and you guys keep a close eye on residuals. Does the current tightness, whether it's at shipyards or in the supply chain, i.e., scrap prices are high, do things -- how does that impact your -- the company's decision to look to continue to source new projects?

Yes. What we have seen -- and Greg, nice talking to you, and thanks for the question there. What we see, I mean, is not uncommon in the market. We've seen volatility in these markets before. We've seen a quite interesting demand for shipbuilding capacity driven, I would say, particularly over the last 12 months by the containership market. At the same time, we've seen over the years, over the last few years, that there has been -- the capacity -- the building capacity at shipyards has shrunk quite significantly. Some estimate up to maybe 1/3 of the market has been removed compared to the boom around 2008. So those dynamics are, of course, interesting. And so with the tighter market you see more pressure on raw material. That, of course, gives us maybe also some confidence on the residual values we use in our calculations when we look for the long term. At the same time, we're also very cognizant of the technology shift we see coming now. And so it's a balancing act. But on -- in the whole, we are -- we think this market is going to be quite robust. Of course, there will be continued volatility, but we think that both counterparty risk and asset prices could well be quite solid going forward.

Okay. Great. And then just realizing you were able to execute on that, that Suezmax transaction which was -- I mean, you -- people would argue, hey, that's a good move, that's sort of countercyclical investing. Are you -- as we think about the challenges facing the tanker market over the last year, and we'll see how this winter play -- this winter market develops and into next year. Could we be at a point where, I guess, your value proposition is starting to become more palatable for some of these -- for some tanker owners that have historically always wanted to own their tonnage. Really, what I'm trying to get at is post this winter market, it tends to be a long spring and summer. Do you see the opportunity to deploy more capital in the tanker market?

Yes, we do. We're looking at projects all the time. We'll see what -- which projects actually comes together and materialize this. But what we do see here is that have the lowest order book on a relative scale since the mid-1990s, which was a record low order book level. And we see a lot of phaseout of older vessels because there was a huge wave of vessels that came in the early 2000s, and they are now getting to 20 years of age, and therefore, very difficult to trade and very expensive to take through special surveys. So that in itself could lead to a tightness of the market. But we've seen now with production cuts and floating storage on winding, we've seen that the near term, call it, the market has been quite soft. But this is a market, as we have seen in the past, it can turn very quickly, and the price elasticity here is quite interesting. But back to your question, I mean, about the tanker owners, I mean, what we -- you have 2 sets of call it, charters or leases, you have what we call just straight financing, sort of they're both financing at some advance rate, you've seen maybe 90% to 100% of value there both over time and a purchase obligation. In our mind, that's a financing. And it's quite different from the deal we did on those Suezmax tankers where we run the vessels, we manage the vessels and where we have a profit split and there is incentive during the term of the charter to actually maximize returns by timing, potential sale of one or more of the vessels. So it's a much more opportunistic approach, while we think that we have our downside covered quite well through the base charter rate if it goes to the end of the charter period. So this is a market where we think being a little opportunistic, it can create value, but at the same time, in a defensive way.

Your next question comes from the line of Randy Giveans from Jefferies.

This is Chadd Tribo on for Randy. Just a couple of quick questions for you. I guess, first, on the decision to increase the dividend, can you talk about how that amount was kind of decided on? And then is it fair to assume that the dividend will likely remain flat here? Is there a decent kind of CapEx bill outstanding?

Yes. I think -- I mean, we reduced the dividend from time back. But if you see over the year, I think we have committed more than $850 million in new CapEx. We have seen, call it, the majority of the new acquisitions coming on the balance sheet, producing cash flow. And of course, you get a higher degree of contribution and you find room to increase the dividend. I think as we look on new acquisitions going forward, I think the Board will also, on a quarterly basis, we cannot take a view on the dividend to what extent they intent to increase that. But I think that is again for the Board to decide on a quarterly basis. But right now, we feel there is so good dividend or revenue contribution that is in line with the new dividend policy of $0.18 per quarter, yes.

Got it. Got it. That's helpful. And then in terms of your fleet, is there any appetite to sell maybe some of your older container ships, given how strong the asset values are right now?

Sorry, can you repeat that? Are you asking if we would like to sell older ships?

Yes. Yes, just given kind of how high asset values are right now just on the container ship side?

Yes. Thank you for the question. We are always looking at the older fleet as potential sales candidates, of course. But in light of the current strong market for some of these vessels, like the container ships, for instance, these are -- we just fixed our 2005, 700 TEU vessels at 27,000 a day for 3 and 3.5 years. We have one more vessel in the portfolio of the same type, coming open sort of second half next year. And we feel quite confident about that. We -- so we are not necessarily looking to sell more ships right now. The same sort of evaluation also goes for our sort of older, smaller bulker vessels at the moment.

But I think it's worth just adding to that, that for the vessels that we chartered out now for 3 to 3.5 years, EBITDA contribution from that vessel is, you can say, probably essentially similar to the sales value. So in a way, you get the value through cash flow and you keep the vessel. So where we indicate, can keep it.

And your next question comes from the line of Chris Wetherbee from Citi.

James on for Chris. I wanted to ask about the capital structure and just how you're thinking about it at this point. Basically, is there any -- do you think it might make sense to put an additional slug of capital and that's a bit more permanent like another bond issuance? Or are you careful with sort of the mix that you have now? Just kind of wanted to understand sort of your priorities on that side of the house and what you might be thinking about doing in the near term?

Yes. Thanks, James. I think we are quite happy with the current capital structure. I think as you know, we are -- annually, we are retiring about $200 million in senior secured debt on our assets. We also recently repaid the convert, as you know. So I think for the time being, we are quite pleased. I think we're also quite pleased to see the feedback we get from financing institutions in terms of financing our recent acquisitions. I mean, I mentioned the 4 vessels we have financed already, 2 in the senior bank market and 2 with Japanese operating leases. And as I stated, I mean, the remaining CapEx is expected to be financed in a similar manner. And I -- for us, I think we would see those financing terms coming in, I would say, close to this profit and loss in terms of margin cost and also duration of that debt. I think that's a reflection of our approach to structuring deals, the type of assets, counterparty quality, and of course, the duration of the charters. So for us, I think we will continue assets for the time being, but of course, always evaluating alternatives to see if we can kind of improve from what we have today.

And then I also wanted to ask just what you're seeing in the market from a financing perspective? I think there has been a longer-term trend that you have been commenting on coming into the pandemic about banks exiting the shipping space, but the current surge seems to at least increase at least some appetite. Just wanted to understand sort of what you're seeing in the market, if you're seeing banks that had sort of moved away from shipping reentering or come - and new entities coming in? Just wanted to get a sense of the sort of competitive environment from a financing perspective, if you could?

Absolutely. I think -- I mean, despite, as I said, the banks kind of retracting from the market for some time now, we've been fortunate to have a very good access with more than 25 international banks in our portfolio. But your observation is correct. We see many banks that, for a long time, have basically reduced the portfolios coming back with strength in the market. And there is far more competition now than we've seen in quite some time. I think that's going to be a reflection of a strengthening market. I believe that, that market will last for quite some time, given the favorable supply/demand dynamics Mr. Hjertaker talked about earlier on. So we're happy to see more banks, also banks we have worked with in the past coming back and offering attractive financing terms.

No question at this time. Please continue.

Thank you. Then I would like to thank everybody for participating in our conference call and also thank the SFL teams on board the vessels and onshore for their continued efforts in delivering value for our shareholders. 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 web page, www.sflcorp.com. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.