SFL Corporation Ltd. Q3 2023 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 8, 2023, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended September 30, 2023. SFL is a global owner and operator of vessels and offshore drilling rigs, focusing on long-term charters with leading industry operators. The company operates across container, car carrier, tanker, dry bulk, and offshore segments.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $204.9 million, compared to $164.6 million in Q2 2023. Total charter hire received was $214 million, including $2.6 million in profit share.
- Profitability: Net income was $29.3 million ($0.23 per share). Adjusted EBITDA was $122.4 million from consolidated subsidiaries, plus $7.9 million from associated companies.
- Cash Flow: Net cash provided by operating activities was $31.2 million. Cash and cash equivalents totaled $118.0 million at quarter-end.
- Debt and Liquidity: The company redeemed a NOK-denominated bond with a net repayment of approximately $49 million. Total interest-bearing debt (short and long term) was approximately $2.07 billion ($384.7 million short-term + $1.68 billion long-term). The company holds $53 million in unencumbered vessel market value.
- Dividends: The Board declared a quarterly cash dividend of $0.25 per share, the 79th consecutive dividend.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by $40.3 million (24.5%) compared to Q2 2023, driven primarily by the offshore segment.
- Offshore Segment: Contract revenues surged to $64.1 million from $19.0 million in Q2 2023, as the rig Hercules completed a contract and mobilized, and Linus remained under long-term charter.
- Asset Sales: The company recorded a $2.2 million gain on the sale of the VLCC Landbridge Wisdom following a purchase option exercise.
- Share Count: The company repurchased approximately 1.1 million shares at an average price of $9.27, reducing the weighted average shares outstanding.
Outlook, Guidance, and Risks
Management Commentary: CEO Ole B. Hjertaker highlighted the delivery of the first LNG dual-fuel car carrier (Emden) and strong contract renewals. The fixed-rate charter backlog stands at $3.4 billion with a weighted remaining term of 5.9 years. Management expects increased charter revenues from newbuild deliveries and contract extensions to support long-term distribution capacity.
Recent Developments:
- Maersk exercised an extension option for the vessel Maersk Sarat until mid-2025, adding $13 million to the backlog.
- The rig Hercules mobilized to Namibia for a new contract with Galp Energia (estimated $50 million) and is scheduled for a subsequent contract with Equinor Canada (estimated $100 million) starting Q2 2024.
- Three new car carriers are under construction with $136 million in remaining capital commitments, fully financed via JOLCO arrangements.
Risks and Contingencies: The filing notes standard risks including cyclical market conditions, fluctuations in charter rates and vessel values, currency and interest rate volatility, and potential disruptions from geopolitical instability or environmental regulations. The company maintains a credit loss provision of approximately $2.9 million on direct financing lease receivables.
Investor Verification Checklist
- Verify the $3.4 billion fixed-rate charter backlog and the 5.9-year weighted average remaining term.
- Confirm the financing status of the three new car carriers under construction and the $195 million net cash availability upon delivery.
- Monitor the operational status and revenue recognition of the Hercules rig in its new Namibia and Canada contracts.
- Review the impact of the $49 million bond redemption on future liquidity and interest expense.
- Assess the sustainability of the $0.25 per share dividend given the capital expenditure commitments and debt levels.