SFL Corporation Ltd. Q4 2020 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 17, 2021, presents the preliminary financial results for SFL Corporation Ltd. for the quarter ended December 31, 2020. SFL is a Bermuda-based owner and manager of a diversified fleet of over 80 vessels, including container ships, tankers, dry bulk carriers, and offshore drilling rigs. The reporting period was significantly impacted by the Chapter 11 bankruptcy filing of Seadrill Limited, a major charterer of SFL's offshore rigs.
Key Financial Metrics
- Operating Revenue: $114.9 million (Consolidated U.S. GAAP).
- Charter Hire Received: Approximately $144 million (includes $5.3 million profit share).
- Net Loss: $165.2 million ($1.49 per share).
- Adjusted EBITDA: $96.1 million from consolidated subsidiaries plus $10.1 million from non-consolidated subsidiaries.
- Cash Flow from Operations: $82.1 million.
- Liquidity: $215.4 million in cash and cash equivalents; $28.8 million in marketable securities.
- Debt: Total interest-bearing debt (short and long term) was approximately $1.65 billion ($485 million short-term + $1.16 billion long-term).
- Dividend: Declared $0.15 per share (68th consecutive quarterly dividend).
Material Changes and Unusual Items
The reported net loss of $165.2 million was primarily driven by a non-cash gross impairment charge of $252.6 million on the drilling rig West Taurus. This charge was partially offset by a debt extinguishment gain of $66.1 million after the associated debt was repurchased at a discount. Other non-recurring items included a $5.6 million gain from charter termination and sale of subsidiaries, and a $2.8 million increase in credit loss provisions.
Revenue decreased slightly to $114.9 million from $115.8 million in the prior quarter. This GAAP revenue figure excludes approximately $28.3 million of charter hire classified as repayments of investment or income from associates under U.S. GAAP.
Guidance, Outlook, and Management Commentary
Seadrill Restructuring: Management confirmed that agreements are in place to ensure cash flow and uninterrupted operations for the rigs West Linus and West Hercules despite Seadrill's Chapter 11 filing. SFL expects to receive approximately 75% of lease hire from these rigs to cover debt service. The West Taurus rig is expected to be redelivered to SFL and is currently being evaluated for recycling.
Market Outlook: The liner market showed significant improvement with increasing freight rates and volumes. The dry bulk market experienced volatility but saw rate increases in Q4 due to port congestion. The tanker market softened due to oil supply cuts and lower demand.
Strategy: SFL remains committed to a conservative strategy with a weighted average charter term of approximately seven years. The company plans to divest older, less efficient vessels to reduce its carbon footprint and is positioned to evaluate new investment opportunities with a lower carbon footprint.
Investor Verification Checklist
- Verify the final court approval status of the Seadrill restructuring agreements regarding West Linus and West Hercules to ensure continued cash flow.
- Confirm the strategic decision and timeline for the West Taurus rig (recycling vs. other alternatives) and the associated costs.
- Review the impact of the deconsolidation of the River Box Holding subsidiary (four container vessels) on future revenue and cash flow.
- Monitor the credit loss provisions under ASU 2016-13, which totaled $13.4 million at quarter-end.
- Assess the sustainability of the dividend given the large non-cash impairment charge and the current cash balance of $215 million.