SFL Corporation Ltd. Q4 2019 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 24, 2020, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended December 31, 2019. SFL is a Bermuda-based maritime company operating a diversified fleet of 88 vessels and rigs across container, tanker, dry bulk, and offshore sectors. The company emphasizes a strategy of long-term fixed-rate charters to ensure cash flow visibility.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenue was $119.9 million for the quarter, compared to $111.5 million in Q3 2019.
- Net Income: Reported net income was $23.6 million ($0.22 per share), a significant increase from $3.8 million in the prior quarter.
- Adjusted EBITDA: Total Adjusted EBITDA was $123.2 million, comprising $96.6 million from consolidated subsidiaries and $26.5 million from wholly-owned non-consolidated subsidiaries.
- Cash Flow: Net cash provided by operating activities was $58.4 million.
- Liquidity: Cash and cash equivalents totaled approximately $225 million (including restricted cash and non-consolidated subsidiaries) as of December 31, 2019. Marketable securities were valued at approximately $74 million.
- Debt: Total interest-bearing debt (short and long term) was approximately $1.61 billion. In January 2020, the company issued NOK 600 million (~$67 million) in senior unsecured bonds.
- Dividend: The Board declared a quarterly cash dividend of $0.35 per share, marking the 64th consecutive quarterly dividend.
Material Changes vs. Prior Period
- Profitability Surge: Net income increased by approximately $19.8 million compared to Q3 2019, driven largely by a $27.9 million gain on marketable securities investments (including $13.7 million from share sales and $14.2 million in mark-to-market movements).
- Impairment Charges: The company recorded a non-cash impairment charge of $34.1 million related to five offshore support vessels, compared to $25.9 million in the prior quarter.
- Charter Hire: Total charter hire received was approximately $159 million, including $3.9 million in profit share. This figure exceeds GAAP revenue due to accounting treatments for finance leases and non-consolidated associates.
- Asset Transactions: The company sold older VLCC and three offshore supply vessels in February 2020, generating approximately $30 million in net proceeds from the VLCC sale.
Outlook, Risks, and Management Commentary
Management highlighted a strong balance sheet and significant capital availability for new investments. The fixed-rate charter backlog stands at approximately $3.6 billion with an average remaining term of 4.5 years (7.6 years weighted by revenue).
- Market Outlook: While the container and tanker markets showed positive trends in 2019 due to scrubber retrofitting reducing supply, management noted that the outbreak of the Covid-19 coronavirus is expected to cause supply chain disruptions and pressure freight rates in 2020.
- Offshore Sector: The offshore support vessel market remains challenging. Three vessels chartered to Solstad Offshore ASA were terminated in February 2020 due to market conditions, contributing to the impairment charge. One drilling rig (West Taurus) remains in layup.
- Capital Expenditures: Committed capital expenditures for scrubber installations were approximately $53 million at quarter-end. The company is actively discussing additional investments with customers.
- Risks: Key risks include fluctuations in charter rates, vessel values, global economic conditions, and potential disruptions from the coronavirus pandemic. The company also faces counterparty risk, evidenced by the restructuring of Solstad Offshore ASA.
Investor Verification Checklist
- Verify the impact of the $34.1 million non-cash impairment charge on the company's asset valuation and future cash flow projections for the offshore segment.
- Confirm the extent of exposure to the Solstad Offshore ASA restructuring and the status of the remaining two offshore support vessels.
- Assess the sustainability of the $27.9 million gain on marketable securities, noting that a significant portion ($14.2 million) was non-cash mark-to-market movement.
- Monitor the effect of the Covid-19 pandemic on short-term charter rates for the 9 dry bulk vessels and 2 car carriers not on long-term fixed charters.
- Review the details of the new $67 million bond issuance and the resulting fixed interest rate of approximately 5.9%.