SFL Corporation Ltd. Q3 2022 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 14, 2022, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended September 30, 2022. SFL is a Bermuda-based shipping and offshore company operating a diversified fleet of container vessels, car carriers, tankers, dry bulk carriers, and drilling rigs. The company focuses on long-term time charters with reputable counterparties to support stable cash flows and dividend distributions.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $166.9 million, an increase from $153.3 million in Q2 2022. Total charter hire received was approximately $177.5 million, including $11.3 million in profit share.
- Profitability: Net income was $49.9 million ($0.39 per share). Adjusted EBITDA (non-GAAP) was $117.7 million from consolidated subsidiaries, plus $7.9 million from associated companies.
- Cash Flow: Net cash provided by operating activities was $79.9 million. Cash and cash equivalents totaled $178.7 million at quarter-end.
- Debt and Liquidity: Short-term and current portion of long-term interest-bearing debt was $962.7 million. Long-term interest-bearing debt was $1.06 billion. The company held $113.5 million in unencumbered vessels and $9.3 million in marketable securities.
- Dividends: The Board declared a quarterly cash dividend of $0.23 per share, marking the 75th consecutive quarterly dividend.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by $13.6 million compared to Q2 2022, driven by higher charter hire and profit share income.
- Net Income Decline: Net income decreased to $49.9 million from $57.4 million in Q2 2022. This was partially due to the absence of a $13.2 million gain on sale of assets recorded in the prior quarter.
- Non-Recurring Items: Q3 results included a $5.5 million positive mark-to-market gain on interest rate swaps and an $8.6 million gain on investments in debt and equity securities. A $0.5 million non-cash increase in credit loss provisions was also recorded.
- Fleet Activity: Spot market earnings for dry bulk vessels decreased to $10.2 million from $13.4 million in Q2, while tanker spot earnings increased to $11.5 million from $6.6 million.
Guidance, Outlook, and Risks
Outlook and Strategy: Management highlighted a fixed-rate charter backlog of approximately $3.8 billion with a weighted average remaining term of 6.8 years. The company continues to acquire assets with long-term charters, including two newbuilding feeder container vessels (chartered to Maersk) and four Suezmax tankers (chartered to a Koch Industries subsidiary). The CEO emphasized the benefits of a conservative, fixed-rate financing strategy amidst rising interest rates.
Risks and Contingencies: The filing notes standard industry risks including cyclical market conditions, fluctuations in charter rates and vessel values, and changes in global demand. Specific risks mentioned include the impact of the Seadrill bankruptcy proceedings, potential delays in vessel deliveries, and geopolitical instability affecting shipping routes. The company also noted that some charters include purchase options that could reduce the backlog if exercised.
Investor Verification Checklist
- Verify the reconciliation of Adjusted EBITDA ($125.6 million total) against U.S. GAAP net income to understand the impact of non-cash items and interest.
- Confirm the status of the $144 million financing facility for the four Suezmax tankers, which was expected to close in Q4 2022.
- Review the details of the $225 million remaining capital expenditures for newbuildings and the funding sources (cash vs. new debt).
- Assess the impact of the Seadrill bankruptcy on the future chartering of the Hercules rig, which is due for redelivery in December 2022.
- Monitor the credit loss provision of $4.1 million held against direct financing lease receivables and associates.