SFL Corporation Ltd. Q2 2021 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated August 18, 2021, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended June 30, 2021. SFL is a Bermuda-based shipping company operating a diversified fleet of container vessels, car carriers, tankers, dry bulk carriers, and offshore drilling rigs. The company focuses on long-term time charters to major global operators.
Key Financial Metrics
- Operating Revenue: $116.8 million (U.S. GAAP), up from $109.1 million in Q1 2021.
- Net Income: $19.5 million, or $0.16 per share.
- Charter Hire: Approximately $141.5 million received in the quarter, including $3.6 million in profit share. This figure exceeds GAAP revenue due to accounting treatment of certain lease repayments and associate revenues.
- Adjusted EBITDA: $89.1 million from consolidated subsidiaries and $13.7 million from associated companies (Total: $102.8 million).
- Cash Flow: Net cash provided by operating activities was $62.0 million.
- Liquidity: Cash and cash equivalents totaled $371.9 million, with an additional $22.8 million in marketable securities.
- Debt: Short-term and current portion of long-term interest-bearing debt was $369.6 million. Long-term interest-bearing debt was $1.31 billion.
- Dividend: Declared a quarterly cash dividend of $0.15 per share (70th consecutive quarter).
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 7.0% quarter-over-quarter, driven by higher charter rates and fleet utilization.
- Profitability: Net income decreased to $19.5 million from $31.5 million in Q1 2021. This decline was impacted by non-recurring items, including a $1.9 million vessel impairment charge, a $0.9 million loss on bond repurchase, and $0.8 million in debt security impairments.
- Segment Performance:
- Liners: Generated $75.3 million in gross charter hire; 95% derived from long-term charters.
- Dry Bulk: Generated $39.4 million in gross charter hire; spot market results improved significantly ($14.9 million net hire) compared to Q1 ($9.8 million) due to rising freight rates.
- Tankers: Spot market results weakened ($1.8 million net hire vs. $2.5 million in Q1) due to lower global oil demand.
- Offshore: Generated $12.2 million in charter hire from two rigs chartered to Seadrill subsidiaries.
- Balance Sheet: Total assets increased to $3.19 billion from $3.06 billion in Q1, reflecting new vessel acquisitions and deposits.
Guidance, Outlook, and Material Events
Strategic Acquisitions and Backlog: SFL has committed approximately $700 million to accretive investments in 2021. Key transactions include:
- Acquisition of two 6,800 TEU container vessels with 6-year charters to Maersk (adds ~$160 million to backlog).
- Acquisition of two 14,000 TEU container vessels with charters to Evergreen (adds ~$80 million to backlog).
- Agreement to build four 7,000 CEU LNG dual-fuel car carriers with 10-year charters to Volkswagen Group and an Asia-based transporter (adds ~$400 million to backlog).
Fixed Rate Charter Backlog: As of June 30, 2021, the estimated fixed rate charter backlog for the fleet of 74 vessels was approximately $2.7 billion. The liner fleet backlog specifically stands at $2.2 billion with an average remaining charter term of 4.7 years.
Seadrill Restructuring: SFL's two offshore rigs are chartered to Seadrill subsidiaries, which filed for Chapter 11 in February 2021. SFL has entered into court-approved interim agreements to ensure uninterrupted performance. An amendment regarding the West Hercules rig is pending bankruptcy court approval, securing employment until late 2022. SFL maintains an $83 million corporate guarantee for the rig-owning subsidiary.
Outlook: Management expects continued growth opportunities due to attractive asset prices and a challenging banking market for competitors. The company remains committed to a conservative profile with long-term charters and ESG-focused investments (dual-fuel vessels).
Investor Verification Checklist
- Verify the impact of the Seadrill Chapter 11 proceedings on the $12.2 million quarterly rig revenue and the status of the pending amendment agreement for the West Hercules.
- Confirm the delivery schedules and final charter terms for the four newbuild LNG car carriers and the four acquired container vessels to ensure the projected $700 million in backlog additions materialize.
- Review the reconciliation of Adjusted EBITDA ($102.8 million total) against GAAP Net Income ($19.5 million) to understand the magnitude of non-cash items and interest expenses.
- Monitor the spot market performance of the tanker and dry bulk fleets, as these segments are more volatile than the long-term chartered liner fleet.
- Assess the company's debt maturity profile, noting the recent issuance of $150 million in 7.25% sustainability-linked bonds due 2026.