SFL Corporation Ltd. Q3 2019 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 21, 2019, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended September 30, 2019. SFL is a Bermuda-based maritime investment company operating a diversified fleet of 92 vessels and rigs, including container ships, tankers, dry bulk carriers, and offshore drilling units. The company focuses on long-term fixed-rate charters to reputable operators.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $111.5 million, compared to $110.9 million in Q2 2019. This excludes $11.7 million of charter hire classified as repayment of investment in finance leases and $26.9 million from non-consolidated subsidiaries.
- Profitability: Reported net income was $3.8 million ($0.04 per share). Adjusted EBITDA (non-GAAP) totaled $116.8 million ($90.0 million from consolidated subsidiaries and $26.9 million from non-consolidated subsidiaries).
- Cash Flow: Net cash provided by operating activities was $77.3 million. Net cash used in investing activities was $135.3 million, primarily due to vessel purchases and additions to finance leases.
- Liquidity: Cash and cash equivalents totaled $138.3 million (excluding cash in non-consolidated subsidiaries). Marketable securities were valued at approximately $126.8 million.
- Debt: Total interest-bearing debt (short and long term) was approximately $1.49 billion ($165.5 million short-term and $1.32 billion long-term).
- Dividend: The Board declared a quarterly cash dividend of $0.35 per share, marking the 63rd consecutive quarterly dividend.
Material Changes and Operational Highlights
- Impairment Charges: The company recorded non-cash impairment charges of $25.9 million. This includes $25.0 million related to two feeder container vessels (charter options not exercised by the charterer) and $0.9 million related to an offshore support vessel due to market uncertainty.
- Market Performance: Charter rates improved in the liner and dry bulk sectors due to capacity constraints from scrubber retrofits. Tanker rates strengthened in Q4. Offshore markets remained challenging with low utilization for drilling rigs and support vessels.
- Backlog: Fixed-rate charter backlog stands at approximately $3.7 billion with an average remaining term of 4.7 years. Approximately $161 million was added to the backlog via vessel acquisitions and charter extensions linked to scrubber installations.
- Acquisitions: SFL acquired three container vessels (commencing 5.5-year charters) and three VLCCs under construction (acquired for $180 million, employed on 5-year charters).
Outlook, Risks, and Management Commentary
Management highlighted a strong liquidity position and a focus on balance sheet management to pursue growth opportunities in a constrained capital market. The company expects new projects to materialize in coming months. Key risks include:
- Market Volatility: Uncertainty regarding global trade tariffs and demand growth in the liner market.
- Offshore Sector: Continued pressure on offshore support vessel markets; a key charterer (Solstad Offshore ASA) is undergoing balance sheet restructuring, though a standstill agreement has been extended.
- Regulatory Compliance: Ongoing capital expenditure requirements for IMO 2020 scrubber installations, with approximately $40 million in committed spend at quarter-end.
- Forward-Looking Statements: Results may differ due to fluctuations in charter rates, vessel values, currency exchange rates, and geopolitical events.
Investor Verification Checklist
- Verify the impact of the $25.9 million non-cash impairment on future earnings and asset book values.
- Confirm the status of the Solstad Offshore ASA restructuring and the potential risk to the $26.9 million offshore charter hire stream.
- Review the details of the $180 million VLCC acquisition and the associated 5-year charter agreements.
- Assess the company's liquidity position relative to the $40 million committed scrubber capital expenditures and upcoming debt maturities.
- Monitor the execution of the forward contract to repurchase Frontline Ltd. shares sold post-quarter.