SFL Corporation Ltd. Q2 2022 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated August 17, 2022, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended June 30, 2022. 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 fixed-rate charters with blue-chip counterparties.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $153.3 million. Total charter hire received (including non-GAAP items) was approximately $164.9 million.
- Profitability: Net income was $57.4 million ($0.45 per share). Adjusted EBITDA was $115.8 million from consolidated subsidiaries and $7.8 million from associated companies.
- Cash Flow: Net cash provided by operating activities was $85.2 million. Cash and cash equivalents totaled $223.8 million at quarter-end.
- Debt and Liquidity: Short-term and current portion of long-term interest-bearing debt was $760.5 million. Long-term interest-bearing debt was $1.2 billion. Total assets were $3.59 billion.
- Dividends: The Board declared a quarterly cash dividend of $0.23 per share, marking the 74th consecutive quarterly dividend.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased slightly to $153.3 million from $152.4 million in Q1 2022.
- Net Income Increase: Net income rose to $57.4 million from $47.0 million in Q1 2022, driven by gains on asset sales and favorable mark-to-market adjustments.
- Asset Sales: The company sold two VLCCs and a feeder containership, generating a book gain of $13.2 million and net cash proceeds of approximately $48 million after debt repayment.
- Spot Market Performance: Net charter hire from vessels in the spot/short-term market improved significantly across segments, including a rise in tanker spot hire from $3.5 million (Q1) to $6.6 million (Q2) and dry bulk spot hire from $8.0 million to $13.4 million.
Guidance, Outlook, and Risks
- Strategic Acquisitions: SFL agreed to acquire four modern Suezmax tankers with 6-year charters to a Koch Industries subsidiary, adding approximately $250 million to the fixed-rate backlog. The vessels are expected to contribute $30 million annually to EBITDA.
- Backlog: The estimated fixed-rate charter backlog stands at $3.7 billion with a weighted remaining term of 6.8 years. Approximately $1.3 billion in backlog was added in 2022.
- Capital Expenditures: Remaining capital expenditures for four dual-fuel car carriers under construction are approximately $240 million. The company is refinancing ten dry bulk vessels with expected net proceeds of $50 million in Q3.
- Risks: Forward-looking statements are subject to risks including global economic strength, currency and interest rate fluctuations, cyclical market conditions, charterer performance (noting Seadrill's restructuring), and geopolitical instability.
Investor Verification Checklist
- Verify the $13.2 million gain on asset sales and its impact on non-recurring income.
- Confirm the $222.5 million acquisition price and financing terms for the four new Suezmax tankers.
- Review the $3.7 billion fixed-rate charter backlog composition and remaining weighted average term.
- Assess the $240 million remaining capital expenditure requirement for newbuildings and the refinancing status of the ten dry bulk vessels.
- Monitor the status of the West Hercules rig charter assignment and potential redelivery in Q4 2022.