SFL (SFL) Q3 2026 Earnings Call Transcript

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DATE

Wed, Nov. 4, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations - Espen Gjosund
• Chief Executive Officer - Ole Hjertaker
• Chief Operating Officer - Trym Sjølie
• Chief Financial Officer - Aksel Olesen

TAKEAWAYS

• Total Operating Revenues -- $202 million, reflecting stable fleet performance compared to the previous quarter.
• Net Income -- $37 million, or $0.26 per share, which included non-GAAP mark-to-market gains of $13.3 million on derivatives.
• Quarterly Dividend -- $0.22 per share, representing the 91st consecutive quarterly payout to shareholders.
• Charter Backlog -- $5 billion, following the addition of more than $1.6 billion in new contracts during the year.
• Container Charter Extension -- $750 million added to the backlog after a 7-year extension with Hapag-Lloyd for six 15,400 TEU vessels through 2035 and 2036.
• Container Vessel Acquisition -- $256 million for the purchase of two 8,800 TEU container vessels with 8-year firm charters, adding $250 million to the backlog.
• Ammonia Carrier Newbuilds -- $336 million for the construction of three 93,000 cubic meter vessels scheduled for delivery in 2028 with long-term charters.
• Tanker Divestment Proceeds -- $275 million in estimated net cash proceeds from the sale of seven tankers to Trafigura after debt repayment.
• Transaction Book Gain -- $175 million, expected to be recognized over the fourth and first quarters as vessels are delivered to buyers.
• Adjusted EBITDA -- $122 million, compared to $130 million in the previous quarter due to increased operating expenses.
• Total Available Liquidity -- More than $270 million, consisting of $112 million in cash and $160 million in undrawn credit facilities.
• Suezmax Spot Performance -- In excess of $200,000 per day for 2 in 3 covered days in the fourth quarter, compared to an average of $80,000 per day during the third quarter.
• Capital Commitments -- $1.7 billion for 14 newbuildings with deliveries scheduled between late 2027 and 2029.
• Fleet Utilization -- 100% for container vessels and tankers, while the car carrier segment achieved 98% utilization.
• Container Segment Revenue -- $85 million, maintaining its position as the largest contributor to gross charter hire.
• Tanker Segment Revenue -- $56 million, supported by spot earnings on two Suezmax vessels.
• Car Carrier Revenue -- $27 million, showing a slight improvement over the second quarter performance.
• Energy Segment Revenue -- $23 million, primarily generated by the jack-up rig Linus under contract to ConocoPhillips.
• Dry Bulk Revenue -- $3 million, with two Kamsarmax carriers earning an average daily time charter equivalent of $15,400.
• Total Operating Expenses -- $85 million, up from $74 million in the previous quarter due to rig mobilization and scheduled dry dockings.
• Backlog Credit Profile -- 58% of contracted revenue is with investment-grade counterparties, rising to nearly 80% when including one notch below investment grade.
• Shipping Fleet Operating Expenses -- $36 million, including $15 million for container vessels and $12 million for tankers.
• Special Survey Expenses -- $2.3 million, related to the drydocking of the car carrier SFL Conductor during the quarter.
• Average Charter Duration -- 8.3 years for container vessels and 5.7 years for the car carrier fleet.

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RISKS

• Hjertaker stated, "Having zero revenues on the rig this quarter is, of course, weighing on the reported results," in reference to the Hercules drilling rig being between contracts during its mobilization for a campaign in Canada.
• Olesen warned that "as preparation progresses, we expect elevated rig operating expenses in the fourth and first quarter," regarding the ongoing mobilization of the Hercules rig for its next contract.

SUMMARY

SFL Corporation Ltd. (NYSE:SFL) reported third quarter results highlighting an expansion of its long-term charter backlog through vessel acquisitions and charter extensions. Management noted that new container vessel acquisitions and ammonia carrier orders contributed to the growth of contracted revenue. The company executed the divestment of several tankers to capitalize on asset values while increasing its exposure to the tanker spot market. Financial performance reflected consistent fleet utilization and preparation costs for an upcoming drilling campaign scheduled for early next year.

• Hjertaker noted that the order of three 93,000 cubic meter ammonia carriers will "take us into a new sector and broaden the diversification of the fleet further."
• Management reported that one Suezmax tanker was chartered to an oil major for three years at a daily rate exceeding the combined previous earnings of two vessels in the same class.
• Olesen stated that the company expects to fund its capital commitments through a combination of existing cash and pre- and post-delivery credit facilities.
• The company indicated that 71% of its contracted revenue is derived from the container segment, which provides "a very stable core of earnings well into the next decade."
• Hjertaker noted that the fleet portfolio has reached 66 maritime assets following recent transactions, with the majority of customers remaining large industrial end users.

INDUSTRY GLOSSARY

• TEU: Twenty-foot equivalent unit, a standard measure for container vessel capacity.
• Suezmax: A tanker size category typically between 120,000 and 200,000 deadweight tons, capable of transiting the Suez Canal.
• LR2: Large Range 2, a class of product tankers typically between 80,000 and 115,000 deadweight tons.
• Bareboat Charter: A leasing arrangement where the charterer provides the crew, insurance, and maintenance for the vessel.
• Time Charter: An arrangement where the shipowner provides the crew and technical management while the charterer pays a daily rate for the vessel's use.
• Kamsarmax: A dry bulk vessel class designed to be the largest size capable of docking at the Port of Kamsar in Guinea.
• Jack-up Rig: A type of mobile offshore drilling platform with buoyant hulls and movable legs.
• EBITDA Equivalent Cash Flow: A non-GAAP measure used by management to assess underlying cash flow from operations before interest and depreciation.

Full Conference Call Transcript

Espen Gjosund: Welcome to SFL's Third Quarter 2026 Conference Call. My name is Espen Gjosund, and I'm Vice President of Investor Relations in SFL. Our CEO, Ole Hjertaker, will start the call with an overview of the third quarter highlights. Then our Chief Operating Officer, Trym Sjølie, will comment on vessel performance matters, followed by our CFO, Aksel Olesen, who will take us through the financials. The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping, offshore and credit markets. You should, therefore, not place undue reliance on these forward-looking statements.

Please refer to our filings within the Securities and Exchange Commission for a more detailed discussion of risks and uncertainties, which may have a direct bearing on operating results and our financial condition. Then I will leave the word over to our CEO, Ole Hjertaker, with highlights for the third quarter.

Ole Hjertaker: Thank you, Espen. Last quarter, we celebrated our 90th dividend and a $0.22 payout, and we continue at the same pace this quarter. Nearly $33 per share have now been returned to shareholders, which means more than $3 billion accumulated since 2004. And with the recent growth initiatives and backlog additions to very strong customers, we have firmly positioned SFL as a maritime infrastructure company with a diversified high-quality fleet and with a unique long-term cash flow visibility. In the third quarter, we reported revenues of $202 million and an EBITDA equivalent cash flow of $122 million. And over the past 12 months, aggregate EBITDA has been $469 million, reflecting the continued strength and stability of our operations.

Net income in the quarter was $37 million or $0.26 per share, and the dividend declared is $0.22 per share. The backlog has been building massively this year and is now up to $5 billion with a very strong counterparty profile where most of the backlog is to customers with investment-grade rating. In fact, if we include the backlog to a customer with credit rating just one notch below investment grade, it would cover nearly 80% or $4 billion of the backlog. At the beginning of the third quarter, we announced 4 newbuild car carriers and also long-term charters for 2 of the vessels.

We covered this in more detail in the second quarter presentation in August, but this deal added $150 million in backlog on the 2 vessels with charters, which could increase to $300 million if the optional periods are declared. Two vessels are still unfixed, but with quite attractive delivery positions in 2029, we expect to secure long-term charters in due course. In September, we announced a significant charter extension for six 15,400 TEU container vessels with Hapag-Lloyd. The vessels were originally on a 5-year charter ending in 2028 and 2029, and we have now agreed to extend the charters by additional 7 years.

The vessels are then chartered until 2035 and 2036, and this adds approximately $750 million to our fixed rate charter backlog. And we have done more business in the Container segment lately. Last week, we announced the acquisition of two 8,800 TEU container vessels in combination with 8-year firm charters to an existing investment-grade customer. Acquisition cost is around $256 million, and the vessel will have scheduled delivery already in 2027. This transaction adds around $250 million to our backlog and maybe more if options are exercised. The extension options are 2x 2 years and the charterer will also have purchase options in year 8 and also in year 10 and 12 if the extension options are exercised.

The options are at a level where we will have a strong return on our invested capital, and it includes a profit share feature on top, which may be valuable to us when we get there. We have also recently ordered 3 very large ammonia carriers with a cargo capacity of 93,000 cubic meters. The vessels will be able to carry a wide range of petrochemical gases and will have dual fuel propulsion and the latest technology for fuel efficiency and cargo intake optimization. Delivery is scheduled in the second and third quarter of 2028, and the aggregate yard construction cost is expected to be approximately $336 million.

All the vessels have been chartered out on long-term time charters from delivery with two vessels going to an oil major and one to a global leader in the commodities industry, adding around $250 million to our fixed rate charter backlog. The exact duration of the initial charter period for the vessels to the oil major will be determined within the next 6 months, and the backlog may increase at that point if they choose 7 years and not 5 years initially. The charter will also have options to extend the time charter by up to 4 years. The period for the vessel to the commodities trading company is fixed at 5 years plus two 1-year extension options.

We have also added a flexible sales clause in this deal where we may agree to develop a sale of the vessel during the last 2 years of the fixed period, subject to a profit share mechanism with SFL. We have seen in the past that these arrangements have been very profitable for us. And this was actually demonstrated in October when we announced the agreement to sell four 2014- and 2015-built LR2 product tankers and three 2019-built Suezmax tankers we have had on time charter to Trafigura since 2021 and 2022. These charters, similar to the gas carrier I mentioned earlier, had a profit share mechanism in the event of a profitable sale.

The actual sale price per vessel is confidential, but we will have significant net cash proceeds from the transaction estimated at $275 million after repayment of associated debt. And the aggregate book gain is estimated to approximately $175 million, indicating a stellar return on invested capital. The gains will be recorded in the quarter the vessels are delivered, so some of it already now in the fourth quarter. This last quarter, we have also had significant benefits of having two modern Suezmax tankers employed in the spot market. These vessels were previously on a long-term charter at around $30,000 per day per vessel until December last year.

We have now chartered one of the vessels to an investment-grade oil major for a period of 3 years at a charter rate that is higher than what both vessels earned combined last year. This means that the charter rate from the other vessel is a net incremental cash flow for us. In the third quarter, the vessels earned around $80,000 per day on average. And so far into the fourth quarter, we have covered 2/3 of the vessel days at an average charter rate in excess of $200,000 per day. But please note that charter hire for vessels in the spot market is accounted for on a load-to-discharge basis pursuant to U.S.

GAAP, where we only recognize revenues when there is cargo on board the vessels. So the final reported number will depend on trading towards the end of the quarter, including ballast days. And the drilling rig Hercules is in the process of preparing for a 400-day drilling campaign in Canada from March onwards next year. Having 0 revenues on the rig this quarter is, of course, weighing on the reported results, but this is changing next year when the rig is expected to generate significant revenues. And with that, I will now hand the call over to our Chief Operating Officer, Trym Sjølie.

Trym Sjølie: Thank you. As Ole mentioned, this has been a very active period for us, and I would like to spend a moment on what the recent transactions mean for the shape of the portfolio. Including the newbuildings we have ordered, our portfolio now comprises 66 maritime assets, 32 container vessels, 11 car carriers, three gas carriers, 16 tankers, two drilling rigs and two dry bulk vessels. Seven of the tankers have been agreed sold to Trafigura as explained, and are scheduled to leave the fleet over the fourth and first quarter. The three ammonia carriers take us into a new sector and broaden the diversification of the fleet further.

The majority of our customers remain large industrial end users, and this is where we continue to focus. Looking at contract duration, the weighted average remaining charter term on the container fleet is now 8.3 years, a direct result of the Hapag-Lloyd extensions and the new 8,800 TEU vessels. The car carriers follow at 5.7 years, the gas carriers at 5 years, and the tankers at 3.2 years, while the energy sector is at 1.9 years and the dry bulk vessels are on short-term employment. It is worth noting that these figures exclude our charters extension options, so they are a conservative measure of how long the assets are likely to stay employed.

On the right-hand side, our fixed rate backlog stands at approximately $5 billion. Container vessels make up around 71% of this, car carriers 11%, the rigs 7%, and gas carriers and tankers around 5% each. The weight towards containers reflects both the size of the vessels and the length of the charters, and it gives us a very stable core of earnings well into the next decade. The backlog figure also excludes the dry bulk vessels, charters options and any future profit share. So there is an additional earnings potential on top. Around 58% of the contracted revenue is with investment-grade counterparties. The remaining part is mainly with large, well-established industrial operators that we have long relationships with.

And as Ole mentioned, a significant share of it is with a customer rated just notch below investment grade. Now turning to the operational performance. With the exception of four container vessels on bareboat charter, representing around 9% of the container revenue, our entire fleet is employed on time charter or voyage charter, where we provide crew and technical management to the charter. This means operational performance feeds directly into our earnings and is a key part of the service our customers pay for. We had a total of approximately 4,670 operating days across the fleet in the quarter and utilization was strong across the shipping sectors.

Container vessels and tankers both ran at 100%, car carriers at 98%, and dry bulk at 97%. The slightly lower figure for the car carriers reflects the fourth special survey dry docking of SFL Conductor, which was completed during the quarter. The energy sector ran at 50% with Linus operating through the quarter, while Hercules is being prepared for its campaign in Canada. Charter revenue from the fleet was around $194 million in the quarter, and container vessels contributed $85 million, tankers $56 million, car carriers $27 million, the rigs $23 million, and dry bulk $3 million. The tanker contribution was supported by the strong spot earnings on our two Suezmax tankers that Ole just mentioned.

Operating expenses for the shipping fleet, excluding emission allowances, came in at about $36 million, of which $15 million on the container vessels, $12 million on tankers, $7 million on the car carriers, and $2 million on dry bulk. And the car carrier figure includes approximately $2.3 million of drydocking costs related to the SFL Conductor. I will now give the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter.

Aksel Olesen: Thank you, Trym. Turning now to our cash flow overview. This slide provides a clear view of the fleet's underlying operating performance, excluding certain noncash items and items we consider nonrecurring. Before walking through the numbers, a brief reminder. This presentation includes non-GAAP measures that management uses to assess underlying performance. These measures are not prepared in accordance with U.S. GAAP and should not be considered in isolation or as a substitute of GAAP measures. A full reconciliation of the most direct comparable GAAP measures is included in our earnings release filed this morning. With that context, let me take you through the performance of our fleet.

Across the fleet, we generated approximately $195 million in gross charter hire during the quarter. Our container fleet accounted for approximately $85 million, remaining our largest contributor. Turning to car carriers. Our 7 vessels generated approximately $27 million in gross charter hire, a slight improvement from the previous quarter. Our tanker fleet generated approximately $56 million in gross charter hire compared to $62 million in the previous quarter. The decrease was mainly due to lower recorded revenue from our 2 Suezmax tankers trading in the spot market, partly reflecting the timing of voyage revenue recognition. As a reminder, under U.S. GAAP, voyage revenue is recognized on a load-to-discharge basis with revenue allocated on the days when cargo is on board.

Our 2 Kamsarmax dry bulk carriers continue to trade in the short-term market, generating approximately $3 million in revenue. Average daily time charter equivalent was approximately $15,400 per vessel compared to $16,100 in the previous quarter. Moving to energy. The harsh environment jack-up rig Linus generated approximately $23 million in revenue, broadly in line with the previous quarter. The rig remains contracted to ConocoPhillips until May 2029, which gives good visibility on future cash flows. The Hercules is preparing for its upcoming contract in Canada, which is expected to commence in March '27. As preparation progresses, we expect elevated rig operating expenses in the fourth and first quarter.

Vessel and rig operating expenses together with G&A totaled approximately $73 million compared to $69 million in the previous quarter. As a result, adjusted EBITDA was approximately $122 million compared with $130 million in the previous quarter. Turning to our results on U.S. GAAP. Total operating revenues were approximately $202 million, in line with the previous quarter. Operating expenses were approximately $85 million, up from $74 million in the previous quarter. The increase was mainly due to higher operating expenses for Hercules, reflecting the ongoing mobilization of the contract with Suncor in Canada as well as higher voyage expenses and scheduled dry dockings.

The results included noncash mark-to-market gains of approximately $13.3 million on derivatives and $1 million on equity investments. We showed these separately, so that investors can distinguish valuation movements from underlying operating performance. Including these gains, net profit was approximately $37 million or $0.26 per share compared with $34 million or $0.25 per share in the previous quarter. Turning to the balance sheet. We had approximately $112 million in cash and cash equivalents at quarter end and a further $160 million available on the undrawn credit facilities. This gave us total available liquidity of more than $270 million. At quarter end, we agreed to sell seven tankers currently on time charter to Trafigura.

After settlement of profit share obligations and repayment of associated debt, we expect aggregate net cash proceeds of approximately $275 million. The vessels are expected to be delivered to the buyers during the fourth and first quarter, and we expect to recognize an aggregate book gain of approximately $175 million as they are delivered. Following our recent announcements, remaining capital commitments under our newbuilding program totals approximately $1.7 billion. Of our 14 newbuildings, 12 have long-term charters in place, representing an aggregate charter backlog of approximately $1.9 billion.

Deliveries are scheduled from the second half of '27 throughout the end of 2029, and expect to fund the commitments through a combination of existing cash and primarily pre- and post-delivery credit facilities. Before handing the call back to Espen, let me close with a few key points. The Board has declared our 91st consecutive quarterly cash dividend of $0.22 per share. Our charter backlog stands at approximately $5 billion after adding additions of more than $1.6 billion so far this year. This gives us substantial visibility on future cash flows and supports both shareholder distribution and continued investments. The sale of the Trafigura tankers crystallizes value not previously reflected in our book values and releases significant capital.

The gains should be recognized over the next 2 quarters as the vessels are delivered, strengthening our capacity to fund further growth alongside our newbuilding program. With a diversified fleet, strong access to capital and disciplined approach to investments, we remain focused on generating attractive long-term returns for shareholders. Thank you for joining us this morning. I'll now hand it back to Espen for questions.

Espen Gjosund: Thank you, Aksel. We will now open for a Q&A session. [Operator Instructions] And we will have our first question from Mr. Franklin Sherman. With one of the spot vessels now coming on a time charter contract, is the plan to get the other vessel on the time charter contract as well?

Ole Hjertaker: Thank you. We had a plan of effectively hedging those two vessels in the market. We have already chartered out the vessel at a charter rate more than double what both vessels earned before in 2025. We see a booming market, and we believe this extreme market could last for some while. So the plan is to keep it in the spot market for now. But we have to remember that every single dollar in charter rate on that vessel is incremental cash flow for us. So just as an illustration, I believe we earned a net contribution after OpEx and debt service on those vessels. Before it used to be around $0.02 to $0.03.

With the revenues that we recorded in the third quarter, the contribution per SFL share was around $0.08, and this is growing exponentially if the market should be higher. As I indicated, the market now, depending on who you talk to, in the broker reports say some quote around $300,000 per day, some quote maybe $400,000 per day. Of course, what matters is what will the ship earn over time, but we're talking astronomical sort of cash flows. So for now, we think we will keep that vessel in the spot market. But of course, down the road, we may find long-term charter there as well. But our ambition is to ride the market a little bit on that one.

Espen Gjosund: Thank you, Ole. Another question from Tiffany Johnson. With the increased backlog that you've added this quarter, when are the next vessels coming off the contract? And what are your plans on those vessels?

Ole Hjertaker: Yes. Thanks. We have then effectively three vessels in the spot market, the one Suezmax Trym just mentioned, and also two Kamsarmaxes that are being traded there. They are around $15,000 per day in the third quarter. And so far this quarter, we are north of $20,000 per day, but they are 13, 14 years old. So I think we will just keep trading those in the spot market for now. If you look at the vessels that are on longer-term charters currently, the next vessel really to come off charter is in 2028. It's a car carrier. That market is very strong. We also have two newbuild car carriers coming in 2029 that could be very attractive positions.

This is on the back of a booming market in that segment, I would say, partly or to a significant degree driven by exports out of China. So we are quite comfortable with those positions. And as you have seen, we have added massively to our backlog so far this year. And of that $5 billion, we have added $1.6 billion, $1.7 billion just this year alone. So it's been a very active year. And a part of that has been rechartering or extending charters on vessels that we already had on charters, and we expect that to continue going forward.

Espen Gjosund: Thank you, Ole. As there are no further questions from the audience, I would like to thank everyone for participating in this conference call. If you have any follow-up questions to the management, there are contact details in the press release, or you can get in touch with us through the contact pages on our web page, www.sflcorp.com. Thank you for listening.

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