SFL Corporation Ltd. (SFL) Q3 2010 Earnings Report, Transcript and Summary

Thank you very much and welcome everyone to the Ship Finance International third quarter conference call. As mentioned, my name is Ole Hjertaker. I’m the CEO and Chief Finance Management, and here with me today, I also have Senior Vice President, Mr. Harald Gurvin and Vice President, Mr. Magnus Valeberg. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements. Important factors that could cause actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance’s reports and filings with the Securities and Exchange Commission. The Board of Directors has declared an increased cash dividend of $0.36 per share this quarter. This is the third dividend increase in 2010 and the dividend represents $1.44 per share on an annualized basis or 6.6% dividend yield based on closing price yesterday. We have now declared dividends for 27 consecutive quarters and we have paid $12.12 per share in total aggregate cash dividends over the last six to seven years. The adjusted net income for the quarter was $36.7 million or $0.46 per share. Adjustments include our $400,000 book profit linked to a sale of a single (inaudible) and a $2.5 million negative non cash mark to market adjustment linked to interest rate swaps. The reported net income after these non-cash adjustments was $34.6 million or $0.44 per share. Gross charter revenues including subsidiaries accounted for us an investment in associate was $197 million or $2.49 per share including profit share. The EBITDA equivalent cash flow also included profit share was $176 million or $2.22 per share. The profit share contribution was lower than the $11.4 million in the second quarter but we still generated $5.8 million despite a weak spot tanker market in the quarter. According to Clarkson’s, the spot market in the fourth quarter has been in line with the third quarter, and Clarkson’s reported average day to sea earnings of $25,900 in the third quarter and they indicate that based on previous Friday’s information, $25,200 per day so far in the fourth quarter, but on a rising trends with $35,100 reported last week. The reported market rates in the third quarter were lower than the average base rates we have with Frontline of approximately $26,000 per day for the (vehicletoseas). Manual front line vessels have been sub chartered on profitable terms above our base rate and will therefore provide a positive contribution to profit share calculation irrespective of the spot market. In total, more than $500 million in profit share has accumulated since 2004 in addition to the base rates. We place $484.6 million senior unsecured bond in the Norwegian market in late September with maturity in April 2014. Closing took place in early October, so this financing is not reflected on our balance sheet for our third quarter. The loan is denominated in Norwegian Kroner, but all payments have been swapped to U.S. dollar and the fixed interest rate is 5.32% per annum. In addition to the 357 dead weight tons Supramax bulk carriers we announced in August, we have now increased this by another two vessels. All the vessels are of so called Dolphin design and built at reputable yards in China. One 2009 built vessel was delivered to us in early October 2010, and another new building is expected to be delivered from the shipyard in December this year. The remaining three vessels will be delivered in the first, second and third quarter of 2011. The aggregate purchase price is $161 million for the five vessels, and we have already secured financing for two of the vessels at very attractive terms. The charter of all five vessels is Glovis, an investment grade A ship based logistics company with a market capitalization in excess of $5 billion. Average net charter rate for these five vessels is approximately $16,800 per day and we estimate operating expenses of approximately $5,300 per day for the vessels. There are no purchase options attached. We have also secured five year charters for our remaining handy sized bulk carriers. The charter is Hong Sung [ph] shipping, which is part of the Yeong Long [ph] group, a privately owned Chinese industrial conglomerate. With these charters, all our new buildings have been chartered out. In November, we announced the sale of a 13 year old Panamax bulk carrier, Golden Shadow. We purchased the vessel in 2006 in a sale lease back transaction, where Gold Notion was granted fixed price purchase options, and they have now decided to exercise the purchase option in connection with a sale to an unrelated third party. Our sales price is $21.5 million pursuant to this purchase option, and we expect net cash proceeds from the transaction of approximately $4.5 million after prepayment of associated debit. We do not expect the transaction to have a material impact on our profit and loss statement I would now like to take a step back just to illustrate the development of the company over these past seven years. In 2004, the company had 47 vessels, which all operated in the crude oil market and all vessels were chartered to Frontline. The charter back log at the time stood at $4.8 billion. After that, and particularly the last four to five years, the company has diversified and grown very significantly, and the back log now stands at $6.8 billion and offshore is now a bigger segment for us than tankers. And in addition, we have diversified into dry bulk and containers. The fleet, including new buildings, consists of 72 vessels across our four core markets and we now have 13 customers of which three have been added over the last three to four months alone. Our ambition is to continue growing this portfolio with accretive acquisitions. One of the very important features which are financed is our long term charter portfolio that gives us a very transparent and predictable cash flow. We believe Ship Finance is in a different league than most of the shipping and offshore companies with almost 12 years weighted average charter coverage. We have a total of $6.8 billion fixed rate order back log, which is approximately $86.00 per share and the EBITDA equivalent of this back log is approximately $5.9 billion or $75.00 per share. These numbers are before profit share and does not include any re-chartering after the end of the current charter period. CHECK AUDIO HERE If you look at the segments where this cash flow will be generated, we see that offshore is the largest currently, and tankers with the light blue part of the bar where the company started is now only approximately 35%. The quality of the portfolio is of course, also very important for all our stakeholders and on the left side of slide seven; we have illustrated the charter backlog as a percentage of the counterpart’s size. We see here that 49% of our charter backlog is with companies with a market capitalization in excess of $5 billion, and 39% is with companies with a market capitalization between $1 and $5 billion, only 12% below $1 billion and of that, only 3% private companies. That gives all our stakeholders and the company a very good visibility on the quality of our charter backlog and it’s also very easy for us to monitor our development in these companies in their respective markets. Also, when we look at the remaining charter term on the right side of this slide, we see that 80% of our charters have more than 10 years remaining. 16 have between five and 10, and only 4% have less than five years maturity. This is in a different league than most of other companies who generally have charter coverage maybe of two, three, four, maybe five years, and we believe the quality of this portfolio is very important in the markets going forward. If we go back to the operating performance in the quarter, Ship Finance generates a very significant cash flow and this overview include all our 100% owned assets including the vessels and rigs classified as investment and associated based on US GAAP. The EBITDA equivalent cash flow before profit share was $170 million in the quarter and after profit share, it was $176 million or $2.22 per share after profit share. If you look at the change from the second quarter to the third quarter, VLCC’s, where the single hold fronts are buying, were sold for delivery in early September, and is therefore been taken out of the fleet. And also, the remaining two non-double hull vessels in our fleet that are chartered to Frontline, reached their anniversary date, and therefore, have a reduced charter rate, and this happened during this quarter. In addition, four of the five single hull vessels chartered to Frontline have now been re-chartered on a bare book basis, which has further reduced the revenues on the VLCC side, but that is also matched by slightly lower vessel operation cost related to these vessels. On the offshore side, the change from the second quarter to the third quarter is relating to a scheduled reduced rate on the Jacob drilling rig Vespersiro [ph], with the charter rate reduced from $81,000 in the second quarter to $54,000 per day in the third quarter, and that took effect from the very start of the third quarter. The operating expenses were lower in the quarter due to some of the single hull vessels that now are on (inaudible) charter as I mentioned, and also the G&A expenses had been lower than previous quarter in part due to lower stock option accruals. Going forward, the first Supramax bulker called SFL Hudson was delivered to the company in early October 2010 and will essentially have a full quarter of revenues in the fourth quarter, and the second bulker, SFL Yukon is expected to be delivered in December, and it will only have a marginal impact in the upcoming quarter. Average charter rate is close to $17,000 per day. The 17,000 TE container vessel SFL Avon, was also delivered from the shipyard in early October, and went straight on a charter, and will therefore have an economic effect for most of the quarter and that has been chartered at $8,100 per day and that’s for the first six months. In the fourth quarter, there will be a minor effect relating to the Panamax bulker Golden Ocean that will be sold for delivery in December, but that transaction will have more impact in the first quarter of 2011. Also, I would like to highlight that the profit share of course, will depend on actual performance, so we cannot make any predictions of projections relating to the profit share going forward. The full break down on charter hire per vessel including accounting treatment is available upon request to our IR at Shipfinance.no. If we look at a normalized contribution from our projects, which includes all the vessels accounted for as investment and associate, we see here an illustration of the EBITDA which consists of $2.42 fixed rate charter revenues in the third quarter, $0.07 per share profit share. We subtract $0.27 per share of OpEx and G&A, and get to the $2.22 per share. Net interest in the quarter was approximately $40 million or $0.50 per share and normalized ordinary debt installments relating the company’s projects was approximately $99 million in the quarter, or $1.25 per share. This is approximately $400 million on an annual basis, and this compares to our approximately $3.6 billion of net interest bearing debt. By applying these numbers, you can see that a repayment profile equivalent to approximately nine year profile to zero, and this also compares to our weighted average age of the fleet of around 5.3 years, and in the company’s opinion, this also is a sign that we have a quite conservative repayment profile on our debt, and we hope that we are building up very good buffers going forward. The net contribution from our projects in the quarter after the above significant repayments of debt was approximately $38 million or approximately $0.48 per share. The declared dividend for the quarter was $0.36 per share, so there is a good cash flow buffer also after our heavy debt repayments. If you now switch to the income statement as we have reported, I would just like to highlight a few items. First of all, a significant portion of charter hire is excluded from book operating revenues at the upper end of the income statement, due to finance lease accounting and also charter hire from assets and subsidiaries account for in investment and associates. We have a separate presentation which is available on our website with more detailed explanation of how this works. I also want to highlight that the contribution from our 100% owned subsidiaries accounted for in investment and associate, is included in results in associate and interest income in associate. There has been a minor accounting adjustment in the quarter for some of the debt in these subsidiaries has been changed to an inter-company loan in order to simplify administration and accounting when sourcing the cash flow up to the parent company. Normally, this would not have a book effect if the asset had been fully consolidated, but due to the requirements under US GAAP, we now have to report these items on two different lines, both on the income statement and also correspondingly on the balance sheet. On the balance sheet, I would therefore like to highlight the lines in investment and associates and amount due from related parties’ long term. This is essentially the equity we have invested in our 100% owned subsidiaries that are not fully consolidated based on US GAAP. In addition to that, I would like to comment that there has been a balance sheet reclassification relating to certain single hull vessels chartered to Frontline. These vessels have been moved from investment and finance lease to vessels and equipment when the reach their anniversary date in 2010. All vessels have now been reclassified and they have a combined book value of approximately $68 million. Also, when we look at the stock holder equity, I would like to note that there is an equity element of $184 million that should be added to that to the stock holder’s equity, and the adjusted book equity ratio is based on that around 32%. On the cash flow statement, we see under investing activities that repayment of investment and finance lease for all the consolidated assets, are included under investing activities, where part of the charter hire from these consolidated vessels are not included in the operating income. If we go further down, we see that only a part of the net payments from investments and associates is included in the line called cash received from associates. The balance of the cash flow from our investment and associates are recorded as interest income from associates and reflected in the company’s income statement. If you then turn to investment and associates, we have here a summary of numbers relating to these three subsidiaries who owns four of our assets. We have preliminary accounts for each of these subsidiaries separately and they are available on our webpage. I would note that all these subsidiaries have finance lease accounting and therefore the net income – in addition, the net income for these subsidiaries appears in the consolidated accounts as a combination of result in associated companies and the company interest charge appears as interest expense, related party. We have approximately $1.9 billion of net interest bearing debt on a consolidated basis, and if we include also the financing of assets classified as investment and associate, the aggregate number is $3.6 billion. It is important to note that only 50% approximately of this debt is guaranteed by our parent company, and the balance is non-recourse to our balance sheets. We completed an $85 million bond offering in the Norwegian market in early October with three and a half years maturity at an attractive rate of 5.32%, which was fully swapped US dollar, and we’ve also recently announced the financing of two of the Supramax bulk carriers, which represents 80% financing of the cost price, or a $55 million loan facility and with an eight year tenure. Similar to many of our other financings, there is only a limited recourse to the ship finance balance sheet relating to this financing. A week ago, we announced the potential refinancing of our 2013 bond loan. For us, it was an arbitrage opportunity where we thought we could refinance at a level sufficiently below current coupon to compensate for cold premium on the old bond, plus a good margin. Unfortunately, we launched a deal into our market, that suddenly changed, and last week had the biggest outflow of capital from the high yield funds since early 2009. It is not a market setting to issue new capital unless you are desperate as we see it, so we decided to suspend the offering until further notice. The old bond loan runs for another three years, so there is no rush and we have significant flexibility with fixed price call option as 101.4 currently, reducing to par from next year onwards. If you look at the new building schedule, the gross remaining capital commitments totals approximately $293 million, including the new transactions announced subsequent to quarter end. Compared to our overall asset base, this is a very moderate number. The first of the Supramax bulkers, built in 2009 was delivered to us in October 2010, while the second vessel is expected to be delivered from the shipyard in December. We took delivery of the 17,000 TU container ship in October, and the remaining three Supramax bulkers are expected to be delivered in the first, second and third quarter of 2011, while the seven Handisize bulkers are scheduled to be delivered from the third quarter 2011 through the fourth quarter of 2012. So far, we have funded all payments from our cash position and we expect to secure financing in due course at attractive terms as illustrated by the 80% financing on two of the Supramax bulkers. The profit sharing agreement with Frontline has generated a lot of additional cash flow for Ship Finance. The original charters were structured fairly low on the tanker cycle, which also meant there was a fairly moderate profit share threshold relating to these agreements. $5.8 million of profit share was generated in the third quarter, and the aggregate profit share year to date of $28.6 million is then payable in March 2011, together with whatever will be accrued in the fourth quarter. On average, the profit share has been approximately $76 million over these past seven years and the profit share is generating more than $500 million of incremental cash flow. This has enabled the company to fuel significant growth. As I mentioned earlier, Frontline has several sub charters on vessels, and based on our estimates, we think that the average break even time charter level for spot to be able to cease, the net of these sub charters is closer to $15,000 per day in the fourth quarter of 2010. Frontline will report tomorrow morning, and we can therefore not comment on the detailed charter revenues per segment. So therefore, to sum it up, we have just today increased our quarterly cash dividend from $0.35 per share to $0.36 per share, which represents a 6.6% dividend yield. This is the third consecutive dividend increase in 2010. The quarterly adjusted net income was $0.46 per share or $36.7 million and this included accrued profit share of $5.8 million or $0.07 per share in the quarter. We generated very significant aggregate EBITDA in the quarter of $176 million including profit share and also the associated companies, and we have continued to increase our fixed charter back log and we have further diversified our portfolio through the acquisition of the five Supramax bulkers and also the new charters on the Trival [ph] vessels, so all our new buildings are now fully chartered. In total, we have added $380 million of charter revenue back log to our portfolio in these past few months, which is equivalent to $4.8 per share. And with that, I would like to turn it back to the operator.

Thank you sir. (Operator Instructions) And we move to our first question today from John Parker of Jefferies. Please go ahead sir. John Parker – Jefferies: You mentioned you have your LCC’s at a book value of $68 million, which to me looks pretty close to what the current scrapping value is for those ships. I’m wondering if you have any color on how they’re trading now and what the likelihood is of Frontline breaking a charter so you can scrap them and recognize cash value out of what’s in those ships.

The agreement Frontline has after the anniversary date in 2010, Frontline has the option to re-deliver those vessels to us on 30 days’ notice. However, Frontline has sub chartered out these – all of these single vessels on storage contracts with varying maturity, so and of course Frontline, they have their full optionality to continue to charter these vessels until 2014 and 2015. So we can, we just have to wait for them and of course as you mentioned, there is good equity value in those units that we of course would be happy to take and re-invest in other assets when they are re-delivered. If you look at the $70 million approximate value compared to our enterprise value which is in the region of $5.3 to $5.4 billion, of course it’s a very small relative number, and also from a cash flow perspective, following the anniversary date in 2010, the net cash flow to us is very moderate. So for all practical purposes, from a portfolio perspective, you have extremely low exposure to these assets, but we would of course like to take the cash and re-invest in other assets when the vessels come back. John Parker – Jefferies: OK. And then in your admin expense look going forward, do you think it looks more like the first and second quarter? It looks like there’s some stock adjustment. Maybe this is a question for your Board of Directors, but can you give us any guidance on what the admin looks like going forward?

Yeah, I would say that the average for the three months is probably approximately reflecting where those numbers could come out. Of course, there could be adjustments to that and there are certain fees and expenses which also depending on our activity level, that flows over the G&A. But I think if you look at the three month – nine months through September 30, I think that’s a fair proxy. John Parker – Jefferies: OK. And then finally, you did a recent $85 million equivalent on offering and can you give us any guidance? It seems to me there would be tons of opportunities to do new projects with all the ships delivering and you’ve obviously picked up a number of dry bulk projects recently. How much capacity do you have right now for making additional equity investments and if you saw big projects going forward where you didn’t have enough equity, how you might find that equity.

First of all, we don’t communicate specifics in capacity. Our main focus is and has always been to ensure that we maintain a very high quality portfolio and we add projects on a case by case basis. We are looking at a number of project opportunities as we have basically over the last few years, and we believe that we hopefully over time can add some of these projects to our portfolio. From a capacity point of view, we believe that we do have access to the capital markets be it equity or bonds and also for (inaudible) financing for structured deals. We’ve also seen that there’s good access also to the bank financing market as illustrated by the recent 80% financing we secured really just on the dry bulk vessels. So we hope that we will be able to find good accretive projects that we can add on to our portfolio and hopefully build on both on trawler backlog but also on our distribution capacity. John Parker – Jefferies: That’s all I have. Thank you very much for your help.

Thank you.

Thank you. We now move to our next question from Darren Hickson from JP Morgan. Please go ahead. Darren Hickson [ph] – JP Morgan: Hi. This is Darren Hickson [ph] for Jon Chappell.

Hi there. Darren Hickson [ph] – JP Morgan: Hi. We noticed that the net contribution from slide nine in your presentation was down slightly from the second quarter, but you obviously raised the dividend. Can you talk about how the Board evaluates both near term and long term prospects when determining what the dividend should be?

Of course the Board takes a very long term view when you look at the dividend capacity going forward, and if you look at the net contribution, you will see that even if you exclude the profit share, you have a good buffer from that number to the dividend number, and whereas of course in the second quarter, the net contribution was slightly higher, but also the profit share was higher. If you look at it going forward, as we mentioned when I went through on an asset class basis, we have seen in this quarter both on the VLCC side mainly linked to the single hulls, and also to the schedule reduction on the charter rate for one of the drilling assets. There was a slightly lower EBITDA in the third quarter compared to the second quarter. But that’s also matched by the fact that we have been repaying a lot of debt also in the quarter and we have lower interest expense and also the debt amortization has been adjusted somewhat as we have been paying down debt. So from a company perspective, we are very comfortable with this level, and we also have a fairly good credit position, so we also think that we will be able to make some further investments going forward, which we of course hope will build also the distribution over and above what the company is paying currently. Darren Hickson [ph] – JP Morgan: Great. Thanks a lot. That’s all I have.

Thank you.

Thank you. We’ll now move to our next question from Phyllis Camera [ph] from Pax Wildfund [ph]. Please go ahead. Phyllis Camera [ph] – Pax Wildfund [ph]: Hi, thank you. Can you talk about; have you already sort of got talking to the banks for your new builds to possibly refinance them instead of having all the cash leaving your balance sheet? Have you already started talking to the banks?

Oh yeah. We have, of the $293 million remaining investments we have already sourced a $54 million of financing relating to two vessels. And then we are in dialog with banks for all the other new buildings. We will of course, make the appropriate announcement and disclosure to the market whenever any such agreement has been concluded, but if you look at the financing we managed to structure on the Supramax bulkers of 80%, compare that to the remaining investment of $293 million, where we already have put in $91 million. If we manage to get the same kind of level of financing on the new deals, that we would actually be cash positive from these investments. But we cannot be more detailed than that. We have communicated that we believe that we will be able to raise in excess of 70% financing, which means that we basically have virtually no net capital expenditure from this new building program. Phyllis Camera [ph] – Pax Wildfund [ph]: OK. Now, could you just tell me, are the banks, are they requiring – you said you’ve got an 80% and you possibly could get 70% now. Are you seeing that the loan to value ratios are starting to go down from the banks at all? Have they given you any kind of push back on higher rates or anything like that just in general?

I would not say that. Our impression working with the banks, and we have 30 banks in our portfolio, so we have close contact with many of the leading banks in the market. My fair impression is that the banks, the bank market has changed, but it’s changed in a way that the high quality companies in the market, still have very good access to capital, whereas maybe smaller, maybe one ship operators, privately owned companies may have more challenges in sourcing capital. And I think the fact that we’ve sourced 80% financing on these two dry bulk vessels, which was essentially maximum of what we financed also before the financial crisis, and also similar to the financing we did before the financial crisis. We only guarantee 25% of that loan. We don’t have to provide a full corporate guarantee even. So I think from the bank’s point of view, it’s a combination of quality assets. We are in it. We have put the equity in. We provide a limited guarantee and then of course, we have a very strong charter, so they have visibility in the cash flow. So I would say that the banks are definitely still there for the bigger, higher quality companies I would say, and while others may of course be more challenged. Phyllis Camera [ph] – Pax Wildfund [ph]: OK, good. And then the interest expense related party that you show on your income statement, is that cash? I mean, did they pay you on a quarterly basis or a monthly basis? I mean, that’s a cash payment to you.

I would just say that payment is relating to the subsidiaries that are accounted for as investment and associate. These are 100% owned subsidiaries where we have basically full control. So the only reason these are not fully consolidated based on US GAAP, is that when we structured those charters, we structured them in a very, in a way where we mitigated a lot of the risks for ourselves. We structured it with higher charter in the beginning. We have structured it where we offload interest risk, relativity risk within those projects through an interest compensation cost, and we also have purchase obligations for the deep water rigs on Cedro [ph] Sands. And based on that, and this is actually more – you could say that it’s the end run and it’s kind of coming back and biting us because after end run, US GAAP introduced a lot of very rigorous calculation methods to identify who is more closely associated with the asset, and particularly who absorbs more of the downside volatility. And because we are structured in a very low risk way for ourselves, our chartering counterparts, Cedro [ph], who don’t own anything in the company, they have to fully consolidate, and to finance, we, who own 100% of the company, can only account for them in investment and associate. And then from our side, what we do, and this is more from a bookkeeping perspective, we can allocate our equity investment in those subsidiaries either as a combination of equity and call in inter-company loan, or whichever way we like. And this is, the inter-company loan method here is just to ease the flow of funds and administration relating to the flow of funds from our owned subsidiary up to the parent company. Phyllis Camera [ph] – Pax Wildfund [ph]: OK great. Thank you.

Thank you.

Thank you. We’ll now move to our next question from Adam French [ph] from 1492 Capital. Adam French [ph] – 1492 Capital: Thank you for taking my call. Could you repeat what you said about – I think I’m misinterpreted your comments – where the sub charter rates were going into the fourth quarter. You’re coming on that or where the VLCC rates were in general? I just want to make sure I was clear on what you said.

My comment was relating to VLCC market in general as reported by Clarkson’s, an independent broker who sort of follows the market closely. And they reported average VLCC earnings or modern VLCC’s of about $25,900 per day in the third quarter on average, and so far into the fourth quarter, their estimate is $25,200 per day on average so far. But as I mentioned, it’s a rising trend, and last week, they reported $35,500 that week. Adam French [ph] – 1492 Capital: Very good. Thank you.

Thank you.

Thank you. And now to our next question from Justine Fisher from Goldman Sachs. Please go ahead. Justine Fisher – Goldman Sachs: Good morning.

Good morning Justine. Justine Fisher – Goldman Sachs: The question that I have is actually a clarification of one of your responses to (inaudible) this quarter was down to around I guess almost $5 million from $18 million previously, and so you had mentioned that’s because the rate on one of the rigs like took a step down I guess in line with the original charter for the quarter, but did that account for the bulk, for all the decline from the $18 to the $4 million?

No. First of all, I would just note that the jack up drilling rig, that is fully consolidated in our accounts, so that is included on the revenue line on our income statement. The vessels that are accounted for as investment and associate, which are essentially the three deep water rigs we have with Cedro [ph], there has been a small modification on the accounting just to ease the flow of funds internally. And therefore, the cash received from that is a combination of – if you see on income statement, you see interest income from associate, which in the third quarter was $14.682 million. That’s a cash item. Then in addition to that, we also transferred $4.268 million, and this now look at the cash flow statement. We also sourced that up from that subsidiary. So the combination of this is $18.9 or close to $19 million. Justine Fisher – Goldman Sachs: OK. And so going forward, we’re going to see this divided up. I mean if we had thought that it was going to be around $18 million to $20 million a quarter, going forward, we’re going to see essentially a quarter of that show up only on the cash flow statement under cash flow from investments and then the remainder actually now show up on the income statement.

I think you should really look for the combination of the two and the combination of the two is then as you say, approximate to $18 to $20 million. Justine Fisher – Goldman Sachs: Can you give us a bit more clarity on what this accounting change to ease the flow of funds was? Just a little more clarity on exactly what needed to be used and what steps were taken.

This is as I said, these subsidiaries are 100% owned by Ship Finance and therefore we, and if this had been the assets that we consolidate fully, you would not have seen anything because everything would have been neutralized out in the accounting. The only reason why this then appears on the statements, is because we have this odd accounting treatment, which we have to do based on US GAAP. Justine Fisher – Goldman Sachs: But why the change?

When we invest the money in a subsidiary, we can decide whether or not we put it in as a shareholder loan or we put it in as equity. And if you take it in as equity, you also then when you start taking cash flow out, then we’re generating a lot of cash flow from these subsidiaries. And therefore, to avoid having to go through the exercise of writing down equity when we take money up to the parent company, we have instead transferred most of the capital and we classified it as – call it an inter-company loan and therefore, we can take the money out without having to go through that, call it administrative exercise of writing down. Justine Fisher – Goldman Sachs: OK. So I guess the money that Ship Finance invested in those three subsidiaries, that was still essentially an equity investment. You’re just accounting for it differently.

Exactly. And so if we had consolidated this as – call it on a normal basis, you would not have seen it because it would have been neutralized out in the accounts. Justine Fisher – Goldman Sachs: OK.

But you know, just to be perfectly clear, our investment in these subsidiaries are exactly the same. There is no change to our investment in these subsidiaries and the cash flow generated from these subsidiaries are also exactly the same as it was in the past. So this is just a bookkeeping change. Justine Fisher – Goldman Sachs: OK. And then another question again on the new financing that you would look for – that you are currently looking for for the dry bulk vessels. You said that the banks are still willing to only let you guarantee a portion of the debt. So is that, I mean is that a possibility for the financing that we’d see that the banks would only leave Ship Finance responsible for a portion of the debt that you may get on these dry bulk vessels?

Yeah, we have done that from time to time and if you look at our overall portfolio of $3.6 billion of debt, including all our subsidiaries, we only guarantee half of that. So we have done that in the past and we have seen also that the banks are willing to work on that basis also now. From our side it’s always, we try to optimize that of course for ourselves when we look at new transactions. Justine Fisher – Goldman Sachs: OK. Thanks very much.

Thank you.

Thank you. As we have no further questions at this time, I would like to turn the call back over to you sir for any additional or closing remarks.

Thank you very much, and I would just like to say thank you everyone for participating in our third quarter earnings result and we expect to announce the next quarter results in late February 2011. Thank you very much.