SFL Corporation Ltd. (SFL) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Second Quarter 2019 Ship Finance International Limited Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you, the conference is being recorded today, Tuesday, the 20 of August, 2019.I would now like to hand the conference over to your first speaker today, Ole Hjertaker, CEO. Please go ahead.

Thank you and welcome all to SFL's second quarter conference call. With me here today I have our CFO, Aksel Olesen; and Senior Vice President, André Reppen. I will start the call by briefly going through the highlights of the quarter, and following that Mr. Olesen will take us through the financials and the call will be concluded by opening up for questions.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.These statements are based on our current plans and expectations and involve 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 conditions in the shipping, offshore and credit markets. For further information, please refer to SFL's reports and filings with the Securities and Exchange Commission.The Board has declared a quarterly dividend of $0.35 per share. This is our 62nd quarter with profits and dividends and the dividend represents $1.40 per share on an annualized basis, or nearly 11% dividend yield, based on closing price of $12.82 yesterday.Over the years, we have paid nearly $26 per share in dividends or more than $2.2 billion in total and we have a fixed rate charter backlog of $3.7 billion, which should support continued dividend capacity going forward. The total charter revenues was $152 million in the quarter with 90% of this from vessels on long-term charters and 10% from vessels employed on short-term charters and in the spot market.The EBITDA equivalent cash flow in the quarter was approximately $121 million and last 12 months the EBITDA equivalent has been approximately $492 million. The reported net income for the quarter was approximately $28 million or $0.26 per share. This was after a non-cash impairment of $8.2 million relating to a Solstad Offshore claim and some non-cash mark-to-market movements on equity securities and interest rate swaps.With the changes in U.S. GAAP from 2018, movements in mark-to-market value of all marketable securities will move through our P&L and impact net income. While the second quarter has been relatively quiet with stable performance, the last 18 months have been very active with multiple transactions. As a result of this, the EBITDA is up more than 12% compared to the second quarter of last year.In the second quarter, we have added backlog by extending charters and upgrading vessels with scrubbers. Some of this is with a profit share feature, where we will receive a part of the benefit in fuel savings for vessels with scrubbers, which is not reflected in the backlog.In addition to this, we have subsequent to quarter end acquired three additional small feeder vessels on similar terms as the 15 feeder vessels we acquired last year, with full payout charters expiring in 2025. The purchase price is confidential, but relatively marginal compared to a regular fleet; and as a repeat deal, the transaction's costs are very low. And we continue building the relationship with one of our largest clients.Following the recent charter extensions, our charter backlog now stands at approximately $3.7 billion. We have nearly 90 vessels and rigs and the bulk of the recent transactions have been related to container vessels. Only one of the vessels remained from the initial fleet in 2004 and over the years we have changed both fleet composition and structure.We had gone from a single asset class chartered vessel -- in fact, the company to -- and also one single customer to a diversified fleet and multiple counterparties. And over time, the mix of the charter backlog has varied from 100% tankers to nearly 60% offshore at one stage, to container vessels now being the largest segment with around 54% of the backlog.We do not have a set mix in the portfolio. Focus is on evaluating deal opportunities across the segments and try to do the right transactions from a risk/reward perspective. Over time, we believe this will balance itself out and the fact that the tanker segment now is only 7% of the backlog is more a coincidence in my mind.In addition, our strategy has been to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the Seatankers group. This gives us stability to offer a wider range of services to our customer from structured financing to full service time charters.But more importantly, we also believe it gives us unique access to deal flow in our core segments. And unlike most other companies with a financing profile in the maritime world, more than 60% of our cash flow comes from vessels on time charters and less than 40% from bareboat chartered vessels.After the latest acquisitions, SFL has a fleet of 48 container vessels and two car carriers. All our container vessels are employed on long-term fixed rate charters and therefore not exposed to short-term fluctuations in the market. We have recently increased the backlog by more than $160 million in connection with scrubber upgrades and the related charter adjustments to container vessels and additional several vessels will be upgraded with scrubbers paid for by our customers.Subsequent to quarter end, the company acquired three container vessels ranging from 2,400 TEU to 4,400 TEU. The vessels immediately commenced approximately 5.5-year bareboat charters to a leading container line until 2025, adding approximately $30 million to the backlog. The purchase price is confidential, but similar to the 15 vessels acquired in 2018, our exposure is near recycling values for the vessels and the transaction will amortize the ships effectively to zero over the charter period.On the dry bulk side, we have 22 dry bulk vessels in the fleet with 13 larger vessels chartered out on long-term basis and seven Handysize vessels and two Supramax bulkers traded in the spot market. One of our long-term objectives is to combine stability and predictability in cash flows with optionality as we have seen over time that market volatility can generate super returns from time to time. We have a 33% profit split on top of the base rate of $17,600 per day, plus interest adjustment or around $18,500 per day currently on the charters to Golden Ocean.There was not a profit split in the second quarter, but the market level currently is well above the profit share threshold, so prospects are better for the third quarter. The Kamsarmaxes and most of the Supramaxes are all on long-term fixed rate time charters, while the two remaining Supramaxes and seven Handysize dry bulk carriers continue to trade in the spot market. The rates achieved this quarter were approximately $6,900 per day for the Supras and $5,900 for the Handys. This is roughly in line with the previous quarter.On the tanker side, SFL has nine crude oil products and chemical tankers, most of which are employed on long-term charters and the vessels represent only around 7% of the charter backlog. The tanker market has recently strengthened and is expected to be healthy for the remainder of 2019 as crude oil demand is forecasted to increase through the end of the year and a temporary reduction in vessel supply is expected as owners prepare for the upcoming implementation of IMO 2020.SFL's two Suezmax tankers and two of the VLCCs will have scrubbers installed towards the end of the year. The crude oil tankers chartered to Frontline Shipping Limited earned approximately $24,200 on average per day in the second quarter, which is higher than the base rate of $20,000 per day and a profit share of approximately $600,000 was earned in the second quarter of 2019. The average daily time charter rates from the company's two modern Suezmax tankers that are trading in the spot markets was approximately $15,800 per day in the second quarter.On the offshore side, up until 2017, the offshore segment was our largest segment from -- for a long period from a charter backlog perspective, but it is now down to 26% of our charter backlog and we own three rigs and five offshore support vessels in the segment. The charter hire from the drilling rigs were $30 million in the second quarter.SFL received full charter hire on the drilling rigs during the restructuring of Seadrill, which enabled us to significantly reduce our financial exposure to the rigs in that period. We have agreed to temporarily reduce charter hire by 30% until 2022 compared to the previous charter rates with a catch-up thereafter. In the meantime, we will continue to generate a strong net cash flow from these assets due to significantly reduced leverage and corresponding lower debt serving cost and breakeven rates for us.Seadrill, on their side, has sub-chartered, the harsh environment jack-up rig West Linus to ConocoPhillips until the end of 2028. And the harsh environment semisubmersible rig, West Hercules has recently been awarded multiple consecutive sub-charters in the North Sea and is now working for Equinor.Including the West Linus, we have reduced debt from $1.9 billion initially on the Seadrill rigs to less than $640 million currently or around one-third of the initial debt we had on that. And of this aggregate outstanding loan balance, only $266 million is currently guaranteed by Ship Finance.The market for offshore supply vessels is very challenging and the five smaller offshore support vessels on charter to a subsidiary of Solstad remain in layup. In light of the difficult market, Solstad has announced that they will have to restructure their balance sheet and there is a standstill agreement with multiple lenders and other stakeholders including SFL until October. We have therefore not recorded any revenues from these vessels in the second quarter.Due to the continued uncertainty and pending balance sheet restructuring in Solstad, we have decided to write down the book value of a note we received in 2016 in connection with a vessel sale to zero and recorded an impairment of $8.2 million in this quarter. This is to be conservative and the claim remains unchanged.Over time, we believe, we have delivered significant shareholder value and we are the only maritime company that has been consistently profitable and paid dividends every quarter since 2004. Over time, we believe our diversified portfolio approach has been important, not only in order to benchmark transactions between segments, but also to mitigate the effect of being -- exposed to individual market cycles and create more stability overtime.The illustration to the right on this slide is comparing an investment in SFL last 10 years with total return in some representative equities and segments we have been invested in over the period.With the expansion of the liner segment, performance in the underlying markets, if you have been invested there have been miserable and the total return in the liner market is around zero.Comparing this to our performance and we have seen some volatility too over these years gives us comfort that we offer an investment alternative with a proven track record and credibility and long-term stability. In total, $26 per share have been paid out and we have a significant charter backlog supporting future cash flow.And with that, I will give the word over to our CFO Mr. Olesen who will take us through the financial accounts.

Thank you, Mr. Hjertaker. On this slide we have shown a pro forma illustration of cash flows for the second quarter. Please note that this is only guideline to assess the company's performance and is not in accordance to the U.S. GAAP and also net of voyage expenses, extraordinary and non-cash Items.Total charter hire for the second quarter was approximately $149 million, down from $155 million in the previous quarter. Reduction is primarily due to reduced revenues on the SG&A after scheduled rate reduction in May, lower revenues from the Suezmax tankers trading in the short-term market, as well as offer in connection with scheduled dry-dockings.Net income in the quarter was $28.1 million down from $36.6 million in Q1. The adjusted net income excluding one-offs and nonrecurring items was approximately $24.4 million, marginally down from the previous quarter.The Liner fleet generated approximately $81 million in charter hire which is in line with the previous quarter. Of this amount approximately 67% was derived from time chartered vessels and approximately 33% from bareboat charter vessels.Our Tankers generated approximately $13 million in charter hire, including a profit share contribution of approximately $0.5 million. Of this amount, 95% was derived from time and voyage chartered vessels.Our Dry Bulk vessels generated approximately $25 million in charter hires in the second quarter with approximately 80% from vessels on long-term charters and approximately 20% from vessels trading in the short-term market.On the Offshore side, we received charter hire of approximately $30 million from all our Seadrill rigs. Our three drilling rigs are chartered to fully guaranteed affiliates of Seadrill Limited. The harsh environment jack-up rig West Linus has been sub-chartered to ConocoPhillips until the end of 2028, while the harsh environment semi-submersible rig West Hercules is employed on consecutive shorter-term subcharters in the North Sea.The semi-submersible rig West Taurus is currently in layup in Norway. This summarizes to an adjusted EBITDA of approximately $121 million for the second quarter or $1.12 per share down from approximately $1.24 in the previous quarter.We then move on to the profit and loss statement as reported under U.S. GAAP. As we have described in previous earnings calls, our accounting statements are different from those of a traditional shipping company. Our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing.As a result significant portions of our charter revenues are excluded from U.S. GAAP operating revenues and instead booked as revenues classified as repayment of investment in finance leases.In addition, the revenues from our drilling rigs; i.e. our 100% owned associates are not included at all as they are defined as interest in associates under U.S. GAAP. Net contribution from these subsidiaries are included under results in associates and long-term investments and interest income from associates.So overall for the quarter, we report total operating revenue according to U.S. GAAP of approximately $111 million which is the lower number than the $149 million net charter hire actually received for the above mentioned reasons.In this quarter SFL recorded a $16.8 million gain on mark-to-market movements on equity securities investments and losses of $4.4 million related to mark-to-market movement on hedging derivatives and $2 million in amortization of deferred charges all of which are non-cash items for the quarter.As previously mentioned, the company recorded a $8.2 million non-cash impairment with regards to note issued by a subsidiary of Solstad Offshore in conjunction with the sale of a vessel and termination of charter back in 2016. So overall, and according to U.S. GAAP the company reported net income of $28.1 million or $0.26 per share.Then looking at the liquidity and financing status. At quarter end, we had approximately $212 million in cash on our balance sheet in addition to approximately $10 million in 100% owned associates. In addition, the company had approximately $116 million of marketable securities including 11 million shares in Frontline, which at quarter end have a value of $88 million in addition to approximately $10 million worth of shares in ADS Crude Carriers plus other securities.While many companies in the maritime industry experience a more challenging market as clients are reducing their exposure to the sector, SFL continues to have superior access due to strong track record and affiliation with the Seatankers group. As of today, we have an active bank group of more than 25 global banks and leasing institutions.Our senior bank and leasing debt is secured in assets and upcoming maturities are to a large extent covered by high-quality assets with moderate leverage, based on asset age and contract backlogs enabling us to roll over the bank debt or alternatively valuing is covered by purchase obligation thus reducing the overall refinancing risk. We have recently diversified our funding sources to include lease financing with both Chinese and Japanese leasing institutions. We find this capital to be attractive due to a combination of long-dated tenors and attractive cost of capital.SFL is also a repeat issuer in both the U.S. and Norwegian capital markets and our bonds and convertibles are senior unsecured. In June, SFL raised NOK 700 million in a 5-year senior unsecured bond due in 2024 in the Nordic markets. The bonds bear a coupon of 4.6% above the floating NIBOR reference rates that is swapped to approximately $80 million with a fixed interest rate of approximately 6.9%.Subsequent to quarter end, the company raised approximately NOK 100 million through a tap issue on a bond loan with maturity in 2023. The bonds were issued at a premium to par value and the new outstanding amount after this tap issue is NOK 700 million. The incremental amount has been swapped to approximately $11 million at a fixed interest rate of approximately 5.9%.At quarter end, stockholders' equity was approximately $1.2 billion giving a book equity ratio of approximately 30% at the end of the quarter, while the market cap is approximately $1.5 billion.Then to summarize. The Board has declared a cash dividend of $0.35 per share for the quarter. This represents an annualized dividend yield of approximately 11% based on the closing price yesterday. Net income for the quarter was $28.1 million or $0.26 per share. We recently added approximately $200 million in backlog increase through charter extensions. And while we continue to collect revenue from our $3.7 billion backlog, we also have upside from profit split arrangements from our VLCCs and Capesize bulk vessels on charter to Frontline and Golden Ocean respectively.It sounds interesting to observe that the IMO 2020 story is starting to unfold, it's increasing spread between low and high sulfur fuel oils. SFL has a very robust liquidity position with $221 million in cash in addition to our marketable securities, giving us significant investment capacity going forward. As mentioned, there is less capital available for maritime companies not only from banks, but also from the public markets and it's a growing demand for alternative capital providers.As a specialty financing provider, SFL is uniquely positioned to be the preferred financing partner for the maritime industry given our versatile toolbox which includes time charter, bareboat and senior financing structures. This is evidenced by our investments over the last year. We've executed more than $1.2 billion of new business increasing the backlog with more than $1.4 billion.And with that, I give the word back to the operator who will open the line for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Randy Giveans. Please ask your question.

How are you gentlemen? How's it going?

Hi. Nice to speak to you.

Yeah. So first couple of questions here, so 29 vessels scheduled to be upgraded with scrubbers, what is the quarterly cadence of the installations and CapEx spend of that $50 million? And then how many of these 29 retrofits are being paid for upfront by the customers?

I think in terms of the CapEx, Randy, that's going to be funded by a mix of cash on balance sheet, but most of the portion will be financed through senior bank financing as some of these investments also come with charter extensions. So that's part of kind of the cash flow basis going forward and it's more or less evenly spread over the next say three quarters.

Just want to add to that. The gross investments that we will fund is relatively limited. So from a capital perspective it's not a big ticket for us at least not now. But we do -- we keep discussions on with some of our clients and we -- there could be more vessels being upgraded.Of course when you -- when -- the scrubber upgrades for vessels with -- on time charter, the benefit really goes to the charterer. So, we're always happy to do that if we get a good return on our capital and if we believe that it's accretive for us and if some of our customers want to install it for their own account we're happy too because they will add expensive equipment to our vessels and of course once it's integrated on the vessel it's our property.

Sure. All right. That makes sense. And then I guess switching gears, can you talk a little more about the three small container vessels that were acquired. I know on recent calls you're saying tankers, maybe shallow tankers, maybe LNG carriers were kind of the three targets, but then your most recent acquisition was three small containerships. So, can you give more color on maybe the age of those and why this asset class instead of a different either larger asset class within containerships or a different sector entirely.

Well, if you look at the product offering, as Aksel mentioned, we have a fairly large toolbox as we like to say. So, we -- our focus on the container side has been on the larger containerships, 10,000 plus modern design, sort of eco-style containerships that we believe will have a long economic life going forward because they are much more fuel efficient and therefore delivers a lower cost per transported box for the customers.At the same time, if -- from a risk/reward perspective, if we can do a deal and like these three vessels we mentioned, they are really I would say almost like an add-on to the 15 vessels we did last year where we effectively buy them at around recycling value and we amortize them virtually down to zero. It's a super low risk from an asset exposure perspective, and I would almost call it more of a structured financing really than an asset where we take a shipping risk. So, we will not operate these. These are bareboat.And as I said, you know amortizing down from a very comfortable level and as we understand the customer, they also put scrubbers on some of these for their own accounts, again adding call it effectively the security if you can call it that in the lease for us.So, you shouldn't -- so we should look at these call it investments in different lights. In some investments like bigger containerships, we're willing to take more, I would say effective residual exposure, i.e. charters that don't amortize them to zero because we believe they have a very long commercial life while on other assets. We take an opportunistic view where we don't have much residual risk at all.

Okay. And I guess one more for me. Looking at the cash balance certainly stands out after the follow-on bond offering and some other things more than $200 million plus the free cash that's coming in the next few quarters. So, just could you touch on expected uses of this cash if acquisitions or those three sectors, those crude tankers shallow tankers LNG still the top three priorities? And then any thoughts on share repurchases?

We are -- I can say, fair to say we are evaluating projects continuously here, and our ambition is of course to put this money to work in new accretive transactions to support a continued distribution capacity, of course and increase the backlog. We've -- when we've talked about this before, on previous calls, I mean, we of course, would love to do more on the tanker side. We believe, call it a relative proportion on tanker side is lower now than it's ever been. But at the same time, we have to make sure we do the right deals, buy the right assets with charters to the right counterparties with the right type of exposure.So, we wouldn't buy ships just because we have to, call it add-in in a specific segment. It's all about relative risk/rewards. So, I would say our focus remains on the tanker side. We think there are interesting fundamentals on the tanker side that could potentially materialize also in deal flow for us.We did look at LNG transactions. There are many LNG vessels coming out and projects there. On the dry bulk side, there are also opportunities. I would say there are opportunities across the board, but we cannot guide specifically on how we would deploy capital in each of them because we don't want to tie to the masks so to speak in terms of how we should invest. But as I said, our ambition is to invest the capital or have a very big party.

Exactly or a combination. I guess lastly there with the share repurchases, your yield is 11% trading at a pretty good discount to NAV?

It's – I would say, we're always evaluating, call it optimization of the capital structure. The small tap, we've just did is maybe an illustration of that where we just had an interesting opportunity where we could take some what we think was relatively reasonably priced capital, although it's small. So, we're always benchmarking that. And the fact that we haven't bought back shares is maybe an indication that we think that we'll be able to deploy some of the capital in transactions that are, call it more accretive per share. In the end, that's what we work for to build, call it distributable cash flow on a per share basis. So, repurchases of shares or buying back bonds or managing the balance sheet is I would say continuing evaluation on our side.

Sounds good. Okay. That's it for me. Thanks again.

Thank you.

The next question comes from the line of Greg Lewis. Please ask your question.

Hey. Thank you and good afternoon, everybody.

Hi, Greg.

Ole, just real quick. On those three vessels you bought post the quarter any kind of guidance you can give us around revenue EBITDA. I mean, obviously this is a scrap financing deal it sounds like but just kind of curious any kind of numbers you can throw out on this?

I think first of all, it's a relatively marginal transaction. It added around $30 million to the backlog. So $30 million on a $3.7 billion backlog is as I said isn't a big number. So, it's I would say – but we cannot disclose the price because the price is confidential unfortunately.

Yeah. Okay.

But I don't think it will make a big dent in our cash position quarter-over-quarter.

Sure. Understood. And then I guess obviously everyone's aware of the issues that the offshore space is having. You wrote down those vessels. I mean, push comes to the shove is there – are these sellable assets? Or just given what Solstad is going through these vessels are kind of just going to be locked up inside that company for the medium long-term?

Well, on those vessels specifically they are – I mean, we have sort of signed up with we'd effectively call it the standstill together with the other creditors and stakeholders in Solstad. They are – so they remain on long-term call it bareboat charters and Solstad is responsible for call it maintenance et cetera, and they have costs et cetera on those vessels. So, certainly until the standstill expires we cannot do anything legally. Of course after that, we – there are many – there was – if that call it transaction should collapse, I mean, we can take the vessels back we could potentially redeploy them or sell et cetera.I think it's also important there to highlight that – their relative importance here on these vessels. When they were included in our backlog and they are not included anymore they used to represent only between 1% and 1.5% of the backlog. Also from a book value perspective they are – it's a very marginal investment for us, mainly because we have amortized down these assets so much since we acquired them back in 2007 and 2008.So – we of course focus on – we focus on all our call it our whole portfolio. We took a small impairment this quarter relating to a note we got from Deep – what was Deep Sea Supply Limited which is now a subsidiary of Solstad. It was an unsecured note in connection with the sale of a vessel. It was an interest-bearing note. They did service it for some time, but now given the uncertainty around the whole situation we thought that to be conservative, it would be prudent in our books to keep it at zero. But of course, we – the claim remains and it's also part of effectively what we would call the standstill agreement.

Okay. Great.

So, we expect that to do – what we say more to happen there out during the fall and maybe have more of a solution towards the end of the year.

Okay. Great. And then just one more for me, I mean, obviously you guys are always in the market looking at transactions. As you think about the cadence of what this looks like when you're looking at deals currently are – what are the holdups like are the holdups the fact that hey heading into IMO 2020 maybe some potential transactions people want to take a wait-and-see approach, is it kind of like some macro headwinds that are out there?Just as you think about maybe what is preventing you guys or slow playing some of these transactions you're obviously looking at what sort of thing – like what would you kind of characterize as some of the and maybe there aren't any maybe it's just timing just sort of what do you – as you look to deploy capital, what do you think are some of the specking points that are preventing you guys from maybe getting to the finish line, if that's a fair characterization?

Yeah. It's a very good question. And I would say, generally, I mean, it's extremely easy to buy something you just pay more than the next guy, so I would say, anyone can deploy capital. The question is, how do you deploy the capital in a way where you think that you'll get a true return on the capital? And that is the tricky part. Of course, now with the changes in regulation, if you buy something and you might find a charter of course you have the counterpart, you have to evaluate relative risk, you have – you look at of course the financing structure, you can structure around a charter.But I think very importantly and that's where we try to be a little conservative we look at the residual value proposition .i.e. after that charter whether it's a five-year or 10-year or 15-year charter where are we then we know on that specific asset? What kind of -- when we know that there could be an infinite number of new vessels in that period where do we want to be to be conservative in light of new regulations and what is developing in the market.So it's -- I would say it's a cocktail that goes into project evaluation, and of course also benchmarking deals between segments is important, because what we see is that in upturn markets if you are invested in one single segment alone it's so easy to get ahead of yourself and run out and just buy like crazy because the equity markets are open but it may not be a good investment still in the long run. So we try to be -- we know what we say we try to be conservative and careful, but of course also with a very commercial mindset and certainly open to do the business.

Okay. Thank you very much.

The next question comes from the line of Jay Mark [ph]. Please ask your question.

Yes. Hi, gentlemen. The questions basically I was going to ask have been answered already. So I really don't have a question right now. I just want to say congratulations on buying a company and not paying for the company with the 24 liners you bought last year, so that's about it and congratulations. Thank you.

Thank you very much.

The next question comes from the line of Chris Wetherbee. Your line is now open. Please ask your question. [Operator Instructions] Your next question comes from the line of Chris Wetherbee. Please ask your question.

Hi guys. Can you hear me?

Yeah. Hi, Chris. We couldn't hear you previously.

Pardon me. James on for Chris. Just wanted to actually touch on the bulker market and get your current view. Trying to understand what you might have to see there before a deal looks appealing and how far you think you are away from a market where you might be able to put your -- some of your existing vessels on longer term charters?

Yes in the dry bulk segment we have 22 vessels, 13 of those are already on longer term charters and nine are on shorter term charters. Of the nine, two are Supramax bulkers that are -- have just recently come off long-term charters to go this and now they're traded in a pool while seven Handysize bulkers have been trading in the spot market or spot related for some time.We cannot define necessarily exactly when we would like to look in those chartered vessels on longer term charters, and I think the market for -- in this asset class has been I would say relatively slow for a couple of years.What we do hope now is that the market is firming and there are, of course, several near-term effects in the market that's created some market noise, but at least the order book on the dry side has come down and certainly on the smaller-sized vessels, it's quite moderate.So our long-term call, it our long-term objective for all our assets, I would say, is to employ them on longer-term charters if possible. And if not we can either continue trading them or potentially sell them.If we look at the relative in call it investments the smaller dry bulk vessels are of course among the smaller in our portfolio, and therefore, like I say the less -- the least capital intensive. And we've through -- and that is probably one to our -- I hope that one of our strengths is that as these vessels have come off their previous charters, we have been able to trade them in the spot market and we haven't had to effectively flip them, because we haven't had the operational platform to manage the vessels both operationally and commercially without being ripped off by call it service providers. So we keep the focus on them, and of course, hope to call it, optimize the value there and get them on charter.

Got it. And then I also wanted to touch on the seven scrubber deal there one more time. Sort of -- what sort of appetite is there out there for similar deals? And do you think that sort of scrubber -- has the outlook for scrubber penetration sort of increased more over the past three months relative to sort of where you were at the beginning of the year? Trym Sjølie: Hi. This is Trym Sjølie, COO. I mean, the scrubbers -- I mean, we -- I think, it's fair to say that the scrubber appetite has been quite strong, and we see that even, I mean, more ships are being slated for scrubber installations. And I think we'll see that also during next year that more and more ships will be fitted, especially if their docking cycles are favorable for that.

And from -- if you look at the fuel price spread with forward rates for next year, the price differential between high sulfur fuel oil and low sulfur fuel oil, which is the alternative if you don't have -- the cheapest alternative, if you don't have a scrubber installed remains at around $200 per ton. Isn't that right, Trym? Trym Sjølie: Yeah. That's right. It's around $200. And when you -- and if you put the $200 and even if you're conservative looking at that over several years and take into consideration that it's probably going to full for big ships and for ships with large engines and high consumption, it certainly makes a lot of sense especially as a hedge for the future.

Okay. Got it. Thank you. Trym Sjølie: Thank you.

We have no further questions at this time. Please continue.

I would like to thank everyone for participating in our second quarter conference call and also thank the SFL team for their efforts. We are committed to continue building the company and we believe there will be good investment opportunities for us going forward with attractive risk reward profile.If you do have any follow-up questions, 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.

That concludes the conference for today. Thank you for participating. You may all disconnect.