Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2019 SFL Corporation Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be the question-and-answer session. [Operator Instructions] I must advice you that this conference is being recorded today, on the 18th of February, 2020. I would not like to hand the conference over to your speaker today, Ole Hjertaker. Please go ahead, sir.

Thank you, and welcome all to SFL's fourth quarter conference call. I will start the call by briefly going through the highlights of the quarter, and following that our CFO; Aksel 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 includes 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 64th quarter with profits and dividends, and the dividend represents $1.40 per share on an annualized basis or around 10% dividend yield based on closing price of $13.45 on Friday. Over the years, we have paid nearly $27 per share in dividends or $2.3 billion in total and we have a significant fixed rate charter backlog supported continued dividend capacity going forward. The total charter revenues was $159 million in the quarter, with 90% of this from vessels and 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 $123 million, up from $117 million in the previous quarter, and last 12 months, the…

Thank you, Mr. Hjertaker . On this slide, we've shown our pro forma illustration of cash flows for the fourth quarter. Please note, that this is only a guideline to assess the company's performance, and is not in accordance with U.S. GAAP and also net of extraordinary and noncash items. The company generated gross charter hire of approximately $169 million in the fourth quarter, with more than 90% of the revenue coming from our fixed charter rate backlogs, which currently stands at $3.6 billion, giving us strong stability on our cash flow going forward. This benefit generated net charter hire of approximately $82 million, of this, approximately 65% was derived from time charter vessels, and approximately 35% from payable charters. Our tanker fleet generated approximately $20.7 million in net charter hire, including $3.3 million in profit split from our charters different time. Of this amount, a 4% was derived from time and voyage charter vessels, and 16% from bareboat charters. Subsequent to quarter end, the company sold the 2002 built VLCC from Takata and terminated the charter agreements with Frontline for the vessel. Net proceeds to the company was approximately $30 million. During the fourth quarter, a dry bulk vessels generated approximately $28.5 million in net charter hire, including $600,000 in profits splits from our charters to go Golden Ocean. Furthermore, as the sale agreed to invest in scrub installation on seven of our eight capesize bulk carriers, long-term charters to Golden Ocean, in exchange for increased charter rates, through 1st of January, 2020. At the end of the fourth quarter, SFL owned three drilling rigs and five offshore support vessels. All of these assets are employed on bareboat charters and generated approximately $26.5 million in charter hire, all from the Seadrill rigs. There was no contribution from the five…

[Operator Instructions] The first question comes from the line of Greg Lewis. Please ask your question.

Yes, thank you, and good afternoon, everybody. Just given some of the macro news that we're hearing around coronavirus and force majeure, I guess it would be helpful if you could, Ole, kind of walk us through I guess, does any of your backlog, is it exposed, whether it's on the dry bulk or maybe the liner side in the event that ships cannot call on ports, is there any potential for your charters allowing for any type of force majeure?

Thank you. None of our charters are specifically sort of going to call it sort of Chinese ports, where we are subject to such effects. So, when we have chartered vessels to -- for instance, liner companies, we cannot direct whether they trade them in China or they trade them somewhere else. And therefore also, we don't have any specific force majeure effects. If there are any delays or if there are effects around call it what's going on in the Chinese market right now and the delays we see. It's a little different on shipyards we've heard. We have not experienced it, but we've heard it also for equipment production, et cetera, but for now we have not seen any effect on us. We have some vessels that are being dry docked. We have one that is on its way out of a Chinese shipyard tomorrow, it is the latest container ship. And things have been going slower than expected, but we're talking a few days, we're not talking a very big effect, and also economic effect there is limited for us because we are sharing that with our customer. But, we expect to see more rescheduling of dry dockings where some of that will be pushed later into the year, I believe is likely given the near-term uncertainty on activity level in China. We of course -- we've watched the news and it looks like there are some encouraging signs that it seems to reduce, at least the growth rate is slowing, and hopefully they can get it under control, and we get the Chinese economy and activity back on track.

Okay, great. And then just one more for me around the dividend. Clearly, you guys have done a good job of returning cash to shareholders. As we kind of think about it, and I believe in the prepared remarks you mentioned kind of targeting or thinking about a 9% to 10% yield, how should we think about just looking at the balance sheet? Clearly, there's liquidity capacity for growth, but they're also – it looks like based on cash flows, there's the ability to increase the dividends. How, at least, is the company thinking about potentially revisiting the dividend in 2020? Is it a function of equity? Is it a function of cash flow? Is it a little bit of everything? How is SFL kind of thinking about maybe increasing cash or increasing its returns to shareholders as we look out over the next year just given the backlog and the pretty solid charter coverage?

Yes, thanks. Trust me, the dividend is the first thing we think of when we wake up in the morning, and the last thing we think over before we go to bed. So, it's something we really focus on obviously, and the dividend is set by the Board every quarter. We have specifically decided or the Board has decided not to give guidance going forward on dividend level. But, at the same time, I mean they call it, the reasoning behind the dividend is not derived on a certain percentage of net income, it's not linked to the cash position. It's really linked to long-term distributable cash flow and ensuring that that is very safe. And hopefully, of course, our objective is to grow that over time. So, while we cannot guide anything specifically near -- next few quarters. Of course, we would love to increase the dividend over time and to increase distributions to shareholders, which also hopefully, then could also increase the share price in itself. That said, if you compare to our current yield around more than 10% right now, compared to the deposit rates, you get for term deposit in the U.S. you have a very significant, effective credit margin if you buy shares like SFL, and look at the yield there compared to putting your money into the bank. So, we also, of course, you know what we are saying, we are excited on that there, but we believe that the credit add on or the risk margin you're getting, if you buy this shares like SFL, certainly, with security we believe is built into the charter backlog, we think that is a good deal. And hopefully, investors will also buy into that, and hopefully the yield could come down. So, in terms of getting value to shareholders, it's really a combination of two things. One, increased dividends over time if we can invest wisely, so we don't – to build that sustainably, and then secondly demonstrate the risk profile, so hopefully, we can get the yield down.

Okay, perfect all. Thanks for the facts. Thank you for the comments.

Yes, thank you.

Thank you. The next question comes from the line of Randy Giveans. Please ask your question.

So first, clearly, dry bulk owners are hurting for cash right now with Capesize rates at, pick your number 4,000 a day. As such, has there been increased interest from dry bulk owners for sale and leasebacks to SFL similar to what Golden Ocean did a few years ago? And also, last time we talked, you mentioned you wanted to expand your tanker exposure but asset values were too high. Now that those tanker asset values have come in, are they at a more attractive level now?

Yes, I would say, we are looking at opportunity, I would say, on a daily basis. I think if you just summing up our sort of deal screening, last year, I think we were at more than $22 billion of deal opportunities that we were screening and looking at. Of course, we only did a small fraction of that. If you look at the split between the various segments, I would say, plus minus 30% of what we looked at was linked to the container side around 30% tankers. And then gas carriers say around 15%, and dry bulk below that. So, we are looking of course, also in that segment. But, the volumes have been in other segments than dry bulk. But, we tried to be careful, we tried to be diligent when we do our deals. And we prefer to deal with end users, if we get the risk reward dynamics to work for us. And if we don't see that, we rather pass on a deal than just do it, just because we have the cash on our balance sheet. So, I cannot give you a specific number on what we will do, but we are looking at opportunities in both those sectors, as we speak.

Got it, okay. And then, I see now you have, SFL has 41 vessels that are either upgraded or scheduled to be upgraded with the scrubbers. Do you still expect that kind of in a regular cadence here in the coming months and quarters, obviously, the coronavirus is impacting some of the timing but all that to be done by the first let's call it half of this year?

I cannot give you -- you probably follow that market even closer, closer than we do, in terms of what the various companies are saying with their specific scrubber upgrade programs. So far, we've seen call it more sort of delays in scrubber upgrades at Chinese shipyards. We have several vessels that have scrubbers fitted in Singapore, also in the Middle East, where we haven't seen any sort of effects like that on the scrubber fitting. The economics relating to scrubbers seem to hold true. We currently have around $200 per ton difference between the higher sulfur that we can use for the scrubber, and the low sulfur alternatives, and that spread also, runs up through the year. So, we still see that also into next year. And given particularly, for larger vessels, larger container ships, which of course have the biggest engines, but also VLCCs, Capesize, Suezmaxes it's still a very compelling investment on the margin simply because there is so much cash coming back through the reduced fuel costs. So, I wouldn't be surprised if we saw a higher even more vessels being operated with scrubbers. Also, we've seen that the lead time from you order, call it scrubber until you can have it installed, came down sharply through last year right now, because of the disruption, it's a little unclear, but we believe that, if we get back on track there will be an increased number of vessels fitted.

Got it. And then lastly, real quick for the Frontline shares that you own, as of December 31st, it was 3.4 million shares. Is that still the number today?

Yes, the 3.4 million shares, correct. That's a number we have. We have those on effectively a forward contract. So, we have released there some of the cash relating to those already. But, the forward contract then has expiry in June.

June.

But most of the cash has been from shares that are sold and where we have received all the cash.

Perfect. That's it for me. Thank you.

Thank you.

Thank you. The next question comes from the line of Chris Wetherbee. Please ask your question.

Hi, this is Liam on for Chris. Thank you for taking my question. So first, I just wanted to start kind of follow-up on some of the prior questions on the dry bulk fleet. I know obviously, some of the headline rates has come down recently, particularly with disruptions related to coronavirus or COVID19. But, what are your views on your employment contracts for those? I know that a lot of them are market related charters, would you consider, keeping -- are going to keep them on them or are you going to consider kind of strategic alternatives including like potentially selling some of the vessels?

Yes, I mean, we have 22 dry bulk vessels in the fleet, most of those are on long term, charters, where there is some profit share on the Capesize vessels. Of course, in the current depressed market near-term, we don't expect much profit share to generate from those, but the profit share is calculated quarter-by-quarter, so hopefully, going forward that could be. We also have some smaller vessels. We have seven handy size bulkers and two 56,000 dry bulk -- deadweight ton dry bulk vessels and the charter rate for those vessels where, call it, in the fourth quarter were in line with the rates we saw and in the third quarter, just marginally down. I think it's a little early to sort of to be -- because call it, to concise on what we have -- I don't think we should guide anything on earnings into first quarter, partly, because a part of the first quarter is usually, relatively slower due to the Chinese holidays and the Chinese taking off many of these vessels affected to and from Chinese supports. And then we've had this added delay in activity pickup due to the virus. But, at the same time, these vessels also trade all over the place. And depending on which, call it, broker you speak to these vessels currently earn in the region of around say $5,000 to $6,000 per day on average. So it's not really a very dramatic, we don't see the same extreme volatility as we see on the Capesize vessels. But of course, we monitor the situation ongoing.

Yes, and that said, the majority of our dry bulk vessels in terms of revenue is fixed to long-term charters, which is basically paid, you know, not depending on, call it, the underlying market. And also given the recent scrubber agreement with Golden Ocean that will add approximately $3.9 million per year in additional revenue from the dry bulk vessels.

All right. Thank you. And I also wanted to follow-up on your bareboat charter arrangements with Solstad Offshore. And I know that three arrangements for some of your vessels have been terminated. And do you expect like a similar result for the remaining two vessels?

We cannot give you any specific guiding there. Of course, as we do with all our counter parties and all the situations, always evaluating our alternatives to optimize quality outcome for us. We did agree to sell the three vessels, one will be recycled and two will be sold for further trading to a third party. And then we only have two vessels remaining. There is a standstill agreement there with Solstad through next month. So, we have to await call it final outcome of that and also before that, there are -- we are limited how much we can really comment on the situation. But, we will make sure, we will disclose as much as we can as soon as we can, relating to that restructuring.

Alright. Thank you for taking my questions.

Yes, thank you.

[Operator Instructions] Dear speaker, there are no further questions at this time. Please continue.

Then, I would like to thank everyone for participating in our fourth quarter conference call and also thank the SFL team for their hard efforts and continue building the business. If you 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 webpage, www.sflcorp.com. Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.