Ladies and gentlemen, thank you for standing by and welcome to the SFL Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I must advise you the conference is being recorded today. I would now like to hand the conference over to your speaker today Ole Hjertaker. Please go ahead sir.

Thank you and welcome all to SFL's second 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 announced dividend of $0.25 per share represents a dividend yield of around 10.5% based on closing price yesterday and this is our 66th quarter with dividends. Over the years, we have paid more than $27 per share in dividends or $2.3 billion in total and we have a significant fixed rate charter backlog supporting continued dividend capacity going forward. The total charter revenues of $158 million was in line with the first quarter with more than 90% of this from vessels on long-term charters and less than 10% from vessels employed on short-term charters and in the spot market. All customers are current on the charter payments and we have good cash flow visibility into the current quarter. The EBITDA equivalent cash flow in the quarter was approximately $121 million and last…

Thank you, Mr. Hjertaker. On this slide, we have shown a pro forma illustration of cash flow for the second 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 non-cash items. The company generated gross charter hire of approximately $158 million in the second quarter with more than 90% of the revenue coming from our fixed charter rate backlog, which currently stands at $3.4 billion providing us the strong visibility on the cash flow going forward. The liner fleet generated gross charter hire of approximately $80 million. And of this amount approximately 97% was derived from our vessels on long-term charters. At the end of the quarter, SFL's liner fleet backlog was approximately $1.8 billion with an average remaining charter term of approximately five years or approximately eight years if weighted by charter revenue. Approximately 84% of the liner backlog is the world's largest liner operators Maersk Line and MSC. And during the quarter, SFL extended the charters for seven 4,100 TEU container vessels with MSC until the third quarter of 2025. The extension added approximately $38 million to SFL's fixed charter rate backlog. Our tanker fleet generated approximately $27 million in gross charter hire including $4.5 million in profit-split contribution from our two VLCCs on charter to Frontline. The two VLCCs earned approximately $72,000 on average per trading day in the second quarter. And during the quarter the vessel commenced new time charters on which the vessels will trade until the fourth quarter at similar rates ensuring the stability on quarterly profits with contribution also for the next two quarters. As for Suezmax tankers revenue was down for the quarter as one of the vessels underwent special survey scrubber retrofit…

Thank you. [Operator Instructions] Your first question today is from the line of Greg Lewis from BTIG. Please go ahead.

Hi, Greg.

Hey, good afternoon, everybody. Ole, I'm kind of curious, you kind of touched on it at the end of the prepared comments about the challenges that capital are having in your traditional investment wheelhouse. Just kind of two questions around that. One is could that trigger you to start looking outside of your traditional wheelhouse of conventional shipping? And I guess first -- that would be my first question.

Thanks. You're absolutely correct. I mean, what we -- it's important to understand that SFL, we are not tied to one specific segment. We have been focusing on the maritime space for a number of years because this is where we have seen the more I would say deal flow and also where we see more deal flow and perhaps we also think maybe seeing deals before others see them, partly due to our affiliation with Mr. Fredriksen and what we say the deal flow that then you can say trickles down to us, if there are long-term employment opportunities around that. So that's been a nice steady call it way for us to generate business simply by being in the midst of an information flow if you wish. But we are not tied to the maritime space. We can move into other infrastructure. I think the principal focus for us is to have a structure, have a deal flow to ensure that we can pay a predictable long-term dividend to our shareholders with the right type of risk profile. We have so far not really ventured far away from the maritime space. I would say maybe one of the reasons could be that if you go into a new space where we don't have call it a leverage on information i.e. we don't see the deals before others do, the risk is that we end up paying too much or we take a deal after someone else has passed on it or we accept a too low return to get in. But again, it's all down to finding the right deals and we could do them also outside the normal shipping space.

Okay. Great. And then just kind of asking that question a different way just given the -- not the exodus, but the lack of capital interested in the maritime space. It seems like that we’ve seen develop over the last 12 to 18 months I mean has that -- I realized you haven't done a lot of transactions and the ongoing pandemic might have something to do with it, but have you started to notice any increases in the potential returns of transactions you're looking at, or is it kind of -- are we in an environment where there's less capital, but there's still enough capital that's kind of keeping returns in that -- in kind of a flattish world?

Yes. It's a good point and observation. I think the way we see it is that, capital in shipping is priced more correctly. And there's also call it, the traditional lenders are retracting from the market. So basically there's less capital available. And there's in general especially to quality. For SFL's part, we again have access to an even larger pool of banks. We have access to capital at a lower cost of capital. We're able to find transactions where we can take advantage of the capital cost arbitrage at attractive risk reward metrics. A good example of that is the recent Landbridge transaction. We acquired brand new scrubber-fitted VLCC at $65 million on a variable basis. And the client Landbridge Group has [3 year] [ph] charter with BP shipping on a time charter basis attached to it. And we believe, that's a very attractive risk reward in terms of the capital we're able to deploy and the return we're able to achieve. And I think that's a trend that will continue going forward.

Okay. Thank you very much.

Thank you.

The next question is from the line of Randy Giveans from Jefferies. Please go ahead.

Hi gentlemen. How’s it going?

Hi, just good.

I guess first just looking at the balance sheet. Obviously it's in great shape. Plenty of cash, substantial free cash already booked for the subsequent quarters. So I guess with that two questions on it. Can you provide some more details on the rationale for issuing the 13 million-or-so of shares to the ATM? And secondly are there certain kind of leverage ratios you're looking to get to in the near term, or how do you kind of view your balance sheet at these levels?

Yes. I think first of all, we've issued relatively few shares compared to our share count. It's really quite marginal. And yes -- and a part of that was linked to a dividend reinvestment plan. So -- but yes there are issues. For us the important thing is really how can we make sure that we -- or invest the capital in an accretive manner per share. So for instance when we did this VLCC deal, we have a return on our invested equity there which is way higher than the yield call it, specifically linked to those shares we issued. So the way we look at it, we look at transactions and then we fund deals down at the asset level. And then we saw -- we have capital either we source it from the bond market, we source it from the convertible market or the equity market and then we can use that as effective equity into the deals. So this is -- there is nothing in particular relating to that. It's really for us to ensure that we have an ongoing business that we can continue to invest here in the long run. We will tap call it various markets with the aim to create value per share.

Got it. Okay. And then I guess next question. In the presentation here you took out the slide on kind of the offshore market and the drilling rigs. So I guess around that what is the kind of status of those? It seems like that really is accounting for most of the risk and uncertainty around SFL around the dividend what have you. So for those Seadrill conversations is there a timeline maybe around these talks? And is the most likely scenario a possible charter reduction and extension, or what are your thoughts on that?

Yes, the reason why we didn't put it in this quarter is that simply that there hasn't really been any change since last quarter. Things are pretty much as they were then. The only difference is that we've had another three months of cash flow and pay down debt associated to those assets. And we guarantee around 50% of the outstanding loans relating to sort of the Seadrill call it assets. I can unfortunately not really comment much on the Seadrill call it situation apart from that we are -- we think it's sort of positive to have a stronger counterparty. And we think it does make sense in the current environment to sort of -- to trim balance sheet to activity levels. What we are, of course, happy to see is that in an otherwise challenging offshore market two of our rigs are working. One is on a very long-term charter to ConocoPhillips. So at least there are -- we have two of the relative [indiscernible] rigs and active rigs in the harsh environment space today, but I cannot guide you on timeline for Seadrill. I'm sure they will comment on that when they report, I believe in a week or so.

Right. Well, then I guess last quick question for the tanker market. You returned two of the Hunter vessels. I'm assuming the third soon. You brought in one on the 2020 side. Is that more of a strategic play of just making sure you have that tanker presence, or again was it just a sector-agnostic kind of capital arbitrage play, or are you really looking to grow the tanker exposure here?

The last deal was a pure capital -- cost of capital arbitrage. So it was just an opportunity where we could get in get a very attractive risk profile, we think we could source efficient financing around that to generate a nice return on the capital we invest. But of course, we know the tanker space very well and we don't mind investing in the tanker space with -- for the right structure. What we have not seen though is a lot of long-term chartering opportunities to end users. So that's something we, of course, have been exploring. We've looked at many opportunities as you can imagine, but we cannot really comment on what we haven't done specifically. But we are active out there. I think people know that we can do -- and we hear we can both deliver everything from like the last deal the cost of capital arbitrage to deliver a full-service time charter products like we had with Phillips 66 where we have LR2 product tankers on seven-year time charters.

Terrific. Great. Well, that's it for me. Thanks again. Hope all is well

Thanks a lot.

The next question is from the line of Liam Burke from B. Riley. Please go ahead.

Yes. Thank you. Good afternoon.

Good afternoon.

You mentioned for obvious reasons, how COVID has disrupted the market. But looking specifically in the container space rates and -- capacity is tightening, rates are coming up, things look to be a little firmer. How does that translate when you're looking at deal flow here? Are things getting clear, or do you see any more -- or do you have any more confidence at looking at deals?

Yes. Thanks. It's actually an interesting observation what we have seen recently. To me the way I look at it is that, because the liner operators have a relative recent experience from the financial crisis in 2008, 2009 and the effect of that I think they've taken a very different approach to call it the markets disruption this time. Back then, my impression was that they were -- the focus was on utilization of the assets. It was also more fragmented business in the first place, but their focus was on utilization. So the operators started cutting rate to ensure that they were filling the vessels. The effect of that was that the demand side that dropped inevitably. So the effect was that: one, you had lower volume and you have lower revenues as well because of your cost-cutting -- or your charter rate cutting measures. This time around what the liner companies have done instead is that they've been holding back volume i.e. they've been blanking sailings, and by doing that there have been tremendous cost savings in the operations. Also the fuel cost has been really positive for the liner operators, because that's really dropped a lot since pre-COVID-19. So that -- so if you then adjust for call it the other negative effects it's actually a positive. And for instance, the one the alliance, the group they swung back with a massive improvement in profits in the first quarter as a result of this. And we've also seen, as I'm sure you also follow closely, the Asia, U.S. East Coast pricing at record high levels. So what we're seeing now is that the liner companies as they see that the revenues hold up, they seem to be filling in with more volume to take off -- to make sure that there is sufficient capacity for the market. This, of course, for us is very positive. It demonstrates that our customers are taking the steps to protect their business and shows resilience to market disruptive call it effects like this that nobody could anticipate just a few months ago. So yes it sort of helps our decision making, of course, also and putting more money also into the liner space.

Great. And I know this is a small part of your business and talking on the bulker side. You do have a larger than average percentage in the spot market. Can you generate acceptable returns in the spot market in the bulker space? And I know it's not conducive to the longer term charter is the way you would possibly see with a VLCC or in the entire container space, but how do you address the spot market on the bulker side?

Yeah. It's -- of course it's a very good question. What is a reasonable rate in that space? All the bulker vessels that we have where -- the one that were ordered, of course, at one stage they have all been on longer term charters. And some of them have come off charter and been redelivered after the charter period. What we then typically do is that we don't necessarily re-charter them. If we feel that we are really low in the market, we would prefer to trade the vessels and then hope to fix them in for longer term as the market recovers instead of just taking whatever the market may offer at the time. So yes we have in terms of number of vessels relatively a few vessels there. But in terms of magnitude, it's really small. So for now we've been trading them in the market. The market was soft in particular now in the second quarter. We do see from the smaller bulkers that the market is improving and based on market observations like Clarksons where they indicated Handysizes now are up at around $9,000 per day level. At that level that's not bad. That you can live with. But of course if you're down to $2,000 to $3,000 per day that we have seen at some few points that's not really good business. So the question is also in this segment can we find new longer term employment or what should we do with the assets. So that's, of course, something we discuss every day.

Great. Thank you very much.

Thank you.

Thank you. The next question is from the line of Chris Wetherbee from Citi. Please go ahead.

Good afternoon guys. This is James on for Chris. I wanted to follow-up on that prior question around containers. You highlighted the fact that the improvement profitability is driven from supply discipline. I wanted to actually make sure that you also were seeing some strength in deal flow in containers despite that. And as a secondary question to that one, does that mean that we might see a particular focus in the capital that you deployed back on containers similar to the way it was prior to COVID-19?

I don't think we will -- yeah, I think generally we are looking at all sectors and all segment here call it in parallel. Of course, we had going into the COVID-19, call it disruption we had many container ships in our fleet. So we paid of course extra attention to that space and how our customers or end users call it are adapting to that challenging situation. So that gives us more comfort when we see that they seem to at least so far have managed quite well. And certainly much, much better than I think most people anticipated some months ago when this was at its high. It's not over yet. I mean, we still have to expect more uncertainty surrounding it also going forward. But from our side, it does help to see call it disciplined end users here the line of companies, who sort of make sure that their business remains robust and are able to react as quickly and as swiftly, as they have in this situation. We on our side, we've seen some transactions, in this space. I would say that, there haven't been a lot of -- I think that the new building orders have slowed down. I think generally, I think the new building order book, is quite low in most sectors. We also see that on the tanker side and the dry bulk space. And I would say that again is, helping call it market dynamics. Because if there is not too much call it supply of assets or vessels out there, it does -- could indicate that you could be able to generate better effectively earnings, on your assets over time. So we will come back. We will put discipline also on the ordering side, as we see as -- on the financing side. And hopefully that could prove to be -- create good returns for all, who are active in the market.

Got it. And then, obviously during -- with the current backdrop you're monitoring, credit risk within your portfolio you have commented that, seemingly on the liner side. It's relatively stable. Are you seeing any pockets of credit risk outside of offshore, either in bulk or tankers that you think is worthy of calling out, or are you mostly comfortable with what you're seeing?

I would say, if you look at where we are active, I would say, of course offshore is challenged, as Aksel commented, on earlier. Offset there's -- it was -- there has been a massive disruption in really, in oil both exploration and production activity, both onshore and offshore. So that's of course been focused on a lot in the media, generally. And the oil price collapse did not help there. If you look at our other sub-sectors, we have two car carriers that are idle right now. One came off charter in mid-May. And the second came off a charter just two weeks ago or so. Generally we are -- what we are seeing is more activity on the chartering side, in that segment as well. We've seen idle fleet drop from more than 250 vessels, some weeks ago to roughly half of that. That doesn't mean that, the market is in good balance yet. But it means that, there is a significant change in dynamics there, where at least call it the market balance or the market activity is going, in the right direction. We only have two of these. So it doesn't have a big impact, on our business. But of course, we would be happy to see them back trading, earning a good return on capital.

Okay. Thank you.

Thank you. End of Q&A

Thank you. [Operator Instructions] We appear to have no further questions, at this time. So I'll hand back to, the speakers.

Thank you. Then I would like to thank everyone for participating, in our second quarter conference call. And also thank the SFL team both, on board the vessels and onshore, for their efforts in a very challenging time and commitment to continue building our 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 web page, www.sflcorp.com. Thank you.

Thank you. That does conclude the conference for today. Thank you for participating. And you may now disconnect.