Good day and thank you for standing by and welcome to the Q2, 2021, SFL Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there would be a question and answer session. [Operator Instructions] For your information, this conference is being recorded. Now, I would like to hand the conference over to your speaker today, Ole Hjertaker. Please go ahead.

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. Following that, our CFO, Aksel Olesen will take us through the financials, and then 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, and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements are based on our current clients and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping offshore and credit markets. You should therefore not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for more detailed discussion over risks and uncertainties which may have a direct bearing on our operational results and our financial condition. The announced dividend of $0.15 per share, it represents a dividend yield of around 8.5% based on closing price yesterday. This is our 17th quarter with dividends, so it's a bit of a celebration from that perspective. Over the years, we have paid nearly $28 per share in dividends or around $2.4 billion in total and we have had an increasing fixed-rate charter backlog recently supporting continued dividend capacity going forward. The total charter revenues was $141 million in the quarter with more than 80% of this from vessels…

Thank you, Mr. Hjertaker. On this slide, they're from our pro forma illustration of cash flows for 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 not of extraordinary and non-cash items. The Company generated gross charter hire of approximately 142 million in the second quarter, with more than 80% of the revenue coming from our fixed charter rate backlog, which currently stands at 2.7 billion, providing us the stronger stability on our cash flow going forward. In the second quarter, the line of fleet generated gross charter hire of approximately 25 million, including approximately 2.4 million in profits with contribution relayed to this huge savings on some of our large container vessels. Of this amount, approximately 95% was derived from our vessels on long-term charters. Falling in the Company's recent acquisitions as it fell slightly feed backlog, currently it's down at approximately 2.2 billion, with an average remaining charter term for approximately 4.7 years, or approximately 7.5 years, if weighted, for charter hire. Our tanker fleet generated approximately 50 million in growth charter hire. Of this amount, more than 80% was derived from our vessels on long-term charters to among others, Phillips 66 and floor plan. The net charter hire from the Company's 22 smacks tankers, employees, inshore grew market was approximately 1.8 million compared to 2.5 million in the previous quarter. Our dry bulk fleet of 22 vessels generated approximately 39 million in gross charter hire, including approximately 1.2 million in profit share. Contribution from our capesize vessels on charter to Golden Ocean. Of this amount, approximately half was derived from our 12 vessels on long-term charters to Golden Ocean, Sinotrans, and Hyundai Glovis. While the other half was derived from our…

Thank you [Operator Instructions] We're now taking the first question from the line of Randy Giveans of Jefferies. Please go ahead.

Gentlemen. How's it going?

Hi there.

So I guess a first couple of questions around the new container ship acquisition, 14,000 TEU vessels. Can you give the age of the ships? Are they scrubber equipped? Some more details? I know you're not going to give the purchase price, but just trying to get some other details around that. And then looking at residual upside after the current charters end in 23 and 24.

Yeah, absolutely. The vessels, our sister vessels to four 14,000 TEU vessels that we have today on charter to Evergreen. These are very fuel-efficient vessels. In fact, one of our vessels was the first vessel with 51-meter beam, i.e. the very biggest you can take through the Panama Canal. So our vessel was the first of that size to go through the Canal and actually use that corridor to serve the U.S. East Coast market. We know there these are very versatile vessels with very good deadweight capacity and fuel-efficient build, and 2013 and into 2014. They don't have scrubbers. This is something we discussed with the current charter Evergreen. In the end, when you charter out a vessel, it's your customer who pays for the fuel. If we were to make such investment, it would of course be if we got either a compensation for that investment through linked to their fuel savings or a profit share, like we've done with Maersk on several vessels, where we have a base increase for the investment and then we get the cut of the profits that comes out of that. We have not made such agreements with Evergreen. Of course, therefore, we cannot justify making that investment now and of course, when we look at the new charter position, this is something we would obviously discuss with a new potential charter for these vessels, if it makes a commercial sense for us. Right now, we know that the shipyards are all sold out for vessels of this size and category from quality shipyards. Well, '24 is basically as well sold out and we hear that even '25 may be challenging certainly for a series of vessels. We've also seen other operators out there forward fixing already vessels with chartering positions similar to ours. So we see that the results are good demand on the potential on the customer side. But exact timing of this is something we would have to look at. Again, it's all about trying to create the best, call it economic outcome for us, from a risk-reward perspective, obviously.

Got it. Okay. Looking at your dry bulk asset, clearly those are outperforming most of your others now, profit sharing, fully getting from Golden Ocean. The convertible maturity, it handles Seadrill mostly in the past now. All of those things together, how do you view the dividend current at $0.15, chances you re-up that back to the $0.25 it was before the recent cut. And then how do you view your dry bulk fleet from here as well?

Yes. Thanks. It's a very valid question, of course. On the dry bulk side, we're of course very excited to see the dry bulk market being very robust and has been increasing over the last few months. Of course, if you look at the economic side of that, and certainly from a reporting side, the cost of the new, call it accounting principles for shipping assets with low to discharge principal, you have effectively a delay in the revenue recognitions when the market is strengthening and then, the corresponding, call it detail, if the market is softening. The $1.25 million we got in profit share from Golden Ocean, on top of the base rate, so this is just icing on the cake as we like to say it. We would of course like to see more icing on the cake. Based on the forward market, it could be significantly more than what's reported this quarter. But it has a delay effect, as I mentioned. Of course, the profit share is in the end, actual performance for the vessels. Also, if you look at our acquisitions recently, we've done several deals that are delivering in the third quarter. Some vessels are already delivered, several are to be delivered over the next very few weeks. So we will see cash flow production from these assets already in the quarter. I think as we come to the finalization of the third quarter and we look at the numbers at that time, that would be a more prudent time to look at also the distribution at the time and needless to say, we were focused as always on distribution per share, long-term distributable capacity per share. So, of course, it's an objective to build dividend going forward. But exact timing and amounts, et cetera, it's something the Board has always reserve the right. We have never in the history of SFL given specific forward guiding on dividends. But typically, we've been correcting dividends down very, very seldom. Usually, it's been stable and increasing. So let's hope we can get back to our good old pattern also on that side.

Yeah. Sounds good. That's it for me. I'll turn out.

Thank you.

We're now taking our next question from the line of Gregory Lewis at BTIG. Please go ahead.

Hey, thank you and good afternoon, Ole and team and I hope you're doing well. I guess Ole, I would like to ask, Randy is right, a big question around the dividend. I guess I'll ask it a different way. If we were to rewind the clock a little bit, the first dividend move down looked like it was driven by the ongoing issues around Seadrill, and then the second knockdown of the dividend was really around COVID. So realizing that there's a lot more than just Seadrill and COVID that drive the decision around the dividend, are those two things hurdles or events we should be thinking about as we try to think about when we could see a return in growth to the dividend, or is it more, hey, those two things happened, what moved on and it's more just about doing some more of these transactions which we announced today around the car carriers to boost the cash flow?

Yeah. Difficult to be very specific on that. I mean, of course, when we made the adjustments, one was due to general huge market uncertainty surrounding the whole COVID, which had much wider sort of impact than just on the drilling side. Then you had the meltdown on the rig side, where residual loss in the process of filing for Chapter 11 when we felt that it was very prudent to take down the dividend given the heightened uncertainty around that. We have some more visibility now with Seadrill, given what we noted in the report with one rig where we have an agreement that will run through next year, but it's not entirely out of the woods. Hopefully, over the next couple of months now, we will have more clarity there as well. But at the same time, we also see a very good performance in some of the other asset classes, like the dry bulk vessels that was mentioned. We've been doing more business with these new transactions and of course, hope to execute on additional deal opportunities going forward. I think the best way to phrase it is probably that the Board is assessing call it the dividend with the perspective of what they believe is long-term sustainable in a more normalized world. This quarter, the dividend was kept stable. Next quarter, management can hope that there is continued good performance, and also better visibility, and also cash flow coming in from these new assets that will build that long-term distribution capacity. But again, we cannot make typical comments on what the dividend could be because again, this is a right to Board reserves to have the appropriate flexibility.

100%. I also realizing that you are limited in what and how you can talk about the relationship with Seadrill and the rigs but I guess I'll ask it this way. It's out, it's been reported in the news that a couple other drilling companies are potentially looking at acquiring Seadrill. Is it right to think that if Company A acquires Seadrill, they by default even though Ship Finance is the owner of those rigs, or is that something where then Ship Finance, I'm generally just looking for color around the relationship contract or agreement. How would something like that work if Seadrill were in fact to be acquired?

Just to clarify your question, I think your question is that our rigs automatically are a part of the sale if Seadrill is acquired, or if is it [Indiscernible] of it.

Yeah, that's exactly right.

Exactly, so it's really up to the Board or acquired to make a separate proposal to the [Indiscernible] in that respect and up to the Board to validate that proposal if there should be potential deals on the table. So there's no kind of automatic [Indiscernible] also relates to those assets because those are assets of SFL and operating separately. We also know the [Indiscernible] said this, that we have two attractive harsh-environment assets which also seem to be the most precise asset itself if you look at this asset, so we will just have to see how things develop.

Okay. As I think about that, I'm really interested in the Conoco contract with the jack-up. I mean, is there any change of control, you know what I mean? Is that something where Conoco as the, I guess, customer of that rig. Is there any approval process for them or is that something, I'm just kind of curious, do they have any input into the potential whatever saying and potentially where that rig goes in the event that Seadrill decides to have its Company deeply sold?

I cannot talk for the [Indiscernible] which is its history both lean that is also working for Conoco. But the concept on our rig and our relationship with Seadrill and Conoco is that under agreement at the cell house. That's basically terms possessed in right into that contract, not to be unreasonably withheld pro from Conoco. I think if you look and the operations of the rig, it's more part of the infrastructure of the Ekofisk field, which has a long lifetime. So we believe there's interest from Conoco to keep that rig and they will have to be addressed if and when such situation occurs.

Okay. Thank you very much for that. Have a great day.

Thank you.

And we are taking our next question from the line of Liam Burke at B. Riley.

Yes, thank you. On the press release, you have a capital requirement of 670 million on the acquired vessels plus new builds. Understanding you're taking delivery on third quarter on the existing vessels and then the new build delivery is 2024. Could you give us a sense of timing of how that outlay of 670 million would go?

Yes. Absolutely. I mean, we have the new buildings, all the new buildings free with capital, CapEx. I mean, there's some called freely refunding. Then the bulk maturity on delivery on the five vessels that some have been delivered and some are in the process of being delivered. I mean, financing has been secured. Basically, with the combination of cold cash at hand and also senior bank financing at very attractive terms. So that's all secured. We've experienced a tremendous interest from financing institution based on the high quality of assets, but also high-quality counterparties on the other side. That's, of course, it's very encouraging to see and basically, addressed in full.

Okay. You mentioned you've got additional deals that you're looking at. Would that be primarily in the container space or are you looking across the board to your entire fleet?

Now, we are segment diagnostic. So we look at opportunities across-the-board in several shipping call it sectors. We think this is a really important distinction from many other maritime companies who are focused on one single segment and therefore, it's looked into investing there. What we have seen over time is that typically it's at the peak of the markets that the equity market is open and when banks will lead you the most money. Therefore, if you are in one single segment, you're almost program to invest the bulk of your capital may be at the sub-optimal time. What we try to look at, we look at multiple segments at the time and we evaluate risk rewards and mark dynamics within the segments and we compare them to each other. You can say it's a coincidence, mainly over the last couple of months, we've done mainly container ships and car carriers, which both liner type assets, but still very different market dynamics where one segment has boomed a lot and the other has strengthened, but differently than the container side. At the same time, we also see many opportunities in other sectors where there has been less activity. We're about to say we are optimistic and our mindset is that we look at diversified in both asset types and counterparties. Therefore, we're not only focused on the container side.

Great. Thank you very much.

Thank you.

Thank you. There are no further questions on the line. Please continue.

Thank you. Then I would like to thank everyone for participating in our second-quarter conference call and also thank the SFL team on board the vessels and onshore for their continuing efforts a in time with continued operational disruption caused by the COVID-19 situation. 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 in our web page www.sflcorp.com. Thank you.

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