Detailed narrative
Consistent Shareholder Returns and Capital Allocation
SFL celebrated its 90th consecutive dividend, bringing accumulated payouts to $3 billion and over $32 per share since 2004. The company recently raised $100 million in equity through ATM and DRIP programs, issuing 8.8 million shares at a premium to VWAP, demonstrating a disciplined approach to funding new investments without significant dilution. Management stated no plans for further share issuance in the foreseeable future.
Strategic Expansion in Car Carrier Segment
The company is actively expanding its car carrier fleet, securing new 3-year charters for two older vessels, adding $83 million to backlog. Additionally, SFL ordered four dual-fuel 7,000 CEU car carriers for $360 million, with delivery into 2029. Two of these newbuilds are already chartered for 5+5 years to a major Asian car manufacturer, adding $150 million in firm backlog, with potential for $300 million. The remaining two newbuilds are open, with management confident in securing charters due to strong market dynamics.
Exceptional Tanker Market Performance
SFL's two modern Suezmax crude oil tankers capitalized on a booming spot market, earning an average rate of $133,000 per day in Q2, a significant increase from $54,000 in Q1 and $30,000 last year. So far in Q3, 63% of vessel days are covered at an average of $93,000 per day. While enjoying strong cash flow, the company plans to seek new long-term charter opportunities for these vessels to secure future stability.
Diversified Fleet and Robust Backlog
SFL's portfolio now includes 61 maritime assets, comprising 30 containerships, 16 tankers, 11 car carriers, 2 dry bulk vessels, and 2 drilling rigs. The total charter backlog stands at $3.8 billion, with approximately two-thirds from investment-grade counterparties, providing strong earnings visibility. Container vessels account for nearly 70% of contracted revenue, car carriers 15%, energy assets 10%, and tankers the balance.
Rig Market Outlook and Hercules Preparations
The Hercules drilling rig is currently in Norway undergoing upgrades and preparing for its upcoming contract in Canada, expected to commence revenue contribution in the first half of 2027. The contract is for 400 fixed days with options for a similar additional period. Management remains positive on the long-term prospects for the drilling sector, particularly for high-end harsh environment units, given the high cost of newbuilds and strengthening oil exploration market.
Operational Efficiency and Fleet Utilization
The shipping fleet maintained high utilization rates across segments: container vessels at 99.3%, car carriers at 100%, tankers at 99.8%, and dry bulk at 99.4%. Energy segment utilization was 50% due to the Hercules rig's preparation phase. Operating expenses for the shipping fleet were $37 million, including $2.2 million in drydocking costs for two large container vessels.