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Welcome to SFL's first quarter 26 conference call.
My name is Espen Nilsen Gjosund, and I am Vice President of Investor Relations in SFL. Our CEO, Ole Bjarte Hjertaker, will start the call with an overview of the first quarter highlights then our Chief Operating Officer, Trym Otto Sjølie, will comment on vessel performance matters, followed by our CFO, Aksel C. Olesen, who will take us through the financials. The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. 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 2000. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance.
These statements are based on our current plans 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 a more detailed discussion of risks and uncertainty which may have a direct bearing on results and our financial condition. Then I will leave the word over to our CEO, Ole Bjarte Hjertaker, with the highlights of the first quarter.
Thank you, Espen. We are pleased to announce our 89th consecutive dividend and we have firmly positioned SFL as a maritime infrastructure company with a diversified high-quality fleet. For the first quarter, we reported revenues of $174 million and an EBITDA equivalent cash flow of $108 million. Over the past 12 months, EBITDA amounts to $443 million reflecting the continued strength and stability of our operations. Net income in the quarter was $26 million or $0.20 per share, and the dividend has been increased to $0.22 per share this quarter. In aggregate, we have now returned $3 billion or more than $30 per share in dividends since 2004. And we have a robust charter backlog of $3.7 billion with a very strong counterparty profile, where more than two-thirds of the backlog is to customers with investment grade credit ratings. In the quarter, we announced a new contract for the ultra-deepwater drilling rig Hercules, which will be employed in Canada from 2027.
The firm part of the contract is 400 days and represents a backlog increase of approximately $170 million. There are also shorter options, in addition to that, which could extend the contract beyond the 400 days. Generally, we see a significant demand for harsh-environment deepwater-capable semisubmersible drilling rigs towards the end of the decade and believe this contract could position the rig attractively for prospective drilling campaigns in harsh-environment areas. It is the only rig in the market with a valid Canadian safety case, and has previously also worked in Norway and Namibia. This last quarter, we have also had the pleasure of having two 2020-build Suezmax tankers employed in a booming spot market. You may remember that we agreed to release the charters on these against the compensation of $11.5 million per vessel in December, instead of selling the vessels in the market to a third party.
We used to have four vessels to the same charterer, and we sold the other two older vessels with net cash proceeds after debt repayment of approximately $52 million in aggregate. So adjusted for the compensation to terminate the charters on the newer vessels, we took nearly $30 million cash off the table. The vessels are currently trading in the spot market, and the market has strengthened significantly since the deal was concluded in December. In fact, net cash flow contribution is now higher from these two vessels alone, compared to all four vessels in the original charter arrangement. We reported nearly $54 thousand per day on a time charter equivalent basis in the first quarter, which compares to a cash breakeven below $20 thousand per day after debt service. But this is dwarfed by the earnings into the second quarter, where we have experienced a historically strong market on the back of market disruptions caused by the war in the Middle East.
So far, we have covered 53% of vessel days at an average charter rate of around $185 thousand per day. But please note that reported charter hire from vessels in the spot market is accounted for on a load-to-discharge basis pursuant to U.S. GAAP. We therefore expect their average for the full quarter to be lower than the book revenue so far due to expected ballast days in the remainder of the quarter. Also, the spot market is lower than the charter rate we have booked so far this quarter. Still, we expect a very firm quarter in the second quarter. While we are enjoying phenomenal cash flows from these vessels right now, we will look for new longer-term charter opportunities in due course. Recently, we also successfully raised $75 million in a tap issue over our 2030 senior unsecured bond loan where we issued $75 million at the price of 103.5% of par value. The original bond loan has an interest rate of 7.75%.
And we are pleased to see an implied interest rate in the tap issue of only 6.8%. This tap issue was not planned, but something that came about after receiving inquiries from bondholders who wanted to increase their exposure to SFL at premium pricing. So we decided to act opportunistically in the situation and the transaction was executed on very short notice. With that, I will now hand the call over to our Chief Operating Officer, Trym Otto Sjølie.
Thank you, Ole. We have a diversified fleet of assets chartered out to first-class customers on mostly long-term charters. And the majority of our customer base is large industrial end users. Following the sale of two Suezmaxes, the SL Ottawa in Q4 last year, as well as Telen, which was delivered to its new owners in February, our current fleet stands at 57 maritime assets, including vessels, rigs and contracted newbuildings. Our backlog from owned and managed shipping assets stands at approximately $3.7 billion and the fleet is made up of two dry bulk vessels, 30 container ships, 16 large tankers, two chemical tankers, seven car carriers, and two drilling rigs. Two-thirds of our contracted revenue is with investment-grade counterparties, which gives us a high degree of confidence in the earnings visibility of this portfolio even in a volatile market environment. Our charter backlog is mainly derived from time charter contracts and with the exception of four contract containerships on bareboat leases, the rest are in time charter or operating in the short-term or spot market.
Charter revenue from our fleet was about $174 million in Q1, and we had a total of 4,600 operating days across the fleet in the quarter. Utilization was strong across most segments. As container vessels ran at 100%, car carriers at 100% and tankers and dry bulk came in at 99%. The energy segment ran at 50%, reflecting that our Hercules rig remains warm stacked in Norway in preparation for its new contract. OpEx for the shipping fleet came in at $42 million in Q1, broadly in line with the budget. This quarter, we had three Maersk S Class container vessels in or completing dry dock: the Maersk Sarat, Maersk Shivling, and Maersk Skarstind, all undergoing significant upgrades under the new five-year charter agreements with Maersk. This is part of our ongoing effort to maintain and improve the quality and earning capacity of our assets over the long term. I will now give the word over to our CFO, Aksel C. Olesen, who will take us through the financial highlights of the quarter.
Thank you, Trym. Turning now to the cash flow slide. I find this valuable because it gives investors a clear view of the business's underlying operating performance, separate from the effects of noncash and nonrecurring items in the GAAP results. Before I begin, I want to flag the required disclosure. Cash flow presentation is a non-GAAP measure, represents a management tool to help us assess underlying performance. It is not prepared in accordance with U.S. GAAP, and investors should not consider it in isolation or as a substitute for any GAAP measure. The presentation also includes certain noncash charges and items we consider nonrecurring. With that context, let me take you through the performance of our portfolio. Across the fleet as a whole, we generated approximately $177 million of gross charter hire during the quarter. Of that total, approximately $81 million came from our container fleet, including profit share income related to fuel savings on seven of our large container vessels.
The container market backdrop remains constructive, and the long-term contracted portfolio continues to generate strong visible cash flows. Moving to car carriers, the fleet generated approximately $26 million of gross charter hire, consistent with the previous quarter. All vessels are employed on charters with high-quality counterparties providing strong earnings visibility. In tankers, the fleet generated approximately $46 million of gross charter hire, up from approximately $42 million in the prior quarter — a meaningful sequential improvement. This reflects the continued strength of charter arrangements across the tanker fleet. As previously disclosed, the portfolio now includes two Suezmax tankers trading in the short-term market, where we have been well positioned to capture favorable spot rates. Turning to dry bulk: as many of you are aware, we have been strategically divesting vessels in recent quarters as part of our fleet renewal.
We now have two Kamsarmax vessels remaining, whilst trading in the short-term market. Revenue from these vessels was $2 million compared to $3 million in the prior quarter. The dry bulk market has shown encouraging improvements which is reflected in an improving day rate environment so far in the second quarter. Moving to energy, revenue from our energy assets was approximately $23 million for the quarter. This was driven primarily by the Linus drilling rig, which remains on a long-term contract with ConocoPhillips running through May 2029, providing substantial contracted cash flow visibility. We are also pleased to announce that the Hercules has secured a new contract that will contribute revenues from 2027. While we are not in a position to share full details at this stage, this is an important development. It extends the earnings visibility of a key asset and reinforces our confidence in the long-term demand outlook for high-specification drilling units.
On the cost side, total operating and G&A expenses for the quarter came in at approximately $69 million, broadly in line with the prior quarter. Putting it all together, adjusted EBITDA for the quarter was approximately $108 million, also consistent with Q4 25. The sequential stability is a meaningful indicator of the quality of our contracted cash flows and the resilience of our business model across varying market conditions. I would remind our listeners that adjusted EBITDA is a non-GAAP measure. We define it as net income before interest, taxes, depreciation, amortization and certain nonrecurring and noncash items. Reconciliation to GAAP net income is provided in today's earnings release. Turning now to our results on a U.S. GAAP basis: For the quarter, we reported total operating revenues of approximately $100 million compared to approximately $175.5 million in Q4 25. Leases contributed approximately $151.5 million while other rigs contributed approximately $23 million.
Operating expenses were approximately $69 million in line with the prior quarter. Onto clearly identified nonrecurring and noncash items that affected the GAAP net results this quarter so that investors can appropriately adjust their models: gain on sale of assets of $11.5 million, mark-to-market gain on hedging derivatives of $2.5 million and mark-to-market gain on equity investments of $1.9 million. After accounting for these items, we reported a GAAP net profit of approximately $26 million for the quarter, or $0.20 per share. This compares to a net loss of $4.6 million, or $0.04 per share in Q4, a meaningful swing that reflects both the operational improvement and the nonrecurring items I just noted. Turning to the balance sheet: As of March 31, 2026, we had cash and cash equivalents of approximately $128 million with an additional approximately $160 million available under undrawn credit facilities, giving us total available liquidity in excess of $280 million.
We believe this is a solid and well-positioned balance sheet as we move through 2026. Furthermore, we would like to highlight several noteworthy developments. First, we have refinanced the facilities related to both the Hercules and the Linus rigs on favorable terms. This confirms that the bank lending market for high-quality assets remains open and constructive. We are very pleased with both outcomes. Second, subsequent to quarter end, we did a $75 million tap issuance of our 2030 U.S. Dollar senior unsecured bonds at 103.5% of par, implying a yield to maturity of approximately 6.8%. This was an opportunistic transaction that extends our liquidity runway and we believe reflects the bond market's confidence in SFL's credit profile. Regarding upcoming maturities, our $150 million senior unsecured bonds issued in 2029 mature shortly now in May. We intend to redeem these notes using available liquidity and we are well positioned to do so.
During the quarter, we made approximately $56 million in scheduled loan amortization, more than $220 million annualized. This reflects the systematic deleveraging of our fleet and it is a structural feature of how we manage the balance sheet. On newbuildings, our five contracted container newbuildings represent remaining capital expenditure commitments of approximately $850 million. We expect to fund this through a combination of pre- and post-delivery financing, and we are seeing strong lender interest, which reflects the quality of the assets, the strength of the charter counterparty, and the favorable financing environment for modern fuel-efficient tonnage. Finally, our book equity ratio as of quarter end stood at approximately 27%. Before I hand the call back to Espen, let me close with a few summary points. First, the Board has declared our 89th consecutive quarterly cash dividend of $0.22 per share, an increase of 10% from the prior quarter.
At current prices, that represents an annualized dividend yield of approximately 7.5%. Second, our charter backlog now stands at approximately $3.7 billion, where two-thirds of that backlog is with customers carrying investment-grade credit ratings. That combination — scale, duration, and counterparty quality — provides exceptional cash flow visibility and gives us the confidence to continue investing in growth. Third, with a strong balance sheet, ample liquidity, and disciplined capital allocation, we remain well positioned to pursue accretive investment opportunities. The maritime asset market continues to evolve. We believe SFL is uniquely positioned with a long-term charter model, diversified fleets and access to capital to continue generating value for shareholders. Thank you all for joining us this morning. I will now hand the call back to Espen to open the line for questions.
Thank you, Aksel. We will now open for a Q&A session. Those of you who are following this presentation through Zoom, use the raise hand function under reactions in the toolbar to ask a question. When your name is called out, please unmute your speaker to ask your question. Thank you. We will have our first question from Gregory Robert Lewis. Gregory, please unmute your speaker to ask your question, please.
分析師問答
Hey. Thank you, and good morning and good afternoon, everybody, and thanks for taking my questions. Clearly, these are interesting times across all of maritime shipping. But I was hoping to talk a little bit more about the tanker sector. Your backlog is good at a little over, what, 3.5 years. But we do have some vessels on spot that you alluded to. And then even some vessels that are rolling off their existing contracts, not just over the next couple quarters. As we sit here today, just given a lot of the volatility in tanker rates, and some of the uncertainty out there, how should we be thinking about the opportunities for SFL maybe to put some of these vessels, or either extend existing charters where there are options, or just kind of build out the backlog portfolio for the tanker market given the strength we are seeing in tanker rates?
Yes. Thank you, Gregory. This is Ole here. Thanks for the question. You could say that we were lucky in the way we ended up with the two Suezmax tankers in the spot market. We did expect that market to firm, but we did not anticipate the extent of how it has firmed. It is important here to understand that this is, of course, partly due to the market disruption caused by the Arabian Gulf but also by significant consolidation on the supply side for VLCCs, i.e., the larger two-million-barrel vessels. So we see a combination here that is unprecedented. We have never seen that before. We will look for — because our principal business is long-term charters — longer-term charters also for these two vessels in due course. But for now, we have been enjoying the very strong spot market. And we do have some vessels that are coming up later in the year, but there are extension options on those. Given the charter rate and the prevailing market for these Aframax/LR2 tankers, we would not be surprised if those vessels were extended for another year or two. So we do not have any sort of spot vessels where we effectively control the trading in that sector right now. We have also seen values go up significantly, backed by higher charter rates. So we are looking at new opportunities in the tanker space, but cannot comment on specifics until or unless we actually do a deal.
That is great. And then I did want to talk a little bit about the 10% dividend increase. That was good to see. That was a nice move higher. I guess it is never just one thing when you think about increasing the dividend, given the focus by the company on returning cash to shareholders. But I would be curious how we are thinking about the dividend — what drove that? I am assuming it was a combination of the backlog, you had some positive developments on the Hercules. If you could walk us through from a cash flow perspective: you could arguably pay out a lot more than you are currently paying, so how did you and the board come up with the decision for the 10% move?
Yeah. From a board perspective, we never give guidance on forward dividends. But the dividend discussion is always backed by the long-term expectations for cash flows going forward. We have a combination of multiple effects here. We have more clarity now on the Hercules, which also includes upgrades and investments we need to do on the rig before that contract. There were other contract opportunities where we might have had to invest a lot more in the rig than what we need to do to put it back to work in Canada. So there is lower CapEx really on that one. Also, incidentally, if you look at the net cash flow from the four vessels we had with the charterer in the past, the incremental cash flow in the first quarter from just those two vessels was around $0.02 per share. That is a coincidence — it is not the direct link to that uplift. But there is certainly more cash flow and more certainty around our portfolio, and we also have to remember that we have lots of vessels that are performing with stellar performance, close to 100% utilization, strong cash flow, and strong counterparties.
That is really the confidence the board had to lift the dividend this quarter from $0.20 to $0.22. And, of course, our long-term objective is to return cash flow to shareholders. That is our driving force, and our incentives are focused on returning capital to our investors, and we are happy to increase it this quarter.
All right. Super helpful. Thank you all for taking my questions.
Thank you, Gregory. We will take our next question from Climent Molins. Please unmute your speaker to ask your question.
Hi, team. Thank you for taking my questions. I also wanted to ask about the Hercules. Ole, you briefly touched upon this mentioning that upgrades for the contract you secured may be a bit lower than for other contracts you had looked at. Could you talk a bit more about this and how much you currently plan to spend?
Thanks. We have not been specific on the numbers and what we are doing, but there are relatively low, tactical upgrades required. We are doing some replacement of equipment on the rig. There is equipment on board that is coming to the end of its effective life cycle, so we are replacing that. Those upgrades are more strategic, longer-term in nature to make the rig capable for sustained deployment in harsh environments. The rig last worked in Canada, and it is going back to Canada. Therefore, very limited upgrades that we have to pay for. Our customer will pay for some upgrades that they see as a benefit for their operations. So it is a relatively small number and we guided on CapEx for all our vessels — I would say about half of the CapEx that we guided in the press release relates to the Hercules, and the other part relates to our other vessels in the portfolio. Compared to our asset base, you are talking small numbers on an aggregate scale. As we move closer to mobilization to Canada, we need to increase staffing on the rig. Right now, it is warm stacked, but we need to put the full crew on before drilling operations start, etc. So that will happen. But this is how we plan for it and how we ensure that this rig is ready to go and can start to produce cash flow for us at the first opportunity within the commencement window in Canada in the first quarter.
Thank you. I also wanted to ask about the index-linked contract on the Linus. Could you remind us when the index-linked hire is revisited? And based on recent market trends, do you expect to see any change in the daily hire under the long-term contract?
The charter rate for the Linus has been increasing gradually; it is set by a market panel and has been creeping upwards. The contract runs until May 2029. We all know that Conoco extended the license from 2029 to 2049 some years ago, so they have a much longer horizon on the asset. With increased focus now on energy production, particularly in the Northern Hemisphere and on the Norwegian continental shelf, we believe there will be a lot more activity on the UK side and in Canadian waters. We expect there will be a need for high-end units on that field or other similar fields nearby in the foreseeable future. But it is still three years out, so it is a little early to discuss anything specific.
Makes sense. Final question from me: you have been clear you will be looking for a long-term contract for the two spot Suezmaxes when the time is right. Should we expect the same approach to be applied to the two spot Kamsarmaxes? Or is a sale maybe more likely for these two vessels?
Good question. We have been looking for contracts for those vessels as well. For medium-sized bulkers, it is typically difficult to find multi-year long-term charters; typically their charters would be up to one year, and charterers can hedge via FFAs, etc. That structure is less attractive for SFL. We would rather take the marginal premium of having the vessel in the spot market and keep that margin ourselves. For tankers, we typically look for longer terms than one year; our sweet spot would be three to five years depending on charter rate and counterparty. It all comes down to finding the right counterparty and the right structure. We will be opportunistic and watch the market closely. We have very good market intelligence, but we cannot be specific on charter rates or terms at this stage.
Makes sense. Thank you. I will turn it over. Thank you for taking my questions.
As there are no further questions, I would like to thank everyone for participating in this conference call. If you have any follow-up questions to the management, their contact details are in the press release, or you can get in touch with us through the contact pages on our webpage, sflcorp.com. Thank you.