Good day, and thank you for standing by. Welcome to the Q4 2021 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ole Hjertaker. Please go ahead.

Thank you, and welcome to SFL's fourth 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 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. 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 discussions over risks and uncertainties which may have a direct bearing on our operational results and our financial condition. The announced dividend of $0.20 per share is an increase of 11% over last quarter's dividend and represents a dividend yield of around 9% based on closing price yesterday. This is our 72nd quarterly dividend and over the years, we have paid more than $28 per share in dividends or $2.4 billion in total. We have an increasing fixed-rate charter backlog supporting continued dividend capacity going forward. The total charter revenues were $166 million in the quarter, with around 75% of this from vessels on long-term charters and around 25% from vessels employed on short-term charters and in the spot market. This includes the seven Handysize bulkers we have sold. So going forward, we expect a higher relative share from long-term charters. The EBITDA equivalent cash flow in the quarter was approximately $121 million or 10% higher than the previous quarter. Over the last 12 months, the EBITDA equivalent has been approximately $434 million. The net income came in at around $80 million in the quarter or $0.63 per share. Yet again relating to the sale of the bulkers of $39 million, and otherwise, there were only minor one-offs in the quarter including a negative mark-to-market effect on interest hedging instruments. There were also around $1.1 million higher operating costs in the quarter due to additional crew rotation costs linked to COVID restrictions. We expect a similar effect also in this quarter, but hope that the restrictions will ease soon. Virtually all our crew are now vaccinated. Our fixed-rate backlog has increased and stands at approximately $2.8 billion from owned and managed vessels after recent acquisitions and disposals, providing continued cash flow visibility going forward. The backlog figure excludes revenues from the vessels traded in the short-term market and excludes future profit share optionality. We have excluded charter hire relating to the drilling rigs to be conservative in light of the ongoing financial restructuring in Seadrill. We continue building the portfolio with modern assets on long-term charters and have recently agreed to acquire four modern LR2 product tankers in combination with time charters to Trafigura. The structure is similar to the three Suezmaxes we announced last quarter, and the deal includes some interesting optionality features if the market should strengthen during the charter period where a sale can trigger with a profit split. If not, the long-term charters amortize the vessels down to a comfortable low-level with a good base return supported by the $160 million charter backlog linked to these vessels. In the quarter, we also finalized the sale of the seven Handysize vessels for an aggregate net sales price of around $98 million. In addition to the sales price, there was around $15 million net cash flow from trading the vessels at high rates until delivery. So they've had a very nice contribution for us in 2021. We have also sourced multiple new financings at attractive terms and see loan margins creeping downwards, and we fully redeemed the remaining $145 million convertible note in cash during the quarter. During the fourth quarter, we took delivery of three of the seven tankers we chartered to Trafigura and we have already taken delivery of three more, leaving only one Suezmax vessel still to be delivered, expected later this month. Excluding the drilling rigs, the backlog from owned and managed vessels was $2.8 billion at the end of the quarter. Over the years, we have changed both fleet composition and structure, and we now have 75 shipping assets in our portfolio. In addition to long-term chartered vessels, we have eight vessels trading in the short-term market currently, and four to five coming off their long-term charters later this year. We have also had significant contributions to cash flow from profit share over time, both relating to charter rates and fuel savings. The aggregate profit share was around $20 million last year and $7.5 million in the fourth quarter alone. We do not have a set mix in the portfolio and focus on evaluating deal opportunities across the segments and tried to do the right transactions from a risk-reward perspective. Over time, we believe this will balance itself out. We tried to be careful and conservative in our investments with a focus on technology and transition over time to more fuel-efficient technology for propulsion. The two drilling rigs are not included in our reported charter backlog figures. With respect to Seadrill and the ongoing financial restructuring, we cannot give more details than what we have disclosed in our press releases or is otherwise publicly available. After Seadrill's plan on reorganization was approved by the court, they estimate emergence from Chapter 11 within the first quarter of this year. We received more than 70% of the lease hire under the existing charter arrangement for West Linus and West Hercules during Seadrill's Chapter 11 proceedings. Both rigs are active and working for all companies and the charter rate is sufficient to cover a debt service relating to the rigs. We are pleased to see strengthening drilling markets on the back of the very firm oil price. We have entered into a new agreement relating to the harsh environment semi-sub West Hercules. Under this new agreement with Seadrill, the West Hercules is contracted to be employed with oil major, Equinor in Norway and Canada until September, October and thereafter redelivered to SFL in Norway. SFL continues to receive a bareboat hire of around $60,000 per day while the rig is employed under a contract and generating revenues for Seadrill. Approximately $40,000 per day is received in all other modes, including when the rig is idle and mobilized to and from Canada for the Equinor work. The rig is now on its way to shore for some upgrades required for this job and is expected to move to Canada in the second quarter. Regarding the West Linus, which is on a sub-charter to an oil major in the North Sea until the end of 2028, we continue to have constructive dialogue with Seadrill and the end user for the continued operations of the rig under the contract. They have not yet agreed on final terms with Seadrill, but this is expected before their emergence from Chapter 11. Over the years, we have gone from a single asset class charter to one single customer to a diversified fleet and multiple counterparties. The mix of assets and charter backlog has varied from 100% tankers at the beginning to nearly 60% offshore 10 years ago to container vessels now being the largest segment with nearly 60% of the backlog. If you look at the counterparties, it is now mainly to end users and market leaders in their respective segments, with relatively few intermediaries where we have less visibility on the use of the assets and quality of operations. Strategically, this also gives us access to more deal flow opportunities, such as repeat business with Maersk, MSC, Evergreen, and Trafigura, as examples. Our strategy has therefore been to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the wider Seatankers Group. This gives us the ability to offer a wider range of services to our customers, from structured financing to full-service time charters. With full control over vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact improvements to our vessels throughout the life of the assets, not only by practically owning vessels employed from bareboat where the customer may not always have an incentive to make such improvements. Additionally, we can retain more of the residual value in the assets when we charter out on a time charter basis, and in the current environment, with rising raw material costs and inflation driving replacement costs for vessels, this value is for the benefit of SFL and our stakeholders. With bareboat deals, this value is usually retained by the charters through fixed-price purchase options. This is illustrated by the recent sale of seven Handysize bulkers, where our upgrading platform has enabled us to trade the vessels in the spot market during a soft market, and when the market just doubled last year, we could sell the vessels with a significant profit. I will now hand the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter.

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 not of extraordinary and non-cash items. The company generated gross charter hire of approximately $166 million in the fourth quarter, including $7.5 million of profit split with approximately 75% of the revenue coming from a fixed charter rate backlog, which currently stands at $2.8 billion, providing us with strong visibility on our cash flow going forward. In the fourth quarter, the liner fleet generated gross charter hire of approximately $90 million, including approximately $3.4 million in profit split contribution related to fuel savings on some of the large container vessels. Of this amount, more than 90% was derived from our vessels on long-term charters. Following the company's recent acquisitions, SFL's liner fleet backlog currently stands at approximately $2 billion, with an average remaining charter term of approximately 4.4 years, or approximately 7.3 years equated to charter hires. Including recently announced transactions as well as 16 crude oil, product, and chemical tankers, the majority employed on long-term charters, our tanker fleet generated approximately $17.5 million in gross charter hires during the quarter. Of the net charter hire received more than 75% was derived from our vessels on long-term charters, among others Frontline and Phillips 66. The net charter rates from the company's two Suezmax tankers employed in the short-term market were approximately $3.1 million compared to $1.7 million in the previous quarter. Late in the fourth quarter, SFL took delivery of one Suezmax tanker and two LR2 product tankers with five-year charters to Trafigura. The remaining two Suezmax tankers and two LR2 product tankers will be delivered during the first quarter with full quarterly earnings effect from the second quarter. Our dry bulk fleet generated approximately $46.3 million in gross charter hire in the fourth quarter, including $4.5 million in profit share contribution from our capesize vessels on charter to Golden Ocean. During the quarter, the company had a fleet of 22 dry bulk vessels, of which 11 vessels were employed in long-term charters and the other 11 are trading in the short-term and spot market. The 11 vessels trading in the spot and short-term market generated approximately $21.2 million in net charter hire during the quarter compared to approximately $20.7 million in the previous quarter. During the quarter, the company completed the sale and delivery of seven smaller Handysize dry bulk vessels to a national buyer. The sale generated net sales proceeds of approximately $19 million in addition to strong spot earnings during the fourth quarter prior to delivery. SFL owns two drilling rigs which have been chartered out to subsidiaries of Seadrill on bareboat terms. In the fourth quarter, we received approximately $12.3 million in charter hires from the rigs. This summarizes an adjusted EBITDA for approximately $121 million for the fourth quarter compared to $112 million in the third quarter. We then move on to the profit and loss statement as reported under U.S. GAAP. As we had described in previous earnings calls, our accounting segments are different from those of a traditional shipping company. Our business strategy focuses on long-term charter contracts, and a large part of our activities are classified as capital leases. As a result, a significant portion of our charter revenues are excluded from U.S. GAAP operating revenues and instead are looked at as revenues classified as repayment of investment in finance leases and vessel loans, results in associates, and long-term investments and interest income from associates. For the fourth quarter, we report total operating revenue according to U.S. GAAP of approximately $152 million, which is less than approximately $166 million of charter hires actually received for the reasons just mentioned. During the quarter, the company recorded profits with income of approximately $4.5 million from our capsize dry bulk vessels on charter to Golden Ocean. Of this, we took approximately $3.1 million from fuel savings arrangements on some of the large container vessels. The company also reported a $39.3 million gain relating to the sale of seven smaller Handysize dry bulk vessels, which should all be delivered to the new buyer before year-end. Operating expenses of our fleet are up compared to the previous quarter, due to a combination of new vessels entering the fleet and expenses relating to COVID-19 measures, among others due to our efforts to maintain a normalized crew change cycle for seafarers despite challenging traveling restrictions around the globe. Additionally, we also saw an increase in depreciation due to the new additions to our fleet and also the consolidation of the West Hercules during the third quarter. Overall, and according to U.S. GAAP, the company reported a net profit of approximately $80 million or $0.63 per share. Moving on to the balance sheet, at quarter end, SFL had approximately $146 million of cash and cash equivalents. Additionally, the company had marketable securities of approximately $25 million, based on market prices at the end of the quarter. Furthermore, the company had seven debt-free vessels with a combined charter-free market value of approximately $170 million, including two LR2 product tankers, which the company took delivery of before the end of the quarter, paying approximately $80 million in cash. We expect to draw down financing for all LR2 product tankers during the first quarter. Approximately $430 million of remaining CapEx of recently announced acquisitions is expected to be financed for those facilities along with SFL's other assets with long-term charters. During the quarter, approximately $145 million was used to repay the balance of the convertible notes which were due in October. Furthermore, the company received approximately $98 million in cash proceeds from the sale of seven Handysize dry bulk vessels during the fourth quarter. Based on Q4 numbers, the company had a book equity ratio of approximately 28.4%. To summarize, the board has declared a cash dividend of $0.20 per share for the quarter, an increase of approximately 11% compared to the previous quarter. This represents a dividend yield of approximately 9% based on the closing share price yesterday. This is the 22nd consecutive quarter of dividends, and since the inception of the company in 2004, more than $28 per share or more than $2.4 billion in total has been returned to our shareholders through dividends. SFL has successfully committed more than $1 billion towards recent acquisitions in 2021. In the process, we have expanded our relationship with some of our key clients by investing in modern Eco-Design containerships and tankers, while disposing of older less efficient assets, demonstrating our commitment to further improve our carbon footprint pursuant to our ESG strategy. Following recent investments, our backlog from our shipping assets now stands at $2.8 billion, providing strong visibility on future cash flow, debt service, and continued distribution capacity. With a strong operational platform and our access to attractively priced capital, SFL is well-positioned to execute new accretive investments in the quarters to come. I give the word back to the operator, who will open the line for questions.

Thank you. The first question comes from Randy Giveans. Please go ahead.

Howdy team, SFL. How's it going?

Hi, there, Randy. Nice to hear from you.

Yes, sir. So looking at your fleet here, you recently took delivery of numerous tankers, you sold some of your dry bulk vessels. Now, currently, dry bulk is only about 11% of your contract backlog, basically the smallest sector in that. With the recent pullback in asset values over the last few weeks and even months despite further strengthening in charter rates, is dry bulk the asset class of choice for growth at the moment, if not, what sector is?

Yes, we look at opportunities across the board in all these segments. Generally, we wouldn't mind doing more deals in the dry bulk space. But we also have to be cognizant of the market structure in that segment; typically, dry bulk vessels are traded more in the spot market and long-term logistical type solutions. So our preference is, of course, longer-term charters. There are not that many long-term charters in the dry bulk market, despite the numerous vessels available. We are chasing transaction opportunities wherever we can find them. With our diversification, we can look at the deal opportunities in many segments at the same time, and they're not tied to only one sub-sector. So yes, we look at opportunities there, as we do elsewhere as well. But to be specific, we will be happy to announce deals as we do them, but we cannot speculate on how much we should invest in each segment.

Sure. That's fair. I don't expect you to give all your cards away here. I was going to ask some questions about the drilling rigs, but sounds like you're mum on that for now, which is understandable. So looking at the dividend, great to see that continuing to rise? Is the plan there to slowly increase that going forward? What are some of the hurdles or maybe catalysts for further increases?

Absolutely, I mean, we are always happy to please our shareholders, and we've been paying dividends now 72 times. So we are starting to get the track record on that one. The dividend is more based on our policy or communication policy around dividends. We will never guide on forward dividends. Dividend is set every quarter by the board at the discretion of the board. But as you well know over time, in these 72 quarters, it's typically been stable or increasing with only adjustments when there have been market events driving it. As we have done quite a bit of business and made new investments last year and billion new investments, that will come onstream cash flow from these tanker vessels, for instance. We will have quite a bit of cash flow from those vessels already in the first quarter and full cash flow effect in the second quarter. We do this only with the mindset that we hope to increase distribution capacity going forward, but exactly how much and when I cannot tell you.

Yes, no, that's fair. Well, thanks again. That's my two questions.

Thank you very much.

Thank you.

Thank you. Next question is from the line of Greg Lewis from BTIG. Please go ahead.

Hey, thank you and good afternoon, everybody. Ole, sorry I missed you in New York last week. Question around, just following up on Randy's question around the dividend. Clearly, you're not going to give any guidance on the dividend. But it does seem like there's a targeting of some sort of percentage of cash flow; at least, that's what it looked like over the last couple of quarters. Is that a fair way to think about the dividend going forward, or is it more a function of your outlook on the market?

I think, as Ole said, we don't give any guidance or promises on dividends. What's important for us is to ensure that we have a good level of capital going forward so that we can have a sustainable dividend. To build a business, it’s natural that we can also increase dividends over time. So it's going to be based on what’s sustainable, what’s the contribution from net cash flow in each quarter, and what’s the outlook going forward as well.

Okay, that makes sense. You mentioned that seven vessels are unencumbered. You mentioned the actual estimated fair market value of those vessels. Is there any way to think about the potential borrowing ability on those vessels? How should we think about that?

Absolutely. We intend to draw up the facility on the four elective tankers later this quarter.

Yes. I will say part of the reason for having that and having someone come in vessels is that it enables us, given our financial flexibility, to go ahead and close on transactions early and not wait on the financing to be arranged to get a deal done. The net effect is that we benefit from the cash flow from the vessels early, and then we secure and source the financing, of course, on the best possible terms some weeks later. Also, we have some smaller, older vessels that are unencumbered. We don't have any immediate plans to put leverage on them, but we have the flexibility to do it on short notice if needed. You could say it’s a part of spare investment capacity. With our portfolio, there will be situations where some have lower leverage, and we may refinance if we think leverage has come down too far compared to asset values, and vice versa. This is ongoing dynamics in any company.

Exactly, our portfolio approach. As a general observation, we see increasing access to very attractive capital, with more new banks coming in competing on terms. So I think, first of all, it's a very good environment.

As I look at the portfolio, asset prices have gone up almost exponentially in containerships. Clearly, that's your largest pool of assets in the portfolio. As you're thinking about that business, and as you're thinking about those assets, and you're talking to your lenders, realizing that the bulk of your assets are on long-term contracts, so maybe we are not really going to benefit from the strength in rates that is driving those asset prices higher. That being said, is there an opportunity to put on additional leverage on any of those, whether it's container ships or other assets, where prices have gone higher despite the fact that a lot of those vessels are on long-term contracts?

You could potentially, but that’s not really how we think about it. As a shareholder, I would think that the value of our backlog is really based on the value of the counterparties. The majority of the backlog, around $2 billion, is with investment grade counterparties. I think that's the strength of our company. We have extremely good visibility on that cash flow. We have been particular on choosing counterparties that we believe will perform, even if the charter market softens, which it will in the future. It’s more about having substance in the company rather than using it to leverage up, as you also have minimum value clauses in loan agreements, etc. You just have to be prudent in deciding what to do.

Thank you. Next question comes from the line of Liam Burke from B. Riley. Please go ahead.

Yes, thank you. Asset values are up, not only with containers but pretty much across the board and all your vessel classes. How has that affected your acquisition backlog? I mean, are you still seeing the opportunity? Or have your opportunities gone down? Are you still looking at an attractive pipeline?

I think if you look at their competitive advantage, I would highlight the COVID strong operational platform that we have. Approximately 90% of revenues are from time charters done and only 10% from bareboats. We basically have a different approach to deal origination, and we also see a lot of repeat inquiries from existing clients which are relationships built over many years. In terms of new opportunities, we both speak to a few brokers and talk to our clients, and we see a nice deal flow with more time charter stability and more financially driven deals like bareboats as many of the banks are coming back to lend. We continue to see attractive opportunities.

Fair enough. You mentioned in your prepared comments that technology is important for obvious reasons on emissions going forward. Are there any vessels in your fleet that could present technological risks, allowing you to sell sooner?

Well, 'risk' may be a strong word. If we look at our fleet, the vessels that might be the least ideal going forward will be the smaller bulk carriers. We are quite positive on the large tankers; they will not have a problem from that perspective. Our large containerships are also in a good position. Especially if we look at our new building programs with LNG dual-fuel car carriers, they're going to contribute well towards the overall fleet's carbon intensity indicator track because when we enter 2023 and beyond, there are going to be increasingly aggressive targets to stay ahead of. But with our current fleet, we believe that we are well-positioned.

I'd like to add to Trym's comment that our ESG report will be out in a few weeks' time for last year. You will see, if you compare it to the previous year, a very significant change in our fleet composition and metrics due to the combination of our acquisitions of very efficient vessels, including dual-fuel new buildings, and the sale of less efficient small bulkers that we also disposed of last year. We are very focused on these issues, and our mindset is to continue to develop our portfolio over time with that as one of our key decision elements.

Thank you. Next question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

Thank you. This is [indiscernible] filling in for Chris. I would like to know if we can measure the financial impact of COVID on our crews, specifically regarding the challenges we faced.

Sorry, fantastic question. The cost of the COVID impact for us is about $1 million per quarter. That seems to be quite steady. It was during last year, and it seems to be approximately where we are at the moment too, and this has to do with travel costs, quarantine, and general delays in moving people around.

Great, that makes sense. Can we talk about CapEx? Where do we currently stand with that looking forward, what’s the mix and strategy?

Yes, the only outstanding CapEx currently involves car carriers, dual-fuel new buildings coming up in China with 10 new charters to Volkswagen Group and K-Line, respectively. We are in active discussions with several financial institutions. It's more about optimizing their financial terms than anything else; we have received extremely strong interest based on the quality of the ships and the quality of counterparties in their interesting segments with good supply and demand outlooks.

Yes, and of course, we have paid down installments to the shipyards for all those four vessels as well. We don’t expect a significant call for CapEx as most of the remaining investments in those vessels can be covered by financing. Of course, we focus on optimizing that and minimizing the cost of that capital. But from an overall perspective with a $4 billion balance sheet, I think we have low CapEx in relative numbers.

What is the backlog or the congestion in the shipyards you're seeing right now?

For congestion, if you want to get new vessels, typically car carriers or containerships, you'll probably be looking at 2024, even 2025. If you want to go to first or second-tier yards in Asia like China or Korea, there aren't many 2023 deliveries at the moment. Currently looking at late 2024 or early 2025 is more reasonable.

Prices have been going up; there is inflation in both raw materials and labor in these countries where most ships are built. This trend is also benefiting our overall fleet structure, or I would say, any shipping company in the fleet portfolio, because new building prices are pulling off secondhand values as a percentage of replacement costs, which benefits us. We don't mind increasing shipyard prices as long as we can get charters that are reflective and give us decent returns even if prices are coming up.

Some yards are reluctant to take orders going much further into the future than mid-2024 due to the risk of rising steel prices and general inflation. The yards are also wary of accepting new orders very far into the future.

Thank you. I would like to hand back over to the speakers for final remarks.

Thank you. I would like to thank everyone for participating in our conference call. Also, thanks to the SFL teams on board the vessels and onshore for their continued efforts day and night in delivering value for our shareholders. 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 page on our webpage www.sflcorp.com. Thank you.

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