Good day, and thank you for standing by.
Welcome to the Q2 2022 SFL Corporation earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised.
Please be advised that today's conference is being recorded.
I would now like to hand the conference over to a speaker today, Ole Hjertaker. Please go ahead.
Thank you and welcome everyone to our Q2 conference call.
I will start the call by briefly going through the highlights of the quarter, and following that our CFO, Aksel C. Olesen, will take us through the financials, and then the call will be concluded with opening up for questions. Our Chief Operating Officer, Trym Otto Sjølie, will also be present for 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 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 plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results or 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 on our risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. The total charter revenues in the quarter were $165 million, with the vast majority for vessels on long-term charters and only 17% for vessels employed on short-term charters or in the spot market.
The EBITDA equivalent cash flow in the quarter was approximately $124 million, and over the last 12 months, the EBITDA equivalent has been approximately $476 million.
The net income came in at around $57 million in the quarter, or $0.45 per share. This includes a gain on sale of vessels of $13 million in the quarter and also positive mark-to-market on interest rate swaps and equity investments. The announced dividend of $0.23 per share is an increase of 4.5% over last quarter's dividend and represents a dividend yield of around 8.7% based on closing price yesterday. This is our 74th quarterly dividend, and over the years, we have paid more than $28 per share in dividends or nearly $2.5 billion in total.
We have an increasing fixed-rate charter backlog supporting continued dividend capacity going forward. Our fixed-rate backlog has increased significantly over the last year and stands at approximately $3.6 billion from owned and managed vessels after recent acquisitions and charters, providing continued cash flow visibility going forward. The backlog figures exclude revenues from the vessels traded in the short-term market and also exclude any contribution from future profit share optionality.
Today, we announced the acquisition of four modern Eco-design Suezmax tankers. Purchase price is agreed to $222.5 million, and we expect to take delivery of the vessels very shortly and within the next 2 months. Concurrently, we have agreed to charter the vessels to a subsidiary of Koch Industries, an investment-grade U.S.-based industrial conglomerate.
The transaction is adding $250 million to our fixed-rate charter backlog, and we are pleased to further expand our presence in the tanker market at what we believe is an attractive point in the cycle with historic low order book in the segment. The transaction also demonstrates our standing in the market as a high-quality provider of transportation services, including technical management, vessel operations, and vetting for industry-leading customers.
We expect full cash flow effect from the vessels early in the Q4, with an estimated annual EBITDA contribution of approximately $30 million. The sale of the last two VLCCs and charter to Frontline marks the end of an era and demonstrates the transformation SFL has gone through over the last few years.
Initially, Frontline was our only customer, and the fleet consisted of nearly 50 crude oil tankers, but all have been sold, and the proceeds have been used to reinvest in newer and more efficient assets. We also sold a 19-year-old 1,700 TEU container vessel, MSC Alice, early in the quarter. In total, the sales generated net cash proceeds of $48 and a half million after repayment of associated debt.
We recorded a gain of more than $13 million in the quarter relating to these sales. We had a strong cash position of $224 million at the end of the Q2, and we have increased liquidity through refinancings of some assets where we have secured new strong charters, but the debt was amortized to low levels.
This enables us to move swiftly on transactions like the four Suezmax as we announced today, and we are continuously looking for further opportunities to build our portfolio with our creative assets. We also own two harsh environment drilling rigs, Linus and Hercules, which have been chartered to subsidiaries of Seadrill for a number of years. In connection with Seadrill's emergence from Chapter 11 in the Q1, it was agreed that the long-term drilling contract for Linus with ConocoPhillips will be assigned from Seadrill to an SFL subsidiary.
This represents a backlog of more than $450 million at today's charter rate, and the change will be effective as soon as customer and Norwegian regulatory approvals have been obtained. Odfjell Technology is managing this for us, and the process is going very smoothly. We therefore expect it to be completed before the end of this quarter.
The harsh environment semi-submersible rig, Hercules, will remain on charter to Seadrill while it is finalizing a drilling contract with an oil major before redelivery to SFL in Norway, currently estimated in the Q4. The rig is marketed for new charter opportunities in 2023 following completion of its special periodic survey expected in the Q1 of 2023.
This rig will be managed by Odfjell Drilling, and there is good progress on new charter opportunities. The rig is one of only a handful of rigs fully equipped to drill in the harshest Arctic environment, and market analysts are positive to market prospects with several new tenders expected in the near term, particularly in Norway. We will, of course, follow the market very closely and will announce future employment in due course.
Including today's transaction, our backlog from owned and managed shipping assets stands at $3.7 billion, up from $3.6 billion in the previous quarter. Over the years, we have changed both fleet composition and structure, and we now have 75 maritime assets in our portfolio.
As I mentioned earlier, over the years, we have gone from a single asset class charter to one single customer to a diversified fleet and multiple counterparties. Over time, the mix of assets and charter backlog has varied from 100% tankers to nearly 60% offshore 10 years ago to container vessels now being the largest segment with 54% of the backlog. Most of the vessels are on long-term charters, and in the quarter only 17% of charter hire was from vessels in the spot market.
Also, we have nearly 90% of charter revenues from our shipping assets on time charter contracts and only 10% on bareboat or dry lease. In addition to fixed rate charter revenues, we have had significant contribution to cash flow from profit share over the time, both relating to charter rates and fuel savings.
The aggregate profit share was $24 million last twelve months and $5.2 million in the Q2. We do not have a set mix in the portfolio, focus is on evaluating deal opportunities across the segments and try to do the right transaction from a risk-reward perspective. Over time, we believe this will balance itself out, but we try to be careful and conservative in our investments with a focus on technology and transition over time to more fuel-efficient vessels.
The strength of our counterparties and diversification is key when we assess our portfolio and quality of our contracted backlog. The list speaks for itself with market leading operators like Maersk, Hapag-Lloyd, ConocoPhillips, Phillips 66, Koch Industries, and Volkswagen, to name a few. Relatively few of our customers are 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 the repeat business with Maersk, MSC, Evergreen and Trafigura, for example.
Our strategy has therefore been to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the Sea Tankers 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 of our vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact improvements to our vessels through the life of the assets, and not only be passively owning vessels employed on bareboat, where the customer may not always have an incentive to make such improvements.
In addition, we can retain more of the residual value in the assets when we charter out on 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. For bareboat deals, this value is usually retained by the charterer through fixed price purchase options. With that, I will give the word over to our CFO, Aksel Olesen, who will take us through the financial highlights for the quarter.
Thank you, Ole B. Hjertaker. On this slide, we are shown our performance illustration of cash flows for the Q2. Please note that this is only a guideline to assess the company's performance, and it's not in accordance with US GAAP and also net of extraordinary and non-cash items. In the Q2, the liner fleet generated gross charter hire of approximately $89 million, including approximately $3.8 million in profit share contribution related to fuel savings on some of our large container vessels.
At the end of the Q2, SFL's liner fleet backlog was approximately $2.4 billion, with an average remaining charter term of approximately 4.9 or 7.5 years if weighted by charter hire. In the Q2, SFL had a fleet of 16 crude oil products and chemical tankers, with the majority employed on long-term charters.
The tanker fleet generated approximately $35 million in gross charter hire during the quarter compared to $30 million in the previous quarter, as several Trafigura vessels had their first full quarter of revenue. SFL has 2 Suezmax tankers and 2 smaller chemical tankers trading in the spot and short-term charter market.
The net charter hire from these vessels was approximately $6.6 million in the Q2, compared to approximately $3.5 million in the Q1. furthermore, the company expects the recently announced 2 Suezmax tankers on charters to Koch to have full cash flow effect from early in the Q4, with an estimated EBITDA contribution of $7.5 million per quarter. The company has 50 dry bulk carriers of which 10 were employed on long-term charters during the quarter.
SFL generated approximately $31 million in gross charter hire from the dry bulk fleet in the Q2, including $1.4 million of profit share. Five vessels were employed in the spot and short-term markets and contributed approximately $13.4 million in net charter hire during the Q2 compared to approximately $8 million in the previous quarter.
As well on Seadrill rigs, which have been chartered out to subsidiaries of Seadrill on variable terms. In the Q2, the company received a charter hire of approximately $10 million from the rigs. This summarizes an adjusted EBITDA of approximately $124 million for the Q2 compared to $119 million in the Q1. We move on to the profit and loss statement as reported on US GAAP.
As we have described in previous earnings calls, our accounting statements are different from those of a traditional shipping company. As our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing. Therefore, a significant portion of our charter revenues are excluded from US GAAP operating revenues.
This includes repayment of investment in sales-type, direct financing leases and leaseback assets and revenues from entities classified as investment in associates for accounting purposes. For the Q2, we report total operating revenues according to US GAAP of approximately $153 million, which is less than approximately $165 million of charter hire actually received for the reasons just mentioned.
The company recorded a gain of approximately $13.2 million following the sale of the feeder container vessel, MSC Alice and the two Frontline vessels during the quarter. Also, the company recorded profit share income of approximately $1.4 million from our 8 K-type dry bulk vessels, in addition to approximately $3.8 million from fuel saving arrangements on some of our large container vessels. Furthermore, the company recorded a $3.7 million gain related to positive mark-to-market effects related to interest rate swaps.
At quarter end, approximately 75% of our debt was swapped or fixed. Based on our assumptions, we estimate that a 1% increase in interest rates from current levels equals approximately $0.02 per share in lower distributable cash flow per quarter and vice versa. The majority of our corporate debt is fixed.
When evaluating new investment opportunities, we take a conservative approach when assuming the interest rate costs during the life of the project. We generally seek to fix the interest rate back-to-back with the fixed charter duration or include an interest rate adjustment in the charter rates.
Also, the company recorded a $1.2 million gain related to positive mark-to-market effects related to equity and debt investments, a gain from redemption of bonds of $1.4 million and a decrease of $900,000 in credit loss provisions. Overall, and according to US GAAP, the company reported a net profit of approximately $57.4 million or $0.45 per share. Moving on to the balance sheet. At quarter end, SFL had approximately $224 million of cash and cash equivalents.
In addition, we also expect to free up approximately $50 million from the refinancing of 10 dry bulk vessels during the Q3. Furthermore, the company had marketable securities of approximately $21 million based on market prices at the end of the quarter. The company had 4 debt-free vessels at quarter end with a combined charter-free value of approximately $74.5 million based on average broker appraisals.
The approximately $240 million of remaining CapEx on the 4 car carriers under construction is expected to be financed by senior debt facilities similar to SFL's other assets with long-term charters. We expect the senior bank financing for the recently announced two Suezmax tankers on charters to subsidiaries of Koch Industries will be concluded during the Q4. Based on Q2 numbers, the company had a book equity ratio of approximately 29.1%.
To conclude. The board has declared a cash dividend of $0.23 per share for the quarter. The fourth consecutive dividend increase, and over the past 12 months, the dividend has been increased by more than 50%. The recent sale of the 2 last VLCCs chartered to Frontline represents a milestone for the company, as this was our first and sole customer and all our vessels were crude oil tankers. Today, we have a diversified fleet of modern assets on long-term charters to multiple industry-leading counterparties.
Through recent acquisitions, we have established new business relationships with blue-chip customers such as Trafigura, Alpha Glides, ConocoPhillips and most recently, Koch Industries. The recent transactions also confirm our commitment to continuously improve the quality of the fleet by disposing of older, less economical assets and reinvest in modern and more fuel-efficient assets.
Following our recent investments and charter arrangements this year, we have added more than $1.3 billion to the fixed charter rate backlog, which now stands at $3.7 billion, providing us with strong visibility on future cash flow, debt service and continued distribution capacity.
With a strong balance sheet and significant investment capacity, SFL is very well positioned to execute on new equity investments as we continue to create shareholder value. Finally, we have seen a strong recovery in the offshore drilling market since the beginning of the year, and our two harsh environment drilling rigs are well positioned to benefit from the increased activity level in the sector. One rig is employed on a long-term contract at a charter rate, while the other rig is available for new contracts in 2023. With that, I give the word back to the operator who will open the line for questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for a name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question. The first question comes to line of Liam Burke from B. Riley Financial. Your line is open. Please ask your question.
Yes, thank you. Asset values in certain vessel classes are exceedingly high. You mentioned low order books in some sectors. Are there any particular assets that you see would be attractive sales to raise additional cash?
well we, as we say here, everything is for sale at the right price. Of course, our main focus is long-term charters and, of course, to service those long-term charters you need to keep those assets. We do have some assets with shorter charters and also some assets that are currently trading in the spot market. We, for instance, have 5 Suezmax bulkers that have been on long-term charter and has come back from those. The last one was delivered earlier this year. We have 2 chemical carriers that also came off a charter earlier this year. We have some assets from time to time.
Of course it's all about timing and getting sort of the right bang for the bucks. We evaluate that all the time. When I joined SFL, it's 16 years ago now, we had around 50 vessels. In the meantime right now we have 75, but in the meantime, we have purchased 125 vessels and sold 100 vessels. I would say this is sort of a natural part of the business. Of course, our focus is to reinvest that in newer, more modern vessels. This is all going to continue I would say gradually over the next period. Yeah. Also adding to that, we have a very strong liquidity position currently. Yeah.
also release some additional cash through refinancing of our assets. I think we are in position to grow and yeah.
Fair enough. When you're looking at on the acquisition side, you mentioned that the tanker cycle is looking very attractive there. Would that be more where you would want to invest in the larger VLCCs or Suezmaxes, vis-à-vis where the purchase of a container vessel might, where they are in the cycle, be less attractive?
Well, it's you could say academically we would invest in any sector. It's all about how you structure the transaction, how you manage risk. So you could say we would we would still look at container ships, but it's got to be with very strong counterparties, and structured so we can effectively amortize it over the charter period to a more of a mid-cycle depreciated value. so that all goes into that equation before we decide on how we're how we're going to go forward with an acquisition or not. You know, we look at all segments at any one time.
I think from our side, we believe that's a strength having a diversified asset approach or market approach. Because what we have seen over time is that companies that are in one segment only are almost programmed to go bankrupt, almost. Because what we see is that typically when the capital markets are open and when the banks are eager to lend money, that's typically at the top of the market. It's so tempting to take the money at the top of the market and reinvest in the wrong assets.
What we do instead, we look at all these segments at the same time and therefore try to. If we think that things are running a little bit too fast in one segment, we switch our attention to other segments. still even if we are high in the cycle, then we will try to be very focused on risk mitigation factors before we decide to invest despite, call it, the normal cycle movements than the others than if we believe we are lower in the cycle. Back to your point we think tanker market looks interesting.
We wouldn't mind do more on the tanker side, but it has to be in combination with the right asset, with the right counterparty, with the right charter rate structure where we can, again, depreciate it down to the right level. We look at that all the time.
Great. Thank you very much.
Thanks a lot.
Thank you. The speakers are done for the questions, and I would like to hand over back to Ole Hjertaker for closing remarks.
Yes. I would like to thank everyone for participating in this conference call, and also thank the SFL teams on board the vessels and onshore for their continued efforts in delivering value for our stakeholders.
If you do 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 webpage, www.sflcorp.com.
Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.