Welcome to SFL's first quarter 2026 conference call. My name is Espen Gjøsund, and I'm Vice President of Investor Relations in SFL. Our CEO, Ole Hjertaker, will start the call with an overview of the first quarter highlights, then our Chief Operating Officer, Trym Sjølie, will comment on vessel performance matters, followed by our CFO, Aksel Olesen, will take us through the financials. The conference call will be concluded by opening up for questions. 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 1995. 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 within 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. I will leave the word over to our CEO, Ole Hjertaker, with highlights for 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 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.
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 rating. In the quarter, we announced a new contract for the ultra deepwater harsh environment drilling rig Hercules, which would be employed in Canada from the first quarter of 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, semi-submersible 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 2 2020-built Suezmax tankers employed in a booming spot market. You may remember that we agreed to release the charters on these vessels against the compensation of $11.5 million per vessel in December last year instead of selling the vessels in the market to a third party. We used to have 4 vessels to the same charterer, we sold the other 2 older vessels with net cash proceeds after debt repayment of approximately $52 million in aggregate. 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 traded 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 $54,000 per day on a time charter equivalent basis in the first quarter, which compares to a cash break even below $20,000 per day after debt service. 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 $185,000 per day.
Please note that reported charter hire for vessels in the spot market is accounted for on a load to discharge basis pursuant to US GAAP. We therefore expect the average for the full quarter to be lower than the booked revenue so far due to expected ballast days in the remainder of the quarter. 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 $77.6 million in a tap issue over 2030 senior unsecured bond loan, where we issued $75 million at price, at a 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 queries from bondholders who wanted to increase their exposure to SFL at premium pricing.
We decided to act opportunistically in the situation, and the transaction was executed on very short notice. With that, I will now handle the call over to our Chief Operating Officer, Trym 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 and SL Thelon, 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 the volatile market environments.
Our charter backlog is mainly derived from time charter contracts, and with the exception of 4 contract container ships on bareboat leases, the rest are on 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 4,598 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 Shibling, and Maersk Skarstad all undergoing significant upgrades under their 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 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 one valuable because it gives investors a clear view of the business's underlying operating performance, separate from the effects of non-cash and non-recurring items in the GAAP results. Before I begin, I want to flag the required disclosure. This cash flow presentation is a non-GAAP measure prepared as a management tool to help assess underlying performance. It is not prepared in accordance with US GAAP, and investors should not consider it in isolation or as a substitute for any GAAP measure. The presentation also includes certain non-cash charges and items we consider non-recurring. With that context, let me take you through the performance of our portfolio. Across the fleet as 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, 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 over recent quarters as part of our fleet renewal. We now have two Capesize vessels remaining, both trading in the short-term market. Revenue from these vessels was approximately $2 million, compared to $3 million in the prior quarter. The dry bulk market has shown encouraging improvements, which reflected in 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 Lars Erik Hellner rig, which remains on a long-term contract with ConocoPhillips running through to 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 the first half of 2027.
While we're 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 2025. 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 the listeners that adjusted EBITDA is a non-GAAP measure. We define it as net income before interest, taxes, depreciation, amortization, and certain non-recurring and non-cash items.
A reconciliation to GAAP net income is provided in today's earnings release. Turning now to our results on the U.S. GAAP. For the quarter, we reported total operating revenues of approximately $174.5 million, compared to approximately $175.5 million in Q4 2025. This has contributed approximately with $151.5 million, while the rigs contributed with approximately $23 million. Operating expenses were approximately $69 million, in line with the prior quarter. I want to clearly identify the non-recurring and non-cash items that affected the GAAP net results this quarter so that investors can appropriately adjust their models. Gain on sale of assets, $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 non-recurring items I just noted. Turning to the balance sheet. As of March 31, 2026, we have cash and cash equivalents of approximately $128 million, with an additional approximately $160 million available under undrawn credit facilities, giving us a total available liquidity in excess of $280 million. We believe this is a solid and well-positioned balance sheet as we move through 2026. I would like to highlight several noteworthy developments.
First, we have refinanced the facilities related to both the Hercules and the Lioness rigs on favorable terms. This confirms that the bank lending market for high quality offshore assets remains open and constructive, and we're very pleased with both outcomes. Second, subsequent to quarter end, we completed 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. It is a structural feature on 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 these through a combination of pre- and post-delivery financing. 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 Gjøsund, 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 2/3 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 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, and we believe SFL is uniquely positioned through a long-term charter model, diversified fleet, 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 Gjøsund to open the line for questions.
Thank you, Aksel. We will now open for a Q&A session. For those of you who are following this presentation through Zoom, please 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 Lewis. Greg, please unmute speaker to ask a question, please.
Thank you, and good morning and good afternoon, everybody, and thanks for taking my questions. You know, clearly these are interesting times in across all of maritime shipping. I was hoping to talk a little bit more about the tanker sector. You know, your backlog is good at a little over what, 3.5 years. We do have some vessels on spot that you alluded to, and then even some vessels that are rolling off their existing contracts. You know, not just over the next couple quarters, we'll just say.
You know, 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, you know, put some of these vessels or, you know, either extend existing charters maybe that have options or just kinda, you know, maybe build out on that backlog portfolio for the tanker market just given the strength we're seeing in tanker rates?
Yes. Thank you, Greg. This is Ole. Thanks for the question. We, 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, you know, extent of how it has firmed. You know, it's important here to understand that this is, of course, partly due to the to the market disruption caused by the Arabian Gulf, but also by a significant consolidation on the supply side for VLCCs, i.e. the larger 2 million-barrel vessels. We see a combination here that is unprecedented. We've never seen that before.
Of course, our principal business is long-term charters, so we will look for longer term charters also for these two vessels in due course. For now, we've been enjoying the very strong spot market. 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 the, you know, these are Aframax LR2 tankers, we would not be surprised if those vessels were extended for another 1 year or 2. We do not have sort of any sort of spot vessels where we effectively control the trading, you know, in that sector right now.
We've also seen values go up significantly, also backed by higher charter rates. We are looking at also new opportunities in, also in the tanker space. We cannot be specific until or unless we actually do a deal.
That's great. I did want to talk a little bit about the 10% dividend increase. That was good to see. That was a nice move higher. Yeah, I mean, I guess it's never just one thing when you think about increasing the dividend, you know, just given the focus by the company on returning cash to shareholders. I would be kind of curious, you know, how we're thinking about the dividend. You know, maybe what drove that, what. You know, I mean, I'm assuming it was a combination of the backlog. You know, you had some positive developments on the Hercules.
Just kind of if you could walk us through, you know, from a cash flow perspective of, you know, you could, you could arguably pay out a lot more than you're currently paying. Just if you could kind of walk us through, you know, when you were speaking with the board, how we kind of came up with the decision for the 10% move?
Yeah. I think from a board perspective, we never give guidance on corporate dividends. The dividend and the dividend discussion is also always backed by the long-term, call it, expectations for cash flows going forward. We have a combination of multiple effects here. And you mentioned, you know, some. We have more clarity now on the Hercules, and that 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. We saw there was lower CapEx really, you know, on that one.
Also, you know, incidentally, if you look at the net cash flow from the 4 vessels we had with Koch Industries in the past, the incremental cash flow in the first quarter from just those 2 vessels were around $0.02 per share. But that is a coincidence. It's not a direct link to that uplift. There's certainly more cash flow and more, or less, I would say, uncertainty around our portfolio. We also have to remember that we have lots of vessels that are performing, have a stellar performance, you know, close to 100% utilization, strong cash flow, strong counterparties. That is really the confidence the board then had to lift the dividend this quarter from $0.20 to $0.22.
Of course, our long-term objective is, of course, to return cash flow to shareholders. You know, that is our driving force and that's our You would say all our incentives are really focused on returning capital to our investors, and we're happy to do that, increase it this quarter.
All right. Super helpful. Thank you all for taking my questions.
Thank you, Gregory. We'll 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 at a 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. From a, you know, we have not been sort of specific on the numbers, what we are doing, but there are relatively low, call it tactical upgrades required. We are doing some replacement of equipment. You know, a rig, you know, there are some equipment on board that is coming to the end of the effective life cycle, we are doing that, those upgrades, you know, in parallel. These are more, you know, longer term. You know, this is, you know, really to make the rig capable for really long-term, you know, deployment in harsh environment. The rig was, you know, the last employment for the rig was in Canada and it's going back to Canada.
Therefore, very limited upgrades that we have to pay for. We have our customer who will pay for some upgrades that they see as a benefit for them in those vessel operation. It's a relatively small number. We guided, you know, on CapEx, you know, for all our vessels, and I would say half of the CapEx in the, you know, that we guided in the press release is or so is relating to the Hercules. The other part is relating to our other, you know, vessels in the portfolio. It's compared to our asset base, it's, you know, it's a we're talking small numbers on an aggregate scale.
As you move closer to, you know, the mobilization to Canada, we need to increase staffing on the rig. Right now it's warm stacked. We need to put the full crew on before drilling operation starts, et cetera. That will happen. This is more, how would you say it? That's just 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.
That's very helpful. Thank you. I also wanted to ask about the index link contract on the Linus. Could you remind us when the index link hire is revisited? Based on recent market trends, do you expect to see any change on the daily hire under the long-term contract?
The charter rate for the Linus has been increasing gradually. It's set by a market panel, and it's been creeping upwards. The contract runs until May 2029. We all know that Conoco, and this is like 2 years ago, or 2 or 3 years ago, they had, they increased the scope or they extended the license from 2029 to 2049. They have another 20 years. With increased focus now on energy, call it, production, particularly I would say in the Northern Hemisphere, and this is on a Norwegian Continental Shelf. We believe there would be a lot more activity on the U.K. side, and same thing also in Canadian waters.
You know, we expect that there will be a need for high-end units, you know, on that field or other, you know, similar fields nearby, you know, in the foreseeable future. It's still 3 years out, so it's a little early to start, you know, discussing anything specifics there.
Okay. Makes sense. Final question from me. You've been clear you'll be looking for a long-term contract for the 2 spot Suezmaxes when the time is right. Should we expect the same approach to be applied to the 2 spot Capesizes or is a sale maybe more likely for these 2 vessels?
Yeah. Well, it's a good question. We have been looking for contracts also for those vessels. I would say for medium size bulkers, you know, there is typically not a very long-term. It's difficult to find longer term charters. Typically they're, you know, charters do say up 1 year, but that is also the time they can themselves hedge out through FFAs, et cetera. We don't find that attractive for SFL. We rather take the marginal premium of having the vessels in the spot market compared to locking it into on a time charter basis, and effectively keep that margin ourselves. When we look for charter results for the tankers, we typically look for longer terms than 1 year.
You know, typically you'll be you know, I would say our sweet spot would be maybe 3 to 5 years, depending on charter rate, et cetera. It's all down to finding the right counterparty, finding the right structure of the charter, et cetera. This is something that we will work on a, what would you say? We watch the market closely. We have very good market intelligence, we cannot be specific on the charter rate or term at this stage. We will be opportunistic, that I can assure you.
Makes sense. Thank you. I'll 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, there are contact details in the press release, or you can get in touch with us through the contact pages on our webpage, sflcorp.com. Thank you