FLEX LNG Ltd

NYSE:FLNG

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Flex LNG Q3 2021 Earnings Presentation. [Operator Instructions] Please be advised that today's conference is being recorded Tuesday, the 16th of November 2021. [Operator Instructions]I would like to hand the conference over to CEO for the day, Mr. Oystein Kalleklev. Please go ahead, sir.

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you and hi, everyone, and welcome to Flex LNG's Third Quarter 2021 Webcast. I'm Oystein Kalleklev, the CEO of Flex LNG Management. And I will be joined today by our CFO, Knut Traaholt, who will walk and talk you through the numbers a bit later in the presentation before we conclude with our Q&A session. [Operator Instructions]It's getting cold here in Norway. So I have a bit of a sore throat today. However, it's not COVID, but please bear with me. Slide 2 disclaimer. Before we start the presentation, I will remind you of the disclaimer with regards to, among others, forward-looking statements, non-GAAP measures and completeness of details. We also recommend that the presentation is held together with the earnings report, which we are also releasing today.Okay. So let's begin with the summary of the recent highlights. As we noted in our second quarter presentation in August, the LNG market was very tight with elevated prices, and we, therefore, highlighted the possibility of a blowout in the market. Even though we are just at the start of the winter season, the market has, nevertheless, already blow out with both LNG prices and freight rates booming. We argue that the tight LNG product market with very high cargo economics should create ample room for charters to pay premium rates.At the same time, we have argued that there's been a disconnect between spot rates and term rates and that the buoyant to market should create spillover effects for the spot market sentiment. This has certainly played out as we expected with spot rates almost here since end of September and now hovering around at all-time high levels. We have put our money where our mouth is and maintained 30% exposure to the spot market. And this we have awarded handsomely for in the fourth quarter.At the same time, we have also continued to build premium backlog with the recent announcement of 2 new time charters with start-up early next year, which I will cover shortly. Altogether, we have thus fixed 8 ships on term charters since April. Most likely, the tally will be 9 ships as we expect Cheniere to also declare its fifth optional ship. This means that we are today very well-positioned with 13 state-of-the-art LNG carriers on the water after taking delivery of the last 3 ships during the first half of the year.Third quarter is thus the first quarter with all ships in fuel operation. Our LNG carrier fleet are fitted with the latest fuel-efficient engines MEGI or X-DF, and average age of our fleet is only 2 years. COVID-19 issues are getting less attention in the news media these days, but continues to be a challenge in shipping. Approximately 3 out of 4 LNG cargoes around the globe in Asia, where restrictions are more prevalent, particularly when it comes to crew changes.Notwithstanding these challenges, we have continued to operate our ships with excellent performance. So once again thanks to our seafarer and technical team for a great job.In terms of financials, we are once again delivering according to our guidance. Revenues for the quarter were $82 million, in line with guidance of approximately $80 million. Our quarterly earnings were $33 million or $32 million, if you adjust out approximately $1 million derivative gain, which we booked in the quarter. This translates into earnings per share of $0.62 or adjusted earnings of $0.60 per share.We are today also announcing a very attractive sale and leaseback for Flex Volunteer. The vessel was originally financed in the midst of the COVID 19 crisis last year, and we are now taking advantage of better credit markets and improved credit profile of Flex LNG in order to optimize our financing.Knut will cover the details of this financing in the finance section, but the long and short is that we raised $160 million of long-term financing for the ship at an all-in cost of about 4%, and this will add another $38 million to our cash pile, which already stood at $138 million. This will not be our last refinancing as we aim to continue to optimize our balance sheet by opportunistically refinancing some of our existing loans at even better terms than we have today with the aim of freeing up $100 million, which Knut will also explain in more details.With a very comfortable liquidity situation, healthy earnings, strong outlook and improved earnings visibility, the Board had thus decided to lift our dividend level from $0.40 per share to $0.75 per share. This gives our investors a yield of about 14%, which we think should be compelling in this low interest rate environment.Talking about strong outlook, with 30% spot exposure, we are benefiting from improved earnings in the spot market and are, therefore, revising up our revenue guidance for the fourth quarter from $85 million to $100 million to approximately $110 million. This means we are estimating about $30 million higher revenues in fourth quarter. And given our fixed cost base, a dollar increase in revenues are therefore expected to translate into a similar increase in our earnings. Hence, we think it makes sense to significantly lift our dividend level given our charter coverage and the positive outlook I mentioned.Lastly, we do see that the new decarbonization rules for shipping is creating business opportunities for us. In 2023, the Energy Efficiency Existing Ship Index or EEXI and the carbon intensity indicator will come into force. And we do see that more charters are focused on chartering in the new ships when it comes to fleet renewal or growth projects. Our thesis that new ships will replace old ships are therefore coming to fruition. And this we think will create additional opportunity for us to lock in further attractive contracts for our ships.Yes. So let's touch upon our recent charter announcement on Slide 4. On November 1, we announced 2 new time charter contracts for Flex Courageous and Flex Resolute for a period of minimum 3 years with option for 2 additional 2-year periods, bringing the total to 7 years if both options are declared. The end user here is our energy major, and the ships will be delivered to the charter in direct continuation of their existing time charters, which is expected to end in February and March next year.Having worldwide delivery and direct continuation is a valuable benefit, particularly at this time of the year as the spot market tend to soften around this time of the year. Week 11, i.e., middle of March has historically been the low point of the spot market. This might result in idle time if you have ships redelivered in this period as there are also usually a lot of ships coming out of the yard at the start of the year.However, we avoid this risk altogether. With these 2 new charters, we thus have 3 ships going from shorter term time charter to longer time charters in the end of Q1 next year with Flex Freedom being the third ship, which will commence a minimum 5-year charter at about the same time. The rate under the 2 new time charter reflects that the term market has continued to be strong, and we are, therefore, adding additional high-margin backlog to our fleet.So with these recent fixtures, we had to bring back the Flexecute slide. Since the middle of April, we have thus announced 8 new term contracts for our ships. As mentioned, we expect Cheniere to declare the fifth ship, increasing this number to a total of 9 ships. In April, we announced a big deal with Cheniere, where they have already taken Flex Vigilant, Flex Endeavour and Flex Ranger on time charters with a duration of 3 to 3.8 years.Flex Endeavor was originally 3.5 years, but we later agreed early delivery of the ship, which with us longer firm period. In the third quarter next year, we will take 1 ship with the option for our fifth ship as mentioned. We are now planning that the fourth and the fifth ship will be Flex Aurora and Flex Volunteer as we have the option of nominating before forming ships for this contract, which have given us some flexibility in pursuing our chart.In May, we booked 2 ships, Flex Constellation for pump delivery to a big trading house for a period of 3 years with options for another 3 years; and Flex Freedom, as I mentioned, going to a portfolio player for a minimum 5-year period during first quarter next year. And lastly, Flex Courageous, Flex Resolute, which we recently announced being fixed with an energy major for a minimum period of 3 years.Another slide which we had to bring back was the sold-out slide. This we previously used 3 years ago when we booked our fourth quarter at TCE of about $95,000. This is around the level where we also expect the TCE number to be for the fourth quarter this year, but we now manage to do so with 30% spot exposure versus 50% in Q4 2018.As you can see, the backlog is solid. When we started the year, we only had 1 ship on time charter with a longer duration than 1 year. But we have, as mentioned on previous slide, utilized a strong market to add significant backlog during the year. The contract for the first 8 ship sales from Flex Freedom to Flex Resolute, I have already covered in the previous slide. What I would highlight is that several of the ships are coming off shorter time charters and are commencing longer-term charters with higher earnings. So we are, thus, repricing our portfolio at better levels for longer periods, i.e., stronger for longer.Flex Rainbow is currently nearing end of her 12-month time charter and the charter has the option to extend for another 12 months at a rate substantially higher than the initial 12 months firm period. As highlighted already, we have kept 30% exposure to the spot market through 4 of our ships. This is Flex Volunteer, which is trading in the spot market and which is now booked through end of December or early January. We are now planning for Flex Volunteer to be the fifth ship under the Cheniere contract. So we will trade her in the spot or potentially on a multi-month contract in the interim period.Additionally, we have 3 ships on variable hire contracts. This means the earnings are linked to the general spot market earnings. We have Flex Artemis, which is on a long-term variable hire contract with Gunvor until third quarter of 2025 with options for another 5 years. Flex Artemis was the only ship that we are fixed on longer-term charter prior to the contract presented on the previous slide. And she was fixed on a variable hire contract, while all our term contracts done this year have been on fixed hire contracts.Finally, we have Flex Enterprise and Flex Amber, which are also on variable hire contracts. In the past, we have received a lot of questions about how our variable hire contracts have been structured. But we do hope that the fourth quarter guidance demonstrate that we get substantial upside on our earnings under these contracts when the freight market is as hot as today.Slide 6, earnings visibility. I have already covered our backlog extensively, but Slide 6 just illustrate how this looks the next couple of years with as mentioned 75% cover next year and not far off that level in 2023. Most of the backlog is now fixed hire, but we also have some variable hire backlog to spice up our earnings, the residual areas options or vessels which we can trade in the spot market. All in all, a balanced and comfortable mix we think, and our backlog stretches well beyond this 3-year period, so we might have to revise this slide next time with a longer period.Dividend, we cover our dividend philosophy in great detail during our second quarter presentation. So I will not repeat all the factors and considerations. However, what I would like to point out is that we use a balanced and measured approach to conclude on an appropriate and sustainable dividend level with the aim of distributing the free cash flow over the cycle to our owners.Such distribution will primarily be through dividends, but we have also utilized share buybacks with about 1 million shares bought back during the last year at very accretive levels. As we mentioned in our second quarter presentation, we are chasing green lights, and we expect more of the traffic light and we expected more of the traffic lights to turn dark green by third quarter given the improved guidance. The only parameter not being dark green is other considerations.Despite recent progress on vaccine rollout in rich economies and successful trials of COVID-19 antiviral pills by Merck and Pfizer, the latter which has a proven 89% successful in preventing serious illnesses, there remains some uncertainty, which leaves us with a light green color for this factor for the time being.With that upbeat message, I think it's a convenient time for Knut to provide you with some upbeat financial numbers before I will as well with the market update afterwards.

[Knut Traaholt]

Thank you, Oystein. And let's turn to Slide 9 for the financial highlights. As already mentioned, our TCE earnings for the quarter was $68,300 per day. The $10,500 per day increase is mainly driven by seasonal improvement in the market rates and the effect of phasing in some of the long-term contracts announced in the first half of the year.On operating expenses, we are less impacted by COVID cost this quarter, and OpEx per day came in at $13,000 for the quarter and $13,400 per day for the 9 months. And that means year-to-date about $500 per day directly related to COVID cost and we expect to maintain OpEx per day around the year-to-date level.We are then pleased to see that the underlying operating expenses, net of COVID costs, remains below the guided level of $13,000 per day. Gross revenues for the quarter came in at $82 million, slightly above our guided level of $80 million. And revenue increase year-on-year demonstrate the earnings potential of the 13 vessels fleet now fully operational.Adjusted EBITDA was $65 million, adjusted net income $32 million, and adjusted earnings per share came in at $0.60 per share. The numbers are adjusted for about $1 million gain on interest rate derivatives, which includes unrealized gains of $2.7 million. On the financing, interest expenses are slightly up, reflecting a full quarter of interest on the debt drawn for Flex Vigilant earlier in Q2.Then moving to our balance sheet, which is now plain and straightforward. On the asset side, we have cash of $138 million and vessels booked just shy of $2.4 billion. The quarter-on-quarter cash development will be explained on the next slide, and the only material change since last quarter is the normal depreciation of the vessels. The increase in current assets is related to charter payment of $2.5 million received on the 30 of September, however, recorded on our account on 1 of October. Consequently, it was not qualified as cash on account, but working capital.On the liability side, we have $1.6 billion of long-term debt from international banks and financial institutions. And as a reminder, in times of increasing interest rates, we have an interest rate portfolio of $720 million with a weighted average interest of 1.13%. Including the existing fixed rate leases, the hedge ratio is 67% and adding the announced fixed rate refinancing for Volunteer, the hedge ratio will during Q4 increase to 69%, net of termination of interest rate swaps related to the existing Volunteer financing.We are, therefore, well-hedged against possibly higher long-term interest rates. Book equity is $861 million, which gives a solid book equity ratio of 34%.Then let's turn to Slide #10 and cash flow for the quarter. During the quarter, we're generating about $50 million of free cash flow from operations. Working capital tend to fluctuate up and down depending on timing of charter hire. And all-in-all, however, we have a negative working capital, although $5.4 million less negative this quarter.During the quarter, we had $27 million in scheduled amortizations. And please note that amortizations are higher in Q1 and Q3 due to our Korea export loan that has semiannual installments. We also distributed $23.4 million to shareholders were $2.2 million as share buybacks and $21 million in cash dividend payments. That left us with a comfortable cash position of $138 million at the end of the quarter.After closing of the refinancing of the Volunteer, which is expected mid-December, we will further boost our cash balance by approximately $38 million. So let's have a look at the Volunteer refinancing. We announced today that we have signed the agreement for $160 million sale and charter back transaction with an Asian-based lease provider. The lease has a duration of 10 years and further adding length to our debt maturity profile. The transaction is based on market value from brokers of $215 million for Volunteer and the net amount of $160 million will be booked as long-term debt.After repayment of the existing financing, the transaction frees up $38 million in cash as mentioned. At a maturity in year 10, the balloon is $80 million, and that reflects a 20-years repayment profile, and that will result in an age-adjusted repayment profile of 21 years. The all-in fixed interest rate is for a 10-year transaction is attractive at 4%. We have signed the MOA and the bareboat charter agreement and the remaining is certain customer closing conditions. And as mentioned, we expect to conclude this by mid-December.And that takes us to the next slide and our $100 million balance sheet optimization program. The Flex Volunteer is the first transaction under this program. And this is based on our solid backlog of attractive long-term contracts secured during the last 9 months, which has increased the earnings visibility and derisk the company. We therefore aim to optimize the debt funding with a series of refinancing to reflect the improved credit profile. The original debt funding of the company was done with the purpose of having a flexibility to trade the vessels in the spot market until the long-term contracts were secured.As now 8 vessels, possibly 9, have been fixed on long-term contracts and 3 on variable hire contracts, there is room to further optimize the depth both in terms of size and cost of debt. The target is to free up $100 million, reduce the cost of debt and maintain our industry-leading cash breakeven level. We have a number of debt facility that will be considered under the program. And looking at our debt profile, on the right, it is likely that the debt maturities for 2024 will be addressed and therefore pushed even further out.The 2025 maturity is related to the commercial tranche under the $629 million ECA facility with Korea Exim, where the ECA tranches matures later. Hence, we envision that this facility will remain and the commercial trial to be refinanced due to the attractive long-term ECA commitments. All in all, we have a solid funding platform with a supportive lending group and with no immediate maturities, and this gives us room and flexibility to optimize the debt funding, which we aim to utilize under this program. So with that, back to you, Oystein.

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you, Knut. Slide 13, at the start of our market section in our last presentation, the headline was Chimerica dominates in the first half and growth set to accelerate in the second half. Chimerica was a reference to the 2 superpowers, China and America. That is very much still the case, particularly on the export side with more than 60% growth in U.S. exports in 2021 compared to last year.We thus expect U.S. to export close to full nameplate capacity this year with around 70 million tonnes of export. This is 5 million tonnes higher than the EIA estimate a year ago as they expected about 6 million tonnes loss due to cancellations, while the actual number is about 0.5 million tonnes. This means U.S. is now on a solid third place behind Australia and Qatar. The reason for such staggering growth in U.S. exports are twofolded.First, the most obvious reason, due to the outbreak of the COVID-19 pandemic last year, global gas prices plummeted, and this made it uneconomically to export U.S. flexible volumes and were therefore for the first time ever, so our wave of commercial cancellation outside of the winter season with a total of approximately 180 cargoes being cancelled.This year there has been no commercial cargo cancellation, although they have been reported a total of 7 cargoes cancelled, 5 due to the big freeze in Texas and 2 cargoes in general due to lack of available ships given the tight market at the time. Avoidance of cancellation does add about 13 million tonnes in U.S. exports. The second reason is ramp-up of new exports capacity, which was commissioned last year or during 2021, which adds about 9 million tonnes.In our Q2 presentation in August, we show that export growth in the first half of the year was 4%, but we estimated that export growth in the second half would accelerate to about 10%, thus resulting in an overall growth of about 7%. We are now spot on the 7% estimate with 2 months to go although growth for the remaining 2 months will normalize at a slower pace as there were very few cargo cancellation in these 2 months last year.Australia is on track to surpass Qatar this year as the biggest exporter for the first time. Australia has a higher nameplate capacity than Qatar with about 86 million tonne capacity versus 77 million tonne in Qatar, but supply outages at facilities like Gorgon and Prelude have in the past resulted in Australia punching below its weight. Eventually, however, Qatar will raise to the top again with a huge 49 million tonne expansion project.In our Q3 2020 presentation a year ago, we presented what was then an extremely bullish forecast for 2021 export growth with an estimate of 24 million tonne growth. I say extremely bullish as Poten's estimate at the time were 8 million tonne growth in 2021, while Fearnleys base case was 15 million tonne growth. We are now on track for about 20 million tonne growth in 2021. The main reason for the shortfall versus our estimate is feed gas issues in Trinidad, Tobago and Nigeria, which is knocking off 3 million tonnes of export for both countries.Extended outages for the Melkøya LNG plant in Norway is also contributing negatively. Egypt has, however, bounced back strongly as we forecasted a year ago with 5 million tonne growth so far this year.So let's then have a look at the other side of the export equation, imports. As I alluded to in the previous slide, China is the biggest growth market. By end of October, China has grown their imports by 10 million tonnes compared to October last year. This is a growth factor of 18% in a country with still quite a lot of COVID-19 restriction given the zero tolerance policy. This means that China has now surpassed Japan as the world's largest LNG importer.LNG demand in South Korea has also been strong with an impressive 19% growth adding 6 million tonnes compared to October 2020. There are 2 other outliers, the first being Brazil, which has grown its imports by a staggering 350%, growing from just 1.4 million tonnes to 6.2 million tonnes. The high import growth in Brazil is caused by draught affecting hydro balances adversely due to La Nina.The other outlier is Europe, where imports have declined by 12%. This is not due to energy demand being soft in Europe as evidenced by the energy crisis and call for Putin to increase Russian pipeline exports. The reason is, firstly, that European imports were very high in 2020 as European buyers were able to take advantage of low gas prices and buy gas at rock bottom prices for storage.The second reason is that there has been fierce global competition for scarce LNG and other countries have been willing to pay a higher price and thus diverting LNG from Europe. An example of this is China on September 30, ordering the state-owned energy companies to do whatever it takes to secure fuel. This brought back memories to the euro crisis in 2020 -- 2012, when Mario Draghi calmed the European bond markets with 3 famous words, and similar words, whatever it takes.The result of Europe not being able to source enough LNG cargo is that inventories in Europe are well below the normal levels with inventory levels of around 75% versus 94% last year. Another cold winter in Europe can thus result in rapid depletion of gas inventories, high volatility in gas prices and very low gas inventories at the end of the heating season, which will create a big drive for restocking over the summer of 2022.We do see this playing out today with European gas prices surging due to delay in approval process of Nord Stream 2. Hence, the gas market will remain tight, and this is reflected in high gas prices, both spot and future prices, as I will cover on the next few slides.So before diving into gas prices, let's step back and digest how elevated prices have become. Spot LNG prices in Asia have come down from the peaks in October, but remain at high levels with the current price per million BTU of around $30. As there are 5.8 million BTU in a barrel of oil, this means that spot LNG is at approximately $180 per barrel, more than twice the price of oil, despite oil prices also being at such elevated prices that President Biden is urging OPEC and particularly the Saudis to increase exports in order to get petrol prices down in the U.S. However, it's fair to say that the price of natural gas varies greatly depending on location, as I will show on the next slide.As mentioned, the price of gas depends on where you are. This simplistic graph illustrates this fact. Today, the price of natural gas in U.S. measured by Henry Hub is about $5. A large LNG cargo does have a value of about $20 million in the U.S. or $23 million, if we add 15% on top of Henry for liquefaction. In addition, there is also a tolling cost of $2 to $3 per million BTU. These are, however, in the short-term same cost for buyers.In Europe, which imports about 20% of all cargoes, natural gas prices are at about $25 giving our value of a large cargo of about $100 million. In Asia, which is the main import region with about 75% market share, the LNG price is, as mentioned, about $30 giving a cargo value of $120 million. The average [ spread ] are thus very attractive and a trader would prefer shipping the cargoes to Asia where the cargo values and arbitrage profits are the highest.As you can see, the farther you need to ship the cargo from the U.S., the higher the LNG price as shipping distance is longer and shipping is today high costly, particularly with the Panama congestion. Please note that these prices are from Friday, November 12 and given the uproar in the gas market this week with regards to Nord Stream 2, prices are now even higher.Slide 15, with the price dynamics I explained, it might not come as a surprise that interbasin-trade, i.e., export on the Atlantic Basin to the Pacific Basin is up by a lot this year. By end of October, it's up by a whopping 48%. As cargoes has to be shipped longer, tonne-mileage is therefore also up by an impressive 18%. Tonne-miles growth has been very supportive of freight demand. So no wonder that the shipping market is tight.This happened despite most industry experts this year predicting a big surplus of ships, given the approximately 55 new building delivery this year, which is a lot compared to recent years, but also when we look into 2022 and 2023, when we have, on average, about 30 ships set for delivery.So Slide 18, gas prices. And this graph shows gas prices measured by the local U.S. gas price Henry Hub, the Northwest European gas price TTS, the Asian spot price JKM and the dotted line representing LNG priced towards oil with about 25% discount, which is typical -- which is our typical contract price for LNG and the long-term oil-linked contracts. Since our second quarter presentation in August, the gas prices have been on a tear with the Asian spot price JKM hitting an all-time high of $56 on October 6, before falling back to $36 the next day after President Putin of Russia talked on the European gas prices with promises of increased Russian pipeline flows.However, so far, the supply response from Russia has been muted. So gas prices continue to stay at very elevated levels, also reflecting the fact that the cold winter can result in quick rundown of inventories. So the market is definitely balancing on a tight rope.Looking forward, we do see that the futures markets continue to price gas at very high levels throughout 2022, which makes sense given the restocking, which will probably be needed next year. However, we do see a slow and gradual normalization of prices by middle of 2023, when they are converging towards the typical oil-linked LNG price. So while gas prices are now a bit too hot for comfort, which creates some demand disruption, we are converging towards more normalized levels.Slide 19. Turning to Slide 19. And finally, we can talk about the spot market for freight. As you can see from the slide, the spot market is booming. Vessel availability remains very tight with Clarkson quoting just 1 ship available pump and this is a steam turbine. Next 14 days, they have no ships coming open. Then they have 1 tri-fuel ship available within the window 15 to 28 days. And then finally, a 2 stroke or MEGI/X-DF being Flex Volunteer open in the window after 29 days.With the cargo economics we are seeing and the arbitrage spreads we are, therefore, seeing a very firm spot market. The rates presented here is the freight assessment for alternative routes by Baltic Exchange and Sparks on November 12. Both Baltic and Spark has released fresh numbers today, which are even higher. Spark rates are up by an average of $19,000, while the Baltic LNG rates are up by an average of about $15,000. Please note that these rates are time charter equivalent earnings or TCE numbers, which includes positioning and ballast bonus.As I have explained in the past, ballast bonus can vary greatly depending on the market. Today, ballast bonus is considerably more favorable than just round trip basis. This means earnings are typically higher than headline profits. SLNG is more expensive than fuel oil, as I previously shown you. The Baltic LNG rates are around $280,000 to $340,000 depending on route for tri fuel in fuel mode.In LNG mode, Baltic LNG rates are assessed to $235,000 to $290,000 per day. These bulk rates are in line with this, but you should be aware that Spark add approximately $60,000 premium for MEGI/X-DF ships as these are more fuel-efficient and can transport a larger cargo than a standard 160,000 cubic high fuel ships.Okay, Slide 20, and let's have a look at the forward spot earnings expectations. The forward freight agreement market or just FFA is a forward market for freight, and this is becoming more liquid and mature also in LNG shipping. The benchmark ship for this contract is also 160,000 cubic high fuel ship. As we can see from this graph, we do expect the freight market to continue to act seasonally as in the past. Right now the freight market is red hot, but we do expect it to calm down during Q1 next year, although it's fair to say that the Q1 FFA at $125,000 per day is a pretty good level.Second quarter, which is usually the softest quarter, is at $70,000, while third quarter is slightly higher at $75,000. Fourth quarter is, as we know from the past, anybody's guess, but at least the market is pricing this at $110,000 today. Altogether, this average out at $95,000, and keep in mind these rates are for a high fuel ship, which is typically about 10 years old. So if there were FFA market for new MEGI/X-DF ships, these rates would certainly be at a substantial premium to this level, which is also evident from the term market, which I will cover on the next slide.So last slide before we conclude, Slide 21, to the market. 1-year time charter rate, which is the best proxy for future earnings in the spot market has also been on there for the last 5, 6 months. For most of 2020, the 1-year TC rate were hovering around $60,000 per day, and this was also the case at the start of 2021. That was until the market sentiment abruptly turned more positive in April. This is also the reason why we did not lock in any ships on term contracts prior to the market shifting, except for Flex Artemis, but this was, as mentioned, a ship we fixed on a variable contract linked to the spot market.Since April, the 1-year time charter rate has doubled. The 1 year time charter rate for modern tonnage quoted by Fearnleys is currently $125,000 per day. The firm 1 year time charter rate is also pushing up longer-term charter rates with Affinity quoting 3-year time charter rates at close to $100,000 per day, which is maybe not too surprising as the yards are running low on 2025 delivery slots.At the same time, newbuilding prices have been moving steadily upwards closer to $210 million, which means newbuilding -- also newbuildings are also requiring higher rates than was the case 12 months ago. We have a minimum of 3 ships for redelivery within end of 2024 with 2 ships possibly coming open depending on option. So we think we will be well-positioned to fix these ships on attractive employment given the lack of available modern ships in this window.So that's all. Let's briefly summarize today's presentation. Revenues for the third quarter $82 million in line with guidance. We have hiked our Q4 revenue guidance from $85 million to $100 million to about $110 million reflecting super-strong spot earnings on our 4 ships exposed to the spot market. We have successfully continued to build high-quality attractive backlog, but maintaining spot exposure to spice up our earnings. And this has -- and this enabled us to almost double our dividend from $0.40 to $0.75, which provides our investors an attractive 14% annualized yield and this is also a dividend level we are comfortable with.As you are probably already picked up, outlook remains positive, both shorter and longer term. And finally, our balance sheet just keep getting better with an attractive new sale and leaseback, which will grow our already big cash pile to new heights.So that's it from us. I'm happy to take some questions. So let's open for questions from the operator. Thank you.

[Operator]

[Operator Instructions] No questions that came in over the phone. Sir, please continue.

[Oystein M. Kalleklev, Chief Executive Officer]

Okay. Thank you. I guess you are just kind to me since I have this sore throat and not dragging out of me on a long Q&A session. So I appreciate that. Thank you for listening in and we will be back with our Q4 numbers in the middle of February I expect. So thank you, everybody, and have a good day.

[Operator]

Thank you. This concludes the conference today. Thank you all for participating. You may all disconnect. Have a good day, everyone, and stay safe.