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SFL Corporation Ltd
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Thank you and welcome all to SFL’s Third Quarter Conference Call. I will start the call by briefly going through the highlights of the quarter and 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.
These statements are based on our current plans and expectations and involve 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 conditions in the shipping, offshore and credit markets. For further information, please refer to SFL’s reports and filings with the Securities and Exchange Commission.
The board has declared a quarterly dividend of $0.35 per share. This is our 63rd quarter with profits and dividends, and the dividend represents $1.40 per share on an annualized basis or nearly 10% dividend yield based on closing price of $14.46 yesterday.
Over the years, we have paid more than $26 per share in dividends or more than $2.2 billion in total, and we have a fixed rate charter backlog of $3.7 billion, which should support continued dividend capacity going forward. The total charter revenues in the quarter were $152 million with 89% of this from vessels on long-term charters and 11% from vessels employed on short-term charters and in the spot market.
The EBITDA equivalent cash flow in the quarter was approximately $117 million, and last 12 months, the EBITDA equivalent cash flow has been approximately $488 million. The reported net income for the quarter was approximately $4 million or $0.04 per share. This was after a non-cash impairment of $26 million in the quarter relating to two 1,700 TEU container ships built in 2005 and a vessel uncharted to Solstad Offshore.
In addition, there were some non-cash mark-to-market movements on equity securities and interest rates swaps. And we've added more than $160 million in charter backlog recently as a combination of asset acquisitions and charter adjustments linked to scrubber investments.
In September, we agreed the acquisition of three new builds, 300,000 deadweight ton crude old carriers or VLCCs and the first vessel was delivered in late September. The purchase price of $60 million is very attractive compared to the charter-free values of nearly a $100 million for these vessels.
We have secured financing of $47.5 million per vessel and net equity invested is then $12.5 million. All three vessels have now been delivered and the charter period is five years and the transaction added around $33 million per vessel to our backlog. This is, in reality, a structured financing where the charterer will have repurchase options starting after six months and the risk reward profile is very attractive for us given that the charter free broker values are so much in excess of the purchase price we have paid. We were able to execute on this opportunity on very short notice and with the bank leverage we have secured the return on investment equity is very attractive.
During the quarter, we also acquired three container vessels ranging from 2,400 to 4,400 TEU. The vessels immediately commenced approximately 5.5 year bareboat charters to a leading container line until 2025 adding approximately $30 million or $40 million to the backlog.
The purchase price is confidential but similar to the 15 vessels acquired in 2018 and we continue building the relationship with one of our largest clients. Our asset exposure here is very near recycling values for the vessels and the transaction will amortize the ships to virtually zero over the charter period. We have also agreed to fund the installation of scrubbers on seven out of eight vessels are chartered to Golden Ocean.
We will be compensated with an increase in the charter rate, which gives us a decent return on our invested capital. But more importantly, the profit share threshold level remains the same as before. We have a 33% profit split on top of the base rate of $17,600 per day plus a small interest adjustment, which makes it around $18,500 per day currently.
There was a small profit share contribution in the third quarter but with the agreement to install scrubbers on seven of these vessels without increasing the profit share threshold, there could be very good prospects for profit share from these vessels going forward.
And also we would like to highlight that after owning 11 million Frontline shares for several years, we have freed up most of the capital tied up in these assets and expect to deploy the capital in new investments. Approximately half of the 11 million shares have been sold and we have freed up the capital in the other shares through a forward contract where we have received the cash now but also agreed to repurchase these shares in June, 2020 through a forward contract adjusted for financing costs.
We are therefore effectively still exposed to some of these shares and we see interesting signs for a robust tanker market over the next few months. Following, the recent charter extensions our charter backlog now stands at approximately $3.7 billion. And of this, more than $350 million has been added in 2019.
Over the years we have changed both fleet composition and structure, and we now have 92 vessels and rigs and only one vessel remaining from the initial fleet in 2004. We have gone from a single asset class charter company to a diversified fleet with multiple counterparties. And over the time the mix of the charter backlog has varied from a 100% tankers initially to nearly 60% offshore at one stage, to the container segment now being the largest segment with a bit over 50% of the backlog.
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 from a segment allocation perspective and we have recently increased in the tanker segment which now stands at 9% of the backlog. In addition, our strategy has been to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the Seatankers Group. This gives us the ability to offer a wide range of services to customers from structured financing to full service time charters.
But more importantly, we also believe it gives us unique access to deal flow in our core segments. And unlike most other companies with a financing profile in the maritime world, more than 60% of our cash flow comes from vessels on time charters and less than 40% from bareboat chartered vessels.
On the liner side, after the latest acquisition, SFL has a fleet of 48 container vessels and two car carriers. All our container vessels are employed on long-term fixed rate charters, and therefore not exposed to short-term fluctuations in the market with the exception of two 1,700 TEU container ships that are coming off charter now after being employed on 12 year charters since effectively 2007, 2008.
We have recently increased our backlog in the segment by more than $160 million in connection with scrubber upgrades and the related charter adjustments to containerships. And several additional vessels are expected to be upgraded with scrubbers paid for by our customer.
On the dry bulk side, we have 22 dry bulk vessels in the fleet, with 13 larger vessels chartered out on long-term basis and seven Handysize vessels and two Supramax bulkers trading in the spot market. One of our long-term objectives is to combine stability and predictability in cash flows with optionality as we have seen over time the market volatility can generate super returns from time to time.
The profit share arrangement, we have the Golden Ocean as mentioned earlier, is a good example of this. The Kamsarmaxes and most of the Supramaxes are all on long-term fixed rate time charters, while the two remaining Supramaxes and seven Handysize continue to trade in the spot market. The average rate achieved for these vessels this quarter were approximately $9,100 per day which is up from $6,200 per day in the previous quarter.
On the tanker side, SFL has 12 crude oil products and chemical tankers, most of which are employed on long-term charters and the vessels represent around 9% of the charter backlog. The tanker market has recently strengthened and is expected to be healthy for the remainder of 2019 and into 2020 as crude oil demand is forecasted to increase through the end of the year and a temporary reduction in vessel supply is expected as owners prepare for the upcoming implementation of IMO 2020.
The crude oil tankers chartered to Frontline Shipping Limited earned $20,000 on average per day in the third quarter, with no profit share contribution, partly due to vessels being able to service in connection with dry docking and scrubber installing. The average daily time charter equivalent rates from the company's two modern Suezmax tankers were approximately $18,700 in the third quarter, compared to $15,800 in the previous quarter.
On the offshore side, up until 2017, the offshore segment was our largest segment for a long period, but it is now down to 25% of our charter backlog and we own three rigs and five offshore support vessels.
The charter hire from the drilling rigs were $27 million in the third quarter. Seadrill has sub-chartered the harsh environment jack-up rig, West Linus, to ConocoPhillips until the end of 2028. And the harsh environment semisubmersible rig, West Hercules, has recently been awarded multiple consecutive sub-charters in the North Sea and is now working for Equinor.
Including the West Linus, we have reduced debt from $1.9 billion initially on the Seadrill related rigs to around $625 million currently or just over $200 million per rig. And of this aggregate outstanding loan balance, only $266 million or less than 40% is currently guaranteed by SFL.
The market for offshore support vessels remain very challenging and the five smaller offshore support vessels on charter to a subsidiary of Solstad remain in layup. In light of the difficult market, Solstad has announced that they will have to restructure their balance sheet and there is a standstill agreement with multiple lenders and other stakeholders in place, including SFL, until March 2020.
And with that, I will give the word over to our CFO, Mr. Olesen, who will take us through the financial accounts.
Thank you, Mr. Hjertaker. On this slide, we have shown a pro forma illustration of cash flows for the third quarter. Please note that this is only guideline to assess the company's performance and is not in accordance with U.S. GAAP and also net of extraordinary and noncash items. The company generated gross charter hire of $152 million in the third quarter, with approximately 89% of the revenue coming from our fixed rate charter backlog.
The liner fleet generated gross charter hire of approximately $82 million. Of this amount, approximately 65% derived from time chartered vessels and approximately 35% from bareboat charters.
Our tankers generated $16 million in gross charter hire in the quarter, and no profit split from our VLCCs on charter to Frontline was recorded in the quarter as two of the three of vessels underwent scheduled class surveys and scrub installments during the third and into the fourth quarter.
With the recent investments in new assets on long-term charters, we expect to see an increase in the fixed revenue from our tankers. In addition to potential upside from a profit split arrangements from the three vessels with Frontline as well as from our two Suezmax tankers trading in the spot market. Both of these vessels were scrubbed and fitted up scheduled class surveys in the fourth quarter of 2019 and the first quarter of 2020.
Dry bulk vessels generated $28 million in gross charter hire in the third quarter, with approximately 80% was derived from vessels on long-term charters. During the quarter, SFL received approximately $200,000 in profit split from charters from Golden Ocean.
Subsequent to quarter-end, SFL agreed to invest in scrub installation on seven of our capesize bulk carriers on long-term charters to Golden Ocean in exchange for increased charter rates from January 2020. The profit share threshold will be unaffected by amendment. And with ability to use cheaper fuel in most of the large bulk vessels, very good prospects for profit share going into 2020.
On the offshore side, we received charter hire of approximately $27 million in the third quarter all from the Seadrill rigs. This was down from approximately $30 million in the second quarter, due to a scheduled rate reduction for the rest of the unit with effect from May 2019. Our three drilling rigs are chartered to fully guarantee the affiliates of Seadrill. The harsh environment jack-up rig, West Linus, has been sub-chartered to ConocoPhillips until the end of 2028, while the harsh environment semisubmersible rig, West Hercules, is employed on consecutive shorter-term subcharters to Equinor in the North Sea. The semisubmersible rig, West Taurus, is currently in layup in Norway. This summarizes to an adjusted EBITDA of approximately $117 million for the third quarter or $1.09 per share.
We then move onto the profit and loss statement as reported under U.S. 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. As a result, a significant portion of our charter revenues are excluded from U.S. GAAP operating revenues and instead booked 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.
So overall, for the quarter, we report total operating revenues according to U.S. GAAP of approximately $111.5 million, which is the lower number than the $152 million net charter hire actually received for the above-mentioned reasons.
The company record non-cash impairment charge of approximately $25.9 million in the quarter. SFL owns two 2005 built feeder container vessels that'd be in long-term charter to Heung-A, a Korean-based operator. Heung-A had purchase options exercisable in 2020, but we have been advised that this will not exercised due to the prevailing market conditions. We, therefore, recorded a non-cash impairment of $25 million bringing the book value down to estimated charter free market values. The vessels are debt free.
Subsequent to quarter-end, Solstad Offshore announced that it has agreed with stakeholders and lenders, including SFL, to extend its ongoing standstill agreement until March 31, 2020, subject to agreed milestones being met throughout the standstill period. Due to this continued uncertainty, the company recorded an impairment of approximately $900,000 on one of the vessels in the quarter.
Furthermore, SFL recorded a $12.5 million gain on mark-to-market movement on its equity securities investments and losses of approximately $1 million related to mark-to-market movements on hedging derivatives. SFL has approximately $2 million in amortization of deferred charges, all of which are noncash items for the quarter. So overall, and according to U.S. GAAP, the company reported net income of $3.8 million or $0.04 per share.
Then looking at liquidity and CapEx status, at quarter-end, we had approximately $164 million cash on the balance sheet, including cash held in wholly-owned nonconsolidated subsidiaries. In addition, the company had marketable securities of approximately $127 million, based on market prices at the end of the quarter. This included 11 million shares in Frontline and financial investments in secured bonds and other securities.
On the lending side, SFL currently has a group of more than 25 international banks. And while many companies in the maritime space find it challenging to secure attractive financing, SFL has strong access due to our size, track record and affiliation with the Seatankers group of companies. SFL is also a repeat issuer in both the U.S. and Norwegian capital markets, and our bonds and convertibles are senior unsecured. All currently trading above par, enabling us to tap the market if the timing and price is right.
And in the third quarter, the company raised NOK 100 million or approximately $11 million through a tap issue on a bond loan with maturity in 2023. The bonds were issued at a premium to par, and the new outstanding amount after the tap issue is NOK 700 million. The incremental amount has been swapped to U.S. dollars at an all-in fixed rate of approximately 5.9%.
The company has approximately 36 vessels in the fleet that are upgraded or scheduled to be upgraded with scrubbers in preparation of IMO 2020. And we're currently in active discussions with some of our clients for additional scrubber upgrades. Some of the scrubbers will be installed by customers at their own expense, while SFL will cover up to 100% of the investments on some vessels.
At the end of the third quarter, SFL had outstanding committed CapEx related to scrubbers of approximately $40 million, which will be financed by a combination of cash and senior bank financing. On the back of these investments, SFL has increased its fixed charter backlog by approximately $180 million, in addition to the potential increase in profit split on rates and savings on fuel from scrubbers on some of our larger container vessels.
Then to summarize. The Board has declared a cash dividend of $0.35 per share for the quarter. This represents a dividend yield of 9.7% based on the closing share price yesterday. We recently added approximately $160 million in backlog increase to charter extensions and the acquisition of three modern VLCCs. And while we continue to collect revenue from a $3.7 billion fixed charter backlog, we also upside from profit split arrangements from our VLCCs and Capesize bulk carriers and charter to Frontline and Golden Ocean. In addition to profit split related to fuel savings on some of our large container vessels. It’s hence interesting to observe that the IMO 2020 story is starting to unfold with strong sentiment in the crude tanker market as well as increasing spreads between low and high sulfur fuel oils.
The company has a very strong liquidity position and it’s ready to deploy capital in order to grow the backlog. On the business development side, we noticed two strong trends in maritime financing market. Firstly, capital markets are not very excited about shipping or energy. U.S. banks are closing down equity courage and there is limited capital markets activity in the sector in terms of raising new equity for industry. Secondly, the European banks, the deepest source of capital to the sector historically, there is ongoing regulatory pressure to de-risk balance sheets and reduce maritime exposure. At SFL, we see this as an opportunity. The versatile toolbox consisting of times charters, financing and bareboat charter structures is a market where we can provide companies, it’s competitive financing structures with a track to risk adjusted return for shareholders.
This is illustrated by the recent Hunter transaction. It’s a cost efficient and flexible structure and ability to execute transactions safely. We were able to deliver to Hunter a highly competitive financing and at the same time, we view transaction as highly attractive for SFL as it provides immediate cash flow and it’s accretive to portfolios return on equity with strong downside protection.
And with that, I give the word back to the operator who will open the line for questions. Thank you.
[Operator Instructions] And our first question is from the line of Chris Wetherbee [Citigroup]. Thank you. Please ask your question.
Hi guys. James Monigan on for Chris. I wanted to touch on the impairment around the two charter vessels again. It seems that -- well, recognizing that it's noncash, it still seems pretty substantial. I wanted to understand what the assumption there that that was driving it to be on the books at that level. And then essentially what drove them to not sort of – or what drove it to stay there over time, even though the vessels had come down and potentially if there’s other options like – similar options outstanding in your books now?
Yes. Hi, Chris. These vessels have been on charter to the Korean operator for a number of years, 12 years to be precise. And this is what we say. Under U.S. GAAP, as I’m sure you are well aware, there are very stringent rules for how you account for assets and also how you depreciate the assets and also how – what to do, if and when you take any impairments. And typically it’s one of the tests that you do is that you to take on undiscounted cash flow from now until at the end of the life of the asset.
I think in this instance it was a borderline, but we felt that it was prudent for us to take this impairment because you could say, these vessels are now 14 years old and they still have a significant life remaining. But we felt that it’s better to take it now. And it’s due to assumptions or call it, market earnings that we did expect going forward. The balance of this of course is that, these vessels were – as they were depreciating from a higher level, the depreciation will then reduce going forward. So you can say this will have a one-time, call it negative impact on the P&L. But in the long run, it will have a positive impact.
So on a life – from a lifecycle perspective, it’s neutral, it’s a concentration right now. And there are no other assets. I mean, this is – we do call it, as everybody has to do, call it impairment testing on all assets, every single quarter. So, these are the two assets where we know we’re at the border and where we took this impairment and that’s really all we can say about that.
Got it. Are there other similar structures coming up in the near future?
Well, as I’m sure, when you have assets – one, if you own maritime assets it’s all depends on when you bought them, but call it, charter fee values vary from time to time. Remember that most of our assets are chartered on long-term charters and therefore call it, charter free, call it broker assessment, call it today may not be reflective of the cash flow characteristics of those assets. So we generally try to take a conservative approach also on our accounting. And we test this every quarter.
Got it. Also wanted to touch on the Frontline shares and the sale of the repurchase agreement. Is this essentially – should we be thinking about this as debt and if it’s not necessarily, so we shouldn’t be thinking about it as debt when you pursue an outright? So just kind of wanted to get the logic behind that and make sure that we’re thinking about that the right way.
Yes. What we have done there? I mean remember, we own 11 million shares in Frontline since 2015. So we’ve been a very long term shareholder in that company. We still have, what can we say, we’re still positive to the market, but we felt that it was appropriate now to take some of it off the table relating to those shares. And so we’ve done – it’s really a combination of two things. We have sold approximately half of those shares at what we believe is quite attractive price level. And then the other half, we have effectively freed up the capital in a structure where the, call it, interest add-on is seen as very attractive and certainly much cheaper than, call it, senior unsecured debt.
So this is, you can say, from our perspective, this is sort of half the shares where we have structured very attractive risk, you call it, reward financing structure around. But we have good flexibility here. If you want to release more of that, we can do that most likely also ahead of time, if you like to. And as we see good prospects for the tanker market going into 2020, and also with Frontline and having a lot of scrubbers – are they being installed already or in the process of installing, we think they are well positioned in the market there.
So we are not concerned with that. But we are – so – but we are call it in for all practical reasons, we are effectively exposed or we still have, call it the market exposure to have those shares. And – which also means that should the share price go up from here, it’s great for us because then we will get the benefit for that in the end. But for us, it’s a better use of our capital. Instead of having it locked away there, we can free it up at a very attractive cost of capital.
Got it. And then one more. Just wanted to touch on the VLCC deal. I understand some – you did a very good job about walking through the dynamics about why they would do the deal and why it was – if you– I actually just wanted to understand a bit more about sort of the market size and the opportunity for more of these deals with IMO 2020, just around the corner? And you might think that we’re seeing – you’d see less of these deals for more and not more. So I just kind of want to get your view on the outlook to do similar deals and some of the potential – and if that’s not necessarily – and if there aren’t necessarily that many, maybe some color around what potential deals you could see post-implementation deadline would be great?
Yes. We actually – the deal there for those three vessels was something that came up. We were able to execute on that on very swiftly because we saw the – for us, it was really attractive from a risk-reward perspective. As I think, we mentioned in the press release, we have a very low, call it, cost base compared to, call it, charter-free market values. These are handy vessels, call it with all the latest bells and whistles, so we have a very interesting asset, we own that. We also structured some financing around it. And we could probably – I mean, if we wanted to, we could probably have levered more than we paid for the vessels because of where we started. Of course, for us, that doesn’t make sense. For us, we want to have capital at work. That is really what is generating the dividend capacity for us going forward.
So we structured $47.5 million effective financing here at super attractive rates because if you are a bank in that structure, you see that, well, one, the ship is worth arguably $100 million, maybe more. You – we are in there. We paid $60 million, which of course is attractive. And then the bank is lending below that again. So we get the benefit of super attractive, call it, bank leverage, which means that when – where the – implied, call it, financing cost or yield, you can say, in the leasing deal is quite good. Of course, we get a super return if we can fund us with very cheap capital behind us. So it’s a cost of capital arm where we can use our effective marked strength in the market and our very strong relationships with the banks, where I think we can most likely get at least as good and probably better terms, financing terms than any other maritime company out there.
Yes. And perhaps adding to that it is basically also about is the opportunity to do more of these deals. And I would say, definitely yes. Traditional capital sources are constrained, and we experience that kind of small medium-sized owners are facing difficulties in attracting attractive financing. So basically, the need for alternative capital providers as SFL are in big demand, and we have a very versatile toolbox being able to provide both time charters and bareboat finance like structures. So we definitely expect to see more of these type of deals going into 2020.
And given that we have a balance sheet, we have enterprise value about $4.6 billion, $4.7 billion, means that we can execute on relatively large transactions quickly, which I think was one of the benefits in this specific transaction. We basically, we’re ready in less than two days. We had listed all subjects and had the deal ready. And that I think was a big attraction in the overall structure. So we think that hopefully, there could be other opportunities, similar assets or it could be other assets. They don’t have to be brand new. We will also look at sort of older assets with the right risk characteristics. But we generally prefer, call it, commodity type of assets where, you could say, a worst-case scenario, we could end up owning those assets if you look at it from a financial perspective. But there, we have a huge, call it, strength compared to many companies with a financing profile because we can run vessels. We operate vessels. So we can – for us, if we have to take a vessel back, it’s not necessarily we’re downsizing. There could be some very interesting upside characteristics around that.
And the two Suezmax’s we have is a good example of that. It was originally effectively a financing structure. At the time, the counter-party were unable to pay the charter rate a number of years ago, we stepped in, they handed the keys back to us. And three weeks later, the market showed up and we really got the benefit of a strengthening market. So we don’t see that as a – we see more opportunities around that than really risk. Whereas a bank would look at it very differently, because they couldn’t operate those assets themselves.
Got it. Thank you.
Thank you.
Next question is from the line of Chris Robertson, [Jefferies]. Please ask your question.
Hi guys, this is Chris Robertson at Jefferies. Thanks for taking my call. I have a multi-part scrubber installation question. So bear with me here. So can you walk us through kind of the quarterly cadence of the installations in CapEx spend, and then how many including, how many were installed in 3Q and the associated off-hire with that? And then can you walk us through how many of the 36 retrofits will be kind of financed upfront versus paid for over time by increased premiums? And if you could mention kind of the average cost per unit and suppliers of the units, that'd be great.
Hi, Chris. We have our Chief Operating Officer from Trym Sjølie here, and he can give you the details there.
Thanks. Hi.
There were a couple of questions in there, so I'll try to take him in turn. We have so far done three vessels where we have done the payment upfront as you say, and so in three 3Q and 4Q. And so already now it's 1 Cape and 2 VLCCs LTCs and there will be one more Cape and one more Suezmax coming up now in Q4. Is that clear?
Okay. Yes. And then I'm assuming the rest spread out in – is it going to be the first quarter of 2020 or first half of 2020 for the remainder?
So if you look at the whole – if we do the container ships, then we have a number of container ships coming in the first, basically it's going to be the first half. Most of them will be done in the first quarter of next year with some sort of tailing into April. So there'll be a total of seven done between January and April. And for the capes, they will more or less be done in a second – the first half next year, then all the seven ships will more or less be done. And all the tankers will be done by first quarter next year.
Okay. In terms of those seven capes with Golden Ocean, on a kind of per day basis, does that work out to be around 1,400 a day in the premium over the life of the charter?
It's approximately, Just shy of $1,500 per day per vessel.
Okay, perfect.
So out of the container ships, we have three ships where the charter will install the scrubbers, on the time charter basis and four where SFL will install the scrubbers, and there will be a profits split to pay them back. So we have a mixture there and we are in discussion to do more on the same basis.
Okay. Thanks.
So for MSC our – one of our biggest clients there's a total of 21 ships and they will be done during more or less during the normal dry docking schedule for those ships. So that's going to be done sort of throughout next year. More or less you could say evenly spread out. So that's has been done on the charters own schedule and for charters own benefits.
Okay. And on any of the other non containerships then are any special surveys or anything else being pulled forward to coincide with the scrubber installation to kind of maximize the off-hire time?
Yes. We are doing that on – you could say as a general rule, we do – we make the scrubber installations coincide with a special survey.
But of course, so you have some flexibility on that. So we have done that in couple of the instances here to maximize on it, particularly where we have called it benefit out of this, what believe would be quite attractive scrubber economics. So this is something we tried to tune. We fight for every dollar.
So some of the installations have been done at the very tail end of the window to be able to actually get the scrubbers in time and other ships, we are pulling them forward so that we can do it as early as possible. So that means the bulk of the container ship installations will be done from December start of the year, sort of starting in December this year and we'll be done sort of by April next year. So our aim is to get as much of the 2020 payback as possible while staying within this window, all the special survey.
Okay. Great. Yes. My next question is kind of related to the charter backlog and the dividends. So it looks like – I mean, you guys have done a really good job here with extending the charter backlog and then increasing it with the new vessels as well and in addition to the scrubber premium backlog. So what are your thoughts around the dividends stability kind of over the next few quarters? And what are your plans for growing it next year?
Well. I think this is more as a principle. The Board has not communicated forward dividends. It's always, as decided quarter-to-quarter. But of course looking at the history it's been very stable or – and has been increasing many times too. So we cannot guide you there specifically. Of course now we have been adding to the backlog and we have freed up quite a bit of cash around the Frontline shares. We do look for other investment opportunities, et cetera. So hopefully over time we can build on the – we can build increased dividend, but we cannot give you any specifics.
Sure. And then in terms of, I guess, returning capital just in general, what would the thoughts be around growing the dividend versus accelerating some repayments or even some repurchases?
Well, we tried to take what I was calling an opportunistic approach to that, we tried to maximize value per share for our shareholders. That’s our – that’s our principle objective. So, we would look at any option there if we think, I’ve tried to do what people believe will benefit our shareholders. So, we are capital agnostics and we could look at either.
All right. Yes. Thanks for the time and taking my questions.
Yes, thank you.
Next question is from the line of Greg Lewis [BTIG, LLC]. Thank you. Please ask your question.
Yes, thank you and good afternoon. Ole, I’m curious; could you talk a little bit more about how you think about the returns on the scrubber investment? I know you mentioned payback, but as we think about, where scrubber investments in your portfolio stack up against other assets, just thinking about that maybe, the outlook for a scrubber investment is probably – doesn’t have the time horizon that a lot of the vessels do and in terms of residual value. I’m just kind of curious how you think about the returns on scrubbers?
I would say generally when we have been investing in scrubbers, we have – we take, so we have, we can have multiple hats on. We can do scrubber investments, where we have call it direct benefit relating to the – call it fuel delta, i.e., where we install it on our own vessels trading in the spot market, like the two Suezmax tankers for instance, or where we participate on two of our VLCCs, where we have Frontline actually shipping in half of the increase in the scrubber installment, but where the profit share threshold remains the same, i.e., is really increasing the probability of getting revenues from the profit share.
Same thing with the Golden Ocean vessels we are putting on the scrubbers. We, they are – we are increasing the charter rate in a way, where we get a decent return on our capital without anything else. But of course, when you have that equipment on board, there is a higher probability of profit share if you don’t increase the profit share threshold. What have also done and are willing to do is to put on scrubbers on vessels, where also relating to long-term charter vessels, where you could do a profit share type arrangement. Of course, what we focus on is, we think that profit, call it scrubber economics is – will most likely be better in the early days and then over time, there is a – we think that call it the spread between call it the old standard fuel oil and the low circle fuel oil may come together. and therefore, we’re trying to maximize that sooner.
So it’s a – you can say it’s an opportunistic approach. We think that that could be very interesting benefits for us into 2020 from a couple of these factors and we think that when we put down this money, remember when we put down this money, it could typically be almost, you could call it equity investment and therefore you need to have the certainly equity life return characteristics on it, while other vessels, you could effectively finance them within the existing financing structure, and therefore have a very low cost of capital relating to it building on – building on the returns. So, we look at it from a case-by-case perspective. And if we didn’t truly believe that we would get a good return on our capital, of course, we wouldn’t do it.
Okay, great. And then just a more of a big picture question for me. Clearly, you lay out your available cash marketable securities. Just as we think about total capacity for growth, including the balance sheet. How should we be thinking about the available capacity to deploy capital over the next 12 months? And as we sit here today, looking ahead to 2020, how do you think the landscape differs today than maybe it did a year ago in terms of the opportunities to deploy that capital?
I think it’s hard to perhaps come with a specific in terms of investment capacity, but if you look at our like free cash to invest and you put that together with the access we have to senior bank financing in terms of regular traditional financing, and also like Japanese yield curves we did last year, I would say it’s significant. We’re entering into a market, where as I mentioned before, it’s that we see more and more opportunities at kind of attractive risk rewards, where we can step in as an alternative for traditional financing.
So, it’s – I think in two-fold strategy just still continued to work on – with our existing clients or even new end users, but also kind of more finance like structures like the recent entities. So, I think, 2020 will be very exciting and we also believe it’s a good entry point in terms of investing in terms of entry point on vessel values and this year interesting market had with a very limited order book out in the yards.
Okay. And then just one last one from me, realizing it’s only like it’s probably less than 1% of your total revenue. Those vessels that you mentioned – that you took the impairments on, they’re obviously going to be looked to deployed, I guess from Q1 of next year. What’s sort of the opportunities to deploy those ships? And then think looking ahead, it looks like you have another three vessels roll – three containerships that roll off contract in Q1. How should we think about those five ships in terms of their re-chartering opportunities as they roll off contract?
Well, firstly, the only shifts that will roll off contract in the near future are the two 1,700s from Korea. The others will be – will not be redelivered.
So, they’ve already been extended.
Well they cannot – they have, they will.
And there, we have put options. So, we can choose to extend that if we want to.
Okay.
So, if we’d then turn back to the 1,700s, we will get them back sort of end December, we will spend a little bit of time to get our crew on board and make sure they’re ready for trade and since they have a special survey due date, sort of spring autumn next year sort of second, third quarter, we will trade them sort of short-term until they’re due for a special survey and then we will carry that out and then we can do more of a long-term deal on them. So, typically, for that kind of assets, it’s difficult to do a long-term deal if there’s a special survey coming up. So, we will have to do it in two stages.
Okay, perfect. Thank you very much.
Thank you.
Next question is from the line of Liam Burke [B. Riley FBR, Inc.] Thank you. Please ask your question.
Thank you. Good afternoon. You’ve talked about your competitive advantages. You’ve talked about the demand on the other side of the market, but could you give us a sense as to what the competitive landscape looks like, where demand seems to be pretty high out there?
Yes, sir. Thank you, sort of competitive landscape. I think it’s, well, it’s quite unique. Most other companies are focused on, I would say traditional leasing, just providing a bareboat charter basically. So, it’s kind of a keen alternative to bank. I think what our competitive advantages are flexibility. You look at our current backlog is significant part is time charters that basically enables to have a much wider, much bigger deal flow in terms of opportunities rather than just being a financing. I think data is going to have to take a differentiating factor from the more pure financial owners. I think also from a shareholder perspective, I think we are comfortable with withdrawing the ships. It does not become a liability if you need to repossess a vessel and we have all those capabilities in-house and that’s going to be a very interesting dynamic.
Okay, thank you. And you announced two deals this quarter, one where you’ve taken ownership of new vessels and then at the other end, the feeder vessels that you purchased at a slight premium to scrap. But if looking at your backlog is it more heavily weighted towards newer acquisitions of newer assets or are you – or is it more heavily weighted towards the assets with a slight premium to scrap?
Well, I think I mean they just put our fleet into perspective. When the company went public 15 years ago, we had 43 crude tankers. We have more than doubled the fleet and we have all of those vessels left. And it’s going to be in a continuous focus from management to recycle and buy into, call it modern tonnage. And I believe back in 2018, you – we invested more of $1.2 billion predominantly in more than tonnage. That said, we also see the risk return on older assets basically are very attractive given that that is extremely strong downside protection. So, in some instances, that is attractive, but I would say, our focus on new modern assets like the recent transactions of the 300 vessels, but also, there you see that we’re able to acquire them at a significant discount to market values at $60 million per vessel at a time, where that would indicate about $95 million per vessel.
Great, thank you.
Thank you.
[Operator Instructions] No further questions, sir. Please continue.
Thank you. Then, I would like to thank everyone for participating in our third quarter conference call. And also thank the SFL team for their efforts. We are committed to continue building the company as we tried to explain here also on the call and we believe there will be good investment opportunities for us also going forward with attractive risk-reward profile. 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.