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SFL Corporation Ltd
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Ladies and gentlemen, good afternoon and welcome to the Q4, 2020 SFL Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a Q&A session. [Operator Instructions]
I would now like to hand the conference over to your speaker today Mr. Ole Hjertaker. Please go ahead sir.
Thank you and welcome all to SFL’s fourth 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 then concluded by opening up for questions where our Chief Operating Officer, Trym Sjølie will also participate.
Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements are based on our current 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 with the Securities and Exchange Commission for more detailed discussions of our risks and uncertainties which may have a direct bearing on our operating results and our financial condition.
The announced dividend of $0.15 per share represents a dividend yield of more than 7% based on closing price yesterday and this is our 68th quarterly dividend payment. In light of the continued uncertainty surrounding Seadrill and outcome of their Chapter 11 restructuring, the Board adjusted the dividend to $0.15 last quarter and effectively then exclude all contribution from offshore assets for the time being.
Over the years, we have paid more than $27 per share in dividends or $2.3 billion in total. And we have a significant fixed rate the charter backlog support the continued dividend capacity going forward. The total charter revenues was $144 million in the quarter with more than 90% of this from vessels and long-term charters and less than 10% from vessels employed on short-term charters and then the spot market.
The EBITDA equivalent cash flow in the quarter was approximately $106 million and last 12 months the EBITDA equivalent has been approximately $464 million. We recorded a significant impairment in the quarter relating to an idle drilling rig which was taken down to scrap value in order to be conservative. But cash flow from our other assets were not impacted by the offshore market situation. And the free cash flow from other assets were well above the distribution capacity with a good margin in the quarter.
Despite prepaying more than $100 million on an offshore related financing in the quarter, the consolidated cash position at quarter end was more than $200 million. And in addition, we had nearly $30 million in marketable securities. Our fixed rate backlog excluding anything from the drilling rigs stands at approximately $2.3 billion from owned and managed vessels after reason, charter extensions and vessel transactions providing significant cash flow visibility going forward. And the backlog excludes revenues from 16 vessels traded in the short-term market and also excludes any future profit share optionality.
The profit share does contribute optionality value for us and in the fourth quarter, it accumulated for more than $5 million. The last quarter it was primarily relating to the 2 VLCCs on charter to Frontline. But going forward, we expect the relatively higher contribution from fuel savings of container vessels with scrubbers in light of increasing fuel price and fuel spreads. With a strengthening global market, we can also hope for some positive contribution from profit share on capsize bulk carriers as well.
During the last few months, we strengthened our balance sheet and investment capacity by raising nearly $50 million through share issuance. This, combined with other initiatives has in reality fully restored our investment capacity, despite the prepayment of more than $100 million when an offshore drilling rig as mentioned earlier and there are no immediate plans to raise more equity.
At the end of the fourth quarter, we also sold a 50.1% stake in a subsidiary, which leases out four large 19,000 TEU container vessels to MSC. The purchaser was an entity affiliated with Hemen Holdings our largest shareholder. The purchase price was approximately $17.5 million and in effect of the transaction was that the assets and associated debt were reclassified as equity account debt and therefore slammed the gross balance sheet.
Our equity ratio increased while the estimated net reduction in SFL’s distributable cash flow from these assets is limited to only approximately $700,000 per quarter. That's a large portion over invested capital is an interest-bearing intercompany loan, which remains unchanged.
As previously announced Seadrill and most of its subsidiaries filed Chapter 11 cases in Texas last week. We have entered into agreements relating to two of our drilling rigs, where we will receive approximately 75% of the lease hire under the existing charter agreements for West Linus and West Hercules for the time being. The agreed amounts are sufficient to cover SFL’s debt service relating to the rates. These agreements will ensure uninterrupted performance on the sub-charters to the oil major, where Seadrill will be allowed to use funds received from the respective sub charter to pay a fixed level of operating and maintenance expenses.
With regard to the rig West Taurus, the lease is expected to be rejected and the rig redelivered to SFL. This rig is now debt free, and has been held in layup by Seadrill for more than five years. And SFL is currently elevating strategic alternatives for the rig, including potential recycling at the European Union approved green recycling facility.
The harsh environment jack-up rig West Linus is sub-chartered to an oil major until the end of 2028, while the harsh environment semi-submersible rig West Hercules is employed on consecutive sub charters to an oil major in the North Sea.
While no assurances can be provided with regards to the outcome of the Seadrill’s Chapter 11 proceedings, SFL continues to have constructive dialogue with Seadrill and the relevant financing banks to find a long-term solution for the West Linus and West Hercules. We can unfortunately did not make any further comments relating to the rigs and the pending restructuring. But our objective is as always, to maximize long-term value for our stakeholders.
Excluding the drilling rigs, the backlog from owned and managed shipping assets was $2.3 billion at the end of the fourth quarter. Over the years we have changed both fleet composition and structure and we now have 81 shipping in the portfolio and vessels remaining from the initial fleet back from 2004.
We have gone from a single asset class charter to one single customer to a diversified fleet and multiple counterparties. And over time, the mix of the charter backlog has varied from 100% tankers to nearly 60% offshore at one stage to container being the far largest segment, right now. In addition, we have 16 vessels traded in the short-term market, which we defined as up to 12 month charters, and also from time-to-time significant contribution from profit share as discussed earlier.
We do not have a set mix in the portfolio focuses on evaluating deal opportunities across the segments and try to do the right transactions from a risk reward perspective. Over time, we believe this will balance itself out, but we try to be careful and conservative in our investments, and not to invest just because money is burning in our pockets.
Our strategy has been to maintain a strong technical and commercial operating platform in cooperation’s with our sister companies in the Seatankers Group. This gives us the ability to offer a wider range of services to our customer from effectively 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 with full control over vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact improvements to our vessels through the life of the assets and not only be passively opening up vessels employed and be able to serve where the customer may not always have an incentive to make such improvements.
We do of course closely follow the various developments in new propulsion technology and other initiatives to reduce or eliminate carbon footprint by commercial vessels and to ensure that our asset portfolio remain competitive in the long run.
And with that, I would give the word over to our CFO Aksel Olesen, who will take us through the financial highlights for the quarter.
Thank you, Mr. Hjertaker. On this slide, we are showing pro forma illustration of cash flows for the fourth quarter. Please note that it is only guideline to set the company’s performance and it’s not in accordance with U.S. GAAP and also net of extraordinary and non-cash items.
The company generated gross charter hire of approximately $144 million in the fourth quarter, with more than 90% of the revenue coming from our fixed charter rate backlog, which currently stands at $2.3 billion providing us with strong visibility on our cash flow going forward.
During the quarter, the liner fleet generated gross charter hire of approximately $82 million including $1.9 million in profit-split contribution related to fuel savings on some of our large container vessels. Of this amount approximately 95% was derived from our vessels on long-term charters.
And at the end of the quarter, SFL’s liner fleet backlog was approximately $1.7 billion with an average remaining charter term of approximately four years were approximately seven years if weighted by charter revenue. Approximately 85% of the liner backlog is the world's largest liner operators, Maersk Line and MSC with the balance of approximately 15% to Evergreen.
Our tanker fleet generated approximately $90 million in gross charter hire. VLCCs on charters to Frontline shipping generated $7.1 million including $3.5 million in profit-split contribution. And during 2020, the total profit share contribution from these assets was $18.6 million.
Furthermore, the net charter hire from the company’s 2 Suezmax tankers employed in the short-term market was approximately $1.6 million in the quarter. And in November, the company redelivered the last VLCCs to Hunter Group and whilst the repayment of the associated financing the transaction increased SFL’s cash balance by approximately $10.7 million.
During the quarter, our dry bulk fleet generated approximately $27 million in gross charter hire and of this amount approximately 70% was derived from our vessels on long-term charters. During the quarter, the company had 10 Handysize vessels employed in the spot and short-term market. And the vessels generated approximately $6.4 million in net charter hire compared to $7 million in the previous quarter.
SFL owned three drilling rigs which have been shorted to the subsidiaries of Seadrill. In the fourth quarter, received charter higher of approximately $16.3 million. Subsequent to quarter end, SFL entered into certain agreements relating to a drilling rigs subject to final court approval. While the West Taurus will redelivered to SFL. The West Hercules and West Linus will continue their employment procedure in order to ensure uninterrupted performance on the sub charters to oil majors. This summarizes to an adjusted EBITDA of approximately $106 million for the fourth quarter or $0.91 per share.
We then move onto the profit and loss statement as reported on the U.S. GAAP. As we've 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 investments in finance leases and vessel loans, results in associates and long-term investments and interest income from associates.
So for the fourth quarter, we reported total operating revenues according to U.S. GAAP of approximately $150 million, which is the less than approximately $144 million of charter hire actually received for the reasons just mentioned. During the quarter, the company recorded profit-split income of $3.5 million from tanker vessels on charter to Frontline and $1.9 million from profit-split arrangements related to fuel savings on some of the large container vessels.
The company also recorded non-recurring and non-cash items during the quarter, including a positive mark-to-market FX relating to hedging derivatives of $3.4 million. And negative mark-to-market FX relating to equity and debt investments of $4.2 million a gain of $5.6 million from charter termination and sale of subsidiaries. In addition to increase in the credit loss provisions with $2.8 million.
Furthermore, the company records a gross impairment of $262.6 million on the drilling rig West Taurus partly offset by the debt extinguishment FX of $66.1 million after associated the debt was repurchased at a discount, employing unless impairment of approximately $187 million. So overall, and according to U.S. GAAP, the company reported a net loss of $165 million or $1.49 per share.
Moving on to the balance sheet, at quarter end, SFL had approximately $215 million of cash and cash equivalents excluding approximately $3.4 million of cash held in wholly-owned non-consolidated subsidiaries. Furthermore, the company had marketable securities of approximately $29 million based on market prices at the end of the quarter. Also as well as five debt fee vessels and the rig the combined charter fee market value of approximately $46 million based on broker appraisals.
In the last quarterly call, we mentioned that net ADS Crude Carriers developed approximately 17%. That sold all their vessels at attractive prices, under the net proceeds from the sale will be distributed to the shareholders. Distribution has not been approved and as a result, SFL expect to receive a dividend of approximately $9 million during the first quarter.
The subsidiaries owning the drilling rigs with charters, with liners and West Taurus so previously and accounted for as investment and associates applying the equity method in accordance with U.S. GAAP. This equity accounted subsidiaries are wholly-owned by SFL, but the result of the accounting treatment, operating revenues, operating expenses and net interest expenses in these subsidiaries were not included in SFL’s consolidated income statement. Instead, net contribution from these subsidiaries was recognized as a combination of interest income from associates and results in associate.
During the fourth quarter, the subsidiaries owning the rig West Taurus and West Linus reassessed and fully consolidated also among other things, change to certain financing terms relating to the assets. Consequently, from the time of consolidation at the end of October 2020, all revenues earned and costs incurred was accounted for as operating items in the consolidated income statement of SFL, and concurrently the balance sheet of SFL Deepwater and SFL Linus was fully consolidated into the balance sheet of SFL. And based on the fourth quarter figures, the company debt to equity ratio of approximately 26%.
Then to summarize, the Board has declared a cash dividend of $0.15 per share for the quarter, which represents a dividend yield approximately 7.4%, close the share price yesterday. This is the 68th consecutive quarterly dividends and since inception of the company in 2004 more than $27 per share, or $2.3 billion in aggregate, at return to shareholders through dividends.
And while we continue to collect revenues from our fixed charter rate backlog, we also have upside from profits-splits arrangements from our VLCCs and Capesize vessels, in addition to profit-split arrangements related to fuel savings on some of our larger container vessels.
We have more than $230 million for fixed charter rate backlog the last 12 months and we actively continue to explore new business opportunities with particular focus on investment in assets with a lower carbon footprint in order to position our portfolio for the future.
And with that, I give the word back to the operator. We will open the line for questions.
Thank you, ladies and gentlemen, as we now are beginning the question and answer session. [Operator Instructions] Our first question today comes from the line of Randy Giveans from Jefferies. Please go ahead. Your line is open.
Hi, gentlemen, how's it going?
Good. Thank you.
Good. Thank you.
Excellent. All right. So I guess looking at kind of the balance sheet and your fleet, you're raised around $50 million in share sales. So, what kind of acquisition target are you looking at here in the near-term, maybe what sector or subsector? And then also any plans for refinancing the convertible notes maturing later this year?
Thanks. Yes. So, what we have done, we did as you know, prepay the loan relating to the West Taurus in the fourth quarter and we have effectively replenished that investment capacity and more cash than we had, in the third quarter before we prepaid more than $100 million on that unit. So, that in itself, you could say is also an illustration of the cash flow generation capacity in the company, in addition to somewhat less than $50 million we’ve raised in the market.
We had also in 2020, continuously looked at acquisition opportunities and we have been of course, a little extra careful, I would say because there has been uncertainty through the year, what would unfold relating to our drilling rigs and the charters to Seadrill. I think now, there is more visibility that have filed for Chapter 11. We have robust liquidity and will of course, continue to get opportunities.
We generally don't guide specifically on segments, we are looking at many segments, I would say where we are maybe reluctant offshore and naturally obviously, oil product related. We are also hesitant on but, it's all about finding the right, combination of the risk reward and also from a, call it carbon footprint perspective, where we think that we will come over the years as we develop the company going forward.
So importantly no specifics, but we remain focused on adding new transactions and hopefully in 2021 there will be deals for you to look at.
Sure. Okay, and then with that on the convertible notes, any color there?
Sorry, yes, I forgot to comment on that? Yes, of course, we know that is coming due in October. So still many months until that. We have a decent cash position as it is. And we believe, the capital markets are there and available. So, we think that there is ample time to address that in due course and certainly well ahead of the final maturity.
Got it. Okay. And then obviously, on the containership side, that markets been very strong, and you don't have much in terms of spot exposure, most of your vessels are on long-term charters, but on dry bulk, right, that is certainly a sector that we've seen significant strength here just in the last few weeks. And you have a decent amount of short-term or spot exposed vessels. With that, do you plan on continuing to operate those Handysize, Supramax is what have you in the spot market are looking to lock in some time charters here with the strong rate?
Yes, Trym Sjølie speaking now. Thank you for the question. I mean, being exposed to the spot market right now is quite positive as we see it. We have three of the Supra and seven of the Handy, sort of more or less spot base with only short contracts, which means that we will take full, we will enjoy a pretty hot spot market at the moment. I mean, the Handysize market this week is almost at 14,000 plus per day. So it's really looking good. We may of course lock in some vessels on sort of some longer charges, I mean, up to a year or so. But it sort of depends. We are comfortable staying in the spot market short-term with these vessels for now.
But with that, of course, as of the more of our long-term business philosophy or our focus is, typically longer term charters. So, we are sort of waiting to see how this market plays out. And if we cannot sort of secure really long-term charters on these assets, we will eventually, call it divest them and reinvest in assets where we can have then we get back cash flow visibility.
And also really hope to get some profit space from our 8-Ks on charter to Golden Ocean as the market came in quite firm for the time being.
Got it? That makes sense. All right. And I guess last quick modeling question. I saw the other financial items gain of $72 million, what did that consist of?
Well that’s in connection with the repurchase of the debt relating to dividend.
Got it. Good deal. Well, thanks again for the time.
Thank you, Randy.
And your next question comes from the line of Richard Diamond from Castlewood Capital. Please go ahead. Your line is open.
Yes, good morning, good afternoon, everyone. Finally Seadrill is not going to be as much of an issue going forward and it's resolved. And I want to commend you and the team for doing a great job of identifying the opportunities in container shipping and as a shareholder, I can say we're extraordinarily well positioned. My question Ole for you is, looking at fairly large canvas what areas interest that attract you? Where do you think there's value could it be in tankers or some other class?
Yes, thank you Richard. And thanks for the kind words. We look as you as you point out, we try to look at a broad call it maritime market. And I think where we have seen more general call it interest in also in securing longer term charters has typically been on the liner side. And as I mentioned maybe earlier also that is also where we, from time-to-time, see that the end user or sort of our customers are willing to pay up also for new and improved technology, because their customer again, is requesting call it green or type of transportation. And this is this is spot on our focus area now and our COO Trym Sjølie spends a lot of time on new technology and evaluating various systems.
Unfortunately, there is no quick fix out there, there are no technology today that will really transition call it the maritime space fully to a carbon neutral setting. But there are many things you can do to the assets, while we are working towards call it greener I would say shipping. So I would say our focus area, typically on the liner side, container, car carriers those kind of assets. Also on the dry bulk side, that could be interesting opportunities for assets also with the newer and more energy efficient, propulsion technology.
On the tanker side, while we are always opportunistic, we are more reluctant. That's also part because we think that in the long run, having too much exposure to the tanker sector, which is transporting, the very product that, have as a high CO2 emission footprint is not as a negative, side to it. So it's a balancing act, but in general, we focus on the liner side, and potentially also new sectors outside of our current core segments, where we also think that there could be growth opportunities for us. So, a little a little sort of vague there, we typically, we're not trying not to be too specific on percentages or dollar amounts that we are going to invest in any specific sector. But we are very focused on building, SFL and transition, the portfolio remember, back some years ago, we had only tanker vessels, and I'm very happy that we don't have that kind of concentration in that segment now.
I'd love your thoughts. I'm looking at the order book by various segments. And except for L&G which the apologies to flex has a lot of issues. I'm thinking that there are very few points in time when the forward outlook and I'm talking six months to a year have been better. And given your long career. I've wonder if you contrast the opportunity set today versus other valleys in the past?
Yes, it's interesting question, I think, if you take a sort of a step back and look at sort of the shipping or the maritime markets in general, what we've seen over the years, it's typically been the owners who have killed call it the market recoveries, by ordering too many vessels too quickly and quicker than the demand, call it pickup. And therefore, periods with oversupply caused by over eager, owners.
The change now and you're absolutely correct. In many shipping markets, now, you have historic low order books, like in the dry bulk, like in the tanker space, it's a very long time, since you've seen such low order books. And in a market, you would then expect, many quality speculative owners to run out and order new ships, because many can see this. But at the same time, with the developments and change in propulsion technology, that also means that many are holding back a little on their investments, because they're not quite sure which assets to invest in, and what will be sort of the standard going forward.
And also, I would like to highlight the access to capital, which is a fundamental change from prior cycles, where we see many of the traditional call it shipping banks who would lever any vessel to any owner concentrating and focusing on the larger customers. And making it more difficult to I would say smaller and more marginal owners to just go out and order vessels because again, these are capital intensive assets. So I think you have an interesting triangulation now, in many of these sub segments, where you could see much higher volatility and positive volatility we hope in the spot market and the way we can benefit from that is a combination of the dry bulk market as Trym mentioned, also profit shares we have on tanker assets. And of course, we try to catch some of this, if we can, and to the degree we can but you are absolutely correct. We haven't seen, you call it this kind of market violence for many, many years.
Thank you very much.
Thank you.
Our next question comes from the line of Greg Lewis from BTIG. Please go ahead. Your line is open.
Yes. Hi, thank you and good afternoon, everybody.
Hi.
I'm trying to read between the lines. And, feel free to tell me, I'm thinking about this the wrong way. But as I think about Ship Finance historically, you've kind of bought assets and pretty much for the most part it seems like I want to say, we'll run those either to our useful life or, maybe we got rid of some because there was a restructuring by a counterparty. But as I look at this and think about, Richard’s comments around, the cycle, that there are reasons to be excited about some of these, commodity shipping, like a dry bulk or tankers. And really, I guess, I'm curious, going through the fleet, realizing that some of these vessels may be on contract, could this cycle be different for SFL in that, maybe they take advantage of the cycle and maybe opportunistically sell assets, and recycle that cash into other types of endeavors? Or is, am I just thinking about this wrong?
No, you're not thinking about it wrongly, I think, your reference to a company name is maybe pinpointing it, your referenced us to Ship Finance, which is, our previous name, and, as we change two years ago, and it’s now SFL, and we…
I corrected it, I corrected it.
I know, I have to answer, you put your leg there. But, our focus is how can we generate a long-term sustainable, cash flow for our investors, i.e. how can we create, a dividend predictable sort of dividend type model focused on the maritime industry. So, we always when we build assets, we build it for the life of the asset, but what we typically do, we typically divest assets as they get older as they come off charter and reinvest in newer modern vessels. Because, if that's also where we typically see that our potential customers would like to, charter in longer term holder assets, you typically see relatively shorter charter periods for.
One of the benefits, of course, of our stronger call it commodity market, is that, with higher quality, short-term and spot rates in markets, that also has an influence on these companies willingness to pay up for longer term charters. So you could say you have an indirect effect there where you can potentially lock in charters on vessels for long-term, at a higher level than you would if the market if the spot market is rock bottom.
But for us, it's really about the long-term sustainability of the dividend. And that is also why we have an increasing focus on call it fuel efficiency improvements, focused on carbon footprint, it's not because it's a change with a with a flick of a switch. But it's because it's a process. And we just need to be ahead of that curve because it is going to impact us all over time. And we just tried to invest as good as best as we can, as we transition into this, because we think that it has the longest best long-term value for shareholders.
Okay, that that was super helpful. Thank you.
Thank you.
Thank you. And your next question comes from the line of Liam Burke from B. Riley. Please go ahead. Your line is open.
Thank you. Good afternoon. You discussed capital allocation to the course of the call today. We talked about your debt, your asset allocation in terms of fleet, where does the dividend priority lie in terms of the capital allocation strategy?
Well, you can say that, our primary focus is dividends, but we don't have a set call it percentage of If that net income is that is what you refer to what we typically do, and this is more how we are structured, SFL, you can say, as the parent company owning a lot of assets. We focus on two things. We focus on, of course, securing long-term employment on these assets. And then we focus on how capital is flowing from these assets, net of financing, that specific to the assets up to the parent company and supporting the long-term dividend capacity. So, as I said, the dividends is really more a reflection of how we structure the deals and how we think, long-term, and not necessarily on quarter-to-quarter call it net income or because, from quarter-to-quarter, there are many factors that has an impact, also many non-cash items.
And you could say, because we have many assets with very long-term charters, we also have some sort of accounting features that some call it more spot oriented maritime companies don't see like lease accounting, which is more similar to what you see in the airline industry, for instance. And therefore affecting call it some of the numbers that have been reported. I'm not sure if that was helpful for you.
No, it is helpful. I mean, but I mean, walking down that this discussion, as you look forward to adding assets or any capital allocation, is there one form of financing be at leasing or debt? That looks more attractive to you, especially when you have part of your assets in the spot market or is it typically going to continue to be what the current charter agreement is or if it's operating in the spot market?
Yes, I think what we tried to do overlay each project, each charter and much the optimal financing to charter, an asset depending on age, et cetera. So it really depends on the case-to-case basis, but always trying to improve financing terms, build bank relationships. If you look at the portfolio of banks, for last few years, I think currently we have approximately 30 banks in the bank group, the migration to the east, we extensively bank with Japanese banks, Taiwanese banks, et cetera. That is similar to Japanese ship owners with the conservative strategy. And they like the business model on other hands, providing us it's very attractive capital. So that's going to fulfill part of our business development, finding the most attractive financing and creating that arbitrage.
Great. Thank you.
Yes. Thank you.
Thank you. [Operator Instructions] Your next question comes from the line of Chris Wetherbee from Citi. Please go ahead. Your line is open.
Hi, guys, James on for Chris. Good morning. Just wanted to follow up on some of the previous questions around the priorities for your capital allocation. Like vessel values have improved, you've sold some assets, you've raised equity and you paid down a little bit of debt. Just wanted to understand how you were thinking about leverage for going in here you've commented on the converted, but I just wanted to understand broadly, how are you thinking about leverage at this point in the cycle? Are there opportunities around your capital structure there that makes sense just kind of wanted to get your thoughts?
Yes, what we what we typically do when we look at the new project is to try to optimize quality cash flow from call it specific silo, if you can call an asset or maybe you have four or five assets for that matter, if we structure it, as a call it as one deal and we can put together a financing package around that deal. And then of course, our focus is on optimizing, leverage in that structure, we tried to focus on minimizing call it recourse to SFL balance sheet if we can.
And then, the capital we put in this is you can say it's what we call an equity in that project call it internal project that is a combination of you can say equity or call it corporate debt at the holding level including the convertible loans that we may have raised. So as we have been investing, the capital at double -digit type returns, there has been a nice call it arbitrage also by utilizing that type of capital in that way. So if you look at us, well it’s really a collection of projects like that, where we try to optimize each and every silo, we try to eliminate risk between the silo i.e., if something happens, for instance, now, the situation we've had with the drilling rigs. And this rig where we repaid the debt.
That call it situation around that and the situation around Seadrill and their filing has no bearing on any of our other more than 80 assets, they're totally isolated from what is going on, in quality in the drilling asset silos, and cash flow has been streaming out just as it should on it without interruption all along. So it's a mix of, structure from a risk perspective and then optimizing cash flow coming up?
And of course, you there's no point for us to leverage something, 100%, because then we don't have real capital invested. In any project we do, it's always a focus on how do we put the money to use so we can build distribution capital, over time for shareholders and thereby supporting the dividend capacity? And hopefully are increasing it again, soon.
Got it. And just thinking on the dividend, you've gone through two cuts, just wanting to understand, what are the sort of figures the way to think about it would be like the lessons learned per se, about what you could possibly do moving forward? How sort of maybe on the capital structure side or maybe on the fleet side about what potentially should might make change moving forward given the experience that you've gone through across 2020?
Yes, I think 2020 was an exceptional year, I would say, for the wrong reasons. We had a market collapse in the early in the year, as we all know, with the disruption with the COVID-19 and an oil price collapse. So, then at that time and if we step back, more than a year, the whole the outlook for the offshore industry was very different than how it sort of, call it developed over the year.
So, we have taken some painful steps in SFL by reducing the dividend in this period. And the last reduction was really designed to ensure that all contributions from those offshore assets are eliminated from the distribution capacity. So it's really visible for investors and our analysts, I hope that, this is a sustainable level in SFL from our other assets, not affected by the offshore space.
And then, hopefully, as we will also have more visibility in that situation. And also, as we hopefully can invest more capital in new projects, it's a better timing to then look at doing something, hopefully on the positive side with the dividend. But as a matter of corporate policy, we never guide on forward dividends. That is something the Board has always reserve the right. And so I cannot tell you, if and when the dividend will be increased, but of course, it's our objective here to do something about that. Otherwise, I would say we have failed.
Got it. And then just sort of a follow up on that. Well, I guess, one of the sort of, you'd talked about around offshore was the potential to actually step into sub charters, if conditions got worse, is that something that's still on the table like further down the road, in terms of like looking for some sort of potential like a recovery out of this and what actually might happened in terms of upside, just kind of wanted to understand if that was still something that could potentially happen longer term?
Yes, thank you. Unfortunately, given the ongoing, Chapter 11 process in Seadrill. I cannot really comment any more specifically on the rigs and what we have disclosed in the press release. Of course, as time goes on, I'm sure there will be more clarity on the outcome of those proceedings important thing for us and I'm sure for all the other stakeholders also in Seadrill is to ensure that the two rigs that are working for oil majors continue uninterrupted activities and no impact on the service.
And remember, the Chapter 11 process is typically a process where the business remain, call it unaffected, while the financial stakeholders and owners, restructure for the balance sheets, et cetera. So, we are happy to see that, two of our rigs are on good charters with these very strong counterparties. But I cannot give any more specific guiding on what could be after the Chapter 11 proceedings.
Got it. Some one more sort of point, to follow up on something you've talked about a couple of times already, which is the tanker market and it seemingly makes sense cyclically, but you do have an ESG concern. So, as opposed to talking about, like the sector broadly as something that is interesting, are there particular types of deals in the space that you might still find appealing that might mitigate some of those concerns that you have? And that's all for me.
We try not to be too specific on guiding on that, but I would say that we have a focus on we call it ESG type factors and particularly on factors concerning emissions from vessels. And of course, the fact that tanker vessels, both consume oil as they are being run, but also transport oil, weighs, call it down on our appetite in that segment, but we haven't said that we are excluding any segment now. But I'm saying that our focus is primarily on the segments where we see less of a carbon footprint as we invest going forward.
Thank you.
Thank you.
There are no further questions at this time, please carry on.
Thank you. Then I would like to thank everyone for participating in our fourth quarter conference call. And also thank the SFL team for their efforts in a challenging time with all the disruption caused by the COVID-19 situation both on boarder vessels and onshore. If you have any follow up questions, there are contact details in the press release. And you can get in touch with us through our contact pages on our webpage, www.sflcorp.com. Thank you.
That does now conclude our conference for today. Thank you all for participating. And you may now all disconnect.