SFL Corporation Ltd

NYSE:SFL

Earnings Call Transcript 2021-Q4

[Operator]

Good day and thank you for standing by. Welcome to the Q4 2021 SFL Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there would be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ole Hjertaker. Please go ahead.

[Ole Hjertaker, CEO]

Thank you and welcome 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 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. Forward-looking statements are not guarantees of future performance. These statements are based on our current clients 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 includes 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 over risks and uncertainties which may have a direct bearing on our operational results and our financial condition. The announced dividend of $0.20 per share is an increase of 11% over last quarter's dividend and represents a dividend yield of around 9% based on closing price yesterday. This is our 72nd quarterly dividend and over the years, we have paid more than $28 per share in dividends or $2.4 billion in total. And we have an increasing fixed-rate charter backlog supporting continued dividend capacity going forward. The total charter revenues was $166 million in the quarter with around 75% of this from vessels and long-term charters and around 25% from vessels employed on short-term charters and in the spot market. This includes or included the seven handysize bulkers we have sold. So going forward, we expect the higher relative share from long-term charters. The EBITDA equivalent cash flow in the quarter was approximately $121 million or 10% higher than the previous quarter. Over the last 12 months, the EBITDA equivalent has been approximately $434 million. And the net income came in at around $80 million in the quarter or $0.63 per share. Yet again relating to the sale of the bulkers of $39 million, and otherwise, there were only minor one-offs in the quarter including a negative mark-to-market effect on interest hedging instruments. There were also around $1.1 million higher operating costs in the quarter due to additional crew rotation costs linked to COVID restrictions. We expect a similar effect also in this quarter, but hope that the restrictions will ease soon. And virtually all our crew are now vaccinated already. Our fixed-rate backlog has increased and stands at approximately $2.8 billion from owned and managed vessels after recent acquisitions and disposals providing continued cash flow visibility going forward. The backlog figure excludes revenues from the vessels traded in the short-term market and also excludes future profit share optionality. In addition, we have excluded charter hire relating to the drilling rigs to be conservative in light of the ongoing financial restructuring in Seadrill. We continue building the portfolio with modern assets on long-term charters and have recently agreed to acquire four modern LR2 product tankers in combination with time charters to Trafigura. The structure is similar to the three Suezmaxes we announced last quarter, and the deal includes some interesting optionality features if the market should strengthen during the charter period where a sale can be triggered with a profit split. And if not, the long-term charters amortizes the vessels down to a comfortable low-level with a good base return supported by the $160 million charter backlog linked to these vessels. In the quarter, we also finalized the sale of the seven Handysize vessels for an aggregate net sales price of around $98 million. In addition to the sales price, there was around $15 million net cash flow from trading the vessels at high rates until delivery. So they've had a very nice contribution for us in 2021. We have also sourced multiple new financings at attractive terms and see loan margins creeping downwards, and we fully redeemed the remaining $145 million convertible note in cash during the quarter. During the fourth quarter, we took delivery of three of the seven tankers we chartered to Trafigura, and we have already taken delivery of three more leaving only one Suezmax vessel still to be delivered expected later this month. Excluding the drilling rigs, the backlog from owned and managed vessels was $2.8 billion at the end of the quarter. Over the years we have changed both fleet composition and structure, and we now have 75 shipping assets in our portfolio. In addition to the long-term chartered vessels, we have eight vessels trading in the short-term market currently, and four to five coming off their long-term charters later this year. We have also had significant contributions to cash flow from profit share over time, both relating to charter rates and fuel savings. The aggregate profit share was around $20 million last year and $7.5 million in the fourth quarter alone. We do not have a set mix in the portfolio focuses on evaluating deal opportunities across the segments and tried to do the right transactions from a risk-reward perspective. Over time, we believe this will balance itself out. But we tried to be careful and conservative in our investments with a focus on technology and transition over time to more fuel efficient technology for propulsion. The two drilling rigs are not included in our reported charter backlog figures. And with respect to Seadrill and the ongoing financial restructuring, we cannot give more details than what we have disclosed in our press releases or is otherwise publicly available. After Seadrill's plan on reorganization was approved by the court they estimate the emergence from Chapter 11 within the first quarter this year. We received more than 70% of the lease hire under the existing charter arrangement for West Linus and West Hercules during Seadrill's Chapter 11 proceedings. Both rigs are active and working for all companies and the charter rate is sufficient to cover a debt service relating to the rigs. And we are of course pleased to see strengthening drilling markets on the back of the very firm oil price. We have entered into a new agreement relating to the harsh environment semi-sub West Hercules. Under this new agreement with Seadrill, the West Hercules is contracted to be employed with all major Equinor in Norway and Canada until September, October and thereafter redelivered to SFL in Norway. SFL continues to receive a bareboat hire of around $60,000 per day, while the rig is employed under a contract and generating revenues for Seadrill. And approximately $40,000 per day in all our other modes, including when the rig is idle and mobilize to and from Canada for the Equinor work. The rig is now on it's way to shore for some upgrades required for this job, and is expected to move to Canada in the second quarter. With regards to the West Linus, which is on a sub-charter to an oil major in the North Sea until the end of 2028, we continue to have us contractive dialogue with Seadrill and the end user for the continued operations of the rig under the contract. They have not yet agreed final terms with Seadrill, but this is expected before their emergence for Chapter 11. Given the ongoing discussions, we can unfortunately not comment anymore on this for the time being. Over the years, we have gone from a single asset class charter to one single customer to a diversified fleet and multiple counterparties. And over the time, the mix of assets and charter backlog has varied from 100% tankers at the beginning to nearly 60% offshore 10 years ago to container vessels now being the largest segment with nearly 60% of the backlog. If you look at the counterparties, it is now mainly to end users and market leaders in their respective segments and relative few are in intermediaries where we have less visibility on the use of the assets and quality of operations. Strategically this also gives us access to more deal flow opportunities, such as the repeat business with Maersk, MSC, Evergreen and Trafigura as examples. Our strategy, as therefore being to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the wider Seatankers Group. This gives us the ability to offer a wider range of services to our customers from structured financing effectively to full service time charters. 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 practically owning vessels employed from bareboat, where the customer may not always have an incentive to make such improvements. In addition, we can retain more of the residual value in the assets when we charter out on time charter basis and in the current environment, with rising raw material costs and inflation driving replacement costs for vessels, this value is for the benefit of SFL and our stakeholders. For bareboat deals, this value is usually retained by the charters through fixed price purchase options. This is illustrated by the recent sale of seven Handysize bulkers, where our upgrading platform has enabled us to trade the vessels in the spot market during a soft market and when the market, just doubled the last year, we could sell the vessels with a significant profit. And with that, I will leave the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter.

[Aksel Olesen, CFO]

Thank you, Mr. Hjertaker. On this slide, we've shown our pro forma illustration of cash flows for the fourth quarter. Please note that this is only a guideline to assess the company's performance and is not in accordance with U.S. GAAP, and also not of extraordinary and non-cash items. The company generated gross charter hire of approximately $166 million in the fourth quarter, including $7.5 million of profit split with [indiscernible] with approximately 75% of the revenue coming from a fixed charter rate backlog, which currently stands at $2.8 billion, providing us with strong visibility on our cash flow going forward. In the fourth quarter, the liner fleet generated gross charter hire of approximately $90 million, including approximately $3.4 million in profit split contribution related to fuel savings on some of the large container vessels. Of this amount, more than 90% was derived from our vessels on long-term charters. Following the company's recent acquisitions, SFL's liner fleet backlog currently stands at approximately $2 billion, with an average charter -- remaining charter term of approximately 4.4 years, or approximately 7.3 years equated to charter hires. Including recently announced transactions as well as 16 crude oil products and chemical tankers, the majority employed on long-term charters. Our tanker fleet generated approximately $17.5 million in gross charter hires during the quarter. Of the net charter hire received more than 75% was derived from our vessels on long-term charters, among others Frontline and Phillips 66. The net charter rates from the company's two Suezmax tankers employed in short-term market was approximately 3.1 million compared to 1.7 million in the previous quarter. Late in the fourth quarter, SFL took delivery of one Suezmax tanker and two LR2 product tankers with five years charters to Trafigura. The remaining two Suezmax tankers, two LR2 product tankers will be delivered during the first quarter with full quarterly earnings effect from the second quarter. Our dry bulk fleet generated approximately $46.3 million in gross charter hire in the fourth quarter, including $4.5 million in profit share contribution from our capesize vessels on charter to Golden Ocean. During the quarter the company has a fleet of 22 dry bulk vessels of which 11 vessels were employed in long-term charters and the other 11 are trading in the short-term and spot market. The 11 vessels trading in the spot and short-term market generated approximately $21.2 million in net charter hire during the quarter compared to approximately $20.7 million in the previous quarter. During the quarter, the company completed the sale and delivery of seven smaller Handysize dry bulk vessels to a nation buyer. The sale generated net sales proceeds approximately $19 million in addition to strong spot earnings during the fourth quarter prior to delivery. SFL owns two drilling rigs which have been chartered out to subsidiaries of Seadrill on bareboat terms. In the fourth quarter, we received approximately $12.3 million in charter hires from the rigs. This summarizes an adjusted EBITDA for approximately $121 million for the fourth quarter compared to $112 million in the third quarter. We then move on to the profit and loss statement, as reported under U.S. GAAP. As we had described in previous earnings calls, our accounting segments are different from those of a traditional shipping company. And that's our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leases. As a result, significant portion of our charter revenues are excluded from U.S. GAAP operating revenues and instead looked at revenues classified as repayment of investment in finance, leases and vessel loans, results in associates and long-term investments, and interest income from associates. For the fourth quarter, we report total operating revenue according to U.S. GAAP of approximately $152 million, which is less than approximately $166 million of charter hires actually received for reasons just mentioned. During the quarter, the company recorded profits with income of approximately $4.5 million from our capesized dry bulk vessels on charter to Golden Ocean. And of this, we took approximately $3.1 million from fuel savings arrangements on some of the large container vessels. The company also reported a $39.3 million gain relating to the sale of a seven smaller Handysize dry bulk vessels, which should all be delivered to the new buyer before year-end. Operating expenses of our fleet is up compared to the previous quarter, due to a combination of new vessels entering the fleet and expenses relating to COVID-19 measures, among others due to our efforts to maintain a normalized cruise change cycle for seafarers despite challenging travelling restrictions around the globe. In addition, we also saw an increase in depreciation due to the new additions for our fleet and also the consolidation of the West Hercules during the third quarter. Overall and according to U.S. GAAP, the company reported a net profit of approximately $80 million or $0.63 per share. Moving on to the balance sheet, at quarter end, SFL had approximately $146 million of cash and cash equivalents. Additionally, the company had marketable securities of approximately $25 million, based on market prices at the end of the quarter. Furthermore, the company had seven debt free vessels with a combined charter free market value for approximately $170 million, including two LR2 product tankers, which the company took delivery of before the end of the quarter, which was paid approximately $80 million of cash. We expect to drawdown in financing for all LR2 product tankers during the first quarter. Approximately $430 million of remaining CapEx of recently announced acquisitions is expected to be financed for that facilities, and with SFL's other assets with long-term charters. During the quarter, approximately $145 million was used to repay the balance of the convertible notes, which was due in October. Furthermore, the company received approximately $98 million in cash proceeds from the sale of a seven Handysize dry bulk vessels during the fourth quarter. So based on Q4 numbers, the company had a book equity ratio of approximately 28.4%. And to summarize, the board has declared a cash dividend of $0.20 per share for the quarter, an increase of approximately 11% compared to the previous quarter. This represents a dividend yield of approximately 9% based on the closing share price yesterday. This is the 22nd consecutive quarter dividends, and since inception of the company in 2004, more than $28 per share or more than $2.4 billion in total has been returned to our shareholders through dividends. SFL has successfully committed more than $1 billion towards recent acquisitions in 2021. In the process, we have expanded our relationship with some of our key clients by investing in modern Eco-Design containerships and tankers, and at the same time dispose of older less efficient assets, demonstrating our commitment to further improve our carbon footprint pursuant to our ESG strategy. Following the recent investments, our backlog from our shipping assets now stands at $2.8 billion, providing strong visibility on future cash flow, debt service and continued distribution capacity. With a strong operational platform and our access to attractively priced capital, SFL is well-positioned to execute the new accretive investments in the quarters to come. And with that, I give the word back to the operator, who will open the line for questions.

[Operator]

Thank you. [Operator Instructions]. And the first question comes from the line of Randy Giveans. Please go ahead.

[Randall Giveans]

Howdy team, SFL. How's it going?

[Ole Hjertaker, CEO]

Hi, there Randy. Nice to hear from you.

[Randall Giveans]

Yes, sir. So looking at your fleet here, you recently took delivery of numerous tankers; you sold right some of your dry bulk vessels. Now currently dry bulk is only about 11% of your contract backlog basically the smallest sector in that. And then with the recent pullback in asset values over the last few weeks and even months, despite further strengthening in charter rates, is dry bulk the asset class of choice for growth at the moment, if not what sector is?

[Ole Hjertaker, CEO]

Yes, we looked at opportunities across the board in all these segments. I'd say generally and then certainly we wouldn't mind do more deals in the dry bulk space. But we also have to be cognizant of sort of market structure in that segment, typically dry bulk vessels are traded more in the spot market, and on long-term sort of logistical type solutions. So our preference is, of course, longer-term charters. And there are not that many long-term charters call it into dry bulk market, despite, the numerous vessels there. So we are chasing transaction opportunities wherever we can find them. And I think with our diversification, as you pointed out, we can look at the deal opportunities in many segments at the same time, and they're not tied to only one sub-sector. So, yes, we look at opportunities there, as we do elsewhere, as well. And but to kind of be specific, we always -- we were happy to announce deals as we do them. But we cannot sort of speculate on how much we should invest in each segment.

[Randall Giveans]

Sure. That's fair. I don't expect you to give all your cards away here. And I was going to ask some questions about the drilling rigs, but sounds like your mom on that for now, which is understandable. So looking at the dividend, great to see that kind of continuing to rise? Is the plan there to slowly increase that going forward? And what are some of the hurdles or maybe catalysts for further increases?

[Ole Hjertaker, CEO]

Absolutely, I mean, we are always happy to please our or their shareholders. And we've been paying dividends now 72x. So we were starting to get the -- get the -- get the track of that one. The dividend and this is more based on our dividends, you can say policy or communication policy around dividend. We will never guide on forward dividends. Dividend is set every quarter by the board and at the discretion of the board. But of course, as you well know over time, and over these 72 quarters, it's typically been stable or increasing. And with only with -- of course, some adjustments, when there has been market events sort of driving it. So of course, as we have been doing quite a bit of business, new business last year and billion new investments et cetera, that will come on stream cash flow from these tanker vessels, for instance, we will have quite a bit of cash flow from those vessels are already in the first quarter and full cash flow effect in the second quarter. And also other transactions is of course, we do this only with the one sole mindset that, we hope to increase distribution capacity going forward but exactly how much and when I cannot tell you.

[Randall Giveans]

Yes, no that's fair. Well, thanks again. That's my two questions.

[Ole Hjertaker, CEO]

Thank you very much.

[Aksel Olesen, CFO]

Thank you.

[Operator]

Thank you. Next question is from the line of Greg Lewis from BTIG. Please go ahead.

[Greg Lewis, BTIG]

Hey, thank you and good afternoon, everybody. And Ole sorry I missed you in New York last week. Question of around, just following up on Randy's question around the dividend clearly, you're not going to give any guidance around the dividend. But it does seem that we're kind of targeting some sort of percentage of cash flow, at least that's what it's looked like over the last couple quarters. Is that kind of a fairway to think about the dividend going forward? Or is it more a function of your outlook on the market?

[Aksel Olesen, CFO]

I think, as Ole said, in a way we don't give any guidance and promises on dividends, I think it was important for us is to see that. They have a good sized capital going forward as kind of can -- we can have a sustainable dividend going forward. And that's to build a business it's kind of natural that they are able to also increase their dividend over time. So it's going to -- we don't think it was specific percentage et cetera. So it's going to be was it sustainable, what's the contribution from net cash flow in each quarter around and worked out going forward as well. And then that's [indiscernible].

[Greg Lewis, BTIG]

Okay, that makes sense. Okay. And then so I mean, you -- in the press release, you mentioned that seven vessels are -- are unencumbered. You mentioned the actual estimated fair market value of those vessels. Is there any way to think about the potential borrowing ability on those vessels? Yes, how should we think about that?

[Aksel Olesen, CFO]

Absolutely. I mean, we intend to draw up the facility on the four electrophilic tankers later this quarter.

[Ole Hjertaker, CEO]

Yes. And I will say, part of the reason for having that and having someone to come in vessels is that it enables us, given our financial flexibility it enables us to go ahead and close on transactions early, and not wait on the financing to be arranged to get a deal done. So you can say the net effect there is that we get the benefits of the cash flow from the vessels early, and then we secure and source the financing, and, of course, the best possible terms some weeks later. So that was sort of the incident. We also have some smaller, obviously, it's like the older vessels that are unencumbered. And we don't have any immediate plans necessarily to do to put leverage on them, but we have the flexibility, all the ways that you can do it on short notice if we need to. So you could say it's sort of we have -- it's just sort of you could say it's -- you could say it's a part of spare, call it investment capacity. And with our portfolio assets, there will be situations where some have lower leverage, and maybe we can refinance. If we think that leverage has come down too far compared to asset values, and vice versa. So it's an ongoing, call it dynamics in any company.

[Aksel Olesen, CFO]

Exactly our portfolio approach. And as a general observation, we see that there's, we have increasing access to attract very attractive capital, with either more new banks coming in competing on terms. So I think, first of all, it's a very good environment.

[Greg Lewis, BTIG]

And then, as I look at the portfolio. I mean, clearly, asset prices have gone up almost exponentially in containerships. Clearly, that's your largest pool of assets in the portfolio. As you're thinking about that business, and as you're thinking about those assets, and you're talking to your lenders, realizing that the bulk of your assets are on long-term contracts. So maybe we're not full, we're not really going to benefit from the strength in rates that is driving those asset prices higher. That being said or would we -- is there an opportunity to put on additional leverage on any of those, whether it's container ships or other assets, where prices have gone higher despite the fact that a lot of those vessels are on long-term contracts?

[Aksel Olesen, CFO]

I mean, you could potentially, that's not really how we think about that. I think, as a shareholder, I would think that the value of our backlog is really kind of the value of the counterparties. And if you see that the majority of the backlog around 2 billion into I would say, probably investment grade counterparties. I think that's the strength of the company. And you have extremely good visibility on that cash flow. And we have been very particular on choosing the counterparties that they have in the portfolio that those are companies that do believe will perform, even this kind of the charter marketing will soften which it will in the future. So it's more kind of having substance in the company and oppositely kind of using that to leverage up, because you also have a minimum value clauses in loan agreements, et cetera. So you just have to be very prudent in deciding what to do.

[Operator]

Thank you. Next question comes from the line of Liam Burke from B. Riley. Please go ahead.

[Liam Burke, B. Riley]

Yes, thank you. Asset values are up, not only with containers, but pretty much across the board and all your vessel classes. How has that affected your acquisition backlog? I mean, are you still seeing the opportunity? Or have your opportunities gone down? Are you still looking at a attractive pipeline?

[Aksel Olesen, CFO]

I think if you look at their competitive advantage, I would highlight the COVID strong operational platform that they have and the fact that if you look at the portfolio approximately 90% of revenues are from time charters done and only 10% from bareboats. We basically have a different approach to deal origination. And we also see a lot of kind of repeat, or inquiries from existing clients which should be kind of relationships that were built over many years. So I think in terms of kind of new opportunities, we of course, both speak to few brokers we also talk to our clients. And we see a nice, I think it's a good deal flow, if you see more deal flow in terms of time charter stability and more financially driven deals like bareboats as many of the banks are coming strongly back to lend as well as kind of Asian [ph] money. The thing for us we continue to see attractive opportunities.

[Liam Burke, B. Riley]

Fair enough. You mentioned in your prepared comments, that technology and -- is important for obvious reasons on emissions going forward. Are there any vessels in your fleet that you would think okay could provide technological risks -- could provide technological risks, to allow you to sell sooner?

[Trym Sjølie, COO]

Well, risk maybe a strong word there. But if we look at our fleet, the vessels that are maybe the sort of the least ideally going forward will be smaller bulk carriers, the vessels where we see, well which we are quite positive to that's the big tankers, they are -- they will not have a problem from that perspective, and also our large containerships are in a good position. And especially if we look at our new building programs, with the LNG dual fuel car carriers, they're also going to contribute very well towards the overall fleet, carbon intensity indicator track because when we are coming into 2023 and forward is going to be an increasingly aggressive target to stay ahead. But with our current fleet, we are well-positioned we think.

[Ole Hjertaker, CEO]

And I think maybe just add to Trym's comment, that is Trym Sjølie, our Chief Operating Officer, maybe also add to that, that we will have our ESG report out in a few weeks' time for the last year, I think you will see if you compare the report from the previous year, you will see a very significant change in our fleet composition and the metrics, as a combination of our acquisition, so of very efficient vessels, including a dual fuel new buildings, and the sale of less efficient the small bulkers that we also disposed of last year, and also many small feeder containerships that were disposed of in the middle of the year, that which were generally quite old. And therefore had a negative impact on our average on those metrics. So I would say we are very focused on these issues. And of course, our mindset is that we should continue to develop our portfolio over time with that, of course as one of our key decision elements.

[Operator]

Thank you. Next question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

[Unidentified Analyst]

Hey, thanks, guys. It's [indiscernible] on for Chris. Maybe we can start with the COVID comments quickly. I'm just curious if we can quantify what the COVID impact on crews was from an expense standpoint, in terms of the headwind?

[Aksel Olesen, CFO]

Sorry, fantastic question there. I mean, the cost of the true COVID costs for us is pretty round numbers $1 million per quarter. And that seems to be quite steady was during last year and it seems to be approximately where we are at the moment, too. And this has to do with travel costs and quarantine and general sort of delays in moving people around.

[Unidentified Analyst]

Great, that makes sense. Can we talk about CapEx, so where do we currently stand with that looking forward here, what's the mix and the strategy is that going forward there?

[Aksel Olesen, CFO]

Yes, I think really the only outstanding CapEx currently is of course car carriers, dual fuel new buildings coming up with China, with 10 new charters to Volkswagen Group and K-Line respectively, we are in active discussions with several financial institutions, it's says more about optimizing their financial terms than anything else, we have received extremely strong interest based on kind of, yes, quality of the ships, fuel relogs both quality up to counterparties in their [ph] interesting segments with good supply demand, outage, so yes.

[Ole Hjertaker, CEO]

Yes, and of course we have paid down installments to the shipyards for all those four vessels as well. So, we don't expect a very significant call it CapEx, net cash CapEx, because most of the remaining investments in those vessels can be covered by financing. Of course, we focus on optimizing that and minimizing the cost of that capital, of course, but from an overall perspective with a $4 billion balance sheet, I think we have a very low CapEx in sort of in relative numbers.

[Unidentified Analyst]

Sure. Just following up on that one thing you said, I'm just curious, what is the backlog or the congestion in the shipyards you're seeing right now?

[Aksel Olesen, CFO]

Congestion, well we see if you want to go out to get new vessels, typically car carriers containerships now, you'll probably be looking at 2024, even 2025. So if you want to go to sort of first or second tier yards in Asia, like China or Korea, so I don't think you will find many 2023 deliveries at the moment. So we are taking a look at late 2024, early 2025, I think that answers your question.

[Ole Hjertaker, CEO]

And also prices have been going up, there is inflation of both in raw material, but so and also labor in these countries where most of the ships are being built, so this is also helping our overall fleet structure, or I would say any shipping companies in the fleet portfolio, because it's new building prices is in a way, pulling off also secondhand values as a percentage of replacement costs, which is benefiting us. So, we don't mind call it increasing shipyard prices. And as we do new transactions, as long as we can get charters that is reflective and gives us a decent return, even if prices are coming up, we are still good to do new transactions at higher price.

[Aksel Olesen, CFO]

And some yards are reluctant to take orders going much further in or further out I mean than sort of mid 2024 because of the risk of rising steel prices and general inflation. So the yards are also a bit reluctant not to take new orders very far into the future.

[Operator]

Thank you. And with that, I would like to hand back over to the speakers for final remarks.

[Ole Hjertaker, CEO]

Thank you. Then I would like to thank everyone for participating in our conference call. And also thanks the SFL teams on board the vessels and onshore for their continued efforts day and night in delivering value for our shareholders. 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.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.