SFL Corporation Ltd (SFL) 2018 Q2 法說會逐字稿

Good day, and welcome to the Quarter 2 2018 Ship Finance International Limited Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Ole Hjertaker.

Please go ahead, sir.

Thank you, and welcome everyone to Ship Finance International and our Second Quarter Conference Call.

With me here today, I have our CFO, Harald Gurvin; and Senior Vice President, André Reppen.

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 expect, 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 operation 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 Ship Finance's reports and filings with the Securities and Exchange Commission.

The board has declared a quarterly dividend of $0.35 per share.

This dividend represents $1.40 per share on an annualized basis or 9.5% dividend yield based on closing price of $14.75 yesterday.

This is our 58th consecutive dividend, and we have now paid $24.50 per share in dividends or more than $2 billion in aggregate since 2004.

The reported net income for the quarter was approximately $16 million or $0.15 per share.

This is after an impairment charge of $22 million relating to the sale of the 3 VLCCs after quarter-end.

Aggregate charter revenues recorded in the quarter, including a 100% owned subsidiaries accounted for as investment in associate, was approximately $141 million, and the EBITDA equivalent cash flow in the quarter was approximately $108 million.

The last 12 months, the EBITDA equivalent has been approximately $440 million.

In the second quarter, we successfully issued a new $164 million convertible note.

This note has a maturity in 2023 and has a cash coupon on 4.875% a year.

The initial conversion price was $18.93 per share or 33% above share price at that time, and the strike will be adjusted for dividends paid going forward.

Some of the amounts raised have already been put to work in connection with the recent acquisitions, and we have grown our backlog by more than $800 million last 5 months as seen -- and we have also seen a major change in the fleet mix.

44% of our backlog is now in the liner segment up from around 25% 6 months ago, and the tanker segment has been reduced from nearly 20% to around 10%.

On a relative base, the offshore sector has also come down from more than 40% 6 months ago to around 33% currently.

Earlier today we were pleased to announce the acquisition of 3 modern eco-designed containerships built 2015, and with a capacity of 10,600 TEU.

The first vessel is scheduled to be delivered to us already next week and the last vessel in early October, so we expect full cash flow in the fourth quarter.

The vessels are chartered long-term to a world leading container line with a minimum period until late 2024 and options to extend until 2028.

There is also a purchase option with a profit split at the end of the initial period.

Our backlog will increase by approximately $260 million, increasing to approximately $430 million if the charter extension options are exercised.

The purchase price and terms are confidential.

But in order to facilitate a quick closing and benefit from the cash flow generated, we will fund the transaction with a combination of cash at hand and a $200 million intermediary bank financing.

The EBITDA contribution from these assets is estimated to approximately $35.5 million per year.

In late May, we took delivery of 4 14,000 TEU container vessels in combination with long-term time charters to Evergreen.

The charter period is until mid-2024 with options for the charterer to extend the period by 18 additional months.

The transaction added nearly $450 million to our charter backlog, and the estimated annual EBITDA contribution from these vessels is approximately $60 million with full cash flow effect in the current quarter.

At the beginning of April, we took delivery of a fleet of 15 feeder size container vessels ranging from 1,100 TEU to 4,400 TEU in combination with long-term bareboat charters to a leading container line.

The purchase price is confidential, but close to recycling value of the vessels.

And the charter term is until 2025, and the charterer has purchase options during the term of the charters, and a purchase obligation at the end of the period effectively eliminated residual risk.

Aggregate EBITDA contribution is approximately $20 million per year from these vessels.

And with our large and diverse fleet, we continue our fleet renewal processes and have sold another 3 older VLCCs subsequent to quarter-end.

During the second quarter, we also sold the SFL Avon, which was the only 1,700 TEU feeder vessel in our fleet that traded in the short-term charter market.

And in addition, we have agreed to sell the 2007-built jack-up Soehanah for approximately $84 million with delivery later in the year.

This rig is on a charter paying $10,000 per day currently, and we believe we can invest the capital more effectively in other assets when the sale is finally concluded.

Delivery will be later this year, and we expect to book gain relating to the sale as the book value at quarter-end of this -- in June was approximately $76 million.

In terms of numbers of vessels, we now have more vessels operating in the liner market than in other -- any other segment.

And as mentioned earlier, the segment -- this segment represents 44% of our charter backlog.

Our focus has primarily been on new design container vessels between 9,000 and 19,000 TEU, and we continue to see opportunities in this segment as illustrated by the recent acquisitions.

After the sale of the 2010-built 1,700 TEU vessel SFL Avon in the second quarter, all container vessels are now employed on long-term charters.

We also have 2 car carriers, the Glovis Conductor and the Glovis Composer, which were long-term charters until the third quarter of 2017, and thereafter, rechartered in the short- to medium-term charter market.

We could look at longer period for these vessels, but believe the timing is not optimal for that currently.

The spot crude oil market has remained soft for several quarters as a result of high fleet growth, cuts in OPEC volume and significant oil inventory draws.

Currently, there seemed to be a more balanced market with forward rates in the fourth -- in the last quarter -- sorry, in the fourth quarter significantly above current levels.

The charterer of the 5 vessels, Frontline Shipping Limited, or FSL, is a nonrecourse subsidiary of Frontline Ltd., and so far, FSL has been able to pay the base rate by drawing on a previously built up cash buffer.

In the second quarter, the vessels earned approximately $8,100 per day on average, which is well below the base charter rate of $20,000 per day.

We did receive the full charter rate of $20,000 per day during the second quarter.

But according to Frontline, the buffer was down to below $4 million at quarter-end, and therefore, not sufficient to continue supporting the full charter hire going forward.

Until the spot market recovers above the base rate, the revenues from these vessels will, therefore, be linked to the actual earnings generated in the spot market.

And if the full base rate is not paid, the difference will accumulate as a claim and be payable when the market recovers above the base rate again.

The remaining 5 vessels are built between 2001 and 2004, and the company's average cash breakeven rate is approximately $11,500 per day after financing cost.

These assets are the only vessels remaining from the company's inception 14 years ago, after selling more than 40 older vessels profitably over the years with accumulated net book gains of around $100 million, including the $22 million impairment recorded in the second quarter.

We have over the years focused on significant repayment of debt associated with these vessels, and the remaining vessels are financed with $85 million in debt, which is in line with current recycling values.

The vessels continue trading as crude oil tankers, but we are exploring alternative uses for these vessels, such as conversion projects, long-term storage or other alternative employment options with a focus on improving long-term value.

The sale of the 3 vessels to ADS in July should be seen in this context where a portion of the sales proceeds from the vessels have been reinvested in the new -- in this new venture.

We invested $10 million giving us a 17% share in the company.

And for us, this is an opportunistic financial investment close to what we believe is a low point in the business cycle for tanker vessels with limited downside to current recycling values.

Our investment as a shareholder in ADS could, therefore, give us significant upside potential with very low-risk exposure at the tail end of these vessels' commercial life.

The net proceeds from the sale of these vessels included $10.1 million in the form of interest-bearing loan notes from Frontline Limited as compensation for the termination of their management commitments.

In addition to the VLCCs, we also have exposure to the crude oil tanker market through 2 modern Suezmax tankers which are traded in a pool with sister vessels owned by Frontline.

For these vessels, the average charter rate in the second quarter was approximately $12,200 per day down from $15,100 per day in the previous quarter.

In addition to that, we also have 2 112,000 deadweight ton LR2 product tankers on charter to Philips 66, and 2 2008-built chemical carriers chartered to Sinochem Front Duke.

In April, we agreed to extend the charters for the Sinochem vessels for another 3 years, and these vessels contribute approximately $3 million of EBITDA per year in this extension period.

We have 22 dry-bulk vessels in the fleet with 15 larger vessels chartered out on long-term basis, and 7 Handysize vessels traded in the spot market.

One of our long-term objectives is to combine stability and predictability in cash flow with optionality, as we have seen over time that market volatility can generate super returns from time to time.

The charters to Golden Ocean is an example of this.

We have a 33% profit split on top of the base rate of $17,600 per day plus interest adjustment or $18,600 per day currently.

We did not generate any profit split in the second quarter, but based on broker reports, the Capesize market is currently above the profit share threshold level.

The profit split will be based on actual performance by these specific vessels, so we cannot give any guidance on when our profit share will materialize.

But as the profit share is calculated and payable on a quarterly basis, we believe there is good probability for profit shares over the remaining 8-year charter period.

The Kamsarmaxes and Suezmaxes are all on long-term fixed-rate time charters, while the 7 Handysize dry-bulk carriers continue to trade in the spot market.

The rates achieved this quarter for the Handysize vessels were approximately $8,700 per trading day, which is down from approximately $9,500 in the previous quarter.

We were very happy to see the Seadrill financial restructuring finally implemented in July.

As part of the restructuring, we have agreed to reduce the contractual charter hire for the 3 rigs by approximately 29% for a period of 5 years beginning January 2018 with the reduced amounts added back in the period thereafter.

The term of the leases for West Hercules and West Taurus will also be extended by 13 months until December 2024.

We have concurrently agreed with our financing banks that the loan terms will be extended by 4 years, starting from the original maturity date of each of the 3 separate loan facilities with reduced amortization during the extension period compared to the current level.

Assuming -- and the cash flow from these 3 rigs during the extension period, after the adjustment in the loan amortization is estimated to be approximately $29 million per year.

Seadrill has subchartered 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 consecutive subcharters in the North Sea and is now working for Siccar Point Energy and will thereafter commence drilling for Norwegian oil major, Equinor, which was previously known as Statoil.

The semisubmersible rig, West Taurus, remains in lay up in Spain.

Including the West Linus, we have reduced the debt from $1.9 billion initially on the Seadrill rigs to less than $725 million currently.

And of this aggregate outstanding loan balance, only $266 million is currently guaranteed by Ship Finance.

Ship Finance also has 4 offshore support vessels on long-term charters to a nonrecourse subsidiary of Solstad Farstad ASA.

The market for offshore support vessels remains challenging and the vessels are currently not employed on subcharters.

In light of the depressed market, the company and -- we and other financial creditors to this entity have entered into a restructuring agreement in July, where we will receive 50% of their agreed charter hire for 2 vessels Sea Cheetah and Sea Jaguar until the end of 2019.

All other payments under the respective charters will be deferred until the end of 2019.

The offshore support vessels only represent approximately 2% of our charter backlog as of June 30, and our financial commitments limited to a corporate guarantee of $30 million under the related bank financing of the 5 vessels.

If we then switch to cash flow last 12 months, the normalized contribution from our projects including vessels accounted for as investment in associates, we had an EBITDA contribution, defined as charter hire plus profit share and short-term charters, less operating expenses and general and administrative expenses, of $439 million in the 12-month period.

Net interest was $122 million or approximately $1.20 per share, and our normalized ordinary debt installments relating to the company's projects was $176 million or approximately $1.74 per share in the 12-month period.

We would like to stress that this is including the continuing higher amortization on the Seadrill rig loans last 2 quarters, despite the reduced charter rate.

This was done intentionally from our side to avoid extra fees and will be adjusted down by nearly $50 million over the period from the fourth quarter this year until second quarter next year in connection with schedules rollover of the loans.

Net contribution after this very high amortization was $141 million or $1.40 per share over the last 12 months, which is in line with the dividends declared.

From our inception more than 14 years ago, we have paid out approximately 80% of net income in dividends, which illustrates the moderate dividend policy, and it has allowed us to significantly grow our business organically.

And with that, I'd like to give the word over to our CFO, Harald Gurvin, who will take us through the numbers for the quarter.

Thank you, Ole.

On this slide, we have shown our pro forma illustration of cash flow for the second quarter compared to the first quarter.

Please note that this is only a guideline to assess the company's performance and is not in accordance with the U.S. GAAP.

Total charter hire for the second quarter was $138 million, up from $129 million in the previous quarter.

The main reason for the increase is the delivery of 19 container vessels during the second quarter.

The 15 feeder size container vessels were delivered beginning of April and close to a full quarter of cash flow, while the 4 large container vessels on charter to Evergreen were delivered in May and will have full cash flow effect in the third quarter.

We also expect to take delivery of 2 of the 3 container vessels announced today in the third quarter and the last one in early October, which will then have close to full earnings effect in the fourth quarter.

Revenues on tankers were slightly down in the quarter due to the sale of 1 VLCC in the first quarter and lower earnings on the 2 Suezmax tankers trading in the pool.

We received full charter hire on the 8 VLCCs on charter to the Frontline Shipping in the second quarter, contributing approximately $1 million of EBITDA per vessel.

But until the market recovers above the base charter rates, the contribution from the vessels going forward will be based on the actual performance.

3 of the vessels have been sold post quarter-end, leaving only 5 vessels.

Dry bulk revenues were in line with the previous quarter, while offshore revenues were down due to the amended agreements on the 5 offshore support vessels on charter to a subsidiary of Solstad Farstad.

In light of the challenging market, we received no charter hire in the second quarter while the amendments were being finalized.

Under the amended agreements, we will receive 50% charter hire on 2 of the vessels until the end of 2019, and all other payments on the respective charters will be deferred until end of 2019.

The EBITDA contribution from these vessels has been approximately $2 million per quarter in total, which will reduce to approximately $550,000 until the end of 2019.

So overall, this summarizes to an adjusted EBITDA of $107.7 million for the quarter or $1 per share, up from $99.5 million in the previous quarter.

We then move on to the profit and loss statement as reported under U.S. GAAP.

As we have described in previous earnings calls, our accounting statements are slightly different than 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 and finance leases, results in associates and long-term investments and interest income from associates.

If you wish to gain more understanding of our accounts, a separate webcast, which explains the finance lease accounting and investment in associates in more detail, can be viewed on our website, shipfinance.bm, under Investor Relations and Webcasts.

Overall for the quarter, we reported total operating revenues according to U.S. GAAP of $96.8 million.

We recorded an impairment charge of $21.8 million relating to the sale of the 3 VLCCs, which was agreed subsequent to quarter-end.

Total operating expenses were $79.4 million, including the $21.8 million impairment charge, resulting in an operating income of $17.2 million.

From the first quarter 2018, U.S. GAAP also requires us to include the mark-to-market of equity securities in our income statement, which was positive with approximately $16 million in the quarter.

This mainly relates to our 11 million shares in Frontline.

So overall and according to U.S. GAAP, the company reported net income of $15.8 million or $0.15 per share.

Moving on to the balance sheet.

We showed $145 million of consolidated cash at the end of the quarter, which excludes $16 million of freely available cash in our 3 subsidiaries accounted for as investment in associates.

Other current assets of $141.5 million includes the jack-up drilling rig Soehanah at $76 million, which following agreement to sell the rig has been reclassified as a held-for-sale asset.

Short-term and current portion of long-term interest bearing debt includes the $320 million intermediary financing for the 4 large container vessels on charter to Evergreen, where we are in the process of arranging a long-term financing.

Stockholders' equity was approximately $1.2 billion, giving a book equity ratio of approximately 36% at the end of the quarter.

Then looking at our liquidity and financing status.

As mentioned, we had total available liquidity of $161 million at the end of the quarter, including cash in our subsidiaries accounted for as investment in associates.

In addition, we had available for sale securities of $114 million, which includes investment in the senior secured bonds and other securities, with a fair value of $51 million at quarter-end, and also our 11 million shares in Frontline with a market value of approximately $57 million based on the closing share price yesterday.

We had a total of 6 debt-free assets at quarter-end, including the 2 car carriers, 3 1,700 TEU container vessels, and the jack-up drilling rig, Soehanah, which has been agreed and sold.

The combined charter value of these assets is approximately $166 million based on average broker appraisals, and we may potentially enter into financings on some of these assets in the future.

On the financing side, we issued $164 million senior unsecured convertible notes in April.

The 5-year notes bear interest of 4.875% per annum and are convertible into the company's common shares at an initial conversion price of approximately $18.93 per share.

We also entered into a $50 million financing with a bank for the 15 feeder size container vessels we acquired in April, with a tender matching the 7-year term of the charters, and with an annuity-style repayment profile.

In connection with the 4 14,000 TEU container vessels acquired in May, we entered into a $320 million unsecured loan facility provided by an affiliate of Hemen Holding Ltd., our largest shareholder.

The loan facility is nonamortizing and with a term of more than 1 year, but we are in the process of arranging a long-term financing for these vessels at attractive terms.

For the 3 10,600 TEU container vessels announced today, we have received a firm commitment for a $200 million intermediary bank facility to part finance the acquisition.

The facility has a maturity of more than 1 year, but we expect to arrange a long-term financing in the near term.

Given a very strong credit profile of the charterer, we believe this can be done on very attractive terms.

Then to summarize.

The board has declared a cash dividend of $0.35 per share for the quarter.

This represents a dividend yield of 9.5% based on the closing share price yesterday.

Net income for the quarter was $16 million or $0.15 per share.

We have strengthened the balance sheet with the issuance of $164 million convertible notes in April.

We have, over the last 5 months, acquired a total of 22 vessels, adding more than $800 million to the charter backlog.

At the same time, we have seen a significant shift in the fleet mix with increasingly diversified high-quality counterparties.

And with that, I give the word back to the operator, who will open the line for any questions.

(Operator Instructions) And we will take our first question from Randy Giveans from Jefferies.

So quick question, just for modeling.

Looking at the asset sales, when do you expect to deliver the 3 older VLCCs, namely what months?

And same thing, what month do you expect to deliver the Soehanah, later this month -- or later this year?

Yes.

So the 3 VLCCs, 2 of them have been delivered already to the new buyer, and 1 was -- so 1 was delivered mid-July, 1 was delivered a week ago, and 1 is expected to be delivered in a week's time.

And for the Soehanah, there is more flexibility for the buyer to -- on the exact date.

So there is a couple of dates in mid-December.

And -- but in the meantime, we will receive the $10,000 per day bareboat hire.

Got it.

Perfect.

And then you mentioned that the EBITDA contribution for the 3 10,600 TEU containerships will be a little over $35 million.

Was the purchase price closer to 8x or 10x this kind of multiple?

I cannot give you specific guidance on that, I'm afraid.

All right.

I was going to ask what the LTV of the $200 million loan, but I guess, that won't help either.

All right.

So you mentioned your current contract backlog is about 44% containerships, 10% tankers.

Do you expect this kind of wide difference to remain intact next year?

Or do you expect to kind of get more active in the tanker space now that you only have a handful of older VLCCs remaining?

Well, yes, we have been looking at a lot of opportunities, I would say, across the board.

Of course, we cannot be specific on anything other than that the deals could actually ending up doing.

But we have looked at also opportunities in the other sectors.

We have -- of course, our objective is to have a balanced portfolio.

But again -- but of course, the bottom line is to do the right deals.

So based on the deals we have done recently, that -- those are the deals where we have felt that we had the right combination of asset, structure, counterparty and also residual exposure and financing where that's sort of cocktail, if you call it, that works for us.

But we would, of course, also be happy to do deals in the other segments.

But I would say, generally, we -- I think, we can say that we see new deal opportunities almost on a daily basis.

So that is all about cherry picking the deals, and do the right deals, and hopefully, build the portfolio on that basis.

Okay.

One last question for me.

So SFL, roughly -- your coverage ratio is 1.2x, 1.3x; at least we will be for the rest of this year 2019.

Can you comment on may be the dividend sustainability or possible growth over the next 2 years, now with the new containerships?

Yes.

I think -- if you take sort of a step back here, we have been very quiet on the acquisition front for a period, and that was linked to the Seadrill restructuring, where we wanted to be seen as a very strong -- also financially we were, you can just call it, hoarding cash to ensure that we have -- had a lot of flexibility in that process.

Now that is behind us, and we are now putting more capital to work.

So we -- so I would say, some of the deals we have done would also be something, almost like a catch-up a little bit in terms of ordinary deal flow that you need to do on an ongoing basis, given the portfolio we have.

Of course, the objective when we do new deals is that it is accretive for our shareholders.

But we cannot be specific on timing for that.

And also the board reserve -- always reserves the right to never give projections on dividends, but history tells us that there have been a down -- there has been very rarely a downward adjustment, and normally, it's stable or increasing.

So hopefully, we can continue that and build the dividend also going forward.

But we cannot be specific on timing or amounts.

And our next question comes from Greg Lewis from BTIG.

Congratulations on the deal today.

I guess, just following up on Randy's question.

Clearly, there is a lot of deals and transactions to be done here as we look out over the next 3, 6, 12 months.

You've been very active in the liner business, your 3 deals more recently.

At what point is too much liner -- or containership or liner exposure?

I mean, are we comfortable having 50% of the portfolio being in these type of assets, just given their long-term coverage and counterparty risk?

Yes.

I think -- on our side, we are not so focused on percentage mix.

It's all down to the individual deals.

And the way we do the deals is that we build them, we put them in -- call it, in separate vehicles underneath, call it, Ship Finance parent, and then we try to structure it with financing where we also limit, call it, the guarantee obligations going up.

So we have in the past, for instance, we had a very high percentage of offshore exposure at one time, simply because at that time those were the right deals to do, and there were chunky deals.

And therefore, they were weighing much in the portfolio.

So going forward, I don't think we can give any guidance that we will grow evenly across the board in the various segments, but, of course, we want to have a diversified portfolio.

And therefore, hopefully, as we also continue growing the container side, we will also grow the other sectors.

It's probably the best way to phrase it.

We have ambitions to build the portfolio overall and source new deals that will be accretive.

Okay.

Great.

So as we -- okay.

So just in thinking about where we are in this cycle for the liner -- for the container shipping industry, there's a lot more activity -- there's a lot more potential deals you're looking at.

So that in of itself just we're not looking at real numbers, so we could actually see some deals.

Okay, great.

One other question I had is, you still have the 2 bridge financings.

When -- I mean, realistically, when could we see those bridge financings become sort of permanent bank financing?

It's Harald here.

I mean, if you look at these 2 deals, of course, both deals we've executed very quickly.

If you look at the sort of 4 Evergreen vessels, there we are well advanced in arranging our financing.

So hopefully, that will close within the third quarter.

That is the plan by end of September.

Okay.

And -- okay.

Perfect.

And then so -- okay.

Does -- is there -- is -- does the bridge financings limit your ability to go after transactions, i.e.

do we need to get that financing in place before we can kind of go after our next deal?

Not really.

I mean, both -- if you look at the -- these financings we entered into, the $320 million that has a term of more than 1 year.

So you have time to finance it.

So we're probably close to refinancing there within the third quarter.

The offer we received for the $200 million bridge facility, that also has a term of more than 1 year.

But there, we've also started discussions for a long-term financing.

And I think that should be a very easy project to finance based on the counterpart.

And just adding to that.

I mean, the whole objective for us of using the bridge structure versus going straight for the long-term financing is exactly that we then will be able to execute more deals, and also get the benefit of getting the cash flow earlier instead of waiting to put all pieces together.

So I think this is a strength we have because of our relative size and financial flexibility.

And on the last deal, the banking question turned around and came up with this commitment on very, very short basis, which is, I would say, almost unheard of in the banking market which, of course, is -- we're very pleased to see that.

And I think, it also, hopefully, demonstrates our standing within the banking community and our ability to source capital.

In the end, the take-out financing, the reason why we didn't do that in the first place is that our objective is to source financing that is very attractive on a long-term basis, and what we are, call it, contemplating there, takes a little longer to put together, and we -- that's why we do it in this sort of 2-step approach.

And our next caller is Fotis Giannakoulis from Morgan Stanley.

I want to follow up, again, on the latest acquisition of the 3 containerships.

If you can give us a little bit of color of how shall we think of the free cash flow after your debt prepayments?

And how shall we think of the refinancing risk and the residual risk after the expiration of the charters?

Yes.

I can give you some guidance there.

First of all, I would say, these container deals -- of course, it all depends on exact structure of the final financing structure.

But we do expect, I would say, from sort of low mid-teens on the terms of -- on the equity return to maybe high teens depending a little bit on final structure.

So compared to, call it, the equity that we inject that is -- they are, as we see, quite attractive and very accretive.

If you then look at the residual value which, of course, always is unknown because it is forward in time, and you don't know exactly what it is.

We have always tried to take a very conservative approach to residual value assumption.

So typically, we take a look at what we believe are mid-cycle replacement costs; we depreciate that down for -- from -- I would say, from 20 to 25 years, typically in our calculations to a conservative recycling value; and then, we try to have a buffer also of that.

And the reason for that is that we -- as we all know, I mean, over time, you can do it -- you can build an infinite number of vessels, every new vessel is on the margin more efficient than the previous vessel.

And therefore, at the end of the charter period, we have to make sure that we have a structure where we have a reasonably comfortable breakeven level from that point.

That also means that we -- usually, we always build in significant debt repayments to ensure that the breakeven also on the financing is sufficiently low for the period thereafter.

So this all goes together in what we call sort of the cocktail of creating, hopefully, an accretive deal.

And we've now been in business for 14 years.

And what we say, so far so good.

We have been able to keep a quite high dividend payout over these years, and been able to reinvest and also not be too exposed in down cycles in individual segments.

Can you also give us some information about the repayment profile of the loans that you signed, about the $50 million for the feeders?

Is this down to 0 during the life of the contracts?

And also in the containership repayment profile?

And are there any maturities?

I noticed some Handysize vessels.

Do you expect that these maturities will be refinanced in full?

Or you will have to pay down the debt?

If you look at the $50 million facility for the 15 vessels, that annuity-style repayment structure down to 0 over the 7 years, to lock-in the cash flow over the charters.

If you look at the container financing, we're looking at, I cannot comment on the repayment structure there yet.

That we can get back to once finalized.

But the 2 sort of bridge facilities we have entered in today are nonamortizing, at least in the near term.

So they will most likely be nonamortizing until we enter into the long-term financings.

If you look at sort of near-term maturities, they aren't -- there is nothing on the Handysize vessels.

We have some other facilities coming up for refinancing.

We've -- if you -- I think, you're talking about the Supramax vessels.

There we have 1 coming up in December 2018, $22 million, that's for 2 vessels.

We are in discussions on the refinancing on that.

But I cannot comment anything on the amount or anything.

And then we also have a 3-vessel facility for Supramaxes coming up in February '19, where we'll, of course, manage that in due course.

But all these facilities, of course, they have very steep repayment structures.

So the balloons should be manageable.

We also have the facility for the Frontline vessels coming up end of the year, where, as Ole mentioned, the current outstanding after the sale of the 3 vessels post quarter-end is around $85 million, which is basically in line with the recycling values of those vessels.

One last question about the financing landscape.

I remember, about a year ago, there were a lot of Asian leasing houses, Chinese, Japanese companies that they were very keen in acquiring these containerships, like the ones that you recently bid.

How does this -- how does the competitive landscape look like right now?

Have this availability of capital or these competitors has been less active that gives more opportunities for additional transactions?

If you can comment who else or how many other parties try to bid on this latest containership acquisitions?

Or if it was a private deal that you negotiated yourself?

Yes.

Thank you.

First, commenting on the various, call it, providers of financing or capital, yes, there are -- and there has always been a number of companies, call it, providing capital to the maritime industries, everything from -- that could be German KGs, and if we go back 10 years, you have the U.S. private equity money, who has been active for periods.

You have seen the Chinese leasing companies building up substantially.

And, of course, also the Japanese, who have always been there.

But then, basically or mainly linked to Japanese-built vessels.

What we have seen over the years is that -- and from our side, I mean, we try to work with these various capital providers.

Because what we see is that they also look at the risk structures, and they see that working with us because of our size and position in the market can also be a benefit.

So for instance, we have a very few vessels that have been financed in China with some of their providers of capital that you would see in the news.

With regard to this specific transaction, this has been a direct private deal with, obviously, one of our existing customers.

And therefore, has not been fleshed around in the market by brokers, whether or not they also have communicated with others on the vessels.

Of course, we have -- we don't have any sort of insight into that.

But it's important here to also understand that these are -- this is not a bareboat deal.

This is not a financing structure.

These are assets where we will operate the vessels.

And of course, there our position as a quality operator is important.

We would never have been -- been in the position to do this unless the vessels we are running and operating are doing so at the highest standard with the top performance for our customers.

So I think, it's maybe a -- it's a testament to our structure where we can operate vessels as, basically, best in class with the top liner companies in the world.

(Operator Instructions) We will then take our next question from Magnus Fyhr from Seaport Global.

Just one question on the cash position.

I mean, you've got about $160 million of cash.

You've got some asset sales of about $140 million.

And then on top of that, you've got marketable securities over $100 million.

That's $400 million of liquidity to fund just 1 acquisition you have upcoming year.

And on top of that, the acquisitions that you made is another $100 million of cash flow.

What's the kind of comfort level here on the balance sheet.

How much cash do you need to keep on the balance sheet on an ongoing basis, just to be flexible?

Yes.

Because most of our assets are on long-term charters to high-quality counterparties, there is very significant visibility in the cash flows.

Therefore, I would say, with this portfolio, we are comfortable running the company with, I would say, sort of $25 million to $50 million, call it, cash buffer.

You have, of course, always, call it, on a week-by-week, in one week, you may have an installment, and then revenues might come in next week.

So you need to have some buffer.

But you don't need to have a very huge buffer.

So, as I said, $25 million to $50 million is -- should be more than sufficient to run this company on a cash flow basis.

And so we do believe we still have good investment capacity in addition to the 3 vessels we announced earlier today.

And you've been, I mean, very active here in the last 3 months.

I mean, do you still feel that there are equally as good opportunities still in the market?

Well, we are screening, call it, new deal opportunities continuously.

And our objective is to continue building the portfolio.

But we will not give you sort of specific guiding on volume that we're going to do in the next quarter or 2. Simply, as I mentioned a little earlier, that it's all about trying to do the right deals.

So instead of guiding on volume, we report deals if we do a deal.

We do think it makes sense for us.

But -- and hopefully, we can build the portfolio going forward with good projects.

Okay.

And just one last question.

On the cash flow statement, purchase of vessels, $511 million.

Was that just for the 2 acquisitions that closed during the second quarter?

Or is there anything else in there?

Well, that's for those acquisitions.

It appears that there is no further questions at this time.

I would like to turn the conference back to you for any additional or any closing remarks.

Then I would like to thank everyone for participating in our second quarter conference call.

And 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 web page, www.shipfinance.bm.

Thank you.

That concludes today's conference call.

You may now disconnect.