Ship Finance International Limited (SFL)

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Ship Finance International Limited (SFL)

Q3 2011 Earnings Call

November 23, 2011 10:00 am ET

Executives

Ole B. Hjertaker - Chief Executive Officer and Chief Executive Officer of Ship Finance Management AS

Eirik Eide - Chief Financial Officer

Analysts

Phyllis Camara

Unknown Analyst

Adam M. France - 1492 Capital Management, LLC

Herman Hildan - RS Platou Markets AS, Research Division

Justine Fisher - Goldman Sachs Group Inc., Research Division

Martin Korsvold - Pareto Securities AS, Research Division

Presentation

Operator

Good day, and welcome to the Ship Finance International Quarter 3 Results 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.

Ole B. Hjertaker

Thank you, everyone, and welcome to the Ship Finance International Third Quarter Conference Call. My name is Ole Hjertaker, and I'm the CEO of the Ship Finance management, and with me here today -- I also have the CFO, Eirik Eide; and Vice President Magnus Valeberg.

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission.

The Board of Director has declared a cash dividend of $0.39 per share for the third quarter. This represents $1.56 per share on an annualized basis or 14.6% dividend yield based on closing price yesterday. This is, of course, after the dramatic market movement yesterday, so if we used the 30-day average of 14.185 instead, the dividend yield would be 11%. We have now declared dividends for 31 consecutive quarters and paid out more than $13 per share in total aggregate cash dividends per share. Adjusted net income for the quarter was $31.4 million or $0.40 per share. This is before a $2.4 million noncash mark-to-market of interest rate swaps and before a $1.6 million negative adjustments relating to the profit split in previous quarters. The fixed rate charter revenues in the quarter, including our 100% owned subsidiaries accounted for as investments in associate was more than $200 million, and the EBITDA equivalent cash flow in the quarter was approximately $170 million or $2.15 per share, which was in line with the previous quarter. We have now secured financing for all the newbuildings and also a container ship delivered in 2010. As we have paid significant installments to the shipyards already, there will actually be a significant positive cash contribution for the company in the fourth quarter from these financings.

In August 2011, we took delivery of the 57,000 deadweight ton Supramax bulker SFL Kate, which is now on long-term charter to the Korean-based investment grade logistics company Hyundai Glovis. This was the fourth of a total of 5 vessels, and the last vessel is scheduled for delivery in December this year. We also took delivery of SFL Spey in August. This is the first of 4 34,000 deadweight ton Handysize vessels chartered to the China-based Hong Xiang Shipping, which is a part of the privately owned conglomerate, Beijing Jianlong Group, one of the largest steel producing companies in China. The time charter period is 5 years, and the second vessel, SFL Medway, was delivered in October. The third and fourth of the vessels are scheduled for delivery in the fourth quarter this year and first quarter next year, respectively.

We have agreed to sell our remaining 3 non-double hull VLCCs to an unrelated third party for a total net sales price of approximately $72.7 million. Estimated delivery to the new owner will be in the first quarter of 2012, the fourth quarter of 2012 and the third quarter 2013 for Titan Orion, Titan Aries and Ticen Ocean, respectively.

Net cash proceeds for Ship Finance after compensation payment to Frontline will be approximately $46.5 million or approximately $15.5 million per vessel on average. This is after compensation to Frontline of $26.2 million or approximately $8.7 million per vessel on average for the termination of the current charters. The company expects to record an average book gain of approximately $3.2 million per vessel at the time of delivery of the vessels. Also, in October, we sold a 1992 build combination carrier, Front Striver, and simultaneously terminated the charter to Frontline. This is the third OBO sold this year and net proceeds from the sale was approximately $18.7 million, including an $8.1 million compensation payment from Frontline. We expect to record a book gain of approximately $2.3 million in the fourth quarter in connection with the sale.

We have a significant portfolio of long-term charters, which gives us a very transparent and predictable cash flow. Essentially all our vessels are chartered out on long-term basis, and we still have close to 11 years weighted average charter coverage. Full details on a vessel-by-vessel basis are available by contacting us at ir@shipfinance.no.

We have around $6.7 billion of fixed rate order backlog or around $84 per share, and the EBITDA equivalent backlog is $5.4 billion or around $68 per share. These numbers are before profit share and do not include any rechartering at the end of the current charters.

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