SFL's Q3 2025 Earnings Call: Contradictions on Dividend Strategy, Hercules Rig Leasing, and Chartering Tonnage

Date of Call: November 11, 2025

Financials Results

• Revenue: $178 million total operating revenue in Q3 2025, including $1.8M in profit share; vessel charter hire ~ $154M and rigs ~ $26M
• EPS: $0.07 per share (net income $8.6M)

Business Commentary:

• Dividend and Shareholder Returns:
• SFL Corporation Ltd. announced its 87th consecutive quarterly dividend of $0.20 per share, totaling approximately $2.9 billion returned to shareholders.

• The dividend represents a yield of over 10% based on the previous day's share price, reflecting the company's long-term commitment to shareholder returns.

• Fleet Renewal and Efficiency Upgrades:

• SFL sold 5 57,000 deadweight ton dry bulk vessels built between 2009 and 2012, with the final vessels delivered in the third quarter.
• The company also redelivered 8 older Capesize bulkers and 7 2002-built container ships to their respective owners during the second and third quarters.

• These actions were part of a broader strategy to improve the operational and fuel efficiency profile of the fleet, enhancing both SFL's and its customers' benefits.

• Charter Backlog Growth:

• SFL's charter backlog reached $4 billion, with approximately 2/3 contracted to investment-grade counterparties.

• The growth in charter backlog was driven by securing long-term agreements with strong counterparties, providing strong cash flow visibility and resilience amidst market volatility.

• Offshore Segment and Hercules Rig:

• The drilling rig Hercules remained idle in the third quarter, with SFL evaluating strategic alternatives for the rig.

• While the timing of new employment for the rig remains uncertain, SFL is optimistic about securing new opportunities, focusing on unique capabilities in harsh environments like the North Sea and the Norwegian Continental Shelf.

• Container Segment and Vessel Performance:

• The container segment contributed $82 million to the quarter's adjusted EBITDA, supported by long-term charters with leading counterparties.
• The high-level of utilization across the shipping fleet was reported at approximately 98.7%, with adjusted utilization (excluding unscheduled technical off-hire) being 99.9%.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 87th consecutive dividend of $0.20 and ~ $2.9B returned to shareholders; adjusted EBITDA of $113M for the quarter and $473M LTM; charter backlog ~ $4B (two‑thirds investment grade); strong liquidity (~$278M cash + $40M undrawn); active fleet renewal and LNG/efficiency investments.

Q&A:

• Question from Anonymous (Unknown): Do you expect Hercules to be leased in the new year and will the Gulf of Americas Lease Sale 262 (Dec 10, 2025) affect Hercules lease potential?
  Response: Marketing is focused on harsh‑environment markets (North Sea/Norwegian Continental Shelf, Canada, parts of southern Africa) where Hercules's specialized specs are required; Gulf of Americas is less relevant given competition and milder conditions.

• Question from Sherif Elmaghrabi (BTIG, LLC, Research Division): Are you considering well intervention opportunities for Hercules or would that preclude drilling work?
  Response: Open to all work types — well intervention, exploration, or development drilling; rig was upgraded to enable development drilling and management is flexible to secure employment and cash flow.

• Question from Sherif Elmaghrabi (BTIG, LLC, Research Division): For tankers rolling off, given strong spot rates and orderbook, is it too soon to secure long‑term work?
  Response: Too early to decide; many contracts include 2‑year options and profit‑share features that can capture market upside, so timing and value realization remain uncertain.

• Question from Harris Shannon (Unknown): Can SFL provide updates on the $100M buyback?
  Response: $80M remains on the program; ~$10M repurchased year‑to‑date at an average price of approximately $7.98 per share.

• Question from Unknown Analyst (Unknown): If attacks on commercial shipping pause in the Red Sea, how fast will container operators return to the region?
  Response: Expect a cautious, gradual return driven by carrier risk assessments and insurance; for SFL (long time charters) no change to charter rates but potential reduction in operating expenses if routes normalize.

• Question from Unknown (Unknown): Do you have purchase obligations in any of your charter contracts? If yes, can you share details?
  Response: Purchase obligations are largely historical; several MSC bareboats were returned and a few remain in associate structures; business has shifted toward time charters so SFL retains residual value and captures upside via profit‑share in some cases.

• Question from Unknown (Unknown): What is the outlook for new transactions outside of the Container segment?
  Response: Segment‑agnostic — pursuing opportunities across maritime sectors focused on commodity‑type vessels with strong counterparties; have investment capacity but no specific guidance on timing or allocation.

Contradiction Point 1

Dividend Strategy and Financial Reserves

It involves changes in the company's dividend policy and the availability of financial reserves, which are critical for investor expectations and financial management.

Has SFL provided any updates on the $100 million buyback implementation? - Harris Shannon

2025Q3: We have about $80 million remaining on the buyback and have bought back equivalent of $10 million of shares this year at an average price of approximately $7.98 per share. - Aksel Olesen(CFO)

Can you explain the decision to lower the dividend? Is the rig the main driver? How should we view this dividend in the future? - Gregory Robert Lewis

2025Q2: The rig, being warm stacked, has expenses of around $60,000 per day, and interest and amortization also apply. We have adjusted the dividend to $0.20 per share. - Ole Bjarte Hjertaker(CEO)

Contradiction Point 2

Hercules Rig Leasing Opportunities

It concerns the potential leasing opportunities for the Hercules rig, which impacts the company's revenue and strategic plans.

Do you expect Hercules to be leased in 2024? Will the Gulf of Mexico's Lease Sale 262 impact Hercules' leasing potential? - Espen Nilsen Gjøsund

2025Q3: Hercules is specialized for harsh environments and is primarily focused on the North Sea, specifically the Norwegian Continental Shelf, and regions like west of Shetland in the UK, Canada, and southern parts of Africa. The Gulf of America may not be the best fit due to the availability of other rigs better suited for the environment there. - Ole Hjertaker(CEO)

Can you discuss the Hercules rig upgrades and their expected costs? - Unidentified Analyst

2025Q1: Hercules is currently warm stacked and kept running for quick mobilization. OpEx will ramp up before the rig starts working. - Ole Hjertaker(CEO)

Contradiction Point 3

Chartering Long-Term Tonnage

It involves the company's strategy regarding chartering long-term tonnage, which affects their financial planning and fleet management.

Given the current strength in tanker spot rates and the order book, is it too soon to consider securing long-term contracts for vessels with expiring agreements? - Sherif Elmaghrabi (BTIG, LLC, Research Division)

2025Q3: It's too soon to have an opinion on long-term work for these vessels. The vessels have 2-year options, and there is a profit share feature which could create significant value if they are sold. - Ole Hjertaker(CEO)

How have asset sales and acquisitions changed recently, and what is the demand for long-term tonnage charters? - Gregory Lewis (BTIG)

2025Q1: We're open to dry bulk opportunities but need the right return characteristics to fit our threshold. - Ole Hjertaker(CEO)

Contradiction Point 4

Hercules Rig Work Opportunities

It involves differing expectations for the work opportunities and potential fit of the Hercules rig in different regions, which could impact the company's revenue and strategic decision-making.

Do you expect Hercules to be leased in the new year? Will the Gulf of Mexico Lease Sale 262 (BBG 1) under the Big Beautiful Bill Act scheduled for Dec 10, 2025 affect Hercules' lease potential? - Espen Nilsen Gjøsund(SFL)

2025Q3: Hercules is specialized for harsh environments and is primarily focused on the North Sea, specifically the Norwegian Continental Shelf, and regions like west of Shetland in the UK, Canada, and southern parts of Africa. The Gulf of America may not be the best fit due to the availability of other rigs better suited for the environment there. - Ole Hjertaker(CEO)

What are the OpEx costs for the Hercules rig while warm stacked off Norway, and what is the 2025 budget considering potential prospects? - Gregory Lewis(Analyst)

2024Q4: Hercules is in Norway for a very good purpose. If you take a step back, she's designed for harsh environments and is the most capable rig globally for these ultra-deepwater and Arctic environments that you find on the Norwegian Sea, on the UK continental shelf and similar areas. - Ole Hjertaker(CEO)

Contradiction Point 5

Dividend Strategy and Payout Ratio

It involves differing perspectives on the company's dividend strategy and the factors influencing its payout ratio, which are critical for investor expectations and shareholder returns.

How is the payout ratio determined, and what factors could lead to an increase or decrease in the dividend? - [Climent Molins]

2025Q3: The payout ratio, I think we try to target something around 75% to 80%, which is the way we've been doing this over the last few years. It's -- we've been pretty stable in that range. - Aksel Olesen(CFO)

With the purchase of 8 Capesizes, will the net proceeds be used for dry bulk investments or to reduce exposure to that sector? - Climent Molins(Analyst)

2024Q4: We've established a dividend payout ratio that's around 75%, and it's been pretty stable, and I think that's actually -- it's a good discipline to have. We talked about the ability to be flexible and consider what market conditions are and also making sure we have sufficient headroom for growth opportunities and we're not putting the company at risk by going all in on dividend. - Ole Hjertaker(CEO)