SFL(SFL 0.72%) reported second-quarter 2025 results on August 13, 2025, posting total operating revenues of $192 million (GAAP) and adjusted EBITDA of $112 million. The company reduced its quarterly dividend to $0.20 per share due to the continued idling of its Hercules drilling rig and recent asset disposals, while maintaining a $4.2 billion charter backlog and liquidity exceeding $300 million. The following insights examine SFL's fleet renewal, dividend policy, and risk management based on management commentary and quantitative disclosures.
Fleet renewal accelerates SFL efficiency
During the quarter, SFL completed the sale of 20 older vessels, including eight Capesize bulkers and seven container ships, reducing the average fleet age by about two years. This move was prompted by stricter emissions regulations and the inability to secure new long-term charters for less efficient vessels.
"Eight older Capesize bulkers to Golden Ocean and seven 2002 built container ships to MSC have also been redelivered in late June and early July pursuant to the chartering agreements. As a result of this and also vessel efficiency investments, operational efficiency and fuel consumption profile of the fleet has improved materially, delivering benefits to both SFL Corporation Ltd. and our customers."
-- Ole Hjertaker, CEO
This strategic pruning positions SFL for long-term charter rate premiums and regulatory compliance, enhancing its competitive standing in a tightening market for efficient vessels.
Dividend cut signals SFL cash flow discipline
The Hercules drilling rig has been warm stacked since the fourth quarter of 2024 at a daily cost of $60,000, with no new contract in sight, while adjusted EBITDA fell to $112 million from $160 million in the prior quarter. Asset sales have increased available capital but reduced near-term distributable cash flow, prompting the board to lower the dividend to $0.20 per share.
"But it looks like this market continues to be relatively slow, and the opportunities take longer to materialize than we had hoped for. So that is, of course, one piece of it. And while the rig is idle, we have a warm stack rate currently of in the region of $60,000 per day, and then, of course, also some interest and amortization on the financing relating to it. So that is something that we are, of course, focused on. But also bearing in mind that when the rig worked in the last full quarter that the rig worked in the third quarter of 2024, it had a significant contribution. Just that one rig alone had an EBITDA contribution of around $35 million, around $20 million that quarter after interest and amortization. So it's a big, you know, it's a significant asset when it's working. But right now, we feel and the board feels that it's very prudent to make sure that the distribution is not effectively subsidized, you know, because that unit is out of service currently."
-- Ole Hjertaker, CEO
The dividend policy is now closely tied to operational cash flow, and any restoration of the payout will depend on re-employment of the Hercules rig or redeployment of capital into new accretive assets.
SFL backlog and liquidity limit downside risk
At quarter-end, SFL held $156 million in cash and $49 million in undrawn credit, with net proceeds exceeding $150 million from post-quarter asset sales. Nearly two-thirds of the $4.2 billion charter backlog is with investment-grade counterparties, and container vessels account for about 71% of the portfolio.
"Our charter backlog is currently $4.2 billion, and importantly, two-thirds of this is to customers with investment-grade ratings, giving us unique cash flow visibility and resilience in light of the current market volatility. Over time, we have consistently demonstrated our ability to renew and diversify the portfolio of assets and charters, supporting a sustainable long-term capacity for shareholder distributions. And we have a strong liquidity position, including all drawn portions of credit lines, also multiple unlevered vessels at quarter-end, which should enable us to continue investing in new accretive assets."
-- Ole Hjertaker, CEO
This strong backlog concentration with blue-chip clients and excess liquidity provides SFL with flexibility to pursue new investments and shields the company from near-term market volatility.
Looking Ahead
Management expects dry dock costs to decline to below-average levels in the third and fourth quarters of 2025, normalizing after a heavy first half. Available liquidity, including credit lines, now exceeds $300 million, and $850 million in remaining capital expenditures for five new container ships is expected to be funded with pre- and post-delivery financings, with deliveries starting in the first quarter of 2028. No timeline or guidance was provided for Hercules re-employment, though management continues to explore all strategic options for the rig.
