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Ship Finance International (NYSE:SFL)
Q3 2018 Earnings Conference Call
Nov. 20, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Q3 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 B. Hjertaker.

Please go ahead, sir.

Ole Hjertaker -- Chief Executive Officer

Thank you, and welcome all to Ship Financial International and our third-quarter conference call. With me here today, I have our CFO Harald Gurvin; and Senior Vice President Andre 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 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 has declared a quarterly dividend of $0.35 per share.

This dividend represents $1.40 per share on an annualized basis or 11.6% dividend yield based on closing price of $12.08 yesterday. This is our 59th consecutive dividend, and we have now paid nearly $25 per share in dividends or more than $2 billion in aggregate since 2004. The reported net income for the quarter was approximately $30 million or $0.28 per share. This is after an impairment charge of $6 million relating to the sale of a VLCC after quarter end and also some positive mark to market on derivatives.

Aggregate charter revenues recorded in the quarter including 100% owned subsidiaries accounted for as investment in associate was approximately $155 million, and the EBITDA equivalent cash flow in the quarter was approximately $121 million. Last 12 months, the EBITDA equivalent has been approximately $445 million. 2018 has been an active year with multiple transactions. We have grown our backlog by more than $800 million since April and seen a major change in the fleet mix.

At the same time, we have divested several older uneconomic assets, including several VLCCs from the company's initial fleet in 2004. 45% of our backlog is now in the liner segment, up from around 25% at year-end 2017. The tanker segment has been reduced from nearly 20% to around 8%, and the offshore segment has also come down from more than 40% at the end of last year to 34% at the end of the third quarter. In August, we were pleased to announce the acquisition of three modern eco-designed container ships built 2015 and with a capacity of 10,600 TEU.

The first two vessels were delivered to us in the third quarter and the last vessel in early October, so we expect nearly full cash flow in the fourth quarter. The EBITDA contribution is estimated to $35.5 million per year. The vessels are chartered to Maersk Line with a minimum period until late 2024 and options to extend until 2028. There is also a purchase option with profit split at the end of the initial period for each of the vessels.

Our backlog increased by approximately $260 million or approximately $430 million if the charter extension options are exercised. In late May, we took delivery of four 14,000 TEU container vessels in combination with long-term time charters to Evergreen. At that time, we part financed the vessels with a $320 million intermediary financing, and we have now refinanced that with $400 million long-term lease financings, effectively freeing up $80 million of liquidity. The lease financings for the first of the four vessels closed in the third quarter and the remaining in October and November.

In the third quarter, we also raised an unsecured bond loan of NOK 600 million, equivalent to approximately USD 74 million. Interest is NIBOR plus 4.75% and all amounts have been swapped to U.S. dollars. Part of the proceeds were used to purchase other notes due in March 2019.

So we look at this as effectively a refinancing. With a large and diverse fleet, we continued our fleet renewal processes and sold three older VLCCs in the third quarter and another two subsequent to quarter end. Three VLCCs were sold to ADS Crude Carriers where Ship Finance owns 17%. The ADS shares are listed on the Oslo Merkur Market, and our shares have a market value of approximately $10 million.

ADS targets a full payout on net cash flow to its shareholders. And for us, this is an opportunistic financial investment close to 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 good upside potential with very low risk exposure at the tail end of these vessels' commercial life. In the third quarter, we agreed to sell the 2007 built jack-up Soehanah for approximately $84 million with delivery expected in December.

$15 million of the purchase price was paid to us earlier this month, and the balance is payable on delivery. The rig is on a charter paying $10,000 per day currently, and we will receive the hire until delivery. Book value at quarter end was approximately $76 million. So we expect a gain of approximately $8 million after delivery, which is expected in the fourth quarter.

We also have some financial investments. And earlier this month, Golden Close Maritime Corp, where we've had the financial investment for some time, sold its only asset, the drill ship, DeepSea Metro 1, for $262.5 million. Net proceeds to us after redemption of the notes we owned and liquidation of the company is estimated to be approximately $47 million. This is significantly more than the book value and a gain of at least $10 million is expected to be recorded in the fourth quarter.  I don't think many analysts have allocated much value to our financial investments and ability to generate value out of that.

The proceeds from these notes and securities adds to our investment capacity, and we hope to put it to work relatively soon. In terms of number of vessels, we now have more vessels operating in the liner market than the other segments combined. And as I mentioned earlier, this segment is the largest with 45% of 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 the segment as illustrated by the recent acquisitions.  We also have two car carriers, the Glovis Conductor and the Glovis Composer, which were on long-term charters until the third quarter of 2017.

Thereafter, we have rechartered the vessels on short to medium term in the medium charter term market. We could look at longer period for these vessels, but believe the timing is not optimal for that currently. The spot crude oil tanker market remained soft for several quarters through 2017 and most parts of 2018 as a result of high fleet growth, cuts in OPEC volume and significant oil inventory draws. Currently, there seems to be a more robust market with forward rates in the fourth quarter and first quarter next year above the base rates for our VLCCs.

The remaining VLCCs are chartered to Frontline Shipping Limited, a nonrecourse subsidiary of Frontline Limited and earned approximately $9,500 on average per day, which is well below the base charter rate of $20,000 per day. So far, they've been able to pay the base rate by drawing on a previously built up cash buffer. The market dynamics have changed into the fourth quarter, however, and we expect charter rates achieved in the fourth quarter to be significantly stronger than in the third quarter and well above the $20,000 per day base rate.  The remaining three vessels are all built between 2002 and 2004, and our average cash breakeven rate is approximately $11,500 per day after financing cost. Only one of these assets were part of the initial fleet acquired from Frontline in 2004 after selling more than 40 older vessels profitably over the years.

In addition to the VLCCs, we also have exposure to the crude oil tanker market through two modern Suezmax tankers, which are traded in a pool with sister vessels owned by Frontline. For these vessels, the average charter rate in the first quarter was approximately $12,500 per day, which was marginally up from the previous quarter. As for the VLCCs, we expect earnings on these vessels to be significantly stronger in the fourth quarter. All the other assets in the segments are on long-term fixed rate charters.

We have 22 dry bulk vessels in the fleet with 15 larger vessels chartered out on long-term basis and seven Handysize vessels traded in the spot market. One of our long-term objectives is to combine stability and predictability in cash flows with optionality as we have seen over time that market volatility can generate super returns from time to time. And 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 the interest adjustment, which equates to around $18,600 per day currently.

This quarter, we recorded a profit share of $200,000 or around $300 per vessel per day on average. The market strengthened during the first part of the fourth quarter, but has softened lately, and it is uncertain if a profit share will accumulate this quarter. The Kamsarmaxes and most of the Supramaxes are all on long-term fixed rate time charters, while the seven Handysize dry bulk carriers continue to trade in the spot market. The rates achieved this quarter were approximately $8,000 per trading day, which is down from approximately $8,700 per day in the previous quarter.

There is positive momentum in the drilling market, and we were happy to finalize the financial restructuring of Seadrill in early July. Seadrill has sub-chartered the harsh environment jack-up rig, West Linus, to ConocoPhillips until the end of 2028. The harsh environment semi-submersible rig, West Hercules, has recently been awarded multiple consecutive sub-charters in the North Sea and is now working for Equinor, previously known as Statoil. The semi-submersible rig, West Taurus, remains in layoff in Spain.

Including the West Linus, we have reduced the debt from $1.9 billion initially on the Seadrill rigs to around $700 million currently. And of this aggregate outstanding loan balance, only $266 million is currently guaranteed by Ship Finance.  Ship Finance also has five offshore support vessels on long-term charters to a nonrecourse subsidiary of Solstad Offshore ASA. The market for offshore support vessels remains challenging and the vessels are currently not deployed on sub-charters. In light of the depressed market, the company and other financial creditors entered into a restructuring agreement in July, where we will receive 50% of the agreed charter hire for the two 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, and our financial commitment is limited to a corporate guarantee of $30 million under the related bank financings of the five vessels. If we then switch to cash flow last 12 months, the normalized contribution from our projects, including vessels accounted for as investments in associates, the EBITDA, which we define as charter hire plus profit share less operating expenses and general and administrative expenses, was $445 million in the period. This includes both the consolidated subsidiaries and also the subsidiaries which are 100% owned, but are classified as investment in associates. Net interest was $126 million or approximately $1.20 per share in the quarter -- in the period, sorry, and our normalized ordinary debt installments relating to the company's projects was $177 million last 12 months or approximately $1.70 per share.

This is including continuing higher amortization on the Seadrill rig loans last three quarters, despite the reduced charter rate. This was done intentionally from our side to avoid extra fees and will gradually be adjusted down by nearly $50 million from the fourth quarter to second quarter next year in connection with scheduled rollover of the associated loans.  Net contribution after the high amortization was $141 million or $1.35 per share over the last 12 months, which is in line with the dividend declared. From our inception nearly 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'll give the word over to our CFO, Harald Gurvin, who will take us through the numbers for the quarter.

Harald Gurvin -- Chief Financial Officer

Thank you, Ole. On this slide, we have shown our pro forma illustration of cash flows for the third quarter compared to the second quarter. Please note that this is only a guideline to assess the company's performance and is not in accordance with U.S. GAAP.

Total charter hire for the third quarter was $150 million, up from $138 million in the previous quarter. The main reason for the increase is the full-quarter revenues on the four container vessels on charter to Evergreen, which were delivered to us end of May. We also took delivery of two of the three container vessels on charter to Maersk in September with the third vessel delivered beginning of October, which will have close to full earnings effect in the fourth quarter. Revenues on tankers was down in the quarter due to the sale of three VLCCs, partly offset by slightly better earnings on the two Suezmaxes trading in the pool.

A further two VLCCs have been sold post quarter end with the first vessel delivered to its new owner in October and the second vessel is scheduled for delivery in December. Dry bulk and offshore revenues were in line with the previous quarter. The slight reduction in dry bulk revenues was due to lower revenues on the seven smaller Handysize vessels trading in the spot market. We are in profit share of approximately $240,000 on the eight Capesize driver carriers on charter to Golden Ocean where we receive 33% of annual earnings above the base charter rate calculated and payable on a quarterly basis.

So overall, this summarizes to an adjusted EBITDA of $120.5 million for the quarter or $1.12 per share, up from $107.7 million in the previous quarter. We'll 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 report total operating revenues according to U.S. GAAP of $111 million, up from $97 million in the previous quarter. As mentioned, this was the first full quarter of earnings on the four large container vessels to Evergreen delivered to us in end of May. We also recorded a profit share of $240,000 during the quarter and a gain of $820,000 on the three VLCCs sold during the quarter.

The impairment charge of $6.8 million relates to the sale of a VLCC, Front Ariake, which was delivered to its new owner subsequent to quarter end. Total operating expenses, including the impairment charge of $6.8 million, were $68.8 million, resulting in an operating income of $43 million. We recorded a positive noncash mark to market of derivatives of $8.4 million during the quarter, which mainly relates to the buyback of a portion of our NOK-denominated bonds due 2019 in connection with a new bond issue in September, resulting in a de-designation on the underlying cross-currency swaps. So overall, and according to U.S.

GAAP, the company reported net income of $29.7 million or $0.28 per share. Moving on to the balance sheet, we showed $144 million of consolidated cash at the end of the quarter, which excludes $9 million of freely available cash in our subsidiaries accounted for as investment in associates. We took delivery of two of the three 10,600 TEU container vessels on long-term charters to Maersk during the quarter, included under vessels and equipment.  We also concluded the first of the lease financing on the 14,000 TEU container vessels on charter to Evergreen, whereby the vessel was reclassified to vessel and equipment under capital leases. The corresponding lease liability is included under other long-term liabilities.  Other current assets of $137 million includes the jack-up drilling rig, Soehanah, at $76 million, which is classified as a held-for-sale asset.  Short-term and current portion of long-term interest-bearing debt includes the remaining $240 million of the original $320 million intermediary financing for the four Evergreen vessels, which has been fully refinanced post quarter end.

Stockholder's equity was approximately $1.2 billion, giving a book equity ratio of approximately 34% at the end of the quarter. Then looking at our liquidity and financing status, as mentioned, we had a total available liquidity of $153 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 $127 million, which includes investments in senior secured bonds and other securities with a fair value of $63 million at quarter end and also our 11 million shares in Frontline with a market value of approximately $72 million based on the closing share price yesterday. We had a total of eight debt-free  assets at quarter end, including two car carriers, two chemical tankers, three 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 $194 million based on average of broker appraisals, and we may potentially enter into financings on some of these assets in the future. Post quarter end, we also received net cash proceeds of $60 million from the three remaining Asian lease financings and also expect a further cash boost of approximately $84 million from the sale of the jack-up drilling rig, Soehanah, and $47 million from the redemption of securities in Golden Close who was the owner of the drillship, DeepSea Metro 1. The Golden Close investment is included under available-for-sale securities with a fair value of approximately $37 million at quarter end. In addition, the sale of Front Falcon is expected to give net cash proceeds of approximately $15 million after debt repayment.

On the financing side, we issued NOK 600 million of senior unsecured notes in September, equivalent to approximately $74 million. The five-year  notes bear an interest of NIBOR plus 4.75% per annum, and the proceeds were used to part refinance a portion of the NOK 900 million bonds due 2019 and for general corporate purposes. As mentioned, we also entered into very attractive lease financings totaling $400 million with an Asian-based institution for the financing of the four 14,000 TEU container vessels. Each of the lease financing has a term of nearly nine years with an option to purchase the vessels back after six years around expiry of the firm period of the charters to Evergreen.  One of the financing closed in the third quarter and the remaining three in the fourth quarter.

A portion of the proceeds has been used to refinance the $320 million unsecured loan facility arranged at the vessel's delivery in May, and the transaction freed up a total of $80 million of cash, of which $20 million was included in the third quarter and the remaining $60 million in the fourth quarter as mentioned above. We also entered into a $200 million intermediary bank facility to part finance the three 10,600 TEU container vessels on charter to Maersk. Two of the vessels were delivered in the third quarter and the third in the fourth quarter. The facility has a maturity of more than one year, but we are in the process of arranging a long-term financing of the vessels at very attractive terms, which is expected to close in the fourth quarter.

Then to summarize, the board has declared a cash dividend of $0.35 per share for the quarter. This represents a dividend yield of 11.6% based on the closing share price yesterday. Net income for the quarter was $30 million or $0.28 per share. We have demonstrated our ability to secure attractive financings through the lease financing totaling $400 million, and also the NOK 600 million senior unsecured notes.  Since April, we have 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 composition with increasingly diversified high-quality counterparties. We have a very robust liquidity position, giving us substantial investment capacity.  And with that, I give the word back to the operator, who will open the line for any questions. 

Questions and Answers:

Operator

[Operator instructions] We can now take our first question from Randy Giveans from Jefferies. Please, go ahead.

Chris Robertson -- Senior Vice President

Hey, guys. This is Chris Robertson on for Andy.  Thanks for taking our call. In terms of the current fleet composition, is there any particular segment that you'd like to continue to enhance with some secondhand vessel acquisitions? And kind of what are your thoughts on the market opportunities out there for each segment?

Ole Hjertaker -- Chief Executive Officer

Thank you. We are -- we look at all the segments, I would say, in parallel. We've done more acquisitions in the containership segment over the last few quarters. I would say that's more of a -- it's more of a coincidence.

We are -- like we say, our relative share in the tanker space now is lower than it used to be. So we wouldn't mind increasing in that segment, and certainly now that market fundamentals in the segment there looks better.  But I would say, we are segment agnostics and focus on trying to do the best deals. And some periods, there is a concentration in one sector and other periods in other sectors. As we were very heavily invested in the offshore space a few quarters ago, that has changed.

So I would say it's a dynamic process.  We look at opportunities, I would say, across the board, including the offshore space right now. But can of course not comment on specific transactions before we do them, but we hope to deploy the capital we have in new projects within not too long time. But it's all about doing the right deals and not, what do I say, do a specific percentage in each segment.

Chris Robertson -- Senior Vice President

No, that's fair. In terms of the three containerships that were recently acquired, you mentioned that the annual EBITDA contribution would be about $35.5 million. Was the purchase price closer to maybe eight times annual EBITDA or 10 times annual EBITDA? And kind of a follow-on to that, with the intermediary financing of $200 million, was that closer to 55% of the purchase price or 70%?

Ole Hjertaker -- Chief Executive Officer

Well, I would say, we are sort of midway there in your ratio. So it's below nine times EBITDA for those vessels. We are -- we have an intermediary financing for those vessels, and we expect to -- as Harald indicated, we expect the -- a longer-term finance need to be put in place in not too long time. The leverage we have on them initially is very comfortable, just over 60%, which is, I would say, on the low side when you have a very strong chartering counterpart and high-class assets that these vessels are.

So we hope to revert with that once we have finalized the long-term arrangement.

Chris Robertson -- Senior Vice President

OK. And final question for me.  Looks like the coverage ratio should remain above 1.3, 1.4 in the coming quarters. With that, can you comment on the dividend sustainability? And any plans to increase the dividend in the next few years?

Ole Hjertaker -- Chief Executive Officer

Yes, of course, when we make investments, we make investments because we believe they are accretive to the distribution capacity in the long term. We -- but the dividend is -- and this has sort of always been the express strategy of the board, not to sort of give guidance on future dividends. So we really have to look in the mirror. And over the 59 quarters now, the dividends have been stable or increasing with very few individual sort of settings where there have been adjusted downwards.  So it is our objective to, what I would say, reinvest capital and grow the dividend, but I cannot give you specific guiding on when.

Right now we are -- from a cash flow perspective, we are -- we still pay down a lot on the Seadrill rigs, while we have -- we are in the period where we have -- where we are reducing at somewhat lower rate. That is expected to be balanced during mid-2019. And then it's really a question how we can deploy the capital we have before we can -- I would say, before we can comfortably sort of increase the dividend level. This is management speaking.

But I think we certainly have a very solid cash buffer now. So if we can deploy that, hopefully, we can also do something to the dividend then.

Chris Robertson -- Senior Vice President

All right. I appreciate the time, and thanks for taking my questions.

Ole Hjertaker -- Chief Executive Officer

Thank you.

Operator

Next question goes to Magnus Fyhr from Seaport Global. Please, go ahead.

Magnus Fyhr -- Seaport Global Securities -- Analyst

Just as a follow-up on the prior question, looking at Slide 10 on your payouts, while the cash payout ratios currently  or dividend ratio is higher than the free cash flow, looking forward, at least in our estimates, that payout ratio should decline to 85% within a year.  Would you like to deploy additional capital? I mean, you've got $400 million or so of cash that you could deploy, if you use the marketable securities. Or is that 85% a very comfortable level that's kind of going back to that historical range where you've been. So should we kind of assume that, if you get below that level, that leaves you some room to start addressing the dividend?

Ole Hjertaker -- Chief Executive Officer

Yes. I mean, the cash flow, when you look at that Slide 10, of course, that's -- there are sort of -- there are three quarters of – three legacy quarters in that graph. And part of that period or, I would say, most of that period is now sort of in the period where we have continued paying high amortization on the Seadrill rigs, as I mentioned, while we adjusted the cash or we agreed to adjust the rate downwards. We did it that way simply to save fees.

So we think that was -- from a cost of capital perspective, it was a -- we think that was a good trade, but the optics of that looks, of course, like the free cash flow is lower.  But we think this will balance. And then we have the cash at quarter end and then with a couple of, I would say, liquidity -- expected liquidity events like the freed up cash on the -- relating to the leases on the Evergreen vessels, we have the sale of the jack-up rig, Soehanah, with $84 million.  We have the cash from the sale of the securities around $47 million, $15 million net cash from the sale of Front Falcon, etc., etc. So there is significant, call it, hopefully, a cash boost on our balance sheet. So hopefully, we can deploy that in a meaningful manner, which can also then do something to the graph on Page 10 in terms of charter revenues and free cash flow.

Magnus Fyhr -- Seaport Global Securities -- Analyst

OK. The other question I had is related to, I mean, most of these transactions you've done here in 2018 have been focused on the container segment. Haven't seen you -- I mean, there's been a lot of activity in the sale-leaseback on the tankers and product tankers. We haven't seen you done anything there.

With the market improving at least for the crude tankers, is that a market that still -- that you still see opportunities? Or are the returns not satisfactory to you?

Ole Hjertaker -- Chief Executive Officer

Well, we've looked at some opportunities there, but fair to say, when we haven't done it, we can assume that it's because we haven't -- for us, it hasn't really made good enough sense at the rate levels. Doing a deal -- and if you look at sort of sale-leaseback structures, which are -- certainly if they are bareboat based, it's really more a financing structure. It's all about buying the right asset at what price and what kind of residual value you assume in your, call it, calculation. And then the financing you can combine with it.  We try to be very conscientious on the residual values.

We take on when we do deals, and we haven't done anything there in that segment. But we've looked at several opportunities, but I cannot comment specifically on that until we do the deal. So it's certainly a segment we would like to have more exposure to, but it's all about doing the right deals.

Magnus Fyhr -- Seaport Global Securities -- Analyst

All right.  And just one more question.  On the Soehanah, the cash, what's in that proceeds there? Is $84 million net proceeds? Or there's some debt related to that asset?

Ole Hjertaker -- Chief Executive Officer

No. That one is debt-free.  So it's $84 million. And then we have $10,000 per day bareboat hire coming in every day, kicking in every day on sale delivery.

Magnus Fyhr -- Seaport Global Securities -- Analyst

Yes. OK. Great. That's it from me.

Thank you.

Ole Hjertaker -- Chief Executive Officer

Thank you.

Operator

Next question comes from Fotis Giannakoulis from Morgan Stanley. Please, go ahead.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

Yes. Hi, Ole, and thank you. Ole, I want to ask you about the opportunity that you see out there and how do you compare potential returns across different sectors? It seems that you have made more acquisitions recently on the containership side, but you -- if I heard it correctly, you mentioned that that was coincidental. Do you view structurally any sector being able to give better returns? And I'm talking about returns for deals with long-term charters.

Ole Hjertaker -- Chief Executive Officer

Yes. Thank you. Yes, we've done most deals over this year in the containership space. But we've certainly looked at a lot of opportunities in other sectors too.

And it's -- of course, our long-term objective is to balance the segments, but doing it deal by deal and doing the right deals.  So we would love to do deals in the tanker space. I would say -- maybe, if you look at -- if there is one segment that you can say is missing from our portfolio, maybe it's LNG, simply because that's a segment where you see long-term charters to solid counterparties, and we haven't got anything in the portfolio. Again, it's all about doing the right deals. Now when the tanker market seems to recover hopefully, it's easier to get deals done here at that reasonable levels.

So -- but we can only really comment on deals we do. And generally, we screen projects across the board in all our segments.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

How is the competitive landscape right now on the deals that you are negotiating or they come in front of you? And if you can expand beyond the containership space because we've been hearing that there are a lot of Chinese and Japanese leasing firms, they are trying to do these deals at very low returns, but I was wondering, in other segments outside of containership, if you see higher or lower competition compared to, let's say, at the beginning of the year?

Ole Hjertaker -- Chief Executive Officer

Well, generally when you -- for deals with, I would say, sort of brand -- big brand names, very solid balance sheets and where they look for bareboat arrangements, that's more got a financing sort of angle to it. What we have, we have really two different products. We have -- we can do the financial sort of bareboat charters leaseback, which is really a -- where it's really a question of what kind of cost of capital, do you have an arb on the capital compared to your counterparty and what's happening on the residual value. Are you taking on the residual value exposure or do you not? That's one product, that's more of a financial cost of capital arb.  The other product where we -- I think, we are very competitive is in the build, own, operate, call it, type structures, illustrated by the vessels we have with Phillips 66.

Ship Finance, we're qualified to run vessels for Phillips 66, who have very high standards for who they want to have -- who they want to do those services for them. And this is part of our, I would say, group effort. We are -- that's our affiliation with Mr. Fredriksen in Frontline, Golden Ocean, etc., is that we have very good access to, one, the shipyards; and two, management, which means that we can combine these parts and hopefully offer very interesting and compelling time charter products to our customers.  So we look at both, but I think, that's certainly where we are on a relative base, maybe more competitive than anyone else out there.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

Thank you very much, Ole.

Ole Hjertaker -- Chief Executive Officer

Thank you.

Operator

We have no further questions on the line at this time.

Ole Hjertaker -- Chief Executive Officer

Thank you. Then I would like to thank everyone for participating in our third-quarter conference call. And particularly, I want to thank Mr. Harald Gurvin, who will leave us to join FLEX LNG from January.

We have recruited Aksel C. Olesen from Pareto Securities as the new CFO, and I'm confident that the transition will be smooth for you as stakeholders in the company. If you 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.

Operator

[Operator signoff]

Duration: 43 minutes

Call Participants:

Ole Hjertaker -- Chief Executive Officer

Harald Gurvin -- Chief Financial Officer

Chris Robertson -- Senior Vice President

Magnus Fyhr -- Seaport Global Securities -- Analyst

Fotis Giannakoulis -- Morgan Stanley -- Analyst

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