Ship Finance International (SFL) Q4 2021 Earnings Call Transcript

Ship Finance International (SFL 0.23%)
Q4 2021 Earnings Call
Feb 16, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Q4 2021 SFL Corporation earnings conference call. At this time, all participants are in an only listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to turn the conference over to your speaker today, Ole Hjertaker. Please go ahead.

Ole Hjertaker -- Chief Executive Officer

Thank you, and welcome to SFL's fourth quarter conference call. I will start the call by briefly going through the highlights of the quarter and following that, our CFO, Aksel Olesen will take us through the financials and the call will be concluded by opening up for questions. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the US 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.

Forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities or 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, but are not limited to, conditions in the shipping, offshore, and credit markets. You should therefore not place undue reliance on these forward-looking statements.

Please refer to or filings with the Securities and Exchange Commission for more detailed discussions over risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. The announced dividend of $0.20 per share is an increase of 11% over last quarter's dividend and represents a dividend yield of around 9% based on the closing price yesterday. This is our 72nd quarterly dividend, and over the years we have paid more than $28 per share in dividends or $2.4 billion in total. And we have an increasing fixed-rate charter backlog supporting continued dividend capacity going forward.

The total charter revenues were $166 million in the quarter, with around 75% of this from vessels and long-term charters at around 25% for vessels employed on short-term charters and in the spot market. This includes or included the seven handysize bulkers we have sold. So going forward, we expect a higher relative share from long-term charters. The EBITDA equivalent cash flow in the quarter was approximately $121 million, or 10% higher than the previous quarter.

Over the last 12 months, the EBITDA equivalent has been approximately $434 million and the net income came in at around $80 million in the quarter or $0.63 per share. Yet again, relating to the sale of the bulkers of $39 million, and otherwise, there were only minor one-offs in the quarter, including a negative mark to market effect on interest hedging instruments. There were also around $1.1 million higher operating costs in the quarter due to additional crew rotation costs linked to COVID restrictions. We expect a similar effect also in this quarter, but hope that the restrictions will ease soon, and virtually all our crew are now vaccinated already.

Our fixed-rate backlog has increased and stands at approximately $2.8 billion from owned and managed vessels. After recent acquisitions and disposals providing continued cash flow visibility going forward. The backlog figure excludes revenues from the vessels traded in the short-term market and also excludes future profit share optionality. In addition, we have excluded charter hires relating to the drilling rigs to be conservative in light of the ongoing financial restructuring in Seadrill.

We continue building the portfolio with modern assets on long-term charters and have recently agreed to acquire four modern LR2 product tankers in combination with time charters to Trafigura. The structure is similar to the three Suezmaxes we announced last quarter and the deal includes some interesting optionality features if the market should strengthen during the charter period, where a sale can be triggered with a profit split. And if not, the long-term charters amortize the vessels down to a comfortable low level with a good base return, supported by the $160 million charter backlog linked to these vessels. In the quarter, we also finalized a sale of the seven handysize vessels for an aggregate net sales price of around $98 million.

In addition to the sales price, there was around $15 million net cash flow from trading the vessels at high rates until delivery. So they had a very nice contribution for us in 2021. We have also sourced multiple new financings at attractive terms and see loan margins creeping downwards. And we fully redeemed the remaining $145 million convertible notes in cash during the quarter.

During the fourth quarter, we took delivery of three of the seven tankers, which are two of the Trafigura, and we have already taken delivery of three more, leaving only one Suezmaxes still to be delivered expected later this month. Excluding the drilling rigs, the backlog from owned and managed vessels was 2.8 billion at the end of the quarter. Over the years, we have changed both fleet composition and structure, and we now have 75 shipping assets in our portfolio. In addition to the long-term chartered vessels, we have eight vessels treading into short-term market currency and four to five coming off their long-term charters later this year.

We have also had significant contributions to cash flow from profit share over time both relating to charter rates and fuel savings. The aggregate profit share was around $20 million last year and $7.5 million in the fourth quarter alone. We do not have a set mix in the portfolio that focuses on evaluating deal opportunities across the segments and trying to do the right transactions from a risk-reward perspective. Over time, we believe this will balance itself out, but we tried to be careful and conservative in our investments with a focus on technology and transition over time to more fuel-efficient technology for propulsion.

The two drilling rigs are not included in our reported charter backlog figures and with respect to Seadrill and the ongoing financial restructuring, we cannot give more details than what we have disclosed in our press releases or as otherwise publicly available. After Seadrills' plan of reorganization was approved by the court, they estimate emergence from Chapter 11 within the first quarter of this year. We received more than 70% of the lease hire under the existing charter arrangement for West Linus and West Hercules during Seadrill's Chapter 11 proceedings. Both rigs are active and working for all companies and the charter rate is sufficient to cover that service relating to the rigs.

And we are, of course, pleased to see strengthening drilling markets on the back of the very firm oil price. We have entered into a new agreement relating to the harsh environment semi-sub West Hercules. Under this new agreement with Seadrill, the West Hercules is contracted to be employed with oil major Equinor in Norway and Canada until September, October, and thereafter, redelivered to SFL in Norway. SFL continues to receive a bareboat hire of around $60,000 per day while the rig is employed under a contract and generating revenues for Seadrill and approximately $40,000 per day in all other modes, including when the rig is idle and mobilized to and from Canada for the Equinor [Inaudible].  The rig is now on its way to shore for some upgrades required for this job and is expected to move to Canada in the second quarter.

With regards to the West Linus, which is on a sub charter to an oil major in the North Sea until the end of 2028, we continue to have a constructive dialogue with Seadrill and the end-user for the continued operations of the rig under the contract. We have not yet agreed on final terms with Seadrill, but this is expected before the emergence of Chapter 11. Given the ongoing discussions, we can unfortunately not comment anymore on this for the time being. Over the years, we have gone from a single asset class charter to one single customer to a diversified fleet and multiple counterparties.

And over time, the mix of assets in charter backlog has varied from 100% tankers at the beginning to nearly 60% offshore 10 years ago to container vessels now being the largest segment with nearly 60% of the backlog. If you look at the counterparties it is now mainly to end-users and market leaders in their respective segments, and relatively few are intermediaries where we have less visibility on the use of the assets and quality of operations. Strategically, this also gives us access to more deal flow opportunities such as the repeat business with Maersk, MSC, Evergreen, and Trafigura as examples. Our strategy has therefore been to maintain a strong technical and commercial operating platform in cooperation with our sister companies in the wider Seatankers Group.

This gives us the ability to offer a wider range of services to our customers from structured financing effectively to full-service time charters. And with full control over vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact improvements to our vessels through the life of the assets and not only be passively owning vessels employed on bareboats where the customer may not always have an incentive to make such improvements. In addition, we can retain more of the residual value in the assets when we charter out on a time charter basis. And in the current environment, with rising raw material costs and inflation driving replacement costs for vessels, this value is for the benefit of SFL and our stakeholders.

For bareboat deals, this value is usually retained by the charters through fixed-price purchase options. This is illustrated by the recent sale of seven handysize bulkers we're operating platform has enabled us to trade the vessels in the spot market during a soft market and when the market values doubled last year, we could sell the vessels with a significant profit. And with that, I will leave the word over to our CFO, Aksel Olesen who will take us through the financial highlights of the quarter.

Aksel Olesen -- Chief Financial Officer

Thank you, Mr. Hjertaker. On this slide, we have shown a pro forma illustration of cash flows for the fourth quarter. Please note that this is only a guideline to assess the company's performance and is not in accordance with US GAAP and also net of extraordinary and non-cash items.

The company generated gross charter hire of approximately $166 million in the fourth quarter, including $7.5 million of profits with approximately 75% of the revenue coming from our fixed charter rate backlog, which currently stands at $2.8 billion, providing us with strong visibility on our cash flow going forward. In the fourth quarter, the liner fleet generated gross charter hire of approximately $90 million, including approximately $3.1 million in profits with contribution related to fuel savings on some of our large container vessels. Of this amount, more than 90% was derived from our vessels on long-term charters. Following the company's recent acquisitions, SFL's line of fleet backlog currently stands at approximately $2 billion with an average remaining charter term of approximately 4.4 years or approximately 7.3 years, if weighted by charter hire.

Including recently announced transactions, SFL has six in crude oil, product, and chemical tankers with the majority employed on long-term charters. Our tanker fleet generated approximately $17.5 million and gross charter higher during the quarter. The net charter hires received where the 5% was derived from our vessels on long-term charters, among others, from [Inaudible] and Phillips 66. The net charge rate from the company's two Suezmax tankers employed in the short-term market was approximately $3.1 million compared to $1.7 million in the previous quarter.

Late in the fourth quarter, SFL took delivery of one Suezmax tanker and two LR2 product tankers with five-year charters to Trafigura. The remaining two Suezmax tankers and two LR2 product tankers will be delivered during the first quarter with full quarterly earnings effect from the second quarter. Our fleet generated approximately $46.3 million in gross charter higher in the fourth quarter, including $4.5 million in profit share contribution from our vessels on charter to [Inaudible]. During the quarter, the company had a fleet of 22 dry-bulk vessels, of which 11 vessels are employed on long-term charters and the other 11 are trading in the short-term at the spot market.

The 11 vessels trading in the spot or short-term markets generated approximately $21.2 million in net charter hire during the quarter compared to approximately $20.7 million in the previous quarter. During the quarter, the company completed a stay in the seven smaller handysize dry bulk vessels to a nation buyer and the sales generated net sales proceeds of approximately $19 million in addition to strong spot earnings during the fourth quarter prior to delivery. As well as on two drilling rigs, which have been changed out from subsidiaries to Seadrill on [Inaudible]. In the fourth quarter, we received approximately $12.3 million in charter hire from the rigs.

This summarizes an adjusted EBITDA of approximately $121 million for the fourth quarter compared to $112 million in the third quarter. We then move on to the profit and loss statement as reported on the US GAAP. As we have described in previous earnings calls, our accounting statements are different from those of a traditional shipping company. As the 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 US GAAP operating revenues and instead booked as revenues classified as repayment of investment in the finance business and vessel loans, resulting in associates and long-term investments and interest income from [Inaudible]. So for the fourth quarter, we report total operating revenue according to US GAAP of approximately $152 million, which is less than approximately $166 million of charter hire actually received for the reasons just mentioned. During the quarter, the company recorded profit split income of approximately $4.5 million from our [Inaudible] vessels on charter to Ocean in addition to approximately $3.1 million from fuel savings arrangements on some of our large container vessels. The company also recorded a $39.3 million gain relating to the sale of our seven smaller handysize dry bulk vessels, which were also delivered with a new buyer before year-end.

The operating expenses of our fleet are up compared to the previous quarter is a combination of new vessels entering the fleet and expenses relating to COVID-19 measures, among others, due to our efforts to maintain a normalized cruise change cycle for seafarers despite challenging travel restrictions around the globe. In addition, we also saw an increase in depreciation due to the new additions to our fleet and also the consolidation of the West Hercules during the third quarter. Overall and according to US GAAP, the company reported a net profit of approximately $80 million or $0.63 per share. Moving on to the balance sheet.

At quarter-end, SFL had approximately $146 million of cash and cash equivalents. Additionally, the company had marketable securities of approximately $25 million base market prices at the end of the quarter. Furthermore, the company had seven debt-free vessels with a combined charter market value of approximately $170 million, including two LR2 product tankers, which the company took delivery of before the end of the quarter must pay with approximately $80 million of cash. We expect to draw down financing for all LR2 product tankers during the first quarter.

Approximately $430 million of the remaining capex of recently accounted acquisitions is expected to be financed by debt facilities, similar to SFL's other assets with long-term charters. During the quarter, approximately $145 million was used to repay the balance of the convertible note, which was due in October. Furthermore, the company received approximately $98 million in cash proceeds from the sale of our seven handysize dry bulk vessels during the fourth quarter. So based on Q4 numbers, the company had a book equity ratio of approximately 28.4%.

Then to summarize, the board has declared a cash dividend of $0.20 per share for the quarter, an increase of approximately 11% compared to the previous quarter. This represents a dividend yield of approximately 9% based on the closing share price yesterday. This is the 72nd consecutive quarterly dividend. And since the inception of the company in 2004, more than $28 per share or more than $2.4 billion in total has been returned to our shareholders through dividends.

SFL has successfully committed more than $1 billion to its recent acquisitions in 2021. And in the process, we have expanded our relationship with some of our key clients by investing in modern eco-design container ships and tankers and at the same time, expose of older, less efficient assets demonstrating our commitment to further improve our current footprint pursuant to our ESG strategy. Following the recent investments, our backlog from our shipping assets now stands at $2.8 billion, providing strong visibility on future cash flow, debt service, and continued distribution capacity. With a strong operational platform and our access to attractively priced capital SFL is well-positioned to execute on new accretive investments in the quarters to come.

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

Questions & Answers:

Operator

Thank you. [Operator instructions] And the first question comes from the line of Randy Giveans. Please go ahead.

Randy Giveans -- Jefferies -- Analyst

Howdy, team, SFL. How's it going?

Ole Hjertaker -- Chief Executive Officer

Hi there, Randy. Nice to hear from you.

Randy Giveans -- Jefferies -- Analyst

Yes, sir. So looking at your fleet here, you recently took delivery of numerous tankers. You sold some of your dry bulk vessels. Now, currently dry bulk is only about 11% of your contract backlog, basically the smallest sector in that.

And then with the recent pullback in asset values over the last few weeks and even months, despite further strengthening and charter rates, is the drive of the asset class of choice for growth at the moment? If not, what sector is it?

Ole Hjertaker -- Chief Executive Officer

Yeah, we look at opportunities across the board and all of these segments. I would say generally and then certainly we would be wouldn't mind doing more deals in the dry bulk space. But we also have to be cognizant of the sort of market structure in that segment. The typically dry bulk vessels are traded more in the spot market and on long-term sort of logistical type solutions.

So our preference is, of course, the longer-term charters and there are not that many long-term charters call it in the dry bulk market despite, the numerous vessels there. So we are chasing transaction opportunities wherever we can find them. And I think with our diversification, as you point out, we can look at the deal opportunities in many segments at the same time and are not tied to only one subsector. So, yes, we look at opportunities there as we do elsewhere as well.

And but they kind of be specific. We always -- we are happy to announce deals as we do them. But we cannot sort of speculate on how much we should invest in each segment.

Randy Giveans -- Jefferies -- Analyst

Sure. That's fair. I don't expect you to give all your cards away here. I was going to ask some questions about the drilling rigs, but it sounds like you're on that for now, which is understandable.

So looking at the dividend, great to see that, kind of continuing to rise. Is the plan there to slowly increase that going forward? And what are sort of hurdles or maybe catalysts for further increases?

Ole Hjertaker -- Chief Executive Officer

Absolutely. I mean, we are always happy to please our dear shareholders. And we've been paying dividends now 72 times. So we were starting to get the track of that one, and the dividend and this is more based on our dividend you could say policy or communication policy around dividend.

We will never guide on forwarding dividends. The dividend is set every quarter by the Board and at the discretion of the Board. But of course, as you well know, over time and over these 72 quarters, it's typically been stable or increasing and with only -- with, of course, some adjustments when there has been market events sort of driving it. So of course, as we have been doing quite a bit of business -- new business last year and 1 billion new investments, etc, that will come on stream cash flow from these tanker vessels, for instance, we will have quite a bit of cash flow from those vessels already in the first quarter and full cash flow effect in the second quarter and also a lot of transactions is, of course, we do this only with the one sole mindset that, we hope to do increase distribution capacity going forward.

But exactly how much and when I cannot tell you.

Randy Giveans -- Jefferies -- Analyst

Yeah, no, that's fair. Well, thanks again. That is my two questions.

Ole Hjertaker -- Chief Executive Officer

Thank you very much.

Aksel Olesen -- Chief Financial Officer

Thank you.

Operator

Thank you. The next question comes from the line of Greg Lewis from BTIG. Please go ahead.

Greg Lewis -- BTIG -- Analyst

Hey, thank you. And good afternoon, everybody, and sorry, I missed you in New York last week. Question of the round just following up on Randy's question around the dividend, clearly, you're not going to give any guidance around the dividend, but it does seem that we're kind of targeting, some sort of percentage of cash flow. At least that's what it looked like over the last couple of quarters.

Is that kind of a fair way to think about the dividend going forward? Or is it more a function of your outlook on the market?

Aksel Olesen -- Chief Financial Officer

I think as Ole said, we don't kind of give any guidance and promises on dividends. I think what's important for us is to see that we have a good cash flow going forward as the kind we can have a sustainable dividend going forward. And as the business, it's kind of natural that we are able to also increase the dividend over time. So it's going to -- we don't think it's a specific percentage, etc.

So it's going to see what the sustainable, what's the contribution from the cash flow in each quarter, and what's the outlook going forward as well. And then as I will say after going forward as well, and that's [Inaudible].

Greg Lewis -- BTIG -- Analyst

OK. That makes sense. OK. OK.

And then so I mean, you're -- in the press release, you mentioned that seven vessels are unencumbered. You mentioned, the actual estimated fair market value of those vessels. Is there any way to think about the potential borrowing ability on those vessels? How should we think about that?

Aksel Olesen -- Chief Financial Officer

Absolutely. I mean we intend to draw up the facility on -- for LR2 product tankers later this quarter.

Ole Hjertaker -- Chief Executive Officer

And I would say, though, that part of the reason for having that and having some of the common vessels is that it enables us given our financial flexibility and enables us to go ahead and close our transactions early and not wait on the financing to be arranged to get a deal done. So you could say the net factor is that we get the benefit of the cash flow from the vessels early and then we secure and source the financing and of course, the best possible terms, some weeks later. So that was sort of the incident. We also have some smaller, I would say, like the older vessels that are unencumbered, and we don't have any immediate plans necessarily to put leverage on them.

But we have the flexibility always and can do it on short notice if we need to. So you can say it's sort of a -- we have -- it's sort of a -- so you can say it's a part of spare, call it, investment capacity. And with our portfolio of assets, there will be situations where some have lower leverage and maybe we can refinance if we think that the leverage has come down too far compared to asset values and vice versa. So it's an ongoing, call it, dynamics in any company.

Aksel Olesen -- Chief Financial Officer

Exactly, our portfolio approach. And as a general observation, we see that there we have increasing access to -- very attractive capital with either more new banks coming in competing on terms. So I think for us all, it's a very good environment.

Greg Lewis -- BTIG -- Analyst

And then as I look at the portfolio, I mean, clearly asset prices have gone up almost exponentially in container ships. Clearly, that's your largest pool of assets in the portfolio. As you're thinking about that business and, as you're thinking about those assets and you're talking to your lenders realizing that the bulk of your assets is on long term contracts, maybe we're not full -- we're not really going to benefit from the strength and rates that are driving those asset prices higher. That being said, or would we -- is there an opportunity to put on additional leverage on any of those -- whether it's container ships or other assets where prices have gone higher? Despite the fact that a lot of those vessels are on long-term contracts?

Aksel Olesen -- Chief Financial Officer

I mean you could potentially -- that's not really how we think about that. I think, as a shareholder, I would think that the value of our backlog is really kind of the value of the counterparties. And if you see that the majority of the backlog around $2 billion is to, I would say, probably investment-grade counterparties, I think that's the strength of the company. And you have extremely good visibility on that cash flow, and we have been very particular on choosing the counterparties that they have in the portfolio that those are companies that we believe will perform even if kind of the charter marketing will soften, which it will in the future.

So it's more kind of having substance in the company and not necessarily kind of using that to leverage up because you also have minimum value clauses in loan agreements, etc. So you just have to be very prudent in deciding what to do.

Greg Lewis -- BTIG -- Analyst

OK. Hey, everybody, thank you for the time.

Ole Hjertaker -- Chief Executive Officer

Thank you.

Operator

Thank you. The next question comes from the line of Liam Burke from B. Riley. Please go ahead.

Liam Burke -- B. Riley Securities -- Analyst

Yes, thank you. Asset values are up, not only with containers but pretty much across the board in all your vessel classes, how has that affected your acquisition backlog? I mean are you still seeing any opportunities? Or have your opportunities gone down? Or are you still looking at an attractive pipeline?

Aksel Olesen -- Chief Financial Officer

I think if you look at our competitive advantage, I would highlight the equally strong operational platform that we have and the fact that if you look at the portfolio, approximately 90% of revenues are from time charters and only 10% from bareboats. We basically have a different approach to deal origination, and we also see a lot of kind of repeat inquiries from existing clients, which should be kind of relationships that we've built over many years. So I think in terms of kind of new opportunities, we, of course, both speak to see brokers but we also talk to our clients. We see a nice, I think, it's a good deal flow.

If we see more deal flow in terms of time charters then we see more financially driven deals like bareboats as many of the banks are coming strongly back to lend as well as kind of money. So I think for us, we continue to see attractive opportunities.

Liam Burke -- B. Riley Securities -- Analyst

Fair enough. You mentioned in your prepared comments that technology is important for obvious reasons on emissions going forward. Are there any vessels in your fleet than you would think, OK, could provide technological risk? Could offer technological risk to allow you to sell sooner?

Trym Sjolie -- Chief Operating Officer

Well, the risk is maybe a strong word there. But if we look at our fleet, the vessels that are maybe the sort of the least high deal going forward would be smaller bulk carriers. The vessels where we see -- which we are quite positive to that the big tankers, they are -- will not have a problem from that perspective. And also, our large container ships are in a good position.

And especially if we look at our new building programs with the LNG dual-fuel car carriers, they're also going to contribute very well toward the overall fleet carbon intensity indicator track because when we are coming into 2023 and forward, it's going to be an increasingly aggressive target as they had. But with our current fleet, we are well-positioned, we think.

Ole Hjertaker -- Chief Executive Officer

And I think maybe just to add to Trym's comment there, he is Trym Sjolie, our chief operating officer, maybe also add to that, that we will have our ESG report out in a few weeks' time for the last year. I think you will see if you compare the report from the previous year, you will see a very significant change in our fleet composition and the metrics. As a combination of our acquisitions of very efficient vessels, including dual fuel new buildings and the sale of less efficient small bunkers. That will also be disposed of last year and also many small feeder container ships that were disposed of in the middle of the year that which were generally quite old and therefore had a negative impact on our average on those metrics.

So I would say we are very focused on these issues and of course, our mindset is that we should continue to develop our portfolio over time with that, of course, as one of our key decision elements.

Liam Burke -- B. Riley Securities -- Analyst

Great. Thank you.

Ole Hjertaker -- Chief Executive Officer

Yes.

Operator

Thank you. The next question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

Unknown speaker

Hey, thanks, guys. This is Eli will be on for Chris. Maybe we can start with COVID comments quickly. I'm just curious if we can quantify what the COVID impact on the cruise was from an expense standpoint in terms of the headwind?

Trym Sjolie -- Chief Operating Officer

Sorry, I didn't quite catch the question there. I mean the cost of the COVID costs for us is round numbers, $1 million per quarter. And that seems to be quite steady. It was during last year, and it seems to be approximately where we are at the moment, too.

And this has to do with travel costs and quarantine and general sort of delays in moving people around.

Unknown speaker

Can we talk about capex. So where do we currently stand with that, looking forward here? What's the mix and the strategies going forward there?

Aksel Olesen -- Chief Financial Officer

Yes. I think really the only outstanding capex currently is for carriers dual fuel new buildings coming up of China with 10-year charters to [Inaudible] group and [Inaudible] respectively. We are in active discussions with several financial institutions. It's -- I would say it's more about optimizing the financial terms than anything else.

We have received extremely strong interest based on the kind of, yeah, quality of the ship's fuel of a third of the counterparties in an interesting segment with a good supply demand outlook. So, yeah.

Ole Hjertaker -- Chief Executive Officer

So and then -- and of course, we have to pay down installments to the shipyards for all those four vessels as well. So, we don't expect a very significant, call it, capex -- net cash capex because most of the remaining investments in those vessels can be covered by financing.

Aksel Olesen -- Chief Financial Officer

Exactly.

Ole Hjertaker -- Chief Executive Officer

And of course, we focus on optimizing that and minimizing the cost of that capital, of course, but -- from an overall perspective, with a $4 billion balance sheet, I think we have a very low capex in a sort of relative numbers.

Unknown speaker

Sure, just following up on that one thing you said, I'm just curious, what is the backlog or the congestion in the shipyards you're seeing right now?

Trym Sjolie -- Chief Operating Officer

Congestion, well, we see if you want to go on to get new vessels. Typically, car carriers, container ships, now you'll probably be looking at 2024, even 2025. So if you want to go to sort of first or second-tier yards in Asia like China or Korea, so I don't think you will find many '23 deliveries at the moment. So we are taking a look at late '24, early '25.

I think that answers your question.

Ole Hjertaker -- Chief Executive Officer

And also prices have been going up. There is inflation of both in raw material, but so -- and also labor, in these countries where most of the ships are being built. So this is also helping our overall fleet structure, or I would say, any shipping companies in the fleet portfolio because it's -- new building prices are in a way pulling off also secular values as a -- there's a percentage of replacement cost, which is benefiting us. So we don't mind calling it the increasing shipyard prices.

And as we do new transactions, as long as we can get charters, that is reflective and gives us a decent return even if prices are coming off, we are still good to do news transactions and higher prices.

Trym Sjolie -- Chief Operating Officer

And some yards are reluctant to take orders going much further in or further out, I mean than a sort of mid '24 because of the risk of rising steel prices and general inflation. So, the yards are also a bit reluctant to take new orders very far into the future.

Unknown speaker

Sure, that makes sense. Thank you, both.

Ole Hjertaker -- Chief Executive Officer

Thank you.

Operator

Thank you. And with that, I would like to hand it back over to the speakers for final remarks.

Ole Hjertaker -- Chief Executive Officer

Thank you. Then I would like to thank everyone for participating in our conference call and also thanked the SFL teams onboard the vessels and onshore for their continued efforts day and night in delivering value for our shareholders. If you do have any follow-up questions, there are contact details in the press release where you can get in touch with us through the contact pages on our web page www.sflcorp.com. Thank you.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Ole Hjertaker -- Chief Executive Officer

Aksel Olesen -- Chief Financial Officer

Randy Giveans -- Jefferies -- Analyst

Greg Lewis -- BTIG -- Analyst

Liam Burke -- B. Riley Securities -- Analyst

Trym Sjolie -- Chief Operating Officer

Unknown speaker

More SFL analysis

All earnings call transcripts