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sfl:drilling_rig

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2019
Commission File Number: 001-32199

SFL Corporation Ltd
(Translation of registrant’s name into English)

Par-la-Ville Place
14 Par-la-Ville Road
Hamilton, HM 08, Bermuda
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): .
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): .
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached hereto are the unaudited condensed interim financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations of SFL Corporation Ltd (formally Ship Finance International Limited,) ("SFL" or "the Company”) for the six months ended June 30, 2019.
This report on Form 6-K is hereby incorporated by reference into the Company’s registration statement on Form F-3 (Registration No. 333-213783), filed with the U.S. Securities and Exchange Commission (the “Commission”) on September 26, 2016.

SFL CORPORATION LTD
REPORT ON FORM 6-K FOR THE SIX MONTHS ENDED JUNE 30, 2019
INDEX

Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2019 and June 30, 2018 and the year ended December 31, 2018 | Page 4
Unaudited Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2019 and June 30, 2018 and the year ended December 31, 2018 | Page 5
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 | Page 6
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018 and the year ended December 31, 2018 | Page 7
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2019 and June 30, 2018 and the year ended December 31, 2018 | Page 8
Notes to the Unaudited Condensed Consolidated Financial Statements | Page 9
Management’s Discussion and Analysis of Financial Condition and Results of Operations | Page 33
Cautionary Statement Regarding Forward-Looking Statement | Page 43
Signatures | Page 45

3

SFL Corporation Ltd
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 2019 and June 30, 2018
and the year ended December 31, 2018
(in thousands of $, except per share amounts)

| Six months ended |  | Year ended |
| June 30, |  | December 31, |
| 2019 |  |  | 2018 |  |  | 2018 |
Operating revenues |  |  |  |  |
Direct financing lease interest income - related parties | 1,932 |  |  | 5,986 |  |  | 9,623 |
Direct financing and sales-type lease interest income - other | 26,484 |  |  | 13,905 |  |  | 30,055 |
Finance lease service revenues - related parties | 4,887 |  |  | 13,428 |  |  | 22,095 |
Profit sharing revenues - related parties | 1,547 |  |  | — |  |  | 1,779 |
Time charter revenues - related parties | 25,752 |  |  | 26,498 |  |  | 53,258 |
Time charter revenues - other | 143,225 |  |  | 100,499 |  |  | 239,468 |
Bareboat charter revenues - other | 12,494 |  |  | 18,850 |  |  | 36,222 |
Voyage charter revenues - other | 9,428 |  |  | 9,381 |  |  | 24,339 |
Other operating income | 1,696 |  |  | 597 |  |  | 1,873 |
Total operating revenues | 227,445 |  |  | 189,144 |  |  | 418,712 |
(Loss)/gain on sale of assets and termination of charters, net | — |  |  | (1,623 | ) |  | (2,578 | )
Gain/(loss) on sale of subsidiaries and disposal groups | — |  |  | — |  |  | 7,613 |
Operating expenses |  |  |  |  |
Vessel operating expenses - related parties | 16,453 |  |  | 24,847 |  |  | 45,266 |
Vessel operating expenses - other | 49,059 |  |  | 36,711 |  |  | 83,282 |
Depreciation | 58,648 |  |  | 46,444 |  |  | 104,079 |
Vessel impairment charge | — |  |  | 21,779 |  |  | 64,338 |
Administrative expenses - related parties | 894 |  |  | 495 |  |  | 1,072 |
Administrative expenses - other | 5,011 |  |  | 4,662 |  |  | 8,095 |
Total operating expenses | 130,065 |  |  | 134,938 |  |  | 306,132 |
Net operating income | 97,380 |  |  | 52,583 |  |  | 117,615 |
Non-operating income/(expense) |  |  |  |  |
Interest income - related parties, long term loans to associated companies | 7,064 |  |  | 7,064 |  |  | 14,128 |
Interest income - related parties, other | 850 |  |  | — |  |  | 880 |
Interest income - other | 2,376 |  |  | 1,112 |  |  | 2,943 |
Interest expense - related parties | — |  |  | (1,422 | ) |  | (6,378 | )
Interest expense - other | (72,165 | ) |  | (47,383 | ) |  | (107,508 | )
Gain/(loss) on repurchase of bonds and extinguishment of debt | 1,802 |  |  | — |  |  | 1,146 |
Impairment of loan notes | (8,225 | ) |  | — |  |  | — |
Net unrealized gain/(loss) on equity securities | 27,323 |  |  | 15,304 |  |  | 12,277 |
Dividend income - related parties | 2,164 |  |  | — |  |  | — |
Realized gain/(loss) on sale of debt and equity securities | — |  |  | — |  |  | 13,477 |
Other financial items, net | (5,847 | ) |  | 5,712 |  |  | 10,407 |
Net income before equity in earnings of associated companies | 52,722 |  |  | 32,970 |  |  | 58,987 |
Equity in earnings of associated companies | 8,991 |  |  | 7,451 |  |  | 14,635 |
Net income | 61,713 |  |  | 40,421 |  |  | 73,622 |
Per share information: |  |  |  |  |
Basic earnings per share | $ | 0.57 |  |  | $ | 0.39 |  |  | $ | 0.70 |
Diluted earnings per share | $ | 0.56 |  |  | $ | 0.39 |  |  | $ | 0.69 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

SFL Corporation Ltd
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the six months ended June 30, 2019 and June 30, 2018
and the year ended December 31, 2018
(in thousands of $)

| Six months ended |  | Year ended |
| June 30, |  | December 31, |
| 2019 |  |  | 2018 |  |  | 2018 |
Net income | 61,713 |  |  | 40,421 |  |  | 73,622 |
Fair value adjustments to hedging financial instruments | (11,648 | ) |  | 9,119 |  |  | (3,433 | )
Earnings reclassification of previously deferred fair value adjustments to hedging financial instruments | — |  |  | 126 |  |  | (3,127 | )
Fair value adjustments to investment securities classified as available-for-sale | (296 | ) |  | 4,540 |  |  | 2,244 |
Fair value adjustments to hedging financial instruments in associated companies | — |  |  | 361 |  |  | (206 | )
Other comprehensive income/(loss) | 22 |  |  | (1 | ) |  | (74 | )
Other comprehensive (loss)/income, net of tax | (11,922 | ) |  | 14,145 |  |  | (4,596 | )
Comprehensive income | 49,791 |  |  | 54,566 |  |  | 69,026 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

SFL Corporation Ltd
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
as at June 30, 2019 and December 31, 2018
(in thousands of $, except share data)

| June 30, 2019 |  |  | December 31, 2018 |
ASSETS |  |  |
Current assets |  |  |
Cash and cash equivalents | 212,400 |  |  | 211,394 |
Restricted cash | — |  |  | 1,000 |
Investments in debt and equity securities | 115,558 |  |  | 87,174 |
Due from related parties | 15,970 |  |  | 41,771 |
Trade accounts receivable | 2,519 |  |  | 2,976 |
Other receivables | 26,239 |  |  | 13,041 |
Inventories | 7,088 |  |  | 8,547 |
Prepaid expenses and accrued income | 2,255 |  |  | 2,593 |
Investment in direct financing and sales-type leases, current portion | 43,807 |  |  | 39,804 |
Financial instruments (short-term): at fair value | — |  |  | 5,279 |
Total current assets | 425,836 |  |  | 413,579 |
Vessels and equipment, net | 1,493,084 |  |  | 1,559,712 |
Vessels and equipment under capital lease, net | 732,549 |  |  | 749,889 |
Investment in direct financing and sales-type leases, long-term portion | 766,044 |  |  | 762,355 |
Investment in associated companies | 34,098 |  |  | 25,107 |
Loans to related parties - associated companies, long-term | 312,660 |  |  | 310,144 |
Long-term receivables from related parties | 14,629 |  |  | 15,616 |
Financial instruments (long-term): at fair value | 2,597 |  |  | 10,633 |
Other long-term assets | 25,388 |  |  | 30,810 |
Total assets | 3,806,885 |  |  | 3,877,845 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities |  |  |
Short-term debt and current portion of long-term debt | 188,029 |  |  | 267,149 |
Current portion of obligations under capital leases | 69,491 |  |  | 67,793 |
Due to related parties | 816 |  |  | 1,349 |
Trade accounts payable | 1,540 |  |  | 1,945 |
Financial instruments (short-term): at fair value | 4,390 |  |  | 45,047 |
Accrued expenses | 11,999 |  |  | 12,510 |
Other current liabilities | 9,773 |  |  | 8,332 |
Total current liabilities | 286,038 |  |  | 404,125 |
Long-term liabilities |  |  |
Long-term debt | 1,274,663 |  |  | 1,169,931 |
Obligations under capital leases | 1,071,661 |  |  | 1,104,258 |
Financial instruments (long-term): at fair value | 16,713 |  |  | 16,213 |
Other long-term liabilities | 3,183 |  |  | 3,286 |
Total liabilities | 2,652,258 |  |  | 2,697,813 |
Commitments and contingent liabilities |  |  |
Stockholders’ equity |  |  |
Share capital ($0.01 par value; 200,000,000 shares authorized; 119,375,525 shares issued and outstanding at June 30, 2019). ($0.01 par value; 200,000,000 shares authorized; 119,373,064 shares issued and outstanding at December 31, 2018). | 1,194 |  |  | 1,194 |
Additional paid-in capital | 468,973 |  |  | 468,844 |
Contributed surplus | 680,703 |  |  | 680,703 |
Accumulated other comprehensive loss | (12,174 | ) |  | (220 | )
Retained earnings | 15,931 |  |  | 29,511 |
Total stockholders’ equity | 1,154,627 |  |  | 1,180,032 |
Total liabilities and stockholders’ equity | 3,806,885 |  |  | 3,877,845 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

SFL Corporation Ltd
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 2019 and June 30, 2018
and the year ended December 31, 2018
(in thousands of $)

| Six months ended |  | Year ended |
| June 30, |  | December 31, |
| 2019 |  |  | 2018 |  |  | 2018 |
Operating activities |  |  |  |  |
Net income | 61,713 |  |  | 40,421 |  |  | 73,622 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Depreciation | 58,648 |  |  | 46,444 |  |  | 104,079 |
Long-term assets impairment charge | 8,225 |  |  | — |  |  | 1,730 |
Vessel impairment charge | — |  |  | 21,779 |  |  | 64,338 |
Amortization of deferred charges | 4,184 |  |  | 3,988 |  |  | 10,187 |
Amortization of seller’s credit | (103 | ) |  | (308 | ) |  | (447 | )
Amortization of long-term charter contracts | 2,680 |  |  | 238 |  |  | 1,699 |
Equity in earnings of associated companies | (8,991 | ) |  | (7,451 | ) |  | (14,635 | )
Loss/(gain) on sale of assets and termination of charters | — |  |  | 1,623 |  |  | 2,578 |
Loss/(gain) on sale of subsidiary and disposal groups | — |  |  | — |  |  | (7,613 | )
Adjustment of derivatives to fair value recognized in net income | 6,315 |  |  | (6,458 | ) |  | (13,898 | )
Unrealized gain on marketable securities | (27,323 | ) |  | (15,304 | ) |  | (12,277 | )
Realized gain on sale of debt and equity securities | — |  |  | — |  |  | (13,476 | )
Loss/(gain) on repurchase of bonds and extinguishment of debt | (1,802 | ) |  | — |  |  | (1,146 | )
Other, net | 966 |  |  | 219 |  |  | 1,108 |
Changes in operating assets and liabilities: |  |  |  |  |
Trade accounts receivable | 457 |  |  | 9,601 |  |  | 9,607 |
Due from related parties | 754 |  |  | 2,698 |  |  | (1,308 | )
Other receivables | (13,355 | ) |  | (3,774 | ) |  | (3,870 | )
Inventories | 1,460 |  |  | (1,664 | ) |  | (3,423 | )
Other current assets | 157 |  |  | — |  |  | (157 | )
Prepaid expenses and accrued income | 338 |  |  | (473 | ) |  | (301 | )
Trade accounts payable | (405 | ) |  | 419 |  |  | 2,370 |
Accrued expenses | (510 | ) |  | (911 | ) |  | (433 | )
Other current liabilities | 196 |  |  | 3,017 |  |  | 2,641 |
Net cash provided by operating activities | 93,604 |  |  | 94,104 |  |  | 200,975 |
Investing activities |  |  |  |  |
Repayments from investments in direct financing and sales-type leases | 20,373 |  |  | 17,064 |  |  | 33,486 |
Additions to finance lease | (1,065 | ) |  | — |  |  | — |
Purchase of vessels and capital improvements | (1,099 | ) |  | (511,016 | ) |  | (1,137,703 | )
Proceeds from sales of vessels and termination of charters | — |  |  | 30,169 |  |  | 145,654 |
Proceeds from sale of subsidiaries, net of cash disposed of | — |  |  | — |  |  | 83,485 |
Net amounts received from/(paid to) associated companies | 22,984 |  |  | 24,116 |  |  | (24,161 | )
Other investments and long term assets, net | (6,092 | ) |  | — |  |  | 32,675 |
Net cash provided by/(used in) investing activities | 35,101 |  |  | (439,667 | ) |  | (866,564 | )
Financing activities |  |  |  |  |
Proceeds from capital leases | — |  |  | — |  |  | 944,097 |
Principal settlements of cross currency swaps, net | (41,769 | ) |  | — |  |  | — |
Repurchase of bonds | (80,749 | ) |  | (63,218 | ) |  | (97,248 | )
Proceeds from issuance of short-term and long-term debt | 217,338 |  |  | 553,000 |  |  | 825,984 |
Repayments of short-term and long-term debt | (115,739 | ) |  | (69,226 | ) |  | (778,731 | )
Discounts received on debt repurchased | 1,654 |  |  | — |  |  | — |
Debt fees paid | (3,210 | ) |  | (5,611 | ) |  | (8,257 | )
Repayment of lease obligation liability | (30,899 | ) |  | (3,730 | ) |  | (11,653 | )
Cash dividends paid | (75,325 | ) |  | (73,917 | ) |  | (149,261 | )
Net cash (used in)/provided by financing activities | (128,699 | ) |  | 337,298 |  |  | 724,931 |
Net change in cash and cash equivalents | 6 |  |  | (8,265 | ) |  | 59,342 |
Cash, restricted cash and cash equivalents at start of the period | 212,394 |  |  | 153,052 |  |  | 153,052 |
Cash, restricted cash and cash equivalents at end of the period | 212,400 |  |  | 144,787 |  |  | 212,394 |
Supplemental disclosure of cash flow information: |  |  |  |  |
Interest paid, net of capitalized interest | 67,317 |  |  | 45,301 |  |  | 104,620 |

The accompanying notes are an integral part of these consolidated condensed financial statements.
7

SFL Corporation Ltd
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
for the six months ended June 30, 2019 and June 30, 2018
and the year ended December 31, 2018
(in thousands of $, except number of shares)

| Six months ended |  | Year ended |
| June 30, |  | December 31, |
| 2019 |  |  | 2018 |  |  | 2018 |
Number of shares outstanding |  |  |  |  |
At beginning of period | 119,373,064 |  |  | 110,930,873 |  |  | 110,930,873 |
Shares issued | 2,461 |  |  | 8,442,191 |  |  | 8,442,191 |
At end of period | 119,375,525 |  |  | 119,373,064 |  |  | 119,373,064 |
Share capital |  |  |  |  |
At beginning of period | 1,194 |  |  | 1,109 |  |  | 1,109 |
Shares issued | — |  |  | 85 |  |  | 85 |
At end of period | 1,194 |  |  | 1,194 |  |  | 1,194 |
Additional paid-in capital |  |  |  |  |
At beginning of period | 468,844 |  |  | 403,659 |  |  | 403,659 |
Amortization of stock-based compensation | 409 |  |  | 234 |  |  | 454 |
Stock-based compensation forfeitures | (49 | ) |  | — |  |  | (33 | )
Shares issued arising from conversion of 3.25% convertible bonds due 2018 | — |  |  | 9,927 |  |  | 9,927 |
Adjustment to equity component arising from reacquisition of 3.25% convertible bonds due 2018 | — |  |  | (9,933 | ) |  | (9,933 | )
Adjustment to equity component of convertible bonds due 2021 and 2023 arising from reacquisition of bonds | (231 | ) |  | — |  |  | (1,096 | )
Shares issued arising from consideration paid on vessel acquisitions | — |  |  | 57,960 |  |  | 57,960 |
Recognition of equity component arising from issuance of 4.875% convertible bonds due 2023 | — |  |  | 7,905 |  |  | 7,906 |
At end of period | 468,973 |  |  | 469,752 |  |  | 468,844 |
Contributed surplus |  |  |  |  |
At beginning of period | 680,703 |  |  | 680,703 |  |  | 680,703 |
At end of period | 680,703 |  |  | 680,703 |  |  | 680,703 |
Accumulated other comprehensive (loss)/income |  |  |  |  |
At beginning of period | (220 | ) |  | (94,612 | ) |  | (94,612 | )
Earnings reclassification of previously deferred fair value adjustments to hedging financial instruments | — |  |  | 126 |  |  | (3,127 | )
Fair value adjustments to hedging financial instruments | (11,648 | ) |  | 9,119 |  |  | (3,433 | )
Reclassification of unrealized losses upon adoption of ASU 2016-01 | — |  |  | 98,782 |  |  | 98,782 |
Reclassification of ineffective portion of designated hedging instruments upon adoption of ASU 2017-12 | (32 | ) |  | — |  |  | — |
Fair value adjustments to available-for-sale securities | (296 | ) |  | 4,540 |  |  | 2,244 |
Other comprehensive (loss)/income | 22 |  |  | (1 | ) |  | (74 | )
At end of period | (12,174 | ) |  | 17,954 |  |  | (220 | )
Accumulated other comprehensive loss - associated companies |  |  |  |  |
At beginning of period | — |  |  | 206 |  |  | 206 |
Fair value adjustments to hedging financial instruments | — |  |  | 361 |  |  | (206 | )
At end of period | — |  |  | 567 |  |  | — |
Retained earnings |  |  |  |  |
At beginning of period | 29,511 |  |  | 203,932 |  |  | 203,932 |
Reclassification of unrealized losses upon adoption of ASU 2016-01 | — |  |  | (98,782 | ) |  | (98,782 | )
Reclassification of ineffective portion of designated hedging instruments upon adoption of ASU 2017-12 | 32 |  |  | — |  |  | — |
Net income | 61,713 |  |  | 40,421 |  |  | 73,622 |
Dividends declared | (75,325 | ) |  | (73,917 | ) |  | (149,261 | )
At end of period | 15,931 |  |  | 71,654 |  |  | 29,511 |
Total stockholders’ equity | 1,154,627 |  |  | 1,241,824 |  |  | 1,180,032 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
8

SFL CORPORATION LTD
Notes to the Unaudited Condensed Consolidated Financial Statements

1. | INTERIM FINANCIAL DATA

The unaudited condensed interim financial statements of SFL Corporation Ltd (formerly Ship Finance International Limited) (“SFL” or the “Company”) have been prepared on the same basis as the Company’s audited financial statements and, in the opinion of management, include all material adjustments, consisting only of normal recurring adjustments considered necessary in order to make the interim financial statements not misleading, in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The accompanying unaudited condensed interim financial statements should be read in conjunction with the annual financial statements and notes included in the Annual Report on Form 20-F for the year ended December 31, 2018. The results of operations for the interim period ended June 30, 2019 are not necessarily indicative of the results for the entire year ending December 31, 2019.
Basis of accounting
The condensed consolidated financial statements are prepared in accordance with US GAAP. The condensed consolidated financial statements include the assets and liabilities and results of operations of the Company and its subsidiaries including variable interest entities in which SFL is deemed to be the primary beneficiary. All inter-company balances and transactions have been eliminated on consolidation.
The condensed consolidated financial statements are prepared in accordance with the accounting policies described in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of ASU 2016-13 on its consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued ASU 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement". ASU 2018-13 includes certain removals, modifications and additions to the disclosure requirements on fair value measurements in Topic 820. The updated guidance is effective for fiscal years, and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The impact on the consolidated financial statements of the Company will depend on the facts and circumstances of any specific future transactions.
In October 2018, the FASB issued ASU No. 2018-16 "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes." In the United States, eligible benchmark interest rates under Topic 815 are interest rates on direct Treasury obligations of the U.S. government (UST), the London Interbank Offered Rate (LIBOR) swap rate, and the Overnight Index Swap (OIS) Rate based on the Federal Funds Effective Rate. When the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in August 2017, it introduced the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate as the fourth permissible U.S. benchmark rate. The new ASU adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. ASU 2018-16 is effective for fiscal years and interim periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2018-16 on the consolidated financial statements.
9

In November 2018, the FASB issued ASU No. 2018-18 "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606", which defines a collaborative arrangement as a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard.
The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard. ASU 2018-18 is effective for fiscal years and interim periods beginning after December 15, 2019. The Company does not expect that the adoption of ASU 2018-18 will have a material effect on the consolidated financial statements.
Also in November 2018, the FASB issued ASU No. 2018-19 "Codification Improvements to Topic 326, Financial Instruments-Credit Losses" to provide new guidance to mitigate the transition complexity by requiring entities other than public business entities, including not-for-profit organizations and certain employee benefit plans, to implement the credit losses standard issued in 2016, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This aligns the implementation date for their annual financial statements with the implementation date for their interim financial statements. The guidance also clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. ASU 2018-19 is effective for fiscal years and interim periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2018-19 on the consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04 "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" to clarify and improve areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement. ASU 2019-04 is effective as of the beginning of the first annual reporting period beginning after April 25, 2019 for amendments to ASU 2017-12 and for fiscal and interim periods beginning after December 15, 2019 for amendments relating to ASU 2016-01 and ASU 2016-13. The Company does not expect that the adoption of ASU 2019-04 will have a material effect on the consolidated financial statements.
In May 2019, the FASB issued ASU No. 2019-05 "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief" to provide an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. ASU 2019-05 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of ASU 2019-05 on its consolidated financial position, results of operations and cash flows.
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02 "Leases" to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 creates a new Accounting Standards Codification Topic 842 "Leases" to replace the previous Topic 840 "Leases." ASU 2016-02 affects both lessees and lessors, although for the latter the provisions are similar to the previous model, but updated to align with certain changes to the lessee model and also the new revenue recognition provisions contained in Topic 606. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018.
The Company has adopted ASC 842 effective January 1, 2019 using the modified retrospective transition approach, which allows the Company to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate our comparative prior year periods. Based on the Company's analysis, the cumulative effect adjustment to the opening balance of accumulated deficit is zero because (i) the Company does not have any unamortized initial direct costs as of January 1, 2019 that need to be written off; (ii) the Company does not have any lease incentives or accrued rental transactions that needs to be recognized; and (iii) the timing and pattern of revenue recognition under its revenue contracts that have lease and non-lease components is not materially different. The Company has elected the package of practical expedients applied to all of its leases (including those for which it is a lessee and lessor) that permit it not to (i) reassess whether any expired or existing contracts are or contain leases; (ii) reassess the lease classification for any expired or existing leases and (iii) reassess initial direct costs for any existing leases. Furthermore the Company has not elected the practical expedient to use hindsight when determining the lease term.
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For arrangements where we are the lessor, the new lease standard provides a practical expedient for lessors in which the lessor may elect, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for these components as a single component if both of the following are met: (1) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (2) the lease component, if accounted for separately, would be classified as an operating lease. When a lessor, we have elected this expedient for our time charter contracts, voyage charter and bareboat charter contracts that qualify as operating leases and thus do not separate the non-lease component, or service element, from the lease. Revenues from contracts where the non-lease component is the predominant component are accounted for under ASC 606. The adoption of ASC 842 did not have a material impact on the consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments also simplify the application of hedge accounting in certain situations. ASU 2017-12 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, the cumulative effect of adopting this guidance resulted in a net adjustment of $32 thousand to the opening balance of retained earnings as of January 1, 2019.

2. | GAIN ON SALE OF ASSETS AND TERMINATION OF CHARTERS

No vessels were sold or charters terminated during the six months ended June 30, 2019.
In February 2018, the VLCC Front Circassia, which was accounted for as a direct financing lease asset, was sold to an unrelated third party. A loss of $1.4 million was recorded on the disposal, the proceeds of which included $17.9 million gross sales proceeds and compensation in the form of a loan note of $4.4 million at fair value was received for the early termination of the charter (see Note 15: Related party transactions).
In May 2018, the container vessel SFL Avon, which was accounted for as an operating lease asset, was sold to an unrelated third party. Gross proceeds of $12.7 million were received on the sale, resulting in a loss of $0.2 million on disposal.
11

3. | EARNINGS PER SHARE

The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares outstanding during the period. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments.
The components of the numerator for the calculation of basic and diluted EPS are as follows:

| Six months ended |  | Year ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Basic earnings per share: |  |  |  |  |
Net income available to stockholders | 61,713 |  |  | 40,421 |  |  | 73,622 |
Diluted earnings per share: |  |  |  |  |
Net income available to stockholders | 61,713 |  |  | 40,421 |  |  | 73,622 |
Interest and other expenses attributable to convertible bonds | 11,319 |  |  | 261 |  |  | 123 |
Net income assuming dilution | 73,032 |  |  | 40,682 |  |  | 73,745 |

The components of the denominator for the calculation of basic and diluted EPS are as follows:

| Six months ended |  | Year ended |
(in thousands) | June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Basic earnings per share: |  |  |  |  |
Weighted average number of common shares outstanding | 107,608 |  |  | 104,160 |  |  | 105,898 |
Diluted earnings per share: |  |  |  |  |
Weighted average number of common shares outstanding* | 107,608 |  |  | 104,160 |  |  | 105,898 |
Effect of dilutive share options | 50 |  |  | 62 |  |  | 59 |
Effect of dilutive convertible bonds | 21,677 |  |  | 818 |  |  | 1,649 |
Weighted average number of common shares outstanding assuming dilution | 129,335 |  |  | 105,040 |  |  | 107,606 |

| Six months ended |  | Year ended |
| June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Basic earnings per share: | $ | 0.57 |  |  | $ | 0.39 |  |  | $ | 0.70 |
Diluted earnings per share: | $ | 0.56 |  |  | $ | 0.39 |  |  | $ | 0.69 |

*The weighted average number of common shares outstanding excludes 8,000,000 shares issued as part of a share lending arrangement relating to the Company's issuance of 5.75% senior unsecured convertible bonds in October 2016. It also excludes 3,765,842 shares issued as of June 30, 2019 from up to 7,000,000 shares issuable under a share lending arrangement relating to the Company's issuance of 4.875% senior unsecured convertible bonds in April and May 2018. These lent shares are owned by the Company and will be returned on or before maturity of the bonds in 2021 and 2023, respectively.
In February 2018, the Company redeemed the full outstanding amount under the 3.25% senior unsecured convertible bonds due
2018. The remaining outstanding principal amount of $63.2 million was paid in cash, and the premium settled in common shares with the issue of 651,365 new shares.
As of June 30, 2019, the 4.875% senior unsecured convertible bonds issued in April and May 2018 and the 5.75% senior unsecured convertible bonds issued in October 2016 were dilutive.
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4. | OTHER FINANCIAL AND NON-OPERATING ITEMS

Other financial items, net comprise the following items:

| Six months ended |  | Year ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Net cash movement on non-designated derivatives | 702 |  |  | (647 | ) |  | (721 | )
Net (decrease)/increase in fair value of non-designated derivatives | (6,316 | ) |  | 6,492 |  |  | 13,908 |
Other items | (233 | ) |  | (133 | ) |  | (2,780 | )
Total other financial items, net | (5,847 | ) |  | 5,712 |  |  | 10,407 |

The net movement in the fair values of non-designated derivatives and net cash movement thereon relates to non-designated, terminated or de-designated interest rate swaps and cross currency interest rate swaps. Changes in the fair values of interest rate swaps that are designated as cash flow hedges are reported under “Other comprehensive income”.
Other items in the six months ended June 30, 2019 include a gain of $0.1 million arising from foreign currency translation. In the year ended December 31, 2018 other items included foreign currency translation net loss of $2.0 million (six months ended June 30, 2018: gain of $0.1 million). Other items also include bank charges and fees relating to loan facilities.
Following the adoption of ASU 2017-12 from January 2019, the Company now recognizes any changes in the fair value of swaps designated as accounting hedges in other comprehensive income. The adoption of the standard resulted in an opening balance adjustment of $32.0 thousand from retained earnings to other comprehensive income. See also Recently Adopted Accounting Standards within Note 1.
Other non-operating items in the income statement comprise the following items:

| Six months ended |  | Year ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Impairment of loan notes | (8,225 | ) |  | — |  |  | — |

In February 2016, the offshore support vessel Sea Bear, then chartered to a subsidiary of Deep Sea was sold and its lease canceled. An agreed termination fee was received in the form of a loan note from Deep Sea, receivable over the approximately six remaining years of the canceled lease. The note received interest at 7.25% and has a face value of $14.6 million. The note was evaluated to have an initial fair value of $11.6 million which was determined from analysis of projected cash flows, based on factors including the terms, provisions and other characteristics of the notes, default risk of the issuing entity, the fundamental financial and other characteristics of that entity, and the current economic environment and relevant trading activity in the debt market. In June 2017, Deep Sea completed a merger with Solstad Offshore ASA and Farstad Shipping ASA, creating Solstad Farstad ASA. In October 2018, Solstad Farstad ASA changed its name to Solstad Offshore ASA ("Solstad"). The loan note is unsecured and not guaranteed by its holding company. During the six months ended June 30, 2019, the Company concluded that the loan note was no longer recoverable and fully provided against it.
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5. | INVESTMENT S IN DEBT AND EQUITY SECURITIES

Investment securities held by the Company consist of the following investments in corporate bonds and equity securities:

| Six months ended June 30, 2019 |  | Year ended December 31, 2018
(in thousands of $) | Amortised Cost |  | Unrealised gains/(losses)* |  | Fair value |  | Amortised Cost |  | Unrealised gains/(losses)* |  | Fair value
Corporate bonds: |  |  |  |  |  |  |  |  |  |  |
NorAm Drilling | 4,423 |  |  | 477 |  |  | 4,900 |  |  | 4,715 |  |  | 477 |  |  | 5,192 |
Oro Negro Bond | 7,886 |  |  | (168 | ) |  | 7,718 |  |  | 7,886 |  |  | 167 |  |  | 8,053 |
Oro Negro Super Senior Bond | 1,564 |  |  | 39 |  |  | 1,603 |  |  | — |  |  | — |  |  | — |
Total corporate bonds | 13,873 |  |  | 348 |  |  | 14,221 |  |  | 12,601 |  |  | 644 |  |  | 13,245 |
Total equity securities | 73,929 |  |  | 27,408 |  |  | 101,337 |  |  | 63,633 |  |  | 10,296 |  |  | 73,929 |
Total Investments | 87,802 |  |  | 27,756 |  |  | 115,558 |  |  | 76,234 |  |  | 10,940 |  |  | 87,174 |

* This includes foreign currency gains or losses on non U.S. dollar denominated equity investments in addition to the changes in the fair value from market prices movements.
Corporate Bonds
The investments in corporate bonds at June 30, 2019, consist of investments in Oro Negro and NorAm Drilling Company AS ("NorAm Drilling") bonds which have a total carrying value of $14.2 million (December 31, 2018: $13.2 million) and have maturities in 2019 and 2021. In April 2019, the Company acquired 12% Super Senior Callable Liquidity Bonds from Oro Negro with a face value of $1.6 million. During six months ended June 30, 2019, the Company redeemed $0.3 million under the 9% Senior Secured Callable Bonds due 2021 and recorded no gain or loss on redemption.
The corporate bonds are classified as available-for-sale securities and are recorded at fair value, with unrealized gains and losses recorded as a separate component of "Other comprehensive income". The accumulated net unrealized gain on these available-for-sale corporate debt securities included in "Other comprehensive income" at June 30, 2019, was $0.3 million (December 31, 2018: gain of $0.6 million).
Equity Securities
The investments in shares at June 30, 2019 consist of listed shares in Frontline with a carrying value of $88.0 million (December 31, 2018: $60.8 million), shares in NorAm Drilling traded in the Norwegian Over the Counter market ("OTC") with a carrying value of $4.2 million (December 31, 2018: $3.9 million), and shares in ADS Crude Carriers Plc. ("ADS"), listed on the Merkur Market at the Oslo Stock Exchange with a carrying value of $9.2 million at June 30, 2019 (December 31, 2018: $9.2 million). See also Note 15: Related party transactions.
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6. | VESSELS AND EQUIPMENT, NET

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Cost | 1,916,581 |  |  | 1,955,880 |
Accumulated depreciation | 423,497 |  |  | 396,168 |
Vessels and equipment, net | 1,493,084 |  |  | 1,559,712 |

During the six months ended June 30, 2019, the 5,800 TEU container vessels MSC Margarita and MSC Vidhi, previously recorded as operating lease assets, were reclassified as sales-type leases. The reclassification occurred as a result of amendments to the existing charter contracts. The carrying value of the container vessels reclassified from vessels and equipment to investments in finance leases was $27.0 million (Refer to Note 8: Investments in direct financing and sales-type leases).
During the six months ended June 30, 2019, the Company capitalized costs of $1.0 million related to exhaust gas cleaning systems ("scrubbers") and ballast water treatment systems (year ended December 31, 2018: $0.5 million).

7. | VESSELS UNDER CAPITAL LEASE, NET

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Cost | 755,058 |  |  | 754,392 |
Accumulated depreciation | 22,509 |  |  | 4,503 |
Vessels under capital lease, net | 732,549 |  |  | 749,889 |

As at June 30, 2019, seven vessels were accounted for as vessels under capital lease, including four 13,800 TEU container vessels and three 10,600 container vessels. These vessels were refinanced through Asian based financial institutions by entering into separate sale and leaseback financing arrangements. The vessels are leased back for an original term ranging from six to 11 years, with options to purchase each vessel after six years.
8. INVESTMENTS IN DIRECT FINANCING AND SALES-TYPE LEASES
As at June 30, 2019, the Company had three VLCC crude tankers accounted for as direct financing leases (December 31, 2018: three VLCCs). These vessels are on charter to Frontline Shipping Limited (“Frontline Shipping”) on long-term, fixed rate time charters which span various periods depending on the age of the vessels, ranging from approximately six to eight years. Frontline Shipping is a wholly owned subsidiary of Frontline, a related party. The terms of the charters do not provide Frontline Shipping with an option to terminate the charters before the end of their terms.
The Company owns one offshore supply vessel accounted for as a direct finance lease which is chartered on a long-term bareboat charter, together with four other vessels accounted for as operating leases, to Deep Sea Supply Shipowning II AS (the “Solstad Charterer”). The Solstad Charterer is an indirect wholly owned subsidiary of Solship Invest 3 AS (“Solship”) which is in turn a wholly owned subsidiary of Solstad Offshore ASA (“Solstad”). In July 2018, the Company entered into a restructuring agreement with subsidiaries of Solstad, which became effective at the end of August 2018, whereby the Company will receive 50% of the agreed charter hire for two of the offshore support vessels. All other contracted charter hire income earned from fixed assets and finance lease assets will be deferred until the end of 2019. In April 2019, Solship announced that a Standstill Agreement had been entered into with, amongst others, the Company whereby 100% of charter hire for vessels on charter to Solship is deferred. The Standstill Agreement is effective until October 31, 2019.
15

In addition to the above four vessels leased to related and unrelated third parties, the Company also had 19 container vessels accounted for as direct financing leases and one container vessel accounted for as a sales-type lease as at June 30, 2019, which are on long-term bareboat charters to MSC Mediterranean Shipping Company S.A. ("MSC"), an unrelated party. The terms of the charters provide a fixed price put option, purchase option or purchase obligation at the expiry of the 15 year charter period for four of the container vessels, the charterer has purchase options throughout the term of the charters and the Company has a put option at the end of the seven year period for 15 container vessels, and the charterer has a minimum fixed price purchase obligation at the expiry of the five year charter period for the container vessel accounted for as a sales-type lease.
During the six months ended June 30, 2019, an additional two 5,800 TEU container vessels, MSC Margarita and MSC Vidhi, which were previously reported under vessels and equipment, were reclassified to sales type leases as a result of amendments made to the charter contract. Included in the amendments to the contracts, the charterer has a fixed price purchase obligation at the expiry of the additional five year charter period. The combined net book value of the vessels transferred was $27.0 million (Refer to Note 6: Vessels and equipment, net).
As at June 30, 2019, the Company had a total of 26 vessels accounted for as direct financing and sales-type leases (December 31, 2018: 24 vessels). The following lists the components of the investments in direct financing and sales-type leases as at June 30, 2019 and December 31, 2018:

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Total minimum lease payments to be received | 1,142,619 |  |  | 1,173,152 |
Less: amounts representing estimated executory costs including profit thereon, included in total minimum lease payments | (69,190 | ) |  | (74,077 | )
Net minimum lease payments receivable | 1,073,429 |  |  | 1,099,075 |
Estimated residual values of leased property (un-guaranteed) | 192,080 |  |  | 180,080 |
Less: unearned income | (455,658 | ) |  | (476,996 | )
Total investment in direct financing and sales-type leases | 809,851 |  |  | 802,159 |
Current portion | 43,807 |  |  | 39,804 |
Long-term portion | 766,044 |  |  | 762,355 |
Total investment in direct financing and sales-type leases | 809,851 |  |  | 802,159 |

Following the adoption of ASU 2016-02 from January 2019, the Company now records new and modified leases as per ASC 842. The Company has elected the practical expedient to not reassess existing leases. The adoption of the standard resulted in no opening balance adjustments. See also Recently Adopted Accounting Standards within Note 1.
9. INVESTMENTS IN ASSOCIATED COMPANIES
The Company has certain wholly-owned subsidiaries which are accounted for using the equity method, as it has been determined under ASC 810 that they are variable interest entities in which SFL is not the primary beneficiary.
At June 30, 2019, June 30, 2018 and December 31, 2018, the Company had the following participation in investments that were recorded using the equity method:

| June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
SFL Deepwater Ltd (“SFL Deepwater”) | 100 | % |  | 100 | % |  | 100 | %
SFL Hercules Ltd (“SFL Hercules”) | 100 | % |  | 100 | % |  | 100 | %
SFL Linus Ltd (“SFL Linus”) | 100 | % |  | 100 | % |  | 100 | %

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Summarized balance sheet information of the Company’s wholly-owned equity method investees is as follows:

| As of June 30, 2019
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Current assets | 60,007 |  |  | 24,028 |  |  | 18,848 |  |  | 17,131 |
Non-current assets | 944,994 |  |  | 294,563 |  |  | 282,125 |  |  | 368,306 |
Total assets | 1,005,001 |  |  | 318,591 |  |  | 300,973 |  |  | 385,437 |
Current liabilities | 60,345 |  |  | 18,019 |  |  | 19,088 |  |  | 23,238 |
Non-current liabilities | 910,558 |  |  | 291,692 |  |  | 273,846 |  |  | 345,020 |
Total liabilities | 970,903 |  |  | 309,711 |  |  | 292,934 |  |  | 368,258 |
Total stockholders’ equity | 34,098 |  |  | 8,880 |  |  | 8,039 |  |  | 17,179 |

| As of December 31, 2018
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Current assets | 58,089 |  |  | 19,558 |  |  | 16,858 |  |  | 21,673 |
Non-current assets | 967,954 |  |  | 302,362 |  |  | 290,370 |  |  | 375,222 |
Total assets | 1,026,043 |  |  | 321,920 |  |  | 307,228 |  |  | 396,895 |
Current liabilities | 69,181 |  |  | 18,252 |  |  | 19,487 |  |  | 31,442 |
Non-current liabilities | 931,755 |  |  | 297,060 |  |  | 281,627 |  |  | 353,068 |
Total liabilities | 1,000,936 |  |  | 315,312 |  |  | 301,114 |  |  | 384,510 |
Total stockholders’ equity | 25,107 |  |  | 6,608 |  |  | 6,114 |  |  | 12,385 |

Summarized statement of operations information of the Company’s wholly-owned equity method investees is as follows:

| Six months ended June 30, 2019
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Operating revenues | 33,289 |  |  | 9,817 |  |  | 9,536 |  |  | 13,936 |
Net operating revenues | 33,289 |  |  | 9,817 |  |  | 9,536 |  |  | 13,936 |
Net income | 8,991 |  |  | 2,272 |  |  | 1,925 |  |  | 4,794 |

| Six months ended June 30, 2018
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Operating revenues | 32,271 |  |  | 9,651 |  |  | 9,552 |  |  | 13,068 |
Net operating revenues | 32,271 |  |  | 9,651 |  |  | 9,552 |  |  | 13,068 |
Net income | 7,451 |  |  | 1,964 |  |  | 1,821 |  |  | 3,666 |

| Year ended December 31, 2018
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Operating revenues | 64,572 |  |  | 19,594 |  |  | 19,126 |  |  | 25,852 |
Net operating revenues | 64,410 |  |  | 19,540 |  |  | 19,049 |  |  | 25,821 |
Net income | 14,635 |  |  | 3,973 |  |  | 3,372 |  |  | 7,290 |

SFL Deepwater, SFL Hercules and SFL Linus each own drilling units which have been leased to subsidiaries of Seadrill Limited (“Seadrill”), a related party. Because the main assets of SFL Deepwater, SFL Hercules and SFL Linus are the subject of leases which includes both fixed price call options and a fixed price purchase obligation or put option, it has been determined that these subsidiaries of SFL are variable interest entities in which SFL is not the primary beneficiary.
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Each subsidiary has entered into a term loan and revolving credit facility as follows:

| Six months ended June 30, 2019
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Loan balance outstanding | 645,918 |  |  | 195,801 |  |  | 210,000 |  |  | 240,117 |
Amount available to draw down | — |  |  | — |  |  | — |  |  | — |
Amount guaranteed by SFL | 266,114 |  |  | 84,697 |  |  | 78,947 |  |  | 102,470 |

| Year ended December 31, 2018
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Loan balance outstanding | 655,186 |  |  | 203,686 |  |  | 210,000 |  |  | 241,500 |
Amount available to draw down | — |  |  | — |  |  | — |  |  | — |
Amount guaranteed by SFL | 266,114 |  |  | 84,697 |  |  | 78,947 |  |  | 102,470 |

In the six months ended June 30, 2019, the six months ended June 30, 2018 and the year ended December 31, 2018, SFL Deepwater, SFL Hercules and SFL Linus paid dividends as follows:

| Six months ended June 30, 2019
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Dividends Paid | — |  |  | — |  |  | — |  |  | — |

| Six months ended June 30, 2018
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Dividends Paid | — |  |  | — |  |  | — |  |  | — |

| Year ended December 31, 2018
(in thousands of $) | TOTAL |  |  | SFL Deepwater |  |  | SFL Hercules |  |  | SFL Linus |
Dividends Paid | — |  |  | — |  |  | — |  |  | — |

SFL Deepwater, SFL Hercules and SFL Linus have loan facilities for which SFL provides limited guarantees, as indicated above. These loan facilities originally contained financial covenants with which both SFL and Seadrill must comply. In September 2017, Seadrill announced that it had entered into a restructuring agreement (the “Restructuring Plan”) with more than 97% of its secured bank lenders, approximately 40% of its bondholders and a consortium of investors led by its largest shareholder, Hemen Holding Ltd (“Hemen”), who is also the largest shareholder in the Company. The Company, SFL Deepwater, SFL Hercules and SFL Linus have also entered into the Restructuring Plan, which has been implemented by way of prearranged Chapter 11 cases. As part of the Restructuring Plan, the financial covenants on Seadrill have been replaced by financial covenants on a newly established subsidiary of Seadrill, Seadrill Rig Holding Company Limited (“RigCo”), who also acts as guarantor for the obligations under the leases for the three drilling units, on a subordinated basis to the senior secured lenders in Seadrill and new secured notes. As at June 30, 2019, SFL and RigCo were in compliance with all of the covenants under these long-term debt facilities.
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10. | SHORT-TERM AND LONG-TERM DEBT

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Long-term debt: |  |  |
NOK900 million senior unsecured floating rate bonds due 2019 | — |  |  | 77,722 |
5.75% senior unsecured convertible bonds due 2021 | 212,230 |  |  | 212,230 |
NOK500 million senior unsecured floating rate bonds due 2020 | 58,582 |  |  | 57,829 |
4.875% senior unsecured convertible bonds due 2023 | 148,300 |  |  | 151,700 |
NOK600 million senior unsecured floating rate bonds due 2023 | 70,298 |  |  | 69,395 |
NOK700 million senior unsecured floating rate bonds due 2024 | 82,014 |  |  | — |
Total Fixed Rate and Foreign Debt | 571,424 |  |  | 568,876 |
U.S. dollar denominated floating rate debt (LIBOR plus margin) due through 2025 | 913,207 |  |  | 891,471 |
Total debt principal | 1,484,631 |  |  | 1,460,347 |
Less: Unamortized debt issuance costs | (21,939 | ) |  | (23,267 | )
Less: Current portion of long-term debt | (188,029 | ) |  | (267,149 | )
Total long-term debt | 1,274,663 |  |  | 1,169,931 |

(in thousands of $) |  |  |  |  |  |
|  |  | Fixed Rate and Foreign Debt |  |  | U.S. Dollar Floating Rate Debt |  |  | Total debt principal |
Balance at | December 31, 2018 |  | 568,876 |  |  | 891,471 |  |  | 1,460,347 |
Drawdowns |  | 79,862 |  |  | 137,476 |  |  | 217,338 |
Repayments and redemptions |  | (81,021 | ) |  | (115,740 | ) |  | (196,761 | )
Effects of foreign exchange |  | 3,707 |  |  | — |  |  | 3,707 |
Balance at | June 30, 2019 |  | 571,424 |  |  | 913,207 |  |  | 1,484,631 |

The outstanding debt as of June 30, 2019 is repayable as follows:

(in thousands of $) |
Year ending December 31, |
2019 (remaining six months) | 76,104 |
2020 | 198,565 |
2021 | 513,236 |
2022 | 255,185 |
2023 | 280,353 |
Thereafter | 161,188 |
Total debt principal | 1,484,631 |

The weighted average interest rate for floating rate debt denominated in U.S. dollars and Norwegian kroner (“NOK”) was 4.19% per annum at June 30, 2019 (December 31, 2018: 4.22%). This rate takes into consideration the effect of related interest rate swaps. At June 30, 2019, the six month US Dollar London Interbank Offered Rate, or LIBOR, was 2.37% (December 31, 2018: 2.81%) and the Norwegian Interbank Offered Rate, or NIBOR, was 1.52% (December 31, 2018: 1.27%).
NOK900 million senior unsecured bonds due 2019
On March 19, 2014, the Company issued a senior unsecured bond loan totaling NOK900 million in the Norwegian credit market. The bonds bore quarterly interest at NIBOR plus a margin and were redeemable in full on March 19, 2019.
Since their issue, the Company purchased bonds with principal amounts totaling NOK228 million, net and the remaining outstanding amount of NOK672 million was fully redeemed in March 2019. Thus, there was no principal amount outstanding as at June 30, 2019 in respect of this bond (December 31, 2018: NOK672 million, equivalent to 77.7 million).
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4.875% senior unsecured convertible bonds due 2023
On April 23, 2018, the Company issued a senior unsecured convertible bond loan totaling $150.0 million. Additional bonds were issued on May 4, 2018 at a principal amount of $14.0 million. Interest on the bonds is fixed at 4.875% per annum and is payable in cash quarterly in arrears on February 1, May 1, August 1 and November 1. The bonds are convertible into SFL Corporation Ltd common shares and mature on May 1, 2023. The initial conversion rate at the time of issuance was 52.8157 common shares per $1,000 bond, equivalent to a conversion price of approximately $18.93 per share. Since the issuance, dividend distributions have increased the conversion rate to 60.3956 common shares per $1,000 bond, equivalent to a conversion price of approximately $16.56 per share. Based on the closing price of our common stock of 12.51 on June 30, 2019, the if-converted value was less than the principal amounts by $36.3 million. In January 2019, the Company purchased bonds with principal amounts totaling $3.4 million (2018: $12.3 million). A gain of $0.3 million was recorded on the transaction in the six months ended June 30, 2019 (six months ended June 30, 2018: $0; year ended December 31, 2018: $0.4 million). The net amount outstanding at June 30, 2019 was $148.3 million (December 31, 2018: $151.7 million).
In conjunction with the bond issue, the Company agreed to loan up to 7,000,000 of its common shares to affiliates of the underwriters of the issue, in order to assist investors in the bonds to hedge their position. As at June 30, 2019, a total of 3,765,842 shares were issued from up to 7,000,000 shares issuable under a share lending arrangement.
As required by ASC 470-20 "Debt with conversion and Other Options", the Company calculated the equity component of the convertible bond, taking into account both the fair value of the conversion option and the fair value of the share lending arrangement. The equity component was valued at $7.9 million at issue date and this amount was recorded as "Additional paid-in capital", with a corresponding adjustment to "Deferred charges", which are amortized to "Interest expense" over the appropriate period. The amortization of this item amounted to $0.3 million in the six months ended June 30, 2019 (six months ended June 30, 2018: $0.3 million; year ended December 31, 2018: $1.0 million). As a result of the purchase of bonds with principal amounts totaling $3.4 million (December 31, 2018: $12.3 million), a total of $0.2 million (December 31, 2018: $0.6 million) was allocated as the reacquisition of the equity component.
$101.4 million secured term loan facility
In August 2014, six wholly-owned subsidiaries of the Company entered into a $101.4 million secured term loan facility with a syndicate of banks, which was secured against six offshore supply vessels, one of which had been sold prior to December 31, 2018. The facility bore interest at LIBOR plus a margin and had a term of five years, maturing in January 2023. The net amount outstanding at December 31, 2018 was $44.1 million. In June 2019, the Company repurchased $11.0 million of the facility for $9.4 million and recognized a gain on debt extinguishment of $1.7 million. Following the repurchase, the remaining outstanding balance of $33.1 million was refinanced with a new $33.1 million term loan facility in June 2019.
$33.1 million term loan facility
In June 2019, five wholly-owned subsidiaries of the Company entered into a $33.1 million term loan facility with a syndicate of banks. The Company has provided a corporate guarantee for this facility, which bears interest at LIBOR plus a margin and has a term of approximately four years. The net amount outstanding at June 30, 2019, was $33.1 million.
NOK700 million senior unsecured bonds due 2024
In June 2019, the Company issued a senior unsecured bond totaling NOK700 million in the Norwegian credit market. The bonds bear quarterly interest at NIBOR plus a margin and are redeemable in full on June 4, 2024. The net amount outstanding at June 30, 2019 was NOK700 million, equivalent to $82.0 million.
$24.9 million senior secured term loan facility
In February 2019, three wholly-owned subsidiaries of the Company entered into a $24.9 million senior secured term loan facility with a bank, secured against three Supramax dry bulk carriers. The Company has provided a limited corporate guarantee for this facility, which bears interest at LIBOR plus a margin and has a term of approximately five years. The net amount outstanding at June 30, 2019, was $24.2 million.
$29.5 million term loan facility
In March 2019, two wholly-owned subsidiaries of the Company entered into a $29.5 million term loan facility with a bank, secured against two car carriers. The Company has provided a corporate guarantee for this facility, which bears interest at LIBOR plus a margin and has a term of approximately five years. The net amount outstanding at June 30, 2019, was $29.0 million.
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$50 million senior secured term loan facility
In February 2019, three wholly-owned subsidiaries of the Company entered into a $50 million senior secured term loan facility with a bank, secured against three tankers chartered to Frontline Shipping. The Company has provided a corporate guarantee for this facility, which bears interest at LIBOR plus a margin and has a term of approximately four years. The net amount outstanding at June 30, 2019, was $50 million.

The aggregate book value of assets pledged as security against borrowings at June 30, 2019, was $1,650 million (December 31, 2018: $1,527 million).
Agreements related to long-term debt provide limitations on the amount of total borrowings and secured debt, and acceleration of payment under certain circumstances, including failure to satisfy certain financial covenants. As of June 30, 2019, the Company is in compliance with all of the covenants under its long-term debt facilities.

11. | FINANCIAL INSTRUMENTS

In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates and exchange rates. The Company has a portfolio of swaps which swap floating rate interest to fixed rate, and which also fix the Norwegian kroner to US dollar exchange rate applicable to the interest payable and principal repayment on the NOK bonds. From a financial perspective these swaps hedge interest rate and exchange rate exposure. The counterparties to such contracts are DNB Bank ASA, Nordea Bank Finland Plc., ABN AMRO Bank N.V., NIBC Bank N.V., Skandinaviska Enskilda Banken AB (publ), ING Bank N.V., Danske Bank A/S, Swedbank AB (publ), Credit Agricole Corporate & Investment Bank S.A. and Commonwealth Bank of Australia. Credit risk exists to the extent that the counterparties are unable to perform under the contracts, but this risk is considered not to be substantial as the counterparties are all banks which have provided the Company with loans.
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The following table presents the fair values of the Company’s derivative instruments that were designated as cash flow hedges and qualified as part of a hedging relationship, and those that were not designated:

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Non-designated derivative instruments - short-term assets: |  |  |
Cross currency interest rate swaps | — |  |  | 5,279 |
Total derivative instruments - short-term assets | — |  |  | 5,279 |
Designated derivative instruments - long-term assets: |  |  |
Interest rate swaps | 2,597 |  |  | 5,459 |
Non-designated derivative instruments - long-term assets: |  |  |
Interest rate swaps | — |  |  | 5,174 |
Total derivative instruments - long-term assets | 2,597 |  |  | 10,633 |
(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Designated derivative instruments - short-term liabilities: |  |  |
Cross currency interest rate swaps | 4,390 |  |  | 33,004 |
Non-designated derivative instruments - short-term liabilities: |  |  |
Cross currency interest rate swaps | — |  |  | 12,043 |
Total derivative instruments - short-term liabilities | 4,390 |  |  | 45,047 |
Designated derivative instruments - long-term liabilities: |  |  |
Interest rate swaps | 5,859 |  |  | 1,811 |
Cross currency interest rate swaps | 8,953 |  |  | 4,709 |
Cross currency swaps | — |  |  | 9,607 |
Non-designated derivative instruments - long-term liabilities: |  |  |
Interest rate swaps | 1,901 |  |  | 86 |
Total derivative instruments - long-term liabilities | 16,713 |  |  | 16,213 |

Interest rate risk management
The Company manages its debt portfolio with interest rate swap agreements denominated in U.S. dollars and Norwegian kroner to achieve an overall desired position of fixed and floating interest rates. At June 30, 2019, the Company and its consolidated subsidiaries had entered into interest rate swap transactions, involving the payment of fixed and floating rates in exchange for LIBOR or NIBOR.
The total notional principal amount subject to swap agreements as at June 30, 2019, was $0.9 billion (December 31, 2018: $0.9 billion).
Foreign currency risk management
The Company is party to currency swap transactions, involving the payment of U.S. dollars in exchange for Norwegian kroner, which are designated as hedges against the NOK500 million, NOK600 million and NOK700 million senior unsecured bonds due 2020, 2023 and 2024 respectively.

Principal Receivable | Principal Payable | Inception date | Maturity date
NOK500 million | US$64.0 million | October 2017 | March - June 2020
NOK600 million | US$76.8 million | September 2018 | September 2023
NOK700 million | US$80.5 million | June 2019 | June 2024

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Apart from the NOK500 million, NOK600 million and NOK700 million senior unsecured bonds due 2020, 2023 and 2024, respectively, the majority of the Company’s transactions, assets and liabilities are denominated in U.S. dollars, the functional currency of the Company. Other than the corresponding currency swap transactions summarized above, the Company has not entered into forward contracts for either transaction or translation risk. Accordingly, there is a risk that currency fluctuations could have an adverse effect on the Company’s cash flows, financial condition and results of operations.
Fair Values
The carrying value and estimated fair value of the Company’s financial assets and liabilities at June 30, 2019 and December 31, 2018 are as follows:

| June 30, 2019 |  |  | June 30, 2019 |  |  | December 31, 2018 |  |  | December 31, 2018 |
(in thousands of $) | Carrying value |  |  | Fair value |  |  | Carrying value |  |  | Fair value |
Non-derivatives: |  |  |  |  |  |  |
Available-for-sale debt securities | 14,221 |  |  | 14,221 |  |  | 13,245 |  |  | 13,245 |
Equity securities | 101,337 |  |  | 101,337 |  |  | 73,929 |  |  | 73,929 |
Floating rate NOK bonds due 2019 | — |  |  | — |  |  | 77,722 |  |  | 77,916 |
Floating rate NOK bonds due 2020 | 58,582 |  |  | 60,368 |  |  | 57,829 |  |  | 58,841 |
Floating rate NOK bonds due 2023 | 70,298 |  |  | 70,562 |  |  | 69,395 |  |  | 69,568 |
Floating rate NOK bonds due 2024 | 82,014 |  |  | 82,014 |  |  | — |  |  | — |
5.75% unsecured convertible bonds due 2021 | 212,230 |  |  | 213,822 |  |  | 212,230 |  |  | 199,496 |
4.875% unsecured convertible bonds due 2023 | 148,300 |  |  | 149,819 |  |  | 151,700 |  |  | 139,374 |
Derivatives: |  |  |  |  |  |  |
Interest rate/currency swap contracts - short-term receivables | — |  |  | — |  |  | 5,279 |  |  | 5,279 |
Interest rate/currency swap contracts - long-term receivables | 2,597 |  |  | 2,597 |  |  | 10,633 |  |  | 10,633 |
Interest rate/currency swap contracts - short-term payables | 4,390 |  |  | 4,390 |  |  | 45,047 |  |  | 45,047 |
Interest rate/currency swap contracts - long-term payables | 16,713 |  |  | 16,713 |  |  | 16,213 |  |  | 16,213 |

The above short-term receivables relating to interest rate/currency swap contracts all relate to non-designated hedges at December 31, 2018. The above long-term receivables relating to interest rate/currency swap contracts at June 30, 2019, include $nil which relates to non-designated swap contracts (December 31, 2018: $5.2 million), with the balance relating to designated hedges. The above short-term payables relating to interest rate/currency swap contracts at June 30, 2019, include $nil which relates to non-designated swap contracts (December 31, 2018: $12.0 million), with the balance relating to designated hedges. The above long-term payables relating to interest rate/currency swap contracts at June 30, 2019, include $1.9 million which relates to non-designated swap contracts (December 31, 2018: $0.1 million), with the balance relating to designated hedges.
In accordance with the accounting policy relating to interest rate and currency swaps described in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, and following the adoption of ASU 2017-12, where the Company has designated the swap as a hedge, changes in the fair values of interest rate swaps are recognized in other comprehensive income. Changes in the fair value of other swaps not designated as hedges are recognized in the Consolidated Statement of Operations.
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The above fair values of financial assets and liabilities as at June 30, 2019, were measured as follows:

|  |  | Fair value measurements using,
(in thousands of $) | June 30, 2019 |  |  | Quoted Prices in Active Markets for identical Assets/Liabilities (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3)
Assets: |  |  |  |  |  |  |
Available-for-sale debt securities | 14,221 |  |  | 14,221 |  |  |  |  |
Equity securities | 101,337 |  |  | 101,337 |  |  |  |  |
Interest rate/ currency swap contracts - long-term receivables | 2,597 |  |  |  |  |  | 2,597 |  |  |
Total assets | 118,155 |  |  | 115,558 |  |  | 2,597 |  |  |
Liabilities: |  |  |  |  |  |  |
Floating rate NOK bonds due 2020 | 60,368 |  |  | 60,368 |  |  |  |  |
Floating rate NOK bonds due 2023 | 70,562 |  |  | 70,562 |  |  |  |  |
Floating rate NOK bonds due 2024 | 82,014 |  |  | 82,014 |  |  |  |  |
5.75% unsecured convertible bonds due 2021 | 213,822 |  |  | 213,822 |  |  |  |  |
4.875% unsecured convertible bonds due 2023 | 149,819 |  |  | 149,819 |  |  |  |  |
Interest rate/currency swap contracts - short-term payables | 4,390 |  |  |  |  | 4,390 |  |  |
Interest rate/currency swap contracts - long-term payables | 16,713 |  |  |  |  | 16,713 |  |  |
Total liabilities | 597,688 |  |  | 576,585 |  |  | 21,103 |  |  |

ASC Topic 820 "Fair Value Measurement and Disclosures" ("ASC 820") emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in level one that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the assets or liabilities, which typically are based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Investments in equity securities consist of (i) listed Frontline shares (ii) NorAm Drilling shares traded in the OTC market (iii) ADS shares traded on the Merkur Market whilst the investments in available-for-sale debt securities consist of listed and unlisted corporate bonds. The estimated fair value of the debt and equity securities consists of their aggregate market value as at the balance sheet date.
The estimated fair values for the floating rate NOK denominated bonds due 2020, 2023 and 2024, and the 5.75% and 4.875% unsecured convertible bonds due 2021 and 2023 are all based on their quoted market prices as at the balance sheet date.
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The estimated fair value of interest rate and currency swap contracts is calculated using a well-established independent valuation technique applied to contracted cash flows and LIBOR or NIBOR interest rates as at June 30, 2019.
Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with DNB Bank, Skandinaviska Enskilda Banken, ABN AMRO Bank, Nordea Bank, Bank of Valletta and Credit Agricole Corporate and Investment Bank. However, the Company believes this risk is remote.
There is also a concentration of revenue risk with certain customers to whom the Company has chartered multiple vessels.
In the six months ended June 30, 2019, Frontline Shipping accounted for approximately 4% of our consolidated operating revenues (six months ended June 30, 2018: 10%; year ended December 31, 2018: 8%). Frontline Shipping is a 100% owned subsidiary of Frontline, but the performance under the leases is not guaranteed by Frontline following amendments to the leases agreed in 2015. There is no requirement for a minimum cash balance in Frontline Shipping, but in exchange for releasing the guarantee a dividend restriction was introduced on Frontline Shipping whereby it can only make distributions to its parent company if it can demonstrate it will have minimum free cash of $2 million per vessel both prior to and following (i) such distribution and (ii) the payment of the next hire due and any profit share accrued under the charters. Due to the depressed tanker market during a substantial part of 2018, there is a risk that Frontline Shipping may not have sufficient funds to pay the agreed charter hires. However, the performance under the fixed price agreements with Frontline Management whereby we pay management fees of $9,000 per day for each vessel to cover all operating costs including drydocking costs, is guaranteed by Frontline.
In the six months ended June 30, 2019, the Company had eight Capesize dry bulk carriers leased to a fully guaranteed subsidiary of Golden Ocean Group Limited (“Golden Ocean”) which accounted for approximately 11% of our consolidated operating revenues (six months ended June 30, 2018: 14%; year ended December 31, 2018: 13%).
The Company also had 29 container vessels on long-term bareboat charters to MSC, which accounted for approximately 14% of our consolidated operating revenues in the six months ended June 30, 2019 (six months ended June 30, 2018: 11%; year ended December 31, 2018: 11%).
The Company had 10 container vessels on long-term time charters to Maersk Line A/S (“Maersk”) at June 30, 2019, which accounted for approximately 31% of our consolidated operating revenues in the six months ended June 30, 2019 (six months ended June 30, 2018: 26%; year ended December 31, 2018: 27%).
Following their acquisition in 2018, the Company has four container vessels on charter to Evergreen at June 30, 2019, which accounted for approximately 15% of our consolidated operating revenues in the six months ended June 30, 2019 (six months ended June 30, 2018: 3%; year ended December 31, 2018: 10%).
In addition, a significant portion of our net income is generated from our associated companies that lease rigs to subsidiaries of Seadrill. In the six months ended June 30, 2019, income from our associated companies accounted for approximately 26% of our consolidated net income (six months ended June 30, 2018: 36%; year ended, December 31, 2018: 39%).
The Company and three of the Company's subsidiaries, who own and lease the drilling rigs West Linus, West Hercules and West Taurus to subsidiaries of Seadrill, agreed to the Restructuring Plan announced by Seadrill in September 2017. As part of the agreement, SFL and its relevant subsidiaries have agreed to reduce the contractual charter hire payable by the relevant Seadrill subsidiaries by approximately 29% for a 5-year period with economic effect from January 1, 2018, with the reduced amounts added back in the period thereafter. The call options on behalf of the Seadrill subsidiaries under the relevant leases were also amended as part of the Restructuring Plan. The leases for West Hercules and West Taurus have been extended for a period of 13 months until December 2024, with amended purchase obligations at the new expiry of the charters. Concurrently, the banks that finance the three rigs have extended the loan period by approximately four years under each of the facilities, with reduced amortization in the extension period compared to the current amortization. The Restructuring Plan was implemented in July 2018, at which time Seadrill emerged from Chapter 11.
As discussed in Note 16: Commitments and contingent liabilities, the Company, at June 30, 2019, guaranteed a total of $266 million (December 31, 2018: $266 million) of the bank debt in these companies and had an outstanding receivable balance on loans granted by the Company to these associated companies totaling $319.0 million at June 30, 2019 (December 31, 2018: $342.0 million). The loans granted by the Company are considered not impaired at June 30, 2019, due to the fair value of the jack-up rig owned by SFL Linus and the ultra deepwater drilling rigs owned by SFL Deepwater and SFL Hercules exceeding the book values at June 30, 2019.
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12. | SHARE CAPITAL, ADDITIONAL PAID-IN CAPITAL AND CONTRIBUTED SURPLUS

Authorized share capital is as follows:

(in thousands of $, except share data) | June 30, 2019 |  |  | December 31, 2018 |
200,000,000 common shares of $0.01 par value each (December 31, 2018: 200,000,000 shares of $0.01 par value each) | 2,000 |  |  | 2,000 |

Issued and fully paid share capital is as follows:

(in thousands of $, except share data) | June 30, 2019 |  |  | December 31, 2018 |
119,375,525 common shares of $0.01 par value each (December 31, 2018: 119,373,064 shares of $0.01 par value each) | 1,194 |  |  | 1,194 |

The Company’s common shares are listed on the New York Stock Exchange.
During the six months ended June 30, 2019, the Company issued a total of 2,461 new shares of $0.01 each following the exercise of share options (2018: no new shares were issued). The weighted average exercise price was $12.30 per share.

13. | SHARE OPTION PLAN

In November 2006, the Board of Directors approved the Company's Share Option Scheme (the "Option Scheme"). The Option Scheme will expire in November 2026, following the renewal in November 2016. The terms and conditions remain unchanged from those originally adopted in November 2006 and permits the Board of Directors, at its discretion, to grant options to employees, officers and directors of the Company or its subsidiaries. The fair value cost of options granted is recognized in the statement of operations, and the corresponding amount is credited to additional paid-in capital. In the six months ended June 30, 2019, additional paid-in capital was credited with $0.4 million relating to the fair value of options granted in September 2017, April 2018, January 2019 and March 2019.
In the six months ended June 30, 2019, 13,334 options were exercised into 2,461 shares under the Option Scheme.
In January 2019, the Company awarded a total of 100,000 options to directors, officers and employees, pursuant to the Company's Share Option Scheme. The options have a five year term and a three year vesting period and the first options will be exercisable from January 2020 onwards. The initial strike price was $11.50 per share.
In March 2019, the Company also awarded a total of 425,000 options to officers and employees, pursuant to the Company's Share Option Scheme. The options have a five year term and a three year vesting period and the first options will be exercisable from March 2020 onwards. The initial strike price was $12.35 per share.
Total unrecognized compensation cost relating to the outstanding options under the Company's Option Scheme was $1.2 million as at June 30, 2019 (December 31, 2018: $0.3 million).
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14. | CAPITAL LEASE OBLIGATIONS

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Current portion of obligations under capital leases | 69,491 |  |  | 67,793 |
Obligations under capital leases - long-term portion | 1,071,661 |  |  | 1,104,258 |
| 1,141,152 |  |  | 1,172,051 |

In October 2015, the Company entered into agreements to charter in two 19,200 TEU newbuilding container vessels on a bareboat basis, each for a period of 15 years from delivery by the shipyard, and to charter out each vessel for the same 15-year period on a bareboat basis to MSC, an unrelated party. The first vessel was delivered in December 2016 and the second vessel was delivered in March 2017. Both vessels are accounted for as direct financing lease assets.
In December 2018, the Company entered into agreements to charter in a further two 19,400 TEU container vessels on a bareboat basis, each for a period of 15 years, and to charter out each vessel for the same 15-year period on a bareboat basis to MSC, an unrelated party. The vessels were delivered in December 2018 and both are accounted for as direct financing lease assets.
Also in 2018, the Company acquired four 13,800 TEU container vessels and three 10,600 TEU container vessels, which were subsequently refinanced with an Asian based financial institution by entering into separate sale and leaseback financing arrangements. The vessels are leased back for terms ranging from six to 11 years, with options to purchase the vessel after six years. Due to the terms of the sale and leaseback arrangements, each option is expected to be exercised on the sixth anniversary. These sale and leaseback transactions were accounted for as capital leases (Refer to Note 7: Vessels under capital lease, net).
The Company's future minimum lease obligations under the non-cancellable capital leases are as follows:

Year ending December 31, | (in thousands of $) |
2019 (remaining six months) | 67,552 |
2020 | 126,868 |
2021 | 126,726 |
2022 | 126,726 |
2023 | 126,726 |
Thereafter | 976,801 |
Total lease obligations | 1,551,399 |
Less: imputed interest payable | (410,247 | )
Present value of obligations under capital lease | 1,141,152 |
Less: current portion | (69,491 | )
Obligations under capital lease - long-term portion | 1,071,661 |

Interest incurred on capital leases in the six months ended June 30, 2019 was $31.5 million (six months ended June 30, 2018: $8.6 million; year ended December 31, 2018: $21.8 million).
Following the adoption of ASU 2016-02 from January 2019, the Company now records new and modified leases as per ASC 842. The Company has elected the practical expedient to not reassess existing leases. The adoption of the standard resulted in no opening balance adjustments. See also Recently Adopted Accounting Standards within Note 1.
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15. | RELATED PARTY TRANSACTIONS

The Company has transactions with the following related parties, being companies in which our principal shareholder Hemen Holding and companies associated with Hemen have, or had, a significant direct or indirect interest:
– Frontline
– Frontline Shipping
– Seadrill
– Golden Ocean
– Seatankers Management Co. Ltd. (“Seatankers”)
– NorAm Drilling
– Golden Close Corp. Ltd. ("Golden Close")
– Sterna Finance Ltd. ("Sterna Finance")
– ADS
The Condensed Consolidated Balance Sheets include the following amounts due from and to related parties and associated companies, excluding direct financing lease balances (see Note 8: Investments in direct financing and sales-type leases).

(in thousands of $) | June 30, 2019 |  |  | December 31, 2018 |
Amounts due from: |  |  |
Frontline Shipping | 242 |  |  | 1,225 |
Frontline | 9,332 |  |  | 8,430 |
SFL Linus | 4,670 |  |  | 21,718 |
SFL Hercules | 1,672 |  |  | 10,125 |
Seadrill | 52 |  |  | 223 |
Other related parties | 2 |  |  | 50 |
Total amount due from related parties | 15,970 |  |  | 41,771 |
Loans to related parties - associated companies, long-term |  |  |
SFL Deepwater | 111,660 |  |  | 109,144 |
SFL Hercules | 80,000 |  |  | 80,000 |
SFL Linus | 121,000 |  |  | 121,000 |
Total loans to related parties - associated companies, long-term | 312,660 |  |  | 310,144 |
Long-term receivables from related parties |  |  |
Frontline | 10,183 |  |  | 11,170 |
Frontline Shipping | 4,446 |  |  | 4,446 |
Total long-term receivables from related parties | 14,629 |  |  | 15,616 |
Amounts due to: |  |  |
Frontline Shipping | 287 |  |  | 1,125 |
Frontline | 64 |  |  | 125 |
Golden Ocean | — |  |  | 91 |
Seatankers | 458 |  |  | — |
Other related parties | 7 |  |  | 8 |
Total amount due to related parties | 816 |  |  | 1,349 |

SFL Deepwater, SFL Hercules and SFL Linus are wholly-owned subsidiaries which are not fully consolidated but are accounted for under the equity method as at June 30, 2019 within the financial statements (see Note 9: Investments in associated companies). As described below in “Related party loans”, at June 30, 2019 the long-term loans from SFL to SFL Deepwater, SFL Hercules and SFL Linus, are presented net of their respective current accounts to the extent that it is an amount due to the associates.
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Related party leasing and service contracts
As at June 30, 2019, three of the Company’s vessels leased to Frontline Shipping (December 31, 2018: three) are recorded as direct financing leases. At June 30, 2019, the balance of net investments in direct financing leases with Frontline Shipping was $111.3 million (December 31, 2018: $115.0 million), of which $8.1 million (December 31, 2018: $8.0 million) represents short-term maturities.
In addition, included under operating leases at June 30, 2019, there were eight Capesize dry bulk carriers leased to a fully guaranteed subsidiary of Golden Ocean (December 31, 2018: eight). At June 30, 2019, the net book value of assets leased under operating leases to Golden Ocean was $209.7 million (December 31, 2018: $217.7 million).
The charter agreements with Frontline Shipping include profit sharing arrangements, whereby the Company earns a 50% profit share on charter revenues earned by the vessels above the set base charter rates, calculated on a time charter equivalent basis and payable quarterly. In the six months ended June 30, 2019, the Company recorded $1.5 million in profit share revenues (six months ended June 30, 2018: $0; year ended December 31, 2018: $1.5 million).
At June 30, 2019, the Company held 11 million ordinary shares in Frontline, representing approximately 6.43% of the issued share capital of Frontline (December 31, 2018: 11 million ordinary shares representing approximately 6.48%).
In the six months ended June 30, 2019, the Company had eight dry bulk carriers operating on time charters to a subsidiary of Golden Ocean, which include profit sharing arrangements whereby the Company earns a 33% profit share on charter revenues earned by the vessels above certain threshold levels, calculated on a time charter equivalent basis and payable on a quarterly basis. In the six months ended June 30, 2019, the Company earned $0 profit share revenue under this arrangement (six months ended June 30, 2018: $nil; year ended December 31, 2018: $0.2 million).
A summary of leasing revenues and repayments from Frontline Shipping and Golden Ocean is as follows:

| Six months ended |  | Year ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Operating lease income | 25,752 |  |  | 26,498 |  |  | 53,258 |
Direct financing lease interest income | 1,932 |  |  | 5,986 |  |  | 9,623 |
Finance lease service revenue | 4,887 |  |  | 13,428 |  |  | 22,095 |
Direct financing lease repayments | 3,981 |  |  | 10,247 |  |  | 16,802 |
Profit share | 1,547 |  |  | — |  |  | 1,779 |

In addition to leasing revenues and repayments, the Company incurred the following fees with related parties:

| Six months ended |  | Year ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |  |  | December 31, 2018 |
Frontline: |  |  |  |  |
Vessel Management Fees | 5,873 |  |  | 14,351 |  |  | 24,033 |
Commissions and Brokerage | 167 |  |  | 132 |  |  | 287 |
Administration Services Fees | 162 |  |  | 161 |  |  | 323 |
Golden Ocean: |  |  |  |  |
Vessel Management Fees | 10,136 |  |  | 10,136 |  |  | 20,440 |
Operating Management Fees | 443 |  |  | 360 |  |  | 793 |
Seatankers: |  |  |  |  |
Administration Services Fees | 458 |  |  | 145 |  |  | 290 |
Office Facilities: |  |  |  |  |
Seatankers Management Norway AS | 52 |  |  | 55 |  |  | 108 |
Frontline Management AS | 102 |  |  | 73 |  |  | 185 |
Frontline Corporate Services Ltd | 120 |  |  | 61 |  |  | 166 |

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Related party loans – associated companies
SFL has entered into agreements with SFL Deepwater, SFL Hercules and SFL Linus, granting them loans of $145 million, $145 million, and $125 million, respectively, at fixed interest rates. These loans are repayable in full by October 1, 2023, October 1, 2023, and June 30, 2029, respectively, or earlier if the companies sell their drilling units. The net outstanding loan balances as at June 30, 2019, were $111.7 million, $80.0 million, and $121.0 million for SFL Deepwater, SFL Hercules and SFL Linus, respectively.
In the six months ended June 30, 2019, the Company received interest income on these loans of $2.5 million from SFL Deepwater (six months ended June 30, 2018: $2.5 million; year ended December 31, 2018: $5.1 million), $1.8 million from SFL Hercules (six months ended June 30, 2018: $1.8 million; year ended December 31, 2018: $3.6 million) and $2.7 million from SFL Linus (six months ended June 30, 2018: $2.7 million; year ended December 31, 2018: $5.4 million).
Long-term receivables from related parties
The Company received a loan note from Frontline Shipping as compensation for the early termination of the charter of Front Circassia in February 2018. The initial face value of the note was $8.9 million, however, SFL recorded the loan note at an initial fair market value of $4.4 million. The loan note bears interest at a rate of 7.50% and matures in December 2021. In the six months ended June 30, 2019, the Company has received $0.4 million in interest income on the loan note (six months ended June 30, 2018: $0; year ended December 31, 2018: $0.5 million).
The Company received loan notes from Frontline as compensation for the early termination of the charter of Front Page, Front Stratus and Front Serenade in July, August and September 2018, respectively. The face value of the notes is $3.4 million each, and bears interest at a rate of 7.50%. The loan notes mature in between November 2024 and May 2025. In the six months ended June 30, 2019, the Company has accrued $0.4 million in interest income on the loan notes (six months ended June 30, 2018: $0; year ended December 31, 2018: $0.3 million).
The Company received a loan note from Frontline as compensation for the early termination of the charter of Front Ariake in October 2018. The initial face value of the note was $3.4 million and bears interest at a rate of 7.5%. The note matures in December 2023. In the six months ended June 30, 2019, the Company received interest income on this loan note of $0.1 million (six months ended June 30, 2018: $0; year ended December 31, 2018: $0.1 million).
Other related party transactions
In August 2018, the Company acquired 4,031,800 shares in ADS, a company trading on the Oslo Merkur Market. The shares were purchased for $10.0 million, and have a fair value of $9.2 million at June 30, 2019 (see Note 5: Investments in debt and equity securities). These shares, on which $0.2 million in dividend income was received in the six months ended June 30, 2019 (in the year ended December 31, 2018: $0), represent approximately 17% of the outstanding shares in the company.
In the six months ended June 30, 2019, the Company received $0 in dividends on its holding of shares in Frontline (six months ended June 30, 2018: $0; year ended December 31, 2018: $0).
In the six months ended June 30, 2019, the Company partially disposed of its investment in NorAm Drilling securities at par value of $0.3 million. The fair value of the remaining holding at June 30, 2019 was $4.9 million (December 31, 2018: $5.2 million). The Company recorded $0.2 million interest income on its holding of investments in secured notes issued by NorAm Drilling (six months ended June 30, 2018: $0.3 million; year ended December 31, 2018: $0.5 million).
During the year ended December 31, 2018, the Company divested its holding in Golden Close securities. The company received net proceeds of $45.6 million, resulting in an overall gain of $13.5 million. The Company earned $0.2 million interest income on its holding of investments in secured notes issued by Golden Close, up to the date of divestment, in the year ended December 31, 2018. In the six months ended June 30, 2019, the Company received $2.0 million final dividend distribution upon the liquidation of Golden Close.
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16. | COMMITMENTS AND CONTINGENT LIABILITIES

Assets Pledged

(in millions of $) | June 30, 2019 |  |  | December 31, 2018 |
Book value of consolidated assets pledged under ship mortgages | 1,650 |  |  | 1,527 |

Of the above, $1,415.9 million relates to assets recorded as vessels and equipment (December 31, 2018: $1,424.4 million) and $234.4 million relates to assets accounted for as investments in direct financing leases (December 31, 2018: $103.1 million).
In addition, as at June 30, 2019 the Company had 11 vessels (December 31, 2018: 11 vessels) with obligations under capital lease with a total net book value of $1,305.5 million (December 31, 2018: $1,331.1 million). Of these, seven vessels with net book value of $732.5 million (December 31, 2018: $749.9 million) were recorded as vessels under capital lease and four vessels with net book value of $572.9 million (December 31, 2018: $581.2 million) were accounted for as investments in direct financing leases.
The Company and its equity-accounted subsidiaries have funded their acquisition of vessels, jack-up rigs and ultra-deepwater drilling units through a combination of equity, short-term debt and long-term debt. Providers of long-term loan facilities usually require that the loans be secured by mortgages against the assets being acquired. As at June 30, 2019, the Company ($1.5 billion) and its 100% equity-accounted subsidiaries ($645.9 million) had a combined outstanding principal indebtedness of $2.1 billion (December 31, 2018: $2.1 billion) under various credit facilities.
Other Contractual Commitments and Contingencies
The Company has arranged insurance for the legal liability risks for its shipping activities with Gard P. & I. (Bermuda) Ltd, Assuranceforeningen Skuld (Gjensidig), The Steamship Mutual Underwriting Association Limited, The Korea Shipowner’s Mutual Protection & Indemnity Association, The West of England Ship Owners Mutual Insurance Association (Luxembourg), North of England P&I Association Limited, The Standard Club Europe Ltd and The United Kingdom Mutual Steam Ship Assurance Association (Europe) Limited, all of which are mutual protection and indemnity associations. The Company is subject to calls payable to the associations based on the Company’s claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which may result in additional calls on the members.
SFL Deepwater, SFL Hercules and SFL Linus are wholly-owned subsidiaries of the Company, which are accounted for using the equity method. Accordingly, their assets and liabilities are not consolidated in the Company's Consolidated Balance Sheet, but are presented on a net basis under “Investment in associated companies”. As of June 30, 2019, their combined borrowings amounted to $645.9 million (December 31, 2018: $655.2 million) and the Company guaranteed $266.1 million (December 31, 2018: $266.1 million) of this debt which is secured by first priority mortgages over the relevant rigs.
In addition, the Company has assigned all claims it may have under its secured loans to SFL Deepwater, SFL Hercules and SFL Linus, in favor of the lenders under the respective credit facilities. These loans had a net outstanding balance of $319.0 million at June 30, 2019 (December 31, 2018: $342.0 million) and are secured by second priority mortgages over each of the rigs, which have been assigned to the lenders under the respective credit facilities. The lenders under the respective credit facilities have also been granted a first priority pledge over all shares of the relevant asset owning subsidiaries.
As at June 30, 2019, the Company had committed $8.5 million towards the installation of exhaust gas cleaning systems on four of its oil tankers (December 31, 2018: $3.4 million) and $43.1 million (December 31, 2018: $0) on seven container vessels ranging in size from 8,700 to 10,600 TEU. The charter agreements for four 8,700 TEU container vessels were amended in the six months ended June 30, 2019. The revised terms of the charter include a change in daily charter hire rate, an extension to the lease term and a profit split arrangement in exchange for the Company's commitment to install the exhaust gas cleaning systems on the vessels.
In addition, as at June 30, 2019, the Company had committed $0.9 million towards the installation of ballast water treatment systems on one Suezmax tanker and one Supramax dry bulk carrier. There were no other material contractual commitments at June 30, 2019.
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The Company is routinely party both as plaintiff and defendant to lawsuits in various jurisdictions under charter hire obligations arising from the operation of its vessels in the ordinary course of business. The Company believes that the resolution of such claims will not have a material adverse effect on its results of operations or financial position. The Company has not recognized any contingent gains or losses arising from the pending results of any such lawsuits.

17. | CONSOLIDATED VARIABLE INTEREST ENTITIES

As at June 30, 2019, the Company’s consolidated financial statements included 34 variable interest entities, all of which are wholly-owned subsidiaries. These subsidiaries own vessels with existing charters during which related and third parties have fixed price options to purchase the respective vessels, at dates varying from April 2019 to November 2033. It has been determined that the Company is the primary beneficiary of these entities, as none of the purchase options are deemed to be at bargain prices and none of the charters include sales options.
At June 30, 2019, 18 of the consolidated variable interest entities have a vessel which is accounted for as a direct financing lease asset. At June 30, 2019, the vessels had a carrying value of $393.3 million, unearned lease income of $206.2 million and estimated residual value of $126.2 million. The outstanding loan balances in 16 of these entities amounted to a total of $43.9 million, of which the short-term portion was $6.4 million as at June 30, 2019. Also, two of the vessels that are included in the direct financing lease assets had outstanding obligations under capital lease which amounted to a total of $270.9 million, of which the short-term portion was $13.7 million, as at June 30, 2019.
At June 30, 2019, 13 fully consolidated variable interest entities each own vessels which are accounted for as operating lease assets and had a total net book value of $276.0 million. The outstanding loan balances in these entities amounted to a total of $130.2 million, of which the short-term portion was $13.9 million as at June 30, 2019.
The other three fully consolidated variable interest entities each own vessels which are accounted for as vessels under capital lease and had a total net book value of $304.0 million as at June 30, 2019. The outstanding obligations under capital lease for these entities amounted to a total of $260.1 million, of which the short-term portion was $18.6 million as at June 30, 2019.

18. | SUBSEQUENT EVENTS

In July 2019, the Company acquired three feeder size container vessels ranging in size from 2,400-4,400 TEU. Upon delivery, the vessels immediately commenced six year fixed rate bareboat charters to an unrelated third party.
In August 2019, the Company issued an additional NOK100million under its existing senior unsecured bonds due September 2023, equivalent to approximately $11 million, as a tap issue. The additional bonds bear the same interest coupon as the existing bonds and were priced at 101.625% of par value. The proceeds from the tap issue has been used for general corporate purposes.
In September 2019, the Company announced an agreement entered into to acquire three 300,000 dwt VLCCs. One of these vessels has been delivered to the Company and the remaining vessels are currently under construction. Upon delivery, the vessels will commence their respective five year bareboat charter to an unrelated third party.
In September 2019, an agreement was entered into with a charterer relating to the installation of exhaust gas cleaning systems on three 10,600 TEU container vessels on charter to them. These installations will be financed by the Company and recovered through increased charterhire. This will be carried out during the vessels’ next scheduled dry dockings and liability for these installations will remain with the charterer.
In September 2019, stock options were exercised pursuant to the Company's Share Option Scheme. As a result, 15,785 new common shares will be issued.
On August 20, 2019, the Board of Directors of the Company declared a dividend of $0.35 per share, which was paid in cash on September 23, 2019.
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SFL CORPORATION LTD
As used herein, “we,” “us,” “our” and “the Company” all refer to SFL Corporation Ltd and its subsidiaries. This management’s discussion and analysis of financial condition and results of operations should be read together with the discussion included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2018.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the six months ended June 30, 2019
General
We are SFL Corporation Ltd. (formerly Ship Finance International Limited), a Bermuda-based company incorporated in Bermuda on October 10, 2003, as a Bermuda exempted company under the Bermuda Companies Law of 1981 (Company No. EC-34296). We are engaged primarily in the ownership and operation of vessels and offshore related assets, and also involved in the charter, purchase and sale of assets. Our registered and principal executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda, and our telephone number is +1 (441) 295-9500.
We operate through subsidiaries located in Bermuda, Cyprus, Malta, Liberia, Norway, the United Kingdom and the Marshall Islands.
We are an international ship owning and chartering company with a large and diverse asset base across the maritime and offshore industries. As at September 27, 2019, our assets consist of five crude oil tankers, 22 dry bulk carriers, 48 container vessels (including 11 capital lease vessels), two car carriers, one jack-up drilling rigs, two ultra-deepwater drilling units, five offshore support vessels, two chemical tankers and two oil product tankers. In addition, in September, the Company agreed to acquire three VLCCs, currently under construction.
As at September 27, 2019, our customers included Frontline Shipping Limited (“Frontline Shipping”), Seadrill Limited (“Seadrill”), Golden Ocean Group Limited (“Golden Ocean”), Deep Sea Supply Shipowning II AS (the “Solstad Charterer”), Sinochem Shipping Co., Ltd. (“Sinochem”), Heung-A Shipping Co., Ltd. (“Heung-A”), Hyundai Glovis Co., Ltd. (“Hyundai Glovis”), Sinotrans Shipping Limited (“Sinotrans”), Maersk Line A/S (“Maersk”), MSC Mediterranean Shipping Company S.A. and its affiliate Conglomerate Shipping Ltd. (“MSC”), Phillips 66 Company (“Phillips 66”), and Evergreen Marine Corporation (Taiwan) Ltd. and its affiliate Evergreen Marine (Singapore) Pte Ltd. (“Evergreen”), or subsidiaries thereof.
Our primary objective is to continue to grow our business through accretive acquisitions across a diverse range of marine and offshore asset classes. In doing so, our strategy is to generate stable and increasing cash flows by chartering our assets primarily
under medium to long-term bareboat or time charters.
33

Recent and Other Developments
In February 2019, the Company exercised the options to extend the charter period for four 4,100 TEU container vessels, MSC Katya R., MSC Julia R., MSC Vaishnavi R. and MSC Arushi R. on charter to MSC by a period of two years.
In February 2019, the Company extended the bareboat charter agreements with MSC for two 5,800 TEU container vessels, MSC Margarita and MSC Vidhi, which were previously reported under vessels and equipment and were re-classified to sales-type leases as a result of amendments made to the charter contract. Included in the amendments to the contracts, the charterer has a fixed price purchase obligation at the expiry of the additional five year charter period.
In April 2019, the two 6,500 CEU car carriers, SFL Conductor and Glovis Composer, were re-chartered for 12 months to Hyundai Glovis at a revised charter hire.
In April 2019, the Company entered into a Standstill Agreement (following the previously implemented Restructuring Agreement) with Solship. Per the Standstill Agreement, and subequent amendments made in June, 2019, 100% of charter hire for vessels on charter to Solship is deferred until October 31, 2019.
In May 2019, the Company issued NOK700 million five-year senior unsecured bonds. The bonds bear interest at NIBOR plus a margin. The proceeds from the bond issue will be used for general corporate purposes.
In May 2019, the Company agreed to extend the charters on the four 8,700 TEU container vessels to Maersk Line. The initial seven-year charters were extended by an additional three year period at a revised charter hire. As part of the charter agreement the Company agreed to finance the scrubbers to be installed on these vessels for the charterer.
In July 2019, the Company acquired three feeder size container vessels ranging in size from 2,400-4,400 TEU. Upon delivery, the vessels immediately commenced six year fixed rate bareboat charters to an unrelated third party.
In August 2019, the Company issued an additional NOK100million under its existing senior unsecured bonds due September 2023, equivalent to approximately $11million, as a tap issue. The additional bonds bear the same interest coupon as the existing bonds and were priced at 101.625% of par value. The proceeds from the tap issue has been used for general corporate purposes.
On August 20, 2019, the Board of Directors of the Company declared a dividend of $0.35 per share, which was paid in cash on September 23, 2019.
In August 2019, an agreement was entered into with a charterer relating to the installation of exhaust gas cleaning systems on three 10,600 TEU container vessels on charter to them. These installations will be financed by the Company and recovered through increased charterhire. This will be carried out during the vessels’ next scheduled dry dockings and liability for these installations will remain with the charterer.
In September 2019, stock options were exercised pursuant to the Company's Share Option Scheme. As a result, 15,785 new common shares will be issued.
In September 2019, the Company announced an agreement entered into to acquire three 300,000 dwt VLCCs. One of these vessels has been delivered to the Company and the remaining vessels are currently under construction. Upon delivery, the vessels will commence their respective five year bareboat charter to an unrelated third party.
34

Operating Results

| Six months ended |  |  | Six months ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |
Total operating revenues | 227,445 |  |  | 189,144 |
(Loss)/gain on sale of assets and termination of charters, net | — |  |  | (1,623 | )
Total operating expenses | (130,065 | ) |  | (134,938 | )
Net operating income | 97,380 |  |  | 52,583 |
Interest income | 10,290 |  |  | 8,176 |
Interest expense | (72,165 | ) |  | (48,805 | )
Other non-operating items, net | 17,217 |  |  | 21,016 |
Equity in earnings of associated companies | 8,991 |  |  | 7,451 |
Net income | 61,713 |  |  | 40,421 |

Net operating income for the six months ended June 30, 2019, was $97.4 million, compared with $52.6 million for the six months ended June 30, 2018. The increase was principally due to the acquisition of four 13,800 TEU container vessels, 15 feeder size vessels in May 2018, three 10,600 TEU and two 19,200 TEU container vessels in the second half of 2018. This was partially offset by the sale of six VLCCs on charter to Frontline Shipping throughout 2018 (including the impairment of three of those VLCCs), and the loss on sale recorded as a result of the sale of one of these vessels in the first quarter of 2018. The overall net income for the period increased by $21.3 million compared with the same period in 2018 mainly due to the increase in net operating income offset by higher interest expense and lower net gains included in other non-operating items.
Two ultra-deepwater drilling units and one harsh environment jack-up drilling rig were accounted for under the equity method during the six months ended June 30, 2019 and the six months ended June 30, 2018. The net income of the wholly-owned subsidiaries owning these assets are included under “equity in earnings of associated companies”, where they are reported net of operating and non-operating expenses.
Total operating revenues
Total operating revenues increased by 20% in the six months ended June 30, 2019, compared with the same period in the previous year.

| Six months ended |  |  | Six months ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |
Direct financing and sales-type lease interest income | 28,416 |  |  | 19,891 |
Finance lease service revenues | 4,887 |  |  | 13,428 |
Profit sharing revenues | 1,547 |  |  | — |
Time charter revenues | 168,977 |  |  | 126,997 |
Bareboat charter revenues | 12,494 |  |  | 18,850 |
Voyage charter revenues | 9,428 |  |  | 9,381 |
Other operating income | 1,696 |  |  | 597 |
Total operating revenues | 227,445 |  |  | 189,144 |

35

Direct financing and sales type lease interest income
Direct financing and sales-type lease interest income arises on our crude oil tankers on charter to Frontline Shipping, one offshore support vessel on charter to the Solstad Charterer and 22 container vessels on long term charters to MSC. In general, direct financing and sales-type lease interest income reduces over the terms of our leases; progressively, a lesser proportion of the lease rental payment is allocated to interest income and a greater proportion is treated as repayment of investment in the lease. The 43% increase in direct finance lease interest income in the six months ended June 30, 2019 compared with the same period in 2018 was mainly a result of the acquisition of 15 container vessels on charter to MSC in April 2018, the sale and lease back of two container vessels to MSC, and the reclassification of two container vessels from operating lease to capital lease, also on charter to MSC. This increase in direct finance lease interest income was partially offset by the sale of six VLCCs from the fleet of crude oil tankers on charter to Frontline Shipping throughout 2018.
Finance lease service revenues
The vessels chartered on direct financing leases to Frontline Shipping are leased on time charter terms, whereby we are responsible for the management and operation of such vessels. This has been effected by entering into fixed price agreements with Frontline Management (Bermuda) Ltd. (“Frontline Management”), a subsidiary of Frontline, whereby we pay them management fees of $9,000 per day for each vessel chartered to Frontline Shipping. Accordingly, $9,000 per day is allocated from each time charter payment received from Frontline Shipping to cover lease executory costs, and this is classified as "finance lease service revenue". If any vessel chartered on direct financing leases to Frontline Shipping is sub-chartered on a bareboat basis, then the charter payments for that vessel are reduced by $9,000 per day for the duration of the bareboat sub-charter. The 64% decrease in finance lease service revenues in the six months ended June 30, 2019 compared to the prior six months ended June 30, 2018 is mainly due to the sale of six tankers in 2018, described above, from the fleet of crude oil tankers on charter to Frontline Shipping.
Profit share revenues
We recorded $1.5 million profit share revenue in the six months ended June 30, 2019 from the profit sharing arrangement with Frontline Shipping whereby the Company is entitled to a 50% profit share above the base charter rates, calculated and paid on a quarterly basis. This is compared to profit share revenue of $nil received from Frontline Shipping for the six months ended June 30, 2018.
We also have a profit share arrangement related to the eight Capesize dry bulk vessels on charter to a fully guaranteed subsidiary of Golden Ocean, whereby the Company is entitled to a 33% profit share above certain threshold levels, calculated and paid on a quarterly basis. No profit share revenue was earned by these vessels in the six months ended June 30, 2019 ($nil in the six months ended June 30, 2018).
We also have a profit share arrangement relating to the five offshore supply vessels on charter to the Solstad Charterer following the amendments agreed in July 2016, whereby the Company is entitled to a 50% profit share above the base charter rates, calculated and paid on a quarterly basis on a vessel by vessel basis. No profit share revenue was earned by the vessels in the six months ended June 30, 2019 or in the six months ended June 30, 2018.
Time charter revenues
During the six months ended June 30, 2019, time charter revenues were earned by 14 container vessels, two car carriers, 22 dry bulk carriers, one Suezmax tanker and two oil product tankers. The 33% increase in time charter revenues for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, was mainly due to the addition of three 10,600 TEU container vessels in September and October 2018 and four 13,800 TEU container vessels in May 2018. These increases to time charter revenues were partly offset by the sale of SFL Avon in May 2018 and lower income earned from SFL Yukon and SFL Sara, who completed long term time charters at the end of 2018 and early 2019 and are now trading in a pool.
Bareboat charter revenues
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Bareboat charter revenues are earned by our vessels and rigs which are leased under operating leases on a bareboat basis. In the six month periods ended June 30, 2018, and June 30, 2019, these consisted of four offshore support vessels, two chemical tankers, two 1,700 TEU container vessels, two 5,800 TEU container vessels and seven 4,100 TEU container vessels. June 30, 2018 bareboat revenue includes revenue from one jack-up drilling rig. The 34% decrease in bareboat charter revenues was mainly due to lower revenues recorded for the four offshore support vessels. These vessels recorded bareboat revenues of $0.7 million in the six months ended June 30, 2019 compared to $1.8 million in the same period in 2018. During July 2018, the Company and other financial creditors entered into a restructuring agreement with a subsidiary of Solstad with respect to the four offshore vessels as well as one offshore vessel leased under a finance lease. Per the restructuring agreement, 50% of the agreed charter hire for the two vessels Sea Cheetah and Sea Jaguar will be received from the effective date at the end of August 2018 until the end of 2019. All other payments under the respective charters, including the remaining 50% on Sea Cheetah and Sea Jaguar, will be deferred until the end of 2019. In April 2019, Solship announced that a Standstill Agreement had been entered into with, amongst others, the Company whereby 100% of charter hire for vessels on charter to Solship is deferred. The Standstill Agreement is effective until October 2019.
The decrease in bareboat charter revenue was also as a result of the sale of jack-up drilling rig Soehanah on December 31, 2018. The rig earned $1.8 million in bareboat revenue in the six months ended June 30, 2018.
Voyage charter revenues
The 1% increase in voyage charter revenues for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was mainly attributable to the trading patterns of the two Suezmax tankers trading in a pool together with two tankers owned by Frontline. During the six months ended June 30, 2019, there was a decrease in voyage charter revenue from Everbright, which returned to time chartering during the six months ended June 30, 2019. The Everbright decrease offsets the increase in voyage charter income from Glorycrown and the increase resulting from the trading patterns of certain Handysize dry bulk carriers which sometimes charter on a voyage-by-voyage basis.
Cash flows arising from direct financing and sales-type leases
The following table sets forth our cash flows from the direct financing and sales-type leases with Frontline Shipping, the Solstad Charterer and MSC and shows how they were accounted for:

| Six months ended |  |  | Six months ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |
Charter hire payments accounted for as: |  |  |
Direct financing and sales-type lease interest income | 28,416 |  |  | 19,891 |
Finance lease service revenues | 4,887 |  |  | 13,428 |
Direct financing and sales-type lease repayments | 20,373 |  |  | 17,064 |
Total direct financing and sales-type lease payments received | 53,676 |  |  | 50,383 |

Gain on sale of assets and termination of charters
No vessels were sold or charters were terminated in the six months ended June 30, 2019.
In the six months ended June 30, 2018, a net loss of $1.6 million was recorded, arising from the disposal of one crude oil tanker, Front Circassia in February 2018 and one container vessel, SFL Avon, in April 2018 (see Note 2: Gain on sale of assets and termination of charters).
37

Operating expenses

| Six months ended |  |  | Six months ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |
Vessel operating expenses | 65,512 |  |  | 61,558 |
Depreciation | 58,648 |  |  | 46,444 |
Administrative expenses | 5,905 |  |  | 5,157 |
Vessel impairment charge | — |  |  | 21,779 |
Total operating expenses | 130,065 |  |  | 134,938 |

Vessel operating expenses consist of payments to Frontline Management of $9,000 per day for each vessel chartered to Frontline Shipping and also payments to Golden Ocean Group Management (Bermuda) Ltd. (“Golden Ocean Management”) of $7,000 per day for each vessel chartered to a subsidiary of Golden Ocean, in accordance with the vessel management agreements. Vessel operating expenses also consist of the day to day running costs as well as occasional voyage expenses for the container vessels, dry bulk carriers, car carriers and oil product tankers operated on a time charter basis and managed by related and unrelated parties, and also voyage expenses from our two Suezmax tankers trading in a pool together with two tankers owned by Frontline and certain Handysize dry bulk carriers operating in the spot market during the six months ended June 30, 2019.
Vessel operating expenses increased by $4.0 million for the six months ended June 30, 2019, compared with the same period in 2018. The increase is mainly due to the addition of three 10,600 TEU container vessels in September and October 2018 and four 13,800 TEU container vessels acquired in May 2018. The increases in vessel operating expenses as the result of acquisitions made is partly offset by the decrease in vessel management expenses for vessels chartered to Frontline from the sale of six VLCCs in 2018.
Depreciation expenses relate to the vessels on charters accounted for as operating leases and on voyage charters. The increase in depreciation of $12.2 million for the six months ended June 30, 2019, compared to the same period in 2018, was mainly due to the addition of the four 13,800 TEU container vessels in May 2018 and the addition of three 10,600 TEU container vessels in September and October 2018. The increase was partially offset by a decrease in depreciation for the jack-up drilling rig Soehanah, following the sale of Rig Finance Ltd, the reclassification of two vessels on charter to MSC to Finance Lease assets and the sale of SFL Avon in May 2018.
No impairment charges were recorded against any vessels in the six months ended June 30, 2019. During 2018, a review of the carrying value of long-lived assets indicated that the carrying values of three of our VLCCs were other than temporarily impaired thus an impairment charge of $21.8 million was recorded against their carrying values in the six months ended June 30, 2018.
The 15% increase in administrative expenses for the six months ended June 30, 2019, compared to the same period in 2018, is mainly due to increased staff costs. Increases in office costs and administrative service fees have also contributed to the higher administrative expenses in the six months ended June 30, 2019.
Interest income
Total interest income increased by $2.1 million for the six months ended June 30, 2019, compared to the same period in 2018, mainly due to interest income on loan notes from Frontline and Frontline Shipping, as a result of the termination of charters from five VLCCs sold in 2018; as well as increased interest income from bank and short term deposits.
38

Interest expense

| Six months ended |  |  | Six months ended |
(in thousands of $) | June 30, 2019 |  |  | June 30, 2018 |
Interest on US$ floating rate loans | 21,369 |  |  | 20,595 |
Interest on NOK900 million senior unsecured floating rate bonds due 2019 | 906 |  |  | 2,418 |
Interest on NOK500 million senior unsecured floating rate bonds due 2020 | 1,759 |  |  | 1,792 |
Interest on NOK600 million senior unsecured floating rate bonds due 2023 | 2,123 |  |  | — |
Interest on NOK700 million senior unsecured floating rate bonds due 2024 | 362 |  |  | — |
Interest on 3.25% senior unsecured convertible bonds due 2018 | — |  |  | 171 |
Interest on 5.75% senior unsecured convertible bonds due 2021 | 6,102 |  |  | 6,469 |
Interest on 4.875% senior unsecured convertible bonds due 2023 | 3,616 |  |  | 1,489 |
Interest on $320 million unsecured intermediary loan facility | — |  |  | 1,422 |
Swap interest | 247 |  |  | 1,835 |
Interest on capital lease obligations | 31,497 |  |  | 8,626 |
Amortization of deferred charges | 4,184 |  |  | 3,988 |
Total interest expense | 72,165 |  |  | 48,805 |

At June 30, 2019, the Company, including its consolidated subsidiaries, had total debt principal outstanding of $1.5 billion (June 30, 2018: $1.9 billion), $58.6 million (NOK 500 million) outstanding principal amount of NOK floating rate bonds due 2020 (June 30, 2018: $61.3 million, NOK 500 million), $70.3 million (NOK600 million) outstanding principal amount of NOK floating rate bonds due 2023 (June 30, 2018: $nil, NOKnil), $82.0 million (NOK700 million) outstanding principal amount of NOK floating rate bonds due 2024 (June 30, 2018: $nil, NOKnil), $212.2 million outstanding principal amount of 5.75% convertible bonds due 2021 (June 30, 2018: $225.0 million), $148.3 million outstanding principal amount of 4.875% convertible bonds due 2023 (June 30, 2018: $164.0 million) and $0.9 billion under floating rate secured long term credit facilities (June 30, 2018: $1.1 billion,).
NOK floating rate bonds due 2019 were fully repaid as at June 30, 2019 (June 30, 2018: $92.9 million, NOK 758 million).
The average three-month LIBOR was 2.59% in the six months ended June 30, 2019 compared to an average of 2.13% in the six months ended June 30, 2018. The decrease in interest expense associated with our floating rate debt for the six months ended June 30, 2019, compared to the same period in 2018, is mainly due to loans of five vessels maturing in 2019 that were refinanced at lower margins. This was partly offset by the increased LIBOR rate in the period.
The decrease in interest expense on the NOK900 million floating rate bonds due 2019 is due to their redemption in March 2019. The increase in interest expense on the NOK600 million floating rate bonds due 2023 is due to their issuance in September 2018. The increase in interest expense on the NOK700 million floating rate bonds due 2024 is due to their issuance in June 2019. The increase in interest expense on the 4.875% convertible bonds is due to their issuance in April 2018.
At June 30, 2019, the Company and its consolidated subsidiaries were party to interest rate swap contracts, which effectively fix our interest rates on $0.9 billion of floating rate debt at a weighted average rate excluding margin of 2.69% per annum (June 30, 2018: $1.0 billion of floating rate debt fixed at a weighted average rate excluding margin of 2.87% per annum).
The above capital lease interest expense represents the interest portion of our capital lease obligations from chartering-in vessels from their third party owners. In October 2015, we entered into agreements to charter in two 19,200 TEU container vessels on a bareboat basis, each for a period of 15 years from delivery by the shipyard, and to charter out each vessel for the same 15 year period. The first of these vessels was delivered in December 2016 and the second one was delivered in March 2017. These vessels are accounted for as direct financing lease assets. In the second half of 2018, the Company agreed with various financial institutions to refinance the outstanding balance of loans relating four 13,800 TEU container vessels and three 10,600 TEU container vessels, by entering into sale and leaseback transactions with an option to purchase the vessels after six years. In December 2018, the Company financed the acquisition of two 19,400 TEU container vessels using similar financial institutions and sale and lease back arrangements. The sale and leaseback transactions were accounted for as capital leases, accounting for the increase in interest in capital lease obligations for the six months ended June 30, 2019 when compared to the same period in 2018.
39

Other non-operating items
In the six months ended June 30, 2019, other non-operating items amounted to a net gain of $17.2 million, compared to a gain of $21.0 million for the six months ended June 30, 2018. The net gain of $17.2 million for the six months ended June 30, 2019 mainly results from dividend income received from shares held in related parties of $2.2 million, gains on purchases of bonds and debt extinguishment of $1.8 million and a gain of $27.3 million from the mark-to-market of equity investments. This is partly offset by an impairment of $8.2 million on the note receivable from Solship as a result of the termination of the Sea Bear charter in 2016, as well as a loss of $6.3 million from negative mark-to-market adjustments to derivatives.
The net gain of $21.0 million for the six months ended June 30, 2018 mainly results from a gain of $6.5 million from positive mark-to-market adjustments to derivatives as well as a gain of $15.3 million from the mark-to-market of equity investments.
As reported above, certain assets were accounted for under the equity method in 2019 and 2018. Their non-operating expenses, including net interest expenses, are not included above, but are reflected in “equity in earnings of associated companies” - see below.
Equity in earnings of associated companies
In the six month periods ended June 30, 2018, and June 30, 2019, the Company had three wholly-owned subsidiaries which were accounted for under the equity method, as discussed in the Consolidated Financial Statements included herein (Note 9: Investments in associated companies). The total equity in earnings of associated companies in the six months ended June 30, 2019 was $1.5 million higher than in the comparative period in 2018 mainly due to the increase in finance lease interest income recorded by the harsh environment jack-up drilling rig West Linus as a result of interest rate adjustments per the charter contract. Amendments were made to the charter contracts for the rigs owned by these subsidiaries in connection with the Seadrill Restructuring Plan. Under the terms of the Restructuring Plan, the Company agreed to reduce the contractual charter hire for each of the three drilling units on charter to the Seadrill Charterers by approximately 29% for a period of five years with economic effect from January 2018, with the reduced amounts added back in the period thereafter. The term of the charters for West Hercules and West Taurus was also extended by 13 months until December 2024. In addition, the purchase obligations in the case of West Hercules and West Taurus and the put option in the case of West Linus at expiry of the charters were amended.
40

Seasonality
Most of our vessels are chartered at fixed rates on a long-term basis and seasonal factors do not have a significant direct effect on our business. Our tankers on charter to Frontline Shipping, our dry bulk carriers on charter to a subsidiary of Golden Ocean and our offshore support vessels on charter to the Solstad Charterer are subject to profit sharing agreements and to the extent that seasonal factors affect the profits of the charterers of these vessels we will also be affected. We also have nine drybulk carriers, two car carriers and two Suezmax tankers in the spot or short term time charter market, and the effects of seasonality may affect the earnings of these vessels.
Liquidity and Capital Resources
At June 30, 2019, we had total cash and cash equivalents of $212.4 million and investments in equity securities and corporate bonds of $115.6 million.
In the six months ended June 30, 2019, we generated cash of $93.6 million net from operations, generated $35.1 million net in investing activities and used $128.7 million net from financing activities.
Cash flows provided by operating activities for the six months ended June 30, 2019 decreased to $93.6 million, from $94.1 million for the same period in 2018, mainly due the timing of charter hire and trade and other receivables.
Investing activities generated cash of $35.1 million in the six months ended June 30, 2019, compared with $439.7 million utilised in the same period in 2018. The cash generated in investing activities for the six months ended June 30, 2019 compared to cash utilised in 2018 is mainly due to an increase in cash generated of $3.3 million from repayments in investments in finance leases and a decrease in the outflow of cash from $511.0 million in 2018 to $1.1 million used to fund the purchase of vessels and capital improvements. This is partly offset by an outflow of cash of $1.1 million for additions to finance leases compared to $nil in the same period in 2018, and lower cash proceeds from sale of vessels and termination of charters from $30.2 million for the six months ended June 30, 2018 to $nil for the six months ended June 30, 2019. Cash outflows in the six months ended June 30, 2019 are also attributable to a decrease in amounts received from associated companies of $1.1 million compared to the same period in 2018, and cash outflows $6.1 million for other investments for the six months ended June 30, 2019.
Net cash utilised from financing activities for the six months ended June 30, 2019 was $128.7 million, compared to $337.3 million net cash generated in the same period in 2018. The $466.0 million difference in net cash from financing activities between the two periods was primarily due to the increase in cash outflows of $17.5 million and $41.8 million as a result of the final settlement of the NOK900million bond due 2019 and the related swaps. Cash utilised in the repayment of lease obligation liabilities increased by $27.2 million when compared to same period in 2018 due to capital lease financing arrangements entered into in the second half of 2018 for four 13,800 TEU container vessels, three 10,600 TEU container vessels and two 19,400 TEU container vessels. Cash utilised also increased as a result of an increase of $46.5 million utilised to prepay and repay long term debt, an increase in dividend payments by $1.4 million and a decrease in cash proceeds from debt issuances and drawdowns of $335.7 million. This is partly offset by a $1.7 million increase in discounts received on repurchased debt and a decrease in debt issuance fees of $2.4 million in the six months ended June 30, 2019 from the six months ended June 30, 2018.
In addition to bank financing, the Company continually monitors equity and debt capital market conditions and may raise additional capital through the issuance of equity or debt securities from time to time.
The following table summarizes our consolidated borrowings at June 30, 2019.

| As at June 30, 2019
(in millions of $) | Outstanding balance |  |  | Net amount available to draw |
Loan facilities secured with mortgages on vessels and rigs including newbuildings | 913.2 |  |  | — |
Unsecured borrowings: |  |  |
5.75% senior unsecured convertible bonds due 2021 | 212.2 |  |  | — |
NOK500 million senior unsecured floating rate bonds due 2020 | 58.6 |  |  | — |
4.875% senior unsecured convertible notes due 2023 | 148.3 |  |  | — |
NOK600 million senior unsecured floating rate bonds due 2023 | 70.3 |  |  | — |
NOK700 million senior unsecured floating rate bonds due 2024 | 82.0 |  |  | — |
Total | 1,484.6 |  |  | — |

41

In addition to the above, our equity accounted subsidiaries had total debt principal outstanding of $0.6 billion as at June 30, 2019. Also, the loan facilities of the equity accounted subsidiaries originally contained financial covenants, with which both SFL and Seadrill must comply. As part of the Restructuring Plan, the financial covenants on Seadrill were replaced by financial covenants on a newly established subsidiary of Seadrill, Seadrill Rig Holding Company Limited, who also acts as guarantor for the obligations under the leases for the three drilling units, on a subordinated basis to the senior secured lenders in Seadrill and new secured notes.
Security and Collateral
The main security provided under the secured credit facilities include (i) guarantees from subsidiaries, as well as instances where the Company guarantees all or part of the loans, (ii) a first priority pledge over all shares of the relevant asset owning subsidiaries and (iii) a first priority mortgage over the relevant collateral assets which includes substantially all of the vessels and the drilling units that are currently owned by the Company as at September 27, 2019, excluding six container vessels, one VLCC and two chemical tankers.
42

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed herein may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include, but are not limited to, statements concerning plans, objectives, goals, strategies, future events or performance, underlying assumptions and other statements, which are other than statements of historical facts.
The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement pursuant to this safe harbor legislation. This report and any other written or oral statements made by the Company or on its behalf may include forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance. The words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect,” “pending” and similar expressions identify forward-looking statements.
The forward-looking statements herein are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Although the Company believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, the Company cannot assure you that it will achieve or accomplish these expectations, beliefs or projections.
Such statements reflect the Company’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company is making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated. In addition to these important factors and matters discussed elsewhere herein, important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to:

▪ | the strength of world economies;

▪ | the Company’s ability to generate cash to service its indebtedness;

▪ | the Company’s ability to continue to satisfy its financial and other covenants, or obtain waivers relating to such covenants from its lenders under its credit facilities;

▪ | the Company’s ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities;

▪ | the Company’s counterparties’ ability or willingness to honor their obligations under agreements with it;

▪ | fluctuations in currencies and interest rates;

▪ | general market conditions including fluctuations in charter hire rates and vessel values;

▪ | changes in supply and generally the number, size and form of providers of goods and services in the markets in which the Company operates;

▪ | changes in demand in the markets in which the Company operates;

▪ | changes in demand resulting from changes in the Organization of the Petroleum Exporting Countries’ petroleum production levels and worldwide oil consumption and storage;

▪ | developments regarding the technologies relating to oil exploration;

▪ | changes in market demand in countries which import commodities and finished goods and changes in the amount and location of the production of those commodities and finished goods;

▪ | increased inspection procedures and more restrictive import and export controls;

▪ | the imposition of sanctions by the Office of Foreign Assets Control of the Department of the U.S. Treasury or pursuant to other applicable laws or regulations against the Company or any of its subsidiaries;

▪ | changes in the Company’s operating expenses, including bunker prices, drydocking and insurance costs;

▪ | performance of the Company’s charterers and other counterparties with whom the Company deals;

▪ | timely delivery of vessels under construction within the contracted price;

▪ | changes in governmental rules and regulations or actions taken by regulatory authorities;

▪ | potential liability from pending or future litigation;

▪ | general domestic and international political conditions;

▪ | potential disruption of shipping routes due to accidents; and

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▪ | piracy or political events; and

▪ | other important factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, as well as those described from time to time in the reports filed by the Company with the Commission.

This report may contain assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as forward-looking statements. The Company may also from time to time make forward-looking statements in other documents and reports that are filed with or submitted to the Commission, in other information sent to the Company’s security holders, and in other written materials. The Company also cautions that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. The information set forth herein speaks only as of the date hereof and the Company undertakes no obligation to update or revise any forward-looking statement contained in this report, whether as a result of new information, future events or otherwise, except as required by law.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| SFL CORPORATION LTD

Date: September 27, 2019

| By: | /s/ Aksel C. Olesen
| Name: Aksel C. Olesen
| Principal Financial Officer

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