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 November 2020

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. ("SFL" or "the Company”) for the nine months ended September 30, 2020.

This report on Form 6-K is hereby incorporated by reference into the Company’s Registration Statement on Form F-3ASR (Registration No. 333-237971) and the Company’s Registration Statement on Form F-3D (Registration No. 333-237970) each filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 1, 2020.

SFL CORPORATION LTD.

REPORT ON FORM 6-K FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

INDEX

Unaudited Condensed Consolidated Statements of Operations for the nine months endedSeptember 30, 2020 and September 30, 2019	Page 4
Unaudited Condensed Consolidated Statements of Comprehensive Income for the nine months endedSeptember 30, 2020 and September 30, 2019	Page 5
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	Page 6
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months endedSeptember 30, 2020 and September 30, 2019	Page 7
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months endedSeptember 30, 2020 and September 30, 2019	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 36
Cautionary Statement Regarding Forward-Looking Statement	Page 49
Signatures	Page 51

3

SFL Corporation Ltd.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

for the nine months ended September 30, 2020 and September 30, 2019

(in thousands of $, except per share amounts)

	Nine months ended
	September 30,
	2020		2019
Operating revenues
Interest income related parties – direct financing leases	1,349		2,873
Interest income other – sales-type, direct financing leases and leaseback assets	50,597		40,316
Service revenue related parties – direct financing leases	5,247		7,371
Profit sharing revenues - related parties	15,214		1,738
Profit sharing income - other	2,015		—
Time charter revenues - related parties	39,321		37,871
Time charter revenues - other	199,304		214,686
Bareboat charter revenues - other	7,164		18,111
Voyage charter revenues - other	32,291		13,794
Other operating income	3,633		2,212
Total operating revenues	356,135		338,972
Gain on sale of assets and termination of charters, net	2,250		—
Operating expenses
Vessel operating expenses - related parties	22,785		24,746
Vessel operating expenses - other	95,072		74,703
Depreciation	83,159		88,084
Vessel impairment charge	80,511		25,913
Administrative expenses - related parties	859		1,140
Administrative expenses - other	7,861		6,825
Total operating expenses	290,247		221,411
Net operating income	68,138		117,561
Non-operating income/(expense)
Interest income - related parties, long term loans to associated companies	10,596		10,596
Interest income - related parties, other	389		1,481
Interest income - other	850		2,928
Interest expense - other	(101,625)		(108,291)
Gain on repurchase of bonds	1,081		1,802
Gain on settlement of related party loan notes	4,446		—
(Loss)/gain on investments in debt and equity securities	(20,866)		39,842
Dividend income - related parties	4,617		2,250
Other financial items, net	(29,954)		(15,770)
Net (loss)/income before equity in earnings of associated companies	(62,328)		52,399
Equity in earnings of associated companies	3,128		13,136
Net (loss)/income	(59,200)		65,535
Per share information:
Basic (loss)/earnings per share	$	(0.55)	$	0.61
Diluted (loss)/earnings per share	$	(0.55)	$	0.61

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 nine months ended September 30, 2020 and September 30, 2019

(in thousands of $)

	Nine months ended
	September 30,
	2020	2019
Net (loss)/income	(59,200)	65,535
Fair value adjustments to hedging financial instruments	(17,965)	(15,701)
Earnings reclassification of previously deferred fair value adjustments to hedging financial instruments	6,369	—
Fair value adjustments to investment securities classified as available-for-sale	1,177	(1,342)
Other comprehensive (loss)/income	(45)	(35)
Other comprehensive loss, net of tax	(10,464)	(17,078)
Comprehensive (loss)/income	(69,664)	48,457

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

5

SFL Corporation Ltd.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

as at September 30, 2020 and December 31, 2019

(in thousands of $, except share data)

	September 30, 2020	December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	205,814	199,521
Restricted cash	8,628	3,495
Investments in debt and equity securities	32,968	74,079
Due from related parties	15,728	22,399
Trade accounts receivable	7,435	4,583
Other receivables	21,994	20,132
Inventories	8,694	7,934
Prepaid expenses and accrued income	3,443	1,635
Investment in sales-type leases, direct financing leases and leaseback assets, current portion	64,329	56,189
Financial instruments at fair value, current portion	—	520
Total current assets	369,033	390,487
Vessels and equipment, net	1,250,769	1,404,705
Vessels under finance lease, net	707,384	714,476
Investment in sales-type leases, direct financing leases and leaseback assets, long-term portion	869,418	938,198
Investments in associated companies	36,777	42,161
Loans and long term receivables from related parties including associates	308,399	327,616
Financial instruments at fair value, long-term portion	—	3,479
Other long-term assets	35,057	64,248
Total assets	3,576,837	3,885,370
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term debt and current portion of long-term debt	299,723	253,059
Finance lease liability, current portion	72,140	68,874
Due to related parties	896	3,980
Trade accounts payable	1,068	3,445
Financial instruments at fair value, current portion	2,421	6,067
Accrued expenses	16,501	17,132
Other current liabilities	13,905	13,279
Total current liabilities	406,654	365,836
Long-term liabilities
Long-term debt	1,183,203	1,355,029
Finance lease liability, long-term portion	984,719	1,037,553
Financial instruments at fair value, long-term portion	56,144	20,579
Deficit in associated companies	18,513	—
Other long-term liabilities	4	4
Total liabilities	2,649,237	2,779,001
Commitments and contingent liabilities
Stockholders’ equity
Share capital ($0.01 par value; 300,000,000 shares authorized; 120,906,872 shares issued and outstanding at September 30, 2020). ($0.01 par value; 200,000,000 shares authorized; 119,391,310 shares issued and outstanding at December 31, 2019).	1,209	1,194
Additional paid-in capital	485,114	469,426
Contributed surplus	556,594	648,764
Accumulated other comprehensive loss	(23,479)	(13,015)
Accumulated deficit	(91,838)	—
Total stockholders’ equity	927,600	1,106,369
Total liabilities and stockholders’ equity	3,576,837	3,885,370

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 nine months ended September 30, 2020 and September 30, 2019

(in thousands of $)

	Nine months ended
	September 30,
	2020	2019
Net cash provided by operating activities	194,402	191,311
Investing activities
Additions to direct financing leases and leaseback assets	(65,030)	(91,065)
Purchase of vessels, capital improvements and other additions	(49,247)	(29,039)
Proceeds from sales of vessels and termination of charters	152,510	—
Net amounts received from associated companies	12,781	19,509
Proceeds from sale of shares	21,055	—
Other investments and long term assets, net	1,951	(20,002)
Net cash provided by/(used in) investing activities	74,020	(120,597)
Financing activities
Shares issued, net of issuance costs	15,127	—
Principal settlements of cross currency swaps, net	(11,706)	(41,769)
Payment for early settlements of interest rate swaps, net	(4,539)	—
Repurchase of bonds	(64,795)	(80,749)
Proceeds from issuance of short-term and long-term debt	347,231	276,301
Repayments of short-term and long-term debt	(392,331)	(136,770)
Discounts received on debt repurchased	—	1,654
Debt fees paid	(4,246)	(3,841)
Repayment of lease obligation liability	(49,567)	(46,612)
Cash dividends paid	(92,170)	(112,990)
Net cash used in financing activities	(256,996)	(144,776)
Net change in restricted cash and cash and cash equivalents	11,426	(74,062)
Cash, restricted cash and cash equivalents at start of the period	203,016	212,394
Cash, restricted cash and cash equivalents at end of the period	214,442	138,332

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 nine months ended September 30, 2020 and September 30, 2019

(in thousands of $, except number of shares)

	Nine months ended
	September 30,
	2020	2019
Number of shares outstanding
At beginning of period	119,391,310	119,373,064
Shares issued	1,515,562	2,461
At end of period	120,906,872	119,375,525
Share capital
At beginning of period	1,194	1,194
Shares issued	15	—
At end of period	1,209	1,194
Additional paid-in capital
At beginning of period	469,426	468,844
Amortization of stock-based compensation	733	577
Stock-based compensation forfeitures	(30)	—
Shares issued	15,111	—
Adjustment to equity component of convertible notes due 2021 and 2023 arising from reacquisition of bonds	(126)	(231)
At end of period	485,114	469,190
Contributed surplus
At beginning of period	648,764	680,703
Dividends declared	(92,170)	(17,912)
At end of period	556,594	662,791
Accumulated other comprehensive loss
At beginning of period	(13,015)	(220)
Earnings reclassification of previously deferred fair value adjustments to hedging financial instruments	6,369	—
Fair value adjustments to hedging financial instruments	(17,965)	(15,701)
Reclassification of ineffective portion of designated hedging instruments upon adoption of ASU 2017-12	—	(32)
Fair value adjustments to available-for-sale securities	1,177	(1,342)
Other comprehensive (loss)/income	(45)	(35)
At end of period	(23,479)	(17,330)
(Accumulated deficit)/retained earnings
At beginning of period	—	29,511
Impact of adoption of ASU 2016-13	(32,638)	—
Reclassification of ineffective portion of designated hedging instruments upon adoption of ASU 2017-12	—	32
Net (loss)/income	(59,200)	65,535
Dividends declared	—	(95,078)
At end of period	(91,838)	—
Total stockholders’ equity	927,600	1,115,845

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. (“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 do not include all of the disclosures required in annual and interim consolidated financial statements and 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, 2019, which was filed with the Securities and Exchange Commission on March 27, 2020. The results of operations for the interim period ended September 30, 2020 are not necessarily indicative of the results for the entire year ending December 31, 2020.

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, 2019.

Recently Issued Accounting Standards

On April 10, 2020, the Financial Accounting Standards Board (or FASB) issued a question-and-answer document regarding accounting for lease concessions and other effects of the coronavirus (“COVID-19”) pandemic. The document clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Leases ASC 842. The Company will evaluate this additional guidance based on the facts and circumstances of any future lease concessions.

Recently Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (or ASU 2016-13). ASU 2016-13 introduces a new credit loss methodology, which requires earlier recognition of potential credit losses, while also providing additional transparency about credit risk. This new credit loss methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are subsequently adjusted each period for changes in expected lifetime credit losses. This methodology replaces multiple impairment methods under previous GAAP for these type of assets, which generally required that a loss be incurred before it was recognized.

The Company and its 100% owned subsidiaries accounted as "Investments and Deficit in Associated Companies" adopted this update on January 1, 2020 using the modified-retrospective approach, whereby a cumulative effect adjustment was made to reduce retained earnings on January 1, 2020 without any retroactive application to prior periods. On adoption, the Company recognized a cumulative adjustment of $32.6 million to its retained earnings with corresponding decreases in the carrying value of equity-accounted investments of $27.0 million (see Note 9: Investment and deficit in Associated Companies), and decreases the carrying value of Trade receivables, Other receivables, Related party receivables, Other long term assets and Investments in sales-type leases, direct financing leases and leaseback assets totaling $5.6 million (see Note 17: Allowance for expected credit losses).

9

Significant Accounting Policies - Update

Our significant accounting policies are described in "Note 2: Accounting Policies" of our Annual Report on Form 20-F for the year ended December 31, 2019. Our updated significant accounting policies described below reflect the impact of adopting ASU 2016-13.

Allowances for losses on certain financial assets

The Company and its 100% wholly owned subsidiaries accounted for as associates established allowances for credit losses on financing receivables, namely trade accounts receivable, other receivables, related party receivables, investments in sales-type leases, direct financing leases and vessel leaseback assets and other long term assets in an amount equal to the current expected credit losses. The estimation of these allowances is assessed quarterly and is based on an analysis of factors including, but not limited to, historical loss experience, age of the receivable, customer credit ratings, management's assessment of current conditions and expectation of future conditions and collateral exposures. The Company assesses collectability by pooling receivables where similar characteristics exist and evaluates receivables individually when specific customer balances no longer share those risk characteristics. We assign internal credit ratings for customers and determine the creditworthiness of each customer based upon publicly available information where available.

Collateral exposure for investments in sales-type leases, direct financing leases and leaseback assets is the excess of the carrying value of the receivable over the fair value of the related collateral. A receivable with an estimated fair value in excess of the carrying value is considered to have no collateral exposure. The value of the collateral is closely tied to the international seaborne transportation industry, offshore drilling sector and overall market conditions and may be subject to reduced valuation with market decline. Declines in collateral values could result in an increase in the allowance for expected credit losses.

The expense associated with the allowance for expected credit losses is recognized in 'other financial items' and included in 'equity in earnings of associated companies' in the Condensed Consolidated Statement of Operations.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the accounting estimates and assumptions made by management are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ materially from those estimates.

10

2.GAIN/(LOSS) ON SALE OF ASSETS AND TERMINATION OF CHARTERS

A summary of vessels sold and charters terminated during the nine months ended September 30, 2020 is as follows:

(in thousands of $)	Vessel Type	Net Proceeds	Termination Payment	Gain/(Loss) on Sale of Asset
Front Hakata	VLCC	33,465	(3,186)	1,373
Sea Cheetah	Offshore Support	1,450	—	275
Sea Jaguar	Offshore Support	1,452	—	277
Sea Halibut	Offshore Support	700	—	175
Sea Pike	Offshore Support	700	—	175
Sea Leopard	Offshore Support	126	—	(25)
Hunter Alta	VLCC	58,795	—	—
Hunter Saga	VLCC	59,008	—	—
Total		155,696	(3,186)	2,250

All of the vessels sold in the nine months ended September 30, 2020 were sold to unrelated third parties; the Front Hakata and Sea Leopard were previously accounted for as investments in direct financing leases and Hunter Alta and Hunter Saga as leaseback assets.Sea Cheetah, Sea Jaguar, Sea Halibut and Sea Pike were previously accounted for as operating lease assets.

No vessels were sold or charters terminated during the nine months ended September 30, 2019.

3.(LOSS)/EARNINGS PER SHARE

The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares outstanding during the period and the consolidated net income or loss of the Company. 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:

	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Basic earnings per share:
Net (loss)/income available to stockholders	(59,200)	65,535
Diluted earnings per share:
Net (loss)/income available to stockholders	(59,200)	65,535
Interest and other expenses attributable to dilutive convertible notes	—	(304)
Net (loss)/income assuming dilution	(59,200)	65,231

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

11

	Nine months ended
(in thousands)	September 30, 2020	September 30, 2019
Basic earnings per share:
Weighted average number of common shares outstanding*	108,223	107,610
Diluted earnings per share:
Weighted average number of common shares outstanding*	108,223	107,610
Effect of dilutive share options	—	58
Effect of dilutive convertible notes	—	1
Weighted average number of common shares outstanding assuming dilution	108,223	107,669

	Nine months ended
	September 30, 2020		September 30, 2019
Basic (loss)/earnings per share:	$	(0.55)	$	0.61
Diluted (loss)/ earnings per share:	$	(0.55)	$	0.61

*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 notes in October 2016. It also excludes 3,765,842 shares issued as of September 30, 2020 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 notes 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.

As of September 30, 2020, the outstanding balance on the 4.875% senior unsecured convertible notes issued in April and May 2018, the 5.75% senior unsecured convertible notes issued in October 2016 and the share options were antidilutive.

12

4.OTHER FINANCIAL ITEMS

Other financial items, net comprise the following items: 

	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Net cash movement on non-designated derivatives and swap settlements	(7,470)	1,039
Net (decrease)/increase in fair value of non-designated derivatives	(23,826)	(7,201)
Allowance for expected credit losses	1,073	—
Impairment of loan notes	—	(8,431)
Other items	269	(1,177)
Total other financial items, net	(29,954)	(15,770)

The net movement in the fair values of non-designated derivatives and net cash payments thereon relate to non-designated, terminated or de-designated interest rate swaps and cross currency interest rate swaps. Changes in the fair values of the effective portion of interest rate swaps that are designated as cash flow hedges are reported under "Other comprehensive income". Following the adoption of ASU 2017-12 from January 1, 2019, the Company now recognizes all 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 adjustments of $32,000 to retained earnings and other comprehensive income on January 1, 2019.

Net cash movement on non-designated derivatives and swap settlements for the nine months ended September 30, 2020, includes $4.5 million related to the settlement of interest rate swaps following the refinancing of debt (nine months ended September 30, 2019: $0.0 million).

Following the adoption of ASU 2016-13 "Financial Instruments - Credit Losses" from January 2020, the Company now recognizes, among other things, a measurement of expected credit losses for financial assets held at the reporting date which are within the scope of the ASU, based on historical experience, current conditions and reasonable supportable forecasts. See Note 1: Interim Financial Data and Note 17: Allowance for Expected Credit Losses.

During the nine months ended September 30, 2019, the Company recorded an impairment loss of $8.4 million on the Sea Bear loan note after it concluded that the loan note may no longer be recoverable.

Other items in the nine months ended September 30, 2020 include a net gain of $1.2 million arising from foreign currency translations (in the nine months ended September 30, 2019: loss of $0.8 million). Other items included in other financial items include bank charges and fees relating to loan facilities.

5.INVESTMENTS IN DEBT AND EQUITYSECURITIES

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

(in thousands of $)	September 30, 2020	December 31, 2019
Corporate Bonds	15,216	12,753
Shares	17,752	61,326
Total Investment in Debt and Equity Securities	32,968	74,079

Corporate Bonds

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".

13

	Nine months ended September 30, 2020			Year ended December 31, 2019
(in thousands of $)	Amortized Cost	Unrealized gains/(losses)	Fair value	Amortized Cost	Unrealized gains/(losses)	Fair value
Corporate bonds:
NorAm Drilling Bond	4,132	535	4,667	4,132	558	4,690
Oro Negro 7.5%	566	827	1,393	5,705	—	5,705
Oro Negro 12%	—	—	—	2,281	77	2,358
NT Rig Holdco 12%	3,567	404	3,971	—	—	—
NT Rig Holdco 7.5%	5,139	46	5,185	—	—	—
Total corporate bonds	13,404	1,812	15,216	12,118	635	12,753

In 2020, the existing Oro Negro 12% Bonds and Oro Negro 7.5% Bonds completed a conversion that resulted in the recognition of NT Rig Holdco Liquidity 12% Bonds and NT Rig Holdco 7.5% Bonds, and redemption of all the Oro Negro 12% Bonds and a substantial proportion of the Oro Negro 7.5% Bonds. The Company recorded no gain or loss on redemption of the bonds. The Company also acquired an additional $1.3 million of the NT Rig Holdco 12% bonds in the nine months ended September 30, 2020.

Shares

Changes in the fair value of equity investments are recognized in net income.

(in thousands of $)	September 30, 2020	December 31, 2019
Frontline	9,412	43,775
NorAm Drilling	2,003	4,326
ADS Crude Carriers	6,337	13,225
Total shares	17,752	61,326
Equity Securities pledged to creditors	9,412	43,775

Equity Securities Pledged to Creditors

As at September 30, 2020 the Company held approximately 1.4 million shares (December 31, 2019: 3.4 million shares) of Frontline Ltd ("Frontline") (see Note 16: Related Party Transactions).

In December 2019, the Company entered into a forward contract to repurchase 3.4 million shares of Frontline in June 2020 for $36.8 million.

During the six months ended June 30, 2020, the Company repurchased and simultaneously sold approximately 2.0 million shares in Frontline for total proceeds of $21.1 million and recorded gains of $2.3 million in the statement of operations in respect of the sales. In June 2020, the Company rolled forward the forward contract related to the remaining approximately 1.4 million shares until September of 2020.

In September 2020, the Company rolled forward the forward contract related to 1.4 million shares until January of 2021 at a repurchase price of $16.2 million including accrued interest. The transaction has been accounted for as secured borrowing, with the shares retained in 'Marketable Securities pledged to creditors' and a liability recorded at September 30, 2020 within debt for $15.6 million (See also Note 11: Short-Term and Long-Term Debt).

14

6.VESSELS AND EQUIPMENT, NET

Movements in the nine months ended September 30, 2020 summarized as follows:

(in thousands of $)	Cost	Accumulated Depreciation	Vessels and Equipment, net
Balance at December 31, 2019	1,867,873	(463,168)	1,404,705
Depreciation	—	(53,568)	(53,568)
Capital improvements	50,513	—	50,513
Transfers to Investments in Sales-Type Leases	(87,570)	20,368	(67,202)
Vessel disposals	(7,362)	3,963	(3,399)
Impairment loss	(137,946)	57,666	(80,280)
Balance at September 30, 2020	1,685,508	(434,739)	1,250,769

The capital improvements of $50.5 million relate to exhaust gas cleaning systems ("EGCS" or "scrubbers") and ballast water treatment systems ("BWTS") installed on thirteen vessels during the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, seven 4,100 TEU container vessels, previously recorded as operating lease assets, were reclassified as sales-type leases. The reclassification occurred as a result of amendments including extensions to the existing charter contracts. The cost and accumulated depreciation of the vessels reclassified from vessels and equipment to investment in sales-type leases were $87.6 million and $20.4 million, respectively. (Refer to Note 8: Investment in sales-type leases, direct financing leases and leaseback assets.)

During the nine months ended September 30, 2020, the Company disposed of four offshore support vessels (Sea Cheetah, Sea Jaguar, Sea Halibut and Sea Pike). A net gain of $0.9 million was recorded in connection with the disposal of these vessels. Refer to Note 2: Gain on sale of assets and termination of charters.

An impairment charge of $80.3 million was recorded in the nine months ended September 30, 2020 against the carrying value of seven Handysize bulk carriers (nine months ended September 30, 2019: $25.0 million against the carrying value of two feeder container vessels). The impairment charge arose in the nine months ended September 30, 2020, as a result of revised future cashflow estimates following uncertainty over future demand combined with negative implications for global trade of dry bulk commodities as a result of the COVID-19 outbreak.

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7.VESSELS UNDER FINANCE LEASE, NET

Movements in the nine months ended September 30, 2020 summarized as follows:

(in thousands of $)	Cost	Accumulated Depreciation	Vessels under Finance Lease, net
Balance at December 31, 2019	755,058	(40,582)	714,476
Depreciation	—	(29,591)	(29,591)
Capital improvements	22,499	—	22,499
Balance at September 30, 2020	777,557	(70,173)	707,384

As at September 30, 2020 seven vessels were accounted for as vessels under finance lease, which consist of of four 13,800 TEU container vessels and three 10,600 TEU container vessels.

The capital improvements of $22.5 million relate to the installation of scrubbers and BWTS in respect of three container vessels.

8. INVESTMENTS IN SALES-TYPE LEASES, DIRECT FINANCING LEASES AND LEASEBACK ASSETS

As at September 30, 2020 the Company had a total of thirty-one vessel charters accounted for as sales-type and direct financing leases (December 31, 2019: twenty-six vessels) and five vessel charters classified as leaseback assets (December 31, 2019: six vessels).

Investments in sales-type and direct financing leases

The VLCC Front Hakata was sold to an unrelated third party in February 2020. A gain on sale of $1.4 million was recognized in the Consolidated Statement of Operations (refer to Note 2: Gain on sale of assets and termination of charters and Note 16: Related party transactions).

In February 2020, the Company entered into a Memorandum of Agreement to sell the offshore support vessel Sea Leopard for recycling to Green Yard AS, an unrelated third party. The vessel was delivered in May 2020. The Company recorded an impairment loss of $0.2 million in the nine months ended September 30, 2020 prior to disposal and a loss on sale of $0.03 million was recognized in the Consolidated Statement of Operations (refer to Note 2: Gain on sale of assets and termination of charters and Note 16: Related party transaction).

During the nine months ended September 30, 2020, seven 4,100 TEU container vessels, with a total net book value of $67.2 million, were reclassified from Vessels and Equipment net, to Investment in Sales-Type Leases. The reclassification occurred as a result of amendments to the existing charter contracts. Pursuant to each amended contract, the charterer has a fixed price purchase obligation at the expiry of the additional five year charter period. (Refer to Note 6: Vessels and equipment, net).

Investments in leaseback assets

When a sale and leaseback transaction does not qualify for sale accounting, the Company does not recognize the transferred vessels and instead accounts for the purchase as a leaseback asset.

In May 2020, SFL acquired a newbuild very large crude carrier ("VLCC") from Landbridge Universal Limited ("Landbridge") where control was not deemed to have passed to the Company due to the existence of repurchase options in the lease on acquisition and therefore was classified as a leaseback asset. Upon delivery, the vessel immediately commenced a seven year bareboat charter back to Landbridge. The charterer has purchase options throughout the term of the charters and there is a purchase obligation at the end of the seven year period.

16

In 2019, SFL acquired six vessels which were classified as 'leaseback assets'. These were comprised of three second-hand feeder size container vessels, which were acquired in a purchase and leaseback transaction with subsidiaries of Mediterranean Shipping Company S.A. ("MSC"). The vessels were chartered back for approximately six years on a bareboat basis. The charterer has purchase options throughout the term of the charters and the Company has a put option at the end of the six year period. The three other vessels were newbuilding VLCCs, which were acquired from an affiliate of Hunter Group ASA ("Hunter Group") and leased back to the Hunter Group on five year bareboat charters.

In June 2020, SFL were notified by the Hunter Group that they would exercise purchase options on two VLCCs which were subsequently delivered in August 2020. Net proceeds of $117.8 million were received and debt of $95.0 million repaid. (Refer to Note 2: Gain on sale of assets.)

The following lists the components of investments in sales-type leases, direct financing leases and leaseback assets as at September 30, 2020 and December 31, 2019:

(in thousands of $)	September 30, 2020
	Sales-Type Leases and Direct Financing Leases	Leaseback Assets	Total
Total minimum lease payments to be received	1,006,958	112,783	1,119,741
Less: amounts representing estimated executory costs including profit thereon, included in total minimum lease payments	(42,354)	—	(42,354)
Net minimum lease payments receivable	964,604	112,783	1,077,387
Estimated residual values of leased property (un-guaranteed)	209,621	78,000	287,621
Less: unearned income	(383,698)	(44,044)	(427,742)
Total investment in sales-type lease, direct financing lease and leaseback assets	790,527	146,739	937,266
Allowance for expected credit losses*	(3,163)	(356)	(3,519)
Total investment in sales-type lease, direct financing lease and leaseback assets	787,364	146,383	933,747
Current portion	51,995	12,334	64,329
Long-term portion	735,369	134,049	869,418

(in thousands of $)	December 31, 2019
	Sales-Type Leases and Direct Financing Leases	Leaseback Assets	Total
Total minimum lease payments to be received	1,085,642	134,073	1,219,715
Less: amounts representing estimated executory costs including profit thereon, included in total minimum lease payments	(64,222)	—	(64,222)
Net minimum lease payments receivable	1,021,420	134,073	1,155,493
Estimated residual values of leased property (un-guaranteed)	192,429	139,500	331,929
Less: unearned income	(427,251)	(65,784)	(493,035)
Total investment in sales-type lease, direct financing lease and leaseback assets	786,598	207,789	994,387
Allowance for expected credit losses*	—	—	—
Total investment in sales-type lease, direct financing lease and leaseback assets	786,598	207,789	994,387
Current portion	45,361	10,828	56,189
Long-term portion	741,237	196,961	938,198

*See Note 1: Interim financial data and Note 17: Allowance for expected credit losses.

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9. INVESTMENTS AND DEFICIT 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 September 30, 2020, September 30, 2019 and December 31, 2019 the Company had the following participation in investments that were recorded using the equity method:

	September 30, 2020		September 30, 2019		December 31, 2019
SFL Deepwater Ltd (“SFL Deepwater”)	100	%	100	%	100	%
SFL Hercules Ltd (“SFL Hercules”)	100	%	100	%	100	%
SFL Linus Ltd (“SFL Linus”)	100	%	100	%	100	%

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

	As of September 30, 2020
(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Current assets	73,295	35,102	20,300	17,893
Non-current assets	849,261	242,200	259,652	347,409
Total assets	922,556	277,302	279,952	365,302
Current liabilities	391,994	182,815	190,703	18,476
Non-current liabilities	512,298	113,000	78,334	320,964
Total liabilities	904,292	295,815	269,037	339,440
Total stockholders’ equity/(deficit)	18,264	(18,513)	10,915	25,862

	As of December 31, 2019
(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Current assets	75,079	29,047	22,645	23,387
Non-current assets	920,801	286,222	273,621	360,958
Total assets	995,880	315,269	296,266	384,345
Current liabilities	65,832	19,168	20,761	25,903
Non-current liabilities	887,887	285,147	265,769	336,971
Total liabilities	953,719	304,315	286,530	362,874
Total stockholders’ equity	42,161	10,954	9,736	21,471

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

	Nine months ended September 30, 2020
(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Operating revenues	40,560	11,834	11,650	17,076
Net operating revenues	40,560	11,834	11,650	17,076
Net income/(loss)	3,128	(5,974)	2,995	6,107

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	Nine months ended September 30, 2019
(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Operating revenues	49,013	14,488	14,044	20,481
Net operating revenues	49,013	14,488	14,044	20,481
Net income	13,136	3,274	2,955	6,907

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 each include 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.

As required by ASU 2016-13 'Financial Instruments - Credit Losses' from January 2020, SFL Deepwater, SFL Hercules and SFL Linus recognized an allowance for expected credit losses in respect of their principal financial assets: 'Investment in direct financingleases' and 'Related party receivable balances', held at the reporting date, which are within the scope of the ASU. Movements in the nine months ended September 30, 2020 in the allowance for expected credit losses can be summarized as follows:

(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Balance at December 31, 2019	—	—	—	—
Adjustment for adoption of the ASU 2016-13 (Note 1)	27,024	23,493	1,816	1,715
Allowance recorded in net income	10,710	9,471	566	673
Balance at September 30, 2020	37,734	32,964	2,382	2,388

As indicated in Note 1: 'Interim Financial Data', the allowance for expected credit losses is based on an analysis of factors including the credit rating assigned to the lessee, Seadrill, management's assessment of current and expected conditions in the offshore drilling market and calculated collateral exposure. SFL Deepwater has a significantly higher allowance for expected credit losses due to calculated collateral exposure.

Each subsidiary has entered into a term loan and revolving credit facility as follows:

	Nine months ended September 30, 2020
(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Loan balance outstanding	585,893	176,090	189,808	219,995
Amount guaranteed by SFL	285,529	84,697	83,059	117,773

	Year ended December 31, 2019
(in thousands of $)	TOTAL	SFL Deepwater	SFL Hercules	SFL Linus
Loan balance outstanding	621,907	187,916	201,923	232,068
Amount guaranteed by SFL	266,114	84,697	78,947	102,470

In the nine months ended September 30, 2020, the nine months ended September 30, 2019 and the year ended December 31, 2019, SFL Deepwater, SFL Hercules and SFL Linus did not pay any dividends.

19

SFL Deepwater, SFL Hercules and SFL Linus have loan facilities for which SFL provides limited guarantees, as indicated above. These loan facilities contain financial covenants with which both SFL and Seadrill's Rig Holding Company Limited (“RigCo”) must comply. RigCo, 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. Seadrill was technically in default on its leases with the Company at September 30, 2020 as well as on certain credit facilities with other lenders. Therefore, due to the applicable cross default provisions, SFL Deepwater, SFL Hercules and SFL Linus were in default on their loan agreements. However revisions have been made for the loans in respect of SFL Deepwater and SFL Linus subsequent to quarter end, which revisions have remedied the defaults on the loans in respect of these two entities. (See Note 19: Subsequent Events.) Due to the technical default on the loan agreements, the balance of the long term loans in SFL Deepwater and SFL Hercules have been reclassified to short-term in the summarized balance sheet information presented above.

Seadrill has publicly disclosed that they have appointed financial and legal advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness. Seadrill has also disclosed that it is currently engaged in discussions with its financial stakeholders with regards to a comprehensive restructuring of its balance sheet, and that such a restructuring may involve the use of a court-supervised process. (See Note 19: Subsequent Events.) Any agreed changes to the provisions of their leases with SFL Deepwater, SFL Hercules and SFL Linus could lead to a change in the determination that SFL is not the primary beneficiary, which could result in the Company consolidating these entities. Changes to lease terms may also result in changes to accounting treatment of an asset. A reclassification to ‘Vessels and Equipment’ from ‘Direct Financing Leases’ may result in changes to accounting treatment, including but not limited to, presentation and recognition of revenues, credit loss provisions as required under ASU 2016-13, depreciation and impairment charges in accordance with ASC Topic 360 Property Plant and Equipment.

10.OTHER LONG TERM ASSETS

Other long term assets comprise of the following items: 

(in thousands of $)	September 30, 2020	December 31, 2019
Collateral deposits on swap agreements	14,108	17,520
Capital improvements in progress	6,876	30,642
Value of acquired charter-out contracts, net	11,233	13,407
Long term receivables	1,880	1,880
Other	974	799
Allowance for expected credit losses*	(14)	—
Total Other Long Term Assets	35,057	64,248

*See Note 1: Interim financial data and Note 17: Allowance for expected credit losses.

Collateral deposits exist on our interest rate, cross currency interest rate and currency swaps. Further amounts may be called upon during the term of the swaps, if interest rates or currency rates move adversely.

Capital improvements in progress comprise of advances paid and costs incurred in respect of vessel upgrades in relation to EGCS and BWTS on 14 vessels (2019: nine vessels). This is recorded in other long term assets until such time as the equipment is installed on a vessel, at which point it is transferred to "Vessels and equipment, net" or "Investment in sales-type leases and direct financing leases'. In the nine months endedSeptember 30, 2020, the Company transferred costs of $50.5 million in respect of 13 vessels to "Vessels and equipment, net" and $22.5 million in respect of three vessels recorded as "Vessels under finance lease, net."

During 2018, the Company purchased four container vessels, Thalassa Mana, Thalassa Tyhi, Thalassa Doxa and Thalassa Axia

with each vessel subject to pre-existing time charters. A value of $18.0 million was assigned to these charters on acquisition. During the nine months endedSeptember 30, 2020 the amortization charged to time charter revenue was $2.2 million (Nine months ended September 30, 2019: $2.2 million).

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11.SHORT-TERM AND LONG-TERM DEBT

(in thousands of $)	September 30, 2020	December 31, 2019
Long-term debt:
5.75% senior unsecured convertible notes due 2021	212,230	212,230
NOK500 million senior unsecured floating rate bonds due 2020	—	56,910
4.875% senior unsecured convertible notes due 2023	141,900	148,300
NOK700 million senior unsecured floating rate bonds due 2023	74,788	79,674
NOK700 million senior unsecured floating rate bonds due 2024	74,254	79,674
NOK600 million senior unsecured floating rate bonds due 2025	57,694	—
Borrowings secured by Frontline shares	15,639	36,763
Total Fixed Rate and Foreign Debt	576,505	613,551
U.S. dollar denominated floating rate debt (LIBOR plus margin) due through 2025	922,416	1,013,626
Total debt principal	1,498,921	1,627,177
Less: Unamortized debt issuance costs	(15,995)	(19,089)
Less: Current portion of long-term debt	(299,723)	(253,059)
Total long-term debt	1,183,203	1,355,029

(in thousands of $)
		Fixed Rate and Foreign Debt	U.S. Dollar Floating Rate Debt	Total debt principal
Balance at	December 31, 2019	613,551	1,013,626	1,627,177
Drawdowns		67,231	280,000	347,231
Repayments and redemptions		(87,278)	(371,210)	(458,488)
Effects of foreign exchange		(16,999)	—	(16,999)
Balance at	September 30, 2020	576,505	922,416	1,498,921

Interest rate information

	September 30, 2020		December 31, 2019
Weighted average interest rate	2.72	%	4.27	%
US Dollar London Interbank Offered Rate ("LIBOR")	0.23	%	1.91	%
Norwegian Interbank Offered Rate (" NIBOR")	0.28	%	1.84	%

The weighted average interest rate is for floating rate debt denominated in U.S. dollars and Norwegian kroner (“NOK”) which takes into consideration the effect of related interest rate swaps.

21

New Facilities, Renewals and Redemptions

Fixed Rate and Foreign Debt

Redemptions between January 1, 2020 and September 30, 2020

Bond	In Millions of NOK	In Millions of USD
NOK500 million senior unsecured floating rate bonds due 2020	500.0
NOK700 million senior unsecured floating rate bonds due 2024	5.0
NOK600 million senior unsecured floating rate bonds due 2025	60.0
4.875% senior unsecured convertible notes due 2023		6.4

During the nine months ended September 30, 2020 the Company recorded a gain of $1.1 million on the repurchase of fixed rate and foreign debt recorded in 'Gain on repurchase of bonds and extinguishment of debt'. During the nine months ended September 30, 2019 a gain of $1.8 million was recorded in respect of the repurchases of $3.4 million of its 4.875% senior unsecured convertible notes due 2023 and $11.0 million of the $101.4 million secured term loan facility for $9.4 million.

New Facilities

NOK600 million senior unsecured bonds due 2025

In January 2020, the Company issued a senior unsecured bond totaling NOK600 million (equivalent to $67.2 million) in the Nordic credit market. The bonds bear quarterly interest at NIBOR plus a margin and are redeemable in full on January 21, 2025. Since issue, the Company repurchased NOK60 million, the net amount outstanding at September 30, 2020 was NOK540 million, equivalent to $57.7 million.

U.S. Dollar Floating Rate Debt

New facilities entered into between January 1, 2020 and September 30, 2020

Name of facility	Month drawn down	Number of wholly owned subsidiaries entering into the facility	Term	Balance outstanding at period end ($ millions)
$40 million secured term loan facility	March	two	2 years	38.0
$15 million secured term loan facility	March	three	5 years	13.5
$175 million secured term loan facility	April	four	5 years	170.3
$50 million secured term loan facility	May	one	5 years	49.3

22

Except for the $50 million facility, the Company has provided corporate guarantees either limited or full, for the above facilities, which bear interest at LIBOR plus a margin.

Facilities redeemed between January 1, 2020 and September 30, 2020

Name of facility	Original drawn down	Number of wholly owned subsidiaries that had entered into the facility	Original Term	Balance redeemed ($ millions)
$128 million secured term loan facility	Sept 2014	two	7 years	81.8
$128 million secured term loan facility	Nov 2014	two	7 years	83.9
$42.6 million secured term loan facility	March 2015	one	5 years	14.9
$42.6 million secured term loan facility	March 2015	one	5 years	14.9
$142.5 million secured term loan facility	Sept 2019	three	5 years	95.0

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 September 30, 2020 the Company was in compliance with all of the covenants under its long-term debt facilities.

Borrowings secured on Frontline shares

As at December 31, 2019, the Company had a forward contract to repurchase 3.4 million shares of Frontline which expired in June 2020 for $36.8 million. The transaction was accounted for as a secured borrowing, with the shares transferred to 'Marketable securities pledged to creditors' and a liability of $36.8 million recorded within debt at December 31, 2019. During the nine months ended September 30, 2020 the Company repurchased 2.0 million shares subject to the forward contact and repaid $21.1 million of the secured borrowing.

As at September 30, 2020, the Company had a forward contract which expires in January of 2021, to repurchase 1.4 million shares of Frontline at a repurchase price of $16.1 million including accrued interest. The transaction has been accounted for as a secured borrowing, with the shares transferred to 'Marketable securities pledged to creditors' and a liability of $15.6 million recorded within debt at September 30, 2020. The Company is required to post collateral of 20% of the total repurchase price plus any negative mark to market movement from the repurchase price for the duration of the agreement. As at September 30, 2020 $8.6 million (December 31, 2019: $3.5 million) was held as collateral and recorded as restricted cash.

12.FINANCIAL INSTRUMENTS

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: 

23

(in thousands of $)	September 30, 2020	December 31, 2019
Designated derivative instruments - short-term assets:
Interest rate swaps	—	520
Total derivative instruments - short-term assets	—	520
Designated derivative instruments - long-term assets:
Interest rate swaps	—	377
Cross currency interest rate swaps	—	189
Non-designated derivative instruments - long-term assets:
Interest rate swaps	—	2,913
Total derivative instruments - long-term assets	—	3,479
(in thousands of $)	September 30, 2020	December 31, 2019
Designated derivative instruments - short-term liabilities:
Interest rate swaps	1,208	6,067
Non-designated derivative instruments - short-term liabilities:
Interest rate swaps	1,213	—
Total derivative instruments - short-term liabilities	2,421	6,067
Designated derivative instruments - long-term liabilities:
Interest rate swaps	8,799	5,477
Cross currency interest rate swaps	10,558	2,105
Cross currency swaps	20,263	11,049
Non-designated derivative instruments - long-term liabilities:
Interest rate swaps	16,473	1,948
Cross currency swaps	51	—
Total derivative instruments - long-term liabilities	56,144	20,579

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.

The following new interest rate swaps were entered into during the nine months ended September 30, 2020.

Notional Principal (in thousands of $)	Inception date	Maturity date	Fixed interest rate
$67,500 (remaining at $67,500)	January 2020	January 2025	1.40	%
$166,941 (reducing to $163,359)	April 2020	October 2024 - January 2025	0.46% - 0.47%
$49,305 (remaining at $49,305)	May 2020	May 2022	0.28	%

24

During the nine months ended September 30, 2020, the Company settled interest rate swaps with a total notional principal amount of $124.3 million following the refinancing of two debt facilities. (See Note 4: Other Financial Items.)

At September 30, 2020, 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 net notional principal amount subject to interest rate swap agreements as at September 30, 2020, was $1.2 billion (December 31, 2019: $1.0 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 NOK700 million, NOK700 million and NOK600million senior unsecured bonds due 2023, 2024 and 2025 respectively.

Principal Receivable	Principal Payable	Inception date	Maturity date
NOK600 million	US$76.8 million	September 2018	September 2023
NOK100 million	US$11.3 million	August 2019	September 2023
NOK700 million	US$80.5 million	June 2019	June 2024
NOK600 million	US$67.5 million	January 2020	January 2025

Apart from NOK700 million, NOK700 million and NOK600 million senior unsecured bonds due 2023, 2024 and 2025, 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 September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020	September 30, 2020	December 31, 2019	December 31, 2019
(in thousands of $)	Carrying value	Fair value	Carrying value	Fair value
Non-derivatives:
Available-for-sale debt securities	15,216	15,216	12,753	12,753
Equity securities	8,340	8,340	17,551	17,551
Equity securities pledged to creditors	9,412	9,412	43,775	43,775
Floating rate NOK bonds due 2020	—	—	(56,910)	(58,191)
Floating rate NOK bonds due 2023	(74,788)	(73,105)	(79,674)	(81,567)
Floating rate NOK bonds due 2024	(74,254)	(69,984)	(79,674)	(79,674)
Floating rate NOK bonds due 2025	(57,694)	(53,655)	—	—
5.75% unsecured convertible notes due 2021	(212,230)	(210,002)	(212,230)	(227,025)
4.875% unsecured convertible notes due 2023	(141,900)	(129,661)	(148,300)	(165,503)
Derivatives:
Interest rate/currency swap contracts - short-term receivables	—	—	520	520
Interest rate/currency swap contracts - long-term receivables	—	—	3,479	3,479
Interest rate/currency swap contracts - short-term payables	(2,421)	(2,421)	(6,067)	(6,067)
Interest rate/currency swap contracts - long-term payables	(56,144)	(56,144)	(20,579)	(20,579)

25

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, 2019, and following the adoption of ASU 2017-12, where the Company has designated the swaps as a hedges, changes in the fair values of the 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.

The fair values of financial assets and liabilities as at September 30, 2020, were measured as follows:

		Fair value measurements using,
(in thousands of $)	September 30, 2020	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	15,216	15,216
Equity securities	8,340	8,340
Equity securities pledged to creditors	9,412	9,412
Total assets	32,968	32,968	—	—
Liabilities:
Floating rate NOK bonds due 2023	(73,105)	(73,105)
Floating rate NOK bonds due 2024	(69,984)	(69,984)
Floating rate NOK bonds due 2025	(53,655)	(53,655)
5.75% unsecured convertible notes due 2021	(210,002)	(210,002)
4.875% unsecured convertible notes due 2023	(129,661)	(129,661)
Interest rate/currency swap contracts - short-term payables	(2,421)		(2,421)
Interest rate/currency swap contracts - long-term payables	(56,144)		(56,144)
Total liabilities	(594,972)	(536,407)	(58,565)	—

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 1 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.

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Investments in equity securities consist of (i) Listed Frontline shares (ii) NorAm Drilling shares traded in the Norwegian OTC market and (iii) ADS Crude Carriers 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 of the floating rate NOK denominated bonds due 2023, 2024 and 2025, the 5.75% and 4.875% unsecured convertible notes due 2021 and 2023 are all based on their quoted market prices as at the balance sheet date.

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 September 30, 2020.

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, Danske Bank, BNP Paribas, Credit Agricole Corporate and Investment Bank and Sumitomo Mitsui Banking Corporation. However, the Company believes this risk is remote.

There is also a concentration of revenue risk with the below customers to whom the Company has chartered multiple vessels.

Charterer	Number of Vessels chartered at September 30, 2020	% of consolidated operating revenues (Nine months ended September 30, 2020)		% of consolidated operating revenues (Nine months ended September 30, 2019)
Golden Ocean Group Limited (“Golden Ocean”)*	8	11	%	11	%
MSC	39	13	%	14	%
Maersk Line A/S (“Maersk”)	12	29	%	31	%
Evergreen	4	15	%	14	%

* Additionally see Note 16: Related party transactions.

In addition, a significant portion of our net (loss)/income is generated from our associated companies that lease rigs to subsidiaries of Seadrill. In the nine months ended September 30, 2020, income from our associated companies accounted for approximately 23% of our consolidated net loss (nine months ended September 30, 2019: 36% of our consolidated net income). (See also Note 9: Investments and Deficit in Associated Companies). Seadrill has publicly disclosed that they have appointed financial and legal advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness. Seadrill has also disclosed that it is currently engaged in discussions with its financial stakeholders with regards to a comprehensive restructuring of its balance sheet, and that such a restructuring may involve the use of a court-supervised process. In the second quarter of 2020, Seadrill contacted the Company to commence discussions with regards to the leases on the three drilling units.

SFL is currently in negotiations with Seadrill for entrance into a forbearance agreement in respect of the leasing arrangements of the Company's three drilling rigs. These rigs are owned by SFL Deepwater, SFL Hercules and SFL Linus, which are wholly-owned subsidiaries of the Company that are accounted for using the equity method. These discussions are ongoing and no agreements to any changes have been made. Please see Note 19: Subsequent Events for additional discussion of the leases and certain amendments to the financing agreements relating to these drilling rigs.

As discussed in Note 18: Commitments and contingent liabilities, the Company guaranteed a total of $285.5 million at September 30, 2020 (December 31, 2019: $266.1 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 $313.3 million at September 30, 2020 (December 31, 2019: $326.1 million).

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13.SHARE CAPITAL, ADDITIONAL PAID-IN CAPITAL AND CONTRIBUTED SURPLUS

Authorized share capital is as follows:

(in thousands of $, except share data)	September 30, 2020	December 31, 2019
300,000,000 common shares of $0.01 par value each (December 31, 2019: 200,000,000 shares of $0.01 par value each)	3,000	2,000

Issued and fully paid share capital is as follows:

(in thousands of $, except share data)	September 30, 2020	December 31, 2019
120,906,872 common shares of $0.01 par value each (December 31, 2019: 119,391,310 shares of $0.01 par value each)	1,209	1,194

The Company’s common shares are listed on the New York Stock Exchange.

On May 1, 2020, SFL filed a registration statement to register the sale of up to 10,000,000 Common Shares pursuant to the dividend reinvestment plan, or DRIP to facilitate investments by individual and institutional shareholders who wish to invest dividend payments received on shares owned or other cash amounts, in the Company's Common Shares on a regular basis, one time basis or otherwise. If certain waiver provisions in the DRIP are requested and granted pursuant to the terms of the plan, SFL may grant additional share sales to investors from time to time up to the amount registered under the plan. On May 20, 2020, the Company declared a dividend of $0.25 per share, with an ex-dividend date of June 17, 2020. On August 18, 2020, the Company declared a dividend of $0.25 per share, with an ex-dividend date of September 16, 2020.

In May 2020, the Company entered into an equity distribution agreement with BTIG LLC ("BTIG") under which SFL may, from time to time, offer and sell new ordinary shares having aggregate sales proceeds of up to $100.0 million through an At-the-Market Sales Agreement offering ('ATM').

During the nine months ended September 30, 2020,the Company issued and sold 1.5 million shares under these arrangements, total proceeds of $15.2 million net of costs were received, resulting in a premium on issue of $15.1 million.

At the Annual General Meeting of the Company held in August 2020, a resolution was passed to approve an increase of the Company’s authorized share capital from $2,000,000 equivalent to 200,000,000 common shares of $0.01 par value each to $3,000,000 equivalent to $300,000,000 common shares of $0.01 par value each by the authorization of an additional 100,000,000 common shares of $0.01 par value each.

During the nine months ended September 30, 2020,the Company issued a total of 6,869 new shares following the exercise of share options (2019: 18,246 new shares were issued). The weighted average exercise price was $8.63 per share.

During the nine months ended September 30, 2020, the Company repurchased its 4.875% senior unsecured convertible notes due 2023 with principal amounts totaling $6.4 million (2019: $3.4 million). The equity component of these extinguished notes was valued at $0.1 million (2019: $0.2 million) and has been deducted from "Additional paid-in capital".

During the nine months ended September 30, 2020, $92.2 million of the dividend declared was paid from contributed surplus (2019: $31.9 million).

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14.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 permit 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 nine months ended September 30, 2020, additional paid-in capital was credited with $0.7 million relating to the fair value of options granted in April 2018, January 2019 and March 2019 and March 2020.

In the nine months ended September 30, 2020, 17,500 options were exercised into 6,869 shares under the Option Scheme.

In February 2020, the Company awarded a total of 350,000 options to officers, employees and directors, 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 2021 onwards. The initial strike price was $13.45 per share.

Total unrecognized compensation cost relating to the outstanding options under the Company's Option Scheme was $0.9 million as at September 30, 2020 (December 31, 2019: $0.8 million).

15.FINANCE LEASE LIABILITY

As of September 30, 2020 the Company chartered-in four container vessels which are on long-term charter from a Chinese Leasing Institution (December 31, 2019: four) and seven container vessels under sale and leaseback transactions with an Asia based financial institution (December 31, 2019: seven). The four container vessels are accounted for as investments in direct financing leases (refer to Note 8: Investments in sale-type leases, direct financing leases and leaseback assets), and the seven vessels are accounted for as vessels under finance lease (refer to Note 7: Vessels under finance lease, net).

(in thousands of $)	September 30, 2020	December 31, 2019
Finance lease liability, current portion	72,140	68,874
Finance lease liability, long-term portion	984,719	1,037,553
	1,056,859	1,106,427

Interest incurred on the finance lease liability in the nine months ended September 30, 2020 was $44.9 million (nine months ended September 30, 2019: $47.3 million).

16.RELATED PARTY TRANSACTIONS

The Company has transactions with the following related parties, being companies in which our principal shareholder Hemen Holding Ltd. ("Hemen") and companies associated with Hemen have, or had, a significant direct or indirect interest:

–    Frontline

–    Frontline Shipping Limited ("Frontline Shipping")

–    Seadrill

–    Golden Ocean

–    Seatankers Management Co. Ltd ("Seatankers")

–    NorAm Drilling

–    ADS Crude Carriers

–Golden Close Corporation. Ltd. ("Golden Close")

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The Condensed Consolidated Balance Sheets include the following amounts due from and to related parties and associated companies, excluding investment in direct financing lease balances (refer to Note 8: Investments in sales-type leases, direct financing leases and leaseback assets).

(in thousands of $)	September 30, 2020	December 31, 2019
Amounts due from:
Frontline Shipping	4,230	2,948
Frontline	6,610	6,708
Seadrill	58	51
SFL Linus	—	7,392
SFL Deepwater	4,883	1,246
SFL Hercules	—	3,423
Golden Ocean	20	627
Other related parties	1	4
Allowance for expected credit losses*	(74)	—
Total amount due from related parties	15,728	22,399
Loans to related parties - associated companies, long-term
SFL Deepwater	113,000	113,000
SFL Hercules	78,333	80,000
SFL Linus	117,066	121,000
Long-term receivables from related parties
Frontline	—	9,171
Frontline Shipping	—	4,445
Loans and long term receivables to related parties including associates	308,399	327,616
Amounts due to:
Frontline Shipping	443	3,884
Frontline	49	47
Golden Ocean	—	—
Seatankers	156	—
Other related parties	248	49
Total amount due to related parties	896	3,980

* See Note 1: Interim financial data and Note 17: Allowance for expected credit losses.

SFL Deepwater, SFL Hercules and SFL Linus are wholly-owned subsidiaries which are not fully consolidated but are accounted for under the equity method within the financial statements (refer to Note 9: Investments and deficit in associated companies). As described below in “Related party loans”, at September 30, 2020 the long-term loans from the Company 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. (Refer also to Concentration of Risk in Note 12.)

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Related party leasing and service contracts

A summary of leasing revenues and repayments from Frontline Shipping and Golden Ocean is as follows:

	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Golden Ocean:
Operating lease income	39,321	37,871
Profit share	37	191
Frontline Shipping:
Direct financing lease interest income	1,349	2,873
Direct financing lease service revenue	5,247	7,371
Direct financing lease repayments	4,944	5,956
Profit share	15,177	1,547

In 2019, SFL entered into an agreement with Golden Ocean, where the Company agreed to finance installation of scrubbers on seven of the eight Capesize bulk carriers with an amount of up to $2.5 million per vessel, in return for increased charter hire from January 1, 2020 to June 30, 2025.

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

	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Frontline:
Vessel Management Fees	6,745	8,789
Commissions and Brokerage	298	215
Administration Services Fees	46	148
Golden Ocean:
Vessel Management Fees	15,344	15,288
Operating Management Fees	696	669
Administration Services Fees	50	—
Seatankers:
Administration Services Fees	363	598
Office Facilities:
Seatankers Management Norway AS	70	79
Frontline Management AS	145	160
Frontline Corporate Services Ltd.	185	155

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Related party loans – associated companies

A summary of loans entered into with SFL Deepwater, SFL Hercules and SFL Linus are as follows:

(in millions of $)	SFL Deepwater	SFL Hercules	SFL Linus
Loans granted	145	145	125
Loans outstanding at September 30, 2020	113	78	117

These loans are repayable in full by October 1, 2023 (SFL Deepwater), October 1, 2023 (SFL Hercules) and June 30, 2029 (SFL Linus) or earlier if the companies, inter alia, sell their drilling units.

Interest income received on these loans is as follows:

	Nine months ended
(in millions of $)	September 30, 2020	September 30, 2019
SFL Deepwater	3.8	3.8
SFL Hercules	2.7	2.7
SFL Linus	4.1	4.1

Long-term receivables from related parties

In February 2020, Frontline redeemed in full the loan notes received by the Company on the sale of four VLCCs Front Page, Front Stratus, Front Serenade and Front Ariake in 2018. The aggregate amount received on redemption was $11.0 million. At the time of the redemption, the loan notes had a carrying value of $11.0 million, resulting in a gain of $0.0 million on disposal.

In February 2020, Frontline Shipping redeemed in full the loan note received by the Company on the sale of one VLCC Front Circassia in 2018. The aggregate amount received on redemption was $8.9 million. At the time of the redemption, the loan note had a carrying value of $4.45 million, resulting in a gain of $4.45 million on settlement.

The Company received the following interest income on the loan notes:

	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Frontline Shipping	82	563
Frontline	97	682

Other related party transactions

In February 2020, the Company delivered the 2002-built VLCC Front Hakata to an unrelated third party for sale proceeds of $33.5 million. Furthermore, the Company agreed with Frontline Shipping to terminate the long-term charter for the vessel upon the sale and delivery, and paid $3.2 million compensation for early termination of the charter. A gain of $1.4 million was recognized on the sale.

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Dividends and interest income received from shares held in and secured notes issued by related parties:

	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Dividends received
ADS Crude Carriers	2,241	261
Frontline	2,376	—
Golden Close	—	1,989
Interest income received
NorAm Drilling	210	236

For additional information on the shares and corporate bonds held, refer to Note 5: Investments in debt and equity securities.

17.ALLOWANCE FOR EXPECTED CREDIT LOSSES

On January 1, 2020 the Company was required to adopt ASU 2016-13 which introduces a new credit loss methodology, requiring earlier recognition of potential credit losses. ASU 2016-13, was adopted using the modified retrospective method (see Note 1: Interim Financial Data). The provision is based on an assessment of the impact of current and expected future conditions, and at September 30, 2020 and is inclusive of the Company's estimate of the potential effect of the COVID-19 pandemic on credit losses. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on expected credit losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods. Changes in the allowance for expected credit losses may result in gains as well as losses recorded in income as changes occur in the balances of our financial assets and the risk profiles of our counterparties.

The following table presents the impact of the allowance for expected credit losses on the Company's balance sheet line items for the nine months ended September 30, 2020.

(in thousands of $)	Trade receivables	Other receivables	Related Party receivables	Investment in sales-type, direct financing leases and leaseback assets	Other long-term assets	Total
Balance at December 31, 2019	—	—	—	—	—	—
Impact of the adoption of ASU 2016-13 on retained earnings (Note 1)	19	580	206	4,799	10	5,614
Change in allowance recorded in 'other financial items'	98	237	(132)	(1,280)	4	(1,073)
Balance at September 30, 2020	117	817	74	3,519	14	4,541

The impact of the allowance for expected credit losses on the 100% owned subsidiaries accounted for as associates is disclosed in Note 9: Investments and deficit in associated companies.

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18.COMMITMENTS AND CONTINGENT LIABILITIES

Assets Pledged

(in millions of $)	September 30, 2020	December 31, 2019
Vessels and equipment, net	1,204	1,352
Investments in sales-type, direct financing leases and leaseback assets	385	401
Book value of consolidated assets pledged under ship mortgages	1,589	1,753

Assets with finance lease liabilities

(in millions of $)	September 30, 2020	December 31, 2019
Vessels under finance lease, net	707	714
Investments in direct financing leases	546	563
Total book value	1,254	1,278

The Company and its equity-accounted subsidiaries have funded their acquisition of vessels, jack-up rig 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 September 30, 2020, the Company ($1,498.9 million) and its 100% equity-accounted subsidiaries ($585.9 million) had a combined outstanding principal indebtedness of $2,084.8 million (December 31, 2019: $2,249.1 million) 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 West of England Ship Owners Mutual Insurance Association (Luxembourg), North of England P&I Association Limited, The Standard Club Europe Ltd, The United Kingdom Mutual Steam Ship Assurance Association (Europe) Limited and The Britannia Steam Ship Insurance Association 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.

Contractual commitments and contingencies in respect of SFL Deepwater, SFL Hercules and SFL Linus - wholly-owned subsidiaries of the Company - are contained in Note 9: Investments and deficit in associated companies.

Capital commitments

As at September 30, 2020 the Company has committed $8.0 million towards the procurement of scrubbers on nine vessels owned by the Company (December 31, 2019: $33.4 million), with installations expected to take place up to the end of 2020.

As at September 30, 2020 the Company has also committed to paying $5.8 million towards the installation of BWTS on 17 vessels from its fleet (December 31, 2019: $9.2 million), with installations expected to take place up to the end of 2022.

There were no other material contractual commitments as at September 30, 2020.

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.

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19.SUBSEQUENT EVENTS

On November 12, 2020, the Board of Directors of the Company declared a dividend of $0.15 per share, which will be paid in cash on or around December 30, 2020.

On November 11, 2020, the Company redelivered one VLCC to Hunter Group after declaration of a purchase option. Net proceeds of $58.4 million were received and debt of $47.5 million was repaid.

On October 20, 2020, Solstad Offshore ASA ("Solstad") held an extraordinary general meeting (“EGM”) to approve its proposed debt restructuring to partly compensate stakeholders for prior losses incurred in connection with their failure to meet obligations on certain loans and lease agreements. SFL received 4.4 million shares of Solstad and cash compensation of NOK10 million (approx. $1.1 million). Subsequent to the EGM, SFL sold approximately 4 million of these shares and recorded total proceeds of approximately NOK 20 million (approx. $2.2 million). The remaining investment represents less than 1% of the share capital of Solstad. The Company had previously disposed of its vessels that were leased to Solstad and had made a full provision against its loan note receivable from Solstad. As such, the fair value of the compensation received will be recorded in income in the fourth quarter.

Seadrill has publicly disclosed that they have appointed financial and legal advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness. Seadrill has also disclosed that it is currently engaged in discussions with its financial stakeholders with regards to a comprehensive restructuring of its balance sheet, and that such a restructuring may involve the use of a court-supervised process.

SFL is finalizing negotiations with Seadrill to enter into a forbearance agreement in respect of the leasing arrangements of its three drilling rigs. The forbearance agreement is subject to, among other things, Seadrill's entrance into a forbearance agreement with certain of its other creditors, in respect of Seadrill’s senior secured credit facility agreements, senior secured notes, and guarantee facility agreement. These discussions are ongoing and no agreement to any changes have been made as of the date of this report.

The purpose of the forbearance agreement is to allow Seadrill more time to negotiate on the terms of a comprehensive restructuring of its balance sheet, including Seadrill's leasing arrangements with us.

While Seadrill has paid full charter hire in the third quarter of 2020, no charter hire has been received so far in the fourth quarter of 2020. The non-payment of charter hire by Seadrill constitutes an event of default under the leases and under certain of the corresponding financing agreements. Unless cured or waived this could result in enforcement of the rights under such default provisions by our financing banks towards us, or by us towards Seadrill, or both. All the revenues from the sub-charters of the two drilling rigs, West Linus and West Hercules, are paid into accounts pledged to the SFL rig owning entities and its financing banks. As a result of the current default situation, Seadrill will need prior approval to access these funds.

Also, the non-payment of interest by Seadrill in the third quarter in relation to certain of their secured credit agreements constitute an event of default under the leases with SFL and certain of the corresponding financing agreements due to cross default provisions in the leasing arrangements and our corresponding financing agreements. Unless cured or waived, this could result in enforcement of the rights under such default provisions under the leasing arrangements and in our corresponding financing agreements.

While no assurances can be provided with regards to the terms of any forbearance agreement or the outcome of the Seadrill restructuring, the Company expects to continue to have constructive dialogue with Seadrill in their efforts to restructure their balance sheet.

SFL has agreed with its financing banks to repurchase the bank loan on the idle drilling rig West Taurus, at a discount where the consideration was approximately 62% of the outstanding balance, which as of the end of the third quarter was approximately $176.1 million. Thus, the loan is redeemed in full and the rig is debt free. SFL has also negotiated amended terms for the financing agreement relating to the harsh environment jack-up rig West Linus, pursuant to which SFL will provide a corporate guarantee for the entire $220.0 million loan amount, in exchange for more flexible financing terms. The rig is employed on a sub-charter by Seadrill to an oil major throughout 2028. The terms of the loan relating to West Hercules remain unchanged, with a loan balance of $189.8 million at the end of the third quarter. SFL guarantees $83.1 million, or 44% of this loan.

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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, 2019.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

for the nine months ended September 30, 2020

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 November 16, 2020, our assets consist of five crude oil tankers, 22 dry bulk carriers, 48 container vessels (including 11 chartered-in containerships), two car carriers, one jack-up drilling rig, two ultra-deepwater drilling units, two chemical tankers and two oil product tankers.

Since establishment, we have increased our customer base significantly and as at November 16, 2020, some of our long term customers included Frontline Shipping Limited (“Frontline Shipping”), Seadrill Limited (“Seadrill”), Golden Ocean Group Limited (“Golden Ocean”), Sinochem Shipping Co., Ltd. (“Sinochem”), 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”), Landbridge Group Co. Ltd and its subsidiaries (“Landbridge”) and Evergreen Marine Corporation (Taiwan) Ltd. and its affiliate Evergreen Marine (Singapore) Pte Ltd. (“Evergreen”).

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.

Risk Factors

You should carefully consider the risks and the discussion of risks in this report 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, 2019, as well as those described from time to time in the reports filed by the Company with the Commission.

The failure of the charterers of our drilling rigs to meet their obligations to us under our lease agreements, or material change to the terms of such agreements, could have a material adverse effect on our business, financial condition, results of operations and cash flows, ability to pay dividends to our shareholders and compliance with covenants in our credit facilities.

A significant portion of our net income and operating cash flows are generated from our leases with subsidiaries of Seadrill, which has publicly disclosed that it appointed financial and legal advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness.

Seadrill has publicly disclosed that they have appointed financial and legal advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness. Seadrill has disclosed that it is currently engaged in discussions with its financial stakeholders with regards to a comprehensive restructuring of its balance sheet, and that such a restructuring may involve the use of a court-supervised process. In the second quarter of 2020, Seadrill contacted the Company to commence discussions with regards to the leases on the three drilling units in our 100% owned subsidiaries accounted for as

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associates, SFL Deepwater, SFL Hercules and SFL Linus, which represented approximately $800 million of estimated fixed charter backlog as of September 30, 2020.

SFL is finalizing negotiations with Seadrill to enter into a forbearance agreement in respect of the leasing arrangements of its three drilling rigs. The forbearance agreement is subject to, among other things, Seadrill's entrance into a forbearance agreement with certain of its other creditors, in respect of Seadrill’s senior secured credit facility agreements, senior secured notes, and guarantee facility agreement. These discussions are ongoing and no agreement to any changes have been made as of the date of this report.

The purpose of the forbearance agreement is to allow Seadrill more time to negotiate on the terms of a comprehensive restructuring of its balance sheet, including Seadrill's leasing arrangements with us.

While Seadrill has paid full charter hire in the third quarter of 2020, no charter hire has been received so far in the fourth quarter of 2020. The non-payment of charter hire by Seadrill constitutes an event of default under the leases and under certain of the corresponding financing agreements. Unless cured or waived this could result in enforcement of the rights under such default provisions by our financing banks towards us, or by us towards Seadrill, or both. All the revenues from the sub-charters of the two drilling rigs, West Linus and West Hercules, are paid into accounts pledged to the SFL rig owning entities and its financing banks. As a result of the current default situation, Seadrill will need prior approval to access these funds.

SFL has agreed with its financing banks to repurchase the bank loan on the idle drilling rig West Taurus, at a discount where the consideration was approximately 62% of the outstanding balance, which as of the end of the third quarter was approximately $176.1 million. Thus, the loan is redeemed in full and the rig is debt free. SFL has also negotiated amended terms for the financing agreement relating to the harsh environment jack-up rig West Linus, pursuant to which SFL will provide a corporate guarantee for the entire $220.0 million loan amount, in exchange for more flexible financing terms. The rig is employed on a sub-charter by Seadrill to an oil major throughout 2028. The terms of the loan relating to West Hercules remain unchanged, with a loan balance of $189.8 million at the end of the third quarter. SFL guarantees $83.1 million, or 44% of this loan.

Also, the non-payment of interest by Seadrill in the third quarter in relation to certain of their secured credit agreements constitute an event of default under the leases with SFL and certain of the corresponding financing agreements due to cross default provisions in the leasing arrangements and our corresponding financing agreements. Unless cured or waived, this could result in enforcement of the rights under such default provisions under the leasing arrangements and in our corresponding financing agreements.

While no assurances can be provided with regards to the terms of any forbearance agreement or the outcome of the Seadrill restructuring, the Company expects to continue to have constructive dialogue with Seadrill in their efforts to restructure their balance sheet.

If an agreement with Seadrill relating to our leases is not reached for all or some of our drilling rigs, we may not receive the full or any contracted revenues from the leases and may be required to accept the redelivery of all or some of our three drilling rigs under the leasing arrangements. We may also be required to make payments under certain guarantees of the loan facilities relating to our drilling rigs.

We refer you to Note 9 of our unaudited condensed interim financial statements for the nine months ended September 30, 2020 for a discussion of our guarantees. Please refer to the section entitled “Recent and Other Developments—Other Developments—Seadrill Charters and Associate Debt” for additional discussion of certain amendments to financing agreements relating to SFL’s drilling rigs. In accordance with ASC 810, we determined that our rig entities are variable interest entities accounted for using the equity method, as we are not deemed to be the primary beneficiary of these entities. This accounting treatment may be subject to change if certain terms under the leases are amended, and the entities may be consolidated. The failure of the charterers of our drilling rigs to meet their respective obligations to us under our existing lease agreements, including a rejection of such leases which could lead to a redelivery of all or some the rigs, in the event Seadrill files for Chapter 11 bankruptcy protection (which could occur at any time) or any material changes to the commercial terms of such agreements, including reductions in the charter rates payable to us, or any material payments that we are required to make under our guarantees or any acceleration of our debt as a result of an event of default thereunder would likely have material adverse effect on our business, financial condition, results of operations and cash flows, ability to pay dividends to our shareholders and compliance with covenants in our credit facilities.

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Recent and Other Developments

Acquisitions and Disposals

Acquisitions

• In May 2020, we acquired and took delivery of a 2020-built 308,000 dwt VLCC - Landbridge Wisdom. Upon delivery, the vessel immediately commenced a seven year bareboat charter to Landbridge.

Disposals

• In February 2020, we delivered the 2002-built VLCC Front Hakata to an unrelated third party for sale proceeds of $33.5 million. Furthermore, we agreed with Frontline Shipping, to terminate the long-term charter for the vessel upon the sale and delivery and paid $3.2 million compensation to Frontline Shipping for early termination of the charter. In addition, we received $19.9 million in settlement of the loan notes due from Frontline Ltd ("Frontline") and Frontline Shipping which were received following the sale of Front Circassia, Front Page, Front Stratus, Front Serenade and Front Ariake in 2018. We recognized a gain of $4.4 million related to these transactions, in the first quarter of 2020.

• In February 2020, SFL agreed with Solstad to terminate the charter agreements for three of our offshore support vessels. Consequently, the Sea Cheetah and Sea Jaguar were delivered to an unrelated third party for gross sale proceeds of $3.0 million. The Sea Leopard has been sold for recycling to Green Yard AS and was delivered in May 2020. The recycling of the vessel will be carried out in accordance with the European Ship Recycling Regulation.

• In March 2020, SFL terminated the charters of, and delivered Sea Halibut and Sea Pike to an unrelated third party for gross sales proceeds of $1.5 million. Following these sales, the Company no longer owns any offshore support vessels.

•On August 18, 2020, the Company redelivered two VLCCs to Hunter Group ASA (“Hunter Group”) after declaration of purchase options. Net proceeds of $117.8 million were received and debt of $95.0 million was repaid.

•On November 11, 2020, the Company redelivered the last VLCC to Hunter Group after declaration of a purchase option. Net proceeds of $58.4 million were received and debt of $47.5 million was repaid.

Other Developments

Corporate Debt

In January 2020, the Company raised NOK 600 million, equivalent to approximately $67 million, through a new five year senior unsecured bond loan. The bond bears a coupon of NIBOR plus a margin.

During the first quarter of 2020, SFL bought back approximately $32.4 million of its own debt securities at a discount.

During April and May 2020, the Company generated cash proceeds of more than $21.1 million from the sale of forward contracts for shares in Frontline of approximately 2.0 million and repaid $21.1 million of short term debt during the second quarter of 2020.

At September 30, 2020, SFL held 1.4 million shares of Frontline which were subject to a forward contract due to expire in January of 2021. The transaction is accounted for as shares recorded in 'Investment in debt and Equity securities' pledged to creditors and a liability recorded in short-term debt of $15.6 million related to this contract at September 30, 2020. The Company is required to post collateral which was held as restricted cash as of September 30, 2020.

On June 22, 2020, the Company redeemed and repaid the remaining balance on its NOK 500 million bonds.

Share Options

In January 2020, stock options were exercised pursuant to the Company's Share Option Scheme. As a result, 6,869 new common shares were issued.

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Charter Extensions and Changes

In March 2020, we agreed to extend the charters on the three 9,300 to 9,500 TEU container vessels on time charter to Maersk Line. The initial five-year charters were extended by an additional 43-49 month period at a revised charter rate. As part of the charter agreement we agreed to finance the scrubbers to be installed on these vessels and we will receive a share of the cost savings achieved by the charterer on fuel costs from using the scrubbers.

In March 2020, we agreed to extend the charters on the seven 2002 built 4,100 TEU container vessels on charters to MSC. The initial charters were extended until 2025 at a revised charter hire and the effective date of the revised contracts was July 1, 2020.

Seadrill Charters and Associate Debt

Subsequent to quarter end, SFL has amended two of the corresponding financing agreements relating to its drilling rigs with its lenders. For the idle rig West Taurus, SFL has agreed with its lenders to purchase the entire related bank facility at approximately 62% of the nominal outstanding loan amount. Thus, the loan is redeemed in full and the rig is debt free. For the West Linus, SFL has agreed to provide a corporate guarantee for the whole related bank loan in exchange for significantly more flexible financing terms. The terms of the bank loan relating to West Hercules remain unchanged. Please refer to the Risk Factor above - “The failure of the charterers of our drilling rigs to meet their obligations to us under our lease agreements, or material change to the terms of such agreements, could have a material adverse effect on our business, financial condition, results of operations and cash flows, ability to pay dividends to our shareholders and compliance with covenants in our credit facilities” for further discussion.

Dividend Reinvestment Plan ("DRIP") and At-the-Market Sales Agreement ("ATM")

In April, 2020, the Board of Directors authorized a renewal of our dividend reinvestment plan, or DRIP, to facilitate investments by individual and institutional shareholders who wish to invest dividend payments received on shares owned, or other cash amounts, in SFL’s Common Shares on a regular or one time basis, or otherwise. On May 1, 2020, the Company filed a registration statement on Form F-3D (Registration No. 333-237970) to register the sale of up to 10,000,000 Common Shares pursuant to the DRIP. If certain waiver provisions in the DRIP are requested and granted pursuant to the terms of the plan, we may grant additional share sales to investors, from time to time, up to the amount registered under the plan.

In May 2020, we entered into an ATM with BTIG under which we may, from time to time, offer and sell new ordinary shares having aggregate sales proceeds of up to $100.0 million through the ATM. As of the date of this report we have issued a total of approximately 1.5 million shares under these plans.

Authorised Share Capital

At the Annual General Meeting of the Company held in August 2020, a resolution was passed to approve an increase of the Company’s authorized share capital from $2,000,000 divided into 200,000,000 common shares of $0.01 par value each to $3,000,000 divided into 300,000,000 common shares of $0.01 par value each by the authorization of an additional 100,000,000 common shares of $0.01 par value each.

Dividend

On May 20, 2020, the Board of Directors of the Company declared a dividend of $0.25 per share, which was paid in cash on or around June 30, 2020.

On August 18, 2020, the Board of Directors of the Company declared a dividend of $0.25 per share, which was paid in cash on or around September 30, 2020.

On November 12, 2020, the Board of Directors of the Company declared a dividend of $0.15 per share, which will be paid in cash on or around December 30, 2020.

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Other Income

On October 20, 2020, Solstad Offshore ASA ("Solstad") held an extraordinary general meeting (“EGM”) to approve its proposed debt restructuring to partly compensate stakeholders for prior losses incurred in connection with their failure to meet obligations on certain loans and lease agreements. SFL received 4.4 million shares in Solstad and cash compensation of NOK10 million (approx. $1.1 million). Subsequent to the EGM, SFL sold approximately 4 million of these shares and recorded total proceeds of approximately NOK 20 million (approx. $2.2 million). The remaining investment represents less than 1% of the share capital of Solstad. The Company had previously disposed of its vessels that were leased to Solstad and had made a full provision against its loan note receivable from Solstad. As such, the fair value of the compensation received will be recorded in income in the fourth quarter.

COVID-19 Pandemic

On January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization declared the outbreak a “public health emergency of international concern.” following the outbreak of a new strain of coronavirus,("COVID-19"), that was first identified in Wuhan, China in December 2019. The COVID-19 pandemic has reported to have spread to over 100 countries and efforts to stop the spread has caused restrictions on the movement of people and is affecting business operations worldwide including, but not limited to, supply chains, trade, employees (including the risk of sickness and crew change restrictions), travel including port restrictions and border closures, financial markets and commodity prices. The Company’s business could be materially and adversely affected by this pandemic and the Company is unable to reasonably predict the estimated length or severity of the COVID-19 pandemic on future operating results.

In response to the pandemic, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the pandemic, such as quarantines and travel restrictions. Such measures have caused and will likely continue to cause severe trade disruptions. The extent to which COVID-19 will impact the Company's results of operations and financial condition, including possible vessel impairments, will depend on future developments including new information which may emerge concerning the severity of the virus, any resurgence of the virus, and the actions to contain or treat its impact, among others. Accordingly, an estimate of the impact cannot be made at this time.

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Operating Results

	Nine months ended	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Total operating revenues	356,135	338,972
Gain on sale of assets and termination of charters, net	2,250	—
Total operating expenses	(290,247)	(221,411)
Net operating (loss)/ income	68,138	117,561
Interest income	11,835	15,005
Interest expense	(101,625)	(108,291)
Other non-operating items, net	(40,676)	28,124
Equity in earnings of associated companies	3,128	13,136
Net (loss)/ income	(59,200)	65,535

Net operating income for the nine months ended September 30, 2020, was $68.1 million, compared with net operating income of $117.6 million for the nine months ended September 30, 2019. The decrease was principally due to the impairment recorded of $80.5 million on seven Handysize bulkers and one offshore supply vessel in the first quarter of 2020. This was slightly offset by a gain of $2.3 million which was recorded on the sale of one VLCC on charter to Frontline Shipping and five offshore support vessels on charter to a subsidiary of Solstad Offshore. The overall net income/(loss) for the period decreased by $124.7 million compared with the same period in 2019 due to the impairment losses described earlier and losses recorded in other non-operating items, net, of $40.7 million recorded in the nine months ended September 30, 2020 principally related to net losses on marketable securities totaling $20.9 million and $23.8 million mark to market loss on derivatives.

Two ultra-deepwater drilling units and one harsh environment jack-up drilling rig were accounted for under the equity method during the nine months ended September 30, 2020 and the nine months ended September 30, 2019. The net income of the wholly-owned subsidiaries owning these assets are included under “equity in earnings/deficit of associated companies”, where they are reported net of operating and non-operating expenses.

Total operating revenues

Total operating revenues increased by 5% in the nine months ended September 30, 2020, compared with the same period in the previous year.

	Nine months ended	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Sales-type, direct financing lease and leaseback asset interest income	51,946	43,189
Finance lease service revenues	5,247	7,371
Profit sharing revenue and income	17,229	1,738
Time charter revenues	238,625	252,557
Bareboat charter revenues	7,164	18,111
Voyage charter revenues	32,291	13,794
Other operating income	3,633	2,212
Total operating revenues	356,135	338,972

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Sales-type, direct financing leases and leaseback asset interest income

Sales-type, direct financing lease interest income arose on our three crude oil tankers on charter to Frontline Shipping, one of which was sold in the nine months ended September 30, 2020, and 29 container vessels on long term charters to MSC. In addition, the Company has leaseback interest income from three feeder container vessels chartered to MSC and four VLCCs which are reported as leaseback assets, two of which were sold in the nine months ended September 30, 2020.

In general, sales-type leases, direct financing leases and leaseback assets interest income reduces over the terms of our leases; progressively, a lesser or capital proportion of the lease or loan rental payment is allocated to interest income and a greater proportion is treated as repayment of investment in the lease or loan. The 20% increase in sales-type/direct financing lease and vessel loan interest income in the nine months ended September 30, 2020 compared with the same period in 2019 was mainly a result of the acquisition of three feeder container vessels and three VLCCs in the second half of 2019, and one VLCC in the second quarter of 2020 which are reported as leaseback assets. In addition, the leases on seven 2002 built 4,100 TEU container vessels which had previously been treated as operating leases were extended in the third quarter of 2020 and these are now reported as sales type leases. This was partially offset by the sale of one VLCC in February 2020 which was on charter to Frontline Shipping, the sale of two VLCC leaseback assets after exercise of purchase options and the termination of the lease of one offshore support vessel previously on charter to a subsidiary of Solstad Offshore.

Direct financing 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 "direct financing 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 29% decrease in direct financing lease service revenues in the nine months ended September 30, 2020 compared to the prior nine months ended September 30, 2019 is due to the sale of one VLCC in February 2020 which was on charter to Frontline Shipping.

Profit share revenue and income

We recorded $15.2 million of profit share revenue in the nine months ended September 30, 2020 from the profit sharing arrangement with Frontline Shipping (nine months ended September 30, 2019: $1.5 million) as the Company is entitled to a 50% profit share above the base charter rates, calculated and paid on a quarterly basis.

We also have a profit share arrangement related to the eight Capesize dry bulk vessels on charter to a 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. $0.04 million profit share revenue was earned by these vessels in the nine months ended September 30, 2020 ($0.2 million in the nine months ended September 30, 2019).

We recorded $2.0 million from a fuel saving arrangement relating to five container vessels on charter to Maersk, following the installation of scrubbers. The Company is entitled to a share of the fuel savings dependent on the price difference between IMO compliant fuel and IMO non-compliant fuel. No fuel saving revenue was earned in the nine months ended September 30, 2019.

Time charter revenues

During the nine months ended September 30, 2020, time charter revenues were earned by 16 container vessels, two car carriers, 22 dry bulk carriers and two product tankers. The 6% decrease in time charter revenues for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was mainly due to one Suezmax tankerwhich was on time charter during 2019, that was on a voyage charter in 2020, and reduced charterhire on ten container vessels which were off hire when they drydocked for scrubber installations which led to reduced charterhire in the nine months ended September 30, 2020. This decrease in time charter revenues was partly offset by an increase in charterhire arising from the additional leap year day in 2020 as well as two 1,700 TEU container vessels which had previously been on bareboat charters up until December 2019, commencing time charters in the nine months ended September 30, 2020.

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Bareboat charter revenues

Bareboat charter revenues are earned by our vessels and rigs which are leased under operating leases on a bareboat basis. In the nine month periods ended September 30, 2020, these consisted of two chemical tankers and seven 4,100 TEU container vessels. The 60% decrease in bareboat charter revenues compared to the nine months ended September 30, 2019 is due to termination of charters and sale of the four offshore support vessels in the first quarter of 2020 and the termination of charters of two 1,700 TEU container vessels in December 2019, which are now on time charter. In addition, two 5,800 TEU container vessels have been recorded as direct financing leases from February 2019 and seven 4,100 TEU container vessels have been recorded as sales-type leases from July 1, 2020.

Voyage charter revenues

The 134% increase in voyage charter revenues for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was mainly attributable to the trading patterns of the two Suezmax tankers, Everbright and Glorycrown, trading in a pool together with two similar tankers owned by Frontline. During the nine months ended September 30, 2020, there was an increase in voyage charter revenue from Everbright, which returned to voyage chartering during the nine months ended September 30, 2020, an increase in voyage charter income from Glorycrown resulting from an improved market and the increase resulting from the trading patterns of certain Handysize dry bulk carriers which are sometimes chartered on a voyage-by-voyage basis.

Cash flows arising from sales-type leases, direct financing leases and leaseback assets

The following table analyzes our cash flows from the sales-type leases, direct financing leases and leaseback assets with Frontline Shipping, the Solstad Offshore charterer, MSC, Landbridge and the Hunter Group, and shows how they are accounted for: 

	Nine months ended	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Charter hire payments accounted for as:
Sales-type lease, direct financing lease and leaseback assets interest income	51,946	43,189
Service revenue from direct financing leases	5,247	7,371
Repayments from sales-type leases, direct financing leases and leaseback assets	42,382	32,103
Total sales-type, direct financing leases and leaseback asset payments received	99,575	82,663

Gain on sale of assets and termination of charters

In the nine months ended September 30, 2020, a net gain of $2.3 million was recorded, arising from the disposal of one crude oil tanker Front Hakata, five offshore support vessels Sea Cheetah, Sea Jaguar, Sea Halibut,Sea Pike and Sea Leopard in the first nine months of 2020 (see Note 2: Gain on sale of assets and termination of charters). The two VLCC's Hunter Atla and Hunter Saga saleproceeds equaled their carrying value at date of sale and therefore no gain or loss was recorded on the sale of these vessels.

No vessels were sold or charters were terminated in the nine months ended September 30, 2019.

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Operating expenses

	Nine months ended	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Vessel operating expenses	117,857	99,449
Depreciation	83,159	88,084
Administrative expenses	8,720	7,965
Vessel impairment charge	80,511	25,913
Total operating expenses	290,247	221,411

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 product tankers operated on a time charter basis and managed by related and unrelated parties, and also voyage expenses from two Suezmax tankers trading in a pool together with two similar tankers owned by Frontline and certain Handysize dry bulk carriers operating in the spot market during the nine months ended September 30, 2020.

Vessel operating expenses increased by $18.4 million for the nine months ended September 30, 2020, compared with the same period in 2019. The increase is mainly due to an increase in drydocking costs as 11 vessels were drydocked in the nine months ended September 30, 2020 compared to five in same period in 2019. In addition, two 1,700 TEU container vessels were on time charters in the nine months ended September 30, 2020, which were on bareboat charters in the comparable period. The increases in vessel operating expenses is partly offset by the decrease in vessel management expenses for vessels chartered to Frontline from the sale of Front Hakata in 2020.

Depreciation expenses relate to the vessels on charters accounted for as operating leases and on voyage charters. The decrease in depreciation of $4.9 million for the nine months ended September 30, 2020, compared to the same period in 2019, was mainly due to impairment booked on the two feeder size container vessels recorded in 2019, impairments booked on seven Handysize container vessels in the first quarter of 2020, the sale of the four offshore support vessels in the first quarter of 2020. In addition, depreciation expense decreased as a result of two 5,800 TEU container vessels being recorded as direct financing leases from February 2019 and seven 4,100 TEU container vessels being recorded as sales-type leases from July 1, 2020. The decrease was partially offset by an extra day's depreciation on the fleet for the 2020 leap year and increase in depreciation on seven owned vessels and three vessels under capital lease after BWTS and Scrubbers were fitted in 2020.

Following a review of the carrying value of our long-lived assets, and as a result of changes in expected future cash flows following the COVID 19 outbreak, impairment charges of $80.5 million were recorded against the carrying value of seven Handysize dry bulk vessels reported as owned vessels and one offshore support vessel reported as an 'asset held for sale' in the nine months ended September 30, 2020. In the nine months ended September 30, 2019, $25.9 million impairment charges were recorded on two feeder size container vessels and one offshore support vessel recorded in the third quarter of 2019.

Interest income

Total interest income decreased by $3.2 million for the nine months ended September 30, 2020, compared to the same period in 2019, mainly due to reduced interest income on loan notes from Frontline and Frontline Shipping, which were settled in February 2020 and lower interest received on bank and short term deposits due to lower cash balances held as well as reduced interest rates compared to comparative period.

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Interest expense

	Nine months ended	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Interest on US$ floating rate loans	22,647	31,363
Interest on NOK900 million senior unsecured floating rate bonds due 2019	—	906
Interest on NOK500 million senior unsecured floating rate bonds due 2020	1,007	2,653
Interest on NOK700 million senior unsecured floating rate bonds due 2023	3,375	3,276
Interest on NOK700 million senior unsecured floating rate bonds due 2024	3,208	1,559
Interest on NOK600 million senior unsecured floating rate bonds due 2025	2,152	—
Interest on 5.75% senior unsecured convertible notes due 2021	9,152	9,152
Interest on 4.875% senior unsecured convertible notes due 2023	5,250	5,423
Swap interest	2,350	510
Interest on finance lease obligations	44,943	47,288
Other interest	612	—
Amortization of deferred charges	6,929	6,161
Total interest expense	101,625	108,291

At September 30, 2020, the Company, including its consolidated subsidiaries, had total debt principal outstanding of $1.5 billion (September 30, 2019: $1.5 billion), $0.0 million (NOK0 million) outstanding principal amount of NOK floating rate bonds due 2020 (September 30, 2019: $55.0 million, NOK500 million), $74.8 million (NOK700 million) outstanding principal amount of NOK floating rate bonds due 2023 (September 30, 2019: $77.0 million, NOK700 million), $74.3 million (NOK695 million) outstanding principal amount of NOK floating rate bonds due 2024 (September 30, 2019: $77.0 million, NOK700 million), $57.7 million (NOK540 million) outstanding principal amount of NOK floating rate bonds due 2025 (September 30, 2019: $nil NOKnil), $212.2 million outstanding principal amount of 5.75% convertible notes due 2021 (September 30, 2019: $212.2 million), $141.9 million outstanding principal amount of 4.875% convertible notes due 2023 (September 30, 2019: $148.3 million) and $0.9 billion under floating rate secured long-term credit facilities (September 30, 2019: $0.9 billion).

NOK floating rate bonds due 2019 were fully repaid as at September 30, 2019 and NOK floating rate bonds due 2020 were fully repaid as at September 30, 2020.

The average three-month LIBOR was 0.79% in the nine months ended September 30, 2020 compared to an average of 2.46% in the nine months ended September 30, 2019. The decrease in interest expense associated with our floating rate debt for the nine months ended September 30, 2020, compared to the same period in 2019, is mainly due to loans on vessels that were refinanced at lower margins and decreased LIBOR rate in the period.

The decrease in interest expense on the NOK900 million and NOK 500 million floating rate bonds due 2019 and 2020 respectively is due to their redemption in March 2019 and June 2020 respectively. The increase in interest expense on the NOK700 million floating rate bonds due 2023 is due to the tap issue of NOK100 million in July 2019. The increase in interest expense on the NOK700 million floating rate bonds due 2024, NOK 600 million floating rate bonds due 2025 is due to their issuance in June 2019 and January 2020 respectfully. The decrease in interest expense on the 4.875% convertible notes is due to the buyback of $6.4 million in the first quarter of 2020.

At September 30, 2020, the Company and its consolidated subsidiaries were party to interest rate swap contracts, which effectively fix our interest rates on $1.2 billion of floating rate debt at a weighted average rate excluding margin of 1.76% per annum (September 30, 2019: $1.1 billion of floating rate debt fixed at a weighted average rate excluding margin of 2.63% per annum). The increase in swap interest expense is due to changes in swaps and also due to fluctuations in average LIBOR and NIBOR rates.

Other interest expense for the nine months ended September 30, 2020 of $0.6 million (nine months ended September 30, 2019: $nil) arose from the sale and subsequent forward contract to repurchase shares which is accounted for as a secured borrowing. (See Note 11: Short-Term and Long-Term Debt.)

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The above finance lease interest expense represents the interest portion of our finance lease obligations on four vessels on long-term time charter to MSC (September 30, 2019: four vessels) and seven vessels under a sale and leaseback transaction with an Asia based financial institution (September 30, 2019 : seven vessels) The decrease in interest in finance lease obligations for the nine months ended September 30, 2020, when compared to the same period in 2019 arose due to decreased finance lease obligations.

Other non-operating items

	Nine months ended	Nine months ended
(in thousands of $)	September 30, 2020	September 30, 2019
Gain/(loss) on repurchase of bonds and extinguishment of debt	1,081	1,802
Gain on settlement of related party loan note	4,446	—
Dividends received from related parties	4,617	2,250
(Loss)/gain on investments in debt and equity securities	(20,866)	39,842
Other financial items, net	(29,954)	(15,770)
Total other non-operating items	(40,676)	28,124

The loan notes for the Front Circassia, Front Page, Front Stratus, Front Serenade and Front Ariake sold in 2018 were settled in February 2020 with the Company receiving $19.9 million as settlement and recognizing a gain of $4.4 million on the settlement of notes.

Dividends received in 2020 were $2.4 million from Frontline and $2.2 million from ADS Crude Carriers. Dividends received in 2019 included a $2.0 million liquidation dividend from Golden Close on which the investment had previously been written down to zero, and $0.3 million from ADS Carriers.

The loss on investments and debt and equity securities is $23.1 million in the nine months ended September 30, 2020, which principally relates to a mark to market loss of $15.6 million on the forward contracts on Frontline shares, which was partly offset by realized gain of $2.3 million on the sale of 2.0 million of the Frontline shares in the second quarter of 2020. The gain on investment in debt and equity securities in the nine months ended September 30, 2019 principally relates to the unrealized gain of $39.3 million on the 11 million Frontline shares held at September 30, 2019.

In the nine months ended September 30, 2020, other financial items, net principally related to a loss of $23.8 million from negative mark-to-market adjustments on non-designated derivatives (nine months ended September 30, 2019, a loss of $7.2 million), a $7.5 million increase (nine months ended September 30, 2019, $1.0 million decrease) in net cash payments on non-designated derivatives including settlement of interest rate swaps of $4.5 million following the refinancing of the related debt facilities and an increase in the credit loss provision of $1.1 million (nine months ended September 30, 2019 : nil). In addition in the nine months ended September 30, 2019, the Company recorded an impairment loss of $8.4 million on the Sea Bear loan note after it concluded that the loan note may no longer be recoverable.

As reported above, certain assets were accounted for under the equity method in 2020 and 2019. 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 nine month periods ended September 30, 2019, and September 30, 2020, 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 and deficit in associated companies). The total equity in earnings of associated companies in the nine months ended September 30, 2020 was $10.0 million lower than in the comparative period in 2019 mainly due to recording of the allowance for expected credit losses of $10.7 million, principally in respect of SFL Deepwater which owns the West Taurus.

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Seasonality

A large part 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 and our dry bulk carriers on charter to the Golden Ocean 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 ten dry bulk carriers, two Suezmax tankers, two car carriers, two chemical tankers and two containerships trading in the spot or short term time charter market, and the effects of seasonality may affect the earnings of these vessels. Following existing and planned scrubber installations on seven container vessels on charter to Maersk, there are profit sharing arrangements on fuel cost savings with Maersk. The fuel savings will depend on the price difference between IMO compliant fuel and IMO non-compliant fuel.

Liquidity and Capital Resources

At September 30, 2020 we had total cash and cash equivalents of $205.8 million, excluding cash held in wholly owned non-consolidated subsidiaries, restricted cash of $8.6 million and investments in equity securities and corporate bonds of $33.0 million.

In the nine months ended September 30, 2020 we generated cash of $194.4 million net from operations, generated $74.0 million net in investing activities and used $257.0 million net in financing activities.

Cash flows provided by operating activities for the nine months ended September 30, 2020 increased to $194.4 million, from $191.3 million for the same period in 2019, due mainly to increased profit share of $15.5 million compared with the same period in 2019. Excluding this, the increase is due mainly to the timing of charter hire and trade and other receivables.

Investing activities provided cash of $74.0 million in the nine months ended September 30, 2020, compared to $120.6 million used in the same period in 2019. The increase in cash from investing activities for the nine months ended September 30, 2020 compared to cash used in 2019 is mainly due to inflow of cash of $152.5 million in the nine months ended September 30, 2020 from the sale of Hunter Alta, Hunter Saga, Front Hakata, Sea Cheetah, Sea Jaguar, Sea Halibut, Sea Leopard and Sea Pike compared to $nilin the comparable period, an inflow of cash of $21.1 million on sale of the forward contracts on Frontline shares compared to $nil in the comparable period, a decrease in the outflow of cash from 'Additions to direct financing leases and leaseback assets from $65.0 million compared to $91.1 million in 2019 and cash inflow of $2.0 million in 'Other investments and long term assets' in the nine months ended September 30, 2020, compared to a cash outflow of $20.0 million in the comparable period principally related to funding for collateral deposits on swap agreements. This is offset by an increase in the outflow of cash from $29.0 million in 2019 to $49.2 million used to fund capital improvements.

Net cash utilized from financing activities for the nine months ended September 30, 2020 was $257.0 million, compared to $144.8 million in the same period in 2019. Proceeds from debt drawn down in the nine months ended September 30, 2020 were $70.9 million higher than the comparable period in 2019. Payments in connection with the settlement of a cross currency swap following the repurchase and settlement of debt were $30.1 million lower than comparable period in 2019 and the cash dividend paid was $20.8 million lower than the comparable period in 2019. In addition, there were proceeds from sale of forward contracts on shares of $15.1 million for the nine months ended September 30, 2020. This was offset by an increase of $255.6 million in the cash utilized to prepay and repay long-term debt due to debt being refinanced and the sale of assets which were previously mortgaged.

Subsequent to quarter end, SFL has amended two of the corresponding financing agreements relating to its drilling rigs held by wholly owned non-consolidated subsidiaries with its lenders (see Note 19: Subsequent Events).

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, debt or hybrid securities from time to time.

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The following table presents an overall summary of our borrowings as at September 30, 2020.

	As at September 30, 2020
(in millions of $)	Outstanding balance
Unsecured borrowings:
5.75% senior unsecured convertible notes due 2021	212.2
4.875% senior unsecured convertible notes due 2023	141.9
NOK700 million senior unsecured floating rate bonds due 2023	74.8
NOK700 million senior unsecured floating rate bonds due 2024	74.3
NOK600 million senior unsecured floating rate bonds due 2025	57.7
Total bonds	560.9
Borrowings secured on Frontline shares	15.6
U.S. dollar denominated floating rate debt due through 2025	922.4
Total borrowings of Company and consolidated subsidiaries	1,498.9
Equity accounted subsidiaries: loan facilities secured with mortgages on rigs	585.9
Total borrowings	2,084.8
Finance lease liabilities	1,056.9
Total borrowings and lease liabilities	3,141.7

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 of Seadrill in 2018, the financial covenants on Seadrill were replaced by financial covenants on a 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. (Please see Note 19: Subsequent Events and refer to Risk Factor above - “The failure of the charterers of our drilling rigs to meet their obligations to us under our lease agreements, or material change to the terms of such agreements, could have a material adverse effect on our business, financial condition, results of operations and cash flows, ability to pay dividends to our shareholders and compliance with covenants in our credit facilities” for further discussion.)

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 November 16, 2020, excluding three container vessels and two chemical tankers. In addition, one of the three rigs in our equity accounted subsidiaries is unencumbered at November 16, 2020.

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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 availability of financing and refinancing, as well as the Company’s ability to obtain such financing or refinancing in

the future to fund capital expenditures, acquisitions and other general corporate activities and the Company's ability to

comply with the restrictions and other covenants in its financing arrangements;

▪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;

▪availability of skilled workers and the related labor costs;

▪the Company’s dependence on key personnel, adequacy of insurance coverage, and its ability to obtain indemnities from

customers, changes in laws, treaties or regulations;

▪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 and the effects of new products and new technology in the Company’s industry;

▪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;

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▪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;

▪compliance with governmental, tax, environmental and safety regulation, any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) or other applicable regulations relating to bribery;

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

▪the impact of the discontinuance of LIBOR after 2021 on any of the Company’s debt that references LIBOR in the interest rate;

▪the volatility of the price of the Company’s common shares;

▪the Company’s incorporation under the laws of Bermuda and the different rights to relief that may be available compared

to other countries, including the United States;

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

▪the impact of any restructuring of the counterparties with whom the Company deals, including any potential restructuring, including filing for Chapter 11 bankruptcy protection, by Seadrill;

▪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, including any changes to energy and environmental policies and changes attendant to trade conflicts;

▪the length and severity of the ongoing coronavirus outbreak (COVID-19) and its impact on the demand for commercial

seaborne transportation and the condition of the financial markets;

▪potential disruption of shipping routes due to accidents; and

▪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, 2019, 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: November 16, 2020

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

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