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Retail Opportunity Investments Corp (ROIC) Q1 2019 Earnings Call Transcript

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Retail Opportunity Investments Corp  (NASDAQ: ROIC)
Q1 2019 Earnings Call
April 25, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Retail Opportunity Investments 2019 First Quarter Conference Call. Participants are currently in listen-only mode. Following the Company's prepared comments, the call will be opened up for questions.

Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of federal securities laws. Although, the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations.

Information regarding such risks and factors is described in the Company's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K. Participants are encouraged to refer to the Company's filings with the SEC regarding such risks and factors, as well as for more information regarding the Company's financial and operational results. The Company's filings can be found on its website.

Now, I would like to introduce Stuart Tanz, the Company's Chief Executive Officer.

Stuart Tanz -- Chief Executive Officer

Thank you and good morning, everyone. Here with me today is, Michael Haines, our Chief Financial Officer and Rich Schoebel, our Chief Operating Officer.

We are pleased to report that the Company had another active and productive quarter. Similar to our record-setting leasing in the first quarter of last year, we again had a very busy and successful first quarter this year as demand for space continues to be strong. We signed a record number of leases in terms of first quarter activity. We also achieved very strong releasing spreads. In fact, the largest first quarter releasing spreads on record for ROIC. Additionally, in step with our strong leasing, same-center cash NOI growth was a solid 2.9% for the first quarter. Safe to say, we are off to a very good start in 2019 with property operations.

We are also off to a good start in terms of our strategic initiatives aimed at enhancing the long-term competitive strength and intrinsic value of our business. Specifically, in terms of our initiative to dispose of certain non-core properties, during the first quarter we sold one property for $17 million. It was a property up in the Portland market that was one of the first properties that we acquired back in 2010 as a value-add reposition play. Since acquiring the property, we fully retenanted and remerchandised the center increasing the NOI substantially along the way. While the center was a stable property, it was not grocery anchored and had limited growth potential from here, given its lease expiration profile going forward. So we believe the time was right to sell the center.

Additionally, we currently have agreements in hand to sell another three properties, together, totaling $57 million. We expect to complete the sales over the next 60 to 90 days. Two of the centers are located in the Sacramento market. Upon the completion of these two sales, we will then be down to just two remaining properties in Sacramento, which we hope to put on the market later this year.

Turning to our initial densification efforts, where we are currently focusing on two opportunities, we are making good headway with both the entitlement process and with lining up several terrific joint venture partners. Specifically at Crossroads, with respect to Phase 2 densification project, after carefully reviewing JV proposals from a number of excellent multifamily developers, we have selected a great partner that has developed a number of successful multifamily properties in the Seattle market.

Additionally, with respect to the second densification project, where we are looking to add a high-end senior housing multifamily component to one of our shopping centers in the San Francisco market, we have also selected another great partner that is a very seasoned, highly successful senior housing developer and operator. In terms of the entitlement process, both projects are currently tracking on similar timetables, such that we hope to obtain approvals later this year and be in a position to break ground in 2020 on both projects.

Lastly, in terms of the partnership arrangements, both deals will be 50/50 joint ventures. We will be contributing our excess land for a 50% stake. On both projects, our land has been valued between $11 million and $12 million. As the developments are currently planned, each project will have around 200 high-end apartment units and between 10,000 to 15,000 square feet of retail space. Based on preliminary budgeting, each development is projected to cost in the $70 million range, which includes our land value. Bear in mind though that the plans and costs will evolve as we move through the entitlement process. Once that's completed, we will have a clear picture of the scope and the projected cost of each development.

Now, I'll turn the call over to Michael Haines to take you through our financial results for the first quarter. Mike?

Michael Haines -- Chief Financial Officer

Thanks. Stuart. For the three months ended March 31, 2019, the Company had $76.1 million in total revenues and $30.3 million in GAAP operating income as compared to $74.4 million in total revenues and $27.3 million in GAAP operating income for the first quarter of 2018. GAAP net income attributable to common shareholders for the first quarter of 2019 was $13.3 million equating to $0.12 per diluted share as compared to GAAP net income of $10.7 million or $0.09 per diluted share for the first quarter of 2018.

In terms of funds from operations, for the first quarter of 2019, FFO totaled $36.7 million equating to $0.29 per diluted share as compared to FFO of $37 million or $0.30 per diluted share for the first quarter of 2018. There are several items worth noting that impacted our first quarter results.

On the income side, there was a $2.6 million gain included in net income as a result of the property sale that Stuart discussed. And then included in both net income and FFO was $3.5 million of GAAP below market lease rental revenue recognition, the bulk of which was associated with a redevelopment parcel that we acquired in 2018, whereby we terminated the below market ground lease at year-end.

On the expense side, during the first quarter, we had $283,000 of additional interest expense in connection with locking the interest rate on our $300 million term loan, such that it's now fixed for the next three years at a very low 3.1%. Additionally, we had $367,000 of added G&A expense during the first quarter in connection with the new accounting rule that requires certain leasing costs to now be expensed that in previous years were capitalized.

In addition to the leasing cost change, there is another accounting change regarding bad debt. Starting in 2019, bad debt is now classified as an offset to revenue instead of being included in operating expenses as it had been historically. While this change is not necessarily apparent when looking at our income statement, it's clear when looking at our same-store NOI table. Historically, bad debt was shown as a separate line item under operating expenses. But starting this year, we are now required to show bad debt as part of revenues. Bear in mind that for the remainder of this year, when you compare this year's quarter to last year's comparative quarter, you will see this (inaudible) to where the bad debt line item falls.

With respect to the first quarter, the Company had $624,000 of bad debt. Although it was notably higher as compared to the first quarter of last year, the $624,000 is well below our bad debt budget, which is 1.5% of total revenue. Additionally, notwithstanding the higher number, we still achieved a solid 2.9% increase in same center NOI for the first quarter.

Turning to the Company's balance sheet. At March 31, the Company had a total market cap of approximately $3.6 billion with roughly $1.5 billion of debt outstanding, of which the vast majority is fixed rate debt as well as being unsecured. Specifically, 90% of our debt is effectively fixed-rate. In fact, the only floating rate debt we currently have is our credit line, which had $142 million outstanding at March 31. And over 94% of our debt is unsecured today and 95% of our GLA is unencumbered. Additionally, the Company's interest coverage remained steady at a solid 3.4 times for the first quarter.

Lastly, in terms of FFO guidance, thus far we are on track with our previously stated guidance of achieving FFO between $1.11 and $1.15 per diluted share for the full year 2019.

Now I'll turn the call over to Rich Schoebel, our COO, to discuss property operations. Rich?

Rich Schoebel -- Chief Operating Officer

Thanks Mike. As Stuart highlighted, demand for space across our portfolio is strong. We continue to work hard to make the most of it and our results reflect that. For the 19th consecutive quarter, we again maintained our portfolio lease rate above 97%. In fact, we achieved a new first quarter record high lease rate of 97.8%.

Breaking that down between anchor and shop space, our anchored space continues to be 100% leased and we achieved a new record high in terms of our shop space, finishing the quarter at 95.3% leased. What's important to note is that while our portfolio continues to be effectively fully leased, we are not sitting idle. In fact, during the first quarter, we executed 108 leases, which is a new first quarter record.

Our ongoing success is attributable to our proactive approach, which is particularly important in today's changing and challenging retail environment. We continue to be very proactive in seeking out ways to improve tenancies or what we internally refer to as our tenant optimization strategy that focuses on opportunities such as shifting certain tenants and rightsizing others in order to expand existing key tenants as well as introducing more and more new destination, Internet-resistant, service-based retailers to our portfolio.

Just to highlight a couple of examples. During the first quarter, at one of our shopping centers in the San Francisco market, we rightsized a long-standing existing tenant, which in doing so will serve to enhance their productivity and then we leased the newly created space to a terrific healthcare provider that is one of the leading providers in the San Francisco market today. Another good example, at one of our centers in Seattle, we are significantly expanding an existing, very popular and successful destination anchor tenant and along with substantially expanding their space, we also renewed their existing lease for another 10 years.

While focusing on our tenant optimization strategy, we are also equally focused on capitalizing on the strong demand for space to drive rents higher. Again, our results reflect that. In fact, we achieved record first quarter leasing spreads, both on new leases and on renewals. Specifically, we achieved a 30.7% increase in same space comparative rents on new leases and we achieved a 12.4% increase on renewals.

Our record first quarter releasing spreads are indicative of the location and demographic attributes of our portfolio as well as the strength and ongoing performance of our existing tenants. Additionally, to achieve these results is particularly noteworthy especially as it relates to new leasing activity given that the first quarter is traditionally a slow period following the holiday season and is typically challenging in terms of getting new lease deals done.

With respect to the economic spread between leased and build space, we've added a new page to our quarterly supplemental that summarizes leased versus build activity. To take you through the numbers, at year-end the spread was 2.8% representing approximately $6.8 million in additional incremental annual rent on a cash basis. During the first quarter, tenants representing about $2 million of that incremental $6.8 million started paying rent of which $283,000 of the $2 million was received in the first quarter. Taking the $2 million into account together with our leasing activity during the first quarter, as of March 31, the spread was 2.6% representing approximately $6.5 million, which we expect will come online as we move through 2019.

Now I'll turn the call back over to Stuart.

Stuart Tanz -- Chief Executive Officer

Thanks, Rich. Before opening up the call for your questions, I would like to make a few comments regarding what we are seeing on the acquisition front. Just a few months back, the market was starting to become a bit more favorable again, speaking from of buyer's perspective in terms of sellers becoming more reasonable as to pricing expectations. However, with the recent drop in interest rates, sellers have again raised the bar. Adding to it, open market buyers continue to be very aggressive in pursuing grocery-anchored centers and A-plus markets on the West Coast, such that we continue to see deals getting done at five caps with even some at sub-five caps.

The drop in interest rates are impacting the private side as well. As an example, recently we were pursuing an interesting off-market portfolio opportunity, a deal that we looked at very closely two years ago but were unable to agree on terms at that time. In the first quarter, the private owner came back to us and we started up discussions again. Things were progressing until interest rates dropped and the private owner then pulled back believing they can achieve a higher valuation than what we were willing to pay.

Needless to say, the acquisition environment continues to be a challenge and difficult to gauge in terms of predicting where it could be headed. That said, we continue to keep a very careful watch on the market and continue to proactively seek out opportunities through our off-market relationships. While it's a frustrating market for us on the one hand, on the other hand, the fact that grocery-anchored shopping centers in prime locations on the West Coast continue to be in high demand bodes well for our business.

As we wait patiently to see how the acquisition market evolves, in the meantime, as Rich said, we are not sitting idle. We continue to focus on operating our portfolio at the highest level, while also implementing our disposition strategy as well as moving forward prudently with our densification initiatives.

Now we'll open up the call for your questions. Operator?

Questions and Answers:

Operator

(Operator Instructions). Our first question comes from the line of Christine McElroy from Citi. Your line is now open.

Christine McElroy -- Citi -- Analyst

Hi. Good morning, everyone. Hey, Stuart, with regards to the comments you just made, seeing an increase in private market demand for shopping centers, do you think that that could potentially translate into more portfolio deals trading and potentially even more M&A in the shopping center REIT space?

Stuart Tanz -- Chief Executive Officer

From a portfolio standpoint, I believe it might help accelerate seen more from an M&A perspective now.

Christine McElroy -- Citi -- Analyst

Okay. And then just you had talked about the two initial projects slated for densification. I think you said $70 million each for a total of $140 million. I think you had originally talked about three projects for $200 million at 7% yield. Can you just discuss what happened with the third project and how yield projections may have changed?

Stuart Tanz -- Chief Executive Officer

Sure. While in terms of the redevelopment site, which is the third project that's outside of San Francisco as well, we are in the current stages, early stages of evaluating what will be best course of action for redeveloping the site. We are also having preliminary discussions with the city to make sure that we have their input and support.

There are several different directions that we could go with this site and we want to make sure that we get it right. We should have a much clearer picture on this site in the coming months. In terms of yields on the two projects, the yields, unleveraged yields are projected to be in the 8% to 10% range. Although bear in mind, the scope and cost will evolve as we move through the entitlement process.

So the projected yield will evolve as well. But additionally, given that the land we are contributing is excess land at each of our centers, the cash flow that we are going to receive as a 50% partner versus the dollars that we will actually investment in each project, which will be minimal, our annual return will be a multiple of that investment.

Christine McElroy -- Citi -- Analyst

Okay. Thanks.

Stuart Tanz -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Jeremy Metz from BMO Capital Markets. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning, Jeremy.

Jeremy Metz -- BMO Capital Markets -- Analyst

Hey, guys, good morning. Just sticking quickly with the densification. In terms of the two residential projects you outlined, you mentioned each having roughly 10,000 to 15,000 square feet of retail, will ROIC own the retail outright or will that also be split in the JV?

Stuart Tanz -- Chief Executive Officer

Right now, it looks like we will own it outright on both projects.

Jeremy Metz -- BMO Capital Markets -- Analyst

And is that part of the $70 million of costs that you outlined?

Stuart Tanz -- Chief Executive Officer

Yes.

Jeremy Metz -- BMO Capital Markets -- Analyst

All right. And then in terms of the flow of NOI, are you still expecting to get some pop here in the back half of the years as some of those larger anchor repositioning deal you undertook in the back half of '18 come back online? And as we think through the cadence of same-store NOI, is the 2.9% to start relative to the 2% to 3% guidance, should we expect it to dip here in 2Q and 3Q before sort of popping back as those anchored leases come on and start paying rent, assuming that's also on track?

Stuart Tanz -- Chief Executive Officer

The back end of the year continues to look very strong. So we do expect maybe a little small dip in Q2, but right now, the year is looking quite strong as it relates to where we've guided the Street.

Jeremy Metz -- BMO Capital Markets -- Analyst

Okay. And those anchor repositionings, those are all still on track? No change in timing or your expectations on those?

Stuart Tanz -- Chief Executive Officer

Yes. They are still all on track, correct.

Jeremy Metz -- BMO Capital Markets -- Analyst

All right. Thanks, guys.

Stuart Tanz -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning, Todd.

Michael Haines -- Chief Financial Officer

Hi, Todd.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. Good morning. First question, following up on the six anchor lease expirations that you talked about last quarter. You know you mentioned that two were renewing, one would be negotiated at fair market value rent. Can you just provide an update on the leasing activity there for the six anchor lease expirations that you are handling this year?

Stuart Tanz -- Chief Executive Officer

Sure. Yes. We are still moving forward with the renewal of these anchor leases. As we sit here today, it looks like all of these but one will renew. There is one anchor lease that is significantly below market that we are in the process of getting back, I believe, about the middle of the year and we've already lined up a replacement tenant at a much higher rent. So things are on track as it relates to the anchor expirations.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And would you expect the replacement tenant to begin paying rent in 2019 for that space?

Stuart Tanz -- Chief Executive Officer

No. And our budgets reflect that.

Michael Haines -- Chief Financial Officer

Yes. We model that, Todd, in terms of the tenants that are going out.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then, Rich, you commented that leasing was strong and occupancy held up despite what's usually a relatively soft post-holiday season first quarter and I know there isn't a lot of room on the upside, but do you expect to see occupancy grind higher a bit from here or are you anticipating that your lease and occupancy rates will dip a little bit into the second quarter?

Rich Schoebel -- Chief Operating Officer

One thing I know for sure is, Stuart is not going to let me rest until it's over 100%. No, I mean, we think that the occupancy will remain in this range throughout the year and we are working hard to fill up that last fractional vacancy that's out there. But as you know, there will always be a bit of a churn at the top end and we expect it to remain in that range for the balance of the year.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And just lastly, Stuart, on the dispositions, you talked about what's under contract here. I think you mentioned that there might be another asset in Sacramento that you might look to list on the market a little later. I am just curious as we think about 2020 and beyond, do you anticipate selling more property once you complete this disposition? Or is this sort of a one and done process for the Company?

Stuart Tanz -- Chief Executive Officer

I wouldn't say it's never a one and done process. We're constantly looking at our portfolio and looking at assets where NOI, where internal growth is slowing down. So certainly as we've articulated today, we are moving forward with the goal of getting out of Sacramento, but that doesn't mean we are not going to sell anything else. It really depends on the other side of that equation, which is really what we are finding to buy. The more accelerated we get on the acquisition front, the more acceleration you may see on the disposition side as well.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And has the demand for assets, it seems like it's improving in certain markets for certain types of product. As you move through this process, are you seeing that for the assets that you are you looking to sell? Or would you say that pricing is generally consistent with your expectations?

Stuart Tanz -- Chief Executive Officer

Pricing has gotten better, we have found in terms of what we are selling. It has exceeded our expectations. So the buyer demand has increased. I think, again, as you heard in my comments, I think a lot of that is related to the drop in interest rates. However, as we know that can change too. But going forward, we don't see -- we see buyer demand certainly picking up, not tailing off for the type of product that we own.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Thank you.

Stuart Tanz -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Wes Golladay from RBC Capital Markets. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning, Wes.

Wes Golladay -- RBC Capital Markets -- Analyst

Hey, good morning, guys. Sticking with the disposition side. For the non-core assets, have those caught a bit with the interest rates falling? Have cap rates compressed at all?

Stuart Tanz -- Chief Executive Officer

Yes.

Wes Golladay -- RBC Capital Markets -- Analyst

Is it anything meaningful like 25 basis points or 50 basis points for the high-yielding stuff?

Stuart Tanz -- Chief Executive Officer

I would tell you 25 basis points. Now again, I am referring to assets that have a grocer and/or drug. So again I think it has to do with the product type or the segment of retailing, as you would say.

Wes Golladay -- RBC Capital Markets -- Analyst

Okay. And then we look to the full year FFO guidance, you, obviously, are going to start these two projects maybe sometime late this year, early next year. Are we going to lose any NOI as we get those projects ready to go?

Stuart Tanz -- Chief Executive Officer

No NOI loss.

Wes Golladay -- RBC Capital Markets -- Analyst

Okay. And then, OK, I think that's it for me. Thank you very much.

Stuart Tanz -- Chief Executive Officer

Great. Thank you, Wes.

Operator

Our next question comes from the line of Michael Mueller from JPMorgan. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning, Mike.

Michael Mueller -- JPMorgan -- Analyst

Hey. Good morning. Couple questions. So going to your comments, I know the economics will shift around a little bit, but you said about $70 million a project and right now you are 50%. But if you are owning the retail outright and then doing 50% on the resi, would you have more than the 50% of each $70 million? How should we think about that?

Michael Haines -- Chief Financial Officer

Hi Mike, it's Mike. The retail component is a relatively small percentage of the total deal. And if we are going to own it outright, the way it is looking at right now, we are in the price capital funding that piece of that. So that's not a big number because we are talking 10,000 to 15,000 fee per project.

Michael Mueller -- JPMorgan -- Analyst

Okay. So we should dumb it down and say of the $70 million, you are going to be $35 million of each and $11 million to $12 million of that's going to be your land contribution?

Michael Haines -- Chief Financial Officer

Right. Per project.

Stuart Tanz -- Chief Executive Officer

Per project.

Michael Mueller -- JPMorgan -- Analyst

Per project. Yes. Okay. And then going to your comments on dispositions, I guess after you sell the two Sacramento projects, how big is the pool of what you would consider selling or like to sell down the road and what will be the trigger to kind of get you to further accelerate the dispositions?

Stuart Tanz -- Chief Executive Officer

Again, I think the trigger will be what we see on the other side of that equation, which is growing the company and as we do quite often look at the internal growth profile asset by asset. And so that's really where we are focused on the disposition side. But it might accelerate. It might accelerate. It just depends on what we see on the other side.

Michael Mueller -- JPMorgan -- Analyst

Okay. That's it. Thank you. Appreciate it.

Stuart Tanz -- Chief Executive Officer

Great. Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Omotayo Okusanya from Jefferies. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning.

Michael Haines -- Chief Financial Officer

Good morning.

Omotayo Okusanya -- Jefferies -- Analyst

Good morning, gentlemen. The densification projects, I believe you mentioned one of the JV partners was more of a senior housing developer. I am just curious why choose them to build your resi project?

Stuart Tanz -- Chief Executive Officer

The reason why is because from an entitlement perspective, the city is really embracing the fact that they are going to -- the need for senior housing is much greater than 'multifamily and the process of getting entitlements will be a lot quicker given that need. That's really what's driving the senior housing plus it will be less parking and less overall density. And all of that bodes very well from the city's perspective in terms of endorsing the project and more importantly speeding up the entitlement process.

Omotayo Okusanya -- Jefferies -- Analyst

But does it bode well for the rest of retail that's there in regards to...

Stuart Tanz -- Chief Executive Officer

Well, it's senior housing. It's independent living. So it's really essentially residential projects. This is not assisted or anything like that. This is independent living.

Omotayo Okusanya -- Jefferies -- Analyst

Got you. Okay. That's helpful. And then Mike, if you just talk a little bit about in the first quarter there was a bit of a bump in the same-store OpEx growth. Could you just talk a bit about kind of what some of the contributors to that were?

Michael Haines -- Chief Financial Officer

On the operating expense side, there really was nothing unusual or unexpected that occurred in the first quarter other than an increase, we had some increase relating to snow removal costs at our shopping centers up in the Pacific Northwest. So we had those filing under unusual. Very large snowstorm that hit Portland and Seattle in February. Aside from that, nothing else that was really unexpected. Bear in mind that the increase in operating expenses is largely recouped through tenant recoveries, Tayo.

Omotayo Okusanya -- Jefferies -- Analyst

Right. Okay. Great. Thank you.

Stuart Tanz -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Craig Schmidt from Bank of America. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning, Craig.

Craig Schmidt -- Bank of America -- Analyst

Good morning. I had a question on the lease to build and thanks for adding that to the supplemental. It sounded like through your comments in the beginning of the call that you think you are going to release most of the $6.5 million ABR. I was wondering, where do you think you are going to could end the year in terms of leasing spreads that now stands at 2.6%?

Stuart Tanz -- Chief Executive Officer

I think as you've seen historically, it's been sort of in this similar range and, obviously, as we are doing new leasing, we are adding to that pool as NOI is coming online. So for now, we see it staying in this range by the end of the year, with the spread coming online that's currently there but being replaced with new spreads throughout the year.

Craig Schmidt -- Bank of America -- Analyst

Great. Thank you.

Stuart Tanz -- Chief Executive Officer

Thanks, Craig.

Operator

Our next question comes from the line of Chris Lucas from Capital One Securities. Your line is now open.

Stuart Tanz -- Chief Executive Officer

Good morning, Chris.

Michael Haines -- Chief Financial Officer

Hey, Chris.

Chris Lucas -- Capital One Securities -- Analyst

Hey. Good morning guys. Just a quick one. On the bad debt expense for the quarter, was there anything specific about it? And then secondarily, how much rent are we talking about associated with that bad debt, annualized rent?

Michael Haines -- Chief Financial Officer

I am not sure I got the second part. There was nothing really unusual on the bad debt side. It just fluctuates based on what's going on with the tenant base. But there wasn't anything unusual, necessarily to speak of. As far as those specific ABR that it relates to, I don't know if I have got that in front of me handy.

Stuart Tanz -- Chief Executive Officer

We could follow-up.

Michael Haines -- Chief Financial Officer

Yes. We could follow up with you after the a call when I get back to the office.

Chris Lucas -- Capital One Securities -- Analyst

Okay. That's all right, then. Yes. So then I guess one other quick follow-up just on the FAS 141 contribution for the quarter, is that related to the Kmart? The language was a little different than you used in the fourth quarter call. So just kind of make sure that we are tying it together.

Michael Haines -- Chief Financial Officer

Yes. The $3.5 million I think I mentioned in the script was primarily became a parcel we got back that was terminated at the end of the year. There was another tenant that added a little to it. But the bulk of it was the Kmart lease.

Chris Lucas -- Capital One Securities -- Analyst

Okay. Great. Thank you. Appreciate it.

Michael Haines -- Chief Financial Officer

Thanks, Chris.

Operator

(Operator Instructions) We have a follow-up question from the line of Christine McElroy from Citi. Your line is now open.

Christine McElroy -- Citi -- Analyst

Hi guys. Just a couple of follow-ups. Just realized there's a lot of moving parts in terms of your opportunities to sell assets and acquire as well. But you did increase your debt paydown assumption a little bit. Maybe you could update us on your leverage goals and how you see that progressing through the year?

Stuart Tanz -- Chief Executive Officer

Well, I think the debt paydown, if I am correct, was really the acceleration on the disposition side. If I am correct, Mike.

Michael Haines -- Chief Financial Officer

Yes.

Stuart Tanz -- Chief Executive Officer

We set it up and we increased that in terms of guidance. In terms of -- I mean, outside of our net debt to EBITDA, the rest of the balance sheet is in really good shape and the goal would be there to continuing to move that number down over time, which we believe we'll be able to achieve through cash flow and through the sale of assets, a combination of both.

Christine McElroy -- Citi -- Analyst

Okay. And then just -- go ahead.

Stuart Tanz -- Chief Executive Officer

Well, I was going to say, the mid-sixes is where we want to target, Christine, in terms of the net debt to EBITDA.

Christine McElroy -- Citi -- Analyst

Okay. Thanks. And then just realize there's a lot going on in terms of the remerchandising and sort of proactive retenanting activity. Was there any sort of meaningful lease term income that flowed through Q1?

Michael Haines -- Chief Financial Officer

No. Not that I can think of, no.

Christine McElroy -- Citi -- Analyst

Okay. And then just lastly on the rental revenue side, understanding that you adopted the practical expedient related to the non-lease revenue. But maybe you could tell us with regard to just from a modeling standpoint, could you break down recoveries for us? What recoveries would have been of the $75 million of rental revenue under the old reporting methodology?

Michael Haines -- Chief Financial Officer

Yes. I saw your note last night about that. We have historically mirrored our income statement and the supplemental package to that as a 10-Q or the 10-K. In our case, because our same-store pool is almost the entire population, it's pretty much there. But I can follow-up with you after the call. And I am also going to look at what everyone else in the peer group is saying as far as splitting it out in their supplemental and i am happy to provide a little color going forward, it will help you.

Christine McElroy -- Citi -- Analyst

Yes. My understanding is that most of the peers will continue to break it out even though it's not on the face of the GAAP income statement. It will still be in the supplemental. So hopefully that will be something to consider going forward. Thank you so much.

Michael Haines -- Chief Financial Officer

Yes. No problem. Thanks, Christine.

Operator

And there are no further questions at this time. You may continue.

Stuart Tanz -- Chief Executive Officer

Thank you. In closing, again, like to thank all of you for joining us today. If you have any additional questions, please contact Mike, Rich or me directly. Also you can find additional information in the Company's quarterly supplemental package, which is posted on our website. And lastly for those who are attending ICSC Convention in Las Vegas next month, please stop by our booth, which will be in the South Hall at the corner of [ N. Street ] and 50th Avenue. We hope to see you there. Thanks again and have a great day, everyone.

Operator

And this concludes today's conference call. Thank you for your participation. Have a great day and you may now disconnect.

Duration: 36 minutes

Call participants:

Stuart Tanz -- Chief Executive Officer

Michael Haines -- Chief Financial Officer

Rich Schoebel -- Chief Operating Officer

Christine McElroy -- Citi -- Analyst

Jeremy Metz -- BMO Capital Markets -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Wes Golladay -- RBC Capital Markets -- Analyst

Michael Mueller -- JPMorgan -- Analyst

Omotayo Okusanya -- Jefferies -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

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Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Retail Opportunity Investments. The Motley Fool has a disclosure policy.