Taking Stock in Rent Negotiations

As Seen in Newsday September 29, 2003 By Alan J. Wax Staff Writer

With its revenues falling and its work force slashed by half, Sentry Technology Corp. earlier this year no longer could afford to pay the rent on its Hauppauge headquarters.

The manufacturer of video surveillance equipment and anti-shoplifting devices also couldn’t afford to buy out the 13 years that remained on its 20-year lease with Manhattan real estate giant W.P. Carey & Co. for the 68,000 square feet of office and industrial space at 350 Wireless Blvd.

The solution: Sentry negotiated a three-year plan to pay off the rent it owes by giving Carey cash, notes and 1 million shares of stock. That stock, based on the recent share price of about 10 cents, is worth about $100,000.

“It works out well for us. If the stock does well, it will work out for them,” said Peter Murdoch, Sentry’s president. The deal was announced on Sept. 19 after months of what Murdoch characterized as tough negotiations.

In 2002, Sentry lost $3.4 million on revenues of $14.5 million. That compared with a profit of $24.3 million on sales of $17.3 million in 2001. In January, Sentry announced a major restructuring that included outsourcing its manufacturing and laying off half its then 120-person work force.

Today, Sentry moves its 35-person Long Island operation that includes distribution, light assembly, customer service and finance, to 20,000 square feet at 1881 Lakeland Ave., Ronkonkoma.

“We’re in good shape going forward,” Murdoch said. “We have the right structure for our current level of business.”

Commercial property brokers said it is unusual for a landlord to take stock in lieu of a lease-termination fee. But they also said without a deal, a landlord could have a tenant occupying space without paying rent for six months or more during eviction or bankruptcy proceedings.

“We’ve become a partner in their future,” said Thomas E. Zacharias, managing director of Carey’s asset management and development group. “We think the company will be worth more when they restructure.”

Zacharias said Sentry’s deal is not all that unusual for Carey, which has in the past received warrants to buy shares or stock or other financial instruments from tenants that lack cash to pay their rent and capital to buy out their leases.

Publicly traded Carey provides financing to companies through the net lease or sale-leaseback of corporate real estate. Carey acquired Sentry’s building for about $4.5 million through a 1996 sale-leaseback with Sentry’s predecessor, Knogo Corp.

Sentry’s lease with G&J Lakeland Realty Corp. runs three years with a three-year renewal option. It was negotiated by Michael Hagen and Richard Caputi of Newmark of Long Island.

Carey, meanwhile, stands to profit from the deal in any event. It is in contract to sell the nine-acre property to Lanco Corp., a Hauppauge-based manufacturer of promotional items and chocolates, said Richard Cohen, of Ashlind Properties, who negotiated the sale.

Lanco, which has 76,000 square feet of owned and leased space in Hauppauge, plans to sell its 40,000- square-foot building at 115 Commerce Dr., Lanco President Brian Landow said. Lanco, which has about 300 employees, recently was approved for $9.75 million in Suffolk County Industrial Development Agency incentives to purchase and expand the wireless property.

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