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Friday, October 30, 2020

Green Days for Zoned Properties Inc (OTCMKTS:ZDPY)

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Zoned Properties Inc (OTCMKTS:ZDPY) has been advancing nicely as traders digest the impact of the company’s recent announcement that it has signed an amendment to the existing Lease Agreement with its tenant at the company’s Chino Valley Cultivation Facility in Chino Valley, Arizona. The amendment increases the monthly rent for the property by more than 30% effective in November of 2016. Given the Company’s downstream revenue relationship with the marijuana cultivation space, we may be seeing more such deals in the works.

The chart shows just shy of 160% piled on for shareholders of the stock during the trailing month, but this action is running counter to the larger trend in the name. This is emblematic of the stock. ZDPY is a stock whose past is littered with sudden rips. What’s more, the name has benefited from a jump in recent trading volume to the tune of a bit over 360% over the long run average. Traders should note this as important with a float in play that’s tiny — fewer than 7.5M shares. This type of thing is something to watch out for: with such a tight trading float, this kind of ramping interest can force a supply-shock squeeze.

Zoned Properties Inc (OTCMKTS:ZDPY) trumpets itself as a real estate company, engages in operating, leasing, and managing commercial properties primarily in Arizona.

The company also holds properties that have licensed medical marijuana operators signed to lease agreements; and provides property management services, such as architectural design and subsequent build-outs, general support, landscaping, general up-keep, and security systems for its properties, as well as project development services.

The company was formerly known as Vanguard Minerals Corporation and changed its name to Zoned Properties Inc. in October 2013. Zoned Properties Inc. was founded in 2003 and is based in Scottsdale, Arizona.

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According to the company press messaging, “Zoned Properties is a strategic real estate development firm whose primary mission is to identify, develop, and lease sophisticated, safe, and sustainable properties in emerging industries. The Company acquires commercial properties that face unique zoning challenges and identifies solutions that can potentially have a major impact on the cash flow and value generated. Zoned Properties targets commercial properties that can be acquired and potentially re-zoned for specific purposes. Zoned Properties does not grow, harvest, sell or distribute cannabis or any substances regulated under United States law such as the Controlled Substances Act.”

As noted above, the company just signed an amendment to the existing Lease Agreement with its tenant at the company’s Chino Valley Cultivation Facility in Chino Valley, Arizona. The amendment increases the monthly rent for the property by more than 30% effective in November of 2016.

The tenant is a medical marijuana cultivator. The terms renegotiation is naturally part of an expansion of operations. We expect a lot of this for the real estate plays associated with the cannabis space.

In this case, the current operation is growing from 15,000 to 25,000 square feet of operational space. The tenant plans to use the additional 10,000 square feet of space for additional cultivation and processing. The facility is located within an 11 acre developed area on a larger 50-acre site owned by Zoned Properties. The lease terms are Triple Net and the expanded development will utilize Zoned Properties’ Triple-Set development and design model. Zoned Properties continues to proceed with the next phases of the project, which include expanding the facility to up to 45,000 square feet of operational space.

Bryan McLaren, Chief Executive Officer of Zoned Properties, stated, “This expansion is part of a master plan designed in partnership with our tenant to facilitate a timely and strategic expansion of their business operations while creating solid investment returns for our shareholders. Our critical selection of properties and tenants combined with our methodical approach to property development supports our strategy for sustainable value creation and optimal utilization of our assets.”

Monthly rental payments to ZDPY will increase from the current $42,000 to $55,000 beginning in November 2016. Terms of the amended lease agreement preserve the annual rent escalator of 5% through the first ten years of the amended lease. And again, we expect more of this to come.

“In the last 45 days, we have signed agreements with existing tenants to increase the leased space at our properties in Tempe, Arizona and Chino Valley, Arizona by a total of 20,000 square feet, significantly increasing the monthly rental potential as properties are developed and improved,” continued Mr. McLaren. “Our diverse portfolio has the potential for meaningful expansion as we continue our measured efforts to fully develop the existing land, utilizing our innovative Triple-Set development and design model to ensure sustainable tenant success.”

At this time, carrying a capital value in the market of $60.1M, ZDPY has a decent store ($816.64k) of cash on the books, in a pool of total assets a bit less than $9.3M, which is balanced by an appreciable load ($3.10M) of total accumulated debt. In other words, this isn’t a great balance sheet situation. However, for a company in the land game to have leveraged assets is hardly surprising. Furthermore, the top line is growing at 40% (quarterly y/y basis) according to most recent numbers, and that curve is passing through trailing twelve-month number already coming in at $1.69M. With further upstream sales growth coming for producers, the model suggests that may pass through to the Company following the footprint expansion in the cannabis patch. For continuing coverage on shares of $ZDPY stock, as well as our other hot penny stock picks, sign up for our free newsletter now and get our next hot stock pick!

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