- This report offers an analysis of Mango Capital, Inc. In our opinion, these shares could hold strong value, especially considering the recent announcement that the Company plans to pay dividends.
- Mango Capital is unique small-cap play. The business plan is to exchange restricted shares in the Company for unimproved real estate properties. As these properties are liquidated, common shareholders will share the profits in the form of dividends.
- Many real estate analysts have declared a housing crisis in the United States with chronic undersupply of the market as building has significantly lagged demand. One important aspect of this crisis is the severe shortage in vacant lots on which housing can be constructed.
- We believe this shortage in buildable lots could be a strong market driver for growth in Mango Capital’s property portfolio. Additionally, there are strong demographic factors positively affecting the housing market, which are also likely to benefit Mango and its shareholders.
- We believe activity at the Company will be significantly picking up over the coming months. The recent announcement that Englander Capital has acquired 7.5 mm shares is certainly a positive, in our opinion.
- The management team possesses significant skills and experiences gained in building a similar type of operation, which produced strong growth.
|MANGO CAPITAL, INC. (OTCQB: MCAP)
Introduction to Mango Capital, Inc.
Mango Capital, Inc. is a unique company on the public stock market. The common shares trade under the symbol MCAP on the over-the-counter market. The Company is headquartered in Far Hills, New Jersey, which is just north of Princeton and Trenton.
In late 2015, the previous owners of Mango asked Rick Makoujy, Jr. to head the Company and bring it back into operation. Mr. Makoujy had spent the last several years growing a related real estate company called Land Ho, Inc. into one of the premier land wholesaling operations. Many of the initial assets contained within Mango came about as a result of contributions from Land Ho. Specifically, Land Ho transferred more than 400 real estate properties in Colorado, Arizona, Texas, and New Mexico into Mango Capital.
The Company’s business model is unique to the public markets, but capitalizes on a successful business model developed at Land Ho. The management team at Mango will use the corporation’s common stock as currency to acquire land and real estate assets that the management team believes are undervalued. As these assets are liquidated for cash, dividends will be paid out to common shareholders.
Mango Capital was originally organized in the mid-90s under a different name. Management is now in process of revitalizing the Company through the implementation of this new and unique business model.
Dynamics of the Housing Market Support Mango’s Business Proposition
Mango Capital is in the business of acquiring and selling unimproved properties, especially buildable lots that can be sold to individuals or housing developers who wish to build homes, apartments, shopping centers or office buildings.
As the housing market has continued to recover over the past few years, there is a developing shortage of buildable lots. A recent study by the National Association of Homebuilders and Wells Fargo indicated that 64% of builders reported the supply of lots in their markets was low or very low. This was an increase over the already very high number seen during 2015. In fact, the 2016 numbers were the highest since this survey began in 1997.
This record shortage is coming at a time when new homes are being started at a rate of fewer than 1.2 million per year. This is significant considering that in 2005 housing starts were over 2 million per year when the share of builders reporting a shortage of lots was at only 53%. Buildable lot shortages are very acute especially in the Western regions of the United States and in the Texas market.
As can be seen in Exhibit One, U.S. housing starts have continued to rise rapidly from the depths experienced after the real estate crash of 2008. As housing starts continue to grow, the shortage of buildable lots is expected to become even more acute.
We believe this could create strong opportunities for companies such as Mango Capital that specialize in this area, especially as home builder sentiment continues to remain very strong, as is seen in
Housing Forecasts Support Mango’s Business Proposition
It seems that most of the housing related forecasts support Mango’s business proposition. For example, as is outlined in Exhibit Three, building permits and housing starts are expected to continue to rise well into 2017 and through the year 2020. This is occurring at a time when there is increasing evidence of a looming housing shortage as Millennial’s seek to purchase new homes and sales of existing homes fall as the homeowner base ages.
As the market for empty lots continues to tighten, companies such as Mango Capital will likely be able to command better prices and the liquidation process will likely move more quickly. Additionally, the shortage could motivate current landholders to exchange their properties for shares in a public company such as Mango.
Future Company Goals
In our opinion, the Company will soon be entering into a period of increased activity and we would recommend interested investors to closely follow upcoming news. We believe it is likely that additional property acquisitions and liquidations will be announced over the short term.
It appears management’s overall goals are as follows:
§ Management’s stated near-term goal is to acquire approximately $4 million of land over the next year and to grow this amount each year beginning in calendar 2017. Management also indicates that acquisitions will occur periodically with some periods of heavy activity and other periods of lighter activity. A goal of approximately $300,000 per month, on average, has been outlined by management. This, however, is likely a conservative number relative to 2017 and beyond, in our opinion.
§ Fully Reporting Status – The Company currently trades on the over-the-counter market and it is not fully reporting with the Securities & Exchange Commission. We believe it is important to management to have adequate transparency, and therefore, we believe management will be releasing additional financial data over the coming months. Additionally, while it is increasingly difficult for small companies to complete full yearly audits, we believe management will be moving toward this direction in the fourth calendar quarter of this year.
§ Communication to Potential Investors – The concept of exchanging land for stock in a public company is new to most small investors. Thus, management will need to implement an education program to communicate to investors the value of this business proposition. Management believes it can offer a compelling case to investors that diversification of holdings into land and the related potential for capital appreciation can be beneficial to their overall portfolios and financial positions.
§ Communication to Property Owners – As we outlined below, the sale of an unimproved properties is often very difficult with a great deal of valuation uncertainty. Management plans to improve its communications to landowners to outline the strong value proposition of participation in the Mango Capital business proposition. This education process will strongly outline the diversification possibilities of being part of a larger group, the capital appreciation opportunities of the common stock, the savings directly involved with cessation of property tax payments, and perhaps most importantly, the peace of mind land owners can gain by knowing their properties have been disposed of in a manner that could benefit their financial worth in the future.
Details of the Mango Capital Business Operations and Plan
The majority of assets in Mango were added via the Land Ho operation Mr. Makoujy had successfully built over the past few years. The Company now plans to identify underserved land assets, negotiate for the purchase of the assets with payment being made in common shares of the Company.
Management feels it has a compelling story for landowners in convincing them to exchange their land for shares in the Company. One of the most significant benefits to the landholder is that he/she will no longer have the responsibility for paying taxes on the land. While land owners who have houses or apartment buildings on their land can rent or lease out the properties in order to generate cash flow, owners of unimproved properties often struggle with the cash flow needed to pay property and other related taxes. A property owner who exchanges his/her land for shares of the Company no longer has this tax responsibility.
Additionally, an owner who exchanges land for shares is also now able to realize potential capital gains on the common stock. In some ways, each landowner who has added land to the Mango Capital portfolio potentially lessens his exposure by gaining diversification along with the other participants in the Mango Capital business operation. As Mango Capital grows, the landowner can then sell the common shares potentially reaping capital gains that would not have been available though the holding of the individual properties added to the Mango Capital portfolio.
While there are clearly potential benefits for landholders to exchange land for Mango Capital shares, there are also reasons why ordinary common share investors could want to participate via purchase of the Company’s common shares. Such investors will gain exposure to an asset class to which they may not otherwise been able to access. For example, an ordinary small-cap investor who wishes to have some exposure to the potential upside in the unimproved land arena would have to undergo considerable analysis on potential property acquisitions, acquire financing, manage the properties, and pay ongoing taxes. The purchase of Mango Capital common shares alleviates such an investor of these tasks, while still providing upsides potential from the underlying investments in land.
In addition to providing ordinary common share investors exposure to an asset class (unimproved land) to which they would normally not have exposure, investment in Mango Capital common shares could also serve as a potential portfolio diversification tool.
The Problem of Unimproved Land – Getting in is Easy – Getting out….Not so Much
The process of selecting an ideal piece of land, negotiating the purchase and gaining the pride of ownership is certainly part of the American dream for many individuals. Some of these individuals, however, eventually realize the high costs and management issues involved with such ownership. Other individuals have perhaps inherited pieces of property they do not need or simply cannot afford. Many families partition individual pieces of unimproved property to children, who later decide to liquidate the assets and move on with their lives in different directions.
Many of the above individuals have common problem – how to liquidate their land. The sale of an unimproved property is considerably different than that of liquidating a suburban or urban improved property, as there is usually an active market for the latter, but not always for the former. Whereas a homeowner in a suburban area can usually just pick up the phone, reach a real estate agent, list the property and get offers, the situation is often very different relative to unimproved properties.
Real estate agents are typically far less interested in listing unimproved properties as improved properties typically offer higher commissions and significantly faster sales turnaround times. It is also important to point out that the buyers of land are very different than buyers of homes. Homebuyers typically make decisions rather quickly, whereas land buyers are notorious for taking their time to find the exact right parcel to suit what is often very particular needs. Additionally, there are simply far fewer interested buyers for raw land, and thus many fewer overall transactions.
For the above outlined reasons, the selling of vacant pieces of land, often referred to as “dirt” in the real estate industry, is by far the most difficult area of the real estate market. When we combine these difficulties with the recent severe fluctuations seen in the marketplace, it is no wonder many landowners have decided the traditional sales process is simply too difficult, or that the valuation they will likely receive is simply too low to consider an ordinary sale. Thus, many do nothing relative to a traditional sales process. For many of these individuals the alternative of swapping the land for common shares in a company such as Mango Capital could be an attractive alternative.
On August 18, 2016, the Company announced it had retained investment bank, Meyers Associates, LP. Management indicates this relationship will facilitate Mango Capital growing its balance sheet for the benefit of all shareholders. Myers is a well respected, mid-tier investment banking firm that not only provides strategic mergers and acquisition and investment banking services, but also has a strong brokerage services arm. Having both investment banking and brokerage services is an advantage as the firm will be able to not only help the Company identify acquisition targets, but will also be able to help common share investors as Mango Capital grows.
On July 26, 2016, Mango announced it had completed the sale of 26 properties in the Horseshoe Bay Community located just north of Austin, Texas. The sale of the properties was for cash, although the Company has not yet released the actual amounts. It is interesting that the Company had only acquired the properties during June of 2016 (see below), but yet was able to generate cash flow from the sale only a little more than a month later. We suspect this is in line with the Company’s game plan moving forward.
Also on July 26, 2016, The Company announced it had retained Mark Rutecki as General Counsel. He is a specialist attorney and real estate transactions and litigation, business and corporate law, and mergers and acquisitions.
June 15, 2016 – On this date, Mango Capital announced it had signed purchase agreements to purchase 125 properties, most of which are located in Texas. All of the properties were purchased with Mango Capital common shares. We feel this was an important announcement as it provided further evidence of the Company’s business plan of growing its balance sheet through acquisitions using its restricted shares as currency.
On May 12, 2016, the Company announced the appointment of Nat Wasserstein to Mango’s Board of Advisors. Mr. Wasserstein’s initial focus will be on identifying strategic acquisitions for the Company.
February 22, 2016, the Company made what is likely if most important announcement in a very long time. Mango announced the completion of the acquisition of more than 400 real estate properties in Colorado, Arizona, Texas and New Mexico. In addition to the acquisition of properties, management also announced the pending litigation against the Company had been settled, which we believe was a major development.
Management also announced in the same press release that Mr. Makoujy had agreed to take the helm of the operation waiving all salary, instead being compensated via dividends that will also be paid pro rata to every shareholder.
Mango Capital is a unique small-cap play that could allow investors some significant capital appreciation as the Company’s business plan takes shape. There are certainly diversification opportunities available to investors in the Company along with capital gains potential.
We think it is interesting that this new public company is modeled after a successful venture – Land Ho, Inc. – developed by Mango CEO Makoujy. The experience gained through the operation of his previous venture should significantly aid his efforts to create value for current Mango Capital shareholders.
Over the coming months, we would expect management to begin announcing additional information about the capital structure and financials of the operation. In an environment where it is increasingly difficult for small companies to complete financial audits we would not expect the Company to become fully reporting with the SEC over the short term, but rather we believe there will instead be gradual movement toward fully reporting status.
We feel that many of the dynamics of the current real estate environment, such as the looming housing shortage, scarcity of buildable lots, continued strong building permits and housing starts, and the dynamics between existing home sales and millennial purchasing dynamics, create a positive industry environment in support of Mango’s operating a business plan.
When we combine these factors with what appears to be a highly experienced management team, we believe Mango could have some strong successes coming its way over the next year or two.
We will be closely watching for additional financial information and more information about the growing property portfolio of the Company.
We do not own these shares and have no plans to acquire, purchase, sell, trade or transfer these shares in any manner.
We have no association with anyone, or any group, with any plan to acquire, purchase, sell, trade or transfer these shares.
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