Beginning August 1, Comstock Holding Companies Inc. (NASDAQ: CHCI) will have fewer shares outstanding than it has today. That is because the company is in the process of undertaking a reverse stock split that will dramatically reduce its outstanding share count. But the management assured that the action of reverse stock split will not impact the percentage of ownership a shareholder has in the company.
The question that begs for answer at this point is why Comstock Holding Companies Inc. (NASDAQ: CHCI) is doing a reverse split of its stock. The management has been clear on why it deems the planned restructuring of the stock necessary. There are some conditions that stocks trading on the New York Stock Exchange market must satisfy to maintain their listing on the market.
Whenever a company becomes deficient of those requirements, their listing on the market becomes jeopardized. As such, the management of Comstock explained that the announced reverse splitting of the stock is designed to ensure that the stock maintains its listing on NYSE.
What is happening at Comstock Holding Companies Inc. (NASDAQ: CHCI) ?
Reverse stock split involves consolidating shares and it theoretically doesn’t impact the market cap of a stock. In the case of Comstock, the company is undertaking a one-for-five reverse split. In that case, every five shares will be replaced with a one share whose value is equivalent to the five shares being replaced combined. That transaction is important when the closing price of a stock has fallen short of the required minimum for continued listing.
What if your holding isn’t evenly divisible by five?
For those whose holdings aren’t evenly divisible by five, Comstock Holding Companies Inc. (NASDAQ: CHCI) said it will not issue fractional shares. Instead, the would-be fractional shares will be rounded up to the nearest whole share.
What happens at the end of the day?
At the end of the stock restructuring, the count of Comstock Holding Companies Inc. (NASDAQ: CHCI)’s outstanding shares will decline sharply from 62.5 million today to about 12.5 million. The price of each share will also have improved. To avoid raising issues over potential massive stock dilution, CHCI is also reducing its authorized share count to 50 million from the present 250 million.