Securitisation

Abstract

• Securitisation is the creating of tradeable securities from a property asset.

• Unitisation is also the creation of a tradeable security but the aim in this case is to parallel a return comparable to direct ownership.

This distinction may sound confusing but it is based on an analysis relating to debt and equity investments. To begin with, one must consider a single property rather than a portfolio. For a single property, if we divide the interest into a number of holdings, then we divide the equity, and this is unitisation. If we divide the interest and add debt securities, in the way a company may have shares and loan stock, this is securitisation. In fact securitisation is rather like imposing a corporate finance structure on a property, that is, a single-asset property company, but this approach simplifies matters because it is important to understand the objectives of securitisation and unitisation, which will differ from the operation of a property company. From the above, securitisation thus includes unitisation and can be used as a general term incorporating unitisation and this will be done here except when discussing securitisation historically or when the securitisation of the equity alone is considered. The distinction between securitisation and unitisation is shown in Figure 12.1.