Investment Thesis
The Canadian infrastructure REIT sub-sector entered 2025 trading at a 22% discount to our estimated net asset value — a gap last seen during the 2008–09 financial crisis and, briefly, in the COVID shock of 2020. Unlike those dislocations, which were liquidity-driven, the current compression is almost entirely rate-induced.
The Bank of Canada's 475-basis-point tightening cycle (March 2022 – July 2023) repriced long-duration assets systematically. Infrastructure REITs, by design holding long-lived, regulated assets with inflation-linked rent escalators, bore disproportionate mark-to-market losses relative to the quality of their underlying cash flows.
The assets haven't changed. The cost of capital has — and it's now receding. That's the thesis in one sentence.
Our models assume BoC cuts to 3.00% by Q4 2025 and 2.50% through 2026, broadly consistent with OIS market pricing. At those rates, our DCF models recover 18–24% of compressed value before any operational improvement is modelled.
What Could Go Wrong
The single dominant risk is a re-acceleration of inflation prompting BoC to pause or reverse. Our bear case assumes a 75bps re-hike by Q1 2026; under that scenario, target prices fall 12–15% from our base case. We model this explicitly in our scenario table.