Imagine earning a 9.1% yield on your investments—paid in cash, every single month. For income-focused investors, this isn’t a hypothetical scenario. Firm Capital Property Trust (TSX:FCD.UN), a small but mighty Canadian real estate investment trust (REIT), offers exactly that. With its monthly distributions now fully backed by recurring cash flow and shares (equity units) trading at a steep discount to their intrinsic value, this under-the-radar gem deserves a closer look as a monthly passive-income investment.
Why monthly dividends matter
Monthly payouts aren’t just about convenience—they’re a compounding powerhouse. Reinvesting dividends more frequently (12 times a year) accelerates wealth growth compared to quarterly payouts (four times), especially in high-yield scenarios. Over time, those extra compounding cycles can significantly boost total returns. For retirees or passive-income seekers, monthly cash flow from monthly dividend stocks aligns better with living expenses, smoothing out your budgeting cycles.
Firm Capital Property Trust’s turnaround story
Firm Capital Property Trust owns a defensive portfolio of 64 commercial properties, including industrial sites, grocery-anchored retail centers, multi-residential units and manufactured homes located across Canada. While its 9.1% yield grabs attention, the real story is its improving financial health.
During the third quarter of 2024 (Q3 2024), the REIT’s payout ratio of adjusted funds from operations (AFFO) dropped to 100%, down from 114% a year earlier. This marks a critical milestone: distributions are now fully covered by sustainable cash flow.
AFFO—the gold standard for REIT distributable cash flow generation—jumped 14% year over year to $4.8 million in Q3 2024. High occupancy rates at 94.8% for commercial properties, 97.7% for multi-residential units, and 100% for manufactured homes, rising net operating income (NOI), up 8%, and prudent cost management fueled this growth.
Management targets lowering the AFFO payout ratio further to 85-95%, signalling growing room for distribution safety—or even future hikes.
A high-yield bargain hiding in plain sight
Despite Firm Capital Property Trust’s recent progress, the market hasn’t fully rewarded the REIT yet. Units trade under $5.80 at writing, a staggering 27% discount to their most recent net asset value (NAV) of around $7.82 per unit. For context, the REIT’s NAV has climbed 62% since its 2012 debut. This gap suggests upside potential if sentiment improves—a 37% rally would merely close the discount to NAV. Combine that with a near-double-digit yield, and the risk-reward profile looks compelling.
Defensive by design
Firm Capital’s portfolio is built for stability. Grocery-anchored retail (49% of net operating income) and industrial properties (27%) provide recession-resistant cash flow. Tenant diversification adds another layer of safety: no single tenant accounts for more than 10.8% of rent, and the top 10 tenants are national brands. Geographically, assets span Ontario (38% of NOI), Quebec (37%), and other provinces, mitigating regional risks.
Debt is another bright spot. With a conservative 51.3% debt ratio and just $18.2 million in 2025 mortgage maturities (5.7% of total debt), refinancing risks appear manageable. Management has already addressed 2024 maturities and is proactively negotiating 2025 terms—a sign of operational discipline.
Management has skin in the game
Investors aren’t alone in betting on Firm Capital Property Trust’s turnaround. Management co-owns 64 of the trust’s properties, aligning their interests with shareholders. This structure incentivizes prudent capital allocation and long-term value creation. The team’s decades of real estate experience further bolsters confidence in their ability to navigate market cycles.
Foolish bottom line
High yields often come with hidden risks—unsustainable payouts, excessive debt, or shaky fundamentals. Firm Capital Property Trust is sidestepping these pitfalls in 2025. Its improved AFFO coverage, discounted valuation, and monthly distributions create a rare trifecta for income investors. While past performance shows only one distribution hike since 2020, the current yield is eye-catching on its own.
For investors seeking reliable passive income, this REIT offers a chance to lock in a 9.1% yield with monthly compounding—and an opportunity to potentially profit from a narrowing NAV discount. Firm Capital Property Trust stands out as a hidden cash machine in a stock market where safety and high yields rarely coexist.
Just so you know, while REIT distributions are generally taxable as current income, Firm Capital Property Trust’s distributions have a return of capital component which varies each year, deferring taxes until units are sold or the cost basis goes to zero ($0). That said, investors should carefully track their adjusted cost basis annually, or consider stashing REITs in tax-advantaged accounts, especially the Tax-Free Savings Account (TFSA).
