The quest for a “forever” high-yield passive-income stream often leads Canadian investors to real estate investment trusts (REITs). These income-oriented investment vehicles are designed to pass rental income directly to unitholders, often on a monthly basis. However, when a dividend yield pushes toward the 9% mark, the market is usually signalling a catch.
Its monthly payout was recently more secure than before. However, at a $220 million market cap, Firm Capital Property Trust (TSX: FCD.UN) doesn’t have the name recognition of Canada’s REIT giants, yet its high-yield monthly distribution and valuation discount make it a fascinating case study for value-conscious passive-income seekers in 2026.
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A diversified portfolio built on necessity
Firm Capital Property Trust owns a resilient, necessity-backed real estate. Its diversified portfolio of 62 properties across Canada, totalling over 2.4 million square feet of commercial space, is supplemented by 599 apartment units and 537 manufactured home community (MHC) units.
About 49% of its net operating income (NOI) comes from grocery-anchored and service-oriented retail, where daily activity persists regardless of Canada’s economic climate. Its industrial properties’ occupancy remains steady, while the small residential portfolio is proving resilient with a staggering 99.6% occupancy rate for the MHC portfolio going into 2026.
Is the juicy 8.7% yield safe?
The biggest hurdle for high-yield REITs is usually the cash flow payout ratio. If a trust pays out more than it earns in sustainable cash flow, a distribution cut is often inevitable.
In 2024 and early 2025, Firm Capital’s adjusted funds from operations (AFFO) payout ratio hovered around the 100% to 105% mark — a range that leaves zero room for error. However, the REIT’s fourth-quarter (Q4 2025) results suggested a turning point. The trust reported an AFFO payout ratio of 98% for the quarter, an improvement from 100% in the prior-year period, and the lowest reading in eight consecutive quarters.
While an AFFO payout rate of 98% is still tight, the trajectory is moving in the right direction. AFFO per unit increased by 7% sequentially during the fourth quarter of 2025.
Management’s strategy of co-owning assets alongside strong financial partners allows the trust to scale without taking on excessive risk. With a conservative debt-to-gross book value of 50%, the trust has the balance sheet flexibility to navigate 2026’s interest rate environment without compromising the monthly check.
Would you buy the high-yield passive-income play at a 25% discount?
At $6 per unit, Firm Capital Property Trust’s units recently traded at a discount to their most recent appraised net asset value (NAV) of $8.00 per unit. Investors are essentially buying $1.00 worth of professionally managed Canadian commercial and residential real estate for $0.75.
In normal market conditions, a 25% NAV discount suggests a skeptical market. However, much of the value gap on FCD.UN units stems from two sources: the REIT’s small size and its historically elevated AFFO payout ratio.
As a small-cap REIT, the trust lacks the popularity and institutional liquidity of larger peers, leading to a persistent “liquidity” discount. The recent improvement in AFFO metrics, aided by a 2% increase in AFFO per unit during the past quarter and net operating income growth, may help alleviate market concerns.
Crucially, there is a strong alignment of interests between retail investors and management here. Trustees and insiders own more than 10% of the high-yield REIT’s outstanding units and have a significant direct ownership interest in the trust’s assets. When management is eating its own cooking to this high degree, it remains highly incentivized to protect the high-yield monthly distribution.
The Foolish bottom line
Investors seeking to add a reliable monthly drip to their Tax-Free Savings Account or Registered Retirement Savings Plan accounts may find Firm Capital Property Trust a high-yield contender that looks increasingly sustainable in 2026. The high-yield discounted REIT could do well in passive-income portfolios. A defensive, necessity-based portfolio that may finally see its payout ratio stabilize below the 100% threshold should support the 8.7% yield.
There is always a risk that a cooling economy could impact occupancy or that a rise in interest rates after recent destabilizing conflicts could pressure refinancing. However, with a 25% margin of safety provided by the NAV discount and a management team deeply invested in the units, the REIT offers a compelling risk/reward profile.
