While the December interest rate cut of 25 basis points may be the last for a while, it is an excellent bet that federal funds will be lower than today’s effective rate of 4.23%, and below the long-term average of 4.61%. Investors looking for total return to balance the need for passive income and desire to add growth to combat inflation may consider real estate investment trusts (REITs) an option for 2025.

A REIT is a company that owns, operates, or finances real estate that produces income. They are similar to mutual funds and exchange-traded funds (ETFs) in that they offer diversification by investing in various properties that are often located in multiple locations. When investors buy shares in a REIT, they receive a portion of each property’s income.

As the population of the United States continues to grow older, the REIT team at Jefferies remains positive on the senior housing, skilled nursing, and outpatient medical segments of the healthcare REIT arena. The team noted this in a recent research report:

We were out with 2025 outlooks across the Healthcare REIT subsector. While sector returns are linked to interest rates, we believe there are opportunities for outperformance by selecting REITs with durable earnings growth momentum. In particular, we continue to favor the aging population as a theme as the 80+ population averages +3.2% annual growth for 2025-2026 and +5.9% for 2027-2028. Based on our analysis, occupancy should reach ~100% by 2028.

Five top stocks are Buy rated at Jefferies and all make sense now for investors looking for dependable passive income streams and a degree of safety associated with hard assets.

CareTrust REIT

With a rich 4.34% dividend, good upside potential, and an aging population, CareTrust REIT Inc. (NYSE: CTRE) is a great idea for conservative investors in 2025. Its primary business consists of acquiring, financing, developing, and owning real property to be leased to third-party tenants in the healthcare sector.

As of March 31, 2024, the company owned directly or through a joint venture and leased to independent operators:

• 228 skilled nursing facilities
• Multi-service campuses
• Assisted living facilities
• Independent living facilities consisting of 24,189 operational beds and units located in 29 states with the highest concentration of properties by rental income located in California and Texas

As of March 31, 2024, the company also had other real estate-related investments:

• One preferred equity investment
• Nine real estate-secured loans receivable
• Four mezzanine loans receivable with a carrying value of $233.3 million

The Jefferies price target is an aggressive $32.

Healthpeak Properties

Another compelling investment opportunity can be found in Healthpeak Properties Inc. (NYSE: DOC). With an aging population and the increasing demand for new facilities, this fully integrated REIT and S&P 500 company offers a substantial 5.88% dividend.

The company acquires, develops, owns, leases, and manages healthcare real estate across the United States. Its strategy is to invest in and manage real estate focused on healthcare discovery and delivery.

It has a diversified portfolio of high-quality healthcare properties across three core asset classes of lab, outpatient medical, and continuing care retirement community (CCRC) real estate.

The company’s segments include:

• Lab
• Outpatient medical and CCRC

The lab segment properties contain laboratory and office space, are leased primarily to biotechnology, medical device and pharmaceutical companies, scientific research institutions, government agencies, and other organizations involved in the life science industry.

The Outpatient Medical segment includes outpatient medical buildings and hospitals. Outpatient medical buildings typically contain physicians’ offices and examination rooms.

The Jefferies price target for the stock is set at $23.

Sabra Healthcare

This is one of the larger companies in the industry and pays a 6.95% distribution. Sabra Healthcare REIT Inc. (NASDAQ: SBRA) is an internally managed healthcare REIT that invests in skilled nursing (SNF) and senior housing.

As of September 30, 2024, Sabra’s investment portfolio included:

• 373 real estate properties held for investment
• 233 Skilled Nursing/Transitional Care facilities
• 39 senior housing communities
• 68 senior housing communities operated by third-party property managers under property management agreements
• 18 Behavioral Health facilities
• 15 Specialty Hospitals and other Facilities
• 14 investments in loans receivable (consisting of three mortgage loans and eleven other loans)
• Five preferred equity investments
• Two investments in unconsolidated joint ventures.

As of September 30, 2024, Sabra’s real estate properties held for investment included 37,793 beds/units spread across the United States and Canada.

The Jefferies target price is $20.

Ventas

This is one of the top companies in the healthcare REIT sector, and pays a solid 3.09% dividend. and may be one of the safest plays for more conservative accounts. Ventas Inc. (NYSE: VTR) portfolio includes senior housing communities, which provide valuable services to residents.

The company leverages its operational expertise and data-driven insights from its Ventas Operational Insights platform and has approximately 1,351 properties in North America and the United Kingdom.

Its portfolio also includes:

• Outpatient medical buildings
• Research centers and
• Healthcare facilities

The company, through its Senior Housing Operating Portfolio segment, invests in senior housing communities.

Through its Outpatient Medical and Research Portfolio segment, it primarily acquires, owns, develops, leases, and manages outpatient medical buildings and research centers.

Through its Triple-Net Leased Properties segment, it invests in and owns senior housing communities, skilled nursing facilities, long-term acute care facilities, freestanding inpatient rehabilitation facilities, and other healthcare facilities.

Jefferies has set a hefty $76 target price on the shares.

Welltower

This is another favorite pick at Jefferies, and the company delivers a solid 2.13% dividend payout. Welltower Inc. (NYSE: WELL) is a REIT focused on healthcare infrastructure.

The company invests with senior housing operators, post-acute providers, and health systems to fund the real estate infrastructure needed to scale care delivery models and improve people’s wellness and overall healthcare experience.

Welltower owns interests in properties concentrated in high-growth markets in the United States, Canada, and the United Kingdom, including senior housing, post-acute communities, and outpatient medical properties.

Its senior housing operating properties include:

• Senior apartments
• Assisted living
• Independent living/continuing care retirement communities
• Independent supportive living communities (Canada)
• Care homes with and without nursing (United Kingdom), and combinations thereof

The company’s triple-net properties include the property types that are under seniors housing operating properties, as well as long-term/post-acute care facilities.

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