2 REITs in the Right Place at the Right Time: Cannabis and Logistics
Weed is a hot topic.

There's a growth sweet spot for REITs -- where revenue and dividends just take off, according to Briton Ryle with colleague Jason Williams of The Wealth Advisory and frequent contributors to MoneyShow.com.

Their picks today include the "Amazon of REITs" and an emerging REIT in an emerging sector.

Briton Ryle The Wealth Advisory

On Friday, March 16, my daughter and I toured the campus of the University of Maryland Baltimore County. UMBC, maybe you've heard of it. Because around midnight that same night, the UMBC Retrievers men's basketball team was making history.

UMBC needed a buzzer-beater to defeat Vermont just to get into the NCAA Men's Basketball Tournament. Given a 16 seed, they then had to face off with powerhouse and favorite to win the whole shebang, Virginia Cavaliers.

Tied at halftime, you might've called UMBC "plucky" for sticking around that long. But five minutes into the second half, after the Retrievers had opened up a 41-27 lead, well, plucky didn't cut it anymore. This team clearly had "something."

As investors, this is what we want. We want to find companies that have that "something." That unique strategy, visionary leadership, groundbreaking product or service that can propel them into the big time -- and make us a lot of money.

Now, did I have UMBC checked off as a winner on my NCAA brackets? Uhhh, no, no I didn't. That's just crazy. But I did have #11 seed Loyola-Chicago to beat #6 Miami and #3 Tennessee to get into the Sweet 16. And my entry is #4 in my office pool, so I've got some street cred.

For investment cred, I am the editor of The Wealth Advisory newsletter (with invaluable help from my talented and handsome assistant, Jason Williams). I focus on finding those companies that have that "something." I don't take longshots like UMBC. But I do find undiscovered or unloved gems that have what it takes.

Top-REITed

I have to tell you, I have a special affinity for real-estate investment trusts, or REITs. Because there's a growth sweet spot for REITs -- where revenue and dividends just take off. Like with CoreSite Realty (COR) , the best data center REIT there is. We bought the stock at $33 and the annual dividend was $1.47.

Today that stock is right around $100 and the dividend has grown to $3.92 a year. The fast growth is likely over for CoreSite. But when you get an entry like we did, there is no reason to sell. Might as well keep collecting those checks.

Now I also have to tell you that I don't recommend a lot of REITs. Allocation to REITs is under 20% in the Wealth Advisory portfolio.

But I just added two REITs that I think are hitting that sweet spot of growth. And I'm gonna give you the low-down right now.

The Amazon of REITs

We have both talked a lot about Action Alerts Plus holding Amazon (AMZN) and how it's disrupting the entire retail industry. We're not alone, either. Amazon has literally upended an entire industry. It's changed the way the world shops. And those changes are permanent. It's become adapt or die for most traditional retailers.

But there's an entire sector that's poised to grow exponentially with every package that e-commerce retailers like Amazon ship. And nobody's talking about it. Why? Well, it may be the absolute most boring business in the world: logistics. The results are kind of exciting, but the process -- the whole idea -- just doesn't get the blood pumping.

Logistics is the business of getting things where they need to be when they need to be there. It's all about inventory control and just-in-time delivery. And it's just as exciting as it sounds. But boring as this business is, the profits early investors are going to see in the coming decades are the exact opposite. They're downright phenomenal.

You see, Amazon and other e-commerce companies are in the business of selling things. They're not in the business of shipping or owning real estate. Most don't have fleets of trucks to deliver packages (though Amazon is starting to do this). And they certainly don't have warehouses to store all that inventory.

And that's where this sector steps in to save the day. Industrial REITs own the warehouses that e-commerce companies like Amazon need to exist. And as the e-commerce industry continues to grow, so will the rents those REITs can charge. Now, there are lots of warehouse owners out there. But there are very few that are perfectly positioned to blow up alongside the e-commerce industry.

STAG Industrial (STAG) is relatively new as far as industrial REITs go, but it's run by a topnotch team with a long-term growth focus. STAG went public back in 2011, and as of last September it owned 356 buildings with over 70 million square feet of rentable space in 37 states. That's nearly 300 warehouses, more than 50 light machine buildings, 10-plus flex/office buildings and one building in redevelopment. And those buildings are around 95% leased to over 300 tenants.

Right now, STAG rents buildings to a long list of large companies and even one very large government agency. The single biggest tenant at STAG is the General Services Administration (GSA). For those of you who aren't familiar, the GSA is an independent government agency established in 1949 to help "manage and support the basic functioning of federal agencies." To accomplish this task, the GSA supplies products and communications for U.S. government offices, provides transportation and office space to federal employees and develops government-wide cost-minimizing policies and other management tasks.

STAG's properties are so much in demand that even other logistics companies are among its customers. The REIT's second-biggest tenant is shipping and last-mile delivery company XPO Logistics (XPO) . Through XPO, it gets access to companies like Home Depot (HD) , Amazon and Boeing (BA) .

STAG has an enterprise value (EV) of $4.1 billion. That means when you add everything up and subtract the cash, STAG is worth over $4 billion. But it trades at a market cap of nearly half that. When I see top-quality assets selling for 56% of their value, I start to get excited. And the more I looked, the more excited I got.

This is another investment like CoreSite. It's perfectly positioned to explode, but nobody is looking at it. They almost made me ignore this gem of a company. STAG, with its discounted share price, high occupancy levels, audacious growth targets, and perfect positioning is going to get us 25% annual growth for at least the next two decades.

Reefer Royalties

Marijuana legalization is coming. Canada votes in July to legalize it. And that same vote will come to the U.S., just as soon as we have a new attorney general. With potential to do more than $50 billion a year in revenue, the field of cannabis cultivation deserves a serious upgrade.

Because it's not stoners growing grass in their basements anymore. In fact, it's starting to become more of a science. And the people working at the large-scale growers are dressed in sanitary scrubs and wear hairnets and surgical masks to keep from contaminating the crop.

The operations are getting big as more and more people drive the growing demand for high-quality product. Some of these places look like a cross between a greenhouse and an industrial space. Just take a look at a few different operations. This isn't a mom-and-pop business. It's a serious industry.

In this emerging sector, there's an emerging REIT you should own: Innovative Industrial Properties (IIPR) .

IIPR started in December 2016 with its first property in New York State. That 72,000-square-foot industrial property is already filled with medical cannabis by growers from the PharmaCann company.

The second IIPR property is in my home state of Maryland. It's similar at 72,000 square feet. But like the one in New York, it was immediately leased. Medical marijuana supplier Holistic Industries has a 16-year lease on the property and expects to expand operations as Maryland's medical marijuana industry continues to heat up.

Not long after the Maryland purchase, IIPR entered into a 15-year lease-back deal with the cannabis company Vireo Health. That gave IIPR a total portfolio of four industrial-sized marijuana farms: two in New York, one in Maryland and one in Minnesota.

Most recently, the company purchased a property in Arizona and entered into a leasing agreement with The Pharm LLC, another medical cannabis operation. At 358,000 square feet, the Arizona property is its biggest one and promises to be one of its most lucrative as well. Management has over $100 million worth of other medical cannabis properties to add to its portfolio.

IIPR may be small, but it's growing fast. And it's perfectly positioned to become the biggest and most profitable landlord in the marijuana industry.

(This article originally appeared on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other writers even earlier in the trading day.)

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