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Investors counting on growth in the Canadian hotel sector are putting their money into "turnaround story" InnVest Real Estate Investment Trust, although some analysts believe it's a "hold" at today's price.

Units of the Toronto-based REIT, Canada's largest publicly traded hotel owner with 110 properties under such brands as Comfort Inn, Fairmont and Holiday Inn, have risen about 20 per cent over the past year.

The increase comes amid changes driven by shareholder activist Orange Capital LLC earlier this year. That includes a board revamp and a push to sell off some of the REIT's underperforming assets.

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InnVest has also started buying properties again for the first time since before the recession, including most recently the high-end Hyatt Regency Vancouver and a 20-per-cent piece of the historic Fairmont Royal York hotel in Toronto. It's also doing a number of hotel renovations across its properties to help lure more visitors.

"It's a big turnaround story," said Andy Nasr, managing director and senior portfolio manager at  Middlefield Capital Corp. "They've done a much better job than I think anybody anticipated."

Middlefield sold its shares earlier this year, around $5.25, after making a profit of about 50 per cent. It continues to own some of the convertible debt.

Mr. Nasr said his firm is starting to look at the stock again after its recent acquisitions and given the improving hotel market.

InnVest said revenue per available room increased 7.8 per cent in the third quarter compared to the same time last year, due in part to some hotel upgrades and the steadily recovering North American economy.

Experts believe hotel stays will increase in Canada in the coming months, driven by lower gas prices and the lower dollar, which could draw American tourists looking to stretch their money.

"We're at a point in the cycle where Canadian hotel fundamentals continue to steadily recover," said Canaccord Genuity analyst Jenny Ma.

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The risks include a downturn in the economy or unpredictable events such as another Ebola outbreak, which could affect travel.

"You hold the stock because you're optimistic about where hotels are going," Ms. Ma said.

The REIT also has a rich distribution yielding about 7.5 per cent.

Ms. Ma has a "hold" on the InnVest and $5.40 target – a few cents above where it's currently trading – believing it's fairly valued.

Among the five analysts that cover the stock, three have a "hold" or equivalent rating, while two recommend it as a buy.

TD Securities upgraded the trust to "buy" from "hold" on Monday and hiked its price target to $6 from $5, calling the Hyatt in downtown Vancouver a "trophy asset."

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"We believe InnVest is more quickly evolving into what could be a go-to name for investors seeking growth in the Canadian hotel industry," TD analyst Sam Damiani said in a note.

RBC Dominion Securities analyst Neil Downey recently increased his rating to "outperform" (equivalent to "buy") from sector perform (similar to "hold"), citing "convincing signs" that its growth plans are working.

These include its property renovations, which are boosting operating cash flows and asset sales. InnVest also sold 16 hotels in the first three quarters of this year for about $91.6-million.

"When coupled with high-quality property acquisitions, the character/quality of INN's portfolio is improving," said Mr. Downey in a recent note, referring to the trust's ticker symbol. He also increased his target to $6.50 from $6.

"The work is not yet complete, yet with substantial progress to date, we believe there are more good things to come," he added.

InnVest said on Monday that Edward Pitoniak has been appointed acting chief executive officer while the company continues its search for a permanent replacement, which has been ongoing since April.

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Mr. Pitoniak, the former CEO of hotel owner CHIP REIT, has been InnVest's managing director since April, as part of the changes influenced by Orange Capital. The company said former CEO Anthony Messina's two-year agreement ended on Nov. 30.

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