Host Hotels & Resorts Inc. ( HST - Analyst Report ) ), a real estate investment trust (REIT), is scheduled to report third quarter 2012 earnings results on October 10, 2012. The current Zacks Consensus Estimate for the quarter is 21 cents, representing a year-over-year growth of 28.1%.

Second Quarter Recap

Host Hotels reported second quarter 2012 FFO (funds from operations) of $246 million or 32 cents per share compared with $221 million or 30 cents per share in the year-earlier quarter. Reported FFO missed the Zacks Consensus Estimate by a penny.

Adjusted FFO in the reported quarter was $261 million or 34 cents per share versus $227 million or 31 cents per share in the year-ago period.

Total revenue increased 6.5% year over year to $1,368 million from $1,284 million and exceeded the Zacks Consensus Estimate of $1,363 million.The increase in revenue was driven by solid performance of the company's owned hotels and improvements in comparable food and beverage revenues.

Agreement of Analysts

In the last seven days, none of the analysts have revised their earnings estimate upwards for 2012 and 2013 although two analysts have each revised them down for both the years. This signifies that the analysts are skewed towards a negative direction.

Magnitude of Estimate Revisions

For full-year 2012, the company expects adjusted FFO in the range of $1.04 to $1.09 per share. The Zacks Consensus Estimates for 2012 have decreased over the last seven days from $1.08 per share to $1.07. For 2013, the Zacks Consensus Estimates have remained steady over the last seven days at $1.27 per share. This signifies that the analysts are cautious about the long term performance of the company.

Our Recommendation

Host Hotels is the largest lodging REIT with high-quality lodging assets in geographically diverse locations. Over the years, the company has executed a focused and disciplined long-term strategic plan to acquire high quality lodging assets, which have the potential for significant capital appreciation. This provides significant upside potential for the company.

Host Hotels maximizes the value of its existing portfolio through aggressive asset management, and works diligently with the managers of its hotels to reduce operating costs and increase revenues, and conducts selective capital improvement and expansion designed to improve operations.

However, the acquisition spree of Host Hotels involves significant upfront operating expenses with limited near-term profitability. New hotels usually take time to generate revenues, and will continue to drag margins till they are established.

Host Hotels currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, LaSalle Hotel Properties ( LHO - Snapshot Report ) holds a Zacks #4 Rank, which translates into a short term Sell rating.

Note: Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.