?

CommonWealth REIT CWH

Last Price 25.73 USD Fair Value 33.00 USD Consider Buy 19.80 USD Consider Sell 56.10 USD

[NYSE]

QQQQ
TM

Uncertainty High

Economic Moat None

Stewardship F

Morningstar Credit Rating Industry REIT - Retail .

Dropping Coverage of CommonWealth REIT

future developments. With the majority of its portfolio susceptible to plentiful competitive alternatives, we dont think CommonWealth has a moat. Nonetheless, landlords such as CommonWealth benefit from favorable leasing structures. Generally, tenants sign long-term leases that result in a contractual stream of revenue over terms that range usually between five and 10 years. This can lead to a degree of predictability in financial results. But commercial property is subject to cyclicality, and CommonWealth has not gone unscathed during the current downturn. As economic activity slowed and employment fell, demand for industrial and office space soured. Tenants downsized or moved out, resulting in increasing vacancy rates across CommonWealths portfolio. As this scenario played out across the office and industrial sectors in general, the availability of space increased and tenants gained the upper hand in lease negotiations, thereby driving down rents. We think office and industrial landlords, particularly those--such as CommonWealth--that are reliant on suburban properties, will continue to face a difficult leasing environment until the macro economy shows meaningful and sustained improvement.

by Todd Lukasik, CFA Stock Analyst Analysts covering this company do not own its stock. Pricing data through January 19, 2011. Rating updated as of January 19, 2011. Currency amounts expressed with "$" are in U.S. dollars (USD) unless otherwise denoted.

Analyst Note Jan. 05, 2011

We are no longer providing equity research on CommonWealth REIT . We provide broad coverage of more than 1,700 companies, and adjust our coverage as necessary based on client demand and investor interest.

Thesis Aug. 12, 2010

Stock Price 51.0
41.0 31.0

21.0

11.0 07 08 09 10 11

After spinning off its health-care and government-tenanted properties to Senior Housing Properties Trust and Government Properties Income Trust, respectively, CommonWealth REIT, formerly called HRPT Properties Trust, was left with a collection of office and industrial properties located across the United States. The U.S. government is still its largest tenant, at roughly 5% of rental income, and we appreciate CommonWealths geographic and tenant diversity. Nevertheless, we think CommonWealths mainly suburban portfolio lacks meaningful competitive advantages, and we dont think CommonWealth has an economic moat. Also, while being a landlord can be a fairly predictable business, we notch up CommonWealths uncertainty rating to high based on its external management structure, potential conflicts of interest, and related party transactions. While CommonWealths leasable square feet are split relatively equally between office and industrial properties, its office properties command higher rents, and generate roughly three-fourths of its net operating income. As to office properties, we prefer buildings in central business districts with structural density, where it is difficult to build new, competing supply. At Commonwealth, only about 35% of net operating income comes from office buildings located in central business districts, with the remainder coming from suburban office and industrial properties. The latter are generally subject to tougher competitive dynamics, due to availability of alternative supply in the form of both existing buildings and potential

Valuation, Growth and Profitability

We are increasing our fair value estimate for CommonWealth to $33 per share, up from $8 previously. This increase is mainly due to our incorporation of the effect of its reverse 4-for-1 stock split, and a lower estimate for its cost of capital. Our new $33 fair value estimate implies an 8.2% cap rate and a 6.1% dividend yield (based on a $2-per-share annual dividend). Our forecast results in an average return on real estate assets, or ROREA, of 8.3% through 2019, which is lower than CommonWealths estimated cost of capital of 9.2%, supporting our belief that this company does not have a moat. We estimate that, on average, leases will renew at rates 5% higher, that existing leases will experience annual rent bumps of about 1%, and that occupancy will be about

CommonWealth REIT CWH

Last Price 25.73 USD Fair Value 33.00 USD Consider Buy 19.80 USD Consider Sell 56.10 USD

[NYSE]

QQQQ
TM

Uncertainty High

Economic Moat None

Stewardship F

Morningstar Credit Rating Industry REIT - Retail .

Close Competitors CommonWealth REIT Liberty Property Trust Mack-Cali Realty Corporation Brandywine Realty Trust

Currency(Mil) USD USD USD USD

Market Cap 1,856 3,786 2,662 1,503

TTM Sales 860 752 795 571

Oper Income 253 284 204 102

Net Income 52 46 47 -25

Morningstar data as of January 19, 2011.

91% across CommonWealths properties over the next 10 years. These assumptions imply average annual organic revenue growth of about 2%. We also assume that CommonWealth will earn a 10% initial yield on about $200 million in announced 2010 acquisition spending, although we do not explicitly include this in our revenue and profitability forecasts. Our earnings before interest, taxes, depreciation, and amortization, or EBITDA, margin forecast averages 55%, and our net operating income margin forecast averages 60% through 2019, with lower levels in early years to reflect what we believe will be a tough economic environment. We add roughly $250 million to our discounted-cash-flow-driven valuation model to account for CommonWealths nearly 10 million share stake in former subsidiary Government Properties.

stream of recurring, contractual revenue for CommonWealth. With properties spread across the United States, CommonWealth is less susceptible to economic downturns in any one region of the country. The creditworthy U.S. government is CommonWealths top tenant, and accounts for roughly 5% of revenue. Tenant diversity is good. Outside of the U.S. government, no tenant contributes more than 2% of revenue, and its top 10 tenants combined account for just 19% of revenue.

Bears Say

Risk

CommonWealth outsources its management to REIT Management & Research, or RMR, which is incentivized to grow CommonWealths assets, and may have conflicts of interests with other landlords it manages. Operationally, CommonWealth derives roughly 15% of net operating income from the Philadelphia metro area, another 9% from Oahu, 7% from metro Washington, D.C., and 6% from metro Boston. A double-dip recession would put further pressure on CommonWealths cash flows, which have already contracted from peak levels.

A weak macro economy threatens to reduce CommonWealths tenants demand for its office and industrial space, resulting in lower rents and occupancy rates, especially in the near term. Many costs related to the ownership and management of office and industrial properties are fixed. As revenue falls, profitability and cash flow will fall disproportionately. CommonWealths outsourced management to RMR has the potential to lead to conflicts of interest between RMR and CommonWealths shareholders. The majority of CommonWealths properties are located in suburban areas, which are subject to competitive pressures due to generally low barriers to entry for new supply. If long-term interest rates rise more than we expect, this firms cost of capital would increase, pressuring asset values and reducing cash flow.

Financial Overview

Bulls Say

Tenants sign long-term leases, which result in a nice

Financial Health: CommonWealths debt recently represented 45% of gross property assets, which is manageable. Furthermore, only 29 of its 500 or so properties were encumbered with mortgages. The firm did

2011 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

CommonWealth REIT CWH

Last Price 25.73 USD Fair Value 33.00 USD Consider Buy 19.80 USD Consider Sell 56.10 USD

[NYSE]

QQQQ
TM

Uncertainty High

Economic Moat None

Stewardship F

Morningstar Credit Rating Industry REIT - Retail .

a reverse stock split in mid 2010, effectively increasing its common stock price per share. It also has roughly $700 million of preferred stock in its capital structure.

conflicts of interest that result in disappointment for CommonWealths shareholders.

Company Overview

Profile: HRPT Properties Trust changed its name to CommonWealth REIT in June 2010. At the end of 2009, the firm owned 332 office properties, with 35.3 million square feet and 186 (mainly) industrial properties with 31.5 million square feet, including 17.9 million square feet on the Hawaiian island of Oahu. CommonWealth REIT also owns roughly 10 million shares, or nearly a third, of Government Properties Income Trust, which it spun off in 2009. Management: We give CommonWealth very poor marks in our stewardship model. Our major complaints are related to its outsourced management by REIT Management & Research, or RMR. Under RMRs management, CommonWealth spun off its health-care and government-tenanted properties--building types with leasing characteristics we like--to other RMR-managed entities, Senior Housing and Government Properties. CommonWealth is restricted from investing in property types that are the focus of another RMR-run entity, which now include health-care and government-tenanted properties, among others. Furthermore, RMR is partly compensated based on gross assets and increases in funds from operations, or FFO (a cash-flow metric), which could incentivize RMR to grow for growths--and its own income statements--sake, regardless whether the growth is value-accretive to CommonWealth shareholders. We question the independence of CommonWealths staggered board, as all of its five trustees either own RMR, or sit on the boards of other RMR-run entities. Finally, trustees and other CommonWealth-related executives own less than 1% of common shares. Given this outsourced management structure, we worry about the potential for

2011 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

CommonWealth REIT CWH

Last Price 25.73 USD Fair Value 33.00 USD Consider Buy 19.80 USD Consider Sell 56.10 USD

[NYSE]

QQQQ
TM

Uncertainty High

Economic Moat None

Stewardship F

Morningstar Credit Rating Industry REIT - Retail .

Analyst Notes
Jan. 05, 2011 Dropping Coverage of CommonWealth REIT

We are no longer providing equity research on CommonWealth REIT . We provide broad coverage of more

than 1,700 companies, and adjust our coverage as necessary based on client demand and investor interest.

Disclaimers & Disclosures No Morningstar employees are officers or directors of this company. Morningstar Inc. does not own more than 1% of the shares of this company. Analysts covering this company do not own its stock. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security.

2011 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

Morningstar Stock Data Sheet

Pricing data thru Jan. 19, 2011

Rating updated as of Jan. 19, 2011

Fiscal year-end: December

CommonWealth REIT CWH

HRPT Properties Trust changed its name to CommonWealth REIT in June 2010. At the end of 2009, the firm owned 332 office properties, with 35.3 million square feet and 186 (mainly) industrial properties with 31.5 million square feet, including 17.9 million square feet on the Hawaiian island of Oahu. CommonWealth REIT also owns roughly 10 million shares, or nearly a third, of Government Properties Income Trust, which it spun off in 2009.
Morningstar Rating

Sales USD Mil Mkt Cap USD Mil Industry

Sector

860
Last Price Fair Value

1,856
Uncertainty

REIT - Retail
Economic Moat
TM

Financial Services
Stewardship Grade

QQQQ
48.36 29.36

25.73

33.00 53.00 40.72

High 54.68 29.60

None 32.52 9.92

F per share prices in USD

Annual Price High Low Recent Splits

37.48 26.52

41.24 32.32

51.96 33.40

51.24 41.20

34.24 6.28

33.00 22.89
1:4

26.13 25.20

Price Volatility
39.0 19.0

Monthly High/Low Rel Strength to S&P 500 52 week High/Low 33.00 - 22.89 10 Year High/Low 54.68 - 6.28

5.0

400 Centre Street Newton, MA 02458 Phone: 1 617 332-3990Website: http://www.hrpreit.com

2.0 1.1 0.6

Bear-Market Rank 0 (10=worst) Trading Volume Million

Growth Rates Compound Annual

Grade: C 1 Yr 3 Yr 5 Yr 10 Yr

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

YTD

Stock Performance Total Return % +/- Market +/- Industry Dividend Yield % Market Cap USD Mil
Financials

Revenue % Operating Income % Earnings/Share % Dividends % Book Value/Share % Stock Total Return % +/- Industry +/- Market Profitability Analysis
Grade: C

1.7 -4.1 -14.3 -28.6 0.3 3.4 -28.1 -8.0

Current

2.2 -4.6 128.9 -17.0 -1.2 4.5 3.2 5.6

5 Yr Avg

7.1 1.4 -28.9 -6.1 -0.8 -1.5 -0.2 -1.4

Ind

7.1 2.7 -17.3 -10.3 -1.6 6.4 -3.5 6.9

Mkt

25.1 38.1 6.0 9.2 1108

2000

5.2 28.6 -11.1 7.9 1062

2001

32.2 5.8 -8.2 6.4 1441

2002

35.3 26.3 -0.6 6.4 2275

2003

-12.8 -15.8 -25.1 8.1 2172

2004

29.5 15.9 -2.4 6.8 2594

2005

-32.3 -35.8 -13.7 10.9 1743

2006

-45.5 -7.0 -3.9 24.9 767

2007

109.8 86.4 87.2 7.4 1448

2008

4.3 -8.5 -20.1 7.7 1840

2009

2.8 0.9 -4.1 7.7 1856

TTM

405 . 185 45.7 142 . . . 45.40 155 -22 133

2000

394 . 177 44.8 66 2.04 3.20 33 44.82 145 -57 88

2001

417 . 179 42.9 79 2.44 2.60 32 42.83 179 -501 -322

2002

501 . 192 38.4 68 2.00 2.60 34 41.15 200 -833 -633

2003

603 . 238 39.4 117 2.64 3.28 44 41.22 209 -765 -556
2004

711 . 274 38.5 119 2.40 3.36 49 40.90 226 -576 -350
2005

796 . 293 36.8 199 3.76 4.20 54 39.40 286 -528 -241
2006

840 . 292 34.8 59 1.12 2.52 61 39.33 272 -423 -152

2007

836 58.4 265 31.7 194 3.44 3.36 64 39.43 298 -416 -118
2008

850 58.1 254 29.9 114 2.04 2.40 63 36.48 297 -665 -368
2009

860 57.9 253 29.5 52 0.77 1.94 68 36.48 262 -602 -340
TTM

Revenue USD Mil Gross Margin % Oper Income USD Mil Operating Margin % Net Income USD Mil Earnings Per Share USD Dividends USD Shares Mil Book Value Per Share USD Oper Cash Flow USD Mil Cap Spending USD Mil Free Cash Flow USD Mil
Profitability

Return on Equity % Return on Assets % Fixed Asset Turns Inventory Turns Revenue/Employee USD K Gross Margin % Operating Margin % Net Margin % Free Cash Flow/Rev % R&D/Rev % Financial Position
Grade: C

2.1 0.8 0.1 . . 57.9 29.5 6.1 . .

6.3 2.4 0.1 . .* . 34.4 17.1 . .

1.2 0.3 0.1 58.5 . 59.8 21.4 2.4 8.9 .

22.0 8.5 7.2 14.0 885.7 39.4 14.3 9.5 0.1 9.9

12-09 USD Mil

09-10 USD Mil

Cash Inventories Receivables Current Assets Fixed Assets Intangibles Total Assets Payables Short-Term Debt Current Liabilities Long-Term Debt Total Liabilities Total Equity Valuation Analysis
Current

18 . 194 349 5614 . 6121 8 23 240 2993 3232 2889

5 Yr Avg Ind

175 . 199 534 5666 . 6374 26 . 210 2827 3060 3314

Mkt

4.9 9.3 35.1 0.14 1.9

2000

2.3 4.4 16.7 0.14 1.9

2001

2.6 5.5 19.0 0.14 2.2

2002

1.9 4.6 13.7 0.14 2.6

2003

2.6 7.0 19.4 0.14 2.6

2004

2.4 6.0 16.7 0.14 2.5

2005

3.6 9.2 25.0 0.15 2.6

2006

1.0 2.7 7.1 0.15 2.6

2007

3.3 8.7 23.2 0.14 2.7

2008

1.9 5.1 13.4 0.14 2.8

2009

0.8 2.1 6.1 0.14 2.4

09-10

Return on Assets % Return on Equity % Net Margin % Asset Turnover Financial Leverage
Financial Health

. 1303 1529 0.85

2001

. 1097 1657 0.75

2002

. 1222 1926 0.85

2003

. 1910 2012 1.25

2004

. 2411 2307 1.32

2005

. 2570 2645 1.19

2006

. 2452 2951 1.14

2007

. 2826 2903 1.27

2008

. 2251 2921 1.03

2009

109 2993 2889 1.36

2010

324 2827 3314 1.07

TTM

Working Capital USD Mil Long-Term Debt USD Mil Total Equity USD Mil Debt/Equity
Valuation

16.7 . 2.9 0.8 7.8

12.9 . 2.5 0.7 5.9

20.2 . 2.8 0.9 6.9

19.5 . 3.8 1.3 10.8

18.5 . 2.8 1.0 8.7

. . 3.3 1.2 9.1

28.6 . 2.2 0.8 6.9

24.1 . 1.0 0.3 2.9

54.0 . 1.9 0.7 5.5

17.6 1.0 2.0 0.7 6.6

17.8 1.1 2.0 0.7 6.7

Price/Earnings P/E vs. Market Price/Sales Price/Book Price/Cash Flow

Quarterly Results
Revenue USD Mil Dec 09 Mar 10 Jun 10 Sep 10

Industry Peers by Market Cap

Mkt Cap USD Mil Rev USD Mil P/E ROE%

Price/Earnings Forward P/E Price/Cash Flow Price/Free Cash Flow Dividend Yield % Price/Book Price/Sales PEG Ratio

17.8 26.0 6.7 . 7.7 0.7 2.0 .

. . 6.2 . . 0.7 2.1 .

. . 14.9 60.2 3.2 2.7 5.3 .

16.2 15.1 8.4 16.8 1.8 2.2 1.4 1.7

Most Recent Period Prior Year Period

Rev Growth %

213.5 218.4
Dec 09

213.6 216.9
Mar 10

214.0 212.7
Jun 10

218.0 206.6
Sep 10

CommonWealth REIT Liberty Property Tru Mack-Cali Realty Cor Major Fund Holders

1856 3786 2662

860 17.8 752 69.9 795 59.2

2.1 2.1 2.6

Most Recent Period Prior Year Period

Earnings Per Share USD

-2.3 2.2
Dec 09

-1.5 0.8
Mar 10

0.6 4.1
Jun 10

5.5 -2.4
Sep 10

% of shares

Most Recent Period Prior Year Period

-0.40 0.92

0.44 0.52

-0.04 0.84

0.82 1.08

Vanguard REIT Index Inv Vanguard Small Cap Index Inv DWS Dreman Small Cap Value A

17.81 4.89 4.58

*3Yr Avg data is displayed in place of 5Yr Avg

TTM data based on rolling quarterly data if available; otherwise most recent annual data shown.

2011 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.

The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

Morningstars Approach to Rating Stocks

Our Key Investing Concepts Economic Moat Rating Discounted Cash Flow Discount Rate Fair Value Uncertainty Margin of Safety Consider Buying/Consider Selling Stewardship Grades
TM

At Morningstar, we evaluate stocks as pieces of a business, not as pieces of paper. We think that purchasing shares of superior businesses at discounts to their intrinsic value and allowing them to compound their value over long periods of time is the surest way to create wealth in the stock market. We rate stocks 1 through 5 stars, with 5 the best and 1 the worst. Our star rating is based on our analysts estimate of how much a companys business is worth per share. Our analysts arrive at this "fair value estimate" by forecasting how much excess cash--or "free cash flow"--the firm will generate in the future, and then adjusting the total for timing and risk. Cash generated next year is worth more than cash generated several years down the road, and cash from a stable and consistently profitable business is worth more than cash from a cyclical or unsteady business. Stocks trading at meaningful discounts to our fair value estimates will receive high star ratings. For high-quality businesses, we require a smaller discount than for mediocre ones, for a simple reason: We have more confidence in our cash-flow forecasts for strong companies, and thus in our value estimates. If a stocks market price is significantly above our fair value estimate, it will receive a low star rating, no matter how wonderful we think the business is. Even the best company is a bad deal if an investor overpays for its shares. Our fair value estimates dont change very often, but market prices do. So, a stock may gain or lose stars based

just on movement in the share price. If we think a stocks fair value is $50, and the shares decline to $40 without much change in the value of the business, the star rating will go up. Our estimate of what the business is worth hasnt changed, but the shares are more attractive as an investment at $40 than they were at $50. Because we focus on the long-term value of businesses, rather than short-term movements in stock prices, at times we may appear out of step with the overall stock market. When stocks are high, relatively few will receive our highest rating of 5 stars. But when the market tumbles, many more will likely garner 5 stars. Although you might expect to see more 5-star stocks as the market rises, we find assets more attractive when theyre cheap. We calculate our star ratings nightly after the markets close, and issue them the following business day, which is why the rating date on our reports will always be the previous business day. We update the text of our reports as new information becomes available, usually about once or twice per quarter. That is why youll see two dates on every Morningstar stock report. Of course, we monitor market events and all of our stocks every business day, so our ratings always reflect our analysts current opinion.

Economic Moat Rating

TM

The Economic Moat Rating is our assessment of a firms ability to earn returns consistently above its cost of capital in the future, usually by virtue of some competitive advantage. Competition tends to drive down such

TM

Morningstar Research Methodology for Valuing Companies

Competitive Analysis

Economic TM Moat Rating

Company Valuation

Fair Value Estimate

Uncertainty Assessment

QQQQQ
Q QQ QQQ QQQQ QQQQQ
The current stock price relative to fair value, adjusted for uncertainty, determines the rating.

Analyst conducts company and industry research: Management interviews Conference calls Trade-show visits Competitor, supplier, distributor, and customer interviews

The depth of the firms competitive advantage is rated: None Narrow Wide

Analyst considers company financial statements and competitive position to forecast future cash flows. Assumptions are input into a discounted cash-flow model.

DCF model leads to the firms Fair Value Estimate, which anchors the rating framework.

An uncertainty assessment establishes the margin of safety required for the stock rating.

2011 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

Morningstars Approach to Rating Stocks (continued)

economic profits, but companies that can earn them for an extended time by creating a competitive advantage possess an Economic Moat. We see these companies as superior investments.

Very High, or Extreme. The greater the level of uncertainty, the greater the discount to fair value required before a stock can earn 5 stars, and the greater the premium to fair value before a stock earns a 1-star rating.

Discounted Cash Flow

Margin of Safety

This is a method for valuing companies that involves projecting the amount of cash a business will generate in the future, subtracting the amount of cash that the company will need to reinvest in its business, and using the result to calculate the worth of the firm. We use this technique to value nearly all of the companies we cover.

This is the discount to fair value we would require before recommending a stock. We think its always prudent to buy stocks for less than theyre worth.The margin of safety is like an insurance policy that protects investors from bad news or overly optimistic fair value estimates. We require larger margins of safety for less predictable stocks, and smaller margins of safety for more predictable stocks.

Discount Rate

We use this number to adjust the value of our forecasted cash flows for the risk that they may not materialize. For a profitable company in a steady line of business, well use a lower discount rate, also known as "cost of capital," than for a firm in a cyclical business with fierce competition, since theres less risk clouding the firms future.

Consider Buying/Consider Selling

The consider buying price is the price at which a stock would be rated 5 stars, and thus the point at which we would consider the stock an extremely attractive purchase. Conversely, consider selling is the price at which a stock would have a 1 star rating, at which point wed consider the stock overvalued, with low expected returns relative to its risk.

Fair Value

This is the output of our discounted cash-flow valuation models, and is our per-share estimate of a companys intrinsic worth. We adjust our fair values for off-balance sheet liabilities or assets that a firm might have--for example, we deduct from a companys fair value if it has issued a lot of stock options or has an under-funded pension plan. Our fair value estimate differs from a "target price" in two ways. First, its an estimate of what the business is worth, whereas a price target typically reflects what other investors may pay for the stock. Second, its a long-term estimate, whereas price targets generally focus on the next two to 12 months.

Stewardship Grades

We evaluate the commitment to shareholders demonstrated by each firms board and management team by assessing transparency, shareholder friendliness, incentives, and ownership. We aim to identify firms that provide investors with insufficient or potentially misleading financial information, seek to limit the power of minority shareholders, allow management to abuse its position, or which have management incentives that are not aligned with the interests of long-term shareholders. The grades are assigned on an absolute scale--not relative to peers--and can be interpreted as follows: A means "Excellent," B means "Good," C means "Fair," D means "Poor," and F means "Very Poor."

Uncertainty

To generate the Morningstar Uncertainty Rating, analysts consider factors such as sales predictability, operating leverage, and financial leverage. Analysts then classify their ability to bound the fair value estimate for the stock into one of several uncertainty levels: Low, Medium, High,
2011 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.