Summary of BROOKFIELD HOMES CORP

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion includes forward-looking statements that reflect our current views with respect to future events and financial performance and that involve risks and uncertainties. Our actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements as a result of certain factors including risks discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" and Item 1A - "Risk Factors" elsewhere in this report and in our Annual Report on Form 10-K/A for the year ended December 31, 2007. Outlook
During the third quarter of 2008, we continued to experience challenging housing market conditions as a result of a continuing excess supply of housing inventory and the ongoing disruption in credit markets that began in 2007. Despite these challenging market conditions which are negatively affecting our current housing operations, we continue to focus on the monetization of our lots ready for house construction to generate cash flow to repay debt in the interim, and to redeploy to assets with higher expected returns. In addition, we continue to focus on our core strategies, including controlling land through option contracts and adding value by entitling raw land and creating communities. Overview
We entitle and develop land for our communities and sell lots to third parties. We also design, construct and market single and multi-family homes primarily to move-up and luxury homebuyers.
We operate in the following geographic regions which are presented as our reportable segments: Northern California (San Francisco Bay Area and Sacramento), Southland / Los Angeles, San Diego / Riverside and Washington, D.C. Area. Our other operations that do not meet the quantitative thresholds for separate disclosure in our financial statements under US GAAP are included in "Corporate and Other."
Our goal is to maximize the total return on our common stockholders' equity over the long term. We plan to achieve this by actively managing our assets and creating value on the lots we own or control.
For the period 2003 through the third quarter of 2008, cash provided from operations was $444 million, which was used primarily to return cash to stockholders through the repurchase of shares and the payment of dividends. Despite the continuing challenges of the United States housing market, we believe our business is positioned to create further shareholder value over the long term through the selective control of a number of strategic projects and the overall level of lots controlled.
The 25,678 lots that we control, 14,706 of which we own directly or through joint ventures, provide a strong foundation for our business and visibility on our future cash flow. We believe we add value to the lots we control through entitlements, development and the construction of homes. In allocating capital to our operations we generally limit our risk on unentitled land by optioning such land positions in all our markets, thereby mitigating our capital at risk. Option contracts for the purchase of land permit us to control lots for an extended period of time.
Homebuilding is our primary source of revenue and has represented approximately 90% of our total revenue since 2002. Our average sales price for the nine months ended September 30, 2008 of $565,000 was well in excess of the national average sales price as we operate in markets with higher price points and cater to move-up and luxury buyers. We also sell serviced and unserviced lots to other homebuilders generally on an opportunistic basis where we can redeploy capital to an asset providing higher returns or reduce risk in a market.
Our housing and land inventory, investments in housing and land joint ventures, and consolidated land inventory not owned together comprised 91% of our total assets as of September 30, 2008. In addition, we had $121 million in other assets, which consisted of homebuyer receivables of $6 million, deferred income taxes and income taxes receivable of $85 million and mortgages and other receivables of $30 million. Homebuyer receivables consist primarily of proceeds due from homebuyers on the closing of homes. Critical Accounting Policies and Estimates There have been no significant changes to our critical accounting policies and estimates during the three months and nine months ended September 30, 2008 compared to those disclosed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K/A for the year ended December 31, 2007.

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Results of Operations

                                                     Three Months Ended                Nine Months Ended
Selected Financial Information (Unaudited)             September 30,                     September 30,
($US millions)                                     2008             2007              2008             2007
Revenue:
Housing                                          $   107          $   117          $    288          $  376
Land                                                   3                4                11              10

Total revenues                                       110              121               299             386
Direct cost of sales                                 (98 )            (99 )            (262 )          (315 )
Impairment of housing and land inventory
and write-off of option deposits                     (32 )            (35 )             (55 )           (35 )

Gross margin / (loss)                                (20 )            (13 )             (18 )            36
Selling, general and administrative
expense                                              (16 )            (16 )             (47 )           (50 )
Equity in earnings from housing and land
joint ventures                                         -                1                 2               1
Impairment of investments in housing and
land joint ventures                                   (8 )             (7 )             (18 )            (7 )
Other (expense) / income                              (1 )             (6 )              (1 )             -

Operating loss                                       (45 )            (41 )             (82 )           (20 )
Minority interest                                      4                4                 7               3

Loss before taxes                                    (41 )            (37 )             (75 )           (17 )
Income tax recovery                                   16               39                29              57

Net (loss) / income                              $   (25 )        $     2          $    (46 )        $   40


Segment Information

Housing revenue ($US millions):
Northern California                              $    35          $    24          $     82          $   64
Southland / Los Angeles                               12               27                68             132
San Diego / Riverside                                 18               20                50              70
Washington D.C. Area                                  41               45                84              98
Corporate and Other                                    1                1                 4              12

Total                                            $   107          $   117          $    288          $  376


Land revenues ($US millions):
Northern California                              $     -          $     -          $      -          $    -
Southland / Los Angeles                                -                -                 -               -
San Diego / Riverside                                  -                -                 -               -
Washington D.C. Area                                   3                4                11              10
Corporate and Other                                    -                -                 -               -

Total                                            $     3          $     4          $     11          $   10


Impairment of housing and land inventory
and write-off of option deposits ($US
millions):
Northern California                              $     5          $     3          $      5          $    3
Southland / Los Angeles                                -                -                 -               -
San Diego / Riverside                                 20               32                20              32
Washington D.C. Area                                   7                -                30               -
Corporate and Other                                    -                -                 -               -

Total                                            $    32          $    35          $     55          $   35


Gross margin / (loss) ($US millions)(1):
Northern California                              $    (2 )        $     1          $      1          $    8
Southland / Los Angeles                                1                5                 9              25
San Diego / Riverside                                (17 )            (25 )              (9 )           (14 )
Washington D.C. Area                                  (1 )              6               (17 )            15
Corporate and Other                                   (1 )              -                (2 )             2

Total                                            $   (20 )        $   (13 )        $    (18 )        $   36

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                                                       Three Months Ended                      Nine Months Ended
                                                         September 30,                           September 30,
                                                   2008                2007                 2008                2007
Home closings (units):
Northern California                                    38                   26                   88                 69
Southland / Los Angeles                                31                   35                  162                177
San Diego / Riverside                                  33                   34                   94                118
Washington D.C. Area                                   81                   81                  166                183
Corporate and Other                                     1                    1                    5                 14

Consolidated total                                    184                  177                  515                561
Joint ventures                                          -                    2                    5                  6

Total                                                 184                  179                  520                567

Average selling price ($US):
Northern California                             $ 925,000          $   924,000          $   931,000          $ 928,000
Southland / Los Angeles                           377,000              787,000              420,000            748,000
San Diego / Riverside                             549,000              595,000              536,000            594,000
Washington D.C. Area                              502,000              554,000              508,000            535,000
Corporate and Other                               732,000              750,000              689,000            831,000

Consolidated average                              578,000              663,000              559,000            670,000
Joint ventures                                          -            1,102,000            1,236,000            989,000

Average                                         $ 578,000          $   667,000          $   565,000          $ 673,000

Net new orders (units): (2)
Northern California                                    37                   39                  107                102
Southland / Los Angeles                                48                   25                  207                159
San Diego / Riverside                                  27                   18                  116                107
Washington D.C. Area                                   49                   33                  194                220
Corporate and Other                                     2                    4                    6                 14

Consolidated total                                    163                  119                  630                602
Joint ventures                                          -                   11                    1                 29

Total                                                 163                  130                  631                631


Backlog (units at end of period): (3)
Northern California                                                                              46                 50
Southland / Los Angeles                                                                          90                 82
San Diego / Riverside                                                                            30                 24
Washington D.C. Area                                                                             80                112
Corporate and other                                                                              20                 20

Consolidated total                                                                              266                288
Joint ventures                                                                                    -                 35

Total                                                                                           266                323

Lots controlled (units at end of period):
Lots owned:
Northern California                                                                           1,237              1,326
Southland / Los Angeles                                                                       1,434              1,358
San Diego / Riverside                                                                         7,997              6,096
Washington D.C. Area                                                                          3,764              3,814
Corporate and Other                                                                             274                142

                                                                                             14,706             12,736
Lots under option (4)                                                                        10,972             13,762

Total                                                                                        25,678             26,498

(1) Gross margin /
(loss) includes impairment of housing and land inventory and write-off of option deposits.

(2) Net new orders for any period represent the aggregate of all homes ordered by customers, net of cancellations.

(3) Backlog represents the number of new homes subject to pending sales contracts.

(4) Includes proportionate share of lots under option related to joint ventures.

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Three Months and Nine Months Ended September 30, 2008 Compared with Three Months and Nine Months Ended September 30, 2007 Net (Loss) / Income
Net loss was $25 million and $46 million for the three months and nine months ended September 30, 2008, a decrease in income of $27 million and $86 million, respectively, when compared to the same periods in 2007. The decrease for the three months ended September 30, 2008 primarily relates to a reversal of an uncertain tax position that contributed $25 million to net income during the three months ended September 30, 2007. The decrease for the nine months ended September 30, 2008 primarily relates to higher impairment charges in 2008 when compared to 2007 and reversals of uncertain tax positions that contributed $51 million to net income during the nine months ended September 30, 2007. Results of Operations
Company-wide: Housing revenue was $107 million and $288 million for the three months and nine months ended September 30, 2008, a decrease of $10 million and $88 million, respectively, when compared to the same periods in 2007. The decrease in housing revenue was primarily a result of a decrease of 13% and 17% in the average selling price during the three months and nine months ended September 30, 2008 when compared to the same periods in 2007. The gross margin on housing revenue for the three months ended September 30, 2008 was $11 million or 11% compared with $22 million or 18% for the same period in 2007. The gross margin on housing revenue for the nine months ended September 30, 2008 was $35 million or 12% compared with $70 million or 19% for the same period in 2007. The decrease in the gross margin was due to continued homebuyer incentives and/or reduced average selling prices.
Land revenue totaled $3 million and $11 million for the three months and nine months ended September 30, 2008, consistent with the same periods in 2007. Our land revenues may vary significantly from period to period due to the timing and nature of land sales as they generally occur on an opportunistic basis and such revenues are also affected by local market conditions which continue to be weak. During the three months and nine months ended September 30, 2008, we recognized $32 million and $55 million of impairment charges and write-offs of option deposits compared to $35 million for the same periods in 2007. The impairment charges and write-offs for the three months ended September 30, 2008 relates to 709 lots primarily in the San Diego / Riverside and the Washington D.C. Area and 606 optioned lots in Northern California. The impairment charges and write-offs for the nine months ended September 30, 2008 relate to 1,512 lots and 714 optioned lots primarily in San Diego / Riverside and the Washington D.C. Area. A summary of our gross margin is as follows:

                                          Three Months Ended           Nine Months Ended
                                             September 30,               September 30,
                                         2008            2007          2008           2007
   Housing                             $      11       $      22     $      35       $   70
   Land                                        1               -             2            1
   Impairment charges and write-offs         (32 )           (35 )         (55 )        (35 )

                                       $     (20 )     $     (13 )   $     (18 )     $   36

Northern California: Housing revenue was $35 million and $82 million for the three months and nine months ended September 30, 2008, an increase of $11 million and $18 million, respectively, when compared to the same periods in 2007. The gross margin on housing revenue for the three months ended September 30, 2008 was $3 million or 8% compared with $4 million or 17% for the same period in 2007. The gross margin on housing revenue for the nine months ended September 30, 2008 was $6 million or 7% compared with $11 million or 18% for the same period in 2007. The decrease in the gross margin percentage was a result of reduced average selling prices and/or an increase in homebuyer incentives.
Southland / Los Angeles: Housing revenue was $12 million and $68 million for the three months and nine months ended September 30, 2008, a decrease of $15 million and $64 million, respectively, when compared to the same periods in 2007. The decrease in revenue was primarily attributable to a decrease in average selling price. The gross margin on housing revenue for the three months ended September 30, 2008 was $1 million or 12% compared with $5 million or 18% for the same period in 2007. The gross margin on housing revenue for the nine months ended September 30, 2008 was $9 million or 15% compared with $25 million or 19% for the same period in 2007. The decrease in the gross margin percentage was primarily a result of an increase in homebuyer incentives and/or reduced selling prices.

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San Diego / Riverside: Housing revenue was $18 million and $50 million for the three months and nine months ended September 30, 2008, a decrease of $2 million and $20 million, respectively when compared to the same periods in 2007. The gross margin on housing revenue before impairment charges for the three months ended September 30, 2008 was $3 million or 14% compared with $6 million or 29% for the same period in 2007. The gross margin on housing revenue before impairment charges for the nine months ended September 30, 2008 was $11 million or 21% compared with $17 million or 25% for the same period in 2007. While our gross margin percentage is high relative to our other geographic areas, our current backlog of homes indicates our margins will decrease in future periods. Washington D.C. Area: Housing revenue was $41 million and $84 million for the three months and nine months ended September 30, 2008, a decrease of $4 million and $14 million, respectively, when compared to the same periods in 2007. The gross margin on housing revenue before impairment charges for the three months ended September 30, 2008 was $5 million or 13% compared with $6 million or 14% for the same period in 2007. The gross margin on housing revenue before impairment charges for the nine months ended September 30, 2008 was $11 million or 12% compared with $13 million or 14% for the same period in 2007. Other Income and Expenses
Selling, general and administrative expenses were $16 million and $47 million for the three months and nine months ended September 30, 2008, relatively consistent with the same periods in 2007. Included in selling, general and administrative expense was net stock compensation expense of $2 million and $1 million for the nine months ended September 30, 2008 and 2007, respectively. Equity in earnings from housing and land joint ventures for the three months and nine months ended September 30, 2008 was $nil and $2 million respectively, a decrease of $1 million and an increase of $1 million when compared to the same periods in 2007. The impairments of our investments in housing and land joint ventures of $8 million and $18 million for the three months and nine months ended September 30, 2008 primarily relates to 907 lots in the Inland Empire of California.
Other (expense) / income for the three months and nine months ended September 30, 2008 totaled expense of $1 million, an increase of $5 million and a decrease of $1 million, respectively, when compared to the same periods in 2007.
Sales Activity
Net new home orders for the three months and nine months ended September 30, 2008 totaled 163 and 631 units, an increase of 33 units or 25% and flat, respectively, compared to the same periods in 2007. Liquidity and Capital Resources
Financial Position
Our assets as of September 30, 2008 totaled $1,320 million, a decrease of $31 million compared to December 31, 2007. Our housing and land inventory and investments in housing and land joint ventures are our most significant assets with a combined book value of $1,189 million or approximately 90% of our total assets. Our housing and land assets have decreased by $20 million in 2008 when compared to December 31, 2007. The decrease was primarily due to impairments and write-offs of option deposits of $73 million during 2008. This decrease was offset by the acquisitions of our former partners' 50% interests in two joint ventures for $39 million, of which $7 million was paid in cash and $32 million was financed by project specific debt and other liabilities. As at September 30, 2008, we have consolidated these two former joint venture entities which resulted in an increase in our housing and land inventory of $32 million related to our share of debt in these entities. Our housing and land assets include homes completed and under construction and lots ready for construction, model homes and land under and held for development. A summary of our lots owned and their stage of development at September 30, 2008 compared with December 31, 2007 follows:

                                               September 30,       December 31,
                                                         2008               2007
     Completed homes, including models                    280                477
     Homes under construction                             175                 91
     Homes with foundations / slabs                       113                165

     Total housing units                                  568                733
     Lots ready for house construction                  2,829              2,683

                                                        3,397              3,416
     Graded lots and lots commenced grading             1,411              1,552
     Undeveloped land                                   9,898              8,110

                                                       14,706             13,078

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Our total debt as of September 30, 2008 was $783 million, an increase of $48 million from December 31, 2007. Total debt as of September 30, 2008 consisted of $511 million related to project specific financings and $272 million related to amounts drawn on our unsecured revolving credit facility with a subsidiary of our largest stockholder, Brookfield Asset Management Inc. Our project specific financings consist primarily of construction and development loans that are generally repaid from home and lot proceeds. As new homes are constructed, further loan facilities are arranged. Each of our project loans have maturity dates and usually contain extension provisions in the event a project does not meet its absorption targets. Our lenders periodically require an independent appraisal of the project they finance and this may result in valuation adjustments resulting in incremental draws or repayments. Our project specific financings as of September 30, 2008 were $511 million, a decrease of $194 million from December 31, 2007 when the impact of the acquisition of our former partners' joint venture interests of $61 million referred to above are excluded.
As of September 30, 2008, the average interest rate on our project specific financings was 6.0%, with maturities as follows:

                                                        Maturities
          ($ millions)              2008      2009      2010      Post 2010      Total
          Northern California       $  30     $  60     $  10     $        -     $  100
          Southland / Los Angeles       3         3        56             19         81
          San Diego / Riverside        23       154        18              -        195
          Washington D.C. Area         24        75         8             13        120
          Corporate / Other             6         -         9              -         15

          Total                     $  86     $ 292     $ 101     $       32     $  511

As of September 30, 2008, we had available project specific debt lines of $287 million that were available to complete land development and construction activities.
Our major project specific lenders are Wells Fargo, Bank of America, Housing Capital Company, and Union Bank of California.
The balance on our credit facility with a subsidiary of Brookfield Asset Management Inc. as of September 30, 2008 was $272 million, an increase of $29 million during the quarter ended September 30, 2008. This facility has . . .