UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

Commission File Number: 001-31524

BROOKFIELD HOMES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		37-1446709 (I.R.S. Employer Identification No.)
8500 Executive Park Avenue Suite 300, Fairfax, Virginia (Address of Principal Executive Offices)		22031 (Zip Code)

(703) 270-1700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o       No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o       No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (s.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o       No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o       No þ

As of June 30, 2009, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $39,229,680 based upon the closing market price on June 30, 2009 of a share of common stock on the New York Stock Exchange.

As of February 18, 2010, the registrant had outstanding 28,402,299 shares of its common stock, $0.01 par value per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s 2010 definitive proxy statement, to be filed with the Commission no later than April 30, 2010, are incorporated by reference into Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence) and Item 14 (Principal Accounting Fees and Services) of Part III of this annual report on Form 10-K.

 

 

PART I

Item 1. Business

Introduction

Brookfield Homes Corporation is a land developer and homebuilder that operates its business through local business units responsible for projects in their geographic area (unless the context requires otherwise, references in this report to “we,” “our,” “us” and “the Company” refer to Brookfield Homes and the subsidiaries through which it conducts all of its land development and homebuilding operations). Through the activities of our operating subsidiaries, we entitle and develop land for our own communities and sell lots to third parties. We also design, construct and market single-family and multi-family homes primarily to move-up and luxury homebuyers. Our operations are currently focused primarily in the following markets: Northern California (San Francisco Bay Area and Sacramento); Southland / Los Angeles; San Diego / Riverside; and the Washington D.C. Area. We target these markets because we believe over the longer term they offer the following positive characteristics: strong housing demand, a constrained supply of developable land and close proximity to areas where we expect strong employment growth. Our Washington D.C. Area operations commenced in the mid 1980s and our California operations commenced in 1996. We also own interests in unconsolidated entities that are not consolidated subsidiaries.

General Development of Our Business

Brookfield Homes Corporation was incorporated on August 28, 2002 in Delaware and thereafter we acquired all the California and Washington D.C. Area homebuilding and land development operations of Brookfield Properties Corporation. Our common stock began trading on the New York Stock Exchange on January 7, 2003, under the symbol “BHS.”

The following chart summarizes our principal operating subsidiaries and the year in which they commenced operations:

Principal Subsidiary		Market		Year of Entry
Brookfield Bay Area Holdings LLC		San Francisco Bay Area		1996
Brookfield Southland Holdings LLC		Southland / Los Angeles		1996
Brookfield San Diego Holdings LLC		San Diego / Riverside		1996
Brookfield Washington LLC		Washington D.C. Area		1984
Brookfield California Land Holdings LLC		California		1998

Current Business Environment

In 2009, selling communities saw an increased number of homebuyers take advantage of improved affordability, low interest rates, declining home prices and government stimulus programs. While the United States homebuilding industry continues to face a number of challenges with home foreclosures and tight credit standards continuing to have an effect on inventory and new home sale rates and prices, homebuyer confidence has improved as homebuyers appear to have recognized that home prices have begun to stabilize. Despite the challenging conditions still faced by the homebuilding market, we believe the risk is mitigated by our assets, which are largely located in geographic areas with a constrained supply of lots and which have demonstrated strong economic characteristics over the long term. For additional information and analysis of the impact on our operations and financial condition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

Overview of the Land Development and Homebuilding Industry

The residential land development and homebuilding industry involves converting raw or undeveloped land into residential housing. This process begins with the purchase or control of raw land and is followed by the entitlement and development of the land, and the marketing and sale of homes constructed on the land.

Raw Land

Raw land is usually unentitled property, without the regulatory approvals which allow the construction of residential, industrial, commercial or mixed-use buildings. Acquiring and developing raw land requires significant capital expenditures and has associated carrying costs, including property taxes and interest. The selection and purchase of raw land provides the inventory required for development purposes and is an important aspect of the real estate development process. Developers of land, from time to time, sell raw or partially approved land to other land developers and homebuilders as part of the normal course of their business.

Land Development

Land development involves the conversion of raw land to the stage where homes may be constructed on the land. Regulatory bodies at the various governmental levels must approve the proposed end use of the land and many of the details of the development process. The time required to obtain the necessary approvals varies. In most jurisdictions, development occurs on a contiguous basis to existing land services such as water and sanitation.

To shorten the development period, many developers purchase land that has been partially developed. This land is generally higher in value than raw land because a portion of the costs and risk associated with the development have been incurred.

Generally, the first significant step in developing a residential community is to complete a draft specific plan incorporating major street patterns and designating parcels of land for various uses, such as parks, schools, rights of way and residential and commercial uses that is consistent with the local city or county general plan. This plan is then submitted for approval to the governmental authority with principal jurisdiction in the area such as a city or county. The draft specific plan is then refined with the local, state and federal agencies designating main and side streets, lot sizes for residential use and the sizes and locations of parcels of land to be used for schools, parks, open space, commercial properties and multi-family dwellings. These refinements are usually made in consultation with local planning officials, state agencies and, if required, federal agencies. In most cases, this process takes several years to complete.

Once the plan has been approved, the developer generally commences negotiations with the local governmental authority on a formal development agreement, which governs the principal aspects of the construction of the community. These negotiations generally involve the review and approval of engineering designs pertaining to various aspects of the development, such as the construction and installation of sewer lines, water mains, utilities, roads and sidewalks. At the same time, the allocation of the costs of these items between the governmental authority and the developer, and the amount of fees which the developer will pay in order to obtain final approval of the plan, must be settled.

Upon execution of the development agreement and grading and improvement plans, the developer generally posts a bond with the local governmental authority to secure the developer’s obligations and the plan receives final approval. The developer is generally required to convey to the local municipality, for no consideration, the land upon which roads, sidewalks, rights of way and parks are constructed. Land for schools, if any, is sold to the local school district. The school district normally takes responsibility to construct the schools with developer fees and local and state bonds. The developer is usually responsible for the grading of the land and the installation of sewers, water mains, utilities, roads and sidewalks, while the municipality is usually responsible for the construction of recreational and community amenities such as libraries and community centers. The municipality funds its portion of these costs through fees charged to the developer in connection with plan approvals and through the collection of property taxes from local residents.

After a period of one to two years, following the completion by the developer of certain obligations under the development agreement, the municipality takes responsibility from the developer for the underground services, roads and sidewalks, and a portion of the improvement bond posted by the developer is released. The developer is generally required to maintain a minimum portion of the bond with the municipality after completion of the community to ensure performance by the developer of its remaining obligations under the development agreement.

Home Construction and Marketing

Residential home construction involves the actual construction of single-family houses and multi-family buildings such as townhouses and condominiums. Each dwelling is generally referred to as a “unit.” A planned community typically includes a number of “lots” on which single-family units will be situated and a smaller number of “pads” of land which have been designated for the construction of multi-family units, schools, parks and commercial buildings. The approved development plan specifically provides the total number of lots and pads in the project. The construction phase normally involves consulting, architectural, engineering, merchandising and marketing personnel who assist the homebuilder in planning the project. Residential home construction is usually performed by subcontractors under the supervision of the homebuilder’s construction management personnel. Marketing and sales of residential units are conducted by marketing sales staff employed by the homebuilder or by independent realtors. Pre-selling residential units before the commencement of their construction is a common sales practice that usually involves the creation of model homes or drawings of the proposed homes in a sales location close to or within the project.

Narrative Description of Our Business

Through the activities of our operating subsidiaries, we develop land for our own communities and sell lots to other homebuilders and third parties. In our own communities, we design, construct and market single-family and multi-family homes primarily to move-up and luxury homebuyers. In each of our markets, we operate through local business units which are involved in all phases of the planning and building of our master-planned communities and infill developments. These phases include sourcing and evaluating land acquisitions, site planning, obtaining entitlements, developing the land, product design, constructing, marketing and selling homes and homebuyer customer service. In the five year period ended December 31, 2009, we closed a total of 5,091 homes and sold 7,099 lots in various stages of development to other homebuilders and third parties. A home or lot is considered closed when title has passed to the homebuyer, and for a lot when a significant cash down payment or appropriate security has been received.

We believe we have developed a reputation for innovative planning of master-planned communities and infill developments. Master-planned communities are new home communities that typically feature community centers, parks, recreational areas, schools and other amenities. Within a master-planned community there may be smaller neighborhoods offering a variety of home styles and price levels from which homebuyers may choose. In an infill development, we construct homes in previously urbanized areas on under-utilized land. In connection with planning and building each of our master-planned communities and infill developments, we consider, among other things, amenities, views, traffic flows, open space, schools and security.

In 2009, we closed a total of 703 homes, compared with 750 in 2008. The breakdown of our home closings by market in the last three years is as follows:

(Units)		2009				2008				2007
Northern California			121				139				131
Southland / Los Angeles			204				227				258
San Diego / Riverside			136				128				150
Washington D.C. Area			232				245				272
Corporate and Other			6				6				14
			699				745				825
Unconsolidated Entities			4				5				14
Total			703				750				839

At December 31, 2009, we had in backlog 187 homes, an increase of 53 homes when compared to 2008. Backlog represents the number of homes subject to pending sales contracts. We believe $88 million of our backlog to be firm as of December 31, 2009, subject to future cancellations, which for 2009 were 19%. This compares to $86 million believed to be firm at December 31, 2008.

We also sell serviced and unserviced lots to other homebuilders, generally on an opportunistic basis where we can enhance our returns, reduce our risk in a market or re-deploy our capital to an asset providing higher returns. In 2009, we sold 469 lots to other homebuilders compared to 616 lots in 2008.

Our average home price in 2009 from directly owned projects was $486,000, a decrease of $71,000 or 13% when compared to our average home price in 2008 of $557,000. The breakdown of the average home prices on our closings in the last three years follows:

		2009								2008								2007
						Average								Average								Average
		Sales				Price				Sales				Price				Sales				Price
		(Millions)								(Millions)								(Millions)
Northern California		$	102			$	845,000			$	127			$	913,000			$	121			$	921,000
Southland / Los Angeles			79				388,000				94				413,000				176				682,000
San Diego / Riverside			69				507,000				68				533,000				89				597,000
Washington D.C. Area			86				369,000				122				499,000				143				528,000
Corporate and Other			4				635,000				4				689,000				12				831,000
Total		$	340			$	486,000			$	415			$	557,000			$	541			$	656,000

For more detailed financial information with respect to our revenues, earnings and assets, please see the accompanying consolidated financial statements and related notes included elsewhere in this report.

Business Strategy

Our goal is to maximize the total return on our common equity over the long term. The key elements of our strategy to achieve this goal are as follows:

Selective Acquisition Policies

We selectively acquire land that provides us with attractive residential projects that are consistent with our overall strategy and management expertise. We acquire land only if we believe that it will provide us with a minimum return on our invested capital. We also acquire options to purchase land rather than purchasing the land outright, in order to reduce our capital at risk in controlling land. In determining the minimum return we will accept, we take into account the risk inherent in increasing our land inventory and the specific development project. In making additional land acquisitions in one of our current markets, we consider our recent financial returns achieved in that market. In order to expand our market presence, we selectively pursue jointly owned projects with landowners and other homebuilders.

During 2009, we acquired 3,254 lots and obtained control of a further 22 lots through options. All of the acquired lots were obtained at foreclosure sales.

Decentralized Operating Structure

We operate our homebuilding business through local business units responsible for projects in their geographic area. Each of our business units has significant experience in the land development and homebuilding industry in the market in which it operates. We believe that in-depth knowledge of a local market enables our business units to better meet the needs of our customers and to more effectively address the issues that arise on each project. Our business units are responsible for all elements of the land development and homebuilding process, including sourcing and evaluating land acquisitions, site planning and entitlements, developing the land, product design, constructing, marketing and selling homes, customer service and management reporting. Given the nature of their responsibilities, the compensation of each of the management teams in our business units is directly related to the business units’ results. Each business unit operates as a fully integrated profit center and the senior management of each business unit is compensated through a combination of base salary, a participation in his or her business unit’s profits and for 2009 and 2010, participations are objective based. Furthermore, each of our business unit presidents own a minority equity interest in their business unit.

The corporate team sets our strategic goals and overall strategy. The corporate team approves all acquisitions, allocates capital to the business units based on expected returns and levels of risk, establishes succession plans, ensures operations maintain a consistent level of quality, evaluates and manages risk and holds management of the business units accountable for the performance of their business unit.

Proactive Asset Management

Our business generally comprises four stages where we make strategic decisions to deploy capital: entitling the raw land that we control; acquiring land; the development of the land; and the construction of homes on the land. As our assets evolve through these stages, we continually assess our ability to maximize returns on our capital, while attempting to minimize our risks. The decision to invest in or dispose of an asset at each stage of development is based on a number of factors, including the amount of capital to be deployed, the level of incremental returns at each stage and returns on other investment opportunities.

Creating Communities

We seek to acquire land that allows us to create communities that include recreational amenities such as parks, biking and walking trails, efficient traffic flows, schools and public service facilities. We integrate land planning and development with housing product design in order to deliver lifestyle, comfort and value. We cooperate with local and regulatory authorities in order to be responsive to community conditions, and we attempt to balance our goal of maximizing the value of our land with the impact of development on the community and the environment. We encourage our employees to actively participate in local community activities and associations.

Risk Management

We focus on managing risk in each stage of the land development and homebuilding process. In the land acquisition phase, we use options to mitigate the risk that we are unable to obtain approval for development of a proposed community and/or land values decline due to poor economic or real estate market conditions. We attempt to limit development approval risk by conducting significant due diligence before we close land acquisitions. We sell lots and parcels when we believe we can redeploy capital to an asset providing higher returns or reduce risk in a market.

When constructing homes, we strive to satisfy our customers and limit our product liability risk by:

•		selecting carefully the building materials that we use;
•		emphasizing to our employees and subcontractors that our homes be built to meet a high standard of quality and workmanship;
•		using only insured subcontractors to perform construction activities;
•		providing on-site quality control; and
•		providing after-sales service.

Finally, we limit the risk of overbuilding by attempting to match our construction starts to our sales rates. We generally do not begin selling homes until a significant portion of the homes’ construction costs have been established through firm subcontractor bids.

Asset Profile

Our assets are focused on single-family and multi-family homebuilding and land development in the markets in which we operate. They consist primarily of housing and land inventory, investments in unconsolidated entities as well as consolidated land inventory not owned. Our total assets, net of deferred income taxes as of December 31, 2009 were $997 million, with $665 million of these assets located in California, $230 million in the Washington D.C. Area and $102 million in other operations.

As of December 31, 2009, we controlled 24,245 lots. Controlled lots include those we directly own, our share of those owned by our unconsolidated entities and those that we have the option to purchase. Our controlled lots provide a strong foundation for our future homebuilding business and visibility on our future cash flow. Approximately 70% of our owned lots are entitled and ready for development and our optioned lots are mainly unentitled and require various regulatory approvals before development can commence. The number of residential building lots we control in each of our primary markets as of December 31, 2009 and 2008 follows:

		Owned								Optioned									Total				Total
						Unconsolidated								Not					December				December
(Units)		Directly				Entities				Consolidated				Consolidated (1)					31, 2009				31, 2008
Northern California			769				—				1,232				4,950				6,951				7,290
Southland / Los Angeles			981				254				—				2,027				3,262				3,460
San Diego / Riverside			6,852				1				2,000				—				8,853				8,105
Washington D.C. Area			2,195				1,432				—				1,289				4,916				4,981
Corporate and Other			204				59				—				—				263				273
Total December 31, 2009			11,001				1,746				3,232				8,266				24,245
Total December 31, 2008			11,252				1,832				—				11,025								24,109

Our housing and land inventory includes homes completed or under construction, developed land, raw land and option deposits. The book value of our housing and land inventory in each of our primary markets as of the end of the last two years follows:

(Book Value, $ millions)		December 31, 2009				December 31, 2008
Northern California		$	201			$	240
Southland / Los Angeles			123				144
San Diego / Riverside			336				366
Washington D.C. Area			227				247
Corporate and Other			41				58
Total		$	928			$	1,055
Total Controlled Lots (units)			24,245				24,109

The book value of our investments in unconsolidated entities as of December 31, 2009 was $92 million. The total book value of the assets and liabilities of these unconsolidated entities and our share of the equity of the unconsolidated entities as of December 31, 2009 follows:

(Book Value, $ millions)		December 31, 2009				December 31, 2008
Assets		$	243			$	319
Liabilities		$	66			$	79
Brookfield Homes’ net investment		$	92			$	105

The book value of our investments in unconsolidated entities in each of our primary markets as of the end of the last two years follows:

(Book Value, $ millions)		December 31, 2009				December 31, 2008
Northern California		$	—			$	—
Southland / Los Angeles			48				46
San Diego / Riverside			3				2
Washington D.C. Area			34				43
Corporate and Other			7				14
Total		$	92			$	105

Property Acquisition and Sale

Before entering into an agreement to purchase land, we complete comparative studies and analyses that assist us in evaluating the acquisition. We manage our risk and attempt to maximize our return on invested capital on land acquisitions by either entering into option agreements or joint ownership arrangements. We attempt to limit our development approval risk by conducting significant due diligence before we close land acquisitions. We regularly evaluate our land inventory and strategically sell lots and parcels of land to third parties at various stages of the development process to increase our returns from a project.

Construction and Development

We attempt to match our construction starts to our sales rate. We control our construction starts by constructing and selling homes in phases. Generally, we will not start construction of a phase of homes until sales of homes to be built in the phase have met predetermined targets. The size of these phases depends upon factors such as current sales and cancellation rates, the type of buyer targeted for a particular project, the time of year and our assessment of prevailing and anticipated economic conditions. We generally do not begin selling homes until a significant portion of the homes’ construction costs are established through firm subcontractor bids.

We attempt to limit the number of unsold units under construction by limiting the size of each construction phase and closely monitoring sales activity. Building homes of a similar product type in phases also allows us to utilize production techniques that reduce our construction costs. The number of our unsold homes fluctuates depending upon the timing of completion of construction and absorption of home phases. As of December 31, 2009, we had 21 completed and unsold homes, excluding the model homes we currently maintain. The level of completed homes has decreased when compared to 2008 as markets improved during 2009 and we continued to match new home starts with our sales rate.

We function as a general contractor, subcontracting the construction activities for our projects. We manage these activities with on-site supervisory employees and informational and management control systems. We engage independent architectural, design, engineering and other consulting firms to assist in project planning. We do not have long-term contractual commitments with our subcontractors, consultants or suppliers of materials, who are generally selected on a competitive bid basis. We employ subcontractors for site improvement and for virtually all of the work involved in the construction of homes. It is our general practice to have our subcontractors commit to complete the specified work in accordance with written price schedules. These price schedules normally change to meet fluctuations in labor and material costs. We do not own heavy construction equipment and we have a relatively small labor force used to supervise development and construction, and to perform routine maintenance services. We generally have been able to obtain sufficient materials and subcontractors, even during times of high demand for new homes. We build a home in approximately five to eight months, depending upon design, the availability of raw materials and supplies, governmental approvals, local labor situation, time of year and other factors.

Sales and Marketing

We advertise in local newspapers and magazines and on billboards to assist us in selling our homes. We also utilize direct mailings, special promotional events, illustrated brochures and model homes in our marketing program. The internet is also an important source of information for our customers. Through the internet, potential buyers are able to search for their home, take a virtual video tour of selected homes, obtain general information about our projects and communicate directly with our personnel.

We sell our homes through our own sales representatives and through independent real estate brokers. Our in-house sales force typically works from sales offices located in model homes close to or in each community. Sales representatives assist potential buyers by providing them with basic floor plans, price information, development and construction timetables, tours of model homes and the selection of options. Sales personnel are licensed by the applicable real estate bodies in their respective markets, are trained by us and generally have had prior experience selling new homes in the local market. Our personnel, along with subcontracted marketing and design consultants, carefully design exteriors and interiors of each home to coincide with the lifestyles of targeted buyers. We use various floor plan types and elevations to provide a more varied street scene and a sense of customization for the buyers.

As of December 31, 2009, we owned 68 model homes and leased nine model homes from third parties, which are not generally available for sale until the final build-out of a project. Generally, two to four different model homes are built and decorated at each project to display design features. Model homes play a role in helping buyers understand the efficiencies and value provided by each floor plan type. In addition to model homes, customers can gain an understanding of the various design features and options available to them using our design centers. At each design center, customers can meet with a designer and are shown the standard and upgraded selections available to them, including professional interior design furnishings and accessories.

We typically sell homes using sales contracts that include cash deposits by the purchasers. Before entering into sales contracts, we pre-qualify our customers. However, purchasers can generally cancel sales contracts if they are unable to sell their existing homes, if they fail to qualify for financing, or under certain other circumstances. Although cancellations can delay the sale of our homes, they have historically not had a material impact on our operating results. During 2009, our cancellation rate of 19% was high relative to our historical average of 15%. We continue to closely monitor the progress of prospective buyers in obtaining financing. We also monitor and attempt to adjust our planned construction starts depending on the level of demand for our homes.

Customer Service and Quality Control

We pay particular attention to the product design process and carefully consider quality and choice of materials in order to attempt to eliminate building deficiencies. The quality and workmanship of the trade contractors we employ are monitored and we make regular inspections to ensure our standards are met.

We staff each business unit with quality control and customer service staff whose role includes providing a positive experience for each customer throughout the pre-sale, sale, building, closing and post-closing periods. These employees are also responsible for providing after-sales customer service. Our quality and service initiatives include taking customers on a comprehensive tour of their home prior to closing and using customer survey results to improve our standards of quality and customer satisfaction.

Mortgage Services

We have agreements with various lenders to receive a fee on loans made by the lenders to customers we introduce to the lenders. Prior to the second quarter, we provided mortgage origination services to our customers in the Washington D.C. Area and did not retain or service the mortgages we originated. We customarily sold all of the loans and loan servicing rights that we originated in the secondary market within a month of origination and on a limited recourse basis, generally limited to early payment defaults or fraud and misrepresentation. Effective April 1, 2009, the Company no longer originates and sells mortgages. For the year ended December 31, 2009, less than 1% of our revenue and less than 1% of our net income was derived from our mortgage service operations.

Relationship with Affiliates

We are a land developer and homebuilder, developing land and building homes primarily in four markets in California and in the Washington D.C. Area. None of our affiliates, including Brookfield Asset Management Inc. and Brookfield Properties Corporation, operate in similar businesses in our markets. Nevertheless, there are agreements among our affiliates to which we are a party or subject relating to a name license, the lease of office space and two unsecured revolving credit facilities. For a further description of these agreements refer to “Certain Relationships and Related Transactions, and Director Independence” which is incorporated by reference into Item 13 of this report from our definitive 2010 proxy statement, which will be filed with the Securities and Exchange Commission not later than April 30, 2010.

Four of our directors serve as executive officers and/or directors of our affiliates. For a description of those relationships refer to “Certain Relationships and Related Transactions, and Director Independence” which is incorporated by reference into Item 13 of this report from our definitive 2010 proxy statement, which will be filed with the Securities and Exchange Commission not later than April 30, 2010.

Competition

The residential homebuilding industry is highly competitive. We compete against numerous local, regional and national homebuilders and others in the real estate business in and near the areas where our communities are located. We also compete with resales of existing homes, whether by a homeowner or by a financial institution that has acquired a home through foreclosure, and with the rental housing market. We may compete for investment opportunities, financing, available land, raw materials and skilled labor with entities that possess greater financial, marketing and other resources than us. We also compete for land buyers with third parties in our efforts to sell lots to other homebuilders. Competition may increase if there is future consolidation in the land development and homebuilding industry.

Material Contracts

Except for two unsecured revolving credit facilities with subsidiaries of Brookfield Asset Management Inc., we are not party or subject to any material contracts. For a description of the material contracts refer to “Certain Relationships and Related Transactions, and Director Independence” which is incorporated by reference into Item 13 of this report from our definitive 2010 proxy statement, which will be filed with the Securities and Exchange Commission (the “SEC”) not later than April 30, 2010.

Regulation and Environment

We are subject to local and state laws and regulations concerning zoning, design, construction and similar matters, including local regulations which impose restrictive zoning and density requirements in order to limit the number of homes that eventually can be built within the boundaries of a particular area. We are also subject to periodic delays in our homebuilding projects due to building moratoria. In addition, new development projects may be subject to various assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial. When made, these assessments can have a negative impact on our sales by raising the price that homebuyers must pay for our homes.

We are also subject to local, state and federal laws and regulations concerning the protection of the environment. The environmental laws that apply to a given homebuilding site depend upon the site’s location, its environmental conditions and the present and former uses of the site and its adjoining properties. Environmental laws and conditions may result in delays, or cause us to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas.

We do not currently have any material estimated capital expenditures related to governmental assessments or environmental compliance costs for the remainder of fiscal 2010, fiscal 2011 or fiscal 2012.

In connection with our operations, some of our employees have general contractor and real estate sales licenses, which are subject to governmental regulations. Our employees holding those licenses are currently in material compliance with all such applicable regulations.

Seasonality

We have historically experienced variability in our results of operations from quarter to quarter due to the seasonal nature of the homebuilding business and the timing of new community openings and the closing out of projects. We typically experience the highest rate of orders for new homes in the first six months of the calendar year, although the rate of orders for new homes is highly dependent upon the number of active communities. Because new home deliveries trail orders for new homes by several months, we typically deliver a greater percentage of new homes in the second half of the year compared with the first half of the year. As a result, our revenues from sales of homes are generally higher in the second half of the year.

Employees

As of December 31, 2009, we had 291 employees. We consider our relations with our employees to be good. Our construction operations are conducted primarily through independent subcontractors, thereby limiting the number of our employees. None of our employees are currently represented by a union or covered by a collective bargaining agreement. We have not recently experienced any work stoppages.

Available Information

We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. The reports may be accessed by visiting our website at www.brookfieldhomes.com and clicking on the “Investor Relations” link. We will also provide these reports in paper format to our stockholders free of charge upon request made to our Investor Relations department. Information on our website is not part of this annual report on Form 10-K.

NYSE Annual Disclosure

We confirm that we have submitted a Section 303A.12 (a) CEO Certification to the New York Stock Exchange (“NYSE”) in 2009 and filed with the SEC the CEO / CFO certification required under Section 302 of the Sarbanes-Oxley Act for the 2009 fiscal year.

Item 1A. Risk Factors

This section describes the material risks associated with an investment in our common stock. Stockholders should carefully consider each of the risks described below and all of the other information in this Form 10-K. If any of the following risks occurs, our business, prospects, financial condition, results of operations or cash flow could be materially and adversely affected. In such an event, the trading price of shares of our common stock could decline substantially, and stockholders may lose all or part of the value of their shares of our common stock.

Our business and results of operations will be materially and adversely affected by weakness in general economic, real estate and other conditions.

The land development and homebuilding industry is cyclical and is significantly affected by changes in general and local economic and industry conditions, such as employment levels, availability of financing for homebuyers, interest rates, consumer confidence, levels of new and existing homes for sale, demographic trends and housing demand. In addition, an oversupply of alternatives to new homes, such as resale homes, including homes held for sale by investors and speculators, foreclosed homes and rental properties may reduce our ability to sell new homes, depress prices and reduce our margins from the sale of new homes. The United States homebuilding industry continues to face a number of challenges, with home foreclosures and tight credit standards continuing to have an effect on inventory and new home sale rates and prices.

Homebuilders are also subject to risks related to the availability and cost of materials and labor, and adverse weather conditions that can cause delays in construction schedules and cost overruns. Furthermore, the market value of undeveloped land, buildable lots and housing inventories held by us can fluctuate significantly as a result of changing economic and real estate market conditions and may result in inventory impairment charges or putting our deposits for lots controlled under option at risk. If there are significant adverse changes in economic or real estate market conditions, we may have to sell homes at a loss or hold land in inventory longer than planned. Inventory carrying costs can be significant and can result in losses in a poorly performing project or market. We may be particularly affected by changes in local market conditions in California, where we derive a large proportion of our revenue. As a result of the present challenging market conditions, we have sold homes and lots for lower profit margins than in the past and we have recorded inventory and unconsolidated entity impairments and lot option write-off charges that resulted in a loss during fiscal 2009. If market conditions continue to deteriorate, some of our assets may be subject to further impairments and option write-off charges further adversely affecting our operations and financial results.

Rising mortgage rates or decreases in the availability of mortgage financing will discourage people from buying new homes.

Virtually all of our customers finance their home acquisitions through lenders providing mortgage financing. Prior to the recent volatility in the financial markets, a variety of mortgage products were available. As a result, more homebuyers were able to qualify for mortgage financing. Increases in mortgage rates or decreases in the availability of mortgage financing could depress the market for new homes because of the increased monthly mortgage costs to potential homebuyers. Even if potential customers do not need financing, changes in mortgage interest rates and mortgage availability could make it harder for them to sell their homes to potential buyers who need financing, which would result in reduced demand for new homes. As a result, rising mortgage rates and reduced mortgage availability could adversely affect our ability to sell new homes and the price at which we can sell them.

Since 2007, there has been a significant decrease in the type of mortgage products available and a general increase in the qualification requirements for mortgages. Fewer loan products and tighter loan qualifications made it more difficult for some borrowers to finance the purchase of our homes. This, coupled with higher mortgage interest rates for some mortgage products has reduced demand for new homes. These reductions in demand have adversely affected our operations and financial results, and the duration and severity of the effects remain uncertain.

Laws and regulations related to property development and related to the environment subject us to additional costs and delays which adversely affect our business and results of operations.

We must comply with extensive and complex regulations affecting the land development and homebuilding process. These regulations impose on us additional costs and delays, which adversely affect our business and results of operations. In particular, we are required to obtain the approval of numerous governmental authorities regulating matters such as permitted land uses, levels of density, the installation of utility services, zoning and building standards. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved for a particular development or project, if approved at all. In addition, new development projects may be subject to various assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial. When made, these assessments can have a negative impact on our sales by raising the price that homebuyers must pay for our homes. We must also comply with a variety of local, state and federal laws and regulations concerning the protection of health and the environment, including with respect to hazardous or toxic substances. These environmental laws sometimes result in delays, cause us to incur additional costs, or severely restrict land development and homebuilding activity in environmentally sensitive regions or areas.

If we are not able to develop and market our master-planned communities successfully, our business and results of operations will be adversely affected.

Before a master-planned community generates any revenues, material expenditures are incurred to acquire land, obtain development approvals and construct significant portions of project infrastructure, amenities, model homes and sales facilities. It generally takes several years for a master-planned community development to achieve cumulative positive cash flow. If we are unable to develop and market our master-planned communities successfully and to generate positive cash flows from these operations in a timely manner, it will have a material adverse effect on our business and results of operations.

Difficulty in retaining qualified trades workers, or obtaining required materials and supplies, will adversely affect our business and results of operations.

The homebuilding industry has from time to time experienced significant difficulties in the supply of materials and services, including with respect to: shortages of qualified trades people; labor disputes; shortages of building materials; unforeseen environmental and engineering problems; and increases in the cost of certain materials (particularly increases in the price of lumber, wall board and cement, which are significant components of home construction costs). When any of these difficulties occur, it causes delays and increases the cost of constructing our homes.

Homebuilding is subject to home warranty and construction defect claims in the ordinary course of business and furthermore we sometimes face liabilities when we act as a general contractor, and we are sometimes responsible for losses when we hire general contractors.

As a homebuilder, we are subject to construction defect and home warranty claims arising in the ordinary course of our business. These claims are common in the homebuilding industry and can be costly. Further, where we act as the

general contractor, we are responsible for the performance of the entire contract, including work assigned to subcontractors. Claims may be asserted against us for construction defects, personal injury or property damage caused by the subcontractors, and if successful these claims give rise to liability. Where we hire general contractors, if there are unforeseen events like the bankruptcy of, or an uninsured or under-insured loss claimed against our general contractors, we sometimes become responsible for the losses or other obligations of the general contractors. The cost of insuring against construction defect and product liability claims are high, and the amount of coverage offered by insurance companies may be limited. There can be no assurance that this coverage will not be further restricted and become more costly. If we are not able to obtain adequate insurance against these claims in the future, our business and results of operations will be adversely affected.

If we are not able to raise capital on favorable terms, our business and results of operations will be adversely affected.

We operate in a capital intensive industry and require capital to maintain our competitive position. The failure to secure additional debt or equity financing or the failure to do so on favorable terms will limit our ability to grow our business, which in turn will adversely affect our business and results of operations. We expect to make significant capital expenditures in the future to enhance and maintain the operations of our properties and to expand and develop our real estate inventory. If our plans or assumptions change or prove to be inaccurate, or if our cash flow from operations proves to be insufficient due to unanticipated expenses or otherwise, we will likely seek to minimize cash expenditures and/or obtain additional financing in order to support our plan of operations.

The availability of financing from banks and the public debt markets has declined significantly. Due to the deterioration of the credit markets and the uncertainties that exist in the economy and for homebuilders in general, we cannot be certain that we will be able to replace existing financing or find additional sources of financing. If sufficient funding, whether obtained through public or private debt, equity financing or from strategic alliances is not available when needed or is not available on acceptable terms, our business and results of operations will be adversely affected.

Even if available, additional financing could be costly or have adverse consequences. The securities markets in general, and trading in our common stock in particular, have recently experienced significant volatility. As a result, our market capitalization has recently been less than the value of our stockholders’ equity. To the extent that our market capitalization remains below the value of our stockholders’ equity, the amount of dilution our stockholders would experience will be increased should we issue additional shares of common stock.

Our debt and leverage could adversely affect our financial condition.

Our total debt as of December 31, 2009 was $382 million, of which a total of $323 million matures prior to the end of 2011. Our leverage could have important consequences, including the following: our ability to obtain additional financing for working capital, capital expenditures or acquisitions may be impaired in the future; a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our debt, thereby reducing the funds available to us for other purposes; some of our borrowings are and will continue to be at variable rates of interest, which will expose us to the risk of increased interest rates; and our substantial leverage may limit our flexibility to adjust to changing economic or market conditions, reduce our ability to withstand competitive pressures and make us more vulnerable to a general economic downturn.

If any of these conditions occur, or should we be unable to repay these obligations as they become due, our financial condition will be adversely affected. In addition, our various debt instruments contain financial and other restrictive covenants that may limit our ability to, among other things, borrow additional funds that we might need in the future. We also guarantee shortfalls under some of our community bond debt, when the revenues, fees and assessments which are designed to cover principal and interest and other operating costs of the bonds are not paid.

We finance each of our projects individually. As a result, to the extent we increase the number of our projects and our related investment, our total debt obligations may increase. In general, we repay the principal of our debt from the proceeds of home closings.

Based on our interest rate sensitive net debt levels as of December 31, 2009, a 1% change up or down in interest rates could have either a negative or positive effect of approximately $1 million on our cash flows, refer also to the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risks — Interest Rates.”

Our business and results of operations will be adversely affected if poor relations with the residents of our communities negatively impact our sales.

As a master-planned community developer, we are sometimes expected by community residents to resolve any issues or disputes that arise in connection with the development of our communities. Our sales may be negatively affected if any efforts made by us to resolve these issues or disputes are unsatisfactory to the affected residents, which in turn would adversely affect our results of operations. In addition, our business and results of operations would be adversely affected if we are required to make material expenditures related to the settlement of these issues or disputes, or to modify our community development plans.

Our business is susceptible to adverse weather conditions and natural disasters.

Homebuilding in California and the Washington D.C. Area is susceptible to, and is significantly affected by, adverse weather conditions and natural disasters such as hurricanes, tornadoes, earthquakes, droughts, floods and fires. These adverse weather conditions and natural disasters can cause delays and increased costs in the construction of new homes and the development of new communities. If insurance is unavailable to us or is unavailable on acceptable terms, or if our insurance is not adequate to cover business interruption or losses resulting from adverse weather or natural disasters, our business and results of operations will be adversely affected. In addition, damage to new homes caused by adverse weather or a natural disaster can cause our insurance costs to increase.

Increased insurance risk adversely affects our business.

We are confronting reduced insurance capacity, and generally lower limits for insurance against some of the risks associated with our business. Some of the actions that have been or could be taken by insurance companies include: increasing insurance premiums; requiring higher self-insured retention and deductibles; requiring collateral on surety bonds; imposing additional exclusions, such as with respect to sabotage and terrorism; and refusing to underwrite certain risks and classes of business. The imposition of any of the preceding actions has and will continue to adversely affect our ability to obtain appropriate insurance coverage at reasonable costs.

Tax law changes could make home ownership more expensive or less attractive.

Tax law changes could make home ownership more expensive or less attractive. Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally are deductible expenses for an individual’s federal and, in some cases, state income taxes subject to various limitations under current tax law and policy. If the federal government or a state government changes income tax laws to eliminate or substantially modify these income tax deductions, then the after-tax cost of owning a new home would increase substantially. This could adversely impact demand for, and/or sales prices of new homes.

Residential homebuilding is a competitive industry, and competitive conditions adversely affect our results of operations.

The residential homebuilding industry is highly competitive. Residential homebuilders compete not only for homebuyers, but also for desirable properties, building materials, labor and capital. We compete with other local, regional and national homebuilders, often within larger communities designed, planned and developed by such homebuilders. Any improvement in the cost structure or service of our competitors will increase the competition we face. We also compete with the resale of existing homes including foreclosed homes, sales by housing speculators and investors and rental housing. Competitive conditions in the homebuilding industry could result in: difficulty in acquiring suitable land at acceptable prices; increased selling incentives; lower sales volumes and prices; lower profit margins; impairments in the value of our inventory and other assets; increased construction costs; and delays in construction.

Provisions in our charter documents and Delaware law may make it difficult for a third party to acquire us, which could depress the price of our securities.

Provisions in our certificate of incorporation, our by-laws and Delaware law could delay, defer or prevent a change of control of our Company. These provisions, which include authorizing the board of directors to issue preferred stock and limiting the persons who may call special meetings of stockholders, could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions.

We are also subject to provisions of Delaware law that could delay, deter or prevent us from entering into an acquisition, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware

corporation from engaging in a business combination with an interested stockholder unless specific conditions are met. The existence of any of the above factors could adversely affect the market price of our common stock.

The trading price of our securities could fluctuate significantly and could be adversely affected because Brookfield Asset Management Inc. beneficially owns approximately 82.4% of our common stock.

The trading prices of shares of our common stock in the open market cannot be predicted. The trading prices could fluctuate significantly in response to factors such as: variations in our quarterly or annual operating results and financial condition; changes in government regulations affecting our business; the announcement of significant events by us or our competitors; market conditions specific to the homebuilding industry; changes in general economic conditions; differences between our actual financial and operating results and those expected by investors and analysts; changes in analysts’ recommendations or projections; the depth and liquidity of the market for shares of our common stock; investor perception of the homebuilding industry; events in the homebuilding industry; investment restrictions; and our dividend policy. In addition, securities markets have experienced significant price and volume fluctuations in recent years that have often been unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations may adversely affect the trading price of our common stock.

Also, Brookfield Asset Management Inc. beneficially owns approximately 82.4% of the outstanding shares of our common stock, on an as converted basis assuming the full conversion of our 8% convertible preferred stock owned by it. If Brookfield Asset Management Inc. should decide in the future to sell any of our securities owned beneficially by it, the sale (or the perception of the market that a sale may occur) could adversely affect the trading price of those securities.

If we are not able to retain our executive officers, our business and results of operations could be adversely affected.

We do not have employment agreements with any of our executive officers, which could affect our ability to retain their services. Should we lose the services of one or all of our executive officers and they cannot be adequately replaced, our ability to accomplish the objectives set forth in our business plan could be adversely affected.

Our relationships with our affiliates may be on terms more or less favorable than those that could be obtained from third parties.

Brookfield Asset Management Inc. beneficially owns approximately 60.44% of our currently outstanding common stock (82.4% assuming full conversion by it of our 8% convertible preferred stock owned by it) and our relationships with Brookfield Asset Management Inc. and its affiliates include two unsecured revolving credit facilities and the lease of our administrative office in Toronto. There can be no assurance that these arrangements are on terms at least as favorable to us as those that could be negotiated with third parties, or that procedural protections put in place to simulate arm’s length negotiations, such as the prior approval of related party transactions by our independent directors, will have such effect. Conversely, the terms of our agreements with our affiliates could be more favorable to us than would be available from a third party. In such event, should we be required to replace these arrangements, there can be no assurance that we could obtain terms as least at favorable as those with our affiliates.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

In addition to real estate held for development and sale, which we either own or hold under an option to purchase, we lease and maintain an administrative office in Toronto, Canada. Our Toronto lease is a sublease from Brookfield Asset Management Inc.

In addition, we have other offices located in the markets in which we conduct business, generally in our communities or in leased space. None of these other office premises are material to our business. We believe that our office space is suitable and adequate for our needs for the foreseeable future.

Item 3. Legal Proceedings

We are party to various legal actions arising in the ordinary course of our business. We believe that none of these actions, either individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange under the symbol “BHS,” and began regular trading on January 7, 2003. The following table shows high and low sales prices for our common stock, for the periods included, as reported by the NYSE.

		Year Ended December 31, 2009												Year Ended December 31, 2008
										Cash Dividends												Cash Dividends
		High				Low				Per Share				High				Low				Per Share
1st Quarter		$	4.54			$	1.49				—			$	17.52			$	10.51				—
2nd Quarter		$	5.86			$	3.20				—			$	17.30			$	12.28			$	0.20
3rd Quarter		$	8.46			$	3.19				—			$	16.75			$	9.26				—
4th Quarter		$	8.10			$	5.25				—			$	13.90			$	1.49				—

As of February 18, 2010, there were approximately 833 holders of record of our common stock.

Our Board of Directors periodically reviews our dividend policy. Future dividends on our common stock, if any, will be at the discretion of our Board of Directors and will depend upon, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions, investment opportunities and other factors that our Board of Directors considers relevant. We do not currently pay a dividend on our common stock.

There are no current or anticipated contractual terms in our credit or other arrangements that restrict our ability to pay dividends, other than the requirements imposed by our project specific financings that require Brookfield Homes Holdings Inc., our wholly-owned subsidiary, to maintain a tangible net worth of at least $250 million, a net debt to tangible net worth ratio of 2.50 to 1.00 and a net debt to capitalization ratio of no greater than 65%, and the requirements of our revolving credit facility with Brookfield Asset Management Inc., that currently requires Brookfield Homes Corporation to maintain minimum stockholders’ equity of $300 million and a consolidated net debt to book capitalization ratio of no greater than 70%. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Other Commitments” for additional information about these restrictions. In addition, the terms of our 8% convertible preferred stock contain limitations on when we may pay dividends on our common stock.

Our Board of Directors approved a share repurchase program that allows us to repurchase in aggregate up to $144 million of our outstanding common shares, of which the remaining amount approved for repurchases at December 31, 2009 was approximately $49 million. During the three months and year ended December 31, 2009, we did not repurchase any shares of our common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes our equity compensation plans approved by stockholders as of December 31, 2009. We have no equity compensation plans not approved by stockholders.

(c)

Number of

Securities

(a)

Remaining Available

Number of

for Future Issuance

Securities to be

(b)

Under Equity

Issued Upon

Weighted-average

Compensation Plans

Exercise of

Exercise Price of

(Excluding

Outstanding

Outstanding

Securities

Options, Warrants

Options, Warrants

Reflected in Column

and Rights

and Rights

(a))

Equity compensation plans approved by stockholders

2,155,000

$

10.21

1,841,000

Equity compensation plans not approved by stockholders

none

n/a

none

Total

2,155,000

$

10.21

1,841,000

Performance Graph

The following graph illustrates the cumulative total stockholder return on Brookfield Homes’ common stock for the last five fiscal years assuming a hypothetical investment of $100 and a reinvestment of all dividends paid on such investment, compared to Standard & Poor’s 500 Stock Index and the Standard & Poor’s Homebuilding 500 Index.

COMPARISON OF CUMULATIVE TOTAL RETURN
PERIOD ENDED DECEMBER 31, 2009

Item 6. Selected Financial Data

The following tables include selected historical consolidated financial data for each year in the five year period ended December 31, 2009.

This selected financial data should be read along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited historical consolidated financial statements and the related notes included elsewhere in this report.

United States GAAP

Our statement of operations data, balance sheet data and supplementary financial data prepared in accordance with U.S. GAAP and our operating data are as follows:

		Years Ended December 31
Statement of Operations Data
($ millions, except per share amounts)		2009				2008				2007				2006				2005
Total revenue (1)		$	376			$	449			$	583			$	872			$	1,214
Housing revenue			340				415				541				784				1,074
Impairment of housing and land inventory and write-offs of option deposits			24				115				88				10				—
Total gross margin (2)			(2	)			(82	)			14				245				398
Impairment of investments in unconsolidated entities			13				38				15				—				—
Net (loss) / income			(33	)			(133	)			23				167				255
Net (loss) / income attributable to Brookfield Homes Corporation			(28	)			(116	)			16				148				219
Diluted (loss) / earnings per share			(1.54	)			(4.33	)			0.58				5.45				7.04
Cash dividends per common share			—				0.20				0.40				0.40				0.32

		At December 31
Balance Sheet Data ($ millions)		2009				2008				2007				2006				2005
Housing and land inventory (3)		$	928			$	1,055			$	1,236			$	1,225			$	988
Total assets			1,037				1,207				1,351				1,401				1,330
Total debt (4)			382				749				735				618				636
Total liabilities (5)			551				944				969				1,030				1,065
Total equity (5)			486				263				382				371				265

		Years Ended December 31
Supplemental Financial Data ($ millions)		2009				2008				2007				2006				2005
Cash provided by / (used in):
Operating activities		$	137			$	66			$	(44	)		$	26			$	60
Investment activities			(9	)			(32	)			(58	)			(47	)			(5	)
Financing activities			(128	)			(43	)			24				(91	)			(44	)
Net debt to total capitalization percent (6)			42	%			71	%			61	%			53	%			58	%

		Years Ended December 31
Operating Data		2009				2008				2007				2006				2005
Home closings (units)			703				750				839				1,181				1,618
Lots sold to homebuilders (units)			469				616				1,328				834				1,242
Net new orders (units) (7)			756				729				735				960				1,482
Backlog (units at end of period) (8)			187				134				155				259				480
Average selling price		$	488,000			$	562,000			$	662,000			$	679,000			$	683,000
Lots controlled			24,245				24,109				25,371				27,616				29,512

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read along with “Selected Financial Data” and our consolidated financial statements and the related notes included elsewhere in this report. 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” included elsewhere in this report.

Forward-Looking Statements

This annual report on Form 10-K contains “forward-looking statements” within the meaning of the United States federal securities laws. The words “may,” “believe,” “will,” “anticipate,” “expect,” “planned,” “estimate,” “project,” “future,” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. The forward-looking statements in this annual report on Form 10-K include, among others, statements with respect to:

•		ability to create shareholder value;
•		business goals and strategy;
•		strategies for shareholder value creation;
•		the stability of home prices;
•		effect of challenging conditions on us;
•		financing sources;
•		ability to generate sufficient cash flow from our assets in 2010 and 2011 to repay maturing project specific financings;
•		the visibility of our future cash flow;
•		expected backlog and closings;
•		sufficiency of our access to capital resources;
•		supply and demand equilibrium;
•		the timing of the effect of interest rate changes on our cash flows;
•		the effect on our business of existing lawsuits; and
•		whether or not our letters of credit or performance bonds will be drawn upon.

Reliance should not be placed on forward-looking statements because they involve both known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from the anticipated future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those set forward in the forward-looking statements include, but are not limited to:

•		changes in general economic, real estate and other conditions;
•		mortgage rate and availability changes;
•		availability of suitable undeveloped land at acceptable prices;
•		adverse legislation or regulation;
•		ability to obtain necessary permits and approvals for the development of our land;
•		availability of labor or materials or increases in their costs;
•		ability to develop and market our master-planned communities successfully;
•		ability to obtain regulatory approvals;
•		confidence levels of consumers;
•		ability to raise capital on favorable terms;
•		our debt and leverage;
•		adverse weather conditions and natural disasters;
•		relations with the residents of our communities;
•		risks associated with increased insurance costs or unavailability of adequate coverage;
•		ability to obtain surety bonds;
•		competitive conditions in the homebuilding industry, including product and pricing pressures;
•		ability to retain our executive officers;
•		relationships with our affiliates; and
•		additional risks and uncertainties, many of which are beyond our control, referred to in this Form 10-K and our other SEC filings.

Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.

Overview

During the year ended December 31, 2009, selling communities have seen an increased number of homebuyers take advantage of improved affordability, low interest rates, declining home prices and government stimulus programs. While the United States homebuilding industry continues to face a number of challenges with home foreclosures and tight credit standards continuing to have an effect on inventory and new home sale rates and prices, homebuyer confidence has improved as homebuyers appear to have recognized that home prices have begun to stabilize. Despite the challenging conditions still faced by the homebuilding market, we believe the risk is mitigated by our assets which are largely located in geographic areas with a constrained supply of lots and which have demonstrated strong economic characteristics over the long term.

Through the activities of our operating subsidiaries, we entitle and develop land for our own 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 the Washington D.C. Area. Our other operations that do not meet the quantitative thresholds for separate segment disclosure are included in “Corporate and Other.”

For the five year period 2005 to 2009, cash provided from operations was $245 million, which was used primarily to return cash to stockholders through the repurchase of shares and to repay debt. Despite the continuing challenges of the United States housing market, we believe our business is positioned to create further stockholder value over the long term through the selective control of a number of strategic projects and the overall level of lots controlled.

The 24,245 lots that we control, 15,979 of which we own directly, are held through unconsolidated entities or consolidated inventory not owned, provide a strong foundation for our future homebuilding 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 2003. Operating in markets with higher price points and catering to move-up and luxury buyers, our average sales price in 2009 of $488,000 was well in excess of the national average sales price. We also sell serviced and unserviced lots to other homebuilders, generally on an opportunistic basis where we can reduce our risk in a market or redeploy capital to an asset providing higher returns. In 2009, we sold 469 lots to homebuilders. The number of lots we sell may vary significantly from period to period due to the timing and nature of such sales which are also affected by local market conditions.

Our housing and land inventory, investments in unconsolidated entities, and consolidated land inventory not owned together comprised 89% of our total assets as of December 31, 2009. In addition, we had $109 million in other assets. Other assets consist of restricted cash of $7 million, income taxes receivable of $40 million, deferred taxes of $40 million, and other receivables of $22 million. Homebuyer receivables consist primarily of proceeds due from homebuyers on the closing of homes.

As at December 31, 2009, the market capitalization of our common stock was $227 million, compared to our book value of $229 million. Market capitalization will vary depending on market sentiment and may not have a relationship to the underlying value of a share of our common stock over the longer term.

Results of Operations

		Years Ended December 31
Selected Financial Information ($US millions)		2009				2008				2007
Revenue:
Housing		$	340			$	415			$	541
Land			36				34				42
Total revenues			376				449				583
Direct cost of sales			(354	)			(416	)			(481	)
Impairment of housing and land inventory and write-offs of option deposits			(24	)			(115	)			(88	)
Gross margin / (loss)			(2	)			(82	)			14
Selling, general and administrative expense			(52	)			(69	)			(69	)
Equity in earnings from unconsolidated entities			1				3				13
Impairment of unconsolidated entities			(13	)			(38	)			(15	)
Other income / (expense)			13				(18	)			(6	)
Loss before income taxes			(53	)			(204	)			(63	)
Income tax recovery			20				71				72
Net (loss) / income			(33	)			(133	)			9
Less net loss attributable to noncontrolling interests			5				17				7
Net (loss) / income attributable to Brookfield Homes Corporation		$	(28	)		$	(116	)		$	16

		Years Ended December 31
Segment Information		2009				2008				2007
Housing revenue ($US millions):
Northern California		$	102			$	127			$	121
Southland / Los Angeles			79				94				176
San Diego / Riverside			69				68				89
Washington D.C. Area			86				122				143
Corporate and Other			4				4				12
Total		$	340			$	415			$	541
Land revenue ($US millions):
Northern California		$	—			$	2			$	—
Southland / Los Angeles			—				—				30
San Diego / Riverside			20				19				—
Washington D.C. Area			8				13				12
Corporate and Other			8				—				—
Total		$	36			$	34			$	42
Impairment of housing and land inventory and write-offs of option deposits ($US millions):
Northern California		$	—			$	21			$	5
Southland / Los Angeles			3				16				3
San Diego / Riverside			1				42				33
Washington D.C. Area			13				36				47
Corporate and Other			7				—				—
Total		$	24			$	115			$	88
Gross margin / (loss) ($US millions):
Northern California		$	1			$	(18	)		$	12
Southland / Los Angeles			5				(3	)			36
San Diego / Riverside			(4	)			(42	)			(10	)
Washington D.C. Area			4				(17	)			(26	)
Corporate and Other			(8	)			(2	)			2
Total		$	(2	)		$	(82	)		$	14

		Years Ended December 31
		2009				2008				2007
Home closings (units):
Northern California			121				139				131
Southland / Los Angeles			204				227				258
San Diego / Riverside			136				128				150
Washington D.C. Area			232				245				272
Corporate and Other			6				6				14
Consolidated Total			699				745				825
Unconsolidated Entities			4				5				14
Total			703				750				839
Average selling price ($US):
Northern California		$	845,000			$	913,000			$	921,000
Southland / Los Angeles			388,000				413,000				682,000
San Diego / Riverside			507,000				533,000				597,000
Washington D.C. Area			369,000				499,000				528,000
Corporate and Other			635,000				689,000				831,000
Consolidated Average			486,000				557,000				656,000
Unconsolidated Entities			821,000				1,288,000				1,020,000
Average		$	488,000			$	562,000			$	662,000
Lots controlled (units at end of year):
Northern California			2,001				1,108				1,325
Southland / Los Angeles			1,235				1,417				1,993
San Diego / Riverside			8,853				6,605				6,064
Washington D.C. Area			3,627				3,681				8,371
Corporate and Other			263				273				282
			15,979				13,084				18,035
Lots under option (1)			8,266				11,025				7,336
Total			24,245				24,109				25,371

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008

Net Income

Net loss for the year ended December 31, 2009 was $33 million, a decline in net loss of $101 million when compared to net loss of $133 million for the year ended December 31, 2008. The decrease in net loss primarily relates to a decrease of $116 million in impairments and write-offs on our housing and land assets and investments in unconsolidated entities, lower selling general and administrative costs of $17 million, and an increase in income from our interest rate swap contracts of $30 million, partially offset by a decrease in housing and land gross margin of $10 million and a reduction in tax recoveries of $51 million.

Results of Operations

Company-wide: Housing revenue was $340 million for the year ended December 31, 2009, a decrease of
$75 million when compared to the same period in 2008. The decrease in housing revenue was primarily
due to fewer home closings for 2009 of 703 units, a decrease of 47 units or 6% when compared to
2008 as well as reduced average selling prices and product mix.

Housing revenues were net of incentives of $57 million for the year ended December 31, 2009, compared to $73 million for the same period in 2008. Our incentives on homes closed by reportable segment for the years ended December 31, 2009 and 2008 are as follows:

		Years Ended December 31
		2009								2008
		Incentives				% of Gross				Incentives				% of Gross
($ millions)		Recognized				Revenues				Recognized				Revenues
Northern California		$	27				26	%		$	37				29	%
Southland / Los Angeles			5				7	%			8				8	%
San Diego / Riverside			4				6	%			4				5	%
Washington D.C. Area			21				24	%			24				20	%
Corporate and Other			—				—				—				—
Total		$	57				17	%		$	73				18	%

Land revenue in 2009 totaled $36 million on the sale of 469 lots to homebuilders compared with $34 million in 2008 on the sale of 616 lots. 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 are affected by local market conditions.

Gross margin was a loss of $2 million compared with a loss of $82 million for the same period in 2008. The increase in gross margin was primarily a result of a decrease in impairment charges and other write-offs, partially offset by fewer home closings during the year ended December 31, 2009, as well as reduced average selling prices. Included in gross margin is a loss of $19 million on the abandonment of 2,610 lots which was offset in the same market area with the extension and renegotiation of a land option contract on 2,000 lots, which is included in consolidated land inventory not owned.

In 2009, we recognized impairment charges and option write-offs on our housing and land inventory of $24 million compared to $115 million in 2008. The impairment charges and option write-offs related primarily to lots located in the Southland, Washington D.C. Area and Corporate and Other reportable segments, optioned lots located primarily in California and the Washington D.C. Area, as well as a commercial site located in the Washington D.C. Area reportable segment.

The number of projects where impairment charges and option write-offs were recognized and the fair value of the projects impaired for the years ended December 31, 2009 and 2008 are as follows:

		Years Ended December 31
		2009												2008
		Projects								Fair Value				Projects								Fair Value
		Tested for				Projects				of Projects				Tested for				Projects				of Projects
($ millions)		Impairment				Impaired				Impaired				Impairment				Impaired				Impaired
Northern California			6				1			$	—				9				3			$	91
Southland / Los Angeles			4				1				14				6				3				49
San Diego / Riverside			15				—				—				14				3				91
Washington D.C. Area			18				3				5				22				13				79
Corporate and Other			3				2				6				2				—				—
Total			46				7			$	25				53				22			$	310

A summary of our gross margin / (loss) is as follows:

		Years Ended December 31
($ millions)		2009				2008
Housing		$	45			$	52
Land			(23	)			(19	)
Impairment charges / write-downs			(24	)			(115	)
		$	(2	)		$	(82	)

Northern California: Housing revenue was $102 million for the year ended December 31, 2009, a decrease of $25 million when compared to the same period in 2008. The gross margin on housing was $10 million, consistent with the same period in 2008. While there were fewer option contract write-offs and impairment charges recorded in 2009, this was offset by lower average selling prices. Impairments and option contract write-offs for the year ended December 31, 2009 were nil compared with $21 million for the same period in 2008.

Land revenue was nil in 2009, compared with $2 million in 2008. The land revenue in 2008 comprised the sale of 78 raw lots. The gross margin on land revenue was $(9) million in 2009 compared to $(7) million in 2008. The negative gross margin on land revenue in 2009 comprised a loss on the disposal to another homebuilder of a 120 unit senior living facility site.

Southland / Los Angeles: Housing revenue was $79 million for the year ended December 31, 2009, a decrease of $15 million when compared to the same period in 2008. The decrease for the year ended December 31, 2009 compared to the same period in 2008 was primarily attributable to a decrease in home closings of 23 units. The gross margin for the year ended December 31, 2009 was $5 million compared with $(3) million for the same period in 2008. The increase in the gross margin for the year ended December 31, 2009 compared to the same period in 2008 was primarily a result of fewer impairment charges partially offset by lower average selling prices. Impairment charges for the year ended December 31, 2009 were $3 million compared to $16 million for the same period in 2008.

San Diego / Riverside: Housing revenue was $69 million for the year ended December 31, 2009, an increase of $1 million when compared to the same period in 2008. Land revenue was $20 million for the year ended December 31, 2009, compared with $19 million for the same period in 2008. During the year ended December 31, 2009, 60 lots located in the Carlsbad region, 150 lots located in the Imperial Valley region, as well as 71 lots located in the Inland Empire region were sold. The gross margin for the year ended December 31, 2009 was $(4) million compared with $(42) million for the same period in 2008. The increase in the gross margin was primarily a result of fewer impairment charges partially offset by reduced selling prices. Impairment charges and option write-offs for the year ended December 31, 2009 were $1 million compared with $42 million for the same period in 2008.

Washington D.C. Area: Housing revenue was $86 million for the year ended December 31, 2009, a decrease of $36 million when compared to the same period in 2008 primarily due to a decrease in home closings and reduced selling prices. Land revenue was $8 million for the year ended December 31, 2009, compared with $13 million for the same period in 2008. The gross margin for the year ended December 31, 2009 was $4 million compared with $(17) million for the same period in 2008. The increase in gross margin for the year ended December 31, 2009 compared to the same period in 2008 was primarily a result of a decrease in impairment charges and other write-offs, partially offset by reduced selling prices. Impairment charges and other write-offs for the year ended December 31, 2009 were $13 million compared with $36 million for the same period in 2008.

Other Income and Expenses

Equity in earnings from investments in unconsolidated entities in 2009 totaled $1 million, a decrease of $2 million when compared to 2008. The impairment of our investments in unconsolidated entities totaled $13 million in 2009 compared to $38 million in 2008. The impairment charges in 2009 primarily relate to 907 lots in the Inland Empire of California in one project and the write-off of costs related to a commercial site in the Washington D.C. Area.

Other income / (expense) in 2009 totaled $13 million, an increase of $31 million when compared to 2008. The components of the 2009 and 2008 other income are summarized as follows:

		Years Ended December 31
($ millions)		2009				2008
Change in fair value of interest rate swap contracts		$	11			$	(19	)
Other			2				1
		$	13			$	(18	)

Selling, general and administrative expense was $52 million in 2009, a decrease of $17 million when compared to 2008. The components of the 2009 and 2008 expense are summarized as follows:

		Years Ended December 31
($ millions)		2009				2008
General and administrative expenses		$	(30	)		$	(35	)
Sales and marketing expenses			(22	)			(30	)
Stock compensation			(4	)			7
Change in fair value of equity swap contracts			4				(11	)
		$	(52	)		$	(69	)

Sales Activity

Our net new home orders for the year ended December 31, 2009 were 756 units, an increase of 27 units compared to 2008. Based on our average of 24 active selling communities during the year, our average sales rate during 2009 was approximately 0.6 sales per week per community, which is 50% higher per selling community than 2008 but below what may be considered a normal housing market of one sale per week per active selling community. The net new home orders in units for 2009 and 2008 by reportable segment are as follows:

		Years Ended December 31
		2009				2008
Northern California			135				122
Southland / Los Angeles			218				237
San Diego / Riverside			151				128
Washington D.C. Area			263				233
Corporate and Other			(14	)			7
Consolidated Total			753				727
Unconsolidated Entities			3				2
Total			756				729

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

Our backlog, which represents the number of new homes subject to pending sales contracts, at December 31, 2009 and 2008 by reportable segment are as follows:

		Backlog December 31
		2009								2008
		Units				$ millions				Units				$ millions
Northern California			24			$	24				10			$	9
Southland / Los Angeles			69				29				55				23
San Diego / Riverside			23				11				8				4
Washington D.C. Area			71				24				40				35
Corporate and Other			—				—				20				14
Consolidated Total			187				88				133				85
Unconsolidated Entities			—				—				1				1
Total			187			$	88				134			$	86

We expect all units of our backlog to close in 2010, subject to future cancellations. The cancellation rates for 2009 and 2008 by reportable segment are as follows:

		Years Ended December 31
		2009								2008
		Units				%				Units				%
Northern California			19				12	%			25				17	%
Southland / Los Angeles			49				18	%			45				16	%
San Diego / Riverside			30				16	%			28				18	%
Washington D.C. Area			62				19	%			88				27	%
Corporate and Other			20				250	%			7				44	%
Total			180				19	%			193				21	%

The cancellation rate for 2009 in the Corporate and Other reportable segment results from deferral of the start of a project in Hawaii due to the market conditions in this location.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Net Income

Net loss for the year ended December 31, 2008 was $133 million, a decrease of $142 million when compared to net income of $9 million for the year ended December 31, 2007. The decrease in net income was due to continued challenging market conditions in all our markets which resulted in impairment charges and write-downs on our

housing and land assets, an 11% decrease in home closings and a reduction in our 2008 housing gross margin to 13% compared to 17% in 2007. The decrease in net income was also due to an expense of $19 million related to our interest rate swaps in 2008 compared to an expense of $8 million in 2007.

Results of Operations

Company-wide: Housing revenue was $415 million in 2008, a decrease of $126 million when compared to 2007. The decrease in housing revenue was a result of 80 or 10% fewer homes closed from directly owned projects to 745 units when compared to 2007 home closings. The gross margin on housing revenue in 2008 was $(43) million or (10%) compared with $4 million or 1% in 2007. The decrease in gross margin and gross margin percentage was due to fewer home closings, continued increases in homebuyer incentives and reduced prices and product mix.

Land revenue in 2008 totaled $34 million on the sale of 616 lots compared with $42 million in 2007 on the sale of 1,328 lots. The gross margin on land revenue was $(39) million, a decrease of $49 million when compared to 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 additionally such revenues are affected by local market conditions.

In 2008, we recognized impairment and write-downs on our housing and land inventory of $115 million compared to $88 million in 2007. The impairment charges and write-downs related to 2,326 finished lots located in the Inland Empire of California and Washington D.C. Area and 819 optioned lots located in California and the Washington D.C. Area.

A summary of our gross margin is as follows:

		Years Ended December 31
($ millions)		2008				2007
Housing		$	52			$	92
Land			(19	)			10
Impairment charges / write-downs			(115	)			(88	)
		$	(82	)		$	14

Northern California: Housing revenue was $127 million in 2008, an increase of $6 million when compared to 2007. The increase in revenue was primarily due to an increase of eight homes closed. The gross margin on housing revenue was $(11) million or (9%) in 2008, compared with $12 million or 10% in 2007.

Land revenue was $2 million in 2008, compared with nil in 2007. The land revenue in 2008 comprised the sale of 78 raw lots. The gross margin on land revenue was $(7) million. Impairment and other charges totaled $21 million in 2008, compared with $15 million in 2007.

Southland / Los Angeles: Housing revenue was $94 million in 2008, a decrease of $82 million when compared to 2007. The decrease was due to a 39% decrease in our average selling price to $413,000 and 31 fewer homes closed. The gross margin on housing revenue was $(3) million or (4%) compared with $27 million or 16% in 2007. The decrease in the gross margin percentage was a result of reduced selling prices, increases in homebuyer incentives and product mix.

Land revenue was nil in 2008, a decrease of $30 million when compared to 2007. The land revenue in 2007 comprised the sale of 1,249 lots held under option. Impairment and other charges totaled $15 million in 2008, compared with $3 million in 2007.

San Diego / Riverside: Housing revenue was $68 million in 2008, a decrease of $21 million when compared to 2007. The decrease was primarily due to 22 fewer homes closed and a decrease in our average selling price. The gross margin on housing revenue was $(5) million or (6%) compared with $(10) million or (11%) in 2007. The increase in the gross margin percentage was a result of a decrease in impairment charges, partially offset by reduced selling prices, increases in homebuyer incentives and product mix.

Land revenue was $19 million in 2008, compared with nil in 2007. The land revenue in 2008 comprised the sale of 451 finished lots. The gross margin in land revenues was $(35) million. Impairment and other charges totaled $43 million in 2008, compared with $33 million in 2007.

Washington D.C. Area: Housing revenue was $122 million in 2008, a decrease of $21 million when compared to 2007. The decrease was primarily due to 27 fewer homes closed. The gross margin on housing revenue was $(20) million or (16%) compared with $(28) million or (19%) in 2007.

Land revenue was $13 million in 2008, compared to $12 million in 2007. The gross margin on land revenue was $3 million in 2008 compared with $2 million in 2007. Impairment and other charges totaled $36 million in 2008, compared with $47 million in 2007.

Other Income and Expenses

Equity in earnings from unconsolidated entities in 2008 totaled $3 million, a decrease of $10 million when compared to 2007. This decrease was primarily a result of a decrease in earnings from our Windemere unconsolidated entity of $8 million. Impairments from unconsolidated entities totaled $38 million in 2008 compared to $15 million in 2007. The impairment charges in 2008 related to 907 lots in Riverside.

Other expense in 2008 totaled $18 million, an increase of $12 million when compared to 2007. The components of the 2008 and 2007 other (expense) / income are summarized as follows:

		Years Ended December 31
($ millions)		2008				2007
Change in fair value of interest rate swap contracts		$	(19	)		$	(8	)
Interest income			—				1
Other			1				1
		$	(18	)		$	(6	)

Selling, general and administrative expense was $69 million in 2008, consistent with 2007. The components of the 2008 and 2007 expense are summarized as follows:

		Years Ended December 31
($ millions)		2008				2007
Selling, general and administrative expenses		$	(65	)		$	(68	)
Stock compensation			7				18
Changes in fair value of equity swap contract			(11	)			(19	)
Total		$	(69	)		$	(69	)

Sales Activity

Our net new home orders for the year ended December 31, 2008 were 729 units, a decrease of six units compared to 2007. Based on our average of 33 active selling communities, our average sales rate during 2008 was approximately 0.4 sales per week per community, consistent with 2007, but below what may be considered a normal housing market of one sale per week per active selling community. The net new home orders in units for 2008 and 2007 by reportable segment are as follows:

		Years Ended December 31
		2008				2007
Northern California			122				141
Southland / Los Angeles			237				183
San Diego / Riverside			128				123
Washington D.C. Area			233				249
Corporate and Other			7				13
Consolidated Total			727				709
Unconsolidated Entities			2				26
Total			729				735

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

Our backlog, which represents the number of new homes subject to pending sales contracts, at December 31, 2008 and 2007 by reportable segment are as follows:

		Backlog December 31
		2008								2007
		Units				$ millions				Units				$ millions
Northern California			10			$	9				27			$	29
Southland / Los Angeles			55				23				45				24
San Diego / Riverside			8				4				8				4
Washington D.C. Area			40				35				52				43
Corporate and Other			20				14				19				15
Consolidated Total			133				85				151				115
Unconsolidated Entities			1				1				4				4
Total			134			$	86				155			$	119

Our backlog is subject to future cancellations. The cancellation rates for 2008 and 2007 by reportable segment are as follows:

		Years Ended December 31
		2008								2007
		Units				%				Units				%
Northern California			25				17	%			31				18	%
Southland / Los Angeles			45				16	%			140				41	%
San Diego / Riverside			28				18	%			30				19	%
Washington D.C. Area			88				27	%			134				33	%
Corporate and Other			7				44	%			7				44	%
Total			193				21	%			342				31	%

Liquidity and Capital Resources

Financial Position

Our assets as of December 31, 2009 totaled $1,037 million compared to $1,207 million as of December 31, 2008, a decrease of $170 million. The decrease in 2009 was due primarily to decreases in housing and land inventory, our investment in unconsolidated entities and in our current tax receivables, partially offset by an increase in our consolidated land inventory not owned. Our housing and land inventory, investments in unconsolidated entities and our consolidated land inventory not owned are our most significant assets with a combined book value of $928 million or approximately 89% of our total assets. Our housing and land assets decreased by a combined $127 million in 2009 when compared to 2008. When impairments and other write-downs of $24 million are excluded, the decrease was $103 million. This decrease during 2009 was primarily a result of lower inventories with our focus on closing homes and reducing standing inventory, the disposition and sales of both finished and raw lots, impairments and write-offs of option deposits of $24 million, partially offset by the acquisition of 3,212 lots for $29 million in San Diego / Riverside.

Our total debt as of December 31, 2009 was $382 million, a decrease of $367 million from December 31, 2008. Total debt as of December 31, 2009 consisted of $232 million of project specific financings and $150 million related to amounts drawn on two facilities with subsidiaries of our largest stockholder, Brookfield Asset Management Inc. Our project specific financings represent construction and development loans which are used to fund the development of our communities.

As new homes are constructed, further loan facilities are arranged. Our major project specific lenders are Wells Fargo, Bank of America, Housing Capital Corporation and M&T Bank. Interest charged under project specific financings include LIBOR and prime rate pricing options. As of December 31, 2009, the average interest rate on our project specific debt was 4.2%, with stated maturities as follows:

		Maturities
($ millions)		2010				2011				2012				Total
Northern California		$	1			$	30			$	—			$	31
Southland / Los Angeles			30				8				—				38
San Diego / Riverside			76				5				9				90
Washington D.C. Area			25				37				—				62
Corporate and Other			11				—				—				11
Total		$	143			$	80			$	9			$	232

Our debt maturing in 2010 and 2011 is expected to be repaid from home and/or lot deliveries over this period or extended and is secured by the housing and land inventory we own. During the year, proceeds from the housing and land deliveries exceeded the corresponding debt repayments made during the year. During the year ended December 31, 2009, in the normal course of operations we extended repayment terms on $27 million of debt originally maturing in 2009 and now maturing in 2010. Additionally, as of December 31, 2009, we had project specific debt of $203 million that is available to complete land development and construction activities. The “Cash Flow” section below discloses our future available capital resources should proceeds from our future home closings not be sufficient to repay our debt obligations.

Other revolving financings includes $100 million on an unsecured revolving operating credit facility and $50 million on an unsecured revolving acquisition and operating credit facility, both with subsidiaries of our largest stockholder, Brookfield Asset Management Inc. The revolving operating credit facility matures in December 2011, bears interest at LIBOR plus 3.50% and was fully drawn upon as of December 31, 2009. During July 2009, the revolving acquisition and operating credit facility was amended to increase the maximum available amount to $100 million and provide for an initial commitment amount of $50 million. This facility matures in December 2012 and initially bears interest at 12% and both of these facilities could be fully drawn upon without violation of any of our covenants. In October 2009, the initial commitment amount was increased to $80 million of which $50 million is available for general corporate purposes.

Stockholders of our company fully subscribed for 10,000,000 shares of 8% convertible preferred stock pursuant to our rights offering that expired on April 27, 2009. We received gross proceeds of approximately $250 million upon issuance of the shares of convertible preferred stock. The proceeds from the rights offering were used for general corporate purposes, including repayment on our revolving operating credit facility due to a subsidiary of our largest stockholder, Brookfield Asset Management Inc. Assuming the full conversion of the 8% convertible preferred stock held by it, Brookfield Asset Management Inc. will own approximately 82.4% of our common stock. Holders of the 8% convertible preferred stock issued in the rights offering are entitled to receive, when, as and if declared by our Board of Directors, dividends per year at the per share rate of 8%, representing annual dividends of $20 million. These declared dividends are payable semi-annually and may be paid, at the election of our board of directors, in cash or shares of common stock. During the year ended December 31, 2009, we paid a prorated cash dividend of $4 million on June 30, 2009 and a $10 million dividend on December 31, 2009 paid in the form of common stock. Please see Note 12 to our consolidated financial statements included in this Form 10-K for additional information on the rights offering.

Cash Flow

Our principal uses of working capital include home construction, purchases of land and land development. Cash flows for each of our communities depend upon the applicable stage of the development cycle and can differ substantially from reported earnings. Early stages of development require significant cash outlays for land acquisitions, site approvals and entitlements, construction of model homes, roads, certain utilities and other amenities and general landscaping. Because these costs are capitalized, earnings reported for financial statement purposes during such early stages may significantly exceed cash flows. Later, cash flows can exceed earnings reported for financial statement purposes, as cost of sales include charges for substantial amounts of previously expended costs.

We believe we currently have sufficient access to capital resources and will continue to use our available capital resources to fund our existing business plan. Our future capital resources include cash flow from operations, borrowings under project and other credit facilities and proceeds from potential future equity offerings, if required.

While we do not anticipate that an equilibrium between the supply and demand for housing will be reached in 2010, we continue to work through the challenging market conditions and remain focused on proactively managing our balance sheet, placing a strong emphasis on liquidity. We are continuing to manage our inventory levels through matching homebuilding starts with net new orders.

Cash provided by our operating activities during the year ended December 31, 2009 totaled $137 million compared with $66 million for the same period in 2008. During the year ended December 31, 2009, our operating cash flow was positively impacted by the receipt of cash tax refunds of $63 million, and the net reduction of our housing and land inventory, offset by a reduction in accounts payable and other liabilities.

During the year ended December 31, 2009, 703 homes and 469 lots to other homebuilders, respectively, were delivered. As a result, cash flow from operations was positively affected by these home closings and lot sales. These deliveries were partially offset by land acquisitions made during the year ended December 31, 2009. We have limited our development of land while the demand for finished lots has decreased.

A summary of our lots owned and consolidated land inventory not owned and their stage of development at December 31, 2009 compared with the same period last year follows:

		2009				2008
Completed homes, including models			101				265
Homes under construction			121				64
Homes with foundation / slabs			85				76
Total housing units			307				405
Lots ready for house construction			1,643				2,544
			1,950				2,949
Graded lots and lots commenced grading			2,141				900
Undeveloped land			11,888				9,235
			15,979				13,084