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Keystone by Brookfield | Click image to enlarge

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Brookfield Residential Properties Inc. announced its financial results Tuesday for the three and nine months ended September 30, 2014. The results are based on U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

“Building on our progress from the first six months of 2014, we continued to achieve positive results in the third quarter of 2014. While the U.S. market has ‘paused’, we believe slower household formation, lack of mortgage availability, weakness in the overall quality of jobs being created and a degree of trepidation on the part of the first-time home buyer are all contributing to this. It is our belief that this represents substantial unfilled pent up demand where it is expected that as rents rise and the job situation improves, home ownership will again become more attractive,” commented Alan Norris, President and Chief Executive Officer of Brookfield Residential.


                                      Three Months Ended  Nine Months Ended
Results of Operations                       September 30       September 30
(US$ millions, except per share
 amounts)                                  2014     2013      2014     2013
Total revenue                          $    355 $    333  $    885 $    801
Income before income taxes                   48       45       131       81
Income tax recovery / (expense)              38       (8)       24      (16)
Net income attributable to Brookfield
 Residential                                 86       35       153       63
Basic income per share                 $   0.74 $   0.30  $   1.31 $   0.54
Diluted income per share               $   0.73 $   0.29  $   1.30 $   0.54
Total assets                                              $  3,347 $  3,394
Total liabilities                                         $  1,801 $  1,980

Three Months Ended September 30, 2014

--  Net income attributable to Brookfield Residential increased to $86
    million, or $0.73 per diluted share in the third quarter of 2014, from
    $35 million, or $0.29 per diluted share, when compared to the same
    period in 2013
--  Included in net income was the release of the valuation allowance on our
    U.S. deferred tax assets of $45 million, which resulted in a recovery of
    income taxes of $38 million for the third quarter of 2014
--  Income before income taxes increased to $48 million in the third quarter
    of 2014, from $45 million, when compared to the same period in 2013
--  Third quarter revenue increased 7% to $355 million from the same quarter
    of 2013
--  The average home selling price increased 19% to $516,000 in the third
    quarter, compared to $432,000 during the same period in 2013

Nine Months Ended September 30, 2014

--  Net income attributable to Brookfield Residential increased to $153
    million, or $1.30 per diluted share, from $63 million, or $0.54 per
    diluted share, during the same period last year
--  Income before income taxes increased to $131 million, from $81 million,
    compared to the same period last year
--  Year to date revenue increased 10% to $885 million compared to the same
    period in 2013
--  The average home selling price increased 22% to $516,000, compared to
    $422,000 for the same period in 2013
--  As at September 30, 2014, backlog of housing units, including our share
    of unconsolidated entities, increased 5% to 1,401 units, while backlog
    value increased 12% to $715 million, compared to September 30, 2013


                                     Three Months Ended    Nine Months Ended
                                           September 30         September 30
(US$ millions, except unit
 activity and average selling
 price)                                 2014       2013      2014       2013
Land revenue                       $      64 $       71 $     190 $      227
Lot closings (single family units)       368        463     1,207      1,225
Average lot selling price (single
 family units)                     $ 148,000 $  119,000 $ 141,000 $  137,000
Acres closings (multi-family,
 industrial and commercial)               15         13        25         19
Average per acre selling price
 (multi-family, industrial and
 commercial)                       $ 667,000 $1,115,000 $ 791,000 $1,022,000
Housing revenue                    $     291 $      262 $     695 $      574
Home closings for Brookfield
 Residential (units)                     564        606     1,345      1,360
Home closings for unconsolidated
 entities (units)                         29         19        54         40
Average home selling price for
 Brookfield Residential (per unit) $ 516,000 $  432,000 $ 516,000 $  422,000
Average home selling price for
 unconsolidated entities (per
 unit)                             $ 470,000 $  482,000 $ 484,000 $  497,000
Net new orders for Brookfield
 Residential (units)                     495        540     1,792      1,856
Net new orders for unconsolidated
 entities (units)                         27         16        93         40
Backlog for Brookfield Residential
 (units at end of period)              1,349      1,311     1,349      1,311
Backlog value for Brookfield
 Residential                       $     693 $      630 $     693 $      630
Backlog for unconsolidated
 entities (units at end of period)        52         18        52         18
Backlog value for unconsolidated
 entities                          $      22 $        9 $      22 $        9

Three Months Ended September 30, 2014

Land revenue totalled $64 million for the three months ended September 30, 2014, a decrease of $7 million when compared to the same period in 2013, primarily due to 95 fewer lot closings, partially offset by higher average lot selling prices when compared to the same period in 2013.

Housing revenue increased to $291 million for the three months ended September 30, 2014, compared to $262 million for the same period in 2013. The increase was due to increased average home selling prices resulting from both improved market conditions leading to price escalation and the mix of product sold across all operating segments. This was partially offset by marginally lower home closings.

Nine Months Ended September 30, 2014

Land revenue was $190 million for the nine months ended September 30, 2014, a decrease of $37 million compared to the same period in 2013. The decrease in land revenue was due to the mix of lots sold with fewer raw and partially finished acre sales when compared to the same period in 2013. This was partially offset by higher single-family lot revenue. Our land revenue may vary significantly from period to period due to the nature and timing of land sales. Revenues are also affected by local product mix and market conditions, which have an impact on the selling price per lot.

Housing revenue was $695 million for the nine months ended September 30, 2014 compared to $574 million for the same period in 2013. The increase was the result of higher average home selling prices, partially offset by a slight decrease in home closings.


At each reporting period, we evaluate the recoverability of our U.S. deferred tax asset. The Company records net deferred tax assets to the extent it believes these assets will more-likely-than-not be realized. For our U.S. operations, we established a valuation allowance against our deferred tax assets in 2011 at the date of our merger transaction.

After evaluating the recoverability of our deferred tax assets as of September 30, 2014, we determined that the factors in favor of releasing the valuation allowance against our deferred tax assets in the U.S. outweighed the factors in favor of maintaining it. Therefore, we released a significant portion of our valuation allowance as of September 30, 2014, except for amounts that will be released against income before income taxes for the remainder of the year.

Accordingly, we reversed $45 million of valuation allowance for the three-month period ended September 30, 2014. This reversal is reflected in our income tax benefit in the condensed consolidated statement of operations.

We expect that the remaining valuation allowance with respect to our U.S. deferred tax asset will be released in the last quarter of 2014. The timing of the reduction of this remaining valuation allowance will be determined by the timing of our estimated income in our U.S. operations for 2014. Income before income taxes recorded for the remainder of 2014 may be greater or less than our current estimate. If income before income taxes recorded for the remainder of 2014 is different than our current estimate, we will recognize a provision or benefit for income taxes in the fourth quarter of 2014. Starting in 2015, we expect that our effective tax rate will approach the statutory tax rate.

For further information on the release of the deferred tax asset valuation allowance, please refer to our interim report for the period ended September 30, 2014.


Over the last several years, we have continued our focus on bringing lots from a raw state through the approval and entitlement process. As a result of our efforts, we have increased our number of active housing communities to 58 at September 30, 2014, from 47 at the end of 2013.

Highlights from our operations during the third quarter included:

--  In Canada, we opened the Fox Trail community in Uxbridge, Ontario which
    consists of upscale bungalow townhomes and builds on the growth in our
    infill platform. In Alberta, we received structure plan approval for our
    South Seton project and planning commission approval for our Livingston
    project, both of which are located in Calgary.
--  In our Central & Eastern U.S. markets, we commenced selling lots in our
    Addison community to builder partners in Austin. In the Washington D.C.
    area, we continued to expand our new plans and design offerings to meet
    customer needs by introducing the "Soho" collection at Goose Creek
--  In California, development commenced in our new communities of Five
    Knolls in Santa Clarita, New Haven in Ontario and Stonebrae Country Club
    in Hayward. We opened Windrift at River Islands in Lathrop and will open
    Camellia at Rosedale and El Paseo at Foothill Ranch in the fourth


For the three months ended September 30, 2014, we repurchased for cancellation approximately 966,000 Common Shares at an average price of $19.88 per share under our normal course issuer bid. Since we initiated the program on May 1, 2014, we repurchased for cancellation approximately 1,500,000 Common Shares at an average price of $19.97 per share.


On October 23, 2014, Brookfield Asset Management Inc. announced that it had made a proposal to the Company to acquire the approximately 30% of the common shares of Brookfield Residential that it does not already own for $23.00 cash per share. The board of directors of Brookfield Residential has established a special committee of independent directors to review and consider the proposal and the Company will provide an update at the appropriate time. The Company’s shareholders do not need to take any action with respect to the proposal at this time.


Our outlook for the year remains positive. As has occurred in many past years, we anticipate that our income before taxes for the 2014 fiscal year will be somewhat back-end loaded. Based on current forecasts, and subject to the timing risk, we project fourth quarter income before income taxes will be at levels equal to or approaching the income before income taxes for the entire first nine months of 2014, resulting in the 2014 fiscal year results being significantly higher than 2013.


The attached financial statements are based primarily on information extracted from our condensed consolidated financial statements for the three and nine months ended September 30, 2014. The financial statements were prepared using the standards and interpretations currently issued under U.S. GAAP.

The interim report and our corporate profile for the quarter ended September 30, 2014 contain further information on our strategy, operations, financial results and outlook. Shareholders are encouraged to read these documents, which are available on our website at www.brookfieldrp.com.

Brookfield Residential Properties Inc. is a leading North American land developer and homebuilder with operations in eleven major markets. We entitle and develop land to create master-planned communities and build and sell lots to third-party builders, as well as to our own homebuilding division. We also participate in selected, strategic real estate opportunities, including infill projects, mixed-use developments, infrastructure projects, and joint ventures. Brookfield Residential is listed on the NYSE and TSX under the symbol BRP.

Please note that Brookfield Residential’s unaudited interim reports and audited annual report are filed on EDGAR and SEDAR and can also be found in the investor section of our website at www.brookfieldrp.com (the contents of which are not incorporated in this press release). Hard copies of the interim and annual reports can be obtained free of charge upon request.

For more information, please visit our website at www.brookfieldrp.com.

Note: This news release contains “forward-looking statements” within the meaning of Canadian securities laws and United States federal securities laws. Certain statements in this news release that are not historical facts, including information concerning possible or assumed future results of operations of the company and the timing thereof, guidance for 2014, anticipated U.S. housing market improvement and the pace thereof, potential for long-term fundamental demand growth in the U.S. housing market, when the remaining valuation allowance may be reduced against our income before income taxes and the impact thereof, our expected tax rate for 2015 and beyond, the proposal by Brookfield Asset Management or any other actions Brookfield Asset Management, our parent and largest shareholder, may take with respect to our business or their equity holding in us, the company’s 2014 outlook, and those statements preceded by, followed by, or that include the words “believe,” “projected,” “planned,” “anticipate,” “should,” “goals,” “expected,” “potential,” “estimate,” “targeted,” “scheduled” or similar expressions, constitute “forward-looking statements.” Undue reliance should not be placed on forward-looking statements because they involve 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; changes in interest rates; mortgage rate 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 labour or materials or increases in their costs; ability to develop and market our master-planned communities successfully; laws and regulations related to property development and to the environment that could lead to additional costs and delays;

confidence levels of consumers; ability to raise capital on favourable 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 and 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; any increase in unemployment or underemployment; decline of the market value of our land and housing inventories; significant inflation or deflation; inability to raise capital on favorable terms or at all; failure in our financial and commercial controls; changes to foreign currency exchange rates; difficultly enforcing civil liabilities in the United States against us and our directors and officers; higher cancellation rates of existing agreements of sale; major health and safety incident relating to our business; utility and resource shortages or rate fluctuations; the outcome of the proposal from Brookfield Asset Management and the impact of uncertainty surrounding it on our business; and additional risks and uncertainties referred to in our filings with the securities regulators in Canada and the United States, many of which are beyond our control. 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 should be consulted.

                   Brookfield Residential Properties Inc.
               Condensed Consolidated Statements of Operations
                                 Three Months Ended       Nine Months Ended
                                       September 30            September 30
(US$ thousands, except per
 share amounts)                    2014        2013        2014        2013
Land                         $   64,408  $   70,957  $  190,154  $  227,461
Housing                         290,908     261,598     694,582     573,985
                                355,316     332,555     884,736     801,446
Direct Cost of Sales
Land                            (28,198)    (29,666)    (90,438)   (117,032)
Housing                        (220,474)   (203,925)   (530,638)   (457,319)
                               (248,672)   (233,591)   (621,076)   (574,351)
Gain on commercial assets
 held for sale                        -           -      32,927           -
Selling, general and
 administrative expense         (45,318)    (41,746)   (134,616)   (118,065)
Interest expense                (15,898)    (14,431)    (47,147)    (35,714)
Equity in earnings from
 unconsolidated entities          2,624         765      11,038       3,759
Other income                        709       2,099       8,903       7,478
Depreciation                     (1,145)     (1,128)     (3,416)     (3,173)
Income Before Income Taxes       47,616      44,523     131,349      81,380
Current income tax expense       (2,363)     (2,323)     (3,239)     (2,374)
Deferred income tax recovery
 / (expense)                     40,770      (6,167)     27,683     (13,902)
Net Income                       86,023      36,033     155,793      65,104
Net income / (loss)
 attributable to non-
 controlling interests and
 other interests in
 consolidated subsidiaries          (36)      1,417       2,505       1,974
Net Income Attributable to
 Brookfield Residential      $   86,059  $   34,616  $  153,288  $   63,130
Unrealized foreign exchange
 (loss) / gain on
 translation of the net
 investment in Canadian
 subsidiaries                   (38,880)     14,414     (40,716)    (27,933)
Comprehensive Income
 Attributable to Brookfield
 Residential                 $   47,179  $   49,030  $  112,572  $   35,197
Earnings per Common Share
 Attributable to Brookfield
Basic                        $     0.74  $     0.30  $     1.31  $     0.54
Diluted                      $     0.73  $     0.29  $     1.30  $     0.54
Weighted Average Common
 Shares Outstanding (in
Basic                           116,106     116,856     116,664     116,550
Diluted                         117,313     117,784     117,924     117,500
                   Brookfield Residential Properties Inc.
                    Condensed Consolidated Balance Sheets
                                                            As at
                                                 September 30,  December 31,
(US$ thousands)                                           2014          2013
Land and housing inventory                        $  2,587,486  $  2,399,242
Investments in unconsolidated entities                 237,794       206,198
Commercial properties                                        -        47,733
Receivables and other assets                           307,789       341,090
Restricted cash                                          3,741         8,169
Cash and cash equivalents                              159,775       319,735
Deferred income tax assets                              50,079        21,594
                                                  $  3,346,664  $  3,343,761
Liabilities and Equity
Notes payable                                     $  1,100,000  $  1,100,000
Bank indebtedness and other financings                 257,964       348,853
Total financings                                     1,357,964     1,448,853
Accounts payable and other liabilities                 443,265       418,410
Total liabilities                                    1,801,229     1,867,263
Other interests in consolidated subsidiaries            17,309        36,641
Total equity                                         1,528,126     1,439,857
                                                  $  3,346,664  $  3,343,761

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