Operational and financial highlights for the year, including our share of unconsolidated entities:

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1 Brookfield Residential Properties Inc ANNUAL REPORT, 2017 Chief Executive Officer s Report Brookfield Residential continued to perform well in 2017 where we were supported by positive fundamentals in our markets across North America. The U.S. housing market continues to be backed by strong economic conditions, however we continue to be impacted by labour and material shortages along with the rest of the industry. In Canada, the recovery of oil prices has resulted in increased consumer confidence in Alberta and improved demand in the housing market while Ontario continues to be supported by longer term drivers of continued low interest rates, supply constraints, strong immigration and a low Canadian dollar. In the short term, we have seen some slowing of the housing market in Ontario as a result of the measures introduced by the Ontario provincial government to address housing affordability, however we continue to believe that the long-term view of the market is positive due to the ongoing shortage of developable land. We delivered on our strong backlog with a significant amount of closings occurring in the fourth quarter resulting in a high proportion of the year s income being achieved in the quarter. We generally met our guidance for 2017, albeit had fewer home and lot closings than anticipated. The reduction in closings was primarily caused by the heavy rains that occurred in the Bay Area in Q1 which delayed the launch of certain communities, FlakJacket issues encountered in our Denver market, as well as some permitting delays in Austin. However, we had strong average selling prices and achieved a 23% overall gross margin percentage which resulted in income before income taxes of $218 million, a 10% increase when compared to Operational and financial highlights for the year, including our share of unconsolidated entities: Home closings of 3,181 homes and net new home orders of 3,333 Entering 2018 with strong backlog of 1,695 units valued at $929 million, an increase of 10% and 18%, respectively when compared to the beginning of 2017 Single-family lot closings of 2,816, with an average lot selling price of $112,000 As a result of the fourth quarter s cash flow, ended the year with $105 million of cash while paying down our U.S. and Canadian credit facilities Net debt to total capitalization was reduced to 44%, compared to 47% in 2016 Company Initiatives During the year, we announced some changes to our organization with Adrian Foley being appointed as President and Chief Operating Officer and I will remain as Chairman and Chief Executive Officer. Adrian has taken on the overall Brookfield Residential operational responsibilities and I continue to focus on a more strategic role within the organization. Together with this additional responsibility, Adrian has been particularly focused on the customer and their overall experience with the objective being to develop a longer term relationship with our homeowners and finding value in that for our ongoing business. This has taken on many forms including the incorporation of smart home technology into our housing products in select Southern California and Washington communities. Our collaboration with Apple and the Brookfield Residential Smart Home powered by Amazon Alexa have both been positively received by our customers. Our View Going Forward As our markets continue to evolve, we look to grow our presence in our existing footprint as well as expand into the mixed-use arena. In 2018, we are excited and proud to be taking over the management of the Eastmark joint venture, a master-planned community located in Mesa, Arizona that has been ranked as a top performing U.S. master planned community. This will allow us to expand our presence and manage this well-established community in the top growth area of the Phoenix metropolitan area and continue to build on the success by adding significant value to this asset going forward. We also look to grow our infill business, mixed-use developments and evaluate other built forms to keep us closely in step with the changing demands and requirements of the consumer. With many municipalities also focused on urban intensification, coupled with some of the disruptions in the retail sector, we believe these trends will create a significant pipeline of redevelopment opportunities. Subsequent to the end of the year, we announced that we have acquired certain Brookfield Residential Properties Inc. 1

2 assets of OliverMcMillan Inc., a mixed-use developer based in San Diego, California, who will continue to design and build leading-edge mixed-use developments in some of the most vibrant urban centers in the U.S. We are excited about the value that the combined Brookfield Residential / OliverMcMillan will bring to our company and the ability to identify further mixed-use opportunities in our existing markets. We anticipate that in 2018 our operations will continue to grow and we believe that market conditions in the U.S. and Canada should remain favourable. We look forward to building on the success achieved in 2017 and carrying that momentum into Alan Norris Chairman & Chief Executive Officer February 6, Annual Report

3 BROOKFIELD RESIDENTIAL PROPERTIES PORTFOLIO Our business is focused on land development and single family and multi-family homebuilding in the markets in which we operate. Our assets consist primarily of land and housing inventory and investments in unconsolidated entities. Our total assets as at, 2017 were $4.2 billion. As of, 2017, we controlled 90,880 single family lots (serviced lots and future lot equivalents) and 139 multifamily, industrial and commercial serviced parcel acres. Controlled lots and acres include those we directly own and our share of those owned by unconsolidated entities. Our controlled lots and acres provide a strong foundation for our future lot and acre sales and homebuilding business, as well as visibility on our future cash flow. The number of building lots and acre parcels we control in each of our primary markets as of, 2017 is as follows: Single Family Housing & Land Under and Held for Development (1) Unconsolidated Status of Lots Multi-Family, Industrial & Commercial Parcels Under Development Housing & Land Entities Total Lots 12/31/2017 Total Acres Owned Options Owned Options 12/31/ /31/2016 Entitled Unentitled 12/31/ /31/2016 Calgary 19,823 2,488 22,311 25,486 7,314 14, Edmonton 12,344 12,344 13,565 7,134 5, Ontario 7,130 1,100 8,230 10,106 1,664 6,566 Canada 39,297 3,588 42,885 49,157 16,112 26, Northern California 2,750 4, ,038 8,575 3,088 4,950 Southern California 7,244 1,215 1,001 9,460 10,174 7,563 1,897 Hawaii California 10,150 4,950 1,572 1,001 17,673 18,941 10,826 6,847 Denver 8,274 8,274 8,674 8, Austin 11, ,143 12,729 12,143 Phoenix 284 5,166 5,450 4,725 5, Washington, D.C. Area 3,451 1,004 4,455 3,930 4, Central and Eastern U.S. 23,973 1,183 5,166 30,322 30,058 30, Total 73,420 6,133 10,326 1,001 90,880 98,156 57,223 33, Entitled lots 49,626 1,183 6,414 57,223 Unentitled lots 23,794 4,950 3,912 1,001 33,657 Total, ,420 6,133 10,326 1,001 90,880 Total, ,152 6,289 10,387 1,328 98,156 (1) Land held for development will include some multi-family, industrial and commercial parcels once entitled. Brookfield Residential Properties Inc. 3

4 BROOKFIELD RESIDENTIAL PROPERTIES INC. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 5 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS About this Management s Discussion and Analysis... 7 Overview... 7 Results of Operations... 9 Quarterly Operating and Financial Data Liquidity and Capital Resources BUSINESS ENVIRONMENT AND RISKS CONSOLIDATED FINANCIAL STATEMENTS Management's Responsibility for Financial Reporting Independent Auditor's Report Consolidated Balance Sheets As at, 2017 and, Consolidated Statements of Operations Years Ended, 2017 and Consolidated Statements of Equity Years Ended, 2017 and Consolidated Statements of Cash Flows Years Ended, 2017 and Notes to the Consolidated Financial Statements Annual Report

5 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This annual report, including the Chief Executive Officer s Report, incorporated herein by reference, contains forwardlooking statements within the meaning of applicable Canadian securities laws and United States ("U.S.") federal securities laws. Forward-looking statements can be identified by the words may, believe, will, anticipate, expect, plan, intend, estimate, project, future, and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. Such statements are neither historical facts nor assurances of future performance. Instead, they reflect management s current beliefs and are based on information currently available to management as of the date on which they are made. The forward-looking statements in this annual report include, among others, statements with respect to: the current business environment and outlook, including statements regarding: economic and market conditions in the U.S. and Canadian housing markets; the effect of positive economic trends and stabilization in the U.S. on consumer confidence and the resulting impact on the housing market; improved consumer confidence in Alberta from recent stabilization of energy prices and the impact thereof on our operations in the province; the impact of recent legislation enacted in Ontario to address affordability of housing in the Greater Toronto Area; home price growth rates and affordability levels generally; our ability to benefit from continued improvement in the U.S. housing market and growth in our U.S. operations; recovery in the housing market and the pace thereof; reduction in our debt levels and the timing thereof; the impact of hurricane and wildfire events on labour and material shortages and the resulting impact on our operations in our California and Texas markets; the impact of tight labour availability in many of our U.S. markets, and in particular in our Northern California, Denver, and Austin markets, on the delivery of our homes in 2018; our expected unit and lot sales and the timing thereof; expectations for 2018 and beyond, including anticipated benefits from our acquisition of OliverMcMillan Inc; possible or assumed future results, including our outlook and limited guidance for 2018, how we intend to use additional cash flow, the operative cycle of our business and expected timing of income and expected performance and features of our projects, the continued expansion of our U.S. homebuilding operations, the impact of acquisitions on our operations in certain markets; the expected closing of transactions; the expected exercise of options contracts; the effect on our business of business acquisitions; business goals, strategy and growth plans; trends in home prices in our various markets and generally; the effect of challenging conditions on us; factors affecting our competitive position within the homebuilding industry; the ability to generate sufficient cash flow from our assets to repay maturing bank indebtedness and project specific financings and take advantage of new opportunities; the visibility of our future cash flow; social and environmental conditions, policies and risks; expected backlog and closings and the timing thereof; the sufficiency of our access to and the sources of our capital resources; the impact of foreign exchange on our financial performance and market opportunities; the impact of credit rating agencies' rating on our business; the timing of the effect of interest rate changes on our cash flows; the effect of debt and leverage on our business and financial condition; the effect on our business of existing lawsuits; and the effect of executive level management changes on our operations. Although management of Brookfield Residential believes that the anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information in this annual report are based upon reasonable assumptions and expectations, readers of this annual report should not place undue reliance on such forward-looking statements and information because they involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of Brookfield Residential to differ materially from anticipated future results, performance, or achievements expressed or implied by such forward-looking statements and information. Various factors, in addition to those discussed elsewhere in this annual report, that could affect the future results of Brookfield Residential and could cause actual results, performance, or achievements to differ materially from those expressed in the forward-looking statements and information include, but are not limited to, those factors included under Brookfield Residential Properties Inc. 5

6 the sections entitled Cautionary Statements Regarding Forward-Looking Statements and Business Environment and Risks of the Annual Report for the fiscal year ended, The forward-looking statements and information contained in this annual report are expressly qualified by this cautionary statement. Brookfield Residential undertakes no obligation to publicly update or revise any forward-looking statements, whether written or oral, or information contained in this annual report, whether as a result of new information, future events or otherwise, except as required by law. However, any further disclosures made on related subjects in subsequent public disclosure should be consulted Annual Report

7 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS ABOUT THIS MANAGEMENT S DISCUSSION AND ANALYSIS This management s discussion and analysis relates to the year ended, 2017 and has been prepared with an effective date of February 6, It should be read in conjunction with the annual consolidated financial statements and the related notes thereto included elsewhere in this annual report. All dollar amounts discussed herein are in U.S. dollars, unless otherwise stated. Amounts in Canadian dollars are identified as C$. The financial statements referenced herein have been prepared in accordance with generally accepted accounting principles in the United States of America ( U.S. GAAP ). OVERVIEW Brookfield Residential Properties Inc. (unless the context requires otherwise, references in this report to we, our, us, the Company and Brookfield Residential refer to Brookfield Residential Properties Inc. and the subsidiaries through which it conducts all of its homebuilding and land development operations) is a wholly-owned subsidiary of Brookfield Asset Management Inc. and has been developing land and building homes for over 50 years. Brookfield Residential is a leading North American homebuilder and land developer with operations in Canada and the United States. We entitle and develop land to create master-planned communities and build and sell lots to third-party builders, and conduct our own homebuilding operations. We also participate in select strategic real estate opportunities, including infill projects, mixed-use developments, infrastructure projects and joint ventures. We are the flagship North American residential property company of Brookfield Asset Management Inc., a leading global alternative asset manager with approximately $265 billion of assets under management. We currently focus on the following three operating segments: Canada, California and Central and Eastern U.S. Our Canadian operations are primarily in the Alberta (Calgary and Edmonton) and Ontario (Toronto) markets. Our California operations include Northern California (San Francisco Bay Area and Sacramento), Southern California (Los Angeles / Southland and San Diego / Riverside) and Hawaii. Our Central and Eastern U.S. operations include Washington, D.C. Area, Colorado (Denver), Texas (Austin) and Arizona (Phoenix). We target these markets as we believe over the longer term they offer strong housing demand, barriers to entry and close proximity to areas where we expect strong employment growth. Principal Business Activities Through the activities of our operating subsidiaries, we develop land for our own communities and sell lots to other homebuilders and third parties. We may also design, construct and market single family and multi-family homes in our own and others communities. 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, infill projects and mixed-use developments. These operations include sourcing and evaluating land acquisitions, site planning, obtaining entitlements, developing the land, product design, constructing, marketing and selling homes and providing homebuyer customer service. These business units may also develop or sell land for the construction of commercial shopping centres in our communities. Brookfield Residential has developed a reputation for delivering first-class master-planned communities, infill projects and mixed-use developments. Master-planned communities are new home communities that typically feature community centres, parks, recreational areas, schools, commercial areas and other amenities. In an infill development, Brookfield Residential develops land and constructs homes in previously urbanized areas. Home Construction We construct homes on lots that have been developed by us or that we purchase from others. Having a homebuilding operation allows us the opportunity to extract value from the land and provides us with market knowledge through our direct contact with the homebuyers. In markets where the Company has significant land holdings, homebuilding is carried out on a portion of the land in specific market segments and the balance of lots are sold to and built on by third party builders. Land Acquisition and Development 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. Our unique approach to land development begins with our disciplined approach to acquiring land in the path of growth in dynamic and resilient markets in North America that have barriers to entry caused by infrastructure or entitlement Brookfield Residential Properties Inc. 7

8 processes. We create value through the planning and entitlement process, developing and marketing residential lots and commercial sites and working with industry partners who share the same vision and values. We plan to continue to grow this business over time by selectively acquiring land that either enhances our existing inventory or provides attractive projects that are consistent with our overall strategy and management expertise. These larger tracts afford us a true master-planned development opportunity that, following entitlement and assuming market conditions allow, creates a multi-year stream of cash flow. Master-planned communities are new home communities that typically feature community centres, parks, recreational areas, schools, commercial areas and other amenities. Creating this type of community requires a long-term view of how each piece of land should be developed with a vision of how our customers live in each of our communities. We may also purchase smaller infill or re-use parcels, or in some cases finished lots for housing. As a city grows and intensifies, so do its development opportunities. Inner city revitalization opportunities contribute to the strategic expansion of our business. We develop and construct homes in previously urbanized areas on underutilized land. Urban developments provide quick turnarounds from acquisition to completion, create new revenue streams, and infuse new ideas and energy into the Company. Mixed-use development is a growing focus of the Company. We have been developing commercial properties within our master-planned communities for decades. Seton, in Calgary, Alberta, is a prime example of adding value to a master plan through appropriate mixed-use planning and building on our own land. This 365-acre mixed-use development is one of the largest opportunities of its kind in North America. A shift in consumer behavior has resulted in further demand for infill/brownfield locations. With many municipalities also focused on urban intensification, these trends will create a significant pipeline of redevelopment opportunities. We believe Brookfield Residential has the necessary entitlement and re-entitlement expertise to implement this strategic focus, including the determination of appropriate future uses for a site, including retail, office, for sale residential, and for rent residential Annual Report

9 RESULTS OF OPERATIONS Key financial results and operating data for the year ended, 2017 compared to the year ended December 31, 2016 were as follows: Years Ended (US$ millions, except percentages, unit activity, average selling price and per share amounts) Key Financial Results Housing revenue... $ 1,733 $ 1,604 Land revenue Gross margin ($) Gross margin (1) (%)... 23% 23% Income before income taxes Income tax expense... (52) (52) Net income attributable to Brookfield Residential Basic earnings per share... $ 1.28 $ 1.27 Diluted earnings per share... $ 1.28 $ 1.27 Key Operating Data Home closings for Brookfield Residential (units)... 3,174 3,193 Home closings for unconsolidated entities (units) Average home selling price for Brookfield Residential (per unit)... $ 546,000 $ 502,000 Average home selling price for unconsolidated entities (per unit)... $ 1,162,000 $ 1,592,000 Net new home orders for Brookfield Residential (units)... 3,326 3,394 Net new home orders for unconsolidated entities (units) Backlog for Brookfield Residential (units)... 1,693 1,541 Backlog for unconsolidated entities (units) Backlog value for Brookfield Residential... $ 928 $ 783 Backlog value for unconsolidated entities... $ 1 $ 1 Lot closings for Brookfield Residential (single family units)... 2,349 2,403 Lot closings for unconsolidated entities (single family units) Acre closings for Brookfield Residential (multi-family, industrial and commercial) Acre closings for unconsolidated entities (multi-family, industrial and commercial) Acre closings for Brookfield Residential (raw and partially finished parcels) ,082 Average lot selling price for Brookfield Residential (single family units)... $ 111,000 $ 89,000 Average lot selling price for unconsolidated entities (single family units)... $ 117,000 $ 87,000 Average per acre selling price for Brookfield Residential (multi-family, industrial and commercial)... $ 591,000 $ 545,000 Average per acre selling price for unconsolidated entities (multi-family, industrial and commercial)... $ 242,000 $ Average per acre selling price for Brookfield Residential (raw and partially finished parcels)... $ 11,000 $ 22,000 (1) Gross margin percentage is a non-gaap financial measure and has been presented as we find it useful in evaluating our performance and believe that it helps readers of our financial statements compare our operations with those of our competitors. However, gross margin percentage as presented may not be fully comparable to similarly-titled measures reported by our competitors. See the Non-GAAP Financial Measures section on page 31. Brookfield Residential Properties Inc. 9

10 Segmented Information We operate in three operating segments within North America: Canada, California and Central and Eastern U.S. Each of the Company s segments specializes in land entitlement and development and the construction of single family and multi-family homes. The Company evaluates performance and allocates capital based primarily on return on assets together with a number of risk factors. The following table summarizes information relating to revenues, gross margin and assets by operating segment for the years ended, 2017 and Years Ended (US$ millions, except unit activity and average selling price) Housing revenue Canada... $ 566 $ 563 California Central and Eastern U.S Total... $ 1,733 $ 1,604 Land revenue Canada... $ 163 $ 87 California Central and Eastern U.S Total... $ 318 $ 299 Housing gross margin Canada... $ 120 $ 121 California Central and Eastern U.S Total... $ 347 $ 319 Land gross margin Canada... $ 78 $ 49 California Central and Eastern U.S Total... $ 126 $ 110 Home closings (units) Canada... 1,413 1,531 California... 1, Central and Eastern U.S ,174 3,193 Unconsolidated Entities Total... 3,181 3,198 Average home selling price Canada... $ 401,000 $ 368,000 California , ,000 Central and Eastern U.S , , , ,000 Unconsolidated Entities... 1,162,000 1,592,000 Average... $ 547,000 $ 504,000 Active housing communities Canada California Central and Eastern U.S Unconsolidated Entities Total Annual Report

11 Years Ended Lot closings (single family units) Canada California Central and Eastern U.S ,349 2,403 Unconsolidated Entities Total... 2,816 2,835 Acre closings (multi-family, industrial and commercial) Canada California... Central and Eastern U.S Unconsolidated Entities Total Acre closings (raw and partially finished parcels) Canada California ,902 Central and Eastern U.S Total ,082 Average lot selling price (single family units) Canada... $ 131,000 $ 122,000 California ,000 87,000 Central and Eastern U.S ,000 65, ,000 89,000 Unconsolidated Entities ,000 87,000 Average... $ 112,000 $ 89,000 Average per acre selling price (multi-family, industrial and commercial) Canada... $ 997,000 $ 985,000 California... Central and Eastern U.S , , , ,000 Unconsolidated Entities ,000 Average... $ 467,000 $ 545,000 Average per acre selling price (raw and partially finished parcels) Canada... $ 4,000 $ 4,000 California ,000 24,000 Central and Eastern U.S ,000 Average... $ 11,000 $ 22,000 Active land communities Canada California Central and Eastern U.S Unconsolidated Entities Total Brookfield Residential Properties Inc. 11

12 (US$ millions) 2017 As at 2016 Total assets Canada... $ 1,177 $ 1,112 California... 1,254 1,257 Central and Eastern U.S.... 1,252 1,133 Corporate and other Total... $ 4,238 $ 3,957 For more detailed financial information with respect to our revenues, earnings and assets, please refer to the accompanying consolidated financial statements and related notes included elsewhere in this annual report. Year Ended, 2017 Compared with Year Ended, 2016 Net Income Net income attributable to Brookfield Residential for the year ended, 2017 was $166 million compared to $146 million for the year ended, Years Ended (US$ millions, except per share amounts) Net income attributable to Brookfield Residential... $ 166 $ 146 Basic earnings per share... $ 1.28 $ 1.27 Diluted earnings per share... $ 1.28 $ 1.27 The increase of $20 million in net income attributable to Brookfield Residential for the year ended, 2017, compared to the same period in 2016 was primarily the result of a $44 million increase in gross margin, as a result of increased land and housing gross margins. Additionally, there was an increase in other income of $18 million and an increase in equity earnings from unconsolidated entities of $6 million. This was partially offset by an increase in general and administrative expense of $13 million, a decrease in gain on commercial assets held for sale of $14 million, an increase in share-based compensation of $11 million, an increase in sales and marketing expense of $6 million and an increase in interest expense of $4 million. A breakdown of the revenue and gross margin for the years ended, 2017 and 2016 is as follows: Years Ended (US$ millions, except percentages) Revenue Housing... $ 1,733 $ 1,604 Land $ 2,051 $ 1,903 Gross Margin Housing... $ 347 $ 319 Land $ 473 $ 429 Gross Margin (%) Housing... 20% 20% Land... 40% 37% 23% 23% For the year ended, 2017, total revenue increased by $148 million and total gross margin increased by $44 million when compared to The increase in total revenue was primarily the result of higher housing revenue due to a 9% increase in the average home selling price, which was partially offset by 19 fewer home closings. This 9% increase in the average home selling price was a result of the mix of homes closed. Additionally, there was higher activity in our land operations with 58 additional multi-family, industrial and commercial acre sales during the year ended, 2017 when compared to 2016, as well as a 25% higher average selling price on single family lots due to the mix of lots sold amongst operating segments. These sales were partially offset by 54 fewer single family lot closings and 1,454 fewer raw and partially finished acre sales due to a bulk acre sale that occurred in 2016 with no comparative sale in Gross margin percentage remained consistent when comparing the year ended, 2017 to Annual Report

13 Results of Operations Housing Housing revenue and gross margin were $1,733 million and $347 million, respectively, for the year ended December 31, 2017, compared to $1,604 million and $319 million for the same period in The increase in revenue was the result of a 9% increase in the average home selling price, partially offset by 19 fewer home closings. Gross margin increased $28 million primarily as a result of higher average home selling prices and 99 additional home closings from our U.S. operating segments, partially offset by 118 fewer home closings in our Canadian operating segment, which had lower average home selling prices, in comparison to the U.S. A breakdown of our results from housing operations for the years ended, 2017 and 2016 is as follows: Consolidated Years Ended (US$ millions, except unit activity, percentages and average selling price) Home closings... 3,174 3,193 Revenue... $ 1,733 $ 1,604 Gross margin... $ 347 $ 319 Gross margin (%)... 20% 20% Average home selling price... $ 546,000 $ 502,000 A breakdown of our results from housing operations for our three operating segments is as follows: Canada Years Ended (US$ millions, except unit activity, percentages and average selling price) Home closings... 1,413 1,531 Revenue... $ 566 $ 563 Gross margin... $ 120 $ 121 Gross margin (%)... 21% 21% Average home selling price... $ 401,000 $ 368,000 Housing revenue for the year ended, 2017 increased by $3 million when compared to The increase in revenue resulted from a 9% increase in the average home selling price, partially offset by 118 fewer home closings for the year ended, 2017 compared to the same period in The increase in the average home selling price was primarily due to higher average selling prices in our Ontario market as a result of product mix of homes sold. Additionally, there was a 2% increase in the foreign exchange rate between the Canadian and U.S. dollar for the year ended, 2017 when compared to the same period in When comparing the average home selling price in Canadian dollars for the year ended, 2017 to 2016, the average home selling price was C$519,000 compared to C$487,000. Gross margin and gross margin percentage remained relatively consistent when compared to California Years Ended (US$ millions, except unit activity, percentages and average selling price) Home closings... 1, Revenue... $ 818 $ 717 Gross margin... $ 169 $ 147 Gross margin (%)... 21% 21% Average home selling price... $ 812,000 $ 756,000 Housing revenue in our California segment was $818 million for the year ended, 2017, an increase of $101 million when compared to the same period in The increase in revenue was due to 59 additional home closings combined with a 7% increase in the average home selling price as a result of the product mix of homes sold for the year ended, 2017 when compared to Gross margin increased $22 million when compared to 2016, primarily as a result of higher home closings and the higher average home selling price due to product mix. Brookfield Residential Properties Inc. 13

14 Central and Eastern U.S. Years Ended (US$ millions, except unit activity, percentages and average selling price) Home closings Revenue... $ 349 $ 324 Gross margin... $ 58 $ 51 Gross margin (%)... 17% 16% Average home selling price... $ 463,000 $ 454,000 The Central and Eastern U.S. housing revenue increased by $25 million for the year ended, 2017 when compared to the same period in 2016 as a result of 40 additional home closings, due to increased activity in our Austin and Washington D.C. markets and a 2% increase in the average home selling price. Gross margin increased by $7 million when compared to 2016 due to higher home closings and an increase in the housing gross margin percentage which was the result of product mix of the homes closed in different communities across the operating segment. Home Sales Incentives We grant our homebuyers sales incentives from time-to-time in order to promote sales of our homes. The type and amount of incentives will vary on a community-by-community and home-by-home basis. Incentives that impact the value of the home or the sales price paid, such as additional options, are reflected as a reduction to sales revenue. Incentives that we pay to an outside party, such as paying some or all of a homebuyer s closing costs, are recorded as cost of sales. Incentives are recognized at the time title passes to the homebuyer and the sale is recognized. For the year ended, 2017, total incentives recognized as a percentage of gross revenues were generally consistent at 3% when compared to the same period in Our incentives on homes closed by operating segment for the years ended, 2017 and 2016 were as follows: (US$ millions, except percentages) Incentives Recognized Years Ended % of Gross Revenues Incentives Recognized % of Gross Revenues Canada... $ 14 2% $ 18 3% California % 16 2% Central and Eastern U.S % 19 6% $ 54 3% $ 53 3% Home Sales Net New Home Orders Net new home orders for any period represent the aggregate of all homes ordered by customers, net of cancellations. Net new home orders, including our share of unconsolidated entities, for the year ended, 2017 totalled 3,333 units, a decrease of 67 units or 2% when compared to the same period in For the year ended December 31, 2017, the decrease in net new home orders was a result of lower net new orders in our Canadian segment due to the timing of community openings in our Ontario market, partially offset by higher net new orders in our California and Central & Eastern U.S. operating segments. Average monthly sales per community by reportable segment for the year ended, 2017 were: Canada 4 units ( units); California 4 units ( units); Central and Eastern U.S. 3 units ( units); and unconsolidated entities 1 unit (2016 <1 unit). We were selling from 82 active housing communities, including our share of unconsolidated entities, at, 2017 compared to 86 at, Annual Report

15 The net new home orders for the years ended, 2017 and 2016 by our three operating segments were as follows: Years Ended (Units) Canada... 1,316 1,664 California... 1,168 1,004 Central and Eastern U.S ,326 3,394 Unconsolidated entities ,333 3,400 The cancellation rates for the years ended, 2017 and 2016 by our three operating segments were as follows: (Units, except percentages) Units Years Ended % of Gross Home Orders Units % of Gross Home Orders Canada % 25 1% California % % Central and Eastern U.S % % 344 9% 301 8% Unconsolidated entities % % 346 9% 301 8% Home Sales Backlog Our backlog, which represents the number of new homes subject to sales contracts, as at, 2017 and 2016 by operating segment, were as follows: As at (US$ millions, except unit activity) Units Value Units Value Canada $ 455 1,046 $ 477 California Central and Eastern U.S , , Unconsolidated entities Total... 1,695 $ 929 1,542 $ 784 We expect all of our backlog to close in 2018 or 2019, subject to future cancellations. The units in our backlog increased compared to the prior year primarily due to higher net new home orders in our California and Central & Eastern U.S. operating segments for the year ended, Our Canadian segment decreased 97 units at, 2017, when compared to, 2016, mainly due to fewer units in backlog in the Ontario market, partially offset by higher units in backlog in our Calgary and Edmonton markets. Our California segment's units in backlog increased as a result of a 16% increase in net new home orders driven by higher net new orders from recent community openings in our Southern California market for the year ended, 2017 compared to The increase of 88 units in the Central and Eastern U.S. segment was primarily the result of an increase in net new orders across all markets in the operating segment. Total backlog value increased by $145 million when compared to the same period in 2016 primarily as a result of higher backlog units, as well as product mix of homes in backlog. Results of Operations Land Land revenue totalled $318 million for the year ended, 2017, an increase of $19 million when compared to the same period in 2016, and land gross margin totalled $126 million, an increase of $16 million when compared to The increase in land revenue was primarily due to 58 additional multi-family, industrial and commercial acre sales in 2017 when compared to the same period in Additionally, there was a 25% increase in the average single family Brookfield Residential Properties Inc. 15

16 lot selling price resulting from the geographic mix of lots sold, as well as an increase in the average selling price of multifamily, industrial and commercial acres. This was partially offset by 54 fewer single family lot closings and 1,454 fewer raw and partially finished parcel sales. Revenues are also affected by local product mix and market conditions, which have an impact on the selling price per lot. Gross margin increased $16 million for the year ended, 2017 primarily due to higher multi-family, industrial and commercial acre sales, an increase in average selling prices and a higher gross margin percentage. A breakdown of our results from land operations for the years ended, 2017 and 2016 is as follows: Consolidated Years Ended (US$ millions, except unit activity, percentages and average selling price) Lot closings (single family units)... 2,349 2,403 Acre sales (multi-family, industrial and commercial) Acre sales (raw and partially finished parcels) ,082 Revenue... $ 318 $ 299 Gross margin... $ 126 $ 110 Gross margin (%)... 40% 37% Average lot selling price (single family units)... $ 111,000 $ 89,000 Average per acre selling price (multi-family, industrial and commercial)... $ 591,000 $ 545,000 Average per acre selling price (raw and partially finished parcels)... $ 11,000 $ 22,000 A breakdown of our results from land operations for our three operating segments is as follows: Canada Years Ended (US$ millions, except unit activity, percentages and average selling price) Lot closings (single family units) Acre sales (multi-family, industrial and commercial) Acre sales (raw and partially finished parcels) Revenue... $ 163 $ 87 Gross margin... $ 78 $ 49 Gross margin (%)... 48% 56% Average lot selling price (single family units)... $ 131,000 $ 122,000 Average per acre selling price (multi-family, industrial and commercial)... $ 997,000 $ 985,000 Average per acre selling price (raw and partially finished parcels)... $ 4,000 $ 4,000 Land revenue in Canada for the year ended, 2017 was $163 million, an increase of $76 million when compared to the same period in The increase in revenue was primarily the result of 261 additional single family lots closings, 424 additional raw and partially finished parcel sales and 35 additional multi-family, industrial and commercial acre sales in 2017 when compared to the same period in Additionally, there was a 7% increase in the average lot selling price and a 1% increase in the average per acre selling price for multi-family commercial and industrial. Gross margin increased $29 million primarily as a result of higher single family lot closings, higher multi-family, industrial and commercial sales and higher raw and partially finished acre sales in 2017 when compared to the same period in Gross margin percentage decreased 8% when compared to 2016, primarily due to the mix of lots sold Annual Report

17 California Years Ended (US$ millions, except unit activity, percentages and average selling price) Lot closings (single family units) Acre sales (raw and partially finished parcels) ,902 Revenue... $ 87 $ 156 Gross margin... $ 36 $ 43 Gross margin (%)... 41% 28% Average lot selling price (single family units)... $ 141,000 $ 87,000 Average per acre selling price (raw and partially finished parcels)... $ 254,000 $ 24,000 Land revenue in California for the year ended, 2017 decreased $69 million when compared to the same period in This was primarily the result of having 546 single family lot closings for the year ended, 2017 compared to 983 during the same period in The decrease in lot sales is primarily due to the timing of lot sales and from building on a higher proportion of our lots. Additionally, there were 1,886 fewer acre sales as a result of a bulk raw and partially finished acre sale in 2016 with no comparative sale in This was partially offset by a 62% increase in the average lot selling price due to the mix of lots sold. Gross margin decreased $7 million when compared to the same period in 2016 while gross margin percentage increased 13% as a result of a change in the mix of land sold. Central and Eastern U.S. Years Ended (US$ millions, except unit activity, percentages and average selling price) Lot closings (single family units) Acre sales (multi-family, industrial and commercial) Acre sales (raw and partially finished parcels)... 8 Revenue... $ 68 $ 56 Gross margin... $ 12 $ 18 Gross margin (%)... 18% 32% Average lot selling price (single family units)... $ 68,000 $ 65,000 Average per acre selling price (multi-family, industrial and commercial)... $ 142,000 $ 312,000 Average per acre selling price (raw and partially finished parcels)... $ 95,000 $ For the year ended, 2017, Central and Eastern U.S. land revenue increased $12 million and gross margin decreased $6 million, when compared to The increase in revenue is primarily from an additional 122 single family lot closings, which are primarily a result of higher single family lot sales in our Phoenix market, partially offset by fewer lot closings in our Austin market when compared to the same period in Gross margin percentage decreased 14% primarily as a result of a metropolitan district recovery recognized on previously sold land in 2016, where there was no such recovery in Additionally, the mix of lots sold within the operating segment also impacted the gross margin percentage. Equity in Earnings from Unconsolidated Entities Equity in earnings from unconsolidated entities for the year ended, 2017 totalled $15 million, compared to $9 million for the same period in The housing and land operations of our unconsolidated entities are discussed below. Brookfield Residential Properties Inc. 17

18 Housing A summary of Brookfield Residential s share of the housing operations from unconsolidated entities is as follows: Years Ended (US$ millions, except unit activity, percentages and average selling price) Home closings Revenue... $ 8 $ 7 Gross margin... $ 1 $ 2 Gross margin (%)... 13% 29% Average home selling price... $ 1,162,000 $ 1,592,000 Housing revenue within unconsolidated entities increased $1 million and gross margin decreased $1 million for the year ended, 2017 when compared to the same period in The increase in revenue is the result of two additional home closings, partially offset by a 27% decrease in the average home selling price due to the product mix of homes closed in 2017 when compared to Land A summary of Brookfield Residential s share of the land operations from unconsolidated entities is as follows: Years Ended (US$ millions, except unit activity, percentages and average selling price) Lot closings (single family units) Acre closings (multi-family, industrial and commercial) Revenue... $ 66 $ 38 Gross margin... $ 15 $ 11 Gross margin (%)... 23% 29% Average lot selling price (single family units)... $ 117,000 $ 87,000 Average per acre selling price (multi-family, industrial and commercial)... $ 242,000 $ Land revenue within unconsolidated entities increased $28 million and gross margin increased $4 million for the year ended, 2017 when compared to the same period in This was the result of 35 additional single family lot closings, primarily from our Phoenix and Southern California joint ventures and a 34% increase in the average lot selling price due to the geographic mix of land sold. There were also 46 additional multi-family, industrial and commercial sales compared to none in Gain on Commercial Assets Held for Sale The components of the gain on commercial assets held for sale for the years ended, 2017 and 2016 are summarized as follows: Years Ended (US$ millions, except unit activity) Square Feet... 83,923 Proceeds... $ $ 37 Gain on commercial assets held for sale... $ $ 14 Income was generated from the sale of a commercial income producing property that was sold during the year ended, The 83,923 square foot commercial property at Auburn Bay in Calgary, Alberta was sold for proceeds of $37 million and a gain of $14 million. There were no such sales of commercial assets in Annual Report

19 Selling, General and Administrative Expense The components of selling, general and administrative expense for the years ended, 2017 and 2016 are summarized as follows: Years Ended (US$ millions) General and administrative expense... $ 133 $ 120 Sales and marketing expense Share-based compensation $ 237 $ 207 The selling, general and administrative expense was $237 million for the year ended, 2017, an increase of $30 million when compared to the same period in General and administrative expense increased $13 million primarily due to higher salaries and benefits costs primarily as a result of more activity in our U.S. operations when compared to the same period in Sales and marketing expense increased $6 million, primarily due to higher housing activity, in our California operating segment. Share-based compensation increased $11 million primarily resulting from the change in fair value of our share-based compensation liabilities for the year ended, 2017 compared to the year ended, Other (Income) / Expense The components of other (income) / expense for the years ended, 2017 and 2016 are summarized as follows: Years Ended (US$ millions) Interest income... $ (23) $ (4) Other... (5) (6) $ (28) $ (10) For the year ended, 2017, other income increased $18 million compared to the same period in The increase was primarily due to dividends of $17 million earned on our held-to-maturity investment. Income Tax Expense Income tax expense was $52 million for the year ended, 2017 and The components of income tax expense are summarized as follows: Years Ended (US$ millions) Current income tax expense... $ 37 $ 48 Deferred income tax expense $ 52 $ 52 For the year ended, 2017, current income tax expense decreased $11 million when compared to the same period in The decrease is primarily due to an increase in utilization of operating loss carryforwards in our Canadian operations and a decrease in withholding taxes paid of $4 million on distributions made from our U.S. operations in For the year ended, 2017, deferred income tax expense increased $11 million when compared to the same period in The increase was primarily due to higher earnings in Canada resulting in an increase in utilization of operating loss carryforwards and a one-time non-cash write-down of our deferred tax assets in the U.S. of $4 million, as a result of a reduction in the U.S. federal corporate income tax rate. On December 22, 2017, the Tax Cuts and Jobs Act was enacted which affects the U.S. taxes owed by the Company in 2018 and subsequent years. Among other things, it will reduce the maximum U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, which should have a positive effect on the Company s net earnings. Brookfield Residential Properties Inc. 19