Brookfield Homes Corporation, Fairfax, Va., (NYSE: BHS) said Friday it is negotiating with Brookfield Properties Corporation (TSX: BPO)(NYSE: BPO) regarding a possible merger that would result in the combination of Brookfield Homes with Carma Developers, the North American residential land and housing division of Brookfield Properties with operations principally in Alberta, Colorado and Texas.

Brookfield Homes said it believes that a merger with Carma, if completed, would enhance the value of Brookfield Homes and Carma through the creation of a diversified North American residential land and housing company.

Brookfield Asset Management Inc., which owns approximately 82% of Brookfield Homes and 51% of Brookfield Properties, has indicated to Brookfield Homes that it is supportive of commencing such merger discussions.

A committee of independent directors of Brookfield Homes has been formed to consider a proposed transaction.

Brookfield Homes said it would have no further comment.

Separately, Brookfield Homes on Thursday reported results for its second quarter ended June 30. It reported net income of $2.9 million for the quarter, but since it is majority owned by a real estate investement trust, that translated into a loss of eight cents per share on distributions.

There were no earnings expectations as no analysts follow Brookfield Homes. There were no asset impairments.

Revenues were nearly flat at $95.9 million, but home building revenues rose 15% to $94.2 million this quarter from $82 million in the same period last year, which was boosted by $13 million in revenue from land sales. This quarter reported only $1.7 million in land sales.

Closings increased 24% to 210 for the quarter, and the average selling price decreased by 8% to $449,000 due to product mix, particularly a significant decrease in the number of higher priced homes closed in Northern California.

New orders declined 52.2% to 127 as community count fell 26.6% to 22. No cancellation rate was reported.

Backlog in units was at 181 homes at quarter's end, down from 310 at the end of last year's quarter. The company did not report a backlog value.

At the end of the quarter, the company owned or controlled 26,169 lots, an increase of 1,924 lots from yearend 2009, most in Northern California and the Southland/Los Angeles area. Of those, 15,839 were owned and 6.630 were optioned by Brookfield and another 1,713 and 1,987, respectively, were attributed to unconsolidated entities.

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