<PAGE>
 
                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended March 31, 1997

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ___________________ to ____________________


Commission File Number 000-21509

                           HOMEGATE HOSPITALITY, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                      75-0511313
  (State or other jurisdiction              (I.R.S. employer identification no.)
of incorporation or organization)
 
     111 CONGRESS AVENUE, SUITE 2600
            AUSTIN, TEXAS                                  78701
(Address of principal executive offices)                 (Zip code)
 
      Registrant's telephone number, including area code: (512) 477-6400

     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  X  No    .
    ---    ---    

     The number of shares of the registrant's common stock, $.01 par value,
outstanding as of May 5, 1997 was 10,725,000 shares.
<PAGE>
 
                          HOMEGATE HOSPITALITY, INC.

                                                                            Page
                                                                            ----

Part I.  Financial Information

 
Item 1.  Consolidated Financial Statements (Unaudited)
         
         Homegate Hospitality, Inc. consolidated balance sheets
          March 31, 1997 and December 31, 1996............................   3
         Homegate Hospitality, Inc.  consolidated statement of operations
          Three months ended March 31, 1997...............................   4
         Homegate Hospitality, Inc. consolidated statement of cash flows
          Three months ended March 31, 1997...............................   5
 
         Notes to consolidated financial statements  March 31, 1997.......   6

Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations.......................................  12
 
Part II. Other Information
 
Item 6.  Exhibits and Reports on Form 8-K.................................  19

Signatures

                                                                               2
<PAGE>
 
                         Part I  Financial Information

Item 1.-Financial Statements

                           Homegate Hospitality, Inc.

                          Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                           March 31,         December 31, 
                                             1997                1996
                                         -----------         ------------ 
                                         (unaudited)
<S>                                      <C>                 <C>
ASSETS
Current assets
 Cash and cash equivalents               $16,316,437         $31,475,679
 Restricted cash                             960,911             959,198
 Accounts receivable                    
  Hotel                                      195,986             241,403
  Other                                      274,423             256,939
  Interest                                   179,140             208,411
 Earnest money deposits                      416,000             546,000
 Prepaid insurance                           518,098             552,054
                                         -------------------------------
  Total current assets                    18,860,995          34,239,684
                                        
Property and equipment, net (Note 2)      68,061,892          51,106,541
Loans receivable (Note 3)                  2,300,500           1,900,500
Deferred loan costs, net of accumulated 
 amortization of $69,958 and $16,113,      
 at March 31, 1997 and December 31,     
 1996, respectively                          330,506             335,547
Other assets, net of accumulated        
 amortization of $81,873 and $68,586,        
 at March 31, 1997 and December 31, 
 1996, respectively                          448,523             951,136
                                         -------------------------------
Total assets                             $90,002,416         $88,533,408
                                         ===============================
                                        
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities                     
 Accounts payable                        $   558,870         $ 1,101,225
 Accrued expenses                            317,182             224,694
 Payables to affiliates                    2,799,538           1,132,274
 Current maturities of mortgage and      
  other notes payable                        456,510             425,738
                                        --------------------------------
  Total current liabilities                4,132,100           2,883,931
                                        
Mortgage and other notes payable 
(Note 4)                                  21,655,655          20,961,009
                                        
Stockholders' equity (Note 5)           
 Preferred stock, $.01 par value;       
  5,000,000 shares authorized,          
  none issued                                      -                   -
 Common stock, $.01 par value;          
  20,000,000 shares authorized;              
  10,725,000 shares issued and          
  outstanding                                107,250             107,250
 Additional paid-in capital               65,447,625          65,447,625
 Retained earnings (deficit)              (1,340,214)           (866,407)
                                        --------------------------------
  Total stockholders' equity              64,214,661          64,688,468
                                        --------------------------------
Total liabilities and stockholders'      
 equity                                 $90,002,416          $88,533,408
                                        ================================
</TABLE>
See accompanying notes.

                                                                               3
<PAGE>
 
                           Homegate Hospitality, Inc.

                      Consolidated Statement of Operations

                       Three Months Ended March 31, 1997

                                  (unaudited)
<TABLE>
<CAPTION>
 
 
REVENUES
<S>                                           <C>
 Room revenue                                 $ 1,916,117
 Other revenue                                     57,731
 Interest income                                  381,615
                                              -----------
  Total revenues                                2,355,463
                                          
COSTS AND EXPENSES                        
 Property operating expenses                    1,288,100
 Corporate operating expenses                     787,623
 Depreciation and amortization                    269,030
 Interest                                         484,517
  Total costs and expenses                      2,829,270
                                              -----------
                                          
Net loss                                      $  (473,807)
                                              ===========
                                          
Net loss per share                                  $(.04)
Weighted average number                   
 of shares outstanding                         10,725,000
                                              ===========
 
</TABLE>
See accompanying notes.

                                                                               4
<PAGE>
 
                           Homegate Hospitality, Inc.

                      Consolidated Statement of Cash Flows

                       Three Months Ended March 31, 1997

                                  (unaudited)
<TABLE>
<CAPTION>
 
OPERATING ACTIVITIES
<S>                                               <C>
Net loss                                          $   (473,807)
Adjustments to reconcile net loss to           
 net cash used in operating activities         
  Depreciation and amortization                        269,030
  Amortization of loan costs                            56,450
  Changes in operating assets and liabilities
   Restricted cash                                      (1,712)
   Accounts receivable                                  57,204
   Prepaid expenses                                     33,953
   Accounts payable                                   (384,896)
   Accrued expenses                                     92,489
   Payables to affiliates                              (53,279)
                                                  ------------ 
                                               
Net cash used in operating activities                 (404,568)
                                                  ------------
                                               
INVESTING ACTIVITIES                           
Acquisition of land                                 (8,343,421)
Construction, net of development costs payable      (5,715,911)
Additions to property and equipment,                
 net of  payables                                   (1,056,908)
Additions to earnest money deposits                   (165,000)
Additions to other assets                             (167,477)
                                                  ------------
                                               
Net cash used in investing activities              (15,448,717)
                                                  ------------
                                               
FINANCING ACTIVITIES                           
Proceeds from mortgage and other notes payable         820,285
Principal payments on mortgage and other notes
 payable                                               (94,868)
Payment of deferred loan costs                         (31,374)
                                                  ------------
                                               
Net cash provided by financing activities              694,043
                                                  ------------
                                               
Net decrease in cash and cash equivalents          (15,159,242)
Cash and cash equivalents at beginning              
 of period                                          31,475,679
                                                  ------------
                                               
Cash and cash equivalents at end of period        $ 16,316,437
                                                  ============
 
</TABLE>
See accompanying notes.

                                                                               5
<PAGE>
 
                           Homegate Hospitality, Inc.

                  Notes to Consolidated Financial Statements
                                  (unaudited)

                                 March 31, 1997

1. ORGANIZATION AND BASIS OF PRESENTATION

Homegate Hospitality, Inc. (the "Company") was organized in Delaware on August
16, 1996. The Company was capitalized with the issuance of 10 shares of common
stock to Extended Stay Limited Partnership ("ESLP"). The Company was formed to
continue the extended-stay lodging facility development, acquisition and
management operations of ESLP, and to acquire, develop and maintain certain
extended-stay lodging facilities throughout the United States.

ESLP, a Delaware limited partnership, was formed on February 9, 1996, by ESH
Partners, L.P. ("Crow") and JMI/Greystar Extended Stay Partners, L.P.
("Greystar"), as the general partners and various limited partners. On October
24, 1996, ESLP was merged with and into the Company.  ESLP had no operations for
the three-month period ended March 31, 1996.

The financial statements included herein have been prepared in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not
include all disclosures required under generally accepted accounting principles
for complete financial statements. In the opinion of management, the financial
statements reflect all adjustments which are consisting only of normal recurring
adjustments necessary for a fair presentation of the financial statements for
the interim periods presented. Interim results of operations are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.

                                                                               6
<PAGE>
 
2. PROPERTY AND EQUIPMENT

At March 31, 1997, property and equipment consists of the following:
<TABLE>
<CAPTION>
 
        <S>                                   <C>
        Land                                   $25,111,718
        Buildings and improvements              29,480,111
        Construction in progress                11,474,839
        Furniture, fixtures, and equipment       2,526,462
                                               ----------- 
                                                68,593,130
         
        Less accumulated depreciation              531,238
                                               -----------
                                               $68,061,892
                                               ===========
</TABLE>

During the first quarter of 1997, the Company acquired two land parcels in
Houston,  one land parcel in Phoenix, one parcel of land in Portland, one parcel
of land in Orlando, and one parcel of land in Dallas, all of which are under
development for hotel construction. Additionally, the Company acquired one
parcel in Raleigh and one land parcel in Houston, for  future development of
hotel facilities. As of March 31, 1997, the Company 

                                                                               7
<PAGE>
 
has entered into agreements, letters of intent, contracts, or other arrangements
to purchase sixteen additional land parcels.

Trammell Crow Residential (TCR) and Greystar Realty Services (GRS) are
developing the hotel facilities under an agreement that expires at the earlier
of the completion of the sixtieth hotel or December 31, 1998.

3. LOANS RECEIVABLE

During 1996, the Company advanced $1,900,500 under two promissory notes to an
unrelated party for the purchase of two parcels of land in Austin, Texas, on
which extended-stay hotel facilities are to be developed. During the first
quarter of 1997, the Company advanced an additional $400,000 under the notes for
various development costs. These notes accrue interest at ten percent and mature
on the sooner of November 2000 or five business days after demand. Monthly
interest payments of $15,838 were to begin on February 1, 1997. However, as of
March 31, 1997, the interest has not been paid and the Company is meeting with
the unrelated party to discuss payment of the past-due interest totaling
$75,492. The Company has a letter agreement to purchase the hotels upon
completion for a total price equal to the lesser of $14.1 million or actual
costs.

4. MORTGAGE AND OTHER NOTES PAYABLE

MORTGAGE NOTES PAYABLE

The Company has entered into a Master Loan Agreement (the "Note") with Bank One,
Arizona, N.A. The Note provides up to $30 million in construction/mini-perm
mortgage loans for the acquisition and development of land and hotel facilities
for up to five years. A loan was committed under the Note in connection with the
acquisition of Studio Suites. This loan, secured by Studio Suites, accrues
interest at either LIBOR plus 2.25% or prime plus .5% based on the election of
the Company (LIBOR plus 2.25%; 7.69% at March 31, 1997), and requires interest
payments for the first ten months of the loan, followed by principal and
interest payments based upon a fifteen year amortization until maturity, May 31,
1999. The outstanding balance at March 31, 1997 is $2,908,639.

Another loan, in the amount of $3,509,885, was committed under the Note in
connection with the construction of the hotel in Phoenix, Arizona.  This loan,
secured by the hotel at 44th and Oak, accrues interest at either LIBOR plus 2.5%
or prime plus .5% based on the election of the Company (Prime plus .5%; 9% at
March  31, 1997), and requires interest 

                                                                               8
<PAGE>
 
payments for the first twelve months of the loan, followed by principal and
interest payments based upon a fifteen year amortization until maturity, August
15, 1998. The maturity date may be extended for thirty-six months with the
payment of an extension fee of .25% of the loan amount. The outstanding balance
at March 31, 1997 was $865,447.

In connection with the acquisition of Westar, the Company assumed an $18,100,000
mortgage note due to Nomura Asset Capital Corporation, with interest at 9.71%
through January 11, 2011 and thereafter at the greater of 14.71% or the Treasury
Rate plus 9%. The note is due in monthly installments of $160,789, including
interest, from February 1996 through January 2021, and is secured by the Westar
hotel properties and improvements.  The outstanding balance at March 31, 1997
was $17,914,462.

Restricted cash includes cash retained by the mortgage servicer for payment of
taxes, insurance and debt service.

The mortgage note payable to Nomura Asset Capital Corporation does not allow for
prepayment of the debt until January 11, 2011, except by providing the lender
with U.S. obligations that produce payments which replicate the payment
obligations of the Company under the note. This restriction represents a
substantial prepayment penalty. On or after January 11, 2011, the loan can be
prepaid at any time with no prepayment penalty.

OTHER NOTES PAYABLE

The Company has two unsecured notes payable for the purchase of directors and
officers insurance. The notes accrue interest at 6.98% and require monthly
principal and interest payments of $16,497 through July 1999.  The outstanding
balance at March 31, 1997 is $423,616.

5.   STOCKHOLDERS' EQUITY

STOCK OPTIONS

On March 5, 1997, the Company granted options to acquire an aggregate of 100,000
shares of Common Stock to its employees at an exercise price of $8.375 which was
the market price of the Company's stock on January 1, 1997. The options vest
ratably over four years and terminate ten years from the date of grant. In
addition, the Company granted options for 5,000 shares to an employee of the
Company at an exercise price of $8.375 which vested immediately.

                                                                               9
<PAGE>
 
On December 31, 1996, the Company also granted options to acquire an aggregate
of 25,000 shares of Comon Stock to its non-employee directors (5,000 options per
non-employee director).


EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997.  At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods.  Under the new requirements for
calculating earnings per share, the dilutive effect of stock options will be
excluded.  Management believes that adoption of SFAS No. 128 will not have a
material effect on earnings per share.

6.  SUBSEQUENT EVENTS

On April 4, 1997, the Company opened the first hotel that it has constructed at
the hotel facility at 44th and Oak in Phoenix.

                                                                              10
<PAGE>
 
Item 2  Management's Discussion and Analysis of Financial Condition and Results
        of Operations

GENERAL

Homegate Hospitality, Inc. ("Homegate") was incorporated in August 1996, to
succeed to the business of Extended Stay Limited Partnership ("ESLP"), which was
organized in February 1996, to become a provider of high quality mid-price
extended-stay hotels.  In October 1996, ESLP was merged into Homegate, in
exchange for 6,386,087 shares of common stock.  Hereinafter, Homegate, its
predecessor ESLP, and its subsidiaries are collectively referred to as the
"Company."  On October 29, 1996, the Company completed an initial public
offering of 4,325,000 shares of common stock at $11.50 per share.

The Company, during the period from its inception through March 31, 1997,
completed its concept and product design, market study and initial site
selection activities, and acquired its first properties.  As of March 31, 1997,
the Company had 21 employees.  The Company plans to add 3-5 more employees for
the remainder of the year.

The Company operated seven hotels during the first quarter of 1997. Two of the
hotels were operated as extended-stay facilities and the remaining five hotels
("Westar") were operated as nightly stay hotels. Six of the seven hotels were
reflagged as HOMEGATE Studios & Suites. One hotel continues to be operated under
the name Studio Suites.

As of March 31, 1997, the Company has 17 hotels under construction and
development, consisting of 2,177 units.  The sites were located in the following
metropolitan areas:

 

          Austin, Texas               2
          Dallas, Texas               2
          Denver, Colorado            1
          Houston, Texas              3
          Indianapolis, Indiana       1
          Kansas City, Kansas         2
          Orlando, Florida            1
          Phoenix, Arizona            3
          Portland, Oregon            1
          Raleigh, North Carolina     1
                                     --
                                     17
                                     ==

The 17 sites currently under construction and development are due to be
completed at various times during 1997 and the first quarter of 1998.  As of
March 31, 1997, the Company has 16 sites with letters of intent, contracts or
other arrangements to purchase and is evaluating another 10 sites.  On April 4,
1997, the Company opened its first prototype development hotel in Phoenix,
Arizona at 44th and Oak Street.  The hotel has leased up to 74% as of April 30,
1997, exceeding the Company's pro forma projections.


                                                                              11
<PAGE>
 
RESULTS OF OPERATIONS

PROPERTY OPERATIONS

Homegate's results of operations reflect the operation of 7 hotels for the first
quarter, with Austin's Towne Lake property beginning operations as a Homegate
facility on January 1, 1997.

The Company generated $1,916,000 in room revenue for the quarter.  This
represented a $337,000 increase over the fourth quarter of 1996 or a 21%
increase.  Occupancy rose to 59.3% from 55% despite the loss of 8% of available
room nights due to the Westar renovations.  The Austin Towne Lake property
contributed heavily towards this increase with almost 82% occupancy for the
quarter.  Company weekly REVPAR increased to $165.62 from $157.85 in the fourth
quarter of 1996, or a 4% increase despite the Average Weekly Rate dropping to
$279.36, from $285.53 or 2%.

The Studio Suites property in Grand Prairie also increased its occupancy to
68.7% from 52.2% in the fourth quarter of 1996, or a 16.5% increase.  On April
30, 1997, the property was running at a 98.0% occupancy rate.  Both of the
Company's extended-stay facilities continue to exceed the Company's preliminary
forecasts, reporting a combined 88% occupancy rate at April 30, 1997.

The 5 Westar hotels were reflagged in April of 1997; however, the renovation and
refurbishment program is still in process at all 5 hotels.  During the first
quarter of 1997 the Westar hotels lost 6,915 room nights out of a possible
55,930 room nights.  This represented a 12% loss of potential revenue from these
hotels  in addition to a loss of guests not wanting to stay at hotels with
construction occurring.  Occupancy slipped to 51.8% from 55.9% in the fourth
quarter.  Average daily rates fell from $42.41 to $40.16 or 5% for the Westar
hotels.  It is anticipated that the renovation and refurbishment programs will
be completed during the latter half of the second quarter of 1997.  At that time
the properties will begin operations as extended-stay hotels.

Property operating expenses rose from $1,185,000 to $1,288,000 in the fourth
quarter, an increase of 8% which reflects the addition of the Towne Lake
property.  Net operating margins improved from 27% in the fourth quarter of
1996, to 34% in the first quarter of 1997 reflecting the operation of the Towne
Lake property as an extended-stay hotel.

The Company's predecessor ESLP had no operations in the first quarter of 1996.


                                                                              12
<PAGE>
 
CORPORATE OPERATIONS

Corporate operating expenses include all expenses related to the administration
of the corporate offices and all expenses not directly related to individual
developments and hotels. Corporate operating expenses were $788,000 for the
quarter ended March 31, 1997. This was an increase of $355,000 over the fourth
quarter 1996. The increase was due to a number of one time expenses incurred in
the first quarter of 1997, as well as an increase in personnel that began in the
fourth quarter of 1996 after the completion of the Company's initial public
offering in October 1996. The costs of employees hired in the fourth quarter of
1996 and in the first quarter 1997 are reflected for a full quarter, for the
first time in the first quarter of 1997. The Company does not anticipate future
corporate hiring to be as dramatic as the initial hiring phase.


                                                                              13
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997, the Company had cash and cash equivalents of $16,316,000.  In
October 1996, the  Company received proceeds from the Initial Public Offering of
approximately $46 million.  Cash proceeds are currently deposited in a money
market account invested in Treasury obligations and in short-term investment
grade interest bearing securities.

The Company owes approximately $17.9 million on a 9.71% secured promissory note
for the purchase of the Westar hotels.  This debt is payable on a fixed 25-year
amortization schedule in monthly installments through January 11, 2021.

The Company has a $30 million mortgage loan facility (the "Existing Mortgage
Facility") with Bank One, Arizona, N.A. ("BOA"), which provides the Company with
construction financing for new extended-stay hotels.  The Company is permitted
to borrow under the Existing Mortgage Facility through November 30, 1997.  Each
project may be funded under the Existing Mortgage Facility through a separate
loan, with all loans being cross-collateralized and cross-defaulted.  Initially,
such loans will be advanced as construction loans, payable over twenty-four
months (the "Construction Term") with interest at either the BOA prime rate plus
0.5% or LIBOR plus 2.25%.  The Company must make interest payments on each
construction loan for the first twelve months of the loan, followed by principal
and interest payments based upon a fifteen-year amortization schedule for the
remaining twelve months of the loan.  The Company may elect to extend each loan
for three additional years (the "Mini-perm Term") if certain conditions are met
and upon payment of a specified extension fee.  If the Company elects to extend
the loan as a mini-permanent financing, the Company will be obligated to make
principal and interest payments on a fifteen-year amortization schedule during
each year of the three-year extension period, and the interest rate may, in
certain circumstances, be reduced.  During the Construction Term, the amount of
any loan may not exceed 55% of the total project costs of the related project.
During the Mini-perm Term, the loan amount to costs-of-project ratio may be
increased to 65% if certain conditions are met.  BOA will have full recourse
against the Company for the loans, including environmental indemnities.

As of March 31, 1997, the Company had incurred indebtedness under the Existing
Mortgage Facility of approximately $3.8 million of which $2.9 million was
attributed to the Studio Suites hotel in Grand Prairie and $0.9 million was
attributed to the 44th and Oak hotel in Phoenix.  The Grand Prairie hotel loan
bears interest at LIBOR plus 2.25% and the Phoenix hotel loan bears interest at
Prime plus 0.5%.  The Grand Prairie debt is due on May 31, 1999; the Phoenix
debt is due on August 15, 1998; however, the debt may be extended for an
additional three years as described above.

Although the Company has access to financing under the Existing Mortgage
Facility, the Company will need to procure substantial additional financing over
time to complete its Initial Hotel Program, which calls for 65 hotels to be
opened or under construction by December 31, 1998.  The exact amount of
financing will depend upon a number of factors including the number of
properties the Company constructs or acquires and the cash flow generated by its
properties. In particular, the Company anticipates spending an aggregate of
approximately $5 million to renovate the Westar facilities to conform to the
HOMEGATE Studios & Suites prototype, and expects that it will spend between $4
million and $8 million on each development or acquired hotel.

While the Company believes that it would have sufficient capital resources to
complete the development or construction of eight additional hotels, (beyond the
eight that it owns as of May 9, 1997) if it constrained its development
activities to those additional eight hotels, it continues to acquire additional
development sites to support further growth (beyond the eight additional hotels)
in anticipation of obtaining access, as needed, to the additional financing
required to complete the development of all acquired sites.  The Company is
engaged in negotiations with multiple potential financing sources, but there can
be no assurance that the negotiations will be successfully concluded or that the
additional required financing will be available as needed.  If the additional
required financing is not obtained on a timely basis, the Company would be
required to cease further purchases of development sites and to conserve its
financial resources for use in completing projects.


                                                                              14
<PAGE>
 
The Existing Mortgage Facility and any future debt financings or issuances of
preferred stock by the Company will be senior to the rights of the holders of
common stock, and any future issuances of common stock will result in the
dilution of the then-existing stockholders' proportionate equity interests in
the Company.  In addition, future debt facilities may materially limit the
Company's ability to pay dividends.

SEASONALITY

The lodging industry is seasonal in nature.  Quarterly earnings may be adversely
affected by events beyond the Company's control, such as poor weather
conditions, economic factors and other considerations affecting travel.  In
addition, occupancy rates and room revenues typically decline during the fourth
calendar quarter as business travel decreases during the holiday season.  The
timing of openings of new properties could also lead to fluctuations in the
Company's quarterly earnings.

INFLATION

The rate of inflation as measured by changes in the consumer price index has not
had a material effect on the revenue or operating results of the Company.  There
can be no assurance, however, that inflation will not affect future operating or
construction costs.


                                                                              15
<PAGE>
 
FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS

The Company's future results of operations may be impacted by a number of
factors.  Among such factors are local, regional and national economic
conditions, competition from other lodging properties, changes in real property
tax rates and in the availability, cost and terms of financing, the impact of
present or future environmental legislation and compliance with environmental
laws, the ongoing need for capital improvements, changes in operating expenses,
adverse changes in governmental rules and fiscal policies, civil unrest, acts of
God, including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war and adverse changes in zoning laws.


                                                                              16
<PAGE>
 
SPECIAL NOTE ON FORWARD LOOKING STATEMENTS

This Report on Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. The forward looking
statement made in Item 2 with respect to the Company's expectation of
constructing and developing 17 hotels by the first quarter of 1998 is subject to
the risks of weather-induced construction delays. The forward looking statements
made in Item 2 with regard to the Company's 16 sites with letters of intent,
contracts or other arrangements to purchase and the other 10 sites under
evaluation are subject to the risks of the Company's ability to identify,
negotiate the acquisition of and close on such sites (to the extent it has not
already done so) in a timely fashion, the risks associated with the various
entitlements processes, the risks of inclement weather and the risks associated
with the Company's ability to obtain the required capital (to the extent it has
not already done so). The forward looking statement made in Item 2 with respect
to the Company's expectations of obtaining additional financing is subject to
the risk of the Company's ability to identify, negotiate and execute a
definitive agreement related to such financing.


                                                                              17
<PAGE>
 
                           PART II  OTHER INFORMATION



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.
 
         (a) Exhibits:
 
             Exhibit No.                        Description
             -----------                        -----------
 
                 27          Article 5 Financial Data Schedule for the Three
                             Months Ended March 31, 1997

          (b)  Reports on Form 8-K:

       The Company filed reports on Form 8-K and Form 8-K/A dated December 31,
       1996, relating to the acquisition by the Company of an extended-stay
       hotel facility, consisting of 149 rooms, located in Austin, Texas.

                                                                              18
<PAGE>
 
                                   SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                          HOMEGATE HOSPITALITY, INC.


                          By: /s/ ROBERT A. FAITH
                             --------------------------------------------
                             Robert A. Faith, President, Chief
                             Executive Officer and Chairman of
                             the Board (Principal Executive Officer)


                          By: /s/ TIM V. KEITH
                             --------------------------------------------
                             Tim V. Keith, Chief Financial Officer
                             (Principal Financial and Accounting Officer)


Date: May 14, 1997

                                                                              19