<PAGE>
                          UNITED STATES SECURITIES AND
                              EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                               ------------------

                                    FORM 10-Q
                               ------------------
(Mark One)

   [X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1998

                                       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 1-12269
                              --------------------

                         HOMESTEAD VILLAGE INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            -------------------------

                                    MARYLAND
                          (STATE OR OTHER JURISDICTION
                        OF INCORPORATION OR ORGANIZATION)

                                   74-2770966
                                (I.R.S. EMPLOYER
                               IDENTIFICATION NO.)

                        2100 RIVEREDGE PARKWAY 9TH FLOOR
                             ATLANTA, GEORGIA 30328
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

                                 (770) 303-2200
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


              (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
                          IF CHANGED SINCE LAST REPORT)
                              ---------------------

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 outstanding of the Registrant's common stock as of 
May 12, 1998 was: 38,262,996


<PAGE>
                         HOMESTEAD VILLAGE INCORPORATED
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>                                                 
                                                                                                             NUMBER
                                                                                                              PAGE
                                                                                                             ------
<S>                                                                                                          <C> 

PART I.          Condensed Financial Information
                  
       Item 1.   Financial Statements

                 Condensed Balance Sheets - March 31, 1998 (unaudited) and December 31, 1997...............        3

                 Condensed Statements of Operations (unaudited) - Three-Month Periods Ended March 31, 1998
                 and 1997..................................................................................        4

                 Condensed Statements of Cash Flows (unaudited) - Three-Month Periods Ended March 31, 1998
                 and 1997..................................................................................        5

                 Notes to Condensed Financial Statements (unaudited).......................................        6

                 Report of Independent Public Accountants..................................................       10

       Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.....       11

PART II.         Other Information

       Item 6.   Exhibits and Reports on Form 8-K.........................................................        16
</TABLE>


                                       2
<PAGE>



                         HOMESTEAD VILLAGE INCORPORATED

                            CONDENSED BALANCE SHEETS

                                 (IN THOUSANDS)



                                     ASSETS
<TABLE>
<CAPTION>
                                                                                                  MARCH 31,     DECEMBER 31,
                                                                                                    1998          1997
                                                                                                 (unaudited)
<S>                                                                                               <C>          <C>                  
                                                                                                  
Current assets:
     Cash and cash equivalents (including restricted cash of $657)..........................       $   20,205   $    2,974
     Accounts receivable, net of allowance of $80 in 1998 and $81 in 1997...................            2,820        1,970
     Other current assets...................................................................              435          732
                                                                                                  ------------ -------------
          Total current assets..............................................................           23,460        5,676
                                                                                                  ------------ -------------
Property and equipment......................................................................          861,244      733,321
Less accumulated depreciation...............................................................           23,450       17,824
                                                                                                  ------------ -------------
Net investment in property and equipment....................................................          837,794      715,497
                                                                                                  ------------ -------------
Deposits and pursuit costs, including $12,117 of funds with title companies for property
   acquisitions in 1998 and $7,697 in 1997..................................................           17,377       12,901
Deferred loan costs, net of accumulated amortization of $44,120 in 1998 and $43,297 in
     1997                                                                                                 170          632
Trademark and intangibles, net of accumulated amortization of $2,358 in 1998 and $1,768
   in 1997                                                                                             43,857       44,447
Other assets ...............................................................................            5,239        4,796
                                                                                                  ------------ -------------
                                                                                                               
   Total assets.............................................................................        $ 927,897     $ 783,949
                                                                                                  ============ =============

                             LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Lines of credit........................................................................       $   71,200    $  96,808
     Development costs payable, including retainage of $14,621 in 1998 and $21,966 in
        1997                                                                                           35,320       34,079
     Due to affiliate.......................................................................              505          133
     Accrued interest payable to affiliates.................................................            9,411        2,540
     Accrued real estate taxes..............................................................            2,282        2,900
     Accounts payable and other accrued expenses............................................            9,738        8,882
                                                                                                  ------------ -------------
          Total current liabilities.........................................................          128,456      145,342
Convertible mortgage notes payable to affiliates............................................          306,058      301,606
Other long term liabilities.................................................................            8,070        8,070
                                                                                                  ------------ -------------
          Total liabilities.................................................................          442,584      455,018
Commitments and contingencies
Shareholders' equity:
     Common stock,  $.01 par value,  250,000  shares  authorized,  38,232 shares
        issued and  outstanding in 1998 and 27,805 shares issued and outstanding
        in 1997                                                                                           382          278
     Additional paid-in capital.............................................................          473,617      318,667
     Retained earnings......................................................................           14,786       13,098
     Less shares in escrow..................................................................          (2,253)       (2,253)
     Less deferred compensation.............................................................          (1,219)         (859)
                                                                                                  ------------ -------------
                                                                                                               
          Total shareholders' equity........................................................          485,313      328,931
                                                                                                  ------------ -------------
                                                                                                               
          Total liabilities and shareholders' equity........................................        $ 927,897     $ 783,949
                                                                                                 ============ =============
</TABLE>


  The accompanying notes are an integral part of the condensed balance sheets.


                                       3

<PAGE>


                         HOMESTEAD VILLAGE INCORPORATED

                       CONDENSED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                        THREE-MONTH PERIOD ENDED
                                                                                MARCH 31,
                                                                --------------------------------------
                                                                     1998                  1997
                                                                     ----                  ----
<S>                                                             <C>                   <C>         
Revenues:                                  
     Room revenue.......................................        $       26,427        $       10,952
     Other revenue......................................                 1,361                   135
                                                                ---------------        ---------------
          Total revenues................................                27,788                11,087
                                                                ---------------        ---------------
Operating expenses:
     Property operating expenses........................                12,253                 4,816
     Corporate operating expenses.......................                 4,779                 3,083
     Depreciation and amortization......................                 6,387                 1,811
                                                                ---------------        ---------------
          Total operating expenses......................                23,419                 9,710
                                                                ---------------        ---------------

Operating income........................................                 4,369                 1,377

Interest income.........................................                   289                   146
Interest expense, net of capitalized interest...........               (2,970)                    --
                                                                ---------------        ---------------
Earnings before income taxes............................                 1,688                 1,523
Provision for income taxes..............................                    --                    --                               
                                                                ---------------        ---------------
Net Earnings............................................        $        1,688         $       1,523
                                                                ===============        ===============

Earnings per share:
Weighted average shares outstanding.....................                35,736                 20,461
                                                                ===============        ===============
Basic earnings per share................................        $         0.05         $         0.07
                                                                ===============        ===============
Diluted weighted average shares outstanding.............                35,736                 35,165
                                                                ===============        ===============
Diluted earnings per share..............................        $         0.05         $         0.04
                                                                ===============        ===============

</TABLE>

                 The accompanying notes are an integral part of
                      the condensed financial statements.


                                       4
<PAGE>



                         HOMESTEAD VILLAGE INCORPORATED

                       CONDENSED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                        THREE-MONTH PERIOD ENDED
                                                                                               MARCH 31,
                                                                                       ----------------------------
                                                                                           1998           1997
<S>                                                                                     <C>          <C>          
 Operating activities:               
    Net earnings..................................................................      $     1,688  $      1,523
    Adjustments  to  reconcile  net  earnings to net cash  provided by operating
    activities:
        Depreciation and amortization.............................................            6,387         1,811
        Deferred compensation.....................................................              139           114
        Amortization of deferred loan costs.......................................              163           --
        Amortization of prepaid rent..............................................               --            75
    Change in assets and liabilities:
        Increase in accounts receivable...........................................            (850)          (716)
        Decrease (increase) in other current assets...............................              296          (116)
        Decrease in accrued real estate taxes.....................................            (618)        (1,075)
        Increase in accrued interest on convertible mortgage notes................            6,871          2,926
        Increase in accounts payable and other accrued expenses...................              857          1,348
        Increase in due to affiliate..............................................              372            197
        Other ....................................................................               --           (17)
                                                                                       -------------  -------------
            Net cash provided by operating activities.............................           15,305          6,070
                                                                                       -------------  -------------

Investing activities:
        Investment in properties, excluding development costs payable.............        (125,571)       (48,415)
        Increase in deposits and pursuit costs....................................          (4,476)        (6,305)
        Increase in other assets..................................................            (614)        (1,084)
                                                                                       ------------  -------------
                                                                                        
            Net cash used in investing activities.................................        (130,661)       (55,804)
                                                                                       -------------  -------------

Financing activities:
        Proceeds from lines of credit.............................................           74,392           --
        Payments on lines of credit...............................................        (100,000)           --
        Deferred loan costs for line of credit....................................             (46)           --
        Proceeds from convertible mortgage notes payable..........................            4,000        36,250
        Proceeds from sale of shares, net of expenses.............................          154,241           --
        Exercise of warrants for common stock.....................................             --          15,210
                                                                                       -------------  -------------
            Net cash provided by financing activities.............................          132,587        51,460
                                                                                       -------------  -------------

Net increase in cash and cash equivalents.........................................           17,231         1,726
Cash and cash equivalents, beginning of period....................................            2,974         7,415
                                                                                       -------------  -------------
Cash and cash equivalents, end of period..........................................     $     20,205   $     9,141
                                                                                       =============  =============     
Noncash investing and financing transactions:

        Increase in property and equipment, and development cost payable..........     $      1,241   $      6,723
                                                                                       =============  =============

        Increase in property and equipment from capitalization of loan costs......     $        798   $     42,405
                                                                                       =============  =============

        Increase in trademark and intangibles arising from release of shares in escrow.$         --   $      5,896
                                                                                       =============  =============

        Loan costs resulting from issuance of convertible mortgage debt...........     $        314   $      2,517
                                                                                       =============  =============

        Increase in deferred tax asset and deferred tax liability.................     $         --   $        229
                                                                                       =============  =============
</TABLE>

          The accompanying notes are an integral part of the condensed
                             financial statements.


                                       5

<PAGE>


                         HOMESTEAD VILLAGE INCORPORATED
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (UNAUDITED)

NOTE 1--GENERAL

The financial statements of Homestead Village  Incorporated  ("Homestead") as of
March 31, 1998 and for the  three-month  periods  ended March 31, 1998 and 1997,
are unaudited and certain information and footnote disclosures normally included
in  financial  statements  have been  omitted.  While  management  of  Homestead
believes that the disclosures  presented are adequate,  these interim  financial
statements should be read in conjunction with the financial statements and notes
included in Homestead's 1997 Annual Report on Form 10-K.

     In  the  opinion  of  management,   the  accompanying  unaudited  financial
statements  contain  all  adjustments,   consisting  only  of  normal  recurring
adjustments,   necessary  for  a  fair  presentation  of  Homestead's  financial
statements for the interim periods presented.  The results of operations for the
three-month periods ended March 31, 1998 and 1997 are not necessarily indicative
of the results to be expected for the full year.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

      In  April  1998  the  Accounting   Standards  Executive  Committee  issued
Statement  of Position  98-5 ("SOP  98-5")  "Reporting  on the Costs of Start-Up
Activities"   establishing  accounting  standards  requiring  the  expensing  of
organizational,  pre-opening,  and start-up  costs.  SOP 98-5 is  effective  for
fiscal  years  beginning  after  December  15,  1998.  Restatement  of financial
statements for earlier  periods is prohibited.  Upon adoption,  any  unamortized
organizational,  pre-opening  and start-up  costs will be required to be written
off and  charged to 1999  operations  as a  cumulative  effect of adoption of an
accounting standard. Homestead is in the process of evaluating SOP 98-5 and will
adopt the standard in the first  quarter of its 1999 fiscal year.  The impact of
adoption of SOP 98-5 on Homestead's  results of operation and financial position
has not been quantified.


NOTE 2--PROPERTY AND EQUIPMENT

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                             MARCH 31,          DECEMBER 31,
                                                                               1998                 1997
                                                                               ----                 ----
                                                                            (UNAUDITED)
            <S>                                                           <C>                 <C> 
            Completed properties:
                 Land                                                            $121,199             $100,118
                 Buildings and improvements...........                            394,327              329,045
                 Furniture, fixtures and equipment....                             66,047               49,773
                                                                          ----------------    -----------------
                                                                                  581,573              478,936
            Properties under construction.............                            214,946              213,283
            Properties in planning and owned..........                             62,220               32,984
            Land held for future development..........                               --                  1,463
            Land held for sale........................                              2,505                6,655
                                                                          ----------------    -----------------
                      Total...........................                           $861,244             $733,321
                                                                          ================    =================
</TABLE>


                                       6

<PAGE>
                         HOMESTEAD VILLAGE INCORPORATED
               NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--DEBT

   LINES OF CREDIT

     Homestead's  secured  revolving line of credit facility with Commerzbank AG
("CAG")  entered  into May 6, 1997 and  amended  August 25,  1997  provides  for
borrowings  of up to $100  million,  subject to  collateral  requirements,  with
borrowings  bearing  interest at the Eurodollar rate plus 1.9% per annum, and an
unfunded commitment fee of 0.25% if the average unfunded balance is greater than
$50 million or 0.325% if the average unfunded balance is $50 million or less. At
March 31, 1998  borrowings  under the revolving  line totaled  $71,200,000  at a
weighted average stated interest rate of 7.58%. The line requires maintenance of
certain financial  covenants,  specifically,  aggregate  indebtedness of no more
than 65% of gross asset value, as defined, or indebtedness  secured by a lien of
no more than 60% of gross asset value, as defined.  Homestead must also maintain
a minimum debt service coverage ratio of earnings before interest, income taxes,
depreciation,  amortization  and  gains or  losses  on sales of  assets  to debt
service,  as defined, of no less than 1.3 to 1 and not allow stockholders equity
to be less than $204 million.  The covenants also restrict  payment of dividends
without lender approval.  Homestead was in compliance with all such covenants as
of March 31, 1998.

         On November 25, 1997,  Homestead  obtained a $50 million interim credit
agreement with CAG which provided for  borrowings,  at  Homestead's  option,  at
either the Eurodollar  rate plus 2.625% or at base rate (the higher of 1/2 of 1%
in excess of the federal funds rate or the prime rate) plus 1%.  Borrowings  and
all accrued  interest  under this agreement were repaid in January 1998 upon the
funding of the proceeds of the Rights  Offering.  Upon  repayment of the interim
borrowings no further commitment was available under this agreement.

         On April 24, 1998  Homestead  renewed its  existing  revolving  line of
credit  facility  with  CAG for a  one-year  term,  with an  increase  in  total
borrowing  capacity  to  $150  million,   subject  to  collateral  requirements.
Borrowings  will  bear  interest  at the  Eurodollar  rate plus 1.5% to 2.5% per
annum,  depending upon the percentage leverage of borrowings  outstanding to the
amount of qualifying collateral. Alternatively, borrowings will bear interest at
a base rate defined as the higher of prime rate plus a margin of 0.5% to 1.5% or
the federal  funds rate plus a margin of 1% to 2%, with the margin  dependent on
the  percentage  leverage of borrowings  outstanding to the amount of qualifying
collateral.  Additionally,  a commitment  fee of 0.375% of the average  unfunded
balance  will be owed.  The  line  requires  maintenance  of  certain  financial
covenants,  specifically,  aggregate  indebtedness  of no more than 55% of gross
asset value, as defined,  or indebtedness  secured by a lien of no more than 50%
of gross asset value,  as defined.  Homestead  must also maintain a minimum debt
service coverage ratio of earnings before interest, income taxes,  depreciation,
amortization  and gains or losses  on sales of assets to cash debt  service,  as
defined, of no less than 1.1 to 1 for the first quarter of 1998 (which Homestead
was in compliance  with),  no less than 1.25 to 1 for the second quarter of 1998
and no less  than  1.75 to 1  thereafter  on a  quarterly  basis  and not  allow
stockholders  equity to be less than $325 million.  The covenants  also restrict
payment of dividends without lender approval.

         On April 24, 1998  Homestead  also  entered into a separate $50 million
one-year revolving line of credit facility of which $20 million is available for
borrowings  on a secured  basis and $30 million is available for borrowing on an
unsecured  basis.  The  unsecured   portion  of  the  line  is  required  to  be
collateralized  by  September  30,  1998 or such  unsecured  borrowings  must be
repaid.  Borrowings  will bear  interest at the  Eurodollar  rate plus 2.75% per
annum or, alternatively, at a base rate defined as the higher of prime rate plus
1.75% or the federal  funds rate plus 2.25%.  Average  unfunded  balances bear a
commitment fee of 0.5%.  Covenants are identical to those under the $150 million
credit facility.

     CONVERTIBLE MORTGAGE NOTES PAYABLE

         At March 31, 1998 Homestead owed convertible mortgage notes to Security
Capital Pacific Trust ("PTR"),  an affiliate,  of  $212,545,000  and to Security
Capital Atlantic Incorporated  ("ATLANTIC"),  an affiliate, of $93,513,000.  The
notes are  collateralized by Homestead  properties  ($346.0 million of Homestead
properties at


                                       7

<PAGE>
                         HOMESTEAD VILLAGE INCORPORATED
               NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

historical  cost mortgaged to PTR and $208.7 million of properties at historical
cost  mortgaged to ATLANTIC at March 31, 1998),  accrue  interest at 9.0% on the
principal amount,  and require interest only payments every six months on May 28
and  November  28. The notes are due October 31,  2006,  and are  callable on or
after May 28, 2001. The mortgage notes are convertible, at the option of PTR and
ATLANTIC,  into shares of Homestead  common stock at a conversion ratio equal to
one share of common  stock for every  $11.50 of  principal  amount  outstanding.
Deferred financing costs and the premium and discount on the respective fundings
have been fully  amortized as of March 31, 1998. At March 31, 1998 Homestead had
a remaining funding  commitment of $7,895,000 from PTR which has been called for
funding on May 20, 1998 and $5,119,000 from ATLANTIC which was called and funded
on April 30, 1998.

   INTEREST

     Homestead  incurred total interest cost of $9,292,000 and  $43,323,000  for
the three-month  periods ended March 31, 1998 and 1997,  respectively,  of which
$6,322,000 and $43,323,000 were capitalized, respectively. Interest paid in cash
in the three-month  periods ended March 31, 1998 and 1997 was $899,000 and none,
respectively.


NOTE 4--SHAREHOLDERS' EQUITY

   RIGHTS OFFERING

     On January 15, 1998,  Homestead  completed a Rights Offering for 10,426,840
common shares at $15 per share resulting in gross proceeds of $156,402,600.  The
Rights Offering was part of Homestead's present  $300,000,000 common stock shelf
registration.  After costs of the offering,  which included a fee of 1% of gross
proceeds  to  Security  Capital  Markets  Group  Incorporated,   a  wholly-owned
subsidiary of Security  Capital,  net proceeds to Homestead  were  approximately
$154.2 million.

     Security Capital,  Homestead's  majority  shareholder,  purchased 8,429,225
shares in the Rights  Offering  (80.8% of the offered  shares) at the same price
paid by the public.  Upon  completion of the Rights  Offering  Security  Capital
owned 69.3% of Homestead's outstanding common shares.

   PER SHARE DATA

     On December 31, 1997 Homestead adopted Financial Accounting Standards Board
Statement  No.  128,   EARNINGS  PER  SHARE  ("SFAS  128"),   which  requires  a
presentation  of basic  earnings per share,  calculated by dividing net earnings
available to common  shareholders by weighted average common shares  outstanding
and a  presentation  of diluted  earnings  per  share,  calculated  by  dividing
adjusted  earnings  available  to common  shareholders,  assuming  dilution,  by
adjusted weighted average common shares outstanding. Adjusted earnings available
for common  shareholders  adds back all net interest  expense  from  convertible
mortgage  notes.  Adjusted  weighted  average  shares  outstanding  includes the
dilutive  effect of options and warrants using the treasury stock method and the
dilutive  effect of the convertible  mortgage  notes. In the three-month  period
ended  March  31,  1998  the  effect  of  assumption  of the  conversion  of the
convertible  mortgages is anti-dilutive and thus basic earnings per share is the
most  dilutive  result.  In the  three-month  period  ended  March 31,  1997 the
restatement  of earnings per share  required by SFAS 128 resulted in an increase
of $0.01 in basic earnings per share from the prior  presentation  and no change
in diluted earnings per share from the prior presentation.


NOTE 5--INCOME TAXES

     Deferred tax assets relate primarily to: (1) the difference in the carrying
amount of deferred  financing  costs  recognized  at formation and in connection
with subsequent fundings of convertible mortgage notes payable for



                                       8

<PAGE>
                         HOMESTEAD VILLAGE INCORPORATED
               NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

financial reporting purposes and the amount recognized for tax purposes; (2) the
difference in the carrying  amount of the  convertible  mortgage notes and other
liabilities for financial  reporting  purposes and the amount recognized for tax
purposes;  and (3) tax net  operating  loss.  Deferred  tax  liabilities  relate
primarily  to  the  difference  in  the  carrying  amount  and  the  methods  of
depreciation of certain  depreciable assets for financial reporting purposes and
the  amount  recognized  for  tax  purposes.  A  valuation  allowance  has  been
recognized  to  offset  the net  deferred  tax  assets,  due to  uncertainty  of
realization of those deferred tax assets in future years.

At March 31, 1998, Homestead had, for federal income tax reporting purposes, net
operating loss carry  forwards of  $26,800,000,  which expire  $4,200,000 in the
year 2011, $15,900,000 in the year 2012 and $6,700,000 in the year 2013.

NOTE 6--ADMINISTRATIVE SERVICES AGREEMENT

     Homestead and Security Capital have an  administrative  services  agreement
(the "Administrative  Services  Agreement"),  pursuant to which Security Capital
provides Homestead with administrative  services with respect to certain aspects
of  Homestead's  business.  These  services  include,  but are not  limited  to,
insurance administration,  accounts payable administration, internal audit, cash
management,  human  resources,  management  information  systems,  tax and legal
administration, research, shareholder communications and investor relations. The
fees payable to Security  Capital are based on  identifiable  costs  incurred by
Security  Capital  on  behalf  of  Homestead  plus  20% to cover  overhead.  Any
arrangements  under the  Administrative  Services Agreement for the provision of
services  are  required  to be  commercially  reasonable  and on terms  not less
favorable  than those which could be obtained from  unaffiliated  third parties.
Total  administrative  services fees for the three-month periods ended March 31,
1998 and 1997 were  $899,000  and  $627,000,  respectively.  The  Administrative
Services Agreement, which expires December 31, 1998, is renewable for a one-year
term,  subject to  approval  by a  majority  of the  independent  members of the
Homestead Board.

     Homestead  believes  its  relationship  with  Security  Capital  under this
agreement  provides  it with  certain  advantages,  including  access to greater
quality  and  depth  of  management  personnel  and  resources,  highly  focused
research,  information  systems,  insurance,  cash  management and legal support
provided at substantial economies of scale.


NOTE 7--COMMITMENTS AND CONTINGENCIES

   UNFUNDED DEVELOPMENT COMMITMENTS

     At March 31, 1998,  Homestead had approximately  $213.2 million of unfunded
commitments for developments under construction.

   FINDER'S AGREEMENT

     Homestead has a series of agreements with an unaffiliated person ("Finder")
who developed the Homestead  Village concept and has performed certain services.
The agreements which expire February 5, 2043,  provide for payments to Finder as
follows:  (i) $535,000  annually with respect to the four  properties  for which
Finder  assisted in the location,  development and initial  operations;  (ii) an
annual amount of $7,500 per property  (subject to certain  conditions as defined
in the  agreements) for assistance in site location with respect to the first 35
properties  constructed  (other  than the  four  properties  referred  to in (i)
above);  (iii) 20% of the net proceeds as defined per the  agreements,  upon the
sale of the four properties  noted in (i) above to an unaffiliated  third party;
and (iv) 10% of the net proceeds as defined per the agreements, upon the sale of
the additional 35 properties to an unaffiliated  third party. No such sales have
occurred to date.  Total  payments under these  agreements  for the  three-month
periods ended March 31, 1998 and 1997 were $184,400 and $177,000, respectively.



                                       9
<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders
Homestead Village Incorporated:

     We have  made a  review  of the  accompanying  condensed  balance  sheet of
Homestead Village Incorporated (a Maryland corporation) as of March 31, 1998 and
the related condensed  consolidated  statements of operations and cash flows for
the three-month period ended March 31, 1998. These financial  statements are the
responsibility of the Company's management.

     We conducted our review in accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of obtaining an understanding of the
system for the preparation of interim financial information, applying analytical
procedures to financial  data and making  inquiries of persons  responsible  for
financial and  accounting  matters.  It is  substantially  less in scope than an
audit conducted in accordance with generally  accepted auditing  standards,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

     Based on our review,  we are not aware of any material  modifications  that
should be made to the financial  statements  referred to above for them to be in
conformity with generally accepted accounting principles.

     We have previously  audited, in accordance with generally accepted auditing
standards,  the balance sheet of Homestead  Village  Incorporated as of December
31, 1997,  and in our report dated January 30, 1998, we expressed an unqualified
opinion on that balance sheet. In our opinion,  the information set forth in the
accompanying  condensed  balance sheet as of December 31, 1997 is fairly stated,
in all  material  respects,  in relation to the balance  sheet from which it has
been derived.


                                                           ARTHUR ANDERSEN LLP

Atlanta, Georgia
April 24, 1998



                                       10

<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

         The following discussion should be read in conjunction with Homestead's
1997 Form 10-K as well as the financial statements and the notes thereto in Item
1 of this report.  See  Homestead's  1997 Form 10-K for a discussion  of various
risk factors associated with forward-looking statements made in this document.

         Homestead  Village(R)  is a registered  trademark of Homestead  Village
Incorporated  and all references to the term  "Homestead  Village"  herein shall
include a reference to such registered  trademark.  The term "in pre-development
planning" means developments in planning and owned (land has been acquired or is
under a long-term  ground  lease),  developments  in planning and under  control
(land which is under control  through  contingent  contract or letter of intent)
with  construction  anticipated to commence within 12 months and developments in
planning  and under  contract  (land  which is under  contract  to be  purchased
secured with earnest money but  construction  is not scheduled to start for more
than 12 months).  For analysis  purposes  Homestead  categorizes  its  operating
properties   (which  include  all  properties  not  under   construction  or  in
pre-development  planning) as "comparable,"  "noncomparable,"  or "new opening."
"Comparable"  means a property  open  throughout  both  periods  of  comparison,
"noncomparable"  means a property open for only a portion of the prior period of
comparison, and "new opening" means a property opened in the most recent period.
For  additional  analysis  purposes  Homestead  also  categorizes  its operating
properties  as either  "stabilized"  or  "pre-stabilized."  For purposes of this
report, the term "stabilized" means those properties which have been open for 24
weeks  or  achieved  80%  occupancy  as  of  the  beginning  of  a  period,  and
"pre-stabilized" means all other operating properties.


OVERVIEW

     Homestead's  overall  results of  operations  and  financial  position  are
significantly  influenced by its  development  activity.  During the three-month
period  ended March 31, 1998,  Homestead  started  construction  on 5 properties
consisting of 693 rooms and  completed 11 properties  consisting of 1,373 rooms.
As of March 31, 1998,  Homestead has completed 82 Homestead  Village  properties
representing  in the  aggregate  11,046  rooms in 28 cities and had 44 Homestead
Village  properties under  construction  totaling 5,943 rooms within 15 of these
cities as well as 9 additional  cities. In addition,  Homestead owns 8 sites and
controls through  contracts 25 development  sites for which it plans to initiate
construction  within  the next 12  months,  and 10  development  sites for which
earnest money is on deposit but it plans to start  construction  beyond the next
12 months,  for a total of 169 properties in 38 cities.  Rooms completed,  under
construction or in pre-development planning aggregate 22,868 rooms.

     Homestead's  operating  results  are  substantially  influenced  by (i) the
demand  for and  supply of  extended-stay  lodging in  Homestead's  markets  and
submarkets,  (ii) occupancy and average weekly rate, (iii) the  effectiveness of
property  level  operations  and (iv) the pace and cost at which  Homestead  can
develop additional  extended-stay lodging properties.  Capital and credit market
conditions  which  affect  Homestead's  cost of  capital  may  influence  future
operating results.


RESULTS OF OPERATIONS

   INTERIM PERIOD COMPARISON

Net earnings  increased  $165,000 (10.8%) for the three-month period ended March
31,  1998 as  compared to the same  period in 1997.  The  increase is  primarily
attributable to an increase in net property operating income offset by increases
in net interest  expense,  corporate  operating  expenses,  and depreciation and
amortization. A discussion of the major components of net earnings follows.



                                       11

<PAGE>



   PROPERTY OPERATIONS

     The following table sets forth certain  information  for Homestead's  total
operating property portfolio for the periods indicated:

<TABLE>
<CAPTION>

                                                                                   THREE MONTHS ENDED
                                                                                       MARCH 31,
                                                                              -----------------------------
                                                                                      1998            1997
                                                                                      ----            ----
            <S>                                                                      <C>             <C>
            Weekly RevPAR(1)....................................                      $201            $191               
            Average Weekly Rate(2)..............................                      $282            $249
            Occupancy...........................................                     71.1%           76.8%
            Number of Operating Properties at Period End........                        82              35
            Property Operating Income Margin....................                     54.9%           56.6%
</TABLE>
----------
(1)  RevPAR is determined  by dividing  room revenue by the number of guest room
     days  available for the period and multiplying by seven.
(2)  Average weekly rate is determined by dividing room revenue by the number of
     guest room days occupied for the period and multiplying by seven.

     Homestead's 47 property  openings from the end of the first quarter of 1997
through  the end of the first  quarter of 1998 were the  primary  reason for the
reported room revenue increase of $15.5 million for the three months ended March
31, 1998 as compared to the same period in 1997.  The  increase in room  revenue
was also due in part to an  increase  in the weekly  RevPAR of $10 (5.2%) in the
three months ended March 31, 1998 compared to 1997.

     Total  property  operating  expenses  increased  from $4.8 million to $12.2
million over the same  period,  an increase of $7.4 million for the three months
ended March 31, 1998. The increase is due primarily to an increase in the number
of operating  properties as noted above.  Homestead's  property  openings in the
latter part of 1997 and in the first quarter 1998,  which were in their lease up
phase,  were the primary  reason for the slight  decrease in property  operating
income margin to 54.9%.

   HOMESTEAD PROPERTIES FULLY OPERATING THROUGHOUT CONSECUTIVE PERIODS

     Homestead had 31  properties,  representing  4,282 rooms,  which were fully
operational  throughout both 1998 and 1997 ("same store" properties).  All but 8
of such properties are located in Texas. RevPAR for the three months ended March
31, 1998 for same store increased to $199 from $192 for the same period in 1997.
The RevPAR increase was due primarily to an increase in average weekly rates for
such properties  during the first quarter of 1998 versus 1997 to $255 from $247,
respectively,  an increase of 3.2%.  The increase in RevPAR was also due in part
to a slight  increase in occupancy to 78.0% from 77.5% for the first  quarter of
1998 as compared to the same period in 1997. Property operating margins for same
store  decreased for the first quarter to 54.9% in 1998 versus 56.2% in 1997 due
to increased local advertising costs, increased costs for new security services,
and,  most  significantly,  one-time  additional  costs for the use of Homestead
personnel  in  returning  rooms to  service  which had been out of  service  for
refurbishment.

   STABILIZED PROPERTIES OPERATIONS

     The 49 stabilized properties showed improved operating performance over the
29  stabilized  properties  for the  three-month  period ended March 31, 1998 as
compared  to the same  period  in 1997 with a 14.1%  increase  in RevPAR to $218
(from $191 for the  three-month  period ended March 31, 1997) and an increase in
property  operating  income margin to 57.0% from 56.4%.  These  improvements are
attributable  to a 12.2% increase in the average weekly rate and a 1.2% increase
in occupancy.


                                       12
<PAGE>



   CORPORATE OPERATING EXPENSES

     Corporate  operating  expense  increased  $1.7 million for the  three-month
period ended March 31, 1998 as compared to the same period in 1997. The increase
is attributed to the continued  growth of the company since the first quarter of
1997 when the  company  was  still in the  process  of  developing  a  corporate
infrastructure  in support of a rapidly  growing  entity and includes  costs for
additional personnel in operations, development, marketing and finance.

   DEPRECIATION AND AMORTIZATION

     Depreciation and  amortization  increased $4.6 million for the three months
ended March 31, 1998 as compared to the same period in 1997. Depreciation of the
cost of properties and improvements is provided using the  straight-line  method
over the estimated useful lives of the assets.  Depreciation  expense (exclusive
of amortization) increased approximately $4.3 million for the three month period
ended  March  31,  1998 as  compared  to the  same  period  in  1997  due to new
properties open for the  three-month  period ended March 31, 1998 as compared to
the same period in 1997.

     Amortization  expense increased  $314,000 for the three-month  period ended
March 31, 1998 as compared to the same period in 1997. The increase was a result
of the amortization of the Homestead Village trademark and other intangibles.

   INTEREST INCOME

     Interest income of $289,000 for the three months ended March 31, 1998 was a
result of interest earned from investment of excess cash on hand.

   INTEREST COST

     Homestead's gross interest cost includes amortization of non-cash financing
costs  arising from the issuance of warrants used to obtain the  commitment  for
convertible mortgage notes financing and the differential between the conversion
price under the mortgages and the merger date value of Homestead's common stock.
Exclusive of such  amortized  amounts  Homestead's  interest cost  (comprised of
interest  on the  mortgages,  amortization  of  premiums  and  discounts  on the
mortgages,  interest  on its lines of credit  borrowings,  and  amortization  of
deferred  financing  costs paid to obtain the lines of  credit)  increased  $5.9
million for the three-month  period ended March 31, 1998 as compared to the same
period in 1997.  The increase is due to the increase in investments in operating
and  under  construction  properties  and  the  corresponding  increase  in  the
convertible  mortgage notes payable and the line of credit  borrowings  (used to
finance the increase in investments) for the three-month  period ended March 31,
1998 as compared to the same period in 1997.

     Homestead's  total interest cost,  including the  amortization  of non-cash
mortgage  financing  costs  described  above,  decreased  $36.0  million for the
three-month period ended March 31, 1998 compared to the same period in 1997. The
decrease was due to the greater  amortization  of the non-cash  financing  costs
associated with the mortgages in 1997 versus 1998.  Total interest  incurred was
offset by capitalization  of interest  resulting in net interest expense of $3.0
million  and none for the  three-month  periods  ended  March 31, 1998 and 1997,
respectively.  This  increase in net  interest  expense in 1998 over 1997 is the
result of  increases  in total debt  relative to the amount of  construction  in
process.


ENVIRONMENTAL MATTERS

         Homestead  is not  aware  of,  nor does it  expect,  any  environmental
condition on its properties to have a material adverse effect upon its business,
results of operations or financial position.



                                       13
<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 1998 Homestead had 44 properties under construction,  8
additional sites owned, and 25 sites under contractual  control with acquisition
and  construction  starts  expected to occur  within  twelve  months.  Homestead
intends to pursue  additional  sites for  acquisition  and  development  with an
expectation of 30 to 40 construction starts annually through the year 2000.

         Unfunded  development  commitments for properties under construction as
of March 31, 1998  approximate  $213  million.  Expected  future  investment  to
develop the properties owned as of March 31, 1998 is approximately $145 million.
The  estimated  total  investment  to acquire and develop the  properties  under
contractual control approximates $281 million.

         In January 1998 Homestead  completed a $156.4  million Rights  Offering
under its currently  effective $300 million common stock shelf  registration and
realized net proceeds of approximately $154.2 million.  Rights Offering proceeds
of $100 million were used to repay all  borrowings  under  Homestead's  lines of
credit  and the  remaining  net  proceeds  were  used for land  acquisition  and
development  costs.  Subsequent to the use of Rights Offering  proceeds to repay
the lines of credit,  Homestead has re-borrowed  $71.2 million under its line of
credit as of March 31, 1998.

         Other resources to fund Homestead's  development program consist of its
remaining  capacity on its revolving line of credit facilities  described below,
and,  to  a  lesser  extent,  approximately  $13  million  in  undrawn  mortgage
commitments  from PTR and  ATLANTIC,  and cash  from  operations  in  excess  of
operating  needs.  In  addition,  Homestead  may  seek to  issue  the  remaining
approximate $144 million of common stock under its shelf registration  statement
at such time, amount and price as set forth at the time of such offering.

         Homestead's  secured revolving line of credit facility with Commerzbank
AG ("CAG")  entered  into May 6, 1997 and amended  August 25, 1997  provided for
borrowings of up to $100 million, subject to collateral  requirements.  At March
31, 1998 borrowings under the revolving line totaled $71.2 million at a weighted
average stated interest rate of 7.58%. The line required  maintenance of certain
financial covenants and restricted payment of dividends without lender approval.
Homestead was in compliance with all such covenants as of March 31, 1998.

         On November 25, 1997,  Homestead  obtained a $50 million interim credit
agreement  with CAG.  Borrowings  and all accrued  interest under this agreement
were  repaid in  January  1998 upon the  funding of the  proceeds  of the Rights
Offering.  Upon  repayment of the interim  borrowings no further  commitment was
available under this agreement.

         On April 24, 1998  Homestead  renewed its  existing  revolving  line of
credit  facility  for a  one-year  term,  with an  increase  in total  borrowing
capacity to $150 million,  subject to collateral  requirements.  Borrowings will
bear interest at the Eurodollar rate plus 1.5% to 2.5% per annum, depending upon
the  percentage  leverage of borrowings  outstanding to the amount of qualifying
collateral. Alternatively,  borrowings will bear interest at a base rate defined
as the higher of prime rate plus a margin of 0.5% to 1.5% or the  federal  funds
rate plus a margin of 1% to 2%,  with the  margin  dependent  on the  percentage
leverage  of  borrowings  outstanding  to the amount of  qualifying  collateral.
Additionally, a commitment fee of 0.375% of the average unfunded balance will be
owed.   The  line  requires   maintenance   of  certain   financial   covenants,
specifically,  aggregate  indebtedness of no more than 55% of gross asset value,
as defined, or indebtedness secured by a lien of no more than 50% of gross asset
value, as defined.  Homestead must also maintain a minimum debt service coverage
ratio of earnings before interest, income taxes, depreciation,  amortization and
gains or losses on sales of assets to cash debt service,  as defined, of no less
than 1.1 to 1 for the first  quarter of 1998 (which  Homestead was in compliance
with),  no less than 1.25 to 1 for the  second  quarter of 1998 and no less than
1.75 to 1 thereafter on a quarterly basis, and not allow stockholders  equity to
be less than $325  million.  The covenants  also  restrict  payment of dividends
without lender approval.

On April 24, 1998  Homestead  also entered into a separate $50 million  one-year
revolving line of credit facility with CAG of which $20 million is available for
borrowings on a secured basis and $30 million is available



                                       14

<PAGE>

for  borrowing  on an  unsecured  basis.  The  unsecured  portion of the line is
required to be collateralized by September 30, 1998 or such unsecured borrowings
must be repaid.  Borrowings will bear interest at the Eurodollar rate plus 2.75%
per annum or, alternatively,  at a base rate defined as the higher of prime rate
plus 1.75% or the federal funds rate plus 2.25%.  Average unfunded balances bear
a  commitment  fee of 0.5%.  Covenants  are  identical  to those  under the $150
million credit facility.

     Capital  resources in addition to those  described  above will be needed to
fund  Homestead's  planned  developments.  Homestead may seek additional  credit
facilities  and may  issue  long-term  debt and  additional  equity  securities.
However,  there is no  assurance  that  Homestead  will be able to  obtain  such
financing as and when required or on acceptable terms.

   OPERATING ACTIVITIES

     Net cash flow  provided by operating  activities  increased by $9.2 million
for the three months ended March 31, 1998 as compared to 1997. The increases are
due  primarily  to the  growing  number of  Homestead  operating  properties  as
described under "Results of Operations" as well as improvements in operations.

   INVESTING AND FINANCING ACTIVITIES

     During the three months ended March 31, 1998 and 1997,  Homestead  invested
$125.6 million and $48.4 million, respectively, in Homestead Village properties.
The amounts  invested  in the three  months  ended March 31, 1998 were  financed
primarily  from proceeds from  borrowings  under the line of credit and proceeds
from the Rights  Offering.  The amounts invested in the three months ended March
31, 1997 were financed primarily from the proceeds of convertible mortgage loans
from PTR and ATLANTIC and proceeds from exercise of warrants.




                                       15

<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


     (a)          Exhibits:

                  15                Letter regarding unaudited interim financial
                                    information
                  27                Financial Data Schedules

     (b)          Reports on Form 8-K: The following report on Form 8-K was 
                  filed during the last quarter

                                      Item(s)                    Financial
                  DATE                REPORTED                   STATEMENTS
                  January 8, 1998     Item 5, Item 7                 No




                                       16

<PAGE>



                                   SIGNATURES

     PURSUANT  TO THE  REQUIREMENTS  OF  SECTION  13 OR 15(D) OF THE  SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.


                                                HOMESTEAD VILLAGE INCORPORATED


                                                
                                                /S/   ROBERT C. ALDWORTH

                                                ------------------------------
                                                Robert C. Aldworth,
                                                SENIOR VICE PRESIDENT
                                                AND CHIEF FINANCIAL OFFICER
                                                (PRINCIPAL FINANCIAL OFFICER)



                                                /S/   ROBERT E. CLARK

                                                ------------------------------
                                                Robert E. Clark, VICE PRESIDENT,
                                                TREASURER AND CONTROLLER
                                                (PRINCIPAL ACCOUNTING OFFICER)

Date:  May 12, 1998

                                       17