================================================================================
                          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 June 30, 1999

                                       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 August
13, 1999 was 120,031,477.
================================================================================



<PAGE>




                         HOMESTEAD VILLAGE INCORPORATED
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            NUMBER
                                                                                                              PAGE
                                                                                                           -----------
PART I.          Condensed Financial Information

       Item 1.   Financial Statements


<S>              <C>                                                                                       <C>
                 Condensed Balance Sheets (unaudited) - June 30, 1999 and December 31, 1998................     3

                 Condensed Statements of Operations (unaudited) - Three and Six-month Periods Ended June
                 30, 1999 and 1998.........................................................................     4

                 Condensed Statements of Cash Flows (unaudited) - Six-month Periods Ended June 30, 1999
                 and 1998..................................................................................     5

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

                 Report of Independent Public Accountants..................................................     12

       Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.....     13

       Item 3.   Quantitative and Qualitative Disclosures About Market Risk................................     19

PART II.         Other Information

       Item 4.   Submission of Matters to a Vote of Security Holders.......................................     20

       Item 6.   Exhibits and Reports on Form 8-K.........................................................      20


</TABLE>

<PAGE>


                                          HOMESTEAD VILLAGE INCORPORATED

                                             CONDENSED BALANCE SHEETS

                                                    (UNAUDITED)

                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

<TABLE>
<CAPTION>
                                            ASSETS                                                JUNE 30,       DECEMBER 31,
                                                                                                     1999          1998
                                                                                                -------------- -------------
<S>                                                                                            <C>             <C>
Current assets:
     Cash and cash equivalents .............................................................    $      15,388  $    12,144
     Accounts receivable, net of allowance of $422 in 1999 and $269 in 1998.................            7,142        5,910
     Funds held in escrow...................................................................             --          1,701
     Other current assets...................................................................            1,218        1,132
                                                                                                -------------- -------------
          Total current assets..............................................................           23,748       20,887
                                                                                                -------------- -------------
Property and equipment......................................................................        1,178,840    1,186,652
Less accumulated depreciation...............................................................         (51,867)     (48,783)
                                                                                                -------------- -------------
Net investment in property and equipment....................................................        1,126,973    1,137,869
                                                                                                -------------- -------------
Deposits and pursuit costs, including $3,399 of funds with title companies for property
   acquisitions in 1998.....................................................................             --          7,830
Deferred loan costs, net of accumulated amortization of $36,080 in 1999 and $34,002 in
     1998                                                                                               2,641        1,063
Trademark and intangibles, net of accumulated amortization of $5,431 in 1999 and $4,190
   in 1998                                                                                             43,037       44,279
Other assets ...............................................................................           23,360        6,463
                                                                                                -------------- -------------
   Total assets.............................................................................    $  1,219,759   $ 1,218,391
                                                                                                ============== =============

                             LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Lines of credit........................................................................    $        --    $   357,080
     Capital lease obligation, current......................................................            3,654         --
     Mortgage note payable..................................................................             --        122,028
     Development costs payable, including retainage of $6,582 in 1999 and $16,558 in
        1998                                                                                           11,993       24,330
     Due to affiliate.......................................................................              920          335
     Accrued interest payable to affiliate..................................................            1,882        1,882
     Accrued real estate taxes..............................................................            7,158        5,681
     Accrued payroll and related accrued expenses...........................................            5,320        7,969
     Accrued special charge expenses........................................................           11,296        1,528
     Accounts payable and other accrued expenses............................................           17,749       10,135
                                                                                                -------------- -------------
          Total current liabilities.........................................................           59,972      530,968
Lines of credit.............................................................................          199,000         --
Capital lease obligation, noncurrent........................................................          138,982         --
Convertible mortgage notes payable to affiliate.............................................          221,334      221,334
Other long-term liabilities.................................................................            7,905        8,064
                                                                                                -------------- -------------
          Total liabilities.................................................................          627,193      760,366
                                                                                                -------------- -------------
Commitments and contingencies (Note 8)
Shareholders' equity:
     Common stock,  $.01 par value,  249,823 shares  authorized,  120,031 shares
        issued and  outstanding in 1999 and 38,255 shares issued and outstanding
        in
        1998                                                                                            1,200          383
     Preferred stock, 177 shares authorized, none issued....................................             --           --
     Additional paid-in capital.............................................................          694,572      474,337
     Accumulated deficit....................................................................        (103,104)     (16,135)
     Less deferred compensation.............................................................            (102)        (560)
                                                                                                -------------- -------------
          Total shareholders' equity........................................................          592,566      458,025
                                                                                                -------------- --------------
          Total liabilities and shareholders' equity........................................    $   1,219,759  $ 1,218,391
                                                                                                ============== =============

</TABLE>

         The accompanying notes are an integral part of these condensed
                             financial statements.
                                       3

<PAGE>


                         HOMESTEAD VILLAGE INCORPORATED

                       CONDENSED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                                       JUNE 30,                 JUNE 30,
                                                                              -------------------------------------------------
                                                                                  1999          1998       1999        1998
                                                                              -----------   ----------  ----------  -----------
<S>                                                                           <C>           <C>         <C>         <C>
Revenues:
     Room revenue............................................................ $    55,153   $   33,009  $  103,272  $  59,436
     Other revenue...........................................................       1,556          608       2,459      1,709
                                                                              ------------- ------------ ---------  ----------
          Total revenues.....................................................      56,709       33,617     105,731     61,145
                                                                              ------------- ------------ ---------  ----------
Operating expenses:
     Property operating expenses.............................................      26,589       13,325      49,696     25,198
     Corporate operating expenses............................................       8,758        5,512      18,245     10,411
     Special charge (Note 3).................................................      65,296         --        65,296       --
     Depreciation and amortization...........................................      10,318        7,472      20,315     13,859
                                                                              ------------- ------------ ---------  ----------
          Total operating expenses...........................................     110,961       26,309     153,552     49,468
                                                                              -------------- ------------ ---------  ----------

Operating (loss) income......................................................    (54,252)        7,308    (47,821)     11,677

Interest income..............................................................         202          215         356        504
Interest expense, net of capitalized interest................................    (13,958)      (4,148)    (25,274)    (7,119)
                                                                              ------------- ------------ ---------  ----------
                                                                              ------------- ------------ ---------  ----------
(Loss) earnings before income taxes and cumulative effect of
accounting                                                                       (68,008)        3,375    (72,739)      5,062
    change...................................................................
Provision for income taxes...................................................        --           --          --         --
                                                                              ------------- ------------ ---------  ----------
(Loss) earnings before cumulative effect of accounting change................    (68,008)        3,375    (72,739)      5,062
Cumulative effect of accounting change for organizational, pre-opening and
   start-up activities.......................................................        --           --      (14,230)       --
                                                                              ------------- ------------ ---------  ----------
Net (loss) earnings.......................................................... $  (68,008)   $    3,375  $ (86,969)  $   5,062
                                                                              ============= ============ ========= ===========



(Loss) earnings  per share:
Basic earnings (loss) before cumulative effect of accounting change.......... $    (0.99)   $     0.09  $   (1.36)  $    0.14
Cumulative effect of accounting change.......................................        --           --        (0.26)       --
                                                                              ------------- ------------ ---------  ----------
Basic (loss) earnings........................................................ $    (0.99)   $     0.09  $   (1.62)  $    0.14
                                                                              ============= ============ ========= ===========

Diluted (loss) earnings before cumulative effect of accounting change........ $    (0.99)   $     0.09  $   (1.36)  $    0.14
Cumulative effect of accounting change.......................................        --           --        (0.26)       --
                                                                              -------------- ------------ ---------  ----------
Diluted (loss) earnings...................................................... $    (0.99)   $     0.09  $   (1.62)  $    0.14
                                                                              ============= ============ ========= ===========

</TABLE>








              The accompanying notes are an integral part of these
                        condensed financial statements.
                                       4

<PAGE>


                         HOMESTEAD VILLAGE INCORPORATED

                       CONDENSED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                SIX MONTHS
                                                                                              ENDED JUNE 30,
                                                                                       -------------------------------
                                                                                           1999             1998
                                                                                       -----------      ------------
<S>                                                                                    <C>              <C>
Operating activities:
    Net (loss) earnings...........................................................     $   (86,969)     $      5,062
    Adjustments to reconcile net (loss) earnings to net cash provided by operating
activities:
        Special charge write-offs and asset write-downs...........................           51,587              --
        Cumulative effect of accounting change....................................           14,230              --
        Depreciation and amortization.............................................           20,315           13,859
        Deferred compensation.....................................................            (276)              325
        Amortization of deferred loan costs.......................................            2,078            1,711
    Change in assets and liabilities:
        Increase in accounts receivable, net of change in allowance...............          (1,232)           (2,252)
        Decrease in funds held in escrow..........................................            1,701               --
        (Increase) decrease in other current assets...............................             (86)             1,447
        Increase in accrued real estate taxes.....................................            1,477               274
        Increase in accrued interest on convertible mortgage notes................               --               174
        (Decrease) increase in accrued payroll and related accrued expenses.......          (2,649)             1,685
                Increase in accrued special charge expenses.......................            9,768               --
        Increase in accounts payable and other accrued expenses...................            7,614               355
        Increase in due to affiliate..............................................              585               487
                                                                                       --------------   --------------
            Net cash provided by operating activities.............................           18,143            23,127
                                                                                       --------------   --------------

Investing activities:
        Investment in properties..................................................         (76,903)         (260,196)
        Decrease in deposits and pursuit costs....................................              695               821
        Increase in other assets..................................................          (1,367)           (1,804)
                                                                                        --------------   --------------
            Net cash used in investing activities.................................         (77,575)         (261,179)
                                                                                       --------------   --------------

Financing activities:
        Proceeds from lines of credit.............................................           41,920         181,272
        Payments on lines of credit...............................................        (200,000)         (100,000)
        Deferred loan costs for line of credit....................................          (3,657)           (3,135)
        Proceeds from convertible mortgage notes payable..........................             --             17,014
        Payments on mortgage notes payable........................................        (122,028)              --
        Sale of property and equipment, net.......................................          127,261              --
        Proceeds from sale of shares, net of expenses.............................          221,644         154,241
        Payments on capital lease obligation......................................          (2,364)              --
        Payments on other long-term liabilities...................................              (7)              (2)
        Repurchase of stock.......................................................            (107)              --
        Proceeds from principal payments on notes from officers..................                14              --
                                                                                       --------------   --------------
            Net cash provided by financing activities.............................           62,676          249,390
                                                                                       --------------   --------------

Net increase in cash and cash equivalents.........................................            3,244            11,338
Cash and cash equivalents, beginning of period....................................           12,144             2,974
                                                                                       --------------   --------------
Cash and cash equivalents, end of period..........................................           15,388     $      14,312
                                                                                       ==============   ==============

Non-cash investing and financing transactions:

        Increase in property and equipment, and development cost payable..........     $          --    $       3,417
                                                                                       ==============   ==============

        Increase in property and equipment, from capital lease....................     $    145,000     $          --
                                                                                       ==============   ==============

        Increase in property and equipment from capitalization of loan costs......     $          --    $       1,249
                                                                                       ==============   ==============


        Increase in trademark and intangibles arising from release of  shares in       $          --    $       2,253
          escrow
                                                                                       ==============   ==============
        Loan costs resulting from issuance of convertible mortgage debt...........     $          --    $       1,251
                                                                                       ==============   ==============

</TABLE>




              The accompanying notes are an integral part of these
                        condensed financial statements.
                                       5

<PAGE>





                         HOMESTEAD VILLAGE INCORPORATED
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 1999
                                   (UNAUDITED)

NOTE 1--GENERAL

   Principles of Financial Presentation

     The financial statements of Homestead Village Incorporated ("Homestead") as
of June 30, 1999 and for the three and six month periods ended June 30, 1999 and
1998 are  unaudited,  and pursuant to the rules of the  Securities  and Exchange
Commission,  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 1998 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 and  six-month  periods  ended June 30, 1999 and 1998 are not  necessarily
indicative of the results to be expected for the entire 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.

   Reclassifications

     Certain  1998  amounts  have  been  reclassified  to  conform  to the  1999
presentation.

   New Accounting Rules

     In April  1998,  Statement  of  Position  98-5  "Reporting  on the Costs of
Start-Up   Activities"  ("SOP  98-5")  was  issued  which  requires  that  costs
associated with organizational, pre-opening, and start-up activities be expensed
as incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998.  Through the end of 1998,  Homestead  capitalized  costs  associated  with
pre-opening  and start-up  activities  and amortized  such costs over a two-year
period.  Homestead has adopted SOP 98-5  beginning with its 1999 fiscal year and
wrote off  unamortized  organizational,  pre-opening and start-up costs of $14.2
million as a  cumulative  effect of  adoption of an  accounting  standard in the
first quarter 1999. No financial  statement  amounts were restated upon adoption
of the new standard.  Pre-opening and start-up activities costs which would have
been  expensed  in the six month  period  ended  June 30,  1998 if SOP 98-5 were
applied  on a  pro  forma  basis  total  $6,379,000.  Amortization  expense  for
organizational,  pre-opening and start-up costs recorded in the six month period
ended June 30, 1998 was approximately $2,452,000.

     In  June  1998,   Statement  of  Financial  Accounting  Standards  No.  133
"Accounting  for  Derivative  Instruments  and Hedging  Activities"  was issued,
establishing   standards  for  the   accounting  and  reporting  for  derivative
instruments.  The new rules,  which become effective for Homestead on January 1,
2001,  are not expected to have an impact on Homestead's  financial  position or
results of operations.  Homestead has not entered into any derivative  financial
instrument transactions.
                                       6


<PAGE>


NOTE 2--PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                             JUNE 30,           DECEMBER 31,
                                                                               1999                 1998
                                                                          --------------        --------------
                                                                            (UNAUDITED)

<S>                                                                       <C>                  <C>
            Operating properties:
               Owned properties:
                    Land                                                  $       183,532     $        191,694
                    Buildings and improvements...........................         598,616              645,235
                    Furniture, fixtures and equipment....................          84,661              108,446
               Properties under a capital lease..........................         145,000                  --
                                                                          ----------------    -----------------
                                                                                1,011,809              945,375
            Properties under construction................................          70,468              110,891
            Properties in planning (land owned for development)..........            --                126,054
            Land held for sale...........................................          96,563                4,332
                                                                          ----------------    -----------------
                      Total.............................................. $     1,178,840     $      1,186,652
                                                                          ================    =================
</TABLE>


NOTE 3 - SPECIAL CHARGE

     In the second quarter of 1999, Homestead determined, based on its inability
to  obtain   financing  for   development  of  sites  beyond  those  already  in
construction, to further curtail its development program. As of the beginning of
the second quarter,  Homestead had substantial  investments in ownership of land
for development  and in costs of pursuit of additional  development  sites.  All
land  previously  held for  development is presently held for sale, all pursuits
for  acquisition of additional  sites for development  have been abandoned,  and
Homestead  has reduced  overhead  costs and  personnel to reflect a company with
stabilized operations of 136 properties.  Homestead recorded a special charge of
$65.3 million in the second quarter of 1999  consisting of  approximately  $43.5
million  for  write-downs  of the  carrying  cost of land  held  for sale to its
estimated fair value less estimated costs to dispose, approximately $7.1 million
of  write-offs  of costs of pursuits and loss of  non-refundable  earnest  money
deposits,  approximately $5.5 million for closing of administrative  offices and
discontinuing new initiatives,  and approximately  $9.2 million for the costs of
severance of personnel.  Revisions to these estimates may be required based upon
the ultimate sale of the properties.

     Carrying costs on the land sites, such as interest and property taxes, will
be expensed until the sites are disposed of and will materially adversely affect
earnings  until  disposal.  The  majority  of the land sites are  subject to the
security  interests of the lenders  under the Working  Capital  Facilities  (see
"Note 4 - Debt) and any sale of the encumbered sites requires the consent of the
lenders.  Upon  sale the  proceeds  will be used to repay  the  Working  Capital
Facilities.

     Payment of the final  costs  accrued  for the  special  charge  recorded in
fourth quarter 1998 were made in second quarter 1999 and no additional liability
remains.

NOTE 4--DEBT

   Credit Facilities

      On March 18, 1999  Homestead  entered  into  amended and  restated  credit
agreements  to, among other things,  extend the $150 million  revolving  line of
credit  facility  secured by suburban  properties  and the $50  million  line of
credit  facility  secured by urban  properties  (together  the "Working  Capital
Facilities")  to December 31, 2000.  The $150 million line was increased to $170
million total borrowing capacity,  subject to collateral  requirements,  and the
interest  terms  adjusted  to  be a  margin  of  2.0%  to  3.0%  over  LIBOR  or
alternatively  1.0% to 2.0% over  prime or 1.5% to 2.5% over the  federal  funds
rate,  with the margin  dependent on the  percentage of  borrowings  outstanding
versus  qualifying  collateral.  Future  additional  collateral  under  the $170
million line will be limited to suburban properties that are stabilized. The $50
                                       7
<PAGE>

million facility was adjusted to $30 million total borrowing  capacity,  subject
to  collateral,   and  the  interest  terms  adjusted  to  3.0%  over  LIBOR  or
alternatively 2.0% over prime or 2.5% over the federal funds rate.

     The amended and restated Working Capital Facilities require  maintenance of
the following financial covenants effective with first quarter 1999:

     -   limiting  total  liabilities of no more than 55% of gross asset value,
         as defined;
     -   limiting total  indebtedness of no more than 50% of gross
         asset value, as defined;
     -   maintaining a ratio of earnings before interest,  taxes,  depreciation
         and amortization,  as defined, to interest expense ranging from 1.25 to
         1.0 for first quarter 1999 up to 1.90 to 1.0 by fourth quarter 2000;
     -   maintaining a ratio of earnings before interest,  taxes,  depreciation
         and  amortization,  as defined,  to debt  service and  preferred  stock
         dividends ranging from 1.0 to 1.0 for first quarter 1999 to 1.25 to 1.0
         by fourth quarter 2000;
     -   maintaining  a ratio of net property  operating  income to implied debt
         service,  as defined,  ranging from 1.4 to 1.0 for
         first quarter 1999 to 2.25 to 1.0 by fourth quarter 2000;
     -   maintaining  minimum  tangible  net  worth,  as  defined,  of no less
         than 85% of the year end 1998  amount,  as  defined,
         adjusted for net proceeds of equity offerings; and
     -   maintaining positive net sources and uses of funds.

     In addition, under the renewed Working Capital Facilities, distributions or
dividends  on equity are  prohibited;  total cost,  as  defined,  of projects in
development  cannot exceed 25% of gross asset value, as defined,  in 1999 or 15%
in 2000; and  Homestead's  business  activities  will be limited to development,
ownership and operation of extended stay hotels.

     As of June 30, 1999,  Homestead has an outstanding  balance of $199 million
under the Working Capital Facilities, the full amount available under collateral
requirements.  Subsequent to quarter end, the Working Capital Facilities balance
was paid down by $5.9 million  with the net  proceeds  from the sale of an urban
site.

     Homestead had an additional  $200 million bank line of credit facility (the
"Bridge Facility") which bore interest at the Eurodollar rate plus 1.25% or at a
base rate of prime plus  0.25%.  Proceeds  from the  consummation  of the rights
offering (Note 5) were used to repay the $200 million Bridge Facility on May 28,
1999.  The bank's  commitment  under the Bridge  Facility and the  obligation of
Security Capital Group Incorporated  ("Security Capital") under its subscription
agreement for $200 million of subordinated  debentures of Homestead expired upon
repayment of the facility.

     Homestead was in compliance with all covenants under its credit  facilities
as of June 30, 1999.

   Convertible Mortgage Notes Payable

     At June 30, 1999  Homestead  owed  convertible  mortgage notes to Archstone
Communities  Trust  ("Archstone"),  an  affiliate,  in the  principal  amount of
$221,333,620.  The  notes  are  collateralized  by  mortgages  on  54  Homestead
properties with a historical  cost of $360.8 million.  The notes accrue interest
at 9.0% on the principal  amount and require  interest  only payments  every six
months on May 28 and  November  28 of each year.  The notes are due  October 31,
2006, and are callable on or after May 28, 2001. The notes are  convertible,  at
the option of the holder,  into 21,191,262  shares of Homestead  common stock (a
conversion ratio equal to one share of common stock for every approximate $10.44
of  principal  amount  outstanding).   The  conversion  ratio  was  adjusted  in
accordance  with the terms of the notes upon the  issuance  of shares in the May
1999 rights offering.  Previously,  the conversion ratio was $11.50  (19,246,402
shares).  Deferred  financing costs and the discount on the respective  fundings
have been fully amortized.  No further funding commitment is available under the
mortgage notes.

   Capital Lease Obligation

     On February 23, 1999, Homestead completed a sale and leaseback of 18 of the
26 Homestead  properties  collaterizing the $122 million mortgage note which was
                                       8
<PAGE>

due June 1999.  Hospitality  Properties  Trust purchased the properties for $145
million.  Homestead  will continue to operate the  properties  under a long-term
lease through December 2015 and pay a minimum rent of approximately  $16 million
per year.  Homestead  posted a security  deposit  equal to one year's rent.  The
majority  of the  proceeds  from the sale were  used to repay  the $122  million
mortgage note and post the approximate $16 million security deposit.

     The lease is considered a capital lease for  financial  reporting  purposes
and  thus  the  present  value  of the  minimum  lease  payments  discounted  at
approximately  9.8%  has  been  recorded  as an  asset  of  $145,000,000,  to be
amortized over the lease term, and an obligation, which will be reduced over the
term of the lease by  allocating  rent  payments  between  interest  expense and
reduction of the lease  obligation.  The balance of the  obligation  at June 30,
1999 was $142,636,000.

     The lease also provides for two  extension  periods of 15 years each at the
option of Homestead,  requires  payment of percentage  rents beginning July 2000
based on increases in revenues over a base period,  and requires a percentage of
revenues be paid to a furniture,  fixtures and equipment  reserve to be used for
capital expenditures.

   Interest

     The following summarizes Homestead's interest expense (in thousands):

<TABLE>
<CAPTION>
                                                                THREE MONTH PERIOD ENDED       SIX MONTH PERIOD ENDED
                                                                       JUNE 30,                      JUNE 30,
                                                                ---------------------------  -----------------------------
                                                                   1999          1998            1999          1998
                                                               ------------ ------------    -------------- ---------------
    <S>                                                        <C>           <C>            <C>            <C>
    Lines of credit facilities.................................$      7,060  $     2,974    $       14,682 $     4,432
    Convertible mortgage notes.................................       5,035        8,352            10,015      15,989
    Mortgage note payable......................................        --            --              1,282         --
    Capital lease obligation...................................       3,499          --              4,906         --
    Other......................................................         188          197               381         394
                                                               ------------  -------------  --------------  -------------

        Total interest cost....................................      15,782       11,523            31,266      20,816
    Capitalized interest.......................................     (1,824)      (7,375)           (5,992)    (13,697)
                                                               ------------  -------------  --------------  -------------
        Net interest expense...................................$     13,958  $     4,148            25,274 $     7,119
                                                               ============  =============  ==============  =============

    Amortization of deferred financing costs included in
     interest cost.............................................$      1,084 $     1,234     $        2,078  $    1,711
                                                               ============  =============  ==============  =============
</TABLE>

     The total  interest  paid in cash for the six month periods  ended June 30,
1999 and 1998 was  $29,371,000  and  $17,054,000, respectively.


NOTE 5--SHAREHOLDERS' EQUITY

   Common Stock Rights Offering

     On May 28, 1999,  Homestead  completed a common stock rights  offering with
the sale of  81,818,181  shares for $225  million in gross  proceeds  ($2.75 per
share).  The securities  issued in the rights offering had been registered under
Homestead's existing $356,402,600 shelf registration. Security Capital purchased
77,749,220  shares in the rights  offering at the same price paid by the public.
Following the completion of the rights offering,  Security Capital owns 87.0% of
Homestead's outstanding common shares.  Estimated net proceeds of $221.6 million
were  used to repay the $200  million  Bridge  Facility  and  accrued  interest;
payment of interest on the convertible  mortgages,  Working Capital  Facilities,
and other long-term  liabilities;  payment of construction in process costs; and
to provide working capital for general corporate  purposes.  Security  Capital's
obligations under a subscription agreement which secured the Bridge Facility was
terminated  as a  result  of  Security  Capital's  participation  in the  rights
offering and the repayment of the Facility.

   Per Share Data

     Basic  earnings  (loss) per share is  calculated  by dividing  net earnings
(loss)  available  to common  shareholders  by weighted  average  common  shares
outstanding.  Diluted  earnings per share is  equivalent  to basic  earnings per
share unless dilution results from a calculation which divides adjusted earnings
                                       9
<PAGE>

available to common  shareholders  by adjusted  weighted  average  common shares
outstanding.  Adjusted earnings available for common  shareholders adds back all
net interest expense from  convertible  debt.  Adjusted  weighted average shares
outstanding  includes any dilutive  effect of options  using the treasury  stock
method and the dilutive effect of convertible  debt. For the three and six month
periods  ended  June 30,  1999 and 1998  convertible  debt is not  assumed to be
converted   and   exercise  of  options  is  not  assumed  as  the  effects  are
anti-dilutive  in a period of loss in 1999 and the effects  were not dilutive in
1998.

     A reconciliation of the numerators and denominators used to calculate basic
and  diluted  earnings  (loss) per share for the periods  indicated  follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                     JUNE 30,                  JUNE 30,
                                                             ------------------------  -------------------------
                                                                 1999        1998          1999         1998
                                                                 ----        ----          ----         ----
<S>                                                          <C>           <C>         <C>           <C>
     Net (loss) earnings attributable to common shares
       before cumulative effect of accounting change....      $ (68,008)   $   3,375    $ (72,739)   $    5,062
                                                             ============ ===========  ============ ============

     Weighted average shares outstanding - basic........         68,808       38,263        53,611       37,007
                                                             ============ ===========  ============ ============

     Net  (loss)  earnings  per share  before  cumulative
     effect of  accounting change:
     Basic..............................................      $  (0.99)    $    0.09    $   (1.36)   $     0.14
                                                             ============ ===========  ============ ============
     Diluted............................................      $  (0.99)    $    0.09    $   (1.36)   $     0.14
                                                             ============ ===========  ============ ============

</TABLE>


NOTE 6--INCOME TAXES

     As a result of Security  Capital's  ownership  in Homestead  exceeding  80%
after the closing of the May 1999 rights  offering,  Homestead's  results,  post
rights  offering,  will be included in the federal income tax return of Security
Capital.  Security  Capital  may  utilize  tax  operating  losses  generated  by
Homestead  subsequent to May 1999.  In order to utilize the net  operating  loss
carryforwards  generated by Homestead through May 1999,  Homestead must generate
future  taxable   income.   To  the  extent   Homestead's   net  operating  loss
carryforwards  are so utilized on Security  Capital's  federal tax return,  such
loss carryforwards will not be available to Homestead in the future.

     Homestead  has  estimated  tax  net   operating   loss   carryforwards   of
approximately  $87 million,  which  expire $4.2 million in the year 2011,  $24.8
million in the year 2012,  $50  million in the year 2018,  and $8 million in the
year 2019.

     Homestead in its financial  statements  presents its provision for taxes as
though Homestead filed a separate  return.  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 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.


NOTE 7--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,

                                       10
<PAGE>

insurance administration,  accounts payable administration, internal audit, cash
management,  human  resources,  management  information  systems,  tax and legal
administration,   facilities  management,   and  payroll   administration.   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.
The  Administrative  Services  Agreement,  which  expires  December 31, 1999, is
renewable  for a  one-year  term,  subject  to  approval  by a  majority  of the
independent members of the Homestead Board. Total  administrative  services fees
for the six month  periods  ended  June 30,  1999 and 1998 were  $2,830,000  and
$1,897,000, respectively.

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


NOTE 8--COMMITMENTS AND CONTINGENCIES

   Legal Proceedings
     In second  quarter  1999  Homestead  recorded  an  expense  and  accrual of
approximately $1.2 million for construction related claims.  Otherwise Homestead
is not a party to any litigation or claims,  other than routine  matters arising
out of the ordinary  course of business that are  incidental to the  development
process and operation of the business of Homestead.  Homestead  does not believe
that the results of all claims and litigation, individually or in the aggregate,
will have a material  adverse  effect on its  business,  financial  position  or
results of operation.

   Unfunded Development Commitments

     At June 30,  1999,  Homestead  had  approximately  $17  million of unfunded
commitments  for  developments   under   construction.   Homestead   anticipates
completing  development of properties under construction utilizing cash on hand,
proceeds from future sales,  if any, of  unencumbered  land,  and cash flow from
operations.

   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  (exclusive  of the four  properties  referred to in (i)
above and reduced by the 2 properties sold in February 1999 as described below);
(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. The sale and leaseback
of  properties  described in Note 4 included 2  properties  subject to the terms
described in (iv) above,  resulting in a payment of approximately $68,000 to the
Finder. Total payments under these agreements for amounts due under (i) and (ii)
described  above for the six month  periods  ended  June 30,  1999 and 1998 were
$356,000 and $367,000, respectively.

                                       11



<PAGE>






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Homestead Village Incorporated:


     We have reviewed the accompanying  condensed  consolidated balance sheet of
Homestead Village  Incorporated (a Maryland  corporation) and subsidiaries as of
June 30, 1999 and the related  condensed  consolidated  statements of operations
for the three and six-month periods ended June 30, 1999 and 1998 and the related
condensed  consolidated  statement  of cash flows for the six month period ended
June 30, 1999 and 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 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 consolidated balance sheet of Homestead Village Incorporated and
subsidiaries as of December 31, 1998 (not presented herein),  and, in our report
dated February 4, 1999, we expressed an unqualified  opinion on that  statement.
In  our  opinion,  the  information  set  forth  in the  accompanying  condensed
consolidated  balance  sheet as of December 31, 1998, is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


                               ARTHUR ANDERSEN LLP

Atlanta, Georgia
July 22, 1999

                                       12

<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
1998 Annual  Report on Form 10-K (the "1998 Form 10-K") as well as the financial
statements  and the notes  thereto  in Item 1 of this  report.  In  addition  to
historical  information,  this discussion  contains  forward-looking  statements
under the  federal  securities  laws.  These  statements  are  based on  current
expectations,  estimates and projections about the industry and markets in which
Homestead  operates,  management's  beliefs and assumptions  made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates",  variations of such words and similar  expressions  are intended to
identify such forward-looking statements. These statements are not guarantees of
future  performance and involve risks,  uncertainties  and assumptions which are
difficult  to  predict.  Therefore,  actual  outcomes  and  results  may  differ
materially  from  what  is  expressed  or  forecasted  in  such  forward-looking
statements.  Among the  important  factors that could cause  Homestead's  actual
results  to  differ  materially  from  those  expressed  in the  forward-looking
statements are (i) changes in general economic  conditions in its target markets
that could adversely affect demand for Homestead's properties,  (ii) the effects
of increased or unexpected  competition  with respect to one or more properties,
(iii)  Homestead's  ability  to open new  properties  on  schedule  which may be
affected by factors  outside  the control of  Homestead,  (iv)  availability  to
Homestead  of  debt  or  equity  financing,  (v)  the  matters  described  under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operation-Risk  Factors"  in Item 7 of the 1998  Form 10-K and (vi)  changes  in
financial  markets and interest rates that could  adversely  affect  Homestead's
cost of capital and its ability to meet its financing needs and obligations.


OVERVIEW

     Homestead's  overall results of operations and financial position have been
significantly influenced by its development program and the financing activities
required  to support  it. The  tightening  of capital  markets  for real  estate
operating  companies and lodging  companies which began in 1998 and continues in
1999 has had an  adverse  effect on  Homestead's  ability to  continue  its high
growth program of acquisition of land sites and  construction of properties.  In
October 1998,  Homestead  reorganized its development  effort and recorded $7.24
million of special charges.  Such charges  primarily related to the severance of
certain development personnel and abandonment of certain pursuits of development
sites due to the limited availability of additional funds for development.

     In the second quarter of 1999, Homestead determined, based on its inability
to  obtain  financing  for  development   beyond  those  properties  already  in
construction, to further curtail its development program. As of the beginning of
the second quarter of 1999,  Homestead had substantial  investments in ownership
of land for  development as well as in pursuit costs for additional  development
sites.  All land previously held for development is presently held for sale, all
pursuits  for  acquisition  of  additional   sites  for  development  have  been
abandoned,  and Homestead has reduced  overhead costs and personnel to reflect a
company with  stabilized  operations  of 136  properties.  A special  charge was
recorded in the second quarter of 1999 of $65.3 million for  write-downs of land
to be held for sale, write-offs of costs of pursuits, and the costs of severance
of personnel.

     The majority of the special charge relates to the  write-downs on land held
for sale approximating $43.5 million. Substantial effort and costs were incurred
in the  planning  stage for  design,  engineering,  and  architectural  work and
capitalization  of carrying  costs,  all of which the company expects to be lost
upon sale of the sites.

     Carrying costs on the land sites, such as interest and property taxes, will
be expensed until the sites are disposed of and will materially adversely affect
earnings  until  disposal.  The majority of the land sites are encumbered by the
Working  Capital  Facilities  and upon sale will  require use of the proceeds to
repay the Working Capital Facilities.

     Write-offs  of pursuit  costs and  non-refundable  earnest  money  deposits
approximate  $7.1 million,  severance costs  approximate  $9.2 million and other
costs such as closings of offices, overhead reductions and discontinuance of new
investment limitations approximate $5.5 million.

     As of June 30, 1999,  Homestead  had 129  Homestead  Village  properties in
operation representing in the aggregate 17,294 rooms in 38 cities. Homestead had
                                       13
<PAGE>

7 Homestead Village properties under construction totaling 881 rooms within five
of these cities,  of which all 7 properties  are scheduled to open by the end of
the third quarter 1999.

     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,  (iv) the pace  and  cost at  which  Homestead  can
complete the development of the remaining properties under construction, and (v)
the timing and amounts of proceeds  Homestead can generate from sales of land to
repay   indebtedness.   Capital  and  credit  market   conditions  which  affect
Homestead's  access to credit markets and cost of capital will influence  future
operating results.

     As of  June  30,  1999,  Homestead  had  approximately  $570.9  million  of
indebtedness outstanding, consisting of $199.0 million due on its long-term bank
lines of credit,  $221.3  million due on a  convertible  mortgage  note,  $142.6
million  due under a  capital  lease  agreement  and $7.9  million  due on other
long-term  obligations.  During the six months  ended June 30,  1999,  Homestead
reduced its short-term  debt from $479.1 million at December 31, 1998 to $3.7 at
June 30, 1999. Homestead refinanced its short-term debt as follows:

      On February 23, 1999,  Homestead  completed a sale and lease-back of 18 of
     the 26 Homestead  properties  collaterizing  a $122 million  mortgage note.
     Hospitality  Properties  Trust  purchased the  properties for $145 million.
     Proceeds of the sale were used to repay the $122 million debt which was due
     June  1999.  Additionally,  as a result  of  payment  of the  $122  million
     mortgage  note,  eight  properties  which were used as  collateral  for the
     mortgage  note were  subsequently  pledged as  collateral  for its  Working
     Capital   Facilities  to  draw  approximately  $21  million  in  additional
     borrowings under the line.

      On March 18, 1999,  Homestead renewed its Working Capital  Facilities with
     an extension of the maturity date to December 31, 2000.

      On May 28, 1999,  Homestead  completed a $225 million  common stock rights
     offering of which $200 million was used to pay off
     the Bridge Facility.

     With the  accomplishment  of these  reductions of  short-term  debt and the
decision  to cease  additional  development  efforts,  Homestead  is focusing on
generation of cash from sales of land to be used to retire debt and on operation
of a company with stabilized operations of 136 properties.

RESULTS OF OPERATIONS

   Six-Months Ended June 30, 1999 and 1998

     Net (loss)  earnings,  for the six months ended June 30, 1999 and 1998 were
($87.0) million and $5.1 million,  respectively.  The net loss for the six month
period ended June 30, 1999  includes a (i)  cumulative  effect of an  accounting
change of $14.2  million  relating  to  Homestead's  adoption  of  Statement  of
Position 98-5 "Reporting on the Costs of Start-Up Activities" beginning with its
1999  fiscal  year and (ii)  incurrence  of a special  charge of $65.3  million,
primarily  relating to the  write-downs on land held for sale.  Exclusive of the
effect of the special charge,  net loss before the cumulative  effect  decreased
$12.5  million  from the $5.1 million net earnings for the six months ended June
30,  1998.  The decrease is  primarily  attributable  to an increase in interest
expense of $18.2  million  offset by $5.8 million net increase in other items of
operating income discussed in the following.

   Property Operations

     For analysis  purposes  Homestead  categorizes its operating  properties as
either "stabilized" or  "pre-stabilized."  For purposes of this report, the term
"stabilized"  means those properties which obtained 80% occupancy for a one-week
period or have been  opened  for 24 weeks and  "pre-stabilized"  means all other
operating  properties.  Homestead also  categorizes its operating  properties 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.
                                       14
<PAGE>

     Whether   considering  the  entire  operating  property  portfolio  or  its
categories,  Homestead's  first  half 1999  property-level  revenue  performance
compared  to the same period of 1998 is  characterized  by higher  weekly  rates
offset by lower occupancy  levels.  The occupancy  decreases are attributable to
(i)  competition  in markets  characterized  by an  oversupply  of extended stay
hotels  (predominantly  in the  Southwest),  (ii) the effect on occupancy due to
rate increases at Homestead  versus  competitor rate levels  (experienced in the
portfolio  generally),  and  (iii)  the first  quarter  effect  of the  seasonal
downturn as Homestead  has  increased  its number of  properties  located in the
northeast  and  midwest as  compared  to prior  years  (affecting  noncomparable
properties and pre-stabilized properties).

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                                   JUNE 30,                            JUNE 30,
                                                     ----------------------------------     ------------------------------
                                                          1999         1998      CHANGE       1999        1998      CHANGE
                                                         ----         ----      ------       ----        ----      ------
<S>                                                      <C>          <C>       <C>          <C>         <C>       <C>
Weekly RevPAR(1).....................................    $250         $217       15.2%       $236        $210       12.4%
Average Weekly Rate(2)...............................    $352         $302       16.6%       $352        $293       20.1%
Occupancy.........                                       70.9%        72.0%      (1.1)       66.9%       71.6%      (4.7)
Number of Operating Properties at Period End.........     129          93        38.7%        129         93        38.7%
Property Operating Income Margin.....................    52.8%        60.4%      (7.6)       52.8%       58.4%      (5.6)
----------


<FN>
(1)  Weekly revenue per available room ("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.
</FN>
</TABLE>
     Homestead's 36 property openings from the end of the second quarter of 1998
through the end of the second  quarter of 1999 were the  predominant  reason for
the room revenue increase of $43.8 million (73.8%) for the six months ended June
30,  1999 as  compared  to the same  period in 1998.  Total  property  operating
expenses  increased $24.5 million (97.2%) for the six months ended June 30, 1999
over 1998.  The  increase  is due  primarily  to the  increase  in the number of
operating  properties as noted above and secondarily  due to increased  expenses
for  additional  services  such as  longer  operating  hours  and  travel  agent
commissions.

     Beginning  in the  latter  part  of  second  quarter  1999,  management  of
Homestead reduced room rates in selected markets to improve occupancy.  Compared
to second quarter average occupancy of 70.9% for the total portfolio,  occupancy
for July 1999 was 74.2%,  which  also  compares  favorably  with July 1998 total
occupancy  of 73.4%.  Management  is also  presently  reviewing  property  level
expenses  in  areas  such as the  number  of new  operating  programs,  extended
operating hours, job definitions and scheduling of personnel in order to improve
the property operating income margin.

   Same-Store Properties

     Homestead had 64 properties which were stabilized and operating  throughout
both six month periods ended June 30, 1999 and 1998  ("same-store"  properties).
Twenty-three  such  properties  are located in the  Southwest in Texas  markets.
RevPAR for the six months ended June 30, 1999 for these 64 same store properties
remained at $222 versus the same period in 1998. The unchanged RevPAR was due to
a decrease in  occupancy  to 70.6% for the six month  period ended June 30, 1999
from 76.9% for the same  period in 1998,  offset in part by an  increase  in the
average  weekly  rate of $26 (9.0%) for the six  months  ended June 30,  1999 as
compared to the same period in 1998.  The  decrease in  occupancy is a result of
competition in the Southwestern  markets which are  characterized by over supply
and to some extent  Homestead rates versus the rate levels of  competitors.  The
unchanged  RevPAR,  and  increases in property  expenses  primarily for payroll,
housekeeping,  security, and property administrative costs (primarily related to
increasing  services such as longer office  hours),  resulted in the  same-store
property operating income margin decreasing to 54.3% in 1999 from 59.7% in 1998.

                                       15
<PAGE>

   Stabilized Properties Operations

     RevPAR for the 115 stabilized  properties for the six months ended June 30,
1999  increased to $235 from $222 for the 64 stabilized  properties for the same
period in 1998. Average weekly rates for stabilized properties increased to $346
in 1999 from $288 in 1998 (an  increase  of 20.1%) but was offset by the decline
of occupancy to 68.0% for 1999 from 76.9% for 1998.  Property  operating  income
margin for stabilized  properties  decreased to 55.2% in 1999 from 59.7% in 1998
due to  increased  property  expenses  as  described  above  for the  same-store
properties.

   Corporate Operating Expenses

     Corporate  operating  expenses  increased  $7.8  million  for the six month
period ended June 30, 1999 as compared to the same period in 1998.  The increase
is primarily  attributed to increases of approximately $2.4 million in marketing
and sales expense,  $1.5 million in incremental  development  overhead  expenses
which were not  capitalized  due to  declining  development  activity in the six
months ended June 30, 1999,  loss provision for  construction  related claims of
approximately  $1.2 million,  and  approximately  $0.9 million in administrative
services related to the increased size of Homestead.

   Depreciation and Amortization

     Depreciation  and  amortization  increased  $6.5 million for the six months
ended June 30, 1999 as compared to the same period in 1998 due to the  increased
number of  properties  operating for the six month period ended June 30, 1999 as
compared to the same period in 1998.  Depreciation of the cost of properties and
improvements  is provided  using the  straight-line  method  over the  estimated
useful lives of the assets.  Amortization of the trademark and other intangibles
is calculated on a straight-line basis over a period of 20 years.

   Interest Income

     Interest  income of $356,000 for the six months ended June 30, 1999 was a
result of interest  earned from  investment of excess cash on hand.

   Interest Expense

     The following summarizes Homestead's interest expense (in thousands):
<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                           JUNE 30,                    JUNE 30,
                                                                   -------------------------  -----------------------------
                                                                       1999          1998          1999          1998
                                                                  ------------   -----------  ------------- --------------
    <S>                                                           <C>            <C>          <C>           <C>
    Lines of credit facilities....................................$      7,060   $     2,974  $      14,682 $       4,432
    Convertible mortgage notes....................................       5,035         8,352         10,015        15,989
    Mortgage note payable.........................................         --            --           1,282           --
    Capital lease obligation......................................       3,499           --           4,906           --
    Other.........................................................         188           197            381           394
                                                                  ---------------------------------------------------------
        Total interest cost.......................................      15,782        11,523         31,266        20,816
    Capitalized interest..........................................       (1,824)       (7,375)       (5,992)      (13,697)
                                                                  ---------------------------------------------------------
        Net interest expense......................................$     13,958   $     4,148  $      25,274  $      7,119
                                                                  =============  ===========  =============  ==============
    Amortization of deferred financing costs included in interest
     cost........................................................ $      1,084   $     1,234  $       2,078  $      1,711
                                                                  =============  ===========  =============  ==============

</TABLE>

     Interest expense on line of credit  borrowings  increased $10.2 million for
the six months  ended June 30,  1999 as  compared to the same period in 1998 due
primarily  to a higher  average  outstanding  balance  ($350.2  million  in 1999
compared to $79.2 million in 1998).

     Interest  expense on the convertible  mortgages  decreased $6.0 million for
the six months  ended June 30,  1999 as compared to the same period in 1998 as a
result of the early  extinguishment  of $98  million  of  Homestead  convertible
mortgage  notes in the third  quarter 1998.  Homestead  incurred $1.3 million in
interest expense for the six months ended June 30, 1999 relating to the mortgage
note which funded the  extinguishment.  On February 23, 1999, this mortgage note
                                       16
<PAGE>

was repaid with proceeds from the sale of properties  discussed in Note 4 to the
financial statements. Homestead incurred $4.9 million in interest expense in the
six months ended June 30, 1999 as a result of the  leaseback of such  properties
under a capital lease.

     Interest expense recognized on borrowings is offset by interest capitalized
with respect to Homestead's development activities.  Capitalized interest levels
are  reflective  of  Homestead's  cost of funds  and the  level  of  development
activity.  Capitalized  interest  decreased  by $7.7  million for the six months
ended  June  30,  1999 as  compared  to the  same  period  in  1998  due to less
development activity during the first six months of 1999 as compared to 1998.


LIQUIDITY AND CAPITAL RESOURCES

   Investing and Financing Activities

     On May 28, 1999,  Homestead  completed a common stock rights  offering with
the sale of  81,818,181  shares for $225  million in gross  proceeds  ($2.75 per
share).  The securities  issued in the rights offering had been registered under
Homestead's existing $356,402,600 shelf registration. Security Capital purchased
77,749,220  shares in the rights  offering at the same price paid by the public.
Following the completion of the rights offering,  Security Capital owns 87.0% of
Homestead's outstanding common shares.  Estimated net proceeds of $221.6 million
were  used to repay the $200  million  Bridge  Facility  and  accrued  interest;
payment of interest on the convertible  mortgages,  Working Capital  Facilities,
and other long-term  liabilities;  payment of construction in process costs; and
to provide working capital for general corporate  purposes.  Security  Capital's
obligations under a subscription agreement which secured the Bridge Facility was
terminated  as a  result  of  Security  capital's  participation  in the  rights
offering and the repayment of the Facility.

     During  the six month  periods  ended  June 30,  1999 and  1998,  Homestead
invested  $76.9 million and $260.2  million,  respectively  in  properties.  The
amounts  invested in the six months ended June 30, 1999 were financed  primarily
from proceeds from borrowings under the Working Capital Facilities.  The amounts
invested in the six months  ended June 30,  1998 were  financed  primarily  from
borrowings  under the lines of credit and proceeds  from the January 1998 rights
offering.

     During the first six months of 1999,  Homestead reduced its short-term debt
from $479.1  million at  December  31,  1998 to $3.7  million at June 30,  1999.
Homestead  reduced  its  short-term  debt by (i) paying  off the $122.0  million
mortgage note due June 1999 with  proceeds  received from the sale and leaseback
of  properties  (ii) paying off the $200 million  Bridge  Facility with proceeds
received  from the rights  offering,  and (iii)  amending  its  Working  Capital
Facilities  to, among other  things,  extend the  maturity  date to December 31,
2000.

     With the decision to cease development of all land sites owned,  other than
those already in construction, and to cease pursuit of acquisition of additional
sites for development,  Homestead's needs for financing are drastically reduced.
Future  funding  needs are expected to be primarily  for the  completion  of the
properties in  construction,  funding of the  severance of  personnel,  and debt
service.

     Homestead  had at June 30, 1999  unfunded  commitments  for  properties  in
construction of approximately $17 million.

      Homestead  believes it will have adequate cash resources from cash on hand
and cash flow from  operations  to fund its needs for debt  service,  payment of
severances, and completion of properties in construction.  In addition Homestead
may  generate  cash  inflows  by the sale of  unencumbered  land  sites,  but no
assurance  can be given that such sales  will occur or provide  significant  net
proceeds.  While Homestead  believes it will continue to generate  positive cash
flow from operation of its  properties,  there can be no assurance of generation
of cash  from  future  operations  due to the  risks  of  operation  of  lodging
properties including competitive  pressures,  rates,  occupancies,  and costs of
operation.  Additionally,  Homestead's  ability to meet its obligations could be
adversely  affected by  incurrence of  unexpected  construction  costs for those
properties not yet open and by increases in interest rates.

                                       17

<PAGE>


   Operating Activities

     Net cash flow  provided by operating  activities  decreased by $5.0 million
for the six months ended June 30, 1999 as compared to 1998.  The decrease is due
primarily  to an increase in corporate  expenses,  special  charge  expenses and
interest  during the six  months  ended June 30,  1999 as  compared  to the same
period in 1998 offset in part by additional cash from  operations  provided from
the growth in the number of operating  properties as described under "Results of
Operations."


YEAR 2000

     The Year 2000  issue has  arisen as many  existing  computer  programs  and
chip-based  embedded technology systems use only the last two digits to refer to
a year,  and  therefore do not  properly  recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous  results.  Homestead has adopted a Year 2000 compliance
program in an attempt to minimize or prevent the number and  seriousness  of any
disruptions  that may  occur as a result  of the Year  2000  issue.  Homestead's
compliance  program includes an assessment of its hardware and software computer
systems    ("information    technology"    systems)   and    embedded    systems
("non-information  technology"  systems such as lighting,  security,  fire, card
keys,  phones,  irrigation,   elevators,  and  heating,   ventilation,  and  air
conditioning systems), as well as an assessment of the Year 2000 issues relating
to third  parties  with which  Homestead  has a material  relationship  or whose
systems are material to the operations of Homestead's properties.

     Homestead's  computer  hardware,  operating  systems,  general  accounting,
property management systems and principal desktop software applications are Year
2000 compliant as certified by the various  vendors.  Homestead has tested these
information  technology systems, and based on this testing,  management does not
anticipate  any Year 2000  issues  that will  materially  impact  operations  or
operating results.

     Homestead's   critical   non-information   technology   systems  have  been
inventoried  and have been assessed for Year 2000  compliance by contacting  the
vendors  of  the  systems.   All  non-information   technology  systems  are  in
compliance.

     Homestead  has surveyed its  financial  institutions  and major  vendors to
determine  the  extent to which  Homestead  is  vulnerable  to  failure by those
institutions  and vendors to make their systems Year 2000  compliant.  Homestead
has received responses indicating these institutions and vendors are either Year
2000  compliant or have plans in place to be compliant by year end.  Homestead's
most  reasonably  likely worst case scenario is the failure on the part of these
entities to be or become Year 2000 compliant which could result in disruption in
Homestead's cash receipt and disbursement  functions,  utilities and the failure
of reservation  systems.  Homestead management does not believe that the company
faces a material  adverse  financial  impact from Year 2000 problems in the most
likely worst case scenario.

     Homestead  will complete by November  1999 a contingency  plan to deal with
unforeseen  problems caused directly or indirectly by Year 2000 issues. The plan
will address temporary  procedures  required due to failures in internal systems
or by service providers due to Year 2000 issues.

     Homestead's  historical  costs for  addressing  the Year 2000 issue are not
material and  management  does not anticipate  that its future costs  associated
with the Year 2000  issue  will be  material.  Third-party  costs  and  software
upgrades  or  replacements  for Year  2000  issues  are not  expected  to exceed
$50,000.  Homestead  does not  separately  track the internal costs incurred for
Year 2000  compliance  issues.  Such costs are  principally  the related payroll
costs  of its  information  technology  group.  Although  the  cost of  recently
replacing  Homestead's key information  technology systems was substantial,  the
replacements  were  made  to  improve   operational   efficiency  and  were  not
accelerated  due to the Year 2000 issue.  Homestead has not delayed any material
projects as a result of the Year 2000 issue. Funds expended to address Year 2000
issues have been made from operating cash flow.

     There can be no assurances that Year 2000 remediation by Homestead or third
parties will be properly and timely completed, and failure to do so could have a
material adverse effect on Homestead,  its business and its financial condition.
                                       18
<PAGE>

Homestead  cannot  predict  the actual  effects to it of the Year 2000  problem,
which depends on numerous uncertainties,  many of which are outside its control,
such as: (i) whether  significant  third parties properly and timely address the
Year 2000 issue; and (ii) whether  broad-based or systemic economic failures may
occur.  Failures  could  include  disruptions  in  passenger  transportation  or
transportation  systems  generally,  loss of utility  and/or  telecommunications
services,  the loss or  disruption  of hotel  reservations  made on  centralized
reservation systems and errors or failures in financial  transactions or payment
processing  systems  such as credit  cards.  Homestead's  Year  2000  compliance
program is expected to significantly  reduce the level of uncertainty  about the
Year 2000 issue and  management  believes that the  possibility  of  significant
interruptions of normal operations should be reduced.
Homestead will continue to monitor these issues through its Year 2000 compliance
program.


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.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Interest Rate Risk

     Homestead's  exposure to market risk for changes in interest  rates relates
primarily to its lines of credit  facilities.  Homestead has no involvement with
derivative financial instruments.

     The  table  below  provides   information   about   Homestead's   financial
instruments that are sensitive to changes in interest rates, including estimated
fair values for Homestead's  interest rate sensitive  liabilities as of June 30,
1999. As the table  incorporates  only those exposures that exist as of June 30,
1999,  it does not  consider  exposures  which  could  arise  after  that  date.
Moreover,   because  there  were  no  firm  commitments  to  actually  sell  the
obligations  at fair value as of June 30, 1999,  the  information  presented has
limited  predictive  value. As a result,  Homestead's  ultimate realized gain or
loss with respect to interest  rate  fluctuations  will depend on the  exposures
that arise during a future period and prevailing  interest rates. Dollar amounts
in the following table are in thousands.

<TABLE>
<CAPTION>
                                                          EXPECTED MATURITY/PRINCIPAL REPAYMENT DECEMBER 31,
                                        Nominal
                                       Interest                                                              Total       Fair
                                         Rate     1999 (2)     2000     2001    2002    2003    Thereafter  Balance    Value(3)
                                         ----     --------     ----     ----    ----    ----    ----------  -------    --------


<S>                                     <C>       <C>        <C>       <C>     <C>     <C>      <C>         <C>       <C>
Interest-Sensitive Liabilities:
   Lines of Credit Facilities - variable
   rate (1).............................   8.32%  $      --  $199,000  $   --  $   --  $  --    $      --   $199,000  $  199,000
Convertible Mortgage Notes - fixed rate..  9.00%  $      --  $    --   $   --  $   --  $  --    $  221,334  $221,334  $  218,363
Capital Lease Obligation - fixed rate....   9.8%  $   2,006  $  3,821  $4,213  $4,647  $5,124   $  122,825  $142,636  $  142,636
Other Long-Term Obligation - fixed rate..  9.74%  $       3  $     13  $   14  $   16  $   17   $   7,853   $  7,916  $    7,907

<FN>

    (1)  On March 18, 1999, Homestead obtained an extension and amendment of its
         Working Capital Facilities to a December 31, 2000 due date. The Working
         Capital  Facilities  interest  terms  were  amended  resulting  in  the
         borrowings  under  the  lines,  based  on  the  present  borrowings  to
         collateral leverage ratio, bearing interest at 3% over LIBOR.

    (2)  Amounts represent  expected  maturities and principal repayment for the
         six months remaining for 1999.

    (3)  The estimated  fair value of  obligations  extending  beyond a one-year
         maturity as of June 30, 1999 were  calculated by discounting the stream
         of cash payments of each obligation using a rate which, in management's
         judgement,  represents an interest  rate  obtainable by Homestead as of
         June 30, 1999 on a similar instrument.

</FN>
</TABLE>
                                       19
<PAGE>


                            PART II OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         At the Annual  Meeting of  Shareholders  held on June 23,  1999
Shareholders  elected the  following  Class I and Class II Directors to office:

                                     Shares in Favor          Shares Withheld
                                     ---------------          ---------------
Class I:
         C. Ronald Blankenship        110,617,733                149,263
         Eugene B. Vesell             110,631,477                135,519

Class II:
         John P. Frazee               110,632,177                134,819
         John C. Schweitzer           110,632,212                134,784

         In addition,  shareholders  approved adoption of Homestead's 1999
Long-term Incentive Plan with 109,180,469 shares in favor
and 1,586,527 shares withheld.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


     (a)          Exhibits:

10.1     Administrative Services Agreement dated January 1, 1999 between
         Homestead Village Incorporated and SCGroup Incorporated
10.2     Separation Agreement and General Release between Robert C. Aldworth
         and Homestead
10.3     Separation Agreement and General Release between Michael D. Cryan and
         Homestead
10.4     Separation Agreement and General Release between Robert J. Morse and
         Homestead
10.5     Change in Control Agreement between David C. Dressler, Jr. and
         Homestead
10.6     Change in Control Agreement between Gary A. DeLapp and Homestead

15       Letter regarding unaudited interim financial information

27       Financial Data Schedules

     (b)           Reports on Form 8-K.

                      Date              Items Reported   Financial Statements
                 April 5, 1999          Item 5, Item 7           No
                  May 3, 1999           Item 5, Item 7           No
                  May 4, 1999           Item 5, Item 7           No
                  May 12, 1999          Item 5, Item 7           No


                                       20
<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/   BRYAN J. FLANAGAN
                                        Bryan J. Flanagan, Senior Vice President
                                        And Chief Accounting Officer
                                        (Principal Financial Officer and
                                         Principal Accounting Officer)


Date:  August 13, 1999

                                       21