<PAGE>
 
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                         UNITED STATES SECURITIES AND
                              EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
                               ----------------
 
(Mark
One)
 
  [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
 
                 For the quarterly period ended March 31, 1997
 
                                      OR
  [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
                      For the transition period from to .
 
                        COMMISSION FILE NUMBER 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.)
 
                            2030 POWERS FERRY ROAD
                               ATLANTA, GA 30339
             (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 for the past 90 days.
                                Yes  X  No
 
  The number of shares outstanding of the Registrant's common stock as of May
9, 1997 was:21,202,804
 
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<PAGE>
 
                         HOMESTEAD VILLAGE INCORPORATED
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                          NUMBER
                                                                          ------
 <C>        <S>                                                           <C>
 PART I.    Condensed Financial Information
    Item 1. Financial Statements
            Condensed Balance Sheets--March 31, 1997 (unaudited) and
            December 31, 1996..........................................      3
            Condensed Statements of Operations--Three-Month Period
            Ended March 31, 1997 and 1996 (unaudited)..................      4
            Condensed Statements of Cash Flows--Three-Month Period
            Ended March 31, 1997 and 1996 (unaudited)..................      5
            Notes to Condensed Financial Statements (unaudited)........      6
            Independent Accountants' Review Report.....................     11
    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations..................................     12
 PART II.   Other Information
    Item 6. Exhibits and Reports on Form 8-K...........................     15
</TABLE>
<PAGE>
 
                         HOMESTEAD VILLAGE INCORPORATED
 
                            CONDENSED BALANCE SHEETS
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                           MARCH 31,  DECEMBER
                         ASSETS                              1997     31, 1996
                         ------                           ----------- --------
                                                          (UNAUDITED)
<S>                                                       <C>         <C>
Current assets:
  Cash and cash equivalents..............................  $  9,141   $  7,415
  Accounts receivable, net of allowance of $20 in 1997
   and $37 in 1996.......................................     1,542        809
  Other current assets...................................       777        736
                                                           --------   --------
    Total current assets.................................    11,460      8,960
Property and equipment...................................   318,896    263,325
Less accumulated depreciation............................     9,175      7,717
                                                           --------   --------
Net investment in property and equipment.................   309,721    255,608
                                                           --------   --------
Deposits and pursuit costs, including $7,355 of funds
 with title companies for property acquisitions in 1997
 and $3,025 in 1996......................................    11,841      5,536
Deferred loan costs, net of accumulated amortization of
 $408 in 1997 and $141 in 1996...........................    31,325     29,075
Trademark and intangibles, net of accumulated
 amortization of $460 in 1997 and $184 in 1996...........    27,427     21,807
Other assets.............................................     4,875      3,639
                                                           --------   --------
    Total assets.........................................  $396,649   $324,625
                                                           ========   ========
<CAPTION>
          LIABILITIES AND SHAREHOLDERS' EQUITY
          ------------------------------------
<S>                                                       <C>         <C>
Current Liabilities:
  Development costs payable..............................  $ 18,051   $ 11,328
  Accounts payable.......................................       676        412
  Due to affiliate.......................................       413        216
  Accrued interest payable to affiliates.................     3,779        853
  Accrued real estate taxes..............................       991      2,066
  Other accrued expenses.................................     3,852      2,781
                                                           --------   --------
    Total current liabilities............................    27,762     17,656
Convertible mortgage notes payable to affiliates, net....   137,725    101,309
Deferred income taxes....................................     1,886      1,657
                                                           --------   --------
    Total liabilities....................................   167,373    120,622
Commitments and contingencies
Shareholders' equity:
  Common stock, $.01 par value, 250,000,000 shares
   authorized, 21,210,901 issued and outstanding in 1997
   and 19,689,130 shares issued and outstanding in 1996..       212        197
  Additional paid-in capital and contributed capital.....   242,078    224,352
  Retained earnings......................................     8,850      7,327
  Less shares in escrow..................................   (20,582)   (26,477)
  Less deferred compensation.............................    (1,282)    (1,396)
                                                           --------   --------
    Total shareholders' equity...........................   229,276    204,003
                                                           --------   --------
    Total liabilities and shareholders' equity...........  $396,649   $324,625
                                                           ========   ========
</TABLE>
 
     The accompanying notes are an integral part of the condensed financial
                                  statements.
 
                                       3
<PAGE>
 
                         HOMESTEAD VILLAGE INCORPORATED
 
                       CONDENSED STATEMENTS OF OPERATIONS
 
                                  (UNAUDITED)
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                         THREE-MONTH PERIOD
                                                                ENDED
                                                              MARCH 31,
                                                       -----------------------
                                                          1997        1996
                                                       ----------- -----------
<S>                                                    <C>         <C>
Revenues:
  Room revenue........................................ $    10,952 $     6,753
  Other revenue.......................................         135         115
                                                       ----------- -----------
    Total operating revenues..........................      11,087       6,868
                                                       ----------- -----------
Operating expenses:
  Property operating expenses.........................       4,816       3,604
  Corporate operating expenses........................       3,083         405
  Depreciation and amortization.......................       1,811         859
                                                       ----------- -----------
    Total operating expenses..........................       9,710       4,868
                                                       ----------- -----------
Operating income......................................       1,377       2,000
                                                       ----------- -----------
Interest income.......................................         146         --
Interest expense, net of capitalized interest.........         --         (961)
                                                       ----------- -----------
Earnings before income taxes..........................       1,523       1,039
Provision for income taxes............................         --          --
                                                       ----------- -----------
Net income............................................ $     1,523 $     1,039
                                                       =========== ===========
Earnings per share:
  Weighted average shares and common equivalent shares
   outstanding........................................  23,934,063
                                                       ===========
  Primary earnings per common and common equivalent
   share.............................................. $       .06
                                                       ===========
  Fully diluted weighted average shares outstanding...  35,164,732
                                                       ===========
  Fully diluted earnings per share.................... $       .04
                                                       ===========
Pro forma earnings per share:
  Weighted average shares and common equivalent shares
   outstanding........................................              10,679,907
                                                                   ===========
  Pro forma earnings per common and common equivalent
   share..............................................             $      0.10
                                                                   ===========
</TABLE>
 
 
     The accompanying notes are an integral part of the condensed financial
                                  statements.
 
                                       4
<PAGE>
 
                         HOMESTEAD VILLAGE INCORPORATED
 
                       CONDENSED STATEMENTS OF CASH FLOWS
 
                                  (UNAUDITED)
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                THREE-MONTH
                                                               PERIOD ENDED
                                                                 MARCH 31,
                                                              ----------------
                                                               1997     1996
                                                              -------  -------
<S>                                                           <C>      <C>
Operating activities:
  Net income................................................. $ 1,523  $ 1,039
  Adjustments to reconcile net income to net cash provided by
   operating activities:
    Depreciation and amortization............................   1,811      859
    Deferred compensation....................................     114      --
    Amortization of prepaid rent.............................      75      --
  Change in assets and liabilities:
    Increase in accounts receivable..........................    (716)    (363)
    (Increase) decrease in other current assets..............    (116)      39
    Increase (decrease) in accounts payable..................     264     (236)
    Decrease in accrued real estate taxes....................  (1,075)    (296)
    Increase in other accrued expenses.......................   1,084    1,298
    Increase (decrease) in due to affiliate..................     197      (76)
    Other....................................................     (17)     --
                                                              -------  -------
      Net cash provided by operating activities..............   3,144    2,264
                                                              -------  -------
Investing activities:
  Investment in properties, excluding development costs
   payable................................................... (45,489) (16,527)
  Increase in deposits and pursuit costs.....................  (6,305)    (197)
  Increase in other assets...................................  (1,084)     --
                                                              -------  -------
      Net cash used in investing activities.................. (52,878) (16,724)
                                                              -------  -------
Financing activities:
  Exercise of warrants for common stock......................  15,210      --
  Proceeds from intercompany debt............................     --    15,495
  Proceeds from convertible mortgage notes...................  36,250      --
                                                              -------  -------
      Net cash provided by financing activities..............  51,460   15,495
                                                              -------  -------
Net increase in cash and cash equivalents....................   1,726    1,035
Cash and cash equivalents, beginning of period...............   7,415    1,896
                                                              -------  -------
Cash and cash equivalents, end of period..................... $ 9,141  $ 2,931
                                                              =======  =======
Noncash investing and financing transactions:
  Conversion of intercompany debt to equity.................. $   --   $ 7,164
                                                              =======  =======
  Conversion of intercompany debt to convertible mortgage
   notes payable............................................. $   --   $77,289
                                                              =======  =======
  Deferred loan costs resulting from issuance of convertible
   mortgage debt............................................. $ 2,517  $   --
                                                              =======  =======
  Increase in deferred tax asset and deferred tax liability.. $   229  $   --
                                                              =======  =======
  Increase in trademark and intangibles...................... $ 5,896  $   --
                                                              =======  =======
  Increase in property and equipment from capitalization of
   deferred loan costs amortization.......................... $   434  $   --
                                                              =======  =======
  Increase in property and equipment, and development cost
   payable................................................... $ 6,723  $   201
                                                              =======  =======
  Increase in property and equipment, and accrued interest
   payable to affiliates..................................... $ 2,926  $   --
                                                              =======  =======
</TABLE>
 
     The accompanying notes are an integral part of the condensed financial
                                  statements.
 
                                       5
<PAGE>
 
                        HOMESTEAD VILLAGE INCORPORATED
 
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
 
                                MARCH 31, 1997
 
                                  (UNAUDITED)
 
NOTE 1--GENERAL
 
  The financial statements of Homestead Village Incorporated, a Maryland
corporation ("Homestead"), as of and for the period ended March 31, 1997 are
unaudited and certain information and footnote disclosures normally included
in financial statements have been omitted. While management of Homestead
believes that the disclosures presented are adequate, these interim financial
statements should be read in conjunction with the financial statements and
notes included in Homestead's 1996 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. Certain reclassifications have
been made in the 1996 financial statements to conform to the 1997
presentation. The results of operations for the three-month periods ended
March 31, 1997 and 1996 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.
 
NOTE 2--ORGANIZATION
 
  Homestead was formed on January 26, 1996 to develop, own, and manage
extended-stay lodging facilities under the Homestead Village(R) trademark.
Homestead's extended-stay lodging rooms are designed to appeal to guests such
as business travelers, professionals and others on a weekly basis, with most
guests staying multiple weeks.
 
  On October 17, 1996 Homestead acquired, through a series of merger
transactions, extended-stay lodging assets operating or to be operated under
the Homestead Village trademark (the "Merger Transaction"). The net assets
related to the Homestead Village properties were acquired through the merger
of various wholly-owned subsidiaries of Security Capital Group Incorporated
("Security Capital"), Security Capital Pacific Trust ("PTR") and Security
Capital Atlantic Incorporated ("ATLANTIC"), all affiliates of Homestead, in
exchange for common stock of Homestead.
 
  Homestead's acquisition of the net assets of PTR's Homestead Village Group
subsidiaries (the "PTR Subsidiaries") consisting of 54 properties (or the
rights to acquire such properties) was accounted for as a combination of
entities under common control in a manner similar to a "pooling of interests."
Accordingly, the historical results of operations for the PTR Subsidiaries
were combined with Homestead for all of 1996. Homestead had no activities from
its formation in January 1996 through March 31, 1996, thus financial results
for the three months ended March 31, 1996 consist exclusively of that of the
PTR Subsidiaries.
 
  The acquisition of the ATLANTIC subsidiaries consisting of 26 properties (or
the rights to acquire such properties), was accounted for as a purchase and,
accordingly, the results of the ATLANTIC subsidiaries have been included in
Homestead's results only for periods subsequent to October 17, 1996.
 
  The acquisition of the Security Capital subsidiaries was accounted for as a
purchase and, accordingly, the results of the Security Capital subsidiaries
have been included in Homestead's results only for periods subsequent to
October 17, 1996. Security Capital provided the trademark, and development and
property management expertise as well as operating systems necessary to
develop, own and operate the properties.
 
                                       6
<PAGE>
 
                        HOMESTEAD VILLAGE INCORPORATED
 
             NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  On November 12, 1996, PTR and ATLANTIC distributed to their shareholders the
shares of Homestead common stock received by them in the Merger Transaction.
Security Capital received 3,442,737 shares from PTR and 2,388,876 shares from
ATLANTIC. Based on shares received in the Merger Transaction (including shares
held in escrow), shares received in the distributions by PTR and ATLANTIC, and
shares obtained by exercise of Homestead warrants (see Note 5), Security
Capital owned 62.0% of Homestead's common stock at March 31, 1997.
 
NOTE 3--PROPERTY AND EQUIPMENT
 
  Property and equipment consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                         MARCH 31,  DECEMBER 31,
                                                           1997         1996
                                                        ----------- ------------
                                                        (UNAUDITED)
      <S>                                               <C>         <C>
      Operating properties:
        Land...........................................  $ 27,375     $ 22,999
        Buildings and improvements.....................   112,285       92,964
        Furniture, fixtures and equipment..............    20,263       19,376
                                                         --------     --------
                                                          159,923      135,339
      Properties under construction....................   140,896      108,692
      Properties in planning and owned.................     9,264       12,256
      Land held for future development.................     1,452        1,448
      Land held for sale...............................     7,361        5,590
                                                         --------     --------
          Total........................................  $318,896     $263,325
                                                         ========     ========
</TABLE>
 
NOTE 4--DEBT
 
 Convertible Mortgage Notes Payable
 
  In connection with the Merger Transaction, Homestead obtained funding
commitment agreements from PTR and ATLANTIC which provide for aggregate
fundings of $198.8 million and $111.1 million, respectively. Under these
agreements, Homestead may call for funding from PTR and ATLANTIC for the
development of the projects acquired from PTR and ATLANTIC in the Merger
Transaction. Assuming full funding of the commitments, PTR and ATLANTIC will
receive convertible mortgage notes in stated principal amounts of $221.3
million and $98.0 million, respectively. The discount, in the case of the
notes payable to PTR, and the premium, in the case of the notes payable to
ATLANTIC, are amortized as an increase and a reduction, respectively, to
interest expense over the term of the notes using the effective interest
method. The notes are collateralized by the Homestead properties acquired in
the mergers ($209.7 million of properties at historical cost mortgaged to PTR
and $83.5 million of properties at historical cost mortgaged to ATLANTIC at
March 31, 1997), accrue interest at 9.0% on the stated principal amount, and
require interest only payments every six months on May 28 and November 28. The
notes are due October 31, 2006, and are callable on or after May 28, 2001.
 
  The mortgage notes are convertible, at the option of PTR and ATLANTIC, into
shares of Homestead common stock on or after March 31, 1997. The conversion
price is equal to one share of common stock for every $11.50 of stated
principal amount outstanding. The fair value of the convertible mortgage notes
(assuming conversion), based upon the $16.875 closing price of Homestead's
common stock on the American Stock Exchange at March 31, 1997, was $217.7
million. The value of the conversion feature, representing the difference
between the conversion price per share and the value per share of Homestead
stock established in the Merger Transaction, is recorded as a deferred
financing cost as the notes are funded. The deferred amounts are amortized as
an increase to interest expense over the term of the notes using the effective
interest method.
 
                                       7
<PAGE>
 
                        HOMESTEAD VILLAGE INCORPORATED
 
             NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Homestead issued warrants to PTR and ATLANTIC in exchange for entering into
the funding commitment agreements. The costs associated with the issuance of
the warrants have been recorded as deferred financing costs and are amortized
to interest expense over the term of the notes using the effective interest
method. The effective interest rates on the PTR and ATLANTIC convertible
mortgage notes payable after giving effect to the related discount or premium,
conversion feature, and warrants is estimated to be 13.56% and 9.05%,
respectively. Amortization of deferred financing costs and discount and
premium included in interest expense for the three months ended March 31, 1997
was approximately $434,000. At March 31, 1997 Homestead owed convertible
mortgage notes to PTR of $130,728,000 (funded amount of $117,438,000; carrying
amount of $117,745,000 net of unamortized discount) and owed convertible
mortgage notes to ATLANTIC of $17,644,000 (funded amount of $20,000,000;
carrying amount of $19,980,000 net of unamortized premium).
 
 Intercompany Debt
 
  Prior to the Merger Transaction closing date, it was assumed that the PTR
Subsidiaries borrowed from PTR to fund the acquisition and development of the
Homestead Village properties. Acquisition and development costs were assumed
to have been financed through borrowing from PTR up through the completion
date of each respective property. Upon completion of a property, 30% of the
intercompany debt associated with the property was assumed to have been
converted to contributed capital. This assumption was made to reflect the
ultimate leverage ratio (70% convertible mortgage debt and 30% common equity)
expected to exist within Homestead after the funding commitment is fulfilled.
Borrowings were assumed to bear interest at the weighted average rate of PTR's
line of credit and unsecured long term debt which rates ranged from 8.0% to
8.92% for the period from January 1, 1996 through March 31, 1996.
 
 Line of Credit
 
  On May 6, 1997 Homestead entered into a secured revolving line of credit
facility with Commerzbank AG, New York Branch, as agent for lenders, which
provides for borrowing up to $50 million, subject to collateral requirements.
Borrowings bear interest at the Eurodollar rate plus 2.5% per annum.
Additionally, there is a commitment fee of .375% per annum on the average
unfunded line of credit balance. The line of credit matures May 1998 and may
be extended with the approval of the lenders. There was no outstanding balance
on the line of credit as of May 6, 1997.
 
 Interest
 
  Homestead incurred total interest cost of $3,360,000 and $1,536,000 for the
three months ended March 31, 1997 and 1996, respectively, of which $3,360,000
and $575,000 were capitalized, respectively. Interest paid in cash in the
three months ended March 31, 1997 and 1996 was none and $353,300,
respectively.
 
NOTE 5--SHAREHOLDERS' EQUITY
 
 Warrants
 
  Homestead issued a total of 10,000,000 of warrants on the merger date which
entitles the holders to buy one share of Homestead common stock at the
exercise price of $10 per share. Warrants were issued to PTR and ATLANTIC in
exchange for entering into the funding commitment agreements (see Note 4) and
Security Capital received Homestead warrants in exchange for providing
financing to Homestead during the time between the execution of the merger
agreement and the closing date and for the use of office facilities for one
year. The warrants expire October 29, 1997.
 
  After the initial issuance of warrants to PTR, ATLANTIC and Security
Capital, both PTR and ATLANTIC distributed the warrants to their shareholders
which resulted in Security Capital holding a total of 4,730,022
 
                                       8
<PAGE>
 
                        HOMESTEAD VILLAGE INCORPORATED
 
             NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
 
warrants after the distribution. Homestead has the right (under an investor
agreement entered into with Security Capital at the merger closing) to request
Security Capital to exercise its warrants in minimum increments of $5,000,000.
Through March 31, 1997 Security Capital exercised 3,250,000 warrants or
$32,500,000 in proceeds. Third party holders of warrants had exercised 25,246
warrants resulting in proceeds of $252,460 through March 31, 1997.
Additionally, Security Capital has made market purchases of 1,420,700 warrants
through March 31, 1997 bringing the remaining balance of its holdings of
Homestead warrants to 2,900,722.
 
 Per Share Data
 
  In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, Homestead will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive
effect of stock options and warrants will be excluded. The impact is expected
to result in an increase in primary earnings per share for the first quarter
ended March 31, 1997 and March 31, 1996 of $.01 and $.01 per share,
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share is not expected to be material.
 
  Historical earnings per share data is not presented for the three-month
period ended March 31, 1996. The outstanding shares and equity interests of
the merged entities differed substantially from the shares, warrants and
convertible mortgages outstanding after the mergers. Therefore, management
does not believe historical earnings per share data is meaningful. Pro forma
earnings per share for the three months ended March 31, 1996 has been
calculated by dividing net income by pro forma weighted average shares
outstanding assuming shares and warrants issued to PTR in the merger had been
outstanding since the beginning of the period. Warrants are considered common
stock equivalents and are included in pro forma weighted average shares on the
treasury stock method.
 
NOTE 6--INCOME TAXES
 
  Deferred tax assets related 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; and (2) tax net
operating loss carry-forwards. 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.
 
  Prior to the Merger Transaction on October 17, 1996, the PTR Subsidiaries
were qualified subsidiaries of PTR, a real estate investment trust and,
accordingly, were not subject to income tax. Additionally, prior to the Merger
Transaction, Homestead was a wholly-owned subsidiary of Security Capital. For
income tax reporting purposes, the net income or loss of the PTR Subsidiaries
and Homestead for the period January 1, 1996 through October 16, 1996 were
included in a consolidated tax return for PTR and Security Capital,
respectively.
 
NOTE 7--RELATED PARTY TRANSACTIONS
 
 REIT and Property Management Agreements
 
  Prior to the Merger Transaction, the PTR Subsidiaries' activities were
managed through a contract with Security Capital Pacific Incorporated (the
"PTR REIT Manager") and the PTR Subsidiaries operated the Homestead Village
properties through a contract with SCG Realty Services Incorporated (the "PTR
Property Manager").
 
  The PTR REIT Manager provided both strategic and day-to-day management
services to the PTR Subsidiaries including research, asset management, capital
market services and legal and accounting services. In
 
                                       9
<PAGE>
 
                        HOMESTEAD VILLAGE INCORPORATED
 
             NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
 
exchange, the REIT management contract required the PTR Subsidiaries to pay a
stipulated REIT management fee of 16% of its defined cash flow. Such fees
included in corporate operating expenses totaled $362,000 for the three months
ended March 31, 1996. Additionally, the PTR Subsidiaries reimbursed the PTR
REIT Manager for travel and out-of-pocket costs incurred. Homestead no longer
pays a management fee to an external manager, but instead directly incurs the
cost of corporate employees.
 
  The PTR Property Manager provided services to the PTR Subsidiaries which
were necessary for the operation of its Homestead Village extended-stay
lodging business. The property management agreement provided for fees of
between 5% and 7% of gross revenues. Such property management fees included in
property operating expenses amounted to $500,000 for the three months ended
March 31, 1996. Homestead no longer pays a property management fee but instead
directly incurs the cost of property level employees.
 
 Administrative Services Agreement
 
  At the consummation of the Merger Transaction, Homestead and Security
Capital entered into an administrative services agreement (the "Administrative
Services Agreement"), pursuant to which Security Capital provides Homestead
with administrative services with respect to certain aspects of Homestead's
business. These services include, but are not limited to, insurance
administration, accounts payable, internal audit, cash management, human
resources, management information systems, tax and legal administration,
research, shareholder communications and investor relations. The fees payable
to Security Capital are based on Security Capital's cost of the services
provided plus an additional 20%. 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 total fee for the three
months ended March 31, 1997 was $627,000. The Administrative Services
Agreement is for an initial term expiring on December 31, 1997 and will
automatically be renewed for one-year terms, subject to approval by a majority
of the disinterested members of the Homestead Board.
 
NOTE 8--COMMITMENTS AND CONTINGENCIES
 
 Unfunded Development Commitments
 
  At March 31, 1997, Homestead had approximately $174.5 million of unfunded
commitments for developments under construction.
 
 Finder's Agreement
 
  In conjunction with the Merger Transaction, PTR assigned its rights and
obligations pursuant to 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
the payment of fees to Finder as follows: (i) $535,000 annually with respect
to the four properties for which Finder assisted in the location, development
and initial operations; (ii) an annual amount of $7,500 per property (subject
to certain conditions as defined in the agreements) for assistance in site
location with respect to the first 35 properties constructed (other than the
four properties referred to in (i) above); (iii) 20% of the net proceeds as
defined per the agreements, upon the sale of the four properties noted in (i)
above to an unaffiliated third party; and (iv) 10% of the net proceeds as
defined per the agreement, upon the sale of the additional 35 properties to an
unaffiliated third party. No such sales have occurred to date. Effective
December 1994, the agreement to assist in the site location of any additional
properties beyond the 39 properties was terminated. Additionally, Finder
agreed not to compete, directly or indirectly, with the Homestead Village(R)
properties in certain states in which PTR and ATLANTIC do business through
December 31, 1996. Fee expense under this agreement for the three month
periods ended March 31,1997 and 1996 were $177,000 and $158,000 respectively,
which is included in property operating expenses in the accompanying
statements of operations.
 
                                      10
<PAGE>
 
                    INDEPENDENT ACCOUNTANTS' REVIEW REPORT
 
Board of Directors and Shareholders
Homestead Village Incorporated
 
  We have reviewed the accompanying condensed balance sheet of Homestead
Village Incorporated as of March 31, 1997, and the related condensed statement
of operations and condensed statement of cash flows for the three-month period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. We did not make a similar review of the condensed
statement of operations and condensed statement of cash flows for the three-
month period ended March 31, 1996.
 
  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, which will
be performed for the full year, with the objective of expressing 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 accompanying condensed financial statements at March 31,
1997, and for the three-month period then ended for them to be in conformity
with generally accepted accounting principles.
 
  We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Homestead Village Incorporated as of December
31, 1996 and the related statements of operations, shareholders' equity, and
cash flows for the year then ended (not presented herein) and in our report
dated February 24, 1997, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31,1996, is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
 
                                          Ernst & Young LLP
 
Dallas, Texas
May 6, 1997
 
                                      11
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
 
  The following discussion should be read in conjunction with Homestead's
financial statements and the notes thereto in Item 1 of this report.
 
  The statements contained in this discussion and elsewhere in this report
that are not historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
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 certain 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. Homestead
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. 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 and (ii) changes in
financial markets and interest rates that could adversely affect Homestead's
cost of capital and its ability to meets its financing needs and obligations.
 
OVERVIEW
 
  Homestead's operating results are substantially influenced by (i) the demand
for and supply of extended-stay lodging in Homestead's target markets and
submarkets, (ii) revenue and average weekly rate growth, (iii) the
effectiveness of property level operations and (iv) the pace and price at
which Homestead can develop additional extended-stay lodging properties.
Capital and credit market conditions which affect Homestead's cost of capital
may influence future operating results.
 
  Homestead's overall results of operations and financial position are also
significantly influenced by its development activity. As of March 31, 1997,
Homestead has developed, owned and operated 35 Homestead Village properties
representing in the aggregate 4,805 units in 10 cities and had 44 Homestead
Village properties under construction totaling 5,929 units within four of
these cities as well as 18 additional cities. In addition, Homestead owns and
controls through contracts 57 development sites for which it plans to initiate
construction within the next 12 months, for a total of 136 properties in 36
cities. Units operating, under construction or in pre-development planning
aggregate 18,276 units.
 
  Homestead's reported results in the accompanying financial statements are
also affected by certain matters of financial presentation for the mergers
through which Homestead acquired its extended stay lodging business (the
"Mergers"). The merger with the subsidiaries of PTR was accounted for as a
combination of entities under common control in a manner similar to a pooling
of interests, thus the historical financial results of the PTR Subsidiaries
are presented for all periods prior to October 17, 1996 and, as Homestead had
no activities through March 31, 1996, the accompanying financial statements
consist exclusively of the activities of the PTR Subsidiaries for the three
months ended March 31, 1996. The merger of the subsidiaries of ATLANTIC was
accounted for as a purchase, thus the development activities of the
subsidiaries of ATLANTIC are not reflected in the accompanying financial
statements until after the merger closing date. The merger of the subsidiaries
of Security Capital was also accounted for as a purchase, thus the direct
incurrence of the costs of personnel for property management and corporate
management are reflected in financial results only after the merger closing
date.
 
RESULTS OF OPERATIONS
 
 Interim Period Comparison
 
  Net earnings increased $484,000 (46.6%) for the three months ended March 31,
1997 as compared to the same period in 1996. The increase is attributable to
an increase of net property operating income of $3.0 million
 
                                      12
<PAGE>
 
and a decrease in interest expense of $961,000, offset by an increase in
corporate operating expense of $2.7 million and an increase in depreciation
and amortization of $1.0 million.
 
  Homestead's development program was the primary reason for the increase of
$3.0 million of net property operating income with 11 more properties
operating at March 31, 1997 than at March 31, 1996. The decrease in interest
expense is also attributable to the development program as all interest costs
incurred in the first quarter 1997 were capitalized.
 
  The increase of $2.7 million in corporate operating expense, arising from
the post merger change in corporate structure to a stand alone public company,
partially offset the above gains.
 
 Property Operations
 
  The following table sets forth certain information for Homestead's operating
properties for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                                ENDED MARCH 31,
                                                                ---------------
                                                                 1997    1996
                                                                ------- -------
      <S>                                                       <C>     <C>
      Occupancy................................................   76.8%   80.0%
      Average Weekly Rate(1)................................... $249.07 $216.49
      Weekly RevPAR(2)......................................... $191.21 $173.12
      Number of Operating Properties at Quarter End............      35      24
      Property Operating Income Margin.........................   56.6%   47.6%
</TABLE>
--------
(1) Average weekly rate is determined by dividing room revenue by the number
    of guest room days occupied for the period and multiplying by seven.
(2) 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.
 
  Homestead opened 11 properties from the end of the first quarter of 1996
through the end of the first quarter of 1997. These property openings were the
primary reason for the reported operating revenue increase of $4.2 million
(61.4%) for the first three months ended March 31, 1997 as compared to the
same period in 1996. The increase in total operating revenue was also due to
the 15% increase in the average weekly rate of $32.58 in the first quarter of
1997 compared to 1996.
 
  Total property operating expenses increased from $3.6 million to $4.8
million over the same period, an increase of $1.2 million. The increase is
primarily due to an increase in the number of operating properties as noted
above. The increase in property operating expenses was offset by the fact that
in 1997 Homestead was no longer paying a property management fee ($500,000 in
first quarter 1996), but was directly incurring the costs of property
management. Average weekly rate increases noted above, combined with the
decrease in property management fees, were the primary reasons for the
improved property operating income margin of 56.6% in 1997.
 
 Homestead Properties Fully Operating Throughout Both Periods
 
  Homestead had 20 properties, representing 2,755 units that were fully
operational throughout the three months ended March 31, 1997 and 1996. Average
occupancy for such properties during the three months ended March 31, 1997 and
1996 was 74.2% and 83.1%, respectively. Average weekly rate for such
properties during the three months ended March 31, 1997 and 1996 were $245.13
and $215.41, respectively, an increase of 13.8% for the three months ended
March 31, 1997 as compared to the same period in 1996. Similar to the results
for all properties, the property operating income margin for properties fully
operational in both periods improved to 54.7% in first quarter 1997 compared
to 47.5% for first quarter 1996.
 
                                      13
<PAGE>
 
 Corporate Operating Expenses
 
  Corporate operating expenses increased $2.7 million for the three months
ended March 31, 1997 as compared to the same period in 1996. This comparison
is affected by the fact that 1997 corporate expenses reflect a post merger
operating basis while 1996 operations, as described above, consist only of the
corporate costs and REIT management fee allocations from PTR to the PTR
Subsidiaries. The increase is also attributable to the change in corporate
structure from external management to internal management. This change in
structure involves costs associated with operating as a public company,
recruiting, relocation, and personnel expenses and other costs to create a
corporate infrastructure, offset in part by capitalizing costs related to
information technology, and the acquisition, development or improvement of
real estate. Under the new structure, Homestead no longer pays a management
fee to an external manager, but instead directly incurs the cost of corporate
employees. The management agreement terminated at the merger closing date.
 
 Depreciation and Amortization
 
  Depreciation and amortization increased $1 million (110.9%) for the three
months ended March 31, 1997 as compared to the same period in 1996.
Depreciation of the cost of properties and improvements is calculated using
the straight-line method over the estimated useful lives of the assets.
Depreciation expense increased approximately $676,000 (78.7%) for the three
months ended March 31, 1997 as compared to the same period in 1996. The
increase is due primarily to new properties open for the three months ended
March 31, 1997 as compared to the same period in 1996. Homestead also recorded
$276,000 in amortization expense for the first three months ended March 31,
1997 as a result of the amortization of the Homestead Village trademark and
other intangibles acquired in the Mergers.
 
 Interest Income
 
  Interest income of $146,000 for the three months ended March 31, 1997 was a
result of interest earned from investment of excess cash on hand.
 
 Interest Cost
 
  Total interest cost incurred (interest before consideration of interest
costs capitalized for the period) increased $1.8 million (118.7%) for the
three months ended March 31, 1997 as compared to the same period in 1996. The
increase is due to the increase in investments in operating and under
construction properties and the corresponding increase in convertible mortgage
notes payable. Total interest cost incurred was offset by an increase in
capitalized interest of $2.8 million in the three month period ended March 31,
1997 over the same period in 1996. This increase in capitalized interest is
the result of Homestead's increased development activity.
 
ENVIRONMENTAL MATTERS
 
  Homestead is not aware of any environmental condition on its properties 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.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  As of March 31, 1997 Homestead had invested approximately $312 million for
the acquisition and development of Homestead Village properties, 35 of which
were operating, 44 of which were under construction and 5 of which were in
planning and owned. Homestead had unfunded development commitments for
properties under construction of approximately $174.5 million. The total
expected future investment to develop properties in planning and owned as of
March 31, 1997 was approximately $28.5 million.
 
  Of the properties in operation, properties under construction and properties
in planning and owned at March 31, 1997, 75 were acquired from PTR and
ATLANTIC in the Mergers. Homestead also acquired in the Mergers the rights
from PTR and ATLANTIC to develop 5 additional properties which are in planning
and under control.
 
                                      14
<PAGE>
 
Homestead has financed and expects to finance the remaining construction,
development and land acquisitions for all of the properties it received from
PTR and ATLANTIC with the proceeds of convertible mortgage loans made under
the Funding Commitment Agreements from PTR and ATLANTIC. At March 31, 1997
approximately $81 million and $91 million remaining funding commitments are
available from PTR and ATLANTIC, respectively. Management expects the funding
commitments to be adequate to complete development of such properties.
 
  Homestead had 52 properties in planning and under control at March 31, 1997
in addition to the 5 properties described above. Homestead expects to finance
future construction, development and land acquisitions by exercise of warrants
by Security Capital pursuant to the Security Capital Investor Agreement
(approximately $29 million available as of March 31, 1997), possible exercise
of warrants by warrant holders ($38.2 million outstanding at March 31, 1997),
available cash, cash from a line of credit with Commerzbank AG and/or future
securities offerings.
 
  The line of credit entered into on May 6, 1997 will facilitate an efficient
response to market opportunities while minimizing the amount of cash invested
in short-term investments at lower yields. The line of credit provides for
borrowings of up to $50 million (subject to collateral requirements), will
bear interest at the Eurodollar rate plus 2.5% per annum, matures May 1998,
and may be extended with lender approval. At May 12, 1997 no amounts had been
borrowed under the line.
 
  The Board of Directors has established a policy of retaining earnings to
finance Homestead's growth and for general corporate purposes and, therefore,
does not anticipate paying a cash dividend in the foreseeable future.
 
 Operating Activities
 
  Net cash flow provided by operating activities increased by $880,000 (39%)
for the three months ended March 31, 1997 as compared to the same period in
1996. The increase is due primarily to Homestead property openings as
described under "--Results of Operations" as well as improvements in average
weekly rates.
 
 Investing and Financing Activities
 
  During the three months ended March 31, 1997, Homestead invested $45.5
million in Homestead properties. During the first three months of 1996,
Homestead invested $16.5 million in Homestead properties. The amounts invested
in the first quarter of 1997 were financed primarily from the proceeds of
convertible mortgage loans from PTR and ATLANTIC and additionally by proceeds
from Security Capital's exercise of Homestead warrants. The amounts invested
in the first quarter of 1996 were financed primarily by intercompany
borrowings by the PTR Subsidiaries from PTR.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) EXHIBITS
 
<TABLE>
     <C>       <S>
     10.1      $50,000,000 Credit Agreement among Homestead Village
               Incorporated, the Lenders named therein, and Commerzbank AG, New
               York Branch, as Agent for the Lenders dated as of May 6, 1997.
     15        Letter from Ernst & Young LLP regarding unaudited interim
               financial information
     27        Financial Data Schedule
</TABLE>
 
  (b) No reports on Form 8-K were filed during this period.
 
 
                                      15
<PAGE>
 
                                   SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                          Homestead Village Incorporated
 
                                                 /s/ Robert E. Clark
                                          -------------------------------------
                                                     Robert E. Clark
                                             Vice President (Duly Authorized
                                            Officer), Treasurer and Controller
                                           (Principal Financial and Accounting
                                                         Officer)
 
Date: May 13, 1997
 
                                       16