<PAGE>

===============================================================================
                          UNITED STATES SECURITIES AND
                               EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                               ------------------

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

            X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1998

                                       OR

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                         COMMISSION FILE NUMBER 1-12269
                              --------------------

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

                                    MARYLAND
                          (STATE OR OTHER JURISDICTION
                        OF INCORPORATION OR ORGANIZATION)

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

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

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


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

    Indicate  by check mark  whether  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                    Yes X    No


The number of shares  outstanding of the Registrant's  common stock as of August
13, 1998 was: 38,262,996
================================================================================



<PAGE>





                                HOMESTEAD VILLAGE INCORPORATED
                                      TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                         NUMBER
                                                                                          PAGE
                                                                                        ---------
<S>                                                                                     <C>
PART I.       Condensed Financial Information

    Item 1.   Financial Statements

              Condensed Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997.      3

              Condensed Statements of Operations (unaudited) - Three- and Six-month
              Periods Ended June 30, 1998 and 1997......................................       4

              Condensed Statements of Cash Flows (unaudited) - Six-month Periods Ended
              June 30, 1998 and 1997....................................................       5

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

              Report of Independent Public Accountants..................................      11

    Item 2.   Management's Discussion and Analysis of Financial Condition and Results         12
              of Operations.............................................................

PART II.      Other Information

    Item 4.   Submission of Matters to a Vote of Security Holders.......................      18

    Item 6.   Exhibits and Reports on Form 8-K.........................................       18


</TABLE>
                                       2
<PAGE>




                                HOMESTEAD VILLAGE INCORPORATED

                                   CONDENSED BALANCE SHEETS

                                        (IN THOUSANDS)
<TABLE>
<CAPTION>

                                   ASSETS                                       June 30,   December 31,
                                                                                  1998        1997
                                                                               (UNAUDITED)
                                                                               ----------- -----------
<S>                                                                            <C>         <C>
Current assets:
    Cash and cash equivalents (including restricted cash of $665 in 1998 and
     $657 in 1997)..........................................................  $   14,312   $   2,974
    Accounts receivable, net of allowance of $65 in 1998 and $81 in 1997....       4,222       1,970
    Other current assets....................................................         457         732
                                                                               ----------- -----------
        Total current assets................................................      18,991       5,676
                                                                               ----------- -----------
Property and equipment......................................................     998,182     733,321
Less accumulated depreciation...............................................     (30,148)    (17,824)
                                                                               ----------- -----------
Net investment in property and equipment....................................     968,034     715,497
                                                                               ----------- -----------
Deposits and pursuit costs, including $5,845 of funds with title companies
  for property acquisitions in 1998 and $7,697 in 1997....................        12,081      12,901
  
Deferred loan costs, net of accumulated amortization of $45,514 in 1998 and
  $43,297 in 1997...........................................................       2,800         632
  
Trademark and intangibles, net of accumulated amortization of $2,948 in 1998
  and $1,768 in 1997........................................................       45,520     44,447
  
Other assets................................................................        6,245      4,796
                                                                               ----------- -----------

  Total assets..............................................................   $1,053,671  $ 783,949
                                                                               =========== ===========

                    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Lines of credit.........................................................   $ 178,080   $  96,808
    Development costs payable, including retainage of $17,403 in 1998 and
     $21,966 in 1997........................................................      37,496      34,079
    Due to affiliate........................................................         619         133
    Accrued interest payable to affiliates..................................       2,715       2,540
    Accrued real estate taxes...............................................       4,347       2,900
    Accounts payable and other accrued expenses.............................      10,921       8,882
                                                                               ----------- -----------
        Total current liabilities...........................................     234,178     145,342
Convertible mortgage notes payable to affiliates............................     319,362     301,606
Other long-term liabilities.................................................       8,068       8,070
                                                                               ----------- -----------
        Total liabilities...................................................     561,608     455,018
Commitments and contingencies
Shareholders' equity:
    Common stock,  $.01 par value,  250,000  shares  authorized,  38,263  shares
      issued and outstanding in 1998 and 27,805 shares issued and
      outstanding in 1997...................................................         383         278
    Additional paid-in capital..............................................     474,554     318,667
    Retained earnings.......................................................      18,160      13,098
    Less shares in escrow...................................................          --      (2,253)
    Less deferred compensation..............................................      (1,034)       (859)
                                                                               ----------- -----------
        Total shareholders' equity..........................................     492,063     328,931
                                                                               ----------- -----------
        Total liabilities and shareholders' equity..........................   $1,053,671  $ 783,949
                                                                               =========== ===========


</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 PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                 THREE-MONTH PERIODS         SIX-MONTH PERIODS 
                                                      ENDED                        ENDED
                                                     JUNE 30,                     JUNE 30,
                                          ------------------------------------------------------------
                                               1998           1997            1998         1997
                                              -------        -------         -------      -------
<S>                                       <C>              <C>              <C>           <C>
Revenues:
    Room revenue.......................... $     33,009     $   13,547      $  59,436      $ 24,499
    Other revenue.........................        1,058            409          2,419           544
                                          --------------    -----------     ----------     ---------
        Total revenues....................       34,067         13,956         61,855        25,043
                                          --------------    -----------     ----------     ---------
Operating expenses:
    Property operating expenses...........       14,044          5,562         26,297        10,378
    Corporate operating expenses..........        5,243          4,066         10,022         7,148
    Depreciation and amortization.........        7,472          2,380         13,859         4,192
                                          --------------    ------------    ----------     ---------
        Total operating expenses..........       26,759         12,008         50,178        21,718
                                          --------------    ------------    ----------     ---------
Operating income..........................        7,308          1,948         11,677         3,325

Interest income...........................          215            148            504           293
Interest expense, net of capitalized       
  interest................................       (4,148)            --         (7,119)           --
                                          --------------    ------------    -----------    ---------
Earnings before income taxes..............        3,375          2,096          5,062         3,618
Provision for income taxes................           --             --             --            --
                                          --------------    ------------    -----------    ---------
Net earnings..............................$        3,375    $    2,096      $   5,062      $  3,618
                                          ==============    ============    ===========    =========

Earnings per share:
Weighted average shares outstanding.......       38,263         21,697         37,007        21,082
                                          ==============    ============    ===========    =========
Basic earnings per share..................$        0.09     $    0.10       $    0.14      $   0.17
                                          ==============    ============    ===========    =========
Diluted weighted average shares           
  outstanding.............................       38,263        40,019          37,007        37,621
                                          ==============    ============    ===========    =========
Diluted earnings per share................$        0.09     $    0.05       $    0.14      $   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>

                                                                        SIX-MONTH PERIODS ENDED
                                                                                 JUNE 30,
                                                                        -------------------------
                                                                           1998         1997
                                                                        -----------  ------------
<S>                                                                    <C>           <C> 
Operating activities:
    Net earnings....................................................    $   5,062    $    3,618
    Adjustments  to  reconcile  net  earnings to net cash
     provided by operating activities:
       Depreciation and amortization................................       13,859         4,192
       Deferred compensation........................................          325           234
       Amortization of deferred loan costs..........................        1,711           --
       Amortization of prepaid rent.................................          --            150
    Change in assets and liabilities:
       Increase in accounts receivable..............................       (2,252)       (1,001)
       Decrease (increase) in other current assets..................        1,447           (94)
       Increase (decrease) in accrued real estate taxes.............          274           (97)
       Increase in accrued interest on convertible mortgage notes...          174           815
       Increase in accounts payable and other accrued expenses......        2,040         2,567
       Increase (decrease) in due to affiliate......................          487           (74)
                                                                        -----------  ------------
          Net cash provided by operating activities.................       23,127        10,310
                                                                        -----------  ------------

Investing activities:
       Investment in properties, excluding development costs payable     (260,196)     (132,014)
       Increase in deposits and pursuit costs.......................          821        (3,893)
       Increase in other assets.....................................       (1,804)       (2,298)
                                                                        -----------  ------------
          Net cash used in investing activities.....................     (261,179)     (138,205)
                                                                        -----------  ------------

Financing activities:
       Proceeds from lines of credit................................      181,272           --
       Payments on lines of credit..................................     (100,000)          --
       Deferred loan costs for line of credit.......................       (3,135)         (610)
       Proceeds from convertible mortgage notes payable.............       17,014        93,250
       Proceeds from sale of shares, net of expenses................      154,241           --
       Payments on other long-term liabilities......................           (2)          --
       Repurchase of stock..........................................          --           (126)
       Exercise of warrants for common stock........................          --         38,516
                                                                        -----------  ------------
          Net cash provided by financing activities.................      249,390       131,030
                                                                        -----------  ------------

Net increase in cash and cash equivalents...........................       11,338         3,135
Cash and cash equivalents, beginning of period......................        2,974         7,415
                                                                        -----------  ------------
Cash and cash equivalents, end of period............................    $  14,312    $   10,550
                                                                        ===========  ============
                                                                        
Non-cash investing and financing transactions:

       Increase in property and equipment, and development
         cost payable................................................    $   3,417    $   13,222
                                                                        ===========  ============

       Increase in property and equipment from
         capitalization of loan costs ...............................   $     1,249  $   46,905
                                                                        ===========  ============

       Increase in trademark and intangibles arising from
         release of shares in escrow.................................   $     2,253  $   12,161
                                                                        ===========  ============

       Loan costs resulting from issuance of convertible
         mortgage debt...............................................   $     1,251  $    6,465
                                                                        ===========  ============

       Decrease in deferred tax asset and deferred tax liability.....   $       --   ($   1,657)
                                                                        ===========  ============



</TABLE>



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

<PAGE>




                         HOMESTEAD VILLAGE INCORPORATED
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (UNAUDITED)

NOTE 1--GENERAL

    The financial statements of Homestead Village Incorporated  ("Homestead") as
of June 30, 1998 and for the three and six-month periods ended June 30, 1998 and
1997, are unaudited and certain  information and footnote  disclosures  normally
included  in  financial  statements  have  been  omitted.  While  management  of
Homestead  believes that the disclosures  presented are adequate,  these interim
financial statements should be read in conjunction with the financial statements
and notes included in Homestead's 1997 Annual Report on Form 10-K.

    In  the  opinion  of  management,   the  accompanying   unaudited  financial
statements  contain  all  adjustments,   consisting  only  of  normal  recurring
adjustments,   necessary  for  a  fair  presentation  of  Homestead's  financial
statements for the interim periods presented.  The results of operations for the
three and  six-month  periods  ended June 30, 1998 and 1997 are not  necessarily
indicative of the results to be expected for the full year.

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

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


NOTE 2--PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                               JUNE 30,      DECEMBER 31,
                                                                 1998           1997
                                                             -----------     -----------
                                                             (UNAUDITED)

          <S>                                                <C>             <C> 
          Completed properties:
              Land  .....................................     $   142,624     $    100,118
              Buildings and improvements.................         462,395          329,045
              Furniture, fixtures and equipment..........          78,297           49,773
                                                             -------------   --------------
                                                                  683,316          478,936
          Properties under construction..................         228,182          213,283
          Properties in planning and owned...............          84,092           32,984
          Land held for future development...............            --              1,463
          Land held for sale.............................           2,592            6,655
                                                             -------------    -------------
                  Total..................................        $998,182         $733,321
                                                             =============   ==============
</TABLE>



                                       6
<PAGE>



                         HOMESTEAD VILLAGE INCORPORATED
               NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3--DEBT

  Lines of Credit

     On April 24, 1998 Homestead  renewed its existing  revolving line of credit
facility with  Commerzbank  AG ("CAG"),  as agent for a group of lenders,  for a
one-year  term,  with an increase in total  borrowing  capacity to $150 million,
subject  to  collateral  requirements.  Borrowings  will  bear  interest  at the
Eurodollar  rate  plus 1.5% to 2.5% per  annum,  depending  upon the  percentage
leverage  of  borrowings  outstanding  to the amount of  qualifying  collateral.
Alternatively,  borrowings  will bear  interest  at a base rate  defined  as the
higher of prime  rate plus a margin of 0.5% to 1.5% or the  federal  funds  rate
plus a margin of 1% to 2%, with the margin dependent on the percentage  leverage
of borrowings outstanding to the amount of qualifying collateral.  Additionally,
a  commitment  fee of 0.375% per annum of the average  unfunded  balance will be
owed.

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

     On June 15, 1998 Homestead  entered into an additional $200 million line of
credit  facility with CAG which bears  interest at the  Eurodollar  rate plus 1%
(1.25%  after six months) or at a base rate of prime (prime plus 0.25% after six
months). The average unfunded balance bears a commitment fee of 0.25% per annum.
The line  expires  February  23, 1999.  Homestead  has  obtained a  subscription
agreement  from  Security  Capital for $200  million of  Homestead  subordinated
debentures to secure this obligation. If the subscription is called by Homestead
or Homestead  receives  proceeds from any offering of  securities,  the proceeds
must be used to first  repay  the  lines of  credit  to CAG and  second  to fund
projects under  development  which secure the other CAG credit  facilities.  The
debentures would bear interest at a rate of 0.25% over the rate Homestead incurs
under the $50 million  credit  facility with CAG.  Homestead may  repurchase the
debentures with the proceeds of an equity offering within 90 days of issuance of
the debentures,  otherwise the debentures  convert to Homestead  common stock at
the  lower of the  20-day  average  trading  price  of  Homestead  common  stock
immediately before execution of the subscription agreement or immediately before
the 90th day. The subscription agreement expires the earlier of June 30, 1999 or
two  weeks  after  termination  of  the  $200  million  credit  agreement.   The
subscription  obligation is reduced or terminated to the extent Homestead issues
equity  securities  to any third  party,  or to Security  Capital  pursuant to a
separate  offering and the  proceeds are used to repay this credit  facility and
any remaining  proceeds are used to fund projects under development which secure
the other CAG credit facilities. In conjunction with Security Capital's entering
into the subscription  agreement,  Homestead agreed to pay an arrangement fee to
Security  Capital of $600,000 of which  $200,000 was paid upon  execution of the
subscription agreement, $200,000 was paid in July 1998, and the remainder is due
in August 1998.

     The  CAG  lines  require   maintenance  of  certain  financial   covenants,
specifically,  aggregate  indebtedness of no more than 55% of gross asset value,
as defined, or indebtedness secured by a lien of no more than 50% of gross asset
value, as defined,  in each case excluding  indebtedness  outstanding  under the
credit agreement  entered into on June 15, 1998.  Homestead must also maintain a
minimum debt service coverage ratio of earnings before  interest,  income taxes,
depreciation,  amortization  and gains or losses on sales of assets to cash debt
service,  as defined,  of no less than 1.25 to 1 for the second quarter of 1998,
and,  including the $200 million  facility,  no less than 1.4 to 1 for third and
fourth  quarters 1998 and 1.5 to 1 for first quarter of 1999,  and excluding the
$200 million  facility,  no less than 1.5 to 1 for third quarter 1998,  1.6 to 1
for fourth  quarter  1998,  and no less than 1.75 to 1 thereafter on a quarterly
basis,  and  not  allow  stockholders  equity  to be  less  than  $325  million.
Additionally, Homestead will not enter into any commitment for purchases of land
or construction of projects if such obligations  exceed the available  borrowing
capacity  under all of the lines and  internally  generated  excess  funds.  The
covenants also restrict payment of dividends without lender approval.  Homestead
was in compliance with all such covenants as of June 30, 1998.


                                       7
<PAGE>

                         HOMESTEAD VILLAGE INCORPORATED
               NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)


     Subsequent  to June 30,  1998 the  lines of  credit  covenant  ratios  were
amended in  conjunction  with  Homestead  entering  into the new  mortgage  note
(described  below). As amended,  Homestead may incur  indebtedness  secured by a
lien up to 55% of gross  asset  value  through  the  earlier of the date the new
mortgage  note is repaid or  October  1, 1998 or, if the $200 line of credit has
been  repaid,  until the earlier of June 30,  1999 or the date the new  mortgage
note is repaid.  Further, until the earlier of June 30, 1999 or the date the new
mortgage  note is  repaid,  the debt  service  coverage  ratio,  including  debt
outstanding under the $200 million facility,  is required to be no less than 1.3
to 1 for third and fourth  quarters 1998 and 1.4 to 1 for first quarter of 1999,
and excluding the $200 million facility, is required to be no less than 1.3 to 1
for third quarter 1998,  1.4 to 1 for fourth  quarter 1998, and no less than 1.6
to 1 for the first quarter of 1999.

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

    Convertible Mortgage Notes Payable

     At June 30, 1998  Homestead  owed  convertible  mortgage  notes to Security
Capital Pacific Trust ("PTR"),  an affiliate,  of  $221,333,620  and to Security
Capital Atlantic Incorporated  ("ATLANTIC"),  an affiliate, of $98,028,471.  The
notes are  collateralized  by Homestead  properties (54 Homestead  properties at
$357  million of  historical  cost  mortgaged to PTR and 26  properties  at $221
million of historical  cost  mortgaged to ATLANTIC at June 30, 1998).  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. 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  shares  of  Homestead  common  stock at a
conversion  ratio  equal to one  share of  common  stock  for  every  $11.50  of
principal  amount  outstanding.  Deferred  financing  costs and the  premium and
discount on the  respective  fundings  have been fully  amortized as of June 30,
1998.

     On July 6, 1998,  the ATLANTIC  notes were amended and restated (see below)
and  ATLANTIC  assigned  its  interest in the  mortgage  notes to Merrill  Lynch
Mortgage  Capital Inc ("MLMC").  On July 7, 1998,  ATLANTIC merged with and into
PTR, which  continued in existence  under the name Archstone  Communities  Trust
("Archstone"). Archstone continues to hold the $221 million convertible mortgage
notes  originally  held by PTR which  continue to have the same terms as at June
30, 1998.

    New Mortgage Note

     On July 6, 1998,  Homestead entered into a mortgage loan purchase agreement
with ATLANTIC and MLMC whereby the $98 million of Homestead convertible mortgage
notes held by ATLANTIC  were modified to, among other  things,  eliminate  their
convertibility feature in exchange for a payment of $21.4 million from Homestead
to ATLANTIC.  Homestead  funded the payment with the proceeds  received from the
sale of $24 million of 7.5% convertible subordinated  debentures.  Also pursuant
to the mortgage loan purchase agreement ATLANTIC sold such amended notes to MLMC
for $98  million.  On August 7, 1998,  Homestead  converted  the $98  million of
mortgage notes and the $24 million of 7.5% convertible  subordinated  debentures
into a $122 million  mortgage of a newly formed  special  purpose  subsidiary of
Homestead. The $122 million mortgage note matures June 30, 1999 and provides for
interest only monthly  payments of LIBOR plus 1.70% through  September 30, 1998,
LIBOR plus 2.0% through November 30, 1998, and LIBOR plus 2.25% thereafter. MLMC
has mutually  exclusive  extension  rights to either give notice by December 15,
1998 to extend the maturity of the  mortgage  note to June 30, 2001 (the "2 Year
Extension Notice") or give notice by June 10, 1999 to extend the maturity of the
mortgage note to at least June 30, 2006 or as late as June 30, 2009 (the "7 - 10
Year Extension Notice"). If extended,  the note will bear interest at LIBOR plus
2.5% (3.5% if the collateral properties do not generate net operating income, as
defined, of $18 million for the year ended June 30, 1999).  Homestead may prepay
the  mortgage  note in whole or in part prior to June 30, 1999 or, if the 2 Year
Extension Notice is given,  Homestead may prepay in whole or in part by June 30,
2001.

                                       8

<PAGE>



                         HOMESTEAD VILLAGE INCORPORATED
               NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)


     The  transaction  results  in an  extinguishment  of debt  measured  as the
difference  between the $98 million  carrying  amount of the  original  mortgage
notes  to  ATLANTIC  and the  amount  paid to  extinguish  the  debt,  including
transaction  costs. Such loss on extinguishment of debt approximates $25 million
and will be recorded as an extraordinary item in third quarter 1998.

     The  elimination  of the conversion  option  attached to the mortgage notes
reduces   Homestead's   contingently   issuable   shares  of  common   stock  by
approximately 8.5 million shares.

   Interest

    Homestead  incurred total interest cost of $20,816,000  and  $52,450,000 for
the  six-month  periods  ended June 30,  1998 and 1997,  respectively,  of which
$13,697,000 and $52,450,000  were capitalized,  respectively.  Interest paid in
cash in the six-month  periods ended June 30, 1998 and 1997 was  $17,054,000 and
$6,147,000, respectively.


NOTE 4--SHAREHOLDERS' EQUITY

  Rights Offering

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

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

   Per Share Data

    On December 31, 1997 Homestead adopted Financial  Accounting Standards Board
Statement  No.  128,   Earnings  per  Share  ("SFAS  128"),   which  requires  a
presentation  of basic  earnings per share,  calculated by dividing net earnings
available to common  shareholders by weighted average common shares  outstanding
and a  presentation  of diluted  earnings  per  share,  calculated  by  dividing
adjusted  earnings  available  to common  shareholders,  assuming  dilution,  by
adjusted weighted average common shares outstanding. Adjusted earnings available
for common  shareholders  adds back all net interest  expense  from  convertible
mortgage  notes.  Adjusted  weighted  average  shares  outstanding  includes the
dilutive  effect of options and warrants using the treasury stock method and the
dilutive  effect of the  convertible  mortgage notes. In the three and six-month
period ended June 30, 1998 the effect of  assumption  of the  conversion  of the
convertible  mortgages is anti-dilutive and thus basic earnings per share is the
most dilutive result. In the three and six-month periods ended June 30, 1997 the
restatement  of earnings per share  required by SFAS 128 resulted in an increase
of $0.01 and  $0.02,  respectively  in basic  earnings  per share from the prior
presentation  and no  change  in  diluted  earnings  per  share  from the  prior
presentation.


NOTE 5--INCOME TAXES

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

                                       9
<PAGE>

    At June 30, 1998,  Homestead had, for federal income tax reporting purposes,
estimated net operating loss carry forwards of approximately $33,100,000,  which
expire $4,200,000 in the year 2011, $15,900,000 in the year 2012 and $13,000,000
in the year 2018.


NOTE 6--ADMINISTRATIVE SERVICES AGREEMENT

     Homestead and Security Capital have an  administrative  services  agreement
(the "Administrative  Services  Agreement"),  pursuant to which Security Capital
provides Homestead with administrative  services with respect to certain aspects
of  Homestead's  business.  These  services  include,  but are not  limited  to,
insurance administration,  accounts payable administration, internal audit, cash
management,  human  resources,  management  information  systems,  tax and legal
administration, research, shareholder communications and investor relations. The
fees payable to Security  Capital are based on  identifiable  costs  incurred by
Security  Capital  on  behalf  of  Homestead  plus  20% to cover  overhead.  Any
arrangements  under the  Administrative  Services Agreement for the provision of
services  are  required  to be  commercially  reasonable  and on terms  not less
favorable  than those which could be obtained from  unaffiliated  third parties.
Total administrative services fees for the six-month periods ended June 30, 1998
and 1997  were  $1,897,000  and  $1,080,000,  respectively.  The  Administrative
Services Agreement, which expires December 31, 1998, is renewable for a one-year
term,  subject to  approval  by a  majority  of the  independent  members of the
Homestead Board.

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


NOTE 7--COMMITMENTS AND CONTINGENCIES

   Unfunded Development Commitments

    At June 30,  1998,  Homestead  had  approximately  $153  million of unfunded
commitments for developments under construction.

  Finder's Agreement

    Homestead has a series of agreements with an unaffiliated  person ("Finder")
who developed the Homestead  Village concept and has performed certain services.
The agreements which expire February 5, 2043,  provide for payments to Finder as
follows:  (i) $535,000  annually with respect to the four  properties  for which
Finder  assisted in the location,  development and initial  operations;  (ii) an
annual amount of $7,500 per property  (subject to certain  conditions as defined
in the  agreements) for assistance in site location with respect to the first 35
properties  constructed  (other  than the  four  properties  referred  to in (i)
above);  (iii) 20% of the net proceeds as defined per the  agreements,  upon the
sale of the four properties  noted in (i) above to an unaffiliated  third party;
and (iv) 10% of the net proceeds as defined per the agreements, upon the sale of
the additional 35 properties to an unaffiliated  third party. No such sales have
occurred to date.  Total  payments  under  these  agreements  for the  six-month
periods ended June 30, 1998 and 1997 were $367,000 and $344,000, respectively.

                                       10
<PAGE>







                           REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Homestead Village Incorporated:


    We have made a review of the  accompanying  condensed  consolidated  balance
sheet  of  Homestead   Village   Incorporated  (a  Maryland   corporation)   and
subsidiaries  as of  June  30,  1998  and  the  related  condensed  consolidated
statements of operations for the three and six-month periods ended June 30, 1998
and the related condensed consolidated statement of cash flows for the six-month
period ended June 30, 1998. These financial statements are the responsibility of
the Company's management.

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

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

    We have previously  audited,  in accordance with generally accepted auditing
standards,  the consolidated balance sheet of Homestead Village Incorporated and
subsidiaries  as of December 31, 1997, and in our report dated January 30, 1998,
we expressed an unqualified  opinion on that balance sheet. In our opinion,  the
information set forth in the accompanying  condensed  consolidated balance sheet
as of December 31, 1997 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
August 7, 1998


                                       11
<PAGE>







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

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

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


OVERVIEW

     Homestead's  overall  results of  operations  and  financial  position  are
significantly  influenced  by its  development  activity.  During the  six-month
period ended June 30, 1998,  Homestead  started  construction  on 10  properties
consisting of 1,243 rooms and completed 22 properties consisting of 2,877 rooms.
As of June 30, 1998,  Homestead  has completed 93 Homestead  Village  properties
representing  in the  aggregate  12,551  rooms in 31 cities and had 38 Homestead
Village  properties under  construction  totaling 4,989 rooms within 14 of these
cities as well as 6 additional cities. In addition,  Homestead owns 12 sites and
controls through  contracts 25 development  sites for which it plans to initiate
construction  within  the next 12  months,  and 11  development  sites for which
earnest money is on deposit but it plans to start  construction  beyond the next
12 months,  for a total of 179 properties in 40 cities.  Rooms completed,  under
construction or in pre-development planning aggregate 24,377 rooms.

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


RESULTS OF OPERATIONS

   Interim Period Comparison

    Net earnings  increased  $1,279,000 (61.0%) for the three-month period ended
June 30, 1998 as compared  to the same period in 1997 and  increased  $1,444,000
(39.9%)  for the  six-month  period  ended June 30, 1998 as compared to the same
period in 1997.  These increases are primarily  attributable to increases in net
property operating income offset by increases in net interest expense, corporate
operating expenses, and depreciation and amortization. A discussion of the major
components of net earnings follows.

                                       12
<PAGE>




  Property Operations

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

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED      SIX MONTHS ENDED
                                                            JUNE 30,               JUNE 30,
                                                      ---------------------- ----------------------
                                                         1998       1997        1998       1997
                                                         ----       ----        ----       ----
          <S>                                           <C>        <C>         <C>        <C>  
          Weekly RevPAR(1)...........................    $217       $199        $210       $196
          Average Weekly Rate(2).....................    $302       $254        $293       $252
          Occupancy..................................   72.0%      78.3%       71.6%      77.6%
          Number of Operating Properties at
            Period End...............................      93         42          93         42
          Property Operating Income Margin...........   58.8%      59.5%       57.1%      58.2%
----------


<FN>

(1) RevPAR is  determined  by dividing  room revenue by the number of guest room
    days available for the period and multiplying by seven.

(2)  Average weekly rate is determined by dividing room revenue by the number of
     guest room days occupied for the period and multiplying by seven.
</FN>
</TABLE>

    Homestead's  58 property  openings from the end of the first quarter of 1997
through the end of the second  quarter of 1998 were the  primary  reason for the
reported  room revenue  increase of $34.9  million for the six months ended June
30, 1998 as compared to the same period in 1997.  The  increase in room  revenue
was also due in part to an  increase  in the weekly  RevPAR of $14 (7.1%) in the
six months ended June 30, 1998 compared to 1997.

    Total  property  operating  expenses  increased  from $10.4 million to $26.3
million  over the same period,  an increase of $15.9  million for the six months
ended June 30, 1998.  The increase is due primarily to an increase in the number
of operating  properties as noted above.  Homestead's  property  openings in the
latter part of 1997 and through the second  quarter 1998 were the primary reason
for the slight decrease in property operating income margin to 57.1% as such new
openings were in their lease up phase during parts of the six-month period ended
June 30, 1998.

  Homestead Stabilized, Comparable Properties

    Homestead had 31 properties  which were stabilized and operating in both the
six-month  periods  ended June 30, 1998 and 1997.  All but 9 of such  comparable
properties  are located in Texas.  RevPAR for the six months ended June 30, 1998
for these  properties  increased  to $205 from $198 for the same period in 1997.
The RevPAR increase was due primarily to an increase in average weekly rates for
such  properties  to $265 from $246,  respectively,  an  increase  of 7.7%.  The
increase  in RevPAR due to rate  increases  was offset in part to a decrease  in
occupancy to 77.5% from 80.6% for the first half of 1998 as compared to the same
period in 1997. Property operating margins decreased for the six-month period to
56.8% in 1998 versus 57.4% in 1997 due to  increased  local  advertising  costs,
increased costs for new security  services,  and, most  significantly,  one-time
additional costs in first quarter of 1998 for the use of Homestead  personnel in
returning rooms to service which had been out of service for refurbishment.

   Stabilized Properties Operations

    The 64 stabilized  properties showed improved operating performance over the
31  stabilized  properties  for the  six-month  period  ended  June 30,  1998 as
compared  to the same  period  in 1997 with a 12.1%  increase  in RevPAR to $222
(from $198 for the  six-month  period  ended June 30,  1997) and an  increase in
property  operating  income margin to 58.4% from 57.4%.  These  improvements are
primarily  attributable to a 17.1% increase in the average weekly rate offset in
part by a decrease in occupancy to 76.9% from 80.6%.

                                       13
<PAGE>




  Corporate Operating Expenses

    Corporate  operating expense increased $2.9 million for the six-month period
ended June 30,  1998 as compared  to the same  period in 1997.  The  increase is
attributed to the  continued  growth of the company since the first half of 1997
when Homestead was still in the process of developing a corporate infrastructure
in  support  of a rapidly  growing  entity  and  includes  costs for  additional
personnel in operations, development, marketing and finance.

  Depreciation and Amortization

    Depreciation  and  amortization  increased  $9.7  million for the six months
ended June 30, 1998 as compared to the same period in 1997.  Depreciation of the
cost of properties and improvements is provided using the  straight-line  method
over the estimated useful lives of the assets.  Depreciation  expense (exclusive
of amortization)  increased  approximately $9.1 million for the six-month period
ended June 30, 1998 as compared to the same period in 1997 due to new properties
open for the six-month period ended June 30, 1998 as compared to the same period
in 1997.

    Amortization  expense increased $555,000 for the six-month period ended June
30, 1998 as compared to the same period in 1997.  The  increase  was a result of
the amortization of the Homestead Village trademark and other intangibles.

  Interest Income

    Interest  income of  $504,000  for the six months  ended June 30, 1998 was a
result of interest earned from investment of excess cash on hand.

  Interest Cost

     Homestead's gross interest cost includes amortization of non-cash financing
costs  arising from the issuance of warrants used to obtain the  commitment  for
the  convertible  mortgage  notes  financing  and the  differential  between the
conversion  price of the mortgage notes and the merger date value of Homestead's
common stock.  Exclusive of such  amortized  amounts  Homestead's  interest cost
(comprised of interest on the mortgages,  amortization of premiums and discounts
on the mortgages,  interest on its lines of credit borrowings,  and amortization
of deferred  financing costs paid to obtain the lines of credit)  increased $2.7
million  for the  six-month  period  ended June 30, 1998 as compared to the same
period in 1997.  The increase is due to the increase in investments in operating
and  under  construction  properties  and  the  corresponding  increase  in  the
convertible  mortgage notes payable and the line of credit  borrowings  (used to
finance the increase in  investments)  for the  six-month  period ended June 30,
1998 as compared to the same period in 1997.

    Homestead's  total interest  cost,  including the  amortization  of non-cash
mortgage  financing  costs  described  above,  decreased  $31.6  million for the
six-month  period ended June 30, 1998  compared to the same period in 1997.  The
decrease was due to the greater  amortization  of the non-cash  financing  costs
associated with the mortgages in 1997 versus 1998.  Total interest  incurred was
offset by capitalization  of interest  resulting in net interest expense of $7.1
million  and none for the  six-month  periods  ended  June  30,  1998 and  1997,
respectively.  This  increase in net  interest  expense in 1998 over 1997 is the
result of  increases  in total debt  relative to the amount of  construction  in
process.


ENVIRONMENTAL MATTERS

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


                                       14
<PAGE>




LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 1998  Homestead had 38  properties  under  construction,  12
additional sites owned, and 25 sites under contractual  control with acquisition
and  construction  starts  expected to occur  within  twelve  months.  Homestead
intends to pursue  additional  sites for  acquisition  and development in future
periods.

     Unfunded  development  commitments for properties under  construction as of
June 30, 1998  approximate $153 million.  Expected future  investment to develop
the  properties  owned as of June 30, 1998 is  approximately  $198 million.  The
estimated  total   investment  to  acquire  and  develop  the  properties  under
contractual control approximates $283 million.

     In January 1998 Homestead  completed a $156.4 million Rights Offering under
its  currently  effective  $300  million  common  stock shelf  registration  and
realized net proceeds of approximately $154.2 million.  Rights Offering proceeds
of $100 million were used to repay all  borrowings  under  Homestead's  lines of
credit  and the  remaining  net  proceeds  were  used for land  acquisition  and
development  costs.  Homestead has re-borrowed $178.1 million under its lines of
credit as of June 30, 1998,  leaving  $221.9  million  capacity under the lines,
subject to collateral requirements.

     Resources to fund Homestead's  development program consist of its remaining
capacity on its revolving  line of credit  facilities,  and, to a lesser extent,
cash from operations in excess of operating  needs.  In addition,  Homestead has
remaining   approximately   $144   million  of  common  stock  under  its  shelf
registration  statement which, if Homestead sought to issue such stock, would be
issued at such time, amount and price as set forth at the time of the offering.

     On April 24, 1998 Homestead  renewed its existing  revolving line of credit
facility with  Commerzbank  AG ("CAG"),  as agent for a group of lenders,  for a
one-year  term,  with an increase in total  borrowing  capacity to $150 million,
subject  to  collateral  requirements.  Borrowings  will  bear  interest  at the
Eurodollar  rate  plus 1.5% to 2.5% per  annum,  depending  upon the  percentage
leverage  of  borrowings  outstanding  to the amount of  qualifying  collateral.
Alternatively,  borrowings  will bear  interest  at a base rate  defined  as the
higher of prime  rate plus a margin of 0.5% to 1.5% or the  federal  funds  rate
plus a margin of 1% to 2%, with the margin dependent on the percentage  leverage
of borrowings outstanding to the amount of qualifying collateral.  Additionally,
a  commitment  fee of 0.375% per annum of the average  unfunded  balance will be
owed.

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

     On June 15, 1998 Homestead  entered into an additional $200 million line of
credit  facility with CAG which bears  interest at the  Eurodollar  rate plus 1%
(1.25%  after six months) or at a base rate of prime (prime plus 0.25% after six
months). The average unfunded balance bears a commitment fee of 0.25% per annum.
The line  expires  February  23, 1999.  Homestead  has  obtained a  subscription
agreement  from  Security  Capital for $200  million of  Homestead  subordinated
debentures to secure this obligation. If the subscription is called by Homestead
or Homestead  receives  proceeds from any offering of  securities,  the proceeds
must be used to first  repay  the  lines of  credit  to CAG and  second  to fund
projects under  development  which secure the other CAG credit  facilities.  The
debentures would bear interest at a rate of 0.25% over the rate Homestead incurs
under the $50 million  credit  facility with CAG.  Homestead may  repurchase the
debentures with the proceeds of an equity offering within 90 days of issuance of
the debentures,  otherwise the debentures  convert to Homestead  common stock at
the  lower of the  20-day  average  trading  price  of  Homestead  common  stock
immediately before execution of the subscription agreement or immediately before
the 90th day. The subscription agreement expires the earlier of June 30, 1999 or
two  weeks  after  termination  of  the  $200  million  credit  agreement.   The
subscription  obligation is reduced or terminated to the extent Homestead issues
equity  securities  to any third  party,  or to Security  Capital  pursuant to a
separate  offering and the  proceeds are used to repay this credit  facility and
any remaining  proceeds are used to fund projects under development which secure
the other CAG credit facilities. In conjunction with Security Capital's entering
into the subscription  agreement,  Homestead agreed to pay an arrangement fee to
Security  Capital of $600,000 of which  $200,000 was paid upon  execution of the
subscription agreement, $200,000 was paid in July 1998, and the remainder is due
in August 1998.
                                       15
<PAGE>

     The  CAG  lines  require   maintenance  of  certain  financial   covenants,
specifically,  aggregate  indebtedness of no more than 55% of gross asset value,
as defined, or indebtedness secured by a lien of no more than 50% of gross asset
value,  as defined, in each case  excluding indebtedness  outstanding  under the
credit agreement  entered into on June 15, 1998.  Homestead must also maintain a
minimum debt service coverage ratio of earnings before  interest,  income taxes,
depreciation,  amortization  and gains or losses on sales of assets to cash debt
service,  as defined,  of no less than 1.25 to 1 for the second quarter of 1998,
and,  including the $200 million  facility,  no less than 1.4 to 1 for third and
fourth  quarters 1998 and 1.5 to 1 for first quarter of 1999,  and excluding the
$200 million  facility,  no less than 1.5 to 1 for third quarter 1998,  1.6 to 1
for fourth  quarter  1998,  and no less than 1.75 to 1 thereafter on a quarterly
basis,  and  not  allow  stockholders  equity  to be  less  than  $325  million.
Additionally, Homestead will not enter into any commitment for purchases of land
or construction of projects if such obligations  exceed the available  borrowing
capacity  under all of the lines and  internally  generated  excess  funds.  The
covenants also restrict payment of dividends without lender approval.  Homestead
was in compliance with all such covenants as of June 30, 1998.

     Subsequent  to June 30,  1998 the  lines of  credit  covenant  ratios  were
amended in  conjunction  with  Homestead  entering  into the new  mortgage  note
(described  below). As amended,  Homestead may incur  indebtedness  secured by a
lien up to 55% of gross  asset  value  through  the  earlier of the date the new
mortgage  note is repaid or  October  1, 1998 or, if the $200 line of credit has
been  repaid,  until the earlier of June 30,  1999 or the date the new  mortgage
note is repaid.  Further, until the earlier of June 30, 1999 or the date the new
mortgage  note is  repaid,  the debt  service  coverage  ratio,  including  debt
outstanding under the $200 million  facility,  is amended to be no less than 1.3
to 1 for third and fourth  quarters 1998 and 1.4 to 1 for first quarter of 1999,
and excluding the $200 million facility,  is amended to be no less than 1.3 to 1
for third quarter 1998,  1.4 to 1 for fourth  quarter 1998, and no less than 1.6
to 1 for the first quarter of 1999.

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

     On July 6, 1998,  Homestead entered into a mortgage loan purchase agreement
with ATLANTIC and MLMC whereby the $98 million of Homestead convertible mortgage
notes held by ATLANTIC  were modified to, among other  things,  eliminate  their
convertibility feature in exchange for a payment of $21.4 million from Homestead
to ATLANTIC.  Homestead  funded the payment with the proceeds  received from the
sale of $24 million of 7.5% convertible subordinated  debentures.  Also pursuant
to the mortgage loan purchase agreement ATLANTIC sold such amended notes to MLMC
for $98  million.  On August 7, 1998,  Homestead  converted  the $98  million of
mortgage notes and the $24 million of 7.5% convertible  subordinated  debentures
into a $122 million  mortgage of a newly formed  special  purpose  subsidiary of
Homestead. The $122 million mortgage note matures June 30, 1999 and provides for
interest only monthly  payments of LIBOR plus 1.70% through  September 30, 1998,
LIBOR plus 2.0% through November 30, 1998, and LIBOR plus 2.25% thereafter. MLMC
has mutually  exclusive  extension  rights to either give notice by December 15,
1998 to extend the maturity of the  mortgage  note to June 30, 2001 (the "2 Year
Extension Notice") or give notice by June 10, 1999 to extend the maturity of the
mortgage note to at least June 30, 2006 or as late as June 30, 2009 (the "7 - 10
Year Extension Notice"). If extended,  the note will bear interest at LIBOR plus
2.5% (3.5% if the collateral properties do not generate net operating income, as
defined, of $18 million for the year ended June 30, 1999).  Homestead may prepay
the  mortgage  note in whole or in part prior to June 30, 1999 or, if the 2 Year
Extension Notice is given,  Homestead may prepay in whole or in part by June 30,
2001.

     The  transaction  results  in an  extinguishment  of debt  measured  as the
difference  between the $98 million  carrying  amount of the  original  mortgage
notes  to  ATLANTIC  and the  amount  paid to  extinguish  the  debt,  including
transaction  costs. Such loss on extinguishment of debt approximates $25 million
and will be recorded as an extraordinary item in third quarter 1998.


                                       16
<PAGE>

     Extinguishment   of  the   convertible   mortgage   loan  to  ATLANTIC  and
establishment of the new mortgage loan reduces Homestead's contingently issuable
shares by approximately 8.5 million shares.

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

  Operating Activities

    Net cash flow  provided by operating  activities  increased by $12.8 million
for the six months ended June 30, 1998 as compared to 1997.  The  increases  are
due  primarily  to the  growing  number of  Homestead  operating  properties  as
described under "Results of Operations" as well as improvements in operations.

  Investing Activities

    During  the six  months  ended June 30,  1998 and 1997,  Homestead  invested
$260.2  million  and  $132.0  million,   respectively,   in  Homestead   Village
properties.  The  amounts  invested  in the six months  ended June 30, 1998 were
financed  primarily from proceeds from  borrowings  under the line of credit and
proceeds from the Rights Offering.  The amounts invested in the six months ended
June 30, 1997 were financed primarily from the proceeds of convertible  mortgage
loans from PTR and ATLANTIC and proceeds from exercise of warrants.


                                       17
<PAGE>






ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Shareholders held on May 27, 1998, shareholders elected
Michael D. Cryan to office as a Class I Director with 35,648,952 shares voted in
favor and 99,099 shares withheld.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


    (a)        Exhibits:

     10.1 Second  Amendment to Credit  Agreement and Other Loan Documents  Among
          Homestead  Village  Incorporated,   the  Lenders  Named  Therein,  and
          Commerzbank AG, New York Branch,  as Agent for the Lenders dated as of
          April 24,  1998

     10.2 $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 April 24, 1998

     10.3 $200,000,000  Credit Agreement Among Homestead  Village  Incorporated,
          the Lenders Named Therein,  and  Commerzbank  AG, New York Branch,  as
          Agent for the Lenders dated as of June 15, 1998

     10.4 Subscription Agreement Between Security Capital Group Incorporated and
          Homestead Village Incorporated

     10.5 Homestead Village Incorporated  Convertible Subordinated Debenture Due
          December 31, 1999

     15   Letter regarding unaudited interim financial information

     27   Financial Data Schedule

     (b) No reports were filed during this period on Form 8-K.




<PAGE>




                                          SIGNATURES

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


                                       HOMESTEAD VILLAGE INCORPORATED



                                            /S/   ROBERT C. ALDWORTH
                                       ---------------------------------------
                                       Robert C. Aldworth, Senior Vice President
                                       And Chief Financial Officer
                                       (Principal Financial Officer)



                                            /S/   BRYAN J. FLANAGAN
                                       ---------------------------------------
                                       Bryan J. Flanagan, Senior Vice President
                                       And Controller
                                       (Principal Accounting Officer)

Date:  August 13, 1998