In its press release issued March 15, 1999, the company stated that it anticipated first quarter EBITDA of between $17 million and $18 million. Subsequent to the March 15 release, management determined that it would be necessary to reduce the amount of costs that were capitalized because of the rapid decline in development activity resulting from the shortage of capital affecting the extended stay industry. The shortfall in first quarter reported EBITDA is attributable primarily to expensing approximately $1.5 million more in development-related costs than had been anticipated.

Homestead also reported EBDADT (earnings before depreciation, amortization and deferred taxes) for the first quarter of $0.13 per diluted share, compared with $0.17 per diluted share for the prior year period. Interest costs increased to $11.3 million in the first quarter of 1999 from $520,000 in first quarter 1998; this increase was a significant factor in the decline in EBDADT per diluted share.

Homestead's financial statements reflect the company's adoption of "Reporting on the Costs of Start-Up Activities" Statement of Position 98-5 (SOP 98-5) at the beginning of fiscal year 1999. As a result, the company's first quarter results include, as a cumulative effect of an accounting change, a $14.2 million write-off of unamortized organizational, pre-opening and start-up costs. On a pro forma basis, Homestead would have expensed $3.6 million under SOP 98-5 in the first quarter of 1998.

Portfolio Weekly RevPAR Increased 10%

Homestead's first quarter 1999 property-level performance compared to first quarter 1998 can be characterized by an increase in weekly rate combined with a decline in occupancy (whether considering comparable or "same store" properties, stabilized, pre-stabilized or the entire portfolio).  Weekly revenue per available room (RevPAR) for the company's entire portfolio increased 10% to $221 from $201; the number of operating properties increased to 125 as of March 31, 1999, from 82 at March 31, 1998.  The weekly rate for the company's portfolio increased 24.8% to $352 in first quarter 1999 from $282 in the prior year period, while occupancy declined to 62.8% in first quarter 1999 from 71.1% one year ago.

RevPAR for the company's same-store or comparable universe of 49 properties was $209 in the first quarter 1999, a 4.1% decline from the $218 RevPAR in the first quarter 1998. The average same-store weekly rate increased 11.2% (to $307 from $276), while occupancy declined to 68.0% from 79.1%. Management noted that many of the same-store properties are in weaker Southwestern markets and include Homestead's oldest and least competitive properties.

Management believes that the normal first quarter seasonal downturn was more pronounced in 1999 for Homestead than in previous years, as the company now has 30.8% of its investment in operating properties in Northeastern and Midwestern markets. These markets typically are more negatively impacted by winter weather than the Southwestern and Southeastern markets. Nevertheless, while those properties that reached stabilization during the first quarter of 1999 took longer to achieve stabilization (an average of 20.2 weeks) than historic experience, five new properties opened in the first quarter 1999 had an average occupancy rate of 73.9% for April 1999.

Management Objectives

Homestead's management has established three near-term objectives.  First, management will focus on expeditiously generating cash proceeds from its land held for sale, which will be used to retire debt and fund working capital needs.  Second, overhead levels will be adjusted downward to reflect a company with stabilized operations involving 136 properties.  Third, management intends to reemphasize delivery of a high-quality, value-oriented product with occupancy levels greater than currently being experienced by the company.  As a result of implementing these objectives, the company will have a one-time charge in the second quarter for severance costs of at least $8 million.

The Rights Offering

The company is currently conducting a $225 million rights offering.  The rights expire on May 21, 1999, with funding anticipated on May 28, 1999.  A portion of the proceeds from the rights offering will be used to repay a $200 million bridge line of credit. Remaining proceeds from the rights offering will be used to fund cash needs, including completion of the properties currently under construction.  Security Capital Group Incorporated (NYSE: SCZ), Homestead's largest shareholder, has committed to purchase all rights not exercised by others.

Extending Debt Maturities

During the first quarter, the company focused on extending its near-term debt maturities.  At the beginning of the quarter, Homestead had $700.4 million of debt, of which $479.1 million was due to mature prior to June 30, 1999.  During the quarter, Homestead completed a $145 million sale and leaseback transaction on 18 properties, proceeds of which were used to repay $122 million of debt scheduled to mature in June 1999.  The company has also extended $200 million working capital lines of credit through December 2000; the original maturity of the lines was April 23, 1999.  As of March 31, 1999, the working capital lines of credit were fully drawn.

Upon completion of the pending rights offering and repayment of the $200 million bridge line of credit, Homestead will have no debt maturing until December 2000.

Land Held for Sale and Related Second Quarter 1999 Write-Offs

Homestead has made substantial investments in ownership of land held for development as well as in pursuit costs for additional development sites. During the second quarter, Homestead determined, based on its inability to obtain financing for development of sites beyond those already under construction, to further curtail its development program including its Urban initiative. All land previously held for development will be held for sale. Homestead will record a special charge in the second quarter 1999 allowing for write-down of the carrying cost of land held for sale, to its estimated fair value less estimated costs to dispose.
 

The company has also discontinued the pursuit of 14 additional land sites, which will result in a write-off of approximately $7.1 million, consisting of pursuit costs and loss of non-refundable earnest money deposits. The land-related special charges to earnings are currently estimated to exceed $52 million. All of the land-related write-offs will be recorded in the second quarter 1999 and will have a material adverse affect on the reported earnings of the company for the second quarter. All of the land and pursuit costs being written-off have been previously funded and, therefore, the write-offs related to the land do not require additional cash expenditures. Carrying costs on the land sites, such as interest and property taxes, will be expensed until the sites are disposed of and will negatively affect earnings until disposal. The majority of the land sites are encumbered by the working capital lines of credit and, upon sale, the proceeds must be used to pay down the working capital lines. In addition, Homestead will immediately begin to expense previously capitalized costs of its internal development personnel, except for construction in progress.

Michael D. Cryan Resigns; C. Ronald Blankenship Named Interim Chairman and Chief Executive Officer

Michael D. Cryan, co-chairman and chief operating officer of Homestead, has announced his resignation as of May 11, 1999. Mr. Cryan joined Homestead December 18, 1996, and has been instrumental in developing the company's marketing program and overseeing operations of the properties. C. Ronald Blankenship, vice chairman and chief operating officer of Security Capital Group, has been elected to the Homestead board of directors to fill the vacancy created by Mr. Cryan's resignation and selected interim chairman and chief executive officer of Homestead. Mr. Blankenship will continue to serve as vice chairman of Security Capital. David C. Dressler, Jr., who had been co-chairman and chief investment officer of Homestead, will become president of the company, focusing his attention on maximizing the value in Homestead's asset portfolio, including the land held for sale. Mr. Dressler remains a member of the Homestead board of directors. James C. Potts will become Homestead's executive vice president, with responsibility for optimizing Homestead's property-level performance.

Homestead Village Incorporated is a leading owner and operator of moderately priced, extended stay lodging properties throughout the United States. Homestead is focused on the corporate business traveler, and has developed a proprietary operating system to ensure its customers a consistent, high-quality, uniform lodging experience. The company seeks to build a national brand recognized and valued by its major corporate customers by concentrating on delivering high-quality service and product in strategic locations. As of March 31, 1999, Homestead had 125 properties operating in 37 markets, including 24 of the top 25 travel destination markets, and 11 properties under construction, all of which are expected to open by the third quarter of 1999.
 

Homestead's press releases, SEC filings, financial data and corporate information are available on the company's web site at http://www.stayhsd.com The web site also includes an interactive studio room tour and on-line property directory.

In addition to historical information, this press release contains forward-looking statements under the federal securities laws. These statements are based on current expectations, estimates and projections about the industry and markets in which Homestead operates, management's beliefs and assumptions made by management. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Actual operating results may be affected by changes in national and local economic conditions, competitive market conditions, changes in financial markets or interest rates that could adversely affect Homestead's cost of capital and its ability to meet its financing needs and obligations, weather, obtaining governmental approvals and meeting development schedules, and therefore, may differ materially from what is expressed or forecasted in this press release.