SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE
ACT OF 1934


For the quarterly period ended March 31, 1998         
                               --------------


                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934


For the transition period from                   to                 .
                              ------------------    ----------------


Commission File Number:     1-8389
                       ------------

                              PUBLIC STORAGE, INC.
              -----------------------------------------------------         
             (Exact name of registrant as specified in its charter)


             California                                             95-3551121
-------------------------------                        ------------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                          Identification Number)


701 Western Avenue, Glendale, California                            91201-2394
----------------------------------------               ------------------------
(Address of principal executive offices)                            (Zip Code)


Registrant's telephone number, including area code: (818) 244-8080.
                                                    ---------------






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.

                                [ X ] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of April 30, 1998:

Common Stock, $.10 par value, 114,181,420 shares outstanding
------------------------------------------------------------

Class B Common Stock, $.10 Par Value - 7,000,000 shares
-------------------------------------------------------

Equity Stock, Series A, $.01 Par Value - 225,000 shares
-------------------------------------------------------

<PAGE>
                              PUBLIC STORAGE, INC.

                                      INDEX



                                                                        Pages
                                                                        -----
PART I. FINANCIAL INFORMATION
-----------------------------

Item 1.  Condensed Consolidated Balance Sheets at
           March 31, 1998 and December 31, 1997                           1

         Condensed Consolidated Statements of Income for the
           Three Months Ended March 31, 1998 and 1997                     2

         Condensed Consolidated Statements of  Shareholders Equity
           for the Three Months Ended March 31, 1998                      3

         Condensed Consolidated Statements of Cash Flows
           for the Three Months Ended March 31, 1998 and 1997             4 - 5

         Notes to Condensed Consolidated Financial Statements             6 - 15

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations                 16 - 25

PART II. OTHER INFORMATION (Items 1, 2, 3 , 4 and 5 are not applicable)
---------------------------

Item 6.  Exhibits and Reports on Form 8-K                                     26
<PAGE>
<TABLE>
<CAPTION>

                              PUBLIC STORAGE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands, except share data)


                                                                                         March 31,           December 31,
         ASSETS                                                                           1998                   1997
         ------                                                                     ----------------       ----------------
                                                                                       (Unaudited)
<S>                                                                                  <C>                   <C>          
Cash and cash equivalents....................................................        $    243,190          $      41,455
Real estate facilities, at cost:
   Land......................................................................             878,495                845,299
   Buildings.................................................................           2,322,122              2,232,230
                                                                                    ----------------       ----------------
                                                                                        3,200,617              3,077,529
   Accumulated depreciation..................................................            (404,139)              (378,248)
                                                                                    ----------------       ----------------
                                                                                        2,796,478              2,699,281
   Construction in process...................................................              62,057                 42,635
                                                                                    ----------------       ----------------
                                                                                        2,858,535              2,741,916

Investment in real estate entities...........................................             226,626                225,873
Intangible assets, net.......................................................             210,616                212,944
Mortgage notes receivable from affiliates....................................              17,825                 21,807
Other assets.................................................................              57,012                 67,650
                                                                                    ----------------       ----------------
              Total assets...................................................        $  3,613,804            $ 3,311,645
                                                                                    ================       ================
         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------
Revolving line of credit.....................................................        $          -          $       7,000
Notes payable................................................................             108,024                 96,558
Accrued and other liabilities................................................              68,466                 70,648
                                                                                    ----------------       ----------------
         Total liabilities...................................................             176,490                174,206
Minority interest............................................................             365,243                288,479
Commitments and contingencies
Shareholders' equity:
   Preferred Stock, $0.01 par value,  50,000,000 shares  authorized,  
     13,236,980 shares issued and outstanding (13,261,984 issued and
     outstanding at December 31, 1997), at liquidation preference:
         Cumulative Preferred Stock, issued in series........................             868,900                868,900
         Convertible Preferred Stock.........................................              52,685                 53,308
   Common stock, $0.10 par value, 200,000,000 shares authorized,
     112,582,124 shares issued and outstanding (105,102,145 at December
     31, 1997)...............................................................              11,259                 10,511
                                                                                                 
   Class B Common Stock, $0.10 par value, 7,000,000 shares authorized and                     700                    700
     issued..................................................................                    
   Paid-in capital...........................................................           2,123,124              1,903,782
   Cumulative net income.....................................................             623,433                575,069
   Cumulative distributions paid.............................................            (608,030)              (563,310)
                                                                                    ----------------       ----------------
         Total shareholders' equity..........................................           3,072,071              2,848,960
                                                                                    ----------------       ----------------
              Total liabilities and shareholders' equity.....................        $  3,613,804            $ 3,311,645
                                                                                    ================       ================

</TABLE>
                             See accompanying notes.
                                        1
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (Amounts in thousands, except per share data)

                                   (Unaudited)



                                                                          March 31,           December 31,
                                                                           1998                   1997
                                                                     ----------------       ----------------
    REVENUES:
       Rental income:
<S>                                                                     <C>                    <C>       
           Self-storage facilities............................          $   111,678            $   82,377
           Commercial properties..............................               17,681                 7,597
           Portable self-storage..............................                5,171                   472
      Equity earnings of real estate entities.................                2,619                 5,221
      Facility management fee.................................                1,765                 3,052
      Interest and other income...............................                3,652                 2,021
                                                                     ----------------       ----------------
                                                                            142,566               100,740
      EXPENSES:
      Cost of operations:
           Self-storage facilities............................               34,946                26,491
           Commercial properties..............................                5,848                 3,184
           Portable self-storage..............................               15,053                 2,821
      Cost of facility management.............................                  286                   476
       Depreciation and amortization..........................               28,219                19,787
       General and administrative.............................                2,336                 1,619
       Interest expense.......................................                1,162                 1,597
                                                                     ----------------       ----------------
                                                                             87,850                55,975
                                                                     ----------------       ----------------

       Income before minority interest........................               54,716                44,765

       Minority interest in income............................               (6,352)               (2,447)
                                                                     ----------------       ----------------

    NET INCOME................................................          $    48,364             $  42,318
                                                                     ================       ================

    NET INCOME ALLOCATION:
    ---------------------
      Allocable to preferred shareholders.....................          $    20,140             $  19,150
      Allocable to common shareholders........................               28,224                23,168
                                                                     ----------------       ----------------
                                                                        $    48,364             $  42,318
                                                                     ================       ================
    PER COMMON SHARE:
    ----------------
      Net income per share - Basic............................          $      0.26             $    0.26
                                                                     ================       ================
      Net income per share - Diluted..........................          $      0.26             $    0.26
                                                                     ================       ================

      Weighted average common shares - Basic..................              109,466                89,086
                                                                     ================       ================
      Weighted average common shares - Diluted................              110,036                89,476
                                                                     ================       ================
</TABLE>
                             See accompanying notes.
                                        2
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    For the three months ended March 31, 1998
                    (Amounts in thousands except share data)

                                   (Unaudited)




                                                                    Preferred Stock      
                                                              --------------------------                  Class B   
                                                               Cumulative                    Common       Common    
                                                                 Senior      Convertible      Stock        Stock    
                                                              ----------     -----------   ----------    ---------  
<S>                                                           <C>            <C>           <C>           <C>        
Balances at December 31, 1997........................         $  868,900     $   53,308    $   10,511    $     700  

Issuance of common stock:
     Public issuance (6,369,603 shares)..............                  -              -           637            -  
     Conversion of 8.25% Convertible Preferred Stock
        into common stock (41,918 shares)............                  -           (623)            4            -  
     Acquisition of investment in real estate
        entities and minority interest from
        affiliate (853,700 shares)...................                  -              -            85            -  
     Acquisition of investment in real estate
        entities (60,394 shares).....................                  -              -             6            -  
     Exercise of stock options (154,364 shares)......                  -              -            16            -  

Net income...........................................                  -              -             -            -  

Cash distributions:
   Cumulative Senior Preferred Stock.................                  -              -             -            -  
   8.25% Convertible Preferred Stock.................                  -              -             -            -  
   Common Stock......................................                  -              -             -            -  
                                                              ----------     -----------   ----------    ---------  
Balances at March 31, 1998...........................         $  868,900     $   52,685    $   11,259     $    700  
                                                              ==========     ===========   ==========    =========  
</TABLE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    For the three months ended March 31, 1998
                    (Amounts in thousands except share data)

                                   (Unaudited)




                                                             
                                                                                                                 Total
                                                                  Paid-in     Cumulative     Cumulative      Shareholders'
                                                                  Capital     Net Income    Distributions       Equity
                                                              -----------    -----------   --------------   --------------
<S>                                                            <C>           <C>           <C>              <C>          
Balances at December 31, 1997........................          $1,903,782    $  575,069    $  (563,310)      $   2,848,960

Issuance of common stock:
     Public issuance (6,369,603 shares)..............             188,256             -                            188,893
     Conversion of 8.25% Convertible Preferred Stock
        into common stock (41,918 shares)............                 619             -              -                   -
     Acquisition of investment in real estate
        entities and minority interest from
        affiliate (853,700 shares)...................              26,273             -              -              26,358
     Acquisition of investment in real estate
        entities (60,394 shares).....................               1,838             -              -               1,844
     Exercise of stock options (154,364 shares)......               2,356             -              -               2,372

Net income...........................................                   -        48,364              -              48,364

Cash distributions:
   Cumulative Senior Preferred Stock.................                   -             -        (19,053)            (19,053)
   8.25% Convertible Preferred Stock.................                   -             -         (1,087)             (1,087)
   Common Stock......................................                   -             -        (24,580)            (24,580)
                                                              -----------    -----------   --------------   --------------
Balances at March 31, 1998...........................          $2,123,124     $ 623,433    $  (608,030)     $    3,072,071
                                                              ===========    ===========   ==============   ==============
</TABLE>
                             See accompanying notes.
                                        3
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                   (Unaudited)


                                                                                   For the Three Months Ended 
                                                                                            March 31, 
                                                                              -------------------------------------
                                                                                   1998                   1997
                                                                              ----------------     ----------------
      CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                  <C>    
         Net income................................................               $48,364              $42,318
         Adjustments to reconcile net income to net cash provided
           by operating activities:
           Depreciation and amortization...........................                28,219               19,787
           Depreciation included in equity in earnings of real                      1,865
             estate entities.......................................                                      3,629
           Minority interest in income.............................                 6,352                2,447
                                                                              ----------------     ----------------
               Total adjustments...................................                36,436               25,863
                                                                              ----------------     ----------------
                   Net cash provided by operating activities.......                84,800               68,181
                                                                              ----------------     ----------------

      CASH FLOWS FROM INVESTING ACTIVITIES:
           Principal payments received on mortgage notes                            3,982
             receivable from affiliates............................                                        288
           Capital improvements to real estate facilities..........                (4,091)              (6,292)
           Construction in process.................................               (19,422)             (14,289)
           Investment in portable self-storage business............                (4,804)              (4,208)
           Acquisition of minority interests in consolidated real                    (736)
             estate partnerships...................................                                     (9,837)
           Acquisition of investment in real estate entities.......                (8,361)              (5,697)
           Acquisition of real estate facilities...................               (39,704)                   -
           Acquisition cost of business combinations...............                (5,206)                   -
           Refunded deposits to acquire real estate................                12,500                    -
                                                                              ----------------     ----------------
                   Net cash used in investing activities...........               (65,842)             (40,035)
                                                                              ----------------     ----------------

      CASH FLOWS FROM FINANCING ACTIVITIES:
           Repayment of borrowings on the line of credit...........                (7,000)                   -
           Principal payments on notes payable.....................                (3,060)                (534)
           Net proceeds from the issuance of common stock..........               191,266              127,134
           Distributions paid to shareholders......................               (44,720)             (52,019)
           Distributions from operations to minority interests in
             real estate partnerships..............................               (10,557)              (4,792)
           Net reinvestment by minority interests in consolidated
             real estate partnerships..............................                 3,403                  809
           Issuance of equity interest (minority interests) in
             consolidated entity for cash..........................                47,600                    -
           Other...................................................                 5,847                 (164)
                                                                              ----------------     ----------------
      Net cash provided by financing activities....................               182,779               70,434
                                                                              ----------------     ----------------

      Net increase in cash and cash equivalents....................               201,737               98,580
      Cash and cash equivalents at the beginning of the period.....                41,455               26,856
                                                                              ----------------     ----------------
      Cash and cash equivalents at the end of the period...........              $243,192             $125,436
                                                                              ================     ================
</TABLE>
                             See accompanying notes.
                                        4
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                   (Unaudited)

                                   (Continued)


                                                                                   For the Three Months Ended 
                                                                                            March 31, 
                                                                              -------------------------------------
                                                                                   1998                   1997
                                                                              ----------------     ----------------
<S>                                                                               <C>              <C>                 
       SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
       Acquisition of real estate facilities in exchange for the
          assumption of notes payable and increase in minority       
          interest...................................................             $   (15,731)     $            -

       Business combination:
          Real estate facilities.....................................                 (58,329)                  -
          Other assets...............................................                    (140)                  -
          Accrued and other liabilities..............................                   1,604                   -
          Minority interest..........................................                     504                   -

       Reduction to investment in real estate entities in connection
          with business combination..................................                  16,325                   -

       Acquisition of minority  interest  and real estate in exchange 
          for common stock:
          Real estate facilities.....................................                  (5,233)                  -
          Minority interest..........................................                  (6,573)                  -

       Issuance of common stock:
          In connection with the conversion of Convertible Preferred
             Stock...................................................                     623                 620
          To acquire interests in real estate entities...............                  17,133                   -
          To acquire minority interest in consolidated real estate
             entities................................................                  11,070                   -

       Conversion of 8.25% convertible preferred stock...............                    (623)               (620)
       Acquisition of investment in real estate entities.............                 (17,133)                  -
       Assumption of note payable in connection with the acquisition
          of real estate facilities..................................                  14,526                   -
       Increase in minority interest in connection with the
          acquisition of real estate facilities......................                   1,205                   -
</TABLE>
                             See accompanying notes.
                                        5

<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 1998


1.   Description of the business
     ---------------------------

          Public Storage, Inc. (the "Company") is a California corporation which
     was organized in 1980. The Company is a fully integrated, self-administered
     and  self-managed  real estate  investment  trust  ("REIT") that  acquires,
     develops,   owns  and   operates   self-storage   facilities   which  offer
     self-storage  spaces for  lease,  usually on a  month-to-month  basis,  for
     personal  and  business  use.  The  Company,   through  a  majority   owned
     subsidiary,   also  owns  and  operates  commercial  properties  containing
     commercial and industrial rental space.

          In 1996 and 1997,  the Company  organized  Public  Storage  Pickup and
     Delivery,  Inc. as a separate  corporation and a related  partnership  (the
     corporation  and partnership  are  collectively  referred to as "PSPUD") to
     operate a portable  self-storage  business that rents storage containers to
     customers  for  storage in central  warehouses.  At March 31,  1998,  PSPUD
     operated 54 facilities in 16 states.

          On January 2, 1997, the Company  reorganized  its commercial  property
     operations into a separate private REIT (the "Private  REIT").  The Private
     REIT contributed its assets to a newly created  operating  partnership (the
     "Operating Partnership") in exchange for a general partnership interest and
     limited  partnership  interests.  The Company and certain  partnerships  in
     which the Company has a controlling interest contributed  substantially all
     of their commercial properties to the Operating Partnership in exchange for
     limited partnership interests or to the Private REIT in exchange for common
     stock.  On March 17,  1998,  the Private  REIT  merged into Public  Storage
     Properties XI, Inc., an affiliated publicly traded REIT and the name of the
     surviving corporation was changed to PS Business Parks, Inc. ("PSBP").  All
     subsequent references to PSBP prior to March 17, 1998, refer to the private
     REIT.

          The Company invests in real estate  facilities  primarily  through the
     acquisition of  wholly-owned  facilities  combined with the  acquisition of
     equity interests in real estate entities owning real estate facilities.  At
     March 31,  1998,  the Company had direct and indirect  equity  interests in
     1,143  properties  located  in  38  states,  including  1,077  self-storage
     facilities  and 66  commercial  properties.  All of  these  facilities  are
     operated by the Company under the "Public Storage" name.

2.   Summary of significant accounting policies
     ------------------------------------------

          Basis of presentation
          ---------------------
          The accompanying unaudited condensed consolidated financial statements
     have  been  prepared  in  accordance  with  generally  accepted  accounting
     principles for interim financial  information and with instructions to Form
     10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
     of the information and footnotes required by generally accepted  accounting
     principles  for  complete  financial  statements.  The  preparation  of the
     consolidated  financial  statements in conformity  with generally  accepted
     accounting principles requires management to make estimates and assumptions
     that affect the amounts reported in the consolidated  financial  statements
     and accompanying notes. Actual results could differ from estimates.  In the
     opinion of management,  all  adjustments  (consisting  of normal  recurring
     accruals)  necessary for a fair presentation have been included.  Operating
     results  for the three  months  ended  March 31,  1998 are not  necessarily
     indicative of the results that may be expected for the year ended  December
     31, 1998.  For further  information,  refer to the  consolidated  financial
     statements and footnotes thereto included in the Company's annual report on
     Form 10-K for the year ended December 31, 1997.

          The  consolidated  financial  statements  include the  accounts of the
     Company,  PSPUD, PSBP, the Operating  Partnership and twenty-one controlled
     limited  partnerships  (the  "Consolidated  Entities").  Collectively,  the
     Company,  PSBP and the Consolidated Entities own a total of 975 real estate
     facilities,  consisting of 909  self-storage  facilities  and 66 commercial
     properties.

          At March 31, 1998, the Company also has equity investments in 28 other
     affiliated  limited  partnerships  and one REIT  owning  in  aggregate  168
     self-storage  facilities  which are managed by the Company.  The  Company's
     ownership  interest  in such real  estate  entities is less than 50% of the
     total equity  interest and the Company's  investments in these entities are
     accounted for using the equity method.

                                       6
<PAGE>
          Income taxes
          ------------
          For all taxable years  subsequent to 1980,  the Company  qualified and
     intends to continue to qualify as a REIT,  as defined in Section 856 of the
     Internal  Revenue Code. As a REIT, the Company is not taxed on that portion
     of its taxable  income which is distributed  to its  shareholders  provided
     that the Company meets  certain  tests.  The Company  believes it will meet
     these tests during 1998 and, accordingly, no provision for income taxes has
     been made in the accompanying financial statements.

          Financial instruments
          ---------------------
          For  purposes  of  financial  statement   presentation,   the  Company
     considers all highly liquid debt  instruments  purchased with a maturity of
     three months or less to be cash equivalents.

          Real estate facilities
          ----------------------
          Real estate facilities are recorded at cost.  Depreciation is computed
     using the  straight-line  method  over the  estimated  useful  lives of the
     buildings and improvements, which are generally between 5 and 25 years.

          Allowance for possible losses
          -----------------------------
          The Company has no allowance  for possible  losses  relating to any of
     its real estate investments,  including mortgage notes receivable. The need
     for such an  allowance  is  evaluated  by  management  by means of periodic
     reviews of its investment portfolio.

          Intangible assets
          -----------------
          Intangible   assets   consist   of   property   management   contracts
     ($165,000,000)  and the  cost  over  the fair  value  of net  tangible  and
     identifiable intangible assets ($67,726,000) acquired in a 1995 merger with
     an affiliate.  Intangible assets are amortized by the straight-line  method
     over 25 years. At March 31, 1998,  intangible assets are net of accumulated
     amortization of $22,110,000 ($19,782,000 at December 31, 1997). Included in
     depreciation and amortization  expense for the three months ended March 31,
     1998 is $2,328,000, related to the amortization of intangible assets.

          Revenue and expense recognition
          -------------------------------
          Property  rents are  recognized as earned.  Equity in earnings of real
     estate entities are recognized based on the Company's ownership interest in
     the  earnings  of  each  of  the   unconsolidated   real  estate  entities.
     Advertising costs are expensed as incurred.

          Net income per common share
          ---------------------------
          In 1997, the Financial Accounting Standards Board issued Statement No.
     128,  Earning per Share.  Statement 128 replaced the calculation of primary
     and fully  diluted  net income per share with basic and  diluted net income
     per share.  Unlike primary net income per share, basic net income per share
     excludes  any  dilutive  effects  of  options,   warrants  and  convertible
     securities.  Diluted net income per share is very similar to the previously
     reported  fully  diluted  net income  per  share.  All net income per share
     amounts for all periods have been presented and where appropriate, restated
     to conform to Statement 128 requirements.

          Diluted  net income per common  share is computed  using the  weighted
     average common shares outstanding (adjusted for stock options). The Class B
     Common Stock is not included in the  determination of net income per common
     share because all contingencies required for the conversion to common stock
     have not been satisfied as of December 31, 1997. In addition, the inclusion
     of the Company's  convertible  preferred stock in the  determination of net
     income per common share has been determined to be anti-dilutive.

          In computing  earnings per common  share,  preferred  stock  dividends
     totaling  $20,140,000  and $19,150,000 for the three months ended March 31,
     1998  and  1997,   respectively,   reduced   income   available  to  common
     stockholders.
                                       7
<PAGE>


          Stock-based compensation
          ------------------------
          In  October  1995,  the FASB  issued  SFAS  No.  123  "Accounting  for
     Stock-Based  Compensation"  ("Statement  123") which provides  companies an
     alternative to accounting for stock-based  compensation as prescribed under
     APB Opinion No. 25 (APB 25). Statement 123 encourages, but does not require
     companies to recognize  expense for stock-based  awards based on their fair
     value at date of grant.  Statement  123 allows  companies  to  continue  to
     follow  existing  accounting  rules  (intrinsic  value method under APB 25)
     provided  that  pro-forma  disclosures  are  made of what  net  income  and
     earnings per share would have been had the new fair value method been used.
     The Company has elected to adopt the disclosure  requirements  of Statement
     123 but will continue to account for stock-based compensation under APB 25.
     Statement  123's  disclosure  requirements  are  applicable to  stock-based
     awards granted in fiscal years beginning after December 15, 1994.

          Reclassifications
          -----------------
          Certain reclassifications have been made to the consolidated financial
     statements for 1997 in order to conform to the 1998 presentation.

3.   Business combinations
     ---------------------

          Merger with affiliated REIT
          ---------------------------
          On March 17,  1998,  the  Company,  through  PSBP, completed  a merger
     transaction  with an  affiliated  public REIT whereby PSBP acquired all the
     outstanding stock of the REIT which the Company did not previously own. The
     aggregate  acquisition cost of this merger was approximately $49.6 million,
     consisting   of  the  issuance  of  $34.8  million  of  PSBP  common  stock
     (classified as minority  interest on the Company's  consolidated  financial
     statements)  and the Company's  pre-existing  investment in the  affiliated
     REIT totaling $14.8 million.


          Affiliated Partnership Acquisitions
          -----------------------------------
          In January 1998, the Company  acquired all of the limited  partnership
     interest  in two  affiliated  partnerships.  As a result  of the  Company's
     increased  ownership  interest and control of the Partnership,  the Company
     began  to  consolidate  the  accounts  of  these  partnerships.  The  total
     consideration of $6,757,000 in this  transaction  consists of $5,206,000 of
     cash and the company's pre-existing investment of $1,551,000.


                                       8
<PAGE>


          The  above  merger  with  an  affiliated  REIT  and   acquisitions  of
     affiliated  partnership  interests  have been  accounted for as a purchase;
     accordingly,  allocations of the total  acquisition  cost to the net assets
     acquired  were made based on the fair value of such assets and  liabilities
     as of the dates of each respective  transaction.  The fair market values of
     the assets and  liabilities  assumed with respect to the  transactions  are
     summarized as follows:
<TABLE>
<CAPTION>
                                                             REIT           Partnership
                                                            merger          acquisitions         Total
                                                          ------------     ----------------  ------------
                                                                      (Amounts in thousands)
<S>                                                        <C>                <C>            <C>        
            Real estate facilities..................       $    51,005        $     7,324    $    58,329
            Other assets............................               117                 23            140
            Minority interest                                        -               (504)          (504)
            Accrued liabilities.....................            (1,518)               (86)        (1,604)
                                                          ------------     ----------------  ------------
                                                           $    49,604        $     6,757    $    56,361
                                                          ============     ================  ============
</TABLE>
          The historical  operating  results of the above business  combinations
     prior to each  respective  acquisition  date have not been  included in the
     Company's  historical  operating results. Pro forma selected financial data
     for the three  months  ended  March 31,  1998 and 1997 as though  the above
     business  combinations  had been  effective at the beginning of each period
     are as follows:
<TABLE>
<CAPTION>


                                                                                 Three Months Ended        Three Months Ended
                    (In thousands, except per share data)                          March 31, 1998            March 31, 1997
                    ------------------------------------------------------       --------------------      -------------------
<S>                                                                                  <C>                         <C>        
                    Revenues...............................................          $   143,812                 $   102,658
                    Net income.............................................          $    48,367                 $    42,307
                    Net income per common share (Basic)....................          $      0.26                 $      0.26
                    Net income per common share (Diluted)..................          $      0.26                 $      0.26
</TABLE>
          The pro forma data does not  purport to be  indicative  of  operations
     that would have  occurred  had the  business  combinations  occurred at the
     beginning of each period or future  results of  operations  of the Company.
     Certain pro forma adjustments were made to the combined  historical amounts
     to reflect  expected  reductions  in general  and  administrative  expenses
     combined  with an  estimated  increase  in  depreciation  and  amortization
     expense.


                                       9
<PAGE>
4.   Real estate facilities
     ----------------------

                  Activity in real estate facilities during 1998 is as follows:

<TABLE>
<CAPTION>
                                                                         Number of real    Net rentable         Net carrying
                                                                       estate facilities    square feet             cost
                                                                       -----------------   ------------         --------------  
                                                                        (Amounts in thousands, except number of facilities)
                Operating Facilities
<S>                                                                          <C>               <C>              <C>         
                  Balance at December 31, 1997....................           955               60,258           $  3,077,529
                  Property acquisitions - mergers and business
                     combinations.................................            17                1,131                 58,329
                  Property acquisitions - third party purchases...             3                  675                 55,435
                  Acquisition of minority interest................             -                    -                  5,233
                  Capital improvements............................             -                    -                  4,091
                                                                       -----------------  ------------         --------------  
                  Balance at March 31, 1998.......................           975               62,064              3,200,617
                                                                       -----------------  ------------         --------------  

                Accumulated depreciation:
                  Balance at December 31, 1997....................                                                 (378,248)
                  Additions during the year.......................                                                  (25,891)
                                                                                                               --------------  
                  Balance at March 31, 1998.......................                                                 (404,139)
                                                                                                               --------------  

                Construction in progress:
                  Balance at December 31, 1997....................                                                    42,635
                  Current development.............................                                                    19,422
                                                                                                               --------------  
                  Balance at March 31, 1998.......................                                                    62,057
                                                                                                               --------------  

                  Total real estate facilities....................           975               62,064           $  2,858,535
                                                                       =================  ============         ==============  
</TABLE>

          In April 1997, the Company formed a joint venture  partnership  with a
     state pension fund to participate in the development of approximately  $220
     million of self-storage facilities.  The Company expects that substantially
     all of its  development  activities  will be conducted in the joint venture
     partnership  until the $220 million is fully committed.  At March 31, 1998,
     the Company  had nine  self-storage  facilities  under  construction,  upon
     approval  of  the  facilities  by  the  joint  venture  partnership,  these
     facilities will be transferred to the partnership. The Company's investment
     in the joint venture partnership is accounted for using the equity method.

          At March 31, 1998, the Company was developing 12 facilities to be used
     by its PSPUD operations.  The total development cost at March 31, 1998 with
     respect to these facilities was approximately $29.2 million.

          The Company's policy is to capitalize interest incurred on debt during
     the  course  of  construction  of its  self-storage  facilities  and  PSPUD
     facilities.  Interest  capitalized  during the three months ended March 31,
     1998 was $1,257,000 compared to $735,000 for the same period in 1997.

          During the first quarter of 1998, the Company,  through PSBP, acquired
     three  commercial  properties  (approximately  675,000  square feet) for an
     aggregate cost of $55.4 million.

5.   Investment in real estate entities:
     ----------------------------------

          The  Company's  investment  in real estate  entities at March 31, 1998
     generally  consists  of  limited  and  general  partnership   interests  in
     approximately 28 affiliated partnerships and common stock in one affiliated
     REIT.  Such  interests  are  accounted  for  using  the  equity  method  of
     accounting.

                                       10
<PAGE>

          During the three months ended March 31, 1998,  the Company  recognized
     earnings from its investments  totaling  $2,619,000.  Included in equity in
     earnings of real estate  entities for the three months ended March 31, 1998
     is  the  Company's  share  of  depreciation  expense  totaling  $1,865,000.
     Summarized  combined financial data (based on historical cost) with respect
     to those  unconsolidated  real estate  entities in which the Company had an
     ownership interest at March 31, 1998 are as follows:

                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                       1998             1997
                                                    -------------  -------------
                                                              (in thousands)

  Rental income.....................................  $  21,936       $  19,849
  Total revenues....................................     22,191          20,187
  Cost of operations................................      8,502           7,276
  Depreciation......................................      3,041           2,626
  Net income........................................      9,634           7,904

  Total assets, net of accumulated depreciation.....  $ 433,869       $ 324,737
  Total debt........................................     76,305          79,811
  Total equity......................................    343,367         233,578



6.   Acquisition of partnership interests from affiliate:
     ----------------------------------------------------

          In March 1998, the Company acquired  partnership  interests in a total
     of 21 partnerships from an affiliate. The aggregate price for the interests
     consisted of the issuance of 853,700  shares of the Company's  common stock
     and represented  the  acquisition of (i) minority  interests ($9.2 million)
     and (ii) investments in real estate entities ($17.1 million)


7.   Revolving line of credit
     ------------------------

          As of March 31, 1998,  the Company had no  borrowings on its unsecured
     credit  agreement with a group of commercial  banks.  The credit  agreement
     (the  "Credit  Facility")  has a borrowing  limit of $150.0  million and an
     expiration  date of July 31, 2001. The  expiration  date may be extended by
     one  year  on  each  anniversary  of  the  credit  agreement.  Interest  on
     outstanding  borrowings is payable  monthly.  At the option of the Company,
     the rate of interest  charged is equal to (i) the prime rate or (ii) a rate
     ranging  from the London  Interbank  Offered Rate  ("LIBOR")  plus 0.40% to
     LIBOR plus 1.10%  depending on the  Company's  credit  ratings and coverage
     ratios, as defined. In addition, the Company is required to pay a quarterly
     commitment  fee of 0.250% (per  annum) of the unused  portion of the Credit
     Facility. The Credit Facility allows the Company, at its option, to request
     the  group of banks to  propose  the  interest  rate they  would  charge on
     specific borrowings not to exceed $50 million.  However, in no case may the
     interest  rate  proposal be greater than the amount  provided by the Credit
     Facility.

8.   Minority interest
     -----------------

          In consolidation,  the Company  classifies  ownership  interests other
     than its own in the net  assets  of each of the  Consolidated  Entities  as
     minority  interest  on  the  consolidated  financial  statements.  Minority
  
                                       11
<PAGE>

     interest  in  income  consists  of the  minority  interests'  share  of the
     operating results of the Company relating to the consolidated operations of
     the Consolidated Entities.

          During the three  months  ended March 31,  1998,  the Company  reduced
     minority interest by approximately  $6.6 million through the acquisition of
     such  interests for cash and through the issuance of common  stock.  During
     the same period minority interest  increased by $35.3 million in connection
     with business combinations.

9.   Shareholders' equity
     --------------------

          Preferred stock
          ---------------
          At March 31, 1998 and December 31, 1997, the Company had the following
     series of Preferred Stock outstanding:
<TABLE>
<CAPTION>

                                                                     At March 31, 1998              At December 31, 1997
                                                                ----------------------------    ---------------------------- 
                                                   Dividend        Shares         Carrying         Shares         Carrying
                          Series                     Rate       Outstanding        Amount       Outstanding        Amount
           -----------------------------------   ------------   ------------    ------------    ------------    ------------ 
<S>                                                  <C>          <C>           <C>               <C>           <C>         
           Series A ..........................       10.000%      1,825,000     $ 45,625,000      1,825,000     $ 45,625,000
           Series B ..........................        9.200%      2,386,000       59,650,000      2,386,000       59,650,000
           Series C...........................    Adjustable      1,200,000       30,000,000      1,200,000       30,000,000
           Series D...........................        9.500%      1,200,000       30,000,000      1,200,000       30,000,000
           Series E...........................       10.000%      2,195,000       54,875,000      2,195,000       54,875,000
           Series F...........................        9.750%      2,300,000       57,500,000      2,300,000       57,500,000
           Series G ..........................        8.875%          6,900      172,500,000          6,900      172,500,000
           Series H ..........................        8.450%          6,750      168,750,000          6,750      168,750,000
           Series I ..........................        8.625%          4,000      100,000,000          4,000      100,000,000
           Series J ..........................        8.000%          6,000      150,000,000          6,000      150,000,000

             Total Cumulative Senior Preferred
                 Stock........................                   11,129,650      868,900,000     11,129,650      868,900,000
                                                                ------------    ------------    ------------    ------------ 

           Convertible........................        8.250%      2,107,330       52,685,000      2,132,334       53,308,000
                                                                ------------    ------------    ------------    ------------ 
                                                                 13,236,980     $921,585,000     13,261,984     $922,208,000
                                                                ============    ============    ============    ============ 
</TABLE>
          The  Series A through  Series J stock  (collectively  the  "Cumulative
     Senior  Preferred  Stock") have general  preference  rights with respect to
     liquidation  and  quarterly  distributions.  With respect to the payment of
     dividends and amounts upon  liquidation,  all of the Company's  Convertible
     Preferred Stock ranks junior to the Cumulative  Senior  Preferred Stock and
     any other shares of preferred stock of the Company ranking on a parity with
     or  senior  to the  Cumulative  Senior  Preferred  Stock.  The  Convertible
     Preferred Stock ranks senior to the common stock,  any additional  class of
     common stock and any series of preferred stock expressly made junior to the
     Convertible Preferred Stock.

          Holders  of  the  Company's  preferred  stock,  except  under  certain
     conditions  and as  noted  above,  will  not be  entitled  to  vote on most
     matters.  In the event of a  cumulative  arrearage  equal to six  quarterly
     dividends  or failure to maintain a Debt Ratio (as defined) of 50% or less,
     holders of all  outstanding  series of preferred  stock (voting as a single
     class without regard to series) will have the right to elect two additional
     members  to serve on the  Company's  Board of  Directors  until  events  of
     default  have been cured.  At March 31,  1998,  there were no  dividends in
     arrears and the Debt Ratio was 3.0%.

          Except   under   certain   conditions   relating   to  the   Company's
     qualification  as a REIT,  the Senior  Preferred  Stock are not  redeemable
     prior to the following  dates:  Series A - September  30, 2002,  Series B -
     March 31, 2003,  Series C - September  30, 1999,  Series D - September  30,
     2004,  Series E - January 31, 2005,  Series F - April 30, 2005,  Series G -
     December  31,  2000,  Series H - January 31,  2001,  Series I - October 31,
     2001, Series J - August 31, 2002. On or after the respective dates, each of
     the series of Senior  Preferred  Stock will be  redeemable at the option of
     the Company,  in whole or in part, at $25 per share (or depository share in
     the case of the Series G, Series H,  Series I and Series J),  plus  accrued
     and unpaid dividends.

          The  Convertible  Preferred  Stock is  convertible  at any time at the
     option of the  holders of such stock into  shares of the  Company's  common
  
                                       12
<PAGE>

     stock at a conversion  rate of 1.6835 shares of common stock for each share
     of  Convertible   Preferred   Stock,   subject  to  adjustment  in  certain
     circumstances.  On or after July 1,  1998,  the  Convertible  Stock will be
     redeemable  for shares of the  Company's  common stock at the option of the
     Company,  in whole or in part,  at a redemption  price of 1.6835  shares of
     common stock for each share of Convertible  Stock (subject to adjustment in
     certain  circumstances),  if for 20  trading  days  within any period of 30
     consecutive  trading days  (including the last trading day of such period),
     the  closing  price of the common  stock on its  principal  trading  market
     exceeds $14.85 per share (subject to adjustment in certain  circumstances).
     The Convertible Preferred Stock is not redeemable for cash.

          Equity Stock
          ------------
          In June 1997, the Company contributed  $22,500,000 (225,000 shares) of
     its Equity Stock,  Series A ("Equity  Stock") to a partnership in which the
     Company  is the  general  partner.  As a result of this  contribution,  the
     Company  obtained  a  majority  interest  in the  Partnership  and began to
     consolidate  the accounts of the  Partnership.  The Equity Stock ranks on a
     parity  with Common  Stock and junior to the  Company's  Cumulative  Senior
     Preferred  Stock and  Convertible  Preferred  Stock with respect to general
     preference rights and has a liquidation amount of ten times the amount paid
     to  each  Common  Share  up to a  maximum  of  $100  per  share.  Quarterly
     distributions  per share on the Equity Stock are equal to the lesser of (i)
     10 times the amount paid per Common Stock or (ii) $2.20.

          Common Stock
          ------------
          During the first quarter of 1998, the Company issued  6,369,603 shares
     of common  stock in public and private  offerings,  raising net proceeds of
     approximately  $188.9  million.  In addition,  the Company  issued  154,364
     common  shares  ($2.4  million) in  connection  with the  exercise of stock
     options.

          A total of 914,094  shares of common  stock were issued in  connection
     with the  acquisition of  investments in real estate  entities and minority
     interests during the first quarter of 1998.

          Class B Common Stock
          --------------------
          The Class B Common  Stock will (i) not  participate  in  distributions
     until the later to occur of funds from operations  ("FFO") per Common Share
     as defined below,  aggregating  $1.80 during any period of four consecutive
     calendar quarters, or January 1, 2000; thereafter, the Class B Common Stock
     will participate in distributions  (other than liquidating  distributions),
     at the rate of 97% of the per  share  distributions  on the  Common  Stock,
     provided that  cumulative  distributions  of at least $0.22 per quarter per
     share  have  been  paid  on the  Common  Stock,  (ii)  not  participate  in
     liquidating  distributions,  (iii)  not be  entitled  to  vote  (except  as
     expressly required by California law) and (iv)  automatically  convert into
     Common  Stock,  on a share for share basis,  upon the later to occur of FFO
     per Common Share  aggregating  $3.00 during any period of four  consecutive
     calendar quarters or January 1, 2003.

          For these purposes, FFO means net income (loss) before (i) gain (loss)
     on early extinguishment of debt, (ii) minority interest in income and (iii)
     gain (loss) on  disposition of real estate,  adjusted as follows:  (i) plus
     depreciation and  amortization,  and (ii) less FFO attributable to minority
     interest.  FFO per Common Share means FFO less  preferred  stock  dividends
     (other  than  dividends  on  convertible  preferred  stock)  divided by the
     outstanding  weighted average shares of Common Stock assuming conversion of
     all outstanding convertible securities and the Class B Common Stock.

          For these  purposes,  FFO per share of Common  Stock (as  defined) was
     $1.97 for the four consecutive calendar quarters ended March 31, 1998.


                                       13
<PAGE>
          Dividends
          ---------
          The following  summarizes dividends paid during the first three months
     of 1998:

                                                               Distributions
                                              Per Share or           Total
                                            Depository Share     Distributions
                                            ----------------     -------------
   Series A..............................      $    0.625        $   1,140,000
   Series B..............................      $    0.575            1,372,000
   Series C..............................      $    0.422              506,000
   Series D..............................      $    0.594              713,000
   Series E..............................      $    0.625            1,372,000
   Series F..............................      $    0.609           1,4021,000
   Series G..............................      $    0.555            3,828,000
   Series H..............................      $    0.528            3,565,000
   Series I..............................      $    0.539            2,156,000
   Series J..............................      $    0.500            3,000,000
   Convertible...........................      $    0.516            1,087,000
                                                                 -------------
                                                                    20,140,000
   Common................................      $    0.220           24,580,000
                                                                 -------------
        Total dividends paid                                       $44,720,000
                                                                 =============

          The  dividend  rate on the  Series C  Preferred  Stock  for the  first
     quarter of 1998 was equal to 6.75% per annum.  The dividend  rate per annum
     will be adjusted quarterly and will be equal to the highest of one of three
     U.S. Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate,
     or Thirty Year Constant  Maturity Rate)  multiplied by 110%.  However,  the
     dividend  rate for any dividend  period will neither be less than 6.75% per
     annum nor greater than 10.75%.  The  dividend  rate for the quarter  ending
     June 30, 1998 will be equal to 6.75% per annum.


                                       14
<PAGE>
10.  Subsequent Events
     -----------------

          Merger with Affiliated REIT
          ---------------------------
          On May 7, 1998, the shareholders of Public Storage Properties XX, Inc.
     ("Properties 20") approved the merger with and into the Company. The merger
     was  completed on May 8, 1998.  The  estimated  value of the  Properties 20
     merger is  approximately  $23.3 million.  Properties 20 owns 7 self-storage
     facilities  (approximately  402,000 square feet) located in five states. At
     December 31, 1997, the Company owned approximately 24% of Properties 20.

          PSBP Property  Acquisition and Equity Issuance Activities
          ----------------------------------------------------------
          On May 4,  1998,  PSBP  purchased  14  properties  (approximately  1.0
     million  rentable  square  feet)  located  in  Beaverton,   Oregon  and  14
     properties  (approximately 1.3 million rentable square feet) located in the
     Dallas, Texas area. The proeprties were acquired from Principal Mutual Life
     Insurance Company, and insurance company, and its affiliated companies. The
     aggregate  purchase  price was  approximately  $190.5  million in cash. The
     acquisition  contains  approximately  2,265,000  rentable  square  feet and
     contains  approximately 15 acres of land in the Beaverton market for future
     development.  PSBP funded this  acquistion by the issuance of the remaining
     $105.0 million of common stock to be issued in connection  with its January
     1998 agreement with a group of institutional investors, and borrowings from
     PSI.

          PS Business Parks, Inc.
          -----------------------
          As a result of the issuance of additional  shares of PSBP common stock
     to the group of unaffiliated  institutional investors, the Company believes
     that its reduced ownership will no longer warrant the consolidation of PSBP
     and the  Operating  Partnership  effective  June 30,  1998.  The  Company's
     consolidated  financial  statements at March 31, 1998 include the following
     summarized  condensed  financial data associated with the  consolidation of
     PSBP and the Operating Partnership:

                                                               (in thousands)
                                                               --------------
    Three months ended March 31, 1998
    ---------------------------------
         Rental income....................................      $ 14,353
         Total revenues...................................        15,582
         Cost of operations...............................         5,166
         Depreciation.....................................         3,106
         Net income before minority interest..............         6,339
         Net income after minority interest...............         3,292

    At March 31, 1998
    -----------------
         Total assets, net of accumulated depreciation....       459,366
         Total minority interest..........................       202,897

                                       15
<PAGE>
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND RESULTS
OF OPERATIONS
------------------------------------------------------------------------------

          RESULTS OF OPERATIONS
          ---------------------
          Net income for the three months  ended March 31, 1998 was  $48,364,000
     compared  to  $42,318,000  for the same  period  in 1997,  representing  an
     increase of  $6,046,000  or 14%.  The  increase in net income for the three
     months  ended  March  31,  1998  compared  to the same  period  in 1997 was
     primarily the result of improved  property  operations,  the acquisition of
     additional real estate facilities and partnership interests during 1998 and
     1997,  offset  partially by start-up  operating  losses  experienced in the
     Company's new portable self-storage business.

          Net  income  allocable  to  common   shareholders  (net  income  after
     deducting dividends to the Company's preferred  shareholders of $20,140,000
     and  $19,150,000  for the  three  months  ended  March  31,  1998 and 1997,
     respectively)   was  $28,224,000  or  $0.26  per  common  share  (based  on
     110,036,000  weighted  average  shares-diluted)  for the three months ended
     March 31, 1998 compared to  $23,168,000 or $0.26 per common share (based on
     89,476,000 weighted average shares-diluted) for the same period in 1997.

          REAL ESTATE OPERATIONS
          ----------------------
          Rental income and cost of operations have increased  significantly for
     the three months  ended March 31, 1998  compared to the same period in 1997
     due to the Company's merger and acquisition  activities throughout 1997 and
     1998. As a result of these activities, the number of facilities included in
     the Company's  consolidated  financial statements has increased from 769 at
     March 31, 1997 to 975 at March 31, 1998.

          SELF-STORAGE OPERATIONS: The Company's self-storage operations account
     for over 90% of the total  property  operations  and  represent the largest
     comparison variances from period to period. As a result the following table
     is presented to further  illustrate  variances from period to period by (i)
     comparing the operating results of self-storage facilities which were owned
     by the  Company  throughout  1997 and 1998  and  (ii)  outlining  operating
     results  for those  self-storage  facilities  which  were  acquired  by the
     Company in 1997 and 1998 whereby the operations  represent  partial results
     from the date the facility was acquired through the end of the period.
<TABLE>
<CAPTION>
   Summary of Self-Storage Facility Operations                         Three Months Ended March 31,
                                                              ---------------------------------------------
                                                                   1998             1997           Change
                                                              --------------    -------------   -----------
                                                       (dollar amounts in thousands, except rents per square foot)
   Rental income:
<S>                                                             <C>                <C>               <C> 
       Pre-1997 acquisitions                                    $  83,536          $ 78,661          6.2%
       1997 and 1998 acquisitions                                  28,142             3,716        657.3%
                                                              --------------    -------------   -----------
                                                                  111,678            82,377         35.6%
                                                              --------------    -------------   -----------
   Cost of operations:
       Pre-1997 acquisitions                                       25,967            25,156          3.2%
       1997 and 1998 acquisitions                                   8,979             1,335        572.6%
                                                              --------------    -------------   -----------
                                                                   34,946            26,491         31.9%
                                                              --------------    -------------   -----------
   Net operating income:
       Pre-1997 acquisitions                                       57,569            53,505          7.6%
       1997 and 1998 acquisitions                                  19,163             2,381        704.8%
                                                              --------------    -------------   -----------
                                                                $  76,732          $ 55,886         37.3%
                                                              ==============    =============   ===========
                                                                                    
   Net rentable square feet, in thousands 
    (at the end of the period):
       Pre-1997 acquisitions                                       41,384            41,384          -
       1997 and 1998 acquisitions                                  13,105             2,153        508.7%
   Number of facilities (at the end of the period):
       Pre-1997 acquisitions                                          690               690          -
       1997 and 1998 acquisitions                                     219                33        563.6%
   Pre-1997 acquisitions:
       Annualized realized rent per occupied square foot           $ 9.00            $ 8.64          4.2%
        (a)
       Annualized scheduled rent per occupied square foot          $ 9.48            $ 9.24          2.6%
        (b)
       Weighted average occupancy for the period                     91.1%             89.1%         2.0%

</TABLE>
--------------------
   (a)  Realized  rent per square  foot  represents  the actual
        revenue  earned per  occupied  square foot after giving
        effect to discounts through the use of promotions.
   (b)  Scheduled  rent per square foot  represents  the posted
        revenue per occupied square foot prior to giving effect
        to discounts through the use of promotions.
                                      16
<PAGE>
          The increases in rental income for the pre-1997  acquisitions  for the
     three months ending March 31, 1998 compared to the same periods in 1997 are
     due to increased  realized  rent per occupied  square foot combined with an
     increased  weighted average occupancy level. The Company believes that such
     improvements are due to the national telephone reservation system which was
     implemented  during  1996  and  the  first  part  of  1997  and  the  media
     advertising implemented during the second half of 1997.

          Rental  income for the three  months  ended  March 31, 1998 are net of
     promotional  discounts  totaling $3.7 million  compared to $2.5 million for
     the same period in 1997. In addition,  included in cost of  operations  for
     the three  months  ended  March  31,  1998 are  costs  associated  with the
     telephone reservation center and advertising totaling $1,249,000,  compared
     to $690,000 for the same period in 1997.

          DEVELOPMENT  OF  SELF-STORAGE  FACILITIES:  In April 1997, the Company
     formed a joint venture partnership with a state pension fund to participate
     in  the   development  of   approximately   $220  million  of  self-storage
     facilities.  The Company expects that  substantially all of its development
     activities  will be conducted in the joint  venture  partnership  until the
     $220  million is fully  committed.  At March 31,  1998,  the joint  venture
     partnership had completed  construction on eleven  self-storage  facilities
     (approximately  637,000  net  rentable  square  feet)  with a total cost of
     approximately  $55.4  million,  and had 15  facilities  under  construction
     (approximately  948,000 net rentable  square  feet) with an aggregate  cost
     incurred  to date of  approximately  $43.3  million  and  total  additional
     estimated  cost to complete of $26.9  million.  In  addition,  at March 31,
     1998, the Company had nine  facilities  under  construction  (approximately
     522,000 net rentable  square feet) with an aggregate  cost incurred to date
     of  approximately  $20.7  million and total  additional  estimated  cost to
     complete of $20.4 million.  Upon approval by the joint venture partnership,
     the facilities under construction by the Company will be transferred to the
     joint venture  partnership.  The  partnership  is funded solely with equity
     capital  consisting  of 30% from the Company and 70% from the state pension
     fund.  The  Company  accounts  for  its  investment  in the  joint  venture
     partnership using the equity method.

          The Company is evaluating  the  feasibility  of developing  additional
     facilities in selected  markets in which there are few, if any,  facilities
     to acquire at attractive prices and where the scarcity of other undeveloped
     parcels of land or other  impediments to  development  make it difficult to
     construct  additional  competing  facilities.  Generally  the  construction
     period  takes 9 to 12  months  followed  by,  in the  case of  self-storage
     facilities,  a 18 to 24 month fill-up  process until the newly  constructed
     facility reaches a stabilized  occupancy level of approximately 90%. Due to
     the timing of the deployment of capital to construct the facilities and the
     relatively  long "fill-up"  period until the facilities  reach a stabilized
     occupancy level, the Company believes that its development plans may create
     earnings dilution in the short-term.

          COMMERCIAL  PROPERTY  OPERATIONS:  The Company's  commercial  property
     operations  represent  approximately 12% of the Company's operations (based
     on total  revenues  generated  during  the  first  quarter  of  1998).  The
     commercial    properties   are   generally    composed   of    multi-tenant
     office/industrial space and to a lesser extent suburban office.  Commercial
     property rental income and cost of operations presented on the consolidated
     statements of income reflect the  operations of the 61 facilities  owned by
     the Company and the Consolidated  Entities.  The following table summarizes
     the operating results (before depreciation) of these facilities for each of
     the periods presented:


                                       17
<PAGE>
     COMMERCIAL PROPERTY OPERATIONS:
     -------------------------------
<TABLE>
<CAPTION>

                                                        Three Months Ended March 31,
                                                        ----------------------------
                                                                                           Percentage

                                                          1998                1997           Change
                                                          ----                ----         --------
                                                      (Dollar amounts in thousands, except rents per
                                                                       square foot)
<S>                                                       <C>                <C>          <C>        
          Rental income:
              Pre-1997 Acquisitions                   $  7,978             $ 7,566             5.4% 
              1997 and 1998 Acquisitions                 9,703                  31             N/A
                                                      --------            ---------       -----------  
                                                        17,681               7,597           132.7%
                                                      --------            ---------       -----------  

          Cost of operations:
              Pre-1997 Acquisitions                      3,254               3,156             3.1%
              1997 and 1998 Acquisitions                 2,594                  28             N/A
                                                      --------            ---------       -----------  
                                                         5,848               3,184            83.7%
                                                      --------            ---------       -----------  
 
          Net operating income:
              Pre-1997 Acquisitions                      4,724               4,410             7.1%
              1997 and 1998 Acquisitions                 7,109                   3             N/A 
                                                      --------            ---------       -----------  
                                                        11,833               4,413           168.1%
                                                      ========            =========       ===========  


          Consistent Group data:
              Gross margin..........                      59.2%               58.3%            0.9%
              Weighted average occupancy                  95.1%               94.7%            0.4%
              Average realized annual rent per
                square foot.........                    $ 8.76              $ 8.40             4.3%
                                    

          Number of facilities (at the end of the
           period):
              Consistent group......                        35                  35               - 
              Cumulative Post-1994 Acquisitions             31                   -               - 

          Net rentable square feet 
           (at the end of the period):
              Consistent group......                     3,045               3,045               - 
              Cumulative Post-1994 Acquisitions          4,530                   -               - 
</TABLE>
          As indicated in the above table,  the  Company's  commercial  property
     operations  have  grown  principally  as a result  of the  addition  of new
     properties  over the past year.  The  operating  results of the  consistent
     group  of  properties  over the past  year  has  been  improving,  with net
     operating  income  increasing  principally due to improved  realized rental
     rates and declining operating expenses.

          EQUITY IN EARNINGS OF REAL ESTATE  ENTITIES:  At March 31,  1998,  the
     Company had  ownership  interests in 28 limited  partnerships  and one REIT
     (collectively the "Unconsolidated  Entities"). Due to the Company's limited
     ownership  interest  and control of these  entities,  the Company  does not
     consolidate  the  accounts  of  these  entities  for  financial   reporting
     purposes, and accounts for such investments using the equity method.

          Equity in earnings  of real estate  entities  was  $2,619,000  for the
     three  months ended March 31, 1998 as compared to  $5,221,000  for the same
     period in 1997.  The decreases in earnings  from real estate  entities from
     1997 to 1998  reflect  the  Company's  merger and  partnership  acquisition
     activities  in the last nine  months  of 1997  (with  six  affiliated  REIT
     mergers and the  acquisition of additional  partnership  interests) and the
     first three months of 1998 (with one additional  affiliated REIT merger and
     the  acquisition  of  additional  partnership  interests).  The  merger and
     partnership   acquisition   activities   resulted  in  the  elimination  of
     investment  in real  estate  entities  and,  after  the  acquisitions,  the
     associated equity in earnings.

                                       18
<PAGE>

          Equity in earnings of real estate  entities for the three months ended
     March  31,  1998   consists  of  the   Company's  pro  rata  share  of  the
     Unconsolidated Entities based upon the Company's ownership interest for the
     period.  The following  table  summarizes  the  components of the Company's
     equity in earnings of real estate entities:

                                                  Three Months Ended March 31,
                                           ------------------------------------
                                              1998         1997    Dollar Change
                                          -----------   --------- -------------
                                                       (Amounts in thousands)

      Self-storage operations              $ 4,672        $ 8,635      $(3,963)
      Commercial property operations           126            629         (503)
      Depreciation and Amortization:
        Self-storage facilities             (1,723)        (3,401)       1,678
        Commercial properties                  (40)          (228)         188
      Other                                   (416)          (414)          (2)
                                          -----------   --------- -------------
      Total equity in earnings of 
        real estate entities               $ 2,619        $ 5,221      $(2,602)
                                          ===========   ========= =============


          Similar  to  the  Company,   the   Unconsolidated   Entities  generate
     substantially  all of their  income from their  ownership  of  self-storage
     facilities.  In the aggregate,  the Unconsolidated  Entities own a total of
     168 self-storage facilities at March 31, 1998. The Company expects that its
     equity in earnings from Unconsolidated  Entities will generally decrease as
     a result of the acquisition of additional  interests in the  Unconsolidated
     Entities by the  Company.  The Company  has in the past  acquired,  and may
     continue to seek to acquire in the future,  real estate facilities owned by
     or additional interests in the Unconsolidated Entities.

          PROPERTY  MANAGEMENT  OPERATIONS:  The property  management  contracts
     generally  provide  for  compensation  equal  to  6%,  in the  case  of the
     self-storage facilities,  and 5%, in the case of the commercial properties,
     of gross revenues of the facilities  managed.  Under the supervision of the
     property owners, the Company coordinates rental policies, rent collections,
     marketing activities,  the purchase of equipment and supplies,  maintenance
     activity,  and the  selection  and  engagement  of vendors,  suppliers  and
     independent  contractors.  In addition, the Company assists and advises the
     property  owners  in  establishing  policies  for the hire,  discharge  and
     supervision of employees for the operation of these  facilities,  including
     resident  managers,  assistant  managers,  relief  managers and billing and
     maintenance personnel.

          Property management  operations reflect the activities with respect to
     the management of facilities owned by affiliated  unconsolidated  entities.
     As a result, the revenues generated from its property management operations
     are generally  predictable  and dependent  upon the future growth of rental
     income  for  these  affiliated  properties.  The  Company  has in the  past
     acquired,  and may  continue to seek to acquire in the future,  real estate
     facilities owned by affiliated entities which are not consolidated with the
     Company.  The acquisition of such facilities  reduces management fee income
     to the Company and is offset by a  corresponding  reduction  in the cost of
     property operations.

          During the three months ended March 31, 1998,  the Company's  property
     management  operations  generated  net  operating  income of  $1,479,000 on
     revenues  of  $1,765,000  and  expenses  of  $286,000  as  compared  to net
     operating  income of $2,576,000  on revenues of $3,052,000  and expenses of
     $476,000  during  the  same  period  in 1997.  The  decreases  in  property
     management  operations  are due to the Company's  acquisition of facilities
     which it previously managed for third parties and affiliated entities for a
     fee.

          PORTABLE  SELF-STORAGE  BUSINESS:  Public  Storage  Pickup & Delivery,
     Inc., a subsidiary of the Company and a related  partnership  (collectively
     referred  to as "PSPUD")  operates a portable  self-storage  business  that
     rents storage  containers to customers for storage in a central  warehouse.
     During the first quarter of 1998,  PSPUD opened five new  facilities  which
     combined  with its  previously  opened  facilities  increased the number of
     opened  facilities to 54 as of March 31, 1998  (including a mature facility
     acquired  in 1996).  These 54  facilities  had a total of  42,284  occupied
     containers as of March 31, 1998.

                                       19
<PAGE>
          PSPUD  presently  anticipates  opening an  additional  two  facilities
     during the second quarter of 1998.  PSPUD has also identified an additional
     18 sites in existing  markets for  development  of PSPUD  facilities  at an
     aggregate estimated cost of $78.2 million.

          Due to the start-up nature of this business,  PSPUD incurred operating
     losses totaling approximately $9.9 million for the three months ended March
     31,  1998  compared   to $2.3  million  for the same  period  in 1997.  The
     operating  losses have been  trending  downward  since the third quarter of
     1997.  During the third and fourth quarters of 1997,  operating  losses for
     PSPUD were  approximately  $12.1 million and $10.5  million,  respectively.
     PSPUD continues to expend funds in personnel, training, equipment, computer
     software and  professional  fees in  organizing  this  business.  Until the
     facilities  are operating  profitably,  PSPUD's  operations are expected to
     adversely impact the Company's earnings. PSPUD currently expects subsequent
     quarters  to produce  operating  losses,  but  anticipates  that  losses in
     subsequent  quarters will be at a reduced  level from the current  quarter,
     although there can be no assurance.

          PSPUD's  facilities  (excluding  two smaller  facilities in peripheral
     markets) are located in 25 greater  metropolitan areas in 16 states and had
     a total of 41,645 occupied  containers at April 30, 1998.  These facilities
     consist of the mature facility,  20 facilities that have been open for less
     than ten  months  and 31  facilities  that have been open  between  ten and
     eighteen months. The capacity of these 32 facilities open for more than ten
     months ranges from 1,600 to 3,500 containers  (averaging  2,300), and as of
     April 30, 1998 these  facilities  had occupancy  levels ranging from 20% to
     82% (averaging 47%).

          The Company  continues to believe  that it should  invest a portion of
     its retained  cash flow in PSPUD,  which  responds to a promising  business
     opportunity  in at least  certain  markets and  complements  the  Company's
     existing  operations through joint use of a national telephone  reservation
     system and a coordinated  media  advertising  program to increase  consumer
     awareness of both traditional  mini-warehouses  and portable  self-storage.
     The Company's average mini-warehouse  occupancy level is higher than at any
     comparable  period in prior  years,  despite the  promotion of the portable
     self-storage  business in the same markets.  The Company  believes that the
     combination  of PSPUD and  traditional  mini-warehouses  allows  for market
     strategies that promote both businesses and most importantly meets consumer
     needs.

          Included  in the  cost  of  operations  of the  portable  self-storage
     operations  are certain  start-up  costs  which the  Company  expects to be
     non-recurring  and only incidental to the opening of new facilities.  These
     costs  are  related  to  site  acquisition,   leasing  activities,  systems
     development, and hiring and training of personnel. In addition, included in
     cost of operations is $3,558,000  for the three months ended March 31, 1998
     relating  to  marketing  activities,   including  television   advertising,
     designed to enhance the rental activities of PSPUD's facilities.


     INTEREST AND OTHER INCOME

          As mentioned  above, the Company has developed  additional  businesses
     through  affiliates,  via a retail  expansion  program  and a truck  rental
     program.  The net results of these two businesses are presented  along with
     interest and other income,  as "interest and other  income." The components
     of interest and other income are detailed as follows:

                                                 Three Months Ended March 31,
                                            ------------------------------------
                                             1998        1997     Dollar Change
                                            ------------------------------------
                                                (Amounts in thousands)
  Sales of Packaging Material and Truck
  Rental Income:
   Revenues                                  $1,482     $   850       $  632
   Costs of Operation                        (1,291)       (519)        (772)
                                            ---------  ------------  -----------
            Net Operating Income                191         331         (140)

  Interest and Other Income                   3,461       1,690        1,771
                                            ---------  ------------  -----------
      Total Interest and Other Income        $3,652      $2,021       $1,631
                                            =========  ============  ===========

          Interest and other income  principally  consists of interest earned on
     cash  balances  and  interest  related to mortgage  notes  receivable.  The
     increase  in  interest  income for the three  months  ended  March 31, 1998
     compared to the same periods in 1997 is primarily due to interest income on
     excess cash balances.

          DEPRECIATION AND AMORTIZATION:  Depreciation and amortization  expense
     has increased  $8,432,000,  to $28,219,000 for the three months ended March
     31,  1998 as  compared to  $19,787,000  for the same period in 1997.  These
     increases are  principally due to the acquisition of additional real estate
     facilities during 1997 and 1998.

          MINORITY  INTEREST IN INCOME:  Minority  interest in income represents
     the income allocable to equity interests in the consolidated entities which
     are not owned by the  Company.  Minority  interest  in income for the three

                                       20
<PAGE>

     months ended March 31, 1998 was  $6,352,000  compared to $2,447,000 for the
     same period in 1997.

          Minority  interest in income increased in the three month period ended
     March 31, 1998 compared to the same period in 1997 due to improved property
     operations  and the  consolidation  of  investments  which were  previously
     accounted for on the equity  method  during the 1997 period.  These effects
     were  partially  offset  by  PSI's   acquisition  of  additional   minority
     interests,  as well as  minority  interests  in the losses of PSPUD and the
     development joint venture.

          SUPPLEMENTAL PROPERTY DATA

          At March 31, 1998, the Company's  investment portfolio consists of (i)
     wholly-owned properties owned by the Company, (ii) properties owned by real
     estate  partnerships  in  which  the  Company  has  significant   ownership
     interests (the "Consolidated Partnerships"),  and (iii) properties owned by
     real  estate  entities  (partnerships  and  REITs) in which  the  Company's
     ownership   interest  and  control  are  not   sufficient  to  warrant  the
     consolidation  of  such  entities  (the  "Unconsolidated   Entities").  The
     following  table  summarizes  the  Company's   investment  in  real  estate
     facilities as of March 31, 1998:
<TABLE>
<CAPTION>

                                                         Number of Facilities in which the      Net Rentable Square Footage
                                                         Company has an ownership interest             (in thousands)
                                                        -----------------------------------  -------------------------------- 
                                                        Self-Storage Commercial              Self-Storage Commercial
                                                         Facilities  Properties    Total      Facilities  Properties   Total
                                                         ----------  ----------    -----      ----------  ----------   -----

<S>                                                           <C>          <C>      <C>         <C>           <C>      <C>   
           Wholly-owned facilities                            586          1        587         35,722          9      35,731
           Facilities     owned    by     Consolidated        323         65        388         18,767      7,566      26,333
                                                         ----------  ----------    -----      ----------  --------     -----
               Partnerships
               Total consolidated facilities                  909         66        975         54,489      7,575      62,064

           Facilities owned by Unconsolidated Entities        168          -        168          9,739          -       9,739
                                                         ----------  ----------    -----      ----------  --------     -----

               Total facilities in which the Company
                 has an ownership interest                  1,077         66      1,143         64,228      7,575      71,803
                                                         ==========  ==========   ======      =========   ========     ======
</TABLE>


          In  order  to  evaluate  how  the  Company's   overall  portfolio  has
     performed,  management  analyzes the operating  performance of a consistent
     group  of  self-storage  facilities  representing  985  (57.6  million  net
     rentable square feet) of the 1,077 self-storage facilities (herein referred
     to as "Same Store" self-storage  facilities) which have been operated under
     the "Public  Storage" name for at least the past three years.  At March 31,
     1998,   the  Company  had   ownership   interests   in  a  total  of  1,077
     mini-warehouse  facilities.  Of these 1,077  properties,  985 or 91% of the
     mini-warehouses have been in operation and managed by Public Storage,  Inc.
     since January 1, 1994. The following table summarizes the operating results
     of these 985 properties:



                                       21
<PAGE>
<TABLE>
<CAPTION>
           Same Store mini-warehouse facilities (985 facilities):
           ------------------------------------------------------
           (historical property operations)
                                                    Three months ended March 31,
                                                    ----------------------------
                                                       1998               1997            Change
                                                       ----               ----            ------
                                                   (dollar amounts in thousands, except per square
                                                                    foot amounts)

<S>                                                   <C>                <C>                <C> 
           Rental income......................        $124,305           $116,678           6.5%
           Cost of operations (1).............          44,868             43,285           3.7%
                                                      --------           --------           ----

           Net operating income...............         $79,437            $73,393           8.2%
                                                       =======            =======           === 

           Gross profit margin (2)............          63.9%              62.9%            1.0%

           ...........................................................................................
           Weighted Average:
                 Occupancy....................          91.4%              89.5%            1.9%

                 Annualized realized rent per
                   sq. ft. for period (3).....          $9.48              $9.00            5.3%

                 Annualized scheduled rent per
                   sq. ft. for period.........          $9.96              $9.72            2.5%

</TABLE>
         1.   Assumes payment of property  management fees on all facilities,  
              including those facilities owned by the Company for which 
              effective  November 16, 1995 no fee is paid.
         2.   Gross profit margin is computed by dividing property net operating
              income (before depreciation  expense) by rental revenues.  Cost of
              operations  include a 6%  management  fee. The gross profit margin
              excluding the facility  management fee was 69.9% and 68.9% for the
              three months ended March 31, 1998 and 1997, respectively.
         3.   Realized rent per square foot represents the actual revenue earned
              per  occupied  square  foot.  Management  believes  this is a more
              relevant measure than the scheduled rental rates,  since scheduled
              rates can be discounted through the use of promotions.

          Rental  income  for the Same  Store  facilities  included  promotional
     discounts totaling $4.3 for the three months ended March 31, 1998, compared
     to $3.5 million for the same period in 1997.  The  increase in  promotional
     discounts is principally due to promotional  activities offered through the
     national telephone reservation center.

          Cost of operations for the three months ended March 31, 1998 increased
     due to (i)  advertising  and  promotion,  which  increased  $1,098,000  due
     primarily  to the  Company's  national  telephone  reservations  center and
     television  advertising in certain markets and (ii) property  taxes,  which
     increased $770,000, due primarily to higher assessments.

          As indicated above, in early 1996, the Company  implemented a national
     telephone reservation system designed to provide added customer service for
     all the  self-storage  facilities  under  management  by the  Company.  The
     Company believes that the improved operating  results,  as indicated in the
     above table, in large part are due to the success of the national telephone
     reservation system.

          LIQUIDITY AND CAPITAL RESOURCES
          -------------------------------

          The  Company  has  operated  and  intends to  continue to operate in a
     self-sufficient manner without reliance on external sources of financing to
     fund  its  ongoing   operating  needs.  The  Company  believes  that  funds
     internally generated from ongoing operations will continue to be sufficient
     to enable it to meet its operating  expenses,  capital  improvements,  debt
     service  requirements and distributions to shareholders for the foreseeable
     future.  Over the past six years,  funds internally  generated from ongoing
     operations were in excess of the Company's  operating  needs,  allowing the
     Company to retain  cash  flow,  which it used to  acquire  additional  real
     estate investments or make optional principal repayments on debt.

          INTERNALLY  GENERATED CASH FLOWS:  The Company believes that important
     measures of its  performance  as well as its liquidity are cash provided by
     operations  and funds  from  operations  ("FFO")  and the  ability of these
                                       22
<PAGE>

     measures  to fund  the  Company's  operating  requirements  (i.e.,  capital
     improvements, principal payments on debt and distribution requirements).

          Net cash provided by  operations  (as  determined  in accordance  with
     generally accepted accounting  principles) reflects the cash generated from
     the Company's  business  before  distributions  to various equity  holders,
     including the preferred  shareholders,  capital  expenditures  or mandatory
     principal  payments on debt.  Net cash provided by operations has increased
     to $84,800,000  from  $68,181,000 for the three months ended March 31, 1998
     and 1997, respectively.

          The  following  table  summarizes  the  Company's  ability  to pay the
     minority   interests'   distributions,   its  dividends  to  the  preferred
     shareholders  and capital  improvements to maintain the facilities  through
     the use of cash provided by operating  activities.  The remaining cash flow
     is available to the Company to make both  scheduled and optional  principal
     payments  on  debt,  pay  distributions  to  common  shareholders  and  for
     reinvestment.
<TABLE>
<CAPTION>

                                                                                  For the Three Months Ended March 31,
                                                                               ------------------------------------
                                                                                      1998                       1997
                                                                               -----------------      --------------------
                                                                                              (in thousands)
<S>                                                                                 <C>                     <C>      
           Net Income...................................................            $  48,364               $  42,318
           Depreciation and amortization................................               28,219                  19,787
           Depreciation from unconsolidated real estate investments.....                1,865                   3,629
           Minority interest in income..................................                6,352                   2,447
                                                                               -----------------      --------------------
                 Net cash provided by operating activities..............               84,800                  68,181
           Distributions from operations to minority interests (funds
             from operations allocable to minority interests) ..........              (10,557)                 (4,792)
                                                                               -----------------      --------------------
           Cash from operations/FFO available to the Company's                         74,243                  63,389
             shareholders
           Less: preferred stock dividends..............................              (20,140)                (19,150)
                                                                               -----------------      --------------------
           Cash from operations/FFO available to common shareholders....               54,103                  44,239
           Capital improvements to maintain facilities..................               (4,090)                 (6,292)
           Add back: minority interest share of capital improvements....                  558                     398
                                                                               -----------------      --------------------
           Funds available for principal payments on debt, common
             dividends and reinvestment.................................               50,571                  38,345
           Cash distributions to common shareholders....................              (24,580)                (19,457)
                                                                               -----------------      --------------------
           Funds available for principal payments on debt and investment            $  25,991               $  18,888
                                                                               =================      ====================
</TABLE>

          See the  consolidated  statements  of cash flows for the three  months
     ended  March 31, 1998 and 1997 for  additional  information  regarding  the
     Company's investing and financing activities.

          FFO increased to $74,243,000 for the three months ended March 31, 1998
     compared to $63,389,000  for the same period in 1997. FFO applicable to the
     common shareholders  (after deducting preferred stock dividends)  increased
     to  $54,103,000  for the three  months  ended  March 31,  1998  compared to
     $44,239,000  for the same  period  in 1997.  FFO is used by many  financial
     analysts in evaluating  REITs. The Company defines FFO as net income (loss)
     (computed in accordance with GAAP) before (i) gain (loss) on disposition of
     real estate,  adjusted as follows:  (i) plus depreciation and amortization,
     and  (ii)  less  FFO  attributable  to  minority  interest.   The  National
     Association of Real Estate Investment Trusts, Inc. ("NAREIT") definition of
     FFO does not specifically address the treatment of minority interest in the
     determination  of FFO. In the case of the Company,  FFO represents  amounts
     attributable to its shareholders  after deducting  amounts  attributable to
     the  minority  interests.  FFO does not take into  consideration  scheduled
     principal payments on debt, capital  improvements,  distributions and other
     obligations of the Company.  Accordingly, FFO is a supplemental performance
     measure and is not a substitute  for the Company's  cash flow or net income
     (as discussed  above) as a measure of the Company's  liquidity or operating
     performance.

          RETENTION OF OPERATING CASH FLOWS:  Operating as a REIT, the Company's
     ability to retain cash flow for  reinvestment  is restricted.  In order for
     the Company to  maintain  its REIT  status,  a  substantial  portion of its
     operating   cash  flows  must  be  used  to  make   distributions   to  its
     shareholders.  Remaining  cash  flows  must  then  be  sufficient  to  fund
     necessary  capital  improvements  and scheduled debt service  requirements.
     Accordingly,  the Company's ability to be  self-sufficient is predicated on
     its ability to generate sufficient operating cash flows to satisfy its REIT
     distribution requirements, capital improvement requirements, scheduled debt
     service requirements, and provide funds for additional investments.

                                       23
<PAGE>

          Over the past  four  years,  the  Company's  distribution  policy  has
     enabled it to retain significant funds (after capital improvements) to make
     additional  investments and debt reductions.  During the first three months
     of  1998  and  1997,  the  Company   distributed  to  common   shareholders
     approximately 45.4% and 43.9% of its FFO available to common  shareholders,
     respectively,  allowing it to retain  approximately $26.0 million and $18.9
     million,  respectively,  after  satisfying  its  capital  improvements  and
     preferred stock dividend requirements.

          DISTRIBUTION REQUIREMENTS:  During the first three months of 1998, the
     Company paid dividends totaling $19,053,000 to the holders of the Company's
     Senior  Preferred  Stock,  $1,087,000  to the  holders  of the  Convertible
     Preferred  Stock,  and  $24,580,000  to the  holders of Common  Stock.  The
     Company  estimates  the  distribution  requirements  for  fiscal  1998 with
     respect to Senior Preferred Stock and the Convertible Preferred Stock to be
     approximately $80 million.  If the Company excercises its option to convert
     the Convertible Preferred Stock, the distribution requirements with respect
     to  the  Senior   Preferred  and  Convertible   Preferred  Stock  wiil   be
     approximately $78 million.

          CAPITAL  IMPROVEMENT  REQUIREMENTS:   During  1998,  the  Company  has
     budgeted  approximately  $27.4  million  for  capital  improvements  ($22.9
     million  for its  self-storage  and  $4.5  million  for its  business  park
     facilities).  The  minority  interests'  share  of  the  estimated  capital
     improvements is approximately  $3.8 million.  During the first three months
     of 1998, the Company  incurred capital  improvements of approximately  $4.1
     million.

          DEBT  SERVICE  REQUIREMENTS:  The Company  does not believe it has any
     significant  refinancing  risks with respect to its mortgage  debt,  all of
     which is at a fixed  rate.  The  Company  uses its  $150.0  million of bank
     credit facility (all of which was unused as of November 12, 1997) primarily
     to fund  acquisitions and provide financial  flexibility and liquidity.  At
     the option of the Company, the rate of interest charged is equal to (i) the
     prime rate or (ii) a rate  ranging from the London  Interbank  Offered Rate
     ("LIBOR") plus 0.40% to LIBOR plus 1.10% depending on the Company's  credit
     ratings and  coverage  ratios,  as  defined.  In  addition,  the Company is
     required  to pay a  quarterly  commitment  fee of 0.250% (per annum) of the
     unused  portion of the Credit  Facility.  The  Credit  Facility  allows the
     Company,  at its  option,  to  request  the group of banks to  propose  the
     interest  rate they would charge on specific  borrowings  not to exceed $50
     million. However, in no case may the interest rate proposal be greater than
     the amount provided by the Credit Facility.

          At March 31, 1998, the Company had total  outstanding notes payable of
     approximately  $108  million.  Approximate  principal  maturities  of notes
     payable at March 31, 1998 are as follows:

                                                   Fixed Rate     
                                                 Mortgage Debt
                             7.08% Unsecured        (Weighted
                              Senior Notes      average rate of 9.6%)   Total
                             ---------------   ----------------------  --------
     1998 (remainder of)         $   7,250           $   5,006       $  12,256
     1999                            8,000               6,662          14,662
     2000                            8,750               2,906          11,656
     2001                            9,500               3,216          12,716
     2002                            9,750               3,560          13,310
     Thereafter                     10,000              33,424          43,424
                                 ---------           ---------       ---------
                                 $  53,250           $  54,774       $ 108,024
                                 =========           =========       =========

          EXTERNAL FINANCING:  Despite the Company's ability to retain a portion
     of its internally generated cash flow, the Company's growth strategies have
     required  the  Company  to seek  external  financing.  The  Company  has an
     unsecured  $150.0 million  revolving  credit facility with a group of banks
     which it uses as a temporary source of acquisition financing.  The Company,
     however,  seeks to  ultimately  finance  all  acquisitions  with  permanent
     sources of capital. As a result, the Company has raised capital through the
     public  issuance of both common and preferred stock which was used to repay
     borrowings  and make  additional  investments  in real estate  assets.  The
     Company  believes  that its size and  financial  flexibility  enable  it to
     access capital for growth when appropriate. The Company's financial profile
     is characterized by a low level of debt to total capitalization, increasing
     net  income,  increasing  cash flow  from  operations,  and a  conservative
     dividend  payout  ratio with  respect to the common  stock.  The  Company's
     credit  ratings on its Senior  Preferred  Stock by each of the three  major
     credit agencies are Baa2 by Moody's and BBB+ by Standard and Poors and Duff
     & Phelps.

                                       24
<PAGE>

          The   Company's   portfolio   of  real   estate   facilities   remains
     substantially  unencumbered.  At  March  31,  1998,  the  Company  had debt
     outstanding  of $108 million and had  consolidated  real estate  facilities
     with a book value of $2.9 billion. The Company, however, has been averse to
     financing its  acquisitions  with debt and generally will only increase its
     mortgage  borrowing through the assumption of pre-existing debt on acquired
     real estate facilities.

          Over the past three years the Company has funded  substantially all of
     its acquisitions  with permanent capital (both common and preferred stock).
     Unlike  many other real  estate  companies,  the Company has elected to use
     preferred  stock  despite the fact that the coupon  rates of its  preferred
     stock exceeds  current rates on  conventional  debt. The Company has chosen
     this  alternative for the following  reasons:  (i) the Company's  perpetual
     preferred stock has no sinking fund requirements, or maturity date and does
     not  require  redemption,  all of which  eliminate  any future  refinancing
     risks, (ii) preferred stock allows the Company to leverage the common stock
     without the attendant interest rate or refinancing risks of debt, and (iii)
     dividends  on the  preferred  stock can be  applied to the  Company's  REIT
     distributions requirements,  which have helped the Company to satisfy these
     requirements.

          During the first quarter of 1998, the Company issued  6,369,603 shares
     of common  stock in public and private  offerings,  raising net proceeds of
     approximately  $188.9 million. An additional 914,094 shares of common stock
     were issued in  connection  with the  acquisition  of  investments  in real
     estate entities during the first quarter of 1998.

          MERGERS AND PROPERTY ACQUISITIONS: On March 17, 1998, PSBP completed a
     merger transaction with an affiliated public REIT whereby PSBP acquired all
     the  outstanding  stock of the REIT which it did not  previously  own.  The
     aggregate  acquisition cost of this merger was approximately $49.6 million,
     consisting   of  the  issuance  of  $34.8  million  of  PSBP  common  stock
     (classified as minority  interest on the Company's  consolidated  financial
     statements)  and the Company's  pre-existing  investment in the  affiliated
     REIT totaling $14.8 million.

          During the first quarter of 1998, the Company,  through PSBP, acquired
     three  commercial  properties  (675,000  square feet) for a total aggregate
     cost of $55.4 million.

          DEVELOPMENT  ACTIVITIES:  In April 1997,  the  Company  formed a joint
     venture  partnership  with a  state  pension  fund  to  participate  in the
     development of approximately $220 million of self-storage  facilities.  The
     Company expects that  substantially all of its development  activities will
     be conducted  in the joint  venture  partnership  until the $220 million is
     fully  committed.  At March 31, 1998,  the joint  venture  partnership  had
     completed  construction on eleven  self-storage  facilities  (approximately
     637,000 net rentable square feet) with a total cost of approximately  $55.4
     million,  and had 15 facilities under construction  (approximately  948,000
     net  rentable  square  feet) with an  aggregate  cost  incurred  to date of
     approximately $43.3 million and total additional estimated cost to complete
     of $26.9  million.  In addition,  at March 31,  1998,  the Company had nine
     facilities under  construction  (approximately  522,000 net rentable square
     feet)  with an  aggregate  cost  incurred  to date of  approximately  $20.7
     million and total  additional  estimated cost to complete of $20.4 million.
     Upon  approval  by the joint  venture  partnership,  the  facilities  under
     construction  by the  Company  will be  transferred  to the  joint  venture
     partnership.   The   partnership  is  funded  solely  with  equity  capital
     consisting of 30% from the Company and 70% from the state pension fund. The
     Company accounts for its investment in the joint venture  partnership using
     the equity method.

          REIT STATUS: The Company believes that it has operated, and intends to
     continue  to  operate,  in such a manner as to  qualify as a REIT under the
     Internal  Revenue Code of 1986,  but no assurance can be given that it will
     at all times so  qualify.  To the  extent  that the  Company  continues  to
     qualify as a REIT, it will not be taxed,  with certain limited  exceptions,
     on the taxable income that is distributed to its shareholders.

          As a REIT,  the  Company is not taxed on that  portion of its  taxable
     income which is distributed to its shareholders  provided that at least 95%
     of its taxable  income is so  distributed  prior to filing of the Company's
     tax return.  The Company has  satisfied the REIT  distribution  requirement
     since 1980.

                                       25
<PAGE>
     PART II. OTHER INFORMATION


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


                  (a)    The following Exhibits are included herein:

                         (11)    Statement re: Computation of Earnings per Share

                         (12)    Statement re: Computation of Ratio of Earnings
                                 to Fixed Charges

                         (27)    Financial Data Schedule

                  (b)    Reports on Form 8-K

                         The  Company  filed a Current  Report on Form 8-K dated
                         January  15,  1998,  pursuant  to Item 5,  which  filed
                         certain  exhibits  relating  to  the  Company's  public
                         offering of 2,845,000 shares of common stock.

                         The  Company  filed a Current  Report on Form 8-K dated
                         February  10,  1998,  pursuant  to Item 5, which  filed
                         certain  exhibits  relating  to  the  Company's  public
                         offering of 904,710 shares of common stock.

  
                                     26
<PAGE>

                                   SIGNATURES




          Pursuant to the  requirements 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.



                               DATED: May 14, 1998
 
                               PUBLIC STORAGE, INC.

                               BY:   /s/ John Reyes
                                    -----------------
                                    John Reyes
                                    Senior Vice President and
                                     Chief Financial Officer
                                      (Principal financial officer)

                                       27