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 September 30, 2005
                               ------------------

                                       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 Identification Number)
      incorporation or organization)

701 Western Avenue, Glendale, California                91201-2349
----------------------------------------                ----------
(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 at least the past 90 days.

                                 [X] Yes [ ] No


Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 [X] Yes [ ] No


Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 [ ] Yes [X] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of November 7, 2005:

Common Stock, $.10 Par Value - 129,188,828 shares

Depositary Shares Each Representing  1/1,000 of a Share of Equity Stock,  Series
A, $.01 Par Value - 8,744,193 depositary shares  (representing  8,744.193 shares
of Equity Stock, Series A)

Equity Stock, Series AAA, $.01 Par Value - 4,289,544 shares


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX


                                                                          Pages

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

Item 1.    Financial Statements

           Condensed Consolidated Balance Sheets at
              September 30, 2005 and December 31, 2004                        1

           Condensed Consolidated Statements of Income for the
              Three and Nine Months Ended September 30, 2005 and 2004         2

           Condensed Consolidated Statement of Shareholders' Equity
              for the Nine Months Ended September 30, 2005                    3

           Condensed Consolidated Statements of Cash Flows
              for the Nine Months Ended September 30, 2005 and 2004       4 - 5

           Notes to Condensed Consolidated Financial Statements          6 - 37

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations             38 - 68

Item 2A.   Risk Factors                                                 68 - 73

Item 3.    Quantitative and Qualitative Disclosures about Market Risk        73

Item 4.    Controls and Procedures                                           74

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

Item 1.    Legal Proceedings                                                 75

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds       75

Item 6.    Exhibits                                                          75


<PAGE>


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

<TABLE>
<CAPTION>

                                                                                        September 30,      December 31,
                                                                                            2005               2004
                                                                                       ---------------    --------------
                                                                                         (Unaudited)
                                       ASSETS

<S>                                                                                     <C>               <C>
Cash and cash equivalents....................................................           $     531,774     $    366,255
Real estate facilities, at cost:
   Land......................................................................               1,495,326        1,431,148
   Buildings.................................................................               4,252,542        4,079,602
                                                                                       ---------------    --------------
                                                                                            5,747,868        5,510,750
   Accumulated depreciation..................................................              (1,449,887)      (1,320,200)
                                                                                       ---------------    --------------
                                                                                            4,297,981        4,190,550
   Construction in process...................................................                  50,899           47,277
   Land held for development.................................................                   8,404            8,883
                                                                                       ---------------    --------------
                                                                                            4,357,284        4,246,710

Investment in real estate entities...........................................                 333,482          341,304
Goodwill.....................................................................                  78,204           78,204
Intangible assets, net.......................................................                  99,732          104,685
Other assets.................................................................                  71,152           67,632
                                                                                       ---------------    --------------
              Total assets...................................................           $   5,471,628     $  5,204,790
                                                                                       ===============    =============

                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................           $     115,060     $    129,519
Debt to joint venture partner................................................                  35,654           16,095
Debt to related party (Note 9)...............................................                  64,513                -
Preferred stock called for redemption........................................                       -           54,875
Accrued and other liabilities................................................                 162,401          145,431
                                                                                       ---------------    --------------
         Total liabilities...................................................                 377,628          345,920
Minority interest:
   Preferred partnership interests...........................................                 225,000          310,000
   Other partnership interests...............................................                  32,007          118,903
Commitments and contingencies (Note 14)......................................                       -                -
Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     1,699,236 shares issued (in series) and outstanding, (3,980,186 at
     December 31, 2004) at liquidation preference............................               2,520,900        2,102,150

   Common Stock, $0.10 par value, 200,000,000 shares authorized 128,034,490
     shares issued and outstanding (128,526,450 at December 31, 2004)........                  12,803           12,853
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,744.193 shares issued and outstanding (8,776.102 at December 31, 2004)                       -                -
   Paid-in capital...........................................................               2,435,068        2,457,568
   Cumulative net income.....................................................               3,065,894        2,732,873
   Cumulative distributions paid.............................................              (3,197,672)      (2,875,477)
                                                                                       ---------------    --------------
         Total shareholders' equity..........................................               4,836,993        4,429,967
                                                                                       ---------------    --------------
              Total liabilities and shareholders' equity.....................           $   5,471,628     $  5,204,790
                                                                                       ===============    ==============

</TABLE>

                            See accompanying notes.
                                       1

<PAGE>

                              PUBLIC STORAGE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (Amounts in thousands, except per share amounts)

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                Three Months Ended              Nine Months Ended
                                                                                  September 30,                   September 30,
                                                                           -----------------------------  --------------------------
                                                                               2005          2004            2005          2004
                                                                           ------------- ---------------  ------------  ------------
Revenues:
     Rental income:
<S>                                                                         <C>           <C>             <C>           <C>
         Self-storage facilities.........................................   $   243,822   $   219,743     $   706,634   $   638,520
         Commercial properties...........................................         2,918         2,707           8,693         8,064
         Containerized storage facilities................................         4,480         5,048          12,305        15,099
     Tenant reinsurance premiums.........................................         6,332         6,210          18,499        18,266
     Interest and other income...........................................         7,376         3,300          16,698         7,240
                                                                           ------------- ---------------  ------------  ------------
                                                                                264,928       237,008         762,829       687,189
                                                                           ------------- ---------------  ------------  ------------
Expenses:
     Cost of operations:
         Self-storage facilities.........................................        80,308        74,002         242,429       223,953
         Commercial properties...........................................         1,122         1,031           3,292         3,200
         Containerized storage facilities................................         3,676         3,073           9,692         8,741
         Tenant reinsurance..............................................         3,017         4,204           7,560        11,089
     Depreciation and amortization.......................................        47,917        44,354         144,136       135,447
     General and administrative..........................................         5,621         5,527          16,890        15,983
     Interest expense, including amounts paid to related party (Note 9)..         2,471             -           5,928           100
                                                                           ------------- ---------------  ------------  ------------
                                                                                144,132       132,191         429,927       398,513
                                                                           ------------- ---------------  ------------  ------------
Income from continuing operations before asset impairment charge, gain/
   (loss)on disposition of real estate assets, equity in earnings of
   real estate entities and minority interest in income..................       120,796       104,817         332,902       288,676
Asset impairment charge due to casualty loss (Note 2)....................          (196)       (1,250)           (196)       (1,250)
Gain/(loss) on disposition of real estate assets.........................          (142)        1,286             (89)        1,286
Equity in earnings of real estate entities (Note 5)......................         9,853         3,184          20,382        11,646
Minority interest in income:
     Preferred partnership interests:
       Based on ongoing distributions....................................        (3,591)       (5,176)        (12,556)      (16,907)
       Special distribution and restructuring allocation (Note 9)........             -             -            (874)      (10,063)
     Other partnership interests.........................................        (3,652)       (4,345)        (12,925)      (12,928)
                                                                           ------------- ---------------  ------------  ------------
Income from continuing operations........................................       123,068        98,516         326,644       260,460
Discontinued operations (Note 3).........................................         5,276        (1,001)          6,377        (1,518)
                                                                           ------------- ---------------  ------------  ------------
Net income...............................................................   $   128,344   $    97,515     $   333,021   $   258,942
                                                                           ============= ===============  ============  ============
Net income allocation:
---------------------
     Allocable to preferred shareholders:
        Based on distributions paid......................................   $    43,726   $    40,471     $   126,286   $   117,293
        Based on redemptions of preferred stock..........................             -         3,072           1,904         6,795
     Allocable to Equity Stock, Series A.................................         5,356         5,375          16,087        16,126
     Allocable to common shareholders....................................        79,262        48,597         188,744       118,728
                                                                           ------------- ---------------  ------------  ------------
                                                                            $   128,344   $    97,515     $   333,021   $   258,942
                                                                           ============= ===============  ============  ============
Net income per common share - basic
     Continuing operations...............................................   $      0.58   $     0.39      $      1.42   $      0.94
     Discontinued operations (Note 3)....................................          0.04        (0.01)            0.05         (0.01)
                                                                           ------------- ---------------  ------------  ------------
                                                                            $      0.62   $     0.38      $      1.47   $      0.93
                                                                           ============= ===============  ============  ============
Net income per common share - diluted
     Continuing operations...............................................   $      0.58   $     0.39      $      1.41   $      0.93
     Discontinued operations (Note 3)....................................          0.04        (0.01)            0.05         (0.01)
                                                                           ------------- ---------------  ------------  ------------
                                                                            $      0.62   $     0.38      $      1.46   $      0.92
                                                                           ============= ===============  ============  ============
 Net income per depositary share of Equity Stock, Series A (basic and
 diluted)................................................................   $      0.61   $     0.61      $      1.84   $      1.84
                                                                           ============= ===============  ============  ============
Basic weighted average common shares outstanding.........................       128,006       128,085         128,191       127,635
                                                                           ============= ===============  ============  ============
Diluted weighted average common shares outstanding.......................       128,742       128,826         128,844       128,545
                                                                           ============= ===============  ============  ============
Weighted average shares of Equity Stock, Series A (basic and diluted)....         8,744         8,776           8,755         8,776
                                                                           ============= ===============  ============  ============
</TABLE>

                            See accompanying notes.
                                       2

<PAGE>


                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    (Amounts in thousands, except share data)

                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                 Cumulative                                        Cumulative Net
                                                              Preferred Stock    Common Stock    Paid-in Capital       Income
                                                              ---------------    --------------  ----------------  ---------------

<S>                                                             <C>               <C>              <C>               <C>
Balances at December 31, 2004.............................      $  2,102,150      $     12,853     $  2,457,568      $  2,732,873

Issuance of cumulative preferred stock:
   Series D (5,400 shares)..............................             135,000                 -           (4,453)                -
   Series E (5,650 shares)..............................             141,250                 -           (4,649)                -
   Series F (8,000 shares)..............................             200,000                 -           (6,500)                -

Redemption of cumulative preferred stock, including
redemption costs:
   Series F (2,300,000 shares)............................           (57,500)                -              (17)                -

Impact of EITF Topic D-42 on redemption of Series N and
Series O preferred units (Note 9).......................                   -                 -              874                 -

Issuance of common stock in connection with:
   Exercise of employee stock options (201,457 shares)....                 -                20            6,604                 -
   Vesting of restricted stock (26,468 shares) ...........                 -                 2               (2)                -

Stock based compensation expense .........................                 -                 -            1,750                 -

Repurchase of common stock (84,000 shares)................                 -                (8)          (4,982)                -

Stock distribution from unconsolidated real estate entities
(635,885 common shares and 31,909 Equity Stock, Series A,
depositary shares) (Note 5)...............................                 -               (64)         (11,125)                -

Net income................................................                 -                 -                -           333,021

Cash distributions:
   Cumulative preferred stock (Note 10)...................                 -                 -                -                 -
   Equity Stock, Series A ($1.84 per depositary share)....                 -                 -                -                 -
   Common Stock ($1.40 per share).........................                 -                 -                -                 -
                                                              ---------------    --------------  ----------------  ---------------
Balances at September 30, 2005............................      $  2,520,900      $     12,803     $  2,435,068      $  3,065,894
                                                              ===============    ==============  ================  ===============

</TABLE>


                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    (Amounts in thousands, except share data)

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                       Total
                                                                   Cumulative      Shareholders'
                                                                 Distributions         Equity
                                                                 --------------    --------------

<S>                                                               <C>               <C>
Balances at December 31, 2004.............................        $ (2,875,477)     $  4,429,967

Issuance of cumulative preferred stock:
   Series D (5,400 shares)..............................                     -           130,547
   Series E (5,650 shares)..............................                     -           136,601
   Series F (8,000 shares)..............................                     -           193,500

Redemption of cumulative preferred stock, including
redemption costs:
   Series F (2,300,000 shares)............................                   -           (57,517)

Impact of EITF Topic D-42 on redemption of Series N and
Series O preferred units (Note 9).......................                     -               874

Issuance of common stock in connection with:
   Exercise of employee stock options (201,457 shares)....                   -             6,624
   Vesting of restricted stock (26,468 shares) ...........                   -                 -

Stock based compensation expense .........................                   -             1,750

Repurchase of common stock (84,000 shares)................                   -            (4,990)

Stock distribution from unconsolidated real estate entities
(638,885 common shares and 31,909 Equity Stock, Series A,
depositary shares) (Note 5)...............................                   -           (11,189)

Net income................................................                   -           333,021

Cash distributions:
   Cumulative preferred stock (Note 10)...................            (126,286)         (126,286)
   Equity Stock, Series A ($1.84 per depositary share)....             (16,087)          (16,087)
   Common Stock ($1.40 per share).........................            (179,822)         (179,822)
                                                                 --------------    --------------
Balances at September 30, 2005............................        $ (3,197,672)     $  4,836,993
                                                                 ==============    ==============

</TABLE>

                            See accompanying notes.
                                       3

<PAGE>


                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                     ---------------------------------
                                                                                         2005                2004
                                                                                     ----------------   --------------
Cash flows from operating activities:
<S>                                                                                  <C>                 <C>
  Net income.................................................................        $      333,021      $    258,942
    Adjustments to reconcile net income to net cash provided by operating
     activities:
     Amortization of note premium (Note 7)...................................                  (774)                -
     Excess of effective interest over cash interest paid on Debt to JV Partner
       (Note 8)..............................................................                   362                 -
     Gain on sale of real estate assets......................................                (5,091)           (1,286)
     Real estate impairment associated with casualty losses (Note 4).........                   196             1,250
     Depreciation and amortization...........................................               144,136           135,447
     Equity in earnings of real estate entities..............................               (20,382)          (11,646)
     Distributions received from investments in real estate entities (Note 5)                17,015            15,863
     Minority interest in income.............................................                26,355            39,898
     Depreciation and other adjustments associated with discontinued operations
       (Note 3) .............................................................                (1,055)            3,164
      Other...................................................................                21,879           35,965
                                                                                     ----------------   --------------
              Total adjustments..............................................               182,641           218,655
                                                                                     ----------------   --------------
                  Net cash provided by operating activities..................               515,662           477,597
                                                                                     ----------------   --------------
Cash flows from investing activities:
     Payment on note receivable due from PS Business Parks (Note 13).........                     -           100,000
     Capital improvements to real estate facilities..........................               (13,286)          (20,297)
     Net acquisition of investments included in other assets (Note 2)........                (7,960)           (1,665)
     Construction in process.................................................               (46,039)          (55,780)
     Acquisition of minority interests (Note 9)..............................               (92,815)          (24,851)
     Acquisition of real estate facilities...................................              (124,753)           (8,293)
     Acquisition of investments in real estate entities......................                     -            (2,999)
     Proceeds from disposition of real estate assets.........................                10,864             7,437
     Other investments.......................................................                     -             2,384
                                                                                     ----------------   --------------
                  Net cash used in investing activities......................              (273,989)           (4,064)
                                                                                     ----------------   --------------
Cash flows from financing activities:
     Principal payments on notes payable.....................................               (13,685)          (40,770)
     Net proceeds from the issuance of common stock..........................                 6,624            43,781
     Net proceeds from the issuance of preferred stock.......................               460,648           476,234
     Net proceeds from financing through joint venture (Note 8)..............                19,197                 -
     Repurchase of common stock..............................................                (4,990)          (18,234)
     Redemption of preferred units...........................................               (85,000)                -
     Redemption of preferred stock...........................................              (112,392)         (316,311)
     Distributions paid to shareholders......................................              (322,195)         (305,893)
     Distributions paid to holders of preferred partnership interests........               (12,556)          (16,907)
     Special distribution paid to holders of preferred partnership interests
       (Note 9)..............................................................                     -            (8,000)
     Distributions paid to other minority interests..........................               (11,805)          (16,986)
                                                                                     ----------------   --------------
                  Net cash used in financing activities......................               (76,154)         (203,086)
                                                                                     ----------------   --------------
Net increase in cash and cash equivalents....................................               165,519           270,447
Cash and cash equivalents at the beginning of the period.....................               366,255           204,833
                                                                                     ----------------   --------------
Cash and cash equivalents at the end of the period...........................        $      531,774      $    475,280
                                                                                     ================   ==============

</TABLE>

                            See accompanying notes.
                                       4

<PAGE>


                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                   (Unaudited)

<TABLE>
<CAPTION>

Supplemental schedule of non-cash investing and financial activities: Retirement
     of Common Stock and Equity Stock, Series A, received as a distribution from
     affiliated entities (Note 5):
<S>                                                                                  <C>                 <C>
       Common Stock.......................................................           $          (64)     $          -
       Additional Paid-in Capital.........................................                  (11,125)                -
       Investment in real estate entities.................................                   11,189                 -
     Acquisition of minority interest in Consolidated Joint Venture in exchange
     for debt (Note 9):
       Minority Interest - other partnership interests....................                  (62,643)                -
       Real estate facilities.............................................                  (43,290)                -
       Debt to related party..............................................                   64,513                 -

</TABLE>

                            See accompanying notes.
                                       5

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

1.       Description of the Business
         ---------------------------

              Public Storage, Inc. (the "Company") is a California  corporation,
     which was organized in 1980. We are a fully  integrated,  self-administered
     and  self-managed  real estate  investment  trust ("REIT") whose  principal
     business  activities  include the acquisition,  development,  ownership and
     operation of self-storage  facilities which offer storage spaces for lease,
     usually on a  month-to-month  basis,  for  personal  and  business  use. In
     addition,  to a  much  lesser  extent,  we  have  interests  in  commercial
     properties,  containing  commercial and industrial  rental space, and other
     ancillary  businesses  including  reinsurance of policies against losses to
     goods  stored by our  self-storage  tenants,  retail  sales,  and  portable
     container storage.

              We  invest  in real  estate  facilities  by  acquiring  facilities
     directly  or by  acquiring  interest  in  real  estate  entities  that  own
     facilities.  At  September  30,  2005,  we had direct and  indirect  equity
     interests in 1,487  self-storage  facilities with  approximately 91 million
     net rentable  square feet located in 37 states  operating under the "Public
     Storage"  name.  We also have  direct  and  indirect  equity  interests  in
     approximately  19  million  net  rentable  square  feet of  commercial  and
     industrial space located in 10 states.

2.       Summary of Significant Accounting Policies
         ------------------------------------------

     Basis of Presentation
     ---------------------

              The  accompanying   unaudited  condensed   consolidated  financial
     statements  have been prepared in accordance  with United States  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 United
     States  generally  accepted  accounting  principles for complete  financial
     statements.  In the  opinion of  management,  all  adjustments  (consisting
     primarily of normal recurring  accruals)  necessary for a fair presentation
     have been included.  Operating  results for the three and nine months ended
     September 30, 2005 are not  necessarily  indicative of the results that may
     be expected for the year ended December 31, 2005. For further  information,
     refer  to the  consolidated  financial  statements  and  footnotes  thereto
     included in our annual report on Form 10-K for the year ended  December 31,
     2004.

              The  condensed   consolidated  financial  statements  include  the
     accounts of the  Company  and 36  controlled  entities  (the  "Consolidated
     Entities").  Collectively,  the Company and the Consolidated Entities own a
     total of 1,455 real estate  facilities,  consisting  of 1,449  self-storage
     facilities,  three industrial  facilities used by the containerized storage
     operations and three commercial properties.  All intercompany  transactions
     among  the  Company  and  the  Consolidated   Entities  are  eliminated  in
     consolidation.

              At September 30, 2005, we had equity  investments in eight limited
     partnerships in which we do not have a controlling interest.  These limited
     partnerships collectively own 38 self-storage facilities, which are managed
     by the Company.  In addition,  at September 30, 2005, we own  approximately
     44% of the common  equity of PS Business  Parks,  Inc.  ("PSB"),  which has
     interests  in  approximately  17.4  million  net  rentable  square  feet of
     commercial  space at September 30, 2005. We do not control these  entities;
     accordingly,   our  investment  in  these  limited   partnerships  and  PSB
     (collectively,  the "Unconsolidated  Entities") are accounted for using the
     equity method.

              Certain  amounts  previously  reported have been  reclassified  to
     conform to the  September  30, 2005  presentation,  including  discontinued
     operations (see Note 3).

                                       6

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Use of Estimates
     ----------------

              The  preparation  of  the  consolidated  financial  statements  in
     conformity  with United States  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 those estimates.

     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, we are generally not taxed on that
     portion of our taxable  income,  which is distributed  to our  shareholders
     provided  that we meet certain  tests.  We believe we will meet these tests
     during 2005 and,  accordingly,  no provision for income taxes has been made
     in the accompanying financial statements.

     Financial Instruments
     ---------------------

              The methods  and  assumptions  used to estimate  the fair value of
     financial instruments are described below. We have estimated the fair value
     of  our  financial  instruments  using  available  market  information  and
     appropriate valuation  methodologies.  Considerable judgment is required in
     interpreting market data to develop estimates of market value. Accordingly,
     estimated  fair values are not  necessarily  indicative of the amounts that
     could be realized in current market exchanges.

              For purposes of financial statement presentation,  we consider all
     highly liquid financial  instruments such as short-term treasury securities
     or investment grade short-term commercial paper to be cash equivalents.

              Due  to  the  short  period  to  maturity  of our  cash  and  cash
     equivalents,  accounts receivable,  other financial instruments included in
     other assets,  and accrued and other  liabilities,  the carrying  values as
     presented  on the  condensed  consolidated  balance  sheets are  reasonable
     estimates of fair value. The carrying amounts of notes payable  approximate
     fair value because the  aggregate  applicable  interest  rate  approximates
     current  market rates for similar  loans and because the  relatively  short
     time until maturity reduces the effect of differing interest rates.

              Financial assets that are exposed to credit risk consist primarily
     of cash  and  cash  equivalents  and  accounts  receivable.  Cash  and cash
     equivalents, which consist of short-term investments,  including commercial
     paper,  are only  invested in entities  with an  investment  grade  rating.
     Accounts  receivable are not a significant  portion of total assets and are
     comprised of a large number of individual customers.

              Included in cash and cash  equivalents  at  September  30, 2005 is
     $16,424,000  ($1,984,000  at December 31, 2004) in cash held by our captive
     insurance  programs.  Insurance  and other  regulations  place  significant
     restrictions on our ability to withdraw these funds for purposes other than
     insurance  activities.  Our captive insurance programs are conducted by (i)
     STOR-Re Mutual Insurance Company, Inc. ("STOR-Re"),  an association captive
     insurance company owned by the Company and its affiliates, which is

                                       7

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     approximately 90.1% owned by the Company and the Consolidated Entities, and
     (ii) PS Insurance Company Hawaii, Ltd. ("PSIC-H"), a captive insurer formed
     on December 31, 2003 which is wholly owned by a subsidiary  of the Company.
     Other assets at September 30, 2005 include aggregate  investments  totaling
     $20,059,000  ($20,929,000  at December 31,  2004) in held to maturity  debt
     securities  owned by STOR-Re and PSIC-H  stated at  amortized  cost,  which
     approximates fair value.

     Real Estate Facilities
     ----------------------

              Real estate facilities are recorded at cost. Costs associated with
     the acquisition,  development,  construction, renovation and improvement of
     properties  are  capitalized.  Interest,  property  taxes,  and other costs
     associated with  development  incurred during the  construction  period are
     capitalized as building cost.  Expenditures for repairs and maintenance are
     charged  to  expense  as  incurred.  Depreciation  is  computed  using  the
     straight-line  method over the estimated  useful lives of the buildings and
     improvements, which are generally from 5 to 25 years.

     Accounting for Acquisition Joint Venture
     ----------------------------------------

              In January 2004, we entered into a joint venture  partnership with
     an institutional investor for the purpose of acquiring up to $125.0 million
     of existing self-storage properties in the United States from third parties
     (the "Acquisition Joint Venture").  The Acquisition Joint Venture is funded
     entirely  with equity  consisting  of 30% from the Company and 70% from the
     institutional  investor.  For a six-month  period beginning 54 months after
     formation,  we have the right to acquire our partner's  interest based upon
     the market value of the properties.  If we do not exercise our option,  our
     partner  can elect to purchase  our  interest  in the  properties  during a
     six-month period commencing upon expiration of our six-month option period.
     If our partner fails to exercise its option,  the Acquisition Joint Venture
     will be  liquidated  and the proceeds will be  distributed  to the partners
     according to the joint venture agreement.

              We have  determined  that the  Acquisition  Joint Venture is not a
     variable interest entity, and we do not control this entity.  Therefore, we
     do not  consolidate  the accounts of the  Acquisition  Joint Venture on our
     financial statements.

              During the year ended  December 31, 2004,  the  Acquisition  Joint
     Venture acquired two facilities directly from third parties at an aggregate
     cost of  $9,086,000.  We account for our  investment  with respect to these
     facilities  using the equity method,  with our pro rata share of the income
     from  these  facilities  recorded  as "Equity in  earnings  of real  estate
     entities" on our income  statement.  See Note 5 for further  discussion  of
     these amounts.

              In December  2004, we sold seven  facilities  that we had recently
     acquired to the  Acquisition  Joint Venture for an aggregate of $22,993,000
     representing  our original cost.  During the first quarter of 2005, we sold
     an interest in three  additional  facilities that we had recently  acquired
     for aggregate  proceeds of $27,424,000,  representing the Acquisition Joint
     Venture's  acquired  share  of our  original  cost.  Due to our  continuing
     interest  in these  facilities  and our  option to  acquire  our  partner's
     investment, as described above in year five, we are precluded from treating
     these  transactions as completed sales of facilities  pursuant to Statement
     of Financial  Accounting  Standards No. 66,  "Accounting  for Sales of Real
     Estate" ("SFAS 66"). Therefore, we continue to reflect these properties and
     associated operations on our condensed consolidated financial statements.

              We believe  that it is likely that we will  exercise our option to
     acquire  our  partner's   interest  and,   accordingly,   we  consider  the
     transactions  to be,  in  substance,  debt  financing.  Our  partner's  70%
     investment  in the  Acquisition  Joint  Venture  with  respect  to the  ten
     properties  is  therefore   reflected  as  a  liability  on  our  condensed
     consolidated  balance  sheet,  "Debt to Joint  Venture  Partner,"  with our
     partner's  share  of  operations  (an  8.5%  return  on  their  investment)
     reflected  on our  condensed  consolidated  income  statement  as  interest
     expense. The balance of the liability is adjusted each quarter to equal the
     current value to the extent fair value exceeds the original liability.  See
     Note 8 for a further discussion of these debt amounts.

                                       8

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Evaluation of Asset Impairment
     ------------------------------

              With respect to goodwill,  we evaluate impairment annually through
     a two-step  process.  In the first step, if the fair value of the reporting
     unit to which the goodwill applies is equal to or greater than the carrying
     amount of the assets of the reporting  unit,  including  the goodwill,  the
     goodwill is considered  unimpaired and the second step is unnecessary.  If,
     however,  the fair value of the reporting unit  including  goodwill is less
     than the carrying  amount,  the second step is performed.  In this test, we
     compute the implied fair value of the goodwill  based upon the  allocations
     that would be made to the  goodwill,  other assets and  liabilities  of the
     reporting unit if a business  combination  transaction  were consummated at
     the fair value of the reporting unit. An impairment loss is recorded to the
     extent  that the  implied  fair  value  of the  goodwill  is less  than the
     goodwill's  carrying amount. No impairments of our goodwill were identified
     in our annual evaluation at December 31, 2004.

              With respect to other long-lived  assets,  we evaluate such assets
     on a quarterly  basis.  We first evaluate  these assets for  indications of
     impairment  such as a) a  significant  decrease  in the  market  price of a
     long-lived  asset, b) a significant  adverse change in the extent or manner
     in which a long-lived asset is being used or in its physical condition,  c)
     a significant  adverse change in legal factors or the business climate that
     could affect the value of the long-lived asset, d) an accumulation of costs
     significantly  in  excess  of  the  amount  originally  projected  for  the
     acquisition or construction of the long-lived asset, or e) a current-period
     operating  or cash flow loss  combined  with a history of operating or cash
     flow losses or a projection or forecast that demonstrates continuing losses
     associated with the use of the long-lived  asset.  When any such indicators
     of impairment  are noted,  we compare the carrying value of these assets to
     the future estimated  undiscounted cash flows attributable to these assets.
     If the asset's  recoverable  amount is less than the carrying  value of the
     asset, then an impairment charge is booked for the excess of carrying value
     over the asset's fair value.

              Any long-lived assets which we expect to sell or otherwise dispose
     of prior to their  previously  estimated  useful life are stated at what we
     estimate to be the lower of their estimated net realizable value (less cost
     to sell) or their carrying value. No additional impairments were identified
     from our  evaluations  as of  September  30,  2005,  except as noted  under
     "Accounting for Casualty Losses" below.

     Accounting for Casualty Losses
     ------------------------------

              It is our  policy  to record as a  casualty  loss or gain,  in the
     period the casualty occurs,  the differential  between a) the book value of
     assets destroyed and b) any insurance proceeds that we expect to receive in
     accordance with our insurance contracts.  Potential proceeds from insurance
     that are subject to any uncertainties, such as interpretation of deductible
     provisions  of  the  governing  agreements,  the  estimation  of  costs  of
     restoration,  or other such items, are treated as a contingent  proceeds in
     accordance  with Statement of Financial  Accounting  Standards No. 5 ("SFAS
     5"), and not recorded until the uncertainties are satisfied.

              In the  quarter  ended  September  30,  2005,  several of our real
     estate  assets  located in New Orleans and Florida were damaged as a result
     of a  hurricane.  We  have  estimated  that  the  costs  to  restore  these
     facilities will  approximate $6.2 million.  We have third-party  insurance,
     subject to certain deductibles,  that covers restoration of physical damage
     and the loss of income occasioned by physical damage to our facilities.  We
     expect our insurers to pay approximately $2,764,000 of the physical damage,
     and  the  net  book  value  of  the  assets  destroyed  was   approximately
     $2,960,000.  Accordingly, we have recorded a casualty loss in the amount of
     $196,000 in the quarter  ended  September 30, 2005. No income from business
     interruption  proceeds has been recorded during the quarter ended September
     30, 2005,  as specific  deductible  limits have not yet been reached  based
     upon  losses to date.  We  recorded  a similar  loss in the  quarter  ended
     September 30, 2004 amounting to $1,250,000, representing the net book value
     of the assets destroyed (there were no insurance proceeds).

              These  amounts are based upon  estimates and are subject to change
     as we and our  insurers  (i) more fully  evaluate  the  extent of  physical

                                       9

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     damage,  which may not be fully determinable until commencement of repairs,
     (ii) develop  detailed  restoration  plans and (iii) evaluate the impact of
     local  conditions in the building labor and supplies markets on restoration
     costs.

     Accounting for Stock-Based Compensation
     ---------------------------------------

              We  utilize  the Fair  Value  Method  (as  defined  in Note 12) of
     accounting  for our employee  stock options issued after December 31, 2001,
     and utilize the APB 25 Method (as  defined in Note 12) for  employee  stock
     options issued prior to January 1, 2002.  Restricted  Stock Unit expense is
     recorded  over  the  relevant  vesting  period.  See  Note  12  for a  full
     discussion  of our  accounting  policies  with  respect to  employee  stock
     options and restricted stock units.

     Other Assets
     ------------

              Other  assets  primarily   consist  of  containers  and  equipment
     associated with the  containerized  storage  operations,  assets associated
     with the truck rental business,  accounts receivable,  prepaid expenses and
     investments  held  by  STOR-Re  and  PSIC-H  (discussed  below).   Accounts
     receivable from customers are net of allowances for doubtful accounts.

              Containers  and equipment  utilized in our  containerized  storage
     business  totaled  $1,333,000 at September 30, 2005 ($4,395,000 at December
     31, 2004).  The carrying  amounts are net of accumulated  depreciation  and
     asset impairment  charges.  No impairment  charges were recorded during the
     three and nine months ended  September  30, 2005 with respect to containers
     and  equipment   utilized  in  the   discontinued   containerized   storage
     operations.

              Included in depreciation  and  amortization  expense for the three
     and nine months ended  September  30, 2005 is  $1,376,000  and  $5,159,000,
     respectively,  related to other  assets,  as  compared  to  $1,852,000  and
     $5,533,000 for the same period in 2004. Included in discontinued operations
     for the three and nine months  ended  September  30,  2004 is  depreciation
     expense of $216,000 and  $722,000,  respectively,  and $29,000 for the nine
     months ended  September 30, 2005 with respect to other assets (none for the
     three months ended September 30, 2005).

              Other assets at September 30, 2005 include  aggregate  investments
     totaling $20,059,000 ($20,929,000 at December 31, 2004) in held to maturity
     securities  owned by STOR-Re and PSIC-H  stated at  amortized  cost,  which
     approximates fair market value.

     Accrued and Other Liabilities
     -----------------------------

              Accrued and other liabilities consist primarily of trade payables,
     real and personal  property tax  accruals,  prepayments  of rents,  accrued
     interest,  and losses and loss  adjustment  liabilities  from our insurance
     programs,   as  discussed  below.   Prepaid  rent  totals  $25,551,000  and
     $26,289,000 at September 30, 2005 and December 31, 2004, respectively.

              Liabilities  for losses and loss  adjustment  expenses  include an
     amount we determine from loss reports and  individual  cases and an amount,
     based on  recommendations  from an independent  actuary that is a member of
     the American  Academy of Actuaries  using a frequency and severity  method,
     for losses incurred but not reported.  Determining the liability for unpaid
     losses  and loss  adjustment  expense  is based  upon  estimates.  While we
     believe that the amount is adequate,  the ultimate loss may be in excess of
     or less than the amounts  provided.  The methods for making such  estimates
     and for establishing the resulting liability are continually reviewed.

                                       10

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              STOR-Re,  which is  consolidated  with the Company,  was formed in
     1994 as an association  captive  insurance company owned by the Company and
     affiliates of the Company.  STOR-Re provides limited property and liability
     insurance  to the Company and its  affiliates  for losses  incurred  during
     policy  periods  prior to April 1, 2004,  and was  succeeded by PSIC-H with
     respect to these insurance activities for policy periods following April 1,
     2004.  The  Company  also  utilizes  other  insurance  carriers  to provide
     property  and  liability  insurance  coverage  in excess of  STOR-Re's  and
     PSIC-H's  limitations,  which are described in Note 14.  STOR-Re and PSIC-H
     accrue  liabilities  for  estimated  covered  losses  and  loss  adjustment
     expense,  which at September 30, 2005 totaled  $33,596,000  ($34,192,000 at
     December 31,  2004) with  respect to insurance  provided to the Company and
     its affiliates.

              PS Insurance Company, Ltd ("PSIC"),  a wholly-owned  subsidiary of
     the Company,  reinsured  policies against claims for losses to goods stored
     by tenants in our self-storage facilities for policy periods prior to April
     1, 2004.  PSIC-H  succeeded  PSIC with  respect to these  tenant  insurance
     activities  effective April 1, 2004, and these entities utilize third-party
     insurance coverage for losses from any individual event that exceeds a loss
     of $500,000,  to a maximum of  $10,000,000.  Losses  below the  third-party
     insurers'  deductible  amounts  are accrued as cost of  operations  for the
     tenant insurance operations.

              We recorded  approximately $500,000 in accrued losses with respect
     to estimated  insured  tenant  claims as a result of damage  sustained as a
     result of  hurricanes  which  occurred  in the third  quarter of 2005,  and
     $1,500,000  during the  quarter  ended  September  30,  2004 as a result of
     hurricanes  occurring in that  quarter.  In the second  quarter of 2005, we
     adjusted  our  estimate  and  reversed  $500,000  of the amount  accrued at
     September 30, 2004 based upon historical trends and lapse of time.

              The accrued liability for losses and loss adjustment  expense with
     respect to tenant insurance  activities totaled $3,575,000 at September 30,
     2005 ($4,898,000 at December 31, 2004), which includes the remaining future
     estimated  payments for tenant  claims  resulting  from the  aforementioned
     hurricanes.

     Intangible Assets and Goodwill
     ------------------------------

              Intangible  assets  consist  of  property   management   contracts
     ($165,000,000)  and the excess of  acquisition  cost over the fair value of
     net tangible and identifiable intangible assets or "goodwill" ($94,719,000)
     acquired in business  combinations.  Our goodwill has an indeterminate life
     and,  accordingly,  is not amortized.  Our other intangibles have a defined
     life and are amortized on a straight-line basis over a 25-year period.

              Goodwill is net of  accumulated  amortization  of  $16,515,000  at
     September 30, 2005 and December 31, 2004.  At September 30, 2005,  property
     management  contracts are net of  accumulated  amortization  of $65,268,000
     ($60,315,000  at  December  31,  2004).   Included  in   depreciation   and
     amortization  expense  for each of the three and nine month  periods  ended
     September 30, 2005 and 2004 is  $1,651,000  and  $4,953,000,  respectively,
     with respect to the amortization of property management contracts.

     Revenue and Expense Recognition
     -------------------------------

              Rental   income,   which   is   generally   earned   pursuant   to
     month-to-month   leases  for  storage  space,   is  recognized  as  earned.
     Promotional  discounts are  recognized as a reduction to rental income over
     the  promotional  period,  which is  generally  during  the first  month of
     occupancy.  Late charges and  administrative  fees are recognized as rental
     income when  collected.  Tenant  reinsurance  premiums  are  recognized  as
     premium  revenue when  collected.  Interest income is recognized as earned.
     Equity in  earnings  of real estate  entities  is  recognized  based on our
     ownership  interest  in the  earnings  of each of the  unconsolidated  real
     estate entities.

                                       11

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              We accrue  for  property  tax  expense  based upon  estimates  and
     historical trends. If these estimates are incorrect,  the timing of expense
     recognition could be affected.

              Cost of operations,  general and administrative expense,  interest
     expense,  as  well  as  television,  yellow  page,  and  other  advertising
     expenditures are expensed as incurred. Accordingly, the amounts incurred in
     an  interim  period may not be  indicative  of the  amounts to be  incurred
     during a full year. Television,  yellow page, and other advertising expense
     totaled  $7,486,000  and  $24,049,000  for the three and nine months  ended
     September 30, 2005 and $5,012,000 and  $18,620,000  for the same periods in
     2004, respectively.

     Environmental Costs
     -------------------

              Our  policy  is  to  accrue   environmental   assessments   and/or
     remediation cost when it is probable that such efforts will be required and
     the related cost can be reasonably  estimated.  Our current  practice is to
     conduct   environmental   investigations   in   connection   with  property
     acquisitions.  Although there can be no assurance,  we are not aware of any
     environmental  contamination to any of our facilities,  which, individually
     or in the aggregate,  would be material to our overall business,  financial
     condition, or results of operations.

     Net Income per Common Share
     ---------------------------

              Distributions  paid to the  holders  of our  Cumulative  Preferred
     Stock  totaling  $43,726,000  and  $40,471,000  for the three  months ended
     September  30, 2005 and 2004,  respectively,  have been  deducted  from net
     income  to  arrive  at net  income  allocable  to our  common  shareholders
     (dividends to Preferred Stock were  $126,286,000  and  $117,293,000 for the
     nine months ended September 30, 2005 and 2004, respectively).

              Emerging Issues Task Force ("EITF") Topic D-42, "The Effect on the
     Calculation  of  Earnings  per  Share  for the  Redemption  or the  Induced
     Conversion  of Preferred  Stock"  provides,  among other  things,  that any
     excess  of (1) the  fair  value  of the  consideration  transferred  to the
     holders of preferred  stock  redeemed  over (2) the carrying  amount of the
     preferred  stock should be  subtracted  from net earnings to determine  net
     earnings  available to common  stockholders  in the calculation of earnings
     per share.  At the July 31, 2003 meeting of the EITF,  the  Securities  and
     Exchange  Commission  Observer clarified that for purposes of applying EITF
     Topic D-42, the carrying amount of the preferred stock should be reduced by
     the  issuance  costs of the  preferred  stock,  regardless  of where in the
     stockholders'  equity  section  those costs were  initially  classified  on
     issuance.

              In conformity with the SEC Observer's clarification, an additional
     $3,072,000 and $6,795,000 was allocated to preferred  stockholders  for the
     three and nine months ended September 30, 2004,  respectively,  as compared
     to  $1,904,000  for the nine months ended  September 30, 2005 (none for the
     three months  ended  September  30, 2005) for the excess of the  redemption
     amount over the carrying  amount of our Cumulative  Preferred  Stock. It is
     our policy to record such allocations at the time the securities are called
     for redemption.

              Net income  allocated to our common  shareholders has been further
     allocated between our two classes of common stock: our regular common stock
     and our Equity Stock,  Series A. The allocation  among each class was based
     upon the two-class method.  Under the two-class method,  earnings per share
     for each  class of  common  stock are  determined  according  to  dividends
     declared  (or  accumulated)  and  participation   rights  in  undistributed
     earnings.  Under the  two-class  method,  the Equity  Stock,  Series A, was
     allocated  net income of  $5,356,000  and  $5,375,000  for the three months
     ended  September  30,  2005 and 2004,  respectively,  and  $16,087,000  and
     $16,126,000  for the  nine  months  ended  September  30,  2005  and  2004,
     respectively.  The  remaining  $79,262,000  and  $48,597,000  for the three
     months ended  September 30, 2005 and 2004,  respectively,  was allocated to
     the   regular   common   shareholders   ($188,744,000   and   $118,728,000,
     respectively, for the nine months ended September 30, 2005 and 2004).

                                       12

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              Basic net income per share is computed using the weighted  average
     common shares  outstanding  (prior to the dilutive  impact of stock options
     and  restricted  stock  units  outstanding).  Diluted net income per common
     share is computed  using the weighted  average  common  shares  outstanding
     (adjusted  for the dilutive  impact of stock options and  restricted  stock
     units outstanding). Weighted average common shares excludes shares owned by
     the  Consolidated  Entities  as  described  in  Note  10  for  all  periods
     presented, as these shares of common stock are eliminated in consolidation.

3.       Discontinued Operations
         -----------------------

              We segregate all of our disposed  components  that have operations
     that (i) can be distinguished  from the rest of the entity and (ii) will be
     eliminated  from  the  ongoing  operations  of  the  entity  in a  disposal
     transaction.

              During 2002, 2003, and 2004, we closed a total of 43 containerized
     storage  facilities that were determined to be  non-strategic  (the "Closed
     Facilities").  As the decision was made to close each facility, the related
     assets were evaluated for  recoverability and asset impairment charges were
     recorded  for the  excess of these  assets'  net book value over their fair
     value (less costs to sell), determined based upon recent selling prices for
     similar  assets.  With  respect  to  facilities  closed  during  2004 asset
     impairment charges totaling $1,406,000 and $1,575,000 were recorded for the
     three  and nine  months  ended  September  30,  2004.  In  addition,  lease
     termination  charges  totaling  $416,000  were  recorded in the nine months
     ended September 30, 2004. No asset impairment or lease termination  charges
     were recorded in the three or nine month periods in 2005.

              During the first  quarter  of 2005,  we sold the  non-real  estate
     assets  of six of the  Closed  Facilities,  resulting  in a gain on sale of
     approximately $1,143,000.

              During  July 2005,  in an eminent  domain  proceeding,  one of our
     self-storage  facilities  located  in  the  Portland,   Oregon  market  was
     condemned  (the  "Eminent  Domain  Facility").  We received  the  proceeds,
     totaling $6.6 million,  from the disposal of this facility during the third
     quarter of 2005 and recorded a gain of $5.2 million. The operations of this
     facility  prior  to its  disposition,  and  the  gain on  disposition  were
     classified as  "discontinued  operations" for all periods  presented on our
     September 30, 2005 income  statement and included under the "Eminent Domain
     Facility" in the table below.

              During the fourth  quarter of 2004, we sold a commercial  property
     (the "Sold  Commercial  Facility")  to a third party and recorded a gain on
     sale of $971,000.  The  historical  operating  results of this facility are
     reported as discontinued  operations,  and are presented in the table below
     as the "Sold Commercial Facility."

              The following table  summarizes the historical  operations of each
     component of our discontinued operations:

                                       13

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

DISCONTINUED OPERATIONS:
------------------------

<TABLE>
<CAPTION>

                                        Three Months Ended           Nine Months Ended
                                           September 30,               September 30,
                                       ---------------------      ----------------------
                                         2005        2004            2005        2004
                                       ----------  ---------      ----------   ---------
                                                    (Amounts in thousands)
Rental income (a):
<S>                                     <C>         <C>             <C>        <C>
  Closed Facilities...............      $     -     $ 1,740         $    95    $  6,267
  Eminent Domain Facility.........          161         165             461         505
  Sold Commercial Facility........            -         105               -         279
                                       ----------  ---------      ----------   ---------
Total rental income...............          161       2,010             556       7,051
                                       ----------  ---------      ----------   ---------
Cost of operations (a):
  Closed Facilities...............            -      (1,154)           (194)     (5,176)
  Eminent Domain Facility.........          (45)        (73)           (220)       (166)
  Sold Commercial Facility........            -         (26)              -         (63)
                                       ----------  ---------      ----------   ---------
Total cost of operations..........          (45)     (1,253)           (414)     (5,405)
                                       ----------  ---------      ----------   ---------
Depreciation expense (a):
  Closed Facilities...............            -        (306)            (29)     (1,031)
  Eminent Domain Facility.........          (20)        (21)            (59)        (68)
  Sold Commercial Facility........            -         (25)              -         (74)
                                       ----------  ---------      ----------   ---------
Total depreciation ...............          (20)       (352)            (88)     (1,173)

Other items (b)...................        5,180      (1,406)          6,323      (1,991)
                                       ----------  ---------      ----------   ---------
Net discontinued operations (c)...      $ 5,276     $(1,001)        $ 6,377    $ (1,518)
                                       ==========  =========      ==========   =========

</TABLE>

(a)      These  amounts  represent  the  historical  operations  of  the  Closed
         Facilities,  the  Eminent  Domain  Facility  and  the  Sold  Commercial
         Facility,  and include amounts previously  classified as rental income,
         cost  of  operations,   and  depreciation   expense  in  the  financial
         statements in prior periods.

(b)      For the three and nine months ended  September  30, 2005, we recorded a
         gain totaling $5,180,000 in connection with the Eminent Domain Facility
         (see Note 4).  Also,  for the nine months  ended  September  30,  2005,
         non-real estate assets of the Closed Facilities were sold, resulting in
         a gain on sale of approximately  $1,143,000.  Shutdown expenses for the
         nine  months  ended  September  30,  2004  were  $1,991,000,  including
         $1,575,000   in  asset   impairment   charges  and  $416,000  in  lease
         termination  expenses  recorded with respect to the Closed  Facilities.

(c)      Earnings per share increased by $0.04 and $0.05 per share for the three
         and nine months ended September 30, 2005, respectively,  as compared to
         a decrease of $0.01 per share for each of the same periods in 2004, due
         to the impact from discontinued operations.

                                       14

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

4.       Real Estate Facilities
         ----------------------
              Activity in real estate facilities is as follows:

                                                               Nine Months Ended
                                                              September 30, 2005
                                                              ------------------
                                                                (In thousands)
Operating facilities, at cost:
   Balance at December 31, 2004........................        $    5,510,750
   Newly developed facilities opened for operations....                41,848
   Acquisition of real estate facilities...............               124,753
   Acquisition of minority interest (Note 9)...........                69,312
   Assets damaged by hurricane (Note 2)................                (4,230)
   Dispositions (including Eminent Domain Facility
     discussed in Note 3)..............................                (7,851)
   Capital improvements................................                13,286
                                                              ------------------
   Balance at September 30, 2005.......................             5,747,868
                                                              ------------------
Accumulated depreciation:
   Balance at December 31, 2004........................            (1,320,200)
   Additions...........................................              (134,083)
   Assets damaged by hurricane (Note 2)................                 1,270
   Dispositions (including Eminent Domain Facility
     discussed in Note 3)..............................                 3,126
                                                              ------------------
   Balance at September 30, 2005.......................            (1,449,887)
                                                              ------------------
Construction in process:
   Balance at December 31, 2004........................                47,277
   Current development.................................                46,039
   Transfer to land held for development...............                  (569)
   Newly developed facilities opened for operations....               (41,848)
                                                              ------------------
   Balance at September 30, 2005.......................                50,899
                                                              ------------------
Land held for development:
   Balance at December 31, 2004........................                 8,883
   Dispositions........................................                (1,048)
   Transfer from construction in process...............                   569
                                                              ------------------
   Balance at September 30, 2005.......................                 8,404
                                                              ------------------
Total real estate at September 30, 2005................        $    4,357,284
                                                              ==================

              During the nine months ended  September  30, 2005, we opened three
     newly developed self-storage  facilities (259,000 net rentable square feet)
     for an aggregate cost of $15,983,000.  We also completed six projects which
     converted space previously used by our containerized  storage business into
     324,000 net  rentable  square feet of  self-storage  space for an aggregate
     cost of $12,696,000.  In addition, we completed three expansion projects to
     existing  self-storage  facilities  adding 117,000 net rentable square feet
     for an aggregate of $13,026,000, and we incurred trailing development costs
     with respect to  development  projects  completed  in prior  years,  for an
     aggregate net cost of $143,000.

              During the nine months ended  September  30, 2005,  we disposed of
     various parcels of land for an aggregate of $4,274,000, recording a loss on
     sale of approximately  $89,000.  In addition,  we disposed of a facility in
     connection  with  an  eminent  domain  proceeding,   for  an  aggregate  of
     $6,590,000  recording  a gain on sale of  $5,180,000,  which is included in
     Discontinued Operations (see also Note 3).

                                       15

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              During the nine months ended  September  30, 2005,  we acquired 21
     self-storage  facilities  from  third  parties  at  an  aggregate  cost  of
     $124,753,000 in cash (1,469,000 net rentable square feet).

              Construction  in process at September 30, 2005 consists  primarily
     of seven  self-storage  facilities  (579,000 net rentable square feet) with
     costs  incurred of  $37,009,000  at September 30, 2005 and total  estimated
     costs of  $80,973,000,  38 projects  (2,309,000  net rentable  square feet)
     which  expand or enhance the visual and  structural  appeal of our existing
     self-storage  facilities with cost incurred of $10,011,000 at September 30,
     2005 and total estimated costs of  $177,127,000,  and 12 projects  (926,000
     net rentable square feet) to convert space at former containerized  storage
     facilities  into  self-storage  space with cost  incurred of  $3,879,000 at
     September 30, 2005 and total estimated  costs of $33,168,000.  In addition,
     we have five  parcels  of land held for  development  with  total  costs of
     approximately $8,404,000.

              Our policy is to capitalize  interest  incurred on debt during the
     course of construction of our self-storage facilities. Interest capitalized
     during the three and nine months ended  September 30, 2005 was $710,000 and
     $2,054,000,  respectively.  Interest  capitalized  for the  three  and nine
     months ended September 30, 2004 was $685,000 and $2,722,000, respectively.

5.       Investment in Real Estate Entities
         ----------------------------------

              At September 30, 2005,  our  investments  in real estate  entities
     consist of ownership interests in eight partnerships, which principally own
     self-storage facilities, and our ownership interest in PSB. These interests
     are non-controlling  interests of less than 50% and are accounted for using
     the equity method of accounting. Accordingly, earnings are recognized based
     upon our ownership  interest in each of the  partnerships.  The  accounting
     policies of these entities are similar to the Company's.

              We received cash  distributions  from our investments for the nine
     months ended  September 30, 2005 and 2004, in the amount of $17,015,000 and
     $15,863,000,  respectively.  In  addition,  during  the nine  months  ended
     September 30, 2005, we received a distribution from affiliated  entities of
     635,885  shares of our  common  stock and 31,909  depositary  shares of our
     Equity Stock, Series A, with an aggregate book value of $11,189,000.

              The  following  table sets forth our  investments  in real  estate
     entities at September  30, 2005 and  December  31,  2004,  an our equity in
     earnings  of real  estate  entities  for the  three  an nine  months  ended
     September 30, 2005 and 2004 (amounts in thousands):

<TABLE>
<CAPTION>

                                                                      Equity in Earnings of Real      Equity in Earnings of Real
                                    Investments in Real Estate          Estate Entities for the      Estate Entities for the Nine
                                            Entities at            Three Months Ended September 30,  Months Ended September 30,
                                 --------------------------------  --------------------------------  ----------------------------
                                  September 30,      December 31,
                                      2005               2004             2005           2004            2005           2004
                                 --------------    --------------  ---------------   --------------  ------------    ------------
<S>                              <C>                <C>               <C>             <C>            <C>             <C>
PSB (a).......................   $   289,457        $   284,564       $     8,251     $     1,567    $    15,829     $     7,263
Acquisition Joint Venture.....         2,844              2,857                 7             (10)           (13)            (10)
Other Investments ............        41,181             53,883             1,595           1,627          4,566           4,393
                                 --------------    --------------  ---------------   --------------  ------------    ------------
  Total.......................   $   333,482        $   341,304       $     9,853     $     3,184    $    20,382     $    11,646
                                 ==============    ==============  ===============   ==============  ============    ============

</TABLE>

(a)  Equity in earnings of real estate  entities  includes our pro rata share of
     the net impact of  gains/losses  on sale of assets and  impairment  charges
     relating to the  impending  sale of real  estate  assets as well as our pro
     rata  share  of the  impact  of the  application  of  EITF  Topic  D-42  on
     redemptions of preferred securities recorded by PSB. Our net pro rata share
     of these items  resulted in an increase of equity in earnings of $5,458,000
     and  $7,033,000  for the three and nine months  ended  September  30, 2005,
     respectively, as compared to a decrease in equity in earnings of $1,092,000
     and  $2,109,000  for the three and nine months  ended  September  30, 2004,
     respectively.

                                       16

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Investment in PS Business Parks, Inc.
     -------------------------------------

              PS Business  Parks,  Inc. is a REIT traded on the  American  Stock
     Exchange, which controls an operating partnership  (collectively,  the REIT
     and the  operating  partnership  are  referred to as "PSB").  We have a 44%
     common equity  interest in PSB as of September 30, 2005. This common equity
     interest is comprised of our ownership of 5,418,273  shares of PSB's common
     stock and 7,305,355 limited partnership units in the operating  partnership
     at both September 30, 2005 and December 31, 2004; these limited partnership
     units are convertible at our option,  subject to certain  conditions,  on a
     one-for-one  basis into PSB common  stock.  Based upon the closing price at
     September  30, 2005 ($45.80 per common share of PSB stock),  the shares and
     units had a market value of  approximately  $582.7 million as compared to a
     book value of $289.5 million.

              At September 30, 2005, PSB wholly owned approximately 17.4 million
     net rentable  square feet of  commercial  space.  In addition,  PSB manages
     commercial  space  owned  by the  Company  and  the  Consolidated  Entities
     pursuant to property management agreements.

              The  following  table  sets  forth  the  condensed  statements  of
     operations for each of the nine month periods ended  September 30, 2005 and
     2004 (as restated for discontinued  operations),  and the condensed balance
     sheets of PSB at September  30, 2005 and  December  31,  2004.  The amounts
     below represent 100% of PSB's balances and our pro rata share.

<TABLE>
<CAPTION>

                                                          Nine Months Ended September 30,
                                                         -----------------------------------
                                                               2005               2004
                                                         ----------------    ---------------
                                                            (Amounts in thousands)
<S>                                                      <C>                 <C>
   Total revenue....................................     $      164,305      $      157,020
   Cost of operations and general and administrative            (53,011)            (50,176)
   Other income and expense, net....................              1,914              (2,400)
   Depreciation and amortization....................            (56,283)            (51,862)
   Discontinued operations (a)......................             14,615               3,509
   Minority interest (b)............................            (12,423)            (20,472)
                                                         ----------------    ---------------
     Net income.....................................     $       59,117      $       35,619
                                                         ================    ===============
</TABLE>


<TABLE>
<CAPTION>

                                                          September 30,       December 31,
                                                               2005               2004
                                                         ----------------    ---------------
                                                             (Amounts in thousands)

<S>                                                      <C>                 <C>
   Total assets (primarily real estate).............     $    1,440,283      $    1,363,829
   Total debt.......................................             11,055              11,367
   Other liabilities................................             37,947              38,453
   Preferred equity and preferred minority interest.            709,100             638,600
   Common equity and common minority interest.......            682,181             675,409

</TABLE>


(a)  Included in discontinued operations for the nine months ended September 30,
     2005 is a net gain on disposition of real estate of $16,529,000 as compared
     to $145,000 for the same period in 2004.

(b)  Minority  interest  for the nine months ended  September  30, 2005 and 2004
     includes $301,000 and $3,139,000,  respectively, in EITF Topic D-42 charges
     related to PSB's redemption of preferred units.

                                       17

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Acquisition Joint Venture
     -------------------------

              As described more fully under  "Accounting for  Acquisition  Joint
     Venture"  in  Note 2, we  formed  a  partnership  (the  "Acquisition  Joint
     Venture")  in January  2004 for the purpose of acquiring up to $125 million
     in existing  self-storage  facilities from third parties.  Through December
     31, 2004,  the  Acquisition  Joint  Venture had  acquired two  self-storage
     facilities  directly from third parties at an aggregate cost of $9,086,000,
     of which our pro rata share was  $2,930,000.  Our  investment  in these two
     facilities  is  accounted  for using the equity  method of  accounting.  In
     December 2004, we sold seven facilities to the Acquisition Joint Venture as
     well as  interest in three  facilities  in the first  quarter of 2005.  Our
     accounting for these ten facilities is described in Note 2.

              The  following  table  sets  forth  certain  condensed   financial
     information  (representing  100% of this entity's  balances and not our pro
     rata share) with respect to the two self-storage facilities acquired by the
     Acquisition  Joint  Venture that we account for using the equity  method of
     accounting:

<TABLE>
<CAPTION>

                                                             Nine Months Ended     Nine Months Ended
                                                             September 30, 2005    September 30, 2004
                                                            --------------------  --------------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total revenue........................................      $          961        $          133
   Other expenses, principally cost of operations.......                (364)                  (72)
   Depreciation and amortization........................                (202)                  (31)
                                                            --------------------  --------------------
     Net income.........................................      $          395        $           30
                                                            ====================  ====================

</TABLE>

<TABLE>
<CAPTION>

                                                              At September 30,        At December 31,
                                                                    2005                  2004
                                                            --------------------  --------------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total assets (primarily self-storage facilities).....      $        9,065        $        9,168
   Liabilities..........................................                  77                    11
   Partners' equity.....................................               8,988                 9,157

</TABLE>

     Other Investments
     -----------------

              During the nine months ended  September 30, 2005 we had an average
     common equity ownership of approximately 40% in seven limited  partnerships
     (collectively,  the "Other  Investments") owning an aggregate of 36 storage
     facilities.

              The  following  table  sets  forth  certain  condensed   financial
     information  (representing 100% of these entities' balances and not our pro
     rata share) with respect to Other Investments:

<TABLE>
<CAPTION>

                                                               Nine Months Ended September 30,
                                                              --------------------------------
                                                                    2005              2004
                                                              ---------------    -------------
                                                                 (Amounts in thousands)
<S>                                                           <C>                <C>
   Total revenue........................................      $      21,936      $     21,089
   Other expenses, principally cost of operations.......             (7,241)           (7,170)
   Depreciation and amortization........................             (1,554)           (1,781)
                                                              ---------------    -------------
     Net income.........................................      $      13,141      $     12,138
                                                              ===============    =============

</TABLE>

<TABLE>
<CAPTION>

                                                              September 30,      December 31,
                                                                   2005              2004
                                                              --------------     -------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                <C>
   Total assets (primarily self-storage facilities).....      $     50,037       $     58,124
   Other liabilities....................................             2,256              1,853
   Partners' equity.....................................            47,781             56,271

</TABLE>

                                       18

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

6.       Revolving Line of Credit
         ------------------------

              We have a revolving line of credit (the "Credit  Agreement")  with
     an aggregate limit with respect to borrowings and letters of credit of $200
     million,  that has a  maturity  date of April 1,  2007 and  bears an annual

     interest rate ranging from the London Interbank Offered Rate ("LIBOR") plus
     0.45% to LIBOR plus 1.20% depending on our credit ratings  (currently LIBOR
     plus 0.45%). In addition, we are required to pay a quarterly commitment fee
     ranging  from  0.15% per annum to 0.30% per annum  depending  on our credit
     ratings (currently the fee is 0.15% per annum).

              The  Credit  Agreement  includes  various   covenants,   the  more
     significant  of which require us to (i) maintain a balance  sheet  leverage
     ratio of less than 0.55 to 1.00, (ii) maintain certain  quarterly  interest
     and fixed-charge coverage ratios (as defined therein) of not less than 2.25
     to 1.0 and 1.5 to 1.0,  respectively,  and (iii)  maintain a minimum  total
     shareholders' equity (as defined therein).  In addition,  we are limited in
     our ability to incur  additional  borrowings  (we are  required to maintain
     unencumbered  assets with an aggregate  book value equal to or greater than
     1.5 times our unsecured  recourse  debt).  We were in  compliance  with all
     covenants of the Credit  Agreement at September  30, 2005. At September 30,
     2005 and at November 8, 2005, we had no outstanding  borrowings on our line
     of credit.

              At September 30, 2005 and November 8, 2005, we had undrawn standby
     letters of credit totaling $18,693,000.  The beneficiaries of these standby
     letters of credit were  certain  insurance  companies  associated  with our
     captive insurance and tenant insurance activities.

7.       Notes Payable
         -------------

              Notes payable at September 30, 2005 and December 31, 2004 consist
of the following:

<TABLE>
<CAPTION>

                                                                         Carrying Amount
                                                                -------------------------------
                                                                 September 30,     December 31,
                                                                      2005             2004
                                                                ---------------  --------------
                                                                     (Amounts in thousands)
Unsecured senior notes:

<S>                                                              <C>               <C>
  7.66% note due January 2007.............................       $     22,400      $     33,600

Mortgage notes payable:

  7.134% and 8.75% mortgage notes secured by two real estate
  facilities with a net book value of $10.9 million, principal
  and interest payable monthly, due at varying dates between
  October 2009 and September 2028.........................              1,514             1,629

  5.05% mortgage notes (including unamortized note premium of
  $2.0 million)secured by 25 real estate facilities with a net
  book value of $96.5 million,principal and interest due
  monthly,  due at varying dates  between  October 2010 and
  May 2023....................................................         39,307            41,470

  5.25% mortgage notes (including unamortized note premium of
  $3.6 million) secured by seven real estate facilities with a
  net book value of $90.5 million, principal and interest due
  monthly, due at varying dates between June 2011 and
  July 2013 ..............................................             51,839            52,820
                                                                ---------------  --------------
         Total notes payable..............................        $   115,060       $   129,519
                                                                ===============  ==============

</TABLE>

              All of our notes  payable are fixed  rate.  The  unsecured  senior
     notes require interest and principal  payments to be paid semi-annually and
     have various restrictive covenants, all of which have been met at September
     30, 2005.

                                       19

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              We assumed the 5.05% and 5.25% mortgage  notes in connection  with
     property acquisitions in 2004. The stated interest rates on the notes range
     from 5.4% to 8.1% with a weighted average of approximately 6.65%. The notes
     were recorded at their estimated fair value based upon the estimated market
     rate upon  assumption  of 5.05% and 5.25%,  an aggregate  of  approximately
     $94,693,000,   as  compared   to  actual   assumed   balances   aggregating
     approximately  $88,247,000.  This premium of approximately  $6,446,000 over
     the principal  balance of the notes payable is amortized over the remaining
     term of the loans based upon the effective interest method. During the nine
     months ended September 30, 2005, we incurred $5,011,000 in interest expense
     on  these  notes,   comprised  of  $5,785,000  in  cash  less  $774,000  in
     amortization of premium.

              At September 30, 2005, approximate principal maturities of notes
payable are as follows:

                                    Unsecured          Mortgage
                                   Senior Notes          Notes            Total
                                  --------------     ------------     ----------
                                            (Amounts in thousands)
2005 (remainder of)..........     $          -       $       893       $     893
2006.........................           11,200             4,539          15,739
2007.........................           11,200             4,783          15,983
2008.........................                -             5,034           5,034
2009.........................                -             5,213           5,213
Thereafter...................                -            72,198          72,198
                                  --------------     ------------     ----------
                                  $     22,400         $  92,660       $ 115,060
                                  ==============     ============     ==========
Weighted average rate........            7.7%               5.2%            5.7%
                                  ==============     ============     ==========

8.       Debt to Joint Venture Partner
         -----------------------------

              As  described  more fully in Note 2, we accounted  for  facilities
     sold to our Acquisition Joint Venture as financing transactions pursuant to
     SFAS 66. As a result,  the fair value of our  partner's  interest  in these
     facilities  ($35,654,000  at September 30, 2005 and $16,095,000 at December
     31, 2004) is accounted  for as debt on our condensed  consolidated  balance
     sheets.

              On December 31, 2004, we sold seven  self-storage  facilities that
     we had acquired in 2004 from third parties to our Acquisition Joint Venture
     for $22,993,000,  an amount that was equal to fair value and our cost; this
     transaction increased Debt to Joint Venture Partner by $16,095,000.

              On January  14,  2005,  we sold an  interest  in three  additional
     facilities we had recently acquired for an aggregate amount of $27,424,000,
     an amount equal to the  acquired  pro rata share of cost and market  value;
     this   transaction   increased  the  Debt  to  Joint  Venture   Partner  by
     $19,197,000,  representing  our Joint  Venture  Partner's  interest  in the
     acquisition.

              A total of  $2,182,000  was  recorded as  interest  expense on our
     consolidated  income  statement  with respect to our Debt to Joint  Venture
     Partner during the nine months ended September 30, 2005,  representing  our
     partner's pro rata share of net earnings with respect to the  properties we
     sold to the Acquisition Joint Venture (an 8.5% return on their investment);
     a total of $1,820,000 was paid to our joint venture partner (an 8.0% return
     payable currently in accordance with the partnership  agreement) during the
     nine months  ended  September  30, 2005,  with the debt balance  increasing
     $362,000.

              We expect that this debt will be repaid during 2008, assuming that
     we exercise our option to acquire our partner's interest in the Acquisition
     Joint Venture.

                                       20

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

9.       Minority Interest and Debt to Related Party
         -------------------------------------------

              In  consolidation,  we  classify  ownership  interests  in the net
     assets  of each of the  Consolidated  Entities,  other  than  our  own,  as
     minority interest on the condensed  consolidated  financial  statements or,
     when such ownership  interests  represent  liabilities,  as debt.  Minority
     interest  in  income  consists  of the  minority  interests'  share  of the
     operating results of the Consolidated Entities.

     Preferred Partnership Interests
     -------------------------------

              The following  table  summarizes the preferred  partnership  units
     outstanding at September 30, 2005 and December 31, 2004:

<TABLE>
<CAPTION>

                                                        At September 30, 2005           At December 31, 2004
                                                     -----------------------------   --------------------------
                     Earliest        Distribution       Units          Carrying         Units        Carrying
    Series      Redemption Date (a)      Rate        Outstanding        Amount       Outstanding      Amount
--------------  -------------------  ------------    -----------     -------------   -----------    -----------
                                                                      (Amounts in thousands)
<S>                                       <C>                          <C>                 <C>       <C>
Series N......   March 17, 2005 (b)       9.500%               -       $       -           1,600     $   40,000
Series NN.....   March 17, 2010           6.400%           8,000          200,000          8,000        200,000
Series O......   March 29, 2005 (b)       9.125%               -                -          1,800         45,000
Series Z......   October 12, 2009         6.250%           1,000           25,000          1,000         25,000
                                                     -----------     -------------   -----------    -----------
                                                           9,000       $ 225,000          12,400     $  310,000
                                                     ===========     =============   ===========    ===========
</TABLE>

(a)  After these dates,  at our option,  we can call the units for redemption at
     the  issuance  amount  plus any  unpaid  distributions.  The  units are not
     redeemable  by the holder  with the  exception  of the Series Z units.  The
     holders  of the Series Z units have a  one-time  option,  exercisable  five
     years from  issuance,  to require us to redeem their units for  $25,000,000
     cash plus unpaid and accrued distributions.

(b)  On March 17,  2005 we redeemed  all  outstanding  Series N Preferred  Units
     ($40,000,000)  and on March 29, 2005, we redeemed all outstanding  Series O
     Preferred  Units  ($45,000,000),  at their  carrying  amount  plus  accrued
     distributions.

              Income  allocated  to the  preferred  minority  interests  totaled
     $3,591,000 and  $13,430,000  for the three and nine months ended  September
     30, 2005,  respectively,  as compared to $5,176,000 and $26,970,000 for the
     same periods in 2004, respectively, comprised of distributions paid and the
     allocation of income resulting from the application of EITF Topic D-42.

              On March 17,  2005,  we  redeemed  all  outstanding  9.5% Series N
     Preferred  Units  ($40,000,000)  and on  March  29,  2005 we  redeemed  all
     outstanding 9.125% Series O Preferred Units  ($45,000,000),  for their face
     value plus accrued distributions, for cash.

              On March 22, 2004,  certain investors who held $200 million of our
     9.5% Series N Cumulative  Redeemable  Perpetual  Preferred Units agreed, in
     exchange for a special  distribution of $8,000,000,  to exchange their 9.5%
     Series N Cumulative  Redeemable  Perpetual Preferred Units for $200 million
     of our 6.4% Series NN Cumulative  Redeemable Perpetual Preferred Units. The
     investors  also received a  distribution  for  dividends  that accrued from
     January 1, 2004 through the effective date of the exchange.

              The redemption of these Preferred Units resulted in an increase in
     income allocated to minority interests and a reduction to the Company's net
     income during the three months ended March 31, 2005 of $874,000 as a result


                                       21

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     of the  application  of the SEC's  clarification  of EITF  Topic D-42 which
     allocates the excess of the stated amount of the preferred units over their
     carrying amount to the holders of the redeemed securities. During the first
     quarter of 2004,  income  allocated to minority  interests was increased by
     $10,063,000  from  (i)  the  special  distribution  to the  holders  of the
     preferred  units  ($8,000,000)  and  (ii)  the  application  of  the  SEC's
     clarification of EITF Topic D-42 ($2,063,000).

              Subject to certain  conditions,  the Series NN preferred units are
     convertible into shares of our 6.400% Series NN Cumulative  Preferred Stock
     and the Series Z preferred units are convertible  into shares of our 6.250%
     Series Z Cumulative Preferred Stock. The holders of the Series Z units have
     a one-time option,  exercisable five years from issuance,  to require us to
     redeem   their  units  for   $25,000,000   cash  plus  unpaid  and  accrued
     distributions.

     Other Partnership Interests
     ---------------------------

              The following table sets forth the minority interests at September
     30, 2005 and December 31, 2004 (amounts in thousands):

                                                 Minority Interest at
                                            -----------------------------
                                            September 30,    December 31,
               Description                     2005               2004
----------------------------------------    -------------    ------------
Consolidated Development Joint Venture...    $        -       $    64,297
Convertible Partnership Units...........          6,177             6,160
Other consolidated partnerships..........        25,830            48,446
                                            -------------    ------------
Total other partnership interests........    $   32,007       $   118,903
                                            =============    ============

              Income is allocated to the minority interests based upon their pro
     rata interest in the operating  results of the Consolidated  Entities.  The
     following table sets forth minority  interest in income with respect to the
     other  partnership  interests for the three and nine months ended September
     30, 2005 and 2004 (amounts in thousands):

<TABLE>
<CAPTION>

                                                Minority Interest in Income for the     Minority Interest in Income for the
                                                         Three Months Ended                      Nine Months Ended
                                                           September 30,                           September 30,
                                                -----------------------------------     -----------------------------------
                 Description                          2005                2004               2005                2004
-------------------------------------------     ---------------    ----------------     --------------      ---------------
<S>                                               <C>                 <C>                <C>                 <C>
Consolidated Development Joint Venture......      $       826         $    1,563         $     4,229         $     3,940
Convertible Partnership Units...............              148                 88                 350                 219
Other Consolidated Partnerships.............            2,678              2,694               8,346               8,769
                                                 ---------------    ----------------     --------------      ---------------
Total other partnership interests...........      $     3,652         $    4,345         $    12,925         $    12,928
                                                 ===============    ================     ==============      ===============

</TABLE>

              Distributions paid to minority interests with respect to the other
     partnership interests for the nine months ended September 30, 2005 and 2004
     were $11,805,000 and $16,986,000, respectively.

     Consolidated Development Joint Venture
     --------------------------------------

              In November  1999,  we formed a  development  joint  venture  (the
     "Consolidated  Development  Joint  Venture")  with a joint venture  partner
     ("PSAC  Storage  Investors,  LLC")  whose  partners  included a third party
     institutional  investor and B. Wayne Hughes ("Mr.  Hughes"),  the Company's
     chairman, to develop approximately $100 million of self-storage  facilities
     and to purchase $100 million of our Equity Stock, Series AAA (see Note 10).
     At September 30, 2005, the Consolidated  Development Joint Venture owned 22
     self-storage  facilities  that it had  developed for a total cost of $108.6
     million.

                                       22

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              The Consolidated  Development  Joint Venture is funded solely with
     equity  capital  consisting  of 51%  from  us and  49%  from  PSAC  Storage
     Investors,  LLC. The accounts of the Consolidated Development Joint Venture
     have been included in our condensed consolidated financial statements since
     its  formation.  Prior to  September  30, 2005,  minority  interests on our
     condensed   consolidated  balance  sheet  primarily  represents  the  total
     contributions  received from PSAC Storage Investors,  LLC combined with the
     accumulated  net income  allocated to PSAC Storage  Investors,  LLC, net of
     cumulative distributions.

              PSAC Storage Investors, LLC provides Mr. Hughes with a fixed yield
     of  approximately  7.9972% per annum on his preferred  non-voting  interest
     (representing an investment of approximately $64.1 million at September 30,
     2005).  In addition,  Mr. Hughes  receives 1% of the remaining cash flow of
     PSAC Storage  Investors,  LLC (estimated to be less than $50,000 per year).
     Since its formation  through  August 4, 2005,  the accounts of PSAC Storage
     Investors, LLC were not included in our consolidated financial statements.

              On August  5,  2005 we  acquired  the  third  party  institutional
     investor's  partnership  interest  in  PSAC  Storage  Investors,   LLC  for
     approximately  $41.4  million  in cash,  and  commenced  consolidating  the
     accounts of PSAC Storage  Investors,  LLC. This acquisition also gave us an
     option to acquire Mr. Hughes' interest in PSAC Storage  Investors,  LLC. We
     have  exercised  this  option and will  acquire  Mr.  Hughes'  interest  on
     November 17, 2005 for an aggregate  of $64.5  million in cash.  The amounts
     owed to Mr.  Hughes with respect to his preferred  non-voting  interest are
     reflected  on our  balance  sheet  as  "Debt  to  related  party,"  and the
     preferred return that he accrued from August 5, 2005 through  September 30,
     2005 amounting to $789,000 is reflected on our income statement as interest
     expense.  This debt  will be  extinguished  on  November  17,  2005 when we
     acquire his interest.

              The total  acquisition  cost of the August 5, 2005 transaction was
     $105,933,000,  comprised of the $41,420,000 in cash paid to the third-party
     institutional  investor and  $64,513,000 in debt to Mr.  Hughes.  The total
     acquisition cost was allocated to minority interest  ($62,643,000) and real
     estate ($43,290,000).

              In consolidation, the Equity Stock, Series AAA, owned by the joint
     venture and the related dividend income have been eliminated.

     Convertible Partnership Units
     -----------------------------

              As of  September  30,  2005  and  December  31,  2004,  one of the
     Consolidated  Entities  had  approximately  237,935  convertible  operating
     partnership units ("Convertible Units") outstanding, representing a limited
     partnership  interest  in  the  partnership.   The  Convertible  Units  are
     convertible on a one-for-one  basis (subject to certain  limitations)  into
     our common  stock at the option of the  unitholder.  Minority  interest  in
     income with  respect to the  Convertible  Units  reflects  the  Convertible
     Units'  share of our net  income,  with net income  allocated  to  minority
     interests with respect to weighted average outstanding Convertible Units on
     a per unit basis equal to diluted  earnings  per common  share.  During the
     nine months ended  September 30, 2005 and the year ended December 31, 2004,
     no units were converted.

     Other Consolidated Partnerships
     -------------------------------

              At September 30, 2005, the other consolidated partnerships reflect
     common  equity  interests  that  we do not  own in 22  entities  having  an
     interest in an aggregate  of 73  self-storage  facilities.  At December 31,
     2004, the consolidated partnerships included 24 entities having an interest
     in an aggregate of 123 self-storage facilities.

              In January 2005, we acquired a portion of the minority interest we
     did  not  own in  one of the  Consolidated  Entities  for an  aggregate  of
     $4,366,000 in cash. The  acquisition  resulted in the reduction of minority
     interest by $2,828,000  with the excess of cost over  underlying book value
     ($1,538,000) allocated to real estate.

                                       23

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              In April 2005,  we acquired  minority  interests we did not own in
     two  Consolidated  Entities for an aggregate of  $32,432,000  in cash.  The
     acquisition  resulted in a reduction  of minority  interest of  $15,394,000
     with the excess of cost over underlying book value ($17,038,000)  allocated
     to real estate.

              In August 2005,  we acquired the remaining  minority  interests we
     did not own in the Consolidated Entities for an aggregate of $14,597,000 in
     cash.  The  acquisition  resulted  in a reduction  of minority  interest of
     $7,151,000 with the excess of cost over underlying book value  ($7,446,000)
     allocated to real estate.

              On June 30, 2004, we acquired the remaining  minority  interest we
     did  not  own in one of the  Consolidated  Entities,  for an  aggregate  of
     $24,851,000 in cash. This  acquisition had the effect of reducing  minority
     interest by $18,312,000, with the excess of cost over underlying book value
     ($6,539,000) allocated to real estate.

                                       24

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

10.      Shareholders' Equity
         --------------------

     Cumulative Preferred Stock
     --------------------------

              At September 30, 2005 and December 31, 2004, we had the following
     series of Cumulative Preferred Stock outstanding:

<TABLE>
<CAPTION>

                                                          At September 30, 2005           At December 31, 2004
                         Earliest                       ---------------------------    ---------------------------
                        Redemption       Dividend         Shares         Carrying        Shares         Carrying
       Series             Date (a)         Rate         Outstanding       Amount       Outstanding       Amount
-----------------      --------------    ---------      -----------     ------------   -----------     -----------
                                                                       (Dollar amount in thousands)
<S>                      <C>                  <C>                       <C>               <C>          <C>
Series F                 5/2/05 (b)           9.750%             -      $        -       2,300,000     $    57,500
Series Q                 1/19/06              8.600%         6,900         172,500           6,900         172,500
Series R                 9/28/06              8.000%        20,400         510,000          20,400         510,000
Series S                 10/31/06             7.875%         5,750         143,750           5,750         143,750
Series T                 1/18/07              7.625%         6,086         152,150           6,086         152,150
Series U                 2/19/07              7.625%         6,000         150,000           6,000         150,000
Series V                 9/30/07              7.500%         6,900         172,500           6,900         172,500
Series W                 10/6/08              6.500%         5,300         132,500           5,300         132,500
Series X                 11/13/08             6.450%         4,800         120,000           4,800         120,000
Series Y                 1/2/09               6.850%     1,600,000          40,000       1,600,000          40,000
Series Z                 3/5/09               6.250%         4,500         112,500           4,500         112,500
Series A                 3/31/09              6.125%         4,600         115,000           4,600         115,000
Series B                 6/30/09              7.125%         4,350         108,750           4,350         108,750
Series C                 9/13/09              6.600%         4,600         115,000           4,600         115,000
Series D                 2/28/10              6.180%         5,400         135,000               -               -
Series E                 4/27/10              6.750%         5,650         141,250               -               -
Series F (c)             8/23/10              6.450%         8,000         200,000               -               -
                                                        -----------     ------------   -----------     -----------
      Total Cumulative Preferred Stock                   1,699,236      $2,520,900       3,980,186     $ 2,102,150
                                                        ===========     ============   ===========     ===========

</TABLE>

(a)  Except under certain conditions relating to the Company's  qualification as
     a REIT, the Cumulative  Preferred  Stock  outstanding at September 30, 2005
     are not  redeemable  prior to the  dates  indicated.  On or after the dates
     indicated,  each  series  of  Cumulative  Senior  Preferred  Stock  will be
     redeemable,  at our option,  in whole or in part, at $25.00 per  depositary
     share (or per share in the case of the Series Y),  plus  accrued and unpaid
     dividends.

(b)  The Series F Cumulative  Preferred Stock was called for redemption on March
     31, 2005 and was  redeemed in May 2005 along with the unpaid  distributions
     from April 1, 2005 through the redemption date.

(c)  On October  3,  2005,  we issued an  additional  2,000  shares of our 6.45%
     Series F Preferred Stock resulting in gross proceeds of $50 million.

              The  holders  of  our  Cumulative  Preferred  Stock  have  general
     preference rights with respect to liquidation and quarterly  distributions.
     Holders of the  preferred  stock,  except under certain  conditions  and as
     noted below, will not be entitled to vote on most matters.  In the event of
     a cumulative  arrearage  equal to six quarterly  dividends,  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.  In the case of one of the series of  preferred  stock,  the holders
     have this same right if we fail to  maintain a Debt Ratio (as  defined)  of
     50% or more. At September 30, 2005,  there were no dividends in arrears and
     the Debt Ratio was 3.1%.

              Upon issuance of our Preferred  Stock, we classify the liquidation
     value  as  preferred  stock  on our  consolidated  balance  sheet  with any
     issuance costs recorded as a reduction to additional paid-in capital.  Upon
     redemption,  we apply EITF Topic D-42,  allocating  income to the preferred
     shareholders equal to the original issuance costs.

                                       25

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              During  the first  quarter of 2005,  we issued our 6.18%  Series D
     Cumulative  Preferred Stock for net proceeds of $130,547,000.  On April 27,
     2005, we issued our 6.75%  Cumulative  Preferred  Stock,  Series E, for net
     proceeds of $136,601,000.  On August 23, 2005, we issued our 6.45% Series F
     Cumulative  Preferred Stock for net proceeds of $193,500,000.  A subsequent
     issuance of an additional  2,000,000  depositary shares,  each representing
     1/1,000 of a share of our 6.45% Series F Cumulative  Preferred Stock,  were
     issued on October 3, 2005, resulting in net proceeds of $48,225,000.

              During the first  quarter of 2005,  we redeemed our 10.0% Series E
     Cumulative   Preferred  Stock  for  $54,875,000  plus  accrued  and  unpaid
     dividends.   The  Series  E  Cumulative  Preferred  Stock  was  called  for
     redemption  in  December  2004;   accordingly,   the  redemption  value  of
     $54,875,000  was  classified  as a  liability  at  December  31,  2004.  In
     addition,  on May 2,  2005,  we  redeemed  our  9.75%  Series F  Cumulative
     Preferred Stock,  which was called for redemption  during the first quarter
     of 2005, for $57,500,000  plus accrued and unpaid  dividends and $17,000 of
     redemption costs.

     Equity Stock
     ------------

              The Company is authorized to issue 200,000,000 shares of Equity
     Stock. The Articles of Incorporation provide that the Equity Stock may be
     issued from time to time in one or more series and gives the Board of
     Directors broad authority to fix the dividend and distribution rights,
     conversion and voting rights, redemption provisions and liquidation rights
     of each series of Equity Stock.

     Equity Stock, Series A
     ----------------------

              At  September  30,  2005,  we  had  8,744,193   depositary  shares
     outstanding  (8,776,102 at December 31, 2004), each representing 1/1,000 of
     a share of Equity Stock,  Series A ("Equity  Stock A"). We received  31,909
     depositary shares from a distribution from affiliated entities at March 31,
     2005 (see Note 5). The Equity Stock A ranks on parity with common stock and
     junior to the Cumulative Preferred Stock with respect to general preference
     rights and has a  liquidation  amount which cannot exceed $24.50 per share.
     Distributions  with respect to each depositary share shall be not less than
     the lesser of: (i) five times the per share dividend on our common stock or
     (ii) $2.45 per annum.  We have no  obligation to pay  distributions  on the
     depositary shares if no distributions are paid to common shareholders.

              Except in order to  preserve  the  Company's  Federal  income  tax
     status as a REIT, we may not redeem the depositary  shares before March 31,
     2010.  On or after  March 31,  2010,  we may,  at our  option,  redeem  the
     depositary  shares at $24.50 per depositary  share. If the Company fails to
     preserve its Federal  income tax status as a REIT,  the  depositary  shares
     will be  convertible at the option of the  shareholder  into .956 shares of
     common stock.  The  depositary  shares are otherwise not  convertible  into
     common  stock.  Holders of  depositary  shares vote as a single  class with
     holders of our common  stock on  shareholder  matters,  but the  depositary
     shares have the equivalent of one-tenth of a vote per depositary share.

     Equity Stock, Series AAA
     ------------------------

              In  November  1999,  we sold  $100,000,000  (4,289,544  shares) of
     Equity  Stock,  Series AAA  ("Equity  Stock AAA") to a newly  formed  joint
     venture (the  "Consolidated  Development  Joint  Venture").  We control the
     joint venture and  consolidate  its accounts,  and  accordingly  the Equity
     Stock AAA is eliminated in  consolidation.  The Equity Stock AAA ranks on a
     parity with our common stock and junior to the Cumulative  Preferred  Stock

                                       26

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     with respect to general  preference  rights,  and has a liquidation  amount
     equal  to 120% of the  amount  distributed  to each  common  share.  Annual
     distributions per share shall be not less than the lesser of (i) five times
     the amount paid per common share or (ii) $2.1564.  We have no obligation to
     pay  distributions on these shares if no  distributions  are paid to common
     shareholders.

              Upon liquidation of the Consolidated Development Joint Venture, at
     the Company's option either a) each share of Equity Stock AAA shall convert
     into 1.2 shares of our common stock or b) the Company can redeem the Equity
     Stock AAA at a per share  amount  equal to 120% of the market  price of our
     common stock. In addition,  if the Company  determines that it is necessary
     to maintain  its status as a REIT,  subject to certain  limitations  it may
     cause the  redemption  of shares of Equity  Stock AAA at a per share amount
     equal to 120% of the market price of our common  stock.  The shares are not
     otherwise  redeemable  or  convertible  into  shares of any other  class or
     series of the Company's  capital stock.  Other than as required by law, the
     Equity Stock AAA has no voting rights.

              On November 17, 2005, upon the acquisition of Mr. Hughes' interest
     in  PSAC  Storage  Investors,  LLC  (Note  9),  we  will  own  100%  of the
     partnership interest in the Consolidated Development Joint Venture. We plan
     on retiring the Equity Stock AAA at that time.

     Common Stock
     ------------

              During the nine months ended September 30, 2005, we issued 227,925
     shares of Common Stock in  connection  with  stock-based  compensation.  In
     addition,  one of the Consolidated  Entities  acquired 84,000 shares of our
     Common Stock for $4,990,000; these shares were eliminated in consolidation.
     We  also  received  a  distribution  of  503,110  shares,  and  one  of the
     Consolidated   Entities  received  132,775  shares,  of  our  Common  Stock
     previously held by affiliated entities. The 503,110 shares that we received
     were retired.

              At September 30, 2005, the  Consolidated  Entities owned 1,146,207
     common shares of the Company.  These shares  continue to be legally  issued
     and outstanding. In the consolidation process, these shares and the related
     balance sheet amounts have been eliminated.  In addition,  these shares are
     not included in the computation of weighted average shares outstanding. The
     following  chart  reconciles our legally issued and  outstanding  shares of
     common  stock  and the  reported  outstanding  shares  of  common  stock at
     September 30, 2005 and December 31, 2004:

Reconciliation of Common Shares Outstanding    At September 30, At December 31,
-------------------------------------------          2005             2004
                                               ---------------- ---------------

Legally issued and outstanding shares.........    129,180,697      129,455,882
Less - Shares owned by the Consolidated
    Entities that are eliminated in
    consolidation (a).........................     (1,146,207)        (929,432)
                                               ---------------- ---------------
Reported issued and outstanding shares........    128,034,490      128,526,450
                                               ===============  ===============

              (a) The increase in shares owned by the  Consolidated  Entities is
     due to the Consolidated  Entities'  purchase of 84,000 shares of our common
     stock  during  the nine  months  ended  September  30,  2005 and one of the
     Consolidated  Entities'  receipt of 132,775 shares of our common stock in a
     distribution from affiliates on March 31, 2005.

                                       27

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Dividends
     ---------

         The following table summarizes dividends declared and paid during the
nine months ended September 30, 2005:

                                             Distributions Per
                                           Share or Depositary      Total
                                                   Share         Distributions
                                           --------------------- -------------
Preferred Stock:
Series E..............................             $0.208        $     457,000
Series F..............................             $0.819            1,884,000
Series Q..............................             $1.612           11,126,000
Series R..............................             $1.500           30,600,000
Series S..............................             $1.477            8,490,000
Series T..............................             $1.430            8,700,000
Series U..............................             $1.430            8,580,000
Series V..............................             $1.406            9,703,000
Series W..............................             $1.219            6,459,000
Series X..............................             $1.209            5,805,000
Series Y..............................             $1.284            2,055,000
Series Z..............................             $1.172            5,274,000
Series A..............................             $1.148            5,283,000
Series B..............................             $1.336            5,811,000
Series C..............................             $1.238            5,694,000
Series D..............................             $0.901            4,867,000
Series E..............................             $0.726            4,102,000
Series F..............................             $0.175            1,396,000
                                                                --------------
                                                                   126,286,000
Common Stock:
Equity Stock, Series A................             $1.838           16,087,000
Common ...............................             $1.400          179,822,000
                                                                --------------
   Total dividends....................                           $ 322,195,000
                                                                ==============

              The  dividends  paid on the  common  stock  amounted  to $0.50 per
     common share and $1.40 per common share for the three and nine months ended
     September 30, 2005,  respectively.  The dividend rate on the Equity Stock A
     was $0.6125 per depositary  share and $1.8375 per depositary  share for the
     three  and  nine   months   ended   September   30,   2005,   respectively.

11.      Segment Information
         -------------------

     Description of Each Reportable Segment
     --------------------------------------

              Our reportable segments reflect significant  operating  activities
     that are  evaluated  separately  by  management.  We have  four  reportable
     segments:   self-storage  operations,   containerized  storage  operations,
     commercial property operations and tenant reinsurance operations.

              The   self-storage   segment   comprises  the  direct   ownership,
     development  and  operation  of  traditional  storage  facilities,  and the
     ownership of equity interests in entities that own self-storage properties.
     The  containerized   storage  operations  represent  another  segment.  The
     commercial  property  segment  reflects  our  interest  in  the  ownership,
     operation and management of commercial properties. The vast majority of the
     commercial  property  operations  are conducted  through PSB, and to a much
     lesser  extent the Company and certain of its  unconsolidated  subsidiaries
     own  commercial  space,  managed by PSB,  within  facilities  that  combine
     storage and commercial  space for rent. The tenant  reinsurance  operations
     reflect a business segment which reinsures policies against losses to goods
     stored by tenants in our self-storage facilities.

                                       28

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Measurement of Segment Profit or Loss
     -------------------------------------

              We evaluate  performance and allocate resources based upon the net
     segment income of each segment. Net segment income represents net income in
     conformity  with U.S.  generally  accepted  accounting  principles  and our
     significant  accounting  policies as stated in Note 2, before  interest and
     other  income,  interest  expense,  corporate  general  and  administrative
     expense,  and minority interest in income.  The accounting  policies of the
     reportable  segments  are the same as those  described  in the  Summary  of
     Significant Accounting Policies.

              Interest and other income, interest expense, corporate general and
     administrative  expense,  and minority interest in income are not allocated
     to  segments  because  management  does not utilize  them to  evaluate  the
     results of operations of each segment.

     Measurement of Segment Assets
     -----------------------------

              No segment data  relative to assets or  liabilities  is presented,
     because  management  does not consider the historical cost of the Company's
     real  estate   facilities  and  investments  in  real  estate  entities  in
     evaluating  the  performance  of  operating  management  or  in  evaluating
     alternative courses of action. The only other types of assets that might be
     allocated to individual segments are trade receivables, payables, and other
     assets  which arise in the ordinary  course of business,  but they are also
     not a significant factor in the measurement of segment performance.

     Presentation of Segment Information
     -----------------------------------

              Our  condensed   consolidated   income   statement   provides  the
     information required in order to determine the revenues of each of our four
     segments.  The following table  reconciles the performance of each segment,
     in terms of segment income, to our consolidated net income.

                                       29

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                Three Months Ended                   Nine Months Ended
                                                                   September 30,                       September 30,
                                                           -----------------------                ----------------------
                                                               2005         2004        Change        2005         2004     Change
                                                           ------------ -----------  -----------  -----------  ----------   --------
                                                                                  (Amounts in thousands)
Reconciliation of Net Income by Segment:
----------------------------------------
Self-storage
<S>                                                         <C>          <C>          <C>          <C>          <C>         <C>
  Self-storage net operating income......................   $ 163,514    $ 145,741    $  17,773    $ 464,205    $414,567    $49,638
  Self-storage depreciation..............................     (47,042)     (42,818)      (4,224)    (139,925)   (130,575)    (9,350)
  Equity in earnings - self-storage property operations..       2,119        1,744          375        6,103       5,014      1,089
  Equity in earnings - depreciation (self-storage) ......        (470)        (402)         (68)      (1,378)     (1,180)      (198)
  Discontinued operations (Note 3) ......................       5,276           71        5,205        5,362         271      5,091
                                                           ------------ -----------  -----------  -----------  ----------   --------
      Total self-storage segment net income..............     123,397      104,336       19,061      334,367     288,097     46,270
                                                           ------------ -----------  -----------  -----------  ----------   --------
  Commercial properties
  Commercial properties net operating income.............       1,796        1,676          120        5,401       4,864        537
  Depreciation and amortization - commercial properties..        (562)        (464)         (98)      (1,721)     (1,574)      (147)
  Equity in earnings - commercial property operations....      17,737       15,959        1,778       51,865      49,753      2,112
  Equity in earnings - depreciation (commercial
     properties) ........................................      (8,352)      (8,119)        (233)     (24,887)    (23,875)    (1,012)
  Discontinued operations (Note 3) ......................           -           54          (54)           -         142       (142)
                                                           ------------ -----------  -----------  -----------  ----------   --------
      Total commercial property segment net income...... .     10,619        9,106        1,513       30,658      29,310      1,348
                                                           ------------ -----------  -----------  -----------  ----------   --------
  Containerized storage
  Containerized storage net operating income.............         804        1,975       (1,171)       2,613       6,358     (3,745)
  Containerized storage depreciation.....................        (313)      (1,072)         759       (2,490)     (3,298)       808
  Discontinued operations (Note 3) ......................           -       (1,126)       1,126        1,015      (1,931)     2,946
                                                           ------------ -----------  -----------  -----------  ----------   --------
      Total containerized storage segment net income.....         491         (223)         714        1,138       1,129          9
                                                           ------------ -----------  -----------  -----------  ----------   --------
  Tenant Reinsurance
   Tenant reinsurance net income.........................       3,315        2,006        1,309       10,939       7,177      3,762
                                                           ------------ -----------  -----------  -----------  ----------   --------
  Other items not allocated to segments
  -------------------------------------
  General and administrative and other included in
     equity in earnings..................................      (1,181)      (5,998)       4,817      (11,321)    (18,066)     6,745
   Interest and other income.............................       7,376        3,300        4,076       16,698       7,240      9,458
  General and administrative.............................      (5,621)      (5,527)         (94)     (16,890)    (15,983)      (907)
  Interest expense.......................................      (2,471)           -       (2,471)      (5,928)       (100)    (5,828)
  Casualty loss..........................................        (196)      (1,250)       1,054         (196)     (1,250)     1,054
  Gain on sale of real estate............................        (142)       1,286       (1,428)         (89)      1,286     (1,375)
  Minority interest in income............................      (7,243)      (9,521)       2,278      (26,355)    (39,898)    13,543
                                                           ------------ -----------  -----------  -----------  ----------   --------
      Total other items not allocated to segments........      (9,478)     (17,710)       8,232      (44,081)    (66,771)    22,690
                                                           ------------ -----------  -----------  -----------  ----------   --------
      Total consolidated net income......................   $ 128,344    $  97,515    $   30,829   $ 333,021    $258,942    $74,079
                                                           ============ ===========  ===========  ===========  ==========   ========

</TABLE>

                                       30

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

12.      Stock-Based Compensation
         ------------------------

      Stock Options
      -------------

              We have a 1990 Stock Option Plan (the "1990 Plan"), which provides
     for the grant of non-qualified  stock options.  We have a 1994 Stock Option
     Plan (the "1994 Plan"),  a 1996 Stock Option and Incentive  Plan (the "1996
     Plan"), a 2000  Non-Executive/Non-Director  Stock Option and Incentive Plan
     (the  "2000  Plan"),  a 2001  Non-Executive/Non-Director  Stock  Option and
     Incentive Plan (the "2001 Non-Executive  Plan") and a 2001 Stock Option and
     Incentive  Plan (the "2001 Plan"),  each of which provides for the grant of
     non-qualified options and incentive stock options. (The 1990 Plan, the 1994
     Plan, the 1996 Plan and the 2000 Plan are  collectively  referred to as the
     "PSI Plans".)  Under the PSI Plans,  the Company has granted  non-qualified
     options to certain directors, officers and key employees to purchase shares
     of the Company's  common stock at a price equal to the fair market value of
     the common  stock at the date of grant.  Generally,  options  under the PSI
     Plans vest over a  three-year  period from the date of grant at the rate of
     one-third per year (options granted after, December 31, 2002 vest generally
     over a  five-year  period)  and expire (i) under the 1990 Plan,  five years
     after the date they became  exercisable  and (ii) under the 1994 Plan,  the
     1996 Plan and the 2000 Plan,  ten years  after the date of grant.  The 1996
     Plan,  the 2000 Plan,  the 2001  Non-Executive  Plan and the 2001 Plan also
     provide  for the grant of  restricted  stock (see below) to  officers,  key
     employees  and  service  providers  on terms  determined  by an  authorized
     committee of the Board of Directors.

              As of January 1,  2002,  we  recognize  compensation  expense  for
     stock-based  awards  based  upon  their  fair  value  on the  date of grant
     amortized over the applicable vesting period (the "Fair Value Method").  We
     recognize compensation expense in our income statement using the Fair Value
     Method only with respect to stock options  issued after January 1, 2002. We
     disclose,  but do not record,  stock  option  expense with respect to stock
     options   granted   prior  to  January  1,  2002  (the  "APB  25  Method").
     Substantially all stock options are issued to employees.

              For the three and nine months ended September 30, 2005 we recorded
     $240,000 and $667,000,  respectively,  in stock option compensation expense
     related to options  granted  after January 1, 2002, as compared to $150,000
     and $439,000, respectively, for the same periods in 2004. The fair value of
     each  option  grant  is  estimated  on the  date  of the  grant  using  the
     Black-Scholes  option  pricing  model.  The  estimated  per option value of
     205,000  stock  options  granted in the first nine months of 2005 was based
     upon an estimated  life of 5 years,  an average  risk-free rate of 3.9%, an
     expected dividend yield of 7%, and an average expected volatility of 0.22.

              If we had recorded  stock option  expense  applying the Fair Value
     Method to all awards,  we would have recognized an additional  $439,000 for
     the nine  months  ended  September  30, 2004 in stock  option  compensation
     expense (none for the same period in 2005).  Basic and diluted earnings per
     share  would have been $0.93 and $0.92,  respectively  for the nine  months
     ended September 30, 2004.

              A total of 205,000  stock  options  were  granted  during the nine
     months ended September 30, 2005, 201,457 shares were exercised,  and 57,235
     shares were forfeited.  A total of 1,388,209 stock options were outstanding
     at September 30, 2005 (1,441,901 at December 31, 2004).

     Restricted Stock Units
     ----------------------

              Restricted  stock units vest over a five-year period from the date
     of  grant  at the  rate  of  one-fifth  per  year.  The  employee  receives
     additional compensation equal to the per-share dividends received by common

                                       31

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     shareholders.  Upon vesting,  the employee  receives  regular common shares
     equal to the number of vested  restricted  stock units in exchange  for the
     units. The total value of each restricted stock unit grant,  based upon the
     market price of the Company's  Common Stock at the date of grant,  combined
     with the  estimated  payroll  taxes and other  payroll  burden  costs to be
     incurred upon vesting, is amortized over the vesting period as compensation
     expense.  Outstanding  restricted stock units are included on a one-for-one
     basis in the Company's  diluted weighted  average shares,  less a reduction
     for the treasury  stock method applied to the average  cumulative  measured
     but unrecognized compensation expense during the period.

              From  December  31,  2004  through  September  30,  2005,  168,550
     restricted  stock units were granted,  60,100  restricted  stock units were
     forfeited,  and 37,000 restricted stock units vested. This vesting resulted
     in the  issuance  of  26,468  shares  of the  Company's  Common  Stock.  In
     addition,  cash compensation was paid to employees in lieu of 10,532 shares
     of Common  Stock  based upon the  market  value of the stock at the date of
     vesting,  and used to settle the employees' tax liability  generated by the
     vesting.

              At September  30, 2005,  approximately  323,490  restricted  stock
     units were outstanding  (252,040 at December 31, 2004). A total of $956,000
     and  $2,912,000 in restricted  stock expense was recorded for the three and
     nine  months  ended   September  30,  2005,   respectively   ($559,000  and
     $1,676,000,  respectively,  for the same  periods in 2004)  which  includes
     amortization  of the fair value of the grant  reflected  as an  increase to
     paid-in  capital,  as well as accrued  estimated burden to be incurred upon
     vesting.

13.      Related Party Transactions
         --------------------------

     Relationships and transactions with the Hughes Family
     -----------------------------------------------------

              B.  Wayne  Hughes,  Chairman  of the Board,  and his  family  (the
     "Hughes Family") have ownership interests in, and operate  approximately 44
     self-storage  facilities in Canada under the name "Public Storage" pursuant
     to a  license  agreement  with the  Company.  We  currently  do not own any
     interests in these  facilities nor do we own any facilities in Canada.  The
     Hughes Family owns  approximately  36% of our Common Stock  outstanding  at
     September  30, 2005.  We have a right of first refusal to acquire the stock
     or assets of the corporation that manages the 44 self-storage facilities in
     Canada,  if the  Hughes  Family or the  corporation  agrees  to sell  them.
     However, we have no interest in the operations of this corporation, we have
     no right to acquire this stock or assets unless the Hughes  Family  decides
     to sell,  the right of first  refusal  does not  apply to the  self-storage
     facilities,  and we receive no benefit  from the profits and  increases  in
     value of the Canadian self-storage facilities.

              Prior to December  31,  2003,  our  personnel  were engaged in the
     supervision and the operation of these Canadian self-storage facilities and
     provided  certain  administrative  services  for the Canadian  owners,  and
     certain other  services,  primarily  tax services,  with respect to certain
     other Hughes Family  interests.  The Hughes Family and the Canadian  owners
     reimbursed  us at cost for these  services  (U.S.  $542,499 and $638,000 in
     respect of the Canadian  operations  for 2003 and 2002,  respectively,  and
     U.S.  $151,063  and  $167,930  for  other  services  during  2003 and 2002,
     respectively). There have been conflicts of interest in allocating the time
     of our  personnel  between our  properties,  the Canadian  properties,  and
     certain other Hughes Family interests. The sharing of personnel and systems
     with the Canadian entities was  substantially  discontinued by December 31,
     2003.  The Canadian  entities claim that the Company owes them CAD $653,424
     representing  the  amount  charged to them for the  development  of certain
     systems that they no longer  utilize.  On October 27, 2005,  the  Company's
     Board  of  Directors  (with  B.  Wayne  Hughes  and  B.  Wayne  Hughes  Jr.
     abstaining)  approved  the  reimbursement  of the CAD  $653,424  in  system
     development  costs plus interest,  accrued at 4% per annum, of CAD $52,274.
     These costs have been accrued on our  financial  statements as of September
     30, 2005.

              The Company,  through  subsidiaries,  continues to reinsure  risks
     relating to loss of goods stored by tenants in the self-storage  facilities
     in Canada.  The  Company  had  acquired  the tenant  insurance  business on

                                       32

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     December 31, 2001 through its  acquisition of PSIC.  During the nine months
     ended  September 30, 2005 and 2004,  PSIC  received  $795,000 and $783,000,
     respectively,   in  reinsurance  premiums   attributable  to  the  Canadian
     Facilities.  Since  PSIC's  right  to  provide  tenant  reinsurance  to the
     Canadian  Facilities  may be  qualified,  there is no assurance  that these
     premiums will continue.

              The   corporation   engaged  in  the  operation  of  the  Canadian
     facilities has advised us that it intends to reorganize the entities owning
     and  operating  the Canadian  facilities  and has proposed that the Company
     consent to this  reorganization,  which would impact the license  agreement
     and the right of first refusal  agreement with the Company,  and might also
     impact our ability to provide tenant  reinsurance.  The  reorganization  is
     designed  to  enhance  the  entities'  financial   flexibility  and  growth
     potential.  In November  2004,  the Board  appointed  a special  committee,
     comprised of independent directors,  to consider the Company's alternatives
     in this matter, including a possible investment in the reorganized Canadian
     entities.

              In November  1999, we formed the  Consolidated  Development  Joint
     Venture  with  a  joint   venture   partner  whose   partners   include  an
     institutional  investor  and  Mr.  Hughes.  We  subsequently  acquired  the
     institutional investor's interest in August 2005 and notified Mr. Hughes of
     our intent to acquire his interest on November 17, 2005.  This  arrangement
     is discussed more fully in Note 9.

              The Company and Mr. Hughes are  co-general  partners in certain of
     the Consolidated Entities and the Unconsolidated  Entities.  Mr. Hughes and
     his  family  also own  limited  partnership  interests  in certain of these
     partnerships.   The  Company  and  Mr.   Hughes  and  his  family   receive
     distributions  from these  partnerships in accordance with the terms of the
     partnership agreements.

     Other Related Party Transactions
     --------------------------------

              Ronald  L.  Havner,  Jr.  is our  vice-chairman,  chief  executive
     officer, and President,  and he is also chairman of the board of PSB. Until
     August 2003,  Mr. Havner was also the Chief  Executive  Officer of PSB. For
     2003 and 2004 services, Mr. Havner was compensated by PSB as well as by the
     Company.

              In December  2003, we loaned  $100,000,000  to PSB. This loan bore
     interest at the rate of 1.45% per year.  This loan,  which was fully repaid
     on March 8, 2004, was included in Notes Receivable at December 31, 2003.

              Dann V.  Angeloff,  a  director  of the  Company,  is the  general
     partner  of a  limited  partnership  formed  in June of  1973  that  owns a
     self-storage  facility that is managed by the Company. The Company received
     management  fees with  respect to this  facility  amounting  to $33,000 and
     $31,000  for  the  nine  months   ended   September   30,  2005  and  2004,
     respectively.

              PSB  manages  certain  of the  commercial  facilities  that we own
     pursuant  to  management  agreements  for a  management  fee equal to 5% of
     revenues.  We paid a total of $145,000  and $434,000 for the three and nine
     months ended September 30, 2005,  respectively,  and $141,000 and $423,000,
     respectively,  for the same periods in 2004 in management fees with respect
     to PSB's property management services.

              Pursuant to a cost-sharing and administrative  services agreement,
     PSB reimburses us for certain administrative services. PSB's share of these
     costs totaled  approximately $85,000 and $255,000 for each of the three and
     nine months ended September 30, 2005 and 2004, respectively.

              STOR-Re provides  limited property and liability  insurance to the
     Company,  PSB and our affiliates for losses  incurred during policy periods
     prior to April 1, 2004. Beginning April 1, 2004, this insurance is provided
     by  PSIC-H  for the  Company  and our  affiliates,  but not for PSB and the
     Canadian facilities.

                                       33

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

14.      Commitments and Contingencies
         -----------------------------

     LEGAL MATTERS

     Serrao v. Public Storage,  Inc. (filed April 2003) (Superior Court - Orange
     ---------------------------------------------------------------------------
     County)
     -------

              The  plaintiff  in this case filed a suit  against  the Company on
     behalf of a putative  class of renters who rented  self-storage  units from
     the Company.  Plaintiff alleges that the Company misrepresented the size of
     its storage units, has brought claims under California statutory and common
     law  relating  to  consumer  protection,  fraud,  unfair  competition,  and
     negligent misrepresentation,  and is seeking monetary damages, restitution,
     and declaratory and injunctive relief.

              The claim in this case is substantially similar to those in
     Henriquez v. Public Storage, Inc., which was disclosed in prior reports. In
     January 2003, the plaintiff caused the Henriquez action to be dismissed.

              Based upon the uncertainty  inherent in any putative class action,
     we  cannot  presently  determine  the  potential  damages,  if any,  or the
     ultimate outcome of this litigation. On November 3, 2003, the court granted
     our motion to strike the plaintiff's  nationwide  class  allegations and to
     limit any putative class to California  residents  only. In August 2005, we
     filed a  motion  to  remove  the case to  federal  court.  There  can be no
     assurance that this motion will be granted.  We are  vigorously  contesting
     the claims upon which this lawsuit is based including  class  certification
     efforts.

     Gustavson,  et al v. Public Storage, Inc. (filed June 2003) (Superior Court
     ---------------------------------------------------------------------------
     - Los Angeles County); Potter, et al v. Hughes, et al (filed December 2004)
     ---------------------------------------------------------------------------
     (United States District Court - Central District of California)
     ---------------------------------------------------------------

              In November  2002, a  shareholder  of the Company made a demand on
     the Board of  Directors  that  challenged  the  fairness  of the  Company's
     acquisition of PS Insurance  Company,  Ltd.  ("PSIC") and demanded that the
     Board  recover  the  profits  earned by PSIC  from  November  1995  through
     December  2001 and that the entire  purchase  price paid by the Company for
     PSIC in excess of PSIC's net assets be returned to the Company.

              The  contract  to acquire  PSIC was  approved  by the  independent
     directors of the Company in March 2001, and the  transaction  was closed in
     December 2001.  PSIC was formerly  owned by B. Wayne Hughes,  currently the
     Chairman of the Board (and in 2001 also the Chief Executive Officer) of the
     Company,  B. Wayne Hughes,  Jr.,  currently a director (and in 2001 also an
     officer) of the Company and Tamara H. Gustavson, who in 2001 was an officer
     of the Company.  In exchange  for the Hughes  family's  shares in PSIC,  we
     issued to them  1,439,765  shares of  Common  Stock (or a net of  1,138,733
     shares, after taking into account 301,032 shares held by PSIC).

              The  shareholder  has  threatened  litigation  against  the Hughes
     family and the directors of the Company arising out of this transaction and
     alleged a pattern of deceptive disclosures with respect to PSIC since 1995.
     In December 2002, the Board held a special  meeting to authorize an inquiry
     by its  independent  directors  to review  the  fairness  to the  Company's
     shareholders  of its  acquisition of PSIC and the ability of the Company to
     have started its own tenant reinsurance  business in 1995. We believe that,
     prior to the  effectiveness in 2001 of the federal REIT  Modernization  Act
     and corresponding  California  legislation that authorized the creation and
     ownership of "taxable  REIT  subsidiaries,"  our ownership of a reinsurance
     business  relating to its tenants  would have  jeopardized  our status as a
     REIT and that other REITs faced  similar  concerns  about tenant  insurance
     programs.

                                       34

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

              In June 2003, the Hughes family filed a complaint  (Gustavson,  et
     al v.  Public  Storage,  Inc.)  for  declaratory  relief  relating  to  the
     Company's  acquisition of PSIC naming the Company as defendant.  The Hughes
     family is seeking  that the court make (i) a binding  declaration  that the
     Company either is not entitled to recover profits or other moneys earned by
     PSIC from November 1995 through December 2001; or alternatively the amounts
     that the Hughes family should be ordered to surrender to the Company if the
     court  determines  that the Company is entitled to recover any such profits
     or moneys;  and (ii) a binding  declaration  either that the Company cannot
     establish that the acquisition  agreement was not just and reasonable as to
     the  Company  at the  time it was  authorized,  approved  or  ratified;  or
     alternatively  the amounts that the Hughes family  should  surrender to the
     Company,  if the  court  determines  that  the  agreement  was not just and
     reasonable  to the Company at that time.  The Hughes  family is not seeking
     any payments  from the Company.  In the event of a  determination  that the
     Hughes  family is  obligated  to pay certain  amounts to the  Company,  the
     complaint states that they have agreed to be bound by that determination to
     pay such amounts to the Company.

              In July 2003,  the Company filed an answer to the Hughes  family's
     complaint requesting a final judicial determination of the Company's rights
     of recovery  against  the Hughes  family in respect of PSIC.  In  September
     2003, by order of the Superior Court, Justice Malcolm Lucas, a former chief
     justice of the  California  Supreme  Court,  was appointed to try the case.
     This matter was tried in June 2005. In October 2005,  Judge Lucas  rendered
     his  decision,  ruling  against  the  Company  by  finding  that  the  PSIC
     transaction  was just and reasonable as to the Company and holding that the
     Hughes  family was not  required  to make any payment to the  Company.  The
     Superior  Court has formally  entered this decision and will enter judgment
     accordingly.

              At the end of  December  2004,  the same  shareholder  referred to
     above and a second shareholder filed a shareholder's  derivative  complaint
     (Potter,  et al v.  Hughes,  et al)  naming  as  defendants  the  Company's
     directors (and two former  directors) and certain  officers of the Company.
     The  matters  alleged in the Potter  complaint  relate to PSIC,  the Hughes
     family's  Canadian   mini-warehouse   operations  and  the  Company's  1995
     reorganization.  In June 2005, the court granted the defendants'  motion to
     dismiss the Potter  complaint  with leave to amend the  complaint.  In July
     2005, the plaintiffs filed an amended complaint, and the defendants filed a
     motion to dismiss  the amended  complaint.  The matter is  currently  under
     submission. We believe the litigation will not have any financially adverse
     effect on the Company (other than the costs and other expenses  relating to
     the lawsuit).

     Brinkley et al v. Public Storage,  Inc. (filed April, 2005) (Superior court
     ---------------------------------------------------------------------------
     of California - Los Angeles County)
     -----------------------------------

              The  Brinkley  plaintiffs  are  suing the  Company  on behalf of a
     purported  class of California  property  managers who claim that they were
     not compensated  for all the hours they worked.  The Brinkley suit is based
     upon California wage and hour laws. The maximum potential  liability cannot
     be  estimated,  but would be increased if a class or classes are  certified
     or, if claims are  permitted  to be  brought on behalf of others  under the
     California Unfair Business Practices Act. We are vigorously  contesting the
     claims and intends to resist any expansion  beyond the named  plaintiffs on
     the grounds of lack of commonality  of claims.  We do not believe that this
     matter will have any material  adverse  effect on the results of operations
     of the Company.

     Inhan et al v.  Public  Storage,  Inc  (filed  May,  2005)  (United  States
     ---------------------------------------------------------------------------
     District Court - Southern District of Florida)
     ----------------------------------------------

              Inhan and a co-plaintiff are suing the Company in Florida claiming
     they were not compensated for all hours worked under the Federal Fair Labor
     Standards Act. The suit is brought as a putative class action.  The time to
     add additional parties in this action has expired and no additional parties
     have been added.  The Company  vigorously  contests the claims and although
     the maximum potential liability cannot be estimated, the fact that the time
     to add  additional  parties in this action has  expired  limits the maximum
     potential  liability.  As a result,  we  believe  this  matter is no longer
     potentially material and therefore will no longer report on it.

                                       35

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     Other Items
     -----------

              We are a party to  various  claims,  complaints,  and other  legal
     actions that have arisen in the normal course of business from time to time
     that are not  described  above.  We believe  that it is  unlikely  that the
     outcome of these other pending legal proceedings  including  employment and
     tenant claims,  in the aggregate,  will have a material adverse impact upon
     our operations or financial position.

     INSURANCE AND LOSS EXPOSURE

              Our facilities have historically carried comprehensive  insurance,
     including fire, earthquake,  flood, liability and extended coverage through
     STOR-Re and PSIC-H, our captive insurance programs,  and insure portions of
     these risks through nationally  recognized insurance carriers.  Our captive
     insurance programs also insure affiliates of the Company.

              The  Company,   STOR-Re,   PSIC-H,  and  its  affiliates'  maximum
     aggregate  annual  exposure for losses that are below the  deductibles  set
     forth in the third-party insurance contracts, assuming multiple significant
     events occur, is approximately $35 million. In addition,  if losses exhaust
     the third-party  insurers'  limit of coverage of $125,000,000  for property
     coverage and  $101,000,000  for general  liability,  our exposure  could be
     greater.  These limits are higher than estimates of maximum probable losses
     that could occur from individual  catastrophic events (i.e.  earthquake and
     wind damage) determined in recent engineering and actuarial studies.

              Our tenant insurance program, operating through PSIC through March
     31, 2004 and through PSIC-H  beginning  April 1, 2004,  reinsures  policies
     against  claims for losses to goods  stored by tenants at our  self-storage
     facilities.  We  reinsure  our risks  with  third-party  insurers  from any
     individual event that exceeds a loss of $500,000, up to the policy limit of
     $10,000,000.

     DEVELOPMENT OF REAL ESTATE FACILITIES

              At September 30, 2005 we have 57 projects  (3,814,000 net rentable
     square feet) in our development  pipeline,  including seven newly developed
     self-storage   facilities  and  expansions  to  50  existing   self-storage
     facilities,  with total estimated  development costs of $291.3 million,  of
     which $50.9 million has been spent through September 30, 2005.  Development
     of these facilities is subject to various risks and contingencies.

     ACQUISITION OF REAL ESTATE FACILITIES

              At  November  7, 2005,  we are under  contract  to  acquire  seven
     additional  facilities  (total  approximate  net  rentable  square  feet of
     481,000) at an aggregate cost of approximately  $70 million,  including the
     assumption of debt on one of these  facilities  totaling  approximately  $5
     million.  We anticipate that these  acquisitions will be funded entirely by
     us. Each of these  contracts is subject to significant  contingencies,  and
     there is no assurance that any of these facilities will be acquired.

15.      Subsequent Events
         -----------------

              We acquired seven additional  facilities for  approximately  $78.2
     million with 586,000 net rentable  square feet between  October 1, 2005 and
     October 26, 2005. These acquisitions were entirely funded by us.

              On October 3, 2005, we issued an additional  2,000,000  depositary
     shares,  with each  share  representing  1/1,000  of a share,  in our 6.45%
     Series F  Cumulative  Preferred  Stock  resulting  in $50  million of gross
     proceeds.

              On October 24,  2005,  Hurricane  Wilma struck  southern  Florida,
     where we have 111 self-storage facilities in the Miami, West Palm Beach and
     Tampa areas. As a result of damage sustained and lack of electrical  power,
     many of these  facilities  were not  operational  and  therefore  could not
     process  move-ins or move-outs  for a period of time.  Currently all of the
     self-storage facilities are operational; however, many units within several
     facilities  are not rentable  pending  repairs.  We also had one commercial
     property that sustained  significant  damage that will require us to vacate

                                       36

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2005
                                   (Unaudited)

     certain  existing  tenants  in order to make the  necessary  repairs.  With
     respect  to  our  self-storage   facilities,   we  do  not  anticipate  any
     significant  adverse  impact to our earnings  going  forward as a result of
     damages  sustained  from the  hurricane.  With  respect  to the  commercial
     property,  we expect the operations  will be  significantly  affected until
     repairs are made to the facility.  Net operating  income  generated by this
     commercial  property  for the nine  months  ended  September  30,  2005 was
     approximately $500,000.

              Our  current  estimate  of costs to restore  our  facilities  from
     physical  damage ranges from $4.0 to $4.5 million.  We have  insurance that
     covers  physical  damage  and  business  interruption,  subject  to certain
     limitations.  The  amount of  insurance  proceeds  that we would  expect to
     recover is currently not determinable.

16.      Recent Accounting Pronouncement
         -------------------------------

              Issue  04-05 of the  Emerging  Issues  Task Force  ("EITF  04-05")
     states that the  general  partner in a  partnership  is presumed to control
     that  limited   partnership,   for  purposes  of  determining   whether  to
     consolidate  an  interest  in an entity or to apply  the  equity  method of
     accounting. If the limited partners have either (1) the substantive ability
     - through a simple  majority vote - to liquidate the  partnership or remove
     the general partner without cause, or (2) substantive participating rights,
     the general partner does not control the limited partnership.

              The effective date for applying the guidance in EITF 04-05 is June
     29,  2005 for new  limited  partnerships,  or no later than our fiscal year
     beginning January 1, 2006.

              We have not fully  quantified  the impact of this statement on our
     consolidated  financial  statements,  but we do not believe that the impact
     will be significant.

                                       37

<PAGE>


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

         The following  discussion  and analysis  should be read in  conjunction
with our consolidated financial statements and notes thereto.

FORWARD LOOKING STATEMENTS: When used within this document, the words "expects,"
"believes,"  "anticipates,"  "should,"  "estimates," and similar expressions are
intended to  identify  "forward-looking  statements"  within the meaning of that
term in Section 27A of the Securities  Exchange Act of 1933, as amended,  and in
Section  21E  of  the  Securities  Exchange  Act  of  1934,  as  amended.   Such
forward-looking statements involve known and unknown risks,  uncertainties,  and
other  factors,  which  may cause  our  actual  results  and  performance  to be
materially  different  from those  expressed  or implied in the forward  looking
statements.  Such factors are  described in Item 2A, "Risk  Factors" and include
changes in general  economic  conditions and in the markets in which we operate,
the  impact  of  competition  from  new  and  existing  storage  and  commercial
facilities  and  other  storage  alternatives,  which  could  impact  rents  and
occupancy  levels at our  facilities;  difficulties  in our ability to evaluate,
finance and integrate acquired and developed  properties into our operations and
to fill up those properties, which could adversely affect our profitability; the
impact of the regulatory environment as well as national,  state, and local laws
and  regulations  including,  without  limitation,  those  governing Real Estate
Investment  Trusts,  which  could  increase  our  expense  and  reduce  our cash
available  for  distribution;  consumers'  failure to accept  the  containerized
storage  concept which would reduce our  profitability;  difficulties in raising
capital at reasonable  rates,  which would impede our ability to grow; delays in
the  development  process,  which  could  adversely  affect  our  profitability;
economic  uncertainty  due to the  impact of war or  terrorism  could  adversely
affect our  business  plan;  the costs  associated  with  pursuing  a  potential
transaction  with Shurgard,  the risk that no transaction  with Shurgard occurs,
the risks associated with Public Storage's ability to successfully integrate the
operations of Shurgard,  if a transaction is consummated,  and assumptions  with
respect  to the  benefits  to be  realized  from a  potential  transaction  with
Shurgard,   future  revenues  of  Shurgard  and  Public  Storage,  the  expected
performance  of  Shurgard  and Public  Storage  and the  expected  cash flows of
Shurgard and Public  Storage and other risks  related to our proposal to acquire
Shurgard  which are described in Item 2A. We disclaim any obligation to publicly
release  the  results  of any  revisions  to  these  forward-looking  statements
reflecting new estimates, events or circumstances after the date of this report.

         CRITICAL ACCOUNTING POLICIES

         Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses our consolidated  financial statements,  which have been
prepared in accordance with U.S. generally accepted accounting  principles.  The
preparation of financial  statements and related  disclosures in conformity with
United States generally  accepted  accounting  principles and our discussion and
analysis  of  our  financial   condition  and  results  of  operations  requires
management to make judgments,  assumptions and estimates that affect the amounts
reported in our consolidated financial statements and accompanying notes. Note 2
to our consolidated  financial statements summarizes the significant  accounting
policies  and methods  used in the  preparation  of our  consolidated  financial
statements and related disclosures.

         Management  believes the  following  are critical  accounting  policies
whose application has a material impact on our financial presentation.  That is,
they are both important to the portrayal of our financial condition and results,
and they require  management to make judgments and estimates  about matters that
are inherently uncertain.

         QUALIFICATION  AS A REIT - INCOME TAX EXPENSE:  We believe that we have
been  organized  and  operated,  and we  intend to  continue  to  operate,  as a
qualifying Real Estate Investment Trust ("REIT") under the Internal Revenue Code
and  applicable  state laws. A qualifying  REIT generally does not pay corporate
level  income  taxes  on  its  taxable   income  that  is   distributed  to  its
shareholders,  and accordingly, we do not pay or record as an expense income tax
on the share of our taxable income that is distributed to shareholders.

         We therefore  don't  estimate or accrue any Federal income tax expense.
This estimate could be incorrect,  because due to the complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and
the  possibility  of future changes in our  circumstances,  we cannot be assured
that we actually have satisfied or will satisfy the requirements for taxation as

                                       38

<PAGE>

a REIT for any  particular  taxable  year.  For any taxable year that we fail or
have failed to qualify as a REIT and applicable relief provisions did not apply,
we would be taxed at the regular  corporate  rates on all of our taxable income,
whether  or not we made or  make  any  distributions  to our  shareholders.  Any
resulting  requirement  to pay corporate  income tax,  including any  applicable
penalties or interest,  could have a material  adverse  impact on our  financial
condition or results of  operations.  Unless  entitled to relief under  specific
statutory provisions,  we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which  qualification  was lost.
There can be no assurance that we would be entitled to any statutory relief.

         IMPAIRMENT  OF  LONG-LIVED  ASSETS:  Substantially  all of  our  assets
consist of long-lived assets,  including real estate, assets associated with the
containerized  storage  business,  goodwill,  and other  intangible  assets.  We
evaluate our  goodwill for  impairment  on an annual  basis,  and on a quarterly
basis evaluate other long-lived assets for impairment. As described in Note 2 to
the consolidated financial statements, the evaluation of goodwill for impairment
entails  valuation of the reporting unit to which  goodwill is allocated,  which
involves significant  judgment in the area of projecting  earnings,  determining
appropriate  price-earnings  multiples,  and discount  rates.  In addition,  the
evaluation  of other  long-lived  assets  for  impairment  requires  determining
whether indicators of impairment exist, which is a subjective process.  When any
indicators of impairment  are found,  the evaluation of such  long-lived  assets
then entails  projections of future  operating  cash flows,  which also involves
significant  judgment.  Future events, or facts and circumstances that currently
exist, that we have not yet identified, could cause us to conclude in the future
that other long lived assets are impaired.  Any resulting  impairment loss could
have a  material  adverse  impact on our  financial  condition  and  results  of
operations.

         ESTIMATED USEFUL LIVES OF LONG-LIVED  ASSETS:  Substantially all of our
assets consist of depreciable, long-lived assets. We record depreciation expense
with respect to these assets based upon their estimated useful lives. Any change
in the estimated useful lives of those assets,  caused by functional or economic
obsolescence  or other  factors,  could  have a material  adverse  impact on our
financial condition or results of operations.

         ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:
As  described in Notes 2 and 14 to the  consolidated  financial  statements,  we
retain certain risks with respect to property perils, legal liability, and other
such risks.  In addition,  a  wholly-owned  subsidiary of the Company  reinsures
policies   against  claims  for  losses  to  goods  stored  by  tenants  in  our
self-storage facilities.  In connection with these risks, we accrue losses based
upon our estimated level of losses incurred using certain actuarial  assumptions
followed  in the  insurance  industry  and  based  on  recommendations  from  an
independent actuary that is a member of the American Academy of Actuaries. While
we believe  that the amounts of the accrued  losses are  adequate,  the ultimate
liability may be in excess of or less than the amounts provided.

         ACCRUALS  FOR  CONTINGENCIES:  We are  exposed  to  business  and legal
liability  risks with respect to events that have  occurred,  but in  accordance
with U.S. generally accepted accounting principles, we have not accrued for such
potential  liabilities  because the loss is either not probable or not estimable
or  because  we are not aware of the  event.  Future  events  and the  result of
pending  litigation could result in such potential losses becoming  probable and
estimable, which could have a material adverse impact on our financial condition
or results of operations. Some of these potential losses, of which we are aware,
are described in Note 14 to the consolidated financial statements.

         ACCRUALS FOR OPERATING EXPENSES: We accrue for property tax expense and
other operating  expenses based upon estimates and historical trends and current
and  anticipated  local and state  government  rules and  regulations.  If these
estimates and assumptions are incorrect,  our expenses could be misstated.  Cost
of operations,  interest expense, general and administrative expense, as well as
television,  yellow page,  and other  advertising  expenditures  are expensed as
incurred.  Accordingly,  the amounts  incurred  in an interim  period may not be
indicative of the amounts to be incurred in a full year.

                                       39

<PAGE>

RESULTS OF OPERATIONS
---------------------

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005:

         Net  income  for  the  three  months  ended   September  30,  2005  was
$128,344,000  compared to $97,515,000 for the same period in 2004,  representing
an increase of  $30,829,000  or 32%.  This increase is primarily due to improved
operations  from our Same  Store,  newly  developed  and  acquired  self-storage
facilities,  an increase in equity  earnings of real estate  entities,  improved
tenant reinsurance operations,  a gain on the disposition of real estate assets,
and higher interest  income.  These items were partially  offset by increases in
depreciation  and interest  expense.  Equity in earnings of real estate entities
increased  primarily as a result of our pro-rata  share of gain from the sale of
real estate  recorded by PS Business  Parks in the quarter  ended  September 30,
2005.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity stock  shareholders) was $79,262,000 or $0.62
per common share on a diluted  basis for the three months  ended  September  30,
2005  compared to  $48,597,000  or $0.38 per common share on a diluted basis for
the same period in 2004,  representing an increase of $0.24 per common share, or
63%. The increases in net income  allocable to common  shareholders and earnings
per  common  diluted  share  are due  primarily  to the  impact  of the  factors
described  above with  respect to the increase in net income.  Weighted  average
diluted shares decreased to 128,742,000 for the three months ended September 30,
2005 from 128,826,000 for the three months ended September 30, 2004.

         For the three months ended  September  30, 2005 and 2004,  we allocated
$43,726,000  and $40,471,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
preferred  securities  issued. For the three months ended September 30, 2004, we
also  recorded  an  additional   allocation  of  net  income  to  our  preferred
shareholders  and a  corresponding  reduction  of net income  allocation  to our
common  shareholders of $3,072,000 or $0.02 per common share with respect to our
redemption  of our Series M and Series D Preferred  stock,  pursuant to Emerging
Issues Task Force Topic D-42 ("EITF Topic D-42").

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005:

         Net  income  for  the  nine  months  ended   September   30,  2005  was
$333,021,000 compared to $258,942,000 for the same period in 2004,  representing
an increase of  $74,079,000,  or 29%. This increase is primarily due to improved
operations  from our Same  Store,  newly  developed  and  acquired  self-storage
facilities,  reduced minority interest in income, an increase in equity earnings
of real estate entities, improved tenant reinsurance operations, increased gains
on the disposition of real estate assets and higher interest income. These items
were partially offset by increases in depreciation and interest expense.  Equity
in earnings of real estate entities  increased due to our pro-rata share of gain
from the sale of real estate  recorded  by PS Business  Parks in the nine months
ended September 30, 2005.

         Minority  interest in income  declined  primarily due to a reduction in
redemption and restructuring  costs associated with preferred  partnership units
in 2004,  combined  with the  redemption of preferred  partnership  units during
2005.  We  allocated  income to minority  interests  pursuant to EITF Topic D-42
totaling  $874,000 and $2,063,000  for the nine months ended  September 30, 2005
and 2004, respectively.  In addition, during the nine months ended September 30,
2004, we allocated $8.0 million to preferred minority interests as a result of a
special distribution associated with a restructuring.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity stock shareholders) was $188,744,000 or $1.46
per common share on a diluted basis for the nine months ended September 30, 2005
compared to  $118,728,000  or $0.92 per common share on a diluted  basis for the
same period in 2004, representing an increase of $0.54 per common share, or 59%.

                                       40

<PAGE>

The increases in net income  allocable to common  shareholders  and earnings per
common  diluted share are due  primarily to the impact of the factors  described
above  with  respect  to the  increase  in net  income,  partially  offset by an
increase in net income allocated to our preferred shareholders. Weighted average
diluted shares  increased to 128,844,000 for the nine months ended September 30,
2005 from 128,545,000 for the nine months ended September 30, 2004.

         For the nine months  ended  September  30, 2005 and 2004,  we allocated
$126,286,000 and $117,293,000 of our net income, respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption  of  preferred  securities  at higher  dividend  rates than the newly
preferred  securities  issued.  We also  recorded  allocations  of income to our
preferred  shareholders  with  respect  to the  application  of EITF  Topic D-42
totaling  $1,904,000  (or $0.01 per common share) and  $6,795,000  (or $0.05 per
common  share)  for  the  nine  months  ended   September  30,  2005  and  2004,
respectively.

REAL ESTATE OPERATIONS
----------------------

         SELF-STORAGE  OPERATIONS:  Our  self-storage  operations are by far the
largest component of our operations, representing approximately 93% of our total
revenues  generated for the nine months ended September 30, 2005. As a result of
acquisitions  and  development  of  self-storage  facilities,   year  over  year
comparisons as presented on the  consolidated  statements of income with respect
to our self-storage operations are not meaningful.

         To enhance year over year comparisons,  the following table summarizes,
and the  ensuing  discussion  describes,  the  operating  results  of (i)  1,260
self-storage  facilities  that are  reflected in the  financial  statements on a
stabilized   basis  since   January  1,  2003  (the  "Same  Store"   facilities"
facilities),  (ii) 66  facilities  that were acquired in 2004 and the first nine
months of 2005 ( the "Acquired Facilities"), (iii) 56 facilities that were owned
prior to January 1, 2003 but were not  stabilized due primarily to expansions in
their net rentable  square  footage  (the  "Expansion  Facilities")  and (iv) 67
newly-developed   facilities  that  were  opened  after  January  1,  2001  (the
"Developed Facilities"):

                                       41

<PAGE>

<TABLE>
<CAPTION>


    Self - storage operations summary:          Three Months Ended September 30,         Nine Months Ended September 30,
    ----------------------------------        -------------------------------------   -------------------------------------
                                                                        Percentage                               Percentage
                                                 2005         2004        Change         2005          2004        Change
                                              ------------  ----------- -----------   ------------  -----------  ----------
                                                                      (Dollar amounts in thousands)
 Rental income (a):
<S>                                            <C>          <C>            <C>        <C>           <C>             <C>
    Same Store Facilities (b)...........       $ 206,857    $ 197,162      4.9%       $  604,752    $ 576,765       4.9%
    Acquired Facilities (c).............          10,674           95        -            27,001           95         -
    Expansion Facilities (d)............          11,248       10,797      4.2%           32,983       30,953       6.6%
    Developed Facilities (e)............          15,043       11,689     28.7%           41,898       30,707      36.4%
                                             ------------  ----------- -----------   ------------  -----------  ----------
      Total rental income...............         243,822      219,743     11.0%          706,634      638,520      10.7%
                                             ------------  ----------- -----------   ------------  -----------  ----------
 Cost of operations (f):
    Same Store Facilities...............          66,927       65,616      2.0%          202,928      199,199       1.9%
    Acquired Facilities.................           4,200          103        -            11,508          103         -
    Expansion Facilities................           4,007        3,480     15.1%           11,940       10,564      13.0%
    Developed Facilities................           5,174        4,803      7.7%           16,053       14,087      14.0%
                                             ------------  ----------- -----------   ------------  -----------  ----------
    Total cost of operations............          80,308       74,002      8.5%          242,429      223,953       8.2%
                                             ------------  ----------- -----------   ------------  -----------  ----------
 Net operating income (before depreciation):
    Same Store Facilities...............         139,930      131,546      6.4%          401,824      377,566       6.4%
    Acquired Facilities.................           6,474           (8)       -            15,493           (8)        -
    Expansion Facilities................           7,241        7,317     (1.0)%          21,043       20,389       3.2%
    Developed Facilities................           9,869        6,886     43.3%           25,845       16,620      55.5%
                                             ------------  ----------- -----------   ------------  -----------  ----------
    Total net operating income before
      depreciation......................         163,514      145,741     12.2%          464,205      414,567      12.0%
  Depreciation and amortization ........         (47,042)     (42,818)     9.9%         (139,925)    (130,575)      7.2%
                                             ------------  ----------- -----------   ------------  -----------  ----------
    Net operating income................       $ 116,472   $  102,923     13.2%       $  324,280    $ 283,992      14.2%
                                             ============  =========== ===========   ============  ===========  ==========
 Number of self-storage facilities (at end
 of period):.............................                                                  1,449        1,382       4.8%
 Net rentable square feet (at end of period
 - in thousands):........................                                                 88,406       83,497       5.9%

</TABLE>

(a)  Rental income includes late charges and  administrative  fees and is net of
     promotional  discounts given.  Rental income does not include retail sales,
     truck  rental  income  or  tenant  insurance   revenues  generated  at  the
     facilities.

(b)  The Same Store Facilities  include 1,260 facilities  containing  73,311,000
     net rentable square feet that have been owned prior to January 1, 2003, and
     operated at a mature, stabilized occupancy level since January 1, 2003.

(c)  The Acquired  Facilities  include 66  facilities  containing  4,574,000 net
     rentable  square feet that were acquired  after  January 1, 2003,  and were
     substantially  all  mature,  stabilized  facilities  at the  time of  their
     acquisition.

(d)  The Expansion  Facilities  include 56 facilities  containing  4,556,000 net
     rentable  square  feet of  self-storage  space and  426,000  square feet of
     containerized  storage space.  These facilities were owned since January 1,
     2003, however,  operating results are not comparable throughout the periods
     presented due  primarily to  expansions  in their net rentable  square feet
     (described  below).  Since  January 1, 2003, we completed  construction  on
     expansion projects to these facilities with a total cost of $41.3 million.

(e)  The Developed  Facilities  include 67 facilities  containing  5,174,000 net
     rentable square feet of self-storage  space and 365,000 net rentable square
     feet of  industrial  space  initially  developed  for use in  containerized
     storage   activities  (see   "Containerized   Storage"  and   "Discontinued
     Operations").  These  facilities were developed and opened since January 1,
     2001 at a total cost of $523.3 million.

(f)  Cost of  operations  includes all costs,  both direct and  indirect  costs,
     incurred in the operating activities of the facilities.

                                       42

<PAGE>

Self-Storage Operations - Same Store Facilities

         At September  30, 2005,  our "Same Store"  portfolio  consists of 1,260
facilities,  which  represents the facilities  that we have  consolidated in our
financial  statements and have been operating on a stabilized  basis  throughout
2003,  2004,  and the  first  nine  months of 2005.  During  the  quarter  ended
September  30, 2005, we removed a total of nine  facilities  from the Same Store
pool because the  operations of these  facilities  were no longer  comparable to
prior periods;  these facilities are now included in the "expansion  facilities"
below.  These nine facilities  included eight facilities  located in New Orleans
that were damaged by the impact of Hurricane Katrina and one facility located in
Houston that was partially condemned due to eminent domain proceedings.  The new
Same Store pool of 1,260 facilities  should not be compared to the pool of 1,269
facilities presented in prior filings when evaluating trends in operations.

         The Same Store Facilities contain approximately 73,311,000 net rentable
square feet, representing approximately 83% of the aggregate net rentable square
feet of our self-storage portfolio. Revenues and operating expenses with respect
to this group of properties are set forth in the above  Self-Storage  Operations
table under the caption, "Same Store Facilities." The following table sets forth
additional operating data with respect to the Same Store Facilities:

<TABLE>
<CAPTION>

 SAME STORE FACILITIES                                   Three Months Ended September 30,            Nine Months Ended September 30,
 ---------------------                                 ------------------------------------   --------------------------------------
                                                                                 Percentage                               Percentage
                                                          2005         2004        Change         2005         2004         Change
                                                       ----------- ------------ -----------   ------------  -----------  -----------
                                                                   (Amounts in thousands except weighted average amounts)
 Revenues:
<S>                                                    <C>          <C>              <C>       <C>          <C>               <C>
   Rental income, net of discounts................     $  197,329   $  188,991       4.4%      $  577,941   $  552,453        4.6%
   Late charges and administrative fees collected.          9,528        8,171      16.6%          26,811       24,312       10.3%
                                                       ----------- ------------ -----------   ------------  -----------  -----------
   Total revenues.................................        206,857      197,162       4.9%         604,752      576,765        4.9%

 Cost of operations:
   Property taxes.................................         19,261       18,375       4.8%          56,816       54,735        3.8%
   Payroll expense................................         20,096       20,357      (1.3)%         61,911       61,149        1.2%
   Advertising and promotion......................          5,182        4,373      18.5%          17,740       15,402       15.2%
   Utilities......................................          4,657        4,313       8.0%          12,831       12,130        5.8%
   Repairs and maintenance........................          6,172        6,351      (2.8)%         19,084       19,034        0.3%
   Telephone reservation center...................          2,217        2,760     (19.7)%          5,976        8,367      (28.6)%
   Property insurance.............................          1,929        2,241     (13.9)%          6,145        6,923      (11.2)%
   Other cost of managing facilities..............          7,413        6,846       8.3%          22,425       21,459        4.5%
                                                       ----------- ------------ -----------   ------------  -----------  -----------
   Total cost of operations.......................         66,927       65,616       2.0%         202,928      199,199        1.9%
                                                       ----------- ------------ -----------   ------------  -----------  -----------
 Net operating income before depreciation.........        139,930      131,546       6.4%         401,824      377,566        6.4%
 Depreciation.....................................        (38,096)     (36,773)      3.6%        (114,685)    (113,133)       1.4%
                                                       ----------- ------------ -----------   ------------  -----------  -----------
 Net operating income.............................     $  101,834   $   94,773       7.5%      $  287,139   $  264,433        8.6%
                                                       =========== ============ ===========   ============  ===========  ===========
 Gross margin (before depreciation)...............         67.6%        66.7%         1.3%         66.4%        65.5%         1.4%

 Weighted average for the period:
    Square foot occupancy (a).....................         91.7%        91.9%        (0.2)%        91.2%        91.1%         0.1%
    Realized annual rent per occupied square foot
      (b).........................................     $   11.74    $   11.22        4.6%      $   11.53    $   11.03         4.5%
    Annualized REVPAF (c).........................     $   10.77    $   10.31        4.5%      $   10.51    $   10.05         4.6%

  Weighted average at September 30:
    Square foot occupancy.........................                                                 91.6%        92.0%        (0.4)%
    In place annual rent per occupied square foot
           (d)........................................                                         $   12.83    $   12.20         5.2%
     Total net rentable square feet ..................                                            73,311         73,311         -

</TABLE>

(a)  Square foot occupancies  represent  weighted average  occupancy levels over
     the entire period.

(b)  Realized  annual  rent per  occupied  square  foot is  computed by dividing
     annualized  rental  income,  net  of  discounts,  by the  weighted  average
     occupied  square  footage  for the period.  Realized  rents per square foot
     takes into consideration promotional discounts, bad debt costs, credit card
     fees and other  costs  which  reduce  rental  income  from the  contractual
     amounts due.  Realized rents per occupied  square foot exclude late charges
     and administrative  fees collected,  and it is presented because we believe
     realized  rents per  occupied  square foot is an  important  measure of our
     operations.

                                       43

<PAGE>

(c)  Annualized  rental income per available  square foot ("REVPAF")  represents
     annualized rental income, net of discounts,  divided by total available net
     rentable square feet. REVPAF excludes late charges and administrative  fees
     collected. REVPAF is presented because we use it to measure our performance
     and believe it is useful for investors to evaluate our operations.

(d)  In place  annual  rent  per  occupied  square  foot  represents  annualized
     contractual   rents  per  occupied  square  foot  without   reductions  for
     promotional discounts and excludes late charges and administrative fees.

During the three months ended  September 30, 2005, net operating  income (before
depreciation)  for the Same Store  facilities  increased 6.4% as compared to the
same period in 2004, due to the following:

o        Annualized  REVPAF  increased  4.5% from  $10.31 per square foot in the
         three  months  ended  September  30, 2004 to $10.77 in the three months
         ended  September 30, 2005.  This was  attributable  primarily to a 4.6%
         increase in realized  annual rent per occupied  square foot from $11.22
         for the three  months ended  September  30, 2004 to $11.74 for the same
         period in 2005.

o        The impact of the increase in annualized REVPAF was partially offset by
         a 2.0%  increase in operating  expenses from $65.6 million in the three
         months ended  September  30, 2004 to $66.9  million in the three months
         ended  September  30,  2005.  This  increase in cost of  operations  is
         primarily due to increased  property  taxes,  advertising and promotion
         and  utilities  expense,  partially  offset by  decreases  to  payroll,
         repairs and maintenance,  property insurance and telephone  reservation
         costs.  The decrease in payroll expense from  $20,357,000 for the three
         months ended  September 30, 2004 to $20,096,000  for the same period in
         2005 is primarily due to a reduction in workers' compensation expense.

During the nine months ended  September 30, 2005,  net operating  income (before
depreciation)  for the Same Store  facilities  increased 6.4% as compared to the
same period in 2004, due to the following:

o        Annualized  REVPAF  increased  4.6% from  $10.05 per square foot in the
         nine months ended September 30, 2004 to $10.51 in the nine months ended
         September 30, 2005. This was attributable  primarily to a 4.5% increase
         in realized  annual rent per  occupied  square foot from $11.03 for the
         nine months ended  September  30, 2004 to $11.53 for the same period in
         2005.

o        The impact of the increase in annualized REVPAF was partially offset by
         a 1.9% increase in operating  expenses from $199.2  million in the nine
         months ended  September  30, 2004 to $202.9  million in the nine months
         ended  September  30,  2005.  This  increase in cost of  operations  is
         primarily due to increased  property  taxes,  advertising and promotion
         and  utilities  expense,  partially  offset by  decreases  to  property
         insurance and telephone reservation center costs.

ANALYSIS OF REVENUE TRENDS

         We experience  minor seasonal  fluctuations in the occupancy  levels of
self-storage  facilities with occupancies  generally higher in the summer months
than in the winter  months.  We believe that these  fluctuations  result in part
from  increased  moving  activity  during the summer.  We also  believe that our
occupancy  levels  with  respect to the Same Store  facilities  have become more
stabilized and therefore further  year-over-year  gains in occupancy levels will
be difficult to generate.

         Our growth in rental income will depend on various  factors,  including
our ability to maintain high occupancy levels,  increase rental rates charged to
both new and  existing  customers,  and to  reduce  the  amount  of  promotional
discounts  given to new tenants.  We believe that future growth in rental income
will  come  primarily  from  increases  in  average  rental  rates  and  reduced
promotional discounts rather than year-over-year increases in occupancy levels.

                                       44

<PAGE>

         Going into the fourth  quarter of 2005,  we believe that our same store
facilities are well positioned for further  revenue  growth,  as in-place annual
rental  rates were 5.2%  higher at  September  30,  2005 as compared to the same
period in 2004, offset partially by occupancy levels that were 0.4% lower.

         Although we have experienced a reduction in occupancy levels during the
third quarter, as compared to last year, we do not believe that it is indicative
of waning demand for  self-storage  space.  We believe the  reduction,  in large
part, was due to our pricing and promotional  activities during the quarter that
were  designed  to reduce  the  number of  short-term  tenants  moving  into our
facilities. As a consequence of this strategy, our move in volumes were reduced,
which in turn had a negative impact on our occupancy levels.

         As we have  indicated  in the past,  our  primary  strategy  is to grow
REVPAF in a  sustainable  manner.  In this  regard,  we will adjust our pricing,
promotional, and media strategies throughout the year. Some of these adjustments
could  result in putting  pressure  on our  occupancy  levels in order to try to
enhance (i) the length of stay of our tenants,  (ii)  realized rent per occupied
square foot, or (iii) minimize promotional  discounts given, all of which impact
REVPAF.

         There can be no assurance that we will achieve our goal of increases in
REVPAF, while sustaining our occupancy levels.

ANALYSIS OF EXPENSE TRENDS

         Total cost of operations for the Same Store  facilities  increased 2.0%
in the third  quarter of 2005 as compared  to the same period in 2004,  and only
1.9% for the nine months ended September 30, 2005 as compared to the same period
in 2004.

         Repairs and maintenance expense for the nine months ended September 30,
2005 was modestly higher than the amount incurred in the same period in 2004. We
expect to see a moderate increase in repairs and maintenance expenses in the
fourth quarter and into 2006.

         The  percentage  decrease in  telephone  reservation  center  costs has
declined  on a  quarter-over-quarter  basis as the year has  progressed,  and we
believe the  expenses  incurred in the third  quarter are close to a  stabilized
expense level.

         Property  payroll was also lower, in part due to a reduction in workers
compensation  costs.  We have  bolstered  our safety  programs over the past two
years and improved our workers  compensation claims management skills, and these
efforts are starting to have a positive impact on reducing workers  compensation
claims.

         Overall,  our  operating  expense  growth  was  more  moderate  than we
anticipated.  We  believe  this will  change  next year and return to a 3% to 5%
year-over-year growth, excluding advertising.

         Our media  advertising  costs are expected to remain  consistent in the
fourth quarter relative to the same period in the prior year. However, our media
advertising  costs will remain  volatile during 2006 as we evaluate our markets,
occupancies, and trends.

                                       45

<PAGE>

The following table summarizes selected quarterly financial data with respect to
the Same Store Facilities:

<TABLE>
<CAPTION>

                                                Three Months Ended
                      ----------------------------------------------------------------------
                        March 31,          June 30,         September 30,       December 31,         Full Year
                      -------------     --------------     ---------------     --------------      ------------
                                      (Amounts in thousands, except for per square foot amounts)

Total rental income:
<C>                   <C>                <C>                 <C>                 <C>               <C>
2005............      $   196,373        $   201,522         $  206,857
2004............      $   187,227        $   192,376         $  197,162          $  196,420        $   773,185

Total cost of operations:
2005............      $    69,164        $    66,837         $   66,927
2004............      $    67,448        $    66,135         $   65,616          $   67,345        $   266,544

Media advertising expense:
2005............      $     3,522        $     2,940         $    2,309
2004............      $     3,290        $     1,956         $    1,988          $    3,060        $    10,294

REVPAF:
2005............      $     10.25        $     10.51         $    10.77
2004............      $      9.77        $     10.06         $    10.31          $    10.27         $    10.10

Weighted  average  realized
annual  rent  per  occupied
square foot for the period:
2005............      $     11.41         $    11.41         $    11.74
2004............      $     10.90         $    10.99         $    11.22          $    11.31         $    11.10

Weighted average occupancy
levels for the period:
2005............          89.9%              92.1%               91.7%
2004............          89.7%              91.5%               91.9%               90.8%              91.0%

</TABLE>

                                       46

<PAGE>

ANALYSIS OF REGIONAL TRENDS

         The  following  table  sets  forth  regional  trends in our Same  Store
Facilities.  We believe that net operating  income  improvements  in Florida are
attributable  in part to higher  demand for  storage  space  resulting  from the
series of hurricanes  that occurred in the third quarter of 2004 and  throughout
the current hurricane season in 2005.

SAME STORE FACILITIES' OPERATING TRENDS BY REGION:
--------------------------------------------------

<TABLE>
<CAPTION>

                                                 Three Months Ended September 30,         Nine months ended September 30,
                                               ------------------------------------    --------------------------------------
                                                                         Percentage                                Percentage
                                                  2005         2004        Change          2005         2004           Change
                                               ------------  ----------- ----------    -----------  -----------    ----------
                                                                       (Dollar amounts in thousands)
Rental income:
<S>                                             <C>          <C>             <C>       <C>          <C>               <C>
   Southern California  (126 facilities)..      $   33,893   $   31,928      6.2%      $   99,685   $   93,295        6.8%
   Northern California  (131 facilities)..          25,987       24,834      4.6%          75,820       73,089        3.7%
   Texas  (150 facilities)................          18,408       17,948      2.6%          53,970       53,071        1.7%
   Florida  (126 facilities)..............          20,108       18,336      9.7%          58,900       53,320       10.5%
   Illinois  (88 facilities)..............          15,166       14,790      2.5%          44,330       42,994        3.1%
   Georgia  (58 facilities)...............           7,013        6,465      8.5%          20,419       19,004        7.4%
   All other states  (581 facilities).....          86,282       82,861      4.1%         251,628      241,992        4.0%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Total rental income.......................         206,857      197,162      4.9%         604,752      576,765        4.9%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Cost of operations:
   Southern California....................           7,167        7,042      1.8%          22,002       21,702        1.4%
   Northern California....................           6,446        6,080      6.0%          19,455       18,797        3.5%
   Texas..................................           8,185        7,900      3.6%          24,261       23,789        2.0%
   Florida................................           6,896        7,221     (4.5)%         20,688       21,280       (2.8)%
   Illinois...............................           6,087        5,835      4.3%          18,994       19,265       (1.4)%
   Georgia................................           2,315        2,425     (4.5)%          7,071        6,995        1.1%
   All other states.......................          29,831       29,113      2.5%          90,457       87,371        3.5%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Total cost of operations..................          66,927       65,616      2.0%         202,928      199,199        1.9%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Net operating income (before depreciation):
   Southern California....................          26,726       24,886      7.4%          77,683       71,593        8.5%
   Northern California....................          19,541       18,754      4.2%          56,365       54,292        3.8%
   Texas..................................          10,223       10,048      1.7%          29,709       29,282        1.5%
   Florida................................          13,212       11,115     18.9%          38,212       32,040       19.3%
   Illinois...............................           9,079        8,955      1.4%          25,336       23,729        6.8%
   Georgia................................           4,698        4,040     16.3%          13,348       12,009       11.1%
   All other states.......................          56,451       53,748      5.0%         161,171      154,621        4.2%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Total net operating income................      $  139,930   $  131,546      6.4%      $  401,824   $  377,566        6.4%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Weighted average square foot occupancy:
   Southern California....................          92.1%        93.1%      (1.1)%         92.4%        91.8%         0.7%
   Northern California....................          91.0%        90.1%       1.0%          90.8%        89.5%         1.5%
   Texas..................................          90.8%        90.6%       0.2%          90.1%        90.2%        (0.1)%
   Florida................................          94.4%        93.5%       1.0%          93.2%        92.1%         1.2%
   Illinois...............................          90.7%        92.0%      (1.4)%         89.8%        90.3%        (0.6)%
   Georgia................................          92.8%        92.0%       0.9%          92.3%        91.0%         1.4%
   All other states.......................          91.5%        92.1%      (0.7)%         91.1%        91.4%        (0.3)%
                                               ------------  ----------- ----------    -----------  -----------    ----------
 Total weighted average occupancy.........          91.7%        91.9%      (0.2)%         91.2%        91.1%         0.1%
                                               ------------  ----------- ----------    -----------  -----------    ----------

</TABLE>

                                       47

<PAGE>

SAME STORE FACILITIES' OPERATING TRENDS BY REGION: (CONTINUED)
--------------------------------------------------------------

<TABLE>
<CAPTION>

                                                 Three months ended September 30,        Nine months ended September 30,
                                               ------------------------------------    --------------------------------------
                                                                        Percentage                                 Percentage
                                                  2005        2004        Change          2005         2004            Change
                                               ------------  ----------- ----------    -----------  -----------    ----------
REVPAF:
<S>                                                 <C>         <C>          <C>           <C>         <C>            <C>
   Southern California...................           $16.55      $15.65       5.7%          $16.24      $15.23         6.6%
   Northern California...................            14.06       13.49       4.2%           13.69       13.24         3.4%
   Texas.................................             7.53        7.36       2.3%            7.37        7.26         1.5%
   Florida...............................            10.67        9.75       9.4%           10.43        9.42        10.7%
   Illinois..............................            10.76       10.58       1.7%           10.51       10.26         2.4%
   Georgia...............................             7.91        7.31       8.2%            7.69        7.16         7.4%
   All other states......................             9.90        9.57       3.5%            9.65        9.30         3.8%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Total REVPAF:............................           $10.77      $10.31       4.5%          $10.51      $10.05         4.6%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Realized annual rent per occupied square foot:
   Southern California...................           $17.97      $16.81       6.9%          $17.57      $16.59         5.9%
   Northern California...................            15.45       14.97       3.2%           15.08       14.79         2.0%
   Texas.................................             8.30        8.12       2.1%            8.18        8.04         1.7%
   Florida...............................            11.30       10.43       8.3%           11.19       10.23         9.4%
   Illinois..............................            11.86       11.50       3.1%           11.70       11.36         3.0%
   Georgia...............................             8.53        7.95       7.3%            8.33        7.87         5.8%
   All other states......................            10.82       10.39       4.2%           10.59       10.18         4.0%
                                               ------------  ----------- ----------    -----------  -----------    ----------
Total realized annual rent per occupied
  square foot:...........................           $11.74      $11.22       4.6%          $11.53      $11.03         4.5%
                                               ------------  ----------- ----------    -----------  -----------    ----------
</TABLE>

                                       48

<PAGE>

Self-Storage Operations - Acquired Facilities

         The "Acquired  Facilities,"  at September 30, 2005, are comprised of 66
self-storage  facilities containing 4,574,000 net rentable square feet that were
acquired  in 2004 and the  first  nine  months  of  2005.  The  following  table
summarizes operating data with respect to these facilities:

ACQUIRED FACILITIES
<TABLE>
<CAPTION>

                                                       Three Months Ended September 30,          Nine Months Ended September 30,
                                                    ---------------------------------------   --------------------------------------
                                                       2005          2004         Change         2005           2004       Change
                                                    ------------  ------------  -----------   -----------    ----------   ----------
                                                                             (Dollar amounts in thousands)
Rental income:
<S>                                                 <C>           <C>           <C>           <C>            <C>          <C>
   Self-storage facilities acquired in 2005....     $    2,748    $        -    $    2,748    $    4,625     $       -    $   4,625
   Self-storage facilities acquired in 2004....          7,926            95         7,831        22,376            95       22,281
                                                    ------------  ------------  -----------   -----------    ----------   ----------
     Total rental income.......................         10,674            95        10,579        27,001            95       26,906
                                                    ------------  ------------  -----------   -----------    ----------   ----------
Cost of operations:
   Self-storage facilities acquired in 2005 ...          1,195             -         1,195         2,146             -        2,146
   Self-storage facilities acquired in 2004 ...          3,005           103         2,902         9,362           103        9,259
                                                    ------------  ------------  -----------   -----------    ----------   ----------
     Total cost of operations..................          4,200           103         4,097        11,508           103       11,405
                                                    ------------  ------------  -----------   -----------    ----------   ----------
Net operating income (loss) before depreciation:
   Self-storage facilities acquired in 2005 ...          1,553             -         1,553         2,479             -        2,479
   Self-storage facilities acquired in 2004 ...          4,921            (8)        4,929        13,014            (8)      13,022
                                                    ------------  ------------  -----------   -----------    ----------   ----------
   Net operating income before depreciation....          6,474            (8)        6,482        15,493            (8)      15,501
 Depreciation..................................         (2,508)          (39)       (2,469)       (6,571)          (39)      (6,532)
                                                    ------------  ------------  -----------   -----------    ----------   ----------
   Net operating income........................     $    3,966    $      (47)   $    4,013    $    8,922     $     (47)   $   8,969
                                                    ============  ============  ===========   ===========    ==========   ==========
Weighted average square foot occupancy during
the period:
   Self-storage facilities acquired in 2005....          87.4%          -               -          70.8%          -               -
   Self-storage facilities acquired in 2004 ...          90.2%         64.4%         40.1%         85.3%         64.4%        32.5%
                                                    ------------  ------------  -----------   -----------    ----------   ----------
                                                         89.4%         64.4%         38.8%         82.5%         64.4%        28.1%
                                                    ============  ============  ===========   ===========    ==========   ==========
Net rentable square feet (at end of period -
in thousands):
   Self-storage facilities acquired in 2005....                                                    1,469             -        1,469
   Self-storage facilities acquired in 2004 ...                                                    3,105           139        2,966
                                                                                              -----------    ----------   ----------
                                                                                                   4,574           139        4,435
                                                                                              ===========    ==========   ==========
Number of facilities (at end of period):
   Self-storage facilities acquired in 2005....                                                       21             -           21
   Self-storage facilities acquired in 2004 ...                                                       45             2           43
                                                                                              -----------    ----------   ----------
                                                                                                      66             2           64
                                                                                              ===========    ==========   ==========
Cost of acquisitions (at end of period -
in thousands):
   Self-storage facilities acquired in 2005....                                               $  124,753     $       -   $  124,753
   Self-storage facilities acquired in 2004 ...                                                  259,487         8,293      251,194
                                                                                              -----------    ----------   ----------
                                                                                              $  384,240     $   8,293   $  375,947
                                                                                              ===========    ==========   ==========

</TABLE>

                                       49

<PAGE>

         During  2004,  we  acquired  45  facilities  at an  aggregate  cost  of
approximately  $259,487,000,  comprised  of  three  facilities  acquired  for an
aggregate  of  $17.8  million,   as  well  as  the  following  larger  portfolio
acquisitions:

o        Twenty-six  facilities  acquired in October 2004 from a third party for
         an aggregate cost of  approximately  $102.4 million.  This  acquisition
         increased our presence in the  Minneapolis and Milwaukee  markets,  and
         will allow us to cost-effectively  introduce media advertising in these
         markets,  improve our yellow page ad placement,  and drive  operational
         efficiency.   In  addition,   the  average  rental  rates  and  average
         occupancies of these properties, prior to acquisition,  were lower than
         comparable properties that we currently own in these markets.

o        Six  facilities  acquired in October  2004 in Dallas from a third party
         for an aggregate of approximately  $19.8 million.  We believe that this
         acquisition improved our presence in submarkets of Dallas where we were
         underrepresented.

o        Ten  facilities  acquired in November  2004 in the Miami  market for an
         aggregate  of $119.5  million.  We believe  that these  properties  are
         well-built and located in highly desirable  submarkets in Miami.  These
         facilities were built between 1997 and 2003.

         In January 2005, we acquired a total of five facilities in New York and
one facility in Illinois for an aggregate of  $23,751,000  in cash (an aggregate
of 367,000 net rentable square feet).  During the quarter ended June 30, 2005 we
acquired a total of four  facilities in New Jersey,  two  facilities in Illinois
and two facilities in Georgia for an aggregate of  $58,705,000  (an aggregate of
553,000 net rentable  square feet).  In the quarter ended  September 30, 2005 we
acquired a total of five facilities in Georgia,  one in Florida and one in North
Carolina for an aggregate of  $47,297,000  in cash (an  aggregate of 549,000 net
rentable square feet).

         Revenues and expenses  for the 2005  acquisitions,  in the table above,
represent  the results of these  acquisitions  from the  respective  acquisition
dates through September 30, 2005.

         In addition  to the 21  facilities  acquired  in the nine months  ended
September 30, 2005, we acquired seven additional  facilities located in Florida,
New York and  California  for  approximately  $78.2  million  with  586,000  net
rentable  square feet  between  October 1, 2005 and November 7, 2005.  Also,  at
November 7, 2005, we are under contract to acquire seven  additional  facilities
(total  approximate net rentable square feet of 481,000) at an aggregate cost of
approximately  $70 million,  including  the  assumption  of debt on one of these
facilities totaling  approximately $5 million. These acquisitions will be funded
entirely by us. Each of these contracts is subject to significant contingencies,
and there is no assurance that any of these facilities will be acquired.

Self-Storage Operations - Expansion Facilities

         As  a  result   primarily  of  expansions   to  existing   self-storage
facilities, the net rentable space at certain of our self-storage facilities has
changed.  Accordingly,  the operating  results are not comparable on a year over
year basis.  The  operating  results for these  facilities  are presented in the
table below.

                                       50

<PAGE>

EXPANSION FACILITIES
<TABLE>
<CAPTION>

                                                       Three Months Ended September 30,          Nine Months Ended September 30,
                                                    --------------------------------------   ---------------------------------------
                                                       2005          2004         Change         2005           2004      Change
                                                    ------------  ------------  ----------   -------------  -----------  -----------
                                                                             (Dollar amounts in thousands)
Rental income:
<S>                                                 <C>           <C>           <C>          <C>            <C>         <C>
   New Orleans facilities (a)..................     $    1,031    $    1,510    $    (479)   $    3,986     $    4,355   $    (369)
   Other expansion facilities..................         10,217         9,287          930        28,997         26,598       2,399
                                                    ------------  ------------  ----------   -------------  -----------  -----------
     Total rental income.......................         11,248        10,797          451        32,983         30,953       2,030
                                                    ------------  ------------  ----------   -------------  -----------  -----------
Cost of operations:
   New Orleans facilities......................            500           490           10         1,475          1,458          17
   Other expansion facilities..................          3,507         2,990          517        10,465          9,106       1,359
                                                    ------------  ------------  ----------   -------------  -----------  -----------
     Total cost of operations..................          4,007         3,480          527        11,940         10,564       1,376
                                                    ------------  ------------  ----------   -------------  -----------  -----------
Net operating income before depreciation:
   New Orleans facilities......................            531         1,020         (489)        2,511          2,897        (386)
   Other expansion facilities..................          6,710         6,297          413        18,532         17,492       1,040
                                                    ------------  ------------  ----------   -------------  -----------  -----------
   Net operating income before depreciation....          7,241         7,317          (76)       21,043         20,389         654
 Depreciation..................................         (2,633)       (2,398)        (235)       (7,571)        (7,077)       (494)
                                                    ------------  ------------  ----------   -------------  -----------  -----------
   Net operating income........................     $    4,608    $    4,919    $    (311)   $   13,472     $   13,312   $     160
                                                    ============  ============  ==========   =============  ===========  ===========
Weighted average square foot occupancy during
the period:
   New Orleans facilities (a)..................          91.7%         91.7%            -         90.6%          91.9%       (1.4)%
   Other expansion facilities..................          87.7%         85.3%          2.8%        84.8%          84.2%        0.7%
                                                    ------------  ------------  ----------   -------------  -----------  -----------
                                                         88.1%         86.0%          2.4%        85.4%          85.0%        0.5%
                                                    ============  ============  ==========   =============  ===========  ===========
Number of facilities (at end of period)........
   New Orleans facilities......................                                                     8              8           -
   Other expansion facilities..................                                                    48             48           -
                                                                                              -------------  -----------  ----------
                                                                                                   56             56           -
                                                                                              =============  ===========  ==========
Net rentable square feet (in thousands, at end
of period).....................................
   New Orleans facilities......................                                                   524            524           -
   Other expansion facilities - industrial space                                                  426            619        (193)
   Other expansion facilities - self-storage
   space.......................................                                                 4,032          3,745         287
                                                                                              -------------  -----------  ----------
                                                                                                4,982          4,888          94
                                                                                              =============  ===========  ==========

</TABLE>

(a)  Physical  occupancy  remained stable for the quarter  September 30, 2005 as
     compared  to the same  period in 2004.  However,  revenues  declined in the
     period  because we have recorded rent  allowances  for certain  tenants who
     still remain as tenants.

         Our Expansion Facilities include eight of our facilities located in New
Orleans that were damaged as a result of the impact of Hurricane Katrina. All of
the  facilities  were closed for  operations  for several  weeks  following  the
hurricane;  however, all but three of these facilities have since reopened.  The
five that are operating are not  operating at full  capacity,  as many units are
unavailable  for lease due to damage.  Two of the three  facilities  that remain
closed will not be able to reopen at all  without  substantial  restoration  and
repair work.

         During the quarter ended  September 30, 2005, our net operating  income
(before  depreciation)  for these  eight  facilities  was  $531,000  compared to
$1,020,000  for the same period last year, a reduction of $489,000,  or 48%. For
the first six months of 2005,  net operating  income (before  depreciation)  was
$1,980,000  as compared to  $1,877,000  for same period in 2004,  an increase of
$103,000 or 5%. With respect to the two facilities that have been  significantly
damaged and should remain inoperable for the foreseeable  future,  net operating
income (before depreciation) was $129,000 for the third quarter of 2005 compared
to $255,000  for the same period last year and $463,000 for the first six months
of 2005 compared to $454,000 for same period in 2004.

         Notwithstanding  that  five  of  our  facilities  in  New  Orleans  are
currently  operating,  we  believe  that the  indirect  economic  effects of the
hurricane on the city may have a negative  impact on our  facilities'  operating
results,  and these effects are expected to continue for an  indeterminate  time
period.

                                       51

<PAGE>

         The  remaining  48  facilities  contain  approximately   4,032,000  net
rentable  square feet of  self-storage  space at September 30, 2005, and 426,000
square feet of industrial space developed for containerized storage activities -
see  "Containerized  Storage"  and  "Discontinued  Operations".   The  aggregate
construction  costs to complete these  expansions  totaled  approximately  $41.3
million since January 1, 2003.

         We expect  that the  Expansion  Facilities,  other than the New Orleans
facilities,  will  continue to provide  growth to our  earnings  into 2005 as we
continue to fill the newly added vacant space.  The weighted  average  occupancy
level of these  facilities  was  84.8%  and  84.2%  for the  nine  months  ended
September  30, 2005 and 2004,  respectively.

         Included in our development pipeline are 50 projects that repackage and
expand these  existing  facilities,  with an aggregate  estimated cost of $210.3
million at September 30, 2005.  These  activities will increase our self-storage
space by an aggregate of 3,235,000  net rentable  square feet and will result in
short-term  dilution to  earnings.  However,  we believe  that  expansion of our
existing self-storage  facilities in markets that have unmet storage demand, and
improving our existing facilities'  competitive position through enhancing their
visual  and  structural  appeal,  provide  an  important  means to  improve  the
Company's  earnings.  There can be no  assurance  about the future level of such
expansion  and  enhancement  opportunities,  and these  projects  are subject to
contingencies.

Self-Storage Operations - Developed Facilities

         We have 50 newly developed self-storage  facilities,  and 17 facilities
that were developed to contain both  self-storage and  containerized  storage at
the same location  ("Combination  Facilities") that have not been operating at a
stabilized  level of  operations  since January 1, 2003.  These newly  developed
facilities   have  an  aggregate  of  5,174,000  net  rentable  square  feet  of
self-storage  space,  and 365,000 net rentable  square feet of industrial  space
developed   originally  for  our  containerized   storage  business.   Aggregate
development  cost for these 67 facilities  was  approximately  $523.3 million at
September 30, 2005.  The operating  results of the  self-storage  facilities and
Combination Facilities are reflected in the Self-Storage  Operations table under
the caption,  "Developed  Facilities."  These facilities are not included in the
"Same Store" portfolio because their operations have not been stabilized.

         The  following  table sets forth the  operating  results  and  selected
operating data with respect to the Developed Facilities:

                                       52

<PAGE>

DEVELOPED FACILITIES

<TABLE>
<CAPTION>

                                                       Three Months Ended September 30,          Nine Months Ended September 30,
                                                    ---------------------------------------   --------------------------------------
                                                       2005          2004         Change         2005           2004        Change
                                                    ------------  ------------  -----------   -----------  ------------   ----------
                                                                             (Dollar amounts in thousands)
Rental income:
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
   Self-storage facilities opened in 2005......     $      154    $        -    $      154    $      204    $        -    $     204
   Self-storage facilities opened in 2004......          1,505           399         1,106         3,759           546        3,213
   Self-storage facilities opened in 2003......          3,355         2,520           835         9,410         5,906        3,504
   Self-storage facilities opened in 2002 and
   2001........................................          5,607         5,000           607        16,131        13,883        2,248
   Combination facilities......................          4,422         3,770           652        12,394        10,372        2,022
                                                    ------------  ------------  -----------   -----------  ------------   ----------
     Total rental income.......................         15,043        11,689         3,354        41,898        30,707       11,191
                                                    ------------  ------------  -----------   -----------  ------------   ----------
Cost of operations:
   Self-storage facilities opened in 2005......            187             -           187           304             -          304
   Self-storage facilities opened in 2004......            525           389           136         1,703           792          911
   Self-storage facilities opened in 2003......          1,047         1,171          (124)        3,146         3,301         (155)
   Self-storage facilities opened in 2002 and
   2001........................................          1,913         1,797           116         5,893         5,834           59
   Combination facilities......................          1,502         1,446            56         5,007         4,160          847
                                                    ------------  ------------  -----------   -----------  ------------   ----------
     Total cost of operations..................          5,174         4,803           371        16,053        14,087        1,966
                                                    ------------  ------------  -----------   -----------  ------------   ----------
Net operating income (loss) before depreciation:
   Self-storage facilities opened in 2005......            (33)            -           (33)         (100)            -         (100)
   Self-storage facilities opened in 2004......            980            10           970         2,056          (246)       2,302
   Self-storage facilities opened in 2003......          2,308         1,349           959         6,264         2,605        3,659
   Self-storage facilities opened in 2002 and
   2001........................................          3,694         3,203           491        10,238         8,049        2,189
   Combination facilities......................          2,920         2,324           596         7,387         6,212        1,175
                                                    ------------  ------------  -----------   -----------  ------------   ----------
   Net operating income before depreciation....          9,869         6,886         2,983        25,845        16,620        9,225
 Depreciation..................................         (3,805)       (3,608)         (197)      (11,098)      (10,326)        (772)
                                                    ------------  ------------  -----------   -----------  ------------   ----------
   Net operating income........................     $    6,064    $    3,278    $    2,786    $   14,747    $    6,294    $    8,453
                                                    ============  ============  ===========   ===========  ============   ==========
Weighted average square foot occupancy during the period:
   Self-storage facilities opened in 2005......          29.1%          -             -            15.0%           -              -
   Self-storage facilities opened in 2004......          82.0%         42.8%         91.5%         66.3%          33.1%      100.3%
   Self-storage facilities opened in 2003......          91.0%         78.5%         15.9%         86.7%          66.1%       31.2%
   Self-storage facilities opened in 2002 and
   2001........................................          93.1%         92.6%          0.5%         92.3%          91.0%        1.4%
   Combination facilities......................          82.1%         87.4%         (6.1)%        78.6%          84.0%       (6.4)%
                                                    ------------  ------------  -----------   -----------  ------------   ----------
                                                         84.9%         84.0%          1.1%         82.2%          80.4%        2.2%
                                                    ============  ============  ===========   ===========  ============   ==========

</TABLE>

                                       53

<PAGE>

<TABLE>
<CAPTION>

DEVELOPED FACILITIES (Continued)
                                                                                   Nine Months Ended September 30,
                                                                                   -------------------------------
                                                                                     2005        2004       Change
                                                                                   ----------  ---------  --------
                                                                                    (Dollar amounts in thousands)
Square footage (at end of period):
<S>                                                                                    <C>           <C>      <C>
   Self-storage facilities opened in 2005.....                                         259           -        259
   Self-storage facilities opened in 2004.....                                         505         505          -
   Self-storage facilities opened in 2003.....                                         994         994          -
   Self-storage facilities opened in 2002 and
   2001.......................................                                       1,747       1,747          -
   Combination facilities - industrial space
   (a)........................................                                         365         597       (232)
   Combination facilities - self-storage
   space (a)..................................                                       1,669       1,316        353
                                                                                   ----------  ---------  --------
                                                                                     5,539       5,159        380
                                                                                   ==========  =========  =========
Number of facilities (at end of period):
   Self-storage facilities opened in 2005.....                                           3           -          3
   Self-storage facilities opened in 2004.....                                           7           7          -
   Self-storage facilities opened in 2003.....                                          14          14          -
   Self-storage facilities opened in 2002 and
   2001.......................................                                          26          26          -
   Combination Facilities  ...................                                          17          17          -
                                                                                   ----------  --------- ---------
                                                                                        67          64          3
                                                                                   ==========  =========  =========
Cumulative development cost (at end of
period):
   Self-storage facilities opened in 2005.....                                     $ 15,983    $      -  $ 15,983
   Self-storage facilities opened in 2004.....                                       60,573      61,383      (810)
   Self-storage facilities opened in 2003.....                                      107,452     107,452         -
   Self-storage facilities opened in 2002 and
   2001.......................................                                      163,926     163,926         -
   Combination Facilities (a) ................                                      175,370     163,825    11,545
                                                                                   ----------  --------- ---------
                                                                                   $523,304    $496,586  $ 26,718
                                                                                   ==========  ========= =========

</TABLE>

(a)  The industrial space was originally  developed for use by our containerized
     storage  business.  During the fourth  quarter of 2004,  and the first nine
     months of 2005, we have  converted  industrial  space no longer used by the
     discontinued  containerized storage business into traditional  self-storage
     space, at an aggregate cost of $11,545,000.

         Unlike many other forms of real estate,  we are unable to pre-lease our
newly developed facilities due to the nature of our tenants. Accordingly, at the
time a newly  developed  facility  first opens for  operations,  the facility is
entirely vacant, generating no rental income. Historically, we estimated that on
average it takes  approximately 36 months for a newly developed facility to fill
up and reach a targeted occupancy level of approximately 90%.

         We believe that our newly developed facilities are affected by the same
operating  trends  noted with  respect to our Same  Store  facilities.  However,
because such  facilities  increase their  occupancy  during their  stabilization
period,  they tend to offer  lower  rates,  and  move-in  discounts  have a more
pronounced  effect upon realized rents because these  facilities  tend to have a
higher  proportion of newer tenants.  As these facilities  approach the targeted
occupancy level of approximately 90%, rates are increased,  resulting in further
improvement in net operating income as the existing  tenants,  which moved in at
lower  rates,  have their rates  increased  or are replaced by tenants at higher
rates.

         Property  operating  expenses  are  substantially   fixed,   consisting
primarily of payroll, property taxes, utilities, and marketing costs. The rental
revenue of a newly  developed  facility  will  generally not cover its operating
expenses  (excluding  depreciation)  until the facility has reached an occupancy
level of approximately 30% to 35%. However,  at that occupancy level, the rental
revenues  from the  facility  are still  not  sufficient  to cover  the  related

                                       54

<PAGE>

depreciation  expense  and  cost  of  capital  with  respect  to the  facility's
development  cost.  During  construction  of  the  self-storage   facility,   we
capitalize  interest  costs  and  include  such  cost  as  part  of the  overall
development  cost of the facility.  Once the facility is opened for  operations,
interest is no longer capitalized.

         The annualized  yield on cost for these  facilities for the nine months
ended September 30, 2005, based upon net operating  income before  depreciation,
was approximately 6.6%, which is lower than our ultimate yield expectations.  We
expect these yields to improve as these facilities continue to fill up and reach
a stabilized occupancy level as well as stabilized rental rates.

         Our newly  developed  facilities  have been subject to the same factors
denoted  above  with  respect  to our  Same  Store  Facilities.  The  facilities
developed in 2001 and 2002 have  contributed  to our earnings  growth,  with net
operating income before  depreciation  increasing  $2,189,000,  or 27.2%, in the
nine  months  ended  September  30,  2005 as compared to the same period in 2004
($491,000, or 15.3%, for the quarter ended September 30, 2005 as compared to the
same  period in 2004).  This growth was  primarily  due to higher  rental  rates
during the 2005 period as  compared  to the same  period in 2004,  as the tenant
base continues to mature and existing tenants, who moved in at lower rates, have
their rates increased or are replaced with higher-rent tenants.

         Properties  developed in 2003 had increases in net operating  income of
$3,659,000 for the nine months ended  September 30, 2005 as compared to the same
period in 2004, through a combination of an increase in average occupancies from
66.1% for the nine months ended  September 30, 2004 to 86.7% for the same period
in 2005, and an increase in rates. The facilities developed in 2004 and 2005 had
increases in net  operating  income,  primarily  due to the physical  fill-up of
these facilities.

         With  respect  to our  Combination  Facilities,  we have been  steadily
converting this industrial  space into  self-storage  space. As of September 30,
2005, 11 of the 17  Combination  Facilities  have been  converted  into entirely
self-storage. The remaining six facilities are expected to be converted over the
next  two  years.   Weighted  average  square  foot  occupancy  levels  for  the
Combination  Facilities  was 82.1% for the quarter  ended  September 30, 2005 as
compared to 87.4% for the same period in 2004,  the decrease due to the addition
of additional net rentable square feet.

         We continue to develop  facilities,  despite  the  short-term  earnings
dilution  experienced  during the fill-up  period,  because we believe  that the
ultimate returns on developed facilities are favorable.  In addition, we believe
that it is advantageous  for us to continue to expand our asset base and benefit
from the resultant  increased  critical mass,  with facilities that will improve
our portfolio's overall average construction and location quality.

         We expect that over the next 24 months,  the Developed  Facilities will
continue  to have a  negative  impact  to our  earnings  when  also  considering
financing  costs  with  respect to the  invested  capital.  Furthermore,  the 57
expansion and newly developed facilities in our development pipeline,  described
in "Liquidity and Capital Resources - Acquisition and Development of Facilities"
that will be opened for  operation  over the next 24 months are also expected to
negatively  impact our earnings until they reach a stabilized  occupancy  level.
Our  earnings  will  continue  to be  negatively  impacted  by any future  newly
developed facilities until they reach a stabilized occupancy level.

         COMMERCIAL PROPERTY OPERATIONS: Commercial property operations included
in our consolidated  financial  statements include commercial space owned by the
Company and 36 controlled entities (the "Consolidated Entities"). We have a much
larger interest in commercial  properties  through our ownership  interest in PS
Business  Parks Inc. and its  consolidated  operating  partnership  (PS Business
Parks, Inc. and its consolidated  operating partnership are hereinafter referred
to as "PSB").  Our investment in PSB is accounted for using the equity method of
accounting,  and accordingly our share of PSB's earnings is reflected as "Equity
in earnings of real estate entities," see below.

         Our  commercial  operations  are  comprised of  1,040,000  net rentable
square  feet  of  commercial  space  operated  at  certain  of the  self-storage
facilities,  and  three  stand-alone  commercial  facilities  having  a total of
215,000 net rentable square feet.

                                       55

<PAGE>

         The  results of our  commercial  operations  are  provided in the table
below:

<TABLE>
<CAPTION>

Commercial Property Operations:
(excluding discontinued operations)
                                             Three Months Ended September 30,      Nine Months Ended September 30,
                                           ----------------------------------   -----------------------------------
                                              2005         2004       Change        2005        2004        Change
                                           ------------ ----------- ---------   ----------- ----------   ----------
<S>                                        <C>          <C>         <C>         <C>         <C>          <C>
Rental income.........................     $    2,918   $   2,707   $    211    $    8,693  $   8,064    $     629
 Cost of operations...................         (1,122)     (1,031)       (91)       (3,292)    (3,200)         (92)
                                           ------------ ----------- ---------   ----------- ----------   ----------
   Net operating income...............          1,796       1,676        120         5,401      4,864          537

 Depreciation.........................           (562)       (464)       (98)       (1,721)   (1,574)         (147)
                                           ------------ ----------- ---------   ----------- ----------   ----------
   Operating income...................     $    1,234   $   1,212   $     22    $    3,680  $   3,290    $     390
                                           ============ =========== =========   =========== ==========   ==========

</TABLE>

         Our commercial property operations consist primarily of facilities that
are at a stabilized level of operations, and generally reflect the conditions of
the markets in which they operate.  We do not expect any  significant  growth in
net  operating  income from this segment of our  business  for the  remainder of
2005.

         CONTAINERIZED STORAGE OPERATIONS:

         We have closed many of our  containerized  storage  facilities in 2002,
2003,  and  2004,  and have  refined  our  market  and  product  focus to twelve
facilities  located in eight densely populated markets with  above-average  rent
and income.  The operations with respect to the facilities other than the twelve
ongoing  facilities  are  included in  "Discontinued  Operations"  on our income
statement.  The  operations of the twelve  remaining  facilities are included in
continuing operations and are reflected on the table below:


<TABLE>
<CAPTION>

Containerized Storage:
(excluding discontinued operations)
                                                Three Months Ended                  Nine Months Ended
                                                   September 30,                      September 30,
                                          -------------------------------   -----------------------------------
                                            2005       2004      Change       2005        2004       Change
                                          ---------- ---------  ---------   ---------- ----------   -----------
                                                                (Amounts in thousands)
<S>                                       <C>         <C>        <C>         <C>        <C>          <C>
Rental and other income ............      $ 4,480     $ 5,048    $  (568)    $12,305    $ 15,099     $ (2,794)
Cost of operations..................       (3,676)     (3,073)      (603)     (9,692)     (8,741)        (951)
                                          ---------- ---------  ---------   ---------- ----------   -----------
   Net operating income.............          804       1,975     (1,171)      2,613       6,358       (3,745)

Depreciation expense (a)............         (313)     (1,072)       759      (2,490)     (3,298)         808
                                          ---------- ---------  ---------   ---------- ----------   -----------
    Operating income................      $   491      $  903    $  (412)    $   123     $ 3,060     $ (2,937)
                                          ========== =========  =========   ========== ==========   ===========

</TABLE>


(a)  Depreciation expense principally relates to the depreciation of containers;
     however, depreciation expense for the three and nine months ended September
     30, 2005 includes $262,000 and $786,000,  related to real estate facilities
     compared  to  $258,000   and   $764,000  for  the  same  periods  in  2004,
     respectively.

         Rental  and  other  income  includes  monthly  rental  charges,  net of
discounts, to customers for storage of the containers,  service fees charged for
pickup and delivery of containers to customers' homes and businesses and certain
non-core services which were eliminated, such as handling and packing customers'
goods.  Rental income  decreased to $4,480,000 and $12,305,000 for the three and
nine months ended  September 30, 2005 from  $5,048,000 and  $15,099,000  for the
same period in 2004,  primarily as a result of the elimination of these non-core
services and a decline in average  occupancy.  At September 30, 2005, there were
approximately  22,410  occupied  containers  in  the  continuing  facilities  as
compared to 22,672 at September 30, 2004.

         Direct operating costs principally  includes  payroll,  equipment lease
expense,  utilities and vehicle  expenses.  While the costs  associated with the
eliminated  non-core services were reduced,  these reductions were substantially

                                       56

<PAGE>

offset by increased  marketing  expenditures,  primarily yellow page advertising
and television  media costs,  which increased in the aggregate by $1,007,000 and
$1,808,000  for the three and nine months ended  September  30, 2005 compared to
the same periods in 2004.

         There can be no assurance as to the level of the containerized  storage
business's   expansion,   level  of  gross   rentals,   level  of  move-outs  or
profitability.  We continue to evaluate the business operations,  and additional
facilities may be closed.

         TENANT REINSURANCE OPERATIONS:  Through a subsidiary of the Company, we
reinsure  policies against losses to goods stored by tenants in our self-storage
facilities.  The  tenant  reinsurance  operations  are  included  in the  income
statement under "Revenues - tenant reinsurance premiums" and "Cost of operations
- tenant reinsurance." Revenues totaled $18,499,000 and $18,266,000 for the nine
months ended September 30, 2005 and 2004,  respectively,  and cost of operations
totaled  $7,560,000  and  $11,089,000,   respectively.  The  tenant  reinsurance
business   earned  net  operating   income  of   $10,939,000   and   $7,177,000,
respectively.

         As a result of hurricanes  which occurred in the third quarter of 2005,
we have accrued $500,000 for estimated tenant claims for insured losses.

         An accrual in the amount of  $1,500,000  was  recorded  in the  quarter
ended  September 30, 2004 as a result of hurricanes  which  occurred  during the
period for  estimated  tenant  claims for insured  losses.  To date we have paid
approximately  $500,000 in claims. Based upon historical trends and the lapse of
time,  during the quarter ended June 30, 2005, we decreased our estimated future
claims accrual by $500,000, reducing cost of operations in the quarter.

         Our tenant reinsurance revenues are dependent upon our occupancy level,
the level of move-in activity,  the level of new tenants that opt for insurance,
and the time that such tenants  remain as insured  tenants.  For the nine months
ended September 30, 2005 and 2004,  approximately 33% and 35%, respectively,  of
our  self-storage  tenant base had such policies.  Tenant  insurance  expense is
attributable primarily to the level of claims.

         We have  outside  third-party  insurance  coverage  for losses from any
individual  event that  exceeds a loss of $500,000,  to a limit of  $10,000,000.
Losses  below these  amounts are  accrued as cost of  operations  for the tenant
reinsurance operations.

         Equity  in  Earnings  of  Real  Estate  Entities:  In  addition  to our
ownership  of equity  interests  in PSB, we had general and limited  partnership
interests  in eight  limited  partnerships  at  September  30, 2005 (PSB and the
limited  partnerships  are  collectively  referred  to  as  the  "Unconsolidated
Entities").  Due to our limited ownership  interest and limited control of these
entities,  we do not  consolidate  the accounts of these  entities for financial
reporting purposes. We account for such investments using the equity method.

         Equity  in  earnings  of real  estate  entities  for the three and nine
months ended  September 30, 2005 and 2004 consists of our pro-rata  share of the
Unconsolidated  Entities based upon our ownership  interest for the period.  The
following table sets forth the  significant  components of equity in earnings of
real estate entities:

                                       57

<PAGE>

<TABLE>
<CAPTION>

                                                 Three Months Ended September 30,        Nine Months Ended September 30,
                                               -------------------------------------   -----------------------------------
                                                  2005         2004        Change        2005         2004        Change
                                               ----------    ----------  -----------   ---------    ----------   ---------
                                                                         (Amounts in thousands)
Property operations:
<S>                                             <C>           <C>           <C>         <C>          <C>           <C>
  PSB                                           $17,737       $15,959       $1,778      $51,865      $49,753       $2,112
  Acquisition Joint Venture..............            75            21           54          189           21          168
  Other investments (1)..................         2,044         1,723          321        5,914        4,993          921
                                               ----------    ----------  -----------   ---------    ----------   ---------
                                                 19,856        17,703        2,153       57,968       54,767        3,201
                                               ----------    ----------  -----------   ---------    ----------   ---------
Depreciation:
  PSB....................................        (8,352)       (8,119)        (233)     (24,887)     (23,875)      (1,012)
  Acquisition Joint Venture..............           (68)          (31)         (37)        (202)         (31)        (171)
  Other investments (1)..................          (402)         (371)         (31)      (1,176)      (1,149)         (27)
                                               ----------    ----------  -----------   ---------    ----------   ---------
                                                 (8,822)       (8,521)        (301)     (26,265)     (25,055)      (1,210)
                                               ----------    ----------  -----------   ---------    ----------   ---------
Other: (2)
  PSB (3)................................        (1,134)       (6,273)       5,139      (11,149)     (18,615)       7,466
  Other investments (1)..................           (47)          275         (322)        (172)         549         (721)
                                               ----------    ----------  -----------   ---------    ----------   ---------
                                                 (1,181)       (5,998)       4,817      (11,321)     (18,066)       6,745
                                               ----------    ----------  -----------   ---------    ----------   ---------
Total equity in earnings of real estate
entities..................................       $9,853        $3,184       $6,669      $20,382      $11,646       $8,736
                                               ==========    ==========  ===========   =========    ===========  =========

</TABLE>


(1)  Amounts  primarily reflect equity in earnings recorded for investments that
     have been held  consistently  throughout  each of the three and nine months
     ended September 30, 2005 and 2004.

(2)  "Other" reflects our share of general and administrative expense,  interest
     expense, interest income, and other non-property;  non-depreciation related
     operating  results  of these  entities.  The  amount  of  interest  expense
     included in "other" is $131,000  and $375,000 for the three and nine months
     ended   September  30,  2005,  as  compared  to  $211,000  and  $1,157,000,
     respectively, for the same periods in 2004.

(3)  "Other"  with respect to PSB also  includes our pro-rata  share of gains on
     sale of real estate assets, impairment charges relating to pending sales of
     real estate and the impact of PSB's application of the SEC's  clarification
     of EITF Topic D-42 on redemptions of preferred securities.

         The  increase in equity in earnings  of real  estate  entities  for the
three and nine months ended September 30, 2005 as compared to the same period in
2004 is  principally  due to our  pro-rata  share of PSB's  gain on sale of real
estate assets  combined with a reduction in our share of PSB's EITF D-42 charge.
Our net  pro-rata  share of these  items  resulted  in an  increase in equity in
earnings  of  $5,458,000  and  $7,033,000  for the three and nine  months  ended
September  30,  2005,  as  compared  to a net  decrease  in equity  earnings  of
$1,092,000 and $2,109,000, respectively, for the same periods in 2004.

         Equity in earnings of PSB  represents our pro-rata share (an average of
approximately  44% for the nine months ended September 30, 2005 and 2004) of the
earnings of PSB.  Throughout  2004 and the first nine  months of 2005,  we owned
5,418,273 common shares and 7,305,355  operating  partnership units (units which
are convertible into common shares on a one-for-one  basis) in PSB. At September
30,  2005,  PSB owned and  operated  17.4  million net  rentable  square feet of
commercial  space located in eight  states.  PSB also manages  commercial  space
owned by the Company and  affiliated  entities at September 30, 2005 pursuant to
property management agreements.

         Our future equity income from PSB will be dependent entirely upon PSB's
operating  results.  PSB's  filings and selected  financial  information  can be
accessed  through the  Securities and Exchange  Commission,  and on its website,
www.psbusinessparks.com.

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the purpose of  acquiring  up to $125.0  million of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition  Joint  Venture").  The  venture  is funded  entirely  with  equity
consisting of 30% from us and 70% from the institutional  investor. As described

                                       58

<PAGE>

more fully in Note 2 to the  Consolidated  Financial  Statements for the quarter
ended  September 30, 2005, our pro-rata share of earnings with respect to two of
the facilities  acquired  directly from third parties by the  Acquisition  Joint
Venture in 2004, at an aggregate cost of $9,086,000,  are reflected in Equity in
Earnings in the table above.  Our  investment in the  Acquisition  Joint Venture
with respect to these two facilities was  approximately  $2,930,000.  Our future
equity in  earnings  with  respect  to the  Acquisition  Joint  Venture  will be
dependent upon the level of earnings generated by these two properties.

         The  "Other  Investments"  are  comprised  primarily  of our  equity in
earnings from seven  limited  partnerships,  for which we held an  approximately
consistent level of equity interest throughout 2004 and the first nine months of
2005. The Company formed these limited  partnerships  during the 1980's.  We are
the  general  partner in each  limited  partnership,  and  manage  each of these
facilities for a property management fee that is included in "Interest and Other
Income" on our condensed  consolidated  income  statement.  The limited partners
consist  of  numerous  individual  investors,   including  the  Company,   which
throughout the 1990's  acquired units in these limited  partnerships  in various
transactions.

         Our future  earnings  with respect to the "Other  Investments"  will be
dependent  upon the operating  results of the 36  self-storage  facilities  that
these  entities  own. The  operating  characteristics  of these  facilities  are
similar to those of the Company's  self-storage  facilities,  and are subject to
the same operational issues as the Same Store Facilities as discussed above. See
Note 5 to the  consolidated  financial  statements for the operating  results of
these entities for the nine months ended September 30, 2005 and 2004.

OTHER INCOME AND EXPENSE ITEMS
------------------------------

         INTEREST AND OTHER INCOME:  Interest and other income  includes (i) the
net operating results from our third party property management operations,  (ii)
the net operating  results from our merchandise sales and consumer truck rentals
and (iii) interest income principally from cash reserves.

         Interest and other income was $7,376,000 and  $16,698,000 for the three
and  nine  months  ended  September  30,  2005,  respectively,  as  compared  to
$3,300,000  and  $7,240,000,  respectively,  for the same periods in 2004.  This
increase is due  primarily  to higher  interest  income on cash  balances due to
higher average  interest  rates combined with improved  operations of our truck,
retail, and property management operations, as described below.

         Included in our  interest and other income is net income for our truck,
retail,  and property  management  operations of  approximately  $2,872,000  and
$1,746,000 for the three months ended September 30, 2005 and 2004, respectively,
and $5,831,000  and $3,498,000 for the nine months ended  September 30, 2005 and
2004,  respectively.  These  increases  are  due  primarily  due to  our  retail
operations  that have  improved  largely  due to the  increase  in the number of
facilities in the portfolio.

         As discussed more fully in "Liquidity and Capital Resources" below, at
September 30, 2005, we had cash balances totaling approximately $532 million,
which includes significant proceeds from recent equity issuances. These balances
are typically invested in short-term low-risk securities. The future level of
interest and other income will be partially dependent upon the timing of our
investment of these unused offering proceeds and the level of interest earned on
these short-term investments. For the three months ended September 30, 2005
average interest rates on cash reserves was approximately 3.5% as compared to
1.5% for the same period in 2004.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was $47,917,000 and  $144,136,000  for the three and nine months ended September
30, 2005, respectively, as compared to $44,354,000 and $135,447,000 for the same
period in 2004. The increase in depreciation  and amortization for the three and
nine months ended  September  30, 2005 as compared to the same period in 2004 is
due  primarily to increased  depreciation  with respect to newly  developed  and
acquired  facilities,  offset  partially  by a reduction  in  depreciation  with
respect to maintenance capital expenditures.

         Included  in  depreciation  expense  with  respect  to our real  estate
facilities was $44,890,000 and  $134,024,000 for the three and nine months ended
September 30, 2005,  respectively,  as compared to $40,851,000 and  $124,961,000
for the same period in 2004,  respectively.  The  increase in  depreciation  and
amortization  with  respect  to real  estate  facilities  for the three and nine
months  ended  September  30, 2005 as compared to the same period in 2004 is due
primarily to an increase in  depreciation  with respect to newly  developed  and

                                       59

<PAGE>

acquired  facilities.  Depreciation  expense  with  respect to other  assets was
$1,376,000  and  $5,159,000  for the three and nine months ended  September  30,
2005, respectively, as compared to $1,852,000 and $5,533,000 for the same period
in  2004,  respectively.  Depreciation  expense  also  includes  $1,651,000  and
$4,953,000 for each of the three and nine months, respectively,  ended September
30,  2005  and  2004,  relating  to  the  amortization  of  property  management
contracts.

         Depreciation  and amortization for the three months ended September 30,
2005 with respect to developed and acquired real estate  facilities added during
the quarter  ended  September 30, 2005 amounted to  approximately  $140,000.  We
expect that the quarterly depreciation and amortization expense, with respect to
these facilities,  will approximate  $359,000 for quarters beginning with fourth
quarter of 2005.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$5,621,000  and  $16,890,000  for the three and nine months ended  September 30,
2005, as compared to  $5,527,000  and  $15,983,000  for the same period in 2004,
representing an increase of  approximately  $94,000 and $907,000,  respectively.
General and administrative  expense principally  consists of state income taxes,
investor  relations expense and corporate and executive  salaries.  In addition,
general and administrative expense includes expenses that vary greatly depending
on the Company's  activity levels in certain areas, such as overhead  associated
with  the  acquisition  and  development  of real  estate  facilities,  employee
severance,   stock-based  compensation  and  product  research  and  development
expenditures.

         The  increase in general and  administrative  expense for the three and
nine months ended  September  30, 2005 as compared to the same period in 2004 is
due to increased  restricted  stock and stock  option  expense  attributable  to
additional  grants of restricted  stock units and stock  options,  combined with
increased  professional  fees.  These impacts were partially  offset in the nine
month period as a result of a $450,000  reduction in legal liabilities  recorded
in the  quarter  ended  March  31,  2005,  as well  as a  decrease  in  employee
termination costs during the nine months ended September 30, 2005 as compared to
the same period in 2004.

         INTEREST  EXPENSE:  Interest  expense was $2,471,000 and $5,928,000 for
the three and nine months ended September 30, 2005,  respectively,  and $100,000
for the nine months  ended  September  30, 2004 (none for the three months ended
September 30, 2004). Interest capitalized during the three and nine months ended
September  30, 2005 was $710,000 and  $2,054,000,  respectively,  as compared to
$685,000 and $2,722,000 for the three and nine months ended  September 30, 2004.
The increase in interest expense is due to (i) $94.7 million in debt assumed, at
an average  interest rate of  approximately  5.2%,  in connection  with property
acquisitions  in 2004,  (ii)  $35.6  million  in debt to our  Acquisition  Joint
Venture Partner at an average  interest rate of 8.5%, as described more fully in
Note 8 to the consolidated  financial statements for the quarter ended September
30, 2005,  (iii) $64.5 million in debt to related  party  recorded in connection
with the acquisition of minority  interest  described in Note 9 to the September
30, 2005 financial statements, combined with a reduction in capitalized interest
due to lower  development  balances.  See Notes 7, 8 and 9 to the  September 30,
2005 consolidated  financial  statements for schedules and further discussion on
our debt balances, principal repayment requirements, and average interest rates.

         MINORITY INTEREST IN INCOME: Minority interest in income represents the
income  allocable to equity  interests in Consolidated  Entities,  which are not
owned by the Company. The following table summarizes minority interest in income
for the three and nine months ended September 30, 2005 and 2004:

                                       60

<PAGE>

<TABLE>
<CAPTION>

                                                    Three Months Ended September 30,             Nine Months Ended September 30,
                                                ---------------------------------------    -----------------------------------------
                                                  2005            2004          Change         2005           2004          Change
                                                -----------    -----------   ----------    -----------   ------------    -----------
                                                                               (Amounts in thousands)
Preferred partnership interests:
<S>                                              <C>           <C>           <C>            <C>           <C>            <C>
     Ongoing distributions (b)..........         $  3,591      $   5,176     $  (1,585)     $ 12,556      $   16,907     $  (4,351)
     Special Distribution and EITF
      Topic D-42 allocations (a).......                 -              -             -           874          10,063        (9,189)
Consolidated Development Joint Venture (c)            826          1,563          (737)        4,229           3,940           289
Convertible Partnership Units (d).......              148             88            60           350             219           131
Acquired minority interests (e) ........              120            884          (764)        1,197           3,224        (2,027)
Other minority interests (f)............            2,558          1,810           748         7,149           5,545         1,604
                                                -----------    -----------   ----------    -----------   ------------    -----------
    Total minority interests in income..        $   7,243      $   9,521     $  (2,278)     $ 26,355      $   39,898     $ (13,543)
                                                ===========    ===========   ==========    ===========   ============    ===========

</TABLE>

(a)  As  described  more fully  below,  holders of $200  million of our Series N
     preferred  partnership  units  agreed  to a  restructuring  which  included
     reducing  their  distribution  rate  from  9.5% to 6.4% in  exchange  for a
     special  distribution of $8,000,000.  This special  distribution,  combined
     with  $2,063,000  in costs  incurred at the time the units were  originally
     issued that were charged  against income in accordance  with the Securities
     and Exchange Commissions  clarification of EITF Topic D-42, are included in
     minority interest in income for the nine months ended September 30, 2004 as
     are $874,000 in such original issuance cost with respect to the nine months
     ended September 30, 2005 based on the redemption of preferred units.

(b)  The decrease in ongoing  distributions  is due to the reduction in the rate
     on $200  million  of the  preferred  partnership  units  from 9.5% to 6.4%,
     effective  March 22, 2004, the redemption of $40 million of our 9.5% Series
     N Preferred  Units on March 17, 2005 and $45 million of our 9.125% Series O
     Preferred units on March 29, 2005.  These impacts were partially  offset by
     the  issuance of $25 million of our 6.25%  Series Z Preferred  Units in the
     connection with an acquisition in the fourth quarter of 2004.

(c)  These amounts  reflect  income  allocated to the minority  interests in the
     Consolidated  Development  Joint Venture.  Included in minority interest in
     income is $322,000 and $2,051,000 in depreciation expense for the three and
     nine months ended September 30, 2005, respectively, as compared to $887,000
     and $2,741,000 for the same periods in 2004.

(d)  These amounts reflect the minority interests represented by the Convertible
     Partnership  Units (see Note 8 to the consolidated  financial  statements).
     Included  in  minority  interest  in  income is  $88,000  and  $264,000  in
     depreciation  expense for the three and nine  months  ended  September  30,
     2005,  respectively,  as  compared  to $81,000  and  $247,000  for the same
     periods in 2004.

(e)  These  amounts  reflect  income  allocated to minority  interests  that the
     Company  acquired  in 2004 and the  first  nine  months  of 2005 and are no
     longer outstanding at September 30, 2005.  Included in minority interest in
     income is $31,000 and  $295,000 in  depreciation  expense for the three and
     nine months ended September 30, 2005, respectively, as compared to $250,000
     and $1,051,000 for the same periods in 2004.

(f)  These amounts  reflect  income  allocated to minority  interests  that were
     outstanding  consistently  throughout  the  three  and  nine  months  ended
     September  30, 2005 and 2004.  Included  in minority  interest in income is
     $162,000 and $536,000 in depreciation expense for the three and nine months
     ended  September  30,  2005,  respectively,  as compared  to  $339,000  and
     $812,000 for the same periods in 2004.

         On  June  30,  2004,  we  acquired  minority  interests  in  one of the
consolidated  entities for an aggregate of $24,851,000 in cash. In January 2005,
we acquired additional minority interest for an aggregate of $4,366,000 in cash.
In April 2005, we acquired  minority interest for an aggregate of $32,432,000 in
cash. In August 2005, we acquired additional minority interests for an aggregate
of $14,597,000 in cash. The income  allocated to these  interests is included in
the table above under the "Acquired Minority Interests."

         On March 22, 2004,  certain investors who held $200 million of our 9.5%
Series N Cumulative Redeemable Perpetual Preferred Units agreed, in exchange for
a special distribution of $8,000,000, to a reduction in the distribution rate on
their preferred units from 9.50% per year to 6.40% per year, and an extension of
the call date for  these  securities  to March  17,  2010.  The  investors  also
received  their  distribution  that  accrued  from  January 1, 2004  through the
effective date of the exchange.

                                       61

<PAGE>

         As a result of this agreement,  income allocable to minority  interests
increased,  and the Company's net income  decreased  $10,063,000  due to (i) the
$8,000,000  cash  payment  to the  holders of the  preferred  units and (ii) the
application of the SEC Observer's recent  clarification of EITF Topic D-42, "The
Effect on the  Calculation  of Earnings per Share for the  Redemption or Induced
Conversion of Preferred Stock" totaling $2,063,000,  which represents the excess
of the $200 million  stated  amount of the preferred  units over their  carrying
amount.

         Our minority  interest  partner in the Consolidated  Development  Joint
Venture is PSAC Storage Investors,  LLC, a partnership that was owned by a third
party institutional  investor and Mr. Hughes, the Company's Chairman.  On August
5, 2005, we acquired the  institutional  investors  interest in PSAC  Investors,
LLC. As part of the acquisition, we also obtained and subsequently exercised the
right to acquire Mr. Hughes' interest on November 17, 2005. As a result of these
events:  (i) we ceased allocating  income to minority  interests with respect to
the Consolidated Development Joint Venture effective August 5, 2005 and (ii) Mr.
Hughes'  interest  in  the  Consolidated  Development  Joint  Venture  has  been
classified as debt on our balance  sheet and income with respect to Mr.  Hughes'
interest  in the  Consolidated  Development  Joint  Venture  for the period from
August 5, 2005 through  September  30,  2005,  has been  classified  as interest
expense on our income statement.

         Other minority interests reflect income allocated to minority interests
that have  maintained a  consistent  level of interest  throughout  2004 and the
three and nine months ended September 30, 2005,  comprised of investments in the
Consolidated Entities described in Note 9 to the Company's financial statements.
The level of income allocated to these interests in the future is dependent upon
the operating results of the storage facilities that these entities own, as well
as any minority interests that the Company acquires in the future.

         Discontinued  Operations:  During the nine months ended  September  30,
2005, we designated one of our self-storage facilities that was the subject of a
condemnation proceeding as a discontinued facility. This facility is referred to
as the "Eminent  Domain  Facility" and we received the proceeds from the sale of
this  facility  during  the third  quarter  of 2005 and  recorded a gain of $5.2
million.

         During the third  quarter of 2004, we entered into an agreement to sell
one of our  commercial  facilities  located  in West Palm  Beach,  Florida.  The
facility  sale closed on October 28, 2004.  This  facility is referred to as the
"Sold Commercial Facility".

         As  described  more  fully  in  Note  3 to the  consolidated  financial
statements,  during 2002,  2003 and 2004, we implemented a business plan,  which
included the closure of 43 of 55 containerized storage facilities that were open
at December 31,  2001.  The 43  facilities  are  hereinafter  referred to as the
"Closed Facilities."

         The  current  and  prior  period  operations  for  the  Eminent  Domain
Facility,  the Sold  Commercial  Facility  and the Closed  Facilities  have been
reclassified  into the line-item  "Discontinued  Operations" on our consolidated
income statement.

         The following table summarizes the historical operations of the Eminent
Domain Facility, the Sold Commercial Facility and the Closed Facilities:

                                       62

<PAGE>

<TABLE>
<CAPTION>

Discontinued Operations:
                                       Three Months Ended September 30,     Nine Months Ended September 30,
                                      -----------------------------------  -----------------------------------
                                          2005         2004     Change         2005       2004         Change
                                      ------------ ----------- ----------  ----------  ----------   ----------
                                            (Amounts in thousands)              (Amounts in thousands)
Rental income:
<S>                                     <C>          <C>       <C>          <C>          <C>         <C>
  Closed Facilities...............      $     -      $1,740    $  (1,740)   $    95      $6,267      $(6,172)
  Eminent Domain Facility.........          161         165          (4)        461         505          (44)
  Sold Commercial Facility........            -         105        (105)          -         279         (279)
                                      ------------ ----------- ----------  ----------  ----------   ----------
Total rental income...............          161       2,010      (1,849)        556       7,051       (6,495)
                                      ------------ ----------- ----------  ----------  ----------   ----------
Cost of operations:
  Closed Facilities...............            -      (1,154)      1,154        (194)     (5,176)       4,982
  Eminent Domain Facility.........          (45)        (73)         28        (220)       (166)         (54)
  Sold Commercial Facility........            -         (26)         26           -         (63)          63
                                      ------------ ----------- ----------  ----------  ----------   ----------
Total cost of operations..........          (45)     (1,253)      1,208        (414)     (5,405)       4,991
                                      ------------ ----------- ----------  ----------  ----------   ----------
Depreciation expense:
  Closed Facilities...............            -        (306)        306         (29)     (1,031)       1,002
  Eminent Domain Facility.........          (20)        (21)          1         (59)        (68)           9
  Sold Commercial Facility........            -         (25)         25           -         (74)          74
                                      ------------ ----------- ----------  ----------  ----------   ----------
Total depreciation ...............          (20)       (352)        332         (88)     (1,173)       1,085

Other items.......................        5,180      (1,406)      6,586       6,323      (1,991)       8,314
                                      ------------ ----------- ----------  ----------  ----------   ----------
Net discontinued operations.......      $ 5,276      $(1,001)   $ 6,277     $ 6,377      $(1,518)    $ 7,895
                                      ============ =========== ==========  ==========  ==========   ==========
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

         We believe that our internally generated net cash provided by operating
activities  will  continue to be  sufficient  to enable us to meet our operating
expenses,  capital improvements,  debt service requirements and distributions to
shareholders for the foreseeable future.

         Operating as a real estate  investment  trust ("REIT"),  our ability to
retain cash flow for reinvestment is restricted. In order for us to maintain our
REIT  status,  a  substantial  portion  of  our  operating  cash  flow  must  be
distributed to our shareholders (see "Requirement to Pay Distributions"  below).
However, despite the significant distribution requirements, we have been able to
retain a significant  amount of our  operating  cash flow.  The following  table
summarizes our ability to fund distributions to the minority  interest,  capital
improvements to maintain our facilities,  and  distributions to our shareholders
through the use of cash provided by operating  activities.  The  remaining  cash
flow  generated  is available  to make both  principal  payments on debt and for
reinvestment.

                                       63

<PAGE>

<TABLE>
<CAPTION>

                                                                        Nine Months Ended September 30,
                                                                       ------------------------------------
                                                                            2005               2004
                                                                       ----------------    ----------------
                                                                             (Amounts in thousands)
<S>                                                                      <C>                <C>
Net cash provided by operating activities.......................         $    515,662       $    477,597

Distributions to minority interest (Preferred Units) - ongoing..              (12,556)           (16,907)
Distributions to minority interest (Preferred Units) - special (a)                  -             (8,000)
Distributions to minority interest (common equity) (b)..........              (11,805)           (16,986)
                                                                       ----------------    ----------------
Cash from operations available to our shareholders..............              491,301            435,704
Capital improvements to maintain our facilities.................              (13,286)           (20,297)
                                                                       ----------------    ----------------
 Remaining operating cash flow available for distributions to our
    shareholders................................................              478,015            415,407
Distributions paid:
  Preferred stock dividends.....................................             (126,286)          (117,293)
  Equity Stock, Series A dividends..............................              (16,087)           (16,126)
  Distributions to Common shareholders..........................             (179,822)          (172,474)
                                                                       ----------------    ----------------
Cash available for principal payments on debt and reinvestment..         $    155,820       $    109,514
                                                                       ================    =================
</TABLE>

(a)  The $8 million  special  distribution  was paid to a unitholder of our 9.5%
     Series N Cumulative  Redeemable  Perpetual  Preferred  Units in conjunction
     with a March 22,  2004  agreement  that,  among other  things,  lowered the
     distribution rate from 9.5% to 6.4%.

(b)  Represents  distributions  to the  common  interests  we do not  own in the
     Consolidated Entities.

         Our financial  profile is characterized by a low level of debt to total
capitalization  and a  conservative  dividend  payout  ratio with respect to the
common  stock.  We expect  to fund our  growth  strategies  with cash on hand at
September 30, 2005,  internally  generated retained cash flows and proceeds from
issuing equity  securities.  In general,  our current strategy is to continue to
finance our growth with permanent capital; either common or preferred equity. We
have in the past used our $200  million  line of credit  as  temporary  "bridge"
financing  and repaid those  amounts with  internally  generated  cash flows and
proceeds from the placement of permanent capital.  At September 30, 2005, we had
no outstanding borrowings under our $200 million bank line of credit.

         Over the past three  years,  we have  funded  substantially  all of our
acquisitions with permanent capital (both common and preferred  securities).  We
have elected to use preferred  securities as a form of leverage despite the fact
that the dividend rates of our preferred securities exceed the prevailing market
interest rates on conventional debt. We have chosen this method of financing for
the following  reasons:  (i) under the REIT structure,  a significant  amount of
operating  cash flow  needs to be  distributed  to our  shareholders,  making it
difficult  to repay debt with  operating  cash flow  alone,  (ii) our  perpetual
preferred  stock has no sinking fund  requirement  or maturity date and does not
require  redemption,  all of which eliminate any future refinancing risks, (iii)
after the end of a non-call  period,  we have the option to redeem the preferred
stock at any time,  which  enabled us to  effectively  refinance  higher  coupon
preferred  stock with new preferred  stock at lower rates,  (iv) preferred stock
does not contain  onerous  covenants,  thus allowing us to maintain  significant
financial  flexibility,  and (v) dividends on the preferred stock can be applied
to our REIT distribution requirements.

         Our credit ratings on each of our series of Cumulative  Preferred Stock
are "Baa2" by Moody's and "BBB+" by Standard & Poor's.

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered.  At September 30, 2005, we had mortgage debt  outstanding of $92.7
million (which encumbers 34 facilities with a book value of  approximately  $198
million) and unsecured debt in the amount of $22.4 million. We also have Debt to
Joint Venture Partner amounting to $35.7 million with respect to ten real estate
facilities with an aggregate book value of approximately $49 million, as well as
$64.5 million in debt to related party with respect to 22 facilities  with a net
book value of $96 million.

                                       64

<PAGE>

         RECENT  ISSUANCE  OF  PREFERRED  STOCK  AND  PROJECTED   REDEMPTION  OF
PREFERRED  SECURITIES:  One of our  financing  objectives  over the past several
years has been to  reduce  our  average  cost of  capital  with  respect  to our
preferred  securities.  Accordingly,  we have  redeemed  higher  rate  preferred
securities  outstanding  and have financed the  redemption  with cash on-hand or
from the proceeds from the issuance of lower rate preferred securities.

         We believe that our size and financial flexibility enables us to access
capital when  appropriate.  Since the  beginning of 2005 through  September  30,
2005, we have raised  approximately  $476.3 million of our Cumulative  Preferred
Stock, and used  approximately  $142.5 million of these net proceeds in order to
redeem higher-coupon preferred securities.

         On January 19,  2006,  we intend to redeem our 8.6% Series Q Cumulative
Preferred Stock totaling $172.5 million. We anticipate that this redemption will
be funded with current cash on-hand. In addition,  in September 2006 and October
2006,  we have the  option  to  redeem  our 8.0%  Series R and  7.875%  Series S
Cumulative  Preferred  Stock,  respectively,   requiring  aggregate  funding  of
approximately $653.8 million. From time-to-time, we may raise additional capital
primarily through the issuance of lower rate preferred securities, in advance of
the  redemption  dates to ensure that we have  available  funds to redeem  these
securities.  The timing and our ability to issue additional preferred securities
are  dependent on many  factors.  There is no assurance  that we will be able to
raise the necessary capital and at appropriate rates to redeem these securities.

         REQUIREMENT  TO  PAY   DISTRIBUTIONS:   We  estimate  the  distribution
requirement with respect to our Preferred Stock  outstanding at November 7, 2005
to be  approximately  $185.4  million  per year.  We  estimate  that the  annual
distribution  requirement  with  respect  to  the  preferred  partnership  units
outstanding at September 30, 2005 to be approximately $14.4 million per year.

         During the nine months ended September 30, 2005, we paid cash dividends
totaling  $16,087,000 to the holders of our Equity Stock,  Series A, as compared
to  $16,126,000  for the same  period in 2004.  With  respect to the  depositary
shares of Equity Stock,  Series A, we have no obligation to pay distributions if
no distributions are paid to the common  shareholders.  To the extent that we do
pay common  distributions  in any year,  the  holders of the  depositary  shares
receive annual  distributions  of not less than the lesser of (i) five times the
per share  dividend on the common stock or (ii) $2.45 per share.  The depositary
shares are  non-cumulative,  and have no preference over our common stock either
as to dividends or in  liquidation.  With respect to the Equity Stock,  Series A
outstanding  at September 30, 2005,  we estimate the total regular  distribution
for the fourth quarter of 2005 to be approximately $5.4 million.

         During the nine months  ended  September  30, 2005,  we paid  dividends
totaling  $179,822,000  ($1.40  per common  share) to the  holders of our common
stock.  Based upon  shares  outstanding  at  September  30, 2005 and a quarterly
distribution of $0.50 per share, which was declared by the Board of Directors on
October 27,  2005,  we estimate a dividend  payment  with  respect to our common
stock of approximately $64.0 million for the fourth quarter of 2005.

         CAPITAL IMPROVEMENT  REQUIREMENTS:  For 2005, we budgeted approximately
$30 million for capital improvements. During the nine months ended September 30,
2005, we incurred capital  improvements of approximately $13.3 million.  Capital
improvements  include  major  repairs or  replacements  to the  facilities  that
maintain the facilities' existing operating condition and visual appeal. Capital
improvements  do not include costs  relating to the  development or expansion of
facilities,  or expenditures associated with improving the visual and structural
appeal of our existing self-storage  facilities.  We expect capital expenditures
for 2006 to be higher than the capital expenditures we have budgeted for 2005.

         DEBT SERVICE  REQUIREMENTS:  We do not believe we have any  significant
refinancing  risks with  respect  to our debt,  all of which is fixed  rate.  At
September  30,  2005,  we had total  outstanding  debt of  approximately  $215.2
million.  See  Notes 7, 8 and 9 to the  consolidated  financial  statements  for
approximate principal maturities of such borrowings.

         We anticipate that our retained operating cash flow will continue to be
sufficient to enable us to make scheduled principal payments. It is our current
intention to fully amortize our debt as opposed to refinance debt maturities
with additional debt.

                                       65

<PAGE>

         ACQUISITION AND DEVELOPMENT OF REAL ESTATE FACILITIES:  During 2005, we
will continue to seek to acquire additional  self-storage  facilities from third
parties;  however,  it is  difficult  to  estimate  the  amount  of third  party
acquisitions  we will  undertake.  For 2005, we do not anticipate that our joint
venture  partnerships  will fund additional  acquisitions  from third parties or
developments, all of which we expect to be funded entirely by the Company.

         In  addition  to the  facilities  acquired  in the  nine  months  ended
September 30, 2005, we acquired seven  additional  facilities for  approximately
$78.2 million with 586,000 net rentable  square feet between October 1, 2005 and
November 7, 2005.  Also, at November 7, 2005,  we are under  contract to acquire
seven  additional  facilities  (total  approximate  net rentable  square feet of
481,000) at an  aggregate  cost of  approximately  $70  million,  including  the
assumption of debt amounting to  approximately  $5 million.  These  acquisitions
will be funded entirely by us. Each of these contracts is subject to significant
contingencies.

         On January 18,  2005,  we  acquired  an  interest  in the  Consolidated
Entities  for cash  totaling  $4.4  million,  on April 22,  2005 we  acquired an
additional  interest in the  Consolidated  Entities  for an  aggregate  of $32.4
million,  and on August  12,  2005,  we  acquired  interest  in the  Consolidate
Entities for cash totaling $14.6 million.

         As described  more fully in Note 9 to our September 30, 2005  financial
statements,  on August 5,  2005,  we  acquired  the  third  party  institutional
investor's  interest in PSAC  Storage  Investors,  LLC for  approximately  $41.4
million in cash. On November 17, 2005, we will acquire Mr.  Hughes'  interest in
PSAC  Storage  Investors,  LLC for  approximately  $64.5  million in cash.  This
acquisition will be funded from cash on-hand.

         At September 30, 2005 we have a  development  "pipeline" of 57 projects
consisting of  self-storage  facilities,  conversion of space at facilities that
was  previously  used for  containerized  storage  and  expansions  to  existing
self-storage facilities with an aggregate estimated cost of approximately $291.3
million.  At  September  30,  2005,  we have  acquired  the land for 55 of these
projects,  which  have  an  aggregate  estimated  cost of  approximately  $276.6
million,  and costs  incurred as of September  30, 2005 of  approximately  $50.2
million.  The remaining  facilities  represent identified sites where we have an
agreement in place to acquire the land, generally within one year. We anticipate
that the development of these projects will be funded solely by the Company.

         The development  and fill-up of these storage  facilities is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
We  estimate  that the  amount  remaining  to be spent of  approximately  $240.4
million will be incurred over the next 24 months. The following table sets forth
certain information with respect to our development pipeline.

                                       66

<PAGE>

DEVELOPMENT PIPELINE SUMMARY (as of September 30, 2005):

<TABLE>
<CAPTION>

                                                                             Total
                                                    Number   Net           estimated     Costs incurred
                                                      of     rentable     development        through         Costs to
                                                   projects   sq. ft.        costs           9/30/05         complete
                                                  ---------  --------    -------------   ---------------     ---------
                                                                 (Amounts in thousands, except number of projects)
  Facilities currently under construction:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    Self-storage facilities                            5          439      $   63,699       $   34,291       $ 29,408
    Expansions and other enhancements to
     existing self-storage facilities                 14          799          39,384           12,829         26,555
                                                  ---------  --------    -------------   ---------------     ---------
                                                      19        1,238         103,083           47,120         55,963

  Facilities awaiting  construction,  where land
     is acquired:
    Self-storage facilities                            1           57           6,084            2,126          3,958
    Expansions and other enhancements to
     existing self-storage facilities                 35        2,392         167,476              991        166,485
                                                  ---------  --------    -------------   ---------------     ---------
                                                      36        2,449         173,560            3,117        170,443

  Self-storage facilities awaiting
    construction, where land has not yet been
    acquired:
    Self-storage facilities                            1           83          11,190              592         10,598
    Expansions and other enhancements to
     existing self-storage facilities                  1           44           3,435               70          3,365
                                                  ---------  --------    -------------   ---------------     ---------
                                                       2          127          14,625              662         13,963
                                                  ---------  --------    -------------   ---------------     ---------
  Total Development Pipeline                          57        3,814      $  291,268       $   50,899       $240,369
                                                  =========  ========    =============   ===============     ==========
</TABLE>


         Included  in the 50  "expansions  and other  enhancements  of  existing
self-storage  facilities"  are 12 projects  associated  with the  conversion  of
industrial  space,  previously used by the  discontinued  containerized  storage
operations,  into self-storage  space. The total amount of self-storage space to
come on line from these 12  conversions  is  approximately  926,000 net rentable
square feet of traditional  self-storage  space at a cost of  $33,168,000.  Also
included are enhancements  which, while they do not add significant  incremental
square  footage,  improve  the  visual  and  structural  appeal of our  existing
self-storage facilities.

         PROPOSAL TO ACQUIRE SHURGARD STORAGE CENTERS:  In July 2005, we made an
unsolicited  proposal for the  combination  of the Company and Shurgard  Storage
Centers,  Inc.  (NYSE:SHU)  through a merger in which  each  share of SHU common
stock would be exchanged  for .80 shares of our common  stock.  SHU rejected our
proposal.

         Recently,  SHU  announced  that its Board of Directors  had  authorized
SHU's  management and financial  advisors to explore  strategic  alternatives to
maximize  shareholder  value,  including  without  limitation  a  sale  of  SHU,
formation of asset joint  ventures with  strategic  partners,  a sale of certain
assets or operations,  and continued  implementation of SHU's strategic business
plan.

         We may amend, modify, withdraw or otherwise change our proposal whether
in  response  to SHU's  exploration  of  strategic  alternatives  or  otherwise,
including  without  limitation  to increase or decrease the amount and nature of
the consideration  offered,  including to offer a higher or lower exchange ratio
or greater or lower per share  consideration  consisting  in part or in whole of
cash or other consideration, to change the structure of the proposed transaction
or  change  the  method of  financing  any such  transaction.  In  reaching  any
conclusion as to our future course of action, we will take into consideration

                                       67

<PAGE>

various  factors,  such as the business and  prospects of our business and SHU's
business,  other factors  concerning us and SHU, including factors in connection
with SHU's  announced  exploration  of strategic  alternatives,  other  business
opportunities available to us, and general economic and stock market conditions.

         If we do not make any changes to our  proposal  and acquire SHU for .80
shares of our common  stock,  the  acquisition  would (1) increase the number of
shares of our common stock from  approximately  128,034,490 to 165,469,258,  (2)
increase the liquidation  preference of our preferred stock from  $2,570,900,000
to  $2,707,150,000  (including  $50,000,000  issued on  October 3, 2005) and (3)
increase our debt from approximately $215,227,000 to an estimated $2,045,424,000
(assuming no prepayment).  Alternative  transactions involving a higher or lower
exchange ratio or greater or lower per share consideration consisting in part or
in whole of cash or other  consideration  would  result in  different  pro forma
impacts on our company and balance sheet. Our estimate of SHU's debt,  preferred
and common  shares  outstanding  is from SHU's  September 30, 2005 balance sheet
included in its earnings  press release for the period ended  September 30, 2005
and our information is per our September 30, 2005 balance sheet.

         SHU  has  reported  that  it is a real  estate  investment  trust  that
operates  approximately  644  self-storage  facilities  in the United States and
Europe.

         REPURCHASES  OF THE  COMPANY'S  COMMON STOCK:  The  Company's  Board of
Directors authorized the repurchase from time to time of up to 25,000,000 shares
of our common stock on the open market or in privately negotiated  transactions.
For the nine months ended  September 30, 2005, we  repurchased  84,000 shares of
our common stock for approximately $4,990,000.

         From the initial authorization through September 30, 2005, we have
repurchased a total of 22,201,720 shares of common stock at an aggregate cost of
approximately $567.1 million.

ITEM 2A.   RISK FACTORS

         In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2004, you should consider the following  factors
in evaluating the Company:

THE  HUGHES  FAMILY  COULD  CONTROL  US  AND  TAKE  ACTIONS   ADVERSE  TO  OTHER
SHAREHOLDERS.

         At November 7, 2005, the Hughes family owned  approximately  36% of our
outstanding  shares of common  stock.  Consequently,  the  Hughes  family  could
control  matters  submitted to a vote of our  shareholders,  including  electing
directors, amending our organizational documents, dissolving and approving other
extraordinary transactions, such as a takeover attempt, even though such actions
may not be favorable to the other common shareholders.

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

         Restrictions in our organizational  documents may further limit changes
in  control.  Unless  our  Board  of  Directors  waives  these  limitations,  no
shareholder may own more than (1) 2.0% of our  outstanding  shares of our common
stock or (2) 9.9% of the  outstanding  shares  of each  class or  series  of our
preferred or equity  stock.  Our  organizational  documents  in effect  provide,
however,  that the Hughes  family may  continue  to own the shares of our common
stock held by them at the time of the 1995 reorganization. These limitations are
designed,  to the extent  possible,  to avoid a concentration  of ownership that
might  jeopardize  our ability to qualify as a real estate  investment  trust or
REIT.  These   limitations,   however,   also  may  make  a  change  of  control
significantly  more difficult (if not impossible)  even if it would be favorable
to the  interests  of our public  shareholders.  These  provisions  will prevent
future  takeover  attempts  not  approved  by our board of  directors  even if a
majority  of our  public  shareholders  deem it to be in  their  best  interests
because  they would  receive a premium for their  shares  over the shares'  then
market value or for other reasons.

WE WOULD INCUR ADVERSE TAX CONSEQUENCES IF WE FAIL TO QUALIFY AS A REIT.

         You will be  subject  to the risk  that we may not  qualify  as a REIT.
REITs  are  subject  to  a  range  of  complex  organizational  and  operational
requirements.  As a REIT,  we must  distribute  at least 90% of our REIT taxable
income to our shareholders.  Other  restrictions apply to our income and assets.
Our REIT status is also  dependent  upon the ongoing  qualification  of PSB as a
REIT, as a result of our substantial ownership interest in that company.

                                       68

<PAGE>

         For any  taxable  year that we fail to qualify as a REIT and the relief
provisions do not apply, we would be taxed at the regular corporate rates on all
of our  taxable  income,  whether  or  not  we  make  any  distributions  to our
shareholders.  Those  taxes  would  reduce  the  amount  of cash  available  for
distribution to our shareholders or for reinvestment.  As a result,  our failure
to  qualify  as a REIT  during any  taxable  year could have a material  adverse
effect  upon  us  and  our  shareholders.  Furthermore,  unless  certain  relief
provisions  apply, we would not be eligible to elect REIT status again until the
fifth  taxable  year  that  begins  after  the  first  year for which we fail to
qualify.

WE MAY PAY SOME TAXES, REDUCING CASH AVAILABLE FOR SHAREHOLDERS.

         Even if we qualify as a REIT for Federal  income tax  purposes,  we are
required to pay some federal,  state and local taxes on our income and property.
Several  corporate  subsidiaries  of the Company  have  elected to be treated as
"taxable REIT subsidiaries" of the Company for Federal income tax purposes since
January 1, 2001. A taxable REIT  subsidiary is a fully taxable  corporation  and
may be  limited  in its  ability  to  deduct  interest  payments  made to us. In
addition, if we receive certain payments and the economic arrangements among our
taxable REIT  subsidiaries  and us are not  comparable  to similar  arrangements
among  unrelated  parties  we will be  subject  to a 100%  penalty  tax on those
payments.  To the extent  that the  Company or any taxable  REIT  subsidiary  is
required to pay Federal,  state or local taxes, we will have less cash available
for distribution to shareholders.

WE HAVE BECOME INCREASINGLY DEPENDENT UPON AUTOMATED PROCESSES AND THE INTERNET
AND ARE FACED WITH SECURITY SYSTEM RISKS.

         We have become  increasingly  centralized  and dependent upon automated
information technology processes.  As a result, we could be severely impacted by
a catastrophic occurrence,  such as a natural disaster or a terrorist attack. In
addition,  a portion of our business operations are conducted over the internet,
increasing the risk of viruses that could cause system  failures and disruptions
of operations.  Experienced  computer  programmers  may be able to penetrate our
network security and misappropriate our confidential information,  create system
disruptions or cause shutdowns.

WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.

         Debt increases the risk of loss. In making real estate investments,  we
may borrow money,  which  increases the risk of loss. At September 30, 2005, our
debt of $215.2 million was 3.9% of our total assets.

         Certain securities have a liquidation  preference over our common stock
and  Equity  Stock,  Series  A.  If we  liquidated,  holders  of  our  preferred
securities  would be entitled  to receive  liquidating  distributions,  plus any
accrued  and  unpaid  distributions,  before any  distribution  of assets to the
holders of our common  stock and Equity  Stock,  Series A.  Holders of preferred
securities  are entitled to receive,  when  declared by our board of  directors,
cash  distributions  in  preference  to holders  of our common  stock and Equity
Stock, Series A.

SINCE OUR BUSINESS CONSISTS PRIMARILY OF ACQUIRING AND OPERATING REAL ESTATE, WE
ARE SUBJECT TO REAL ESTATE OPERATING RISKS.

         The value of our  investments  may be reduced by general  risks of real
estate  ownership.  Since we derive  substantially  all of our income  from real
estate  operations,  we  are  subject  to  the  general  risks  of  owning  real
estate-related assets, including:

o        lack of demand for rental spaces or units in a locale;

o        changes in general economic or local conditions;

                                       69

<PAGE>

o        natural disasters, such as earthquakes;

o        potential terrorist attacks;

o        changes in supply of or demand for similar or competing  facilities  in
         an area;

o        the impact of environmental protection laws;

o        changes in interest rates and availability of permanent  mortgage funds
         which may  render the sale or  financing  of a  property  difficult  or
         unattractive;

o        changes in tax, real estate and zoning laws; and

o        tenant claims.

         In addition,  we self-insure  certain of our property loss,  liability,
and  workers  compensation  risks  that  other  real  estate  companies  may use
third-party  insurers  for. This results in a higher risk of losses that are not
covered by  third-party  insurance  contracts,  as  described  in Note 14 to our
consolidated  financial  statements at September 30, 2005 under  "Insurance  and
Loss Exposure."

         There is significant competition among self-storage facilities and from
other storage alternatives.  Most of our properties are self-storage facilities,
which  generated  92% of our revenue for the three  months ended  September  30,
2005.  Local market  conditions will play a significant  part in how competition
will affect us.  Competition in the market areas in which many of our properties
are located from other self-storage facilities and other storage alternatives is
significant  and has affected the occupancy  levels,  rental rates and operating
expenses of some of our  properties.  Any increase in  availability of funds for
investment in real estate may  accelerate  competition.  Further  development of
self-storage   facilities   may  intensify   competition   among   operators  of
self-storage facilities in the market areas in which we operate.

         We may incur  significant  environmental  costs and liabilities.  As an
owner and operator of real properties,  under various  federal,  state and local
environmental  laws,  we are  required  to clean up spills or other  releases of
hazardous or toxic substances on or from our properties.  Certain  environmental
laws impose liability  whether or not the owner knew of, or was responsible for,
the presence of the hazardous or toxic substances.  In some cases, liability may
not be limited to the value of the property.  The presence of these  substances,
or the failure to properly remediate any resulting  contamination,  whether from
environmental  or microbial  issues,  also may  adversely  affect the owner's or
operator's ability to sell, lease or operate its property or to borrow using its
property as collateral.

         We have conducted preliminary  environmental assessments of most of our
properties (and intend to conduct these  assessments in connection with property
acquisitions)  to  evaluate  the  environmental   condition  of,  and  potential
environmental  liabilities  associated with, our properties.  These  assessments
generally  consist  of an  investigation  of  environmental  conditions  at  the
property (not including soil or groundwater sampling or analysis),  as well as a
review of available  information  regarding the site and publicly available data
regarding  conditions at other sites in the vicinity.  In connection  with these
property assessments,  our operations and recent property acquisitions,  we have
become aware that prior  operations  or  activities  at some  facilities or from
nearby  locations  have or may have  resulted  in  contamination  to the soil or
groundwater at these facilities.  In this regard,  some of our facilities are or
may be the subject of federal or state  environment  investigations  or remedial
actions. We have obtained,  with respect to recent  acquisitions,  and intend to
obtain  with  respect to pending or future  acquisitions,  appropriate  purchase
price  adjustments or  indemnifications  that we believe are sufficient to cover
any related potential liability. Although we cannot provide any assurance, based
on the preliminary environmental assessments, we believe we have funds available
to  cover  any  liability   from   environmental   contamination   or  potential
contamination  and we are not aware of any  environmental  contamination  of our
facilities  material to our overall business,  financial condition or results of
operation.

         There has been an increasing  number of claims and  litigation  against
owners and  managers of rental  properties  relating  to moisture  infiltration,
which can result in mold or other property  damage.  When we receive a complaint
concerning  moisture  infiltration,  condensation or mold problems and/or become

                                       70

<PAGE>

aware that an air quality concern exists,  we implement  corrective  measures in
accordance  with  guidelines and protocols we have developed with the assistance
of outside  experts.  We seek to work  proactively  with our  tenants to resolve
moisture  infiltration  and  mold-related  issues,  subject  to our  contractual
limitations on liability for such claims. However, we can make no assurance that
material legal claims relating to moisture  infiltration and the presence of, or
exposure to, mold will not arise in the future.

         Delays in development  and fill-up of our  properties  would reduce our
profitability.  Since  January  1,  2001,  we have  opened  50  newly  developed
self-storage   facilities  and  17  facilities  that  combine  self-storage  and
containerized  storage space at the same location,  with  aggregate  development
costs of $523.3 million.  In addition,  at September 30, 2005 we had 57 projects
in development that are expected to be completed in  approximately  the next two
years.  These  57  projects  have  total  estimated  costs  of  $291.3  million.
Construction  delays  due to  weather,  unforeseen  site  conditions,  personnel
problems,  and other factors,  as well as cost overruns,  would adversely affect
our  profitability.  Delays in the rent-up of newly  developed  facilities  as a
result  of  competition  or  other  factors  would  also  adversely  impact  our
profitability.

         Property   taxes  can  increase  and  cause  a  decline  in  yields  on
investments.  Each of our  properties is subject to real property  taxes.  These
real property  taxes may increase in the future as property tax rates change and
as our properties are assessed or reassessed by tax authorities.  Such increases
could adversely impact our profitability.

         We must comply with the Americans  with  Disabilities  Act and fire and
safety  regulations,   which  can  require  significant  expenditures.  All  our
properties must comply with the Americans with Disabilities Act and with related
regulations  (the  "ADA").  The ADA has  separate  compliance  requirements  for
"public accommodations" and "commercial facilities," but generally requires that
buildings be made  accessible to persons with  disabilities.  Various state laws
impose similar  requirements.  A failure to comply with the ADA or similar state
laws could result in  government  imposed fines on us and could award damages to
individuals affected by the failure. In addition, we must operate our properties
in compliance with numerous local fire and safety  regulations,  building codes,
and other land use regulations.  Compliance with these  requirements can require
us to spend  substantial  amounts of money,  which would  reduce cash  otherwise
available  for  distribution  to  shareholders.  Failure  to comply  with  these
requirements could also affect the marketability of our real estate facilities.

         Any  failure  by  us  to  manage  acquisitions  and  other  significant
transactions  successfully could negatively impact our financial results.  As an
increasing part of our business,  we acquire other self-storage  facilities.  We
also  evaluate  from  time to time  other  significant  transactions.  If  these
facilities are not properly  integrated into our system,  our financial  results
may suffer.

         We incur liability from employment related claims. From time to time we
must resolve employment related claims by corporate level and field personnel.

WE HAVE NO INTEREST IN CANADIAN SELF-STORAGE FACILITIES OWNED BY THE HUGHES
FAMILY.

         B. Wayne  Hughes,  Chairman of the Board,  and his family (the  "Hughes
Family") have ownership interests in, and operate, approximately 40 self-storage
facilities  in Canada under the name  "Public  Storage." We currently do not own
any interests in these  facilities  nor do we own any  facilities in Canada.  We
have a right of first refusal to acquire the stock or assets of the  corporation
engaged in the operation of the self-storage  facilities in Canada if the Hughes
family or the  corporation  agrees to sell them.  However,  we have no ownership
interest in the operations of this  corporation,  have no right to acquire their
stock or assets unless the Hughes family decides to sell, and receive no benefit
from the profits and increases in value of the Canadian self-storage facilities.

         Prior to December  31,  2003,  Company  personnel  were  engaged in the
supervision  and  the  operation  of  these   properties  and  provided  certain
administrative  services for the Canadian  owners,  and certain other  services,
primarily tax services,  with respect to certain other Hughes Family  interests.
The  Hughes  Family  and the  Canadian  owners  reimbursed  us at cost for these
services in the amount of $542,499 with respect to the Canadian  operations  and
$151,063 for other services during 2003 (in United States  dollars).  There were
conflicts  of interest  in  allocating  time of our  personnel  between  Company
properties,  the Canadian properties, and certain other Hughes Family interests.
The sharing of Company  personnel with the Canadian  entities was  substantially
eliminated by December 31, 2003.

         The Company, through subsidiaries, continues to reinsure risks relating
to loss of goods stored by tenants in the self-storage facilities in Canada. The
Company had acquired the tenant insurance business on December 31, 2001 through

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<PAGE>

its  acquisition of PSIC.  During the nine months ended  September 30, 2005, and
the full  years  ended  December  31,  2004 and 2003,  PSIC  received  $795,000,
$1,069,000, and $1,017,000,  respectively,  in reinsurance premiums attributable
to the Canadian  Facilities.  PSIC has no  contractual  right to provide  tenant
reinsurance  to the Canadian  Facilities  and there is no  assurance  that these
premiums will continue.

         The  corporation  engaged in the operations of the Canadian  facilities
has advised us that it intends to reorganize  the entities  owning and operating
the  Canadian  facilities  and has  proposed  that the  Company  consent to this
reorganization,  which would impact the license agreement and the right of first
refusal  agreement with the Company.  The  reorganization is designed to enhance
the entities' financial flexibility and growth potential.  In November 2004, the
Board  appointed a special  committee,  comprised of independent  directors,  to
consider  the  Company's  alternatives  in this  matter,  including  a  possible
investment in the reorganized Canadian entities.

OUR CONTAINERIZED STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.

         Public  Storage  Pickup & Delivery  ("PSPUD")  was organized in 1996 to
operate a containerized storage business. We own all of the economic interest of
PSPUD.  Since  PSPUD  will  operate  profitably  only if it can  succeed  in the
relatively new field of containerized  storage,  we cannot provide any assurance
as to its  profitability.  PSPUD  incurred an operating  loss of  $10,058,000 in
2002, and generated  operating  profits of $2,543,000 in 2003,  $684,000 in 2004
and $1,138,000 for the nine months ended September 30, 2005.  Since 2002,  PSPUD
closed or  consolidated  all but 12 facilities that were deemed not strategic to
our business plan.

INCREASES IN INTEREST RATES MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.

         One of the factors that influences the market price of our common stock
and our other securities is the annual rate of distributions  that we pay on the
securities,  as compared with interest  rates. An increase in interest rates may
lead purchasers of REIT shares to demand higher annual distribution rates, which
could  adversely  affect  the  market  price  of  our  common  stock  and  other
securities.

TERRORIST  ATTACKS  AND THE  POSSIBILITY  OF WIDER  ARMED  CONFLICT  MAY HAVE AN
ADVERSE  IMPACT ON OUR BUSINESS  AND  OPERATING  RESULTS AND COULD  DECREASE THE
VALUE OF OUR ASSETS.

         Terrorist attacks and other acts of violence or war, such as those that
took place on September 11, 2001,  could have a material  adverse  impact on our
business and operating results. There can be no assurance that there will not be
further  terrorist  attacks  against  the  United  States or its  businesses  or
interests.  Attacks or armed  conflicts that directly  impact one or more of our
properties  could  significantly  affect our ability to operate those properties
and thereby  impair our operating  results.  Further,  we may not have insurance
coverage for losses  caused by a terrorist  attack.  Such  insurance  may not be
available,  or if it is  available  and  we  decide  to  obtain  such  terrorist
coverage,  the cost for the insurance may be significant in  relationship to the
risk  overall.  In  addition,  the adverse  effects  that such  violent acts and
threats  of  future  attacks  could  have on the  United  States  economy  could
similarly  have a  material  adverse  effect  on our  business  and  results  of
operations.  Finally,  further  terrorist  acts could cause the United States to
enter into a wider armed  conflict,  which could further impact our business and
operating results.

2003 TAX LEGISLATION COULD ADVERSELY AFFECT THE PRICE OF OUR STOCK.

         Tax legislation  enacted in 2003 generally reduces the maximum tax rate
for dividends  payable to  individuals  to 15% through 2008.  Dividends  paid by
REITs, however,  generally continue to be taxed at the normal rate applicable to
the individual recipient, rather than the preferential rates applicable to other
dividends.  Although this  legislation does not adversely affect the taxation of
REITs or dividends paid by REITs, the more favorable rates applicable to regular
corporate  dividends  could  cause  investors  who are  individuals  to perceive
investments in REITs to be relatively less  attractive  than  investments in the
stocks of non-REIT corporations that pay dividends, which could adversely affect
the value of the stock of REITs, including our common stock.

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<PAGE>

DEVELOPMENTS IN CALIFORNIA MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS.

         We  are  headquartered   in,  and  approximately   one-quarter  of  our
properties are located in,  California.  California is facing serious  budgetary
problems.  Action that may be taken in response  to these  problems,  such as an
increase in property taxes on commercial properties,  could adversely impact our
business and results of operations.  In addition, we could be adversely impacted
by efforts to reenact  legislation  mandating medical insurance for employees of
California businesses and members of their families.

OUR  BID  FOR  SHU  MAY  NOT BE  SUCCESSFUL  AND IF IT IS WE MAY BE  SUBJECT  TO
ADDITIONAL RISKS.

         We have made a proposal to acquire SHU,  which SHU's board of directors
has rejected.  We may amend,  modify,  withdraw or otherwise change our proposal
whether in response to SHU's exploration of strategic alternatives or otherwise,
including  without  limitation  to increase or decrease the amount and nature of
the consideration  offered,  including to offer a higher or lower exchange ratio
or greater or lower per share  consideration  consisting  in part or in whole of
cash or other consideration, to change the structure of the proposed transaction
or change  the  method of  financing  any such  transaction.  We may also  incur
substantial additional indebtedness in connection with an acquisition of SHU.

         This  transaction  may result in  significant  costs and  attention  of
management and there is no assurance that any agreement will be reached or as to
the  terms  (including  consideration,  structure  and  financing)  of any  such
agreement.

         If we do reach an  agreement  with  SHU and the  acquisition  of SHU is
consummated,  or a transaction is otherwise  effected without any agreement with
SHU, then we may be subject to additional risks, including,  without limitation,
difficulties  in the integration of operations,  technologies,  and personnel of
SHU, diversion of management's  attention away from other business concerns, the
assumption of additional debt and expenses and the incurrence of additional debt
in  connection  with the  financing  of a  transaction,  risks of  international
operations and exposure to any undisclosed or unknown  potential  liabilities of
SHU, including risks related to SHU's European operations.  In addition, we have
assumed  based on public  filings,  that SHU has  qualified and will continue to
qualify  as a REIT and that we would be able to  continue  to  qualify as a REIT
following an acquisition.  However,  if SHU fails to qualify as a REIT, we might
lose our REIT status and incur significant tax liabilities.

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

         To limit our  exposure  to market  risk,  we  principally  finance  our
operations and growth with permanent equity capital, consisting of either common
or preferred  stock.  At September  30, 2005,  our debt as a percentage of total
shareholders' equity (based on book values) was 4.4%.

         Our  preferred  stock is not  redeemable  at the option of the holders.
Except under certain  conditions  relating to the Company's  qualification  as a
REIT,  the  Preferred  Stock  is not  redeemable  by the  Company  prior  to the
following  dates:  Series Q - January 19, 2006,  Series R - September  28, 2006,
Series S - October 31, 2006,  Series T - January 18,  2007,  Series U - February
19, 2007,  Series V - September 30, 2007, Series W - October 6, 2008, Series X -
November 13, 2008,  Series Y - January 2, 2009, Series Z - March 5, 2009, Series
A - March 31,  2009,  Series B - June 30, 2009,  Series C - September  13, 2009,
Series D - February  28,  2010,  Series E - April 27, 2010 and Series F - August
23,  2010.  On or after the  respective  dates,  each of the series of Preferred
Stock will be redeemable  at the option of the Company,  in whole or in part, at
$25 per  depositary  share (or share in the case of the Series Y), plus  accrued
and unpaid dividends through the redemption date.

         Our market risk sensitive instruments include debt, which totaled
$215.2 million at September 30, 2005. All of the Company's debt bears interest
at fixed rates. See Notes 8 and 9 to the consolidated financial statements at
September 30, 2005 for approximate principal maturities of the notes payable at
September 30, 2005.

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<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

         The Company  maintains  disclosure  controls  and  procedures  that are
designed to ensure that  information  required  to be  disclosed  in reports the
Company  files and  submits  under the  Exchange  Act, is  recorded,  processed,
summarized and reported within the time periods specified in accordance with SEC
guidelines  and  that  such   information  is   communicated  to  the  Company's
management,  including its Chief Executive Officer and Chief Financial  Officer,
to allow timely decisions  regarding required disclosure based on the definition
of "disclosure  controls and procedures" in Rules 13a-15(e) of the Exchange Act.
In designing and evaluating the disclosure  controls and procedures,  management
recognized  that any controls and  procedures,  no matter how well  designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives  and  management  necessarily  was  required to apply its judgment in
evaluating the cost-benefit  relationship of possible controls and procedures in
reaching that level of reasonable  assurance.  Also, the Company has investments
in certain  unconsolidated  entities.  As the Company does not control or manage
these  entities,  its disclosure  controls and  procedures  with respect to such
entities are substantially  more limited than those it maintains with respect to
its consolidated subsidiaries.

         As of the end of the fiscal quarter covered by this report, the Company
carried out an evaluation,  under the supervision and with the  participation of
the Company's  management,  including the Company's Chief Executive  Officer and
the Company's Chief Financial  Officer,  of the  effectiveness of the design and
operation of the Company's  disclosure  controls and procedures (as such term is
defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Act of 1934 as
amended)  as of the end of the period  covered by this  report.  Based upon this
evaluation,  the Company's Chief Executive  Officer and Chief Financial  Officer
concluded that, as of the end of such period, the Company's  disclosure controls
and procedures were effective.

         There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

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<PAGE>

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

         The  information set forth under the heading "Legal Matters" in Note 14
to the  Consolidated  Financial  Statements in this Form 10-Q is incorporated by
reference in this Item 1.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         On June 12,  1998,  we  announced  that the  Board  of  Directors  (the
"Directors")  authorized  the  repurchase  from time to time of up to 10,000,000
shares  of the  Company's  Common  Stock  on the  open  market  or in  privately
negotiated  transactions.  On subsequent dates the Board of Directors  increased
the repurchase  authorization,  the last being April 13, 2001, when the Board of
Directors  increased the  repurchase  authorization  to 25,000,000  shares.  The
Company has repurchased a total of 22,201,720  shares of common stock under this
authorization.  The Company did not repurchase any shares of Common Stock during
the quarter ended September 30, 2005.

ITEM 6.    EXHIBITS

         Exhibits  required by Item 601 of Regulation  S-K are filed herewith or
incorporated herein by reference and are listed in the attached Exhibit Index.

                                       75


<PAGE>


                                   SIGNATURES

Pursuant  to the  requirement  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: November 9, 2005

                      PUBLIC STORAGE, INC.

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


<PAGE>


EXHIBIT NO.                            EXHIBIT INDEX
-----------      ---------------------------------------------------------------


3.1              Certificate of  Determination  for 6.45%  Cumulative  Preferred
                 Stock,  Series F. Filed with Registrant's Form 8-A Registration
                 Statement on August 17, 2005 relating to the Depositary  Shares
                 Each  Representing  1/1,000  of a  Share  of  6.45%  Cumulative
                 Preferred Stock, Series F and incorporated herein by reference.

3.2              Amendment to Certificate of Determination for 9.750% Cumulative
                 Preferred Stock, Series F. Filed as Exhibit 3.2 to Registrant's
                 Current Report on Form 8-K on August 17, 2005 and  incorporated
                 herein by reference.

3.3              Amendment to Certificate of Determination  for 6.45% Cumulative
                 Preferred  Stock,  Series F. Filed with  Registrant's  Form 8-A
                 Registration  Statement on September 16, 2005 Depositary Shares
                 Each  Representing  1/1,000  of a  Share  of  6.45%  Cumulative
                 Preferred Stock, Series F and incorporated herein by reference.

10.1             Deposit Agreement dated as of August 17, 2005 among Registrant,
                 Equiserve Inc., Equiserve Trust Company N.A. and the holders of
                 depositary   receipts   evidencing   Depositary   Shares   Each
                 Representing  1/1,000 of a Share of 6.45% Cumulative  Preferred
                 Stock,  Series F. Filed with Registrant's Form 8-A Registration
                 Statement on August 17, 2005 relating to Depositary Shares Each
                 Representing  1/1,000 of a Share of 6.45% Cumulative  Preferred
                 Stock, Series F and incorporated herein by reference.

10.2             Deposit   Agreement  dated  as  of  September  16,  2005  among
                 Registrant,  Equiserve  Inc.,  Equiserve Trust Company N.A. and
                 the  holders  of  depositary  receipts  evidencing   additional
                 Depositary Shares Each Representing 1/1,000 of a Share of 6.45%
                 Cumulative  Preferred Stock,  Series F. Filed with Registrant's
                 Form 8-A Registration  Statement on September 16, 2005 relating
                 to the Depositary Shares Each  Representing  1/1,000 of a Share
                 of 6.45% Cumulative  Preferred Stock, Series F and incorporated
                 herein by reference.

11               Statement  Re:   Computation  of  Earnings  per  Share.   Filed
                 herewith.

12               Statement  Re:  Computation  of  Ratio  of  Earnings  to  Fixed
                 Charges. Filed herewith.

31.1             Rule  13a-14(a)/15d-14(a)   Certification  of  Chief  Executive
                 Officer. Filed herewith.

31.2             Rule  13a-14(a)/15d-14(a)   Certification  of  Chief  Financial
                 Officer. Filed herewith.

32               Section 1350 Certification of Chief Executive Officer and Chief
                 Financial Officer. Filed herewith.

                                       77