SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934


For the quarterly period ended March 31, 1997


                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934


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

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

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


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


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


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





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

                                [ X ] Yes [ ] No
 

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of April 24, 1997:

Common Stock, $.10 par value, 95,277,290 shares outstanding
-----------------------------------------------------------

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


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX



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

Item 1.    Condensed Consolidated Balance Sheets at
              March 31, 1997 and December 31, 1996                           1

           Condensed Consolidated Statements of Income for the
             Three Months Ended March 31, 1997 and 1996                      2

           Condensed Consolidated Statement of Shareholders' Equity          3

           Condensed Consolidated Statements of Cash Flows
             for Three Months Ended March 31, 1997 and 1996              4 - 5

           Notes to Condensed Consolidated Financial Statements         6 - 14

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations            15 - 27

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

Item 5.    Other Information                                                28

Item 6.    Exhibits and Reports on Form 8-K                                 28


<PAGE>
<TABLE>


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


                                                                        March 31,              December 31,
                                                                          1997                     1996
                                                                     ---------------         ---------------
                                     ASSETS
                                     ------


    <S>                                                              <C>                     <C>         
    Cash and cash equivalents.................................       $    125,436            $     26,856
    Real estate facilities, at cost:
       Land...................................................            596,459                 596,141
       Buildings..............................................          1,650,885               1,625,172
                                                                     ---------------         ---------------
                                                                        2,247,344               2,221,313
       Accumulated depreciation...............................           (315,153)               (297,655)
                                                                     ---------------         ---------------
                                                                        1,932,191               1,923,658

    Investment in real estate entities........................            352,258                 350,190
    Intangible assets, net....................................            219,926                 222,253
    Mortgage notes receivable from affiliates.................             24,745                  25,016
    Other assets..............................................             26,751                  24,179
                                                                     ---------------         ---------------
                  Total assets................................       $  2,681,307            $  2,572,152
                                                                     ===============         ===============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------


    Notes payable.............................................       $    107,909            $    108,443
    Accrued and other liabilities.............................             39,993                  41,467
                                                                     ---------------         ---------------
             Total liabilities................................            147,902                 149,910
    Minority interest.........................................            110,535                 116,805
    Commitments and contingencies
    Shareholders' equity:
       Preferred  Stock,  $0.01  par  value,  50,000,000  shares  
         authorized, - 13,396,764  shares  issued  and  outstanding
         (13,421,580  issued  and outstanding at December 31, 1996),
         at liquidation preference:
             Cumulative Preferred Stock, issued in series.....            718,900                 718,900
             Convertible Preferred Stock......................            114,309                 114,929
       Common stock, $0.10 par value, 200,000,000 shares
         authorized, 93,041,461 shares issued and outstanding    
         (88,362,026 at December 31, 1996)....................                                      8,837
                                                                            9,305
       Class B Common Stock, $0.10 par value, 7,000,000 shares
         authorized and issued................................                700                     700
       Paid-in capital........................................          1,581,673               1,454,387
       Cumulative net income..................................            438,738                 396,420
       Cumulative distributions paid..........................           (440,755)               (388,736)
                                                                     ---------------         ---------------
             Total shareholders' equity.......................          2,422,870               2,305,437
                                                                     ---------------         ---------------
                  Total liabilities and shareholders' equity..       $  2,681,307            $  2,572,152
                                                                     ===============         ===============
</TABLE>
                            See accompanying notes.
                                       1


<PAGE>
<TABLE>


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

                                   (Unaudited)
<CAPTION>


                                                                           For the Three Months Ended
                                                                                     March 31,
                                                                       -----------------------------------
                                                                          1997                     1996
                                                                       ------------           ------------
    Revenues:
           <S>                                                          <C>                     <C>      
       Rental income:
           Self-storage facilities............................          $ 82,377                $  58,744
           Commercial properties..............................             7,597                    4,965
      Equity earnings of real estate entities.................             5,221                    4,611
      Facility management fee.................................             3,052                    3,760
      Ancillary business income...............................             1,322                      497
      Interest and other income...............................             1,690                    2,390
                                                                       ------------           ------------
                                                                         101,259                   74,967
                                                                       ------------           ------------

    Expenses:
      Cost of operations:
           Self-storage facilities............................            26,491                   18,491
           Commercial properties..............................             3,184                    2,194
      Cost of facility management.............................               476                      628
      Cost of operations - ancillary business.................             3,340                      440
      Depreciation and amortization...........................            19,787                   14,592
      General and administrative..............................             1,619                    1,361
      Interest expense........................................             1,597                    2,581
                                                                       ------------           ------------
                                                                          56,494                   40,287
                                                                       ------------           ------------

    Income before minority interest...........................            44,765                   34,680

    Minority interest in income...............................            (2,447)                  (2,339)
                                                                       ------------           ------------

    Net income................................................          $ 42,318                $  32,341
                                                                       ============           ============

    Net income allocation:
    ----------------------

       Allocable to preferred shareholders....................          $ 19,150                $  15,166
       Allocable to common shareholders.......................            23,168                   17,175
                                                                       ------------           ------------
                                                                        $ 42,318                $  32,341
                                                                       ============           ============

    Per common share:
    -----------------

        Net income............................................          $   0.26                $    0.24
                                                                       ============           ============

        Weighted average common shares outstanding............            89,476                   71,666
                                                                       ============           ============
</TABLE>
                            See accompanying notes.
                                       2


<PAGE>
<TABLE>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    For the Three Months Ended March 31, 1997
                    (Amounts in thousands except share amounts)

                                   (Unaudited)

<CAPTION>
                                                                    Preferred Stock                                     
                                                               -------------------------                  Class B
                                                               Cumulative                    Common       Common       Paid-in    
                                                                 Senior      Convertible      Stock        Stock       Capital    
                                                              -----------    -----------    ---------    ---------   ----------    

<S>                                                            <C>            <C>           <C>          <C>         <C>          
Balances at December 31, 1996...........................       $ 718,900      $ 114,929     $   8,837    $     700   $1,454,387   

Issuance of common stock:
     Public issuance (4,600,000 shares).................               -              -           460            -      126,239   
     Other (37,686 shares)..............................               -              -             4            -          431   

Conversion of 8.25% Convertible Preferred Stock
   into common stock (41,749 shares)....................               -           (620)            4            -          616   

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

Cash distributions:
   Cumulative Senior Preferred Stock....................               -              -             -            -            -   
   Mandatory Convertible Preferred Stock, Series CC.....               -              -             -            -            -   
   8.25% Convertible Preferred Stock....................               -              -             -            -            -   
   Common Stock.........................................               -              -             -            -            -   
                                                              -----------    -----------    ---------    ---------   ----------    

Balances at March 31, 1997..............................        $718,900       $114,309        $9,305         $700   $1,581,673   
                                                              ===========    ===========    =========    =========   ==========    
</TABLE>

<TABLE>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    For the Three Months Ended March 31, 1997
                    (Amounts in thousands except share amounts)

                                   (Unaudited)

<CAPTION>
                                                                                                    Total                           
                                                                 Cumulative     Cumulative      Shareholders'
                                                                 Net Income    Distributions       Equity
                                                                 ----------    -------------    --------------    

<S>                                                              <C>           <C>              <C>         
Balances at December 31, 1996...........................         $ 396,420     $ (388,736)      $   2,305,437

Issuance of common stock:
     Public issuance (4,600,000 shares).................                 -              -             126,699
     Other (37,686 shares)..............................                 -              -                 435

Conversion of 8.25% Convertible Preferred Stock
   into common stock (41,749 shares)....................                 -              -                   -

Net income..............................................            42,318              -              42,318

Cash distributions:
   Cumulative Senior Preferred Stock....................                 -        (16,091)            (16,091)
   Mandatory Convertible Preferred Stock, Series CC.....                 -        (15,328)            (15,328)
   8.25% Convertible Preferred Stock....................                 -         (1,143)             (1,143)
   Common Stock.........................................                 -        (19,457)            (19,457)
                                                                 ----------    -------------    --------------    

Balances at March 31, 1997..............................          $438,738      $(440,755)         $2,422,870
                                                                 ==========    =============    ==============    
</TABLE>
                            See accompanying notes.
                                       3


<PAGE>
<TABLE>


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

                                   (Unaudited)
<CAPTION>

                                                                                  For the Three Months Ended
                                                                                           March 31,
                                                                                ---------------------------------
                                                                                    1997                 1996
                                                                                ---------------   ---------------
      Cash flows from operating activities:
         <S>                                                                      <C>                <C>      
         Net income................................................               $42,318            $  32,341
         Adjustments to reconcile  net income to net cash  
           provided by operating activities:
           Depreciation and amortization (including amortization
             of mortgage notes receivable discounts)...............                19,770               14,568
           Depreciation included in equity in earnings of real
             estate entities.......................................                 3,629                4,494
           Minority interest in income.............................                 2,447                2,339
                                                                                ---------------   ---------------
               Total adjustments...................................                25,846               21,401
                                                                                ---------------   ---------------
                   Net cash provided by operating activities.......                68,164               53,742
                                                                                ---------------   ---------------

      Cash flows from investing activities:
           Principal payments received on mortgage notes
             receivable from affiliates............................                   288                  385
           Capital improvements to real estate facilities..........                (6,292)              (2,817)
           Construction in process.................................               (14,289)              (4,396)
           Capital expenditures of portable self-storage
             operations (included in other assets).................                (4,208)                   -
           Acquisition of minority interests in consolidated real
             estate partnerships...................................                (9,837)                (655)
           Acquisition of interests in real estate entities........                (5,697)             (16,025)
           Acquisition of real estate facilities...................                     -              (72,954)
           Acquisition cost of business combinations...............                     -              (53,706)
           Acquisition of mortgage notes receivable................                     -               (3,709)
                                                                                ---------------   ---------------
                   Net cash used in investing activities...........               (40,035)            (153,877)
                                                                                ---------------   ---------------

      Cash flows from financing activities:
           Net proceeds from the issuance of common stock..........               127,134                  625
           Net proceeds from the issuance of preferred stock.......                     -              163,133
           Principal payments on mortgage notes payable............                  (534)             (38,914)
           Distributions paid to shareholders......................               (52,019)             (30,914)
           Distributions from operations to minority interests in
             real estate partnerships..............................                (4,792)              (5,240)
           Net reinvestment by minority interests in consolidated
             real estate partnerships..............................                   809                  747
           Other...................................................                  (147)              (1,213)
                                                                                ---------------   ---------------
                   Net cash provided by financing activities.......                70,451               88,224
                                                                                ---------------   ---------------

      Net increase (decrease) in cash and cash equivalents.........                98,580              (11,911)
      Cash and cash equivalents at the beginning of the period.....                26,856               80,436
                                                                                ---------------   ---------------
      Cash and cash equivalents at the end of the period...........              $125,436            $  68,525
                                                                                ===============   ===============
</TABLE>
                            See accompanying notes.
                                       4


<PAGE>
<TABLE>


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

                                   (Unaudited)

                                   (Continued)
<CAPTION>

                                                                                  For the Three Months Ended
                                                                                           March 31,
                                                                                ---------------------------------
                                                                                    1997                 1996
                                                                                ---------------   ---------------

      Supplemental schedule of noncash investing and financing
      activities:
       <S>                                                                       <C>               <C>
       Acquisition of real estate facilities in exchange for the 
          cancellation of mortgage notes  receivable,  the assumption
          of mortgage notes payable, and issuance of common and 
          preferred stock.......................................                 $        -        $     (2,401)

       Business combinations:
          Real estate facilities................................                          -            (148,663)
          Other assets..........................................                          -                (484)
          Accrued and other liabilities.........................                          -               3,826
          Minority interest.....................................                          -              17,510

       Reduction to investment in real estate entities in
          connection with business combinations.................                          -              44,137

       Assumption of mortgage notes payable in connection with
          the acquisition of real estate facilities.............                          -               1,701

       Cancellation of mortgage notes receivable in connection
          with the acquisition of real estate facilities........                          -                 700

       Issuance of common stock:
          - in connection with mergers..........................                          -              29,968
          - in connection with the conversion of Preferred Stock                        620                 365

       Conversion of 8.25% Convertible Preferred Stock..........                       (620)               (365)


</TABLE>
                            See accompanying notes.
                                       5


<PAGE>


                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 1997



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

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

                  The  Company  invests  in  real  estate  facilities  primarily
         through the  acquisition of wholly-owned  facilities  combined with the
         acquisition  of equity  interests in real estate  entities  owning real
         estate  facilities.  At March 31,  1997,  the  Company  had  direct and
         indirect  equity  interests in 1,111  properties  located in 38 states,
         including 1,066 self-storage  facilities and 45 commercial  properties.
         All of the self-storage facilities are operated by the Company.

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

                  Basis of presentation
                  ---------------------

                  The accompanying  unaudited condensed  consolidated  financial
         statements  have been prepared in accordance  with  generally  accepted
         accounting  principles  for  interim  financial  information  and  with
         instructions   to  Form  10-Q  and  Article  10  of   regulation   S-X.
         Accordingly,  they do not include all of the  information and footnotes
         required by  generally  accepted  accounting  principles  for  complete
         financial  statements.  The preparation of the  consolidated  financial
         statements in conformity with generally accepted accounting  principles
         requires  management to make estimates and assumptions  that affect the
         amounts   reported  in  the  consolidated   financial   statements  and
         accompanying notes. Actual results could differ from estimates.  In the
         opinion of management,  all adjustments (consisting of normal recurring
         accruals)  necessary  for  a  fair  presentation  have  been  included.
         Operating  results  for the three  months  ended March 31, 1997 are not
         necessarily indicative of the results that may be expected for the year
         ended  December  31,  1997.  For  further  information,  refer  to  the
         consolidated financial statements and footnotes thereto included in the
         Company's  annual  report on Form 10-K for the year ended  December 31,
         1996.

                  The consolidated  financial statements include the accounts of
         (i) the Company, (ii) majority owned subsidiaries which are involved in
         the  sale  of  locks  and  boxes,   rental  of  trucks   and   portable
         self-storage,   and  the   management   and   operation  of  commercial
         properties,  and (iii)  twenty-one  limited  partnerships  in which the
         Company has significant  economic interest (generally in excess of 50%)
         and  is  able  to  exercise   significant  control  (the  "Consolidated
         Partnerships").   Collectively,   the  Company,   the  majority   owned
         subsidiaries, and the Consolidated Partnerships own a total of 758 real
         estate  facilities,  consisting of 723  self-storage  facilities and 35
         commercial properties.

                  The Company also has equity investments in 41 other affiliated
         limited  partnerships  and eight  REITs  owning in  aggregate  353 real
         estate  facilities  (343  self-storage  facilities  and  10  commercial
         properties) which are managed by the Company.  The Company's  ownership
         interest  in such real  estate  entities  is less than 50% of the total
         equity interest and,  accordingly,  the Company's  investments in these
         real estate entities are accounted for using the equity method.


                                       6



<PAGE>

                  Income taxes
                  ------------

                  For  all  taxable  years   subsequent  to  1980,  the  Company
         qualified  and intends to continue to qualify as a REIT,  as defined in
         Section 856 of the Internal Revenue Code. As a REIT, the Company is not
         taxed on that portion of its taxable income which is distributed to its
         shareholders provided that the Company meets certain tests. The Company
         believes  it  will  meet  these  tests  during  1997,  accordingly,  no
         provision for income taxes has been made in the accompanying  financial
         statements.

                  Cash and cash equivalents
                  -------------------------

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

                  Real estate investments
                  -----------------------

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

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

                  Intangible assets
                  -----------------

                  Intangible  assets  consist of property  management  contracts
         ($165,000,000)  and the cost over the fair  value of net  tangible  and
         identifiable  intangible assets ($67,726,000) acquired in a 1995 merger
         with an affiliate. Intangible assets are amortized by the straight-line
         method over 25 years. At March 31, 1997,  intangible  assets are net of
         accumulated  amortization  of $12,800,000  ($10,473,000 at December 31,
         1996).  Included in depreciation and amortization expense for the three
         months  ended  March 31,  1997 and 1996 is  $2,327,000  related  to the
         amortization of intangible assets.

                  Revenue/expense recognition
                  ---------------------------

                  Property rents are recognized as earned. Equity in earnings of
         real estate  entities are recognized  based on the Company's  ownership
         interest  in the  earnings  of each of the  unconsolidated  real estate
         entities.  Leasing  commissions  relating  to the  commercial  property
         operations are expensed as incurred.

                  Net income per common share
                  ---------------------------

                  Net income per common  share is  computed  using the  weighted
         average common shares  outstanding  (adjusted for stock  options).  The
         inclusion of the Class B Common Stock in the  determination of earnings
         per common share has been determined to be anti-dilutive  (after giving
         effect to the pro forma  additional  income required to satisfy certain
         contingencies (Note 8) required for the Class B common stock to convert
         into common stock) in 1996 and to be immaterial in 1997 and accordingly
         the Class B common stock has not been  included in the  computation  in
         either period.

                  The  Company's  preferred  stocks  were not  determined  to be
         common  stock  equivalents.  In computing  earnings  per common  share,
         preferred   stock   dividends   reduced  income   available  to  common
         stockholders.   Fully  diluted   earnings  per  common  share  are  not
         presented,  as the  assumed  conversion  of the  Company's  convertible
         preferred stocks would be anti-dilutive. The following table summarizes
         the computations of earnings per common share:


                                        7


<PAGE>

<TABLE>
<CAPTION>
                                                                                           For the Three Months Ended
                                                                                                   March 31,
                                                                                              1997              1996
                                                                                          -------------    -------------  
                                                                                    (amounts in 000's, except per share data)
                                                                                                  

           Primary Earnings Per Common Share:
           ----------------------------------

           <S>                                                                             <C>               <C>      
           Net income......................................................                $  42,318         $  32,341
                                                                                                             
           Less: Preferred Stock dividends:
              Cumulative Senior Preferred Stock............................                  (16,091)          (13,154)
              Mandatory Convertible Preferred Stock, Series CC (1).........                   (1,916)                -
              8.25% Convertible Preferred Stock............................                   (1,143)           (1,186)
              Mandatory Convertible Participating Preferred Stock..........                        -              (826)
                                                                                          -------------    -------------  
           Net income allocable to common shareholders.....................                $  23,168         $  17,175
                                                                                          =============    =============  
                                                                                                             

           Weighted Average common and common equivalent shares outstanding:
               Weighted average common shares outstanding..................                   89,086            71,574
               Net effect of dilutive stock options - based on treasury
                  stock method using average market price..................                      390                92
                                                                                          -------------    -------------  
                    Total..................................................                   89,476            71,666
                                                                                          =============    =============  

           Primary earnings per common and common equivalent share.........                $    0.26         $    0.24
                                                                                          =============    =============  

           Fully-diluted Earnings per Common Share:
           ----------------------------------------

           Net income allocable to common shareholders per primary                         
              calculation above............................................                $  23,168         $  17,175
           Add dividends paid to holders of Convertible Preferred Stocks:
               Series CC Preferred Stock...................................                    1,916                 -
               8.25% Convertible Preferred Stock...........................                    1,143             1,186
               Mandatory Convertible Participating Preferred Stock.........                        -               826
                                                                                          -------------    -------------  
           Net income allocable to common shareholders for purposes of
              determining Fully-diluted Earnings per Common and Common                     
              Equivalent Share.............................................                $  26,227         $  19,187             
                                                                                          =============    =============
  
           Weighted average common and common equivalent shares outstanding                   89,476            71,666
              Pro forma weighted average common shares assuming conversion
                 of Convertible Preferred Stock:
                    Series CC Preferred Stock..............................                    2,064                 -
                    8.25% Convertible Preferred Stock......................                    3,769             3,872
                    Mandatory Convertible Participating Preferred Stock....                        -             1,524
                                                                                          -------------    -------------  

            Weighted average common and common equivalent shares for
              purposes of computation of fully-diluted Earnings per Common          
              and Common Equivalent Share..................................                   95,309            77,062
                                                                                          =============    =============  
                                                                                              

           Fully-diluted Earnings per Common and Common Share (2)..........                $    0.28         $    0.25
                                                                                          =============    ============= 

</TABLE>

         (1)       On March 31, 1997,  the Company  prepaid  dividends  totaling
                   $13,412,000   with  respect  to  the  Mandatory   Convertible
                   Participating  Preferred  Stock. The amount of prepayment has
                   not been included in the determination of income allocable to
                   common  shareholders  for the three  months  ended  March 31,
                   1997.

         (2)       Such amounts are  anti-dilutive  and are not presented in the
                   Company's consolidated financial statements. In addition, the
                   Company has  7,000,000  shares of Class B Common  Stock which
                   are  convertible  into shares of the  Company's  Common Stock
                   subject to certain  contingencies such as the passage of time
                   and the  attainment  of  certain  earnings  milestone  by the
                   Company.  The  assumption  of such earnings and the pro forma
                   conversion  of the Class B Common  Stock into Common Stock in
                   the above  computations would have resulted in an increase in
                   the fully-diluted earnings per common share, and accordingly,
                   is anti-dilutive.

                   In February 1997, the Financial  Accounting  Standards  Board
         issued Statement No. 128,  Earnings per Share,  which is required to be
         adopted on  December  31,  1997.  At that  time,  the  Company  will be
         required to change the method  currently  used to compute  earnings per
         share and to restate all prior periods.  Under the new requirements for
         calculating  primary  earnings per share, the dilutive effects of stock
         options will be excluded.  The impact of the new standard will not have
         a material  impact on either  primary  or  fully-diluted  earnings  per
         common share for the quarter ended March 31, 1997 and March 31, 1996.


                                       8


<PAGE>
     3.  Real estate facilities:
         -----------------------

                  Activity in real estate facilities during 1997 is as follows:
<TABLE>
<CAPTION>
                                                                        Number of real        Net rentable       Net carrying 
                                                                       estate facilities      square feet            cost
                                                                       -----------------      ------------      -------------   
                                                                        (Amounts in thousands, except number of facilities)
                Operating Facilities
                  <S>                                                         <C>                <C>               <C>       
                  Balance at December 31, 1996................                756                46,462            $2,185,498
                  Developed facilities........................                  2                   120                 7,380
                  Acquisition of minority interest............                  -                     -                 5,103
                  Capital improvements........................                  -                     -                 6,292
                  Other.......................................                  -                     -                   347
                                                                       -----------------      ------------      -------------   
                  Ending balance..............................                758                46,582             2,204,620
                                                                       -----------------      ------------      -------------   

                Construction in progress:
                  Balance at December 31, 1996................                 11                   707                35,815
                  Current development.........................                  2                    44                14,289
                  Newly opened development facilities.........                 (2)                 (120)               (7,380)
                                                                       -----------------      ------------      -------------   
                  Ending balance..............................                 11                   631                42,724
                                                                       -----------------      ------------      -------------   

                Accumulated depreciation:
                  Beginning balance...........................                  -                     -              (297,655)
                  Additions during the year...................                  -                     -               (17,498)
                  Ending balance..............................                  -                     -              (315,153)
                                                                       -----------------      ------------      -------------   
                Total real estate facilities..................                769                47,213           $ 1,932,191
                                                                       =================      ============      =============   
</TABLE>

                  During the first quarter of fiscal 1997, the Company  expended
         approximately  $14.3  million  in the  development  of 13  self-storage
         facilities.  Two of these facilities were put into operation during the
         period. The Company's policy is to capitalize interest incurred on debt
         during  the  course of  construction  of its  self-storage  facilities.
         Interest  capitalized  during the three months ended March 31, 1997 was
         $735,000 compared to $194,000 for the same period in 1996.

                  On April 10, 1997, the Company  entered into an agreement with
         a joint  venture  partner  to  develop  approximately  $220  million of
         self-storage facilities.  The joint venture partner will contribute 70%
         of the capital  needs of the venture with the balance to be provided by
         the Company.  Initially,  the Company contributed eight facilities with
         an aggregate cost of approximately  $30.4 million and as a result,  the
         Company received cash of  approximately  $21.3 million from the venture
         representing  the  venture   partner's   proportionate   share  of  the
         development cost.

     4.  Investment in real estate entities
         ----------------------------------
            
                  The Company's  investment in real estate entities at March 31,
         1997,  generally consists of limited and general partnership  interests
         in  approximately  41  affiliated  partnerships  and common  stock in 8
         affiliated REITs. Such interests consist of ownership interests ranging
         from 15% to 45% and are  accounted  for  using  the  equity  method  of
         accounting.  Provisions of the agreements of the partnerships and REITs
         provide  for the payment of  preferred  cash  distributions  to certain
         investors  in the entity  (until  certain  specified  amounts have been
         paid)  without  regard to the pro rata interest of investors in current
         earnings.  The Company's ownership interests in such entities generally
         represents  interests  which are not entitled to these  preferred  cash
         distributions.

                  During the three  months  ended  March 31,  1997,  the Company
         recognized earnings from its investments totaling $5,221,000.  Included
         in equity in  earnings  of real estate  entities  for the three  months

                                        9


<PAGE>

         ended March 31, 1997 is the  Company's  share of  depreciation  expense
         totaling  $3,629,000   (including   amortization   totaling  $1,622,000
         representing  the  amortization  of the  Company's  cost basis over the
         underlying  book value of the Company's  equity interest in each of the
         entities).

                  Summarized  combined financial data (based on historical cost)
         with respect to those real estate  entities in which the Company had an
         ownership interest at March 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                   Three Months Ended March 31,
                                                                                ---------------------------------
                                                                                    1997                1996
                                                                                ---------------   ---------------
                                                                                        (in thousands)

                    <S>                                                        <C>                   <C>    
                    Rental income.....................................            $46,672               $43,138
                    Total revenues....................................             47,159                43,512
                    Cost of operations................................             17,494                16,195
                    Depreciation......................................              6,918                 6,785
                    Net income........................................             19,494                17,262

                    Total assets, net of accumulated depreciation.....           $840,552              $839,866
                    Total debt........................................             89,821                95,305
                    Total equity......................................            713,275               709,846

</TABLE>

     5.  Mortgage notes receivable from affiliates
         -----------------------------------------

                  At March  31,  1997,  mortgage  notes  receivable  balance  of
         $24,745,000 is net of related discounts totaling $294,000. The mortgage
         notes bear  interest at stated rates  ranging from 7.48% to 14% and are
         secured by 13 self-storage facilities owned by affiliated partnerships.
         All of the  notes  are  current  as to the  payment  of  principal  and
         interest.

     6.  Revolving line of credit
         ------------------------

                  As of March 31,  1997,  the Company had no  borrowings  on its
         unsecured credit agreement with a group of commercial banks. The credit
         agreement  (the  "Credit  Facility")  has a  borrowing  limit of $150.0
         million and an expiration  date of July 31, 2001. The  expiration  date
         may  be  extended  by one  year  on  each  anniversary  of  the  credit
         agreement.  Interest on outstanding  borrowings is payable monthly.  At
         the option of the Company, the rate of interest charged is equal to (i)
         the prime rate or (ii) a rate ranging from the London Interbank Offered
         Rate  ("LIBOR")  plus  0.40%  to  LIBOR  plus  1.10%  depending  on the
         Company's credit ratings and coverage ratios, as defined.  In addition,
         the Company is required  to pay a  quarterly  commitment  fee of 0.250%
         (per annum) of the unused  portion of the Credit  Facility.  The Credit
         Facility  allows the  Company,  at its option,  to request the group of
         banks to  propose  the  interest  rate they  would  charge on  specific
         borrowings  not to  exceed  $50  million.  However,  in no case may the
         interest  rate  proposal  be greater  than the amount  provided  by the
         Credit Facility.

                  Under  covenants  of  the  Credit  Facility,  the  Company  is
         required to (i) maintain a balance  sheet  leverage  ratio of less than
         0.40 to 1.00,  (ii) maintain net income of not less than $1.00 for each
         fiscal quarter,  (iii) maintain certain cash flow and interest coverage
         ratios  (as  defined)  of not  less  than  1.0 to 1.0  and  5.0 to 1.0,
         respectively and (iv) maintain a minimum total shareholders' equity (as
         defined).  In addition,  the Company is limited in its ability to incur
         additional borrowings (the Company is required to maintain unencumbered
         assets  with an  aggregate  book value  equal to or greater  than three
         times the Company's  unsecured  recourse  debt) or to sell assets.  The
         Company was in compliance  with the covenants of the Credit Facility at
         March 31, 1997.


                                       10

<PAGE>


     7.  Minority interest
         -----------------

                  The Company classifies  ownership interests other than its own
         in the net assets of each of the Consolidated  Partnerships as minority
         interest on the Company's consolidated  financial statements.  Minority
         interest in income consists of such  interests'  share of the operating
         results of the Company relating to the  consolidated  operations of the
         Consolidated Partnerships.

     8.  Shareholders' equity
         --------------------

                  Preferred stock

                  At March 31, 1997 and December  31, 1996,  the Company had the
         following series of Preferred Stock outstanding:

<TABLE>
<CAPTION>
                                                                     At March 31, 1997              At December 31, 1996
                                                                ------------------------------  ------------------------------
                                                   Dividend        Shares         Carrying         Shares         Carrying
                          Series                     Rate       Outstanding        Amount       Outstanding        Amount
           -------------------------------------- -----------   -------------   --------------  -------------   --------------
           <S>                                       <C>          <C>           <C>               <C>           <C>         
           Series A ..........................       10.000%      1,825,000     $ 45,625,000      1,825,000     $ 45,625,000
           Series B ..........................        9.200%      2,386,000       59,650,000      2,386,000       59,650,000
           Series C...........................    Adjustable      1,200,000       30,000,000      1,200,000       30,000,000
           Series D...........................        9.500%      1,200,000       30,000,000      1,200,000       30,000,000
           Series E...........................       10.000%      2,195,000       54,875,000      2,195,000       54,875,000
           Series F...........................        9.750%      2,300,000       57,500,000      2,300,000       57,500,000
           Series G ..........................        8.875%          6,900      172,500,000          6,900      172,500,000
           Series H ..........................         8.45%          6,750      168,750,000          6,750      168,750,000
           Series I ..........................        8.625%          4,000      100,000,000          4,000      100,000,000
           -------------------------------------- -----------   -------------   --------------  -------------   --------------
             Total Senior Preferred Stock.....                   11,123,650      718,900,000     11,123,650      718,900,000
                                                                -------------   --------------  -------------   --------------

           Convertible........................         8.25%      2,214,159       55,354,000      2,238,975       55,974,000
           Mandatory Convertible  - Series CC.        13.00%         58,955       58,955,000         58,955       58,955,000
                                                                -------------   --------------  -------------   --------------
             Total Convertible Preferred Stock                    2,273,114      114,309,000      2,297,930      114,929,000
                                                                -------------   --------------  -------------   --------------
                                                                 13,396,764     $833,209,000     13,421,580     $833,829,000
                                                                =============   ==============  =============   ==============
</TABLE>


                  The Series A through Series I  (collectively  the  "Cumulative
         Senior Preferred Stock") have general preference rights with respect to
         liquidation and quarterly distributions. With respect to the payment of
         dividends   and  amounts  upon   liquidation,   all  of  the  Company's
         Convertible  Preferred  Stock  ranks  junior to the  Cumulative  Senior
         Preferred  Stock and any other shares of preferred stock of the Company
         ranking on a parity with or senior to the Cumulative  Senior  Preferred
         Stock.  The  Convertible  Preferred  Stock  ranks  senior to the common
         stock, any additional class of common stock and any series of preferred
         stock expressly made junior to the Convertible Preferred Stock.
         
                  Holders of the Company's preferred stock, except under certain
         conditions  and as noted  above,  will not be  entitled to vote on most
         matters. In the event of a cumulative  arrearage equal to six quarterly
         dividends  or failure to  maintain a Debt Ratio (as  defined) of 50% or
         less, holders of all outstanding series of preferred stock (voting as a
         single class without regard to series) will have the right to elect two
         additional  members to serve on the Company's  Board of Directors until
         events of default  have been cured.  At March 31,  1997,  there were no
         dividends in arrears and the Debt Ratio was 4.0%.

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

                                       11


<PAGE>

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

                  The Series CC Preferred  Stock ranks  junior to the  Company's
         Cumulative  Senior  Preferred Stock with respect to general  preference
         rights  and  has  a  liquidation  value  of  $1,000  per  share.  Other
         significant  terms  of the  Series  CC  Preferred  Stock  include:  (i)
         quarterly distributions equal to $32.50 per share, (ii) conversion,  at
         anytime at the option of the holder,  into common  stock of the Company
         at a conversion price of $28.56, i.e, 35.014 shares of common stock for
         each share of Series CC Preferred Stock, and (iii) automatic conversion
         into common  stock of the  Company on March 31, 2000 at the  conversion
         price described above.

                  Common stock
                  ------------

                  On March 18,  1997,  the Company  issued  4,600,000  shares of
         common stock, raising net proceeds of approximately $126.7 million. The
         Company  intends to use the net  proceeds  from this  offering  to make
         investments in real estate.

                  Class B Common Stock
                  --------------------

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

                  For these purposes,  FFO means net income (loss)  (computed in
         accordance with generally  accepted  accounting  principles) before (i)
         gain (loss) on early  extinguishment of debt, (ii) minority interest in
         income and (iii) gain (loss) on disposition of real estate, adjusted as
         follows:   (i)  plus  depreciation  and  amortization   (including  the
         Company's   pro-rata  share  of   depreciation   and   amortization  of
         unconsolidated  equity interests and amortization of assets acquired in
         the Merger, including property management agreements and goodwill), and
         (ii) less FFO attributable to minority interest.

                  For  these  purposes,  FFO per  Common  Share  means  FFO less
         preferred  stock   dividends   (other  than  dividends  on  convertible
         preferred stock) divided by the outstanding  weighted average shares of
         Common  Stock  assuming  conversion  of  all  outstanding   convertible
         securities and the Class B Common Stock.

                  For these purposes, FFO per share of Common Stock (as defined)
         was $1.89 for the four  consecutive  calendar  quarters ended March 31,
         1997.

                                       12


<PAGE>

                  Dividends
                  ---------

                  The following summarizes dividends paid during the first three
         months of 1997:

<TABLE>
<CAPTION>
                                                               Distributions
                                                               Per Share or           Total
                                                             Depository Share     Distributions
                                                             ----------------     ---------------
                    <S>                                         <C>                <C>                             
                    Series A..............................      $    0.625         $  1,140,000                    
                    Series B..............................      $    0.575            1,372,000
                    Series C..............................      $    0.454              545,000
                    Series D..............................      $    0.594              713,000
                    Series E..............................      $    0.625            1,372,000
                    Series F..............................      $    0.609            1,401,000
                    Series G..............................      $    0.555            3,828,000
                    Series H..............................      $    0.528            3,565,000
                    Series I..............................      $    0.539            2,156,000
                    Convertible...........................      $    0.515            1,142,000
                    Series CC.............................        $260.000           15,328,000
                                                                                  ---------------       
                                                                                     32,562,000

                    Common................................      $    0.220           19,457,000
                                                                                  ---------------
                                                                                    $52,019,000
                                                                                  ===============

</TABLE>

                  On March 31,  1997,  the  Company  prepaid  a  portion  of the
         dividends  relating to the  Mandatory  Convertible  Series CC Preferred
         Stock which would have been  payable  quarterly  through  December  31,
         1998. The total amount prepaid was approximately $13,412,000.


                  The  dividend  rate on the  Series C  Preferred  Stock for the
         first quarter of 1997 was equal to 7.26%,  per annum. The dividend rate
         per annum will be adjusted  quarterly  and will be equal to the highest
         of one of three U.S.  Treasury  indices  (Treasury  Bill Rate, Ten Year
         Constant  Maturity  Rate,  and  Thirty  Year  Constant  Maturity  Rate)
         multiplied by 110%. However,  the dividend rate for any dividend period
         will not be less than  6.75% per annum nor  greater  than  10.75%.  The
         dividend  rate for the  quarter  ending  June 30, 1997 will be equal to
         7.623% per annum.

     9.  Events subsequent to March 31, 1997
         -----------------------------------

                  On April 11, 1997, the  shareholders of each of Public Storage
         Properties XIV, Inc.  ("PSP-14") and Public Storage Properties XV, Inc.
         ("PSP-15") approved the mergers of the respective corporations into the
         Company.  In  connection  with  the  mergers,  the  Company  issued  an
         aggregate of 2.3 million  shares of Common Stock and paid an additional
         $18.7 million in cash for the interest of PSP-14 and PSP-15 the Company
         did not own.

                  In April 1997, Public Storage Properties XVI, Inc. ("PSP-16"),
         Public  Storage  Properties  XVII,  Inc.  ("PSP-17"),   Public  Storage
         Properties  XVIII, Inc.  ("PSP-18") and Public Storage  Properties XIX,
         Inc. ("PSP-19") each agreed,  subject to certain  conditions,  to merge
         with and into the  Company.  PSP-16,  PSP-17,  PSP-18  and  PSP-19  are
         affiliated  publicly traded equity real estate investment trusts.  Each
         of  the  mergers  is   conditioned   on  approval  by  the   respective
         shareholders of PSP-16, PSP-17, PSP-18 and PSP-19, however, the mergers
         are not conditioned on approval of each other. The Company expects that
         if approved by the shareholders, the mergers would be completed in June
         or July 1997.

                  The estimated value of PSP -16's  properties is  approximately
         $76.5  million.  PSP-16 owns 22  properties  (1,430,000  square  feet).
         PSP-16  has  2,962,348  outstanding  shares of common  stock  series A,
         259,991  outstanding  shares  of  common  stock  series  B and  920,802
         outstanding  shares of common  stock series C. The Company owns 632,050
         shares of common stock series A, 210,510  shares of common stock series
         B and 607,194  shares of common stock series C. Upon  completion of the
         merger,  each  outstanding  share of  common  stock  series A of PSP-16
         (other than  shares held by the  Company)  would be  converted,  at the
         election  of the  shareholders  of PSP-16,  into  either  shares of the
         Company's  common  stock with a market value of $20.76 or, with respect
         to up to 20% of the PSP-16  common stock series A, $20.76 in cash.  The
         $20.76  conversion  value will be reduced  by any  required  final REIT
         distributions, such that the total consideration received, inclusive of
         any final required REIT  distributions,  is $20.76.  In addition,  each
         share of PSP-16 common stock series B and series C (other than shares



                                       13


<PAGE>


         held by the Company) will be converted into the right to receive $11.82
         in the Company's  common  stock,  plus the Series B shares will receive
         any required REIT distribution  attributable to the PSP-16 common stock
         series B. The shares of PSP-16  common  stock series A, B and C held by
         the Company will be canceled in the merger.

                  The estimated  value of PSP-17's  properties is  approximately
         $72.8 million.  PSP-17 owns 19 properties  (1,425,000 square feet). One
         of these 19  properties,  with 95,000 square feet, is jointly held with
         PSP-18.  PSP-17 has 2,776,023 outstanding shares of common stock series
         A,  324,989  outstanding  shares of common  stock  series B and 920,802
         outstanding  shares of common  stock series C. The Company owns 505,400
         shares of common stock series A, 295,487  shares of common stock series
         B and 851,142  shares of common stock series C. Upon  completion of the
         merger,  each  outstanding  share of  common  stock  series A of PSP-17
         (other than shares held by the Company) would be converted, at election
         of the  shareholders  of PSP-17,  into either  shares of the  Company's
         common  stock with a market  value of $19.63 or, with  respect to up to
         20% of the PSP-17  common  stock  series A, $19.63 in cash.  The $19.63
         conversion   value  will  be  reduced  by  any   required   final  REIT
         distributions, such that the total consideration received, inclusive of
         any final required REIT  distributions,  is $19.63.  In addition,  each
         share of PSP-17  common  stock series B and series C (other than shares
         held by the Company) will be converted into the right to receive $10.26
         in the Company's  common  stock,  plus the Series B shares will receive
         any required REIT distribution  attributable to the PSP-17 common stock
         series B. The shares of PSP-17  common  stock series A, B and C held by
         the Company will be canceled in the merger.

                  The estimated  value of PSP-18's  properties is  approximately
         $73.3 million.  PSP-18 owns 18 properties  (1,240,000 square feet). One
         of these 18  properties,  with 95,000 square feet, is jointly held with
         PSP-17.  PSP-18 has 2,775,900 outstanding shares of common stock series
         A,  324,989  outstanding  shares of common  stock  series B and 920,802
         outstanding  shares of common  stock series C. The Company owns 168,000
         shares of common stock series A, 324,989  shares of common stock series
         B and 920,802  shares of common stock series C. Upon  completion of the
         merger,  each  outstanding  share of  common  stock  series A of PSP-18
         (other than shares held by the Company) would be converted, at election
         of the  shareholders  of PSP-18,  into either  shares of the  Company's
         common  stock with a market  value of $20.38 or, with  respect to up to
         20% of the PSP-18  common  stock  series A, $20.38 in cash.  The $20.38
         conversion   value  will  be  reduced  by  any   required   final  REIT
         distributions, such that the total consideration received, inclusive of
         any final required REIT  distributions,  is $20.38.  In addition,  each
         share of PSP-18 Series B and C, (other than shares held by the Company)
         will be  converted  into the right to  receive  $9.36 in the  Company's
         Common  Stock,  plus the Series B shares will receive any required REIT
         distribution  attributable  to the PSP-18  Common  Stock  Series B. The
         shares of PSP-18  common  stock  series A, B and C held by the  Company
         will be canceled in the merger.

                  The estimated  value of PSP-19's  properties is  approximately
         $52.3 million.  PSP-19 owns 14 properties (990,000 square feet). PSP-19
         has  3,023,371  outstanding  shares of common  stock  series A, 283,224
         outstanding  shares of common  stock  series B and 802,466  outstanding
         shares of common stock  series C. The Company  owns  646,145  shares of
         common  stock  series A,  283,224  shares of common  stock series B and
         802,466 shares of common stock series C. Upon completion of the merger,
         each  outstanding  share of common stock series A of PSP-19 (other than
         shares  held by the  Company)  would be  converted,  at election of the
         shareholders  of PSP-19,  into either  shares of the  Company's  common
         stock with a market  value of $16.72 or,  with  respect to up to 20% of
         the PSP-19 common stock series A, $16.72 in cash. The $16.72 conversion
         value will be reduced by any required  final REIT  distributions,  such
         that the total consideration received,  inclusive of any final required
         REIT distributions, is $16.72. In addition, each share of PSP-19 Series
         B and C (other than shares held by the Company) will be converted  into
         the right to receive  $1.41 in the  Company's  common  stock,  plus the
         Series  B  shares  will   receive  any   required   REIT   distribution
         attributable  to the PSP-19 common stock Series B. The shares of PSP-19
         common  stock series A, B and C held by the Company will be canceled in
         the merger.


                                       14


<PAGE>




Management's  Discussion  and  Analysis of  Financial  Condition 
----------------------------------------------------------------
and Results of Operations
-------------------------

                  Historical Overview: During 1996 and the first three months of
         Fiscal 1997, the Company completed  several business  initiatives which
         have had a significant  impact to the Company's  comparative  operating
         results for the three months ended March 31, 1997 and 1996:

                   * MERGERS WITH  AFFILIATED  REITS:  During 1996,  the Company
                   completed  eight mergers with  affiliated  REITs whereby  the
                   Company  acquired  103  additional  wholly-owned  real estate
                   facilities.   The   aggregate   cost  of  these  mergers  was
                   approximately  $356.8  million  which  includes the Company's
                   pre-existing  investment  in the  affiliated  REITs  totaling
                   $79.5 million.

                   * THIRD PARTY ACQUISITIONS: During 1996, the Company acquired
                   58 real estate facilities from various  unaffiliated  parties
                   for an aggregate  acquisition  cost of  approximately  $202.7
                   million.

                   *  DEVELOPMENT  OF  SELF-STORAGE  FACILITIES:  In  1995,  the
                   Company  commenced  development of  self-storage  facilities,
                   opening one in 1995,  four in 1996,  and two in 1997.  Eleven
                   facilities  (631,000  net  rentable  square  feet)  are under
                   construction  at  March  31,  1997,  with an  aggregate  cost
                   incurred  to date  of  $39.4  million  and  total  additional
                   estimated costs to complete of $21.4 million.

                   * PORTABLE SELF-STORAGE BUSINESS: In August 1996, the Company
                   commenced  operations in the portable  self-storage  business
                   facilitated by the acquisition of an existing operator. As of
                   March 31, 1997, the Company has opened 13 facilities.

                  At March 31, 1997, the Company's investment portfolio consists
         of (i) wholly-owned  properties  owned by the Company,  (ii) properties
         owned by real estate  partnerships in which the Company has significant
         ownership  interests  (the  "Consolidated  Partnerships"),   and  (iii)
         properties  owned by real estate  entities  (partnerships and REITs) in
         which the Company's  ownership  interest and control are not sufficient
         to warrant the  consolidation  of such  entities  (the  "Unconsolidated
         Entities").  The following table summarizes the Company's investment in
         real estate facilities as of March 31, 1997:

<TABLE>
<CAPTION>

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

           <S>                                               <C>                    <C>        <C>                     <C>   
           Wholly-owned facilities (a)                       431          -         431        26,368         -        26,368
           Facilities owned by Consolidated  
             Partnerships                                    292         35         327        17,169     3,045        20,214
                                                        ----------- ----------   --------    ----------- -----------  ---------  
               Total consolidated facilities                 723         35         758        45,357     3,045        46,582

           Facilities owned by Unconsolidated   
             Entities                                        343         10         353        20,600       673        21,273
                                                        ----------- ----------   --------    ----------- -----------  ---------  

               Total facilities in which the Company  
                 has an ownership interest                 1,066         45       1,111        64,137     3,718        67,855
                                                        =========== ==========   ========    =========== ===========  =========

</TABLE>
                                       15


<PAGE>

                  (a) 35 commercial  properties  which were  previously  "wholly
         owned" at December 31, 1996 are now classified as "Facilities  Owned by
         Consolidated  Partnerships."  Pursuant  to  the  restructuring  of  the
         commercial  properties  operations,  the Company  and its  consolidated
         partnerships   contributed   substantially   all  of  their  commercial
         properties to a newly created operating partnership,  which is owned by
         American  Office Park  Properties,  Inc., the Company's  majority owned
         subsidiary and by the Company and its consolidated Partnerships.

                  Results of Operations
                  ---------------------

                  Net  income  for the three  months  ended  March 31,  1997 was
         $42,318,000  compared  to  $32,341,000  for the  same  period  in 1996,
         representing an increase of $9,977,000.  Net income allocable to common
         shareholders  increased to $23,168,000 for the three months ended March
         31, 1997  compared  to  $17,175,000  for the same  period in 1996.  Net
         income per common share was $0.26 per share (based on weighted  average
         shares  outstanding of 89,476,000) for the three months ended March 31,
         1997  compared  to $0.24 per share  (based on weighted  average  shares
         outstanding of 71,666,000) for the same period in 1996, representing an
         increase of 8.33%.

                  The  increases in net income,  net income  allocable to common
         shareholders,  and net income per share  were  primarily  the result of
         improved property operations, the acquisition of additional real estate
         facilities  during 1996, and the acquisition of additional  partnership
         interests  during 1997 and 1996.  However,  net income per common share
         for 1997  included the negative  impact of (i)  development  activities
         ($0.01 per common  share),  (ii) the portable  self-storage  operations
         ($0.03 per common share),  and (iv) the temporary  uninvested  proceeds
         from the issuance of preferred  stock during the fourth quarter of 1996
         and common stock issued in the first  quarter of 1997 ($0.01 per common
         share).  Net income per common  share for the three  months ended March
         31, 1996 was also negatively impacted by temporary  uninvested proceeds
         from the issuance of preferred stock ($0.01 per common share).

                  Operating  results of the Company's  property  operations have
         increased  significantly  for the three  months ended March 31, 1997 as
         compared  to the same  period  in 1996,  due to an  improvement  in the
         facilities owned throughout both periods, and an increase in the number
         of facilities through property acquisitions.

                  SELF-STORAGE OPERATIONS: The Company's self-storage operations
         account for over 90% of the total property operations and represent the
         largest source of comparison of variances  from period to period.  As a
         result,   the  following  table  is  presented  to  further  illustrate
         variances from period to period by (i) comparing the operating  results
         of self-storage  facilities which were owned by the Company  throughout
         1996  and  1997  and  (ii)  outlining   operating   results  for  those
         self-storage  facilities which were acquired by the Company in 1996 and
         1997 whereby the operations represent partial results from the date the
         facility was acquired through the end of the period.

                                       16


<PAGE>
<TABLE>
                    SUMMARY OF SELF-STORAGE FACILITY OPERATIONS
<CAPTION>
                                                                                        Three Months Ended March 31,
                                                                                  -----------------------------------------
                                                                                    1997              1996         Change
                                                                                  ------------    ------------  -----------
                                                                         (dollar amounts in thousands, except rents per square foot)
                    Rental income:
                        <S>                                                        <C>              <C>           <C>   
                        Pre-1996 acquisitions                                      $61,320          $ 57,865          6.0%   
                        1996 and 1997 acquisitions                                  21,057               879      2,295.7%
                                                                                  ------------    ------------  -----------
                                                                                    82,377            58,744         40.2%
                                                                                  ------------    ------------  -----------

                    Cost of operations:
                        Pre-1996 acquisitions                                       19,342            18,298          5.7%
                        1996 and 1997 acquisitions                                   7,149               193      3,604.1%
                                                                                  ------------    ------------  -----------
                                                                                    26,491            18,491         43.3%
                                                                                  ------------    ------------  -----------
                    Net operating income:
                        Pre-1996 acquisitions                                       41,978            39,567          6.1%
                        1996 and 1997 acquisitions                                  13,908               686      1,927.4%
                                                                                  ------------    ------------  -----------
                                                                                  $ 55,886           $40,253         38.8%
                                                                                  ============    ============  ===========

                    Net rentable  square feet,  (in thousands  
                     at the end of the period):
                        Pre-1996 acquisitions                                       32,139            32,139          -
                        1996 and 1997 acquisitions                                  11,398             1,854        514.8%

                    Number of facilities (at the end of the period):
                        Pre-1996 acquisitions                                          547               547          -
                        1996 and 1997 acquisitions                                     176                29        506.9%

                    Pre-1996 acquisitions:
                        Annualized realized rent per occupied square foot (a)        $8.52             $8.16          4.4%          
                        Annualized scheduled rent per occupied square foot (b)       $9.12             $7.92         15.2%          
                        Weighted average occupancy for the period                     89.3%             88.5%         0.9%
</TABLE>
                    ---------------------------------------------------------
                    (a)  Realized  rent per square  foot  represents  the actual
                         revenue  earned per  occupied  square foot after giving
                         effect to discounts through the use of promotions.
                    (b)  Scheduled  rent per square foot  represents  the posted
                         revenue per occupied square foot prior to giving effect
                         to discounts through the use of promotions.

                  The  comparative  increases  in  the  Company's   self-storage
         operations  are  principally  due  to  the  acquisition  of  additional
         facilities.  For the consistent group of facilities which were owned by
         the Company  throughout  each of the periods,  improved  operations are
         principally  the  result  of  improved  weighted  average   occupancies
         combined with increased realized rent per square foot.

                  Commencing in early 1996, the Company began to experiment with
         a  telephone  reservation  system  designed to provide  added  customer
         service.  Customers  calling either the Company's  toll-free  telephone
         referral  system,  (800)  44-STORE,  or  a  self-storage  facility  are
         directed to the  Company's  reservation  system where a  representative
         discusses  with the  customer  space  requirements,  price and location
         preferences  and  also  informs  the  customer  of other  products  and
         services provided by the Company.  The national  reservation center was
         not fully  operational for most of the Company's  facilities  until the
         fourth quarter of 1996.

                  In the second half of 1996,  the Company began to increase its
         scheduled  rents  charged  to  new  customers   (prior  to  promotional
         discounts) and to existing tenants where warranted.  As a result,  both
         realized and scheduled rents per square foot increased during the three
         months ended March 31, 1997 as compared to the same period in 1996.

                                   
                                       17


<PAGE>

                  DEVELOPMENT OF  SELF-STORAGE  FACILITIES:  Commencing in 1995,
         the Company began to construct self-storage  facilities.  Through March
         31,  1997,  the  Company  constructed  and opened for  operation  seven
         facilities, one of which began operations in 1995, four in 1996 and two
         in 1997.  At March  31,  1997,  the  Company  had  eleven  self-storage
         facilities  (approximately 631,000 square feet) under construction with
         an aggregate cost incurred to date of  approximately  $39.4 million and
         total  estimated  costs to complete  of $21.4  million.  Generally  the
         construction  period takes 9 to 12 months  followed by a 18 to 24 month
         fill-up  process  until  the  newly  constructed   facility  reaches  a
         stabilized  occupancy level of approximately  90%. Due to the timing of
         the  employment  of the capital to  construct  the  facilities  and the
         relatively  long  "fill-up"   period  until  the  facilities   reach  a
         stabilized  occupancy  level, the Company believes that its development
         plans may create earnings dilution in the short-term. However, in April
         1997,  the  Company  entered  into an  agreement  with a joint  venture
         partner  to  develop   approximately   $220  million  of   self-storage
         facilities  (see   "Liquidity  and  Capital   Resources  -  Development
         activities")  and expects that the joint  development  of  self-storage
         facilities  will mitigate  this earnings  dilution to the extent of the
         joint venturer's interest.

                  COMMERCIAL  PROPERTY  OPERATIONS:  Commercial  property rental
         income and cost of operations presented on the consolidated  statements
         of income  reflect the  operations  of the 35  facilities  owned by the
         Company.  The following table summarizes the operating  results (before
         depreciation)  of these facilities for the three months ended March 31,
         1997 and 1996.


                                      18


<PAGE>
<TABLE>
                    Summary of Commercial Property Operations
<CAPTION>
                                                                                         Three Months Ended March 31,
                                                                                   ----------------------------------------
                                                                                      1997            1996         Change
                                                                                   ----------     ------------   ----------
                                                                         (dollar amounts in thousands, except rents per square foot)

                    Rental income:
                        <S>                                                         <C>               <C>            <C> 
                        Pre-1996 acquisitions                                       $4,991            $4,965          0.5%
                        1996 and 1997 acquisitions                                   2,606                 -          -
                                                                                   ----------     ------------   ----------
                                                                                     7,597             4,965         53.0%
                                                                                   ----------     ------------   ----------

                    Cost of operations:
                        Pre-1996 acquisitions                                        2,216             2,194          1.0%
                        1996 and 1997 acquisitions                                     968                 -          -
                                                                                   ----------     ------------   ----------
                                                                                     3,184             2,194         45.1%
                                                                                   ----------     ------------   ----------

                    Net operating income:
                        Pre-1996 acquisitions                                        2,775             2,771          0.1%
                        1996 and 1997 acquisitions                                   1,638                 -          -
                                                                                   ----------     ------------   ----------
                                                                                    $4,413            $2,771         59.3%
                                                                                   ==========     ============   ==========

                    Net rentable  square feet,  in thousands  (at the end of the
                     period):
                        Pre-1996 acquisitions                                        2,004             2,004          -
                        1996 and 1997 acquisitions                                   1,041               291        257.7%

                    Number of facilities (at the end of the period):
                        Pre-1996 acquisitions                                           20                20          -
                        1996 and 1997 acquisitions                                      15                 2        650.0%

                    Pre-1996 acquisitions:
                    ----------------------

                        Annualized realized rent per occupied square foot (a)         $9.00             $8.76         2.7%
                        Weighted average occupancy for the period                     95.7%             96.3%        (0.6%)
</TABLE>

                    ---------------------------------------------------------
                    (a)  Realized  rent per square  foot  represents  the actual
                         revenue  earned per  occupied  square foot after giving
                         effect to discounts through the use of promotions.

                  As  indicated  in the above table,  the  Company's  commercial
         property  operations have grown principally as a result of the addition
         of new properties. The operations of the consistent group of properties
         have been relatively stable, with changes in operations principally the
         result of changing  occupancy  levels and realized rental rates. Due to
         the size of the Company's investment in commercial  properties relative
         to its  self-storage  facilities,  the Company has not  emphasized  its
         growth in this segment of its portfolio.

                  Effective  January  2,  1997,  the  Company  restructured  its
         commercial  property operations to concentrate its investing efforts in
         real estate  facilities  containing  commercial and  industrial  rental
         space  through  a  separate  entity.  The  Company  believes  that  the
         restructuring  will create a vehicle  which  should  facilitate  future
         growth in this  segment of the real estate  industry.  The Company will
         participate  in this growth  through its ownership  interest in the new
         entity.  The Company  currently owns  approximately 85% of the economic
         interest  in  the  new  entity.  Accordingly,   due  to  the  Company's
         significant ownership interest the Company will continue to consolidate
         the entity until such time that the Company's  ownership and control is
         reduced to a level not warranting consolidation.



                                       19


<PAGE>


                  EQUITY  IN  EARNINGS  OF REAL  ESTATE  ENTITIES:  The  Company
         currently  has  ownership  interests in 41 limited  partnerships  and 8
         REITs  (collectively  the  "Unconsolidated  Entities").  The  Company's
         ownership  interest  in these  entities  ranges  from  15% to 45%,  but
         generally  averages  approximately  30%. Due to the  Company's  limited
         ownership interest and control of these entities,  the Company does not
         consolidate  the  accounts of these  entities for  financial  reporting
         purposes and accounts for such investments using the equity method.

                  Equity in earnings of real estate  entities was $5,221,000 and
         $4,611,000  for the  three  months  ended  March  31,  1997  and  1996,
         respectively.  The  increase in 1997 as compared to 1996  reflects  the
         effect of improved property operations (these improvements were similar
         to  those  experienced  by the  consolidated  facilities  in  "property
         operations"  above)  and  additional  equity  interests   purchased  in
         numerous other  unconsolidated  affiliates in 1996 for $83.9 million in
         cash.  These  factors  were offset by the  Company's  purchase of eight
         affiliated  REIT's  and  the  acquisition  of  additional   partnership
         interests in 1996,  which resulted in the elimination of $124.7 million
         in equity investment (and, after the acquisition, the associated equity
         earnings)  as these  entities  were  consolidated  or  merged  into the
         Company's operations.

                  Equity  in  earnings  of real  estate  entities  for the three
         months ended March 31, 1997 consists of the Company's pro rata share of
         earnings  (including  the Company's  share of  depreciation  expense of
         $3,629,000)  of the  Unconsolidated  Entities  based upon the Company's
         ownership  interest  in each for the  period.  In  addition,  equity in
         earnings of real estate  entities  for the three months ended March 31,
         1997  includes  amortization  totaling  $1,622,000,   representing  the
         amortization of the Company's cost basis over the underlying book value
         of the Company's equity interest in each of the entities. The following
         table  summarizes the components of the Company's equity in earnings of
         real estate entities:


<TABLE>
<CAPTION>
                                                                   Three Months Ended March 31,
                                                          ---------------------------------------------------
                                                                 1997             1996         Dollar Change
                                                          ----------------   -------------   ----------------
                                                                      (Amounts in thousands)

           <S>                                                <C>              <C>                  <C>    
           Self-storage operations                            $  8,635         $  8,828             $ (193)
           Commercial property operations                          629              754               (125)
           Depreciation:
             Self-storage facilities                            (3,401)          (4,213)               812
             Commercial properties                                (228)            (281)                53
           Other                                                  (414)            (477)                63
                                                          ----------------   -------------   ----------------
           Total equity in earnings of real
             estate entities                                  $  5,221         $  4,611             $  610
                                                          ================   =============   ================
</TABLE>
                                       20


<PAGE>


                  Similar to the Company,  the Unconsolidated  Entities generate
         substantially  all of their income from their ownership of self-storage
         facilities.  In the aggregate,  the Unconsolidated Entities own a total
         of 353  facilities  at  March  31,  1997,  including  343  self-storage
         facilities.  The  following  summarizes  combined  operating  data with
         respect to the Unconsolidated Entities at March 31, 1997:

               Selected Financial Data of Unconsolidated Entities
                                                                 (in thousands)
       ---------------------------------------------------------
       For the three months ended March 31, 1997:
            Rental income                                          $46,672
            Total revenues                                          47,159
            Cost of operations                                      17,494
            Depreciation                                             6,918
            Net income                                              19,494
       At March 31, 1997:
            Total assets                                          $840,552
            Total debt                                              89,821
            Total equity                                           713,275

                  The  Company   expects  that  its  equity  in  earnings   from
         Unconsolidated  Entities  will  generally  decrease  as a result of the
         acquisition of additional  interests in the Unconsolidated  Entities by
         the Company.  The Company has in the past,  and may continue to seek to
         acquire in the future,  real estate  facilities  owned by or additional
         interests in the Unconsolidated Entities.

                  PROPERTY MANAGEMENT OPERATIONS:

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

                  Property  management  operations  reflects the activities with
         respect  to  the   management   of   facilities   owned  by  affiliated
         unconsolidated  entities.  As a result, the revenues generated from its
         property management  operations are generally predictable and dependent
         upon  the  future  growth  of  rental   income  for  these   affiliated
         properties.  The Company has in the past,  and may  continue to seek to
         acquire in the  future,  real  estate  facilities  owned by  affiliated
         entities  which are not  consolidated  with the  Company.  Although the
         acquisition of such facilities will reduce management fee income to the
         Company,  however,  offsetting  the reduction in management  fee income
         will be a corresponding reduction in the cost of property operations as
         the  facilities  acquired by the Company will no longer incur  property
         management fees.


                                       21

<PAGE>

                  During the three months ended March 31,  1997,  the  Company's
         property  management  operations  generated  net  operating  income  of
         $2,576,000,  as compared to $3,132,000 in the same period in 1996. This
         decrease is due to the  business  combinations  which  occurred  during
         fiscal 1996,  which resulted in fewer  unconsolidated  properties being
         managed  by the  Company  in  1997  as  compared  to  1996,  and by the
         acquisition  of 25  properties  during the fourth  quarter of 1996 that
         were owned by unaffiliated parties and managed by the Company.

                  ANCILLARY BUSINESS: In an effort to attract a wider variety of
         customers,  to further  differentiate  the Company from its competition
         and to generate new sources of revenues,  additional business are being
         developed to complement  the  Company's  self-storage  business.  These
         products include the sale of locks,  boxes and packing supplies and the
         rental of trucks and other moving equipment through the  implementation
         of (i) a retail expansion program, (ii) a truck rental program and more
         importantly  (iii)  a  portable  self-storage  business.  Although  not
         material to the Company's overall operations, its ancillary business is
         expected to play a more  important  role in the future of the  Company.
         The  following  table  summarizes  the  Company's   ancillary  business
         operations:

<TABLE>
<CAPTION>

                                                                                  Three Months Ended March 31,
                                                                     ----------------------------------------------------------
                                                                           1997                  1996            Dollar Change
                                                                     ----------------      ----------------     ---------------
                                                                                     (Amounts in thousands)

            Ancillary revenues:
            -------------------
                <S>                                                     <C>                    <C>               <C>      
                Packaging material and truck rental                      $   850                $  497            $     353        
                Portable self-storage rents                                  472                     -                  472
                                                                     ----------------      ----------------     ---------------
                                                                           1,322                   497                  825
                                                                     ----------------      ----------------     ---------------

            Cost of operations - ancillary business
            ---------------------------------------
                Packaging material and truck rental                          519                   440                   79

                Portable self-storage                                      2,821                     -                2,821
                                                                     ----------------      ----------------     ---------------
                                                                           3,340                   440                2,900
                                                                     ----------------      ----------------     ---------------


            Net operating income (loss) - ancillary business
            ------------------------------------------------
                Packaging material and truck rental                          331                    57                  274         
                Portable self-storage                                     (2,349)                    -               (2,349)
                                                                     ----------------      ----------------     ---------------
                                                                         $(2,018)               $   57              $(2,075)
                                                                     ================      ================     ===============
</TABLE>
                                       22

<PAGE>

                  In 1996,  the  Company  organized  Public  Storage  Pickup and
         Delivery,  Inc.  ("PSPUD")  as a  separate  corporation  to  operate  a
         portable   self-storage  business  that  rents  storage  containers  to
         customers  for  storage  in central  warehouses  and  provides  related
         transportation   services.   The  Company   believes  PSPUD's  business
         complements  the Company's  existing  operations and PSPUD is using the
         national   telephone   reservation   system   and   various   marketing
         initiatives,  including  radio and  television,  to promote  its rental
         activity. At March 31, 1997, PSPUD has opened a total of 13 facilities,
         with an  additional 8 facilities  being opened  through April 30, 1997.
         PSPUD  presently  anticipates  expanding  its  operations to additional
         areas during 1997,  subject to  continuing  evaluation of this business
         and  the  satisfaction  of  regulatory  requirements.  There  can be no
         assurance on the level of PSPUD's expansion or profitability.

                  PSPUD's  operations  generated  a loss of  approximately  $2.4
         million in the first  quarter  of 1997,  due to the  start-up  concerns
         mentioned  above.  PSPUD's  operating  experience  is  limited  and its
         operations  may be affected by such factors as the level of competition
         in the business,  the demand for storage  containers,  general economic
         conditions,  either  nationally  or in the market  areas in which PSPUD
         operates, the rate of facility move-ins and move-outs, the availability
         of acceptable  locations,  the level of PSPUD's operating  expenses and
         the cost of  capital  equipment.  Until the  facilities  are  operating
         profitably,  PSPUD's  operations  are expected to adversely  impact the
         Company's earnings growth rate. The extent of the impact will depend in
         significant  part  on  the  number,   timing  and  performance  of  new
         facilities.

                  INTEREST AND OTHER INCOME: Interest and other income decreased
         $700,000 to  $1,690,000  for the three months ended March 31, 1997 from
         $2,390,000  for the same  period in 1996.  Interest  and  other  income
         principally  consists of interest  earned on cash balances and interest
         related to mortgage notes  receivable.  The decrease in interest income
         for the three months  ended March 31, 1997  compared to the same period
         in 1996 is primarily due to a decrease in invested cash balances.  From
         mid December 1995 through late January 1996,  the Company,  through two
         equity   offerings   of  preferred   stock,   raised  net  proceeds  of
         approximately  $330 million.  On March 18, 1997,  the Company  publicly
         issued 4.6  million  shares of common  stock  raising  net  proceeds of
         approximately  $126.7  million.  Due  to the  timing  to  invest  these
         proceeds into real estate  assets,  cash  balances in interest  bearing
         accounts  during the three  months ended March 31, 1997 were lower than
         during the same period in 1996.

                  DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization
         expense has increased from $14,592,000 for the three months ended March
         31, 1996 to $19,787,000  for the same period in 1997.  This increase is
         principally due to the acquisition of additional real estate facilities
         during 1996.  Amortization  expense with respect to  intangible  assets
         totaled $2,327,000 for the three months ended March 31, 1997 and 1996.

                  GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative
         expense was  $1,619,000  for the three  months ended March 31, 1997 and
         $1,361,000  the same  period in 1996,  an  increase  of  $258,000.  The
         Company has experienced and expects to continue to experience increased
         general and administrative  costs due to the following:  (i) the growth
         in the size of the Company has resulted in increased expenses, and (ii)
         the Company's property acquisition activities have continued to expand,
         resulting in certain  additional  costs incurred in connection with the
         acquisition  of  additional   real  estate   facilities.   General  and
         administrative  costs  principally  consist of state  income taxes (for
         states in which  the  Company  is a  non-resident),  investor  relation
         expenses, and certain costs incurred in the acquisition and development
         of real estate facilities.

                                       23


<PAGE>

                  MINORITY  INTEREST  IN  INCOME:  Minority  interest  in income
         represents the income  allocable to equity interests owned by others in
         the  partnerships  which are  consolidated  with the Company.  Minority
         interest  in  income  for the three  months  ended  March 31,  1997 was
         $2,447,000  compared  to  $2,339,000  for  the  same  period  in  1996,
         representing an increase of $108,000.  This increase is principally due
         the consolidation of two additional partnerships commencing on April 1,
         1996 and the  resulting  increase  in minority  interest.  Accordingly,
         unlike the first  quarter of 1997,  the first  quarter of 1996 does not
         reflect  the  minority  interest  from  these  two   partnerships.   In
         determining  income  allocable to the  minority  interest for the three
         months  ended March 31, 1997 and 1996,  consolidated  depreciation  and
         amortization  expense  of  approximately   $2,357,000  and  $2,901,000,
         respectively, was allocated to the minority interest.


                  SUPPLEMENTAL PROPERTY DATA AND TRENDS
                  There  are  approximately  72  ownership  entities  owning  in
         aggregate 1,066 self-storage facilities, including the facilities which
         the  Company  owns and/or  operates.  At March 31,  1997,  343 of these
         facilities  were owned by  affiliated  entities,  entities in which the
         Company  has an  ownership  interest  and uses the  equity  method  for
         financial  statement  presentation.  The remaining 723  facilities  are
         owned by the Company and Consolidated  Partnerships  many of which were
         acquired through  business  combinations  with affiliates  during 1996,
         1995, and 1994.

                  In order to evaluate how the Company's  overall  portfolio has
         performed,   management   analyzes  the  operating   performance  of  a
         consistent  group of  self-storage  facilities  representing  951 (55.8
         million net rentable square feet) of the 1,066 self-storage  facilities
         (herein referred to as "Same Store" self-storage facilities) which have
         been  operated  under the "Public  Storage"  name for at least the past
         three  years.   The  Same  Store  group  of  properties   includes  613
         consolidated  facilities  and 338  facilities  owned by  Unconsolidated
         Entities.   The  following   table   summarizes  the   pre-depreciation
         historical operating results of the Same Store self-storage facilities:


<TABLE>
<CAPTION>

                                                            Three months ended March 31,
                                                   -----------------------------------------------
                                                       1997               1996            Change
                                                   --------------     --------------    ----------
                                           (dollar amounts in thousands, except per square foot amounts)


           <S>                                        <C>                 <C>               <C> 
           Rental income......................        $113,935            $107,006          6.5%
           Cost of operations (1).............          42,043              39,296          7.0%
                                                   --------------     --------------    ----------

           Net operating income...............         $71,892             $67,710          6.2%
                                                   ==============     ==============    ==========

           Gross profit margin (2)............        63.1%              63.2%             (0.1)%

           ..................................... .................. ................. ................
           Weighted Average:
           -----------------
                 Occupancy....................        89.7%              89.3%              0.4%

                 Annualized realized rent per
                   sq. ft. for period (3).....        $9.12              $8.64              5.6%

                 Annualized scheduled rent per
                   sq. ft. for period.........        $9.84              $8.40             17.1%

                 Annualized scheduled rent per
                   sq. ft at end of period..          $9.96              $8.40             18.6%

</TABLE>
------------------------
                                       24


<PAGE>

         1.   Assumes  payment of property  management  fees on all  facilities,
              including  those   facilities  owned  by  the  Company  for  which
              effective November 16, 1995 no fee is paid.


         2.   Gross profit margin is computed by dividing property net operating
              income (before depreciation  expense) by rental revenues.  Cost of
              operations  include a 6%  management  fee. The gross profit margin
              excluding the facility  management fee was 69.1% and 69.2% in 1997
              and 1996, respectively. On November 16, 1995, the Company acquired
              its  facility  manager  and no  longer  incurs  such  fees  on the
              properties it owns.

         3.   Realized rent per square foot represents the actual revenue earned
              per  occupied  square  foot.  Management  believes  this is a more
              relevant measure then the scheduled rental rates,  since scheduled
              rates can be discounted through the use of promotions.

                  As indicated  above, in early 1996, the Company  implemented a
         national  telephone   reservation  system  designed  to  provide  added
         customer service for all the  self-storage  facilities under management
         by the  Company.  The  Company  believes  that the  improved  operating
         results,  as indicated in the above table, in large part are due to the
         success of the national  telephone  reservation  system.  However,  the
         national  telephone  reservation  system was not fully  operational for
         most of the self-storage  facilities until the later part of the fourth
         quarter of 1996.

                  Rental   income  for  the  Same  Store   facilities   included
         promotional discounts totaling $3,500,000 for the first three months in
         1997 compared to $288,000 for the same period in 1996.


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

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

                  Despite  the  Company's  ability  to retain a  portion  of its
         internally  generated cash flow, the Company's  growth  strategies have
         required  the Company to seek  external  financing.  The Company has an
         unsecured  $150.0  million  revolving  credit  facility with a group of
         banks which it uses as a temporary source of acquisition financing. The
         Company,  however,  seeks to ultimately  finance all acquisitions  with
         permanent  sources of  capital.  As a result,  the  Company  has raised
         capital  through the public issuance of both common and preferred stock
         which was used to repay  borrowings and make additional  investments in
         real estate assets.


                                       25

<PAGE>


                  INTERNALLY  GENERATED  CASH FLOWS:  The Company  believes that
         important measures of its performance as well as its liquidity are cash
         provided  by  operations  and funds  from  operations  ("FFO")  and the
         ability of these measures to find the Company's operating  requirements
         (i.e.,   capital   improvements,   principal   payments   on  debt  and
         distribution requirements).

                  Net cash provided by operations  (as  determined in accordance
         with  generally  accepted  accounting  principles)  reflects  the  cash
         generated from the Company's  business before  distributions to various
         equity   holders,   including  the  preferred   shareholders,   capital
         expenditures or mandatory principal payments on debt. Net cash provided
         by operations has increased to  $68,164,000  from  $53,742,000  for the
         three months ended March 31, 1997 and 1996, respectively.

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

<TABLE>
<CAPTION>

                                                                               For the Three Months Ended March 31,
                                                                           -------------------------------------------
                                                                                    1997                   1996
                                                                           ----------------------  -------------------

           <S>                                                               <C>                     <C>             
           Net Income                                                        $     42,318,000        $     32,341,000
           Depreciation and amortization                                           19,787,000              14,592,000
           Depreciation from unconsolidated real estate investments                 3,629,000               4,494,000
           Minority interest in income                                              2,447,000               2,339,000
           Amortization of discounts on mortgage notes receivable                     (17,000)                (24,000)
                                                                           ----------------------  -------------------
                 Net cash provided by operating activities                         68,164,000              53,742,000

           Distributions from operations to minority interests (funds
             from operations allocable to minority interests)                      (4,792,000)             (5,240,000)
                                                                           ----------------------  -------------------
           Cash from operations/FFO available to the Company's shareholders        63,372,000              48,502,000
             Less: preferred stock dividends                                      (19,150,000)            (15,166,000)
                                                                           ----------------------  -------------------
           Cash from operations/FFO available to common shareholders               44,222,000              33,336,000
           Capital improvements to maintain facilities:
             Mini-warehouses                                                       (5,861,000)             (2,322,000)
             Business parks                                                          (431,000)               (495,000)
             Add back: minority interest share of capital improvements                398,000                 496,000
                                                                           ----------------------  -------------------

           Funds available for principal payments on debt, common
             dividends and reinvestment                                            38,328,000              31,015,000
           Cash distributions to common shareholders                              (19,457,000)            (15,748,000)
                                                                           ----------------------  -------------------
           Funds available for principal payments on debt and investment        $  18,871,000        $     15,267,000
                                                                           ======================  ===================
</TABLE>
                                       26


<PAGE>

                  See the  consolidated  statements  of cash flows for the three
         months  ended  March  31,  1997  and 1996  for  additional  information
         regarding   the   Company's   investing   and   financing   activities.

                  Total FFO increased to $63,372,000  for the three months ended
         March 31, 1997 compared to $48,502,000 for the same period in 1996. FFO
         available  to common  shareholders  (after  deducting  preferred  stock
         dividends)  increased to  $44,222,000  for the three months ended March
         31, 1997 compared to $33,336,000 for the same period in 1996. FFO means
         net income  (loss)  (computed in  accordance  with  generally  accepted
         accounting  principles) before (i) gain (loss) on early  extinguishment
         of debt,  (ii)  minority  interest  in income and (iii) gain  (loss) on
         disposition of real estate,  adjusted as follows: (i) plus depreciation
         and   amortization   (including   the  Company's   pro-rata   share  of
         depreciation  and amortization of  unconsolidated  equity interests and
         amortization of assets acquired in the PSMI Merger,  including property
         management agreements and goodwill),  and (ii) less FFO attributable to
         minority interest.

                  FFO is a supplemental  performance measure for equity REITs as
         defined by the National  Association of Real Estate Investment  Trusts,
         Inc.  ("NAREIT").  The NAREIT definition does not specifically  address
         the treatment of minority  interest in the  determination of FFO or the
         treatment of the  amortization  of property  management  agreements and
         goodwill.   In  the  case  of  the  Company,   FFO  represents  amounts
         attributable to its shareholders  after deducting amounts  attributable
         to the minority interests and before deductions for the amortization of
         property management  agreements and goodwill.  FFO is presented because
         many  industry   analysts  consider  FFO  to  be  one  measure  of  the
         performance of the Company and it is used in establishing  the terms of
         the Class B Common Stock. FFO does not take into consideration  capital
         improvements,  scheduled principal payments on debt,  distributions and
         other obligations of the Company.  Accordingly, FFO is not a substitute
         for the  Company's  cash flow or net income (as  discussed  above) as a
         measure of the Company's liquidity or operating performance.

                  The Company accounts for its investments in the unconsolidated
         affiliated  entities  using  the  equity  method  of  accounting,   and
         accordingly,  earnings are recognized based upon the Company's interest
         in each of the  partnerships  and REITs.  This interest is based on the
         Company's  share of the  increase  or decrease in the net assets of the



                                       27


<PAGE>

         entities from their  operations.  Provisions of the  partnerships'  and
         REITs'  governing  documents  provide for the payment of preferred cash
         distributions to other investors (until certain  specified amounts have
         been paid) without  regard to the pro rata interest of all investors in
         current earnings.  As a result,  actual cash  distributions paid to the
         Company for a period of time will be less than the  Company's  interest
         in the entities' FFO. During the three months ended March 31, 1997, FFO
         distributed to the Company was approximately $5.4 million less than the
         Company's  share of FFO.  Preferred  cash  distributions  paid to other
         investors  during  each  period  have  the  effect  of  increasing  the
         Company's  economic  interest in each of the  respective  entities  and
         reducing the amount of future preference payments which must be paid to
         other investors before cash  distributions will be shared on a pro rata
         basis with respect to each  investor's  actual  interest.  At March 31,
         1997, the aggregate  future  preference  payments to other investors is
         approximately   $77.5   million   and  is  expected  to  be  paid  over
         approximately 9 years, with  approximately 40% of the amount being paid
         over the next 3 years.

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

                  Over the past five years,  the Company's  distribution  policy
         has enabled it to retain significant funds (after capital improvements)
         to make additional investments and debt reductions.  During first three
         months of 1997 and 1996, the Company distributed to common shareholders
         approximately   43.9%  and  47.2%  of  its  FFO   available  to  common
         shareholders,  respectively,  allowing it to retain approximately $18.9
         million  and  $15.3  million  (an  increase  of  approximately  23.5%),
         respectively,  after satisfying its capital  improvements and preferred
         stock dividend requirements (see table above).


                  DISTRIBUTION  REQUIREMENTS:  During the first three  months of
         1997, the Company paid dividends totaling $16,091,000 to the holders of
         the Company's Senior Preferred Stock, $16,471,000 to the holders of the
         Convertible   Preferred  Stock  (of  which  $13,412,000   represents  a
         prepayment of dividends due through December 31, 1998), and $19,457,000
         to the holders of Common Stock.

                  CAPITAL IMPROVEMENT REQUIREMENTS: During 1997, the Company has
         budgeted  approximately  $26.6 million for capital  improvements ($22.4
         million  for its  self-storage  facilities  and  $4.2  million  for its
         business  park  facilities).  The  minority  interests'  share  of  the
         budgeted capital improvements is approximately $3.3 million. During the
         first three months of 1997, the Company incurred  capital  improvements
         of approximately $6.3 million.

                  During  1995,  the Company  commenced a program to enhance its
         visual  icon  and   modernize  the   appearance  of  its   self-storage
         facilities,  including modernization of signs, paint color schemes, and
         rental  offices.  Included in the 1997  capital  improvement  budget is
         approximately $4.8 million with respect to these expenditures.


                                       28



<PAGE>



                  DEBT SERVICE REQUIREMENTS: The Company does not believe it has
         any  significant  refinancing  risks with respect to its mortgage debt,
         all of which is at a fixed rate. The Company uses its $150.0 million of
         bank  credit  facility  (all of which was  unused  as of May 13,  1997)
         primarily to fund  acquisitions and provide  financial  flexibility and
         liquidity.  The credit facility  currently bears interest at LIBOR plus
         0.47%.

                  At  March  31,  1997,   the  Company  had  total   outstanding
         borrowings  of  approximately  $107.9  million.  Approximate  principal
         maturities of notes payable at March 31, 1997 are as follows:

<TABLE>
<CAPTION>

                                                  7.08% Unsecured        Fixed Rate
                                                    Senior Notes        Mortgage Debt          Total
                                                  ----------------     ---------------   -----------------

           <S>                                     <C>                 <C>                <C>        
           1997 (remainder of )                    $     6,500         $     4,175        $    10,675
           1998                                          7,250               7,929             15,179
           1999                                          8,000               6,467             14,467
           2000                                          8,750               2,707             11,457
           2001                                          9,500               2,997             12,497
           Thereafter                                   19,750              23,884             43,634
                                                  ----------------     ---------------   -----------------
                                                   $    59,750         $    48,159        $   107,909
                                                  ================     ===============   =================
</TABLE>


                  EXTERNAL FINANCING ABILITY: The Company believes that its size
         and financial  flexibility enables it to access capital for growth when
         appropriate.  The Company's financial profile is characterized by a low
         level  of  debt  to  total   capitalization,   increasing  net  income,
         increasing  cash  flow from  operations,  and a  conservative  dividend
         payout ratio with respect to the common  stock.  The  Company's  credit
         ratings on its Senior Preferred Stock by each of the three major credit
         agencies  are Baa2 by Moody's and BBB+ by Standard and Poors and Duff &
         Phelps.
       
                  The  Company's  portfolio  of real estate  facilities  remains
         substantially unencumbered. At March 31, 1997, the Company had mortgage
         debt  outstanding  of $48.2  million and had  consolidated  real estate
         facilities with a book value of $1.9 billion.  However, the Company has
         been reluctant to finance its acquisitions with debt and generally will
         only  increase  its  mortgage   borrowing  through  the  assumption  of
         pre-existing debt on acquired real estate facilities.

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

                  On March 18,  1997,  the Company  publicly  issued 4.6 million
         shares of common stock,  raising net proceeds of  approximately  $126.7
         million. The Company intends to use the net proceeds from this offering
         to make investments in real estate,  primarily self-storage,  including
         mortgage  loans and  interest in real estate  partnerships,  to satisfy
         cash elections in connection with mergers with affiliated  REITs and to
         fund expenditures of PSPUD.  

                                      29


<PAGE>

                  MERGERS: On April 11, 1997, the shareholders of each of Public
         Storage  Properties  XIV, Inc. and Public  Storage  Properties XV, Inc.
         approved the mergers of the respective  corporations  into the Company.
         In connection with the mergers,  the Company issued an aggregate of 2.3
         million shares of common stock and paid $18.7 million in cash.

                  In April 1997, Public Storage Properties XVI, Inc. ("PSP-16"),
         Public  Storage  Properties  XVII,  Inc.  ("PSP-17"),   Public  Storage
         Properties  XVIII, Inc.  ("PSP-18") and Public Storage  Properties XIX,
         Inc. ("PSP-19") each agreed,  subject to certain  conditions,  to merge
         with and into the  Company.  PSP-16,  PSP-17,  PSP-18  and  PSP-19  are
         affiliated  publicly traded equity real estate investment trusts.  Each
         of  the  mergers  is   conditioned   on  approval  by  the   respective
         shareholders of PSP-16, PSP-17, PSP-18 and PSP-19, however, the mergers
         are not conditioned on approval of each other. The Company expects that
         if approved by the shareholders, the mergers would be completed in June
         or July 1997.

                  The aggregate  estimated cost of these pending mergers for the
         interest not owned by the Company is  approximately  $200 million.  The
         Company  currently  owns, on average,  approximately  33% of the equity
         interest in each of these  affiliated  REITs.  The Company will acquire
         the  remaining  interest  in  each  of  these  affiliated  REITs  for a
         combination of cash and common stock of the Company.  See Note 9 to the
         Company's consolidated financial statements.

                  DEVELOPMENT  ACTIVITIES:  At March 31,  1997,  the Company had
         eleven  self-storage  facilities  (approximately  631,000  square feet)
         under   construction  with  an  aggregate  cost  incurred  to  date  of
         approximately  $39.4  million and total  additional  estimated  cost to
         complete of $21.4 million.  The Company  currently has plans to develop
         an additional 15 self-storage facilities  (approximately 927,000 square
         feet) in various locations at an estimated cost of approximately  $60.4
         million  (aggregate  costs  incurred  to  date  of  approximately  $3.3
         million).  The Company is  evaluating  the  feasibility  of  developing
         additional  self-storage  facilities in selected markets in which there
         are few, if any,  facilities to acquire at attractive  prices and where
         the scarcity of other undeveloped  parcels of land or other impediments
         to  development  make it difficult to  construct  additional  competing
         facilities.

                  Generally  the  construction  period  takes  9  to  12  months
         followed  by  a  18  to  24  month  fill-up  process  until  the  newly
         constructed   facility   reaches  a  stabilized   occupancy   level  of
         approximately  90%. Due to the timing of the  employment of the capital
         to construct the facilities and the  relatively  long "fill-up"  period
         until the facilities  reach a stabilized  occupancy  level, the Company
         believes that its development plans may create earnings dilution in the
         short-term.

                                       30


<PAGE>

                  In April 1997, the Company formed a joint venture  partnership
         with an  unaffiliated  partner to  participate  in the  development  of
         approximately  $220  million  of  self-storage   facilities  (including
         selected  facilities  currently under development by the Company).  The
         venture will be funded  solely with equity  capital  consisting  of 30%
         from the Company and 70% from the  institutional  investor.  Initially,
         the Company  contributed 8 facilities  which were under  development at
         March 31, 1997 to the joint venture partnership,  and received a refund
         from the  venture for 70% of the costs  incurred to date in  developing
         these properties.

                  REIT STATUS:  The Company  believes that it has operated,  and
         intends to  continue  to  operate,  in such a manner as to qualify as a
         REIT under the Internal  Revenue Code of 1986,  but no assurance can be
         given  that it will at all times so  qualify.  To the  extent  that the
         Company  continues  to  qualify as a REIT,  it will not be taxed,  with
         certain limited  exceptions,  on the taxable income that is distributed
         to its  shareholders.  As a REIT,  the  Company  is not  taxed  on that
         portion of its taxable income which is distributed to its  shareholders
         provided  that at least 95% of its  taxable  income  is so  distributed
         prior to filing of the Company's tax return.  The Company has satisfied
         the REIT distribution requirement since 1980.

                                       31


<PAGE>


PART II. OTHER INFORMATION

Item 5   Other Information
         -----------------

     On April 10, 1997, PSAF Development, Inc., a subsidiary of the Company, and
an institutional  investor entered into a limited partnership agreement relating
to the  development  of  mini-warehouses.  See Note 3 of the Notes to  Condensed
Consolidated  Financial  Statements in this Form 10-Q.  The limited  partnership
agreement is attached  hereto as Exhibit 10 and is  incorporated  herein by this
reference.


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

         (a)    The following Exhibits are included herein:

                (10)    Limited   Partnership   Agreement  of  PSAF  Development
                        Partners,  L.P. between PSAF  Development,  Inc. and the
                        Limited Partner dated as of April 10, 1997

                (11)    Statement re: Computation of Earnings per Share

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

                (27)    Financial Data Schedule

         (b)    Reports on Form 8-K

                The Company  filed a Current  Report on Form 8-K dated March 12,
                1997,  pursuant to Item 5, which filed certain exhibits relating
                to the Company's public offering of Common Stock.




                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                DATED: May 14, 1997

                                PUBLIC STORAGE, INC.


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

                                       32