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 June 30, 1999
                               -------------

                                       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 August 5, 1999:

Common Stock, $.10 par value, 129,322,991 shares outstanding
------------------------------------------------------------

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

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

<PAGE>

                              PUBLIC STORAGE, INC.

                                      INDEX


                                                                           Pages
                                                                           -----
PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets at
              June 30, 1999 and December 31, 1998                              1

         Condensed Consolidated Statements of Income for the
              Three and Six Months Ended June 30, 1999 and 1998                2

         Condensed Consolidated Statements of Shareholders' Equity
              for the Six Months Ended June 30, 1999                           3

         Condensed Consolidated Statements of Cash Flows
              for the Six Months Ended June 30, 1999 and 1998              4 - 5

         Notes to Condensed Consolidated Financial Statements             6 - 17

Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations              18 - 29

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           29

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

Item 1.  Legal Proceedings                                                    30

Item 4.  Submission of Matters to a Vote of Security Holders             30 - 31

Item 6.  Exhibits and Reports on Form 8-K                                31 - 36

<PAGE>

                              PUBLIC STORAGE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                               JUNE 30,           DECEMBER 31,
                                                                                 1999                 1998
                                                                            --------------       --------------
                                                                             (Unaudited)
                                     ASSETS
                                     ------

<S>                                                                         <C>                  <C>
Cash and cash equivalents..........................................         $      67,935        $      51,225
Real estate facilities, at cost:
     Land..........................................................             1,015,983              803,226
     Buildings.....................................................             2,687,883            2,159,065
                                                                            --------------       --------------
                                                                                3,703,866            2,962,291
     Accumulated depreciation......................................              (467,757)            (411,176)
                                                                            --------------       --------------
                                                                                3,236,109            2,551,115
     Construction in process.......................................               115,874               83,138
                                                                            --------------       --------------
                                                                                3,351,983            2,634,253

Investment in real estate entities.................................               419,883              450,513
Intangible assets, net.............................................               198,979              203,635
Notes receivable from affiliates...................................                25,296                5,415
Other assets.......................................................                83,867               58,863
                                                                            --------------       --------------
              Total assets.........................................         $   4,147,943        $   3,403,904
                                                                            ==============       ==============


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

Notes payable......................................................         $     172,551        $      81,426
Accrued and other liabilities......................................                95,253               63,813
                                                                            --------------       --------------
              Total liabilities....................................               267,804              145,239

Minority interest..................................................               151,197              139,325

Commitments and contingencies

Shareholders' equity:
     Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
       11,138,850 shares issued and outstanding (11,129,650 issued and
       outstanding at December 31, 1998), at liquidation preference:
         Cumulative Preferred Stock, issued in series..............             1,098,900              868,900
     Common Stock, $0.10 par value, 200,000,000 shares
       authorized,129,307,724 shares issued and outstanding
       (115,965,945 at December 31, 1998)..........................                12,931               11,598
     Class B Common Stock, $0.10 par value, 7,000,000 shares
       authorized and issued.......................................                   700                  700
     Paid-in capital...............................................             2,523,362            2,178,465
     Cumulative net income.........................................               937,581              802,088
     Cumulative distributions paid.................................              (844,532)            (742,411)
                                                                            --------------       --------------
         Total shareholders' equity................................             3,728,942            3,119,340
                                                                            --------------       --------------
              Total liabilities and shareholders' equity...........         $   4,147,943        $   3,403,904
                                                                            ==============       ==============
</TABLE>
                            See accompanying notes.
                                       1

<PAGE>

                              PUBLIC STORAGE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                    For the Three Months Ended            For the Six Months Ended
                                                              June 30,                             June 30,
                                                 ---------------------------------     ---------------------------------
                                                     1999                1998              1999                1998
                                                 ------------         ------------     ------------         ------------
REVENUES:
   Rental income:
<S>                                              <C>                  <C>              <C>                  <C>
       Self-storage facilities............       $   149,745          $   119,887      $   278,774          $   231,565
       Commercial properties..............             1,948                1,715            3,862               19,396
       Portable self-storage..............             6,448                6,118           11,876               11,289
  Equity earnings of real estate entities.             9,347                7,317           17,469                9,936
  Facility management fee.................             1,409                1,652            2,823                3,417
  Interest and other income...............             3,557                4,352            5,920                8,004
                                                 ------------         ------------     ------------         ------------
                                                     172,454              141,041          320,724              283,607
                                                 ------------         ------------     ------------         ------------
EXPENSES:
  Cost of operations:
       Self-storage facilities............            45,602               35,892           86,231               70,838
       Commercial properties..............               631                  654            1,269                6,502
       Portable self-storage..............             9,383               14,460           18,747               29,513
   Cost of facility management............               217                  268              472                  554
   Depreciation and amortization..........            33,519               25,192           62,493               53,411
   General and administrative.............             2,617                2,226            4,628                4,562
   Interest expense.......................             2,530                  933            3,734                2,095
                                                 ------------         ------------     ------------         ------------
                                                      94,499               79,625          177,574              167,475
                                                 ------------         ------------     ------------         ------------

   Income before minority interest........            77,955               61,416          143,150              116,132

   Minority interest in income............            (4,304)              (4,217)          (7,657)             (10,569)
                                                 ------------         ------------     ------------         ------------

NET INCOME................................       $    73,651          $    57,199      $   135,493          $   105,563
                                                 ============         ============     ============         ============
NET INCOME ALLOCATION:
  Allocable to preferred shareholders.....       $    23,824          $    20,129      $    45,354          $    40,269
  Allocable to common shareholders........            49,827               37,070           90,139               65,294
                                                 ------------         ------------     ------------         ------------
                                                 $    73,651          $    57,199      $   135,493          $   105,563
                                                 ============         ============     ============         ============
PER COMMON SHARE:
  Net income per share - Basic............       $      0.39          $      0.33      $      0.73          $      0.58
                                                 ============         ============     ============         ============
  Net income per share - Diluted..........       $      0.39          $      0.32      $      0.73          $      0.58
                                                 ============         ============     ============         ============
  Weighted average common shares - Basic..           128,904              113,970          123,793              111,731
                                                 ============         ============     ============         ============
  Weighted average common shares - Diluted           129,250              114,430          124,133              112,246
                                                 ============         ============     ============         ============
</TABLE>
                            See accompanying notes.
                                       2

<PAGE>

                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                   (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                   (UNAUDITED)

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

<S>                                                         <C>             <C>             <C>             <C>
Balances at December 31, 1998..........................     $     868,900   $      11,598   $         700   $   2,178,465

Issuance of common stock:
   In connection with the Storage Trust merger
     (13,009,485 shares)...............................                 -           1,301               -         345,922
   Acquisition of  minority interest  (568,761 shares)                  -              56               -          14,434
   Conversion of OP units (54,605 shares) .............                 -               5               -           1,452
   Exercise of stock options (399,155 shares)..........                 -              40               -           8,043

Repurchase of common stock (690,227 shares) ...........                 -             (69)              -         (17,509)

Issuance of preferred stock:
   Series K and Series L  (9,200 shares)...............           230,000               -               -          (7,445)

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

Cash distributions:
   Cumulative Senior Preferred Stock ..................                 -               -               -               -
   Common Stock........................................                 -               -               -               -
                                                            --------------  --------------  --------------  --------------

Balances at June 30, 1999..............................     $   1,098,900   $      12,931   $         700   $   2,523,362
                                                            ==============  ==============  ==============  ==============
</TABLE>

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

<S>                                                         <C>             <C>             <C>
Balances at December 31, 1998..........................     $     802,088   $    (742,411)  $   3,119,340

Issuance of common stock:
   In connection with the Storage Trust merger
     (13,009,485 shares)...............................                 -               -         347,223
   Acquisition of  minority interest  (568,761 shares)                  -               -          14,490
   Conversion of OP units (54,605 shares) .............                 -               -           1,457
   Exercise of stock options (399,155 shares)..........                 -               -           8,083

Repurchase of common stock (690,227 shares) ...........                 -               -         (17,578)

Issuance of preferred stock:
   Series K and Series L  (9,200 shares)...............                 -               -         222,555

Net income.............................................           135,493               -         135,493

Cash distributions:
   Cumulative Senior Preferred Stock ..................                 -         (45,354)        (45,354)
   Common Stock........................................                 -         (56,767)        (56,767)
                                                            --------------  --------------  --------------

Balances at June 30, 1999..............................     $     937,581   $    (844,532)  $   3,728,942
                                                            ==============  ==============  ==============
</TABLE>
                            See accompanying notes.
                                       3

<PAGE>

                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                             For the Six Months Ended
                                                                                                    June 30,
                                                                                        ---------------------------------
                                                                                             1999               1998
                                                                                        --------------     --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                     <C>                <C>
   Net income..................................................................         $     135,493      $     105,563
   Adjustments  to  reconcile  net  income  to net cash  provided  by
     operating activities:
     Depreciation and amortization.............................................                62,493             53,411
     Depreciation included in equity earnings of real estate entities..........                 9,574              6,639
     Minority interest in income...............................................                 7,657             10,569
                                                                                        --------------     --------------
         Total adjustments.....................................................                79,724             70,619
                                                                                        --------------     --------------
             Net cash provided by operating activities.........................               215,217            176,182
                                                                                        --------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Principal payments received on notes receivable from affiliates...........                26,818              4,375
     Notes receivable from affiliates..........................................               (29,500)           (33,000)
     Capital improvements to real estate facilities............................               (10,156)           (10,336)
     Construction in process...................................................               (45,238)           (34,306)
     Acquisition of minority interests in consolidated real estate partnerships               (14,654)           (10,816)
     Proceeds from the liquidation of real estate and real estate investments..                 8,417             10,275
     Acquisition of investment in real estate entities.........................               (50,456)           (46,041)
     Acquisition of real estate facilities.....................................                (5,243)           (47,392)
     Acquisition cost of business combinations.................................              (171,896)           (10,014)
     Investment in portable self-storage business..............................                     -            (10,655)
     Refund of deposit on real estate purchase.................................                     -             12,500
     Reduction in cash due to a change in accounting method with respect to PS
       Business Parks, Inc. (Note 2) ..........................................                     -            (11,259)
                                                                                        --------------     --------------
             Net cash used in investing activities.............................              (291,908)          (186,669)
                                                                                        --------------     --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of borrowings on the line of credit.............................                     -             (7,000)
     Principal payments on notes payable.......................................                (8,875)           (10,302)
     Net proceeds from the issuance of common stock............................                 8,083            237,434
     Net proceeds from the issuance of preferred stock.........................               222,555                  -
     Repurchase of common stock................................................               (17,578)           (12,991)
     Distributions paid to shareholders........................................              (102,121)           (90,075)
     Distributions from operations to minority interests in real estate entities              (12,472)           (17,596)
     Net reinvestment  (divestment) by minority interests in consolidated real
       estate entities.........................................................                (2,068)            51,464
     Other.....................................................................                 5,877                805
                                                                                        --------------     --------------
             Net cash provided by financing activities.........................                93,401            151,739
                                                                                        --------------     --------------
Net increase in cash and cash equivalents.....................................                 16,710            141,252
Cash and cash equivalents at the beginning of the period......................                 51,225             41,455
                                                                                        --------------     --------------
Cash and cash equivalents at the end of the period............................          $      67,935      $     182,707
                                                                                        ==============     ==============
</TABLE>
                            See accompanying notes.
                                       4

<PAGE>

                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

                                   (UNAUDITED)

                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                   For the Six Months Ended
                                                                                                          June 30,
                                                                                                -------------------------------
                                                                                                    1999              1998
                                                                                                -------------     -------------

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 Assets and liabilities acquired with respect to business combinations:
<S>                                                                                             <C>               <C>
     Real estate facilities..............................................................       $   (720,197)     $    (81,295)
     Construction in process.............................................................            (11,449)                -
     Investment in real estate entities..................................................               (356)                -
     Mortgage notes receivable...........................................................             (6,739)                -
     Other assets........................................................................             (1,633)             (294)
     Accrued and other liabilities.......................................................             22,824             2,366
     Minority interest...................................................................             32,201            35,334
     Notes payable.......................................................................            100,000                 -

 Deconsolidation of PS Business Parks Inc.  (Note 2):
     Investments in real estate entities.................................................                  -          (219,224)
     Real estate facilities, net of accumulated depreciation.............................                  -           433,446
     Other assets........................................................................                  -             2,048
     Accrued and other liabilities.......................................................                  -           (10,106)
     Notes payable.......................................................................                  -           (14,526)
     Minority interest...................................................................                  -          (202,897)

Notes receivable issued in connection with real estate dispositions......................            (10,460)                -

Other assets received in connection with real estate dispositions........................             (3,800)                -

Assets and liabilities  assumed in connection  with  acquisitions of real estate
   facilities:
     Cancellation of mortgage notes receivable...........................................                  -             2,495
     Assumption of note payable..........................................................                  -            14,526
     Minority interest...................................................................                  -             1,205

 Reduction to investment in real estate entities in connection with business
   combinations and acquisitions of real estate facilities...............................             66,230            20,585

 Disposition of real estate facilities in exchange for notes receivable and other assets.             22,677                 -

 Acquisition of real estate facilities in exchange for the assumption of notes payable
   and increase in minority interest.....................................................                  -           (18,753)

 Acquisition of minority interest and real estate in exchange for common stock:
     Real estate facilities..............................................................            (17,155)           (9,400)
     Minority interest...................................................................            (13,446)          (12,485)

 Issuance of common stock:
     In connection with business combinations............................................            347,223            13,817
     In connection with the conversion of Convertible Preferred Stock....................                  -             1,281
     To acquire interests in real estate entities........................................                  -            17,133
     To acquire minority interest in consolidated real estate entities...................             15,947            11,070

 Conversion of 8.25% convertible preferred stock.........................................                  -            (1,281)
 Acquisition of investment in real estate entities for common stock......................                  -           (17,133)

</TABLE>
                            See accompanying notes.
                                       5

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1999
                                   (UNAUDITED)


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  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 June 30, 1999,  the Company had direct and indirect
     equity interests in 1,434 properties located in 38 states,  including 1,306
     self-storage  facilities,  121 commercial properties,  and seven industrial
     facilities developed for use in the operations of Public Storage Pickup and
     Delivery.  All of the  self-storage  facilities are operated by the Company
     under the  "Public  Storage"  name,  while the  commercial  properties  are
     operated by PS Business  Parks,  Inc., an affiliated  public REIT,  and its
     operating  partnership (the REIT and partnership are collectively  referred
     to as "PSBP").

              In 1996 and 1997, the Company  organized Public Storage Pickup and
     Delivery,  Inc. as a separate  corporation and a related  partnership  (the
     corporation  and partnership  are  collectively  referred to as "PSPUD") to
     operate a portable  self-storage  business that rents storage containers to
     customers for storage generally in leased central  warehouses.  At June 30,
     1999, PSPUD operated 36 facilities in 11 states.

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 and six months ended
     June 30, 1999 are not  necessarily  indicative  of the results  that may be
     expected for the year ended  December 31,  1999.  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, 1998.

              The consolidated  financial statements include the accounts of the
     Company,  PSPUD,  and  33  controlled  limited  partnerships  including  an
     operating  partnership  owning the  properties  acquired from Storage Trust
     Realty, Inc. (collectively, the "Consolidated Entities"). Collectively, the
     Company  and the  Consolidated  Entities  own a total of 1,199 real  estate
     facilities,  consisting of 1,191  self-storage  facilities,  one commercial
     property, and seven industrial facilities for use by PSPUD.

              At June 30, 1999,  the Company also has equity  investments  in 15
     other  affiliated  limited  partnerships  whose  principal  business is the
     ownership of 115 self-storage facilities in aggregate, which are managed by
     the Company.  In addition,  the Company has an ownership  interest in PSBP,
     which owns and operates  120  commercial  properties.  The Company does not
     control these  entities;  accordingly,  the Company's  investments in these
     entities are accounted for using the equity method.

              From the time of PSBP's  formation  through  March 31,  1998,  the
     Company  consolidated  the  accounts of PSBP in its  financial  statements.
     During the second quarter of 1998, the Company's ownership interest in PSBP

                                       6

<PAGE>

     was  reduced  below  50% and,  accordingly,  the  Company  ceased to have a
     controlling interest in PSBP. As a result, the Company,  effective April 1,
     1998, no longer includes the accounts of PSBP in its consolidated financial
     statements  and has accounted for its  investment  using the equity method.
     The income  statement  for all periods  after  March 31,  1998  include the
     Company's equity in income of PSBP. Further, commercial property operations
     for the periods after March 31, 1998 reflect only the  commercial  property
     operations of facilities owned by the Company which have both  self-storage
     and commercial use combined at the same property location.

     Use of estimates
     ----------------
              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 those estimates.

     Income taxes
     ------------
              For all taxable years  subsequent to 1980,  the Company  qualified
     and intends to continue to qualify as a REIT,  as defined in Section 856 of
     the  Internal  Revenue  Code.  As a REIT,  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 1999 and,  accordingly,  no  provision  for income
     taxes has been made in the accompanying financial statements.

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

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

     Allowance for possible losses
     -----------------------------
              The Company has no allowance for possible  losses  relating to any
     of its real estate  investments,  including 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.  Intangible assets
     are amortized by the straight-line  method over 25 years. At June 30, 1999,
     intangible  assets  are  net of  accumulated  amortization  of  $33,747,000
     ($29,091,000  at  December  31,  1998).   Included  in   depreciation   and
     amortization  expense for the three and six months  ended June 30, 1999 and
     1998  is  $2,328,000   and   $4,656,000,   respectively,   related  to  the
     amortization of intangible assets.

                                       7

<PAGE>

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

     Environmental costs
     -------------------
              The Company's policy is to accrue environmental assessments and/or
     remediation cost when it is probable that such efforts will be required and
     the  related  costs can be  reasonably  estimated.  The  Company's  current
     practice is to conduct  environmental  investigations  in  connection  with
     property acquisitions.  As a result of environmental  investigations of its
     properties,  the Company  recorded an amount,  which in  management's  best
     estimate  will  be  sufficient  to  satisfy   anticipated  costs  of  known
     investigation  and  remediation  requirements.  Although  there  can  be no
     assurance,  the Company is not aware of any environmental  contamination of
     any of its  facilities  which  individually  or in the  aggregate  would be
     material to the Company's overall business, financial condition, or results
     of operations.

     Net income per common share
     ---------------------------
              In 1997, the Financial Accounting Standards Board issued Statement
     No. 128,  Earning per Share.  Statement  128  replaced the  calculation  of
     primary  and fully  diluted net income per share with basic and diluted net
     income per share. Unlike primary net income per share, basic net income per
     share  excludes any dilutive  effects of options,  warrants or  convertible
     securities that are convertible into common shares of the Company.

              Diluted net income per common share is computed using the weighted
     average common shares  outstanding,  plus the impact of stock options.  The
     Class B Common Stock is not included in the determination of net income per
     common  share  because all  contingencies  required for the  conversion  to
     common stock have not been satisfied as of June 30, 1999. In addition,  the
     inclusion of the Company's convertible preferred stock in the determination
     of net income per common share has been determined to be anti-dilutive  for
     the six months ended June 30, 1998.

              In computing earnings per common share,  preferred stock dividends
     totaling  $23,824,000  and  $20,129,000 for the three months ended June 30,
     1999 and 1998,  respectively,  and  $45,354,000 and $40,269,000 for the six
     months ended June 30, 1999 and 1998, respectively, reduced income available
     to common shareholders.

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

     Reclassifications
     -----------------
              Certain  reclassifications  have  been  made  to the  consolidated
     financial statements for 1998 in order to conform to the 1999 presentation.

                                       8

<PAGE>

3.   Business Combinations
     ---------------------

              On March 12, 1999, the Company completed a merger transaction with
     Storage Trust Realty,  Inc. ("Storage  Trust").  As a result of the merger,
     the Company acquired interests in 215 self-storage facilities located in 16
     states totaling  approximately  12 million net rentable square feet. In the
     merger,  each share of  beneficial  interest of Storage Trust was exchanged
     for 0.86 shares of the  Company's  common stock  (approximately  13,009,485
     shares of the  Company's  common  stock were  issued and  approximately  an
     additional  1,011,963  shares were reserved for issuance upon conversion of
     limited  partnership units in Storage Trust's operating  partnership).  The
     aggregate  acquisition cost of the merger was approximately $575.7 million,
     consisting of the issuance of the Company's  common stock of  approximately
     $347.2 million,  cash of  approximately  $105.2 million,  the assumption of
     debt in the  amount  of  $100.0  million,  and the  Company's  pre-existing
     investment in Storage Trust of approximately $23.3 million.

              On  June  30,  1999,  the  Company  acquired  all of  the  limited
     partnership  interests in 13  affiliated  partnerships.  As a result of the
     Company's increased ownership interest and control of the partnerships, the
     Company began to consolidate the accounts of these partnerships.  The total
     consideration  was  approximately  $109.7  million,  consisting  of cash of
     approximately  $66.7 million and the Company's  pre-existing  investment in
     the Partnerships of approximately $43.0 million.

              The  merger  with  Storage  Trust  was  structured  as a  tax-free
     transaction.  The merger and  acquisition  of  affiliated  limited  partner
     interests have been accounted for using the purchase  method.  Accordingly,
     allocations of the total  acquisition  cost to the net assets acquired were
     made based upon the fair value of such assets and liabilities  assumed,  as
     follows:

<TABLE>
<CAPTION>
                                               Storage Trust      Partnership
                                                  Merger          Acquisitions          Total
                                               ------------       ------------       ------------
                                                           (Amounts in thousands)
<S>                                            <C>                <C>                <C>
Real estate facilities..................       $   598,577        $   121,620        $   720,197
Construction in process.................            11,449                  -             11,449
Investment in real estate entities......               356                  -                356
Mortgage notes receivable...............             6,739                  -              6,739
Other assets............................             1,309                324              1,633
Accrued liabilities.....................           (15,745)            (7,079)           (22,824)
Minority interest.......................           (27,009)            (5,192)           (32,201)
                                               ------------       ------------       ------------
                                               $   575,676        $   109,673        $   685,349
                                               ============       ============       ============
</TABLE>

              The   historical   operating   results   of  the  above   business
     combinations  prior to their dates of acquisition have not been included in
     the Company's  historical  operating results.  Pro forma selected financial
     data for the six months  ended  June 30,  1999 and 1998 as though the above
     acquisitions had been effective at January 1, 1998 are as follows:

                                       9

<PAGE>

                                            Six Months Ended    Six Months Ended
   (In thousands, except per share data)      June 30, 1999      June 30, 1998
------------------------------------------  ----------------    ----------------
Revenues..................................      $345,375           $330,493
Net income................................       138,641            113,255
Net income per common share (Basic).......          0.72               0.59
Net income per common share (Diluted).....          0.72               0.58

              The pro forma data does not purport to be indicative of operations
     that  would  have  occurred  had the  merger  and  acquisition  of  limited
     partnership  interests  occurred at the  beginning of each period or future
     results of operations of the Company.  Certain pro forma  adjustments  were
     made to the combined  historical amounts to reflect (i) expected reductions
     in  general  and   administrative   expenses,   (ii)  certain   significant
     acquisitions  made by  Storage  Trust in 1998,  (iii)  estimated  increased
     interest  costs to finance the cash portion of the  acquisition  cost,  and
     (iv) estimated increased depreciation expense.

4.   Real estate facilities
     ----------------------

              Activity in real estate facilities during 1999 is as follows:

                                                             In thousands
                                                            ---------------
Operating facilities, at cost
  Balance at December 31, 1998......................        $    2,962,291
  Property acquisitions - business combinations.....               720,197
  Facility contributed to development joint venture.               (11,194)
  Disposition of facilities.........................               (23,933)
  Property acquisitions - third party purchases.....                 5,243
  Developed facilities..............................                23,951
  Acquisition of minority interest..................                17,155
  Capital improvements..............................                10,156
                                                            ---------------
  Balance at June 30, 1999..........................             3,703,866
                                                            ---------------
Accumulated depreciation:
  Balance at December 31, 1998......................              (411,176)
  Additions during the year.........................               (57,837)
  Disposition of facilities.........................                 1,256
                                                            ---------------
  Balance at June 30, 1999..........................              (467,757)
                                                            ---------------
Construction in progress:
  Balance at December 31, 1998......................                83,138
  Current development...............................                45,238
  Property acquisitions - merger with Storage Trust.                11,449
  Developed facilities..............................               (23,951)
                                                            ---------------
  Balance at June 30, 1999..........................               115,874
                                                            ---------------

  Total real estate facilities at June 30, 1999.....        $    3,351,983
                                                            ===============

              Construction in progress at June 30, 1999 includes 24 self-storage
     facilities,  five expansions of existing self-storage facilities,  and nine
     industrial  facilities,  which will be utilized  as  portable  self-storage
     facilities. The Company's policy is to capitalize interest incurred on debt
     during  the  course of  construction  of its  self-storage  and  industrial
     facilities. Interest capitalized during the three and six months ended June
     30,  1999  was  $988,000  and  $1,946,000,   respectively,   compared  with
     $1,023,000 and $2,280,000 for the same periods in 1998.

                                       10

<PAGE>

              Effective April 30, 1999, the Company sold six properties acquired
     in the merger  with  Storage  Trust for  approximately  $10.5  million  and
     granted the acquiror an option  exercisable  in December 1999 to acquire an
     additional eight  properties  acquired in the merger with Storage Trust for
     approximately  $18.8  million.  The  Company  is now  leasing  these  eight
     properties to the acquiror. There was no gain or loss on this transaction.

              In  addition,  during the six  months  ended  June 30,  1999,  the
     Company  disposed  of a developed  commercial  facility,  two  self-storage
     facilites through condemnation proceedings,  and three plots of land for an
     aggregate  of  approximately  $12.2  million.  There was no gain or loss on
     these transactions.

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

              At June 30, 1999, the Company's investment in real estate entities
     consists of (i) limited and general partnership  interests in approximately
     14 affiliated partnerships,  which principally own self-storage facilities,
     (ii) the Company's  ownership  interest in a joint venture,  established to
     develop  and  operate  self-storage  facilities  and  (iii)  the  Company's
     ownership  interest in PSBP.  Such  interests  are  accounted for using the
     equity method of accounting.

              In April 1997, the Company formed a joint venture partnership with
     an  institutional  investor  (the "Joint  Venture") to  participate  in the
     development of approximately $220 million of self-storage  facilities.  The
     Joint  Venture  has a total of 30 opened  facilities  with a total  cost of
     $151.0  million at June 30,  1999,  and has 13 projects in process  with an
     aggregate  cost  incurred to date of  approximately  $40.1  million  ($17.9
     million estimated to complete) at June 30, 1999.

              At June 30, 1999, the Joint Venture is reviewing an additional six
     projects ($20.7 million  incurred at June 30, 1999, with remaining costs to
     complete  of  $5.8  million).  One of  these  projects  has  been  approved
     subsequent to June 30, 1999 (through August 9, 1999),  and upon approval of
     the remaining five  facilities,  the Joint Venture will be fully committed.
     These six projects include one completed facility and five facilities under
     construction.  At June 30, 1999, approximately $16.4 million is included in
     construction in process and approximately  $4.3 million is included in real
     estate  facilities with respect to these six projects.  As the projects are
     approved, the construction costs will be transferred to the Joint Venture.

              During the six months ended June 30, 1999, the Company  recognized
     earnings from its investments totaling  $17,469,000.  Included in equity in
     earnings of real estate  entities for the six months ended June 30, 1999 is
     the Company's share of depreciation expense totaling $9,574,000. Summarized
     combined  financial  data (based on historical  cost) with respect to those
     unconsolidated  real estate  entities in which the Company had an ownership
     interest at June 30, 1999 are as follows:

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                                           For the six months ended June 30, 1999
                                          ------------------------------------------------------------------------------
                                                Other             Development
                                          Equity Investments     Joint Venture         PSBP (A)               Total
                                          ------------------  ------------------  ------------------  ------------------
                                                                    (Amounts in thousands)

<S>                                          <C>                 <C>                 <C>                <C>
Rental income.........................       $    24,594         $    6,205          $    59,976        $     90,775
Other income..........................               638                270                  523               1,431
                                          ------------------  ------------------  ------------------  ------------------
Total revenues........................            25,232              6,475               60,499              92,206
                                          ------------------  ------------------  ------------------  ------------------

Cost of operations....................             7,969              3,237               17,031              28,237
Depreciation..........................             3,123              1,881               14,047              19,051
Other expenses........................             2,606                 45                3,324               5,975
                                          ------------------  ------------------  ------------------  ------------------
Total expenses........................            13,698              5,163               34,402              53,263
                                          ------------------  ------------------  ------------------  ------------------

Net income before minority interest...            11,534              1,312               26,097              38,943
Minority interest.....................                 -                  -               (6,400)             (6,400)
                                          ------------------  ------------------  ------------------  ------------------
Net income............................       $    11,534         $    1,312          $    19,697        $     32,543
                                          ==================  ==================  ==================  ==================

At June 30, 1999:
-----------------
Real estate, net .....................       $   117,216         $  187,471          $   764,127        $  1,068,814
Total assets..........................           152,815            203,142              784,622           1,140,579
Total liabilities.....................            62,998             20,006               65,464             148,468
Minority interest.....................                 -                  -              168,436             168,436
Total equity..........................            89,817            183,136              550,722             823,675

The Company's investment (book value)
  at June 30, 1999....................       $   114,236         $   54,940          $   250,707        $    419,883

The Company's effective average
  ownership interest at June 30, 1999.               40%                30%                  41%                 39%

</TABLE>

              (A)  $862,000  of PSBP's net income for the six months  ended June
     30, 1999 was allocated to preferred shareholders.

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

              As of  June  30,  1999,  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 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.

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

              In consolidation,  the Company classifies  ownership  interests in
     the net assets of each of the Consolidated Entities, other than its own, as
     minority  interest  on  the  consolidated  financial  statements.  Minority
     interest  in  income  consists  of the  minority  interests'  share  of the

                                       12

<PAGE>

     operating results of the Company relating to the consolidated operations of
     the  Consolidated  Entities,  except as  described  below  with  respect to
     minority interest acquired in the merger with Storage Trust.

              In  connection  with  the  merger  with  Storage  Trust,  minority
     interest  increased by  approximately  $27.0  million,  reflecting the fair
     value of  1,011,963  operating  partnership  units ("OP  Units") in Storage
     Trust's operating  partnership owned by minority interests.  As of June 30,
     1999, 957,358 of such units are outstanding.  OP Units are convertible on a
     one-for-one  basis (subject to certain  limitations)  into common shares of
     the Company at the option of the  unitholder.  Minority  interest in income
     with respect to OP Units  reflects the OP Units' share of the net income of
     the Company,  with net income allocated to minority  interests with respect
     to  weighted  average  outstanding  OP Units on a per unit  basis  equal to
     diluted earnings per common share.

              During the six months  ended June 30, 1999,  the Company  acquired
     limited  partnership  interests in certain of the Consolidated  Entities in
     several transactions for an aggregate cost of $30.6 million,  consisting of
     approximately  $14.7  million in cash and $15.9  million in the issuance of
     the Company's common stock.  These  transactions had the effect of reducing
     minority  interest by approximately  $13.4 million.  The excess of the cost
     over the underlying  book value ($17.2  million) has been allocated to real
     estate facilities in consolidation.

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

     Preferred stock
     ---------------
              At June 30,  1999 and  December  31,  1998,  the  Company  had the
     following series of Preferred Stock outstanding:

<TABLE>
<CAPTION>
                                                           At June 30, 1999               At December 31, 1998
                                                    ------------------------------   ------------------------------
                                        Dividend       Shares                           Shares
               Series                     Rate      Outstanding    Carrying Amount   Outstanding    Carrying Amount
--------------------------------      ----------    -----------    ---------------   -----------    ---------------
<S>                                   <C>           <C>              <C>              <C>             <C>
Series A .......................        10.000%      1,825,000       $ 45,625,000     1,825,000       $ 45,625,000
Series B .......................         9.200%      2,386,000         59,650,000     2,386,000         59,650,000
Series C........................      Adjustable     1,200,000         30,000,000     1,200,000         30,000,000
Series D........................         9.500%      1,200,000         30,000,000     1,200,000         30,000,000
Series E........................        10.000%      2,195,000         54,875,000     2,195,000         54,875,000
Series F........................         9.750%      2,300,000         57,500,000     2,300,000         57,500,000
Series G .......................         8.875%          6,900        172,500,000         6,900        172,500,000
Series H .......................         8.450%          6,750        168,750,000         6,750        168,750,000
Series I .......................         8.625%          4,000        100,000,000         4,000        100,000,000
Series J .......................         8.000%          6,000        150,000,000         6,000        150,000,000
Series K .......................         8.250%          4,600        115,000,000             -                  -
Series L .......................         8.250%          4,600        115,000,000             -                  -
                                                    -----------    ---------------   -----------    ---------------
Total  Cumulative  Senior
Preferred Stock.................                    11,138,850    $ 1,098,900,000    11,129,650      $ 868,900,000
                                                    ===========    ===============   ===========    ===============
</TABLE>

              On January 19,  1999,  the Company  issued 4.6 million  depositary
     shares  (each  representing  1/1,000  of a share) of its  Preferred  Stock,
     Series K, raising net proceeds of  approximately  $111.3 million.  On March
     10,  1999,  the  Company  issued  4.6  million   depositary   shares  (each
     representing  1/1,000 of a share) of its Preferred Stock, Series L, raising
     net proceeds of approximately $111.3 million.

                                       13

<PAGE>

              Holders of the Company's  preferred  stock will not be entitled to
     vote on most matters,  except under certain  conditions and as noted above.
     In the event of a cumulative  arrearage equal to six quarterly dividends or
     failure by the  Company to  maintain  a Debt Ratio (as  defined)  of 50% or
     less, the 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 all
     events  of  default  have  been  cured.  At June 30,  1999,  there  were no
     dividends in arrears and the Debt Ratio was 4.2%.

              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, Series J -
     August 31, 2002, Series K - January 19, 2004 and Series L - March 10, 2004.
     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  depositary  share in the case of the Series G,
     Series H,  Series I, Series J, Series K and Series L), plus any accrued and
     unpaid dividends.

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

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

     Common Stock
     ------------
              During the six months  ended June 30,  1999,  the  Company  issued
     13,009,485  shares of  common  stock in  connection  with the  merger  with
     Storage  Trust,  568,761  shares of  common  stock in  connection  with the
     acquisition  of  minority  interests,  399,155  shares of  common  stock in
     connection with the exercise of stock options,  and 54,605 shares of common
     stock in connection with the conversion of OP units.

              In June 1998,  the  Company's  Board of Directors  authorized  the
     repurchase  from time to time of up to  10,000,000  shares of the Company's
     common  stock on the open market or in privately  negotiated  transactions.
     During the six months ended June 30, 1999, the Company  repurchased a total
     of  690,227  shares,  for a total  aggregate  cost of  approximately  $17.6
     million.  Through June 30,  1999,  the Company has  repurchased  a total of
     3,509,627 shares of common stock (of the 10,000,000  shares  authorized) at
     an aggregate cost of approximately $89.9 million. From July 1, 1999 through
     August 9, 1999,  the Company  repurchased  an additional  945,400 shares of
     common stock at an aggregate cost of approximately $24.0 million.

                                       14

<PAGE>

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

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

              For these purposes, FFO per share of Common Stock (as defined) was
     $2.34 for the four consecutive calendar quarters ended June 30, 1999.

     Dividends
     ---------
              The  following  summarizes  dividends  paid  during  the first six
     months of 1999:

                                Distributions Per Share
                                  or Depositary Share       Total Distributions
                                -----------------------     -------------------
Series A........................         $1.250               $   2,281,000
Series B........................         $1.150                   2,744,000
Series C........................         $0.844                   1,012,000
Series D........................         $1.188                   1,426,000
Series E........................         $1.250                   2,744,000
Series F........................         $1.219                   2,802,000
Series G........................         $1.109                   7,656,000
Series H........................         $1.056                   7,130,000
Series I........................         $1.078                   4,312,000
Series J........................         $1.000                   6,000,000
Series K .......................         $0.934                   4,296,000
Series L .......................         $0.642                   2,951,000
                                                            -------------------
                                                                 45,354,000
Common..........................         $0.440                  56,767,000
                                                            -------------------
   Total dividends paid.........                              $ 102,121,000
                                                            ===================

              The  dividends  paid with  respect  to the  Series K and Series L,
     represent a partial period from the date of issuance though June 30, 1999.

              The  dividend  rate on the Series C Preferred  Stock for the first
     and second quarters of 1999 was equal to 6.75% per annum. The dividend rate
     per annum will be  adjusted  quarterly  and will be equal to the highest of
     one of three U.S.  Treasury indices  (Treasury Bill Rate, Ten Year Constant
     Maturity Rate, or Thirty Year Constant  Maturity Rate)  multiplied by 110%.
     However,  the dividend  rate for any  dividend  period will neither be less

                                       15

<PAGE>

     than 6.75% per annum nor greater  than 10.75%.  The  dividend  rate for the
     quarter ending September 30, 1999 will be equal to 6.75% per annum.

10.  Segment Information
     -------------------

              In July 1997,  the FASB issued  Statement of Financial  Accounting
     Standards No. 131, "Disclosures about Segments of an Enterprise and Related
     Information"  ("FAS 131"),  which  establishes  standards  for the way that
     public business  enterprises report  information about operating  segments.
     This statement is effective for financial  statements for periods beginning
     after  December 15, 1997.  The Company has adopted this standard  effective
     for the year  ended  December  31,  1998.  For  information  regarding  the
     description  of  each  reportable   segment,   policies   relating  to  the
     measurement of segment profit or loss, and a discussion of segment  assets,
     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, 1998.

              The Company's  income  statement  provides most of the information
     required in order to determine  the  performance  of each of the  Company's
     three  segments.  The following  tables  reconcile the  performance of each
     segment,   in  terms  of  segment  revenues  and  segment  income,  to  the
     consolidated  revenues and net income of the Company.  It further  provides
     detail of the segment  components of the income statement item,  "Equity in
     earnings of real estate entities."

<TABLE>
<CAPTION>
                                                                  Six months ended June 30,
                                                                 ---------------------------
                                                                     1999          1998            Change
                                                                 -----------     -----------     -----------
                                                                       (Dollar amounts in thousands)
RECONCILIATION OF REVENUES BY SEGMENT:
--------------------------------------

Self storage
------------
<S>                                                                <C>             <C>              <C>
  Self-storage property rentals............................        $278,774        $231,565         $47,209
  Facility management......................................           2,823           3,319            (496)
  Equity in earnings - self storage property operations....          11,119          10,848             271
                                                                 -----------     -----------     -----------
      Self storage segment revenues........................         292,716         245,732          46,984
                                                                 -----------     -----------     -----------

Portable self storage .....................................          11,876          11,289             587
----------------------                                           -----------     -----------     -----------


Commercial  properties
----------------------
  Commercial property rentals..............................           3,862          19,396         (15,534)
  Facility management......................................               -              98             (98)
  Equity in earnings - commercial property operations......          17,300           7,444           9,856
                                                                 -----------     -----------     -----------
      Commercial properties  segment revenues..............          21,162          26,938          (5,776)
                                                                 -----------     -----------     -----------

Other items not allocated to segments:
--------------------------------------
  Equity in earnings - Depreciation (self storage) ........          (3,967)         (4,244)            277
  Equity in earnings - Depreciation (commercial properties)          (5,607)         (2,395)         (3,212)
  Equity in earnings - general and administrative and other          (1,376)         (1,717)            341
  Interest and other income................................           5,920           8,004          (2,084)
                                                                 -----------     -----------     -----------
      Total other items not allocated to segments..........          (5,030)           (352)         (4,678)
                                                                 -----------     -----------     -----------

      Total revenues.......................................        $320,724        $283,607         $37,117
                                                                 ===========     ===========     ===========
</TABLE>

                                       16

<PAGE>

<TABLE>
<CAPTION>
                                                                  Six months ended June 30,
                                                                 ---------------------------
                                                                    1999            1998           Change
                                                                 -----------     -----------     -----------
                                                                        (Dollar amounts in thousands)
RECONCILIATION OF NET INCOME BY SEGMENT:
----------------------------------------

Self storage
------------
<S>                                                                <C>             <C>              <C>
  Self-storage properties .................................        $192,543        $160,727         $31,816
  Facility management......................................           2,351           2,777            (426)
  Equity in earnings - self storage property operations....          11,119          10,848             271
                                                                 -----------     -----------     -----------
      Total self storage segment net income................         206,013         174,352          31,661
                                                                 -----------     -----------     -----------

Portable self storage......................................          (6,871)        (18,224)         11,353
---------------------                                            -----------     -----------     -----------


Commercial  properties
  Commercial properties....................................           2,593          12,894         (10,301)
  Facility management......................................               -              86             (86)
  Equity in earnings - commercial property operations......          17,300           7,444           9,856
                                                                 -----------     -----------     -----------
      Total commercial property segment net income.........          19,893          20,424            (531)
                                                                 -----------     -----------     -----------

Other items not allocated to segments:
--------------------------------------
  Equity in earnings - depreciation (self-storage) ........          (3,967)         (4,244)            277
  Equity in earnings - depreciation (commercial properties)          (5,607)         (2,395)         (3,212)
  Equity in earnings - general and administrative and other          (1,376)         (1,717)            341
  Depreciation - self storage..............................         (61,639)        (49,233)        (12,406)
  Depreciation - commercial properties.....................            (854)         (4,178)          3,324
  Interest and other income................................           5,920           8,004          (2,084)
  General and administrative...............................          (4,628)         (4,562)            (66)
  Interest expense.........................................          (3,734)         (2,095)         (1,639)
  Minority interest in income..............................          (7,657)        (10,569)          2,912
                                                                 -----------     -----------     -----------
      Total other items not allocated to segments..........         (83,542)        (70,989)        (12,553)
                                                                 -----------     -----------     -----------

      Total net income ....................................        $135,493        $105,563         $29,930
                                                                 ===========     ===========     ===========
</TABLE>
See accompanying notes.
                                       17

<PAGE>



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

         The following  discussion  and analysis  should be read in  conjunction
with the Company's consolidated financial statements and notes thereto.

         FORWARD LOOKING STATEMENTS:  When used within this document,  the words
"expects,"  "believes,"   "anticipates,"   "should,"  "estimates,"  and  similar
expressions  are intended to identify  "forward-looking  statements"  within the
meaning of that term in Section 27A of the  Securities  Exchange Act of 1933, as
amended,  and in Section 21F of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks,  uncertainties,
and other  factors,  which may cause the actual  results and  performance of the
Company  to be  materially  different  from  those  expressed  or implied in the
forward looking statements.  Such factors include the impact of competition from
new and existing self-storage and commercial facilities which could impact rents
and occupancy  levels at the  Company's  facilities;  the  Company's  ability to
evaluate,  finance,  and integrate  acquired and developed  properties  into the
Company's existing  operations;  the Company's ability to effectively compete in
the markets that it does business in; the impact of the  regulatory  environment
as well as national,  state, and local laws and regulations  including,  without
limitation,  those governing Real Estate  Investment  Trusts;  the acceptance by
consumers of the Pickup and  Delivery  concept;  the impact of general  economic
conditions upon rental rates and occupancy  levels at the Company's  facilities;
and the availability of permanent capital at attractive rates.

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

         Net income for the three  months  ended June 30,  1999 was  $73,651,000
compared to $57,199,000 for the same period in 1998, representing an increase of
$16,452,000  or 28.8%.  Net income for the six  months  ended June 30,  1999 was
$135,493,000 compared to $105,563,000 for the same period in 1998,  representing
an increase of  $29,930,000  or 28.4%.  The increase in net income was primarily
the result of improved property  operations,  the acquisition of additional real
estate  investments  during 1998 and 1999, and reduced operating losses from the
Pickup and Delivery portable self-storage business.

         Net income allocable to the common  shareholders was $49,827,000 ($0.39
per common share, based on 129,250,000  weighted average diluted shares) for the
three  months  ended June 30,  1999  compared to  $37,070,000  ($0.32 per common
share, based on 114,430,000 weighted average diluted shares) for the same period
in 1998. In computing  net income per common  share,  dividends to the Company's
preferred shareholders ($23,824,000 and $20,129,000,  respectively for the three
months ended June 30, 1999 and 1998,  respectively)  have been deducted from net
income in determining net income allocable to the Company's common shareholders.

         Net income allocable to the common  shareholders was $90,139,000 ($0.73
per common,  based on 124,133,000  weighted  average diluted shares) for the six
months ended June 30, 1999  compared to  $65,294,000  ($0.58 per common  shares,
based on 112,246,000  weighted  average  diluted  shares) for the same period in
1998.  In computing  net income per common  share,  dividends  to the  Company's
preferred  shareholders  ($45,354,000  and  $40,269,000 for the six months ended
June 30,  1999 and 1998,  respectively)  have been  deducted  from net income in
determining net income allocable to the Company's common shareholders.

         Operating  losses  generated from the Company's  portable  self-storage
business  have   negatively   impacted  net  income   allocable  to  the  common
shareholders. Operating losses from the Company's portable self storage business
were $2,935,000 or  approximately  $0.02 per common share on a diluted basis for
the three months ended June 30, 1999 and $8,342,000 or  approximately  $0.07 per
common share on a diluted basis,  for the same period in 1998.  Operating losses
from  the  Company's   portable  self  storage   business  were   $6,871,000  or
approximately $0.06 per common share on a diluted basis for the six months ended
June 30, 1999 and  $18,224,000,  or  approximately  $0.16 per common  share on a
diluted basis, for the same period in 1998.

                                       18

<PAGE>

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

         Rental income and cost of operations  have  increased for the three and
six months  ended June 30, 1999  compared to the same periods in 1998 due to the
Company's  merger and  acquisition  activities  throughout  1998 and 1999,  most
notably  the  merger  with  Storage  Trust.  This was  offset  partially  by the
deconsolidation  of PSBP whereby the accounts of PSBP,  effective April 1, 1998,
were no longer  consolidated with the Company's and the Company began to account
for its investment in PSBP using the equity method.  As a result of these items,
the number of  self-storage  facilities  included in the Company's  consolidated
financial  statements  has increased  from 918 at June 30, 1998 to 1,191 at June
30, 1999.

         SELF-STORAGE  OPERATIONS:  The following table summarizes the operating
results (before  depreciation) of (i) the 886  self-storage  facilities that the
Company has owned and operated on a stabilized  basis throughout the period from
January 1, 1998 to June 30, 1999 (the  "Consistent  Group"),  and (ii) all other
facilities (the "Other Facilities"):

SUMMARY OF SELF-STORAGE OPERATIONS - HISTORICAL
-----------------------------------------------

<TABLE>
<CAPTION>
                                           Three months ended                          Six months ended
                                                June 30,                                   June 30,
                                         -----------------------                    -----------------------
                                            1999         1998       Change             1999         1998       Change
                                         ----------   ----------   --------         ----------   ----------   --------
                                                       (Amounts in thousands, except per square foot data)

<S>                                       <C>          <C>          <C>              <C>          <C>          <C>
Rental income
-------------
    Consistent Group.............         $120,401     $116,498       3.4%           $237,608     $227,144       4.6%
    Other Facilities.............           29,344        3,389     765.9%             41,166        4,421     831.1%
                                         ----------   ----------   --------         ----------   ----------   --------
                                           149,745      119,887      24.9%            278,774      231,565      20.4%
                                         ----------   ----------   --------         ----------   ----------   --------
Cost of Operations
------------------
    Consistent Group.............           35,234       34,868       1.0%             71,944       69,405       3.7%
    Other Facilities.............           10,368        1,024     912.5%             14,287        1,433     897.0%
                                         ----------   ----------   --------         ----------   ----------   --------
                                            45,602       35,892      27.1%             86,231       70,838      21.7%
                                         ----------   ----------   --------         ----------   ----------   --------
Net operating income
--------------------
    Consistent Group.............           85,167       81,630       4.3%            165,664      157,739       5.0%
    Other Facilities.............           18,976        2,365     702.4%             26,879        2,988     799.6%
                                         ----------   ----------   --------         ----------   ----------   --------
                                          $104,143      $83,995      24.0%           $192,543     $160,727      19.8%
                                         ==========   ==========   ========         ==========   ==========   ========

Net rentable square feet (at the
    end of the period, in 000's).           70,406       55,028      27.9%             70,406       55,028      27.9%

Number of facilities (at the end
    of the period)...............            1,191          918      29.7%              1,191          918      29.7%

CONSISTENT GROUP DATA:

Weighted average annualized
    realized rent per occupied
    square foot..................            $9.91        $9.61       3.0%              $9.88        $9.45       4.6%
Weighted average annualized
    scheduled rent per square               $10.25       $10.07       1.8%             $10.22        $9.94       2.8%
    foot.........................
Weighted average occupancy for
    the period...................            92.7%        92.5%       0.2%              91.8%        91.8%       0.0%

</TABLE>

                                       19

<PAGE>


         Rental income for the  Consistent  Group  facilities  for three and six
months  ended  June 30,  1999,  respectively,  is net of  promotional  discounts
totaling $3.7 million and $3.9 million,  respectively,  compared to $7.5 million
and $7.8 million for the same periods in 1998. In addition,  included in cost of
operations  for the  Consistent  Group  facilities  for the three and six months
ended June 30,  1999,  respectively,  are costs  associated  with the  telephone
reservation  center and  advertising  totaling  $3.6  million and $7.2  million,
respectively,  compared to $2.7 million and $5.5 million,  respectively, for the
same periods in 1998.


         COMMERCIAL  PROPERTY  OPERATIONS:.  The following  table sets forth the
commercial property operations included in the Company's financial statements:

   COMMERCIAL PROPERTY OPERATIONS - HISTORICAL
   -------------------------------------------

<TABLE>
<CAPTION>
                                 Three months ended June 30,                   Six months ended June 30,
                                 ---------------------------                  ---------------------------
                                     1999           1998          Change          1999           1998          Change
                                 ------------   ------------   ------------   ------------   ------------   ------------
                                                                (Amounts in thousands)

<S>                                <C>           <C>               <C>            <C>           <C>             <C>
   Rental income.............      $  1,948      $  1,715          13.6%          $  3,862      $ 19,396        (80.1)%
   Cost of operations........           631           654         (3.5)%             1,269         6,502        (80.5)%
                                 ------------   ------------   ------------   ------------   ------------   ------------
   Net operating income......      $  1,317      $  1,061          24.1%          $  2,593      $ 12,894        (79.9)%
                                 ============   ============   ============   ============   ============   ============
</TABLE>

         During  the  second  quarter  of 1998,  the  Company  ceased  to have a
controlling interest in PSBP. As a result,  effective April 1, 1998, the Company
no longer includes the accounts of PSBP in its consolidated financial statements
and began  accounting  for its  investment  in PSBP using the equity method (see
"Equity in earnings of real estate entities").  The income statement for the six
months ended June 30, 1998 includes the consolidated  operating  results of PSBP
for the three months ended March 31, 1998.  The  significant  decrease in rental
income and cost of  operations  for the six months ended June 30, 1999  reflects
the Company's deconsolidation of PSBP.


         EQUITY  IN  EARNINGS  OF  REAL  ESTATE  ENTITIES:  In  addition  to its
ownership of 12,621,428  common shares and operating  partnership units in PSBP,
the  Company  had  general  and  limited  partnership  interests  in 15  limited
partnerships  at  June  30,  1999.  (PSBP  and  the  limited   partnerships  are
collectively referred to as the "Unconsolidated Entities"). Due to the Company's
limited ownership  interest and control of these entities,  the Company does not
consolidate the accounts of these entities for financial reporting purposes, and
accounts for such investments using the equity method.

         Equity in  earnings of real estate  entities  for the six months  ended
June 30, 1999  consists of the  Company's  pro rata share of the  Unconsolidated
Entities  based upon the  Company's  ownership  interest for the period.  In the
aggregate,   the  Unconsolidated  Entities  own  a  total  of  235  real  estate
facilities,  115 of which are self-storage facilities.  The following table sets
forth the  significant  components of the  Company's  equity in earnings of real
estate entities:

                                       20

<PAGE>

  HISTORICAL SUMMARY:
  -------------------

<TABLE>
<CAPTION>
                                 Three months ended June 30,                   Six months ended June 30,
                                 ---------------------------                  ---------------------------
                                      1999           1998         Change            1999          1998        Change
                                 ------------   ------------   ------------   ------------   ------------   ------------

                                                                 ( Amounts in thousands)
  <S>                                 <C>            <C>            <C>            <C>            <C>           <C>
  Property operations:
      PSBP.....................       $8,878         $7,444         $1,434         $17,300        $7,444        $9,856
      Development Joint Venture          569            119            450             915           180           735
      Other partnerships.......        6,283          5,829            454          10,204        10,668          (464)
                                 ------------   ------------   ------------   ------------   ------------   ------------
                                      15,730         13,392          2,338          28,419        18,292        10,127
                                 ------------   ------------   ------------   ------------   ------------   ------------

  Depreciation:
      PSBP.....................       (2,940)        (2,395)          (545)         (5,607)       (2,395)       (3,212)
      Development Joint Venture         (304)          (111)          (193)           (565)         (191)         (374)
      Other partnerships.......       (2,201)        (2,267)            66          (3,402)       (4,053)          651
                                 ------------   ------------   ------------   ------------   ------------   ------------
                                      (5,445)        (4,773)          (672)         (9,574)       (6,639)       (2,935)
                                 ------------   ------------   ------------   ------------   ------------   ------------

  Other: (1)
      PSBP.....................       (1,057)          (501)          (556)         (1,883)         (501)       (1,382)
      Development Joint Venture           21             27             (6)             43            58           (15)
      Other partnerships.......           98           (828)           926             464        (1,274)        1,738
                                 ------------   ------------   ------------   ------------   ------------   ------------
                                        (938)        (1,302)           364          (1,376)       (1,717)          341
                                 ------------   ------------   ------------   ------------   ------------   ------------

  Total equity in earnings of
    real estate entities.......       $9,347         $7,317         $2,030         $17,469        $9,936        $7,533
                                 ============   ============   ============   ============   ============   ============
</TABLE>

         (1)  "Other" reflects the Company's share of general and administrative
              expense,    interest   expense,   interest   income,   and   other
              non-property,  non-depreciation related operating results of these
              entities.  For  PSBP,  it also  includes  the  Company's  share of
              preferred dividends paid by PSBP.

         The  increase  in 1999  earnings  compared to 1998 is  principally  the
result of the  deconsolidation  of PSBP whereby the accounts of PSBP,  effective
April 1, 1998,  were no longer  consolidated  with the Company's and the Company
began to account for its investment in PSBP using the equity method.

         PORTABLE SELF-STORAGE  OPERATIONS:  At June 30, 1999, PSPUD operated 36
facilities  in 11 states.  Due to the  start-up  nature of the  business,  PSPUD
incurred operating losses totaling  approximately  $2,935,000 and $6,871,000 for
the three and six months  ended June 30,  1999,  as compared to  $8,342,000  and
$18,224,000 for the same periods in 1998:

  PORTABLE SELF-STORAGE:
  ----------------------

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                   ---------------------------                  ---------------------------
                                      1999           1998         Change             1999           1998        Change
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                                                    ( Amounts in thousands)
  <S>                               <C>            <C>             <C>            <C>           <C>            <C>
  Rental and other income .....     $   6,448      $   6,118       $    330       $  11,876     $  11,289      $    587
                                   ------------   ------------   ------------   ------------   ------------   ------------
  Cost of operations:
      Direct operating costs...         7,383          8,757         (1,374)         14,796        18,238        (3,442)
      Marketing and advertising           307          3,777         (3,470)            729         7,335        (6,606)
      Depreciation.............         1,250          1,138            112           2,432         2,029           403
      General and administrative          443            788           (345)            790         1,911        (1,121)
                                   ------------   ------------   ------------   ------------   ------------   ------------
         Total cost of
         operations............         9,383         14,460         (5,077)         18,747        29,513       (10,766)
                                   ------------   ------------   ------------   ------------   ------------   ------------
  Operating losses.............     $  (2,935)     $  (8,342)      $  5,407       $  (6,871)     $(18,224)     $ 11,353
                                   ============   ============   ============   ============   ============   ============
</TABLE>
                                       21

<PAGE>

         Included  in direct  operating  costs  above are $2.8  million and $5.7
million,  respectively,  with  respect to facility  leases for the three and six
months  ended June 30,  1999,  as  compared to $3.4  million  and $6.6  million,
respectively, for the same periods in 1998.

         Until the PSPUD facilities are operating profitably, PSPUD's operations
are expected to continue to  adversely  impact the  Company's  earnings and cash
flow.  PSPUD  believes  that its  business  is likely to be more  successful  in
certain  markets than in others.  There can be no  assurances as to the level of
PSPUD's expansion, level of gross rentals, level of move-outs or profitability.

PROPERTY MANAGEMENT OPERATIONS
--------------------------------------------------------------------------------

         At June 30, 1999, the Company managed 150 self-storage  facilities (115
owned by  Unconsolidated  Entities  and 35 owned by third  parties)  pursuant to
property  management  contracts.  The property  management  contracts  generally
provide  for  compensation  equal  to 6% of  gross  revenues  of the  facilities
managed.

  PROPERTY MANAGEMENT OPERATIONS:
  -------------------------------

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                   ---------------------------                  ---------------------------
                                       1999           1998          Change          1999            1998         Change
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                                                 ( Amounts in thousands)
      <S>                              <C>            <C>             <C>            <C>           <C>            <C>
  Facility management fees:
      Self-storage.............        $1,409         $1,652          $(243)         $2,823        $3,319         $(496)
      Commercial properties....             -              -              -               -            98           (98)
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                        1,409          1,652           (243)          2,823         3,417          (594)
                                   ------------   ------------   ------------   ------------   ------------   ------------

  Cost of operations:
      Self-storage.............           217            268            (51)            472           542           (70)
      Commercial properties....             -              -              -               -            12           (12)
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                          217            268            (51)            472           554           (82)
                                   ------------   ------------   ------------   ------------   ------------   ------------

  Net operating income:
      Self-storage.............         1,192          1,384           (192)          2,351         2,777          (426)
      Commercial properties....             -              -              -               -            86           (86)
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                       $1,192         $1,384          $(192)         $2,351        $2,863         $(512)
                                   ============   ============   ============   ============   ============   ============
</TABLE>

         Since June 30, 1998,  the Company  completed  several  acquisitions  of
self-storage facilities from affiliated entities and, as a result,  self-storage
properties  which were managed by the Company  became owned  facilities  and the
related management fee income with respect to these facilities ceased. Since the
Company  has  acquired in the past,  and may  continue to seek to acquire in the
future,  self-storage facilities owned by Unconsolidated Entities, the company's
facility  management  income and related cost of operations  should  continue to
decrease.


         The  decrease  in  property  management   operations  with  respect  to
commercial properties for 1999 as compared to 1998 is due to the deconsolidation
of PSBP, which eliminated  commercial  properties management fee income and cost
of operations after April 1, 1998.

                                       22

<PAGE>

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

         INTEREST AND OTHER INCOME: The Company operates  additional  businesses
through affiliates, including retail sales of locks, boxes, and packing supplies
as well as the rental of trucks.  The net  results of these two  businesses  are
presented along with interest and other income,  as "interest and other income."
The components of interest and other income are detailed as follows:

  INTEREST AND OTHER INCOME:
  --------------------------

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                   ---------------------------                  ---------------------------
                                       1999           1998          Change          1999          1998           Change
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                                                 ( Amounts in thousands)
  Sales of packaging material and truck rental income:
  <S>                                  <C>            <C>            <C>             <C>           <C>          <C>
     Revenues.................         $3,484         $2,189         $1,295          $5,619        $3,671       $1,948
     Cost of operations.......         (2,387)        (1,842)          (545)         (4,197)       (3,133)      (1,064)
                                   ------------   ------------   ------------   ------------   ------------   ------------
       Net operating income...          1,097            347            750           1,422           538          884
  Interest and other income...          2,460          4,005         (1,545)          4,498         7,466       (2,968)
                                   ------------   ------------   ------------   ------------   ------------   ------------
    Total interest and other
    income....................         $3,557         $4,352          $(795)         $5,920        $8,004      $(2,084)
                                   ============   ============   ============   ============   ============   ============
</TABLE>

         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 six months  ended June 30,  1999  compared  to the same
periods in 1998 is  primarily  due to decreased  interest  income on excess cash
balances.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
has increased $8,327,000 to $33,519,000 for the three months ended June 30, 1999
as  compared  to  $25,192,000  for the same  period  in 1998.  Depreciation  and
amortization  expense has increased $9,082,000 to $62,493,000 for the six months
ended June 30,  1999 as  compared  to  $53,411,000  for the same period in 1998.
These increases are principally due to the acquisition of additional real estate
facilities  during 1998 and 1999,  offset  partially by the  deconsolidation  of
PSBP.  Amortization expense with respect to intangible assets totaled $2,328,000
and $4,656,000 for the three and six months,  respectively,  ended June 30, 1999
and 1998.

         MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by the Company. Minority interest in income was $4,304,000 and $7,657,000,
respectively,  for the three and six months ended June 30, 1999,  as compared to
$4,217,000 and $10,569,000, respectively, for the same periods in 1998.

         The decrease in minority  interest in income is primarily the result of
the  deconsolidation of PSBP, whereby the minority interest with respect to PSBP
after  June 30,  1998 was  removed  from the  Company's  consolidated  financial
statements.

SUPPLEMENTAL PROPERTY DATA AND TRENDS
--------------------------------------------------------------------------------

         At June 30, 1999, there were approximately 48 ownership entities owning
in aggregate 1,306 self-storage  facilities,  including the facilities which the
Company owns and/or  operates.  At June 30, 1999, 115 of these  facilities  were
owned by the  Unconsolidated  Entities,  in which the Company  has an  ownership
interest  and  uses  the  equity  method  of  accounting.  The  remaining  1,191
facilities  are owned by the Company and  Consolidated  Entities,  many of which
were acquired through business  combinations,  including the merger with Storage
Trust,  during 1999 and 1998.  The  following  table  summarizes  the  Company's
investment in real estate  facilities  as of June 30, 1999,  excluding the seven
real estate facilities used in PSPUD's operations:

                                       23

<PAGE>

<TABLE>
<CAPTION>
                                                Number of Facilities in which the      Net Rentable Square Footage
                                                Company has an ownership interest             (in thousands)
                                               -----------------------------------  -----------------------------------
                                               Self-Storage  Commercial             Self-Storage Commercial
                                                Facilities   Properties    Total      Facilities  Properties    Total
                                               ------------  ----------  ---------  ------------  ----------  ---------
<S>                                                <C>            <C>      <C>           <C>         <C>        <C>
Wholly-owned facilities....................          629            1        630         38,469           9     38,478
Facilities owned by Consolidated Entities..          562            -        562         31,937           -     31,937
                                               ------------  ----------  ---------  ------------  ----------  ---------
    Total consolidated facilities..........        1,191            1      1,192         70,406           9     70,415
Facilities owned by Unconsolidated Entities          115          120        235          6,749      11,640     18,389
                                               ------------  ----------  ---------  ------------  ----------  ---------
    Total  facilities  in which  the  Company
      has an ownership interest............        1,306          121      1,427         77,155      11,649     88,804
                                               ============  ==========  =========  ============  ==========  =========
</TABLE>

         In order to evaluate how the Company's overall portfolio has performed,
management  analyzes  the  operating   performance  of  a  consistent  group  of
self-storage facilities representing 979 (57.3 million net rentable square feet)
of the  1,306  self-storage  facilities  (herein  referred  to as  "Same  Store"
self-storage  facilities).  The 979  facilities  represent a pool of properties,
which have been operated under the "Public Storage" name, at a stabilized level,
by the Company since  January 1, 1994.  From time to time,  the Company  removes
facilities from the Same Store pool as a result of expansions or dispositions of
the properties,  primarily from condemnations by governmental authorities, which
make such facilities' results not comparable to previous periods. The Same Store
group of properties includes 893 consolidated facilities and 86 facilities owned
by Unconsolidated  Entities. The following table summarizes the pre-depreciation
historical operating results of the Same Store self-storage facilities:

   SAME STORE MINI-WAREHOUSE FACILITIES (979 FACILITIES):
   ------------------------------------------------------
   (historical property operations)

<TABLE>
<CAPTION>
                                         Three months ended June 30,                 Six months ended June 30,
                                   ------------------------------------------   ------------------------------------------
                                       1999            1998        Change         1999            1998        Change
                                   ------------   ------------   ------------   ------------   ------------   ------------
                                                                 (Amounts in thousands)
   <S>                               <C>             <C>              <C>       <C>             <C>              <C>
   Rental income...............      $135,135        $130,260         3.7%      $266,347        $253,952         4.9%
   Cost of operations (includes
     an imputed 6% property
     management fee) (1).......        45,725        45,188           1.2%      92,958          89,828           3.5%
                                   ------------   ------------   ------------   ------------   ------------   ------------
   Net operating income........       $89,410        $85,072          5.1%      $173,389        $164,124         5.6%
                                   ============   ============   ============   ============   ============   ============

   Gross profit margin (2).....         66.2%        65.3%            0.9%         65.1%        64.6%            0.5%

   Weighted Average:
     Occupancy during the
        period.................         93.1%        92.9%            0.2%         92.2%        92.2%            0.0%

      Annualized realized rent
        per sq. ft. for
        period.(3).............        $10.13        $9.80            3.4%        $10.08        $9.62            4.8%

      Annualized scheduled rent
        per sq. ft. for period
        (3)....................        $10.50        $10.28           2.1%        $10.48        $10.14           3.4%

</TABLE>

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

2.     Gross profit margin is computed by dividing property net operating income
       (which  excludes  depreciation  expense)  by  rental  revenues.  Cost  of
       operations  includes  a  6%  management  fee.  The  gross  profit  margin
       excluding the property  management  fee was 72.2% and 71.3% for the three
       months  ended June 30, 1999 and 1998,  respectively;  and 71.1% and 70.6%
       for the six months ended June 30, 1999 and 1998, respectively.

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

                                       24

<PAGE>

         Rental  income  for the  Same  Store  facilities  included  promotional
discounts totaling  $3,923,000 and $8,049,000,  respectively,  for the three and
six months  ended June 30,  1999,  respectively  as compared to  $4,136,000  and
$8,358,000 for the same periods in 1998.

         During the year ended  December  31, 1998 as compared to the year ended
December 31, 1997, the Same Store  facilities  exhibited growth in rental income
and net  operating  income  of 7.6%  and  8.2%,  respectively,  as a  result  of
increased  realized rents and  occupancies.  The growth in rental income and net
operating income has decreased in the first six months of 1999 to 4.9% and 5.6%,
respectively,  as  compared  to the first six  months of 1998 which was 7.7% and
8.8%,  respectively,  due to flat occupancies and smaller  increases in realized
rents than was  experienced in 1998. The Company  expects the level of growth to
continue  at  levels  less than  that  experienced  in 1998,  as it  expects  no
significant  increases in occupancies and expects continued  moderated increases
in realized rents.

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

         The Company believes that its internally generated net cash provided by
operating  activities  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.

         Operating as a real estate  investment  trust  ("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
flow must be used to make  distributions to its shareholders  (see "REIT STATUS"
below). However, despite the significant distribution requirements,  the Company
has been able to retain a  significant  amount of its operating  cash flow.  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  generated is available to the
Company to make both scheduled and optional  principal  payments on debt and for
reinvestment.

<TABLE>
<CAPTION>
                                                                          For the six months ended
                                                                                  June 30,
                                                                          --------------------------
                                                                             1999           1998
                                                                          -----------    -----------
                                                                           (Amounts in thousands)
<S>                                                                        <C>             <C>
Net income.........................................................        $135,493        $105,563
Depreciation and amortization......................................          62,493          53,411
Depreciation from Unconsolidated Entities..........................           9,574           6,639
Minority interest in income........................................           7,657          10,569
                                                                          -----------    -----------
  Net cash provided by operating activities........................         215,217         176,182

Distributions from operations to minority interests................         (12,472)        (17,596)
                                                                          -----------    -----------
Cash from operations allocable to the Company's shareholders.......         202,745         158,586

Less: preferred stock dividends....................................         (45,354)        (40,269)
                                                                          -----------    -----------
Cash from operations available to common shareholders..............         157,391         118,317

Capital improvements to maintain facilities:.......................         (10,156)        (10,336)
Add back: minority interest share of capital improvements
  to maintain facilities...........................................             518             915
                                                                          -----------    -----------
Funds available for principal payments on debt, common
  dividends and reinvestment.......................................         147,753         108,896

Cash distributions to common shareholders..........................         (56,767)        (49,806)
                                                                          -----------    -----------
Funds available for principal payments on debt and reinvestment....         $90,986         $59,090
                                                                          ===========    ===========
</TABLE>

         The Company expects to fund its growth  strategies with cash on hand at
June 30, 1999,  internally generated retained cash flows,  proceeds from issuing
equity  securities and borrowings  under its $150 million credit  facility.  The
Company  intends  to repay  amounts  borrowed  under the  credit  facility  from
undistributed  operating  cash  flow or,  as market  conditions  permit  and are
determined to be  advantageous,  from the public or private  placement of equity
securities.

                                       25

<PAGE>

         The Company's portfolio of real estate facilities remains substantially
unencumbered.  At June 30,  1999,  the  Company had debt  outstanding  of $172.6
million,  of which $30.6  million is mortgage debt and $142 million is unsecured
senior notes, and had consolidated  real estate  facilities with a book value of
$3.4 billion.  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.

         During the first  quarter of 1999,  the  Company  issued a total of 9.2
million  depositary  shares  (each  representing  1/1,000  of a  share)  of  its
Preferred Stock,  Series K and L, raising net proceeds of  approximately  $222.6
million. Proceeds of the offerings were utilized to pay costs in connection with
the Storage  Trust merger.  The remaining  proceeds will be utilized to fund the
Company's development activities, PSPUD activities and acquisition activities.

         DISTRIBUTION  REQUIREMENTS:  The  Company's  conservative  distribution
policy  has been the  principal  reason  for the  Company's  ability  to  retain
significant  operating  cash  flows  which  have  been  used to make  additional
investments and reduce debt. During the six months ended June 30, 1999 and 1998,
the Company distributed to common shareholders  approximately 36.1% and 42.1% of
its  cash  available   from   operations   allocable  to  common   shareholders,
respectively.

         During the six months ended June 30, 1999,  the Company paid  dividends
totaling  $45,354,000 to the holders of the Company's Senior Preferred Stock and
$56,767,000  to the holders of Common Stock.  The Company  estimates the regular
distribution requirements for fiscal 1999 with respect to Senior Preferred Stock
outstanding at June 30, 1999 to be  approximately  $95.2 million.  Distributions
with respect to the common  stock will be  determined  based upon the  Company's
REIT distribution requirements after taking into consideration  distributions to
the Company's preferred shareholders.

         The  Company   expects  to  make  a  special   distribution  to  common
shareholders in 1999 assuming a continuation of its increasing  level of taxable
income.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:  During 1999, the Company  budgeted
approximately  $20.1  million  for  capital   improvements  in  respect  of  its
consolidated  properties ($19.5 million for its self-storage facilities and $0.6
million for its commercial space), excluding amounts to be incurred with respect
to the facilities  acquired in the Storage Trust merger. The minority interests'
share of the budgeted capital improvements is approximately $1.5 million. During
the six months ended June 30, 1999, the Company incurred capital improvements of
approximately $10.2 million. In addition,  the Company expects to spend over the
next 18  months  approximately  $15  million  in  property  improvements  to the
properties acquired in the Storage Trust merger.

         DEBT  SERVICE  REQUIREMENTS:  The  Company  does not believe it has any
significant refinancing risks with respect to its notes payable, all of which is
fixed rate. At June 30, 1999, the Company had total outstanding notes payable of
approximately  $172,551,000  (including  $100,000,000 assumed in connection with
the March 1999 merger with Storage Trust).  Approximate  principal maturities of
notes payable at June 30, 1999 are as follows:

                                       26

<PAGE>

                                   Unsecured      Fixed Rate
                                 Senior Notes    Mortgage Debt      Total
                                --------------  --------------  --------------
                                              (Amounts in thousands)

  1999 (remainder of)......       $    4,000     $    1,523       $    5,523
  2000.....................            8,750          2,622           11,372
  2001.....................            9,500          2,910           12,410
  2002.....................           24,450          3,229           27,679
  2003.....................           35,900          3,584           39,484
  Thereafter...............           59,400         16,683           76,083
                                --------------  --------------  --------------
                                  $  142,000     $   30,551       $  172,551
                                ==============  ==============  ==============
  Weighted Average Rate                 7.4%          10.3%             7.9%
                                ==============  ==============  ==============

         REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, the
Company's  Board of Directors  authorized the repurchase from time to time of up
to  10,000,000  shares of the  Company's  common  stock on the open market or in
privately  negotiated  transactions.  In the six months ended June 30, 1999, the
Company  repurchased a total of 690,227  shares,  for a total  aggregate cost of
approximately  $17.6 million.  Cumulatively  since the repurchase  announcement,
through June 30, 1999, the Company has  repurchased a total of 3,509,627  shares
of common stock at an aggregate cost of approximately  $89.9 million.  From July
1, 1999 through  August 9, 1999, the Company  repurchased an additional  945,400
shares of common stock at an aggregate cost of approximately $24.0 million.

         DEVELOPMENT  ACTIVITIES:  As previously  announced,  in April 1997, the
Company and an institutional investor formed a joint venture partnership for the
purpose of developing up to $220 million of self-storage  facilities.  The joint
venture is funded solely with equity capital  consisting of 30% from the Company
and 70% from the institutional  investor. The Company's share of the cost of the
real  estate in the joint  venture is  approximately  $57.3  million at June 30,
1999.

         During the six months ended June 30,  1999,  the joint  venture  opened
five new self storage  facilities that it had developed  (approximately  317,000
net  rentable  sq. ft.).  In  addition,  one project  that was  completed by the
Company in 1998 was  contributed to the joint venture in the quarter ended March
31, 1999. As of June 30, 1999,  the joint  venture had 30 operating  facilities,
with  1,822,000  net  rentable  square  feet  and  total  development  costs  of
approximately  $151.0  million.  As of June  30,  1999,  the  joint  venture  is
developing 13 additional  projects  (approximately  865,000 net rentable  square
feet) that were in  process,  with total  costs  incurred  of $40.1  million and
estimated remaining costs to complete of $17.9 million.

         At June 30, 1999,  the Joint  Venture is reviewing  an  additional  six
projects  ($20.7  million  incurred at June 30, 1999,  with  remaining  costs to
complete of $5.8 million). One of these projects has been approved subsequent to
June 30, 1999 (through August 9, 1999),  and upon approval of the remaining five
facilities,  the Joint  Venture  will be fully  committed.  These  six  projects
include one completed facility and five facilities under  construction.  At June
30, 1999, approximately $16.4 million is included in construction in process and
approximately $4.3 million is included in real estate facilities with respect to
these six projects. As the projects are approved, the construction costs will be
transferred to the Joint Venture.

         The Company has plans to develop a total of 36 additional  self storage
facilities,  with total estimated costs of  construction of  approximately  $165
million,  with completions  over  approximately  the next 18 to 24 months.  This
development is in addition to the six properties  that are being reviewed by the
joint  venture  and the 13  facilities  that  the  Joint  Venture  is  currently
developing.  At June 30,  1999,  19 of these  facilities  are in  process,  with
approximately $36 million incurred and $50 million of costs to complete,  and 17
represent  identified  sites which have not yet begun  construction  (with total
estimated costs of approximately $79 million). All of these projects are subject
to significant contingencies

         The Company intends to fund this  construction  either through a second
development  joint venture or alone through a combination of retained cash flow,
borrowings on the Company's line of credit,  or the private or public  placement
of equity securities.

                                       27

<PAGE>

         In addition, the Company is developing nine facilities that can be used
by  PSPUD.  The  Company  has  incurred  $34.7  million  with  respect  to these
facilities at June 30, 1999, with remaining costs to complete of $35.5 million.

         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,  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.

         FUNDS FROM  OPERATIONS:  Total funds from operations or "FFO" increased
to $202,745,000  for the six months ended June 30, 1999 compared to $158,586,000
for the same  period  in 1998.  FFO  available  to  common  shareholders  (after
deducting  preferred  stock  dividends)  increased to  $157,391,000  for the six
months ended June 30, 1999 compared to $118,317,000 for the same period in 1998.
FFO means net income or (loss)  (computed in accordance with generally  accepted
accounting  principles)  before:  (i) gain or (loss) on early  extinguishment of
debt,  (ii)  minority  interest  in  income  and  (iii)  gain or  (loss)  on the
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 a 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  management,  as well as 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. FFO is not comparable to similarly
entitled  items  reported  by other  REITs  that do not define it exactly as the
Company defines it.

         IMPACT OF YEAR 2000
         -------------------

         The Company has  completed  an  assessment  of all of its  hardware and
software applications to identify susceptibility to what is commonly referred to
as the "Y2K Issue" whereby certain computer programs have been written using two
digits  rather than four to define the  applicable  year.  Any of the  Company's
computer  programs  or  hardware  with the Y2K Issue  that  have  date-sensitive
applications  or embedded chips may recognize a date using "00" as the year 1900
rather  than the year  2000,  resulting  in  miscalculations  or system  failure
causing disruptions of operations.

         The Company has two phases in its process  with  respect to each of its
systems; i) assessment,  whereby the Company evaluates whether the system is Y2K
compliant and identifies the plan of action with respect to remediating  any Y2K
issues identified and ii) implementation, whereby the Company completes the plan
of action prepared in the assessment  phase and verifies that Y2K compliance has
been achieved.

         Implementations   have  been   completed  on  the  Company's   critical
applications  that  impact the  Company,  such as the general  ledger,  property
operations,  and related systems.  Contingency plans have been developed for use
in case the  Company's  assessment  did not identify  all Y2K issues,  or if the
implementation  were  subsequently  determined to not fully remediate Y2K issues
that were identified.  While the Company  presently  believes that the impact of
the Y2K  Issue  on its  systems  can be  mitigated,  if the  Company's  plan for
ensuring Year 2000 compliance and the related contingency plans were to fail, be
insufficient,  or not be implemented on a timely basis, Company operations could
be materially impacted.

                                       28

<PAGE>

         Certain of the Company's other non-computer related systems that may be
impacted by the Y2K Issue,  such as security systems,  have been evaluated.  The
Company expects the  implementation of the required solutions to be completed in
advance of December  31,  1999.  Based upon its  evaluation,  the Company has no
reason to believe that lack of compliance or failure of required solutions would
materially impact the Company's operations.

         The Company  exchanges  electronic data with certain outside vendors in
the banking and payroll  processing areas. The Company has been advised by these
vendors that their systems are or will be Year 2000 compliant, but has requested
a Year 2000 compliance  certification  from these  entities.  The Company is not
aware of any other vendors, suppliers, or other external agents with a Y2K Issue
that would materially impact the Company's results of operations,  liquidity, or
capital resources.  However,  the Company has no means of ensuring that external
agents  will be Year 2000  compliant,  and there  can be no  assurance  that the
Company has  identified  all such  external  agents.  The  inability of external
agents to complete their Year 2000 compliance  process in a timely fashion could
materially  impact the Company.  The effect of non-compliance by external agents
is not determinable.

         The  cost of the  Company's  year  2000  compliance  activities  (which
primarily  consists of the costs of new systems) is  estimated at  approximately
$4.2  million,  of which  approximately  $4.0 million has been incurred to date.
These costs are capitalized. The Company's year 2000 compliance efforts have not
resulted in any significant deferrals in other information system projects.

         The costs of the projects and the date on which the Company  expects to
achieve Year 2000 Compliance are based upon  management's  best  estimates,  and
were derived utilizing  numerous  assumptions of future events.  There can be no
assurance that these estimates will be achieved, and actual results could differ
materially  from those  anticipated.  There can be no assurance that the Company
has identified all potential Y2K Issues either within the Company or at external
agents.  In addition,  the impact of the Y2K issue on governmental  entities and
utility  providers  and  the  resultant  impact  on  the  Company,  as  well  as
disruptions  in the general  economy,  may be material but cannot be  reasonably
determined or quantified.

Item 3.  Qualitative and Quantitative Disclosures about Market Risk
         ----------------------------------------------------------

         To limit the Company's exposure to market risk, the Company principally
finances its  operations and growth with  permanent  equity  capital  consisting
either of common or preferred  stock.  At June 30, 1999, the Company's debt as a
percentage of total shareholders' equity (based on book values) was 4.6%.

         The Company's preferred stock is not redeemable by the holders.  Except
under certain conditions relating to the Company's  qualification as a REIT, the
Senior  Preferred  Stock is not redeemable by the Company 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,  Series J - August 31, 2002, Series K - January 19,
2004, and Series L - March 10, 2004. 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 depositary share in the case
of the Series G,  Series H,  Series I,  Series J,  Series K, and Series L), plus
accrued and unpaid dividends.

         The Company's market risk sensitive  instruments  include notes payable
which  totaled  $172.6  million  at  June  30,  1999.  Substantially  all of the
Company's notes payable bear interest at fixed rates.  See Item 2 - Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital  Resources  for  approximate  principal  maturities of the
notes payable as of June 30, 1999.

                                       29

<PAGE>

PART II.  OTHER INFORMATION

Item 1   Legal Proceedings
         -----------------

Anderson v. Public Storage,  Inc., San Francisco Superior Court (filed September
--------------------------------------------------------------------------------
19, 1997)
---------
Grant v. Public Storage, Inc., San Diego Superior Court (filed October 6, 1997)
-------------------------------------------------------------------------------
Wren v. Public  Storage,  Inc., San Francisco  Superior Court (filed October 16,
--------------------------------------------------------------------------------
1997)
-----

         Each of the plaintiffs in these cases is suing the Company on behalf of
a  purported  class of  California  tenants who rented  storage  spaces from the
Company and contends that the Company's  fees for late payments under its rental
agreements  for  storage  space  constitute   unlawful   "penalties"  under  the
liquidated damages  provisions of California law and under  California's  unfair
business practices act. None of the plaintiffs has assigned any dollar amount to
the claims.

         In February 1998,  the lower court  dismissed the Anderson case, but in
May 1999 the  court of  appeal  reversed  the  lower  court's  dismissal  of the
plantiff's claim under the California unfair business practices act and affirmed
the dismissal  under the liquidated  damages  provisions of California  law. The
Company is  continuing  to  vigorously  contest  the  claims in all three  legal
proceedings.

Grinnel v.Public  Storage,  Inc.,  Baltimore City Circuit Court (filed August 4,
---------------------------------
1999)

         Plaintiff  in this case is suing the  Company on behalf of a  purported
class of  Maryland  tenants  who rented  storage  spaces  from the  Company  and
contends that the Company's fees for late payments  under its rental  agreements
for storage  space  exceeds the amount of interest that can be charged under the
Maryland  constitution  and  are  therefore  unlawful  "penalties."  None of the
plaintiffs has assigned any dollar amount to the claims.
The Company intends to vigorously contest the claims in the proceedings.

         In addition,  the Company is a party to various claims,  complaints and
other legal  actions that have arisen in the normal course of business from time
to time. The Company believes the outcome of these pending legal proceedings, in
the  aggregate,  will not have a material  adverse  effect on the  operations or
financial position of the Company.

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

         The  Company  held an annual  meeting of  shareholders  on May 6, 1999.
Proxies for the annual  meeting were  solicited  pursuant to Regulation 14 under
the Securities  Exchange Act of 1934. The annual meeting  involved the following
matters:

                                       30

<PAGE>

         1.       Approval of an amendment to the Company's bylaws to change the
                  authorized number of directors from a range of five to nine to
                  a range  of  eight  to  fifteen,  with  the  exact  number  of
                  directors  to be  initially  fixed at ten -  approval  of this
                  proposal  required  the  affirmative  vote of the holders of a
                  majority of the Company's  outstanding shares of Common Stock,
                  and this proposal was approved by the following vote

                       For           Against         Abstain         No Vote
                    ----------      ----------      ----------      ----------
Common Stock        89,727,720      2,409,659        383,731        6,906,291

         2.       Election of Directors

                                       Number of Shares of Common Stock
                                   -----------------------------------------
     Name                            Voted For                  Withheld
-----------------------            -----------------       -----------------
B. Wayne Hughes                       93,367,996                 6,059,408
Harvey Lenkin                         98,648,295                   779,109
Marvin M. Lotz                        98,619,879                   807,525
B. Wayne Hughes, Jr.                  95,956,555                 3,470,849
Robert J. Abernethy                   98,882,492                   544,912
Dann V. Angeloff                      98,645,940                   781,464
William C. Baker                      98,871,031                   556,373
Thomas J. Barrack, Jr.                91,787,227                 7,640,177
Uri P. Harkham                        98,877,077                   550,327
Daniel C. Staton                      98,701,641                   725,763

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

         (a)  Exhibits:

              3.1   Restated Articles of Incorporation.  Filed with Registrant's
                    Registration  Statement No. 33-54557 and incorporated herein
                    by reference.

              3.2   Certificate   of   Determination   for  the  10%  Cumulative
                    Preferred   Stock,   Series  A.  Filed   with   Registrant's
                    Registration  Statement No. 33-54557 and incorporated herein
                    by reference.

              3.3   Certificate  of  Determination   for  the  9.20%  Cumulative
                    Preferred   Stock,   Series  B.  Filed   with   Registrant's
                    Registration  Statement No. 33-54557 and incorporated herein
                    by reference.

              3.4   Amendment  to  Certificate  of  Determination  for the 9.20%
                    Cumulative   Preferred   Stock,   Series   B.   Filed   with
                    Registrant's   Registration   Statement  No.   33-56925  and
                    incorporated herein by reference.

              3.5   Certificate  of  Determination  for  the  8.25%  Convertible
                    Preferred  Stock.   Filed  with  Registrant's   Registration
                    Statement No. 33-54557 and incorporated herein by reference.

              3.6   Certificate  of   Determination   for  the  Adjustable  Rate
                    Cumulative   Preferred   Stock,   Series   C.   Filed   with
                    Registrant's   Registration   Statement  No.   33-54557  and
                    incorporated herein by reference.

              3.7   Certificate  of  Determination   for  the  9.50%  Cumulative
                    Preferred  Stock,  Series D.  Filed with  Registrant's  Form
                    8-A/A   Registration   Statement   relating   to  the  9.50%
                    Cumulative Preferred Stock, Series D and incorporated herein
                    by reference.

                                       31

<PAGE>

              3.8   Certificate   of   Determination   for  the  10%  Cumulative
                    Preferred  Stock,  Series E.  Filed with  Registrant's  Form
                    8-A/A Registration  Statement relating to the 10% Cumulative
                    Preferred  Stock,   Series  E  and  incorporated  herein  by
                    reference.

              3.9   Certificate  of  Determination   for  the  9.75%  Cumulative
                    Preferred Stock,  Series F. Filed with  Registration's  Form
                    8-A/A   Registration   Statement   relating   to  the  9.75%
                    Cumulative Preferred Stock, Series F and incorporated herein
                    by reference.

              3.10  Certificate   of    Determination    for   the   Convertible
                    Participating   Preferred  Stock.  Filed  with  Registrant's
                    Registration  Statement No. 33-63947 and incorporated herein
                    by reference.

              3.11  Certificate of Amendment of Articles of Incorporation. Filed
                    with  Registrant's  Registration  Statement No. 33-63947 and
                    incorporated herein by reference.

              3.12  Certificate  of  Determination  for  the  8-7/8%  Cumulative
                    Preferred Stock,  Series G. Filed with  Registration's  Form
                    8-A/A  Registration  Statement  relating  to the  Depositary
                    Shares  Each  Representing  1/1,000th  of a Share of  8-7/8%
                    Cumulative Preferred Stock, Series G and incorporated herein
                    by reference.

              3.13  Certificate  of  Determination   for  the  8.45%  Cumulative
                    Preferred  Stock,  Series H.  Filed with  Registrant's  Form
                    8-A/A  Registration  Statement  relating  to the  Depositary
                    Shares  Each  Representing  1/1,000th  of a Share  of  8.45%
                    Cumulative Preferred Stock, Series H and incorporated herein
                    by reference.

              3.14  Certificate of Determination  for the Convertible  Preferred
                    Stock,  Series  CC.  Filed  with  Registrant's  Registration
                    Statement   No.   333-03749  and   incorporated   herein  by
                    reference.

              3.15  Certificate of Correction of  Certificate  of  Determination
                    for the Convertible  Participating  Preferred  Stock.  Filed
                    with Registrant's  Registration  Statement No. 333-08791 and
                    incorporated herein by reference.

              3.16  Certificate of Determination for 8-5/8% Cumulative Preferred
                    Stock,   Series  I.  Filed  with   Registrant's  Form  8-A/A
                    Registration  Statement  relating to the  Depositary  Shares
                    Each  Representing  1/1,000 of a Share of 8-5/8%  Cumulative
                    Preferred  Stock,   Series  I  and  incorporated  herein  by
                    reference.

              3.17  Certificate of Amendment of Articles of Incorporation. Filed
                    with Registrant's  Registration  Statement No. 333-18395 and
                    incorporated herein by reference.

              3.18  Certification of Determination  for Equity Stock,  Series A.
                    Filed with  Registrant's  Form 10-Q for the quarterly period
                    ended June 30, 1997 and incorporated herein by reference.

              3.19  Certification of Determination  for 8% Cumulative  Preferred
                    Stock,   Series  J.  Filed  with   Registrant's  Form  8-A/A
                    Registration  Statement  relating to the  Depositary  Shares
                    Each  Representing  1/1,000  of a  Share  of  8%  Cumulative
                    Preferred  Stock,   Series  J  and  incorporated  herein  by
                    reference.

              3.20  Certificate of Correction of  Certificate  of  Determination
                    for  the  8.25%  Convertible  Preferred  Stock.  Filed  with
                    Registrant's   Registration   Statement  No.  333-61045  and
                    incorporated herein by reference.

                                       32

<PAGE>

              3.21  Certification   of  Determination   for  8-1/4%   Cumulative
                    Preferred  Stock,  Series K.  Filed with  Registrant's  Form
                    8-A/A  Registration  Statement  relating  to the  Depositary
                    Shares  Each  Representing  1/1,000  of a  Share  of  8-1/4%
                    Cumulative Preferred Stock, Series K and incorporated herein
                    by reference.

              3.22  Certificate of Determination for 8-1/4% Cumulative Preferred
                    Stock,   Series  L.  Filed  with   Registrant's  Form  8-A/A
                    Registration  Statement  relating to the  Depositary  Shares
                    Each  Representing  1/1,000 of a Share of 8-1/4%  Cumulative
                    Preferred  Stock,   Series  L  and  incorporated  herein  by
                    reference.

              3.23  Bylaws,  as amended.  Filed with  Registrant's  Registration
                    Statement No. 33-64971 and incorporated herein by reference.

              3.24  Amendment  to Bylaws  adopted  on May 9,  1996.  Filed  with
                    Registrant's   Registration   Statement  No.  333-03749  and
                    incorporated herein by reference.

              3.25  Amendment  to Bylaws  adopted on June 26,  1997.  Filed with
                    Registrant's   Registration   Statement  No.  333-41123  and
                    incorporated herein by reference.

              3.26  Amendment to Bylaws  adopted on January 6, 1998.  Filed with
                    Registrant's   Registration   Statement  No.  333-41123  and
                    incorporated herein by reference.

              3.27  Amendment to Bylaws adopted on February 10, 1998. Filed with
                    Registrant's  Current  Report on Form 8-K dated February 10,
                    1998 and incorporated herein by reference.

              3.28  Amendment  to Bylaws  adopted on March 4,  1999.  Filed with
                    Registrant's  Current Report on Form 8-K dated March 4, 1999
                    and incorporated herein by reference.

              3.29  Amendment  to Bylaws  adopted  on May 6,  1999.  Filed  with
                    Registrant's  Form 10-Q for the quarterly period ended March
                    31, 1999 and incorporated herein by reference.

              10.1  Second  Amended and  Restated  Management  Agreement  by and
                    among Registrant and the entities listed therein dated as of
                    November 16, 1995.  Filed with PS  Partners,  Ltd.'s  Annual
                    Report on Form 10-K for the year ended December 31, 1996 and
                    incorporated herein by reference.

              10.2  Amended  Management  Agreement between Registrant and Public
                    Storage  Commercial  Properties  Group,  Inc.  dated  as  of
                    February 21, 1995. Filed with Registrant's  Annual Report on
                    Form  10-K  for  the  year  ended   December  31,  1994  and
                    incorporated herein by reference.

              10.3  Loan Agreement  between  Registrant and Aetna Life Insurance
                    Company dated as of July 11, 1988.  Filed with  Registrant's
                    Current   Report  on  Form  8-K  dated  July  14,  1988  and
                    incorporated herein by reference.

              10.4  Amendment to Loan  Agreement  between  Registrant  and Aetna
                    Life Insurance  Company dated as of September 1, 1993. Filed
                    with  Registrant's  Annual  Report on Form 10-K for the year
                    ended   December  31,  1993  and   incorporated   herein  by
                    reference.

              10.5  Second  Amended and Restated  Credit  Agreement by and among
                    Registrant,  Wells  Fargo  Bank,  National  Association,  as
                    agent, and the financial institutions party thereto dated as
                    of February 25, 1997. Filed with  Registrant's  Registration
                    Statement   No.   333-22665  and   incorporated   herein  by
                    reference.

                                       33

<PAGE>

              10.6  Note  Assumption and Exchange  Agreement by and among Public
                    Storage Management,  Inc., Public Storage,  Inc., Registrant
                    and the holders of the notes dated as of November  13, 1995.
                    Filed with Registrant's  Registration Statement No. 33-64971
                    and incorporated herein by reference.

              10.7  Registrant's 1990 Stock Option Plan. Filed with Registrant's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    1994 and incorporated herein by reference.

              10.8  Registrant's 1994 Stock Option Plan. Filed with Registrant's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    1997 and incorporated herein by reference.

              10.9  Registrant's  1996 Stock Option and  Incentive  Plan.  Filed
                    with  Registrant's  Annual  Report on Form 10-K for the year
                    ended   December  31,  1997  and   incorporated   herein  by
                    reference.

              10.10 Agreement  and  Plan  of  Reorganization  among  Registrant,
                    Public Storage  Properties IX, Inc., and PS Business  Parks,
                    Inc. dated as of December 13, 1995. Filed with  Registrant's
                    Registration Statement No. 333-00591 and incorporated herein
                    by reference.

              10.11 Deposit  Agreement  dated as of  December  13,  1995,  among
                    Registrant,  The  First  National  Bank of  Boston,  and the
                    holders of the depositary receipts evidencing the Depositary
                    Shares  Each  Representing  1/1,000  of  a  Share  of  8-7/8
                    Cumulative   Preferred   Stock,   Series   G.   Filed   with
                    Registrant's Form 8-A/A  Registration  Statement relating to
                    the Depositary Shares Each Representing  1/1000th of a Share
                    of  8-7/8   Cumulative   Preferred   Stock,   Series  G  and
                    incorporated herein by reference.

              10.12 Deposit  Agreement  dated  as of  January  25,  1996,  among
                    Registrant,  The  First  National  Bank of  Boston,  and the
                    holders of the depositary receipts evidencing the Depositary
                    Shares  Each  Representing  1/1,000  of  a  Share  of  8.45%
                    Cumulative   Preferred   Stock,   Series   H.   Filed   with
                    Registrant's Form 8-A/A  Registration  Statement relating to
                    the Depositary Shares Each Representing  1/1000th of a Share
                    of  8.45%   Cumulative   Preferred   Stock,   Series  H  and
                    incorporated herein by reference.

              10.13 Employment  Agreement between Registrant and B. Wayne Hughes
                    dated as of  November  16,  1995.  Filed  with  Registrant's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    1995 and incorporated herein by reference.

              10.14 Deposit  Agreement  dated  as of  November  1,  1996,  among
                    Registrant,  The  First  National  Bank of  Boston,  and the
                    holders of the depositary receipts evidencing the Depositary
                    Shares  Each  Representing  1/1,000  of a  Share  of  8-5/8%
                    Cumulative   Preferred   Stock,   Series   I.   Filed   with
                    Registrant's Form 8-A/A  Registration  Statement relating to
                    the Depositary Shares Each Representing  1/1000th of a Share
                    of  8-5/8%   Cumulative   Preferred  Stock,   Series  I  and
                    incorporated herein by reference.

              10.15 Agreement  and  Plan  of  Reorganization  among  Registrant,
                    Public  Storage  Properties  XIV, Inc. and,  Public  Storage
                    Properties XV, Inc. dated as of December 5, 1996. Filed with
                    Registrant's   Registration   Statement  No.  333-22665  and
                    incorporated herein by reference.

              10.16 Agreement  and  Plan  of  Reorganization  among  Registrant,
                    Public  Storage   Properties   XVI,  Inc.,   Public  Storage
                    Properties XVII, Inc., Public Storage Properties XVIII, Inc.
                    and Public Storage Properties XIX, Inc. dated as of April 9,
                    1997.  Filed with  Registrant's  Registration  Statement No.
                    333-26959 and incorporated herein by reference.

                                       34

<PAGE>

              10.17 Limited Partnership  Agreement of PSAF Development Partners,
                    L. P. between PSAF Development, Inc. and the Limited Partner
                    dated as of April 10,  1997.  Filed with  Registrant's  Form
                    10-Q for the  quarterly  period  ended  March  31,  1997 and
                    incorporated herein by reference.

              10.18 Deposit   Agreement  dated  as  of  August  28,  1997  among
                    Registrant,  The  First  National  Bank of  Boston,  and the
                    holders of the depositary receipts evidencing the Depositary
                    Shares Each Representing 1/1,000 of a Share of 8% Cumulative
                    Preferred  Stock,  Series J.  Filed with  Registrant's  Form
                    8-A/A  Registration  Statement  relating  to the  Depositary
                    Shares Each Representing 1/1,000 of a Share of 8% Cumulative
                    Preferred  Stock,   Series  J  and  incorporated  herein  by
                    reference.

              10.19 Agreement and Plan of Reorganization  between Registrant and
                    Public Storage  Properties XX, Inc. dated as of December 13,
                    1997.  Filed with  Registrant's  Registration  Statement No.
                    333-49247 and incorporated herein by reference.

              10.20 Agreement of Limited Partnership of PS Business Parks, L. P.
                    dated as of March 17,  1998.  Filed with PS Business  Parks,
                    Inc.'s  Quarterly  Report  on Form  10-Q  for the  quarterly
                    period  ended  June 30,  1998  and  incorporated  herein  by
                    reference.

              10.21 Deposit  Agreement  dated  as  of  January  19,  1999  among
                    Registrant,  BankBoston,  N.  A.  and  the  holders  of  the
                    depositary  receipts  evidencing the Depositary  Shares Each
                    Representing   1/1,000  of  a  Share  of  8-1/4%  Cumulative
                    Preferred  Stock,  Series K.  Filed with  Registrant's  Form
                    8-A/A  Registration  Statement  relating  to the  Depositary
                    Shares  Each  Representing  1/1,000  of a  Share  of  8-1/4%
                    Cumulative Preferred Stock, Series K and incorporated herein
                    by reference.

              10.22 Agreement  and Plan of Merger among  Storage  Trust  Realty,
                    Registrant  and Newco Merger  Subsidiary,  Inc.  dated as of
                    November  12,  1998.  Filed with  Registrant's  Registration
                    Statement   No.   333-68543  and   incorporated   herein  by
                    reference.

              10.23 Amendment  No.  1 to  Agreement  and  Plan of  Merger  among
                    Storage Trust Realty,  Registrant,  Newco Merger Subsidiary,
                    Inc. and STR Merger Subsidiary, Inc. dated as of January 19,
                    1999.  Filed with  Registrant's  Registration  Statement No.
                    333-68543 and incorporated herein by reference.

              10.24 Amended and  Restated  Agreement of Limited  Partnership  of
                    Storage Trust Properties, L. P., dated as of March 12, 1999.
                    Filed herewith.

              10.25 Storage Trust Realty 1994 Share Incentive  Plan.  Filed with
                    Storage  Trust  Realty's  Annual Report on Form 10-K for the
                    year ended  December  31,  1997 and  incorporated  herein by
                    reference.

              10.26 Amended and Restated  Storage Trust Realty  Retention  Bonus
                    Plan   effective  as  of  November  12,  1998.   Filed  with
                    Registrant's   Registration   Statement  No.  333-68543  and
                    incorporated herein by reference.

              10.27 Deposit   Agreement   dated  as  of  March  10,  1999  among
                    Registrant,  Bank  Boston,  N.A.  and  the  holders  of  the
                    depositary  receipts  evidencing the Depositary  Shares Each
                    Representing   1/1,000  of  a  Share  of  8-1/4%  Cumulative
                    Preferred  Stock,  Series L.  Filed with  Registrant's  Form
                    8-A/A  Registration  Statement  relating  to the  Depositary
                    Shares  Each  Representing  1/1,000  of a  Share  of  8-1/4%
                    Cumulative Preferred Stock, Series L and incorporated herein
                    by reference.

                                       35

<PAGE>

              10.28 Note Purchase  Agreement and Guaranty Agreement with respect
                    to $100,000,000 of Senior Notes of Storage Trust Properties,
                    L.P. Filed with Storage Trust Realty's Annual Report on Form
                    10-K for the year ended  December 31, 1996 and  incorporated
                    herein by reference.

              11    Statement  re:  Computation of  Earnings  Per  Share.  Filed
                    herewith.

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

              27      Financial data schedule.  Filed herewith.

         (b)  Reports on Form 8-K

              No  reports  on Form 8-K  were  filed by the  Company  during  the
              quarter ended June 30, 1999.

                                       36

<PAGE>

                                   SIGNATURES



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




                         DATED:  August 13, 1999

                         PUBLIC STORAGE, INC.


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

                                       37