SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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


For the quarterly period ended September 30, 1997
                               ------------------


                                       or

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


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


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


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


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


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


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



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

                                [ X ] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of November 4, 1997:

Common Stock, $.10 par value, 103,013,266 shares outstanding
------------------------------------------------------------

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

Equity Stock, Series A, $.01 Par Value - 225,000 shares
-------------------------------------------------------
<PAGE>
                              PUBLIC STORAGE, INC.

                                      INDEX

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

Item 1.  Condensed Consolidated Balance Sheets at                       
           September 30, 1997 and December 31, 1996                            1

         Condensed Consolidated Statements of Income for the
           Three and Nine Months Ended September 30, 1997 and 1996             2

         Condensed Consolidated Statements of  Shareholders Equity
           for the Nine Months Ended September 30, 1997                        3

         Condensed Consolidated Statements of Cash Flows
           for the Nine Months Ended September 30, 1997 and 1996            4- 5

         Notes to Condensed Consolidated Financial Statements             6 - 14

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations                 15 - 26

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

Item 6.  Exhibits and Reports on Form 8-K                                     27



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

                                                                     September 30,               December 31,
                                                                         1997                        1996
                                                                    ----------------          ----------------
                          ASSETS                                      (Unaudited)      

<S>                                                                      <C>                   <C>         
Cash and cash equivalents............................                    $90,763               $     26,856
Real estate facilities, at cost:
   Land..............................................                    778,690                    596,141
   Buildings.........................................                  2,072,900                  1,589,357
                                                                    ----------------          ----------------
                                                                       2,851,590                  2,185,498
   Accumulated depreciation..........................                   (355,049)                  (297,655)
                                                                    ----------------          ----------------
                                                                       2,496,541                  1,887,843
  Construction in process............................                     51,358                     35,815
                                                                    ----------------          ----------------
                                                                       2,547,899                  1,923,658

Investment in real estate entities...................                    231,962                    350,190
Intangible assets, net...............................                    215,272                    222,253
Other assets.........................................                     68,631                     49,195
                                                                    ----------------          ----------------
              Total assets...........................                 $3,154,527               $  2,572,152
                                                                    ================          ================


        LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable........................................                   $100,349               $    108,443
Accrued and other liabilities........................                     71,664                     41,467
                                                                    ----------------          ----------------
         Total liabilities...........................                    172,013                    149,910

Minority interest....................................                    190,695                    116,805

Commitments and contingencies

Shareholders' equity:
   Preferred Stock, $0.01 par value, 50,000,000
     shares authorized, - 13,313,009 shares issued
     and outstanding (13,421,580 issued and
     outstanding at December 31, 1996), at
     liquidation preference:
         Cumulative Preferred Stock, issued in series                    868,900                    718,900
         Convertible Preferred Stock.................                     54,584                    114,929

   Common stock, $0.10 par value, 200,000,000 shares
     authorized, 102,991,059 shares issued and
     outstanding (88,362,026 at December 31, 1996)...                     10,299                      8,837

   Class B Common Stock, $0.10 par value, 7,000,000
     shares authorized and issued....................                        700                        700

   Paid-in capital...................................                  1,847,745                  1,454,387
   Cumulative net income.............................                    529,537                    396,420
   Cumulative distributions paid.....................                   (519,946)                  (388,736)
                                                                    ----------------          ----------------
         Total shareholders' equity..................                  2,791,819                  2,305,437
                                                                    ----------------          ----------------
              Total liabilities and shareholders'equity.              $3,154,527               $  2,572,152
                                                                    ================          ================

</TABLE>
                         See accompanying notes.
                                  1

<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                   (UNAUDITED)

                                                       For the Three Months Ended         For the Nine Months Ended
                                                              September 30,                     September 30,
                                                       ---------------------------        ---------------------------
                                                          1997            1996             1997             1996
                                                       ------------   ------------        -----------   -------------
REVENUES:
   Rental income:
<S>                                                    <C>             <C>              <C>               <C>       
      Self-storage facilities.................         $  102,613      $  70,434        $  274,161        $  195,295
      Commercial properties...................             11,526          6,006            27,694            16,675
      Portable self-storage...................              2,566            160             4,140               160
   Equity in earnings of real estate entities.              4,431          5,559            14,681            15,649
   Facility management fees...................              2,355          3,609             8,298            10,918
   Interest and other income..................              2,908          1,750             7,651             6,059
                                                       ------------   ------------        -----------   -------------
                                                          126,399         87,518           336,625           244,756
                                                       ------------   ------------        -----------   -------------
EXPENSES:
  Cost of operations:
      Self-storage facilities.................             29,852         20,859            82,746            58,835
      Commercial properties...................              4,277          2,739            11,034             7,325
      Portable self-storage...................             14,635             90            25,325                90
  Cost of facility management.................                352            576             1,294             1,751
  Depreciation and amortization ..............             23,847         16,819            64,375            47,553
  General and administrative..................              1,919          1,536             5,205             4,595
  Interest expense............................              2,262          2,080             5,821             6,893
                                                       ------------   ------------        -----------   -------------
                                                           77,144         44,699           195,800           127,042
                                                       ------------   ------------        -----------   -------------
Income before minority interest...............             49,255         42,819           140,825           117,714

Minority interest in income...................             (2,707)        (2,453)           (7,708)           (7,268)
                                                       ------------   ------------        -----------   -------------

Net income....................................          $  46,548      $  40,366        $  133,117        $  110,446
                                                       ============   ============        ===========   =============

Net income allocation:
   Allocable to preferred shareholders........          $  18,316      $  17,056        $   68,134        $   50,118
   Allocable to common shareholders...........             28,232         23,310            64,983            60,328
                                                       ------------   ------------        -----------   -------------
                                                        $  46,548      $  40,366        $  133,117        $  110,446
                                                       ============   ============        ===========   =============

PER COMMON SHARE:

Net income....................................          $    0.27      $    0.30        $     0.67        $     0.81
                                                       ============   ============        ===========   =============

Weighted average common shares outstanding....            103,536         78,338            97,154            74,690
                                                       ============   ============        ===========   =============

</TABLE>
                         See accompanying notes.
                                  2
<PAGE>
<TABLE>
<CAPTION>

                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                  For the Nine Months Ended September 30, 1997
                    (Amounts in thousands except share data)

                                   (Unaudited)

                                                                    Preferred Stock                                  
                                                              -------------------------                   Class B    
                                                               Cumulative                    Common       Common     
                                                                 Senior      Convertible      Stock        Stock     
                                                              -------------  -----------    ----------   ---------   
<S>                                                           <C>             <C>           <C>          <C>         
Balances at December 31, 1996...........................      $  718,900      $ 114,929     $   8,837    $     700   

Issuance of preferred stock, Series J...................         150,000              -             -            -   

Issuance of common stock:
     In connection with mergers (7,681,432 shares) .....               -              -           768            -   
     Public issuance (4,600,000 shares).................               -              -           460            -   
     Conversion of 8.25% Convertible Preferred Stock into
        common stock (93,585 shares)....................               -         (1,390)            9            -   
     Conversion of Mandatory  Convertible Preferred 
        Stock, Series CC into common stock (2,184,250 
        shares).........................................               -        (58,955)          218            -   
     Other (69,766 shares)..............................               -              -             7            -   

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

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

Balances at September 30, 1997..........................        $868,900      $  54,584     $  10,299       $  700   
                                                              =============  ===========    ==========   =========   

</TABLE>
<TABLE>
<CAPTION>

                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                  For the Nine Months Ended September 30, 1997
                    (Amounts in thousands except share data)

                                   (Unaudited)

                                                             
                                                                                                                 Total
                                                                  Paid-in     Cumulative     Cumulative      Shareholders'
                                                                  Capital     Net Income    Distributions       Equity
                                                               -----------    -----------   --------------   -------------
<S>                                                            <C>            <C>           <C>              <C>         
Balances at December 31, 1996...........................       $1,454,387     $ 396,420     $ (388,736)      $  2,305,437

Issuance of preferred stock, Series J...................           (5,075)            -              -             144,925

Issuance of common stock:
     In connection with mergers (7,681,432 shares) .....          211,232             -              -             212,000
     Public issuance (4,600,000 shares).................          126,239             -              -             126,699
     Conversion of 8.25% Convertible Preferred Stock into
        common stock (93,585 shares)....................            1,381             -              -                   -
     Conversion of Mandatory  Convertible Preferred 
        Stock, Series CC into common stock (2,184,250 
        shares).........................................           58,737             -              -                   -
     Other (69,766 shares)..............................              844             -              -                 851

Net income..............................................                -       133,117              -             133,117

Cash distributions:
   Cumulative Senior Preferred Stock....................                -             -        (49,399)            (49,399)
   Mandatory Convertible Preferred Stock, Series CC.....                -             -        (15,328)            (15,328)
   8.25% Convertible Preferred Stock....................                -             -         (3,407)             (3,407)
   Common Stock.........................................                -             -        (63,076)            (63,076)
                                                               -----------    -----------   --------------   -------------

Balances at September 30, 1997..........................       $1,847,745      $529,537      $(519,946)         $2,791,819
                                                               ===========    ===========   ==============   =============
</TABLE>
                         See accompanying notes.
                                  3

<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

                                   (UNAUDITED)

                                                                                       For the Nine Months Ended
                                                                                             September 30,
                                                                                     ------------------------------
                                                                                          1997               1996
                                                                                     -------------    -------------
Cash flows from operating activities:
<S>                                                                                   <C>               <C>       
   Net income..........................................................               $  133,117        $  110,446
   Adjustments to reconcile  net income to net cash  provided by operating
     activities:
     Depreciation and amortization.....................................                   64,375            47,553
     Depreciation included in equity in earnings of real estate                            9,107            13,241
     entities..........................................................
     Minority interest in income.......................................                    7,708             7,268
                                                                                     -------------    -------------
         Total adjustments.............................................                   81,190            68,062
                                                                                     -------------    -------------
             Net cash provided by operating activities.................                  214,307           178,508
                                                                                     -------------    -------------

Cash flows from investing activities:
     Capital improvements to real estate facilities....................                  (24,309)          (13,465)
     Construction in process...........................................                  (53,085)          (30,579)
     Acquisition of real estate facilities.............................                  (50,172)         (101,972)
     Capital expenditures relating to portable self-storage operations
       (included in other assets) .....................................                  (15,393)                -
     Acquisition of interests in real estate entities..................                  (43,257)          (86,508)
     Acquisition cost of business combinations.........................                 (120,986)          (83,620)
     Acquisition of minority interests.................................                  (20,967)          (10,075)
     Other.............................................................                      897            (8,796)
                                                                                     -------------    -------------
             Net cash used in investing activities.....................                 (327,272)         (335,015)
                                                                                     -------------    -------------
Cash flows from financing activities:
     Principal payments on notes payable...............................                   (8,094)          (47,106)
     Net proceeds from the issuance of preferred stock.................                  144,925           163,133
     Net proceeds from the issuance of common stock....................                  127,550           129,493
     Distributions paid to shareholders................................                 (130,125)          (99,239)
     Distributions from operations to minority interests in
       consolidated real estate partnerships...........................                  (14,201)          (15,976)
     Net reinvestment by minority interests into real estate                               3,346             2,023
     partnerships......................................................
     Contributions from minority interest in development joint venture.                   47,087                 -
     Other.............................................................                    6,384             3,971
                                                                                     -------------    -------------
             Net cash provided by financing activities.................                  176,872           136,299
                                                                                     -------------    -------------

Net increase (decrease) in cash and cash equivalents...................                   63,907           (20,208)
Cash and cash equivalents at the beginning of the period...............                   26,856            80,436
                                                                                     -------------    -------------
Cash and cash equivalents at the end of the period.....................                $  90,763         $  60,228
                                                                                     =============    =============
</TABLE>
                         See accompanying notes.
                                  4

<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

                                   (UNAUDITED)

                                   (CONTINUED)

                                                                                       For the Nine Months Ended
                                                                                             September 30,
                                                                                     ------------------------------
                                                                                          1997               1996
                                                                                     -------------    -------------

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<S>                                                                                   <C>               <C>       
Acquisition of real estate facilities in exchange for the cancellation of
   mortgage notes  receivable,  the assumption of mortgage notes payable,
   and issuance of common and preferred stock..............................        $        -        $    (2,401)

Business combinations:
   Real estate facilities..................................................           (540,945)          (351,907)
   Other assets............................................................             (3,097)            (5,076)
   Accrued and other liabilities...........................................             16,640              9,370
   Minority interest.......................................................             42,038             20,139
   Investment in real estate entities......................................            152,378             82,113

Accrued construction in process............................................             (4,245)                 -

Accrued and unpaid dividends...............................................             (1,085)                 -

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

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

Issuance of Mandatory Convertible Preferred Stock, Series CC...............                  -             58,955

Issuance of common stock in connection with:
   - business combinations.................................................            212,000            106,285
   - conversions of 8.25% Convertible Preferred Stock......................              1,390                936
   - conversions of Mandatory Convertible Preferred Stock..................             58,955             27,960

Conversion of 8.25% Convertible Preferred Stock into common stock..........             (1,390)              (936)

Conversion of Series CC Convertible Preferred Stock into common stock......            (58,955)                 -

Conversion of Mandatory Convertible Preferred Stock into common stock......                  -            (28,470)

</TABLE>
                         See accompanying notes.
                                  5
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997


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

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

               The Company invests in real estate  facilities  primarily through
     the acquisition of wholly-owned facilities combined with the acquisition of
     equity interests in real estate entities owning real estate facilities.  At
     September 30, 1997, the Company had direct and indirect equity interests in
     1,127  properties  located  in  38  states,  including  1,072  self-storage
     facilities and 55 commercial properties.

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 nine months ended
     September 30, 1997 are not  necessarily  indicative of the results that may
     be expected for the year ended December 31, 1997. For further  information,
     refer  to the  consolidated  financial  statements  and  footnotes  thereto
     included  in the  Company's  annual  report on Form 10-K for the year ended
     December 31, 1996.

               The consolidated financial statements include the accounts of (i)
     the Company,  (ii) majority  owned  subsidiaries  which are involved in the
     sale of locks and boxes,  rental of trucks and portable  self-storage,  and
     the   management  and  operation  of  commercial   properties,   and  (iii)
     twenty-three  limited  partnerships  in which the Company  has  significant
     economic  interest  (in excess of 50%) and is able to exercise  significant
     control (the "Consolidated Partnerships").  Collectively,  the Company, the
     majority owned subsidiaries,  and the Consolidated Partnerships own a total
     of 916 real estate  facilities,  consisting of 863 self-storage  facilities
     and 53 commercial properties.

               The Company also has equity  investments  in 40 other  affiliated
     limited  partnerships  and two REITs  owning in  aggregate  211 real estate
     facilities (209 self-storage  facilities and 2 commercial properties) which
     are managed by the Company.  The Company's  ownership interest in such real
     estate  entities  is  less  than  50% of the  total  equity  interest  and,
     accordingly,  the Company's  investments in these real estate  entities are
     accounted for using the equity method.

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

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

                                       6
<PAGE>

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

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

               Real estate 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.

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

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

               Intangible  assets  consist  of  property  management   contracts
     ($165,000,000)  and the  cost  over  the fair  value  of net  tangible  and
     identifiable intangible assets ($67,726,000) acquired in a 1995 merger with
     an affiliate.  Intangible assets are amortized by the straight-line  method
     over  25  years.  At  September  30,  1997,  intangible  assets  are net of
     accumulated amortization of $17,454,000 ($10,473,000 at December 31, 1996).
     Included in depreciation  and  amortization  expense for the three and nine
     months ended  September  30, 1997 and 1996 is  $2,326,000  and  $6,981,000,
     respectively, related to the amortization of intangible assets.

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

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

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

               Net  income  per  common  share is  computed  using the  weighted
     average  common  shares  outstanding  (adjusted  for  stock  options).  The
     inclusion of the Class B Common Stock in the  determination of earnings per
     common share is  anti-dilutive  and,  accordingly,  are not included in the
     computation in either period. The Company's preferred stocks are not common
     stock  equivalents.  Fully  diluted  earnings  per  common  share  are  not
     presented, as the assumed conversion of the Company's convertible preferred
     stocks would be anti-dilutive.

               In computing earnings per common share, preferred stock dividends
     reduced income  available to common  stockholders.  At the end of the first
     quarter of 1997, the Company paid a non-recurring  special  dividend to the
     holder of the Series CC Convertible Preferred Stock totaling $13.4 million.
     As a result of this  payment,  the Company  would not have been required to
     pay quarterly dividends with respect to the Series CC Convertible Preferred
     Stock until the quarter ended March 31, 1999.  During the second quarter of
     1997,  the Series CC  Convertible  Preferred  Stock  converted  into common
     stock. Net income  allocable to the Company's  preferred stock for the nine
     months ended September 30, 1997 reflects the special  dividends paid to the
     Series CC Convertible preferred stock of $13.4 million.

                                       7
<PAGE>

               In February 1997, the Financial Accounting Standards Board issued
     Statement No. 128,  Earnings per Share,  which is required to be adopted on
     December 31, 1997. At that time, the Company will be required to change the
     method  currently  used to compute  earnings  per share and to restate  all
     prior periods.  Under the new requirements for calculating primary earnings
     per share,  the dilutive  effects of stock  options  will be excluded.  The
     impact  of the new  standard  will not have a  material  impact  on  either
     primary or  fully-diluted  earnings per common share for the three and nine
     months ended September 30, 1997 and 1996.

               Reclassifications
               -----------------

               Certain  reclassifications  have  been  made to the  consolidated
     financial statements for 1996 in order to conform to the 1997 presentation.

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

               Mergers with affiliated REITs
               -----------------------------

               During the second quarter of 1997, the Company  completed  merger
     transactions  with six affiliated public REITs whereby the Company acquired
     all the  outstanding  stock of the REITs which it did not previously own in
     exchange  for  cash  and  common  stock  of  the  Company.   The  aggregate
     acquisition cost of these mergers is summarized as follows:
<TABLE>
<CAPTION>

                                                                                         Merger consideration
                                                                         -------------------------------------------------
                                                                         Common Stock               Pre-existing
     Entity                                              Date of merger                   Cash      investment      Total
     ----------------------------------------            --------------  -------------------------------------------------
                                                                                        (Amounts in thousands)
<S>                                                      <C>             <C>            <C>          <C>          <C>     
     Public Storage Properties XIV, Inc.                 April 11, 1997  $  34,450      $  9,145     $ 19,977     $ 63,572
     Public Storage Properties XV, Inc.                  April 11, 1997     29,764         8,883       18,137       56,784
     Public Storage Properties XVI, Inc.                 June 24, 1997      41,060        10,804       22,225       74,089
     Public Storage Properties XVII, Inc.                June 24, 1997      34,590        15,793       25,862       76,245
     Public Storage Properties XVIII, Inc.               June 24, 1997      39,727        17,570       19,841       77,138
     Public Storage Properties XIX, Inc.                 June 24, 1997      32,409         6,667       18,003       57,079
                                                                          --------       -------     --------      --------
                                                                          $212,000       $68,862     $124,045     $404,907
                                                                          ========       =======     ========     ========

</TABLE>
               Affiliated Partnership Acquisitions
               -----------------------------------

               During the second quarter of 1997, the Company acquired a limited
     partnership   interest  in  an  affiliated   partnership  for  $22,500,000,
     consisting of the issuance of the Company's  Equity Stock,  Series A to the
     affiliated partnership. The acquisition of this interest, combined with the
     Company's  existing  general  partnership   interest  in  the  partnership,
     significantly increased the Company's ownership interest and control of the
     partnership and, as a result, the Company began to consolidate the accounts
     of this partnership.

               During the third quarter of 1997, the Company  acquired a limited
     partnership interest in an affiliated  partnership for $57,004,000 in cash.
     The acquisition of this interest  increased the Company's  ownership in the
     partnership  in excess of 50% (at  September  30, 1997,  the Company  owned
     approximately a 66% limited partnership interest in the partnership as well
     as  virtually  all of the  general  partnership  interest).  Because of the
     Company's  increased  ownership  interest  and  control of the  Partnership
     through its general partnership interest,  the Company began to consolidate
     the  accounts  of this  partnership.  The  total  merger  consideration  of
     $96,386,000 in this  transaction  includes the $52,124,000 cash acquisition
     cost and the company's pre-existing investment of $44,262,000.

                                       8
<PAGE>

               Each of the above mergers with  affiliated  REITs and acquisition
     of affiliated  partnership  interests has been accounted for as a purchase;
     accordingly,  allocations of the total  acquisition  cost to the net assets
     acquired  were made based on the fair value of such assets and  liabilities
     as of the dates of each respective  transaction.  The fair market values of
     the assets and  liabilities  assumed with respect to the  transactions  are
     summarized as follows:
<TABLE>
<CAPTION>

   
                                                         REIT           Partnership
                                                        mergers         acquisitions         Total
                                                     -------------     -------------     ------------- 
                                                                       (In thousands)
    
<S>                                                    <C>                <C>            <C>     
     Real estate facilities...................         $413,597           $127,348       $540,945
     Investment in real estate entities.......                -             15,929         15,929
     Minority Interest........................                -            (42,038)       (42,038)
     Other Assets                                         2,424                673          3,097
     Accrued liabilities......................          (11,114)            (5,526)       (16,640)
                                                     -------------     -------------     ------------- 
                                                        $404,907            $96,386       $501,293
                                                     =============     =============     ============= 
</TABLE>
   
               The   historical   operating   results  of  the  above   business
     combinations  prior  to each  respective  acquisition  date  have  not been
     included in the Company's  historical operating results. Pro forma selected
     financial  data for the nine months  ended  September  30, 1997 and 1996 as
     though the above business  combinations had been effective at the beginning
     of each period are as follows:
<TABLE>
<CAPTION>
                                                                          Nine Months Ended          Nine Months Ended
        (In  thousands, except per share data)                           September 30, 1997        September 30, 1996
        --------------------------------------                            ------------------        ------------------
        <S>                                                                   <C>                   <C>
        Revenues...............................................               $ 374,568             $ 298,141
        Net income.............................................               $ 136,144             $ 118,665
        Net income per common share............................               $    0.67             $    0.83
</TABLE>

               The  pro  forma  data  does  not  purport  to  be  indicative  of
     operations that would have occurred had the business  combinations occurred
     at the  beginning  of each period or future  results of  operations  of the
     Company. Certain pro forma adjustments were made to the combined historical
     amounts to  reflect  expected  reductions  in  general  and  administrative
     expenses   combined  with  an  estimated   increase  in  depreciation   and
     amortization expense.


                                       9
<PAGE>

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

               Activity in real estate facilities during 1997 is as follows:

<TABLE>
<CAPTION>

                                                            
                                                               Number of                   
                                                              real estate          Net rentable            Net 
                                                              facilities            square feet        carrying cost
                                                              -------------         ------------      -------------- 
                                                              (Amounts in thousands, except number of facilities)
     Operating Facilities
<S>                                                                 <C>                <C>               <C>       
       Balance at December 31, 1996....................             756                46,462            $2,185,498
       Property  acquisitions  -  mergers  and  business            149                 9,084               540,945
       combinations....................................
       Property acquisitions - third party purchases...               4                   631                50,172
       Newly opened developed facilities...............               7                   474                41,615
       Acquisition of minority interest................               -                     -                 8,555
       Capital improvements............................               -                     -                24,309
       Other...........................................               -                     -                   496
                                                              -------------         ------------      -------------- 
       Balance at September 30, 1997...................             916                56,651             2,851,590
                                                              -------------         ------------      -------------- 

     Accumulated depreciation:
       Balance at December 31, 1996....................                                                    (297,655)
       Additions during the year.......................                                                     (57,394)
                                                                                                      --------------
       Balance at September 30, 1997...................                                                    (355,049)
                                                                                                      --------------

     Construction in progress:
       Balance at December 31, 1996....................              11                   707                35,815
       Expansion  projects acquired in  mergers........               -                    39                   773
       Current development.............................              14                   783                56,385
       Newly opened developed facilities...............              (7)                 (474)              (41,615)
                                                              -------------         ------------      -------------- 
       Balance at September 30, 1997...................              18                 1,055                51,358
                                                              -------------         ------------      -------------- 

       Total real estate facilities....................             934                57,706            $2,547,899
                                                              =============         ============      ============== 
</TABLE>
 
               The Company's policy is to capitalize  interest  incurred on debt
     during the course of construction of its self-storage facilities.  Interest
     capitalized  during the three and nine months ended  September 30, 1997 was
     $332,000 and $1,421,000, respectively, compared to $549,000 and $1,142,000,
     respectively, for the same periods in 1996.


               During the third  quarter of 1997,  the  Company  acquired  three
     commercial  properties  (585,000  square  feet)  for an aggregate  cost  of
     approximately $43.3 million. The Company also purchased one facility with a
     total of 46,000 square feet of  self-storage  and  commercial  space for an
     aggregate acquisition cost of $6.8 million.



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

               The Company's investment in real estate entities at September 30,
     1997  generally  consists of limited and general  partnership  interests in
     approximately  40 affiliated  partnerships and common stock in 2 affiliated
     REITs.  Such interests  consist of ownership  interests ranging from 15% to
     45% and are accounted for using the equity method of accounting.


                                       10
<PAGE>

               During the three and nine months ended  September  30, 1997,  the
     Company recognized  earnings from its investments  totaling  $4,431,000 and
     $14,681,000,  respectively.  Included  in equity in earnings of real estate
     entities  for the three and nine  months  ended  September  30, 1997 is the
     Company's share of depreciation expense totaling $2,422,000 and $9,107,000,
     respectively. 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 September 30, 1997 are as follows:
<TABLE>
<CAPTION>

                                                                   Nine Months Ended September 30,
                                                                   -------------------------------
                                                                       1997                  1996
                                                                   -------------        ------------
                                                                            (in thousands)

<S>                                                                 <C>                     <C>    
        Rental income.....................................          $  83,709               $77,812
        Total revenues....................................             85,055                78,881
        Cost of operations................................             29,499                27,655
        Depreciation......................................             11,448                10,017
        Net income........................................             36,281                32,068

        Total assets, net of accumulated depreciation.....           $468,587              $461,293
        Total debt........................................             78,293                81,334
        Total equity......................................            367,907               363,291

</TABLE>

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

               As of September  30, 1997,  the Company had no  borrowings on its
     unsecured  credit  agreement with a group of commercial  banks.  The credit
     agreement (the "Credit  Facility") has a borrowing  limit of $150.0 million
     and an  expiration  date of July  31,  2001.  The  expiration  date  may be
     extended by one year on each anniversary of the credit agreement.  Interest
     on outstanding borrowings is payable monthly. At the option of the Company,
     the rate of interest  charged is equal to (i) the prime rate or (ii) a rate
     ranging  from the London  Interbank  Offered Rate  ("LIBOR")  plus 0.40% to
     LIBOR plus 1.10%  depending on the  Company's  credit  ratings and coverage
     ratios, as defined. In addition, the Company is required to pay a quarterly
     commitment  fee of 0.250% (per  annum) of the unused  portion of the Credit
     Facility. The Credit Facility allows the Company, at its option, to request
     the  group of banks to  propose  the  interest  rate they  would  charge on
     specific borrowings not to exceed $50 million.  However, in no case may the
     interest  rate  proposal be greater than the amount  provided by the Credit
     Facility.

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

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

                                       11
<PAGE>

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

               Preferred stock
               ---------------

               At September 30, 1997 and December 31, 1996,  the Company had the
     following series of Preferred Stock outstanding:
<TABLE>
<CAPTION>

                                                            At September 30, 1997            At December 31, 1996
                                                         ----------------------------    ----------------------------
                                            Dividend        Shares         Carrying         Shares         Carrying
                   Series                     Rate       Outstanding        Amount       Outstanding        Amount
    ----------------------------------     ------------  -------------  -------------    -------------  -------------
<S>                                           <C>          <C>           <C>               <C>           <C>         
    Series A ..........................       10.000%      1,825,000     $ 45,625,000      1,825,000     $ 45,625,000
    Series B ..........................        9.200%      2,386,000       59,650,000      2,386,000       59,650,000
    Series C...........................    Adjustable      1,200,000       30,000,000      1,200,000       30,000,000
    Series D...........................        9.500%      1,200,000       30,000,000      1,200,000       30,000,000
    Series E...........................       10.000%      2,195,000       54,875,000      2,195,000       54,875,000
    Series F...........................        9.750%      2,300,000       57,500,000      2,300,000       57,500,000
    Series G ..........................        8.875%          6,900      172,500,000          6,900      172,500,000
    Series H ..........................        8.450%          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              -                -
                                                         -------------  -------------    -------------  -------------

      Total Cumulative Senior Preferred
          Stock........................                   11,129,650      868,900,000     11,123,650      718,900,000
                                                         -------------  -------------    -------------  -------------
    Convertible........................        8.250%      2,183,359       54,584,000      2,238,975       55,974,000
    Mandatory Convertible,   Series CC.       13.000%              -                -         58,955       58,955,000
                                                         -------------  -------------    -------------  -------------
      Total Convertible Preferred Stock                    2,183,359       54,584,000      2,297,930      114,929,000
                                                         -------------  -------------    -------------  -------------
                                                          13,313,009     $923,484,000     13,421,580     $833,829,000
                                                         =============  =============    =============  =============

               The Series A through Series J stock (collectively the "Cumulative
     Senior  Preferred  Stock") have general  preference  rights with respect to
     liquidation  and  quarterly  distributions.  With respect to the payment of
     dividends and amounts upon  liquidation,  all of the Company's  Convertible
     Preferred Stock ranks junior to the Cumulative  Senior  Preferred Stock and
     any other shares of preferred stock of the Company ranking on a parity with
     or  senior  to the  Cumulative  Senior  Preferred  Stock.  The  Convertible
     Preferred Stock ranks senior to the common stock,  any additional  class of
     common stock and any series of preferred stock expressly made junior to the
     Convertible Preferred Stock.

               Holders of the Company's  preferred  stock,  except under certain
     conditions  and as  noted  above,  will  not be  entitled  to  vote on most
     matters.  In the event of a  cumulative  arrearage  equal to six  quarterly
     dividends  or failure to maintain a Debt Ratio (as defined) of 50% or less,
     holders of all  outstanding  series of preferred  stock (voting as a single
     class without regard to series) will have the right to elect two additional
     members  to serve on the  Company's  Board of  Directors  until  events  of
     default have been cured. At September 30, 1997,  there were no dividends in
     arrears and the Debt Ratio was 3.2%.

               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 - September  30, 1999,  Series D - September  30,
     2004,  Series E - January 31, 2005,  Series F - April 30, 2005,  Series G -
     December  31,  2000,  Series H - January 31,  2001,  Series I - October 31,
     2001, Series J - August 31, 2002. On or after the respective dates, each of
     the series of Senior  Preferred  Stock will be  redeemable at the option of
     the Company,  in whole or in part, at $25 per share (or depository share in
     the case of the Series G, Series H,  Series I and Series J),  plus  accrued
     and unpaid dividends.

                                       12
<PAGE>

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

               During the second quarter of 1997, all of the Series CC Preferred
     Stock was converted into 2,184,250 shares of common stock.

               In August 1997, the Company issued  6,000,000  depositary  shares
     (depositary  shares,  each  representing  1/1,000  of a share) of its 8.00%
     Series J preferred  stock,  raising net  proceeds of  approximately  $144.9
     million.

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

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

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

               On March 18, 1997, the Company  publicly issued  4,600,000 shares
     of common stock, raising net proceeds of approximately $126.7 million.

               An  additional  7,681,000  shares of common  stock were issued in
     connection with mergers during the second quarter of 1997.

                  Class B Common Stock

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

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

               For these  purposes,  FFO per share of Common  Stock (as defined)
     was $1.86 for the four  consecutive  calendar  quarters ended September 30,
     1997.

                                       13
<PAGE>

               Dividends
               ---------

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



                                              Distributions
                                              Per Share or           Total
                                            Depository Share     Distributions
                                            ----------------     -------------

   Series A..............................      $    1.875        $   3,422,000
   Series B..............................      $    1.725            4,116,000
   Series C..............................      $    1.394            1,673,000
   Series D..............................      $    1.781            2,138,000
   Series E..............................      $    1.875            4,116,000
   Series F..............................      $    1.828            4,205,000
   Series G..............................      $    1.664           11,482,000
   Series H..............................      $    1.584           10,694,000
   Series I..............................      $    1.617            6,468,000
   Convertible...........................      $    1.547            3,407,000
   Series CC.............................        $260.000           15,328,000
                                                                 -------------
                                                                    67,049,000

   Common................................      $    0.660           63,076,000
                                                                 -------------
        Total dividends paid                                      $130,125,000
                                                                 =============


               At September 30, 1997,  the Company  accrued  distributions  with
     respect to its  Series J  preferred  stock for the period  from the date of
     issuance through September 30, 1997 totaling  $1,085,000 which will be paid
     on December 31, 1997.

               The dividend  rate on the Series C Preferred  Stock for the third
     quarter of 1997 was equal to 7.425% per annum.  The dividend rate per annum
     will be adjusted quarterly and will be equal to the highest of one of three
     U.S. Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate,
     or Thirty Year Constant  Maturity Rate)  multiplied by 110%.  However,  the
     dividend  rate for any dividend  period will neither be less than 6.75% per
     annum nor greater than 10.75%.  The  dividend  rate for the quarter  ending
     December 31, 1997 will be equal to 7.194% per annum.

                                       14
<PAGE>


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

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

               Net income for the three  months  ended  September  30,  1997 was
     $46,548,000   compared  to  $40,366,000   for  the  same  period  in  1996,
     representing  an increase of  $6,182,000 or 15%. The increase in net income
     for the three months ended  September  30, 1997 compared to the same period
     in 1996 was  primarily  the result of  improved  property  operations,  the
     acquisition of additional real estate facilities and partnership  interests
     during  1997 and  1996,  offset  partially  by  start-up  operating  losses
     experienced in the Company's new portable self-storage business.

               Net income  allocable  to common  shareholders  (net income after
     deducting dividends to the Company's preferred  shareholders of $18,316,000
     and  $17,056,000  for the three months ended  September  30, 1997 and 1996,
     respectively)   was  $28,232,000  or  $0.27  per  common  share  (based  on
     103,536,000  weighted  average shares) for the three months ended September
     30,  1997  compared  to  $23,310,000  or $0.30 per common  share  (based on
     78,338,000   weighted   average  shares)  for  the  same  period  in  1996,
     representing  a  decrease  of $0.03 per  common  share.  This  decrease  is
     principally   due  to  operating   losses   generated   from  the  portable
     self-storage  business which totaled  $12,069,000 or $0.12 per common share
     during the three months ended September 30, 1997.

               Net income  for the nine  months  ended  September  30,  1997 was
     $133,117,000  compared  to  $110,446,000  for  the  same  period  in  1996,
     representing  an increase of $22,671,000 or 21%. The increase in net income
     for the nine months ended  September  30, 1997 compared to the same periods
     in 1996 were  primarily  the result of improved  property  operations,  the
     acquisition of additional real estate facilities and partnership  interests
     during 1997 and 1996, offset partially by start-up  operating losses in its
     new ancillary portable self-storage business.

               Net income  allocable  to common  shareholders  (net income after
     deducting dividends to the Company's preferred shareholders of ($68,134,000
     and  $50,118,000  for the nine months  ended  September  30, 1997 and 1996,
     respectively  ) was  $64,983,000  or  $0.67  per  common  share  (based  on
     97,154,000 weighted average shares) for the nine months ended September 30,
     1997 compared to $60,328,000 or $0.81 per common share (based on 74,690,000
     weighted  average  shares)  for the same  period  in 1996,  representing  a
     decrease  of $0.14 per  common  share.  Similar to the three  month  period
     comparisons,   net  income  allocable  to  common   shareholders  has  been
     negatively  impacted  by  losses  generated  from  the  Company's  portable
     self-storage  business which totaled  $21,185,000 or $0.22 per common share
     for the nine months  ended  September  30, 1997.  In  addition,  net income
     allocable to the common  shareholders  for the nine months ended  September
     30, 1997 was negatively impacted by a special dividend totaling $13,412,000
     paid to the  Company's  Series CC  Convertible  Preferred  Stock during the
     first  quarter of 1997.  As a result of the special  dividend,  the Company
     would not have been  required to pay another  dividend with respect to this
     stock until the quarter ended March 31, 1999.  During the second quarter of
     1997, the Series CC Convertible Preferred Stock converted into common stock
     of the  Company.  Accordingly,  all of the  $13,412,000  ($0.14  per common
     share) of dividends were treated during the nine months ended September 30,
     1997 as an  allocation  of net  income  to the  preferred  shareholders  in
     determining  the allocation of net income to the common  shareholders.  The
     special dividend  eliminated the quarterly dividend (fixed charges) of $1.9
     million and resulting dilutive impact to the Company's common shareholders.

               PROPERTY  OPERATIONS:  Rental income and cost of operations  have
     increased  significantly  for the three and nine months ended September 30,
     1997 compared to the same periods in 1996 due to the  Company's  merger and
     acquisition  activities  throughout  1996 and  1997.  As a result  of these
     activities, the number of facilities included in the Company's consolidated
     financial statements has increased from 665 at September 30, 1996 to 916 at
     September 30, 1997.

                                       15
<PAGE>

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



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

                                            Three Months Ended                             Nine Months Ended
                                              September 30,                                  September 30,
                                           --------------------                            --------------------
                                            1997          1996       Change                1997          1996      Change
                                           -------       -------     -------              -------       -------     -------   
                                                    (dollar amounts in thousands, except per square foot data)
      Rental income:
          Pre-1996 acquisitions..........$.65,593       $ 61,566         6.5%           $ 189,980    $ 179,074        6.1%
          1996 and 1997 acquisitions.......37,020          8,868       317.5%              84,181       16,221      419.0%
                                           -------       -------     -------              -------       -------     -------   
                                          102,613         70,434        45.7%             274,161      195,295       40.4%
                                           -------       -------     -------              -------       -------     -------   
      Cost of operations:
          Pre-1996 acquisitions............18,640         18,134         2.8%              56,467       53,825        4.9%
          1996 and 1997 acquisitions.......11,212          2,725       311.4%              26,279        5,010      424.%
                                           -------       -------     -------              -------       -------     -------   
                                           29,852         20,859        43.1%              82,746       58,835       40.6%
                                           -------       -------     -------              -------       -------     -------   
      Net operating income:
          Pre-1996 acquisitions............46,953         43,432         8.1%             133,513      125,249        6.6%
          1996 and 1997 acquisitions.......25,808          6,143       320.1%              57,902       11,211      416.5%
                                           -------       -------     -------              -------       -------     -------   
                                         $ 72,761       $ 49,575        46.8%           $ 191,415     $136,460       40.3%
                                           =======       =======     =======              =======      ========     ======= 

      Net rentable square feet (at
       the end of the period, in
       000's):
          Pre-1996 acquisitions............32,139         32,139          -%               32,139       32,139          -%
          1996 and 1997 acquisitions.......19,864          6,036       229.1%              19,864        6,036      229.1%

      Number of facilities (at the
       end of the period):
          Pre-1996 acquisitions...............547           547           -%                  547         547           -%
          1996 and 1997 acquisitions..........316            93        239.8%                 316          93       239.8%

      Pre-1996 acquisitions:
          Annualized realized rent
           per occupied square foot..........$8.76          $8.28        5.8%                $8.64      $8.16         5.9%
          Annualized scheduled rent
           per square foot...................$9.24          $8.76        5.5%                $9.24      $8.28        11.6%
          Weighted average occupancy
           for the period....................93.3%          92.6%        0.7%                91.4%       90.7%        0.7%

</TABLE>

               The increases in rental income for the pre-1996  acquisitions for
     the three and nine months  ending  September  30, 1997 compared to the same
     periods in 1996 are due to increased realized rent per occupied square foot
     combined with an increased  weighted  average  occupancy level. The Company
     believes that such  improvements  are principally the result of initiatives
     undertaken during 1996 and 1997 consisting of:

          *    In the second  half of 1996,  the Company  began to increase  its
               scheduled  rents charged to new customers  (prior to  promotional
               discounts) and to existing tenants where warranted.

          *    Commencing in early 1996, the Company began to experiment  with a
               telephone  reservation  system designed to provide added customer
               service.   Customers  calling  either  the  Company's   toll-free
               telephone  referral  system,  (800)  44-STORE,  or a self-storage


                                       16
<PAGE>

               facility are directed to the Company's reservation system where a
               representative  discusses with the customer  space  requirements,
               price and location  preferences  and also informs the customer of
               other  products  and  services  provided  by the  Company and its
               subsidiaries.  The  national  reservation  center  was not  fully
               operational for most of the Company's facilities until the fourth
               quarter of 1996.

          *    Commencing  in the latter  part of the first  quarter of 1997 the
               Company  began,  in  selected  markets,  to  advertise  on  local
               television  offering a  promotional  rental rate of $1.00 for the
               first month.

               Rental  income for the three and nine months ended  September 30,
     1997 are net of promotional  discounts totaling $4,370,000 and $11,163,000,
     respectively, compared to $1,347,000 and $1,929,000 for the same periods in
     1996. In addition,  included in cost of  operations  for the three and nine
     months ended  September  30, 1997 are costs  associated  with the telephone
     reservation  center and  advertising  totaling  $2,209,000 and  $5,003,000,
     respectively, compared to $1,007,000 and $2,433,000 for the same periods in
     1996.

               DEVELOPMENT  OF  SELF-STORAGE  FACILITIES  During  the first nine
     months of 1997,  the Company opened for operation  seven newly  constructed
     self-storage  facilities  (474,000 square feet). At September 30, 1997, the
     Company had sixteen self-storage  facilities  (approximately 930,000 square
     feet) under  development  with an aggregate  cost incurred to date of $41.3
     million and total  estimated cost to complete of $31 million.  In addition,
     two portable self-storage  facilities  (approximately  125,000 square feet)
     were  under  development  with  an  aggregate  cost  incurred  to  date  of
     approximately $1.8 million and total additional estimated costs to complete
     of approximately  $3.0 million.  The Company currently has plans to develop
     an additional 10  self-storage  facilities  (approximately  662,000  square
     feet) and 10 portable self-storage facilities (approximately 758,000 square
     feet) in various  locations at an  estimated  cost of  approximately  $90.5
     million (aggregate costs incurred to date of approximately $3.0 million).

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

               In April 1997, the Company entered into an agreement with a joint
     venture  partner  to develop  approximately  $220  million of  self-storage
     facilities   (see   "LIQUIDITY   AND  CAPITAL   RESOURCES   -   DEVELOPMENT
     ACTIVITIES").

               EQUITY IN EARNINGS  OF REAL ESTATE  ENTITIES:  At  September  30,
     1997, the Company had ownership interests in 40 limited  partnerships and 2
     REITs (collectively the "Unconsolidated Entities"). The Company's ownership
     interest in these entities  ranges from 15% to 45%, but generally  averages
     approximately  30%. Due to the  Company's  limited  ownership  interest and
     control of these entities, the Company does not consolidate the accounts of
     these  entities for  financial  reporting  purposes,  and accounts for such
     investments using the equity method.

               Equity in earnings of real estate entities was $4,431,000 for the
     three months ended  September  30, 1997 as compared to  $5,559,000  for the
     same  period in 1996.  Equity  in  earnings  of real  estate  entities  was
     $14,681,000  for the nine months  ended  September  30, 1997 as compared to
     $15,649,000  for the same period in 1996.  The  decreases in earnings  from
     real estate  entities  from 1996 to 1997 reflect the  Company's  merger and
     partnership  acquisition  activities in the last three months of 1996 (with
     three affiliated REIT mergers and the acquisition of additional partnership
     interests)  and  the  first  nine  months  of  1997  (with  six  additional
     affiliated  REIT  mergers and the  acquisition  of  additional  partnership
     interests).  The merger and partnership  acquisition activities resulted in
     the  elimination  of  investment  in real estate  entities  and,  after the
     acquisitions, the associated equity earnings.


                                       17
<PAGE>

               Equity in earnings of real estate entities for the three and nine
     months ended September 30, 1997 consists of the Company's pro rata share of
     the Unconsolidated Entities based upon the Company's ownership interest for
     the period.  The following table summarizes the components of the Company's
     equity in earnings of real estate entities:

<TABLE>
<CAPTION>
                                     Three Months Ended September 30,           Nine Months Ended September 30,
                                     --------------------------------           -------------------------------
                                       1997        1996      Dollar Change      1997          1996       Dollar Change
                                     --------------------------------------     -------------------------------------
                                                                (Amounts in thousands)

<S>                                  <C>         <C>           <C>             <C>            <C>             <C>     
   Self-storage operations           $6,874      $10,100       $(3,226)        $23,671        $28,511         $(4,840)
   Commercial property                  129          453          (324)          1,297          2,065            (768)
   operations
   Depreciation and
   Amortization:
     Self-storage facilities         (2,379)      (4,068)        1,689          (8,608)       (12,294)          3,686
     Commercial properties              (43)        (347)          304            (499)          (947)            448
   Other                               (150)        (579)          429          (1,180)        (1,686)            506
                                     --------------------------------------     -------------------------------------
   Total equity in earnings of
     real estate entities            $4,431       $5,559       $(1,128)        $14,681        $15,649           $(968)
                                     --------------------------------------     -------------------------------------
</TABLE>
     
               Similar to the  Company,  the  Unconsolidated  Entities  generate
     substantially  all of their  income from their  ownership  of  self-storage
     facilities.  In the aggregate,  the Unconsolidated  Entities own a total of
     211   facilities  at  September  30,  1997,   including  209   self-storage
     facilities.   The  Company   expects  that  its  equity  in  earnings  from
     Unconsolidated  Entities  will  generally  decrease  as  a  result  of  the
     acquisition of additional  interests in the Unconsolidated  Entities by the
     Company. The Company has in the past acquired,  and may continue to seek to
     acquire  in the  future,  real  estate  facilities  owned by or  additional
     interests in the Unconsolidated Entities.

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

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

               During the three months ended  September 30, 1997,  the Company's
     property management operations generated net operating income of $2,003,000
     on  revenues  of  $2,355,000  and  expenses  of $352,000 as compared to net
     operating  income of $3,033,000  on revenues of $3,609,000  and expenses of
     $576,000  during  the same  period in 1996.  During the nine  months  ended
     September 30, 1997, the Company's property management  operations generated
     net operating  income of $7,004,000 on revenues of $8,298,000  and expenses
     of $1,294,000 compared to net operating income of $9,167,000 on revenues of
     $10,918,000 and expenses of $1,751,000  during the same period in 1996. The
     decreases  in  property  management  operations  are  due to the  Company's
     acquisition of facilities which it previously managed for third parties and
     affiliated entities for a fee.

               PORTABLE SELF-STORAGE BUSINESS:

               In an effort to attract a wider variety of customers,  to further
     differentiate  the Company from its competition and to generate new sources
     of revenues, additional businesses are being developed by affiliates of the
     Company to complement the Company's self-storage  business.  These products


                                       18
<PAGE>

     include  the sale of locks,  boxes and packing  supplies  and the rental of
     trucks and other  moving  equipment  through  the  implementation  of (i) a
     retail   expansion   program,   (ii)  a  truck  rental   program  and  most
     significantly (iii) a portable self storage business.  The retail expansion
     program and truck rental  program  results are  presented in "interest  and
     other income," analyzed in the following section.

               Public Storage Pickup & Delivery, Inc. ("PSPUD"), a subsidiary of
     the Company,  operates a portable  self-storage business that rents storage
     containers  to customers  for storage in a central  warehouse  and provides
     related  transportation  services.  During the third quarter of 1997, PSPUD
     opened  nine new  facilities  which  combined  with its  previously  opened
     facilities  increased the number of opened facilities to 43 as of September
     30, 1997 (including a mature  facility  acquired in 1996). In October 1997,
     PSPUD opened two additional facilities.  These 45 facilities had a total of
     29,350 occupied containers as of October 31, 1997.

               PSPUD  presently  anticipates  opening an additional 8 facilities
     from November 1, 1997 through  December 31, 1997. PSPUD has also identified
     an  additional  12 sites  in  existing  markets  for  development  of PSPUD
     facilities at an aggregate estimated cost of $46.2 million.

               Due to the  start-up  nature  of this  business,  PSPUD  incurred
     operating losses totaling approximately $12.1 million and $21.2 million for
     the three and nine months ended  September  30, 1997,  respectively.  PSPUD
     continues  to expend  funds in  personnel,  training,  equipment,  computer
     software and  professional  fees in  organizing  this  business.  Until the
     facilities  are operating  profitably,  PSPUD's  operations are expected to
     adversely impact the Company's  earnings,  especially for the quarter ended
     September  30,  1997  whose  losses  are  expected  to be  higher  than  in
     subsequent quarters. PSPUD currently expects subsequent quarters to produce
     operating losses,  but anticipates that losses in subsequent  quarters will
     be at a reduced level from the current  quarter,  although  there can be no
     assurance.

               At October 31, 1997, PSPUD had 31 facilities that had been opened
     since the beginning of the third  quarter  (excluding  the mature  facility
     acquired in 1996 and two smaller facilities in peripheral  markets) located
     in 15 markets  in 7 states.  These 31  facilities  had  container  capacity
     ranging  from  1,600  to 2,300  containers  (averaging  2,200  containers).
     Average monthly gross  container  rentals for the four months ended October
     31,  1997 for the 31  facilities  were 166 in July,  214 in August,  241 in
     September and 247 in October and had average monthly  move-outs during this
     period of 71 in July,  113 in August,  135 in September and 124 in October.
     The Company believes that the move-in  activity was positively  impacted by
     the Company's  marketing and  advertising  efforts which  commenced  during
     August and September.  However,  there were markets in which  marketing and
     advertising  effects had not commenced during this period.  There can be no
     assurance as to the level of PSPUD's expansion, level of net rentals, level
     of move-outs or profitability.

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

               Included in the cost of operations  of the portable  self-storage
     operations  are certain  start-up  costs  which the  Company  expects to be
     non-recurring  and only incidental to the opening of new facilities.  These
     costs  are  related  to  site  acquisition,   leasing  activities,  systems
     development, and hiring and training of personnel. In addition, included in
     cost of  operations  is $3,500,000  and  $7,500,000  for the three and nine
     months  ended  September  30,  1997,  respectively,  relating to  marketing
     activities,  including  television  advertising,  designed  to enhance  the
     rental activities of PSPUD's facilities.

                                       19
<PAGE>
     INTEREST AND OTHER INCOME

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

                                                 Three Months Ended September 30,      Nine Months Ended September 30,
                                                 --------------------------------      -------------------------------
                                                  1997        1996      Dollar Change     1997        1996    Dollar Change
                                                 ------------------------------------   -----------------------------------
                                                                           (Amounts in thousands)
    Sales of Packaging Material and Truck Rental Income:
    ---------------------------------------------------

<S>                                              <C>        <C>          <C>            <C>         <C>          <C>   
    Revenues                                     $1,538     $   954      $   584        $3,691      $2,191       $1,500
    Costs of Operation                           (1,227)       (585)        (642)       (2,929)     (1,447)      (1,482)
                                                 ------------------------------------   -----------------------------------
              Net Operating Income                  311         369          (58)          762         744           18

    Interest and Other Income                     2,597       1,381        1,216         6,889       5,315        1,574
                                                 ------------------------------------   -----------------------------------
        Total Interest and Other Income          $2,908      $1,750       $1,158        $7,651      $6,059       $1,592
                                                 ====================================   ===================================
</TABLE>
     

               Interest and other income principally consists of interest earned
     on cash balances and interest  related to mortgage  notes  receivable.  The
     increase in interest  income for the three and nine months ended  September
     30, 1997  compared to the same periods in 1996 is primarily due to interest
     income on excess cash  balances.  On March 18, 1997,  the Company  publicly
     issued  4.6  million  shares of  common  stock,  raising  net  proceeds  of
     approximately  $126.7  million.  On August 28, 1997, it issued its Series J
     Preferred Stock,  raising net proceeds of approximately $144.9 million. The
     effect of the timing of investing the funds from these  offerings  resulted
     in higher  average  invested  cash balances in 1997 as compared to 1996 and
     1997.

               DEPRECIATION  AND  AMORTIZATION:  Depreciation  and  amortization
     expense has increased $7,028,000, to $23,847,000 for the three months ended
     September 30, 1997 as compared to $16,819,000  for the same period in 1996.
     Depreciation  and  amortization  expense  has  increased  $16,822,000,   to
     $64,375,000  for the nine months  ended  September  30, 1997 as compared to
     $47,553,000  for the same period in 1996.  These  increases are principally
     due to the acquisition of additional real estate facilities during 1996 and
     1997.

               MINORITY   INTEREST  IN  INCOME:   Minority  interest  in  income
     represents  the income  allocable to equity  interests in the  consolidated
     entities  which are not owned by the Company.  Minority  interest in income
     for the three months ended  September 30, 1997 was  $2,707,000  compared to
     $2,453,000 for the same period in 1996. Minority interest in income for the
     nine months ended September 30, 1997 was $7,708,000  compared to $7,268,000
     for the same period in 1996.

               Minority interest in income increased in the three and nine month
     periods  compared  to 1996  due to  improved  property  operations  and the
     consolidation  of investments  which were  previously  accounted for on the
     equity method during the 1996 periods.  These effects were partially offset
     by PSI's acquisition of additional minority interests,  as well as minority
     interests in the losses of PSPUD and the development joint venture.


                                       20
<PAGE>

               Supplemental Property Data

               At  September  30,  1997,  the  Company's   investment  portfolio
     consists  of  (i)  wholly-owned  properties  owned  by  the  Company,  (ii)
     properties  owned by real  estate  partnerships  in which the  Company  has
     significant  ownership  interests (the  "Consolidated  Partnerships"),  and
     (iii) properties owned by real estate entities  (partnerships and REITs) in
     which the Company's  ownership  interest and control are not  sufficient to
     warrant the consolidation of such entities (the "Unconsolidated Entities").
     The following  table  summarizes  the  Company's  investment in real estate
     facilities as of September 30, 1997:
<TABLE>
<CAPTION>

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

<S>                                                <C>         <C>       <C>         <C>          <C>       <C>   
Wholly-owned facilities (a)  (b)                   531         11        542         32,510       729       33,239
Facilities     owned    by     Consolidated        332         42        374         19,521      3,891      23,412
                                             ----------------------------------   ----------------------------------
    Partnerships
    Total consolidated facilities                  863         53        916         52,031      4,620      56,651

Facilities owned by Unconsolidated Entities        209          2        211         11,999       191       12,190
                                             ----------------------------------   ----------------------------------

    Total facilities in which the Company
      has an ownership interest                  1,072         55      1,127         64,030      4,811      68,841
                                             ==================================   ==================================

</TABLE>

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


     (b)  The Company  subdivided 7 properties  that  combined  self storage and
          commercial  property  operations.  These  properties  were  previously
          accounted for as self storage facilities.  Net rentable square footage
          of 529,000 relating to the commercial  portion of these properties has
          been   reclassified   from   self-storage   facilities  to  commercial
          properties.

               In order to evaluate  how the  Company's  overall  portfolio  has
     performed,  management  analyzes the operating  performance of a consistent
     group  of  self-storage  facilities  representing  951  (55.8  million  net
     rentable square feet) of the 1,072 self-storage facilities (herein referred
     to as "Same Store" self-storage  facilities) which have been operated under
     the "Public  Storage" name for at least the past three years.  At September
     30,  1997,  the  Company  had  ownership  interests  in a  total  of  1,072
     mini-warehouse  facilities.  Of these 1,072  properties,  951 or 89% of the
     mini-warehouses have been in operation and managed by Public Storage,  Inc.
     since January 1, 1993. The following table summarizes the operating results
     of these 951 properties:

                                       21
<PAGE>

      Same Store mini-warehouse facilities (951 facilities):
      ------------------------------------------------------
      (historical property operations)
<TABLE>
<CAPTION>

                                              Three months ended                        Nine months ended
                                                 September 30,                             September 30,
                                            ------------------------                  ----------------------                   
                                             1997            1996        Change        1997           1996       Change
                                            ----------   -----------    --------      ---------   ----------    ---------     
                                                                  (dollar amounts in thousands)

<S>                                        <C>             <C>              <C>       <C>            <C>             <C> 
           Rental income..............     $122,309        $114,108         7.2%      $353,561       $331,762        6.6%
           Cost of operations.........       41,081          39,104         5.1%       123,634        116,170        6.4%
                                            ----------   -----------    --------      ---------   ----------    ---------     

           Net operating income.......     $ 81,228         $75,004         8.3%      $229,927       $215,592        6.6%
                                            ==========   ===========    ========      =========   ===========   =========     

           Gross profit margin........        66.4%          65.7%          0.7%        65.0%          65.0%         -

           ............................. .............. ............... .......... .............. .............. .........
           Weighted Average:
                 Occupancy............        93.7%          93.0%          0.7%        91.8%          91.4%         0.4%

                 Realized rent per
                   occupied sq. ft.
                   for period.........        $9.36          $8.76          6.8%        $9.24          $8.64         6.9%

                 Scheduled rent per
                   occupied sq. ft.
                   for period.........        $9.96          $9.36          6.4%        $9.84          $8.76        12.3%

</TABLE>

--------------
     1.   Assumes  payment  of  property  management  fees  on  all  facilities,
          including  those  facilities  owned by the Company for which effective
          November 16, 1995 no fee is paid.
     2.   Gross profit  margin is computed by dividing  property  net  operating
          income  (before  depreciation  expense)  by rental  revenues.  Cost of
          operations  include  a 6%  management  fee.  The gross  profit  margin
          excluding  the  facility  management  fee was  72.4% and 71.7% for the
          three  months ended  September  30, 1997 and 1996,  respectively.  The
          gross profit margin  excluding the facility  management  fee was 71.0%
          and 71.0%  for the nine  months  ended  September  30,  1997 and 1996,
          respectively. 
     3.   Realized rent per square foot represents the actual revenue earned per
          occupied  square foot.  Management  believes  this is a more  relevant
          measure than the scheduled rental rates,  since scheduled rates can be
          discounted through the use of promotions.

               Rental income for the Same Store facilities included  promotional
          discounts  totaling  $4.6 million and $13.2  million for the three and
          nine months ended September 30, 1997,  respectively,  compared to $2.0
          million and $3.0  million for the same  periods  ended  September  30,
          1996,   respectively.   The  increase  in  promotional   discounts  is
          principally due to promotional activities offered through the national
          telephone  reservation  center  combined with  television  advertising
          which began in the second quarter in certain markets where the Company
          offered a promotional $1.00 first month rent to customers.

               Cost of operations for the three and nine months ended  September
          30,  1997  increased  due  to (i)  advertising  and  promotion,  which
          increased $967,000 and $2,308,000,  respectively, due primarily to the
          Company's  national  telephone   reservations  center  and  television
          advertising  in  certain  markets  and  (ii)  property  taxes,   which
          increased  $1,182,000 and $3,014,000,  respectively,  due primarily to
          higher assessments in California, Illinois, and Texas.

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

                                       22
<PAGE>

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

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

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

               Net cash provided by operations (as determined in accordance with
          generally accepted accounting  principles) reflects the cash generated
          from the Company's  business  before  distributions  to various equity
          holders, including the preferred shareholders, capital expenditures or
          mandatory  principal payments on debt. Net cash provided by operations
          has increased to $214,307,000  from  $178,508,000  for the nine months
          ended September 30, 1997 and 1996, respectively.

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


                                                                                         For the Nine Months Ended
                                                                                               September 30,
                                                                                         -------------------------
                                                                                            1997                1996
                                                                                         ------------       ----------
                                                                                              (in thousands)

<S>                                                                                        <C>               <C>     
           Net income............................................................          $133,117          $110,446
           Depreciation and amortization.........................................            64,375            47,553
           Depreciation from unconsolidated real estate entities.................             9,107            13,241
           Minority interest in income...........................................             7,708             7,268
                                                                                         ------------       ----------
                 Net cash provided by operating activities.......................           214,307           178,508

           Distributions from operations to minority interests (funds from
             operations allocable to minority interests).........................           (14,201)          (15,976)
                                                                                         ------------       ----------
           Cash from operations/FFO available to the Company's shareholders......           200,106           162,532


             Less: Preferred stock dividends.....................................           (68,134)          (50,118)
             Add:  Non-recurring  payment  of  dividends  with  respect to the
             Series CC Convertible Preferred.....................................            13,412                 -
                                                                                         ------------       ----------

           Cash from operations/FFO available to common shareholders.............           145,384           112,414
           Capital improvements to maintain facilities:
             Self-storage facilities.............................................           (21,505)          (10,884)
             Commercial properties...............................................            (2,804)           (2,581)
           Add back: minority interest share of capital improvements.............             1,403             2,295
                                                                                         ------------       ----------

           Funds available for principal payments on debt, common dividends
             and reinvestment....................................................           122,478           101,244
           Cash distributions to common shareholders.............................           (63,076)          (49,121)
                                                                                         ------------       ----------

           Funds available for principal payments on debt and investment.........           $59,402           $52,123
                                                                                         ============       ==========
  

</TABLE>
                                     23
<PAGE>

               See the consolidated statements of cash flows for the nine months
          ended September 30, 1997 and 1996 for additional information regarding
          the Company's investing and financing activities.


               FFO increased to $200,106,000 for the nine months ended September
          30, 1997  compared to  $162,532,000  for the same period in 1996.  FFO
          applicable to the common shareholders (after deducting preferred stock
          dividends)  increased  to  $145,384,000  for  the  nine  months  ended
          September  30, 1997  compared to  $112,414,000  for the same period in
          1996. FFO is used by many financial  analysts in evaluating REITs. The
          Company defines FFO as net income (loss)  (computed in accordance with
          GAAP) before (i) gain (loss) on disposition  of real estate,  adjusted
          as follows: (i) plus depreciation and amortization,  and (ii) less FFO
          attributable to minority  interest.  The National  Association of Real
          Estate Investment Trusts, Inc.  ("NAREIT")  definition of FFO does not
          specifically  address  the  treatment  of  minority  interest  in  the
          determination  of FFO.  In the  case of the  Company,  FFO  represents
          amounts  attributable  to its  shareholders  after  deducting  amounts
          attributable  to the  minority  interests.  FFO  does  not  take  into
          consideration   scheduled   principal   payments   on  debt,   capital
          improvements,  distributions  and other  obligations  of the  Company.
          Accordingly,  FFO is a supplemental  performance  measure and is not a
          substitute  for the  Company's  cash flow or net income (as  discussed
          above)  as  a  measure  of  the   Company's   liquidity  or  operating
          performance.

               The Company  accounts for its  investments in the  unconsolidated
          affiliated  entities  using  the  equity  method  of  accounting,  and
          accordingly, earnings are recognized based upon the Company's interest
          in each of the partnerships  and REITs.  This interest is based on the
          Company's  share of the  increase or decrease in the net assets of the
          entities from their  operations.  Provisions of the  partnerships' and
          REITs' governing  documents  provide for the payment of preferred cash
          distributions to other investors (until certain specified amounts have
          been paid) without regard to the pro rata interest of all investors in
          current earnings.  As a result,  actual cash distributions paid to the
          Company for a period of time will be less than the Company's  interest
          in the entities' FFO. During the nine months ended September 30, 1997,
          FFO  distributed  to the Company was  approximately  $9.0 million less
          than the Company's  share of FFO for such entities with such preferred
          cash  distributions.   Preferred  cash  distributions  paid  to  other
          investors  during  each  period  have the  effect  of  increasing  the
          Company's  economic  interest in each of the  respective  entities and
          reducing the amount of future  preference  payments which must be paid
          to other investors before cash  distributions  will be shared on a pro
          rata  basis  with  respect  to each  investor's  actual  interest.  At
          September 30, 1997, the aggregate future preference  payments to other
          investors is  approximately  $47.2  million and is expected to be paid
          over  approximately  10 years,  with  approximately  45% of the amount
          being paid over the next 3 years.

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

               Over the past four years, the Company's  distribution  policy has
          enabled it to retain significant funds (after capital improvements) to
          make additional investments and debt reductions. During the first nine
          months  of  1997  and  1996,   the  Company   distributed   to  common
          shareholders  approximately 43% and 44% of its FFO available to common
          shareholders,  respectively, allowing it to retain approximately $59.4
          million and $52.1 million, respectively,  after satisfying its capital
          improvements and preferred stock dividend requirements.


               DISTRIBUTION REQUIREMENTS:  During the first nine months of 1997,
          the Company paid dividends totaling  $48,314,000 to the holders of the
          Company's  Senior  Preferred  Stock,  $3,407,000 to the holders of the
          Convertible Preferred Stock,  $15,328,000 to the holders of the Series
          CC Convertible  Stock (which,  in the quarter ended September 30, 1997
          converted to common  stock) and  $63,076,000  to the holders of Common
          Stock. The Company estimates the distribution  requirements for fiscal
          1997 with  respect  to  Senior  Preferred  Stock  and the  Convertible
          Preferred Stock to be approximately $88 million.

                                       24
<PAGE>

               CAPITAL  IMPROVEMENT  REQUIREMENTS:  During 1997, the Company has
          estimated  approximately $30.6 million for capital improvements ($26.4
          million for its  self-storage  and $4.2 million for its business  park
          facilities).  The minority  interests' share of the estimated  capital
          improvements  is  approximately  $3.3  million.  During the first nine
          months  of  1997,  the  Company  incurred   capital   improvements  of
          approximately $24.3 million.

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

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

               At September 30, 1997,  the Company had total  outstanding  notes
          payable  of  approximately  $100.3  million.   Approximate   principal
          maturities of notes payable at September 30, 1997 are as follows:
<TABLE>
<CAPTION>


                                                                      Fixed Rate
                                                                     Mortgage Debt
                                                7.08% Unsecured     (Weighted average
                                                  Senior Notes        rate of 10.3%)          Total
                                                ------------------   ------------------  ------------------
                                                               

          <S>                                       <C>                      <C>              <C>   
           1997 (remainder of )                      $   3,250                $552             $3,802
           1998                                          7,250               7,858             15,108
           1999                                          8,000               6,382             14,382
           2000                                          8,750               2,612             11,362
           2001                                          9,500               2,899             12,399
           Thereafter                                   19,750              23,546             43,296
                                                ------------------   ------------------  ------------------
                                                     $  56,500           $  43,849           $100,349
                                                ==================   ==================  ==================
</TABLE>
               EXTERNAL  FINANCING:  Despite the  Company's  ability to retain a
          portion of its internally  generated  cash flow, the Company's  growth
          strategies have required the Company to seek external  financing.  The
          Company has an unsecured $150.0 million revolving credit facility with
          a group of banks  which it uses as a temporary  source of  acquisition
          financing.  The  Company,  however,  seeks to  ultimately  finance all
          acquisitions  with  permanent  sources of  capital.  As a result,  the
          Company has raised capital  through the public issuance of both common
          and  preferred  stock  which  was  used to repay  borrowings  and make
          additional  investments  in real estate assets.  The Company  believes
          that its size and financial  flexibility  enable it to access  capital
          for  growth  when  appropriate.  The  Company's  financial  profile is
          characterized  by  a  low  level  of  debt  to  total  capitalization,
          increasing net income,  increasing  cash flow from  operations,  and a
          conservative  dividend  payout ratio with respect to the common stock.
          The Company's  credit ratings on its Senior Preferred Stock by each of
          the  three  major  credit  agencies  are Baa2 by  Moody's  and BBB+ by
          Standard and Poors and Duff & Phelps.


               The  Company's   portfolio  of  real  estate  facilities  remains
          substantially  unencumbered.  At September  30, 1997,  the Company had
          debt  outstanding of $100.3 million and had  consolidated  real estate
          facilities  with a book value of $2.5 billion.  The Company,  however,
          has been averse to financing its acquisitions  with debt and generally
          will only increase its mortgage  borrowing  through the  assumption of
          pre-existing debt on acquired real estate facilities.

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


                                       25
<PAGE>

               On March 18, 1997, the Company publicly issued 4.6 million shares
          of common stock,  raising net proceeds of approximately $126.7 million
          and on August 28,  1997,  the  Company  issued its Series J  Preferred
          Stock  raising net proceeds of  approximately  $144.9  million.  As of
          October 31, 1997,  substantially  all of the net  proceeds  from these
          offerings  were  utilized  to acquire  additional  investment  in real
          estate  assets as well as to make  investments  in the  portable  self
          storage business.

               MERGERS AND PROPERTY  ACQUISITIONS:  During the second quarter of
          1997, the Company  completed merger  transactions  with six affiliated
          public REITs whereby the Company acquired all the outstanding stock of
          the REITs which it did not  previously  own in  exchange  for cash and
          common stock of the Company.  In the  mergers,  the Company  issued an
          aggregate of 7.7 million shares of Common Stock and paid an additional
          $68.9 million in cash.

               During the third  quarter of 1997,  the  Company  acquired  three
          commercial properties (585,000 square feet) for a total aggregate cost
          of  approximately  $43.3  million.  The  Company  also  purchased  one
          facility  with a total  of  46,000  square  feet of  self-storage  and
          commercial  space for an aggregate  acquisition  cost of approximately
          $6.8 million.

               DEVELOPMENT  ACTIVITIES:  At September 30, 1997,  the Company had
          sixteen self-storage  facilities  (approximately  930,000 square feet)
          under  development  with an aggregate  cost  incurred to date of $41.3
          million and total  estimated  cost to complete  of  approximately  $31
          million.   In   addition,   two   portable   self-storage   facilities
          (approximately  125,000  square feet) were under  development  with an
          aggregate  cost  incurred to date of  approximately  $1.8  million and
          total  additional  estimated  costs to complete of $3.0  million.  The
          Company  currently has plans to develop an additional 10  self-storage
          facilities   (approximately  662,000  square  feet)  and  10  portable
          self-storage facilities (approximately 758,000 square feet) in various
          locations at an estimated cost of approximately  $90.5. The Company is
          evaluating  the  feasibility  of developing  additional  facilities in
          selected markets in which there are few, if any, facilities to acquire
          at  attractive  prices  and where the  scarcity  of other  undeveloped
          parcels of land or other  impediments to development make it difficult
          to construct additional competing facilities.

               In April 1997,  the Company  formed a joint  venture  partnership
          with an  unaffiliated  partner to  participate  in the  development of
          approximately  $220 million of self-storage  facilities.  At September
          30, 1997,  the joint  venture was  committed to develop 31  facilities
          having an estimated development cost of $151 million and had completed
          five facilities with an aggregate cost of $33 million.  The venture is
          funded solely with equity  capital  consisting of 30% from the Company
          and 70% from the institutional investor.

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

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


                                       26

<PAGE>
PART II. OTHER INFORMATION


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

      (a) The following Exhibits are included herein:

         (11) Statement re: Computation of Earnings per Share

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

         (27) Financial Data Schedule


      (b) Reports on Form 8-K

               The Company  filed a current  report on Form 8-K dated August 25,
          1997 pursuant to Item 5, which filed certain exhibits  relating to
          the Company's public offering of Depositary  shares each  representing
          1/1,000 of a share of 8% Cumulative Preferred Stock, Series J.

                                       27
<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: November 14, 1997
 
                                         PUBLIC STORAGE, INC.



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


  
                                       28