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, 2004
                               ------------------

                                       or

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

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

Commission File Number:  1-8389

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

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

 701 Western Avenue, Glendale, California                  91201-2349
-----------------------------------------                  ----------
 (Address of principal executive offices)                  (Zip Code)

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

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

                                 [X] Yes [ ] No


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

                                 [X] Yes [ ] No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 5, 2004:

Common Stock, $.10 Par Value -  129,231,802 shares

Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock, Series
A, $.01 Par Value - 8,776,102 depositary shares (representing 8,776.102 shares
of Equity Stock, Series A)

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


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX


                                                                          Pages

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

Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets at
             September 30, 2004 and December 31, 2003                        1

          Condensed Consolidated Statements of Income for the
             Three and Nine Months Ended September 30, 2004 and 2003         2

          Condensed Consolidated Statement of Shareholders' Equity
             for the Nine Months Ended September 30, 2004                    3

          Condensed Consolidated Statements of Cash Flows
             for the Nine Months Ended September 30, 2004 and 2003           4

          Notes to Condensed Consolidated Financial Statements            5-35

Item 2.   Management's Discussion and Analysis of
             Financial Condition and Results of Operations               36-65

Item 2A.  Risk Factors                                                   66-71

Item 3.   Quantitative and Qualitative Disclosures about Market Risk        71

Item 4.   Controls and Procedures                                           71

PART II.  OTHER INFORMATION (Items 3 through 5 are not applicable)
          -----------------

Item 1.   Legal Proceedings                                              72-73

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds    73-74

Item 6.   Exhibits and Reports on Form 8-K                               75-83


<PAGE>


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

                                                                                        September 30,        December 31,
                                                                                            2004                 2003
                                                                                       ----------------   ----------------
                                                                                         (Unaudited)
                                       ASSETS

<S>                                                                                     <C>               <C>
Cash and cash equivalents....................................................           $     475,280     $     204,833
Real estate facilities, at cost:
   Land......................................................................               1,357,310         1,332,882
   Buildings.................................................................               3,880,280         3,792,616
                                                                                       ----------------   ----------------
                                                                                            5,237,590         5,125,498
   Accumulated depreciation..................................................              (1,276,379)       (1,153,059)
                                                                                       ----------------   ----------------
                                                                                            3,961,211         3,972,439
   Construction in process...................................................                  40,686            69,620
   Land held for development.................................................                   7,580            12,236
   Real estate facility held for sale, net of accumulated depreciation.......                   2,914                 -
                                                                                       ----------------   ----------------
                                                                                            4,012,391         4,054,295

Investment in real estate entities...........................................                 335,478           336,696
Goodwill.....................................................................                  78,204            78,204
Intangible assets, net.......................................................                 106,336           111,289
Notes receivable, including amounts due from related parties.................                     487           100,510
Other assets.................................................................                  69,737            82,242
                                                                                       ----------------   ----------------
              Total assets...................................................           $   5,077,913     $   4,968,069
                                                                                       ================   ================
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................           $      35,260     $      76,030
Preferred stock called for redemption........................................                       -           115,000
Accrued and other liabilities................................................                 161,559           131,103
                                                                                       ----------------   ----------------
         Total liabilities...................................................                 196,819           322,133
Minority interest:
   Preferred partnership interests...........................................                 285,000           285,000
   Other partnership interests...............................................                 118,767           141,137
Commitments and contingencies (Note 14)......................................                       -                 -
Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     6,175,186 shares issued (in series) and outstanding, (5,763,986 at
     December 31, 2003) at liquidation preference............................               2,157,025         1,867,025
   Common Stock, $0.10 par value, 200,000,000 shares authorized, 128,316,807
     shares issued and outstanding (126,986,734 at December 31, 2003)........                  12,832            12,699
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,776.102 shares issued and outstanding.................................                       -                 -
   Paid-in capital...........................................................               2,452,978         2,438,632
   Cumulative net income.....................................................               2,625,602         2,366,660
   Cumulative distributions paid.............................................              (2,771,110)       (2,465,217)
                                                                                       ----------------   ----------------
         Total shareholders' equity..........................................               4,477,327         4,219,799
                                                                                       ----------------   ----------------
              Total liabilities and shareholders' equity.....................           $   5,077,913     $   4,968,069
                                                                                       ================   ================

</TABLE>

                            See accompanying notes.
                                       1

<PAGE>


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

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                              Three Months Ended             Nine Months Ended
                                                                                September 30,                  September 30,
                                                                          ----------------------------   ---------------------------
                                                                             2004           2003            2004            2003
                                                                          ------------    ------------   ------------    -----------
Revenues:
     Rental income:
<S>                                                                        <C>            <C>            <C>             <C>
         Self-storage facilities.........................................  $  219,908     $   206,856    $   639,025     $  593,345
         Commercial properties...........................................       2,707           2,712          8,064          8,299
         Containerized storage facilities................................       5,048           6,672         15,099         18,495
     Tenant reinsurance premiums.........................................       6,210           5,755         18,266         16,551
     Interest and other income...........................................       3,300           2,847          7,240          7,425
                                                                          ------------    ------------   ------------    -----------
                                                                              237,173         224,842        687,694        644,115
                                                                          ------------    ------------   ------------    -----------
Expenses:
     Cost of operations:
         Self-storage facilities.........................................      74,075          70,977        224,119        206,655
         Commercial properties...........................................       1,031           1,234          3,200          3,415
         Containerized storage facilities................................       3,073           3,823          8,741         10,713
         Tenant reinsurance..............................................       4,204           2,917         11,089          8,631
     Depreciation and amortization.......................................      44,375          45,435        135,515        135,770
     General and administrative..........................................       5,527           4,642         15,983         13,321
     Interest expense....................................................           -             296            100          1,121
                                                                          ------------    ------------   ------------    -----------
                                                                              132,285         129,324        398,747        379,626
                                                                          ------------    ------------   ------------    -----------
Income from continuing operations before equity in earnings of real estate
   entities, minority interest in income, asset impairment charge, and gain     104,888          95,518      288,947        264,489
   on disposition of real estate investments.............................
Equity in earnings of real estate entities (Note 5)......................       3,184           5,770         11,646         19,456
Asset impairment charge due to casualty loss (Note 4)....................      (1,250)              -         (1,250)             -
Gain on disposition of real estate investments...........................       1,286              47          1,286            807
Minority interest in income:
     Preferred partnership interests:
       Based on ongoing distributions....................................      (5,176)         (6,726)       (16,907)       (20,179)
       Special distribution and restructuring allocation (Note 8)........           -               -        (10,063)             -
     Other partnership interests.........................................      (4,345)         (4,418)       (12,928)       (12,403)
                                                                          ------------    ------------   ------------    -----------
Income from continuing operations........................................      98,587          90,191        260,731        252,170
Discontinued operations (Note 3).........................................      (1,072)           (444)        (1,789)        (1,487)
                                                                          ------------    ------------   ------------    -----------
Net income...............................................................  $   97,515     $    89,747    $   258,942     $  250,683
                                                                          ============    ============   ============    ===========
Net income allocation:
---------------------
     Allocable to preferred shareholders:
        Based on distributions paid......................................  $   40,471     $    35,193    $   117,293     $  107,914
        Based on redemptions of preferred stock..........................       3,072               -          6,795          3,397
     Allocable to Equity Stock, Series A.................................       5,375           5,375         16,126         16,126
     Allocable to common shareholders....................................      48,597          49,179        118,728        123,246
                                                                          ------------    ------------   ------------    -----------
                                                                           $   97,515     $    89,747    $   258,942     $  250,683
                                                                          ============    ============   ============    ===========
Per common share - basic
     Continuing operations...............................................  $    0.39      $     0.39     $      0.94     $    1.00
     Discontinued operations (Note 3)....................................      (0.01)           -              (0.01)        (0.01)
                                                                          ------------    ------------   ------------    -----------
                                                                           $    0.38      $     0.39     $      0.93     $    0.99
                                                                          ============    ============   ============    ===========
Per common share -diluted
     Continuing operations...............................................  $    0.39      $     0.39     $      0.93     $    0.99
     Discontinued operations (Note 3)....................................      (0.01)           -              (0.01)        (0.01)
                                                                          ------------    ------------   ------------    -----------
                                                                           $    0.38      $     0.39     $      0.92     $    0.98
                                                                          ============    ============   ============    ===========
 Net income per depositary share of Equity Stock, Series A (basic and
 diluted)................................................................  $    0.61      $     0.61     $      1.84     $    1.84
                                                                          ============    ============   ============    ===========
Basic weighted average common shares outstanding.........................     128,085         125,528        127,635        124,740
                                                                          ============    ============   ============    ===========
Diluted weighted average common shares outstanding.......................     128,826         126,802        128,545        125,987
                                                                          ============    ============   ============    ===========
Weighted average shares of Equity Stock, Series A (basic and diluted)....       8,776           8,776          8,776          8,776
                                                                          ============    ============  ============   ============

</TABLE>

                            See accompanying notes.
                                       2

<PAGE>


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

                                   (Unaudited)

<TABLE>
<CAPTION>

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

<S>                                                            <C>               <C>              <C>               <C>
Balances at December 31, 2003.............................      $  1,867,025      $     12,699     $  2,438,632      $  2,366,660

Issuance of cumulative preferred stock:
   Series Y (1,600,000 shares)..........................              40,000                 -                -                 -
   Series Z (4,500 shares)..............................             112,500                 -           (3,744)                -
   Series A (4,600 shares)..............................             115,000                 -           (3,823)                -
   Series B (4,350 shares)..............................             108,750                 -           (3,626)                -
   Series C (4,600 shares)..............................             115,000                 -           (3,823)                -

Redemption of cumulative preferred stock, including redemption costs:
   Series L (4,600 shares)................................          (115,000)                -              (21)                -
   Series M (2,250 shares)................................           (56,250)                -              (20)                -
   Series D (1,200,000 shares)............................           (30,000)                -              (20)                -

Restructuring of Series N preferred units (Note 8)......                   -                 -            2,063                 -

Issuance of common stock in connection with:
   Exercise of employee stock options (1,719,473 shares)..                 -               172           43,609                 -
   Vesting of restricted stock (20,300 shares) ...........                 -                 2               (2)                -

Stock based compensation expense (Note 11) ...............                 -                 -            1,946                 -

Repurchase of common stock (409,700 shares)...............                 -               (41)         (18,193)                -

Net income................................................                 -                 -                -           258,942

Cash distributions:
   Cumulative preferred stock (Note 9)....................                 -                 -                -                 -
   Equity Stock, Series A ($1.84 per depositary share)....                 -                 -                -                 -
   Common Stock ($1.35 per share).........................                 -                 -                -                 -

                                                              ----------------   --------------  ----------------  ---------------
Balances at September 30, 2004............................      $  2,157,025      $     12,832     $  2,452,978      $  2,625,602
                                                              ================   ==============  ================  ===============
</TABLE>

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

                                   (Unaudited)

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

<S>                                                              <C>               <C>
Balances at December 31, 2003.............................        $ (2,465,217)     $  4,219,799

Issuance of cumulative preferred stock:
   Series Y (1,600,000 shares)..........................                     -            40,000
   Series Z (4,500 shares)..............................                     -           108,756
   Series A (4,600 shares)..............................                     -           111,177
   Series B (4,350 shares)..............................                     -           105,124
   Series C (4,600 shares)..............................                     -           111,177

Redemption of cumulative preferred stock, including
 redemption costs:
   Series L (4,600 shares)................................                   -          (115,021)
   Series M (2,250 shares)................................                   -           (56,270)
   Series D (1,200,000 shares)............................                   -           (30,020)

Restructuring of Series N preferred units (Note 8)......                     -             2,063

Issuance of common stock in connection with:
   Exercise of employee stock options (1,719,473 shares)..                   -            43,781
   Vesting of restricted stock (20,300 shares) ...........                   -                 -

Stock based compensation expense (Note 11) ...............                   -             1,946

Repurchase of common stock (409,700 shares)...............                   -           (18,234)

Net income................................................                   -           258,942

Cash distributions:
   Cumulative preferred stock (Note 9)....................            (117,293)         (117,293)
   Equity Stock, Series A ($1.84 per depositary share)....             (16,126)          (16,126)
   Common Stock ($1.35 per share).........................            (172,474)         (172,474)

                                                                 --------------    ---------------
Balances at September 30, 2004............................        $ (2,771,110)     $  4,477,327
                                                                 ==============    ===============
</TABLE>

                            See accompanying notes.
                                       3

<PAGE>

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

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                   -------------------------------------
                                                                                         2004                   2003
                                                                                   ----------------     ----------------
Cash flows from operating activities:
<S>                                                                                <C>                  <C>
  Net income..............................................................         $      258,942       $      250,683
   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Loss/(Gain) on sale of assets, net of impairment charge, and impact of
       EITF Topic D-42 included in equity in earnings of real estate entities
       (Note 5)...........................................................                  2,109                 (453)
     Real estate impairment associated with casualty losses...............                  1,250                    -
     Gain on sale of real estate investments..............................                 (1,286)                (807)
     Depreciation and amortization........................................                135,515              135,770
     Depreciation included in equity in earnings of real estate entities..                 25,055               20,353
     Minority interest in income..........................................                 39,898               32,582
     Depreciation and other adjustments associated with discontinued
       operations (Note 3) ...............................................                  3,096                5,203
     Other................................................................                 34,277               25,260
                                                                                   ----------------     ----------------
              Total adjustments...........................................                239,914              217,908
                                                                                   ----------------     ----------------
                  Net cash provided by operating activities...............                498,856              468,591
                                                                                   ----------------     ----------------
Cash flows from investing activities:
     Principal payments received on mortgage notes receivable.............                100,023               23,410
     Capital improvements to real estate facilities.......................                (20,297)             (20,470)
     Construction in process and acquisition of land held for development.                (55,780)             (70,576)
     Acquisition of minority interests (Note 8)...........................                (24,851)              (9,867)
     Acquisition of real estate facilities................................                 (8,293)                   -
     Proceeds from the disposition of land and real estate facilities.....                  7,437               12,655
     Proceeds from the disposition of investments in real estate entities                       -                  851
     Investment in other real estate entities.............................                (25,946)             (26,728)
     Other investments....................................................                 (2,052)              (7,821)
     Other................................................................                  4,436              (13,405)
                                                                                   ----------------     ----------------
                  Net cash used in investing activities...................                (25,323)            (111,951)
                                                                                   ----------------     ----------------
Cash flows from financing activities:
     Principal payments on notes payable..................................                (40,770)             (33,835)
     Net proceeds from the issuance of common stock.......................                 43,781               42,860
     Net proceeds from the issuance of preferred stock....................                476,234                    -
     Repurchase of common stock...........................................                (18,234)              (6,001)
     Redemption of preferred stock........................................               (316,311)             (87,535)
     Distributions paid to shareholders...................................               (305,893)            (292,821)
     Distributions paid to holders of preferred partnership interests.....                (16,907)             (20,179)
     Special distribution paid to holders of preferred partnership interests               (8,000)                   -
       (Note 8)...........................................................
     Distributions paid to minority interests, net of reinvestments.......                (16,986)             (16,950)
                                                                                   ----------------     ----------------
                  Net cash used in financing activities...................               (203,086)            (414,461)
                                                                                   ----------------     ----------------
Net increase (decrease) in cash and cash equivalents......................                270,447              (57,821)
Cash and cash equivalents at the beginning of the period..................                204,833              103,124
                                                                                   ----------------     ----------------
Cash and cash equivalents at the end of the period........................         $      475,280       $       45,303
                                                                                   ================     ================
Supplemental schedule of non-cash investing and financial activities:
     Acquisition of minority interest for consideration including common stock:
       Real estate facilities.............................................                      -      $       (16,687)
       Minority Interest..................................................                      -               (6,690)
     Issuance of common stock to acquire minority interest................                      -               13,510

</TABLE>

                            See accompabying notes.
                                       4

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)


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

              Public Storage, Inc. (the "Company") is a California corporation,
     which was organized in 1980. We are a fully integrated, self-administered
     and self-managed real estate investment trust ("REIT") whose principal
     business activities include the acquisition, development, ownership and
     operation of self-storage facilities which offer storage spaces for lease,
     usually on a month-to-month basis, for personal and business use. In
     addition, to a much lesser extent, we have interests in commercial
     properties, containing commercial and industrial rental space, and
     interests in facilities that lease storage containers.

              We invest in real estate facilities by acquiring facilities
     directly or by acquiring interest in real estate entities that own
     facilities. At September 30, 2004, we had direct and indirect equity
     interests in 1,421 self-storage facilities with 86.1 million net rentable
     square feet located in 37 states operating under the "Public Storage" name.
     We also have direct and indirect equity interests in approximately 20.2
     million net rentable square feet of commercial and industrial space located
     in 10 states.

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

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

              The accompanying unaudited condensed consolidated financial
     statements have been prepared in accordance with 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.
     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, 2004
     are not necessarily indicative of the results that may be expected for the
     year ended December 31, 2004. 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, 2003.

              The consolidated financial statements include the accounts of the
     Company and 37 controlled entities (the "Consolidated Entities").
     Collectively, the Company and the Consolidated Entities own a total of
     1,391 real estate facilities, consisting of 1,383 self-storage facilities,
     five industrial facilities used by the containerized storage operations and
     three commercial properties. All intercompany transactions among the
     Company and the Consolidated Entities are eliminated in consolidation.

              At September 30, 2004, we had equity investments in eight limited
     partnerships in which we do not have a controlling interest. These limited
     partnerships collectively own 38 self-storage facilities, which are managed
     by the Company. In addition, at September 30, 2004, we own approximately
     44% of the common equity of PS Business Parks, Inc. ("PSB"), which has
     interests in approximately 18.4 million net rentable square feet of
     commercial space at September 30, 2004. We do not control these entities;
     accordingly, our investment in these limited partnerships and PSB
     (collectively, the "Unconsolidated Entities") are accounted for using the
     equity method.

              Certain amounts previously reported have been reclassified to
     conform to the September 30, 2004 presentation, including discontinued
     operations (see Note 3).

                                       5

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)
     Use of Estimates
     ----------------

              The preparation of the consolidated financial statements in
     conformity with accounting principles generally accepted in the United
     States requires management to make estimates and assumptions that affect
     the amounts reported in the consolidated financial statements and
     accompanying notes. Actual results could differ from those estimates.

     Income Taxes
     ------------

              For all taxable years subsequent to 1980, the Company qualified
     and intends to continue to qualify as a REIT, as defined in Section 856 of
     the Internal Revenue Code. As a REIT, we are not taxed on that portion of
     our taxable income which is distributed to our shareholders, provided that
     we meet certain tests. We believe we will meet these tests during 2004 and,
     accordingly, no provision for income taxes has been made in the
     accompanying financial statements.

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

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

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

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

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

              Included in cash and cash equivalents at September 30, 2004 is
     $10,459,000 ($1,835,000 at December 31, 2003) cash held by the Company's
     captive insurance programs. Insurance and other regulations place
     significant restrictions on our ability to withdraw these funds for
     purposes other than insurance activities. Our captive insurance programs
     are conducted by STOR-Re Mutual Insurance Company, Inc. ("STOR-Re"), an
     association captive insurance company owned by the Company and its
     affiliates, which is approximately 90.1% owned by the Company and the
     Consolidated Entities, and PS Insurance Company Hawaii, Ltd. ("PSIC-H"), a
     captive insurer formed on December 31, 2003 which is wholly owned by a
     subsidiary of the Company. Other assets at September 30, 2004 include
     aggregate investments totaling $23,559,000 ($27,995,000 at December 31,
     2003) in held to maturity debt securities owned by STOR-Re and PSIC-H
     stated at amortized cost, which approximates fair value.

                                       6

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

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

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

              In August 2001, the Financial  Accounting Standards Board ("FASB")
     issued Statement of Financial Accounting Standards No. 144, "Accounting for
     the Impairment or Disposal of Long-Lived  Assets" ("SFAS No. 144"). In June
     2001, the FASB issued Statement of Financial  Accounting Standards No. 142,
     "Goodwill and Other Intangible Assets" ("SFAS No. 142"). We adopted both of
     these statements effective January 1, 2002.

              With respect to goodwill, we evaluate impairment annually through
     a two-step process. In the first step, if the fair value of the reporting
     unit to which the goodwill applies is equal to or greater than the carrying
     amount of the assets of the reporting unit, including the goodwill, the
     goodwill is considered unimpaired and the second step is unnecessary. If,
     however, the fair value of the reporting unit including goodwill is less
     than the carrying amount, the second step is performed. In this test, we
     compute the implied fair value of the goodwill based upon the allocations
     that would be made to the goodwill, other assets and liabilities of the
     reporting unit if a business combination transaction were consummated at
     the fair value of the reporting unit. An impairment loss is recorded to the
     extent that the implied fair value of the goodwill is less than the
     goodwill's carrying amount. No impairments of our goodwill were identified
     in our annual evaluation at December 31, 2003.

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

              Any long-lived assets which we expect to sell or otherwise dispose
     of prior to their previously estimated useful life are stated at what we
     estimate to be the lower of their estimated net realizable value (less cost
     to sell) or their carrying value. We recorded $1,575,000 in impairment
     charges related to assets of eight containerized storage operations
     identified for closure during 2004 (see Note 3). In addition, as a result
     of damage sustained at several of our facilities in Florida caused by
     recent hurricanes, we recorded $1,250,000 in impairment charges related to
     these assets during the three and nine months ended September 30, 2004. No
     additional impairments were identified from our evaluations as of September
     30, 2004.

                                       7

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

              We utilize the Fair Value Method (as defined in Note 11) of
     accounting for our employee stock options issued after December 31, 2001,
     and utilize the APB 25 Method (as defined in Note 11) for employee stock
     options issued prior to January 1, 2002. Restricted Stock Unit expense is
     recorded over the relevant vesting period. Included in general and
     administrative expense for the three and nine months ended September 30,
     2004, is $150,000 and $439,000, respectively, of compensation expense with
     respect to stock options, as compared to $95,000 and $294,000,
     respectively, for the same periods in 2003. During the three and nine
     months ended September 30, 2004, a total of $559,000 and $1,676,000,
     respectively, in restricted stock compensation expense was included in
     general and administrative expense, as compared to $371,000 for the three
     and nine months ended September 30, 2003. See Note 11 for a full discussion
     of our accounting policies with respect to employee stock options and
     restricted stock units.

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

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

              Containers and equipment utilized in our containerized storage
     business totaled $5,480,000 at September 30, 2004 ($10,895,000 at December
     31, 2003). The carrying amounts are net of accumulated depreciation and
     asset impairment charges. As discussed in Note 3, during the nine months
     ended September 30, 2004, impairment charges amounting to $1,575,000 were
     recorded with respect to containers and equipment utilized in the
     discontinued containerized storage operations.

              Included in depreciation and amortization expense for the three
     and nine months ended September 30, 2004 is $1,850,000 and $5,530,000,
     respectively, related to other assets, as compared to $1,641,000 and
     $4,734,000, respectively, for the same periods in 2003. Included in
     discontinued operations for the three and nine months ended September 30,
     2004 is depreciation expense of $219,000 and $725,000, respectively,
     related to depreciation of containers and equipment of the discontinued
     operations of the containerized storage business as compared to $647,000
     and $2,157,000 for the three and nine months ended September 30, 2003,
     respectively.

              Other assets at September 30, 2004 include aggregate investments
     totaling $23,559,000 ($27,995,000 at December 31, 2003) in held to maturity
     debt securities owned by STOR-Re and PSIC-H stated at amortized cost, which
     approximates fair market value.

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

              Accrued and other liabilities consist primarily of trade payables,
     real and personal property tax accruals, accrued interest, and losses and
     loss adjustment liabilities, as discussed below.

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

                                       8

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              STOR-Re, which is consolidated with the Company, was formed in
     1994 as an association captive insurance company owned by the Company and
     affiliates of the Company. STOR-Re provides limited property and liability
     insurance to the Company and its affiliates for losses incurred during
     policy periods prior to April 1, 2004, and was succeeded by PSIC-H with
     respect to these insurance activities for policy periods following March
     31, 2004. The Company also utilizes other insurance carriers to provide
     property and liability insurance coverage in excess of STOR-Re's and
     PSIC-H's limitations which are described in Note 14. STOR-Re and PSIC-H
     accrue liabilities for covered losses and loss adjustment expense, which at
     September 30, 2004 totaled $31,319,000 ($28,741,000 at December 31, 2003)
     with respect to insurance provided to the Company and its affiliates.

              PS Insurance Company, Ltd ("PSIC"), a wholly-owned subsidiary of
     the Company, reinsured policies against claims for losses to goods stored
     by tenants in our self-storage facilities for policy periods prior to March
     31, 2004. PSIC-H succeeded PSIC with respect to these tenant insurance
     activities effective April 1, 2004, and these entities utilize third-party
     insurance coverage for losses from any individual event that exceeds a loss
     of $500,000, to a maximum of $10,000,000. Losses below the third-party
     insurers' deductible amounts are accrued as cost of operations for the
     tenant insurance operations. Included in cost of operations for the three
     and nine months ended September 30, 2004 is approximately $1.5 million in
     estimated losses from tenant claims as a result of damage sustained from
     the recent hurricanes in Florida. The accrued liability for losses and loss
     adjustment expense with respect to tenant insurance activities totaled
     $5,725,000 at September 30, 2004 ($2,486,000 at December 31, 2003),
     including the aforementioned $1.5 million in estimated losses from tenant
     claims.

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

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

              Goodwill is net of accumulated amortization of $16,515,000 at
     September 30, 2004 and December 31, 2003. At September 30, 2004, property
     management contracts are net of accumulated amortization of $58,664,000
     ($53,711,000 at December 31, 2003). Included in depreciation and
     amortization expense for each of the three and nine month periods ended
     September 30, 2004 and 2003 is $1,651,000 and $4,953,000, respectively,
     with respect to the amortization of property management contracts.

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

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

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

              Cost of operations, general and administrative expense, interest
     expense, as well as television, yellow page, and other advertising
     expenditures are expensed as incurred. Accordingly, the amounts incurred in
     an interim period may not be indicative of the amounts to be incurred
     during a full year. Television, yellow page, and other advertising expense
     totaled $5,288,000 and $7,155,000 for the three months ended September 30,
     2004 and 2003, respectively, and $18,896,000 and $18,900,000 for the nine
     months ended September 30, 2004 and 2003, respectively.

                                       9

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

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

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

              Distributions paid to the holders of our Cumulative Preferred
     Stock totaled $40,471,000 and $35,193,000 for the three months ended
     September 30, 2004 and 2003, respectively, ($117,293,000 and $107,914,000
     for the nine months ended September 30, 2004 and 2003, respectively) have
     been deducted from net income to arrive at net income allocable to our
     common shareholders.

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

              In conformity with the SEC Observer's clarification, an additional
     $3,072,000 was allocated to preferred stockholders for the three months
     ended September 30, 2004 (none in the three months ended September 30,
     2003) for the excess of the redemption amount over the carrying amount of
     our Cumulative Preferred Stock. For the nine months ended September 30,
     2004 and 2003, $6,795,000 and $3,397,000, respectively, was allocated to
     preferred stockholders for the excess of the redemption amount over the
     carrying amount of our Cumulative Preferred Stock. It is our policy to
     record such allocations at the time the securities are called for
     redemption.

              Net income allocated to our common shareholders has been further
     allocated among our two classes of common stock; our regular common stock
     and our Equity Stock, Series A. The allocation among each class was based
     upon the two-class method. Under the two-class method, earnings per share
     for each class of common stock is determined according to dividends
     declared (or accumulated) and participation rights in undistributed
     earnings. Under the two-class method, the Equity Stock, Series A was
     allocated net income of $5,375,000 for each of the three months ended
     September 30, 2004 and 2003 and $16,126,000 for each of the nine months
     ended September 30, 2004 and 2003. The remaining $48,597,000 and
     $49,179,000 for the three months ended September 30, 2004 and 2003,
     respectively, was allocated to the regular common shareholders. For the
     nine months ended September 30, 2004 and 2003, $118,728,000 and
     $123,246,000, respectively, was allocated to the regular common
     shareholders.

                                       10

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              Basic net income per share is computed using the weighted average
     common shares outstanding (prior to the dilutive impact of stock options
     and restricted stock units outstanding). Diluted net income per common
     share is computed using the weighted average common shares outstanding
     (adjusted for the dilutive impact of stock options and restricted stock
     units outstanding). Weighted average common shares excludes shares owned by
     the Consolidated Entities for the three and nine months ended September 30,
     2004 and 2003, as these shares of common stock are eliminated in
     consolidation (see Note 9).

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

              Statement of  Financial  Accounting  Standards  No. 144 ("SFAS No.
     144")  addresses  accounting  for  discontinued  operations.  SFAS No.  144
     requires  the  segregation  of all  disposed  components  of an entity with
     operations  that (i) can be  distinguished  from the rest of the entity and
     (ii) will be  eliminated  from the  ongoing  operations  of the entity in a
     disposal transaction.

              During 2002, we adopted a business plan that included the closure
     of 22 non-strategic containerized storage facilities. During 2003 and 2004,
     an additional 17 facilities (nine and eight, respectively) were identified
     as non-strategic and scheduled for closure. Each of these 39 containerized
     storage facilities (collectively, the "Closed Facilities") represented
     components of our containerized storage business segment. The related
     assets of the Closed Facilities (consisting primarily of storage
     containers) were deemed not recoverable from operations in future periods,
     and as a result asset impairment charges for the excess of these assets'
     net book value over their fair value, determined based upon the values of
     similar assets, was recorded. In the three and nine months ended September
     30, 2003, we recorded $1,274,000 and $2,024,000, respectively, in
     impairment charges with respect to discontinued containerized storage
     facilities. During the three months ended September 30, 2004 we recorded
     asset impairment charges in the amount of $1,406,000 related to seven
     discontinued facilities that we plan to vacate by the end of the first
     quarter of 2005. For the nine months ended September 30, 2004 we recorded
     asset impairment charges in the amount of $1,575,000 relating to the
     closure of eight facilities and lease termination costs of $416,000 related
     to two of the Closed Facilities.

              Four self storage facilities that we owned in the Knoxville market
     (the "Knoxville Facilities") were disposed of on July 25, 2003 for
     aggregate gross proceeds of $11.0 million. The Company financed a
     substantial part of the buyer's consideration in exchange for a note
     receivable from the buyer, and in accordance with generally accepted
     accounting principles, the Company deferred the sale and the corresponding
     gain of approximately $4.2 million until October 2003 at which time the
     note receivable was collected in full.

              On October 16, 2003, we sold a self-storage facility located in
     Perrysburg, Ohio for $2.3 million in cash. A gain of approximately $1.1
     million was recognized from the sale of this property in the fourth quarter
     of 2003. This facility and the Knoxville Facilities (collectively, the
     "Sold Self-Storage Facilities") are reported as discontinued operations.

              During the quarter ended September 30, 2004, we adopted a plan to
     sell a commercial facility (the "Sold Commercial Facility") and, on October
     28, 2004, this facility was sold for aggregate net proceeds of $3.8
     million, resulting in a gain on sale of approximately $1.0 million which
     will be recorded in the quarter ended December 31, 2004. The property's
     historical operations have been reported as discontinued operations in the
     financial statements.

              The historical operations of the Closed Facilities (including the
     asset impairment charges), the Sold Self-Storage Facilities and the Sold
     Commercial Facility are classified as discontinued operations. The rental
     income, cost of operations, and depreciation expense with respect to these
     facilities for each period presented are included in the line-item
     "Discontinued Operations" on the consolidated statement of income.

              The following table summarizes the historical operations of the
     Closed Facilities, the Sold Self-Storage Facilities, and the Sold
     Commercial Facility:

                                       11
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

<TABLE>
<CAPTION>

Discontinued Operations:
                                       Three Months Ended September 30,       Nine Months Ended September 30,
                                      ------------------------------------  -------------------------------------
                                         2004         2003        Change       2004          2003        Change
                                      ----------   ----------   ----------  ----------    ----------  -----------
                                            (Amounts in thousands)                 (Amounts in thousands)
Rental income (a):
<S>                                     <C>          <C>         <C>        <C>           <C>          <C>
  Closed Facilities...............      $ 1,740      $4,964      $ (3,224)  $   6,267     $  15,080    $  (8,813)
  Sold Self-Storage Facilities....            -         504          (504)          -         1,448       (1,448)
  Sold Commercial Facility........          105         100             5         279           302          (23)
                                      ----------   ----------   ----------  ----------    ----------  -----------
Total rental income...............        1,845       5,568        (3,723)      6,546        16,830      (10,284)
                                      ----------   ----------   ----------  ----------    ----------  -----------
Cost of operations (a):
  Closed Facilities...............        1,154       3,468        (2,314)      5,176        12,435       (7,259)
  Sold Self-Storage Facilities....            -         213          (213)          -           603         (603)
  Sold Commercial Facility........           26          19             7          63            76          (13)
                                      ----------   ----------   ----------  ----------    ----------  -----------
Total cost of operations..........        1,180       3,700        (2,520)      5,239        13,114       (7,875)
                                      ----------   ----------   ----------  ----------    ----------  -----------
Depreciation expense (a):
  Closed Facilities...............          306         871          (565)      1,031         2,681       (1,650)
  Sold Self-Storage Facilities....            -         142          (142)          -           424         (424)
  Sold Commercial Facility........           25          25             -          74            74            -
                                      ----------   ----------   ----------  ----------    ----------  -----------
Total depreciation ...............          331       1,038          (707)      1,105         3,179       (2,074)
                                      ----------   ----------   ----------  ----------    ----------  -----------
Impairment charge/shutdown costs (b):
  Closed Facilities...............        1,406       1,274           132       1,991         2,024          (33)
                                      ----------   ----------   ----------  ----------    ----------  -----------
Net discontinued operations (c)...      $(1,072)     $ (444)    $    (628)  $  (1,789)     $ (1,487)   $    (302)
                                      ==========   ==========   ==========  ==========    ==========  ===========

</TABLE>

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

(b)      Asset impairment charges for the three and nine months ended September
         30, 2004 were $1,406,000 and $1,575,000, respectively. In addition to
         asset impairment charges, total lease termination costs of $416,000
         were recorded during the quarter ended June 30, 2004. During the three
         and nine months ended September 30, 2003, $1,274,000 in asset
         impairment charges were recorded with respect to four facilities closed
         during that quarter. In addition, a $750,000 impairment charge was
         recorded during the quarter ended June 30, 2003 with respect to a
         closed containerized storage facility held for sale.

(c)      Earnings per share for the three and nine months ended September 30,
         2004 were reduced $0.01 due to the impact from discontinued operations.
         Earnings per share for the nine months ended September 30, 2003 was
         reduced $0.01 and there was no impact on the three months ended
         September 30, 2003 due to the impact from discontinued operations.

                                       12

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

4.   Real Estate Facilities
     ------------------------

              Activity in real estate facilities is as follows:

                                                             Nine Months Ended
                                                            September 30, 2004
                                                              (In thousands)
                                                            ------------------
Operating facilities, at cost:
   Balance at December 31, 2003........................      $    5,125,498
   Newly developed facilities opened for operations....              85,089
   Acquisition of minority interest (Note 8)...........               6,539
   Acquisition of real estate facilities...............               8,293
   Disposition of real estate facilities...............              (1,870)
   Transfer to real estate held for sale...............              (3,382)
   Casualty Losses.....................................              (2,874)
   Capital improvements................................              20,297
                                                            ------------------
   Balance at September 30, 2004.......................           5,237,590
                                                            ------------------
Accumulated depreciation:
   Balance at December 31, 2003........................          (1,153,059)
   Additions during the year...........................            (125,412)
   Transfer to real estate held for sale...............                 468
   Casualty Losses.....................................               1,624
                                                            ------------------
   Balance at September 30, 2004.......................          (1,276,379)
                                                            ------------------
Construction in process:
   Balance at December 31, 2003........................              69,620
   Current development.................................              55,780
   Transfers to land held for development..............                 375
   Newly developed facilities opened for operations....             (85,089)
                                                            ------------------
   Balance at September 30, 2004.......................              40,686
                                                            ------------------
Real estate held for sale:
   Balance at December 31, 2003........................                   -
   Transfer from operating facilities..................               3,382
   Transfers from accumulated depreciation.............                (468)
                                                            ------------------
   Balance at September 30, 2004.......................               2,914
                                                            ------------------
Land held for development:
   Balance at December 31, 2003........................              12,236
   Disposition of land.................................              (4,281)
   Transfers to construction in progress...............                (375)
                                                            ------------------
   Balance at September 30, 2004.......................               7,580
                                                            ------------------

Total real estate facilities...........................      $    4,012,391
                                                            ==================

              During the nine months ended September 30, 2004, we opened seven
     newly developed self-storage facilities (505,000 net rentable square feet)
     with an aggregate cost of $61,383,000. We also completed projects to
     convert space previously used by our containerized storage business into
     354,000 net rentable square feet of self-storage space for an aggregate
     cost of $10,278,000, and two expansion projects to existing self-storage
     facilities (108,000 net rentable square feet) for an aggregate cost of
     $9,500,000. In addition, we incurred costs totaling $3,423,000 with respect
     to visual and structural enhancements to our existing self-storage
     facilities and incurred an additional $505,000 in costs with respect to
     projects completed in 2003.

                                       13

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              During the nine months ended September 30, 2004, we sold three
     vacant parcels of land and received condemnation proceeds with respect to
     two existing self-storage facilities, receiving net proceeds totaling
     $7,437,000 and recording a gain on sale of $1,286,000.

              As described in Note 15, "Subsequent Events," from October 1, 2004
     through November 8, 2004, we acquired 32 additional self-storage facilities
     at an aggregate cost of approximately $121.5 million, comprised of $57
     million in cash, assumed debt totaling $39.5 million, and $25 million in
     the Company's 6.25% Series Z Cumulative Redeemable Perpetual Preferred
     Units.

              In addition, in the quarter ended September 30, 2004, we recorded
     a $1,250,000 impairment charge with respect to real estate assets
     representing the net book value of assets destroyed as a result of
     hurricanes occurring in the quarter in the state of Florida. This
     impairment charge is comprised of $2,874,000 in buildings and $1,624,000 in
     accumulated depreciation. This impairment charge is reflected on the
     condensed consolidated statement of income as "Asset impairment charge due
     to casualty loss."

              Construction in process at September 30, 2004 consists primarily
     of eight self-storage facilities (603,000 net rentable square feet) and 29
     expansion projects and various remodeling projects to enhance the visual
     and structural appeal of existing self-storage facilities (1,655,000 net
     rentable square feet). In addition, we have four parcels of land held for
     development with total costs of approximately $7,580,000.

              Our policy is to capitalize interest incurred on debt during the
     course of construction of our self-storage facilities. Interest capitalized
     during the three and nine months ended September 30, 2004 was $685,000 and
     $2,722,000, respectively, compared to $1,411,000 and $4,386,000 for the
     same periods in 2003, respectively.

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

              At September 30, 2004, our investments in real estate entities
     consist of ownership interests in eight partnerships, which principally own
     self-storage facilities, and our ownership interest in PSB. These interests
     are non-controlling interests of less than 50% and are accounted for using
     the equity method of accounting. Accordingly, earnings are recognized based
     upon our ownership interest in each of the partnerships. The accounting
     policies of these entities are similar to the Company's.

              For the three and nine months ended September 30, 2004, we
     recognized earnings from our investments of $3,184,000 and $11,646,000,
     respectively, as compared to $5,770,000 and $19,456,000 for the same
     periods in 2003, respectively. For the three and nine months ended
     September 30, 2004, our equity in earnings includes our net pro-rata share
     of PSB's application of EITF Topic D-42 and our pro-rata share of gains and
     losses on sale of real estate assets, which reduced our equity in earnings
     a total of $1,092,000 and $2,109,000, respectively. For the nine months
     ended September 30, 2003, our equity in earnings includes our pro-rata
     share of PSB's impairment charge with respect to real estate held for sale,
     offset by a gain on sale of their real estate assets, which increased our
     equity in earnings $453,000. See the condensed financial information with
     respect to PSB below for further information regarding these items recorded
     by PSB.

              We acquired investments in real estate entities totaling
     $2,999,000 and $272,000 for the nine months ended September 30, 2004 and
     2003, respectively. We received distributions from our investments for the
     nine months ended September 30, 2004 and 2003, in the amount of $15,863,000
     and $12,900,000, respectively.

              The following table sets forth our investments in real estate
     entities at September 30, 2004 and December 31, 2003, and our equity in
     earnings of real estate entities for the three and nine months ended
     September 30, 2004 and 2003 (amounts in thousands):

                                       14

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                         Equity in Earnings of Real      Equity in Earnings of Real
                                      Investments in Real Estate          Estate Entities for the      Estate Entities for the Nine
                                              Entities at             Three Months Ended September 30,   Months Ended September 30,
                                   ---------------------------------  -------------------------------- ----------------------------
                                    September 30,      December 31,
                                        2004               2003             2004           2003            2004            2003
                                   --------------     --------------   -------------    -----------    -----------     -----------
<S>                                <C>                <C>               <C>             <C>            <C>             <C>
  PSB (a)..................        $   278,620        $   282,428       $     1,567     $     4,559    $     7,263     $    15,717
  Acquisition Joint Venture  (b)         2,920                  -               (10)              -            (10)              -
  Other Investments .......             53,938             54,268             1,627           1,211          4,393           3,739
                                   --------------     --------------   -------------    -----------    -----------     -----------
    Total..................        $   335,478        $   336,696       $     3,184     $     5,770    $    11,646     $    19,456
                                   ==============     ==============   =============    ===========    ===========     ===========

</TABLE>

(a)      Equity in earnings of real estate entities  includes our pro-rata share
         of the net  impact of  gains/losses  on sale of assets  and  impairment
         charges relating to the impending sale of real estate assets as well as
         our pro-rata share of the impact of the  application of EITF Topic D-42
         on  redemptions  of  preferred  securities  recorded  by  PSB.  Our net
         pro-rata  impact from these items  resulted in a reduction of equity in
         earnings of $2,109,000 for the nine months ended September 30, 2004, as
         compared to an increase in equity in earnings of $453,000  for the nine
         months ended September 30, 2003.

(b)      In January 2004, we entered into a joint venture partnership with an
         institutional investor for the purpose of acquiring up to $125.0
         million of existing self-storage properties in the United States from
         third parties. The venture is funded entirely with equity consisting of
         30% from the Company and 70% from the institutional investor. The
         venture had a nine-month investment period (through September 2004) to
         identify and acquire facilities. Through September 30, 2004, the joint
         venture had acquired two facilities at an aggregate cost of $9,086,000.

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

              PS Business Parks, Inc. is a REIT traded on the American Stock
     Exchange, which controls an operating partnership (collectively, the REIT
     and the operating partnership are referred to as "PSB"). We have a 44%
     common equity interest in PSB as of September 30, 2004. This common equity
     interest is comprised of our ownership of 5,418,273 shares of PSB's common
     stock and 7,305,355 limited partnership units in the operating partnership
     at December 31, 2003 and at September 30, 2004; these limited partnership
     units are convertible at our option, subject to certain conditions, on a
     one-for-one basis into PSB common stock. Based upon the closing price at
     September 30, 2004 ($39.85 per share of PSB common stock), the shares and
     units had a market value of approximately $507.0 million as compared to a
     book value of $278.6 million.

              At September 30, 2004, PSB wholly owned approximately 18.4 million
     net rentable  square feet of  commercial  space.  In addition,  PSB manages
     commercial  space  owned  by the  Company  and  the  Consolidated  Entities
     pursuant to property management agreements.

              The following table sets forth the condensed statements of
     operations for the nine months ended September 30, 2004 and for the same
     period in 2003 (as restated for discontinued operations), and the condensed
     balance sheets of PSB at September 30, 2004 and December 31, 2003. The
     amounts below represent 100% of PSB's balances and not our pro-rata share.

                                       15

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                          Nine Months Ended September 30,
                                                         -----------------------------------
                                                               2004               2003
                                                         ----------------    ---------------
                                                             (Amounts in thousands)

<S>                                                      <C>                 <C>
   Total revenue prior to gains on sale.............     $      162,920      $      144,677
   Gain on sale of real estate and marketable                       145               5,541
      securities....................................
   Impairment charges with respect to impending
      sales of real estate..........................                  -              (5,907)
   Cost of operations and other expenses............            (53,919)            (44,590)
   Depreciation and amortization....................            (53,559)            (41,972)
   Discontinued operations (a)......................              1,223               4,354
   Minority interest................................            (21,567)            (23,613)
                                                         ----------------    ---------------
     Net income.....................................     $       35,243      $       38,490
                                                         ================    ===============
</TABLE>

<TABLE>
<CAPTION>

                                                         September 30,          December 31,
                                                              2004                 2003
                                                        ----------------     ----------------
                                                             (Amounts in thousands)

<S>                                                      <C>                 <C>
   Total assets (primarily real estate).............     $    1,358,646      $    1,358,861
   Total debt.......................................             49,225             264,694
   Other liabilities................................             41,672              35,701
   Preferred equity and preferred minority interest.            606,100             386,423
   Common equity....................................            661,649             672,043

</TABLE>


(a)      Included in discontinued operations for the three and nine months ended
         September 30, 2004 are net gains on dispositions of a real estate of
         $313,000 and $145,000, respectively. Discontinued operations for the
         nine months ended September 30, 2003 includes $2,296,000 in equity in
         income of discontinued joint venture.

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

              In January 2004, we entered into a joint venture partnership with
     an institutional investor for the purpose of acquiring up to $125.0 million
     of existing self-storage properties in the United States from third parties
     (the "Acquisition Joint Venture"). The venture is funded entirely with
     equity consisting of 30% from the Company and 70% from the institutional
     investor. The venture had a nine-month investment period (through September
     2004) to identify and acquire facilities. Through September 30, 2004, the
     joint venture had acquired two self-storage facilities at an aggregate cost
     of $9,086,000 and we had invested $2,930,000 in this joint venture. For a
     six-month period beginning 54 months after formation, we have the right to
     acquire our joint venture partner's interest. If we do not exercise our
     option, our joint venture partner can elect to purchase out interest in the
     properties during a six-month period commencing upon expiration of our
     six-month option period. If our joint venture partner fails to exercise its
     option, the partnership will be liquated and the proceeds will be
     distributed to the partners according to the joint venture agreement.

              The following table sets forth certain condensed financial
     information (representing 100% of this entity's balances and not our
     pro-rata share) with respect to the Acquisition Joint Venture.

                                       16

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

                                                            Nine Months Ended
                                                            September 30, 2004
                                                            ------------------
                                                               (Amounts in
                                                                thousands)
   Total revenue........................................      $          133
   Cost of operations and other expenses................                 (72)
   Depreciation and amortization........................                 (31)
                                                            ------------------
     Net income.........................................      $           30
                                                            ==================

                                                            September 30, 2004
                                                            ------------------
                                                               (Amounts in
                                                                thousands)

   Total assets (primarily storage facilities)..........      $        9,595
   Liabilities..........................................                 100
   Partners' equity.....................................               9,495


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

              The Other Investments consist primarily of an average 46% common
     equity ownership, which we owned during each of the three and nine months
     ended September 30, 2004 and 2003, in seven limited partnerships
     (collectively, the "Other Investments") owning an aggregate of 36 storage
     facilities. For the nine months ended September 30, 2004 we acquired
     $69,000 in additional equity interests in these entities and $272,000 for
     the nine months ended September 30, 2003.

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

<TABLE>
<CAPTION>

                                                                Nine Months Ended September 30,
                                                              -----------------------------------
                                                                    2004               2003
                                                              ----------------   ----------------
                                                                    (Amounts in thousands)

<S>                                                           <C>                 <C>
   Total revenue........................................      $       21,089      $       19,897
   Cost of operations and other expenses................              (7,170)             (6,862)
   Depreciation and amortization........................              (1,781)             (1,868)
                                                              ----------------   ----------------
     Net income.........................................      $       12,138      $       11,167
                                                              ================   ================

                                                                September 30,        December 31,
                                                                    2004               2003
                                                              ----------------   ----------------
                                                                    (Amounts in thousands)
   Total assets (primarily storage facilities)..........      $       56,490      $       56,592
   Total debt...........................................                 665               1,930
   Other liabilities....................................               1,644               1,618
   Partners' equity.....................................              54,181              53,044

</TABLE>

                                       17

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

              On March 25, 2004, we amended our $200 million credit facility.
     The amendment extends the maturity date to April 1, 2007 and bears an
     annual interest rate ranging from the London Interbank Offered Rate
     ("LIBOR") plus 0.45% to LIBOR plus 1.20% depending on our credit ratings
     (currently LIBOR plus 0.45%). In addition, we are required to pay a
     quarterly commitment fee ranging from 0.15% per annum to 0.30% per annum
     depending on our credit ratings (currently the fee is 0.15% per annum). At
     September 30, 2004 and at November 4, 2004, we had no outstanding
     borrowings on our line of credit.

              The amended Credit Agreement includes various covenants, the more
     significant of which require us to (i) maintain a balance sheet leverage
     ratio of less than 0.55 to 1.00, (ii) maintain certain quarterly interest
     and fixed-charge coverage ratios (as defined therein) of not less than 2.25
     to 1.0 and 1.5 to 1.0, respectively, and (iii) maintain a minimum total
     shareholders' equity (as defined therein). In addition, we are limited in
     our ability to incur additional borrowings (we are required to maintain
     unencumbered assets with an aggregate book value equal to or greater than
     1.5 times our unsecured recourse debt). We were in compliance with all
     covenants of the Credit Agreement at September 30, 2004.

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

              Notes payable at September 30, 2004 and December 31, 2003 consist
of the following:

<TABLE>
<CAPTION>
                                                                           Carrying Amount
                                                                 ------------------------------
                                                                    September 30, December 31,
                                                                        2004          2003
                                                                 --------------   -------------
                                                                       (Amounts in thousands)
Unsecured senior notes:
<S>                                                              <C>               <C>
  7.47% note due January 2004.............................       $          -      $     14,600
  7.66% note due January 2007.............................             33,600            44,800
Mortgage notes payable:
  10.55% mortgage notes secured by real estate facilities,
      principal and interest payable monthly..............                  -            14,863
  7.134% to 8.75% mortgage notes secured by real estate
      facilities, principal and interest payable monthly, due
      at varying dates between October 2009 and September 2028          1,660             1,767
                                                                 --------------   -------------
         Total notes payable..............................        $    35,260       $    76,030
                                                                 ==============   =============
</TABLE>

              All of our notes payable are fixed rate. The unsecured senior
     notes require interest and principal payments to be paid semi-annually and
     have various restrictive covenants, all of which have been met at September
     30, 2004 and December 31, 2003. The 10.55% mortgage notes were paid in full
     in June 2004 at face value. Mortgage notes payable at September 30, 2004
     are secured by two real estate facilities having an aggregate net book
     value of approximately $11 million at September 30, 2004.

                                       18

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              At September 30, 2004, approximate principal maturities of notes
payable are as follows:

                                 Unsecured
                                Senior Notes       Mortgage Notes      Total
                                -------------      --------------    ----------
                                             (Amounts in thousands)
2004 (remainder of)..........   $          -       $         40       $      40
2005.........................         11,200                156          11,356
2006.........................         11,200                170          11,370
2007.........................         11,200                185          11,385
2008.........................              -                202             202
Thereafter...................              -                907             907
                                -------------      --------------    ----------
                                $     33,600         $    1,660       $  35,260
                                =============      ==============    ==========
Weighted average rate........          7.7%               7.9%             7.7%
                                =============      ==============    ==========

              As described in Note 15, "Subsequent Events," we assumed
     approximately $39.5 million of mortgage debt in connection with property
     acquisitions from October 1, 2004 through November 8, 2004.

8.   Minority Interest
     -----------------

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

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

              During 2000, one of our consolidated operating partnerships issued
     preferred partnership units: March 17, 2000 - $240.0 million of 9.5% Series
     N Cumulative Redeemable Perpetual Preferred Units and March 29, 2000 -
     $75.0 million of 9.125% Series O Cumulative Redeemable Perpetual Preferred
     Units. A portion of the 9.125% Series O Cumulative Redeemable Perpetual
     Preferred Units ($30 million) was repurchased by the Company in 2001.

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

              The restructure of these Preferred Units resulted in an increase
     in income allocated to minority interests and a reduction to the Company's
     net income for the nine months ended September 30, 2004 of $10,063,000 from
     (1) the special distribution to the holders of the preferred units
     ($8,000,000) and (2) the application of the SEC's clarification of EITF
     Topic D-42 ($2,063,000). The $2,063,000 additional reduction in the
     Company's net income represents the excess of the stated amount of the
     preferred units over their carrying amount.

              For the three months ended September 30, 2004 and 2003, the
     holders of preferred units were paid distributions totaling $5,176,000 and
     $6,726,000, respectively. For the nine months ended September 30, 2004 and
     2003, preferred unitholders were paid distributions aggregating $24,907,000
     (including the $8,000,000 special distribution) and $20,179,000,
     respectively. Income allocated to the preferred minority interests was
     $5,176,000 and $6,726,000 for the three months ended September 30, 2004 and
     2003, respectively, comprised of distributions paid. Income allocated to
     preferred minority interests for the nine months ended September 30, 2004
     and 2003 was $26,970,000 (comprised of distributions paid and an allocation
     of income of $2,063,000 resulting from the application of EITF Topic D-42)
     and $20,179,000, respectively.

                                       19

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              The following table summarizes the preferred partnership units
outstanding at September 30, 2004 and December 31, 2003:

<TABLE>
<CAPTION>

                                                        At September 30, 2004           At December 31, 2003
                     Earliest        Distribution       Units          Carrying         Units        Carrying
    Series      Redemption Date (a)      Rate        Outstanding        Amount       Outstanding      Amount
--------------  -------------------- ------------    ------------   --------------  -------------   ------------
                                                                 (Amounts in thousands)
<S>                 <C>                   <C>              <C>         <C>                 <C>       <C>
Series N......      March 17, 2005        9.500%           1,600       $  40,000           9,600     $  240,000
Series NN.....      March 17, 2010        6.400%           8,000          200,000              -              -
Series O......      March 29, 2005        9.125%           1,800           45,000          1,800         45,000
                                                     ------------   --------------  -------------   ------------
Total                                                     11,400       $ 285,000          11,400     $  285,000
                                                     ============   =============   ============    ============

</TABLE>

(a)      After these dates, at our option, we can call the units for redemption
         at the issuance amount plus any unpaid distributions. The units are not
         redeemable by the holder.

              Subject to certain conditions, the Series N preferred units are
     convertible into shares of our 9.5% Series N Cumulative Preferred Stock,
     the Series O preferred units are convertible into shares of our 9.125%
     Series O Cumulative Preferred Stock, and the Series NN preferred units are
     convertible into shares of our 6.4% Series NN Cumulative Preferred Stock.

              As described under Note 15, "Subsequent Events" below, we issued
     $25,000,000 of our 6.25% Series Z Cumulative Redeemable Preferred Units
     subsequent to September 30, 2004 in connection with property acquisitions.
     The holders of these units have a one-time option, exercisable five years
     from issuance, to require us to redeem their units for $25,000,000 cash
     plus unpaid and accrued distributions. Subject to certain conditions, the
     Series Z preferred units are convertible into shares of our 6.25% Series Z
     Cumulative Preferred Stock.

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

              The following table sets forth the minority interests at September
     30, 2004 and December 31, 2003 as well as the distributions paid to
     minority interests for the nine months ended September 30, 2004 and 2003
     with respect to the other partnership interests (amounts in thousands):

<TABLE>
<CAPTION>

                                                                                     Distributions to Minority
                                               Minority Interest at              Interest for the Nine Months Ended
                                           September 30,     December 31,         September 30,     September 30,
               Description                     2004              2003                  2004             2003
----------------------------------------- ---------------   ----------------     ----------------   ---------------
<S>                                          <C>              <C>                   <C>              <C>
Consolidated Development Joint Venture...    $   65,047       $    68,490           $     7,383      $    7,386
Convertible Partnership Units...........          6,265             6,259                   213             320
Other consolidated partnerships..........        47,455            66,388                 9,390           9,244
                                          ---------------   ----------------     ----------------   ---------------
Total other partnership interests........    $  118,767       $   141,137           $    16,986      $   16,950
                                          ===============   ================     ================   ===============

</TABLE>

                                       20
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              Income is allocated to the minority interests based upon their
     pro-rata interest in the operating results of the Consolidated Entities.
     The following table sets forth minority interest in income with respect to
     the other partnership interests for the three and nine months ended
     September 30, 2004 and 2003 (amounts in thousands):

<TABLE>
<CAPTION>

                                            Minority Interest in Income for      Minority Interest in Income for
                                          the Three Months Ended September 30,   the Nine Months Ended September 30,
                                          ------------------------------------   -----------------------------------
               Description                       2004               2003              2004              2003
----------------------------------------- ----------------    ----------------   --------------     ----------------
<S>                                          <C>                 <C>              <C>                <C>
Consolidated Development Joint Venture...    $     1,563         $    1,292       $     3,940        $     2,905
Convertible Partnership Units............             88                 86               219                233
Other Consolidated Partnerships..........          2,694              3,040             8,769              9,265
                                          ----------------    ----------------   --------------     ----------------
Total other partnership interests........    $     4,345         $    4,418       $    12,928        $    12,403
                                          ================    ================   ==============     =================

</TABLE>

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

              In November 1999, we formed a development joint venture (the
     "Consolidated Development Joint Venture") with a joint venture partner
     ("PSAC Storage Investors, LLC") whose partners include a third party
     institutional investor and B. Wayne Hughes ("Mr. Hughes"), to develop
     approximately $100 million of self-storage facilities and to purchase $100
     million of the Company's Equity Stock, Series AAA (see Note 9). At
     September 30, 2004, the Consolidated Development Joint Venture was fully
     committed having completed construction on 22 self-storage facilities for a
     total cost of $108.6 million.

              The Consolidated Development Joint Venture is funded solely with
     equity capital consisting of 51% from the Company and 49% from PSAC Storage
     Investors, LLC. The accounts of the Consolidated Development Joint Venture
     are included in the Company's consolidated financial statements. The
     accounts of PSAC Storage Investors, LLC are not included in the Company's
     consolidated financial statements, as the Company has no ownership interest
     in this entity. Minority interests primarily represent the total
     contributions received from PSAC Storage Investors combined with the
     accumulated net income allocated to PSAC Storage Investors, LLC, net of
     cumulative distributions. The amounts included in our financial statements
     with respect to the minority interest in the Consolidated Development Joint
     Venture are denoted in the tables above.

              The term of the Consolidated Development Joint Venture is 15
     years; however, during the sixth year PSAC Storage Investors, LLC has the
     right to cause an early termination of the partnership. If PSAC Storage
     Investors, LLC exercises this right, we then have the option, but not the
     obligation, to acquire their interest for an amount that will allow them to
     receive an annual return of 10.75%. If the Company does not exercise its
     option to acquire PSAC Storage Investors, LLC's interest, the partnership's
     assets will be sold to third parties and the proceeds distributed to the
     Company and PSAC Storage Investors, LLC in accordance with the partnership
     agreement. If PSAC Storage Investors, LLC does not exercise its right to
     early termination during the sixth year, the partnership will be liquidated
     15 years after its formation with the assets sold to third parties and the
     proceeds distributed to the Company and PSAC Storage Investors, LLC in
     accordance with the partnership agreement.

              PSAC Storage Investors, LLC provides Mr. Hughes with a fixed yield
     of approximately 8.0% per annum on his preferred non-voting interest
     (representing an investment of approximately $64.1 million at September 30,
     2004). In addition, Mr. Hughes receives 1% of the remaining cash flow of
     PSAC Storage Investors, LLC (estimated to be less than $50,000 per year).
     If PSAC Storage Investors, LLC does not elect to cause an early
     termination, Mr. Hughes' 1% interest in residual cash flow can increase to
     10%.

                                       21
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              In consolidation, the Equity Stock, Series AAA owned by the joint
     venture and the related dividend income has been eliminated. Minority
     interests primarily represent the total contributions received from PSAC
     Storage Investors, LLC combined with the accumulated net income allocated
     to PSAC Storage Investors, LLC, net of cumulative distributions.

              See Note 13, "Recent Accounting Pronouncements" for further
     discussion of the impact of recent accounting pronouncements on the
     accounting for these interests.

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

              As of September 30, 2004 and December 31, 2003, one of our
     Consolidated Entities had approximately 237,935 convertible operating
     partnership units ("Convertible Units") outstanding, representing a limited
     partnership interest in the partnership. The Convertible Units are
     convertible on a one-for-one basis (subject to certain limitations) into
     the Company's common stock at the option of the unitholder. Minority
     interest in income with respect to the Convertible Units reflects the
     Convertible Units' share of the net income of the Company, with net income
     allocated to minority interests with respect to weighted average
     outstanding Convertible Units on a per unit basis equal to diluted earnings
     per common share. During the nine months ended September 30, 2004 and the
     year ended December 31, 2003, no units were converted.

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

              At September 30, 2004, the other consolidated partnerships reflect
     common equity interests that the Company does not own in 24 entities having
     an interest in an aggregate of 123 self-storage facilities.

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

              On April 28, 2003 we acquired through a merger all of the
     remaining limited partnership interest not owned by the Company in PS
     Partners IV, Ltd., a partnership which is consolidated with the Company.
     The acquisition cost was $23,377,000, consisting of the issuance of 426,859
     shares of our common stock ($13,510,000) valued at the closing price of our
     common stock on the date of acquisition and cash of $9,867,000; this
     acquisition had the effect of reducing minority interest by $6,690,000,
     with the excess of cost over underlying book value ($16,687,000) allocated
     to real estate.

              The partnership agreements of the other consolidated partnerships
     have termination dates that cannot be unilaterally extended by the Company
     and, upon termination of each partnership, the net assets of these entities
     would be liquidated and paid to the minority interests and the Company
     based upon their relative ownership interests. See Note 13, "Recent
     Accounting Pronouncements - Accounting for Certain Financial Instruments
     with Characteristics of both Liabilities and Equity" for further discussion
     of the impact of recent accounting pronouncements on the accounting for
     these interests.

                                       22

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

9.   Shareholders' Equity
     --------------------

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

              At September  30, 2004 and December 31, 2003, we had the following
     series of Cumulative Preferred Stock outstanding:

<TABLE>
<CAPTION>

                                                          At September 30, 2004          At December 31, 2003
                                                       ------------------------------ -----------------------------
                           Earliest
                          Redemption      Dividend        Shares        Carrying         Shares         Carrying
       Series              Date (a)         Rate        Outstanding      Amount        Outstanding       Amount
----------------------- --------------  -------------  --------------  -------------- -------------   -------------
                                                                       (Dollar amount in thousands)
<S>                      <C>                  <C>          <C>           <C>               <C>          <C>
Series D                 9/30/04 (c)          9.500%               -    $         -       1,200,000    $    30,000
Series E                 1/31/05             10.000%       2,195,000         54,875       2,195,000         54,875
Series F                 4/30/05              9.750%       2,300,000         57,500       2,300,000         57,500
Series K                 1/19/04 (b)          8.250%               -              -               -              -
                         (c)
Series L                 3/10/04 (c)          8.250%               -              -           4,600        115,000
Series M                 8/17/04 (c)          8.750%               -              -           2,250         56,250
Series Q                 1/19/06              8.600%           6,900        172,500           6,900        172,500
Series R                 9/28/06              8.000%          20,400        510,000          20,400        510,000
Series S                 10/31/06             7.875%           5,750        143,750           5,750        143,750
Series T                 1/18/07              7.625%           6,086        152,150           6,086        152,150
Series U                 2/19/07              7.625%           6,000        150,000           6,000        150,000
Series V                 9/30/07              7.500%           6,900        172,500           6,900        172,500
Series W                 10/6/08              6.500%           5,300        132,500           5,300        132,500
Series X                 11/13/08             6.450%           4,800        120,000           4,800        120,000
Series Y                 1/2/09               6.850%       1,600,000         40,000               -              -
Series Z                 3/5/09               6.250%           4,500        112,500               -              -
Series A                 3/31/09              6.125%           4,600        115,000               -              -
Series B                 6/30/09              7.125%           4,350        108,750               -              -
Series C                 9/13/09              6.600%           4,600        115,000               -              -
                                                       --------------  -------------- -------------   --------------
      Total Cumulative Preferred Stock                     6,175,186    $ 2,157,025      5,763,986   $  1,867,025
                                                       ==============  ============== =============   ==============

</TABLE>

(a)      Except under certain conditions relating to the Company's qualification
         as a REIT, the Cumulative Preferred Stock outstanding at September 30,
         2004 is not redeemable prior to the dates indicated. On or after the
         dates indicated, each series of Cumulative Senior Preferred Stock will
         be redeemable, at the option of the Company, in whole or in part, at
         $25.00 per share (or depositary share in the case of the Series M
         through X, and Series Z, A, B and C), plus accrued and unpaid
         dividends.

(b)      The Series K Cumulative Preferred Stock was called for redemption in
         December 2003 and was redeemed in January 2004 along with the unpaid
         distributions from January 1, 2004 through the redemption date.
         Accordingly, the redemption value of $115,000,000 was classified as a
         liability at December 31, 2003.

(c)      Series was redeemed on the date indicated, except Series K that was
         redeemed on January 20, 2004.


              Our Cumulative Preferred Stock, issued in series, has general
     preference rights with respect to liquidation and quarterly distributions.
     Holders of the preferred stock, except under certain conditions and as
     noted below, will not be entitled to vote on most matters. In the event of
     a cumulative arrearage equal to six quarterly dividends 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, 2004, there were no dividends in arrears and the
     Debt Ratio was 0.6%.

                                       23

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              During the first quarter of 2004, we issued three series of
     Cumulative Preferred Stock: Series Y - issued January 2, 2004, net proceeds
     $40,000,000, Series Z - issued March 5, 2004, net proceeds $108,756,000,
     and Series A - issued March 19, 2004, net proceeds $111,177,000. On June
     30, 2004 we issued our Series B Cumulative Preferred Stock for net proceeds
     of $105,124,000 and on September 13, 2004 we issued our Series C Cumulative
     Preferred Stock for net proceeds of $111,177,000. In addition during the
     first quarter of 2004, we redeemed our Series K (which was called for
     redemption in December 2003) and Series L Cumulative Preferred Stock, at
     par. The total cost of redemption of Series L was $115,021,000 (including
     redemption expenses), plus accrued dividends. During the third quarter we
     redeemed our Series D and Series M Cumulative Preferred Stock for a total
     cost of $30,020,000 and $56,270,000, respectively, (including redemption
     expenses), plus accrued dividends.

              During 2003, we issued our Series W and Series X Cumulative
     Preferred Stock: Series W - issued on October 6, 2003, net proceeds of
     $128,126,000 and Series X - issued November 13, 2003, net proceeds of
     $116,020,000. In addition during 2003, we redeemed our Series B and Series
     C Cumulative Preferred Stock, at par, at a total cost of $57,517,000 and
     $30,018,000 (including related redemption expenses), respectively. In
     December 2003, we called for redemption our Series K Cumulative Preferred
     Stock, at par. The total cost of redemption of the Series K was
     approximately $115,000,000, plus accrued dividends, on the redemption date,
     January 20, 2004.

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

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

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

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

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

                                       24
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

     Equity Stock, Series AA
     -----------------------

              In June 1997, we contributed $22,500,000 (225,000 shares) of
     equity stock, designated as Equity Stock, Series AA ("Equity Stock AA") to
     Diversified Storage Venture Fund, a consolidated partnership.

              On June 30, 2004, the Equity Stock, Series AA was retired in
     connection with our aforementioned acquisition of the remaining interests
     we didn't own in Diversified Storage Venture Fund. For periods prior to
     June 30, 2004, the Equity Stock AA was eliminated in consolidation.

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

              In November 1999, we sold $100,000,000 (4,289,544 shares) of
     Equity Stock, Series AAA ("Equity Stock AAA") to a newly formed joint
     venture (the "Consolidated Development Joint Venture"). We control the
     joint venture and consolidate its accounts, and accordingly the Equity
     Stock AAA is eliminated in consolidation. The Equity Stock AAA ranks on a
     parity with our common stock and junior to the Cumulative Preferred Stock
     with respect to general preference rights, and has a liquidation amount
     equal to 120% of the amount distributed to each common share. Annual
     distributions per share are equal to the lesser of (i) five times the
     amount paid per common share or (ii) $2.1564. We have no obligation to pay
     distributions on these shares if no distributions are paid to common
     shareholders.

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

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

              At September 30, 2004, entities consolidated with the Company
     owned 893,432 common shares of the Company. These shares continue to be
     legally issued and outstanding. In the consolidation process, these shares
     and the related balance sheet amounts have been eliminated. In addition,
     these shares are not included in the computation of weighted average shares
     outstanding.

              The following chart reconciles the Company's legally issued and
     outstanding shares of common stock and the reported outstanding shares of
     common stock at September 30, 2004 and December 31, 2003:

<TABLE>
<CAPTION>

Reconciliation of Common Shares Outstanding    At September 30,    At December 31,
-------------------------------------------          2004                2003
                                               ---------------     ---------------
<S>                                               <C>                 <C>
Legally issued and outstanding shares........     129,210,239         127,710,466
Less - Shares owned by the Consolidated
    Entities that are eliminated in                  (893,432)           (723,732)
    consolidation (a)........................
                                               ---------------     ---------------
Reported issued and outstanding shares.......     128,316,807         126,986,734
                                               ===============     ===============
</TABLE>


              (a) The increase in shares owned by the Consolidated Entities is
     due to the Consolidated Entities' purchase of 169,700 shares of our common
     stock during the nine months ended September 30, 2004.

                                       25

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

     Dividends
     ---------

              The following table summarizes dividends declared and paid during
the nine months ended September 30, 2004:

                                         Distributions Per
                                        Share or Depositary
                                               Share         Total Distribution
                                        ------------------ --------------------
Preferred Stock:
Series D..............................         $1.776          $  2,131,000
Series E..............................         $1.875             4,116,000
Series F..............................         $1.828             4,205,000
Series K..............................         $0.109               501,000
Series L .............................         $0.395             1,818,000
Series M..............................         $1.373             3,089,000
Series Q..............................         $1.613            11,126,000
Series R..............................         $1.500            30,600,000
Series S..............................         $1.477             8,490,000
Series T..............................         $1.430             8,700,000
Series U..............................         $1.430             8,580,000
Series V..............................         $1.406             9,703,000
Series W..............................         $1.219             6,459,000
Series X..............................         $1.209             5,805,000
Series Y..............................         $1.280             2,048,000
Series Z..............................         $0.898             4,043,000
Series A..............................         $0.770             3,542,000
Series B..............................         $0.450             1,959,000
Series C..............................         $0.082               378,000
                                                           --------------------
                                                                117,293,000
Common Stock:
Equity Stock, Series A................         $1.838            16,126,000
Common ...............................         $1.350           172,474,000
                                                           --------------------
   Total dividends....................                         $305,893,000
                                                           ====================

              The dividend rate on the common stock was $0.45 per common share
     and $1.35 per common share for the three and nine months ended September
     30, 2004, respectively. The dividend rate on the Equity Stock A was $0.6125
     per depositary share and $1.838 per depositary share for the three and nine
     months ended September 30, 2004, respectively.

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

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

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

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

                                       26

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

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

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

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

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

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

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

              The following table reconciles the revenue by segment to the
Company's consolidated revenues:

<TABLE>
<CAPTION>

                                                            Three Months Ended                     Nine Months Ended
                                                               September 30,                          September 30,
                                                       -------------------------                -----------------------
                                                           2004          2003         Change       2004         2003       Change
                                                       ------------  -----------    ----------- ----------  -----------  ----------
                                                                              (Dollar amounts in thousands)
      Reconciliation of Revenues by Segment:

<S>                                                     <C>          <C>            <C>         <C>         <C>          <C>
      Self-storage property rentals................     $ 219,908    $  206,856     $  13,052   $ 639,025   $  593,345   $  45,680
      Commercial property rentals..................         2,707         2,712            (5)      8,064        8,299        (235)
      Containerized storage........................         5,048         6,672        (1,624)     15,099       18,495      (3,396)
      Tenant reinsurance...........................         6,210         5,755           455      18,266       16,551       1,715
      Interest and other income....................         3,300         2,847           453       7,240        7,425        (185)
                                                       ------------  -----------    ----------- ----------  -----------  ----------
      Total revenues...............................     $ 237,173    $  224,842     $  12,331   $ 687,694   $  644,115    $  43,579
                                                       ============  ===========    =========== ==========  ===========  ==========

</TABLE>

                                       27

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              The following table reconciles the performance of each segment to
     our consolidated net income. It further provides detail of the segment
     components of the income statement item, "Equity in earning of real estate
     entities."

<TABLE>
<CAPTION>

                                                               Three Months Ended                    Nine Months Ended
                                                                 September 30,                         September 30,
                                                           -------------------------              ----------------------
                                                              2004           2003      Change        2004         2003       Change
                                                           -----------   ----------- ----------   ----------  ----------  ----------
                                                                                     (Amounts in thousands)
Reconciliation of Net Income by Segment:

Self-storage
<S>                                                        <C>            <C>         <C>         <C>         <C>         <C>
  Self-storage net operating income....................... $ 145,833      $135,879    $  9,954    $ 414,906   $ 386,690   $ 28,216
  Self-storage depreciation...............................   (42,839)      (43,613)        774     (130,643)   (130,332)      (311)
  Equity in earnings - self - storage property operations.     1,744         1,607         137        5,014       4,724        290
  Equity in earnings - depreciation (self-storage) .......      (402)         (436)         34       (1,180)     (1,265)        85
  Discontinued operations (Note 3) .......................         -           149        (149)           -         421       (421)
                                                           -----------   ----------- ----------   ----------  ----------  ----------
      Total self-storage segment net income...............   104,336        93,586      10,750      288,097     260,238     27,859
                                                           -----------   ----------- ----------   ----------  ----------  ----------
  Commercial  properties
  Commercial properties net operating income..............     1,676         1,478         198        4,864       4,884        (20)
  Depreciation and amortization - commercial properties...      (464)         (565)        101       (1,574)     (1,815)       241
  Equity in earnings - commercial property operations.....    15,959        16,148        (189)      49,753      48,339      1,414
  Equity in earnings - depreciation (commercial               (8,119)       (6,779)     (1,340)     (23,875)    (19,088)    (4,787)
     properties) .........................................
  Discontinued operations (Note 3) .......................        54            56          (2)         142         152        (10)
                                                           -----------   ----------- ----------   ----------  ----------  ----------
      Total commercial property segment net income........     9,106        10,338      (1,232)      29,310      32,472     (3,162)
                                                           -----------   ----------- ----------   ----------  ----------  ----------
  Containerized storage
  Containerized storage net operating income..............     1,975         2,849        (874)       6,358       7,782     (1,424)
  Containerized storage depreciation......................    (1,072)       (1,257)        185       (3,298)     (3,623)       325
  Discontinued operations (Note 3) .......................    (1,126)         (649)       (477)      (1,931)     (2,060)       129
                                                           -----------   ----------- ----------   ----------  ----------  ----------
      Total containerized storage segment net income......      (223)          943      (1,166)       1,129       2,099       (970)
                                                           -----------   ----------- ----------   ----------  ----------  ----------
  Tenant Reinsurance
   Tenant reinsurance net income..........................     2,006         2,838        (832)       7,177       7,920       (743)
                                                           -----------   ----------- ----------   ----------  ----------  ----------
  Other items not allocated to segments
  Equity in earnings - general and administrative and         (5,998)       (4,770)     (1,228)     (18,066)    (13,254)    (4,812)
     other................................................
  Interest and other income...............................     3,300         2,847         453        7,240       7,425       (185)
  General and administrative..............................    (5,527)       (4,642)       (885)     (15,983)    (13,321)    (2,662)
  Interest expense........................................         -          (296)        296         (100)     (1,121)     1,021
  Minority interest in income.............................    (9,521)      (11,144)      1,623      (39,898)    (32,582)    (7,316)
  Asset impairment charge due to casualty loss............    (1,250)            -      (1,250)      (1,250)          -     (1,250)
  Gain on disposition of real estate......................     1,286            47       1,239        1,286         807        479
                                                           -----------   ----------- ----------   ----------  ----------  ----------
      Total other items not allocated to segments            (17,710)      (17,958)        248      (66,771)    (52,046)   (14,725)
                                                           -----------   ----------- ----------   ----------  ----------  ----------
       Total consolidated net income...................... $  97,515      $ 89,747    $  7,768    $ 258,942   $ 250,683   $  8,259
                                                           ===========   =========== ==========   ==========  ==========  ==========
</TABLE>

                                       28

<PAGE>

11.  Stock-Based Compensation
     ------------------------

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

              The Company has a 1990 Stock  Option Plan (the "1990  Plan") which
     provides for the grant of  non-qualified  stock options.  The Company has a
     1994 Stock Option Plan (the "1994 Plan"), a 1996 Stock Option and Incentive
     Plan (the "1996 Plan") and a 2000  Non-Executive/Non-Director  Stock Option
     and Incentive Plan (the "2000 Plan"),  each of which provides for the grant
     of non-qualified  options and incentive stock options.  (The 1990 Plan, the
     1994 Plan, the 1996 Plan and the 2000 Plan are collectively  referred to as
     the  "PSI   Plans".)   Under  the  PSI  Plans,   the  Company  has  granted
     non-qualified  options to certain directors,  officers and key employees to
     purchase shares of the Company's  common stock at a price equal to the fair
     market value of the common stock at the date of grant.  Generally,  options
     under the PSI Plans vest over a three-year period from the date of grant at
     the rate of one-third per year (options  granted  after,  December 31, 2003
     vest generally over a five-year period) and expire (i) under the 1990 Plan,
     five years after the date they became  exercisable  and (ii) under the 1994
     Plan,  the 1996 Plan and the 2000 Plan,  ten years after the date of grant.
     The 1996 Plan and the 2000 Plan also  provide  for the grant of  restricted
     stock to officers,  key employees and service providers on terms determined
     by an authorized committee of the Board of Directors.

              Accounting principles generally accepted in the United States
     permit, but do not require, companies to recognize compensation expense for
     stock-based awards based on their fair value at date of grant, which is
     then amortized as compensation expense over the vesting period (the "Fair
     Value Method"). Companies can also elect to disclose, but not recognize as
     an expense, stock option expense when stock options are granted to
     employees at an exercise price equal to the market price at the date of
     grant (the "APB 25 Method").

              For periods prior to December 31, 2001, we utilized the APB 25
     Method of accounting for employee stock options. As of January 1, 2002, we
     adopted the Fair Value Method, and have elected to use the prospective
     method of transition, whereby the Company applies the recognition
     provisions of the Fair Value Method to all stock options granted after the
     beginning of the year in which the Company adopts such method. Accordingly,
     we recognize compensation expense in our income statement using the Fair
     Value Method only with respect to stock options issued after January 1,
     2002.

              For the three and nine months ended September 30, 2004, we
     recorded $150,000 and $439,000 in stock option compensation expense,
     respectively, related to options granted after January 1, 2002. For the
     same periods in 2003 we recorded $95,000 and $294,000, respectively. The
     fair value of each option grant is estimated on the date of the grant using
     the Black-Scholes option pricing model. The estimated average value of
     187,500 stock options granted in the first nine months of 2004 was based
     upon an estimated life of 5 years, a risk-free rate of 3.39%, an expected
     dividend yield of 7%, and expected volatility of 0.227.

              If we had recorded stock option expense applying the Fair Value
     Method to all awards, we would have recognized an additional $439,000 and
     $2,123,000 for the nine months ended September 30, 2004 and 2003,
     respectively, in stock option compensation expense. Basic earnings per
     share would have been $0.93 and $0.97 for the nine months ended September
     30, 2004 and 2003, respectively. Diluted earnings per share would have been
     $0.92 and $0.96 for the nine months ended September 30, 2004 and 2003,
     respectively.

              A total of 187,500 stock options were granted during the nine
     months ended September 30, 2004, 1,719,473 shares were exercised, and
     63,209 shares were forfeited. A total of 1,493,436 stock options were
     outstanding at September 30, 2004 (3,088,618 at December 31, 2003).

                                       29

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

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

              During the nine months ended September 30, 2004, 78,500 restricted
     stock units were granted, 36,250 restricted stock units were forfeited, and
     31,600 restricted stock units vested. This vesting resulted in the issuance
     of 20,300 shares of the Company's common stock. In addition, cash
     compensation was paid to employees in lieu of 11,300 shares of common stock
     based upon the market value of the stock at the date of vesting, and used
     to settle the employees' tax liability generated by the vesting.

              At September 30, 2004, approximately 259,650 restricted stock
     units were outstanding (249,000 at December 31, 2003). A total of $559,000
     and $1,676,000 in restricted stock expense was recorded for the three and
     nine months ended September 30, 2004, which includes amortization of the
     fair value of the grant reflected as an increase to paid-in capital, as
     well as accrued estimated burden to be incurred upon vesting. Restricted
     stock expense was $371,000 for both the three and nine months ended
     September 30, 2003.

12.  Related Party Transactions
     --------------------------

     Relationships and Transactions with the Hughes Family
     -----------------------------------------------------

              B. Wayne Hughes, Chairman of the Board of Directors, and his
     family (the "Hughes Family") have ownership interests in, and operate,
     approximately 40 self-storage facilities in Canada under the name "Public
     Storage" pursuant to a license agreement with the Company. We currently do
     not own any interests in these facilities nor do we own any facilities in
     Canada. The Hughes Family owns approximately 36% of our common stock
     outstanding at September 30, 2004. We have a right of first refusal to
     acquire the stock or assets of the corporation engaged in the operation of
     the 40 self-storage facilities in Canada if the Hughes family or the
     corporation agrees to sell them. However, we have no interest in the
     operations of this corporation, have no right to acquire this stock or
     assets unless the Hughes family decides to sell, and receive no benefit
     from the profits and increases in value of the Canadian self-storage
     facilities.

              Prior to December  31,  2003,  our  personnel  were engaged in the
     supervision and the operation of these Canadian self-storage facilities and
     provided  certain  administrative  services  for the Canadian  owners,  and
     certain other  services,  primarily  tax services,  with respect to certain
     other Hughes Family  interests.  The Hughes Family and the Canadian  owners
     reimbursed  us at cost  for  these  services,  amounting  to  $155,000  and
     $637,000  for  the  three  and  nine  months  ended   September  30,  2003,
     respectively  (none for the nine months ended  September 30,  2004).  There
     have been  conflicts of interest in  allocating  the time of our  personnel
     between our properties,  the Canadian properties,  and certain other Hughes
     Family  interests.  The sharing of personnel  and systems with the Canadian
     entities was substantially  discontinued by December 31, 2003. The Canadian
     entities  claim that the Company owes them CND $653,424,  representing  the
     amount charged to them for the  development of certain systems that they no
     longer  utilize.  This amount has been accrued on the  Company's  financial
     statements for the nine months ended September 30, 2004.

                                       30

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              In November 1999, we formed the Consolidated Development Joint
     Venture with a joint venture partner whose partners include an
     institutional investor and Mr. Hughes. This transaction is discussed more
     fully in Note 8.

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

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

     PS Business Parks, Inc.
     -----------------------

              Ronald L.  Havner  Jr.,  our  Vice-chairman  and  Chief  Executive
     Officer,  is also chairman of PSB and was CEO of PSB until August 12, 2003.
     For 2003  services,  Mr. Havner was  compensated  by PSB, as well as by the
     Company.

              Pursuant to a cost-sharing and administrative services agreement,
     PSB reimburses the Company for certain administrative services. PSB's share
     of these costs totaled approximately $85,000 for each of the three months
     ended September 30, 2004 and 2003 and $255,000 for each of the nine months
     ended September 30, 2004 and 2003, and were computed in accordance with a
     methodology intended to fairly allocate these costs.

              PSB manages certain of the commercial facilities owned by the
     Company pursuant to management agreements for a management fee equal to 5%
     of revenues. The Company paid a total of $141,000 and $423,000 for the
     three and nine months ended September 30, 2004, respectively, as compared
     to $125,000 and $424,000, respectively, for the same periods in 2003, in
     management fees with respect to PSB's property management services.

              In December 2003, the Company loaned $100,000,000 to PSB. This
     loan bore interest at the rate of 1.45% per year. This loan, which was
     fully repaid by March 8, 2004, was included in Notes Receivable at December
     31, 2003. For the nine months ended September 30, 2004, we recorded
     approximately $127,000 of interest income with respect to this loan.

     STOR-Re Mutual Insurance Company, Inc.
     --------------------------------------

              STOR-Re, an entity that is consolidated by the Company and is
     partially owned by PSB (approximately 4.0%) and the Unconsolidated Entities
     (collectively 3.7%) and the owners of the Canadian self-storage facilities
     (approximately 2.2%), provided limited property and liability insurance to
     PSB and the owners of the Canadian self-storage facilities at commercially
     competitive rates for losses occurring prior to April 1, 2004. PSB and the
     Company utilized unaffiliated insurance carriers to provide property and
     liability insurance in excess of STOR-Re's limitations. Effective April 1,
     2004, PSB and the owners of the Canadian self-storage facilities have
     obtained their own insurance coverage independent from the Company for
     losses occurring after March 31, 2004.

                                       31

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

              At September 30, 2004, the Canadian entities owed STOR-Re USD
$63,526 for insurance premiums related to the periods prior to April 1, 2004.

13.  Recent Accounting Pronouncements
     --------------------------------

     Accounting for Certain Financial  Instruments with  Characteristics of both
     ---------------------------------------------------------------------------
     Liabilities and Equity
     ----------------------

              In May 2003, the FASB issued Statement of Financial Accounting
     Standards No. 150 - "Accounting for Certain Financial Instruments with
     Characteristics of both Liabilities and Equity" ("SFAS No. 150"). This
     statement prescribes reporting standards for financial instruments that
     have characteristics of both liabilities and equity. This standard
     generally indicates that certain financial instruments that give the issuer
     a choice of settling an obligation with a variable number of securities or
     settling an obligation with a transfer of assets, any mandatorily
     redeemable security, and certain put options and forward purchase
     contracts, should be classified as a liability on the balance sheet. With
     the exception of minority interests, described below, we implemented SFAS
     No. 150 on July 1, 2003, and the adoption had no impact on our financial
     statements.

              The provisions of SFAS No. 150 indicate certain minority interests
     in consolidated entities are to be classified as liabilities at fair value.
     However, on October 29, 2003, the FASB decided to defer indefinitely the
     implementation of SFAS No. 150 as it relates to these minority interests.

     FASB Interpretation No. 46 - Consolidation of Variable Interest Entities
     ------------------------------------------------------------------------

              In January 2003, the FASB issued FASB Interpretation No. 46 -
     "Consolidation of Variable Interest Entities, an interpretation of
     Accounting Research Bulletin No. 51." This interpretation explains how to
     identify variable interest entities and how an enterprise assesses its
     interests in a variable interest entity to decide whether to consolidate
     that entity. In general, a variable interest entity is a corporation,
     partnership, trust, or any other legal structure used for business purposes
     that either (a) does not have equity investors with voting rights, or (b)
     has equity investors that do not provide sufficient financial resources for
     the entity to support its activities. We adopted this statement effective
     January 1, 2004 and the adoption had no effect.

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

     Legal Matters
     -------------

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

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

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

              Based upon the uncertainty inherent in any putative class action,
     the Company cannot presently determine the potential damages, if any, or
     the ultimate outcome of this litigation. On November 3, 2003, the court
     granted the Company's motion to strike the plaintiff's nationwide class
     allegations and to limit any putative class to California residents only.
     The Company is vigorously contesting the claims upon which this lawsuit is
     based including class certification efforts.

                                       32

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

     Salaam et al v. Public Storage,  Inc. (filed February 2000) (Superior Court
     ---------------------------------------------------------------------------
     - Sacramento County);  Holzman et al v. Public Storage, Inc. (filed October
     ---------------------------------------------------------------------------
     2004) (Superior Court - Sacramento County)
     ------------------------------------------

              The plaintiffs in the Salaam case are suing the Company on behalf
     of a putative class of California resident property managers who claim that
     they were not compensated for all the hours they worked. The named
     plaintiffs have indicated that their claims total less than $20,000 in
     aggregate. On December 1, 2003, the California Court of Appeals affirmed
     the Supreme Court's 2002 denial of plaintiff's motion for class
     certification. The affirmation of the denial of class certification does
     not address the claim under the California Unfair Business Practices Act.

              The plaintiffs in the Holzman case, who are represented by the
     same attorneys as the Salaam plaintiffs, are seeking substantially the same
     claims with additional minor variations in an acknowledged second effort to
     proceed as a class, in reliance on a recent California Supreme Court case.
     The plaintiffs have not yet identified an aggregate value of their claims
     which, on an individual basis, are alleged wage losses of $4,000 or less.
     The plaintiffs also assert claims under the California Unfair Business
     Practices Act.

              The maximum potential liability for both of these cases cannot be
     estimated, but can only be increased if claims are permitted to be brought
     on behalf of others under the California Unfair Business Practices Act or,
     in the Holzman case, if plaintiff prevails on a motion for class
     certification.

              The Company is continuing to vigorously contest the claims in
     these cases and intends to resist any expansion beyond the named
     plaintiffs, including by opposing claims on behalf of others under the
     California Unfair Business Practices Act or, in the case of the Holzman
     case, for class certification. The Company cannot presently determine the
     potential damages, if any, or the ultimate outcome of this litigation.

     Gustavson et al v. Public Storage, Inc. (filed June 2003) (Superior Court -
     ---------------------------------------------------------------------------
     Los Angeles County)
     -------------------

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

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

                                       33

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

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

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

              In July 2003 the Company filed an answer to the Hughes family's
     complaint requesting a final judicial determination of the Company's rights
     of recovery against the Hughes family in respect of PSIC. In September
     2003, by order of the Superior Court, Justice Malcolm Lucas, a former chief
     justice of the California Supreme Court, was appointed to try the case.
     Discovery is proceeding and Justice Lucas has set this matter for trial at
     the end of March, 2005. We believe that the lawsuit by the Hughes family
     will ultimately resolve matters relating to PSIC and will not have any
     financially adverse effect on the Company (other than the costs and other
     expenses relating to the lawsuit).

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

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

     INSURANCE AND LOSS EXPOSURE

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

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

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

                                       34

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

                                   (Unaudited)

     DEVELOPMENT OF REAL ESTATE FACILITIES

              We currently have 37 projects in our development pipeline,
     including eight newly developed self-storage facilities and expansions to
     29 existing self-storage facilities, with total estimated development costs
     of $151,616,000, of which $40,686,000 has been spent through September 30,
     2004. Development of these facilities is subject to various risks and
     contingencies.

     ACQUISITION OF REAL ESTATE FACILITIES

              From October 1, 2004 through November 8, 2004, we acquired
     additional facilities that were under contract at September 30, 2004, as
     described below in Note 15, "Subsequent Events." As of November 5, 2004, we
     have contracts to acquire 11 additional existing self-storage facilities at
     an aggregate cost of approximately $124.9 million, consisting of $76.0
     million in cash and approximately $48.9 million in assumed debt.

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

              From September 30, 2004 through November 5, 2004, we acquired 32
     additional self-storage facilities at an aggregate cost of approximately
     $121.5 million, comprised of $57.0 million in cash, assumed debt totaling
     $39.5 million, and $25 million in the Company's 6.25% Series Z Cumulative
     Redeemable Perpetual Preferred Units. The holders of the Series Z units
     have a one-time option, exercisable five years from issuance, to require us
     to redeem their units for $25 million cash plus unpaid and accrued
     distributions.

              On October 28, 2004, we sold the commercial facility described in
     Note 3 as the "Sold Commercial Facility" for an aggregate of $3.8 million
     in cash, at a gain of approximately $1.0 million which will be recognized
     in the fourth quarter of 2004.

                                       35

<PAGE>

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

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

         FORWARD LOOKING STATEMENTS: When used within this document, the words
"expects," "believes," "anticipates," "should," "estimates," and similar
expressions are intended to identify "forward-looking statements" within the
meaning of that term in Section 27A of the Securities Exchange Act of 1933, as
amended, and in Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors, which may cause the actual results and performance of the
Company to be materially different from those expressed or implied in the
forward looking statements. Such factors are described in Item 2A, "Risk
Factors" and include changes in general economic conditions and in the markets
in which the Company operates and the impact of competition from new and
existing storage and commercial facilities and other storage alternatives, which
could impact rents and occupancy levels at the Company's facilities;
difficulties in the Company's ability to evaluate, finance and integrate
acquired and developed properties into the Company's existing operations and to
fill up those properties, which could adversely affect the Company's
profitability; the impact of the regulatory environment as well as national,
state, and local laws and regulations including, without limitation, those
governing Real Estate Investment Trusts, which could increase the Company's
expense and reduce the Company's cash available for distribution; consumers'
failure to accept the containerized storage concept which would reduce the
Company's profitability; difficulties in raising capital at reasonable rates,
which would impede the Company's ability to grow; delays in the development
process, which could adversely affect the Company's profitability; and economic
uncertainty due to the impact of war or terrorism could adversely affect our
business plan. We disclaim any obligation to publicly release the results of any
revisions to these forward-looking statements reflecting new estimates, events
or circumstances after the date of this report.

         CRITICAL ACCOUNTING POLICIES

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

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

                                       36

<PAGE>

         IMPAIRMENT OF LONG-LIVED ASSETS: Substantially all of our assets
consist of long-lived assets, including real estate, assets associated with the
containerized storage business, goodwill, and other intangible assets. We
evaluate our goodwill for impairment on an annual basis, and on a quarterly
basis evaluate other long-lived assets for impairment. As described in Note 2 to
the consolidated financial statements, the evaluation of goodwill for impairment
entails valuation of the reporting unit to which goodwill is allocated, which
involves significant judgment in the area of projecting earnings, determining
appropriate price-earnings multiples, and discount rates. In addition, the
evaluation of other long-lived assets for impairment requires determining
whether indicators of impairment exist, which is a subjective process. When any
indicators of impairment are found, the evaluation of such long-lived assets
then entails projections of future operating cash flows, which also involves
significant judgment. We identified impairment charges as of September 30, 2004
related to i) our plan to close containerized storage facilities - see Note 3 to
the consolidated financial statements and ii) damages sustained as a result of
recent hurricanes in Florida. Future events, or facts and circumstances that
currently exist, that we have not yet identified, could cause us to conclude in
the future that other long lived assets are impaired. Any resulting impairment
loss could have a material adverse impact on our financial condition and results
of operations.

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

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

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

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

                                       37

<PAGE>

OPERATING RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2004:
-----------------------------------------------------------

         Net income for the three months ended September 30, 2004 was
$97,515,000 compared to $89,747,000 for the same period in 2003, representing an
increase of $7,768,000 or 8.7%. This increase is primarily due to improved
operations of our Consistent Group self-storage facilities, improved operations
of our newly developed facilities as their occupancies have continued to
increase, and a decrease in income allocable to minority interests as a result
of our restructuring of $200 million of our Series N preferred partnership
units. These items were partially offset by the impact of lower equity in
earnings from our investment in PS Business Parks ("PSB"), primarily due to
higher depreciation expense associated with the acquisition of significant real
estate assets by PSB during the fourth quarter of 2003 and a gain recorded by
PSB in the quarter ended September 30, 2003. In addition, net income for the
three months ended September 30, 2004 was negatively impacted by the recent
hurricanes experienced in Florida as described below.

         Net income allocable to our common shareholders (after allocating net
income to our preferred and equity shareholders) was $48,597,000 or $0.38 per
common share on a diluted basis (based on 128,826,000 weighted average diluted
common equivalent shares) for the three months ended September 30, 2004 compared
to $49,179,000 or $0.39 per common share on a diluted basis (based on
126,802,000 weighted average diluted common equivalent shares) for the same
period in 2003, representing a decrease of 1.2% in the aggregate or 2.6% on a
per share basis. The decrease to net income allocable to common shareholders and
earnings per common diluted share are due to the impact of the factors described
above with respect to net income partially combined with an increase in net
income allocated to our preferred shareholders.

         For the three months ended September 30, 2004 and 2003, we allocated
$40,471,000 and $35,193,000 of our net income, respectively, to our preferred
shareholders based on their distributions. For the three months ended September
30, 2004, we recorded an additional allocation of net income to our preferred
shareholders and a corresponding reduction of net income allocation to our
common shareholders of $3,072,000 with respect to our redemption of our Series M
and Series D Preferred Stock, pursuant to Emerging Issues Task Force Topic D-42
("EITF Topic D-42").

         Weighted average diluted shares increased from 126,802,000 for the
three months ended September 30, 2003 to 128,826,000 for the three months ended
September 30, 2004 due primarily to the exercise of employee stock options.

OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004:
---------------------------------------------------------------

         Net income for the nine months ended September 30, 2004 was
$258,942,000 compared to $250,683,000 for the same period in 2003, representing
an increase of $8,259,000 or 3.3%. This increase is primarily due to improved
operations of our Consistent Group self-storage facilities, improved operations
of our newly developed facilities as they have continued to increase their
occupancies, and a decrease in income allocable to minority interests as a
result of our restructuring of $200 million of our Series N preferred
partnership units. This increase is partially offset by an increase in the
allocation of income to minority interest of $10,063,000 attributable to the
restructuring of our Series N preferred partnership interests and increased
general and administrative expense attributable primarily to increased
stock-based compensation expense. Net income was also negatively impacted by
decreased equity in earnings from PSB, which is attributable primarily to
increased depreciation expense associated with PSB's acquisition of significant
real estate assets during the fourth quarter of 2003. In addition, net income
for the nine months ended September 30, 2004 was negatively impacted by the
recent hurricanes experienced in Florida as described below.

                                       38

<PAGE>

         Net income allocable to our regular common shareholders (after
allocating net income to our preferred and equity shareholders), was
$118,728,000 or $0.92 per common share on a diluted basis (based on 128,545,000
weighted average diluted common equivalent shares) for the nine months ended
September 30, 2004 compared to $123,246,000 or $0.98 per common share on a
diluted basis (based on 125,987,000 weighted average diluted common equivalent
shares) for the same period in 2003, representing a decrease of 3.7% in the
aggregate or 6.1% on a per share basis. The decrease to our net income allocable
to common shareholders and earnings per common diluted share are primarily due
to an increase in net income allocated to our preferred shareholders based upon
distributions paid.

         For the nine months ended September 30, 2004 and 2003, we allocated
$117,293,000 and $107,914,000 of our net income respectively, to our preferred
shareholders based on their distributions. In addition, for the nine months
ended September 30, 2004 and 2003, we allocated a total of $6,795,000 and
$3,397,000 to our preferred shareholders due the application of EITF Topic D-42
with respect to our redemption of our various series of our preferred stock.

         Weighted average diluted shares increased from 125,987,000 for the nine
months ended September 30, 2003 to 128,545,000 for the nine months ended
September 30, 2004 due primarily to the exercise of employee stock options.

EFFECTS OF HURRICANES:

         During the third quarter of 2004, several of our facilities, primarily
located in Florida, incurred damage due to Hurricanes Charley, Frances, Ivan and
Jeanne. We estimate that the uninsured property damages sustained total $3.7
million, consisting of $2.9 million of expenditures that will be capitalized and
$800,000 of repairs and maintenance.

         Approximately $200,000 of the repairs and maintenance had been
completed and included in cost of operations as of September 30, 2004. We expect
that the remaining $600,000 will be completed and expensed as part of cost of
operations during the fourth quarter of 2004.

         During the third quarter of 2004, we eliminated the net carrying value
($1,250,000) of the damaged assets from our balance sheet and included the
charge as a reduction to our net income in the line item "Asset impairment
charge due to casualty loss." These assets will ultimately be replaced by the
abovementioned capital expenditures.

         In addition, we incurred $1.5 million in estimated potential losses
from tenant claims against our reinsurance subsidiary (PSIC-H) as a result of
damages from the hurricanes. This subsidiary reinsures policies against claims
for losses to goods stored by tenants in our facilities. This $1.5 million in
losses is reflected on the income statement in "Cost of operations - Tenant
reinsurance."

REAL ESTATE OPERATIONS

         SELF-STORAGE OPERATIONS: Our self-storage operations are by far the
largest component of our operations, representing approximately 93% of our total
revenues generated for the nine months ended September 30, 2004. As a result of
acquisitions and development of self-storage facilities, year over year
comparisons as presented on the consolidated statements of income with respect
to our self-storage operations are not meaningful.

         To enhance year over year comparisons, the following table summarizes,
and the ensuing discussion describes, the operating results of (i) 1,194
self-storage facilities that are reflected in the financial statements on a
stabilized basis since January 1, 2002 (the "Consistent Group"), (ii) 66
facilities that were acquired since January 1, 2000 ( the "Acquired
Facilities"), (iii) 41 facilities that were owned prior to January 1, 2002 but
were not stabilized due primarily to expansions in their net rentable square
footage (the "Expansion Facilities") and (iv) 82 newly-developed facilities that
were opened after January 1, 2000 (the "Developed Facilities"):

                                       39

<PAGE>


<TABLE>
<CAPTION>

Self - storage operations summary:                Three Months Ended September 30,         Nine Months Ended September 30
----------------------------------             -------------------------------------    ------------------------------------
                                                                          Percentage                              Percentage
                                                 2004          2003         Change         2004         2003        Change
                                               ------------ ----------- ------------    ------------  ----------- ----------
                                                                       (Dollar amounts in thousands)
Revenues (a):
<S>                                            <C>           <C>             <C>         <C>           <C>            <C>
   Consistent Group (b)................        $  184,897    $ 178,301       3.7%        $  541,414    $ 515,553      5.0%
   Acquired Facilities (c).............            12,988       11,933       8.8%            37,365       34,007      9.9%
   Expansion Facilities (d)............             7,268        6,569      10.6%            20,784       18,441     12.7%
   Developed Facilities (e)............            14,755       10,053      46.8%            39,462       25,344     55.7%
                                               ------------ ----------- ------------    ------------  ----------- ----------
     Total rental income...............           219,908      206,856       6.3%           639,025      593,345      7.7%
                                               ------------ ----------- ------------    ------------  ----------- ----------
Cost of operations:
   Consistent Group....................            61,143       60,221       1.5%           186,101      174,870      6.4%
   Acquired Facilities.................             4,392        3,985      10.2%            12,783       11,952      7.0%
   Expansion Facilities................             2,534        2,447       3.6%             7,619        7,181      6.1%
   Developed Facilities................             6,006        4,324      38.9%            17,616       12,652     39.2%
                                               ------------ ----------- ------------    ------------  ----------- ----------
   Total cost of operations............            74,075       70,977       4.4%           224,119      206,655      8.5%
                                               ------------ ----------- ------------    ------------  ----------- ----------
Net operating income (before depreciation):
   Consistent Group....................           123,754      118,080       4.8%           355,313      340,683      4.3%
   Acquired Facilities.................             8,596        7,948       8.2%            24,582       22,055     11.5%
   Expansion Facilities................             4,734        4,122      14.8%            13,165       11,260     16.9%
   Developed Facilities................             8,749        5,729      52.7%            21,846       12,692     72.1%
                                               ------------ ----------- ------------    ------------  ----------- ----------
   Total net operating income..........           145,833      135,879       7.3%           414,906      386,690      7.3%
 Depreciation and amortization.........           (42,839)     (43,613)     (1.8)%         (130,643)    (130,332)     0.2%
                                               ------------ ----------- ------------    ------------  ----------- ----------
   Operating Income....................        $  102,994    $  92,266      11.6%       $   284,263    $ 256,358     10.9%
                                               ============ =========== ============    ============  =========== ===========
Number of self-storage facilities (at end
of period):.............................            1,383        1,370       0.9%             1,383        1,370      0.9%
Net rentable square feet (at end of period
- in thousands):........................           83,842       82,716       1.4%            83,842       82,716      1.4%

</TABLE>

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

(b)  The Consistent Group includes 1,194 facilities containing 69,402,000 net
     rentable square feet that have been owned prior to January 1, 2002, and
     operated at a mature, stabilized occupancy level since January 1, 2002.

(c)  The Acquired Facilities includes 66 facilities containing 4,114,000 net
     rentable square feet that were acquired after January 1, 2000, that were
     substantially all mature, stabilized facilities at the time of their
     acquisition.

(d)  The Expansion Facilities includes 41 facilities containing 4,126,000 net
     rentable square feet (of which 690,000 square feet is industrial space
     developed for containerized storage activities). These facilities were
     owned since January 1, 2002, however, operating results are not comparable
     throughout the periods presented due primarily to expansions in their net
     rentable square feet or their conversion into Combination Facilities
     (described below). Since January 1, 2000, we completed construction on
     expansion projects to these facilities with a total cost of $80.5 million.

(e)  The Developed Facilities includes 82 facilities containing 6,200,000 net
     rentable square feet (of which 497,000 square feet is industrial space
     initially developed for use in containerized storage activities, see
     "Containerized Storage" and "Discontinued Operations"). These facilities
     were developed and opened since January 1, 2000 at a total cost of $579.4
     million.

Self-Storage Operations - Consistent Group

         We increased the number of facilities included in the Consistent Group
of facilities from 1,164 at December 31, 2003 to 1,194 facilities. The increase
in the Consistent Group's pool of facilities is due to the inclusion of 30
facilities. These facilities were previously Acquired Facilities, Developed
Facilities, or the Expansion Facilities that had reached stabilization and had
been owned at January 1, 2002.

                                       40

<PAGE>

         As a result of the change in the Consistent Group, the relative
weighting of markets has changed. Accordingly, comparisons should not be made
between information presented in 2003 for the Consistent Group pool of 1,164
facilities and the current Consistent Group pool of 1,194 facilities in order to
identify trends in occupancies, realized rents per square foot, or operating
results.

         The Consistent Group consists of facilities that have operated at a
stabilized level of operations since January 1, 2002. This group of facilities
contains approximately 69,402,000 net rentable square feet, representing
approximately 83% of the aggregate net rentable square feet of our self-storage
portfolio. Revenues and operating expenses with respect to this group of
properties are set forth in the above Self-Storage Operations table under the
caption, "Consistent Group." The following table sets forth additional operating
data with respect to the Consistent Group of facilities:

<TABLE>
<CAPTION>

     CONSISTENT GROUP                                        Three Months Ended September 30,
     ----------------                                     --------------------------------------
                                                                                      Percentage
                                                             2004           2003         Change
                                                          ------------  ------------  ----------
                                             (Dollar amounts in thousands except weighted average amounts)
     Revenues:
<S>                                                       <C>            <C>               <C>
       Rental income, net of discounts................    $  177,070     $  170,882        3.6%
       Late charges and administrative fees collected.         7,827          7,419        5.5%
                                                          ------------  ------------  ----------
       Total revenues.................................       184,897        178,301        3.7%

     Cost of operations:
       Property taxes.................................        16,892         16,162        4.5%
       Direct property payroll........................        13,824         13,539        2.1%
       Cost of managing facilities....................         5,596          5,422        3.2%
       Advertising and promotion......................         4,126          5,884      (29.9)%
       Utilities......................................         4,728          4,249       11.3%
       Repairs and maintenance........................         5,202          4,596       13.2%
       Telephone reservation center...................         2,609          2,655       (1.7)%
       Property insurance.............................         1,892          2,103      (10.0)%
       Other..........................................         6,274          5,611       11.8%
                                                          ------------  ------------  ----------
       Total cost of operations.......................        61,143         60,221        1.5%
                                                          ------------  ------------  ----------
     Net operating income before depreciation.........       123,754        118,080        4.8%
     Depreciation.....................................       (33,470)       (35,889)      (6.7)%
                                                          ------------  ------------  ----------
     Operating income.................................    $   90,284     $   82,191        9.8%
                                                          ============  ============  ==========
     Gross margin (before depreciation)...............        66.9%          66.2%         1.1%

     Weighted average for the period:
        Square foot occupancy (a).....................        91.8%          91.9%        (0.1)%
        Realized annual rent per occupied square foot
          (b).........................................    $   11.12      $   10.72         3.7%
        REVPAF (c)....................................    $   10.21      $    9.85         3.7%

</TABLE>

<TABLE>
<CAPTION>

     CONSISTENT GROUP                                               Nine Months Ended September 30,
     ----------------                                          ------------------------------------------
                                                                                              Percentage
                                                                    2004           2003          Change
                                                               ------------     ------------  -----------
                                                     (Dollar amounts in thousands except weighted average amounts)
     Revenues:
<S>                                                             <C>             <C>                <C>
       Rental income, net of discounts................          $  518,116      $  494,615         4.8%
       Late charges and administrative fees collected.              23,298          20,938        11.3%
                                                               ------------     ------------  -----------
       Total revenues.................................             541,414         515,553         5.0%

     Cost of operations:
       Property taxes.................................              50,215          47,959         4.7%
       Direct property payroll........................              41,585          40,412         2.9%
       Cost of managing facilities....................              17,069          15,688         8.8%
       Advertising and promotion......................              14,544          15,473        (6.0)%
       Utilities......................................              13,307          12,155         9.5%
       Repairs and maintenance........................              15,724          13,002        20.9%
       Telephone reservation center...................               7,905           7,408         6.7%
       Property insurance.............................               6,391           6,053         5.6%
       Other..........................................              19,361          16,720        15.8%
                                                               ------------     ------------  -----------
       Total cost of operations.......................             186,101         174,870         6.4%
                                                               ------------     ------------  -----------
     Net operating income before depreciation.........             355,313         340,683         4.3%
     Depreciation.....................................            (104,450)       (107,837)       (3.1)%
                                                               ------------     ------------  -----------
     Operating income.................................          $  250,863      $  232,846         7.7%
                                                               ============     ============  ===========
     Gross margin (before depreciation)...............              65.6%           66.1%         (0.8)%

     Weighted average for the period:
        Square foot occupancy (a).....................              90.9%           88.7%          2.5%
        Realized annual rent per occupied square foot (b)       $   10.95       $   10.71          2.2%
        REVPAF (c)....................................          $    9.95       $    9.50          4.7%

      Weighted average at September 30:
        Square foot occupancy.........................              91.9%           92.0%         (0.1)%
        In place annual rent per occupied square foot
           (d)........................................          $   12.35       $   11.60          6.4%
     Total net rentable square feet (in thousands)....              69,402          69,402            -

</TABLE>


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

(b)  Realized annual rent per occupied square foot is computed by annualizing
     the result of dividing annualized rental income, net of discounts by the
     weighted average occupied square footage for the period. Realized rents per
     square foot take into consideration promotional discounts, bad debt costs,
     credit card fees and other costs which reduce rental income from the
     contractual amounts due.

(c)  Annualized revenue per available square foot ("REVPAF") represents
     annualized rental income, net of discounts divided by total available net
     rentable square feet.

(d)  In place annual rent per occupied square foot represents contractual rents
     per occupied square foot without reductions for promotional discounts.

                                       41

<PAGE>

During the third quarter of 2004, net operating income before depreciation for
the Consistent Group of facilities increased 4.8% as compared to the same period
in 2003, due to the following:

o        REVPAF  increased  3.7% from $9.85 per square foot in the third quarter
         of 2003 to $10.21 in the third quarter of 2004.  This was  attributable
         primarily  to a 3.7%  increase  in realized  annual  rent per  occupied
         square foot from $10.72 for the three months ended  September  30, 2003
         to  $11.12  for the same  period  in 2004,  partially  offset by a 0.1%
         decline in average occupancy.

o        The impact of the increase in REVPAF was partially offset by a 1.5%
         increase in operating expenses from $60.2 million in the third quarter
         of 2003 to $61.1 million in the third quarter of 2004. This increase in
         cost of operations is primarily due to 1) increased repairs and
         maintenance expense due to our desire to continue to address
         maintenance at our facilities and improve their "rent ready" condition,
         2) increases in property taxes and 3) increases in cost of managing
         facilities. These impacts were offset partially by a decrease in
         advertising and promotional expense, which was due primarily to a
         $1,274,000 (40.2%) decrease in television advertising as we have
         reduced both the volume and number of markets for our media programs in
         the third quarter of 2004 as compared to the same period in 2003.

Operating income for the Consistent Group of facilities increased 9.8% for the
three months ended September 30, 2004 as compared to the same period in 2003,
due to the factors noted above with respect to net operating income before
depreciation, as well as a reduction in depreciation expense with respect to
capital expenditures due to increases in capital expenditures becoming fully
depreciated relative to new capital expenditures coming on-line.

During the nine months ended September 30, 2004, net operating income before
depreciation for the Consistent Group of facilities increased 4.3% as compared
to the same period in 2003, due to the following:

o        REVPAF increased 4.7% from $9.50 per square foot in the nine months
         ended September 30, 2003 to $9.95 in the nine months ended September
         30, 2004. This was attributable primarily to a 2.5% increase in
         weighted average occupancy levels, combined with a 2.2% increase in
         realized annual rent per occupied square foot from $10.71 for the nine
         months ended September 30, 2003 to $10.95 for the same period in 2004.

o        The impact of the increase in REVPAF was offset by a 6.4% increase in
         operating expenses from $174.9 million in the first nine months of 2003
         to $186.1 million in the same period in 2004. This increase is
         primarily due to 1) higher repairs and maintenance as we continue to
         address maintenance at our facilities and improve their "rent ready"
         condition and 2) an increase in direct property payroll and cost of
         management attributable to higher wage rates and increased incentives
         to property personnel. These impacts were offset partially by a
         decrease in advertising and promotional expense, which was due
         primarily to a $732,000 (9.7%) decrease in media advertising as we have
         reduced both the volume and number of markets for our media programs
         during the second and third quarters of 2004 as compared to the same
         periods in 2003.

Operating income for the Consistent Group of facilities increased 7.7% for the
three months ended September 30, 2004 as compared to the same period in 2003,
due to the factors noted above with respect to net operating income before
depreciation, as well as a reduction in depreciation expense with respect to
capital expenditures due to increases in capital expenditures becoming fully
depreciated relative to new capital expenditures coming on-line.

REVENUE OUTLOOK

         As previously reported, we suffered operating difficulties in our
self-storage portfolio in 2001, 2002, and 2003. Our occupancy levels dropped
below historical levels in late 2001 and 2002 due to a change in marketing
strategy to aggressively increase rental rates and reduce the amount of
promotional discounts offered to new tenants.

                                       42

<PAGE>

         Throughout late 2002 and 2003, we focused upon regaining occupancy
levels through increased advertising and promotional discounting. By the end of
2003, we had attained our goal of reestablishing our occupancy levels to
historical levels. This improvement in occupancy levels enabled us to begin to
increase rates that we charge to new tenants. More importantly, throughout 2003
and in the first nine months of 2004 we experienced positive year-over-year
trends in the growth of our quarterly REVPAF, resulting in continued growth in
rental income.

         Our current  occupancy  levels have been  achieved in large part by the
elevated  move-in  activity  experienced  in 2003 and into the first  quarter of
2004. It is our experience  that following a period of fill-up,  the tenant base
tends to have a higher level of move-outs  relative to the existing tenant base.
Our portfolio  experienced  an elevated  level of move-outs in 2003 and into the
second quarter of 2004.  During the second and third quarters of 2004, the level
of move-out  activity  declined as  compared to the same  periods in 2003.  This
decline,  in part,  enabled  us to reduce the level of media  advertising  while
still maintaining  occupancies relatively consistent with the comparable periods
in 2003. We will continue to be vigilant in maintaining our occupancy  levels by
monitoring our level of move-outs, and sustaining a sufficient level of move-ins
through our pricing and marketing activities.

         We believe that future growth in rental income will be primarily from
increases in average rental rates, rather than increases in occupancy levels,
and that we will utilize our pricing and promotional strategies to meet this
goal. We continue to regularly evaluate our call volume, reservation activity,
and move-in/move-out rates for each of our markets relative to our marketing
activities and rental rates. In addition, we are evaluating market supply and
demand factors and, based upon these analyses, we are continuing to adjust our
marketing activities in specific markets.

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

EXPENSE OUTLOOK

         Our increases in operating expenses in the three and nine months ended
September 30, 2004 as compared to the same periods in 2003 are primarily
attributable to programs which we began to initiate in the second and third
quarters of 2003. Repairs and maintenance costs increased due to our desire to
continue to address maintenance at our facilities and improve their "rent ready"
condition. Payroll and property management costs also increased due to our
concerted effort to increase staffing levels and incentive programs.

         Advertising and promotion costs increased in the first quarter of 2004
as compared to the same period of 2003; however, they were lower in the second
and third quarters of 2004 as compared to the same periods in 2003. The increase
in the first quarter of 2004 as compared to the same period in 2003 was due to
higher television advertising costs associated with our continued efforts to
increase occupancy levels. In the second and third quarters of 2004, we had
reached a high level of occupancies and we reduced the intensity of our
television advertising program. As a result of lower television advertising,
advertising and promotional expenses decreased in the three months ended
September 30, 2004 as compared to the same period in 2003. We expect the level
of advertising and promotion costs in the fourth quarter of 2004 to be higher
than the fourth quarter of 2003. There can be no assurance of additional move-in
activity as a result of our media programs.

         We expect that property taxes will increase approximately 4% to 5% in
the fourth quarter of 2004 as compared to 2003.

         We expect that the year over year rate of growth in our operating
expenses will be lower than the level of expense increases incurred in the
nine-month period ending September 30, 2004, but higher than that experienced in
the quarter ended September 30, 2004.

                                       43

<PAGE>

The following table summarizes selected financial data with respect to the
Consistent Group of facilities:

<TABLE>
<CAPTION>

                                                Three Months Ended
                      ----------------------------------------------------------------------
                        March 31,          June 30,         September 30,       December 31,         Full Year
                      -------------     -------------      ---------------      ------------      -------------
                                      (Amounts in thousands, except for per square foot amounts)
Total rental income:
<C>                   <C>                <C>                 <C>                 <C>               <C>
2004............      $   175,923        $   180,594         $  184,897
2003............      $   165,821        $   171,431         $  178,301          $  176,184        $   691,737

Total cost of operations:
2004............      $    63,022        $    61,936         $   61,143
2003............      $    55,379        $    59,270         $   60,221          $   63,000        $   237,870

Media advertising expense:
2004............      $     3,098        $     1,842         $    1,892
2003............      $     1,580        $     2,818         $    3,166          $    1,098        $     8,662

REVPAF:
2004............      $     9.69         $     9.96         $    10.21
2003............      $     9.18         $     9.48         $     9.85          $     9.75         $     9.57

Weighted  average  realized
annual rent per occupied
square foot for the period:
2004............      $    10.83         $    10.90         $    11.12
2003............      $    10.81         $    10.63         $    10.72          $    10.75         $    10.72

Weighted average occupancy levels for the period:
2004............          89.5%              91.4%               91.8%
2003............          84.9%              89.2%               91.9%               90.7%              89.2%

Weighted average occupancy at October 31:
2004............                                                                     91.4%
2003............                                                                     91.7%

Television advertising expense in October:
2004............                                                                 $       -
2003............                                                                 $     604

</TABLE>

                                       44

<PAGE>

ANALYSIS OF REGIONAL TRENDS

         The following table sets forth regional trends in our Consistent Group
of facilities:

Consistent Group Operating Trends by Region:
<TABLE>
<CAPTION>

                                                Three months ended September 30,       Nine months ended September 30,
                                                                         Percentage                             Percentage
                                                 2004          2003        Change       2004           2003        Change
                                               ------------ -----------  ----------  ------------  -----------  -----------
                                                                     (Dollar amounts in thousands)
Rental income:
<S>                                            <C>          <C>              <C>      <C>          <C>             <C>
   Southern California  (124 facilities)..     $   31,224   $   29,886       4.5%     $   91,296   $   86,905      5.1%
   Northern California  (124 facilities)..         23,368       22,820       2.4%         68,884       66,886      3.0%
   Texas  (143 facilities)................         16,890       16,516       2.3%         49,919       47,762      4.5%
   Florida  (116 facilities)..............         16,734       15,885       5.3%         48,759       45,757      6.6%
   Illinois  (79 facilities)..............         13,126       12,740       3.0%         38,179       36,811      3.7%
   Georgia  (60 facilities)...............          6,719        6,577       2.2%         19,759       18,925      4.4%
   All other states  (548 facilities).....         76,836       73,877       4.0%        224,618      212,507      5.7%
                                               ------------ -----------  ----------  ------------  -----------  -----------
Total rental income.......................        184,897      178,301       3.7%        541,414      515,553      5.0%
                                               ------------ -----------  ----------  ------------  -----------  -----------
Cost of operations:
   Southern California....................          6,868        6,701       2.5%         21,194       20,505      3.4%
   Northern California....................          5,672        5,844      (2.9)%        17,578       17,367      1.2%
   Texas..................................          7,453        7,734      (3.6)%        22,404       21,529      4.1%
   Florida................................          6,627        6,289       5.4%         19,529       17,894      9.1%
   Illinois...............................          5,205        5,162       0.8%         17,129       15,858      8.0%
   Georgia................................          2,515        2,319       8.5%          7,224        6,856      5.4%
   All other states.......................         26,803       26,172       2.4%         81,043       74,861      8.3%
                                               ------------ -----------  ----------  ------------  -----------  -----------
Total cost of operations..................         61,143       60,221       1.5%        186,101      174,870      6.4%
                                               ------------ -----------  ----------  ------------  -----------  -----------
Net operating income (before depreciation):
   Southern California....................         24,356       23,185       5.1%         70,102       66,400      5.6%
   Northern California....................         17,696       16,976       4.2%         51,306       49,519      3.6%
   Texas..................................          9,437        8,782       7.5%         27,515       26,233      4.9%
   Florida................................         10,107        9,596       5.3%         29,230       27,863      4.9%
   Illinois...............................          7,921        7,578       4.5%         21,050       20,953      0.5%
   Georgia................................          4,204        4,258      (1.3)%        12,535       12,069      3.9%
   All other states.......................         50,033       47,705       4.9%        143,575      137,646      4.3%
                                               ------------ -----------  ----------  ------------  -----------  -----------
Total net operating income................     $  123,754   $  118,080       4.8%     $  355,313   $  340,683      4.3%
                                               ------------ -----------  ----------  ------------  -----------  -----------
Weighted average occupancy:
   Southern California....................         93.0%        92.0%        1.1%        91.7%          90.5%      1.3%
   Northern California....................         90.0%        90.4%       (0.4)%       89.4%          88.4%      1.1%
   Texas..................................         90.5%        92.3%       (2.0)%       90.0%          88.6%      1.6%
   Florida................................         93.4%        92.6%        0.9%        92.0%          90.1%      2.1%
   Illinois...............................         91.9%        91.9%        0.0%        90.2%          87.4%      3.2%
   Georgia................................         92.0%        92.7%       (0.8)%       91.0%          89.6%      1.6%
   All other states.......................         91.8%        91.9%       (0.1)%       91.1%          88.1%      3.4%
                                               ------------ -----------  ----------  ------------  -----------  -----------
 Total weighted average occupancy.........         91.8%        91.9%       (0.1)%       90.9%          88.7%      2.5%
                                               ------------ -----------  ----------  ------------  -----------  -----------

</TABLE>

                                       45

<PAGE>

Consistent Group Operating Trends by Region: (Continued)

<TABLE>
<CAPTION>

                                                Three Months Ended September 30,        Nine Months Ended September 30,
                                                                         Percentage                             Percentage
                                                   2004          2003      Change         2004           2003     Change
                                                -----------    --------- ----------      ---------     -------- ----------
REVPAF:
<S>                                                 <C>          <C>         <C>           <C>          <C>        <C>
   Southern California...................           $15.41       $14.78      4.3%          $15.01       $14.33     4.8%
   Northern California...................            13.46        13.20      2.0%           13.23        12.89     2.6%
   Texas.................................             7.23         7.08      2.1%            7.12         6.82     4.4%
   Florida...............................             9.72         9.18      5.9%            9.41         8.80     6.9%
   Illinois..............................            10.45        10.16      2.9%           10.14         9.81     3.3%
   Georgia...............................             7.34         7.18      2.2%            7.19         6.89     4.3%
   All other states......................             9.43         9.07      4.0%            9.18         8.71     5.3%
                                               -----------    --------- ----------      ---------     -------- ----------
Total REVPAF:............................           $10.21        $9.85      3.7%           $9.95        $9.50     4.7%
                                               -----------    --------- ----------      ---------     -------- ----------
Realized annual rent per occupied square foot:
   Southern California...................           $16.57       $16.06      3.2%          $16.37       $15.83     3.4%
   Northern California...................            14.95        14.60      2.4%           14.80        14.58     1.5%
   Texas.................................             7.99         7.67      4.2%            7.92         7.70     2.8%
   Florida...............................            10.40         9.91      5.0%           10.22         9.77     4.7%
   Illinois..............................            11.37        11.05      2.9%           11.24        11.23     0.1%
   Georgia...............................             7.98         7.75      3.0%            7.90         7.69     2.7%
   All other states......................            10.27         9.87      4.1%           10.08         9.89     1.9%
                                               -----------    --------- ----------      ---------     -------- ----------
Total realized annual rent per occupied
  square foot:...........................           $11.12       $10.72      3.7%          $10.95       $10.71     2.2%
                                               -----------    --------- ----------      ---------     -------- ----------

</TABLE>

                                       46

<PAGE>

Self-Storage Operations - Acquired Facilities

The "Acquired Facilities," at September 30, 2004, are comprised of 66
self-storage facilities containing 4,114,000 net rentable square feet that were
acquired in 2000, 2001, 2002, and 2004. The following table summarizes operating
data with respect to these 66 facilities:

ACQUIRED FACILITIES

<TABLE>
<CAPTION>
                                                      Three Months Ended September 30,        Nine Months Ended September 30,
                                                     ------------------------------------   ------------------------------------
                                                       2004          2003        Change       2004          2003        Change
                                                     ------------ ------------  ---------   -----------  -----------   ----------
                                                                           (Dollar amounts in thousands)
Rental income:
<S>                                                  <C>          <C>           <C>         <C>          <C>           <C>
   Self-storage facilities acquired in 2004 (a)      $       95   $        -    $     95    $       95   $        -    $     95
   Self-storage facilities acquired in 2002 (b)          11,393       10,540         853        32,935       30,169       2,766
   Self-storage facility acquired in 2001 (c)..             153          149           4           435          418          17
   Self-storage facilities acquired in 2000 (d)           1,347        1,244         103         3,900        3,420         480
                                                     ------------ ------------  ---------   -----------  -----------   ----------
     Total rental income.......................          12,988       11,933       1,055        37,365       34,007       3,358
                                                     ------------ ------------  ---------   -----------  -----------   ----------
Cost of operations:
   Self-storage facilities acquired in 2004 (a)             103            -         103           103            -         103
   Self-storage facilities acquired in 2002 (b)           3,665        3,326         339        10,831       10,161         670
   Self-storage facility acquired in 2001 (c)..              55           47           8           172          130          42
   Self-storage facilities acquired in 2000 (d)             569          612         (43)        1,677        1,661          16
                                                     ------------ ------------  ---------   -----------  -----------   ----------
     Total cost of operations..................           4,392        3,985         407        12,783       11,952         831
                                                     ------------ ------------  ---------   -----------  -----------   ----------
Net operating income (loss) before depreciation:
-----------------------------------------------
   Self-storage facilities acquired in 2004 (a)              (8)           -          (8)           (8)           -         (8)
   Self-storage facilities acquired in 2002 (b)           7,728        7,214         514        22,104       20,008       2,096
   Self-storage facility acquired in 2001 (c)..              98          102          (4)          263          288         (25)
   Self-storage facilities acquired in 2000 (d)             778          632         146         2,223        1,759         464
                                                     ------------ ------------  ---------   -----------  -----------   ----------
     Net operating income......................           8,596        7,948         648        24,582       22,055       2,527
 Depreciation..................................          (2,926)      (2,640)       (286)       (7,720)      (7,441)       (279)
                                                     ------------ ------------  ---------   -----------  -----------   ----------
   Operating Income............................      $    5,670   $    5,308    $    362    $   16,862   $   14,614    $  2,248
                                                     ============ ============  ========    ===========  ===========   ==========
Weighted average square foot occupancy during the
period:
   Self-storage facilities acquired in 2004 (a)           64.4%         -           -            64.4%         -              -
   Self-storage facilities acquired in 2002 (b)           93.2%        93.0%        0.2%         92.8%        89.2%         4.0%
   Self-storage facility acquired in 2001 (c)..           95.3%        96.7%       (1.4)%        94.2%        91.4%         3.0%
   Self-storage facilities acquired in 2000 (d)           92.6%        91.3%        1.4%         91.7%        82.6%        11.0%
                                                     ------------ ------------  ---------   -----------  -----------   ----------
                                                          92.2%        92.8%       (0.6)%        91.8%        88.4%         3.8%
                                                     ============ ============  ========    ===========  ===========   ==========
Number of self-storage facilities (at end of
period)........................................              66           64           2            66           64            2
Net rentable square feet (in thousands, at end of
   period).....................................           4,114        3,975         139         4,114        3,975          139
Cumulative acquisition cost (at end of period).       $ 353,449    $ 345,156     $ 8,293     $ 353,449    $ 345,156      $ 8,293

</TABLE>

(a)  The 2004  acquisitions  include one property acquired on July 8, 2004 at an
     aggregate cost of $2,914,000 in cash, and an additional  facility  acquired
     on July 15, 2004 for an aggregate  cost of $5,379,000 in cash. The facility
     acquired on July 15, 2004 was opened by the previous  owner in May of 2004.
     This  facility had an occupancy of 34.3% at September 30, 2004 and is still
     in the fill-up stage.

(b)  The 2002 acquisitions includes 47 properties acquired on January 16, 2002
     from an affiliated development joint venture at a total cost of
     $269,898,000 and nine facilities acquired from third parties at a total
     cost of $30,117,000.

(c)  The single 2001  acquisition  was acquired  from a third party at a cost of
     $3,503,000.

(d)  The 2000 acquisitions are comprised of seven facilities acquired from third
     parties at a total cost of $41,638,000.

                                       47

<PAGE>

         Historically, we have not acquired a significant number of properties
through third-party acquisitions; we had acquired only 17 such facilities in the
three years ended December 31, 2003. However, during October, 2004, we acquired
32 facilities at an aggregate cost of $121.5 million in two separate
transactions. No additional facilities were acquired from October 31, 2004
through November 8, 2004. In addition, we have contracts to acquire 11
additional existing self-storage facilities at an aggregate cost of
approximately $124.9 million, comprised of a combination of cash and assumption
of debt, as described under "Acquisition and Development of Real Estate
Facilities" under "Liquidity and Capital Resources" for further information.

         In one of these October transactions, we acquired 26 facilities at an
aggregate cost of approximately $101 million. We expect the first-year
pre-depreciation net operating income yield on cost to be a relatively modest
6%. However, we believe that this acquisition will allow us to increase our
presence in the Minneapolis and Milwaukee markets, and will allow us to
cost-effectively introduce media advertising in these markets, significantly
improve our yellow page ad placement, and drive operational efficiency. In
addition, the average rental rates and average occupancies of these properties
are lower than comparable properties that we currently own in these markets. As
a result of these factors, we expect the pre-depreciation net operating yield on
cost to increase to approximately 9% in three years.

         In the other October transaction, we acquired an additional six
facilities in the Dallas market for an aggregate of approximately $20 million in
cash. We expect the first-year pre-depreciation net operating income yield on
cost to approximate 8%, and believe that this acquisition will improve the
operational efficiency of our existing portfolio.

         While there can be no assurance as to the level of acquisition
activities, we expect that future acquisitions will either offer attractive
first-year returns, or provide future avenues for growth in our existing
operations, or both.

         For reasons similar to our Consistent Group of facilities, the Acquired
Facilities have experienced improvements in revenues, and increased costs of
operations, for the third quarter of 2004 as compared to the same period in
2003.

Self-Storage Operations - Expansion Facilities

         As a result of expansions and conversions of certain Combined
Facilities (defined below), certain self-storage facilities' operations have not
been at a stabilized level of operations since January 1, 2002. For the quarter
ended September 30, 2004, the weighted average occupancy level was approximately
86.7% as compared to 82.1% for the same period in 2003. The operating results
for these facilities are presented in the Self-Storage Operations table above
under the caption, "Expansion Facilities."

         Depreciation expense with respect to the Expansion Facilities was
$2,204,000 and $6,102,000 for the three and nine months ended September 30,
2004, respectively, as compared to $1,760,000 and $5,499,000, respectively, for
the same periods in 2003. These 41 facilities contain approximately 4,126,000
net rentable square feet at September 30, 2004 (which includes the expanded
space, and 690,000 square feet of industrial space developed for containerized
storage activities - see "Containerized Storage" and "Discontinued Operations").
Since January 1, 2000, we completed construction on expansion projects to these
facilities with a total cost of $80.5 million.

         As described under "Liquidity and Capital Resources," our development
pipeline includes the expansion or enhancement of 29 existing self-storage
facilities for an aggregate of $75,851,000 in development costs, which will
result in short-term dilution to earnings from these activities. However, we
believe that expansion of our existing self-storage facilities in markets that
have unmet storage demand, and improving our existing facilities' competitive
position through enhancing their visual and structural appeal, provide an
important means to improve the Company's earnings. There can be no assurance
about the future level of such expansion and enhancement opportunities.

Self-Storage Operations - Developed Facilities

         Since January 1, 2000, we have opened 65 newly developed self-storage
facilities and 17 facilities that were developed to contain both self-storage
and containerized storage at the same location ("Combination Facilities"). These
newly developed facilities have an aggregate of 6,200,000 net rentable square
feet (of which 497,000 net rentable square feet is industrial space developed
for containerized storage activities - see "Containerized Storage" and
"Discontinued Operations"). Aggregate development cost for these 82 facilities
was approximately $579,405,000. The operating results of the self-storage
facilities and Combination Facilities are reflected in the Self-Storage
Operations table under the caption, "Developed Facilities."

                                       48

<PAGE>

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

DEVELOPED FACILITIES

<TABLE>
<CAPTION>
                                             Three Months Ended September 30,        Nine Months Ended September 30,
                                           -------------------------------------  -----------------------------------
                                              2004          2003        Change       2004         2003       Change
                                           -----------   ----------   ----------  -----------  ----------- ----------
                                                                       (Amounts in thousands)
Rental income:
<S>                                         <C>          <C>           <C>         <C>          <C>         <C>
   Self-storage facilities............      $  10,985    $   7,112     $  3,873    $  29,090    $  17,772   $ 11,318
   Combination Facilities.............          3,770        2,941          829       10,372        7,572      2,800
                                           -----------   ----------   ----------  -----------  ----------- ----------
     Total rental income..............         14,755       10,053        4,702       39,462       25,344     14,118
                                           -----------   ----------   ----------  -----------  ----------- ----------
Cost of operations:
   Self-storage facilities............          4,560        3,301        1,259       13,456        9,057      4,399
   Combination Facilities.............          1,446        1,023          423        4,160        3,595        565
                                           -----------   ----------   ----------  -----------  ----------- ----------
     Total cost of operations.........          6,006        4,324        1,682       17,616       12,652      4,964
                                           -----------   ----------   ----------  -----------  ----------- ----------
Net operating income before depreciation:
----------------------------------------
   Self-storage facilities............          6,425        3,811        2,614       15,634        8,715      6,919
   Combination Facilities.............          2,324        1,918          406        6,212        3,977      2,235
                                           -----------   ----------   ----------  -----------  ----------- ----------
     Net operating income.............          8,749        5,729        3,020       21,846       12,692      9,154
 Depreciation.........................         (4,239)      (3,324)        (915)     (12,371)      (9,555)    (2,816)
                                           -----------   ----------   ----------  -----------  ----------- ----------
   Operating income...................      $   4,510    $   2,405     $  2,105    $   9,475    $   3,137   $  6,338
                                           ===========   ==========   ==========  ===========  =========== ==========
Weighted average square foot occupancies
for the period:
   Self-storage facilities............        83.8%        75.5%         11.0%       79.0%        62.9%       25.6%
   Combination Facilities.............        87.4%        86.7%          0.8%       84.0%        75.4%       11.4%
                                           -----------   ----------   ----------  -----------  ----------- ----------
     Total............................        84.9%        79.8%          6.4%       80.5%        67.4%       19.4%
                                           ===========   ==========   ==========  ===========  =========== ==========
Self-storage facilities, at end of
   period:
   Number of facilities...............                                                     65           52        13
   Net rentable square feet...........                                                  4,320        3,435       885
   Total development cost.............                                              $ 415,580    $308,933   $106,647
Combination Facilities, at end of period:
   Number of facilities...............                                                     17           17         -
   Net rentable square feet (a) (b)...                                                  1,880        1,861        19
   Total development cost (a) (b).....                                              $ 163,825    $155,586    $ 8,239

</TABLE>

(a)   During 2003, we completed the conversion of 166,000 net rentable square
      feet of containerized storage space into 166,000 net rentable square feet
      of self-storage space at an aggregate cost of $4,500,000. During the nine
      months ended September 30, 2004, we completed the conversion of 144,000
      net rentable square feet of containerized storage space into 172,000 net
      rentable square feet of self-storage space at an aggregate cost of
      $5,038,000.

(b)   Approximately 497,000 net rentable square feet of this storage space
      represents industrial space that was developed for use in containerized
      storage activities.

                                       49

<PAGE>

         The following table summarizes operating data for the 65 newly
developed self-storage facilities that opened since January 1, 2000:

<TABLE>
<CAPTION>

DEVELOPED SELF-STORAGE FACILITIES
                                                      Three Months Ended September 30,         Nine Months Ended September 30,
                                                       2004         2003        Change         2004         2003         Change
                                                    ------------ ------------ -----------  ------------  ------------ ------------
                                                                            (Dollar Amounts in thousands)
Rental income:
<S>                                                  <C>          <C>         <C>           <C>           <C>          <C>
   Self-storage facilities opened in 2004......      $      399   $       -   $      399    $      546    $        -   $      546
   Self-storage facilities opened in 2003......           2,520          533       1,987         5,906           726        5,180
   Self-storage facilities opened in 2002......           2,754        1,960         794         7,502         4,611        2,891
   Self-storage facilities opened in 2000 and 2001        5,312        4,619         693        15,136        12,435        2,701
                                                    ------------ ------------ -----------  ------------  ------------ ------------
     Total rental income.......................          10,985        7,112       3,873        29,090        17,772       11,318
                                                    ------------ ------------ -----------  ------------  ------------ ------------
Cost of operations:
   Self-storage facilities opened in 2004......             389            -         389           792             -          792
   Self-storage facilities opened in 2003......           1,171          364         807         3,301           674        2,627
   Self-storage facilities opened in 2002......             985          966          19         3,132         2,642          490
   Self-storage facilities opened in 2000 and 2001        2,015        1,971          44         6,231         5,741          490
                                                    ------------ ------------ -----------  ------------  ------------ ------------
     Total cost of operations..................           4,560        3,301       1,259        13,456         9,057        4,399
                                                    ------------ ------------ -----------  ------------  ------------ ------------
Net operating income (loss) before depreciation:
   Self-storage facilities opened in 2004......              10            -          10          (246)            -         (246)
   Self-storage facilities opened in 2003......           1,349          169       1,180         2,605            52        2,553
   Self-storage facilities opened in 2002......           1,769          994         775         4,370         1,969        2,401
   Self-storage facilities opened in 2000 and 2001        3,297        2,648         649         8,905         6,694        2,211
                                                    ------------ ------------ -----------  ------------  ------------ ------------
   Net operating income........................           6,425        3,811       2,614        15,634         8,715        6,919
 Depreciation..................................          (3,008)      (2,196)       (812)       (8,693)       (6,187)      (2,506)
                                                    ------------ ------------ -----------  ------------  ------------ ------------
   Operating income............................      $    3,417   $   1,615   $    1,802    $    6,941    $    2,528   $    4,413
                                                    ============ ============ ===========  ============  ============ ============
Weighted average square foot occupancy during the
period:
   Self-storage facilities opened in 2004......           42.8%         -           -            33.1%          -            -
   Self-storage facilities opened in 2003......           78.5%        44.9%       74.8%         66.1%         31.1%       112.5%
   Self-storage facilities opened in 2002......           91.5%        72.6%       26.0%         88.4%         55.7%        56.7%
   Self-storage facilities opened in 2000 and 2001        93.8%        89.8%        4.5%         93.6%         79.5%        17.7%
                                                    ------------ ------------ -----------  ------------  ------------ ------------
                                                          83.8%        73.9%       13.4%         79.0%         61.0%        29.5%
                                                    ============ ============ ===========  ============  ============ ============
Number of facilities:
   Self-storage facilities opened in 2004......                                                   7             -            7
   Self-storage facilities opened in 2003......                                                  14             8            6
   Self-storage facilities opened in 2002......                                                  14            14            -
   Self-storage facilities opened in 2000 and 2001                                               30            30            -
                                                                                           ------------  ------------ ------------
                                                                                                 65            52           13
                                                                                           ============  ============ ============
Cumulative Development Cost:
   Self-storage facilities opened in 2004......                                             $   61,383    $        -   $  61,383
   Self-storage facilities opened in 2003......                                                107,452        65,796      41,656
   Self-storage facilities opened in 2002 (a)..                                                 97,021        93,413       3,608
   Self-storage facilities opened in 2000 and 2001                                             149,724       149,724           -
                                                                                           ------------  ------------ ------------
                                                                                            $  415,580   $   308,933  $  106,647
                                                                                           ============  ============ ============

</TABLE>

(a)  In  the  quarter  ended   September  30,  2004,  we  expanded  an  existing
     self-storage  facility that was originally developed in 2002, adding 33,000
     net rentable square feet at a cost of $3,134,000.

                                       50

<PAGE>

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

         We believe that the newly developed self-storage facilities have been
affected by the operating trends in occupancy and realized rents noted above
with respect to the consistent group of facilities. In addition, move-in
discounts, which increased significantly, have had a more pronounced effect upon
realized rents for the newly developed facilities, because such facilities have
to attract substantially all new tenants, generally offering lower rates and a
higher proportion of move-in incentives. During the three and nine months ended
September 30, 2004, respectively, the newly developed self-storage facilities
had a weighted average occupancy level of approximately 83.8% and 79.0%,
respectively, as compared to 79.0% and 61.0%, respectively during the same
periods in 2003.

         Property operating expenses are substantially fixed, consisting
primarily of payroll, property taxes, utilities, and marketing costs. The rental
revenue of a newly developed facility will generally not cover its property
operating expenses (excluding depreciation) until the facility has reached an
occupancy level of approximately 30% to 35%. However, at that occupancy level,
the rental revenues from the facility are still not sufficient to cover the
related depreciation expense and cost of capital with respect to the facility's
development cost. During construction of the self-storage facility, we
capitalize interest costs and include such cost as part of the overall
development cost of the facility. Once the facility is opened for operations,
interest is no longer capitalized.

         Due to the relationship between the generation of rental income and
immediate recognition of expenses upon opening of a facility, our development
activities have had a negative impact on our net income. We estimate that our
net income has been negatively impacted by approximately $25,499,000 and
$24,462,000, for the nine months ended September 30, 2004 and 2003,
respectively, as a result of the difference between the revenues generated by
the Developed Facilities and the operating expenses, depreciation, and cost of
capital (at an assumed rate of 8%) with respect to these facilities as described
above. These amounts include approximately $12,371,000 and $9,555,000, for the
nine months ended September 30, 2004 and 2003, respectively, in depreciation
expense.

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

         We expect that over at least the next 24 months, the Developed
Facilities will continue to have a negative impact to our earnings. Furthermore,
the 37 expansion and newly developed facilities in our development pipeline,
with total estimated costs of $151,616,000, described in "Liquidity and Capital
Resources - Acquisition and Development of Facilities" that will be opened for
operation over the next 12 - 24 months will also negatively impact our earnings
until they reach a stabilized occupancy level. Our earnings will continue to be
negatively impacted by any future newly developed facilities until they reach a
stabilized occupancy level.

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

         Our commercial operations are comprised of 1,187,000 net rentable
square feet of commercial space operated at certain of the self-storage
facilities, and two stand-alone commercial facilities having a total of 142,000
net rentable square feet. One of these stand-alone commercial facilities was
previously used for containerized storage and is being converted into 138,000
net rentable square feet of traditional self-storage space at a cost of
$4,481,000.

                                       51

<PAGE>

         The following table sets forth the historical commercial property
amounts included in the financial statements:

<TABLE>
<CAPTION>

Commercial Property Operations:
(excluding discontinued operations)

                                            Three Months Ended September 30,       Nine Months Ended September 30,
                                           -----------------------------------   ------------------------------------
                                              2004         2003       Change        2004        2003        Change
                                           ------------  ----------  ---------   ----------- -----------   ----------
<S>                                         <C>          <C>         <C>          <C>         <C>          <C>
Rental income.........................      $   2,707    $   2,712   $     (5)    $   8,064   $   8,299    $   (235)
 Cost of operations...................         (1,031)      (1,234)      (203)       (3,200)     (3,415)        215
                                           ------------  ----------  ---------   ----------- -----------   ----------
   Net operating income...............          1,676        1,478        198         4,864       4,884         (20)

 Depreciation.........................           (464)        (565)       101        (1,574)     (1,815)        241
                                           ------------  ----------  ---------   ----------- -----------   ----------
   Operating income...................      $   1,212    $     913   $    299     $   3,290    $  3,069    $    221
                                           ============  ==========  =========   =========== ============  ===========

</TABLE>

         CONTAINERIZED STORAGE OPERATIONS: In August 1996, Public Storage Pickup
& Delivery ("PSPUD"), a subsidiary of the Company, made its initial entry into
the containerized storage business through its acquisition of a single facility
operator located in Irvine, California. At December 31, 2001, PSPUD had 55
facilities that were opened between 1996 and 2001 either through development or
leasing of facilities. Throughout 2002 and 2003, we reevaluated our operational
strategy and closed 31 facilities. In the first quarter of 2004, we closed an
additional non-strategic facility. During the second quarter of 2004, we
consolidated the operations of three locations in the Chicago market into a
single leased facility with approximately the same capacity and service area as
the three facilities replaced.

         During the quarter ended September 30, 2004, we continued to refine our
business strategy and will narrow our market and product focus to just
twelve facilities located in eight densely populated markets with above-average
rent and income.

         As a result, during the third quarter of 2004, we began the process to
close seven  additional  facilities.  In addition,  we plan to  consolidate  the
operations of four  facilities  serving a portion of the Los Angeles market into
two leased  facilities with  approximately the same capacity and service area as
the four  facilities  replaced.  These  existing  and  consolidated  facilities,
including  the  existing  and  replacement  facilities  denoted  in the  Chicago
consolidation denoted above, are referred to as the "Consolidated Facilities."

         The operations with respect to the facilities closed in 2002, 2003 and
2004, including historical operating results for previous periods, are not
included in the table below and instead are included in "Discontinued
Operations" on our income statement. The operations of the remaining facilities,
including the Consolidated Facilities, are included in PSPUD's continuing
operations and are reflected on the table below:

                                       52

<PAGE>

<TABLE>
<CAPTION>

Containerized Storage:
(excluding discontinued operations)
                                           Three Months Ended September 30,     Nine Months Ended September 30,
                                          ----------------------------------    ----------------------------------
                                             2004        2003       Change        2004        2003       Change
                                          -----------  ---------- -----------   --------   ----------    ---------
                                                               (Amounts in thousands)
<S>                                        <C>         <C>         <C>          <C>         <C>          <C>
Rental and other income ............       $ 5,048     $  6,672    $ (1,624)    $15,099     $ 18,495     $ (3,396)
                                          -----------  ---------- -----------   --------   ----------    ---------
Cost of operations:
    Direct operating costs..........         2,727        3,538        (811)      7,764        9,859       (2,095)
    Facility lease expense..........           346          285          61         977          854          123
                                          -----------  ---------- -----------   --------   ----------    ---------
      Total cost of operations......         3,073        3,823        (750)      8,741       10,713       (1,972)
                                          -----------  ---------- -----------   --------   ----------    ---------
Operating income prior to depreciation       1,975        2,849        (874)      6,358        7,782       (1,424)
   Depreciation expense (a).........        (1,072)      (1,257)        185      (3,298)      (3,623)         325
                                          -----------  ---------- -----------   --------   ----------    ---------
Operating income....................       $   903      $ 1,592    $   (689)    $ 3,060      $ 4,159     $ (1,099)
                                          ===========  ========== ===========   ========   ==========    =========
</TABLE>


(a)  Depreciation expense principally relates to the depreciation of containers;
     however, depreciation expense for the three and nine months ended September
     30, 2004 includes $261,000 and $767,000, respectively, related to real
     estate facilities compared to $374,000 and $928,000 for the same periods in
     2003, respectively.

         Rental and other income includes monthly rental charges to customers
for storage of the containers, service fees charged for pickup and delivery of
containers to customers' homes and businesses and, prior to the termination of
this moving service, moving service fees to move customers' goods from city to
city. Rental income decreased to $5,048,000 for the three months ended September
30, 2004 from $6,672,000 for the same period in 2003, primarily as a result of
the termination of our long-distance moving service. At September 30, 2004,
there were approximately 22,672 occupied containers in the continuing
facilities.

         Direct operating costs principally includes payroll, equipment lease
expense, utilities and vehicle expenses (fuel and insurance). The reduction in
direct operating costs is due primarily to the aforementioned termination of our
long-distance moving service.

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

         TENANT REINSURANCE OPERATIONS: Through a subsidiary of the Company, we
reinsure policies against losses to goods stored by tenants in our self-storage
facilities. The tenant reinsurance operations are included in the income
statement under "Revenues - tenant reinsurance premiums" and "Cost of operations
- tenant reinsurance."

TENANT REINSURANCE OPERATIONS
<TABLE>
<CAPTION>

                                        Three Months Ended September 30,           Nine Months Ended September 30,
                                        --------------------------------------   ---------------------------------------
                                          2004          2003         Change         2004           2003         Change
                                        ----------   ----------    -----------   -----------    ----------    ----------
                                                                      (Amounts in thousands)

<S>                                     <C>          <C>           <C>           <C>            <C>           <C>
Tenant reinsurance premiums..........   $   6,210    $   5,755     $    455      $  18,266      $  16,551     $  1,715
 Cost of operations..................      (4,204)      (2,917)      (1,287)       (11,089)        (8,631)      (2,458)
                                        ----------   ----------    -----------   -----------    ----------    ----------
   Operating income..................   $   2,006    $   2,838     $   (832)     $   7,177      $   7,920     $   (743)
                                        ==========   ==========    ===========   ===========    ==========    ==========

</TABLE>

         The level of tenant reinsurance revenues is largely dependent upon our
occupancy level and move-in activity. New insurance business comes from tenants
who sign up for insurance as they move into our self-storage facilities.

         We implemented increased tenant insurance pricing for our self-storage
tenants moving in after December 31, 2003. Revenues have increased due to higher
pricing, and the pricing change should continue to have a greater impact on our
average pricing as a higher proportion of tenants are subject to the revised
pricing. However, we have seen a reduction in the proportion of tenants
selecting insurance. During the three and nine months ended September 30, 2004,
34% and 35%, respectively, of our self-storage tenants had tenant insurance, as
compared to 36% and 36%, respectively, for the same periods in 2003. There can
be no assurance as to the ultimate impact of our pricing change.

                                       53

<PAGE>

         We have outside third-party insurance coverage for losses from any
individual event that exceeds a loss of $500,000, to a limit of $10,000,000.
Losses below these amounts are accrued as cost of operations for the tenant
reinsurance operations. The increase in cost of operations for the three and
nine months ended September 30, 2004 is due to $1,500,000 in estimated tenant
claim payments resulting from a series of hurricanes in Florida that occurred in
the quarter ended September 30, 2004.

         EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to our
ownership of equity interests in PSB, we had general and limited partnership
interests in eight limited partnerships at September 30, 2004. (PSB and the
limited partnerships are collectively referred to as the "Unconsolidated
Entities"). Due to our limited ownership interest and limited control of these
entities, we do not consolidate the accounts of these entities for financial
reporting purposes. We account for such investments using the equity method.

         Equity in earnings of real estate entities for the three and nine
months ended September 30, 2004 and 2003 consists of our pro-rata share of the
Unconsolidated Entities based upon our ownership interest for the period. The
following table sets forth the significant components of equity in earnings of
real estate entities:

<TABLE>
<CAPTION>

                                                 Three Months Ended September 30,         Nine Months Ended September 30,
                                                -----------------------------------    --------------------------------------
                                                  2004         2003        Change         2004          2003         Change
                                                ----------   ---------   ----------    ---------      --------       --------
                                                                           (Amounts in thousands)
Property operations:
<S>                                             <C>           <C>           <C>         <C>           <C>            <C>
  PSB                                           $15,959       $16,148       $(189)      $49,753       $48,339        $ 1,414
  Acquisition Joint Venture..............            21             -          21            21             -             21
  Other investments (1)..................         1,723         1,607         116         4,993         4,724            269
                                                ----------   ---------   ----------    ---------      --------       --------
                                                 17,703        17,755         (52)       54,767        53,063          1,704
                                                ----------   ---------   ----------    ---------      --------       --------
Depreciation:
  PSB....................................        (8,119)       (6,779)     (1,340)      (23,875)      (19,088)        (4,787)
  Acquisition Joint Venture..............           (31)            -         (31)          (31)            -            (31)
  Other investments (1)..................          (371)         (436)         65        (1,149)       (1,265)           116
                                                ----------   ---------   ----------    ---------      --------       --------
                                                 (8,521)       (7,215)     (1,306)      (25,055)      (20,353)        (4,702)
                                                ----------   ---------   ----------    ---------      --------       --------
Other: (2)
  PSB (3)................................        (6,273)       (4,810)     (1,463)      (18,615)      (13,534)        (5,081)
  Other investments (1)..................           275            40         235           549           280            269
                                                ----------   ---------   ----------    ---------      --------       --------
                                                 (5,998)       (4,770)     (1,228)      (18,066)      (13,254)        (4,812)
                                                ----------   ---------   ----------    ---------      --------       --------
Total equity in earnings of real estate
entities..................................       $3,184        $5,770     $(2,586)      $11,646       $19,456        $(7,810)
                                                ==========   =========   ==========    =========      ========       =========

</TABLE>

(1)  Amounts  primarily reflect equity in earnings recorded for investments that
     have been held  consistently  throughout  each of the three and nine months
     ended September 30, 2004 and 2003.

(2)  "Other" reflects our share of general and administrative expense, interest
     expense, interest income, and other non-property; non-depreciation related
     operating results of these entities. The amount of interest expense
     included in "other" is $211,000 and $1,157,000, respectively for the three
     and nine months ended September 30, 2004, respectively, as compared to
     $419,000 and $1,354,000, respectively, for the same periods in 2003.

(3)  "Other" with respect to PSB also includes our pro-rata share of gains on
     sale of real estate assets, impairment charges relating to pending sales of
     real estate and the impact of PSB's application of the SEC's clarification
     of EITF Topic D-42 on redemptions of preferred securities. Our net pro-rata
     share of these items totaled net income reduction of $1,092,000 and
     $2,109,000 for the three and nine months ended September 30, 2004,
     respectively. Our net pro-rata share of these items increased net income
     $453,000 for the nine months ended September 30, 2003 (no impact for the
     three months ended September 30, 2003).

                                       54

<PAGE>

         The decrease in equity in earnings of real estate entities for the
three months ended September 30, 2004 as compared to the same period in 2003 is
due primarily to a reduction in our share of PSB's earnings, which is due to
higher depreciation due to PSB's significant asset acquisitions in the fourth
quarter of 2003. The decrease in equity in earnings for the three and nine
months ended September 30, 2004 also includes our $1,228,000 and $2,171,000
share of EITF Topic D-42 charges recorded by PSB. The decrease in equity in
earnings for the nine months September 30, 2004 also includes the net impact of
PSB's impairment charges and gains on sale of real estate for the nine months
ended September 30, 2003, of which our pro-rata share was net income totaling
$453,000.

         Equity in earnings of PSB  represents our pro-rata share (an average of
approximately  44% for the three and nine months  ended  September  30, 2004 and
2003) of the  earnings of PSB. As of  September  30,  2004,  we owned  5,418,273
common  shares  and  7,305,355  operating  partnership  units  (units  which are
convertible into common shares on a one-for-one  basis) in PSB. At September 30,
2004, PSB owned and operated 18.4 million net rentable square feet of commercial
space located in eight states.  PSB also manages  commercial  space owned by the
Company and  affiliated  entities  at  September  30, 2004  pursuant to property
management agreements.

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

         In January 2004, we entered into a joint venture partnership with an
institutional investor for the purpose of acquiring up to $125.0 million of
existing self-storage properties in the United States from third parties (the
"Acquisition Joint Venture"). The venture is funded entirely with equity
consisting of 30% from the Company and 70% from the institutional investor. The
venture had a nine-month investment period (through September 2004) to identify
and acquire facilities. Through September 30, 2004, the joint venture had
acquired two self-storage facilities at an aggregate cost of $9,086,000, and we
had invested $2,930,000 in this joint venture. Our pro-rata share of earnings
with respect to the Acquisition Joint Venture is included in the table above.

         Our future equity in earnings with respect to the Acquisition Joint
Venture will be dependent upon the level of earnings generated by the properties
currently owned by the Acquisition Joint Venture, and the earnings generated
from any other potential acquisitions made by the Acquisition Joint Venture. We
are currently working with our joint venture partner for the potential inclusion
of certain of the facilities acquired in 2004 or currently under contract in the
Acquisition Joint Venture, notwithstanding the expiration of the investment
period. However, there can be no assurance that the Acquisition Joint Venture
will acquire any additional facilities. See Note 5 to the condensed consolidated
financial statements for the operating results of this entity for the nine
months ended September 30, 2004.

         The "Other Investments" is comprised primarily of our equity in
earnings from seven limited partnerships, for which we held an approximately
consistent level of equity interest during each of the nine months ended
September 30, 2004 and 2003. These limited partnerships were formed by the
Company during the 1980's. We are the general partner in each limited
partnership, and manage each of these facilities for a management fee that is
included in "Interest and Other Income." The limited partners consist of
numerous individual investors, including the Company, which throughout the
1990's acquired units of limited partnership interests in these limited
partnerships in various transactions.

         In the second quarter of 2003, we sold our entire interest in a real
estate entity for cash of $851,000 and recognized a gain on the sale of
$316,000.

         Our future earnings with respect to the "Other investments" will be
dependent upon the operating results of the 36 self-storage facilities that
these entities own. The operating characteristics of these facilities are
similar to those of the Company's self-storage facilities, and are subject to
the same operational issues as the Consistent Group of self-storage facilities
as discussed above. See Note 5 to the consolidated financial statements for the
operating results of these entities for the nine months ended September 30, 2004
and 2003.

                                       55

<PAGE>

OTHER INCOME AND EXPENSE ITEMS

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

         Interest and other income was $3,300,000 and $7,240,000 for the three
and nine months ended September 30, 2004, respectively, as compared to
$2,847,000 and $7,425,000, respectively, for the same periods in 2003. The
quarterly increase is reflective of higher interest income on cash balances due
to higher average cash balances and higher average interest rates. The decrease
for the nine months ended primarily reflects lower interest income due to the
payoff of notes receivable, offset partially by higher interest income on cash
balances.

         As discussed more fully in "Liquidity and Capital Resources" below, at
September 30, 2004, we had cash balances totaling approximately $475,280,000,
which includes significant proceeds from recent equity issuances. These balances
are typically invested in short-term low-risk securities that, during the
quarter ended September 30, 2004, earned a nominal yield. Our future interest
and other income will be partially dependent upon the timing of our investment
of these unused offering proceeds and the level of interest earned on these
short-term investments.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was $44,375,000 and  $135,515,000  for the three and nine months ended September
30,  2004,   respectively,   as  compared  to  $45,435,000   and   $135,770,000,
respectively  for the same  periods in 2003.  The decrease in  depreciation  and
amortization  for the three and nine months ended September 30, 2004 as compared
to the same periods in 2003 is due primarily to a reduction in depreciation with
respect to maintenance capital expenditures,  offset partially by an increase in
depreciation  with  respect to newly  developed  and  acquired  facilities.

         Included in depreciation expense with respect to our real estate
facilities was $40,874,000 and $125,032,000 for the three and nine months ended
September 30, 2004, respectively, as compared to $42,143,000 and $126,083,000
for the same period in 2003, respectively. The decrease in depreciation and
amortization with respect to real estate facilities for the three months ended
September 30, 2004 as compared to the same period in 2003 is due primarily to a
reduction in depreciation with respect to maintenance capital expenditures,
offset partially by an increase in depreciation with respect to newly developed
and acquired facilities. Depreciation expense with respect to other assets,
primarily depreciation of equipment and containers associated with the
containerized storage operations, was $1,850,000 and $5,530,000 for the three
and nine months ended September 30, 2004, respectively, as compared to
$1,641,000 and $4,734,000 for the same period in 2003, respectively.
Depreciation expense also includes $1,651,000 and $4,953,000 for each of the
three and nine months, respectively, ended September 30, 2004 and 2003, relating
to the amortization of property management contracts.

         Depreciation and amortization for the three and nine months ended
September 30, 2004 with respect to developed real estate facilities opened
during the first nine months of 2004 amounted to approximately $307,000 and
$534,000, respectively. We expect the quarterly depreciation and amortization
expense with respect to these facilities for quarters beginning with fourth
quarter of 2004 will approximate $395,000.

         GENERAL AND ADMINISTRATIVE: General and administrative expense was
$5,527,000 and $15,983,000 for the three and nine months ended September 30,
2004, as compared to $4,642,000 and $13,321,000 for the same period in 2003.
General and administrative expense principally consists of state income taxes,
investor relation expenses and corporate and executive salaries. In addition,
general and administrative expense includes expenses that vary depending on the
Company's activity levels in certain areas, such as overhead associated with the
acquisition and development of real estate facilities, employee severance,
stock-based compensation and product research and development expenditures.

                                       56

<PAGE>

        The increase in general and administrative expense for the three months
ended September 30, 2004 as compared to the same period in 2003 is primarily due
to increased stock-based compensation expense from $825,000 to $1,001,000, as
well as an increase of $536,000 for employee termination costs. The increase in
general and administrative expense for the nine months ended September 30, 2004
as compared to the same period in 2003 is primarily due to increased stock-based
compensation expense from $1,259,000 to $2,983,000, as well as, an increase of
$666,000 for employee termination costs.

         Stock-based compensation expense for the three months ended September
30, 2004 included $150,000 in stock option expense, $559,000 in restricted stock
expense and $292,000 in payroll taxes and other costs associated with employees'
exercise of approximately 584,000 stock options in the three months ended
September 30, 2004. Stock-based compensation expense for the three months ended
September 30, 2003, included $95,000 in stock option expense, $371,000 in
restricted stock expense and $359,000 in payroll taxes and other costs
associated with employees' exercise of 859,000 stock options during the three
months ended September 30, 2003.

         Stock-based compensation expense for the nine months ended September
30, 2004 included $439,000 in stock option expense, $1,676,000 in restricted
stock expense and $868,000 in payroll taxes and other costs associated with
employees' exercise of approximately 1,719,000 stock options in the nine months
ended September 30, 2004. Stock-based compensation expense for the nine months
ended September 30, 2003 included $294,000 in stock option expense, $371,000 in
restricted stock expense and $594,000 in payroll taxes and other costs
associated with employees' exercise of 1,730,000 stock options during the nine
months ended September 30, 2003.

         Restricted stock expense, based upon restricted stock units outstanding
at September 30, 2004, should approximate $600,000 for the fourth quarter of
2004, while stock option expense should approximate $225,000 for the fourth
quarter of 2004, exclusive of payroll taxes on exercise of options. Future
grants of restricted stock units and stock options could further increase our
future stock-based compensation expense. The future level of payroll taxes and
other costs associated with the employees' exercise of stock options will depend
upon the timing of the employees' exercise of approximately 1.5 million stock
options outstanding at September 30, 2004, the Company's stock price at the time
of exercise, and the level of future grants of stock options.

         INTEREST EXPENSE: Interest expense was $296,000 for the three months
ended September 30, 2003 (none for the three months ended September 30, 2004).
Interest expense was $100,000 and $1,121,000 for the nine months ended September
30, 2004 and 2003, respectively. Interest capitalized during the three and nine
months ended September 30, 2004 was $685,000 and $2,722,000, respectively, as
compared to $1,411,000 and $4,386,000, respectively, for the same periods in
2003. The decrease in interest expense (prior to capitalized interest) in 2004
compared to 2003 is principally the result of lower interest expense on notes
payable due to scheduled principal repayments. The reduction in capitalized
interest is a result of a lower average balance of in-process development
projects.

         As described in Note 15, "Subsequent Events," in October 2004 we
assumed approximately $39.5 million in mortgage debt in connection with the
acquisition of several facilities, which will increase interest expense (prior
to capitalized interest). Our interest expense will increase due to this
assumption of additional debt, but will decrease as we make scheduled principal
payments.

         MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in Consolidated Entities, which are not
owned by the Company. The following table summarizes minority interest in income
for the three and nine months ended September 30, 2004 and 2003:

                                       57

<PAGE>

<TABLE>
<CAPTION>

                                                   Three Months Ended September 30,           Nine Months Ended September 30,
                                                 ---------------------------------------    --------------------------------------
                                                  2004           2003          Change         2004          2003         Change
                                                 ---------     -----------    ----------    ----------   -----------    ----------
                                                                             (Amounts in thousands)
Preferred partnership interests:
<S>                                              <C>           <C>             <C>           <C>          <C>           <C>
     Ongoing distributions (b)..........         $  5,176      $    6,726      $ (1,550)     $ 16,907     $  20,179     $ (3,272)
     Special Distribution and EITF
      Topic D-42 (a)...................                 -               -             -        10,063             -       10,063
Consolidated Development Joint Venture (c)          1,563           1,292           271         3,940         2,905        1,035
Convertible Partnership Units (d).......               88              86             2           219           233          (14)
Acquired minority interests (e) ........                -             424          (424)          842         1,738         (896)
Other minority interests (f)............            2,694           2,616            78         7,927         7,527          400
                                                ---------     -----------    ----------    ----------   -----------    ----------
    Total minority interests in income..        $   9,521      $   11,144     $  (1,623)    $  39,898    $   32,582     $  7,316
                                                =========     ===========    ===========   ==========   ============   ==========

</TABLE>

(a)  As described more fully below, holders of $200,000,000 of our Series N
     preferred partnership units agreed to a restructuring which included
     reducing their distribution rate from 9.5% to 6.4% in exchange for a
     special distribution of $8,000,000. This special distribution, combined
     with $2,063,000 in costs incurred at the time the units were originally
     issued that were charged against income in accordance with the Securities
     and Exchange Commissions clarification of EITF Topic D-42, are included in
     minority interest in income.

(b)  The decrease in ongoing distributions is due to the reduction in rate on
     $200,000,000 of the preferred partnership units from 9.5% to 6.4%,
     effective March 22, 2004. Ongoing distributions, beginning in the second
     quarter of 2004, amounted to approximately $5,176,000 per quarter.

(c)  These amounts reflect income allocated to the minority interests in the
     Consolidated Development Joint Venture. Included in minority interest in
     income is $887,000 and $2,741,000 in depreciation expense for the three and
     nine months ended September 30, 2004, respectively, as compared to $889,000
     and $2,554,000 for the same period in 2003.

(d)  These amounts reflect the minority interests represented by the Convertible
     Partnership Units (see Note 8 to the consolidated financial statements).
     Included in minority interest in income is $81,000 and $247,0000 in
     depreciation expense for the three and nine months ended September 30,
     2004, respectively, as compared to $66,000 and $253,000 for the same period
     in 2003.

(e)  These amounts reflect income allocated to minority interests that the
     Company acquired in April 2003 and September 2004 and are no longer
     outstanding at September 30, 2004. Included in minority interest in income
     is $309,000 in depreciation expense for the nine months ended September 30,
     2004 (none for the three months ended September 30, 2004). Included in
     minority interest in income is $181,000 and $682,000, respectively, for the
     three and nine months ended September 30, 2003.

(f)  These amounts reflect income allocated to minority interests that were
     outstanding consistently throughout the three and nine months ended
     September 30, 2004 and 2003. Included in minority interest in income is
     $589,000 and $1,554,000 in depreciation expense for the three months and
     nine months ended September 30, 2004, respectively, as compared to $371,000
     and $1,251,000 for the same period in 2003.

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

         As a result of this agreement, income allocable to minority interests
increased, and the Company's net income decreased $10,063,000 due to (1) the
$8,000,000 cash payment to the holders of the preferred units and (2) the
application of the SEC Observer's recent clarification of EITF Topic D-42, "The
Effect on the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock" totaling $2,063,000, which represents the excess
of the $200 million stated amount of the preferred units over their carrying
amount. Beginning with the second quarter of 2004, this restructuring will
result in a decrease in income allocable to minority interests causing an
increase in our net income by $1.55 million per quarter.

                                       58

<PAGE>

         As described in Note 15, "Subsequent Events," we issued $25,000,000 of
our 6.25% Series Z Cumulative Redeemable Perpetual Preferred Units in connection
with a property acquisition in October 2004. Additional income will be allocated
to the holders of these minority interests.

         The increase in minority interest in income with respect to the
Consolidated Development Joint Venture is due to an increase in income with
respect to the properties owned by this entity. We expect that minority interest
in income with respect to the Consolidated Development Joint Venture will
continue to increase as the properties owned by this entity, substantially all
of which are newly developed facilities in the fill-up stage, continue to
stabilize their operations and increase the earnings of this entity.

         The acquired minority interests reflect earnings allocated to interests
the Company didn't own in one of the Consolidated Entities, acquired on June 30,
2004, for an aggregate of $24,851,000 in cash. We allocated a total of $842,000
in net income to these interests (including $309,000 in depreciation) for the
nine months ended September 30, 2004. In addition, we acquired the interests we
didn't own in PS Partners IV, Ltd. on April 28, 2003 for an aggregate cost of
approximately $23,377,000. Following the Company's acquisition of these
interests, there will be no further income allocated to these interests.

         Other minority interests reflect income allocated to minority interests
that have maintained a consistent level of interest throughout the three and
nine months ended September 30, 2004 and 2003, comprised of investments in the
Consolidated Entities described in Note 8 to the Company's financial statements.
The level of income allocated to these interests in the future is dependent upon
the operating results of the storage facilities that these entities own, as well
as any minority interests that the Company acquires in the future.

         DISCONTINUED OPERATIONS: During the third quarter of 2004, we entered
into an agreement to sell one of our commercial facilities located in West Palm
Beach, Florida. The facility sale closed on October 28, 2004 (see Footnote 15 -
"Subsequent Events"). This facility is referred to as the "Sold Commercial
Facility".

         During the first quarter of 2003, we entered into a business plan to
exit the Knoxville, Tennessee market, and listed our four self-storage
facilities (the "Knoxville Facilities") in this market for sale. In addition, in
October 2003, we sold a self-storage facility located in Perrysburg, Ohio
(collectively, the "Sold Self-Storage Facilities").

         As described more fully in Note 3 to the consolidated financial
statements, during 2002, 2003 and 2004, we implemented a business plan which
included the closure of 39 of 55 containerized storage facilities that were open
at December 31, 2001. The 39 facilities are hereinafter referred to as the
"Closed Facilities."

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

         The following table summarizes the historical operations of the Sold
Self-Storage Facilities, Sold Commercial Facility and the Closed Facilities:

                                       59

<PAGE>

<TABLE>
<CAPTION>

DISCONTINUED OPERATIONS:
                                          Three Months Ended September 30,       Nine Months Ended September 30,
                                       ------------------------------------ ---------------------------------------
                                          2004        2003         Change      2004          2003        Change
                                       -----------  --------     ---------- ----------    ----------   -----------
                                            (Amounts in thousands)                 (Amounts in thousands)
Rental income (a):
<S>                                     <C>          <C>         <C>        <C>           <C>          <C>
  Closed Facilities...............      $ 1,740      $4,964      $ (3,224)  $   6,267     $  15,080    $  (8,813)
  Sold Self-Storage Facilities....            -         504          (504)          -         1,448       (1,448)
  Sold Commercial Facility........          105         100             5         279           302          (23)
                                       -----------  --------     ---------- ----------    ----------   -----------
Total rental income...............        1,845       5,568        (3,723)      6,546        16,830      (10,284)
                                       -----------  --------     ---------- ----------    ----------   -----------
Cost of operations (a):
  Closed Facilities...............        1,154       3,468        (2,314)      5,176        12,435       (7,259)
  Sold Self-Storage Facilities....            -         213          (213)          -           603         (603)
  Sold Commercial Facility........           26          19             7          63            76          (13)
                                       -----------  --------     ---------- ----------    ----------   -----------
Total cost of operations..........        1,180       3,700        (2,520)      5,239        13,114       (7,875)
                                       -----------  --------     ---------- ----------    ----------   -----------
Depreciation expense (a):
  Closed Facilities...............          306         871          (565)      1,031         2,681       (1,650)
  Sold Self-Storage Facilities....            -         142          (142)          -           424         (424)
  Sold Commercial Facility........           25          25             -          74            74            -
                                       -----------  --------     ---------- ----------    ----------   -----------
Total depreciation ...............          331       1,038          (707)      1,105         3,179       (2,074)
                                       -----------  --------     ---------- ----------    ----------   -----------
Impairment charge/shutdown costs (b):
  Closed Facilities...............        1,406       1,274           132       1,991         2,024          (33)
                                       -----------  --------     ---------- ----------    ----------   -----------
Net discontinued operations (c)...      $(1,072)     $ (444)     $   (628)  $  (1,789)     $ (1,487)   $    (302)
                                       ==========   ========     ========== ==========    ==========   ============

</TABLE>

(a)      These amounts represent the historical operations of the Closed
         Facilities and the Sold Self-Storage Facilities, and include amounts
         previously classified as rental income, cost of operations, and
         depreciation expense related to real estate and other assets, utilized
         by the Closed Facilities, in the financial statements in prior periods.

(b)      Asset impairment charges for the three and nine months ended September
         30, 2004 were $1,406,000 and 1,575,000, respectively. In addition to
         the asset impairment charges, lease termination costs of $416,000 were
         recorded during the quarter ended June 30, 2004. During the three and
         nine months ended September 30, 2003, $1,274,000 in asset impairment
         charges were recorded with respect to four facilities closed during
         that quarter. In addition a $750,000 impairment charge was recorded
         during the quarter ended June 30, 2003 with respect to a closed
         containerized storage facility held for sale.
(c)      Earnings per share for the three and nine month periods ended September
         30, 2004 and the nine months ended September 30, 2003, were reduced
         $0.01 due to the impact from discontinued operations. There was no
         impact on earnings per share for the three months ended September 30,
         2003.

         GAIN (LOSS) ON DISPOSITION OF REAL ESTATE: During the three months
ended September 30, 2004, we sold three vacant parcels of land and received
proceeds as a result of the partial condemnation of two existing self-storage
facilities, receiving net proceeds totaling $7,437,000 and recording a gain on
sale of $1,286,000.

         During the first quarter of 2003, we disposed of two self-storage
facilities and a parcel of land for an aggregate of $7,713,000 in cash, and
recognized a gain on disposition of $14,000. During the second quarter of 2003,
we disposed of two additional parcels of land for an aggregate of $4,147,000,
recognizing a gain on disposition of $430,000, and disposed of an investment in
real estate entities for an aggregate of $851,000, recognizing a gain of
approximately $316,000. During the quarter ended September 30, 2003, we disposed
of a parcel of land for $795,000 in cash, and recognized a gain on disposition
of $47,000.

                                       60

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

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

<TABLE>
<CAPTION>

                                                                          Nine Months Ended September 30,
                                                                        -----------------------------------
                                                                            2004               2003
                                                                        -----------------  ----------------
                                                                             (Amounts in thousands)

<S>                                                                      <C>                <C>
Net cash provided by operating activities.......................         $    498,856       $    468,591

Allocable to minority interest (Preferred Units) - ongoing                    (16,907)           (20,179)
distributions...................................................
Allocable to minority interest (Preferred Units) - special                     (8,000)                 -
distribution (a)................................................
Allocable to minority interest (common equity)..................              (17,779)           (17,143)
                                                                        -----------------  ----------------
Cash from operations allocable to our shareholders..............              456,170            431,269

Capital improvements to maintain our facilities.................              (20,297)            (20,470)
 Add back:  minority interest share of capital improvements to
    maintain facilities.........................................                  441                504
                                                                        -----------------  ----------------
 Remaining operating cash flow available for distributions to our
    shareholders................................................              436,314            411,303

Distributions paid:
  Preferred stock dividends.....................................             (117,293)          (107,914)
  Equity Stock, Series A dividends..............................              (16,126)           (16,126)
  Distributions to Common shareholders..........................             (172,474)          (168,781)
                                                                        -----------------  ----------------
Cash available for principal payments on debt and reinvestment..         $    130,421       $    118,482
                                                                        =================  ================
</TABLE>

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

         Our financial profile is characterized by a low level of debt to total
capitalization and a conservative dividend payout ratio with respect to the
common stock. We expect to fund our growth strategies with cash on hand at
September 30, 2004, internally generated retained cash flows and proceeds from
issuing equity securities. In general, our current strategy is to continue to
finance our growth with permanent capital; either common or preferred equity. We
have in the past used our $200 million line of credit as temporary "bridge"
financing and repaid those amounts with internally generated cash flows and
proceeds from the placement of permanent capital. At September 30, 2004, we had
no outstanding borrowings under our $200 million bank line of credit.

         Over the past three years, we have funded substantially all of our
acquisitions with permanent capital (both common and preferred securities). We
have elected to use preferred securities as a form of leverage despite the fact
that the dividend rates of our preferred securities exceed the prevailing market
interest rates on conventional debt. We have chosen this method of financing for
the following reasons: (i) under the REIT structure, a significant amount of
operating cash flow needs to be distributed to our shareholders, making it
difficult to repay debt with operating cash flow alone, (ii) our perpetual
preferred stock has no sinking fund requirement or maturity date and does not
require redemption, all of which eliminate any future refinancing risks, (iii)
after the end of a non-call period, we have the option to redeem the preferred
stock at any time, which in 2002 and 2001 enabled us to effectively refinance
higher coupon preferred stock with new preferred stock at lower rates, (iv)
preferred stock does not contain onerous covenants, thus allowing us to maintain
significant financial flexibility, and (v) dividends on the preferred stock can
be applied to our REIT distribution requirements.

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

                                       61

<PAGE>

         Our portfolio of real estate facilities remains substantially
unencumbered. At September 30, 2004, we had mortgage debt outstanding of $1.7
million (which encumbers two facilities with a book value of approximately $11
million) and unsecured long-term debt in the amount of $33.6 million. As
described in Note 15, "Subsequent Events" in the Company's September 30, 2004
financial statements, the Company acquired 26 facilities, subject to
approximately $39.5 million in mortgage debt at an average interest rate of
6.5%.

         We believe that our size and financial flexibility enables us to access
capital when appropriate.

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

         For the remainder of 2004 and 2005, we have approximately $197.4
million of preferred securities that become redeemable at our option. The
weighted average annual dividend rate with respect to these securities is
approximately 9.6%; a rate significantly higher than current market conditions.
However, during the fourth quarter of 2003 and into 2004, we became increasingly
concerned that conditions soon change and that dividend rates with respect to
new offerings of preferred securities would begin to rise. It was our desire to
limit our "refinancing risk" with respect to anticipated rising rates.

         In that regard, over the past year, we have issued approximately $743.8
million of our preferred stock raising net proceeds of approximately $720.4
million. The weighted average annual dividend rate with respect to these
securities is approximately 6.5% (6.7% based on the net proceeds received).

         During the first quarter of 2004, we utilized $230 million of the
capital raised to redeem our 8.25% Series K preferred stock and our 8.25% Series
L preferred stock. In addition, during the first quarter of 2004, we
restructured $200 million of our 9.5% Series N preferred units reducing the
annual dividend rate to 6.4%; we would not have been able to call these
securities until November 2005. During the third quarter of 2004, we redeemed
our 8.75% Series M Preferred Stock and our 9.5% Series D Preferred Stock, which
had an aggregate liquidation value of $86,250,000.

         We have $197,375,000 in preferred securities that, at our option,
become redeemable in the remainder of 2004 and 2005, with an average coupon of
9.626%, as follows:

                                        Earliest
                                       Redemption     Dividend      Liquidation
               Security                   Date          Rate       Value (000's)
-----------------------------------    ----------     ---------    -------------

 Series E Preferred Stock                1/31/05        10.000%    $    54,875
 Series N Preferred Units                3/17/05         9.500%         40,000
 Series O Preferred Units                3/29/05         9.125%         45,000
 Series F Preferred Stock                4/30/05         9.750%         57,500
                                                       --------   --------------
    Total securities available for
    redemption through 12/31/05                          9.626%    $   197,375
                                                       ========   ==============

         We expect to fund these redemptions from cash on hand, which totaled
$475,280,000 at September 30, 2004. If, however, our cash on hand is utilized
for alternative investments such as the acquisition or development of real
estate assets, we intend to issue additional lower-rate preferred securities to
redeem these securities. There can be no assurance that we would be able to
issue additional preferred securities at a lower rate.

         As a result of the upcoming redemptions of preferred securities noted
above, we expect that the related charges with respect to the application of
EITF Topic D-42 will be approximately $1,929,000 in the fourth quarter of 2004,
and $2,778,000 in the first quarter of 2005.

                                       62

<PAGE>

         REQUIREMENT TO PAY DISTRIBUTIONS: We have operated, and intend 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 we will at all times so
qualify. To the extent that the Company continues to qualify as a REIT, we will
not be taxed, with certain limited exceptions, on the taxable income that is
distributed to our shareholders, provided that at least 90% of our taxable
income is so distributed to our shareholders prior to filing of the Company's
tax return. We have satisfied the REIT distribution requirement since 1980.

         During the nine months ended September 30, 2004 and 2003, we paid cash
dividends totaling $117,293,000 and $107,914,000, respectively, to the holders
of our Cumulative Preferred Stock. We estimate the distribution requirements
with respect to our Preferred Stock outstanding at September 30, 2004 to be
approximately $162.5 million per year, which includes approximately $19.0
million with respect to the preferred series denoted above that are anticipated
to be redeemed.

         During the nine months ended September 30, 2004 and 2003, we paid cash
dividends totaling $16,907,000 and $20,179,000, respectively, to the holders of
our preferred partnership units. On March 22, 2004, certain investors who hold
$200 million of our 9.5% Series N Cumulative Redeemable Preferred Units agreed,
in exchange for a special distribution of $8,000,000, to a reduction in the
distribution rate on their preferred units from 9.5% per year to 6.4% per year.
We estimate that the distribution requirement with respect to the preferred
partnership units outstanding at September 30, 2004 to be approximately $20.7
million per year, which includes approximately $7.9 million with respect to the
two unit series denoted above that we expect to redeem.

         As  described  below,  we  issued  $25,000,000  of our  6.25%  Series Z
Cumulative  Redeemable  Perpetual  Preferred Units in connection with a property
acquisition in October 2004. Our annual distribution requirement with respect to
these units will  approximate  $1.6  million.  The holders of these units have a
one-time option,  exercisable five years after issuance, to require us to redeem
these units in cash, at par plus any accrued but unpaid distributions.

         During each of the nine months ended September 30, 2004 and 2003, we
paid cash dividends totaling $16,126,000 to the holders of our Equity Stock,
Series A. With respect to the depositary shares of Equity Stock, Series A, we
have no obligation to pay distributions if no distributions are paid to the
common shareholders. To the extent that we do pay common distributions in any
year, the holders of the depositary shares receive annual distributions equal to
the lesser of (i) five times the per share dividend on the common stock or (ii)
$2.45. The depositary shares are non-cumulative, and have no preference over our
common stock either as to dividends or in liquidation. With respect to the
Equity Stock, Series A outstanding at September 30, 2004, we estimate the total
regular distribution for the remainder of 2004 to be approximately $5.4 million
assuming that dividends of at least $0.49 per share per year are paid to the
common shareholders.

         During the nine months ended September 30, 2004, we paid dividends
totaling $172,474,000 ($1.35 per common share) to the holders of our common
stock. Based upon shares outstanding at September 30, 2004 and a quarterly
distribution of $0.45 per share, which was declared by the Board of Directors on
November 4, 2004 and payable on December 31, 2004, we estimate dividend payments
with respect to our common stock of approximately $57.7 million for the fourth
quarter of 2004.

         CAPITAL IMPROVEMENT REQUIREMENTS: For 2004, we estimate a total of
approximately $30.0 to $35.0 million for capital improvements. During the nine
months ended September 30, 2004, we incurred capital improvements of
approximately $20.3 million. Capital improvements include major repairs or
replacements to the facilities that maintain the facilities' existing operating
condition and visual appeal. Capital improvements do not include costs relating
to the development or expansion of facilities, or expenditures associated with
improving the visual and structural appeal of our existing self-storage
facilities.

         DEBT SERVICE REQUIREMENTS: We do not believe we have any significant
refinancing risks with respect to our notes payable, all of which are fixed
rate. At September 30, 2004, we had total outstanding notes payable of
approximately $35.3 million. See Note 7 to the consolidated financial statements
for approximate principal maturities of such borrowings.

                                       63

<PAGE>

         As described below, our total mortgage debt increased by approximately
$39.5 million (at an average interest rate of approximately 6.5%), to a total of
approximately $74.8 million, with the acquisition of real estate facilities in
October 2004, as discussed below.

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

         ACQUISITION AND DEVELOPMENT OF REAL ESTATE FACILITIES: No facilities
were acquired from third parties during the year ended December 31, 2003.

         During the first nine months of 2004, we acquired two facilities with
an aggregate of 139,000 net rentable square feet, for an aggregate of $8,293,000
in cash. In addition, our Acquisition Joint Venture acquired two facilities as
discussed below.

         During October 2004, we acquired 32 facilities at a total cost of
$121.5 million, including post-acquisition costs of computer, signage and other
efforts in conforming these facilities to Public Storage visual and operating
standards. The consideration for these acquisitions consisted of the assumption
of $39.5 million of debt, the issuance of $25.0 million of 6.25% Series Z
Preferred Units and $57.0 million in cash. The facilities are located in
Minnesota, Texas and Wisconsin and contain 2,002,000 net rentable square feet of
space (14,873 rentable units).

         In addition, we have contracts to acquire 11 additional existing
self-storage facilities at an aggregate cost of approximately $124.9 million,
consisting of the assumption of $48.9 million in debt and $76.0 million in cash.
Each of these contracts is subject to significant contingencies, and there is no
assurance that any of these facilities will be acquired.

         On January 1, 2004, we entered into a joint venture (the "Acquisition
Joint Venture") with an institutional investor for the purpose of acquiring up
to $125.0 million of existing self-storage properties in the United States from
third parties. The Acquisition Joint Venture is funded entirely with equity
consisting of 30% from the Company and 70% from the institutional investor. The
Acquisition Joint Venture acquired two facilities during the quarter ended
September 30, 2004, with approximately 150,000 net rentable square feet for an
aggregate of approximately $9.1 million cash. The venture had a nine month
investment period (through September 30, 2004) to identify and acquire
facilities. We are currently working with our joint venture partner for the
potential inclusion of certain of the facilities acquired in 2004 or currently
under contract in the Acquisition Joint Venture, notwithstanding the expiration
of the investment period. However, there can be no assurance that the
Acquisition Joint Venture will acquire any additional facilities.

         If the Acquisition Joint Venture does not acquire these facilities, we
expect to fund these acquisitions entirely from our cash on hand.

         In June 2004, we acquired a limited partnership interest in one of our
Consolidated Entities, at an acquisition cost of approximately $24,851,000.

         In November 1999, we formed a joint venture partnership for the
development of approximately $100 million of self-storage facilities. The
venture is funded solely with equity capital consisting of 51% from us and 49%
from the joint venture partner. The term of the joint venture is 15 years. After
six years, the joint venture partner has the right to cause the Company to
purchase the joint venture partner's interest for an amount necessary to provide
the joint venture partner with a maximum return of 10.75% or less in certain
circumstances. Our estimate of the purchase price of this interest is
approximately $105 million.

                                       64

<PAGE>

         We currently have a development "pipeline" of 37 projects consisting of
self-storage  facilities,  conversion of space at facilities that was previously
used  for  containerized   storage  and  expansions  to  existing   self-storage
facilities with an aggregate estimated cost of approximately  $151.6 million. At
September 30, 2004, we have  acquired the land for 36 of these  projects,  which
have an aggregate  estimated cost of  approximately  $146.0  million,  and costs
incurred as of September 30, 2004 of approximately $40.7 million.  The remaining
facility  represents an  identified  site where we have an agreement in place to
acquire the land,  generally within one year. We anticipate that the development
of these projects will be funded solely by the Company.

         The development and fill-up of these storage facilities is subject to
significant contingencies such as obtaining appropriate governmental approvals.
We estimate that the amount remaining to be spent of approximately $110.9
million will be incurred over the next 24 months. The following table sets forth
certain information with respect to our development pipeline.

<TABLE>
<CAPTION>

Development Pipeline Summary
                                                    Number      Net           Total      Costs incurred
                                                      of     rentable      estimated         through         Costs to
                                                   projects   sq. ft.     development        9/30/04         complete
                                                   --------- ---------    ------------   --------------      -----------
                                                                               (Amounts in thousands)
  Facilities currently under construction:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    Self-storage facilities                            4          261      $   24,389       $   11,082       $   13,307
    Expansions and other enhancements to
     existing self-storage facilities                  9          454          22,439            9,685           12,754
                                                   --------- ---------    ------------   --------------      -----------
                                                      13          715          46,828           20,767           26,061

  Facilities awaiting  construction,  where land
     is acquired:
    Self-storage facilities                            3          286          45,806           17,696           28,110
    Expansions and other enhancements to
     existing self-storage facilities                 20        1,201          53,412            1,990           51,422
                                                   --------- ---------    ------------   --------------      -----------
                                                      23        1,487          99,218           19,686           79,532

  Self-storage facilities awaiting
    construction, where land has not yet been
    acquired                                           1           56           5,570              233            5,337
                                                   --------- ---------    ------------   --------------      -----------
  Total Development Pipeline                          37        2,258      $  151,616       $   40,686       $  110,930
                                                   ========= =========    ============   ==============      ===========
</TABLE>


         Included in the 29 "expansions and other enhancements of existing
self-storage facilities" are 17 projects associated with the conversion of
industrial space, previously used by the discontinued containerized facility
operations, into self-storage space. The total amount of self-storage space to
come on line from these 17 conversions is approximately 1,192,000 net rentable
square feet of traditional self-storage space at a cost of $40,754,000. Also
included are enhancements which, while they do not add significant incremental
square footage, improve the visual and structural appeal of our existing
self-storage facilities.

         We estimate that our development spending in 2005, including the
amounts denoted above with respect to our development pipeline, will approximate
$75 million.

         In addition to the above  projects,  we have four  parcels of land held
for development  with total costs of  approximately  $7,580,000 at September 30,
2004.

         REPURCHASES OF THE COMPANY'S COMMON STOCK: The Company's Board of
Directors authorized the repurchase from time to time of up to 25,000,000 shares
of our common stock on the open market or in privately negotiated transactions.
For the nine months ended September 30, 2004, we repurchased 409,700 shares of
our common stock for approximately $18,234,000.

         From the initial authorization through November 5, 2004, we have
repurchased a total of 22,081,720 shares of common stock at an aggregate cost of
approximately $560.1 million.

                                       65
<PAGE>

ITEM 2A.   RISK FACTORS
-----------------------

         In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2003, you should consider the following factors
in evaluating the Company:

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

         At September 30, 2004, the Hughes family owned approximately 36% of our
outstanding shares of common stock. Consequently, the Hughes family could
control matters submitted to a vote of our shareholders, including electing
directors, amending our organizational documents, dissolving and approving other
extraordinary transactions, such as a takeover attempt, even though such actions
may not be favorable to the other common shareholders.

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

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

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

         You will be subject to the risk that we may not qualify as a REIT.
REITs are subject to a range of complex organizational and operational
requirements. As a REIT, we must distribute at least 90% of our REIT taxable
income to our shareholders, including not only holders of our common stock and
equity stock but also holders of our preferred stock. Failure to pay full
dividends on the preferred stock would prevent us from paying dividends on our
common stock and could jeopardize our qualification as a REIT. Other
restrictions apply to our income and assets. Our REIT status also depends upon
the ongoing qualification of PS Business Parks, Inc. as a REIT, as a result of
our substantial ownership interest in that company.

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

COMPLIANCE WITH SECTION 404 OF THE SARBANES - OXLEY ACT

         Pursuant to Section 404 of the  Sarbanes-Oxley  Act of 2002, we will be
required, beginning with our fiscal year ending December 31, 2004, to include in
our annual report our assessment of the  effectiveness  of our internal  control
over financial  reporting and our audited financial  statements as of that date.
Furthermore,  our independent  registered public accounting firm, Ernst & Young,
will be required to attest to whether our assessment of the effectiveness of our
internal  control  over  financial  reporting  is fairly  stated in all material
respects  and  separately  report on whether it believes we  maintained,  in all
material  respects,  effective  internal control over financial  reporting as of
December 31, 2004. We have not yet completed our assessment of the effectiveness
of our internal control.

                                       66

<PAGE>

         While we believe  that we will meet these  requirements,  if we fail to
timely  complete  this  assessment,  or if  our  independent  registered  public
accounting firm cannot timely attest to our  assessment,  we could be subject to
regulatory sanctions and a loss of public confidence in our internal control. In
addition,  any  failure to  implement  required  new or  improved  controls,  or
difficulties  encountered  in their  implementation,  could  harm our  operating
results or cause us to fail to timely meet our regulatory reporting obligations.

         PS Business Parks, Inc.,  ("PSB"),  an entity that we have a 44% equity
interest in at September 30, 2004, is subject to the same reporting requirement.
PSB  is  currently   behind   schedule  in  completing  its  assessment  of  the
effectiveness of its internal controls;  however, PSB's management believes that
it will be able to timely complete its assessment.  Because we record our equity
share of PSB's  reported net income in our income  statements,  PSB's failure to
timely complete its assessment of internal control,  or its failure to implement
effective internal controls, could affect the reliability of our recorded Equity
in Earnings of Unconsolidated Entities and, consequently, our net income.

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

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

WE WOULD INCUR A CORPORATE LEVEL TAX IF WE SELL CERTAIN ASSETS.

         We will generally be subject to a corporate level tax on any net
built-in gain if, before November 2005, we sell any of the assets we acquired in
the November 1995 reorganization.

WE MAY BE DEPENDENT UPON AUTOMATED PROCESSES AND THE INTERNET.

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

WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.

         Debt increases the risk of loss. In making real estate investments, we
may borrow money, which increases the risk of loss. At September 30, 2004, our
debt of $35.3 million was less than 1.0% of our total assets.

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

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

                                       67

<PAGE>

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

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

o        changes in general economic or local conditions;

o        Natural disasters, such as earthquakes;

o        potential terrorist attacks;

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

o        the impact of environmental protection laws;

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

o        changes in tax, real estate and zoning laws.

         In addition, we self-insure certain of our property loss, liability,
  and workers compensation risks that other real estate companies may use
  third-party insurers for. This results in a higher risk of losses that aren't
  covered by third-party insurance contracts, as described in Note 14 to the
  Company's financial statements at September 30, 2004 under "Insurance and Loss
  Exposure."

         There is significant competition among self-storage facilities and from
other storage alternatives. Most of our properties are self-storage facilities,
which generated 93% of our revenue for the nine months ended September 30, 2004.
Local market conditions will play a significant part in how competition will
affect us. Competition in the market areas in which many of our properties are
located from other self-storage facilities and other storage alternatives is
significant and has affected the occupancy levels, rental rates and operating
expenses of some of our properties. Any increase in availability of funds for
investment in real estate may accelerate competition. Further development of
self-storage facilities may intensify competition among operators of
self-storage facilities in the market areas in which we operate.

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

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

                                       68

<PAGE>

         There has been an increasing number of claims and litigation against
owners and managers of rental properties relating to moisture infiltration,
which can result in mold or other property damage. When we receive a complaint
concerning moisture infiltration, condensation or mold problems and/or become
aware that an air quality concern exists, we implement corrective measures in
accordance with guidelines and protocols we have developed with the assistance
of outside experts. We seek to work proactively with our tenants to resolve
moisture infiltration and mold-related issues, subject to our contractual
limitations on liability for such claims. However, we can make no assurance that
material legal claims relating to moisture infiltration and the presence of, or
exposure to, mold will not arise in the future.

         Delays in development and fill-up of our properties would reduce our
profitability: Since January 1, 2000, we have opened 65 newly developed self
storage facilities and 17 facilities that combine self-storage and containerized
storage space at the same location, with aggregate development costs of $579.4
million. In addition, at September 30, 2004 the Company had 37 projects in
development that are expected to begin construction generally by December 31,
2004. These 37 projects have total estimated costs of $151.6 million.
Construction delays due to weather, unforeseen site conditions, personnel
problems, and other factors, as well as cost overruns, would adversely affect
the Company's profitability. Delays in the rent-up of newly developed facilities
as a result of competition or other factors would also adversely impact the
Company's profitability.

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

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

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

         B. Wayne Hughes, Chairman of the Board, and his family (the "Hughes
Family") have ownership interests in, and operate, approximately 40 self-storage
facilities in Canada under the name "Public Storage." We currently do not own
any interests in these facilities nor do we own any facilities in Canada. The
Hughes Family owns approximately 36% of our common stock outstanding at
September 30, 2004. We have a right of first refusal to acquire the stock or
assets of the corporation engaged in the operation of the 40 self-storage
facilities in Canada if the Hughes family or the corporation agrees to sell
them. However, we have no interest in the operations of this corporation, have
no right to acquire this stock or assets unless the Hughes family decides to
sell, and receive no benefit from the profits and increases in value of the
Canadian self-storage facilities.

                                       69

<PAGE>

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

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

OUR CONTAINERIZED STORAGE BUSINESS HAS INCURRED OPERATING LOSSEs.

         Public  Storage  Pickup & Delivery  ("PSPUD")  was organized in 1996 to
operate a containerized storage business. We own all of the economic interest of
PSPUD.  Since  PSPUD  will  operate  profitably  only if it can  succeed  in the
relatively new field of containerized  storage,  we cannot provide any assurance
as to its profitability. PSPUD incurred operating losses of $10,058,000 in 2002,
generated an operating  profit of $2,543,000 in 2003 and $1,129,000 for the nine
months ended  September  30, 2004.  PSPUD closed 39 of 55  facilities  that were
deemed not strategic to the Company's business plan since 2002.

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

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

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

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

RECENTLY ENACTED TAX LEGISLATION COULD ADVERSELY AFFECT THE PRICE OF OUR STOCK.

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

                                       70

<PAGE>

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

         We are headquartered in, and approximately one-quarter of our
properties are located in, California. California is facing serious budgetary
problems. Action that may be taken in response to these problems, such as an
increase in property taxes on commercial properties, could adversely impact our
business and results of operations. In addition, we could be adversely impacted
by the recently enacted legislation and recent ballot initiatives mandating
medical insurance for employees of California businesses and members of their
families beginning in 2006.

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

         To limit our  exposure  to market  risk,  we  principally  finance  our
operations and growth with permanent equity capital, consisting of either common
or preferred  stock.  At September  30, 2004,  our debt as a percentage of total
shareholders' equity (based on book values) was 0.8%.

         Our  preferred  stock is not  redeemable  at the option of the holders.
Except under certain  conditions  relating to the Company's  qualification  as a
REIT,  the  Preferred  Stock  is not  redeemable  by the  Company  prior  to the
following dates:  Series E - January 31, 2005, Series F - April 30, 2005, Series
Q - January 19,  2006,  Series R - September  28,  2006,  Series S - October 31,
2006,  Series T - January 18, 2007,  Series U - February  19,  2007,  Series V -
September  30, 2007,  Series W - October 6, 2008,  Series X - November 13, 2008,
Series Y - January 2, 2009, Series Z - March 5, 2009, Series A - March 31, 2009,
Series B - June 30,  2009 and Series C -  September  13,  2009.  On or after the
respective  dates,  each of the series of Preferred  Stock will be redeemable at
the option of the Company,  in whole or in part, at $25 per share (or depositary
share in the case of the Series Q through  Series X,  Series Z, Series A through
Series C), plus accrued and unpaid dividends through the redemption date.

         Our market risk  sensitive  instruments  include notes  payable,  which
totaled $35.3 million at September 30, 2004 ($74.8  million  including  $39.5 in
debt  assumed in  connection  with  property  acquisitions  from October 1, 2004
through  November 8, 2004).  All of the Company's notes payable bear interest at
fixed rates.  See Note 7 to the consolidated  financial  statements at September
30, 2004 for approximate  principal maturities of the notes payable at September
30, 2004.

ITEM 4.  CONTROLS AND PROCEDURES
--------------------------------

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

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

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

                                       71

<PAGE>


PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
           -----------------

Serrao v. Public Storage, Inc. (filed April 2003)
--------------------------------------------------
(Superior Court - Orange County)
--------------------------------
         The plaintiff in this case filed a suit against the Company on behalf
of a putative class of renters who rented self-storage units from the Company.
Plaintiff alleges that the Company misrepresented the size of its storage units,
has brought claims under California statutory and common law relating to
consumer protection, fraud, unfair competition, and negligent misrepresentation,
and is seeking monetary damages, restitution, and declaratory and injunctive
relief.

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

         Based upon the uncertainty inherent in any putative class action, the
Company cannot presently determine the potential damages, if any, or the
ultimate outcome of this litigation. On November 3, 2003, the court granted the
Company's motion to strike the plaintiff's nationwide class allegations and to
limit any putative class to California residents only. The Company is vigorously
contesting the claims upon which this lawsuit is based including class
certification efforts.

Salaam et al v. Public  Storage,  Inc.  (filed  February 2000) (Superior Court -
--------------------------------------------------------------------------------
Sacramento County); Holzman et al v. Public Storage, Inc. (filed October 2004)
------------------------------------------------------------------------------
(Superior Court - Sacramento County)
------------------------------------
         The plaintiffs in the Salaam case are suing the Company on behalf of a
putative class of California resident property managers who claim that they were
not compensated for all the hours they worked. The named plaintiffs have
indicated that their claims total less than $20,000 in aggregate. On December 1,
2003, the California Court of Appeals affirmed the Supreme Court's 2002 denial
of plaintiff's motion for class certification. The affirmation of the denial of
class certification does not address the claim under the California Unfair
Business Practices Act.

         The plaintiffs in the Holzman case, who are represented by the same
attorneys as the Salaam plaintiffs, are seeking substantially the same claims
with additional minor variations in an acknowledged second effort to proceed as
a class, in reliance on a recent California Supreme Court case. The plaintiffs
have not yet identified an aggregate value of their claims which, on an
individual basis, are alleged wage losses of $4000 or less. The plaintiffs also
assert claims under the California Unfair Business Practices Act.

         The maximum potential liability for both of these cases cannot be
estimated, but can only be increased if claims are permitted to be brought on
behalf of others under the California Unfair Business Practices Act or, in the
Holzman case, if plaintiff prevails on a motion for class certification.

         The Company is continuing to vigorously contest the claims in these
cases and intends to resist any expansion beyond the named plaintiffs, including
by opposing claims on behalf of others under the California Unfair Business
Practices Act or, in the case of the Holzman case, for class certification. The
Company cannot presently determine the potential damages, if any, or the
ultimate outcome of this litigation.

Gustavson et al v. Public Storage, Inc. (filed June 2003)
----------------------------------------------------------
(Superior court - Los Angeles County)
-------------------------------------

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

                                       72

<PAGE>

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

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

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

         In July 2003 the Company filed an answer to the Hughes family's
complaint requesting a final judicial determination of the Company's rights of
recovery against the Hughes family in respect of PSIC. In September 2003, by
order of the Superior Court, Justice Malcolm Lucas, a former chief justice of
the California Supreme Court, was appointed to try the case. Discovery is
proceeding and Justice Lucas has set this matter for trial at the end of March,
2005. We believe that the lawsuit by the Hughes family will ultimately resolve
matters relating to PSIC and will not have any financially adverse effect on the
Company (other than the costs and other expenses relating to the lawsuit).

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

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

         On June 12, 1998, we announced that the Board of Directors (the
"Directors") authorized the repurchase from time to time of up to 10,000,000
shares of the Company's common stock on the open market or in privately
negotiated transactions. On subsequent dates the Directors increased the
repurchase authorization, the last being April 13, 2001, when the Board of
Directors increased the repurchase authorization to 25,000,000 shares.

         The following table contains information regarding the company's
repurchase of its common stock during the quarter.

                                       73

<PAGE>

ISSUER PURCHASES OF EQUITY SECURITIES:

<TABLE>
<CAPTION>
                                                                         Total Number of      Maximum Number of
                                                                       Shares Purchased as     Shares that May
                                        Total Number                     Part of Publicly     Yet Be Purchased
                                         of Shares     Average Price    Announced Plans or   Under the Plans or
Period Covered                           Purchased     Paid per Share        Programs             Programs
-----------------------------------     -------------  --------------  --------------------  ------------------

<S>                                               <C>         <C>             <C>                  <C>
July 1 through July 31, 2004                       -           -              22,081,720           2,918,280

August 1 through August 31, 2004                   -           -              22,081,720           2,918,280

September 1 through September 30,
2004                                               -           -              22,081,720           2,918,280
                                        -------------  --------------
    Total                                          -           -
                                        =============  ==============

</TABLE>

         See Notes 8, 9 and 15 for additional information on repurchases and
redemptions of equity securities.

                                       74

<PAGE>

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

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

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

3.3      Amendment  to  Certificate  of  Determination  for the  10%  Cumulative
         Preferred Stock,  Series A. Filed with the  Registrant's  Form 10-Q for
         the quarterly  period ended March 31, 2004 and  incorporated  herein by
         reference.

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

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

3.6      Amendment to  Certificate  of  Determination  for the 9.20%  Cumulative
         Preferred Stock Series B. Filed with the Registrant's Form 10-Q for the
         quarterly  period  ended  June 30,  2004  and  incorporated  herein  by
         reference.

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

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

3.9      Amendment to  Certificate  of  Determination  for the  Adjustable  Rate
         Cumulative Preferred Stock Series C. Filed herewith.

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

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

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

3.13     Registration   Statement  No.  33-63947  and  incorporated   herein  by
         reference.

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

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

                                       75

<PAGE>

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

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

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

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

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

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

3.22     Certificate of  Determination  for Equity Stock,  Series AA. Filed with
         Registrant's  Form 10-Q for the  quarterly  period ended  September 30,
         1999 and incorporated herein by reference.

3.23     Certificate  Decreasing  Shares  Constituting  Equity Stock,  Series A.
         Filed  with  Registrant's  Form  10-Q for the  quarterly  period  ended
         September 30, 1999 and incorporated herein by reference.

3.24     Certificate  of  Determination  for Equity Stock,  Series A. Filed with
         Registrant's  Form 10-Q for the  quarterly  period ended  September 30,
         1999 and incorporated herein by reference.

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

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

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

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

3.29     Certificate of Determination for 8.75% Cumulative Preferred Stock,
         Series M. Filed with Registrant's Form 8-A/A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 8.75% Cumulative Preferred Stock, Series M and incorporated herein
         by reference.

3.30     Certificate of Determination  for Equity Stock,  Series AAA. Filed with
         Registrant's  Current  Report on Form 8-K dated  November  15, 1999 and
         incorporated herein by reference.

3.31     Certificate  of  Determination  for 9.5%  Cumulative  Preferred  Stock,
         Series N. Filed with  Registrant's  Annual  Report on Form 10-K for the
         year ended December 31, 1999 and incorporated herein by reference.

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3.32     Certificate of  Determination  for 9.125%  Cumulative  Preferred Stock,
         Series O. Filed with Registrant's Quarterly Report on Form 10-Q for the
         quarterly  period  ended  June 30,  2000  and  incorporated  herein  by
         reference.

3.33     Certificate of  Determination  for 8.75%  Cumulative  Preferred  Stock,
         Series P. Filed with Registrant's Quarterly Report on Form 10-Q for the
         quarterly  period  ended  June 30,  2000  and  incorporated  herein  by
         reference.

3.34     Certificate of Determination for 8.600% Cumulative Preferred Stock,
         Series, Q. Filed with Registrant's Form 8-A/A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 8.600% Cumulative Preferred Stock, Series Q and incorporated herein
         by reference.

3.35     Amendment to Certificate of Determination  for Equity Stock,  Series A.
         Filed with Registrant's Quarterly Report on Form 10-Q for the quarterly
         period ended June 30, 2001 and incorporated herein by reference.

3.36     Certificate of Determination for 8.000% Cumulative Preferred Stock,
         Series R. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 8.000% Cumulative Preferred Stock, Series R and incorporated herein
         by reference.

3.37     Certificate of Determination for 7.875% Cumulative Preferred Stock,
         Series S. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.875% Cumulative Preferred Stock, Series S and incorporated herein
         by reference.

3.38     Certificate of Determination for 7.625% Cumulative Preferred Stock,
         Series T. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.625% Cumulative Preferred Stock, Series T and incorporated herein
         by reference.

3.39     Certificate of Determination for 7.625% Cumulative Preferred Stock,
         Series U. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.625% Cumulative Preferred Stock, Series U and incorporated herein
         by reference.

3.40     Amendment to Certificate of Determination for 7.625% Cumulative
         Preferred Stock, Series T. Filed with Registrant's Quarterly Report on
         Form 10-Q for the quarterly period ended September 30, 2002 and
         incorporated herein by reference.

3.41     Certificate of Determination for 7.500% Cumulative Preferred Stock,
         Series V. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.500% Cumulative Preferred Stock, Series V and incorporated herein
         by reference.

3.42     Certificate of Determination for 6.500% Cumulative Preferred Stock,
         Series W. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 6.500% Cumulative Preferred Stock, Series W and incorporated herein
         by reference.

3.43     Certificate of Determination for 6.450% Cumulative Preferred Stock,
         Series X. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 6.450% Cumulative Preferred Stock, Series X and incorporated herein
         by reference.

3.44     Certificate of Determination for the 6.85% Cumulative  Preferred Stock,
         Series Y.  Filed  with the  Registrant's  Form  10-Q for the  quarterly
         period ended March 31, 2004 and incorporated herein by reference.

3.45     Certificate of Determination for 6.250% Cumulative Preferred Stock,
         Series Z. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 6.250% Cumulative Preferred Stock, Series Z and incorporated herein
         by reference.

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3.46     Certificate of Determination for 6.125% Cumulative Preferred Stock,
         Series A. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 6.125% Cumulative Preferred Stock, Series A and incorporated herein
         by reference.

3.47     Certificate of  Determination  for 6.40%  Cumulative  Preferred  Stock,
         Series NN. Filed with  Registrant's  Quarterly  Report on Form 10-Q for
         the quarterly  period ended March 31, 2004 and  incorporated  herein by
         reference.

3.48     Certificate of Determination for 7.125% Cumulative Preferred Stock,
         Series B. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.125% Cumulative Preferred Stock, Series B and incorporated herein
         by reference.

3.49     Certificate of Determination for 6.60% Cumulative Preferred Stock,
         Series C. Filed with Registrant's Form 8-A Registration Statement
         relating to the Depositary Shares Each Representing 1/1,000 of a Share
         of 6.60% Cumulative Preferred Stock, Series C and incorporated herein
         by reference.

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

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

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

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

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

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

3.56     Amendment  to Bylaws  adopted on May 6, 1999.  Filed with  Registrants'
         Form 10-Q for the quarterly period ended June 30, 1999 and incorporated
         herein by reference.

3.57     Amendment   to  Bylaws   adopted  on  November  7,  2002.   Filed  with
         Registrant's  Quarterly  Report on Form 10-Q for the  quarterly  period
         ended September 30, 2002 and incorporated herein by reference.

3.58     Amendment  to Bylaws  adopted on May 8, 2003.  Filed with  Registrant's
         Quarterly  Report on Form 10-Q for the quarterly period ended March 31,
         2003 and incorporated herein by reference.

3.59     Amendment to Bylaws adopted on August 5, 2003. Filed with  Registrant's
         Quarterly  Report on Form 10-Q for the quarterly  period ended June 30,
         2003 and incorporated herein by reference.

3.60     Amendment to Bylaws adopted on March 11, 2004. Filed with  Registrant's
         Annual  Report on Form 10-K for the year ended  December  31,  2003 and
         incorporated herein by reference.

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

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

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

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

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

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

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

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

10.9*    Registrant's   1996  Stock  Option  and  Incentive  Plan.   Filed  with
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         2000 and incorporated herein by reference.

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

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

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

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

10.14    Limited Partnership Agreement of PSAF Development Partners, L.P.
         between PSAF Development, Inc. and the Limited Partner dated as of
         April 10, 1997. Filed with Registrant's Form 10-Q for the quarterly
         period ended June 30, 1997 and incorporated herein by reference.

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

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

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

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

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

10.20    Amended and Restated Agreement of Limited  Partnership of Storage Trust
         Properties,  L.P., dated as of March 12, 1999. Filed with  Registrant's
         Form 10-Q for the quarterly period ended June 30, 1999 and incorporated
         herein by reference.

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

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

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

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

10.25    Deposit Agreement dated as of August 17, 1999 among Registrant,
         BankBoston, N.A. and the holders of the depositary receipts evidencing
         the Depositary Shares Each Representing 1/1,000 of a Share of 8.75%
         Cumulative Preferred Stock, Series M. Filed with Registrant's Form
         8-A/A Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 8.75% Cumulative Preferred Stock,
         Series M and incorporated herein by reference.

10.26    Limited Partnership Agreement of PSAC Development Partners, L.P. among
         PS Texas Holdings, Ltd., PS Pennsylvania Trust and PSAC Storage
         Investors, L.L.C. dated as November 15, 1999. Filed with Registrant's
         Current Report on Form 8-K dated November 15, 1999 and incorporated
         herein by reference.

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<PAGE>

10.27    Agreement  of  Limited  Liability  Company of PSAC  Storage  Investors,
         L.L.C.  dated as of November 15, 1999. Filed with Registrant's  Current
         Report on Form 8-K dated November 15, 1999 and  incorporated  herein by
         reference.

10.28    Deposit Agreement dated as of January 14, 2000 among Registrant,
         BankBoston, N.A. and the holders of the depositary receipts evidencing
         the Depositary Shares Each Representing 1/1,000 of a Share of Equity
         Stock, Series A. Filed with Registrant's Form 8-A/A Registration
         Statement relating to the Depositary Shares Each Representing 1/1,000
         of a Share of Equity Stock, Series A and incorporated herein by
         reference.

10.29    Amended  and  Restated   Agreement  of  Limited   Partnership   of  PSA
         Institutional  Partners,  L.P.  among PS Texas  Holdings,  Ltd. and the
         Limited  Partners dated as of March 29, 2000.  Filed with  Registrant's
         Annual  Report on Form 10-K for the year ended  December  31,  1999 and
         incorporated herein by reference.

10.30    Amended  and  Restated   Agreement  of  Limited   Partnership   of  PSA
         Institutional  Partners,  L.P.  among PS Texas  Holdings,  Ltd. and the
         Limited Partners dated as of August 11, 2000.  Filed with  Registrant's
         Quarterly  Report on Form 10-Q for the quarterly  period ended June 30,
         2000 and incorporated herein by reference.

10.31*   Registrant's 2000 Non-Executive/Non-Director Stock Option and Incentive
         Plan. Filed with Registrant's  Registration Statement No, 333-52400 and
         incorporated herein by reference.

10.32    Deposit Agreement dated as of January 19, 2001 among Registrant, Fleet
         National Bank and the holders of the depositary receipts evidencing the
         Depositary Shares Each Representing 1/1,000 of a Share of 8.600%
         Cumulative Preferred Stock, Series Q. Filed with Registrant's Form
         8-A/A Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 8.600% Cumulative Preferred Stock,
         Series Q and incorporated herein by reference.

10.33*   Registrant's 2001 Non-Executive/Non-Director Stock Option and Incentive
         Plan. Filed with Registrant's  Registration Statement No. 333-59218 and
         incorporated herein by reference.

10.34*   Registrant's   2001  Stock  Option  and  Incentive  Plan.   Filed  with
         Registrant's  Registration  Statement No.  333-59218  and  incorporated
         herein by reference.

10.35    Deposit Agreement dated as of September 28, 2001 among Registrant,
         Fleet National Bank and the holders of the depositary receipts
         evidencing the Depositary Shares Each Representing 1/1,000 of a Share
         of 8.000% Cumulative Preferred Stock, Series R. Filed with Registrant's
         Form 8-A Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 8.000% Cumulative Preferred Stock,
         Series R and incorporated herein by reference.

10.36    Deposit Agreement dated as of October 31, 2001 among Registrant, Fleet
         National Bank and the holder of the depositary receipts evidencing the
         Depositary Shares Each Representing 1/1,000 of a Share of 7.875%
         Cumulative Preferred Stock, Series S. Filed with Registrant's Form 8-A
         Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 7.875% Cumulative Preferred Stock,
         Series S and incorporated herein by reference.

10.37    Credit Agreement by and among Registrant, Wells Fargo Bank, National
         Association, as agent, and the financial institutions party thereto
         dated as of November 1, 2001. Filed with Registrant's Quarterly Report
         on Form 10-Q for the quarterly period ended September 30, 2001 and
         incorporated herein by reference.

10.38    Deposit Agreement dated as of January 18, 2002 among Registrant,
         Equiserve Trust Company N.A. and the holders of the depositary receipts
         evidencing the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.625% Cumulative Preferred Stock, Series T. Filed with Registrant's
         Form 8-A Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 7.625% Cumulative Preferred Stock,
         Series T and incorporated herein by reference.

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<PAGE>

10.39    Deposit Agreement dated as of February 19, 2002 among Registrant,
         Equiserve Trust Company N.A. and the holders of the depositary receipts
         evidencing the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.625% Cumulative Preferred Stock, Series U. Filed with Registrant's
         Form 8-A Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 7.625% Cumulative Preferred Stock,
         Series U and incorporated herein by reference.

10.40    Deposit Agreement dated as of September 30, 2002 among Registrant,
         Equiserve Trust Company N.A. and the holders of the depositary receipts
         evidencing the Depositary Shares Each Representing 1/1,000 of a Share
         of 7.500% Cumulative Preferred Stock, Series V. Filed with Registrant's
         Form 8-A Registration Statement relating to the Depositary Shares Each
         Representing 1/1,000 of a Share of 7.500% Cumulative Preferred Stock,
         Series V and incorporated herein by reference.

10.41**  Employment Agreement between Registrant and Harvey Lenkin dated as of
         August 5, 2003. Filed with Registrant's Quarterly Report on Form 10-Q
         for the quarterly period ended June 30, 2003 and incorporated herein by
         reference.

10.42    Deposit Agreement dated as of October 6, 2003 among Registrant,
         Equiserve Inc., Equiserve Trust Company N.A. and the holders of the
         depositary receipts evidencing the Depositary Shares Each Representing
         1/1,000 of a Share of 6.500% Cumulative Preferred Stock, Series W.
         Filed with Registrant's Form 8-A Registration Statement relating to the
         Depositary Shares Each Representing 1/1,000 of a Share of 6.500%
         Cumulative Preferred Stock, Series W and incorporated herein by
         reference.

10.43    Deposit Agreement dated as of November 13, 2003 among Registrant,
         Equiserve Inc., Equiserve Trust Company N.A. and the holders of the
         depositary receipts evidencing the Depositary Shares Each Representing
         1/1,000 of a Share of 6.450% Cumulative Preferred Stock, Series X.
         Filed with Registrant's Form 8-A Registration Statement relating to the
         Depositary Shares Each Representing 1/1,000 of a Share of 6.450%
         Cumulative Preferred Stock, Series X and incorporated herein by
         reference.

10.44    Deposit Agreement dated as of March 5, 2004 among Registrant, Equiserve
         Inc., Equiserve Trust Company N.A. and the holders of the depositary
         receipts evidencing the Depositary Shares Each Representing 1/1,000 of
         a Share of 6.250% Cumulative Preferred Stock, Series Z. Filed with
         Registrant's Form 8-A Registration Statement relating to the Depositary
         Shares Each Representing 1/1,000 of a Share of 6.250% Cumulative
         Preferred Stock, Series Z and incorporated herein by reference.

10.45    Limited Partnership Agreement of PSAF Acquisition Partners, L.P.
         between PS Texas Holdings, Ltd. and the Limited Partner dated as of
         December 18, 2003. Filed with Registrant's Annual Report on Form 10-K
         for the year ended December 31, 2003 and incorporated herein by
         reference.

10.46    Second Amendment to Amended and Restated Agreement of Limited
         Partnership of PSA Institutional Partners, L.P. among PS Texas
         Holdings, Ltd. and the Limited Partners dated as of March 22, 2004.
         Filed with Registrant's Quarterly Report on Form 10-Q for the quarterly
         period ended March 31, 2004 and incorporated herein by reference.

10.47    Second Amendment to Credit Agreement by and among Registrant, Wells
         Fargo Bank, National Association, as agent, and the financial
         institutions party thereto dated as of March 25, 2004. Filed with
         Registrant's Quarterly Report on Form 10-Q for the quarterly period
         ended March 31, 2004 and incorporated herein by reference.

10.48    Deposit Agreement dated as of March 31, 2004 among Registrant,
         Equiserve Inc., Equiserve Trust Company N.A. and the holders of the
         depositary receipts evidencing the Depositary Shares Each Representing
         1/1,000 of a Share of 6.125% Cumulative Preferred Stock, Series A.
         Filed with Registrant's Form 8-A Registration Statement relating to the
         Depositary Shares Each Representing 1/1,000 of a Share of 6.125%
         Cumulative Preferred Stock, Series A and incorporated herein by
         reference.

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<PAGE>

10.49    Deposit Agreement dated as of June 30, 2004 among Registrant, Equiserve
         Inc., Equiserve Trust Company N.A. and the holders of the depositary
         receipts evidencing the Depositary Shares Each Representing 1/1,000 of
         a Share of 7.125% Cumulative Preferred Stock, Series B. Filed with
         Registrant's Form 8-A Registration Statement relating to the Depositary
         Shares Each Representing 1/1,000 of a Share of 7.125% Cumulative
         Preferred Stock, Series B and incorporated herein by reference.

10.50    Deposit Agreement dated as of September 13, 2004 among Registrant,
         Equiserve Inc., Equiserve Trust Company N.A. and the holders of the
         depositary receipts evidencing the Depositary Shares Each Representing
         1/1,000 of a Share of 6.60% Cumulative Preferred Stock, Series C. Filed
         with Registrant's Form 8-A Registration Statement relating to the
         Depositary Shares Each Representing 1/1,000 of a Share of 6.60%
         Cumulative Preferred Stock, Series C and incorporated herein by
         reference.

10.51    Amended  and  Restated   Agreement  of  Limited   Partnership   of  PSA
         Institutional  Partners,  L.P.  among PS Texas  Holdings,  Ltd. and the
         Limited Partners dated as of October 12, 2004. Filed herewith.

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

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

31.1     Certification  pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002. Filed herewith.

31.2     Certification  pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002. Filed herewith.

31.3     Certification  pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002. Filed herewith.

32       Certification  pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
         2002. Filed herewith.

91.1     2001  Stock  Option  and  Incentive  Plan  Non-Qualified  Stock  Option
         Agreement. Filed herewith.

99.2     Restricted Stock Unit Agreement. Filed herewith.

99.3     2001 Stock Option and  Incentive  Plan Outside  Director,  Stock Option
         Agreement. Filed herewith.

         *        Compensatory benefit plan.

         **       Management contract.

(b)      Reports on Form 8-K

         The Company furnished a Current Report on from 8-K dated August 5, 2004
         (filed August 6, 2004), pursuant to Item 7 with its press release
         announcing its results for the quarter ended June 30, 2004.

         The Company filed a Current Report on Form 8-K, dated September 8, 2004
         (filed  September 9, 2004),  pursuant to Item 5, in connection with the
         Company's public offering in September 2004 of depositary shares,  each
         representing  1/1,000  of a share  of the  Company's  6.60%  Cumulative
         Preferred Stock, Series C.

                                       83

<PAGE>

                                   SIGNATURES

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

                                    DATED: November 9, 2004

                                    PUBLIC STORAGE, INC.

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

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